Form 20-F
Table of Contents
0001734107falseOrdinary sharestrueFYFor details see Note 2 - Summary of Significant Accounting Policies - Accounts Receivable, Net - Allowance of credit losses.Includes the financial results of the discontinued operations from January 1, 2021 to September 23, 2021.Total depreciation and amortization expenses of Sohu and Changyou were $26.4 million and $13.5 million, respectively, for the year ended December 31, 2020.Total depreciation and amortization expenses of Sohu and Changyou were $19.8 million and $11.5 million, respectively, for the year ended December 31, 2022.Total depreciation and amortization expenses of Sohu and Changyou were $23.4 million and $12.6 million, respectively, for the year ended December 31, 2021.“SBC” stands for share-based compensation expense.Expenses generated from marketing services between the Sohu Group and Sogou, and leasing expenses generated from a building that Sohu leased to Sogou were not eliminated because those expenses continued after the disposal of the discontinued operations.In the fourth quarter of 2022, the Sohu Group recognized an impairment loss of $12.0 million for an equity investment in a third-party online game developer.Total additions to fixed assets of Sohu and Changyou were $4.6 million and $1.0 million, respectively, for the year ended December 31, 2022.The elimination for segment assets mainly consists of elimination of intra-Group loans between Sohu and Changyou, and elimination of long-term investments in subsidiaries and consolidated VIEs.Total additions to fixed assets of Sohu and Changyou were $7.1 million and $1.4 million, respectively, for the year ended December 31, 2021.In August 2019, Changyou ceased operating the cinema advertising business and petitioned for the bankruptcy of Shanghai Jingmao Culture Communication Co., Ltd. (“Shanghai Jingmao”). As of December 31, 2022, legal proceedings involving the bankruptcy were still in progress.The change in the regular 25% rate of income tax to preferential income tax rates that Changyou’s subsidiaries and VIEs were entitled to as KNSEs or Software Enterprises for 2020, 2021 and 2022 was included in the “Effect of tax holidays applicable to subsidiaries and consolidated VIEs” in the above table.The change for 2020 was mainly due to additional income withholding tax of $88 million that was recognized in the second quarter of 2020 due to a revised policy with respect to Changyou’s Chinese mainland subsidiaries regarding their distribution of cash dividends.Under Chinese mainland regulations issued in September 2022 that were applicable from October 1, 2022 to December 31, 2022, additional research and development expenses were eligible for deduction from taxable income.The aggregated intrinsic value in the preceding table represents the difference between Sohu’s closing ADS price of $13.71 on December 31, 2022 and the nominal exercise price of the options.The changes in the effective tax rate for the period ended September 23, 2021 resulted from the lower income from discontinued operations before income tax expense.The Company adopted ASU 2016-13 using the modified retrospective transition approach. The adjustments arising from the new CECL model are recognized in the opening Consolidated Balance Sheet on January 1, 2020.Sogou leases from Sohu, on an arms-length basis, office space at Sohu.com Internet Plaza under a lease that expires on December 31, 2022. The cash receipts from this lease within operating activities for 2022, 2021 and 2020 were $9.1 million, $12.3 million and $12.1 million, respectively.In 2021, Changyou received $9.4 million from the bankruptcy proceedings, as a creditor of Shanghai Jingmao, during the process of the liquidation of Shanghai Jingmao. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:
001-38511
 
 
SOHU.COM LIMITED
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Level 18, Sohu.com Media Plaza
Block 3, No. 2 Kexueyuan South Road, Haidian District
Beijing 100190
People’s Republic of China
(Address of principal executive offices)
Joanna Lv
Chief Financial Officer
Level 18, Sohu.com Media Plaza
Block 3, No. 2 Kexueyuan South Road, Haidian District
Beijing 100190
Telephone: (011)
8610-
6272
6666
Email:
IR@sohu-inc.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
(Title of each class)
 
(Trading Symbol(s))
 
(Name of each exchange on which registered)
American Depositary Shares, each representing one ordinary share, par value US$0.001 per share
 
SOHU
 
The Nasdaq Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 33,737,336 ordinary shares, par value $0.001 per share, as of December 31, 2022.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer   ☐
  
Accelerated filer   ☒
  
Non-accelerated filer
  ☐
  
Emerging growth company   
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).  ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
 
U.S. GAAP   ☒
  
International Financial Reporting Standards as issued
by the International Accounting Standards Board   ☐
  
Other   ☐                    
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes      No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
 
 
 


Table of Contents

TABLE OF CONTENTS

 

INTRODUCTION

    1  

FORWARD-LOOKING INFORMATION

    2  

PART I

 

Item 1.

  Identity of Directors, Senior Management and Advisers     3  

Item 2.

  Offer Statistics and Expected Timetable     3  

Item 3.

  Key Information     3  

Item 4.

  Information on the Company     63  

Item 4A.

  Unresolved Staff Comments     105  

Item 5.

  Operating and Financial Review and Prospects     105  

Item 6.

  Directors, Senior Management and Employees     120  

Item 7.

  Major Shareholders and Related Party Transactions     127  

Item 8.

  Financial Information     132  

Item 9.

  The Offer and Listing     132  

Item 10.

  Additional Information     132  

Item 11.

  Quantitative and Qualitative Disclosures About Market Risk     143  

Item 12.

  Description of Securities Other than Equity Securities     144  

PART II

 

Item 13.

  Defaults, Dividend Arrearages and Delinquencies     145  

Item 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds     145  

Item 15.

  Controls and Procedures     146  

Item 16A.

