20-F 1 d507223d20f.htm FORM 20-F Form 20-F
Table of Contents
0001734107falseOrdinary sharestrueFYTotal additions to fixed assets of Sohu and Changyou were $1.1 million and $1.2 million, respectively, for the year ended December 31, 2023.Total additions to fixed assets of Sohu and Changyou were $4.6 million and $1.0 million, respectively, for the year ended December 31, 2022.The elimination for segment assets mainly consists of elimination of long-term investments in subsidiaries and consolidated VIEs, and elimination of intra-Group loans between Sohu and Changyou.Changyou recognized impairment losses of $5.8 million and $2.0 million for prepaid and other current assets related to content and game licenses for 2023 and 2022, respectively.The contingent liability represented the aggregate of estimated potential payments to third parties in connection with the liquidation of Shanghai Jingmao. The stated amount of the contingent liability reflected Changyou’s best estimate as of December 31, 2022 pursuant to ASC 450-20. In August 2023, the bankruptcy proceeding was concluded by the court, and the likelihood of the Company’s being required to pay such contingent liability became remote. As a result, Changyou reversed such previously recorded contingent liability and recognized the same amount as disposal gain.Includes the financial results of the discontinued operations from January 1, 2021 to September 23, 2021.Sogou leased from Sohu, on an arms-length basis, office space at Sohu.com Internet Plaza under a lease that expired on December 31, 2022. Since 2023, the Company has leased this entire building to third-party tenants.In the fourth quarter of 2022, the Sohu Group recognized an impairment loss of $12.0 million for an equity investment in a third-party online game developer.The change in the regular 25% rate of income tax to preferential income tax rates that Changyou’s subsidiaries and VIEs were entitled to as Software Enterprises for 2021 and 2022 was included in the “Effect of tax holidays applicable to subsidiaries and consolidated VIEs” in the above table.Under Chinese mainland regulations issued in September 2022 that were applicable from October 1, 2022 to December 31, 2022, additional research and development expenses were eligible for deduction from taxable income.“SBC” stands for share-based compensation expense.Total depreciation and amortization expenses of Sohu and Changyou were $23.4 million and $12.6 million, respectively, for the year ended December 31, 2021.Total depreciation and amortization expenses of Sohu and Changyou were $19.8 million and $11.5 million, respectively, for the year ended December 31, 2022.Total depreciation and amortization expenses of Sohu and Changyou were $18.8 million and $11.4 million, respectively, for the year ended December 31, 2023.As of December 31, 2022, the stated amount in other payables represented the aggregate amount that Changyou received from the bankruptcy proceedings as a creditor of Shanghai Jingmao during the process of the liquidation of Shanghai Jingmao. In August 2023, as the bankruptcy proceeding was concluded by the court, Changyou reversed those payables and recognized the same amount, together with an additional distribution of $5.2 million received in 2023, as disposal gain.Expenses generated from marketing services between the Sohu Group and Sogou, and leasing expenses generated from a building that Sohu leased to Sogou were not eliminated because those expenses continued after the disposal of the discontinued operations.The changes in the effective tax rate for the period ended September 23, 2021 resulted from the lower income from discontinued operations before income tax expense. 0001734107 2023-01-01 2023-12-31 0001734107 2022-01-01 2022-12-31 0001734107 2021-01-01 2021-12-31 0001734107 2023-12-31 0001734107 2022-12-31 0001734107 2021-12-31 0001734107 2022-10-01 2022-12-31 0001734107 2020-12-31 0001734107 srt:ParentCompanyMember us-gaap:OperatingSegmentsMember 2022-12-31 0001734107 us-gaap:IntersegmentEliminationMember 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:
001-38511
 
 
SOHU.COM LIMITED
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Level 18, Sohu.com Media Plaza
Block 3, No. 2 Kexueyuan South Road, Haidian District
Beijing 100190
People’s Republic of China
(Address of principal executive offices)
Joanna Lv
Chief Financial Officer
Level 18, Sohu.com Media Plaza
Block 3, No. 2 Kexueyuan South Road, Haidian District
Beijing 100190
Telephone: (011)
8610-
6272
6666
Email:
IR@sohu-inc.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
(Title of each class)
 
(Trading Symbol(s))
 
(Name of each exchange on which registered)
American Depositary Shares, each representing one ordinary share, par value US$0.001 per share
 
SOHU
 
The Nasdaq Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 33,048,684 ordinary shares, par value $0.001 per share, as of December 31, 2023.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes  ☒ No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer  ☐    Accelerated filer  ☒   
Non-accelerated filer
 ☐
   Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
 
U.S. GAAP  ☒
  
International Financial Reporting Standards as issued
by the International Accounting Standards Board  ☐
   Other  ☐     
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). ☐ Yes  No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
 
 
 


Table of Contents

TABLE OF CONTENTS

 

INTRODUCTION

    1  

FORWARD-LOOKING INFORMATION

    2  

PART I

 

Item 1.

  Identity of Directors, Senior Management and Advisers     3  

Item 2.

  Offer Statistics and Expected Timetable     3  

Item 3.

  Key Information     3  

Item 4.

  Information on the Company     66  

Item 4A.

  Unresolved Staff Comments     113  

Item 5.

  Operating and Financial Review and Prospects     113  

Item 6.

  Directors, Senior Management and Employees     128  

Item 7.

  Major Shareholders and Related Party Transactions     136  

Item 8.

  Financial Information     140  

Item 9.

  The Offer and Listing     140  

Item 10.

  Additional Information     141  

Item 11.

  Quantitative and Qualitative Disclosures About Market Risk     151  

Item 12.

  Description of Securities Other than Equity Securities     152  

PART II

 

Item 13.

  Defaults, Dividend Arrearages and Delinquencies     152  

Item 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds     152  

Item 15.

  Controls and Procedures     153  

Item 16A.

