Prospectus Summary
This summary highlights selected information from this prospectus and does not contain all of the information that may be important to you. You should read the entire prospectus carefully in evaluating an investment in our shares.
As used in this prospectus, references to "us", "we", "our", "our company", "Sohu.com" and "Sohu" are to Sohu.com Inc., a company organized under the laws of the State of Delaware, and these references should be interpreted accordingly. Except where the context requires otherwise, these references include all of our subsidiaries. Unless otherwise specified, references to "China" or "PRC" refer to the People's Republic of China and do not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan.
Unless otherwise indicated, all references in this prospectus to the number of outstanding shares of our common stock:
. give effect to a five-for-one stock split which became effective on October 15, 1999; and . do not include the number of shares that we will issue if the underwriters exercise their over-allotment option.
In addition, the information in this prospectus assumes that the initial public offering price will be per share, the mid-point of the range disclosed on the cover of this prospectus. As used in this prospectus, "U.S. Dollar", "dollar" or "$" means the lawful currency of the United States of America, and "Renminbi" or "RMB" means the lawful currency of the PRC.
Sohu.com Inc.
Our Business
We are a leading Internet portal in China. During January 2000, we averaged in excess of six million page views per day. In addition, as of January 31, 2000, we had over 880,000 registered e-mail users. Our portal consists of the following:
. sophisticated Chinese language Web navigational and search capabilities;
. twelve main content channels and seven special features;
. Web-based communications services; and . a platform for e-commerce services.
We are a pioneer of the Internet industry in China, having introduced the first Chinese language online directory and search engine. We have exclusively targeted the PRC Internet market since our inception. All of our products and services are designed to meet the specific interests and needs of Internet users in China. As of December 31, 1999, our online directory contained over 250,000 Chinese language Web listings. We offer Internet users a proprietary Chinese language search and a co-branded English language search. Furthermore, we have contractual relationships with over 70 Chinese language media and information providers. Each of our main content channels contains multi-level sub-channels that cover a comprehensive range of topics, including news, business, entertainment, sports and career. We also promote user affinity to Sohu by providing free Chinese language e-mail, online bulletin boards, chat rooms and instant messaging. We began offering limited e-commerce services on a trial basis in 1999.
As a leading Internet portal in China, we are well positioned to capitalize on the emergence of the Web as a new advertising medium and commerce platform in China. We believe that by providing a well tuned and highly relevant navigational context and comprehensive range of China-specific content, we provide advertisers and merchants with targeted access to a large audience with highly desirable demographic profiles.
Our Market Opportunity Internet use in China has grown rapidly in recent years and is expected to significantly outpace growth in worldwide Internet use over the next several years. According to International Data Corporation, or IDC, between January 1, 1999 and December 31, 1999, the number of PRC Internet users increased from approximately 2.4 million to 3.8 million. In addition, IDC projects that the number of Internet users in China will grow to approximately 25.2 million in 2003.
As Internet use becomes more pervasive in China, and as the PRC online population continues to develop and expand, the opportunities for online advertising and commerce will also expand.
Zenith Media estimates that advertising expenditures for television, newspapers, magazines and other traditional media in China totaled over $4.1 billion in 1999. In addition, Forrester Research estimates that the aggregate online advertising market in China in 1999 was only $8.0 million. As the number of Internet users increases, we believe that online advertising will capture an increasing percentage of the overall PRC advertising market. Zenith Media has estimated that in 2002 China's overall advertising market will be worth $6.1 billion, while Forrester Research has estimated that China's online advertising market will be worth $100 million in 2002 and $220 million in 2003. Similarly, the volume of e-commerce transactions in China is expected to increase significantly as the online population expands. According to IDC, total e- commerce revenue in China is expected to grow from approximately $43.0 million in 1999 to approximately $11.7 billion in 2004.
Our Strategy
Our objective is to strengthen our position as a leading Internet portal in China. In order to accomplish this objective, we plan to:
. maintain and extend our brand recognition;
. increase the number of visitors to our portal and the duration of each visit;
. increase online advertising revenues and develop an e-commerce business; and . acquire complementary assets, technologies and businesses.
Recent Developments
On January 29, 2000, we sold a total of 518,459 shares of our Series D preferred stock to an affiliate of Pacific Century Cyberworks Limited, an affiliate of Legend Holdings Limited and Hikari Tsushin, Inc. for an aggregate of approximately $20.0 million. On February 2, 2000, we sold an additional 259,229 shares of Series D preferred stock to an affiliate of Pacific Century Cyberworks Limited for approximately $10.0 million. All of the Series D preferred stock will, under the terms of the preferred stock, be mandatorily converted into an equal number of shares of common stock upon the consummation of this offering.
