UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2017~~2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROMTO

COMMISSION FILE NUMBER0-30961

Sohu.com Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware

98-0204667

(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)

(I.R.S. EMPLOYER

IDENTIFICATION NUMBER)

Level 18, Sohu.com Media Plaza

Block 3, No. 2 Kexueyuan South Road, Haidian District

Beijing 100190

People’s Republic of China

(011) 8610-6272-6666

(Address, including zip code, of registrant’s principal executive offices and registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

If an emerging growth company, 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class		Outstanding at March 31, ~~2017~~2018
Common stock, $.001 par value		~~38,844,132~~38,916,788

SOHU.COM INC.

Table of Contents


		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements (unaudited)	43
	Condensed Consolidated Balance Sheets as of December 31, ~~2016~~2017 and March 31, ~~2017~~2018	43
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2016~~2017 and ~~2017~~2018	54
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2016~~2017 and ~~2017~~2018	65
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, ~~2016~~2017 and ~~2017~~2018	76
	Notes to Condensed Consolidated Financial Statements	98
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4548
Item 3	Quantitative and Qualitative Disclosures about Market Risk	7680
Item 4	Controls and Procedures	7782

PART II	OTHER INFORMATION
Item 1	Legal Proceedings	7782
Item 1A	Risk Factors	7782
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7782
Item 3	Defaults Upon Senior Securities	7782
Item 4	Mine Safety Disclosures	7782
Item 5	Other Information	7882
Item 6	Exhibits	78
	~~Signatures~~	7982
	Exhibit Index	8083
	Signatures	84

~~-3-~~-2-

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SOHU.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except par value)


	As of						As of
	December 31, 2016			March 31, 2017			December 31, 2017			March 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,050,957		$	968,949		$	1,364,096		$	1,156,408
Restricted cash								3,928			2,140
Short-term investments		247,926			282,976			818,934			1,074,538
Accounts receivable, net		189,167			173,501			250,468			217,148
Assets held for sale		103,079			0
Prepaid and other current assets (including $29,019 and $29,457, respectively, due from a related party as of December 31, 2016 and March 31,2017)		260,133			257,046
Prepaid and other current assets (including $32,005 and $33,563, respectively, due from a related party as of December 31, 2017 and March 31, 2018)								192,675			211,696

Total current assets		1,851,262			1,682,472			2,630,101			2,661,930

Fixed assets, net		503,631			497,082			529,717			545,419
Goodwill		68,290			152,957			71,565			73,102
Long-term investments, net		74,273			75,153			90,145			98,612
Intangible assets, net		32,131			37,994			23,060			19,908
Restricted time deposits		269			269			271			272
Prepaid non-current assets		4,734			4,547			4,211			3,967
Other assets		29,100			25,953			40,169			41,638

Total assets	$	2,563,690		$	2,476,427		$	3,389,239		$	3,444,848

LIABILITIES
Current liabilities:
Accounts payable (including accounts payable of consolidated variable interest entities (“VIEs”) without recourse to the Company of $15,824 and $17,599, respectively, as of December 31, 2016 and March 31, 2017)	$	193,209		$	208,836
Accrued liabilities (including accrued liabilities of consolidated VIEs without recourse to the Company of $96,695 and $67,368, respectively, as of December 31, 2016 and March 31, 2017)		324,876			292,820
Receipts in advance and deferred revenue (including receipts in advance and deferred revenue of consolidated VIEs without recourse to the Company of $44,797 and $45,163, respectively, as of December 31, 2016 and March 31, 2017)		118,951			115,497
Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs without recourse to the Company of $10,306 and $7,022, respectively, as of December 31, 2016 and March 31, 2017)		92,475			71,331
Taxes payable (including taxes payable of consolidated VIEs without recourse to the Company of $11,475 and $12,980, respectively, as of December 31, 2016 and March 31, 2017)		40,014			44,095
Liabilities held for sale (including liabilities held for sale of consolidated VIEs without recourse to the Company of $3,232 and nil, respectively, as of December 31, 2016 and March 31, 2017)		3,902			0
Other short-term liabilities (including other short-term liabilities of consolidated VIEs without recourse to the Company of $89,994 and $90,363, respectively, as of December 31, 2016 and March 31, 2017, and due to a related party of $28,678 and $29,009, respectively, as of December 31, 2016 and March 31, 2017)		159,315			159,475
Accounts payable (including accounts payable of consolidated variable interest entities (“VIEs”) without recourse to the Company of $53,842 and $83,403, respectively, as of December 31, 2017 and March 31, 2018)							$	288,394		$	347,955
Accrued liabilities (including accrued liabilities of consolidated VIEs without recourse to the Company of $76,883 and $66,470, respectively, as of December 31, 2017 and March 31, 2018)								343,106			351,732
Receipts in advance and deferred revenue (including receipts in advance and deferred revenue of consolidated VIEs without recourse to the Company of $46,939 and $48,895, respectively, as of December 31, 2017 and March 31, 2018)								127,758			135,986
Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs without recourse to the Company of $8,137 and $5,972, respectively, as of December 31, 2017 and March 31, 2018)								102,087			87,311
Taxes payable (including taxes payable of consolidated VIEs without recourse to the Company of $18,210 and $15,789, respectively, as of December 31, 2017 and March 31, 2018)								96,541			96,742
Short-term bank loans (including short-term bank loans of consolidated VIEs without recourse to the Company of nil as of both December 31, 2017 and March 31, 2018)								61,216			63,612
Other short-term liabilities (including other short-term liabilities of consolidated VIEs without recourse to the Company of $71,644 and $66,189, respectively, as of December 31, 2017 and March 31, 2018, and due to a related party of $31,192 and $32,370, respectively, as of December 31, 2017 and March 31, 2018)								136,300			125,166

Total current liabilities		932,742			892,054			1,155,402			1,208,504
Long-term accounts payable (including long-term accounts payable of consolidated VIEs without recourse to the Company of both nil as of December 31, 2016 and March 31, 2017)		744			1,046
Long-term taxes payable (including long-term taxes payable of consolidated VIEs without recourse to the Company of $13,463 and $13,537, respectively, as of December 31, 2016 and March 31, 2017)		32,625			30,339
Deferred tax liabilities (including deferred tax liabilities of consolidated VIEs without recourse to the Company of $1,273 and $1,255, respectively, as of December 31, 2016 and March 31, 2017)		39,784			40,669

Long-term accounts payable (including long-term accounts payable of consolidated VIEs without recourse to the Company of nil as of both December 31, 2017 and March 31, 2018)								1,157			1,203
Long-term bank loans (including long-term bank loans of consolidated VIEs without recourse to the Company of nil as of both December 31, 2017 and March 31, 2018)								122,433			127,224
Long-term taxes payable (including long-term taxes payable of consolidated VIEs without recourse to the Company of $14,293 and $14,794, respectively, as of December 31, 2017 and March 31, 2018)								249,618			249,672
Deferred tax liabilities (including deferred tax liabilities of consolidated VIEs without recourse to the Company of $3,451 and $3,853, respectively, as of December 31, 2017 and March 31, 2018)								43,392			95,632

Total long-term liabilities		73,153			72,054			416,600			473,731

Total liabilities		1,005,895			964,108			1,572,002			1,682,235

Commitments and contingencies
SHAREHOLDERS’ EQUITY
Sohu.com Inc. shareholders’ equity:
Common stock: $0.001 par value per share (75,400 shares authorized; 38,742 shares and 38,844 shares, respectively, issued and outstanding as of December 31, 2016 and March 31, 2017)		45			45
Common stock: $0.001 par value per share (75,400 shares authorized; 38,898 shares and 38,917 shares, respectively, issued and outstanding as of December 31, 2017 and March 31, 2018)								45			45
Additional paid-in capital		821,867			824,488			1,098,455			1,091,487
Treasury stock (5,889 shares as of both December 31, 2016 and March 31, 2017)		(143,858	)		(143,858	)
Treasury stock (5,890 shares as of both December 31, 2017 and March 31, 2018)								(143,858	)		(143,858	)
Accumulated other comprehensive income		3,220			4,872			38,212			44,220
Retained earnings		312,306			244,058
Accumulated deficit								(242,220	)		(327,537	)

Total Sohu.com Inc. shareholders’ equity		993,580			929,605			750,634			664,357
Noncontrolling interest		564,215			582,714			1,066,603			1,098,256

Total shareholders’ equity		1,557,795			1,512,319			1,817,237			1,762,613

Total liabilities and shareholders’ equity	$	2,563,690		$	2,476,427		$	3,389,239		$	3,444,848

The accompanying notes are an integral part of these condensed consolidated financial statements.

-3-

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2017			2018
Revenues:
Online advertising:
Brand advertising	$	81,412		$	56,254
Search and search-related advertising		142,035			220,301

Subtotal of online advertising revenues		223,447			276,555

Online games		85,325			105,461
Others		65,331			72,979

Total revenues		374,103			454,995

Cost of revenues:
Online advertising:
Brand advertising		80,197			50,611
Search and search-related advertising		82,107			144,696

Subtotal of cost of online advertising revenues		162,304			195,307

Online games		16,505			17,119
Others		40,070			48,407

Total cost of revenues		218,879			260,833

Gross profit		155,224			194,162

Operating expenses:
Product development		84,098			111,543
Sales and marketing		90,086			90,273
General and administrative		28,350			23,836

Total operating expenses		202,534			225,652

Operating loss		(47,310	)		(31,490	)

Other income, net		4,099			12,281
Interest income (including interest income generated from a related party of $280 and $302, respectively, for the three months ended March 31, 2017 and March 31, 2018)		4,471			7,808
Interest expense (including interest expense generated from a related party of $177 and $172, respectively, for the three months ended March 31, 2017 and March 31, 2018)		(175	)		(3,081	)
Exchange difference		(766	)		(9,340	)

Loss before income tax expense		(39,681	)		(23,822	)
Income tax expense		10,672			63,379

Net loss		(50,353	)		(87,201	)
Less: Net income attributable to the noncontrolling interest shareholders		17,895			5,617

Net loss attributable to Sohu.com Inc.	$	(68,248	)	$	(92,818	)

Net loss	$	(50,353	)	$	(87,201	)
Foreign currency translation adjustments		4,968			37,031
Change in unrealized loss for equity investments with readily determinable fair values		(678	)		0

Other comprehensive income		4,290			37,031

Comprehensive loss		(46,063	)		(50,170	)

Less: Comprehensive income attributable to noncontrolling interest shareholders		20,533			29,139

Comprehensive loss attributable to Sohu.com Inc.		(66,596	)		(79,309	)

Basic net loss per share attributable to Sohu.com Inc.	$	(1.76	)	$	(2.39	)

Shares used in computing basic net loss per share attributable to Sohu.com Inc.		38,811			38,904

Diluted net loss per share attributable to Sohu.com Inc.	$	(1.77	)	$	(2.39	)

Shares used in computing diluted net loss per share attributable to Sohu.com Inc.		38,811			38,904

The accompanying notes are an integral part of these condensed consolidated financial statements.

-4-

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS (unaudited)

(In ~~thousands, except per share data)~~thousands)

   Three Months Ended March 31,
   2016 2017
Revenues:

Online advertising:

Brand advertising (including revenues generated from a related party of $852 and nil, respectively, for the three months ended March 31, 2016 and March 31, 2017)
   $ 125,503 $ 81,412
Search and search-related
   133,814 142,035


Subtotal of online advertising revenues
   259,317 223,447


Online games
   102,529 85,325
Others
   46,106 65,331


Total revenues
   407,952 374,103


Cost of revenues:

Online advertising:

Brand advertising
   85,636 80,197
Search and search-related
   62,092 82,107


Subtotal of cost of online advertising revenues
   147,728 162,304


Online games
   26,133 16,505
Others
   18,986 40,070


Total cost of revenues
   192,847 218,879


Gross profit
   215,105 155,224


Operating expenses:

Product development
   82,679 84,098
Sales and marketing (including expenses generated for a related party of $13 and $nil, respectively, for the three months ended March 31, 2016 and March 31, 2017)
   90,047 90,086
General and administrative
   27,607 28,350


Total operating expenses
   200,333 202,534


Operating profit /(loss)
   14,772 (47,310 )


Other income/(expense), net
   3,924 4,099
Interest income (including interest income generated from a related party of $221 and $280, respectively, for the three months ended March 31, 2016 and March 31, 2017)
   5,837 4,471
Interest expense (including interest expense generated from a related party of $81 and $177, respectively, for the three months ended March 31, 2016 and March 31, 2017)
   (698 ) (175 )
Exchange difference
   (1,022 ) (766 )


Income/(loss) before income tax expense
   22,813 (39,681 )
Income tax expense
   11,868 10,672


Net income /(loss)
   10,945 (50,353 )
Less: Net income attributable to the noncontrolling interest shareholders
   31,231 17,895
Net loss attributable to Sohu.com Inc.
   $ (20,286 ) $ (68,248 )


Net income /(loss)
   $ 10,945 $ (50,353 )
Foreign currency translation adjustments
   1,419 4,968
Change in unrealized loss for available-for-sale securities
   (44 ) (678 )


Other comprehensive income
   1,375 4,290


Comprehensive income /(loss)
   12,320 (46,063 )
Less: Comprehensive income attributable to noncontrolling interest shareholders
   32,131 20,533


Comprehensive loss attributable to Sohu.com Inc.
   (19,811 ) (66,596 )


Basic net loss per share attributable to Sohu.com Inc.
   $ (0.52 ) $ (1.76 )


Shares used in computing basic net loss per share attributable to Sohu.com Inc.
   38,666 38,811


Diluted net loss per share attributable to Sohu.com Inc.
   $ (0.53 ) $ (1.77 )


Shares used in computing diluted net loss per share attributable to Sohu.com Inc.
   38,666 38,811


	Three Months Ended March 31,
	2017			2018
Cash flows from operating activities:
Net loss	$	(50,353	)	$	(87,201	)
Adjustments to reconcile net income /(loss) to net cash provided by operating activities:
Amortization of intangible assets and purchased video content in prepaid expense		35,777			15,876
Depreciation		19,360			23,399
Share-based compensation expense		3,220			(2,344	)
Impairment of other intangible assets and other assets		359			1,127
Investment loss /(gain) from equity investments		49			(1,975	)
Provision for allowance for doubtful accounts		2,035			295
Loss /(gain) from sale of equity investments		523			(134	)
Change in fair value of financial instruments		(2,064	)		(9,258	)
Others		(328	)		53
Changes in assets and liabilities, net of acquisition:
Accounts receivable		15,723			41,730
Prepaid and other assets		(924	)		(8,986	)
Accounts payable		15,801			42,240
Receipts in advance and deferred revenue		(4,205	)		3,258
Taxes payable		(1,152	)		(4,849	)
Deferred tax		4,204			49,901
Accrued liabilities and other short-term liabilities		(69,695	)		(44,502	)

Net cash provided by /(used in) operating activities		(31,670	)		18,630
Cash flows from investing activities:
Purchase of fixed assets		(10,502	)		(17,266	)
Purchase of intangible and other assets		(23,316	)		(8,588	)
Purchase of long-term investments		(2,190	)		(16,971	)
Return of funds from a third party		4,928			0
Proceeds from financial instruments		87,317			444,469
Purchase of financial instruments		(119,024	)		(663,428	)
Proceeds received from sale of equity investments, net		0			12,070
Other cash proceeds related to investing activities		31			371

Net cash used in investing activities		(62,756	)		(249,343	)
Cash flows from financing activities:
Exercise of share-based awards in subsidiaries		450			4
Repurchase of SogouPre-IPO Class A Ordinary Shares from noncontrolling shareholders		(3,190	)		0

Net cash provided by /(used in) financing activities		(2,740	)		4
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		3,474			21,233
Reclassification of cash and cash equivalents from assets held for sale		11,684			0

Net decrease in cash and cash equivalents, and restricted cash		(82,008	)		(209,476	)
Cash and cash equivalents, and restricted cash, at beginning of period		1,050,957			1,368,024

Cash and cash equivalents, and restricted cash, at end of period	$	968,949		$	1,158,548

Supplemental cash flow disclosures:
Barter transactions recognized in revenue		3,185			339
Supplemental schedule ofnon-cash investing activity:
Changes in payables and other liabilities related to fixed assets and intangible assets additions		8,084			19,032

The accompanying notes are an integral part of these condensed consolidated financial statements.

