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Sohu.com Corporate Presentation

Sohu.com Corporate Presentation. SOHU.COM INC. (NASDAQ: SOHU). March 2010. Safe Harbor Statement.

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Sohu.com Corporate Presentation

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  1. Sohu.com Corporate Presentation SOHU.COM INC. (NASDAQ: SOHU) March 2010

  2. Safe Harbor Statement This presentation contains forward-looking statements. Statements that are not historical facts, including statements about Sohu and Changyou’s beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the current global financial and credit markets crisis and its potential impact on the Chinese economy, the slower growth the Chinese economy experienced during the latter half of 2008 and in 2009, which could recur in the future, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Sohu's quarterly operating results, and Sohu’s reliance on online advertising sales, online games and wireless services (most wireless revenues are collected from a few mobile network operators) for its revenues. Further information regarding these and other risks is included in Sohu's annual report on Form 10-K for the year ended December 31, 2010 and Changyou’s annual report on Form 20-F for the year ended December 31, 2010, and other filings by Sohu and Changyou with the Securities and Exchange Commission.

  3. Unique Combination of Strong Businesses: Sogou Online Search Subsidiary Sohu Portal Leading Mainstream Media Platform Changyou Leading MMORPG Company • Diversified game portfolio • Actively acquiring new users, particularly teenagers • Contributing revenues/ earnings/ strong cash flows • Strong brand recognition • User base of over 250m • Extensive advertising resources • Industry expertise from 17173.com – China's largest gaming portal • Sogou Pinyin is the dominant software for Chinese language-input in China, with 70-80% market share in China • Sogou Browser has reached 12% of computers in China. • Portal business: Traction is picking up as increasingly higher value advertising solutions are provided to advertising partners around China • Online game business (Changyou): A leading player in the MMORPG industry; effectively drives high growth and high profitability, as well as generates strong cash flows • Sogou search business: Strategic investment from Alibaba provides great opportunity to compete and capture market share

  4. Record total revenues, and record revenues for brand advertising, online games and search Financial Track Record * Non-GAAP operating income, net income and diluted EPS exclude the impact of share-based awards. Please refer to our earnings release, which is posted on the IR section of Sohu’s website at http://corp.sohu.com/investorrelations for GAAP numbers. 4

  5. Supplementary Financial Data by Business Lines

  6. Title Years Title Years Dr. Charles Zhang Chief Executive Officer 15 Mr. Tao Wang Chief Executive Officer 7 Mr. Xiaojian Hong Chief Technology Officer 7 Strong Results Delivered by an Experienced and Focused Team 8 Mr. Alex Ho Chief Financial Officer 7 Ms. Carol Yu Co-President and Chief Financial Officer 12 Mr. Dewen Chen President and Chief Operating Officer 7 Ms. Belinda Wang Co-President and Chief Operating Officer Mr. Xiaochuan Wang Chief Technology Officer 11 • The management team has been making all the right moves over the past 5+ years and is flush with confidence and strong execution capability

  7. Portal Business: Brand Advertising

  8. China Online Advertising Industry Advertisers are optimistic about 2011 outlook. Online media continues to gain market share from traditional media. • Greater efficiency and effectiveness • Ongoing advertising budgets shifting from offline to online • Internet penetration expansion • Online video is one of the fastest growing segments where Sohu has secured a leading position. • Steady revenue growth is expected for 2011.

  9. SOHU Brand Advertising Performance by Industry Brand advertising revenue for 2011 Q1 is expected to grow by 39% to 44% Y-o-Y. Fast growing sectors on a Y-o-Y basis for 2010 Q4 are Financial Service, Auto, Online Games, and FMCG. FMCG: will be one of the fast growing categories in 2011. Online video: Fast growth as a percentage of revenue are expected. More advertisers will start to shift the TV commercial budget to online video in 2011. Real Estate: • New government policies and regulations have had a negative impact on the volumeof sales. • Overall, Sohu will see revenue growth, especially from second-tier cities in 2011 Q1, through our efforts to offer more online promotion plans to advertisers.

