(这条文章已经被阅读了 629 次) 时间：2000-04-23 21:47:26 来源：刘韧 (liuren) 原创-IT
As filed with the Securities and Exchange Commission on February 4, 2000.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Sohu.com Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 7379 98-0204667
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
7 Jianguomen Nei Avenue
Suite 519, Tower 2
Bright China Chang An Building
Beijing 100005
People’s Republic of China
86-10-6510-2160
(Address and Telephone Number of Registrant’s Principal Executive Offices)
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CT Corporation System
111 Eighth Avenue
New York, New York 10011
212-590-9200
(Name, Address and Telephone Number of Agent For Service)
Copies to:
Chun Wei, Esq. W. Clayton Johnson, Esq.
Sullivan & Cromwell Cravath, Swaine & Moore
28th Floor Asia Pacific Finance Tower, Suite
Nine Queen’s Road Central 2609
Hong Kong 3 Garden Road, Central
852-2826-8688 Hong Kong
852-2509-7201
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [_]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Titelof Each Class of Proposed Maximum Amount of
Securiies to be Registeredt Aggregate Offering Price(/1/) Registration Fee
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Common Stock, par value $0.001
per share…………………. $86,250,000 $22,770
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(1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
Shares
Sohu.com Inc.
Common Stock
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Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We have applied to list our common stock on The Nasdaq Stock Market’s National Market under the symbol “SOHU”.
The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See “Risk Factors” on page 6.
Price Underwriting
to Discounts and Proceeds to
Public Commissions Sohu.com
—— ————- ———–
Per Share…………………………….. $ $ $
Total………………………………… $ $ $
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Warburg Dillon Read
The date of this prospectus is , 2000.
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[Inside front cover–screen shot of Sohu home page.]
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TABLE OF CONTENTS
Page
—-
Prospectus Summary……………… 1
Risk Factors…………………… 6
Enforceability of Civil
Liabilities…………………… 23
Cautionary Notice Regarding Forward-
Looking Statements…………….. 23
Use of Proceeds………………… 24
Dividend Policy………………… 24
Capitalization…………………. 25
Dilution………………………. 27
Exchange Rate Information……….. 28
Selected Consolidated Financial
Data…………………………. 29
Management’s Discussion and Analysis
of Financial Condition and Results
of Operations…………………. 31
Page
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Business……………………. 40
Regulation of the PRC Internet
Industry…………………… 55
Management………………….. 59
Principal Shareholders……….. 67
Certain Transactions…………. 68
Shares Eligible for Future Sale.. 69
Description of Capital Stock….. 72
Taxation……………………. 76
Underwriting………………… 79
Notice to Canadian Residents….. 83
Validity of Common Stock……… 84
Experts…………………….. 84
Where You Can Find More
Information………………… 84
Index to Financial Statements…. F-1
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You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
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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.
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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.
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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 http://www.sohu.com. The information on our Web site is not a part of this prospectus.
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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.
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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,
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1997 1998 1999
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(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
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Pro forma
Actual Pro forma as adjusted
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(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)
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RISK FACTORS
You should carefully consider the risks described below and the other information in this prospectus, including our consolidated financial statements and the related notes, before making an investment decision. If any of the risks described below actually occurs, our business, financial condition and results of operations could be materially adversely affected. The trading price of our shares could decline, and you may lose all or part of your investment.
Risks relating to Sohu.com
We have a limited operating history and have incurred net losses since inception and anticipate that losses will continue
We were incorporated in Delaware in August 1996, and launched our original Web site in January 1997. In February 1998, we re-launched our Web site under sohu.com. We have only a limited operating history upon which you may evaluate our business and prospects. We have incurred significant net losses since inception and had an accumulated deficit of approximately $5.4 million as of December 31, 1999. We anticipate that we will continue to incur substantial net losses due to a high level of planned operating and capital expenditures, increased sales and marketing costs, additional personnel hires, greater levels of product development and our general growth objectives. Our net losses will increase in the future and we may never achieve or sustain profitability.
You must consider the risks, expenses and uncertainties that an early stage company like ours faces. These risks include our ability to:
. increase our revenues from online advertising and other sources;
. derive revenues from e-commerce activities;
. increase awareness of the Sohu brand and continue to build user loyalty;
. expand the content and services on our portal;
. attract a larger audience to our portal;
. maintain our current, and develop new, strategic relationships;
. implement a successful sales strategy;
. attract, retain and motivate qualified personnel;
. respond effectively to competitive pressures; and
. continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks, our business, financial condition and results of operations will be materially and adversely affected.