  Audit Committee Financial Expert     154  

Item 16B.

  Code of Ethics     154  

Item 16C.

  Principal Accountant Fees and Services     154  

Item 16D.

  Exemptions from the Listing Standards for Audit Committees     155  

Item 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers     155  

Item 16F.

  Change in Registrant’s Certifying Accountant     155  

Item 16G.

  Corporate Governance     155  

Item 16H.

  Mine Safety Disclosure     155  

Item 16I.

  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections     155  

Item 16J.

  Insider Trading Policies     155  

Item 16K.

  Cybersecurity     156  

PART III

 

Item 17.

  Financial Statements     158  

Item 18.

  Financial Statements     158  

Item 19.

  Exhibits     159  

SIGNATURES

    163  


Table of Contents

Introduction

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

“HNTE” refers to high and new technology enterprises;

 

   

“IPO” refers to an initial public offering;

 

   

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

 

   

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

 

   

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

 

   

“New TLBB Mobile” refers to a mobile game that Changyou developed based on the title and characters of Tian Long Ba Bu, which is operated by Tencent under license from Changyou and was launched in August 2023;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

1


Table of Contents
   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

This annual report on Form 20-F includes our audited consolidated statements of comprehensive income/(loss) for the years ended December 31, 2021, 2022, and 2023 and audited consolidated balance sheets as of December 31, 2022 and 2023.

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

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

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

FORWARD-LOOKING INFORMATION

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

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

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

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

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

 

ITEM 3.

KEY INFORMATION

Financial Information Related to VIEs and Sohu.com Limited

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

 

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The table below presents our condensed consolidating schedule of financial position for our top-tier publicly-traded holding company Sohu.com Limited (the “Company”), our wholly-owned subsidiaries that are the primary beneficiaries of the VIEs under U.S. GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and the VIEs and their subsidiaries that we consolidate under U.S. GAAP (ASC 810) as of the dates presented (in thousands).

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

 

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

ASSETS

               

Current assets:

               

Cash and cash equivalents

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

Restricted cash

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

Short-term investments

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

Accounts receivable, net

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

Prepaid and other current assets

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

Intra-Group receivables due from subsidiaries (1)

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Fixed assets, net

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

Investment in subsidiaries (2)

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

Controlling financial interests in VIEs (3)

     0        0       198,476        0        (198,476     0  

Long-term time deposits

     0        0       265,802        0        0       265,802  

Other non-current assets

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES

               

Current liabilities:

               

Accounts payable

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

Accrued liabilities

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

Receipts in advance and deferred revenue

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

Accrued salary and benefits

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

Tax payables

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

Intra-Group payables due to subsidiaries (1)

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

Other short-term liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Long-term other payables

     0        866       929        0        0       1,795  

Long-term tax liabilities

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

Deferred tax liabilities

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

Other non-current liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

               

SHAREHOLDERS’ EQUITY

               

Total Sohu.com Limited shareholders’ equity

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

Noncontrolling interest

     0        1,268       0        0        0       1,268  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total shareholders’ equity (2)(3)

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     As of December 31, 2023  
     Sohu.com
Limited
     Other
Subsidiaries
     Primary
Beneficiaries
of VIEs
     VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 2,914        155,057        197,868        6,665        0       362,504  

Restricted cash

     0        0        1,772        1,412        0       3,184  

Short-term investments

     0        501,869        77,158        18,743        0       597,770  

Accounts receivable, net

     0        10,615        28,050        32,953        0       71,618  

Prepaid and other current assets

     631        15,394        60,432        5,514        0       81,971  

Intra-Group receivables due from subsidiaries (1)

     531,708        264,426        655,512        502,353        (1,953,999     0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     535,253        947,361        1,020,792        567,640        (1,953,999     1,117,047  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Fixed assets, net

     0        47,780        221,075        203        0       269,058  

Investment in subsidiaries (2)

     805,454        3,389,434        1,186,862        0        (5,381,750     0  

Controlling financial interests in VIEs (3)

     0        0        218,907        0        (218,907     0  

Long-term time deposits

     0        171,621        216,992        0        0       388,613  

Other non-current assets

     22,036        24,424        13,794        48,538        (1,412     107,380  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,362,743        4,580,620        2,878,422        616,381        (7,556,068     1,882,098  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES

                

Current liabilities:

                

Accounts payable

   $ 0        8,680        28,013        7,916        0       44,609  

Accrued liabilities

     1,244        35,353        38,657        28,525        0       103,779  

Receipts in advance and deferred revenue

     0        4,634        2,237        43,958        0       50,829  

Accrued salary and benefits

     83        4,042        41,671        4,534        0       50,330  

Tax payables

     0        931        9,365        1,067        0       11,363  

Intra-Group payables due to subsidiaries (1)

     118,742        923,205        628,969        283,083        (1,953,999     0  

Other short-term liabilities

     0        61,519        6,080        13,883        0       81,482  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     120,069        1,038,364        754,992        382,966        (1,953,999     342,392  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Long-term other payables

     0        554        3,370        0        0       3,924  

Long-term tax liabilities

     183,718        16,120        0        13,021        0       212,859  

Deferred tax liabilities

     0        253,483        8,032        0        0       261,515  

Other non-current liabilities

     0        86        2,011        1,445        (1,412     2,130  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     183,718        270,243        13,413        14,466        (1,412     480,428  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 303,787        1,308,607        768,405        397,432        (1,955,411     822,820  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

                

SHAREHOLDERS’ EQUITY

                

Total Sohu.com Limited shareholders’ equity

     1,058,956        3,271,691        2,110,017        218,949        (5,600,657     1,058,956  

Noncontrolling interest

     0        322        0        0        0       322  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total shareholders’ equity (2)(3)

     1,058,956        3,272,013        2,110,017        218,949        (5,600,657     1,059,278  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,362,743        4,580,620        2,878,422        616,381        (7,556,068     1,882,098  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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