  Audit Committee Financial Expert     146  

Item 16B.

  Code of Ethics     146  

Item 16C.

  Principal Accountant Fees and Services     146  

Item 16D.

  Exemptions from the Listing Standards for Audit Committees     147  

Item 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers     147  

Item 16F.

  Change in Registrant’s Certifying Accountant     148  

Item 16G.

  Corporate Governance     148  

Item 16H.

  Mine Safety Disclosure     148  

Item 16I.

  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections     148  

Item 16J.

  Insider Trading Policies     148  

PART III

 

Item 17.

  Financial Statements     148  

Item 18.

  Financial Statements     149  

Item 19.

  Exhibits     150  

SIGNATURES

    154  


Table of Contents

Introduction

In this annual report, except where the context otherwise requires and for purposes of this annual report only:

 

   

“we,” “us,” “our,” “our company,” “our Group,” the “Sohu Group,” the “Group,” and “Sohu” refer to Sohu.com Limited (or our predecessor Sohu.com Inc., as applicable) and, unless the context requires otherwise, include its subsidiaries and variable interest entities (“VIEs”) that it consolidates. For a list of the principal VIEs we consolidate, see “Information on the Company - Organizational Structure” in Item 4 of this annual report. As described elsewhere in this annual report, we do not own the VIEs, and the results of the VIEs’ operations only accrue to us through contractual arrangements between the VIEs, and the VIEs’ nominee shareholders, and certain of our subsidiaries. Accordingly, in appropriate contexts we will describe the VIEs’ activities separately from those of our direct and indirect owned subsidiaries and our use of the terms “we,” “us,” and “our” may not include the VIEs in those contexts. Sohu.com Inc., a Delaware corporation, was dissolved on May 31, 2018 and Sohu.com Limited, which before then was a direct wholly-owned subsidiary of Sohu.com Inc., replaced Sohu.com Inc. as the top-tier, publicly-traded holding company of the Sohu Group. See “Information on the Company-History and Development of the Company” in Item 4 of this annual report.

 

   

“ADSs” refers to our American depositary shares, each of which represents one ordinary share, par value $0.001 per share;

 

   

“Cayman Islands Companies Act” refers to the Companies Act (2023 Revision) (as amended or revised from time to time) of the Cayman Islands;

 

   

“Changyou” refers to Changyou.com Limited, a Cayman Islands exempted company, and unless the context requires otherwise, includes its subsidiaries and the consolidated VIEs, but excludes Fox Information Technology (Tianjin) Limited (“Video Tianjin”) and its subsidiaries;

 

   

“China” or the “PRC” refers to the People’s Republic of China; and “Chinese mainland” refers to the People’s Republic of China excluding Hong Kong, Macau, and Taiwan;

 

   

“HNTE” refers to high and new technology enterprises;

 

   

“IPO” refers to an initial public offering;

 

   

“KNSE” refers to key national software enterprises;

 

   

“Legacy TLBB Mobile” refers to a mobile game that Changyou developed based on the title and characters of Tian Long Ba Bu, which is operated by Tencent under license from Changyou and was launched in May 2017;

 

   

“Memorandum and Articles of Association” refers to our Amended and Restated Memorandum of Association and our Amended and Restated Articles of Association;

 

   

“MMORPGs” refers to massively multiplayer online role-playing games;

 

   

“Offshore” refers to nations and territories outside of the Chinese mainland, and for this purpose includes Hong Kong, Macau, and Taiwan;

 

   

“PC games” refers to interactive online games that may be accessed and played simultaneously by hundreds of thousands of game players through personal computers with local game client-end access software installation requirements. In previous annual reports, we have sometimes used the terms “MMOGs” and “MMORPGs” when referring to these client-end installed games played through personal computers;

 

   

“RMB” refers to the Renminbi, which is the legal currency of the Chinese mainland;

 

   

“Sogou” refers to Sogou Inc., a Cayman Islands exempted company, and unless the context requires otherwise, includes its subsidiaries and the VIEs it consolidates;

 

   

“Tencent” refers to Tencent Holdings Limited and its subsidiaries under International Financial Reporting Standards;

 

   

“Tian Long Ba Bu,” refers to the popular novel of that name by the famous Chinese writer Louis Cha;

 

   

“TLBB” or “TLBB PC” refers to the PC game developed based on the title and characters of Tian Long Ba Bu;

 

1


Table of Contents
   

“TLBB 3D” refers to a mobile game that was developed based on the title and characters of Tian Long Ba Bu;

 

   

“TLBB Honor” refers to another mobile game that was developed based on the title and characters of Tian Long Ba Bu, which adopts an innovative portrait interface;

 

   

“U.S. GAAP” refers to generally accepted accounting principles in the United States;

 

   

“U.S. TCJA” refers to the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017; and

 

   

“VIE” refers to an entity that is a variable interest entity under U.S. GAAP, including a subsidiary of an entity that is a variable interest entity under U.S. GAAP.

This annual report on Form 20-F includes our audited consolidated statements of comprehensive income/(loss) for the years ended December 31, 2020, 2021, and 2022 and audited consolidated balance sheets as of December 31, 2021 and 2022.

Our predecessor Sohu.com Inc. completed an IPO of shares of its common stock on Nasdaq on July 17, 2000. Following the dissolution of Sohu.com Inc. on May 31, 2018, our ADSs began trading on Nasdaq in place of the shares of common stock of Sohu.com Inc. under the same “SOHU” symbol under which Sohu.com Inc.’s shares had previously traded.