  10. Online video: one of the fastest growing segments in China • Broadband penetration reached 98.3%, which enables the growing popularity of high-definition online video. • As of Dec 2010, 62.1% or 284 million of internet users in China are online video users, increased from 62.6% or 240 million of Chinese internet users one year ago. • Ad revenues of the online video industry in China are expected to grow over 65% each year from 2011 to 2013, reaching 11 billion RMB in 2013. Source: CNNIC and iResearch

  11. Online video: our potential future revenue driver

  12. Online video: our potential future revenue driver (continued) • Sohu typically sign up content owners 6 to 12 months before a TV drama series is aired. • Sohu was able to successfully obtain 23 out of the 30 most-watched prime-time TV dramas of 2010 as measured by CSM Media Research. And of the dramas we secured, 5 were exclusive online. • Unique visitors to Sohu’s video site more than doubled in December 2010 compared with December 2009, surpassing the 100 million mark. • In December 2010, Sohu video’s market share in terms of time spent grew to 13.4% from 3.4% in a mere 12-month period, which essentially means we picked up 10 percentage points in market share from other players. • Average daily video views on our high-definition video channel grew by 40% Q-o-Q in 2010 Q4. • For 2010, gross revenues from online video increased to $28 million, which was approximately three times that of 2009. The number of advertisers for 2010 increased by 55%. • For 2011, video will be one of our major area of emphasis. We would expect to put in an appropriate amount of resources into this area in order to stand up to our competitors.

  13. Online Search: Sogou

  14. Sogou Browser Sogou Pinyin Sogou Search Sogou browser has been installed on roughly 12% of PCs in China Average daily users in 2010 Q4 reached 15m, up 21% Q-o-Q The latest version accelerates browsing speeds by 20% and adds certain security protection functions as well as bandwidth protection function. Sogou search engine continue to grow in traffic, though over a low base. Now it takes 3~4% of the Chinese market share in terms of traffic. Average daily page views originated from Sogou.com in 2010 Q4 grew by 20% Q-o-Q The dominant software for Chinese language-input in China, installed on 70%~80% of PCs in China. Sogou Business Sohu will leverage Sogou Pinyin’s success to promote Sogou Browser, which in turn will bring traffic to Sogou Search.

  15. US$ million Search Revenue Mix

  16. Sogou Completed the Sale of Newly-issued Series A Preferred Shares • On October 22, 2010, Sogou completed the sale of newly-issued Series A Preferred Shares to • Alibaba Investment Limited; • China Web Search (HK) Limited, an investment vehicle of Yunfeng Fund, LP; and • Investment fund of Dr. Charles Zhang, Sohu’s Chairman and CEO. • With its new capital structure in place, Sogou has now transformed into an entity with laser-sharp focus on its desktop products and online search businesses. • This transformation has helped Sogou team become more committed and motivated, and helped to further attract talent as well as build confidence amongst our business partners, most importantly our distributors. • Examples showing that we are working in all fronts with Alibaba Group: • In 2010 Q4, search revenue from Taobao increased 137% Q-o-Q. • Starting from 2011, Sogou has established a direct sales relationship with Taobao, replacing the former one via agencies. • Sogou search engine has replaced Microsoft Bing to provide technical support to etao.com owned by Alibaba for its webpage search.

  17. Financial Implication of Sogou’s Issuance of Preferred Shares • Sogou received $48 million in proceeds from preferred shareholders, which will be used to fund Sogou’s operations over the next one to two years. • Sohu will retain 53% of Sogou on a fully-diluted basis, and intends to retain majority ownership in Sogou. • Going forward, Sohu will continue to consolidate Sogou’s financial statements, with interest of preferred shareholders to be reflected in Sohu’s consolidated balance sheet as non-controlling interest. • For 2010 Q4, Sogou’s net losses were around $5.3 million on a pro forma basis. Starting from 2011 Q2 onwards, Sohu’s diluted EPS calculations will only include 53% of Sogou’s losses, which is in proportion to our ownership in Sogou on a fully diluted basis.

  18. Resource Allocation Focused on Content and Technology • 18

  19. Online Games: CYOU 19

  20. IndustryUpdate 20

  21. China’s Growing Online Game Market Internet user growth drives the expansion of the online game market in China Macro trends driving robust online game revenue growth China – world’s largest Internet market and still growing (In millions) (In RMB billions) 2H06 – 2H10 CAGR: 42.4% 2H06 – 2H10 CAGR: 35.1% Government strengthens online games management, encourages creativity and focuses on healthy and sustainable development of the industry • At the CGIAC conference on January 19, 2011, Chinese government officials stated that the government will: • Introduce policies related to online gaming in China to provide a solid foundation for the sustainable growth of the industry • Support and encourage original game content developed by Chinese companies • Cooperate with online companies to effectively protect intellectual property rights • Encourage investments in advanced technologies and talent • Support domestic online games companies to expand overseas • We believe the formalization of a standard set of regulations will help the sustained development of the industry. Changyou will continue to strongly support the work of the regulators and join in the formulation and implementation of these regulations and make greater contributions to the industry’s development. Source: CNNIC, Analysys 21

