Sohu.com Limited American Depositary Receipt

Company Overview

Business Model: SOHU.COM LIMITED operates as a leading Chinese online media platform and game business group, providing online products and services primarily on PCs and mobile devices within the Chinese mainland. The company generates revenue through two main segments: Sohu, which focuses on online media content and marketing services, and Changyou.com Limited, which specializes in online game development and operation. The marketing services business primarily involves advertising and other marketing-related services, while the online game business utilizes an item-based revenue model for its diverse portfolio of games. A significant portion of value-added telecommunications and online game activities are conducted through Variable Interest Entities (VIEs) due to Chinese mainland foreign ownership restrictions.

Market Position: SOHU.COM LIMITED holds a prominent position in the Chinese online media and game sectors. Its Changyou.com Limited segment is a key developer and operator of online games, with "Tian Long Ba Bu PC" and "Legacy Tian Long Ba Bu Mobile" being dominant revenue contributors. The Sohu segment operates major online media platforms including Sohu News App, Sohu Video App, m.sohu.com, and www.sohu.com. The company faces intense competition across both its online media and game businesses from a wide array of domestic and international players.

Recent Strategic Developments: In 2025, SOHU.COM LIMITED renamed its "brand advertising business" to "marketing services business" to better reflect its primary activities. The Sohu segment has focused on refining flagship applications, expanding premium content, upgrading technology and algorithms, integrating resources, encouraging user-generated content, and conducting science-related live broadcasts. The Changyou.com Limited segment has adhered to a "Top Games" strategy, optimizing development, expanding international presence, enhancing game design and production, and embracing AI technologies. Changyou.com Limited also launched a new PC game, "Tian Long Ba Bu: Return," in 2025 and plans to expand its game portfolio to include card-based RPGs, sports games, casual games, and strategy games.

Geographic Footprint: SOHU.COM LIMITED's primary operational regions and key markets are within the Chinese mainland. Its principal executive offices are located in Beijing, People’s Republic of China. The company maintains a significant server infrastructure across the Chinese mainland for both its Sohu and Changyou.com Limited segments. Changyou.com Limited also maintains cloud-based servers in Hong Kong, other Asia-Pacific regions, Europe, and North America, and licenses its games to third-party operators in Taiwan, Vietnam, and Malaysia.

Cross-Border Operations: SOHU.COM LIMITED is a Cayman Islands exempted company, with key subsidiaries in Hong Kong and a subsidiary in Korea (Changyou.com Korea LLC). Its operations in the Chinese mainland are structured through Wholly Foreign-Owned Enterprises (WFOEs) and Variable Interest Entities (VIEs) to comply with local foreign ownership restrictions in value-added telecommunications and online game sectors. The company licenses its major online games, such as "Tian Long Ba Bu PC," "Legacy Tian Long Ba Bu Mobile," and "New Tian Long Ba Bu Mobile," to third-party operators in Taiwan, Vietnam, and Malaysia, typically under 1-3 year terms.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 77.5% (2025)
• Operating Margin: -16.1% (2025)
• Net Margin: 67.4% (2025)

Investment in Growth:

• R&D Expenditure: $247.5 million (42.4% of revenue)
• Capital Expenditures: $9.7 million
• Strategic Investments: Not explicitly detailed with specific amounts beyond general operational investments.

Currency Impact Analysis:

• The RMB appreciated approximately 1.7% against the U.S. dollar in 2025.
• The company has not entered into any hedging transactions to mitigate foreign exchange risk.
• The reporting currency is the U.S. dollar, while the majority of revenues, costs, assets, and liabilities are RMB-denominated, creating exposure to exchange rate fluctuations.

Business Segment Analysis

Sohu

Financial Performance:

• Revenue: $75.4 million (-18.2% YoY)
• Operating Loss: -$330.6 million
• Key Growth Drivers: Refinement of flagship applications, expansion of premium content, technology and algorithm upgrades, integration of resources, encouragement of user-generated content, and science-related live broadcasts.

