Sogou

Prospectus Summary

PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our ADSs, you should carefully read this entire prospectus and the registration statement of which this prospectus is a part, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Overview

Our mission is to make it easy to communicate and get information.

We are an innovator in search and a leader in China's Internet industry. Our Sogou Search is the second largest search engine by mobile queries in China and we are the fourth largest Internet company in China based on MAU in June 2017, according to iResearch. Our industry-leading Sogou Input Method, the robust ecosystem we have built and shared with Tencent and other strategic partners, and significant breakthroughs in AI uniquely position us to capture opportunities in China's search and Internet industry.

Sogou Search had a 16.9% market share in China based on mobile queries in June 2017, according to iResearch, with 483 million mobile MAU. We have grown significantly, with total search page views having grown by 30.1% and mobile search page views having grown by 78.9% on an annualized basis from June 2014 to June 2017. Powered by AI, Sogou Search offers innovative products and services. For example, our cross-language search service eliminates the Chinese-English language barrier, enabling users to discover English content on the Internet by querying in Chinese and reading content that we have translated into Chinese.

Chinese language input software is a must-have for users to type in Chinese. Sogou Input Method is the largest Chinese language input software by both mobile and PC MAUs in June 2017, according to iResearch, and is the first cloud-based Chinese language input software. Sogou Search continually captures Chinese expressions and phrases on the Internet, which enables Sogou Input Method to build a comprehensive and up-to-date vocabulary library. This allows us to improve the efficiency and accuracy of predictive text. In June 2017, Sogou Input Method had 283 million mobile DAU and 88 million PC DAU. It was the number two PC software in China by DAU and the number three mobile application in China by DAU in June 2017, according to iResearch. Sogou Input Method interfaces with virtually all applications that involve Chinese language input, generating massive and high-quality data that is critical to our big data capabilities. Sogou Input Method has the ability to anticipate users' search intentions in real-time and allows users to search directly with Sogou Search through its embedded search function, generating a significant portion of our organic search traffic.

We have built and shared a robust ecosystem with Tencent and other strategic partners. We deliver differentiated content to our users through services such as search access to the vast content from Tencent's Weixin Official Accounts. We have also broadened our user acquisition channels by collaborating with our strategic partners and third parties. Sogou Search is the default general search engine in Tencent's Mobile QQ Browser and qq.com. We are exploring potential opportunities to deepen collaboration with Tencent. In October 2017, Tencent began testing, on a trial basis and for purposes of assessment, the integration of Sogou Search into Weixin/WeChat, whereby its users can use Sogou Search as a general search function from within Weixin/WeChat to access information outside Weixin/WeChat. We intend to discuss commercial arrangements with Tencent after completion of product testing and optimization.

We are at the forefront of AI development with a clear roadmap. Focusing on natural interaction and knowledge computing, we have made significant breakthroughs in voice and image technologies, machine translation, and question answering, or Q&A, which have been successfully integrated into our products and services. In addition to the implementation of machine translation in cross-language search services, we provide our users with a more natural search experience through AI-based voice and image technologies. Q&A technology enables us to provide direct answers in response to user queries, instead of displaying a list of Web links. Our proven AI capabilities will facilitate our launch of more disruptive products and services, such as virtual personal assistants, or VPAs, to serve users anytime, anywhere.

We have recorded substantial revenue growth, with an increase from US$386.4 million in 2014 to US$591.8 million in 2015 and US$660.4 million in 2016 and an increase from US$322.9 million for the six months ended June 30, 2016 to US$373.2 million for the six months ended June 30, 2017. We generate revenues primarily from search and search-related advertising services, which represented 90.4% and 88.1%, respectively, of our total revenues in the year ended December 31, 2016 and the six months ended June 30, 2017.