We and our shareholders may be adversely affected by PRC government regulation of Internet companies
Our entire Internet business is owned and conducted by our wholly owned subsidiary, Sohu ITC Information Technology (Beijing) Co., Ltd., or Beijing Sohu, which is a PRC wholly-foreign owned enterprise, or a WFOE. We are a Delaware corporation and a foreign person under PRC law. Accordingly, our Internet business is 100% foreign-owned.
There are various issues, risks and uncertainties regarding the legality of foreign investment in the PRC Internet sector, the various businesses and activities of Internet companies in the PRC and securities offerings by companies operating in the PRC Internet sector. As described below, in the opinion of TransAsia Lawyers, our PRC counsel, the ownership structure of Beijing Sohu and its businesses do not violate any existing PRC laws or regulations, and no PRC governmental approvals are required for this offering. However, as described
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below, there are substantial uncertainties regarding the proper interpretation of existing PRC laws and regulations and there are likely to be new PRC laws and regulations relating to the Internet sector adopted in the future.
The issues, risks and uncertainties relating to PRC government regulation of the PRC Internet sector include the following:
. Foreign investment is prohibited in businesses providing value-added telecommunication services, including computer information services or electronic mail box services as defined in a 1995 PRC regulation. However, the relevant regulation is silent as to whether the Internet business is included in these businesses in which foreign investment is prohibited.
. Various officials of the PRC Ministry of Information Industry, or MII, have during 1999 stated publicly that foreign investment is prohibited in the PRC Internet sector, including in Internet service providers and Internet content providers.
. The MII has also stated recently that it intends to adopt new laws or regulations governing foreign investment in the PRC Internet sector in the near future. At this time, we do not know the timing or terms of these new laws or regulations or whether or how they will apply to us.
. The MII has also stated recently that the activities of Internet content providers are also subject to regulation by various PRC government authorities, depending on the specific activities conducted by the Internet content provider. According to press reports, various government authorities are in the process of preparing new laws and regulations that will govern these activities. The areas of regulation may include online advertising and online news reporting. In addition, the new laws and regulations may require various PRC government approvals for securities offerings by companies engaged in the Internet sector in the PRC. We do not know the timing or terms of such possible new laws and regulations or whether or how they will apply to us or this offering.
. According to press reports, under the agreement reached in November 1999 between China and the United States concerning the United States’ support of China’s entry into the World Trade Organization, or WTO, foreign investment in PRC Internet services will be liberalized at the same rate as other key telecommunications services. In addition, according to press reports, key telecommunication services in the PRC will be subject to a foreign ownership limit of 49% for the first two years after China’s entry into the WTO and 50% thereafter. We do not know if this agreement will in fact be implemented or the timing thereof or the terms of any new laws or regulations resulting from such implementation or whether our Internet business will be subject to these foreign ownership limits.
. A WFOE is prohibited from engaging in the businesses of providing or distributing advertisements as defined under the 1994 PRC Advertising Law. The relevant law is silent as to whether online advertising is covered by the law.
The interpretation and application of existing PRC laws and regulations, the stated positions of the MII and the possible new laws or regulations have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, PRC Internet businesses, including our business.
In the opinion of TransAsia Lawyers, our PRC counsel, the ownership structure of Sohu and our wholly owned subsidiary, Beijing Sohu, both currently and after giving effect to this offering, and the current and proposed businesses and operations of Sohu and Beijing Sohu as described in this prospectus, do not violate or breach any of the existing laws, rules and regulations of the PRC, and no consent, approval or license other than those already obtained is required under any of the existing laws, rules and regulations of the PRC for such ownership structure, businesses and operations or this offering. TransAsia Lawyers is also of the opinion that:
. Our business activities in the PRC do not fall within the definition of “computer information services” or “electronic mail box services” as defined under the 1995 regulation described above.
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. There are no existing PRC laws, rules or regulations that address the development and provision of Web-based services, such as online directories, search engines, free e-mail boxes and e-commerce.
. Online advertising is neither regulated nor prohibited by any existing PRC laws, including the 1994 PRC Advertising Law.