 

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

Revenues:

             

Third-party revenues

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

Intra-Group revenues (4)

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

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

Cost of revenues:

             

Third-party cost of revenues

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

Intra-Group cost of revenues (4)

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total cost of revenues

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

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

Operating expenses:

             

Third-party operating expenses

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

Intra-Group operating expenses (4)

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit/(loss)

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

Income/(loss) from subsidiaries (2)

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

Income/(loss) from VIEs (3)

     0       0       35,805       0        (35,805     0  

Non-operating income/(expense)

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income before income tax expense

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

Income tax expense

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income from continuing operations

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

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

     0       (3     0       0        0       (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income from continuing operations attributable to Sohu.com Limited

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

Net income from discontinued operations, net of tax

                858,451  
             

 

 

 

Net income

   $                  927,725  
             

 

 

 

 

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

Revenues:

            

Third-party revenues

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

Intra-Group revenues (4)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

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

Cost of revenues:

            

Third-party cost of revenues

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

Intra-Group cost of revenues (4)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

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

Operating expenses:

            

Third-party operating expenses

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

Intra-Group operating expenses (4)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

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

Income/(loss) from subsidiaries (2)

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

Income/(loss) from VIEs (3)

     0       0       2,691       0       (2,691     0  

Non-operating income/(expense)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before income tax expense

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

Income tax expense

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) from continuing operations

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

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

     0       2       0       0       0       2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

 

Net loss

   $                 (17,343
            

 

 

 

 

7


Table of Contents
     Year Ended December 31, 2023  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
     Eliminating
adjustments
    Consolidated
totals
 

Revenues:

             

Third-party revenues

   $ 0       51,825       71,645       477,202        0       600,672  

Intra-Group revenues (4)

     0       2,431       382,418       13,283        (398,132     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     0       54,256       454,063       490,485        (398,132     600,672  

Cost of revenues:

             

Third-party cost of revenues

     0       30,422       63,914       55,227        (3,806     145,757  

Intra-Group cost of revenues (4)

     0       15,178       8,396       86,435        (110,009     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total cost of revenues

     0       45,600       72,310       141,662        (113,815     145,757  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     0       8,656       381,753       348,823        (284,317     454,915  

Operating expenses:

             

Third-party operating expenses

     2,193       137,111       358,862       44,059        0       542,225  

Intra-Group operating expenses (4)

     0       1,387       287       282,812        (284,486     0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     2,193       138,498       359,149       326,871        (284,486     542,225  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit/(loss)

     (2,193     (129,842     22,604       21,952        169       (87,310

Income/(loss) from subsidiaries (2)

     (51,138     68,616       (122,232     0        104,754       0  

Income/(loss) from VIEs (3)

     0       0       23,879       0        (23,879     0  

Non-operating income/(expense)

     376       28,873       48,766       3,814        (169     81,660  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income/(loss) before income tax expense

     (52,955     (32,353     (26,983     25,766        80,875       (5,650

Income tax expense

     12,850       19,050       26,633       1,887        0       60,420  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income/(loss) from continuing operations

     (65,805     (51,403     (53,616     23,879        80,875       (66,070

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

     0       (265     0       0        0       (265
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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

     (65,805     (51,138     (53,616     23,879        80,875       (65,805
             

 

 

 

Net income from discontinued operations, net of tax

                35,426  
             

 

 

 

Net loss

   $                  (30,379
             

 

 

 

 

8


Table of Contents

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

 

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

Cash flows from operating activities:

            

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

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Net cash used in discontinued operating activities

               (175,888
            

 

 

 

Net cash used in operating activities

               (62,278

Cash flows from investing activities:

            

Net cash used in transactions with third parties

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in continuing investing activities

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

Net cash provided by discontinued investing activities

               1,054,148  
            

 

 

 

Net cash provided by investing activities

               516,729  

Cash flows from financing activities:

            

Net cash used in transactions with third parties

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Net cash used in discontinued financing activities

               (9,132
            

 

 

 

Net cash used in financing activities

               (434,100

 

9


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

Cash flows from operating activities:

            

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

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

 

Net cash provided by operating activities

               32,242  

Cash flows from investing activities:

            

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

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

 

Net cash used in investing activities

               (232,789

Cash flows from financing activities:

            

Net cash used in transactions with third parties

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

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

 

Net cash used in financing activities

               (82,136

 

10


Table of Contents
     Year Ended December 31, 2023  
     Sohu.com
Limited
    Other
Subsidiaries
    Primary
Beneficiaries
of VIEs
    VIEs and
their
subsidiaries
    Eliminating
adjustments
    Consolidated
totals
 

Cash flows from operating activities:

            

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

   $ (1,631     (356,837     (76,861     409,762       0       (25,567

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

     0       (13,528     396,121       (382,593     0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (1,631     (370,365     319,260       27,169       0       (25,567
            

 

 

 

Net cash used in operating activities

               (25,567

Cash flows from investing activities:

            

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

     0       (351,792     75,049       (14,922     0       (291,665

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

     3       (1,124,552     (1,325,496     73,894       2,376,151       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     3       (1,476,344     (1,250,447     58,972       2,376,151       (291,665
            

 

 

 

Net cash used in investing activities

               (291,665

Cash flows from financing activities:

            

Net cash used in transactions with third parties

     (6,560     0       0       0       0       (6,560

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

     9,794       1,355,281       1,112,687       (101,611     (2,376,151     0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     3,234       1,355,281       1,112,687       (101,611     (2,376,151     (6,560
            

 

 

 

Net cash used in financing activities

               (6,560

Note (1): Represents the elimination of intercompany balances generated from intra-Group service charges among Sohu.com Limited, the Primary Beneficiaries of VIEs, the Other Subsidiaries, and the VIEs and their subsidiaries that we consolidate under U.S. GAAP (ASC 810).