-5-

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN EQUITY (unaudited)

Three Months Ended March 31, 2017

(In thousands)

   Three Months Ended March 31,
   2016 2017
Cash flows from operating activities:

Net income /(loss)
   $ 10,945 $ (50,353 )
Adjustments to reconcile net income /(loss) to net cash provided by operating activities:

Amortization of intangible assets and purchased video content in prepaid expense
   29,115 35,777
Depreciation
   17,159 19,360
Share-based compensation expense
   433 3,220
Provision for allowance for doubtful accounts
   1,064 2,035
Investment loss from equity investments
   518 572
Impairment of intangible assets and other assets
   3,509 359
Change in fair value of financial instruments
   (2,459 ) (2,064 )
Others
   (288 ) (328 )
Changes in assets and liabilities, net of acquisition:

Accounts receivable
   19,058 15,723
Prepaid and other assets
   5,576 (924 )
Accounts payable
   11,304 15,801
Receipts in advance and deferred revenue
   (7,857 ) (4,205 )
Taxes payable
   (15,188 ) (1,152 )
Deferred tax
   5,139 4,204
Accrued liabilities and other short-term liabilities
   (18,422 ) (69,695 )


Net cash provided by /(used in) operating activities
   59,606 (31,670 )
Cash flows from investing activities:

Purchase of financial instruments
   (104,399 ) (119,024 )
Purchase of intangible and other assets
   (29,942 ) (23,316 )
Purchase of fixed assets
   (11,110 ) (10,502 )
Purchase of long-term investments
   (11,739 ) (2,190 )
Proceeds from financial instruments
   171,088 87,317
Return of funds from a third party
   0 4,928
Matching loan to a related party
   (30,180 ) 0
Cash received related to restricted time deposits and time deposits, net
   225,462 0
Other cash proceeds related to investing activities
   635 31


Net cash provided by /(used in) investing activities
   209,815 (62,756 )
Cash flows from financing activities:

Exercise of share-based awards in subsidiaries
   0 450
Repurchase of Sogou Class A Common Shares from a noncontrolling shareholder
   0 (3,190 )
Matching loan from a related party
   29,941 0
Repayments of loans from offshore banks
   (344,500 ) 0


Net cash used in financing activities
   (314,559 ) (2,740 )
Effect of exchange rate changes on cash and cash equivalents
   2,309 3,474
Reclassification of cash and cash equivalents from assets held for sale
   0 11,684


Net decrease in cash and cash equivalents
   (42,829 ) (82,008 )
Cash and cash equivalents at beginning of period
   1,245,205 1,050,957


Cash and cash equivalents at end of period
   $ 1,202,376 $ 968,949


Supplemental cash flow disclosures:

Barter transactions
   7,453 3,185
Supplemental schedule of non-cash investing activity:

Changes in payables and other liabilities related to fixed assets and intangible assets additions
   7,474 8,084


				Sohu.com Inc. Shareholders’ Equity
	Total			Common Stock		Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income		Retained Earnings			Noncontrolling Interest
Beginning balance	$	1,557,795		$	45	$	821,867		$	(143,858	)	$	3,220	$	312,306		$	564,215
Share-based compensation expense		3,220			0		(2,641	)		0			0		0			5,861
Settlement of share-based awards in subsidiaries		450			0		5,262			0			0		0			(4,812	)
Repurchase of SogouPre-IPO Class A Ordinary Shares from noncontrolling shareholders		(3,190	)		0		0			0			0		0			(3,190	)
Disposal of noncontrolling interest		(80	)		0		0			0			0		0			(80	)
Net income /(loss) attributable to Sohu.com Inc. and noncontrolling interest shareholders		(50,353	)		0		0			0			0		(68,248	)		17,895
Accumulated other comprehensive income /(loss)		4,290			0		0			0			1,652		0			2,638
Other		187			0		0			0			0		0			187

Ending balance	$	1,512,319		$	45	$	824,488		$	(143,858	)	$	4,872	$	244,058		$	582,714

The accompanying notes are an integral part of these condensed consolidated financial statements.

-6-

SOHU.COM INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN EQUITY (unaudited)

Three Months Ended March 31, ~~2016~~2018

(In thousands)


				Sohu.com Inc. Shareholders’ Equity																		Sohu.com Inc. Shareholders’ Equity
	Total			Common Stock		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income		Retained Earnings			Noncontrolling Interest			Total			Common Stock		Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Accumulated Deficit			Noncontrolling Interest
Beginning balance	$	1,730,752		$	45	$	798,357	$	(143,858	)	$	50,151	$	536,327		$	489,730		$	1,817,237		$	45	$	1,098,455		$	(143,858	)	$	38,212		$	(242,220	)	$	1,066,603
Impact of adoption of new accounting standards*																				0			0		0			0			(7,501	)		7,501			0
Share-based compensation expense		447			0		306		0			0		0			141			(2,344	)		0		(4,166	)		0			0			0			1,822
Settlement of share-based awards in subsidiaries		26			0		1,297		0			0		0			(1,271	)
Settlement /(Adjustment) of share-based awards in subsidiaries																				3			0		(2,802	)		0			0			0			2,805
Disposal of noncontrolling interest		(238	)		0		0		0			0		0			(238	)		(2,113	)		0		0			0			0			0			(2,113	)
Net income /(loss) attributable to Sohu.com Inc. and noncontrolling interest shareholders		10,945			0		0		0			0		(20,286	)		31,231			(87,201	)		0		0			0			0			(92,818	)		5,617
Accumulated other comprehensive income		1,375			0		0		0			475		0			900			37,031			0		0			0			13,509			0			23,522

Ending balance	$	1,743,307		$	45	$	799,960	$	(143,858	)	$	50,626	$	516,041		$	520,493		$	1,762,613		$	45	$	1,091,487		$	(143,858	)	$	44,220		$	(327,537	)	$	1,098,256

*	For details see Note 6 - Fair Value of Financial Instruments - Equity Investments

The accompanying notes are an integral part of these condensed consolidated financial statements.

-7-

SOHU.COM INC.

~~CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)~~

~~Three Months Ended March 31, 2017~~

~~(In thousands)~~

   Sohu.com Inc. Shareholders’ Equity
   Total Common
Stock    Additional
Paid-in
Capital Treasury
Stock Accumulated
Other
Comprehensive
Income    Retained
Earnings Noncontrolling
Interest
Beginning balance
   $ 1,557,795 $ 45    $ 821,867 $ (143,858 ) $ 3,220    $ 312,306 $ 564,215
Share-based compensation expense
   3,220 0    (2,641 ) 0 0    0 5,861
Settlement of share-based awards in subsidiaries
   450 0    5,262 0 0    0 (4,812 )
Repurchase of Sogou Class A Common Shares from a noncontrolling shareholder
   (3,190 ) 0    0 0 0    0 (3,190 )
Disposal of noncontrolling interest
   (80 ) 0    0 0 0    0 (80 )
Net income /(loss) attributable to Sohu.com Inc. and noncontrolling interest shareholders
   (50,353 ) 0    0 0 0    (68,248 ) 17,895
Accumulated other comprehensive income
   4,290 0    0 0 1,652    0 2,638
Other
   187 0    0 0 0    0 187






Ending balance
   $ 1,512,319 45    824,488 (143,858 ) 4,872    244,058 582,714

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~-8-~~

~~SOHU.COM INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE COMPANY AND BASIS OF PRESENTATION

1.	~~THE COMPANY AND BASIS OF PRESENTATION~~

Nature of Operations

Sogou is ~~a leading online~~an innovator in search and a leader in China’s Internet industry. With a mission to make it easy to communicate and get information, Sogou has grown to become the second largest search engine by mobile queries and the fourth largest Internet ~~product provider~~company by monthly active users (“MAU”) in ~~China.~~China, according to iResearch. Changyou is a leading online game developer and operator in China as measured by the popularity of its PC game Tian Long Ba Bu (“TLBB”) and its mobile game Legacy TLBB, ~~3D,~~ and engages primarily in the development, operation and licensing of online games for PCs and mobile devices. Most of the Group’s operations are conducted through the Group’s China-based subsidiaries and VIEs.

Sogou completed its IPO on the NYSE in November 2017 (trading under the symbol “SOGO”) and Changyou completed its IPO on NASDAQ in April 2009 (trading under the symbol “CYOU”). As Sohu.com Inc. is the controlling shareholder of both Sogou and Changyou, Sohu.com Inc. consolidates Sogou and Changyou in its consolidated financial statements, and recognizes noncontrolling interests reflecting economic interests in Sogou and Changyou held by shareholders other than Sohu.com Inc.

Through the operation of Sohu, Sogou and Changyou, the Sohu Group generates online advertising revenues, including brand advertising revenues and search and search-related advertising revenues; online games revenues; and other revenues. Online advertising and online games are the Sohu Group’s core businesses. Most of the Sohu Group’s operations are conducted through its China-based subsidiaries and VIEs.

Sohu’s Business

~~Sohu’s Business~~

Brand Advertising Business

Sohu’s main business is the brand advertising business, which offers to users, over Sohu’s matrices of Chinese language online media, various content, products and services across multiple Internet-enabled devices such as PCs, mobile phones and tablets. The majority of Sohu’s products and services are provided through Sohu Media Portal, Sohu Video and Focus.

Sohu Media Portal.Sohu Media Portal is a leading online news and information provider in China. It provides users comprehensive content through ~~www.sohu.com for PCs,~~ the mobile phone application Sohu News APP, www.sohu.com for PCs and the mobile portal m.sohu.com;

Sohu Video. Sohu Video is a leading online video content and service provider in China through tv.sohu.com for PCs and the mobile phone application Sohu Video APP; and

Focus. Focus (www.focus.cn) is a leading online real estate information and services provider in China.

Revenues generated by the brand advertising business are classified as brand advertising revenues in the Sohu Group’s consolidated statements of comprehensive income.

Other Sohu Business

Sohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, ~~sub-licensing of purchased video content to third parties, and~~ content provided through the platforms of the three main telecommunications operators in ~~China.~~China, andsub-licensing of purchased video content to third parties. Revenues generated by Sohu from the other business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

~~-9-~~-8-

Sogou’s Business

Search and Search-related Business

The search and search-related business consists primarily ~~offers advertisers pay-for-click~~of search and search-related advertising services ~~as well as online marketing services on Web directories operated~~offered by Sogou. ~~Pay-for-click~~Search and search-related advertising services enable advertisers’ promotional links to be displayed on ~~the Sogou~~Sogou’s search ~~result~~results pages and ~~Sogou Website Alliance members’~~other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. ~~Both pay-for-click~~Sogou’s advertising services ~~and online marketing services on Web directories operated by Sogou~~ expand distribution of ~~its~~ advertisers’ promotional links and advertisements by leveraging traffic on ~~Sogou Website Alliance members’~~third parties’ Internet properties, including Web content, software, and mobile applications. The search and search-related business benefits from Sogou’s collaboration with Tencent Holdings Limited (together with its subsidiaries, “Tencent”), which provides Sogou access to traffic and content generated from ~~users of~~ products and services provided by Tencent.

Revenues generated by the search and search-related business are classified as search and search-related advertising revenues in the Sohu Group’s consolidated statements of comprehensive income.

Other Sogou Business

Sogou also ~~engages in other business, by offering~~offers Internet value-added services (“IVAS”), primarily with respect to the operation of Web games and mobile games developed by third parties ~~as well as~~and the provision of online reading services, and offers other products and services, ~~provided to users.~~including smart hardware products. Revenues generated by Sogou from other business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

Initial Public Offering of Sogou

On November 13, 2017, Sogou completed its IPO on the New York Stock Exchange (the “NYSE”), trading under the symbol “SOGO.”

Sogou’s IPO consisted of American depositary shares (“ADSs”), with each ADS representing one Class A Ordinary Share. Sogou issued and sold in the IPO 50,643,856 Class A Ordinary Shares represented by 50,643,856 ADSs, including 5,643,856 Class A Ordinary Shares represented by 5,643,856 ADSs sold pursuant to the exercise of the underwriters’ over-allotment option. Proceeds to Sogou from the IPO were approximately $622.1 million, after deducting underwriting discounts and commissions and offering expenses.