Changyou completed its IPO on Nasdaq in April 2009, trading under the symbol “CYOU.” On April 17, 2020, we acquired all outstanding shares of Changyou that we did not already beneficially own pursuant to the merger (the “Changyou Merger”) of an indirect newly-formed wholly-owned subsidiary (“Changyou Merger Co.”) with and into Changyou, with Changyou being the company surviving the Changyou Merger, and resulting in Changyou being delisted from Nasdaq and continuing as a privately-held company wholly-owned directly and indirectly by us.

Sogou completed its IPO on the New York Stock Exchange (the “NYSE”) in November 2017, trading under the symbol “SOGO.” On September 23, 2021, we completed the transactions contemplated by a Share Purchase Agreement, dated September 29, 2020 and amended on December 1, 2020 and further amended on July 19, 2021, among us, our indirect wholly-owned subsidiary Sohu.com (Search) Limited (“Sohu Search”), and TitanSupernova Limited (“Tencent Merger Sub”), an indirect wholly-owned subsidiary of Tencent (as so amended, the “Tencent/Sohu Sogou Share Purchase Agreement”), in which Sohu Search sold all of the Class A ordinary shares of Sogou and Class B ordinary shares of Sogou owned by Sohu Search to Tencent Merger Sub at a purchase price of $9.00 per share (the “Tencent/Sohu Sogou Share Purchase”). We received gross consideration of approximately $1.18 billion in cash from the Tencent/Sohu Sogou Share Purchase. As a result of the completion of the Tencent/Sohu Sogou Share Purchase, we no longer have any beneficial ownership interest in Sogou. See “Item 4. Information on the Company - History and Development of the Company” for a more detailed description of the transactions contemplated by the Tencent/Sohu Sogou Share Purchase Agreement.

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains “forward looking statements.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terms such as “may,” “will,” “expects,” “anticipates,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” and similar expressions. The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. We undertake no obligation, beyond any that is required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even though our situation will change in the future.

These forward-looking statements include, but are not limited to, the following:

 

   

our ability to maintain and strengthen our position as a leading Chinese online media, video, and game business group in the Chinese mainland;

 

   

our expected development, launch and market acceptance of our products and services;

 

   

our various initiatives to implement our business strategies to expand our business;

 

   

our future business development, results of operations and financial condition;

 

   

the expected growth of and change in the online media, video, and game industries in the Chinese mainland;

 

   

regulatory policies in the Chinese mainland relating to the Internet and Internet content providers, including online media, video, and game developers and operators; and

 

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the effect that Chinese mainland laws and regulations; regulatory policies in the Chinese mainland; and the views of courts, arbitral tribunals, and other regulatory authorities in the Chinese mainland may have on our ability to rely on contractual rights to effect control and management of the VIEs that are consolidated with us and our ability to consolidate such VIEs’ results of operations, assets, and liabilities in our consolidated financial statements and/or to transfer the revenues of such VIEs to our corresponding Chinese mainland subsidiaries.

Whether actual results will conform with our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. Some of the assumptions, future results, and levels of performance expressed or implied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results.

We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with all other parts of this annual report, including the risk factors set forth in Item 3. See “Key Information-Risk Factors.”

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

 

ITEM 3.

KEY INFORMATION

Financial Information Related to VIEs and Sohu.com Limited

We do not own the VIEs that we consolidate in our financial statements. Chinese mainland law currently restricts foreign ownership of value-added telecommunication services, Internet publishing, online news information services, online audiovisual transmission, online games, and certain other business activities in the Chinese mainland. To comply with Chinese mainland law, we conduct a significant part of our value-added telecommunications, online game, and other business activities through contractual arrangements between our principal Chinese mainland subsidiaries and the corresponding VIEs and their respective shareholders. See “Information on the Company - Organizational Structure” in Item 4 of this annual report for a description of the ownership information of the principal VIEs through which we conduct a significant portion of our operations. See Item 7 “Major Shareholders and Related Party Transactions – Contractual Arrangements with VIEs and their Shareholders” of this annual report for a more detailed discussion of the contractual arrangements with the VIEs. For a discussion of risks related to these contractual arrangements, please see “Item 3. Key Information - Risk Factors - Risks Related to Our Corporate Structure- We depend upon contractual arrangements with the VIEs and/or their shareholders for the success of our business, these contractual arrangements, which provide the basis for us to consolidate such VIEs under U.S. GAAP (ASC 810), may not be as effective in providing us with a controlling financial interest (as defined under U.S. GAAP (ASC 810)) as would ownership of these businesses, and the contracts may be difficult to enforce” and “- A failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them could have an adverse effect on our business and financial condition.”

 

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The table below presents our condensed consolidating schedule of financial position for our top-tier publicly-traded holding company Sohu.com Limited (the “Company”), our wholly-owned subsidiaries that are the primary beneficiaries of the VIEs under U.S. GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and the VIEs and their subsidiaries that we consolidate as of the dates presented (in thousands).

Between our entry into the Tencent/Sohu Sogou Share Purchase Agreement on September 29, 2020 and the completion of the Tencent/Sohu Sogou Share Purchase on September 23, 2021, Sogou met the criteria for discontinued operations. Accordingly, the results of operations of Sogou and the gain of approximately $855 million, net of transaction and other costs, from its disposal are presented in separate line items in the table below as discontinued operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent basis of comparison. Accordingly, the financial position, results of operations, and cash flows related to the discontinued Sogou operations have not been disaggregated in the table below, because they do not constitute any part of our consolidated financial statements following the completion of the Tencent/Sohu Sogou Share Purchase.