Product Portfolio:

• Major product lines and services include the Sohu News App, Sohu Video App, m.sohu.com, and www.sohu.com.
• Other revenues are mainly derived from paid subscription services, revenue sharing from other platforms, and interactive broadcasting services.
• Pricing models for marketing services include Fixed Price, Cost Per Impression (CPM), and Cost Per Click (CPC).

Market Dynamics:

• The Sohu segment operates in a highly competitive online media landscape in the Chinese mainland.
• Key customer types for marketing services include advertisers, with 819 advertisers in 2025, averaging $69,000 per advertiser.
• Approximately 69% of marketing services revenues in 2025 were from advertising agencies, with the five largest contributing approximately 22% of total marketing services revenues.
• The regulatory environment in the Chinese mainland significantly impacts online news dissemination, internet publishing, online audiovisual transmission, and advertising.

Geographic Revenue Distribution:

• Chinese mainland: Primary market for all Sohu segment operations.

Changyou.com Limited

Financial Performance:

• Revenue: $508.9 million (+0.5% YoY)
• Operating Profit: $236.8 million
• Key Growth Drivers: Adherence to a "Top Games" strategy, optimized game development, expansion of international presence, enhanced game design and production, and adoption of AI technologies. The company also invests in its team and talent.

Product Portfolio:

• Major product lines include PC games and mobile games.
• PC games generated $412.7 million in 2025, representing 82% of Changyou.com Limited’s online game revenues. "Tian Long Ba Bu PC" was the dominant PC game, contributing $306.9 million (61% of Changyou.com Limited’s online game revenues, 53% of Sohu Group’s total revenues). "Tian Long Ba Bu: Return" was a new PC game launched in 2025.
• Mobile games generated $93.0 million in 2025. "Legacy Tian Long Ba Bu Mobile" contributed $41.4 million (8% of Changyou.com Limited’s online game revenues, 7% of Sohu Group’s total revenues).
• Game types include MMORPGs, card-based RPGs, sports games, casual games, and strategy games, all utilizing an item-based revenue model.
• Licensed-out games include exclusive licenses to Tencent for "Legacy Tian Long Ba Bu Mobile" and "New Tian Long Ba Bu Mobile" in the Chinese mainland, and licenses for "Tian Long Ba Bu PC," "Legacy Tian Long Ba Bu Mobile," and "New Tian Long Ba Bu Mobile" to third-party operators in Taiwan, Vietnam, and Malaysia.

Market Dynamics:

• Changyou.com Limited faces significant competition in the online game market from major players.
• The 17173.com Website, which generates marketing services revenues for Changyou.com Limited, competes with other game information portals.
• The Chinese mainland regulatory environment for online games is stringent, with restrictions on minors' access and spending, and content review requirements for mobile games.

Geographic Revenue Distribution:

• Chinese mainland: Primary market for online game revenues.
• Taiwan, Vietnam, Malaysia: Markets where games are licensed to third-party operators.

International Operations & Geographic Analysis

Revenue by Geography:

International Business Structure:

• Subsidiaries: Sohu.com (Hong Kong) Limited, Changyou.com (HK) Limited, and Changyou.com Korea LLC are key international subsidiaries.
• Joint Ventures: Not explicitly detailed.
• Licensing Agreements: Exclusive licenses for "Legacy Tian Long Ba Bu Mobile" and "New Tian Long Ba Bu Mobile" to Tencent in the Chinese mainland. Licenses for "Tian Long Ba Bu PC," "Legacy Tian Long Ba Bu Mobile," and "New Tian Long Ba Bu Mobile" to third-party operators in Taiwan, Vietnam, and Malaysia.