Our History
We were incorporated in Delaware in August 1996 as Internet Technologies China Incorporated, and launched our original Web site, itc.com.cn, in January 1997. During 1997, we developed the Sohu online directory and search engine and related technology infrastructure, and also focused on recruiting personnel, raising capital and aggregating content to attract and retain users. In February 1998, we re-launched our Web site under sohu.com. In September 1999, we re-named our company Sohu.com Inc. Substantially all of our operations are conducted through Sohu ITC Information Technology (Beijing) Co., Ltd., or Beijing Sohu, our wholly owned PRC subsidiary.
Our principal executive offices are located at 7 Jianguomen Nei Avenue, Suite 519, Tower 2, Bright China Chang An Building, Beijing 100005, People's Republic of China and our telephone number is 86-10-6510-2160. In addition, we maintain offices in Shanghai and Guangzhou. Our Internet address is www.sohu.com. The information on our Web site is not a part of this prospectus.
The Offering
Common stock offered...... shares.
Over-allotment option..... Up to shares to the underwriters in this offering. Unless we state otherwise, the information in this prospectus does not take into account the possible sale of these additional shares.
Common stock to be outstanding after this offering................. shares or shares if the underwriters exercise their over-allotment option in full. Excluded are 527,647 shares of common stock reserved for issuance upon exercise of outstanding options and 99,143 shares of common stock reserved for issuance upon exercise of outstanding warrants.
Use of proceeds........... We intend to use approximately $17.0 million of the net proceeds to fund capital expenditures, consisting primarily of additions to our networking and computer infrastructure. The remainder of the net proceeds will be used for general corporate purposes, including working capital, expansion of our sales and marketing activities and expansion of our work force. We may also use a portion of the net proceeds for possible acquisitions of or investments in businesses, products and technologies that are complementary to our business, although we do not currently have any pending or proposed acquisitions.
Proposed Nasdaq Symbol.... SOHU.
Summary Consolidated Financial Data The following summary consolidated financial data have been derived from our audited consolidated financial statements for the three-year period ended December 31, 1999 and from our unaudited consolidated pro forma balance sheet as of December 31, 1999, all of which are included elsewhere in this prospectus. The information below should be read in conjunction with "Selected Consolidated Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", our audited consolidated financial statements and the related notes and our unaudited consolidated pro forma balance sheet as of December 31, 1999, all of which are included in this prospectus. Our consolidated financial statements are presented in accordance with the United States generally accepted accounting principles. Basic and diluted pro forma net loss per share in 1999 is computed using the weighted average number of shares of common stock outstanding, including the pro forma effects of the mandatory conversion of the Series A, B, B-1 and C preferred stock into common stock upon the consummation of this offering.
Year ended December 31, 1997 1998 1999 (in thousands, except for per share and share data)
Statement of Operations Data: Revenues................................... $ 78 $ 472 $ 1,617 Total costs and expenses................... (238) (1,082) (5,077) Operating loss............................. (160) (610) (3,460) Net loss................................... (160) (615) (3,449) Net loss attributable to common stockholders.............................. (160) (859) (4,366) Basic and diluted net loss per share attributable to common stockholders....... $ (0.05) $ (0.24) $ (1.22) Shares used in computing basic and diluted net loss per share........................ 3,500,000 3,564,000 3,588,000 Basic and diluted pro forma net loss per share attributable to common stockholders.................... $ (0.41) Shares used in computing basic and diluted pro forma net loss per share ............. 8,314,000
The pro forma balance sheet data as of December 31, 1999 give effect to the sale of 518,459 shares of Series D preferred stock for $38.576 per share on January 29, 2000 and the sale of 259,229 shares of Series D preferred stock for $38.576 per share on February 2, 2000. The pro forma as adjusted balance sheet data as of December 31, 1999 give effect to:
. the mandatory conversion of all outstanding Series A, B, B-1, C and D preferred stock into common stock upon the consummation of this offering; and
. the sale of shares of common stock offered at an assumed initial
public offering price of $ per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
As of December 31, 1999 Pro forma Actual Pro forma as adjusted (in thousands)
Balance Sheet Data: Cash and cash equivalents....................... $3,924 $33,924 $ Working capital................................. 2,577 32,557 Total assets.................................... 7,076 37,076 Total liabilities............................... 1,911 1,911 1,911 Mandatorily redeemable convertible preferred stock.......................................... 10,207 40,207 -- Total shareholders' equity (deficit)............ (5,042) (5,042)