However, the opinion of TransAsia Lawyers contains the following qualifications:
. Since September 1999, senior MII officials have made various statements regarding the restrictions on foreign investment in the PRC Internet sector and the positions set forth in such statements may ultimately be adopted to varying degrees by the relevant PRC regulatory authorities as the basis for subsequent legislation.
. In the event that new legislation restricting foreign investment in the PRC Internet sector is enacted by the relevant PRC regulatory authorities, such PRC regulatory authorities may request Beijing Sohu to restructure its operations accordingly.
As described above, the laws and regulations applicable to PRC Internet companies are uncertain and in a state of flux. In addition, there will likely be new laws and regulations adopted in the future. Accordingly, we cannot assure you whether the PRC government may ultimately take a contrary view to the opinions of our PRC counsel on the various issues discussed above. It is possible that the relevant PRC authorities could, at any time, assert that any portion or all of our existing or future ownership structure and businesses, or this offering, violate existing or future PRC laws and regulations. It is also possible that the new laws or regulations governing the PRC Internet sector that may be adopted in the future will prohibit or restrict foreign investment in, or other aspects of, any of our current or proposed businesses and operations or require governmental approvals for this offering. In addition, these new laws and regulations may be retroactively applied to us. For example, China’s potential entry into the WTO will likely affect the terms of any new laws and regulations, and may result in the PRC government adopting a 49% or 50% limit on foreign investment in Internet businesses, as well as affect the interpretation of existing regulations relating to the PRC Internet sector. Furthermore, as expressed in the legal opinion of TransAsia Lawyers, the MII’s positions set forth in the statements discussed above may become the official PRC government policy, which may result in new laws or regulations prohibiting any of the businesses or the ownership structure of Beijing Sohu or requiring governmental approvals for this offering.
If we are found to be in violation of any existing or future PRC laws or regulations, the relevant PRC authorities would have broad discretion in dealing with such a violation, including, without limitation, the following:
. levying fines;
. revoking our business license;
. requiring us to restructure our ownership structure or operations; and/or
. requiring us to discontinue any portion or all of our Internet business or our investment in Beijing Sohu.
Any such action would have a material adverse effect on our business, financial condition and results of operations and on our shareholders. See “Regulation of the PRC Internet Industry”.
We depend on online advertising for substantially all of our revenues
We derive substantially all of our revenues from the sale of online advertising on our Web sites. For 1998 and 1999, online advertising revenues represented approximately 75% and 93% of our total revenues. In addition, our business plan is heavily dependent on the anticipated expansion of online advertising in China and the growth of our revenue is heavily dependent on online advertising.
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The online advertising market in China is new and relatively small. According to Forrester Research, the dollar amount of the online advertising market in China in 1999 was approximately $8.0 million. According to Zenith Media’s estimate, the dollar amount of the total advertising market in China was over $4.1 billion in 1999. Our ability to generate and maintain significant online advertising revenues will depend, among other things, on:
. advertisers’ acceptance of the Internet as an effective and sustainable advertising medium in the PRC;
. the development of a large base of users of our portal possessing demographic characteristics attractive to advertisers;
. the effectiveness of our online advertising delivery, tracking and reporting systems;
. our ability to compete successfully with other Web sites seeking online advertising revenue and with off-line advertising media;
. the growth of Internet users and Internet penetration in China; and
. the development of televisions and mobile telephones as alternative distribution channels for online advertising.
The development of Web software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of online advertising. The expansion of ad blocking on the Internet may decrease our revenues because when an ad is blocked, it is not downloaded from our ad server. As a result, such advertisements will not be tracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet or on our portal because of the use by third parties of Internet advertisement blocking software. The use of Web software that blocks Internet advertisements may materially and adversely affect our business, financial condition and results of operations.
Accordingly, we cannot assure you that we will be successful in generating significant future online advertising revenue or in diversifying our revenue stream, and the failure to do so would have a material adverse effect on our business, financial condition and results of operations.
In addition, an element of our strategy is to diversify our revenue stream by entering into Web site sponsorship arrangements and by introducing e- commerce services. We cannot assure you that we will be successful in implementing this strategy.