Cross-Border Trade:

• Export Markets: Games licensed to operators in Taiwan, Vietnam, and Malaysia.
• Import Dependencies: Not explicitly detailed.
• Transfer Pricing: Inter-company transactions and policies are subject to Chinese mainland tax regulations, including BEPS compliance.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: As of February 20, 2026, SOHU.COM LIMITED repurchased 8,209,937 ADSs for approximately $107 million under a program authorized for up to $150 million, extended to November 10, 2026.
• Dividend Payments: The Sohu Group intends to retain all available funds and future earnings for business operations, expansion, or ADS repurchases, and does not anticipate paying cash dividends on its ordinary shares for the foreseeable future.
• Dividend Yield: Not applicable given no anticipated dividend payments.
• Future Capital Return Commitments: An authorized share repurchase program of up to $150 million, with $43 million remaining as of February 20, 2026.

Balance Sheet Position:

• Cash and Equivalents: $128.3 million (as of December 31, 2025)
• Total Debt: $24.3 million (Total long-term liabilities as of December 31, 2025)
• Net Cash Position: $104.0 million (Cash and Equivalents less Total long-term liabilities)
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Contractual obligations for purchase of content and services, operating lease obligations, purchase of bandwidth, royalties, and other commitments total $22.3 million, with $19.3 million due in 2026.

Cash Flow Generation:

• Operating Cash Flow: -$4.8 million (used in continuing operating activities)
• Free Cash Flow: -$14.5 million (Operating Cash Flow - Capital Expenditures)
• Cash Conversion Metrics: Not explicitly detailed.

Currency Management:

• Cash holdings by major currencies: $55.6 million held in financial institutions inside the Chinese mainland (primarily RMB) and $72.7 million held outside the Chinese mainland (likely USD/HKD).
• Natural hedging through operational diversification: Not explicitly detailed, but the company's significant RMB-denominated operations naturally offset some RMB exposure.
• Financial hedging instruments and strategies: No hedging transactions have been entered into to date.

Operational Excellence

Production & Service Model: SOHU.COM LIMITED operates an online media platform and game development/operation model. The Sohu segment focuses on content creation, aggregation, and distribution through its news and video applications and websites, utilizing various advertising pricing models. The Changyou.com Limited segment develops and operates online games, primarily MMORPGs, card-based RPGs, sports games, casual games, and strategy games, all employing an item-based revenue model. Game services are provided on PCs and mobile devices.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Bandwidth Service Providers: China Mobile, China Unicom, and China Telecom are primary providers for Sohu's server infrastructure in the Chinese mainland.
• Game Licensors: Louis Cha copyright holder for "Tian Long Ba Bu" and "New Tian Long Ba Bu" game series.
• Game Distribution Partners: Tencent for exclusive licenses of "Legacy Tian Long Ba Bu Mobile" and "New Tian Long Ba Bu Mobile" in the Chinese mainland. Third-party operators in Taiwan, Vietnam, and Malaysia for other game titles.
• Advertising Agencies: Approximately 69% of Sohu's marketing services revenues in 2025 were from advertising agencies.

Facility Network:

• Manufacturing: Not applicable as the company is a software/media service provider.
• Research & Development: R&D activities are integrated into the product development process for both segments, with Changyou.com Limited embracing AI technologies for game design and production.
• Distribution: Sohu's content is distributed via its proprietary apps and websites. Changyou.com Limited's games are distributed through its own platforms, licensed partners (e.g., Tencent), and app stores (Apple/Android).
• Office Buildings: Sohu owns two office buildings in Beijing (18,265 sq m and 41,283 sq m) and leases 6,438 sq m of office space in the Chinese mainland. Changyou.com Limited owns two office buildings in Beijing (14,950 sq m and 56,549 sq m) and leases 2,059 sq m of office space in the Chinese mainland and other countries.