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

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

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

 

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Table of Contents

Transfers of Cash Within the Sohu Group

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

 

     Year ended December 31,  
     2021      2022      2023  

Cash paid by the VIEs to our subsidiaries under service agreements

   $ (528,330    $ (478,098    $ (396,728

Cash received by the VIEs from our subsidiaries under service agreements

     22,777        32,438        14,135  

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

     (140,671      (79,209      (101,611

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

     111,888        72,497        73,894  

Risk Factors

Risks Related to Our Business

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

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

 

   

continue to attract users to remain with us and use our products and services;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

effectively control our costs and expenses; and

 

   

attract and retain qualified personnel.

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

Our annual and quarterly operating results have varied significantly in the past, and may vary significantly in the future, due to a number of factors which could have an adverse impact on our business. We reported an operating loss for both 2022 and 2023 and may continue to suffer operating losses in future years. Our online advertising revenues often fluctuate as our advertisers adjust their advertising strategies as their industries go through business and economic cycles. Our advertisers’ online marketing spending may also be negatively impacted by the general macroeconomic environment in the Chinese mainland, which in turn could negatively impact our online advertising revenues. Also see “- We depend on revenues from Changyou’s PC game TLBB and mobile game Legacy TLBB Mobile for a significant portion of our revenues, net income, and operating cash flow.”

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

For the year ended December 31, 2023, 62% of our total revenues and 79% of our online game revenues were derived from TLBB PC and Legacy TLBB Mobile. Despite Changyou’s efforts to improve these two games, game players may nevertheless lose interest in them over time and their popularity, revenues, and profitability may decline accordingly. If Changyou fails to improve and update TLBB PC and Legacy TLBB Mobile on a timely basis, or if Changyou’s competitors introduce more popular games, including mobile games, catering to Changyou’s game-player base, the decline in TLBB PC’s and Legacy TLBB Mobile’s popularity can be expected to accelerate, which could cause a significant decrease in our revenues. If Changyou’s revenues from TLBB PC and Legacy TLBB Mobile continue to decline as they have in recent years, or if Changyou’s online game revenues from games other than TLBB PC and Legacy TLBB Mobile do not grow or if they decrease, our revenues, net income, and operating cash flow will be adversely affected. Furthermore, any interruptions in TLBB PC and Legacy TLBB Mobile’s operations could cause significant decreases in our revenues, net income, and operating cash flow.

 

12


Table of Contents

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

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

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

 

   

access to financial resources;

 

   

technological advancements;

 

   

attractiveness of products;

 

   

brand recognition;

 

   

volume of traffic and users;

 

   

quality of Internet platforms and content;

 

   

strategic relationships;

 

   

quality of services;

 

   

effectiveness of sales and marketing efforts;

 

   

talent of staff; and

 

   

pricing.

Our competitors may have certain competitive advantages over us including:

 

   

greater brand recognition among Internet users and clients;

 

   

better products and services;

 

   

larger user and advertiser bases;

 

   

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

 

   

substantially greater financial and technical resources.

 

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Table of Contents

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

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

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

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

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

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

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

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

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

 

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Table of Contents

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

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

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

The Internet industry is undergoing rapid technological changes. Our future success will depend on our ability to respond to evolving technologies, such as emerging artificial intelligence technology, adapt our services to changing industry standards and improve the performance and reliability of our services. If we fail to adapt to such changes, our business may be adversely affected. For example, with the emergence of cloud computing technology, the primary Internet technology platform has been transformed from a traditional platform to a cloud computing platform. If we fail to adapt to the transformation, our products and services upgrade process will fall behind our competitors, and accordingly weaken our capacity to adapt our technology to the market. Furthermore, cloud computing itself is a significant business opportunity. If we fail to seize the opportunity, we will lose our ability to capture a share of that market. In addition, as mobile devices other than personal computers are increasingly used to access the Internet, we must develop products and services for such devices. To meet advertisers’ needs in targeting potential advertisers accurately, we need to develop and operate a more effective system for our advertising delivery, tracking and recording. Otherwise, we will not be able to maintain or increase our revenues and market share. In the meantime, the Ministry of Industry and Information Technology (the “MIIT”) and other regulatory authorities in the Chinese mainland can be expected to regularly promulgate standards and other regulations regarding Internet software and other Internet-based technologies. Adapting to such standards and regulations, including any regarding emerging artificial intelligence technology, could require us to make significant expenditures in the future.

Our strategy of acquiring complementary assets, technologies and businesses or making other strategic investments may fail and result in impairment losses.

As a component of our growth strategy, we have acquired and intend to actively identify and acquire assets, technologies and businesses that are complementary to our existing businesses. Our acquisitions could result in the use of substantial amounts of cash, issuance of potentially dilutive equity securities, significant impairment losses related to goodwill or amortization expenses related to intangible assets, and exposure to undisclosed or potential liabilities of acquired companies. Companies that we have invested in may not be successful, which may lead to impairment of the values of our investments and in turn adversely affect our financial condition and operating results. For example, in 2022, Changyou recognized a $12.0 million impairment loss for an equity investment in a third-party online game developer.

We may be required to record a significant charge to earnings when we reassess our goodwill or amortizable intangible assets.

We are required under U.S. GAAP to test for goodwill impairment annually or when an event occurs or circumstances change in a manner that could indicate that the goodwill might be impaired. We are also required to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization and slower or declining growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined. See “Note 13 - Goodwill” of the Notes to Consolidated Financial Statements included in this annual report.

 

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Any changes in accounting rules for share-based compensation, or any changes we make in our employee share incentive plans, may adversely affect our operating results, our stock price and our competitiveness in the employee marketplace.