In the fourth quarter of 2017, Sohu recognized aone-time credit to additionalpaid-in capital of $278.4 million in shareholders’ equity in its consolidated balance sheets to reflect an increase in the value of Sohu’s equity in Sogou that resulted from the completion of Sogou’s IPO.

Sogou’s Ordinary Shares are divided into Class A Ordinary Shares and Class B Ordinary Shares. Holders of Class A Ordinary Shares and holders of Class B Ordinary Shares have identical rights with the exception of voting and conversion rights. Each Class A Ordinary Share is entitled to one vote per share and is not convertible. Each Class B Ordinary Share is entitled to ten votes per share and is convertible into one Class A Ordinary Share at any time.

Voting Agreement between Sohu and Tencent

Pursuant to a voting agreement among Sohu, Tencent Holdings Limited (“Tencent”), and Sogou (the “Sogou Voting Agreement”) that took effect upon the completion of Sogou’s IPO and Sogou’s amended and restated memorandum and articles of association, Sohu has the right to appoint a majority of Sogou’s Board of Directors, and Sohu continues to consolidate Sogou in Sohu’s financial statements and provide for noncontrolling interests reflecting ordinary shares in Sogou held by shareholders other than Sohu.

Sogou’s Share Structure

As of March 31, 2018, Sogou had a combined total of 397,183,397 Class A Ordinary Shares and Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu: 127,200,000 Class B Ordinary Shares held by Sohu for its own account, and 3,717,250 Class A Ordinary Shares held by Sohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards;

(ii)	Tencent: 151,557,875 Class B Ordinary Shares;

(iii)

Photon Group Limited (“Photon”), an investment vehicle of the Sohu Group’s Chairman and Chief Executive Officer Charles Zhang: 32,000,000 Class A Ordinary Shares; and

(iv)	Shareholders other than Sohu, Tencent, and Photon: 82,708,272 Class A Ordinary Shares.

-9-

The totals of Sogou outstanding shares listed above include 10,327,500 Class A Ordinary Shares that are outstanding for legal purposes, but have been determined to be Sogou treasury stock for accounting purposes.

Changyou’s Business

Changyou’s business lines consist of the online game business; the platform channel business, which consists primarily of online advertising and ~~also includes~~ IVAS; and the cinema advertising business.

Online Game Business

Changyou’s online game business offers PC games and mobile games to game players (a) PC games, which are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personal computers and require that local client-end game access software be installed on the computers used, and (b) mobile games, which are played on mobile devices and require an Internet connection. Prior to the sale of Shenzhen 7Road Technology Co., Ltd., or Shenzhen 7Road, in August 2015, Changyou’s online games also included Web games, which are online games that are played through a Web browser with no local game software installation requirements. Following the sale of Shenzhen 7Road, Web games became an insignificant part of Changyou’s online game business.players. All of Changyou’s games are operated under the item-based revenue model, meaning that game players can play the games for free, but can choose to pay for virtual items, which arenon-physical items that game players can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks. Revenues derived from the operation of online games are classified as online game revenues in the Sohu Group’s consolidated statements of comprehensive income.

PC Games

PC games are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personal computers and require that localclient-end game access software be installed on the computers used. Changyou’s dominant game is TLBB, a ~~PC-based~~ PC basedclient-end game. For the three months ended March 31, ~~2017,~~2018, revenues from ~~the PC game~~ TLBB were ~~$53.3~~$50.8 million, accounting for approximately ~~63%~~48% of Changyou’s online game revenues, approximately ~~44%~~37% of Changyou’s total revenues and approximately ~~14%~~11% of the Sohu Group’s total revenues.

Mobile Games

Mobile games are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a new mobile game, Legacy TLBB, which is operated by Tencent under license from Changyou. For the three months ended March 31, ~~2016,~~2018, revenues from ~~the PC game~~Legacy TLBB were ~~$55.5~~$28.2 million, accounting for approximately ~~54%~~27% of Changyou’s online game revenues, approximately ~~43%~~21% of Changyou’s total revenues, and approximately ~~14%~~6% of the Sohu Group’s total revenues.

Web Games

Prior to the sale of Shenzhen 7Road Technology Co., Ltd. (“Shenzhen 7Road”) in August 2015, Changyou’s online games also included Web games, which are online games that are played through a Web browser with no local game software installation requirements. Following the sale of Shenzhen 7Road, Web games became an insignificant part of Changyou’s online game business.

Platform Channel Business

Changyou’s platform channel business consists primarily of the operation of the 17173.com Website and RaidCall. Prior to the sale of MoboTap in March 2018, Changyou’s platform channel business also included MoboTap.

17173.com Website

The 17173.com Website is one of the leading information portals in China, ~~which~~and provides news, electronic forums, online videos and other information services regarding online games to game players. ~~Changyou’s platform channel business also offers a number~~All revenues generated by the 17173.com Website are classified as brand advertising revenues.

RaidCall

RaidCall provides online music and entertainment services, primarily in Taiwan. IVAS revenues generated by RaidCall are classified as other revenues in the Company’s consolidated statements of comprehensive income.

MoboTap

MoboTap provides (a) software applications for PCs and mobile devices through the Dolphin Browser, ~~and RaidCall. RaidCall provides online music and entertainment services, primarily in Taiwan. The Dolphin Browser,~~ which ~~is operated by MoboTap Inc. (collectively with its subsidiaries and VIEs “MoboTap”),~~ is a gateway to a host of user activities on mobile devices, with the majority of its users based in ~~Europe, Russia~~overseas markets, and ~~Japan.~~

~~-10-~~

As Changyou management had determined that the Dolphin Browser was unable to provide expected synergies with Changyou’s platform channel business, in 2016 Changyou’s Board of Directors approved the disposal of Changyou’s 51% equity interest in MoboTap, which is the mobile technology developer behind the Dolphin Browser. Accordingly, the assets(b) domestic online card and liabilities attributable to MoboTap were classified as assets and liabilities held for sale and measured at the lower of their carrying amounts or their fair value, less cost to sell, in the Sohu Group’s consolidated balance sheet as of December 31, 2016. Due to the suspension of negotiations with a potential buyer of MoboTap in the first quarter of 2017, Changyou’s management determined that the disposal is unlikely to be completed within one year. As a result, the assets held for sale and liabilities held for sale related to MoboTap have been reclassified as assets and liabilities held for use and measured at the lower of the carrying value before MoboTap was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the assets and liabilities been continuously classified as held for use, or the fair value at reclassification day, respectively, in the Sohu Group’s consolidated balance sheet as of March 31, 2017. In the first quarter of 2017, Changyou recorded a $1.4 million expense in the consolidated statements of comprehensive income for catch-up of depreciation and amortization expense of the assets held for sale before the reclassification. All revenues generated by the 17173.com Website are classified as brand advertising revenues,board games. IVAS revenues generated by the Dolphin Browser ~~and by RaidCall~~ are classified as other revenues and ~~a relatively small amount of~~ online ~~game~~card and board games revenues generated by ~~the Dolphin Browser~~MoboTap are ~~included in~~classified as online game revenues in the ~~Sohu Group’s~~Company’s consolidated statements of comprehensive income. Changyou disposed of MoboTap for $3.0 million in the first quarter of 2018.

-10-

Cinema Advertising Business

Changyou also operates a cinema advertising business, which consists primarily of the acquisition from operators of movie theaters, and the sale to advertisers ofpre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theatre. Revenues generated by Changyou’s cinema advertising business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

Changyou’s Share Structure

As of March 31, 2018, Changyou had a combined total of 105,836,420 Class A and Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu.com Inc.: 1,500,000 Class A Ordinary Shares and 70,250,000 Class B Ordinary Shares; and

(ii)	Public shareholders: 34,086,420 Class A Ordinary Shares.

As of March 31, 2018, Sohu.com Inc. held approximately 68% of the combined total of Changyou’s outstanding ordinary shares, and controlled approximately 95% of the total voting power in Changyou. As Changyou’s controlling shareholder, Sohu.com Inc. consolidates Changyou in its financial statements and provides for noncontrolling interests reflecting ordinary shares in Changyou held by shareholders other than Sohu.com Inc.

Basis of Consolidation and Recognition of Noncontrolling Interest

The Sohu Group’s consolidated financial statements include the accounts of Sohu.com Inc. and its subsidiaries and consolidated VIEs. All ~~intercompany~~intra-Group transactions are eliminated.

VIE Consolidation

The Sohu Group’s VIEs are wholly or partially owned by certain employees of the Group as nominee shareholders. For consolidated VIEs, management made evaluations of the relationships between the Sohu Group and the VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Group controls the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Sohu Group is the primary beneficiary of its consolidated VIEs.

Noncontrolling Interest Recognition

Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, to the controlling shareholders. ~~The~~Currently, the noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist of noncontrolling interests for Sogou and Changyou.

Noncontrolling Interest for Sogou

Sogou completed its IPO on the NYSE in November 2017. Prior to the completion of Sogou’s ~~Share Structure~~

~~As of March 31, 2017, Sogou had outstanding a combined total of 334,026,595 ordinary shares and preferred shares held as follows:~~

~~(i)~~

IPO, Sohu.com Inc.~~: 130,977,750 Class A Ordinary Shares, of which 3,764,500 shares may be purchased by Sohu management and key employees under an option arrangement;~~

~~(ii)~~

~~Photon Group Limited, an investment vehicle of the Sohu Group’s Chairman and Chief Executive Officer Charles Zhang (“Photon”): 32,000,000 Series A Preferred Shares;~~

~~(iii)~~

~~Tencent: 6,757,875 Class A Ordinary Shares, 65,431,579 Series B Preferred Shares and 79,368,421 non-voting Class B Ordinary Shares; and~~

~~(iv)~~

~~Various employees of Sogou and Sohu: 19,490,970 Class A Ordinary Shares.~~

~~-11-~~

~~Sohu’s Shareholding in and Control of Sogou~~

As of March 31, 2017, Sohu.com Inc. held approximately 36% of the outstanding equity capital of Sogou on a fully-diluted basis, assuming for such purpose that all share options under the Sogou 2010 Share Incentive Plan and all share options under the Sohu Management Sogou Share Option Arrangement are granted and exercised, and that all of the Sogou Class A Ordinary Shares that Sogou has repurchased are re-issued to shareholders other than Sohu.com Inc. Also as of March 31, 2017, Sohu.com Inc. held over 50% of the total voting power of Sogou on a fully-diluted basis and controlled the election of a majority of the Board of Directors of Sogou ~~assuming~~pursuant to a shareholders’ agreement that ~~Tencent’s non-voting Class B Ordinary Shares are converted to voting shares, that all~~expired upon completion of the IPO. Following the completion of Sogou’s IPO, pursuant to the Sogou ~~Class A Ordinary Shares that Sogou has repurchased are re-issued to shareholders other than~~Voting Agreement and Sogou’s amended and restated memorandum and articles of association, Sohu.com Inc.~~, and that all Sogou share options under~~ still has the ~~Sogou 2010 Share Incentive Plan and all Sogou share options under the Sohu Management Sogou Share Option Arrangement are granted and exercised.~~right to appoint a majority of Sogou’s Board of Directors.

As Sogou’s controlling shareholder, ~~Sohu.com Inc.~~the Sohu Group consolidates Sogou in its consolidated financial statements, and recognizes noncontrolling interest reflecting economic interests in Sogou held by shareholders other than ~~Sohu.com Inc.~~it (the “Sogou noncontrolling shareholders”). Sogou’s net ~~income/(loss)~~income /(loss) attributable to the Sogou noncontrolling shareholders is recorded as noncontrolling interest in ~~the Sohu Group’s~~its consolidated statements of comprehensive income.

Noncontrolling Interest Recognition before Sogou’s IPO

-11-

shares outstanding before Sogou’s IPO (“SogouPre-IPO Class A Ordinary Shares” and “SogouPre-IPO Class B Ordinary Shares, as applicable), were accounted for as a noncontrolling interest classified as permanent equity in the Sohu Group’s consolidated balance sheets, as Sohu Group had the power to reject a redemption requested by the noncontrolling shareholders. These treatments were based on the terms governing investment, and on the terms of the classes of Sogou shares held, by the noncontrolling shareholders in Sogou before Sogou’s IPO.

Principles of Allocation of Sogou’s Profit and Loss - By virtue of the terms of the SogouPre-IPO Preferred Shares,Pre-IPO Class A Ordinary Shares, andPre-IPO Class B Ordinary Shares, Sogou’s losses were allocated in the following order before Sogou’s IPO:

(i)	net losses were allocated to holders of the SogouPre-IPO Class A Ordinary Shares and the holder of the SogouPre-IPO Class B Ordinary Shares until their basis in Sogou decreased to zero;

(ii)	additional net losses were allocated to holders of the SogouPre-IPO Series A Preferred Shares until their basis in Sogou decreased to zero;

(iii)

additional net losses were allocated to the holder of the SogouPre-IPO Series B Preferred Shares until its basis in Sogou decreased to zero; and

(iv)	further net losses were allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

Net income from Sogou was allocated in the following order before Sogou’s IPO:

(i)	net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis in Sogou increased to zero;

(ii)	additional net income was allocated to the holder of the SogouPre-IPO Series B Preferred Shares to bring its basis back;

(iii)

additional net income was allocated to holders of the SogouPre-IPO Series A Preferred Shares to bring their basis back;

(iv)	further net income was allocated to holders of the SogouPre-IPO Class A Ordinary Shares and the holder of the SogouPre-IPO Class B Ordinary Shares to bring their basis back; and

(v)	further net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

Noncontrolling Interest Recognition after Sogou’s IPO

Sogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, based on their share of the economic interest in Sogou, along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that are unvested and vested but not yet settled and adjustment for changes in the ~~Sogou noncontrolling shareholders’ investments~~Sohu Group’s ownership percentage in Sogou, ~~Series A Preferred Shares and Series B Preferred Shares (collectively, the “Sogou Preferred Shares”) and Ordinary Shares~~ are ~~accounted for~~recorded as a noncontrolling interest ~~classified as permanent equity~~ in the Sohu Group’s consolidated balance sheets, as the Sohu Group has the right to reject a redemption requested by the noncontrolling shareholders. These treatments are based on the terms governing the investments of, and on the terms of the classes of Sogou shares held by, the noncontrolling shareholders in Sogou.sheets.