Operational Metrics:

• Sohu Marketing Services: 819 advertisers in 2025 (down from 1,059 in 2024).
• Changyou.com Limited (17173.com Website) Marketing Services: 69 advertisers in 2025 (up from 62 in 2024).
• Changyou.com Limited PC Games: Average Monthly Active Accounts (MAA) ranged from 1.9 million to 2.7 million in 2025. Quarterly Aggregate Active Paying Accounts (APA) ranged from 0.3 million to 1.0 million in 2025.
• Changyou.com Limited Mobile Games: Average Monthly Active Accounts (MAA) ranged from 1.9 million to 2.8 million in 2025. Quarterly Aggregate Active Paying Accounts (APA) ranged from 0.3 million to 1.1 million in 2025.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Sohu utilizes regional sales forces for direct customer relationships with advertisers.
• Channel Partners: Changyou.com Limited licenses games to Tencent for exclusive distribution in the Chinese mainland and to third-party operators in Taiwan, Vietnam, and Malaysia.
• Digital Platforms: Sohu leverages its proprietary Sohu News App, Sohu Video App, m.sohu.com, and www.sohu.com. Changyou.com Limited promotes games via online videos, mobile applications, online forums, social media, Internet celebrities, performance-based online advertising platforms (Ocean Engine, Guang Dian Tong, Fen Si Tong), and app stores (Apple/Android).

Customer Portfolio: Enterprise Customers:

• Advertisers: Sohu served 819 advertisers in 2025. Changyou.com Limited's 17173.com Website served 69 advertisers in 2025.
• Strategic Partnerships: Exclusive licensing agreements with Tencent for key mobile games in the Chinese mainland.
• Customer Concentration: Sales to the five largest advertising agencies and advertisers represented 24% of total marketing services revenues for 2025. For the 17173.com Website, four advertising agencies contributed approximately 50% of its marketing services revenues in 2025.

Regional Market Penetration:

• Chinese mainland: The primary market for both online media and online game services, with extensive penetration through proprietary platforms and partnerships.
• Growth Markets: Changyou.com Limited targets overseas markets through licensed operations in Taiwan, Vietnam, and Malaysia, employing targeted marketing strategies.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: SOHU.COM LIMITED operates in the highly dynamic and competitive Chinese online media and online game industries. These industries are characterized by rapid technological advancements, evolving user preferences, and stringent regulatory oversight, particularly in the Chinese mainland. The online game market is driven by new game launches, continuous content updates, and effective marketing, while the online media market is influenced by content quality, platform features, and user engagement.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Sohu Competitors: 58.com, Alibaba, Autohome, Baidu, Bilibili, BitAuto, Cheetah Mobile, Douyin, Douyu, Hello Group, Huya, iQIYI, JD, JOYY, Kuaishou, Leju, Mango TV, Meituan, NetEase, Phoenix, Pinduoduo, Rednote, Sina, Tencent, Tencent Music Entertainment, TouTiao, VIPS, Weibo, Xiaomi, Youku, and traditional media (CCTV, Xinhua News Agency, People’s Daily).
• Changyou.com Limited Online Game Competitors: 37 Interactive, Archosaur, Century Huatong, Giant, G-bits, IGG, Kingsoft, Lilith, miHoYo, NetDragon, NetEase, Perfect World, Tencent.
• Changyou.com Limited 17173.com Website Competitors: games.sina.com.cn (Sina Corporation).

Regional Competitive Dynamics: The competitive landscape varies by region. In the Chinese mainland, SOHU.COM LIMITED faces a broad array of well-established domestic internet giants and specialized content/game providers. In international markets where Changyou.com Limited licenses its games (e.g., Taiwan, Vietnam, Malaysia), competition is from local operators and other international game publishers.

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics:

• Business Dependence: A significant portion of total revenues (60% in 2025) and online game revenues (69% in 2025) are derived from "Tian Long Ba Bu PC" and "Legacy Tian Long Ba Bu Mobile." Revenues from these games have declined from 2018 through 2025, posing a risk if new games or existing titles fail to maintain or grow their user base and monetization.
• Competition: Intense competition across online media and game sectors from numerous domestic and international players could impact market share and profitability.
• Technology Disruption: Rapid technological changes and evolving user preferences in online media and gaming could render existing products and services less competitive.
• Customer Concentration: For marketing services, the top five advertising agencies contributed approximately 22% of revenues in 2025, indicating some concentration risk.