 

     As of December 31, 2021  
     Sohu.com
Limited
     Other
Subsidiaries
     Primary
Beneficiaries
of VIEs
     VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 13,564        606,306        346,566        32,513        0       998,949  

Restricted cash

     0        0        1,969        0        0       1,969  

Short-term investments

     0        147,598        251,747        0        0       399,345  

Accounts receivable, net

     0        25,552        20,971        36,027        0       82,550  

Prepaid and other current assets

     723        13,224        74,528        18,836        0       107,311  

Intra-Group receivables due from subsidiaries (1)

     539,677        670,362        837,566        647,330        (2,694,935     0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     553,964        1,463,042        1,533,347        734,706        (2,694,935     1,590,124  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Fixed assets, net

     0        55,358        274,212        427        0       329,997  

Investment in subsidiaries (2)

     918,243        779,717        349,208        0        (2,047,168     0  

Controlling financial interests in VIEs (3)

     0        0        213,763        0        (213,763     0  

Long-term time deposits

     0        0        189,007        0        0       189,007  

Other non-current assets

     22,036        9,469        19,976        86,744        (1,568     136,657  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,494,243        2,307,586        2,579,513        821,877        (4,957,434     2,245,785  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES

                

Current liabilities:

                

Accounts payable

   $ 0        21,301        53,821        12,325        0       87,447  

Accrued liabilities

     1,678        11,257        81,566        43,695        0       138,196  

Receipts in advance and deferred revenue

     0        4,938        6,259        45,844        0       57,041  

Accrued salary and benefits

     83        25,637        57,372        8,393        0       91,485  

Tax payables

     9        7,925        7,241        1,539        0       16,714  

Intra-Group payables due to subsidiaries (1)

     36,912        1,011,224        1,184,312        462,487        (2,694,935     0  

Other short-term liabilities

     1,358        58,866        38,250        14,094        0       112,568  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     40,040        1,141,148        1,428,821        588,377        (2,694,935     503,451  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Long-term other payables

     0        0        3,922        0        0       3,922  

Long-term tax liabilities

     163,334        16,119        0        14,465        0       193,918  

Deferred tax liabilities

     0        237,116        8,726        3,323        0       249,165  

Other non-current liabilities

     0        0        2,960        1,750        (1,568     3,142  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     163,334        253,235        15,608        19,538        (1,568     450,147  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 203,374        1,394,383        1,444,429        607,915        (2,696,503     953,598  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

                

SHAREHOLDERS’ EQUITY

                

Total Sohu.com Limited shareholders’ equity

     1,290,869        911,936        1,135,084        213,962        (2,260,982     1,290,869  

Noncontrolling interest

     0        1,267        0        0        51       1,318  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total shareholders’ equity (2)(3)

     1,290,869        913,203        1,135,084        213,962        (2,260,931     1,292,187  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,494,243        2,307,586        2,579,513        821,877        (4,957,434     2,245,785  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     As of December 31, 2022  
     Sohu.com
Limited
     Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
     VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

ASSETS

               

Current assets:

               

Cash and cash equivalents

   $ 1,308        648,981       25,800        21,732        0       697,821  

Restricted cash

     0        0       1,803        1,838        0       3,641  

Short-term investments

     0        467,294       1,726        4,604        0       473,624  

Accounts receivable, net

     0        28,913       6        38,622        0       67,541  

Prepaid and other current assets

     700        22,201       46,258        13,934        0       83,093  

Intra-Group receivables due from subsidiaries (1)

     512,936        353,286       666,291        594,099        (2,126,612     0  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     514,944        1,520,675       741,884        674,829        (2,126,612     1,325,720  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Fixed assets, net

     0        51,087       236,787        352        0       288,226  

Investment in subsidiaries (2)

     834,714        1,735,970       455,149        0        (3,025,833     0  

Controlling financial interests in VIEs (3)

     0        0       198,476        0        (198,476     0  

Long-term time deposits

     0        0       265,802        0        0       265,802  

Other non-current assets

     22,036        8,284       15,694        53,450        (1,436     98,028  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,371,694        3,316,016       1,913,792        728,631        (5,352,357     1,977,776  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES

               

Current liabilities:

               

Accounts payable

   $ 0        26,751       18,789        10,909        0       56,449  

Accrued liabilities

     1,129        57,224       30,162        37,946        0       126,461  

Receipts in advance and deferred revenue

     0        7,055       77        40,948        0       48,080  

Accrued salary and benefits

     83        19,288       35,154        6,229        0       60,754  

Tax payables

     0        2,217       7,212        1,183        0       10,612  

Intra-Group payables due to subsidiaries (1)

     90,173        907,191       726,702        402,546        (2,126,612     0  

Other short-term liabilities

     0        56,356       43,074        15,102        0       114,532  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     91,385        1,076,082       861,170        514,863        (2,126,612     416,888  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Long-term other payables

     0        866       929        0        0       1,795  

Long-term tax liabilities

     170,867        16,120       0        13,242        0       200,229  

Deferred tax liabilities

     0        239,013       8,252        549        0       247,814  

Other non-current liabilities

     0        (80     420        1,436        (1,436     340  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     170,867        255,919       9,601        15,227        (1,436     450,178  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 262,252        1,332,001       870,771        530,090        (2,128,048     867,066  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

               

SHAREHOLDERS’ EQUITY

               

Total Sohu.com Limited shareholders’ equity

     1,109,442        1,982,747       1,043,021        198,541        (3,224,309     1,109,442  