Our operating results are likely to fluctuate significantly and may differ from market expectations
Because a high percentage of our expenses, particularly bandwidth leasing costs and employee compensation, are fixed, our annual and quarterly operating results may vary significantly in the future due to a number of factors, many of which are beyond our control. As a result, we believe that quarter-to- quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in some future quarter, our operating results may be below the expectations of public market analysts and investors. In this event, the trading price of our common stock may fall.
Factors which may cause fluctuations in our revenues and earnings include, among other things:
. advertising budgeting and placement cycles of advertisers;
. amount and timing of capital expenditures and other significant costs;
. introduction of new products or services;
. pricing and other changes in our industry; and
. technical difficulties we may encounter.
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We will not be able to attract visitors or advertisers if we do not maintain and develop the Sohu brand
Maintaining and developing the Sohu brand is critical to our ability to 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, advertisers and e-commerce partners, we intend to increase substantially our expenditures for creating and maintaining brand loyalty. If our revenues do not increase proportionately, our results of operations and liquidity will suffer.
Our success in promoting and enhancing the Sohu brand, 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 brand successfully or if visitors to our portal 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 visitors and advertisers. This could have a material and adverse effect on our business, financial condition and results of operations.
We may need additional capital and we may not be able to obtain it
Our capital requirements are difficult to plan in our rapidly changing industry. We currently expect that we will need capital to fund additions to our portal and computer infrastructure, including any acquisitions of complementary assets, technologies or businesses we may pursue, as well as the expansion of our sales and marketing activities. We believe that our current cash and cash equivalents, cash flow from operations, proceeds from the sale of Series D preferred stock in January and February 2000 and the proceeds from this offering will be sufficient to meet our anticipated needs, including working capital and capital expenditures, for at least the next twelve months. However, future market or other developments may cause us to require additional funds.
Our ability to obtain additional financing in the future is subject to a variety of uncertainties, including:
. our future results of operations, financial condition and cash flows;
. the amount of capital that other PRC entities may seek to raise in foreign capital markets;
. economic, political and other conditions in the PRC;
. PRC governmental policies relating to foreign currency borrowings; and
. PRC governmental regulation of foreign investment in Internet companies.
Our inability to raise additional funds on terms favorable to us, or at all, may have a material adverse effect on our business, financial condition and results of operations. For more information on our capital and financing requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.
If we fail to establish and maintain strategic relationships with content providers, e-commerce merchants and technology providers, we may not be able to attract and retain users
We rely on a number of third party relationships to attract traffic and provide content in order to make our portal more attractive to users and advertisers. Third parties providing content to our portal include CNET, Cosmopolitan, Dow Jones & Company, Inc. and Xinhua News Agency. Most of these arrangements are short-term and may be terminated at the convenience of the other party. In addition, much of the third party content provided to our portal is also available from other sources or may be provided to other Internet companies. If other Internet companies present the same or similar content in a superior manner, it would adversely affect our visitor traffic.
Similarly, we have focused, and will continue to focus, on establishing relationships with leading e-commerce merchants and technology and infrastructure providers. Our business depends significantly on these relationships and the licenses that the technology providers have granted to us. Our competitors may seek to establish the same relationships as we have, which may adversely affect us. We may not be able to maintain these relationships or replace them on financially attractive terms.
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We depend on key personnel and our business may suffer if we lose the services of our key executives
Our future success is heavily dependent upon the continued service of our key executives, particularly Dr. Charles Zhang, who is the founder, President and Chief Executive Officer of our company. We rely on his expertise in our business operations and on his personal relationships with our shareholders, the relevant regulatory authorities and our customers and suppliers. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to easily replace them, and our business, financial condition and results of operations may be materially and adversely affected. In addition, if any of these key executives joins a competitor or forms a competing company, we may lose customers and suppliers and incur additional expenses to recruit and train personnel. Each of our executive officers has entered into a confidentiality, non-competition and non- solicitation agreement with us. These officers also have employment agreements with Beijing Sohu, our PRC operating subsidiary, which contain substantially similar confidentiality and non-competition undertakings. However, the degree of protection afforded to an employer pursuant to confidentiality and non- competition undertakings governed by PRC law may be more limited when compared to the degree of protection afforded under the laws of other jurisdictions. We do not maintain key-man life insurance for any of our key executives.