~~Principles of Allocation of Sogou’s Profit and Loss~~

~~By virtue of the terms of Sogou Preferred Shares and Class A Ordinary Shares and Class B Ordinary Shares, Sogou’s losses are allocated in the following order:~~

~~(i)~~

~~net losses are allocated to holders of Sogou Class A Ordinary Shares and the holder of Sogou Class B Ordinary Shares until their basis in Sogou decreases to zero;~~

~~(ii)~~

~~additional net losses are allocated to holders of Sogou Series A Preferred Shares until their basis in Sogou decreases to zero;~~

~~(iii)~~

~~additional net losses are allocated to the holder of Sogou Series B Preferred Shares until its basis in Sogou decreases to zero; and~~

~~(iv)~~

~~further net losses are allocated between Sohu.com Inc. and noncontrolling shareholders based on their shareholding percentage in Sogou.~~

~~Net income from Sogou is allocated in the following order:~~

~~(i)~~

~~net income is allocated between Sohu.com Inc. and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis in Sogou increases to zero;~~

~~(ii)~~

~~additional net income is allocated to the holder of Sogou Series B Preferred Shares to bring its basis back;~~

~~(iii)~~

~~additional net income is allocated to holders of Sogou Series A Preferred Shares to bring their basis back;~~

~~(iv)~~

~~further net income is allocated to holders of Sogou Class A Ordinary Shares and the holder of Sogou Class B Ordinary Shares to bring their basis back; and~~

~~(v)~~

~~further net income is allocated between Sohu.com Inc. and noncontrolling shareholders based on their shareholding percentages in Sogou.~~

~~Key Terms of Sogou Preferred Shares~~

~~The following is a summary of some of the key terms of the Sogou Preferred Shares under Sogou’s Memorandum and Articles of Association as currently in effect.~~

~~(i)~~

~~Dividend Rights~~

~~-12-~~

Sogou may not declare or pay dividends on its Class A Ordinary Shares or Class B Ordinary Shares (collectively, “Ordinary Shares”) unless the holders of the Sogou Preferred Shares then outstanding first receive a dividend on each outstanding Preferred Share in an amount at least equal to the sum of (i) the dividends that would have been payable to the holder of such Preferred Share if such share had been converted into Ordinary Shares, at the then-applicable conversion rate, immediately prior to the record date for such dividend, and (ii) all accrued and unpaid Accruing Dividends. “Accruing Dividends” are calculated from the date of issuance of the Series A Preferred Shares at the rate per annum of $0.0375 per Series A Preferred Share and from the date of issuance of the Series B Preferred Shares at the rate per annum of $0.411 per Series B Preferred Share.

~~(ii) Liquidation Rights~~

In the event of any “Liquidation Event,” such as the liquidation, dissolution or winding up of Sogou, a merger or consolidation of Sogou resulting in a change of control, the sale of substantially all of Sogou’s assets or similar events, the holders of Series B Preferred Shares are entitled to receive an amount per share equal to the greater of (i) $6.847 plus any unpaid Accruing Dividends or (ii) such amount per share as would have been payable if the Series B Preferred Shares had been converted into Ordinary Shares prior to the Liquidation Event, and holders of Series A Preferred Shares are entitled to receive, after payment to the holders of the Series B Preferred Shares but before any payment to holders of Ordinary Shares, an amount equal to the greater of (i) 1.3 times their original investment in the Series A Preferred Shares plus all accrued but unpaid Accruing Dividends or (ii) such amount per share as would be payable if the Series A Preferred Shares had been converted into Ordinary Shares immediately prior to the Liquidation Event.

~~(iii) Redemption Rights~~

~~The Sogou Preferred Shares are not redeemable at the option of the holders.~~

~~(iv) Conversion Rights~~

Each Sogou Preferred Share is convertible, at the option of the holder, at any time, and without the payment of additional consideration by the holder. Each Sogou Preferred Share is convertible into such number of Class A Ordinary Shares as is determined, in the case of Series A Preferred Shares, by dividing $0.625 by the then-effective conversion price for Series A Preferred Shares, which is initially $0.625, and, in the case of Series B Preferred Shares, by dividing $7.267 by the then-effective conversion price for Series B Preferred Shares, which is initially $7.267. The conversion prices of the Sogou Preferred Shares are subject to adjustment on a weighted average basis upon the issuance of additional equity shares, or securities convertible into equity shares, at a price per share less than $0.625, in the case of Series A Preferred Shares, or less than $7.267, in the case of Series B Preferred Shares, subject to certain customary exceptions, such as shares issued pursuant to the Sogou 2010 Share Incentive Plan. Each Sogou Preferred Share will be automatically converted into Class A Ordinary Shares of Sogou upon the closing of a qualified IPO of Sogou based on the then-effective conversion ratio of such Sogou Preferred Share, which is currently one-for-one for both Series A Preferred Shares and Series B Preferred Shares.

~~(v) Voting Rights~~

Each holder of Sogou Preferred Shares is entitled to cast the number of votes equal to the number of Class A Ordinary Shares into which the Sogou Preferred Shares held by such holder are then convertible.

~~(vi) Other Rights~~

~~The holders of Sogou Preferred Shares have various other rights typical of preferred share investments.~~

~~Key Terms of Sogou Class A Ordinary Shares and Class B Ordinary Shares~~

The Class A Ordinary Shares and Class B Ordinary Shares have identical rights, except that Class B Ordinary Shares do not have voting rights unless the holders of at least a majority of the then outstanding Class B Ordinary Shares elect, by written notice to Sogou, to convert them into shares with voting rights.

~~-13-~~

Noncontrolling Interest for Changyou

Changyou is a public company listed on the NASDAQ Global Select Market. As of March 31, ~~2017,~~2018, Sohu.com Inc. held approximately ~~69%~~68% of the combined total of Changyou’s outstanding ordinary shares, and controlled approximately ~~96%~~95% of the total voting power in Changyou.

As Changyou’s controlling shareholder, Sohu.com Inc. consolidates Changyou in its consolidated financial statements, and recognizes noncontrolling interest reflecting the economic interest in Changyou held by shareholders other than Sohu.com Inc.~~(the~~ (the “Changyou noncontrolling shareholders”). Changyou’s net income /(loss) attributable to the Changyou noncontrolling shareholders is recorded as noncontrolling interest in the Sohu Group’s consolidated statements of comprehensive income, based on the noncontrolling shareholders’ share of the economic interest in Changyou. Changyou’s cumulative results of operations attributable to the Changyou noncontrolling shareholders, along with changes in shareholders’ equity, adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in Sohu.com Inc.’s ownership in Changyou, are recorded as noncontrolling interest in the Sohu Group’s consolidated balance sheets.

-12-

Basis of Presentation

These financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016.~~2017.

The accompanying unaudited condensed consolidated interim financial statements reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. Results for the three months ended March 31, ~~2017~~2018 are not necessarily indicative of the results expected for the full fiscal year or for any future period.

Revenue Recognition

Adoption of ASC 606

On January 1, 2018, the Sohu Group adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. Adoption did not have a material impact on accumulated deficit as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Group’s historic accounting under ASC 605.

Under ASC 605, advertising-for-advertising barter transactions for which the fair value of the advertising services was not determinable was recorded at the carrying amount of the advertising surrendered since the Group did not settle such barter transactions with the counterparties in cash. As ASC 605 has been superseded by ASC 606 on this subject, advertising-for-advertising barter transactions should be recorded at the fair value of the advertising received by reference to the fair value of advertising services provided to other customers. The impact for the first quarter of 2018 was an increase of approximately $6.7 million in revenues, with a corresponding increase in cost of revenues and sales and marketing expenses, most of which were generated from Sogou for services provided to and received from Tencent. To a lesser extent, there is a potential impact on the Group’s accounting for exchanges of brand advertising placements with other platforms by Sohu. Revenues are recognized in the same amount with costs and expenses.Therefore, there was no net profit and loss impact to the Group for the first quarter of 2018.

The following table illustrates the effect of the adoption of ASC 606 by presenting a comparison of selected line items from the Group’s condensed consolidated statement of comprehensive income for the three months ended March 31, 2018, as actually reported and as they would have been reported under ASC 605, without the adoption of ASC 606 (in thousands, except per share data):


	As reported			Without adoption of ASC 606			Effect of change Higher/(Lower)
Revenue-Online advertising-Brand advertising	$	56,254			55,913			341
Revenue-Online advertising-Search and search related advertising		220,301			213,987			6,314
Cost of revenue- Online advertising-Search and search related advertising		144,696			138,955			5,741
Gross profit		194,162			193,248			914
Operating expenses- Sales and marketing		90,273			89,359			914
Operating loss		(31,490	)		(31,490	)		0
Income tax expenses		63,379			63,379			0
Net loss		(87,201	)		(87,201	)		0
Basic net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.39	)		0
Diluted net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.39	)		0

The adoption of ASC 606 did not change the Group’s condensed consolidated balance sheet, condensed consolidated statement of cash flows, or condensed consolidated statement of changes in equity for the three months ended March 31, 2018.

-13-

Revenues are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services. The recognition of revenues involves certain management judgments, including estimated lives of virtual items purchased by game players, the estimation of the fair value of anadvertising-for-advertising barter transaction, allocation of upfront license fees forlicensed-out games between license and post-sale services, and volume sales rebates. The Group does not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Group’s revenues could be different for any period if management made different judgments or utilized different estimates.

The following table presents the Group’s revenues disaggregated by products and services (unaudited):


	Three Months Ended March 31, 2018 (in thousands)								Three Months Ended March 31, 2017 (in thousands)
	Sohu		Sogou		Changyou		Total		Sohu		Sogou		Changyou		Total
Brand advertising:
Sohu Media Portal	$	30,674		0		0		30,674	$	36,844		0		0		36,844
Sohu Video		12,635		0		0		12,635		21,696		0		0		21,696
Focus		7,868		0		0		7,868		17,018		0		0		17,018
17173.com Website		0		0		5,078		5,078		0		0		5,854		5,854
Search and search related advertising		0		220,301		0		220,301		0		142,035		0		142,035
Online games:
PC games		0		0		59,425		59,425		0		0		64,881		64,881
Mobile games		0		0		45,735		45,735		0		0		19,838		19,838
Other games		0		0		301		301		0		0		606		606
Others:
Paid subscription services		9,257		0		0		9,257		6,316		0		0		6,316
Cinema advertising business		0		0		24,870		24,870		0		0		24,600		24,600
Others		9,305		27,749		1,797		38,851		10,090		20,234		4,091		34,415

Total	$	69,739		248,050		137,206		454,995	$	91,964		162,269		119,870		374,103

As noted above, in accordance with the modified retrospective method upon adoption of ASC 606, prior period amounts have not been adjusted.

Online Advertising Revenues

Online advertising revenues include revenues from brand advertising services as well as search and search-related advertising services. Certain customers may receive sales rebates, which are accounted for as variable consideration. The Group estimates annual expected revenue volume of each individual agent with reference to their historical results. The sales rebate will reduce revenues recognized. The Group recognizes revenue for the amount of fees it receives from its advertisers, after deducting sales rebates and net of value-added tax (“VAT”) and related surcharges. The Group believes that there will not be significant changes to its estimates of variable consideration.

Brand Advertising Revenues

Revenue Recognition of Multiple Performance Obligations

The Group’s contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates revenues to each performance obligation based on its relative standalone selling price. The Group generally determines standalone selling prices of each distinct performance obligation based on the prices charged to customers when sold on a standalone basis. Where standalone selling price is not directly observable, the Group generally estimate selling prices based on when they are sold to customers of a similar nature and geography. Most of such contracts have all performance obligations completed within the same quarter.

-14-

Pricing Model

Through PCs and mobile devices, the Group provides advertisement placements to its advertisers on different Internet platforms and in different formats, which include banners, links, logos, buttons, full screen,pre-roll,mid-roll, post-roll video screens, pause video screens, loading page ads, news feed ads andin-feed video infomercial ads.

Currently the Group has three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model, and the Cost Per click (“CPC”) model.

(i)	Fixed Price model

Under the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given the advertisers benefit from the displayed advertising evenly, the Group recognizes revenue on a straight-line basis over the period of display, provided all revenue recognition criteria have been met.

(ii)

CPM model

Under the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistently throughout the contract and the unit prices are consistent with the Group’s pricing practices with similar customers, the Group recognizes revenue which are based on the fixed unit prices and the number of qualifying displays upon occurrence of display, provided and all revenue recognition criteria have been met.

(iii)

CPC model

Under the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit price for each click is auction-based. The Group charges advertisers on aper-click basis, when the users click on the advertisements. Given that the fees are priced consistently throughout the contract and the unit prices are consistent with the Group’s pricing practices with similar customers, the Group recognizes revenue based on qualifying clicks and the unit price upon the occurrence of a click, provided all revenue recognition criteria have been met.

Search and Search-related Advertising Revenues

Search and search-related services consist primarily of search and search-related advertising services offered by Sogou.

Pay-for-click Services

Pay for click services enable advertisers’ promotional links to be displayed on Sogou search result pages and other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. For pay for click services, Sogou introduces Internet users to its advertisers through auction-basedpay-for-click systems and charges advertisers on aper-click basis when the users click on the displayed links. Revenue forpay-for-click services is recognized on a per click basis when the users click on the displayed links.

Other Online Advertising Services

Other online advertising services mainly consist of displaying advertisers’ promotional links on Sogou’s Internet properties. Revenue for time-based advertising is normally recognized on a straight-line basis over the advertising period, provided Sogou’s obligations under the contract and all revenue recognition criteria have been met. Revenue for performance-based advertising services is recognized when Sogou’s performance obligations under the contract have been satisfied.

Sogou’s online advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internet properties, including Web content, software, and mobile applications. Sogou is the primary obligor to the advertisers and payments made to operators of third-party Internet properties are included in traffic acquisition costs, which are included in cost of search and search-related advertising revenues.

Online Game Revenues

Changyou’s online game revenues are generated primarily from its self-operated andlicensed-out PC games and mobile games. All of Changyou’s games are operated under the item-based revenue model, where the basic game play functions are free of charge and players are charged for purchases ofin-game virtual items, including those with a predetermined expiration time and perpetual virtual items.