Noncontrolling interest

     0        1,268       0        0        0       1,268  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total shareholders’ equity (2)(3)

     1,109,442        1,984,015       1,043,021        198,541        (3,224,309     1,110,710  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,371,694        3,316,016       1,913,792        728,631        (5,352,357     1,977,776  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

The following table presents our condensed consolidating schedules of results of operations for the VIEs that we consolidate and other entities for the periods presented (in thousands):

 

     Year Ended December 31, 2020  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
     VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

Revenues:

              

Third-party revenues

   $ 0       119,098       77,812        552,980        0       749,890  

Intra-Group revenues (4)

     0       19,598       390,062        30,207        (439,867     0  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

     0       138,696       467,874        583,187        (439,867     749,890  

Cost of revenues:

              

Third-party cost of revenues

     0       24,674       99,430        93,333        0       217,437  

Intra-Group cost of revenues (4)

     0       4,376       34,280        141,717        (180,373     0  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total cost of revenues

     0       29,050       133,710        235,050        (180,373     217,437  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

     0       109,646       334,164        348,137        (259,494     532,453  

Operating expenses:

              

Third-party operating expenses

     1,613       95,727       310,759        50,983        0       459,082  

Intra-Group operating expenses (4)

     0       3,957       741        254,796        (259,494     0  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

     1,613       99,684       311,500        305,779        (259,494     459,082  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit/(loss)

     (1,613     9,962       22,664        42,358        0       73,371  

Income/(loss) from subsidiaries (2)

     (46,084     69,099       37,195        0        (60,210     0  

Income/(loss) from VIEs (3)

     0       0       41,743        0        (41,743     0  

Non-operating income/(expense)

     (1,071     (3,948     24,679        3,668        0       23,328  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Income/(loss) before income tax expense

     (48,768     75,113       126,281        46,026        (101,953     96,699  

Income tax expense

     6,207       102,749       20,000        4,270        0       133,226  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net income/(loss) from continuing operations

     (54,975     (27,636     106,281        41,756        (101,953     (36,527

Less: Net income from continuing operations attributable to the noncontrolling interest shareholders

     0       18,448       0        0        0       18,448  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net income/(loss) from continuing operations attributable to Sohu.com Limited

     (54,975     (46,084     106,281        41,756        (101,953     (54,975

Net loss from discontinued operations, net of tax

                 (31,137
              

 

 

 

Net loss

   $                   (86,112
              

 

 

 

 

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Table of Contents
     Year Ended December 31, 2021  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

Revenues:

             

Third-party revenues

   $ 0       90,830       79,923       664,823        0       835,576  

Intra-Group revenues (4)

     0       275,774       256,801       21,488        (554,063     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     0       366,604       336,724       686,311        (554,063     835,576  

Cost of revenues:

             

Third-party cost of revenues

     0       26,055       96,891       81,725        0       204,671  

Intra-Group cost of revenues (4)

     0       4,957       37,732       136,221        (178,910     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total cost of revenues

     0       31,012       134,623       217,946        (178,910     204,671  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     0       335,592       202,101       468,365        (375,153     630,905  

Operating expenses:

             

Third-party operating expenses

     1,768       123,963       335,576       72,126        0       533,433  

Intra-Group operating expenses (4)

     0       11,325       2,831       366,762        (380,918     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     1,768       135,288       338,407       438,888        (380,918     533,433  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit/(loss)

     (1,768     200,304       (136,306     29,477        5,765       97,472  

Income/(loss) from subsidiaries (2)

     75,343       (71,989     182,818       0        (186,172     0  

Income/(loss) from VIEs (3)

     0       0       35,805       0        (35,805     0  

Non-operating income/(expense)

     526       (3,017     32,843       9,508        (5,765     34,095  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income before income tax expense

     74,101       125,298       115,160       38,985        (221,977     131,567  

Income tax expense

     4,827       49,958       4,331       3,180        0       62,296  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income from continuing operations

     69,274       75,340       110,829       35,805        (221,977     69,271  

Less: Net loss from continuing operations attributable to the noncontrolling interest shareholders

     0       (3     0       0        0       (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income from continuing operations attributable to Sohu.com Limited

     69,274       75,343       110,829       35,805        (221,977     69,274  

Net income from discontinued operations, net of tax

                858,451  
             

 

 

 

Net income

   $                  927,725  
             

 

 

 

 

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Table of Contents
     Year Ended December 31, 2022  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
    Eliminating
adjustments
    Consolidated
totals
 

Revenues:

            

Third-party revenues

   $ 0       141,118       1,274       591,480       0       733,872  

Intra-Group revenues (4)

     0       202,250       257,442       27,914       (487,606     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     0       343,368       258,716       619,394       (487,606     733,872  

Cost of revenues:

            

Third-party cost of revenues

     0       34,125       60,845       96,603       0       191,573  

Intra-Group cost of revenues (4)

     0       24,232       17,499       104,883       (146,614     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     0       58,357       78,344       201,486       (146,614     191,573  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     0       285,011       180,372       417,908       (340,992     542,299  

Operating expenses:

            

Third-party operating expenses

     2,206       187,875       280,180       72,911       0       543,172  

Intra-Group operating expenses (4)

     0       9,104       2,662       329,226       (340,992     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,206       196,979       282,842       402,137       (340,992     543,172  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     (2,206     88,032       (102,470     15,771       0       (873

Income/(loss) from subsidiaries (2)

     (213     (71,405     74,897       0       (3,279     0  

Income/(loss) from VIEs (3)