Rapid growth and a rapidly changing operating environment strain our limited resources
We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we want to achieve. As our audience and their Internet use increase, as the demands of our audience and the needs of our customers change and as the volume of online advertising and e-commerce activities increases, we will need to increase our investment in our network infrastructure and other facilities. If we are unable to manage our growth and expansion effectively, the quality of our services could deteriorate and our business may suffer. Our future success will depend on, among other things, our ability to:
. adapt our services and maintain and improve the quality of our services;
. continue training, motivating and retaining our existing employees and attracting and integrating new employees; and
. developing and improving our operational, financial, accounting and other internal systems and controls.
Our advertising pricing model, which is based on charging a fixed fee to display advertisements for a specified time period, may not be successful
There are currently no industry standard pricing models used to sell advertising on the Internet. This makes it difficult to project our future advertising rates and revenues. The models we adopt may prove not to be the most profitable. Substantially all of our advertising revenues in 1999 were derived from charging a fixed fee to display an advertisement over a given time period. To the extent that minimum guaranteed impression levels are not met, we are required to provide additional impressions after the contract term and we accordingly defer the related revenue. The failure of our advertising pricing model could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to track the delivery of advertisements through our portal
It is important to advertisers that we accurately measure the demographics of our user base and the delivery of advertisements through our portal. Companies may choose not to advertise on our portal or may pay less for advertising if they do not perceive our ability to track and measure the demographics of our users or the delivery of advertisements to be reliable. We depend on third parties to provide us with some of these measurement services. If they are unable to provide these services in the future, we would need to perform these services ourselves or obtain these service from another provider. This could cause us to incur additional costs or cause interruptions or slowdowns in our business during the time we are replacing these services. We are currently implementing additional systems designed to collect information on our users. We cannot assure you, however, that we can implement these systems successfully.
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The loss of one of our significant advertisers would reduce our advertising revenues and materially and adversely affect our business
We depend on a small group of advertisers for a significant portion of our total revenues. For 1999, two of our advertisers, one a shareholder, each accounted for more than 10% of our total revenues. In addition, our five largest advertisers accounted for approximately 34% of our total revenues. We anticipate that we will continue to rely on a relatively small number of significant advertisers for a majority of our total revenues for the foreseeable future. Our business, financial condition and results of operations would be materially and adversely affected by the loss of one or more of our significant advertisers or a decrease in the volume of advertising by any of these advertisers.
During January 2000, we entered into multi-year advertising agreements with affiliates of Pacific Century Cyberworks, Legend Holdings Limited and Hikari Tsushin, Inc. We also sold shares of our Series D preferred stock to affiliates of these entities in January and February 2000. We expect to derive significant revenues from these advertising agreements. The loss of any of these agreements or a decrease in the volume of advertising by any of these advertisers, would have a material adverse effect on our business, financial condition and results of operations.
Our strategy of acquiring complementary assets, technologies and businesses may not be successful and may result in equity or earnings dilution
As a component of our growth strategy, we intend to actively identify and acquire assets, technologies and businesses that are complementary to our existing portal business. Our acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities and significant amortization expenses related to goodwill and other intangible assets, each of which could materially and adversely affect our business, financial condition and results of operations. These acquisitions involve numerous risks, including:
. expenses incurred and difficulties in identifying potential targets and consummating suitable acquisitions;
. expenses related to undisclosed or potential legal liabilities of acquired companies, including those related to intellectual property and employment;
. the need to obtain the approval of the relevant PRC governmental authorities;
. difficulties in the integration and assimilation of the operations, technologies, products and personnel of the acquired business;
. the diversion of management’s attention from other business concerns;
. the unavailability of favorable acquisition financing; and
. the potential loss of key employees of any acquired business.
The failure to successfully identify and consummate suitable acquisitions or integrate any acquired assets, technologies and businesses could have a material adverse effect on our business, financial condition and results of operations.
We rely on income from dividends and other distributions paid by our wholly owned operating subsidiary to fund any cash requirements we may have
We are a holding company with no operating assets other than the shares of Beijing Sohu, our wholly owned subsidiary in the PRC that owns and conducts our entire Internet business. We will rely on dividends and other distributions paid by Beijing Sohu for our cash requirements, including the funds necessary to service any debt we may incur. If Beijing Sohu incurs debt on its own behalf in the future, the instruments governing the debt may restrict Beijing Sohu’s ability to pay dividends or make other distributions to us. In addition, PRC
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legal restrictions permit payment of dividends by Beijing Sohu only out of its net income, if any, determined in accordance with PRC accounting standards and regulations. Under PRC law Beijing Sohu is also required to set aside a portion of its net income each year to fund certain reserve funds. These reserves are not distributable as cash dividends. See note 5 to our consolidated financial statements included in this prospectus.