Our Industry

China has a large and fast-growing online search market. According to iResearch, China's total online search industry has grown to RMB76.5 billion (US$11.5 billion) in 2016. Going forward, the industry is expected to continue its rapid growth to RMB204.3 billion (US$30.7 billion) in 2021 representing a CAGR of 21.7% from 2016 to 2021. The industry growth is supported by a massive but under-monetized user base. According to iResearch, the annual revenue per search user in China was RMB127.1 (US$19.1) in 2016, compared to US$152.8 in the U.S., according to IDC. The shift of advertising budgets from offline to online and growth in key verticals, such as education, e-commerce, online games, financial services, and healthcare, will continue to drive monetization of online search in China.

Online search is one of the most significant applications of AI. The core capabilities required to develop online search, including large-scale data processing, computing power, and advanced algorithms, are also stepping stones for the development of AI. Search engines are able to efficiently process a massive amount of continuously updated data, and leverage advanced algorithms to determine targeted responses to user queries. These capabilities are also required for the development of AI and, therefore, online search companies are best positioned to develop and commercialize new AI products and services.

AI will enable further search breakthroughs. For example, Q&A technology enables search engines to provide direct and targeted answers to user queries. Other AI technologies, such as voice recognition, will enable a more intuitive and natural search experience based on conversation. The predictive and interactive capabilities enabled by AI and big data will provide further monetization opportunities for search engines, such as personalized newsfeeds and credit analytics for Internet finance. AI is also a key enabler for smart hardware, which provides consumers with new gateways to the Internet and expands the use cases for search beyond PC and mobile devices to home, in-vehicle, and other environments.

The process of delivering online information and content to users, from gateways to interaction and information delivery, is constantly evolving. Online search and web directories have been the primary methods for delivering online information to users. Advances in AI and big data will support additional methods of information delivery, such as VPAs and newsfeeds, that can provide targeted data and content to users.

Our Competitive Strengths

We believe the following competitive strengths have enabled us to be an innovator in search and a leader in China's Internet industry:

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leadership in China's search and Internet industry;


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distinctive online search offerings;


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advanced big data capabilities;


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proven cutting-edge AI technologies;


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robust growth with track record of profitability;


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strong strategic collaborations with shareholders; and


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visionary management team and technology-driven culture.

Our Strategies

We intend to grow our business and improve our results of operations by implementing the following strategies:

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continue to expand search market share;


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develop the next generation of human-machine interfaces;


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unlock the value of big data;


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continue to pursue innovations in AI technologies;


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further enhance monetization capabilities; and


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pursue selective strategic investments and alliances.

Our Challenges

Notwithstanding our competitive strengths, we expect to face various challenges, including those presented by:

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intense market competition;


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our need to retain and expand our user and advertiser bases;


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importance of innovation and introduction of new products and services;


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maintenance of collaborative relationships with shareholders and third parties;


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sustaining our historical growth;


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pending or future legal proceedings having an adverse impact on our financial conditions and results of operations;


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our search results containing information that is inaccurate or harmful to our users or may be regarded as inappropriate or illegal; and


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applicable regulations that affect our ability to operate our current or future businesses.

Please see "Risk Factors" and other information included in this prospectus for a detailed discussion of these challenges and other risks and uncertainties that we face.

Our History and Corporate Structure

Sogou Inc. was incorporated in the Cayman Islands in December 2005 by Sohu.

Prior to February 2006, our search and search-related businesses were operated by various entities owned or controlled by Sohu. In February 2006, Sohu undertook a reorganization of its search and search-related businesses, whereby most of the search and search-related businesses were transferred to us.

Until October 2010, we were indirectly wholly owned by Sohu. In October 2010, Sohu undertook another reorganization in preparation for our issuance of Pre-IPO Series A Preferred Shares in a financing transaction, and transferred other businesses and employees related to the search and search-related businesses to us. We then issued and sold Pre-IPO Series A Preferred Shares to Alibaba Investment Limited, a subsidiary of Alibaba Group Holding Limited, or Alibaba; China Web Search (HK) Limited, or China Web; and Photon Group Limited, or Photon, the investment vehicle of Sohu's chairman and chief executive officer Dr. Charles Zhang. In June 2012, Sohu repurchased the Pre-IPO Series A Preferred Shares held by Alibaba.