     0       0       2,691       0       (2,691     0  

Non-operating income/(expense)

     (7,390     24,159       37,107       (12,398     0       41,478  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     (9,809     40,786       12,225       3,373       (5,970     40,605  

Income tax expense

     7,534       40,997       8,733       682       0       57,946  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) from continuing operations

     (17,343     (211     3,492       2,691       (5,970     (17,341

Less: Net loss from continuing operations attributable to the noncontrolling interest shareholders

     0       2       0       0       0       2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) from continuing operations attributable to Sohu.com Limited

     (17,343     (213     3,492       2,691       (5,970     (17,343
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $                 (17,343
            

 

 

 

 

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The following table presents our condensed consolidating schedules of cash flows for the VIEs that we consolidate and other entities for the periods presented (in thousands):

 

    Year Ended December 31, 2020  
    Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
    Eliminating
adjustments
    Consolidated
totals
 

Cash flows from operating activities:

           

Net cash provided by/(used in) transactions with third parties

  $ (5,371     (25,798     (264,700     459,263       0       163,394  

Net cash provided by/(used in) transactions with intra-Group entities

    0       18,721       360,928       (379,649     0       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing operating activities (5)

    (5,371     (7,077     96,228       79,614       0       163,394  

Net cash provided used in discontinued operating activities

              (68,187
           

 

 

 

Net cash provided by operating activities

              95,207  

Cash flows from investing activities:

           

Net cash provided by/(used in) transactions with third parties

    0       167,702       17,464       (773     0       184,393  

Net cash provided by/(used in) transactions with intra-Group entities

    1,961       5,660       226,972       (106,321     (128,272     0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing investing activities (5)

    1,961       173,362       244,436       (107,094     (128,272     184,393  

Net cash provided by discontinued investing activities

              235,374  
           

 

 

 

Net cash provided by investing activities

              419,767  

Cash flows from financing activities:

           

Net cash provided by/(used in) transactions with third parties

    0       204,941       (103,146     0       0       101,795  

Net cash provided by/(used in) transactions with intra-Group entities

    0       (254,216     93,193       32,751       128,272       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing financing activities (5)

    0       (49,275     (9,953     32,751       128,272       101,795  

Net cash used in discontinued financing activities

              (8,209
           

 

 

 

Net cash provided by financing activities

              93,586  

 

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Table of Contents
     Year Ended December 31, 2021  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
    Eliminating
adjustments
    Consolidated
totals
 

Cash flows from operating activities:

            

Net cash provided by/(used in) transactions with third parties

   $ (517     (127,098     (299,947     541,172       0       113,610  

Net cash provided by/(used in) transactions with intra-Group entities

     0       288,308       217,245       (505,553     0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing operating activities

     (517     161,210       (82,702     35,619       0       113,610  

Net cash used in discontinued operating activities

               (175,888
            

 

 

 

Net cash used in operating activities

               (62,278

Cash flows from investing activities:

            

Net cash used in transactions with third parties

     0       (112,599     (400,933     (23,887     0       (537,419

Net cash provided by/(used in) transactions with intra-Group entities

     (5,999     (172,370     209,079       (140,671     109,961       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in continuing investing activities

     (5,999     (284,969     (191,854     (164,558     109,961       (537,419

Net cash provided by discontinued investing activities

               1,054,148  
            

 

 

 

Net cash provided by investing activities

               516,729  

Cash flows from financing activities:

            

Net cash used in transactions with third parties

     (17,418     (407,550     0       0       0       (424,968

Net cash provided by/(used in) transactions with intra-Group entities

     36,912       (236,658     197,819       111,888       (109,961     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing financing activities

     19,494       (644,208     197,819       111,888       (109,961     (424,968

Net cash used in discontinued financing activities

               (9,132
            

 

 

 

Net cash used in financing activities

               (434,100

 

10


Table of Contents
     Year Ended December 31, 2022  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
    Eliminating
adjustments
    Consolidated
totals
 

Cash flows from operating activities:

            

Net cash provided by/(used in) transactions with third parties

   $ (10,122     (229,554     (177,018     448,936       0       32,242  

Net cash provided by/(used in) transactions with intra-Group entities

     0       186,468       259,192       (445,660     0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing operating activities

     (10,122     (43,086     82,174       3,276       0       32,242  
            

 

 

 

Net cash provided by operating activities

               32,242  

Cash flows from investing activities:

            

Net cash provided by/(used in) transactions with third parties

     0       (340,000     112,632       (5,421     0       (232,789

Net cash provided by/(used in) transactions with intra-Group entities

     7,967       605,535       (208,182     72,497       (477,817     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing investing activities

     7,967       265,535       (95,550     67,076       (477,817     (232,789
            

 

 

 

Net cash used in investing activities

               (232,789

Cash flows from financing activities:

            

Net cash used in transactions with third parties

     (82,136     0       0       0       0       (82,136

Net cash provided by/(used in) transactions with intra-Group entities

     72,036       (171,590     (299,054     (79,209     477,817       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) continuing financing activities

     (10,100     (171,590     (299,054     (79,209     477,817       (82,136
            

 

 

 

Net cash used in financing activities

               (82,136

Note (1): Represents the elimination of intercompany balances generated from intra-Group service charges among Sohu.com Limited, the Primary Beneficiaries of VIEs, the Other Subsidiaries, and the VIEs and their subsidiaries that we consolidate.

Note (2): Represents the elimination of investments among Sohu.com Limited, the Primary Beneficiaries of VIEs, and the Other Subsidiaries.