Our performance is largely dependent on talented and highly skilled individuals. Our future success depends on our continuing ability to identify, develop, motivate and retain highly skilled personnel for all areas of our organization. We have a history of using employee share options and restricted share units to align employees’ interests with the interests of our shareholders and encourage quality employees to join us and retain our quality employees by providing competitive compensation packages. We have adopted guidance on accounting for share-based compensation that requires the measurement and recognition of compensation expense for all share-based compensation based on estimated fair values. As a result, our operating results contain a charge for share-based compensation expense related to employee share options and restricted share units. The recognition of share-based compensation in our statement of comprehensive income has had and will have a negative effect on our reported results and earnings per share, which can in turn negatively affect our ADS price. On the other hand, if we modify or cancel our employee share incentive plans, share-based compensation expense might be minimized but it may also limit our ability to continue to use share-based awards as a tool to attract and retain our employees, which may adversely affect our operations. It is possible that there will be changes in the accounting rules for share-based compensation in the future that could have an adverse effect on our ADS price and our competitiveness in the employee marketplace.

Our failure to manage growth and adapt to evolving industry trends and business models could have an adverse commercial impact on us.

The retention and management of personnel require significant time and resource commitments from us and our senior management. If we are unable to effectively manage a large and geographically dispersed group of employees or anticipate our future growth, our business could be adversely affected. As we have approximately 4,700 employees, it can be difficult for us to fully monitor each employee’s behavior. In addition, as we have several branch offices in the Chinese mainland, it is harder for us to monitor and regulate the overall behavior of our branch offices or of individual employees at such branch offices, to effectively implement our strategy to local offices and to manage the growth of these local operations. We cannot be certain that we will be able to maintain policies and procedures that are rigorous enough or that we will be able to cause all of our employees or all of our branch offices to behave in conformity with those policies and procedures, or to ensure that our employees will not engage in conduct that could expose us to third-party liability or governmental sanctions, which may limit our future growth and hamper our business strategy. Additionally, our business relies on our reporting and data systems, which have grown increasingly complex due to acquisitions and the diversification and complexity of our business. Our ability to operate our business efficiently depends on these systems, and if we are unable to adapt to these changes, our business could be adversely affected.

Moreover, to keep pace with the developing and evolving Internet industry, we must continually explore new products, services or revenue models for our business. Since we may have limited experience in new business areas, we may fail to manage growth and adapt to industry trends and business models.

In addition, we must continue to develop products and services that are adaptable to mobile devices so as to attract users and cause our existing users and advertisers to remain with us. See “- As our products and services are currently accessed primarily through mobile phones, tablets and other internet-enabled mobile devices, we believe that we must develop products and applications for such devices if we are to maintain or increase our market share and revenues, and we may not be successful in doing so.”

If we fail to establish and maintain relationships with content, technology and infrastructure providers, we may not be able to attract and retain users.

We rely on third-party content providers for high-quality news, video, audio and text content in order to make our Internet platforms, which include our Websites and our applications optimized for mobile devices (“Mobile Apps”), more attractive to users and advertisers. To enlarge our video content library, we also produce self-developed video content. Content providers may increase the fees they charge us for their content, and the production costs for our self-developed video content may also rise. These could cause our costs and operating expenses to increase and affect our ability to obtain content at an economically acceptable cost. If we are not able to purchase or produce enough content, our platforms may become less attractive to users and advertisers may choose not to advertise through our Internet platforms. Except for exclusive content that we obtain from certain of our video content providers, much of the third-party content provided to our Internet platforms 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 user traffic.

We have made efforts to create a culture for user-generated content (“UGC”) and professional generated content (“PGC”), a sub-category of UGC where the content is created by a large group of professional or semi-professional content studios, that will allow and encourage Internet users to play an active role in the process of collecting, reporting, analyzing and disseminating content, and to encourage our users and other content providers to establish and disseminate their content, and interact, through our Internet platforms. We increasingly rely on high-quality news, video, audio and text content provided by UGC and PGC providers to generate user traffic, retain our existing users and attract new users. If we are not able to continue to attract users or other content providers to establish quality content on our Internet platforms, or if the UGC and PGC providers on our Internet platform are not able to provide quality content that is appealing to Internet users in general, the volume of our user traffic may decrease and our business and prospects may be adversely affected. Also see “We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely to us, materially disrupt our business.”

 

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Our business also depends significantly on relationships with leading technology and infrastructure providers and the licenses that the technology providers have granted to us. Our competitors may 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 commercially attractive terms.

We depend on key personnel and our business may be severely disrupted if we lose the services of our key executives and employees.

Our operation and future success is heavily dependent upon the services of our key executives, particularly Dr. Charles Zhang, who is the founder, Chief Executive Officer, Chairman of the Board, and a major shareholder of our company. For Changyou, we rely on the services of Dewen Chen, Changyou’s Chief Executive Officer. If one or more of our key executives and employees are unable or unwilling to continue in their present positions, we may not be able to replace them easily and our business may be severely disrupted. In addition, if any of our key executives or employees joins a competitor or forms a competing company, we may lose know-how, key professionals and staff members, as well as customers and suppliers, and incur additional expenses to recruit and train personnel. Each of our executive officers has entered into an employment agreement and a confidentiality, non-competition and non-solicitation agreement with us. However, if there are disputes between our executive officers and us with respect to such agreements, we may have to incur substantial legal expenses in any legal or other action necessary to enforce them, and any such legal or other action may not be successful. We also rely on a number of key members of our technology staff for our business. Given the competitive nature of the industry, and in particular our competitors’ increasingly aggressive efforts to provide competitive compensation packages to attract talent in the core Chinese markets where we operate, the risk of key technology staff leaving Sohu is high and could have a disruptive impact on our operations.

Our growth may cause significant pressures upon our financial, operational, and administrative resources.