Operational & Execution Risks

Global Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on major Chinese mainland telecommunications providers for server infrastructure and bandwidth.
• Regional Disruptions: Operations are concentrated in the Chinese mainland, making them susceptible to local political, economic, or natural disaster risks.
• Trade Restrictions: Potential impacts from export controls, tariffs, and trade disputes, particularly affecting cross-border technology transfers or game licensing.

Financial & Regulatory Risks

Currency & Financial Risks:

• Foreign Exchange: Significant exposure to RMB exchange rate fluctuations against the U.S. dollar, as the majority of revenues and costs are RMB-denominated, and no hedging transactions are currently employed.
• Interest Rate Risk: Primarily relates to interest income from demand deposits, with no derivative financial instruments used.
• Credit & Liquidity: While current liquidity is deemed sufficient for the next 12 months, access to capital markets globally could be impacted by market conditions or regulatory changes.
• Goodwill Impairment: A $37.0 million goodwill impairment loss was recognized in 2025 for the Sohu reporting unit, indicating potential overvaluation of assets.

Regulatory & Compliance Risks:

• Multi-Jurisdictional Compliance: Operations are subject to complex and evolving Chinese mainland laws and regulations concerning foreign ownership (VIE structure), value-added telecommunications, internet information services, online publishing, audiovisual transmission, protection of minors, online cultural products, mobile apps, internet pharmaceuticals, advertising, online games, information security, data security, cybersecurity reviews, cross-border data transfers, algorithm recommendations, generative AI services, and unfair competition.
• Trade Regulations: Compliance with Chinese mainland export controls, sanctions, and anti-corruption laws (e.g., FCPA and local anti-bribery laws).
• Tax Regulations: Risks associated with Chinese mainland withholding tax on dividends, transfer pricing policies, BEPS compliance, and potential classification as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes.
• Minors in Online Games: Strict regulations limit minors' online game access (one hour per day on specific days) and prohibit paid services for those under eight, impacting game revenue potential.

Geopolitical & External Risks

Country-Specific Risks:

• Political Risk: Changes in Chinese mainland government policies, political stability, or regulatory enforcement could significantly impact operations and financial performance.
• Economic Risk: Broader economic slowdowns in the Chinese mainland, currency devaluation, or other economic instabilities could reduce advertising spending and online game consumption.
• Regulatory Changes: Frequent and stringent changes in Chinese mainland laws, particularly regarding internet content, data security, and online gaming, require continuous adaptation and compliance efforts.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network:

• Chinese mainland: Primary location for R&D activities.
• Innovation Pipeline: Sohu focuses on upgrading technology and algorithms for its media platforms and expanding premium content. Changyou.com Limited emphasizes optimizing game development, enhancing game design and production, and embracing AI technologies to expand its game portfolio with new genres like card-based RPGs, sports games, casual games, and strategy games.

Intellectual Property Portfolio:

• Patent Strategy: SOHU.COM LIMITED holds 422 issued patents in the Chinese mainland and has 106 pending applications.
• Licensing Programs: The company holds license rights for key game titles like "Tian Long Ba Bu" and "New Tian Long Ba Bu" from the Louis Cha copyright holder. It also licenses its games to Tencent and other third-party operators.
• IP Litigation: In December 2025, Changyou.com Limited settled a dissenters’ rights lawsuit in the Cayman Islands related to the Changyou Merger.
• Trademarks & Copyrights: The company owns 1,671 registered trademarks in the Chinese mainland (e.g., SOHU.com, ChangYou.com, cyou.com, Sohu News, Sohu Video, 17173), 129 international registered trademarks, 1,320 registered software copyrights, 1,338 registered works copyrights in the Chinese mainland, and 20 outside the Chinese mainland. It also owns 316 domain names.

Technology Partnerships:

• Strategic Alliances: Exclusive licensing agreements with Tencent for key mobile games in the Chinese mainland.
• Research Collaborations: Not explicitly detailed.