Note (3): Represents the elimination between the Primary Beneficiaries of VIEs and the VIEs and their subsidiaries that we consolidate under U.S. GAAP (ASC 810).

Note (4): Represents the elimination of intra-Group service charges at the consolidation level.

Note (5): The net cash provided by/(used in) operating activities and investing activities of Sohu.com Limited and the net cash provided by/(used in) operating activities, investing activities and financing activities of the VIEs and their subsidiaries that we consolidate have been revised for the year ended December 31, 2020 from amounts previously disclosed in the financial statements Notes.

 

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Table of Contents

Transfers of Cash Within the Sohu Group

The following is a summary of cash transfers that have occurred between our subsidiaries and the VIEs (in thousands):

 

     Year ended December 31,  
     2020      2021      2022  

Cash paid by the VIEs to our subsidiaries under service agreements

   $ (411,668    $ (528,330    $ (478,098

Cash received by the VIEs from our subsidiaries under service agreements

     32,019        22,777        32,438  

Cash paid by the VIEs to our subsidiaries for intra-Group financing

     (106,321      (140,671      (79,209

Cash received by the VIEs from our subsidiaries for intra-Group financing

     32,751        111,888        72,497  

Risk Factors

Risks Related to Our Business

We are subject to the risks associated with operating in an evolving market.

As a company operating in an evolving Internet market in the Chinese mainland, we face numerous risks and uncertainties. Some of these risks relate to our ability to:

 

   

continue to attract users to remain with us and use our products and services as the primary means of surfing the Internet switches from traditional PCs to mobile phones and other portable devices;

 

   

build our businesses such as Sohu Media Portal, Sohu Video, Focus, online games, and other businesses successfully;

 

   

continue to attract a large audience to our matrices of Chinese language content and services by expanding the type and technical sophistication of the content and services we offer;

 

   

maintain and develop a sufficiently large advertiser base for our brand advertising business;

 

   

maintain and attract online game users by periodically updating our existing online games and developing and launching new online games;

 

   

effectively control increases in our costs and expenses; and

 

   

attract and retain qualified personnel.

Our operating results are likely to fluctuate significantly and may differ from market expectations.

Our annual and quarterly operating results have varied significantly in the past, and may vary significantly in the future, due to a number of factors which could have an adverse impact on our business. Our online advertising revenues often fluctuate as our advertisers adjust their online marketing spending as their industries go through business and economic cycles. Our advertisers’ online marketing spending may also be negatively impacted by the COVID-19 pandemic and/or the general macroeconomic environment in the Chinese mainland, which in turn could negatively impact our online advertising revenues. Also see “- We depend on revenues from Changyou’s PC game TLBB and mobile game Legacy TLBB Mobile for a significant portion of our revenues, net income, and operating cash flow.”

We depend on revenues from Changyou’s PC game TLBB and mobile game Legacy TLBB Mobile for a significant portion of our revenues, net income, and operating cash flow.

For the year ended December 31, 2022, 61% of our total revenues and 77% of our online game revenues were derived from TLBB and Legacy TLBB Mobile. However, the popularity of PC games continues to decline as game players have switched to mobile devices to access online games. Despite Changyou’s efforts to improve TLBB, our game players may nevertheless lose interest in it over time and TLBB’s popularity, revenues, and profitability may decline accordingly. If Changyou fails to improve and update TLBB on a timely basis, or if Changyou’s competitors introduce more popular games, including mobile games, catering to Changyou’s game-player base, the decline in TLBB’s popularity can be expected to accelerate, which could cause a significant decrease in our revenues. If Changyou’s revenues from TLBB and Legacy TLBB Mobile continue to decline as they have in recent years, or if Changyou’s online game revenues from games other than TLBB and Legacy TLBB Mobile do not grow or if they decrease, our revenues, net income, and operating cash flow will be adversely affected. Furthermore, any interruptions in TLBB’s and Legacy TLBB Mobile’s operations could cause significant decreases in our revenues, net income, and operating cash flow.

 

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Table of Contents

We face intense competition, which could reduce our market share and adversely affect our financial performance.

There are many companies that distribute online content and services targeting Chinese Internet users. We compete with distributors of content and services over the Internet, including content sites, online games, Internet service providers and sites maintained by regulatory authorities, educational institutions and other institutions. These sites compete with us for user traffic, advertising dollars, online game players, potential partners and mobile services. The Internet market in the Chinese mainland continues to evolve. Competition is intense and can be expected to increase significantly in the future, because there are no substantial barriers to entry in our market.

We have many competitors in the Internet market in the Chinese mainland, including 58.com, Alibaba, Archosaur, Autohome, Baidu, Bilibili, BitAuto, Century Huatong (formerly known as Shanda), Douyin, Douyu, Fang, Giant, Huya, IGG, iQIYI, JOYY, Kuaishou, Leju, Lilith, Mango TV, miHoYo, Momo, NetDragon, NetEase, Perfect World, Phoenix, Qutoutiao, Sina, Tencent, TouTiao, and Youku. We compete with our peers and competitors in the Chinese mainland primarily on the following basis:

 

   

access to financial resources;

 

   

gateway to a host of Internet user activities;

 

   

technological advancements;

 

   

attractiveness of products;

 

   

brand recognition;

 

   

volume of traffic and users;

 

   

quality of Internet platforms and content;

 

   

strategic relationships;

 

   

quality of services;

 

   

effectiveness of sales and marketing efforts;

 

   

talent of staff; and

 

   

pricing;

Our competitors may have certain competitive advantages over us including:

 

   

greater brand recognition among Internet users and clients;

 

   

better products and services;

 

   

larger user and advertiser bases;

 

   

more extensive and well-developed marketing and sales networks; and

 

   

substantially greater financial and technical resources.