-15-

Changyou is the primary obligor of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketing of the games as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/or mobile APP stores, but net of VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale ofin-game virtual items. Revenues are recognized as the virtual items are consumed or over the estimated lives of the virtual items, which are estimated by considering the average period that paying players typically play Changyou’s games and other player behavior patterns derived from operating data. If different assumptions were used in deriving the estimated lives of the virtual items, the timing of the recording of the revenues could be impacted.

PC Games

Proceeds from Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s game points on its online payment platform and prepaid game cards.

Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to third-party developers are recorded in Changyou’s cost of revenues.

Mobile Games

Self-operated Mobile Games

For self-operated mobile games, Changyou sells game points to its game players via third-party mobile APP stores. The mobile APP stores in turn pay Changyou proceeds after deducting their share ofpre-agreed revenue-sharing amounts.

Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensed and jointly-developed mobile games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to mobile application stores and third-party developers are recorded in Changyou’s cost of revenues.

Licensed Out Mobile Games

Changyou also authorizes third parties to operate its mobile games. Licensed out games mainly include mobile games developed in house Legacy TLBB and mobile games jointly developed with third-party developers. For mobile games developed in house, the license arrangements also include post-sale services. Changyou receives monthly revenue-based royalty payments from all the third-party licensee operators. Changyou receives additionalup-front license fees from certain third-party licensee operators who are entitled to an exclusive right to operate Changyou’s games in specified geographic areas. Changyou determined that the game license and the post-sale services are distinct performance obligations and that theup-front license fee should be allocated between the license and the post-sale services based on the relative standalone selling price, which is determined by using expected cost plus margin. The amounts allocated to the license should be recognized upon the commencement of the license period, given that the license is considered to be a functional license, and the amount allocated to post-sale services should be recognized over the service period on a straight-line basis as the post-sale services are regarded to be performed evenly. The monthly revenue-based royalty payments are recognized when the sales occur, provided that collectability is reasonably assured. Changyou views the third-party licensee operators as Changyou’s customers and recognizes revenues on a net basis, as Changyou does not have the primary responsibility for fulfillment and acceptability of the game services. Changyou remits to the third-party developers apre-agreed percentage of revenues pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to third-party developers are included in Changyou’s cost of revenues or product development expenses.

Other Revenues

Sohu

Other revenues attributable to Sohu consist primarily of revenues from paid subscription services, interactive broadcasting services, content provided through the platforms of the three main telecommunications operators in China, andsub-licensing of purchased video content to third parties.

Sogou

Other revenues attributable to Sogou are IVAS revenues, which are mainly from the operation of Web games and mobile games developed by third parties and the provision of online reading services, and revenues from other products and services, including smart hardware products.

-16-

Changyou

Other revenues attributable to Changyou are primarily from its cinema advertising business and from IVAS.

In its cinema advertising business, Changyou provides clients advertising placements in slots that are shown in theaters before the screening of movies. The rights to place advertisements in such advertising slots are granted to Changyou, which takes inventory risk under the contracts Changyou signs with different theaters. When all the recognition criteria are met, revenues from cinema advertising are recognized based on a percentage of the advertising slots actually delivered. As Changyou is considered to be the principal in the arrangements with the theaters, the fees paid to the theaters are recognized as cost of revenues.

Changyou provides IVAS primarily through software applications for PCs and mobile devices offered by RaidCall. Revenues from IVAS are recognized during the period the services are rendered or items are consumed under the gross method, as Changyou is the principal obligor for provision of the services.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The allowance for doubtful accounts and authorized credits is estimated based upon the Group’s assessment of various factors, including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect the Group’s customers’ ability to pay. Contract assets as of March 31, 2018 were not material. The allowance for doubtful accounts and authorized credits was $5.5 million and $5.7 million, respectively, as of March 31, 2018 and December 31, 2017.

Receipts in advance and deferred revenue related to unsatisfied performance obligations at the end of the period and consist of fees received from the game players with online gaming business and advertisers with searching and searching related advertising business. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $104.3 million for the three month periods ended March 31, 2018.

There is no significant change in contract liability balance during the first quarter of 2018.

Revenue recognized in the current period from performance obligations related to prior periods was not material.

Practical Expedients

The Group has used the following practical expedients as allowed under ASC 606:

(i)	The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, has not been disclosed as substantially all of the Group’s contracts have a duration of one year or less.

(ii)

Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Group has determined that its contracts generally do not include a significant financing component.

(iii)

The Group applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for the recongnition of games revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually.

(iv)	The Group generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within sales and marketing expenses.

-17-

2. SEGMENT INFORMATION

The Sohu Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is Sohu.com Inc.’s Chief Executive Officer. There are three segments in the Group, consisting of the Sohu segment, the Sogou segment, and the Changyou segment.

The following tables present summary information by segment (in thousands):

   Three Months Ended March 31, 2016
   Sohu Sogou Changyou Eliminations Consolidated
Revenues (1)
   $ 131,572 $ 147,329 $ 129,840 $ (789 ) $ 407,952
Segment cost of revenues
   (86,422 ) (64,571 ) (41,857 ) 58 (192,792 )


Segment gross profit
   45,150 82,758 87,983 (731 ) 215,160
SBC (2) in cost of revenues
   (62 ) 0 7 0 (55 )


Gross profit
   45,088 82,758 87,990 (731 ) 215,105


Operating expenses:

Product development (3)
   (22,536 ) (30,722 ) (30,597 ) 1,173 (82,682 )
Sales and marketing (1)
   (51,371 ) (27,099 ) (12,556 ) 993 (90,033 )
General and administrative
   (12,231 ) (3,390 ) (11,647 ) 28 (27,240 )
SBC (2) in operating expenses
   99 (1,744 ) 1,267 0 (378 )


Total operating expenses
   (86,039 ) (62,955 ) (53,533 ) 2,194 (200,333 )


Operating profit /(loss)
   (40,951 ) 19,803 34,457 1,463 14,772


Other income (3)
   1,376 164 3,847 (1,463 ) 3,924
Interest income (4)
   2,261 1,704 4,051 (2,179 ) 5,837
Interest expense (4)
   (1,666 ) 0 (1,211 ) 2,179 (698 )
Exchange difference
   (334 ) (81 ) (607 ) 0 (1,022 )


Income /(loss) before income tax expense
   (39,314 ) 21,590 40,537 0 22,813


Income tax expense
   (2,647 ) (1,487 ) (7,734 ) 0 (11,868 )


Net income /(loss)
   $ (41,961 ) $ 20,103 $ 32,803 $ 0 $ 10,945

~~-14-~~

~~Note (1):~~

~~The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou and Changyou segments.~~

~~Note (2):~~

~~“SBC” stands for share-based compensation expense.~~

~~Note (3):~~

~~The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou.~~

~~Note (4):~~

~~The elimination represents interest income/ (expense) resulting from intracompany loans between the Sohu segment and the Changyou segment.~~


	Three Months Ended March 31, 2017															Three Months Ended March 31, 2017
	Sohu			Sogou			Changyou			Eliminations			Consolidated			Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	92,492		$	162,284		$	119,870		$	(543	)	$	374,103		$	92,492		$	162,284		$	119,870		$	(543	)	$	374,103
Segment cost of revenues		(92,202	)		(87,454	)		(39,088	)		51			(218,693	)		(92,202	)		(87,454	)		(39,088	)		51			(218,693	)

Segment gross profit		290			74,830			80,782			(492	)		155,410			290			74,830			80,782			(492	)		155,410
SBC (2) in cost of revenues		(159	)		(3	)		(24	)		0			(186	)		(159	)		(3	)		(24	)		0			(186	)

Gross profit		131			74,827			80,758			(492	)		155,224			131			74,827			80,758			(492	)		155,224

Operating expenses:
Product development (3)		(25,979	)		(32,849	)		(24,404	)		1,461			(81,771	)		(25,979	)		(32,849	)		(24,404	)		1,461			(81,771	)
Sales and marketing (1)		(55,051	)		(24,765	)		(10,536	)		931			(89,421	)
Sales and marketing (1) (3)																	(55,051	)		(24,765	)		(10,536	)		931			(89,421	)
General and administrative(3)		(10,905	)		(4,635	)		(8,791	)		32			(24,299	)		(10,905	)		(4,635	)		(8,791	)		32			(24,299	)
SBC (2) in operating expenses		2,806			(4,340	)		(5,509	)		0			(7,043	)		2,806			(4,340	)		(5,509	)		0			(7,043	)

Total operating expenses		(89,129	)		(66,589	)		(49,240	)		2,424			(202,534	)		(89,129	)		(66,589	)		(49,240	)		2,424			(202,534	)

Operating profit /(loss)		(88,998	)		8,238			31,518			1,932			(47,310	)		(88,998	)		8,238			31,518			1,932			(47,310	)

Other income/(expense) (3)		3,741			23			2,267			(1,932	)		4,099
Other income /(loss) (3)																	3,741			23			2,267			(1,932	)		4,099
Interest income (4)		1,671			1,658			6,416			(5,274	)		4,471			1,671			1,658			6,416			(5,274	)		4,471
Interest expense (4)		(4,376	)		0			(1,073	)		5,274			(175	)		(4,376	)		0			(1,073	)		5,274			(175	)
Exchange difference		615			(639	)		(742	)		0			(766	)		615			(639	)		(742	)		0			(766	)

Income /(loss) before income tax expense		(87,347	)		9,280			38,386			0			(39,681	)		(87,347	)		9,280			38,386			0			(39,681	)

Income tax expense		(1,195	)		(1,052	)		(8,425	)		0			(10,672	)		(1,195	)		(1,052	)		(8,425	)		0			(10,672	)

Net income /(loss)	$	(88,542	)	$	8,228		$	29,961		$	0		$	(50,353	)	$	(88,542	)	$	8,228		$	29,961		$	0		$	(50,353	)

Note (1):

The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou and Changyou segments.

Note (2):

“SBC” stands for share-based compensation expense.

Note (3):

The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou.

Note (4):

The elimination represents interest ~~income/ (expense)~~income /(expense) resulting from ~~intracompany~~intra-Group loans between the Sohu segment and the Changyou segment.

   As of December 31, 2016
   Sohu    Sogou    Changyou    Eliminations Consolidated
Cash and cash equivalents
   $ 167,691    $ 286,078    $ 597,188    $ 0 $ 1,050,957
Accounts receivable, net
   100,317    41,781    47,150    (81 ) 189,167
Fixed assets, net
   196,839    117,022    189,770    0 503,631
Total assets (1)
   $ 1,241,844    $ 499,589    $ 1,708,037    $ (885,780 ) $ 2,563,690


	Three Months Ended March 31, 2018
	Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	69,928		$	248,384		$	137,205		$	(522	)	$	454,995
Segment cost of revenues		(64,539	)		(153,804	)		(42,954	)		14			(261,283	)

Segment gross profit		5,389			94,580			94,251			(508	)		193,712
SBC (2) in cost of revenues		657			(219	)		12			0			450

Gross profit		6,046			94,361			94,263			(508	)		194,162

Operating expenses:
Product development (3)		(34,566	)		(43,448	)		(34,728	)		1,914			(110,828	)
Sales and marketing (1) (3)		(48,890	)		(26,707	)		(15,436	)		671			(90,362	)
General and administrative (3)		(11,409	)		(5,879	)		(9,169	)		101			(26,356	)

-18-


SBC (2) in operating expenses		3,541			(4,060	)		2,413			0			1,894

Total operating expenses		(91,324	)		(80,094	)		(56,920	)		2,686			(225,652	)

Operating profit /(loss)		(85,278	)		14,267			37,343			2,178			(31,490	)

Other income /(loss) (3)		4,632			4,386			5,441			(2,178	)		12,281
Interest income (4)		2,462			3,467			9,169			(7,290	)		7,808
Interest expense (4)		(8,849	)		0			(1,522	)		7,290			(3,081	)
Exchange difference		(1,863	)		(4,666	)		(2,811	)		0			(9,340	)

Income /(loss) before income tax expense		(88,896	)		17,454			47,620			0			(23,822	)

Income tax expense		(176	)		(2,144	)		(61,059	)		0			(63,379	)

Net income /(loss)	$	(89,072	)	$	15,310		$	(13,439	)	$	0		$	(87,201	)

Note (1):

The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou and Changyou segments.

Note (2):

“SBC” stands for share-based compensation expense.

Note (3):

The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou.

Note (4):

The elimination represents interest income /(expense) resulting from intra-Group loans between the Sohu segment and the Changyou segment.


	As of December 31, 2017
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	98,750	$	694,207	$	571,139	$	0		$	1,364,096
Accounts receivable, net		86,801		72,117		91,636		(86	)		250,468
Fixed assets, net		200,561		139,209		189,947		0			529,717
Total assets (1)	$	1,124,759	$	1,321,036	$	1,922,023	$	(978,579	)	$	3,389,239

Note (1):

The elimination for segment assets mainly consists of elimination of ~~intracompany~~intra-Group loans between the Sohu segment and the Changyou segment, and elimination of long-term investments in subsidiaries and consolidated VIEs.

   As of March 31, 2017
   Sohu    Sogou    Changyou    Eliminations Consolidated
Cash and cash equivalents
   $ 113,541    $ 294,734    $ 560,674    $ 0 $ 968,949
Accounts receivable, net
   87,421    36,065    50,097    (82 ) 173,501
Fixed assets, net
   194,716    114,474    187,892    0 497,082
Total assets (1)
   $ 1,170,143    $ 508,559    $ 1,750,861    $ (953,136 ) $ 2,476,427


	As of March 31, 2018
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	74,932	$	352,158	$	729,318	$	0		$	1,156,408
Accounts receivable, net		81,408		55,709		80,121		(90	)		217,148
Fixed assets, net		208,196		142,766		194,457		0			545,419
Total assets (1)	$	1,065,859	$	1,374,426	$	2,008,826	$	(1,004,263	)	$	3,444,848

~~-15-~~

Note (1):

3. SHARE-BASED COMPENSATION EXPENSE

3.	~~SHARE-BASED COMPENSATION EXPENSE~~

Sohu (excluding Fox Video Limited), Sogou, Changyou, and Fox Video Limited (“Sohu Video”) have incentive plans for the granting of share-based awards, including stock options, share options and restricted share units, to members of the boards of directors, management and other key employees.