Leadership & Governance

Executive Leadership Team

International Management Structure:

• The company's management structure includes a CEO for the overall SOHU.COM LIMITED group and a separate CEO for the Changyou.com Limited segment, indicating a decentralized operational management for its core businesses. Regional leadership is implied through the global operational footprint of Changyou.com Limited.

Board Composition:

• The Board of Directors is divided into two classes with staggered two-year terms.
• The board includes four independent directors: Dr. Zhonghan Deng, Mr. Dave De Yang, Dr. Dave Qi, and Mr. Shi Wang, ensuring a level of independence.
• Dr. Dave Qi serves as an audit committee financial expert.
• The Audit, Compensation, and Nominating Committees are composed entirely of independent directors.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments:

• Chinese mainland: Subject to extensive and evolving regulations from numerous authorities including MIIT, MCT, MPS, MOFCOM, SAMR, NRTA, NFA, NPPA, SCIO, CAC, SAFE, CBIRC, PBOC, MOF, State Secrets Protection Bureau, State Cryptography Administration Bureau (SCAB), China Copyright Protection Center, CNIPA, Supreme People’s Court, and Supreme People’s Procuratorate. Key areas of regulation include foreign ownership restrictions (necessitating the VIE structure), value-added telecommunications, internet information services, online news dissemination, internet publishing, online audiovisual transmission, protection of minors (especially in online games), online cultural products, mobile internet applications, internet pharmaceuticals information services, advertising, online game services, information security, data security, cybersecurity reviews, cross-border data transfers, algorithm recommendations, generative AI services, unfair competition, and M&A/overseas listings.
• Cayman Islands: Jurisdiction of incorporation, with no taxes on profits, income, gains, or appreciation.
• Hong Kong: Subject to a profits tax rate of 16.5%.

Cross-Border Compliance:

• Export Controls: Compliance with Chinese mainland regulations on technology transfer restrictions and licensing requirements.
• Sanctions Compliance: Adherence to multi-jurisdictional sanctions regimes and ongoing compliance monitoring.
• Anti-Corruption: Compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and local anti-bribery laws in all operating jurisdictions.
• Data Security & Privacy: Stringent requirements under Chinese mainland laws (Internet Security Law, Data Security Law, Data Security Regulations, Measures for Cybersecurity Review) for data protection, cybersecurity reviews, and cross-border data transfers.

International Tax Strategy:

• Transfer Pricing: Inter-company pricing policies and documentation requirements are subject to scrutiny by Chinese mainland tax authorities.
• Tax Treaties: Potential for reduced withholding tax rates (e.g., 5% for Hong Kong residents) on dividends under tax treaties, subject to beneficial ownership criteria.
• BEPS Compliance: Adherence to Base Erosion and Profit Shifting (BEPS) regulations in the Chinese mainland.
• U.S. Corporate Income Tax: In Q1 2025, the company fully reversed a $199 million unrecognized tax benefit related to the Toll Charge due to the expiration of the IRS examination period, resulting in a significant income tax benefit.
• Withholding Tax on Dividends: A 10% withholding tax generally applies to dividends paid to non-resident enterprises in the Chinese mainland. In Q4 2025, a $283.6 million deferred tax liability related to Changyou.com Limited's dividend policy was reversed, as earnings will be reinvested in Chinese mainland operations.

Environmental & Social Impact

No material information regarding global sustainability strategy, environmental commitments, carbon neutrality, renewable energy, regional sustainability initiatives, supply chain ESG requirements, community investment, or labor standards by region was explicitly stated in the provided filing.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

Hedging Strategies:

• Transaction Hedging: Not currently employed.
• Translation Hedging: Not currently employed.
• Economic Hedging: Not currently employed.

The company's reporting currency is the U.S. dollar, while the majority of its revenues, costs, assets, and liabilities are denominated in RMB. The RMB appreciated approximately 1.7% against the U.S. dollar in 2025. The company has not entered into any hedging transactions to mitigate foreign currency exchange rate risk. Cash and cash equivalents are held in both Chinese mainland financial institutions ($55.6 million) and outside the Chinese mainland ($72.7 million).