Our existing competitors may in the future achieve greater market acceptance and gain a greater market share through launching of new products, introducing new technologies, or forming alliances among themselves, or may enhance their ability to compete with us through mergers and acquisitions or financing activities. For example, in the past many of our competitors have successfully raised significant amounts of capital through IPOs, follow-on public equity offerings, and convertible bond offerings. Several of our competitors have also conducted private placements of equity or debt that included alliances with larger partners who are able to bring them strategic advantages in addition to financing. By enhancing their capital bases and forming strategic alliances, our competitors have strengthened their competitiveness and gained greater brand recognition. Recently some of our major competitors have actively invested or initiated transactions in the market sectors in which we operate or into which we wish to expand our business, which could make it more difficult for us to compete against them effectively.

 

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Table of Contents

In addition, in recent years the Internet industry in the Chinese mainland has been increasingly dominated by Alibaba, Baidu, and Tencent. These dominant companies may be able to further strengthen their influence in the industry by encouraging cooperation among the companies in which they invest or with which they establish strategic relationships. We may not be able to compete successfully and avoid marginalization in the industry if we are unable to develop our own comparable business ecosystem, which may be difficult for us to do in view of our relatively limited resources in comparison to these dominant companies.

Further, new competitors may emerge and acquire significant market share. For example, high-quality smaller Internet companies continue to emerge in the Internet industry with competitive advantages over us, including that many are led by young entrepreneurs who have a particular understanding of the needs and interests of younger users and that, in view of their relatively small size, they are able to adapt more easily than we are to rapid changes in the industry by adjusting their product strategies, market focus, and profit models. Such smaller competitors compete with us in such areas as vertical content production, video playback, and live broadcast.

In order to compete effectively in the primary markets in which we operate, we are likely to need additional financial and additional strategic resources, which may be hard to obtain. If our competitors are more successful than we are in obtaining necessary resources, in developing products or in attracting and retaining users and advertisers, our revenues and growth rates could decline.

If we fail to successfully develop and introduce new products, features and services, our ability to attract and retain users and generate revenues could be harmed.

We are continually developing new products, features and services for our users. The planned timing or introduction of new products, features and services is subject to risks and uncertainties. Actual timing may differ materially from original plans. Unexpected technical, operational, distribution or other problems could delay or prevent the introduction of one or more of our new products or services. Emerging start-ups may be able to innovate and provide new products, features and services faster than we can. Moreover, we cannot be sure that any of our new products, features and services will achieve widespread market acceptance or generate incremental revenue.

In addition, we may experience difficulties in promoting our new products, features and services as a result of the significant market power of our competitors or any anti-competitive practices they might engage in. As a result, despite considerable efforts in this regard, we may fail to attract and retain users.

As our products and services are currently accessed primarily through mobile phones, tablets and other internet-enabled mobile devices, we believe that we must develop products and applications for such devices if we are to maintain or increase our market share and revenues, and we may not be successful in doing so.

Devices other than personal computers, such as mobile phones, tablets, wearable devices and other internet-enabled mobile devices, are used increasingly in China and in overseas markets, and have surpassed personal computers as the primary means to access the Internet. We believe that, for our business to be successful when our content and services are delivered over mobile devices, we need to design, develop, promote and operate products and applications that are attractive to users of such devices, as well as enhance targeted delivery of our content and advertising services to our users and advertising customers. The design and development of new products and applications, and our efforts to enhance the effectiveness of such targeted delivery, may not be successful. We may encounter difficulties with the installation of such new products and applications for mobile devices, such products and applications may not function smoothly, and algorithms we develop for targeted delivery may not be effective in identifying the interests and needs of our users and advertising customers. As new devices are released or updated, we may encounter problems in developing and upgrading our products or applications for use on mobile devices and we may need to devote significant resources to the creation, support, and maintenance of such products or applications for mobile devices.

Our business depends on a strong brand; thus we will not be able to attract users, customers and clients of our products and offerings if we do not maintain and develop our brands.

It is critical for us to maintain and develop our brands so as to effectively expand our user base and our revenues. We believe that the importance of brand recognition will increase as the number of Internet users in China grows. In order to attract and retain Internet users, brand advertising, online game and mobile customers, we may need to substantially increase our expenditures for creating and maintaining brand loyalty. Our success in promoting and enhancing our brands, as well as our ability to remain competitive, will also depend on our success in offering high quality content, features and functionality. If we fail to promote our brands successfully or if our users or advertisers do not perceive our content and services to be of high quality, we may not be able to continue growing our business and attracting users, advertisers, online game players and mobile users.

 

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Table of Contents

Our failure to keep up with rapid technology changes may severely affect our future success.

The Internet industry is undergoing rapid technological changes. Our future success will depend on our ability to respond to evolving technologies, adapt our services to changing industry standards and improve the performance and reliability of our services. If we fail to adapt to such changes, our business may be adversely affected. For example, with the emergence of cloud computing technology, the primary Internet technology platform has been transformed from a traditional platform to a cloud computing platform. If we fail to adapt to the transformation, our products and services upgrade process will fall behind our competitors, and accordingly weaken our capacity to adapt our technology to the market. Furthermore, cloud computing itself is a significant business opportunity. If we fail to seize the opportunity, we will lose our ability to ca