  22. Financial Overview

  23. Strong Financial Track Record * Non-GAAP numbers exclude share-based compensation costs. Please refer to our earnings release, which is posted on the IR section of Changyou’s website at http://www.changyou.com/ir/for GAAP numbers. ** The guidance assumes the completion of and includes the Jing Mao acquisition. Changyou is a highly profitable online game developer with a strong, debt-free balance sheet and rich cash flows.

  24. Business Highlights

  25. Launched a hit game Continued to grow user base 1 2 Formed a large community 4 Build into an even more valuable franchise 3 Franchise Games are Cornerstone of Growth 1 TLBB Remains Our Flagship Game 1 The Most-installed MMORPGs in China’s Internet Café* An Award-winning Game • We will continue to release expansion packs regularly to drive the narrative forward and keep the franchise and its user community vibrant and growing… • Plan to launch an expansion pack on March 18, 2011, that is aimed at encouraging user interaction and increasing the stickiness of the community • Plan to launch TLBB 3, another major expansion pack, in 2H2011 to further enrich the in-game experience of users and extend the game’s lifespan 2 Fantasy Westward Journey NetEase 3 The Most-liked Online Game by Game Players by ChinaJoy for five consecutive years from 2006 to 2010 4 TLBB Changyou Eudemonso Netdragon World’s Top Five Most Profitable Game Franchises in 2009 by Forbes 5 Wendao Guangyu The World of Legend Shanda Games User-centric game development model incorporating extensive feedback and solid operating strategy deliver organic growth and maintain healthy game portfolio * Data from barchina.net for the period Feb 7-13, 2011 25

  26. Delivering Growth with New Inhouse-developed Games Latest Progress 2 Duke of Mount Deer Unique features to differentiate game from others on the market Multiple graphic modes Social interactive game-play Cartoonish graphic style • Target a wide range of people, across different genders and nationalities • Various forms of social activities to foster larger community and enhance gamer stickiness • Adorable exaggerations of characters • Visually attractive scenery and realistic weather effects • The first in the industry to allow players to freely switch between multiple graphic modes • Vivid graphics and 360 degree viewing angles Marketing Game content Technology Adorable characters Team-based activities Will unveil the full version of the game that contains many times the amount of content currently found in the existing version Team-based game Dawn in the main city Will officially start our nationwide marketing campaign for the game in March 2011 Will disclose a number of technical innovations within the global online games industry Realistic snow view Through these efforts, we hope to draw interest from players and attract attention from the media leading up to DMD’s launch, while offering a unique gaming experience to players in China Moon in the sky

  27. Building Human Capital for Long-term Development 3 Dedicated development team and growing talent pool Attract and train top-notch talent • We currently operate seven* online games in China and maintain a dedicated product development team for each game • We have multiple product development teams that are responsible for developing new MMORPGs of various graphic styles and themes as of December 31, 2010 and four new games are scheduled to release in 2011, including the most anticipated “Duke of Mount Deer” • The number of game engineers has reached 990 as of December 31, 2010, an increase of over 87% compared to the end of 2009 • Total employees were approximately 2,110 as of December 31, 2011 • We plan to further invest in and expand our game development capabilities by continuing to recruit and train new members to our team • We also plan to recruit more marketing and offline promotional staff to promote upcoming games Incentivize and retain existing employees • Developed a number of new in-house training programs for engineers in the past quarters • TLBB’s well-established game development platform is a training base for R&D talent • Experienced game development personnel provide valuable guidance to new hires and help them assimilate into Changyou’s culture • The team currently working on TLBB is already the third generation of game developers • Unique incentive systems ensure maximum sharing of experience and know-how Streamlined hiring and training practices strengthen foundation for long-term growth * Including Tian Long Ba Bu, Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong, Immortal Faith and San Jie Qi Yuan.

  28. Key Investment Takeaways Winning formula: strong brand ad and online game businesses to deliver sustainable growth through various economic cycles. Sogou search business is gaining potential to compete and capture market share. Strong, debt-free balance sheets and healthy operating cash flows: combined cash balance of $678 million with quarterly operating cash flow around $100 million.

  29. Thank You!

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