Our financial, operational, and administrative resources may be inadequate to sustain the growth we want to achieve. As the demands of our users and the needs of our customers change, the number of our users and volume of advertising increase, requirements for maintaining sufficient servers to provide high-definition online video and to provide game players smooth online game experiences increase, and mobile activities increase, we will need to increase our investment in our network infrastructure, facilities and other areas of operations. If we are unable to manage our operations 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:

 

   

access financial resources;

 

   

adapt our services and maintain and improve the quality of our services;

 

   

protect our Internet platforms from hackers and unauthorized access;

 

   

continue training, motivating and retaining our existing employees and attract and integrate new employees; and

 

   

maintain and improve our operational, financial, accounting and other internal systems and controls.

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

We regard our copyrights, 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 reputation. For example, a third-party Internet platform operator might provide its users access to video content on our Internet platforms while blocking Internet advertisements embedded in our video content, which could adversely affect our advertising revenues and our reputation with our current and potential advertising clients. 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. Our self-developed Web series video productions may be disseminated by third parties without our authorization. In addition, under the Patent Law of the People’s Republic of China (the “Patent Law”), the State Council of China (the “State Council”)’s Patent Administration Department may grant a compulsory license to individuals or entities to use one or more of our patents if our exploitation of the patents has been determined to violate the antitrust laws. Furthermore, the validity, enforceability and scope of laws protecting intellectual property in Internet-related industries continue to evolve, and we cannot assure you that the laws of the countries and regions in which we operate our businesses will provide sufficient protection of our intellectual property rights. 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. Litigation could result in substantial costs and diversion of resources. We cannot be certain that judgments from any such lawsuits will be issued in our favor, or that any resulting damages will cover our business losses and litigation expenses, and if any such lawsuits do not achieve their intended effect, our business and operations may be adversely affected.

 

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We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely to us, materially disrupt our business.

We cannot be certain that the products, services and intellectual property used in our normal course of business 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 claims and legal proceedings relating to the intellectual property of others in the ordinary course of our business and have in the past been, and may in the future be, required to pay damages or to agree to restrict our activities. In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to pay damages or fines, and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against 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 by restricting or prohibiting our use of the intellectual property in question. In addition, it is possible that content on our Internet platforms, which not only includes content developed by us but also provides a platform for a significant amount of content generated by others, may violate the intellectual property rights of third parties. We, as a primary provider of self-developed video content, may incur relatively higher monetary liability if such content is found to have infringed the intellectual property rights of third parties. Also, as we increasingly rely on content provided by third-party PGC and UGC providers on our Internet platforms, either developed by the outlets themselves or adapted from content of parties separate from such outlets, it will become increasingly difficult for us to fully monitor such content, which could make us more vulnerable to potential infringement claims. Furthermore, regulatory authorities in the Chinese mainland have recently been drawing attention to issues regarding the infringement of online intellectual property rights. For example, a regulatory program called the “Jian Wang Campaign” aimed at cracking down on network copyright infringement, has been in effect for several years. The Jian Wang Campaign for 2023, which was conducted from August through November of 2023 and targeted piracy and other forms of copyright infringement related to unauthorized live broadcasting of sporting events and unauthorized dissemination of recordings of sporting events, short videos, and online literature, aimed to strengthen the copyright protection of sporting events, cultural and creative products, and online videos.

We may be subject to, and may expend significant resources in defending against, claims based on the content and services we provide over our Internet platforms.

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 based on the nature and content of such information. Furthermore, we could be subject to claims for the online activities of our users and incur significant costs in our defense. In the past, claims based on the nature and content of information that was posted online by users 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 Internet platforms or through content and materials that our users may post using our 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 e-mail and subscription 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;

 

   

interruptions or delays in e-mail service, or

 

   

illegal or inappropriate content included in advertisements on our platforms.

Investigating and defending any such claims may be expensive, even if they do not result in liability.

 

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We may not have exclusive rights to trademarks, designs and technologies that are crucial to our business.

We have applied for initial registrations in the Chinese mainland and Offshore markets, and/or changes in registrations relating to transfers, of our key trademarks in the Chinese mainland, including Sohu.com, Sohu Fox, www.focus.com.cn, Sohu Focus, GoodFeel, trademarks relating to Changyou products such as ChangYou.com, cyou.com, New Blade Online, 17173, and the corresponding Chinese versions of the marks, so as to establish and protect our exclusive rights to these trademarks. Changyou has the right to use trademarks including TLBB, TLBB logos, TLBB 3D and New TLBB for its PC game TLBB, and TLBB 3D, Legacy TLBB Mobile, TLBB Honor, and New TLBB Mobile for its mobile games under Changyou’s existing license agreements with the holder of the intellectual property rights with respect to the popular Chinese martial arts novel Tian Long Ba Bu written by Louis Cha, who died in 2018. After the expiration of their terms Changyou may not be able to renew these license agreements with commercial terms that are favorable to Changyou, if at all, and Changyou’s inability to renew these license agreements could force Changyou to lose the right to use the trademarks related to those games to the extent that they relate to Tian Long Ba Bu. We have also applied for patents relating to our business. While we have succeeded in registering the trademarks for most of these marks in the Chinese mainland under certain classes, the applications for initial registration, and/or changes in registrations relating to transfers, of some marks and/or of some of marks under other classes are still under examination by the Trademark Office of the China National Intellectual Property Administration (the “CNIPA”) and relevant authorities of Offshore markets. While we have succeeded in obtaining some patents, some of our patent applications are still under examination by the Patent Office of the CNIPA. Approvals of our initial trademark registration applications, and/or of changes in registrations relating to such transfers, or of our patent applications, are subject to determinations by the Trademark Office of the CNIPA, the Patent Office of the CNIPA and relevant authorities overseas that there are no prior rights in the applicable territory. We cannot assure you that these applications will be approved. Any rejection of these applications could adversely affect our rights to the affected marks, designs and technologies. In addition, even if these applications are approved, we cannot be certain that any registered trademark or issued patent will be sufficient in scope to provide adequate protection of our rights.