Sohu (excluding Sohu Video), Sogou, and Changyou Share-based Awards

For Sohu (excluding Sohu Video) stock options that Sohu granted before 2006 and Sohu restricted share units, Sogou share-based awards, and Changyou share-based awards under the Changyou 2008 Share Incentive Plan, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income based on the fair value of the related share-based awards on their grant dates.

-19-

For Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses, share-based compensation expense is recognized in the consolidated statements of comprehensive income based on the then-current fair value at each reporting date.

Options for the purchase of Sohu common stock contractually granted under the Sohu 2010 Stock Incentive Plan and options for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. UnderASC718-10-25,, no grant date can be established until a mutual understanding is reached between the companies and the recipients clarifying the subjective performance requirements. In accordance withASC718-10-55,, as the service inception date preceded the grant date, compensation expense was accrued beginning on the service inception date, and wasre-measured and will bere-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. The estimate of the awards’ fair value will be fixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair value at the grant date. In determining the fair value of stock options and share options granted by Sohu and Changyou, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied.

For Sogou Pre-IPO Class A Ordinary Shares repurchased by Sogou from the former President and Chief Financial Officer of the Sohu Group in the first quarter of 2017, share-based compensation expense is recognized by the Sohu Group in the consolidated statements of comprehensive income in an amount equal to the excess of the repurchase price over the fair value of the SogouPre-IPO Class A Ordinary Shares at the repurchase date.

Sohu Video Share-based Awards

On January 4, 2012, Sohu Video, the holding entity of Sohu’s video division, adopted a 2011 Share Incentive Plan (the “Video 2011 Share Incentive Plan”) which provides for the issuance of up to 25,000,000 ordinary shares of Sohu Video (representing approximately 10% of the outstanding Sohu Video shares on a fully-diluted basis) to management and key employees of the video division and to Sohu management. As of March 31, ~~2017,~~2018, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made, of which options for the purchase of 4,972,800 ordinary shares were vested.

For purposes ofASC718-10-25,, as of March 31, ~~2017,~~2018, no grant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with the recipients. Therefore the fair value of the awards was not determinable and could not be accounted for. In accordance withASC718-10-55,, the Group’s management determined that the service inception date with respect to vested option awards for the purchase of 4,972,800 shares had preceded the grant date. Therefore, the Group recognized compensation expense for these vested Sohu Video share-based awards andre-measured, and willre-measure, the compensation expense on each subsequent reporting date based on the then-current fair values of these vested awards until the grant date is established.

~~-16-~~

Share-based Compensation Expense Recognition

Share-based compensation expense was recognized in costs and expenses for the three months ended March 31, ~~2016~~2017 and ~~2017~~2018 as follows (in thousands):


	Three Months Ended March 31,					Three Months Ended March 31,
Share-based compensation expense	2016			2017		2017		2018
Cost of revenues	$	55		$	186	$	186	$	(450	)
Product development expenses ~~(1)~~		(3	)		2,327		2,327		715
Sales and marketing expenses		14			665		665		(89	)
General and administrative expenses		367			4,051		4,051		(2,520	)

	$	433		$	7,229	$	7,229	$	(2,344	)

Share-based compensation expense was recognized for share awards of Sohu (excluding Sohu Video), Sogou, Changyou and Sohu Video as follows (in thousands):


	Three Months Ended March 31,						Three Months Ended March 31,
Share-based compensation expense	2016			2017			2017			2018
For Sohu (excluding Sohu Video) share-based awards ~~(1)~~	$	(272	)	$	(2,443	)	$	(2,443	)	$	(4,049	)
For Sogou share-based awards (2)		1,730			4,337			4,337			4,279
For Changyou share-based awards ~~(1)~~		(1,274	)		5,533			5,533			(2,425	)
For Sohu Video share-based awards (1)		249			(198	)		(198	)		(149	)

	$	433		$	7,229		$	7,229		$	(2,344	)

-20-

Note (1): The negative amount ~~represented~~ resulted fromre-measured compensation expense based on the then-current fair value of the awards on the reporting date, as well as reversals of share-based compensation expense for awards that were forfeited due to termination of employment prior to vesting. The difference for the three months ended March 31, 2017 compared to the corresponding period of 2016 was mainly due to differences in the fair values of certain awards as of the respective reporting dates, as well as reversals of share-based compensation expense for awards that were forfeited due to termination of employment prior to vesting.date.

Note (2): Compensation expense for Sogou share-based awards also includes compensation expense for Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses, and compensation expense of $4.0 million recognized in the first quarter of 2017 in connection with Sogou’s repurchase of SogouPre-IPO Class A Ordinary Shares from the former President and Chief Financial Officer of the Sohu ~~Group.~~Group, which is equal to the excess of the repurchase price over the fair value of the SogouPre-IPO Class A Ordinary Shares as of the repurchase date.

There was no capitalized share-based compensation expense for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.

For details of the share-based compensation expenses of the Sohu Group, see Note 11.

4. RELATED PARTY TRANSACTIONS

4.	~~RELATED PARTY TRANSACTIONS~~

~~Changyou’s Loan Arrangements with~~Under an agreement between Sohu and Fox Financial Technology Group Limited (“Fox Financial,” formerly known as “SoEasy Internet Finance Group Limited”) entered into in August 2014, Sohu invested $4.8 million and $16.1 million, respectively, in Fox Financial in August 2014 and April 2015. In February 2016, Sohu invested an additional $10.5 million in Fox Financial, see Note 6 – Fair Value Measurements - Other Financial Instruments - Long-term Investments.

Changyou’s Loan Arrangements with Fox Financial

Commencing in April 2015, certain subsidiaries of Changyou and certain subsidiaries of Fox Financial entered into a series of loan agreements pursuant to which the subsidiaries of Changyou are entitled to draw down HK dollar-denominated or U.S. dollar-denominated loans from the Fox Financial subsidiaries and the Fox Financial subsidiaries are entitled to draw down equivalentRMB-denominated loans from the subsidiaries of Changyou, to facilitate each other’s business operations. All of the loans carry a fixed rate of interest ~~equal to~~which approximates the current market interest rate.

As of March 31, ~~2017,~~2018, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately ~~$28.3~~$30.8 million, which was recorded in other short-term liabilities, andRMB-denominated loans receivable from Fox Financial in a total amount of approximately ~~$28.3~~$31.0 million, which was recorded in prepaid and other current assets. For the three months ended March 31, ~~2017,~~2018, Changyou incurred interest expense of $0.2 million in connection with the loans payable and earned interest income of $0.3 ~~million.~~million in connection with the loans receivable. As of March 31, ~~2017,~~2018, total interest expense payable to Fox Financial amounted to ~~$0.7~~$1.6 million, which was recorded in other short-term liabilities; and total interest income receivable from Fox Financial was ~~$1.2~~$2.6 million, which was recorded in prepaid and other current assets.

5. INTRA-GROUP LOAN AND SHARE PLEDGE AGREEMENT

~~-17-~~

~~Other~~

~~Information~~

For the three months ended March 31, 2017 and 2016, the Sohu Group generated brand advertising revenue from Fox Financial of nil and $0.9 million, respectively, and incurred sales and marketing expense for Fox Financial of nil and $13,000, respectively.

5.	~~INTRACOMPANY LOAN AND SHARE PLEDGE AGREEMENT~~

On October 24, 2016, Beijing Sohu New Media Information Technology Co., Ltd. (“Sohu Media”), a subsidiary of Sohu, entered into a loan agreement (the “Loan Agreement”) with Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”), a subsidiary of Changyou, pursuant to which Sohu Media may borrow from time to time from AmazGame up to RMB1.00 billion (or approximately ~~$144.9~~$159.0 million). The first request for an advance under the Loan Agreement was required to be made on or prior to December 31, 2016, and requests for further advances may be made for one year following the initial advance. The one-year request period may be extended for another one-year period with the consent of AmazGame. Principal amounts outstanding under the Loan Agreement bear interest at an annual rate of 6%. The outstanding principal of each advance will be due one year from the date of the advance, subject to extension for an additional year with the consent of AmazGame.

Also on October 24, 2016, Sohu.com (Game) Limited (“Sohu Game”), a Cayman Islands company that is an indirect subsidiary of Sohu and is the direct parent of Changyou, and Changyou entered into a share pledge agreement (the “Share Pledge Agreement”) pursuant to which Sohu Game pledged to Changyou 11,386,228 Class B ordinary shares of Changyou held by Sohu Game. The number of Changyou Class B ordinary shares pledged by Sohu Game to Changyou is subject to upward adjustment from time to time while amounts are outstanding under the Loan Agreement if the price of Changyou’s American depositary shares (“ADSs”) on the NASDAQ Global Select Market drops for at least 10 consecutive trading days by an amount of 20% or more from such price as of the date of the Share Pledge Agreement, and is subject to further upward adjustment in the event of any additional incremental drops of 20% or more in the price of Changyou’s ADSs during 10 consecutive trading days. The share pledge agreement gives Changyou the right to apply the outstanding principal and accrued interest on the loan to the repurchase of Changyou Class B ordinary shares from Sohu Game in the event that such principal and interest under the Loan Agreement are not paid when due.

-21-

In December 2016, March 2017 and ~~March~~April 2017, Sohu Media received RMB500.0 million (or approximately ~~$72.5~~$79.5 million) ~~and~~, RMB200.0 million (or ~~$29.0~~$31.8 million) and RMB 300.0 million (or $47.7 million), respectively, from AmazGame. As of March 31, ~~2017,~~2018, the total outstanding balance of the loan was ~~RMB700.0 million~~RMB1.00 billion (or ~~$101.5~~$159.0 million). The ~~intracompany~~intra-Group loan has been eliminated upon consolidation. In December 2017, Sohu Media and AmazGame entered into an agreement extending the due date of each advance for an additional year. As of March 31, 2018, the number of Class B ordinary shares pledged by Sohu Game to Changyou was 13,704,663.

6. FAIR VALUE MEASUREMENTS

6.	~~FAIR VALUE MEASUREMENTS~~

Fair Value of Financial Instruments

The Sohu Group’s financial instruments ~~include~~consist primarily of cash equivalents, short-term investments, accounts receivable, ~~assets held for sale,~~ prepaid and other current assets, long-term investments, ~~(including available-for-sale equity securities), restricted time deposits,~~ accounts payable, accrued liabilities, receipts in advance and deferred revenue, ~~liabilities held for sale,~~short-term bank loans, other short-term liabilities, long-term bank loans and long-term accounts payable.

U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:

Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - include other inputs that are directly or indirectly observable in the market place.

Level 3 - unobservable inputs which are supported by little or no market activity.

Financial Instruments Measured at Fair Value

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, ~~2016~~2017 (in thousands):

      Fair value measurements at reporting date using
Items
   As of
December 31,
2016    Quoted Prices
in Active Markets
for Identical Assets
(Level 1)    Significant
Other Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Cash equivalents
   $ 626,697    $ 0    $ 626,697    $ 0
Short-term investments
   247,926    0    247,926    0
Available-for-sale equity securities
   10,381    10,381    0    0
Foreign exchange forward contracts
   3,040    0    3,040    0
Restricted time deposits
   269    0    269    0








Total
   $ 888,313    $ 10,381    $ 877,932    $ 0

~~-18-~~


			Fair value measurements at reporting date using
Items	As of December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	1,136,892	$	0	$	1,136,892	$	0
Short-term investments		818,934		0		818,934		0
Equity investments with readily determinable fair values		21,307		21,307		0		0
Foreign exchange forward contracts recognized in other short-term liabilities		715		0		715		0

The following table sets forth the financial instruments, measured at fair value by level within the fair value hierarchy, as of March 31, ~~2017~~2018 (in thousands):

      Fair value measurements at reporting date using
Items
   As of
March 31,
2017    Quoted Prices
in Active Markets
for Identical Assets
(Level 1)    Significant
Other Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Cash equivalents
   $ 573,742    $ 0    $ 573,742    $ 0
Short-term investments
   282,976    0    282,976    0
Available-for-sale equity securities
   9,703    9,703    0    0
Foreign exchange forward contracts
   2,517    0    2,517    0
Restricted time deposits
   269    0    269    0








Total
   $ 869,207    $ 9,703    $ 859,504    $ 0


			Fair value measurements at reporting date using
Items	As of March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	924,738	$	0	$	924,738	$	0
Short-term investments		1,074,538		0		1,074,538		0
Equity investments with readily determinable fair values		12,725		12,725		0		0

-22-

Cash Equivalents

The Sohu Group’s cash equivalents mainly consist of time deposits with original maturities of three months or less, notice deposits, and highly liquid investments that are readily convertible to known amounts of cash. The fair values of cash equivalents are determined based on the pervasive interest rates in the market. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Generally, there are no quoted prices in active markets for identical cash equivalents at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Short-term Investments

In accordance withASC 825,, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Sohu Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income as other income /(expense). To estimate fair value, the Group refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, the Sohu Group’s investment in these financial instruments was ~~$283.0 million~~$1.07 billion and ~~$247.9~~$818.9 million, respectively. The investment instruments were issued by commercial banks in China, and have a variable interest rate indexed to performance of underlying assets. Since these investments’ maturity dates are within one year, they are classified as short-term investments. For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, the Sohu Group recorded ~~in the consolidated statements of comprehensive income~~a gain from changes in the fair value of short-term investments in the amounts of ~~$2.6~~$8.8 million and ~~$1.5~~$2.6 million ~~respectively.~~

~~Available-for-Sale Equity Securities~~

Available-for-sale equity securities are valued using the market approach based on the quoted prices in active markets at the reporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. On August 12, 2014, Sohu acquired approximately 6% of the total outstanding common shares of Keyeast Co., Ltd., a Korean-listed company (“Keyeast”), for a purchase price of $15.1 million. The Sohu Group classified this investment as available-for-sale equity securities under long-term investments, and reported it at fair value. As of March 31, 2017, the fair value of the Keyeast available-for-sale equity securities held by Sohu was $9.7 million. An unrealized loss representing the change in fair value of $5.4 million was recorded in accumulated other comprehensive income /(loss) in the Sohu Group’s consolidated balance sheets.