In September 2013, Tencent invested in us and transferred its Soso search-related businesses and certain other assets to us, in exchange for which we issued voting Pre-IPO Series B Preferred Shares and non-voting Pre-IPO Class B Ordinary Shares to Tencent. In connection with Tencent's investment in us, Sohu, Tencent, and we entered into a shareholders' agreement which will terminate upon the completion of this offering. Sohu, Photon, Xiaochuan Wang, and four other members of our management, and we also entered into a voting agreement in which Photon, Xiaochuan Wang, and the four other members of our management agreed to vote their Pre-IPO Series A Preferred Shares and Pre-IPO Class A Ordinary Shares to elect Sohu's designees to our Board of Directors. This voting agreement will remain in effect following the completion of this offering as to the Class A Ordinary Shares that will be issued to the parties upon redesignation of their Pre-IPO Series A Preferred Shares and Pre-IPO Class A Ordinary Shares.

Also in connection with Tencent's investment in us, we entered into (i) a repurchase option agreement with Sohu, exercisable commencing in March 2014, granting us the right to repurchase the Pre-IPO Series A Preferred Shares held by Sohu; (ii) a repurchase option agreement with Photon, also exercisable commencing in March 2014, granting us the right to repurchase a portion of the Series A Preferred Shares held by Photon; and (iii) a repurchase/put option agreement with China Web, granting us the right to repurchase at any time from March 2014 to the end of July 2014, and granting China Web the right to put to us at any time prior to the end of July 2014, the Series A Preferred Shares held by China Web. Also in September 2013, the Company paid a special dividend to the three holders of Series A Preferred Shares.

In December 2013, Tencent acquired an equity interest in our VIE, Beijing Sogou Information Service Co., Ltd., or Sogou Information, and Sohu also acquired an equity interest in Sogou Information.

In March 2014, we repurchased the Pre-IPO Series A Preferred Shares held by China Web pursuant to the repurchase/put option agreement we had entered into in September 2013.

In September 2015, we repurchased all of the Pre-IPO Series A Preferred Shares held by Sohu and a portion of the Pre-IPO Series A Preferred Shares held by Photon, pursuant to the repurchase option agreements we had entered into in September 2013.

In August 2017, in preparation for this offering, Sohu, Tencent, and we entered into a voting agreement that provides for the redesignation of all of our authorized and outstanding equity shares outstanding immediately prior to the completion of this offering into either Class A Ordinary Shares or Class B Ordinary Shares effective upon the completion of this offering. See "—Our Relationships with Sohu and Tencent," "Our Relationships with Sohu and Tencent," and "Related Party Transactions—Voting Agreement Between Sohu and Tencent."

The following diagram illustrates our corporate structure as of the date of this prospectus:

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The shareholders of Sogou Information are Beijing Century High-Tech Investment Co., Ltd., a VIE of Sohu, Shenzhen Tencent Computer System Co., Ltd., a Tencent group entity, and Xiaochuan Wang, our Chief Executive Officer, holding a 45%, 45% and 10% equity interest, respectively, in this entity, subject to VIE agreements with Sogou Technology.

Our Relationships with Sohu and Tencent

Our business benefits from our collaboration with Sohu and Tencent, our two major shareholders.

Sohu is a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs and mobile devices in China, and has been listed on Nasdaq since 2000. Sohu has been since our incorporation in 2005, and will continue to be after the completion of this offering, our controlling shareholder. We benefit from Sohu's strong brand recognition in China and their experience in strong corporate governance and internal controls, and we intend to continue to leverage our relationships with Sohu in the future.

Tencent is a leading provider of Internet value added services in China. In September 2013, Tencent became our largest shareholder and entered into a strategic collaboration with us, which provides us access to traffic and content generated from users of products and services provided by Tencent. Under our current business collaboration arrangements with Tencent, Sogou Search is the default general search engine on various Tencent products that provide general search offerings, such as Mobile QQ Browser, qq.com, and the PC Web directories daohang.qq.com and hao.qq.com. Approximately 38.2% of our total search traffic, measured by page views, was contributed by Tencent's Internet properties in June 2017. Tencent has also agreed that for its other products that offer general search functions, Sogou Search will be offered as the default general search engine to users of such products until September 2018 and, provided it does not harm the user experience, Tencent and we intend to extend such agreement regarding other products with general search functions until 2023. Since 2014, Tencent has made the content of Tencent's Weixin Official Accounts accessible to our users through our search services. We believe that our business collaboration with Tencent has reinforced us as a leader, particularly on the mobile side, in the large and fast-growing online search industry in China. For more detailed descriptions of our business collaboration with Tencent, see "Related Party Transactions—Business Collaboration with Tencent."