Until the China Trademark Office issues the actual trademark registration certificates, we do not have exclusive rights over the mark “Sohu.com”
China’s trademark law adopts a “first-to-file” system for obtaining trademark rights. As a result, the first applicant to file an application for registration of a mark will preempt all other applicants. Prior use of an unregistered mark is generally irrelevant except for “well-known” marks. We have registered the domain name “Sohu.com” with Network Solutions and the domain name “Sohu.com.cn” with China Internet Network Information Center, a domain name registration service in China, and have full legal rights over these domain names. We have also filed trademark applications for the mark “Sohu.com” in Chinese and English with the China Trademark Office. However, until actual registration certificates are issued by the China Trademark Office, we do not have exclusive rights over the mark “Sohu.com”.
We have applied for registration of the “Sohu.com” mark in the United States. We have also applied for registration of the “Sohu.com” mark in Hong Kong and Taiwan, and plan to apply for registration in Malaysia and Singapore. Completion of all of these applications are subject to prior rights in the relevant jurisdictions. Any rejection of such applications may adversely affect our legal rights over the mark “Sohu.com” in those countries and regions.
Unauthorized use of our intellectual property by third parties may adversely affect our business and we may be subject to intellectual property infringement claims
We regard our copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success. Unauthorized use of our intellectual property by third parties may adversely affect our business and our reputation. We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without authorization. Furthermore, the validity, enforceability and scope of protection of intellectual property in Internet- related industries is uncertain and still evolving. In particular, the laws of the PRC and certain other countries are uncertain or do not protect intellectual property rights to the same extent as do the laws of the United States. Moreover, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Future litigation could result in substantial costs and diversion of our resources, and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we cannot be certain that our products and services do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We have in the past been, and may in the future be, subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives. We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business.
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We may be subject to claims based on the content we provide over our portal
As our services may be used to download and distribute information to others, there is a risk that claims may be made against us for defamation, negligence, copyright or trademark infringement or other claims based on the nature and content of such information. Furthermore, we could be subject to claims for the online activities of our visitors and incur significant costs in their defense. In the past, claims based on the nature and content of information that was posted online by visitors have been made in the United States against companies that provide online services. We do not carry any liability insurance against such risks.
We could be exposed to liability for the selection of listings that may be accessible through our portal or through content and materials that our visitors may post in classifieds, message boards, chat rooms or other interactive services. If any information provided through our services contains errors, third parties may make claims against us for losses incurred in reliance on the information. We also offer Web-based e-mail services, which expose us to potential liabilities or claims resulting from:
. unsolicited e-mail;
. lost or misdirected messages;
. illegal or fraudulent use of e-mail; or
. interruptions or delays in e-mail service.
Investigating and defending these claims may be expensive, even if they do not result in liability.
Risks relating to our markets
If the Internet is not widely accepted as a medium for advertising and commerce, our business will suffer
We expect to derive most of our revenue for the foreseeable future from Internet advertising, and to a lesser extent, from e-commerce. If the Internet is not accepted as a medium for advertising and commerce, our business will suffer. The Internet advertising and e-commerce markets are new and rapidly evolving, particularly in China. As a result, we cannot determine their effectiveness or long-term market acceptance as compared with traditional media and commerce.
Many of our current or potential advertising and e-commerce customers have limited experience using the Internet for advertising or commerce purposes and historically have not devoted a significant portion of their advertising and sales budgets to Internet-based advertising and e-commerce. Customers that have invested substantial resources in other methods of conducting business may be reluctant to adopt a new strategy that may limit or compete with their existing efforts. In addition, companies may choose not to advertise or sell their products on our portal if they do not perceive our online advertising and e- commerce platform to be effective or our audience demographics to be desirable.
The acceptance of the Internet as a medium for advertising depends on the development of a measurement standard. No standards have been widely accepted for the measurement of the effectiveness of Internet advertising. Industry-wide standards may not develop sufficiently to support the Internet as an effective advertising medium. If these standards do not develop, advertisers may choose not to advertise on the Internet in general or through our portals or search engines. This would have a material adverse effect on our business, financial condition and results of operations.