~~-19-~~

~~Assets and Liabilities Held for Sale~~

In 2016, Changyou’s Board of Directors approved the disposal of the 51% equity interest in MoboTap. Accordingly, the assets and liabilities attributable to MoboTap are classified as assets and liabilities held for sale and measured at the lower of their carrying amounts or their fair value, less cost to sell, in the Sohu Group’s consolidated balance sheet as of December 31, 2016. Due to the suspension of negotiations with a potential buyer of MoboTap in the first quarter of 2017, Changyou’s management determined that the disposal is unlikely to be completed within one year. As a result, the assets held for sale and liabilities held for sale related to MoboTap have been reclassified as assets and liabilities held for use and measured at the lower of the carrying value before MoboTap was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the assets and liabilities been continuously classified as held for use, or the fair value at reclassification day, respectively, in the Sohu Group’s consolidated balance sheet as of March 31, 2017. In the first quarter of 2017, Changyou recorded a $1.4 million expense in the consolidated statements of comprehensive income, ~~for catch-up of depreciation and amortization expense of the assets held for sale before the reclassification.~~respectively.

Foreign Exchange Forward Contracts

In September 2016 and January 2017, Changyou entered into foreign exchange forward contracts with banks in an aggregate ~~nominal amount~~notional amounts of $100 million and $50 million, respectively. Changyou entered into ~~the~~such foreign exchange forward contracts in compliance with its risk management policy for the purpose of eliminating the negative impact on earnings and equity resulting from fluctuations in the exchange rate between the U.S. dollar and the RMB. ~~There was no cash collateral or settlement under~~In January 2018, Changyou settled the remaining foreign exchange forward contracts aswith a realized loss of $0.2 million recognized in the consolidated statements of comprehensive income for the three months ended March 31, ~~2017.~~2018. For the three months ended March 31, 2017, the Sohu Group recorded an unrealized loss of $0.5 million, resulting from changes in the fair ~~value~~values of forward contracts ~~of $0.5 million~~ in the consolidated statements of comprehensive income. For the three months ended March 31, 2018 and 2017, the Sohu Group recorded cash outflows related to the forward contracts of $0.9 million and nil, respectively, in the consolidated statements of cash flows. As of March 31, 2018, the carrying value of the foreign exchange forward contracts recognized in other short-term liabilities was nil.

The Group estimated the fair values of foreign exchange forward contracts using the Black-Scholes model. The fair values of the forward contracts were estimated based on quoted forward exchange prices at the reporting date. The Group classifies the fair value measurement of the forward contracts based on such inputs as Level 2 of fair value measurements.

~~Other Financial Instruments~~

~~The fair values of other financial instruments are estimated for disclosure purposes as follows:~~

~~Long-term~~Equity Investments

ASU2016-01 (“ASU2016-01”), Recognition and Measurement of Financial Assets and Financial Liabilities amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance will require modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effect adjustment recorded to opening accumulated deficit as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively.

The following table illustrates the effect of the adoption of ASU2016-01 by presenting a comparison of selected line items from the Group’s condensed consolidated statement of comprehensive income for the three months ended March 31, 2018, as actually reported and as they would have been reported under standards previously in effect (in thousands, except per share data):

-23-


	As reported			Without adoption of ASU2016-01			Effect of change Higher/(Lower)
Operating profit	$	(31,490	)		(31,490	)		0
Other income, net		12,281			10,918			1,363
Income tax expenses		63,379			63,058			321
Net loss		(87,201	)		(88,243	)		1,042
Foreign currency translation adjustments		37,031			37,111			(80	)
Change in unrealized gain for equity securities with readily determinable fair value		0			882			(882	)
Other comprehensive income		37,031			37,993			(962	)
Comprehensive loss		(50,170	)		(50,250	)		80
Basic net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.41	)		0.02
Diluted net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.41	)		0.02

The following table illustrates the effect of the adoption of ASU2016-01 by presenting a comparison of selected line items from the Group’s condensed consolidated balance sheet as of March 31, 2018, as actually reported and as they would have been reported under standards previously in effect (in thousands, except per share data):


	As reported			Without adoption of ASU2016-01			Effect of change Higher/(Lower)
Long term investments, net	$	98,612			98,416			196
Deferred tax liability		95,632			95,517			115
Accumulated other comprehensive income		44,220			52,683			(8,463	)
Accumulated deficit		(327,537	)		(335,915	)		8,378

The adoption of ASU2016-01 did not change the Group’s condensed consolidated statement of cash flows for the three months ended March 31, 2018.

~~Long-term~~ Equity Investments Accounted for Using the Equity Method

Investment in Fox Financial

Under an agreement between Sohu and Fox Financial entered into in August 2014, Sohu invested $4.8 million and $16.1 million in Fox Financial on August 2014 and April 2015, respectively. In February 2016, Sohu invested an additional $10.5 million in Fox Financial. Sohu accounted for its investments in Fox Financial under long-term investments. These investments include both preferred shares and common shares. Sohu ~~accounted~~elected to account for its investment in Fox Financial’s preferred shares ~~under the~~at cost ~~method,~~less impairments, adjusted by observable price changes, since they were not considered to be common shares in substance and had no readily determinable fair value. There was no any observable price change in our investment in Fox Financial in the three months ended March 31, 2018. Sohu accounted for its investment in Fox Financial’s common shares under the equity method, since Sohu can exercise significant influence through its board seat in Fox Financial, but does not own a majority of Fox Financial’s equity capital or control Fox Financial.

In March 2017, Fox Financial issued additional common shares to new investors, while shares held by Sohu remained unchanged. As a result, Sohu’s shareholding percentage of common shares was diluted from 7% to 6%. ~~In accordance with~~~~ASC 320-10-40~~~~, the~~The Group recognized dilution gain of $0.7 million in other income for the three months ended March 31, 2017. As of March 31, ~~2017,~~2018, the carrying value of Sohu’s investment in Fox Financial was ~~$25.6~~$24.5 million.

Equity Investments with Readily Determinable Fair Values

Effective as of January 1, 2018, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be anavailable-for-sale classification (changes in fair value previously reported in other comprehensive income) for equity securities with readily determinable fair values.

-24-

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements.

Investment in Keyeast Co., Ltd. (“Keyeast”)

On August 12, 2014, Sohu acquired approximately 6% of the total outstanding common shares of Keyeast, a Korean-listed company, for a purchase price of $15.1 million. The Sohu Group classified this investment as equity investments with readily determinable fair values under long-term investments, and reported it at fair value using a market approach based on Keyeast’s stock price on the South Korean stock market. The fair value of this investment was continually below its original cost for a twelve-month period ended July 31, 2017. Management considered the decline in the fair value to be other-than-temporary, and the Sohu Group recognized an impairment loss of $5.8 million in other income /(loss) in the Sohu Group’s consolidated statements in the third quarter of 2017. Starting from January 1, 2018, Sohu applied ASU 2016-01 by means of a reclassification of $0.9 million from other comprehensive income to accumulated deficit in relation to the fair value change of investment in Keyeast previously reported in other comprehensive income. In the first quarter of 2018, Sohu disposed of all of its shares in Keyeast for $11.2 million, and recognized a disposal gain of $1.0 million in other income /(loss) in the Sohu Group’s consolidated statements.

Investment in Hylink Digital Solution Co., Ltd (“Hylink”)

On May 5, 2011, Sohu acquired 2% of the equity interests of Hylink for a purchase price of $2.3 million (RMB15 million). Given that Sohu neither controls nor has significant influence over Hylink, and the equity interest of Hylink did not have a readily determinable fair value, Sohu has previously accounted for this investment using the cost method. On August 2, 2017, Hylink completed its IPO on the Shanghai Stock Exchange. Upon the completion of Hylink’s IPO, Sohu’s interest in Hylink was diluted to 1.5% of Hylink’s total ordinary shares then outstanding. The Sohu Group reclassified this investment as equity investments with readily determinable fair values with the investment’s fair value measured based on Hylink’s stock price on the Shanghai Stock Exchange. Starting from January 1, 2018, Sohu applied ASU2016-01 by means of a reclassification of $6.6 million (RMB43.2 million) from other comprehensive income to accumulated deficit in relation to the fair value change of investment in Hylink previously reported in other comprehensive income. As of March 31, 2018, the fair value of the Hylink equity securities held by Sohu was $12.7 million (RMB80.0 million) and Sohu recognized unrealized gain representing a change in fair value of $1.2 million (RMB7.4 million) for the three months ended March 31, 2018 in other income /(loss) in the Sohu Group’s consolidated statements.

Equity Investments without Readily Determinable Fair Values

Based on ASU2016-01, an entity will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method at cost, less impairment, adjusted for subsequent observable price changes. Entities that elect this measurement alternative will report changes in the carrying value of the equity investments in current earnings.

If this measurement alternative is elected, changes in the carrying value of the equity investment will be required to be made whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changes that are known or that can reasonably be known.

Long-term Investment in Zhihu

As of March 31, ~~2017,~~2018, Sogou had invested a cumulative total of $18.9 million in Zhihu Technology Limited (“Zhihu”), a company that engages primarily in the business of operating an online question and answer-based knowledge and information-sharing platform. Sogou ~~accounted~~elected to account for the investment in Zhihu ~~using the~~at cost ~~method,~~less impairments, adjusted by observable price changes, since Sogou does not have significant influence over ~~Zhihu.~~Zhihu and its investment in Zhihu is without readily determinable fair value. There was no observable price change for the three months ended March 31, 2018.

Long-term Investment in Hainan Yun Jiang

In March 2018, Sogou invested $12.7 million (RMB80 million) in Hainan Yun Jiang Technology Co., Ltd.(“Hainan Yun Jiang”), a high-tech enterprise that engages primarily in the business of operating on-line and off-line education with artificial intelligence as its core. Sogou elected to account for the investment in Hainan Yun Jiang at cost less impairments, adjusted by observable price changes, since Sogou does not have significant influence over Hainan Yun Jiang and its investment in Hainan Yun Jiang is without readily determinable fair value. There was no observable price change for the three months ended March 31, 2018.

~~-20-~~-25-

Short-term Receivables and Payables

Accounts receivable and prepaid and other current assets are financial assets with carrying values that approximate fair value due to their short-term nature. Short-term accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bank loans and other short-term liabilities are financial liabilities with carrying values that approximate fair value due to their short-term nature. For short-term receivables and payables, the Group estimated fair values using the discounted cash flow ~~method, which is unobservable in the market.~~method. The Group classifies the valuation technique as Level 2 of fair value measurements.

Short-term Bank Loans

For short-term bank loans, the rates of interest under the agreements with the lending banks were determined based on the prevailing interest rates in the market. The Sohu Group estimated fair values using the discounted cash flow method and classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

Factoring contract with recourse with HongKong and Shanghai Banking Corporation Limited (“HSBC”)

In May 2017, Sohu entered into a one year factoring contract with recourse with HSBC, pursuant to which Sohu may borrow from HSBC from time to time up to a combined aggregate of RMB180.0 million (or $28.6 million), which is the upper limit reviewed by HSBC at least annually. The loan is secured by up to RMB198.0 million (or $31.5 million) of Sohu’s accounts receivable and guaranteed by Sohu Media. Interest will accrue on the principal amounts of the loans outstanding at an annual rate that will be agreed to by HSBC and Sohu upon drawdown. As of March 31, 2018 and December 31, 2017, the total outstanding balance of the loan was both nil.

Credit agreements with Ping An Bank Co., Ltd. (“Ping An Bank”)

In May 2017, Sohu entered into credit agreements with Ping An Bank pursuant to which Sohu was entitled to borrow from Ping An Bank from time to time until May 18, 2020 up to a combined aggregate of RMB2.50 billion (or $397.6 million). The loan was initially secured by pledges of Sohu’s two buildings and guaranteed by Sohu.com (Game) Limited (“Sohu Game”). The initial interest rate for the loans was an annual rate equal to 115% of the rate published by the PBOC. In July 2017, Sohu entered into an amendment of its loan arrangements with Ping An Bank pursuant to which interest on outstanding principal amounts will accrue at a rate designated separately upon each drawdown based on the benchmark loan rate published by the PBOC with reference to then prevailing market interest rates. In July 2017, Sohu drew down from Ping An Bank pursuant to the loan arrangements a loan with a term of 12 months in the amount of RMB400.0 million (or approximately $63.6 million) and an interest rate of 6.525% per annum, which is 150% of the rate published by the PBOC as of the date of the drawdown. In September 2017, Sohu entered into another amendment of its loan arrangements with Ping An Bank pursuant to which the maximum amount that Sohu is entitled to borrow has been reduced from RMB2.50 billion (or $397.6 million) to RMB600 million (or $95.4 million), and one of Sohu’s buildings was released from the pledge. As of March 31, 2018 and December 31, 2017, the total outstanding balance of the loan was RMB400 million (or $63.6 million) and RMB400 million (or $61.2 million), respectively.

Long-term Payables

Long-term accounts payable are financial liabilities with carrying values that approximate fair value due to any changes in fair value, after considering the discount rate, being immaterial. For long-term accounts payable, the Group estimated fair values using the discounted cash flow method, which is unobservable in the market. The Sohu Group classifies the valuation technique as Level 2 of fair value measurements.

In September 2017, Sohu entered into credit agreements with the Industrial and Commercial Bank of China Limited (“ICBC”) pursuant to which Sohu will be entitled to borrow from ICBC from time to time until March 31, 2018 up to a combined aggregate of RMB800 million (or $127.2 million). The outstanding principal amount of the loan will be payable in four equal installments, with the first installment payable 18 months after the drawdown and the other three installments payable semi-annually at the end of each of the three successive six-month periods after the first installment payment. The loan is secured by the pledge of Sohu’s building that was released upon the amendment of Sohu’s loan arrangements with Ping An Bank. Interest will accrue on the principal amounts of the loans outstanding at an annual rate equal to the Loan Prime Rate (“LPR”) published by the National Interbank Funding Center, plus 1.2%. As of March 31, 2018 and December 31, 2017, the total outstanding balance of the loan was RMB800 million (or $127.2 million) and RMB800 million (or $122.4 million).