In anticipation of this offering, Sohu and Tencent entered into a voting agreement, or the Voting Agreement, with us. Under the Voting Agreement, Sohu and Tencent have agreed that upon the completion of this offering, subject to certain exceptions, (i) within three years following the completion of this offering, Sohu will vote all Class B Ordinary Shares and any Class A Ordinary Shares held by it and Tencent will vote 45,578,896 of its Class B Ordinary Shares to elect a Board consisting of seven directors, four of whom will be appointed by Sohu, two of whom will be appointed by Tencent, and the seventh of whom will be our chief executive officer, and (ii) after three years following the completion of this offering, Sohu will be entitled to change the size and composition of our Board of Directors, subject to Tencent's right to appoint at least one director. The effect of these provisions will be to give Sohu the power to appoint a majority of our Board of Directors, and to give Tencent the power to appoint two directors within three years following the completion of this offering and at least one director after three years of the completion of this offering. The Voting Agreement also provides that for so long as Sohu and Tencent together hold more than 50% of the total voting power of our Class A Ordinary Shares and Class B Ordinary Shares, Sohu or Tencent may remove and replace any director appointed by it. See "Related Party Transactions—Voting Agreement between Sohu and Tencent."

Upon the completion of this offering, Sohu, through its ownership of Class B Ordinary Shares and the Voting Agreement with Tencent, will have the ability to control us. As a result, we will be a "controlled company" under the New York Stock Exchange Listed Company Manual. We will rely on certain exemptions that are available to controlled companies from NYSE corporate governance requirements, including that we have a majority of independent directors on our board; that we have a nominating/corporate governance committee and a compensation committee that are composed entirely of independent directors with written charters addressing the committees' purposes and responsibilities; and for annual performance evaluations of the nominating/corporate governance committee and the compensation committee. We do not intend to meet these requirements voluntarily.

Our Corporate Information

Our principal executive offices are located at Level 15, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian District, Beijing 100084, People's Republic of China. Our telephone number at this address is +86 10-5689-9999. Our registered office in the Cayman Islands is located at the offices of Vistra (Cayman) Limited at P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands.

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The Offering

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Summary Consolidated Financial Data

The following summary consolidated statements of comprehensive (loss)/income data and summary consolidated statements of cash flow data for the three years ended December 31, 2016 and the summary consolidated balance sheet data as of December 31, 2014, 2015, and 2016 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of comprehensive income data presented below for the six months ended June 30, 2016 and 2017, the summary consolidated statements of cash flow data presented below for the six months ended June 30, 2017, and the summary consolidated balance sheet data as of June 30, 2017 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. You should not view our historical results as an indicator of our future performance.

Summary Consolidated Statements of Comprehensive (Loss)/Income Data

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Summary Consolidated Balance Sheet Data

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Presented on a pro forma basis to give effect to the redesignation on a one-for-one basis upon the completion of this offering of the following:

(i)

all Pre-IPO Series A Preferred Shares into Class A Ordinary Shares; and

(ii)

all Pre-IPO Series B Preferred Shares, all of which were held by Tencent, into Class B Ordinary Shares.

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Presented on a pro forma as adjusted basis to give effect to (i) the redesignation described above and (ii) the issuance and sale by us in this offering of ADSs representing Class A Ordinary Shares, assuming a public offering price of US$ per ADS, the mid-point of the estimated range of the public offering price, after deducting underwriting discounts and commissions and estimated aggregate offering expenses payable by us.

Summary Consolidated Statements of Cash Flow Data

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