We may be subject to claims for invasion of personal privacy, which may force us to incur legal expenses and, if determined adversely to us, disrupt our business.

We allow users to upload written materials, images, pictures and other content on our platform and download, share, link to audio, video and other content either on our platform or from other Websites through our platform. Procedures that we have designed to reduce the likelihood that content will be used without proper licenses or third-party consents may not be effective in preventing the unauthorized posting or sharing of content. Further, we cannot be certain that content uploaded or shared by our users is legal and will not violate the privacy of others, and we may be unable to anticipate the existence of such content on our platform or to implement adequate preventative measures. As a result, we may be subject to claims and legal proceedings relating to violations of the personal privacy of others in the ordinary course of our business and may be required to pay damages or fines or to restrict our activities. See “Governmental Regulation and Legal Uncertainties – Miscellaneous – Laws and Regulations Related to Consumer Protection and Privacy Protection – Privacy Protection.” Complying with such requirements could cause us to incur substantial expenses or necessitate that we alter or change our practices in a manner that could harm our business.

Data security breaches relating to our platforms could damage our reputation and expose us to penalties and legal liability.

We collect, process, and store on our servers significant amounts of data concerning our users, business partners and employees. Although we have taken steps to protect our user data, our security measures could be compromised, because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, and we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, we are, and will continue to be, subject to various Chinese mainland regulatory requirements relating to the security and privacy of such data, including existing requirements or requirements that may be imposed on us in the future, making the extent of our responsibility in that regard uncertain. For example, we are subject to the requirements of the Personal Information Protection Law (the “PIPL”), which took effect on November 1, 2021 and emphasizes the importance of processors’ obligations and responsibilities for personal information protection. See “Governmental Regulation and Legal Uncertainties – Miscellaneous – Laws and Regulations Related to Consumer Protection and Privacy Protection – Privacy Protection.” In addition, the Data Security Law, which took effect on September 1, 2021 (the “Data Security Law”), regulates data processing activities and security. Any organizations or individuals who engage in data processing activities that violate the Data Security Law can be subject to civil, administrative, or criminal penalties depending on the circumstances. On November 14, 2021, the Cyberspace Administration of China (the “CAOC”) publicly solicited opinions on the Regulations on the Administration of Cyber Data Security (Draft for Comments) (the “Draft Data Security Regulations”), which, if adopted, would impose enhanced requirements on internet platform operators, such as us, with respect to the protection of personal data in connection with data processing activities conducted over the internet. See “Governmental Regulation and Legal Uncertainties – Miscellaneous – Laws and Regulations Related to Security and Censorship.”

 

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Any failure, or perceived failure, by us, or by our partners, to maintain the security of our user data or to comply with applicable Chinese mainland or Offshore privacy, data security and personal information protection laws, regulations, policies, contractual provisions, industry standards and other requirements may result in civil or regulatory liability, including regulatory or data protection authority enforcement actions and investigations, fines, penalties, enforcement orders requiring us to cease operating in a certain way, litigation or adverse publicity, and may require us to expend significant resources in responding to and defending allegations and claims against us. Moreover, any claims or allegations that we have failed to adequately protect our users’ data, or otherwise violated applicable privacy and data security laws, regulations, policies, contractual provisions, industry standards or other requirements, may result in damage to our reputation and a loss of confidence in us by our users or our partners, potentially causing us to lose users, advertisers, content providers, other business partners and revenues, which could have an adverse effect on our financial condition and results of operations.

Pending or future litigation could have an adverse impact on our financial condition and results of operations.

From time to time, we have been, and may in the future be, subject to lawsuits brought against us by our competitors, individuals, or other entities. For example, in 2020, a group of plaintiffs brought a lawsuit against Changyou in the Cayman Islands claiming that they were entitled to assert dissenters’ rights in the Changyou Merger. Both the Grand Court of the Cayman Islands, a court of first instance, and the Cayman Islands Court of Appeal ruled in the plaintiffs’ favor, and Changyou has appealed to the Judicial Committee of the Privy Council in the United Kingdom (the highest court of appeal).

Where we can make a reasonable estimate of the liability relating to pending litigation against us and determine that an adverse result for us from such litigation is probable, we record a related contingent liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, due to the inherent uncertainties relating to litigation, the amount of our estimates may be inaccurate. While we do not believe that any currently pending proceedings are likely to have a material adverse effect on our business, financial condition and results of operations, if there were adverse determinations in legal proceedings against us we could be required to pay substantial monetary damages or adjust our business practices, which could have an adverse effect on our financial condition and results of operations.

We face risks related to natural disasters, terrorist attacks, and health epidemics.

Our business has been and could in the future be adversely affected by natural disasters, such as earthquakes, floods, landslides, and tsunamis; terrorist attacks and other acts of violence or war; social instability; and recurrences of outbreaks of previous health epidemics and pandemics such as avian influenza, severe acute respiratory syndrome (or “SARS”), the Zika virus, the Ebola virus, and COVID-19.

We do not have business insurance coverage.

Insurance companies in the Chinese mainland offer limited business insurance products. We do not have any business liability, loss of data or disruption insurance coverage for our operations in the Chinese mainland. Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of our resources.

The brand advertisement market includes many uncertainties, which could cause our brand advertising revenues to decline.