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We face intense competition which could reduce our market share and adversely affect our financial performance
The PRC Internet market is characterized by an increasing number of entrants because, among other reasons, the barriers to entry are relatively low. The market for Internet services and products, particularly Internet search and retrieval services and Internet advertising, is intensely competitive. In addition, the Internet industry is relatively new and constantly evolving and, as a result, our competitors may better position themselves to compete in this market as it matures.
There are many companies that provide or may provide Web sites and online destinations targeted at Internet users in China. Some of our major competitors in China are major United States Internet companies, such as Yahoo! Inc., as well as domestic PRC Internet companies that are affiliated with large corporations such as American Online, Inc. and Softbank Corporation. These competitors may have certain advantages over us, including:
. substantially greater financial and technical resources;
. more extensive and well developed marketing and sales networks;
. greater global brand recognition among consumers; and
. larger customer bases.
With these advantages, our competitors may be better able to:
. develop, market and sell their products and services;
. adapt more quickly to new and changing technologies; and
. more easily obtain new customers.
We can provide no assurance that we will be able to compete successfully against our current or future competitors.
Our growth within the Internet market in China depends on the establishment of an adequate telecommunications infrastructure
The telecommunications infrastructure in China is not well developed. In addition, access to the Internet is accomplished primarily by means of the Internet backbones of separate national interconnecting networks that connect through several international gateways to the Internet outside of China. The Internet backbones and international gateways are all owned and operated by the Chinese government and are the only channels through which the domestic China Internet network can connect to the international Internet network. Although private sector Internet service providers exist in China, almost all access to the Internet is accomplished through ChinaNet, China’s primary commercial network, which is owned and operated by the Chinese government. We rely on this backbone, China Telecom and the Beijing Telecom Administration to provide data communications capacity primarily through local telecommunications lines. As a result, we will continue to depend on the Chinese government and state-owned enterprises to establish and maintain a reliable Internet and telecommunications infrastructure to reach a broader base of Internet users in China. We cannot assure you that we will be able to lease additional bandwidth from the Beijing Telecom Administration on acceptable terms or on a timely basis or at all. In addition, we will have no means of getting access to alternative networks and services, on a timely basis or at all, in the event of any disruption or failure of the network. We cannot assure you that the Internet infrastructure in China will support the demands associated with continued growth. If the necessary infrastructure standards or protocols or complementary products, services or facilities are not developed by the Chinese government and state-owned enterprises, our business, financial condition and results of operations could be materially and adversely affected.
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High cost of Internet access may limit the growth of the Internet in China and impede our growth
Access to the Internet in China remains relatively expensive, and may make it less likely for users to access and transact business over the Internet. Unfavorable rate developments could further decrease our visitor traffic and our ability to derive revenues from transactions over the Internet. This could have a material adverse effect on our business, financial condition and results of operations.
The acceptance of the Internet as a commerce platform in China depends on the resolution of problems relating to fulfillment and electronic payment
Our future growth of revenues depends in part on the anticipated expansion of e-commerce activities in China. As China currently does not have a reliable nationwide product distribution network, the fulfillment of goods purchased over the Internet will continue to be a factor constraining the growth of e- commerce. An additional barrier to the development of e-commerce in China is the lack of reliable payment systems. In particular, the use of credit cards or other viable means of electronic payment in sales transactions is not as well developed in China as in some other countries, such as the United States. Various government entities and businesses are working to resolve these fulfillment and payment problems, but these problems are expected to continue to hinder the acceptance and growth of the Internet as a commerce platform in China, which could in turn adversely affect our business, financial condition and results of operations.
Risks Related to the Internet and Our Technology Infrastructure
Unexpected network interruptions caused by system failures may result in reduced visitor traffic, reduced revenue and harm to our reputation
As the amount of Web pages and traffic increase, we cannot assure you that we will be able to increase the scale of our systems proportionately. We are also dependent upon Web browsers, Internet service providers, content providers and other Web site operators in China, which have experienced significant system failures and system outages in the past. Our users have in the past experienced difficulties due to system failures unrel
suho.com的IPO - 杜红超 - 2000-04-23 23:57:51
哪位给翻译一下？要不刘韧你翻译完再贴上来？:)