We generate a portion of our revenues from the sale of advertising for posting on our Internet platforms. Brand advertising revenues represented approximately 15% and 14% of our total revenues for the years ended December 31, 2023 and 2022, respectively. Our brand advertising revenues rely on the sale of advertising for posting on our Internet platforms, which may be affected by many of the following risk factors:

 

   

The advertising market in the Chinese mainland is still evolving and changing. Our current and potential advertising clients may not devote a significant portion of their advertising budgets to Internet-based advertising in general, or to us in particular;

 

   

Changes in regulatory policy could restrict or curtail our brand advertising services. For example, during the last several years, regulatory authorities in the Chinese mainland enacted a series of regulations, administrative instructions and policies to restrict online medical advertising. As a result of these regulations, we may lose some of our existing medical advertising clients;

 

   

Advertising agencies and advertisers may adopt new methods and strategies other than brand advertising to promote their brands. For example, they may shift their budgets from brand advertising to sales-driven promotions. Advertising agencies and advertisers may also face financial difficulties that cause them to curtail their spending on advertising. Any of these would have an adverse effect on our brand advertising revenues;

 

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The acceptance of the Internet as a medium for advertising depends on the development of standards for measuring the effectiveness of advertisements disseminated over the Internet, and no standards have been widely accepted for the measurement of the effectiveness of brand advertising over the Internet. Industry-wide standards may not develop that are sufficient 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;

 

   

We may not have systems that are sufficiently well-developed to support our brand advertising business, and as a result, we may suffer system bugs that cause bad user experiences, errors, or omissions in publishing our client’s advertisements, which could have a negative impact on our brand advertising business.

In addition, our ability to generate and maintain significant brand advertising revenues will also depend upon:

 

   

the development and maintenance of a large base of users possessing demographic characteristics attractive to advertising clients;

 

   

the acceptance of brand advertisement as an effective way for business marketing by advertising clients;

 

   

the effectiveness of our advertising delivery, tracking and reporting systems;

 

   

the resistance pressure on brand advertising prices and limitations on inventory; and

 

   

the establishment of a successful business model to make our new products adaptable to portable devices, which has required us, and will continue to require us, to make significant expenditures for research, development, promotion and operations.

Many advertisers allocate their online advertising budgets primarily to advertising on mobile devices, and the forms of advertising change rapidly. As a result, our online advertising business will suffer if we do not optimize, adapt, and make attractive our various product and service offerings for access on mobile devices and effectively deliver advertising content in a manner that attracts and retains users’ interest and attention.

The operation of our online video services requires us to make substantial expenditures for content, technology, infrastructure, and brand promotion. We may not be able to effectively contain these costs or sell sufficient advertising to recoup our continuing costs, and our relatively limited financial resources compared to those of many of our competitors in the online video market may prevent us from competing effectively.

It has been, and can be expected to continue to be, necessary for us to invest financial, operational, strategic, technological, personnel, and other resources in our online video services. Over the past few years, video content costs have remained at a high level and have adversely affected our operating results. Although we have attempted to control our expenditures for online video services, in part by using relatively more self-developed video content, which we produce in house or contract with independent third-party studios to produce for us, and relatively less content acquired from third parties, our total operating costs in this regard may continue to exceed the amount of our revenues derived from our online video platforms. Further, we compete with popular vertical online video sites, such as those operated by iQIYI, Tencent, Alibaba’s online video subsidiary Youku, and Mango TV, that have substantially greater financial resources than we do. If we are unable to expend the resources at a level necessary to self-develop or acquire the rights to, and provide on our video platforms, quality video content, we may not be able to compete effectively against these other popular sites, or grow or maintain the level of our user traffic, which could make our video platforms less attractive to advertisers, have a negative impact on our ability to generate revenues, and make it difficult for us to stem our losses from operation of our online video services or to recoup our expenditures.

Further, for some of the online video content that we purchase, we have the expectation that such video content will be broadcast by other platforms or TV channels according to a specified schedule. If there are delays, or cancellations, in such broadcasts, we will have to delay, perhaps indefinitely, our presentation of such content on our online platforms, which would be likely to cause our online viewership and revenues to be correspondingly lower than we expected.

 

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As we offer self-developed video content that we develop in house or contract with third parties to produce for us, we face the risk that such self-developed content may not be well received by viewers and/or fail to attract advertisers, and we may not be able to generate sufficient revenues to stem our losses from our online video services or to ultimately recoup our costs.

We have spent, and expect to continue to spend, resources on self-developed video content. We have also invested, and may invest in the future, in the production of movies and other content by selected independent third-party studios. However, we are subject to the risk that the quality of our self-developed video content, or movies or other content in which we invest, will not be up to our expectations or those of our target viewer audience. If our self-developed video content, or such movies and other content produced for us by third parties, are not well received by viewers and/or fail to attract sufficient advertising placements from advertisers, or if the development of any such content or movies is not completed as a result of financial, regulatory, or other restraints, we may not be able to recoup our production costs and other expenditures. In recent years, developing in-house content has become widespread in the online video business in the Chinese mainland; we may continue to face significant competition from other online video platforms with respect to the acquisition of quality and popular intellectual property, such as story lines, plots, and characters, for use in such content and the cost of obtaining such intellectual property will therefore be likely to increase.

We may not be able to reverse the decline in revenues from our online video business. If we fail to do so, Sohu Video may not be able to become profitable, in which case we will be unable to recoup our substantial expenditures for the development of our online video business.

Our brand advertising revenues in general, and the revenues of our online video business in particular, have declined in recent years. Although the online video industry in the Chinese mainland has experienced substantial growth in recent years in terms of both users and content, we cannot be certain that the online video industry will continue to grow as rapidly as it has in the past. With the development of technology, new forms of media may emerge and render online video Websites or Mobile Apps less attractive to users. Growth of the online video industry is affected by numerous factors, such as users’ general online video experience, technological innovations, development of Internet and Internet-based services, regulatory changes in general and regulations affecting copyright in particular, and the macroeconomic environment. If the online video industry in the Chinese mainland does not grow as quickly as expected or if we fail to benefit from such growth by successfully implementing our business strategies, our user traffic may decrease, our advertising revenues may continue to decline, and our business and prospects may be adversely affected. We have allocated and spent, and expect to continue to allocate and spend, substantial financial resources to develop our online video business, which may result in less financial resources being used or available for, and the diversion of management attention and our other resources from, our other existing businesses and our development of new business opportunities. For Sohu Video to become profitable, it will be necessary fo