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7. GOODWILL

Changes in the carrying value of goodwill by ~~segment~~segments are as follows (in thousands):

   Sohu    Sogou    Changyou    Total
Balance as of December 31, 2016

Goodwill
   $ 72,011    5,565    96,949    174,525
Accumulated impairment losses
   (35,788 )    0    (70,447 )    (106,235 )








   $ 36,223    $ 5,565    $ 26,502    $ 68,290








Transactions in 2017

Goodwill associated with MoboTap and reclassification of assets held for sale to assets held for use (1)
   0    0    83,470    83,470
Goodwill associated with an acquisition
   1,000    0    0    1,000
Foreign currency translation adjustment
   77    30    90    197








Balance as of March 31, 2017
   $ 37,300    $ 5,595    $ 110,062    $ 152,957








Balance as of March 31, 2017

Goodwill
   $ 73,088    $ 5,595    $ 180,509    $ 259,192
Accumulated impairment losses
   (35,788 )    0    (70,447 )    (106,235 )








   $ 37,300    $ 5,595    $ 110,062    $ 152,957

~~Note (1): Represents goodwill associated with the reclassification of assets held for sale to assets held for use in connection with MoboTap. See Note 6 – Fair Value Measurements.~~


	Sohu			Sogou		Changyou			Total
Balance as of December 31, 2017
Goodwill	$	73,941			5,908		181,421			261,270
Accumulated impairment losses		(35,788	)		0		(153,917	)		(189,705	)

	$	38,153		$	5,908	$	27,504		$	71,565

Transactions in 2018
Foreign currency translation adjustment		631			231		675			1,537

Balance as of March 31, 2018	$	38,784		$	6,139	$	28,179		$	73,102

Balance as of March 31, 2018
Goodwill	$	71,030		$	6,139	$	182,096		$	259,265
Accumulated impairment losses		(32,246	)		0		(153,917	)		(186,163	)

	$	38,784		$	6,139	$	28,179		$	73,102

8. TAXATION

Sohu.com Inc. is subject to United States (“U.S.”) ~~income tax, and Changyou’s income that is from a U.S. source is generally subject to U.S.~~ income tax. The majority of the subsidiaries and VIEs of the Sohu Group are based in mainland China and are subject to income taxes in the PRC. These China-based subsidiaries and VIEs conduct substantially all of the Sohu Group’s operations, and generate most of the Sohu Group’s income or losses.

PRC Corporate Income Tax

~~PRC~~

~~Corporate Income Tax~~

Principal Entities Qualified as HNTEs

The PRC Corporate Income Tax Law (the “CIT Law”) applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs can enjoy an income tax rate of 15%, but need tore-apply every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead use the regular 25% CIT rate.

~~-21-~~

As of March 31, ~~2017,~~2018, the following principal entities of the Sohu Group were qualified as HNTEs and were entitled to an income tax rate of 15%.

For Sohu’s Business

Beijing Sohu New Momentum Information Technology Co., Ltd. (“Sohu New Momentum”). Sohu New Momentum qualified as an HNTE for the years 2016 tothrough 2018, and will need tore-apply for HNTE qualification in 2019.

Beijing Sohu Internet Information Service Co., Ltd. (“Sohu Internet”). Sohu Internet qualified as an HNTE for the years 2015 tothrough 2017, and will need tore-apply for HNTE qualification in 2018.

~~Beijing~~ Sohu ~~New Era Information Technology Co., Ltd. (“Sohu Era”),~~Media and Guangzhou Qianjun. Sohu Media and Guangzhou Qianjun ~~Network Technology Co., Ltd (“Guangzhou Qianjun”). Sohu Era, Sohu~~re-applied for HNTE qualification and received approval in November 2017 and December 2017, respectively. New Media and Guangzhou Qianjun ~~were each qualified~~are entitled to continue to enjoy the beneficial tax rate as HNTEs for the years ~~2014~~2017 through 2019, and will need to ~~2016. Sohu Media and Guangzhou Qianjun will~~ re-apply for HNTE qualification in ~~2017.~~2020.

For Sogou’s Business

Beijing Sogou Information Service Co., Ltd. (“Sogou Information”). Sogou Information qualified as an HNTE for the years 2015 tothrough 2017, and will need tore-apply for HNTE qualification in 2018.

Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”). Sogou Technology ~~qualified~~re-applied for HNTE qualification and received approval in December 2017. Sogou Technology is entitled to continue to enjoy the beneficial tax rate as an HNTE for the years ~~2014 to 2016,~~2017 through 2019, and will need tore-apply for HNTE qualification in ~~2017.~~2020.

-27-

Beijing Sogou Network Technology Co., Ltd. (“Sogou Network”). Sogou Network qualified as an HNTE for the years 2016 tothrough 2018, and will need tore-apply for HNTE qualification in 2019.

For Changyou’s Business

Beijing Gamease Age Digital Technology Co., Ltd. (“Gamease”) and Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”). Gamease and ~~Beijing~~AmazGamere-applied for HNTE qualification and received approval in October 2017 and December 2017, respectively. Gamease ~~Age Digital Technology Co., Ltd. (“Gamease”).~~and AmazGame ~~and Gamease were both qualified~~are entitled to continue to enjoy the beneficial tax rate as HNTEs for the years ~~2014 to 2016,~~2017 through 2019, and will need tore-apply for HNTE qualification in ~~2017.~~2020.

Beijing Changyou Gamespace Software Technology Co., Ltd. (“Gamespace”). Gamespace qualified as an HNTE for the years ~~2017 to 2019,~~2016 through 2018, and will need tore-apply for HNTE qualification in ~~2020.~~2019.

Principal Entities Qualified as Software Enterprises and KNSEs

The CIT Law and its implementing regulations provide that a “Software Enterprise” is entitled to an income tax exemption for two years beginning with its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a “Key National Software Enterprise” (a “KNSE”) is entitled to a further reduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferential CIT rates. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferential CIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status.

For Sohu’s Business

Sohu New Momentum. In 2017, Sohu New Momentum ~~will perform~~completed a self-assessment, ~~and file~~filed required supporting documents, ~~to entitle~~and was qualified as a Software Enterprise, which entitled it to the first year of an income tax rate reduction from 25% to 12.5% ~~as a Software Enterprise~~ for ~~2016, and~~2016. Sohu New Momentum will follow the same process in 2018 to entitle it to the second year of an income tax rate reduction from 25% to 12.5%. for 2017.

For Sogou’s Business

Sogou Technology. In 2017, Sogou Technology ~~will perform~~completed a self-assessment and ~~file~~filed required supporting documents for KNSE status for ~~2016,~~2016. In 2017, Sogou Technology was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential income tax rate of 10% for 2016. Sogou Technology will follow the same process in 2018 for KNSE status for 2017.

~~-22-~~

For Changyou’s Business

AmazGame. In 2017, AmazGame ~~will perform~~completed a self-assessment and ~~file~~filed required supporting documents for KNSE status for ~~2016,~~2016. Also in 2017, AmazGame was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential income tax rate of 10% for 2016. AmazGame will follow the same process in 2018 for KNSE status for 2017.

Baina (Wuhan) Information Technology Co., Ltd. (“Wuhan Baina Information”). In 2017, Wuhan Baina Information will perform a self-assessment and file required supporting documents to entitle it to the first year of an income tax exemption as a Software Enterprise for 2016, and will follow the same process in 2018 to entitle it to the second year of an income tax exemption for 2017.

PRC Withholding Tax on Dividends

The CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holding companies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital,” if such holding company is considered anon-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to a withholding tax rate of 10%.

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Before 2018, in order to fund the distribution of a dividend to shareholders of the Sohu Group’s majority-owned subsidiary Changyou, Changyou’s management determined to cause one of its PRC subsidiaries to declare and distribute a cash dividend of all of its stand-alone 2012 earnings and half of its stand-alone subsequent years’ earnings to its direct overseas parent company, Changyou.com (HK) Limited (“Changyou HK”)., and adopted as a policy for such subsequent years for its PRC subsidiaries a limit on payment of dividends to their direct overseas parent companies ofone-half of such PRC subsidiaries’ earnings. In 2018, in order to facilitate the distribution of a special cash dividend of $500.0 million declared by Changyou’s board of directors on April 5, 2018, Changyou revised its policy for its PRC subsidiaries with respect to their distribution of cash dividends. Under the revised policy, all of Changyou’s PRC subsidiaries (not including the VIEs and their subsidiaries) will be able to distribute their cumulative available and undistributed earnings to their direct overseas parent companies in future periods. The change will result in Changyou’s accrual of additional withholding income taxes of approximately $47.0 million for the period before December 31, 2017, which will be recognized in the Sohu Group’s consolidated financial statements for the quarter ended March 31, 2018. As of March 31, ~~2017, Changyou~~2018, the Sohu Group had accrued deferred tax liabilities related to Changyou in the amount of ~~$26.9~~$82.7 million for PRC withholding tax.

With the exception of that dividend, the Sohu Group does not intend to have any of its PRC subsidiaries or VIEs distribute any undistributed profits of such subsidiaries or VIEs to their direct overseas parent companies, but rather intends that such profits will be permanently reinvested by such subsidiaries and VIEs for their PRC operations.

PRC Value-Added Tax

Effective September 1, 2012, a pilot program (the “Pilot Program”) for transition from the imposition of PRC business tax (“Business Tax”) to the imposition of value-added tax (“VAT”) was implemented for revenues from certain industries and certain cities. Prior to Pilot Program, the Group was mainly subject to a 5% PRC business tax and related surcharges on revenues in the PRC. PRC business tax and the related surcharges are recognized when the revenue is earned.

On May 1, 2016, the transition from the imposition of PRC business tax (“Business Tax”) to the imposition of VAT was expanded to all industries in China, and as a result all of the Sohu Group’s revenues have been subject to VAT since that date. To record VAT payable, the Group adopted the net presentation method, which presents the difference between the output VAT (at a rate of 6%) and the available input VAT amount (at the rate applicable to the supplier).

U.S. Corporate Income Tax

Sohu.com Inc. is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and of up to 35%. for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with aone-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay theone-time transition tax over eight years, or in a single lump sum payment.

The U.S. Tax Reform also includes provisions for a new tax on global intangiblelow-taxed income (“GILTI”) effective for tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.

The Company’s management is still evaluating the effect of the U.S. Tax Reform on Sohu.com Inc. Management may update its judgment of that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury.

To the extent that portions of ~~its~~Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or ~~a dividend,~~GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that Sohu.com Inc. receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. will generally not be required to pay U.S. corporate income tax on those dividends. Any ~~remaining~~ liabilities ~~are~~for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments ~~are~~will be made when required by U.S. law.

~~-23-~~-29-

One-Time Transition Tax Related to U.S. Tax Reform

In the fourth quarter of 2017, the Group recognized aone-time transition tax of $218.5 million that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of Sohu’s share of previously deferred earnings of certainnon-U.S. subsidiaries of Sohu mandated by the U.S. Tax Reform, offset by a reduction of $3.7 million in liability for deferred U.S. income tax as a result of the U.S. Tax Reform. Sohu.com Inc. may make an election to pay theone-time transition tax over eight years commencing in April 2019, or pay in a single lump sum. The actual impact of the U.S. Tax Reform on Sohu.com Inc. may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued by the U.S. Department of the Treasury. There is no development for the impact from U.S. Tax Reform on Sohu.com Inc. during the first quarter of 2018, so the balance ofone-time transition tax remains unchanged as of March 31, 2018.

Uncertain Tax Positions

The Sohu Group is subject to various taxes in different jurisdictions, primarily the U.S. and the PRC. Management reviews regularly the adequacy of the provisions for taxes as they relate to the Group’s income and transactions. In order to assess uncertain tax positions, the Group applies a more likely than not threshold and atwo-step approach for tax position measurement and financial statement recognition. For thetwo-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.

The Group did not have any significant penalties or significant interest associated with tax positions for the three months ended March 31, ~~2017,~~2018, nor did the Group have any significant unrecognized uncertain tax positions for the three months ended March 31, ~~2017.~~2018.

9. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

The following table sets forth our contractual obligations as of March 31, ~~2017~~2018 (in thousands):


As of March 31,	2017		2018		2019		2020		2021		Thereafter		Total Payments Required		2018		2019		2020		2021		2022		Thereafter		Total Payments Required
Purchase of cinema advertisement slot rights		48,622		61,663		25,906		9,177		639		0		146,007		54,015		59,022		32,845		12,805		1,356		1,352		161,395
Purchase of bandwidth																72,087		2,569		1,242		340		0		0		76,238
Purchase of content and services – video		90,867		25,352		17,002		0		0		0		133,221		23,311		19,405		1,179		0		0		0		43,895
Purchase of bandwidth		60,936		4,646		1,235		1,061		309		0		68,187
Operating lease obligations		14,246		13,784		2,855		618		58		10		31,571		14,604		9,431		4,087		77		11		0		28,210
Expenditures for operating rights for licensed games with technological feasibility		2,381		17,222		0		0		0		0		19,603		11,681		3,531		2,633		0		0		0		17,845
Purchase of content and services – others		9,311		473		72		30		0		0		9,886		10,251		382		93		33		0		0		10,759
Purchase of fixed assets		3,556		0		0		0		0		0		3,556
Fees for operating rights for licensed games in development		1,369		348		0		0		0		0		1,717		500		0		0		0		0		0		500
Expenditures for rights to titles of games in development		259		1,186		0		0		0		0		1,445
Others		3,644		3		0		0		0		0		3,647		4,850		1,301		0		0		0		0		6,151

Total Payments Required		235,191		124,677		47,070		10,886		1,006		10		418,840		191,299		95,641		42,079		13,255		1,367		1,352		344,993

Litigation

The Sohu Group is a party to various litigation matters which it considers routine and incidental to its business. The Sohu Group records a liability when the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. The Sohu Group evaluates, on a regular basis, developments in litigation matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Management believes that the total liabilities to the Sohu Group that may arise as a result of currently pending legal proceedings will not have a material adverse effect on the Group’s business, results of operations, financial condition and cash flows. As of March 31, 2018, Sohu and Changyou had no significant litigation contingencies, and Sogou had recorded estimated liabilities of $3.8 million for litigation contingencies as a component of accrued liabilities related to its currently pending proceedings.

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PRC Law and Regulations

The Chinese market in which the Sohu Group operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability to operate an Internet business and to conduct brand advertising, search and search-related advertising, online game, and other services in the PRC. Though the PRC has, since 1978, implemented a wide range of market-oriented economic reforms, continued reforms and progress towards a full market-oriented economy are uncertain. In addition, the telecommunication, information, and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign-owned entities, like the Sohu Group, may operate. The Chinese government may issue from time to time new laws or new interpretations of existing laws to regulate areas such as telecommunication, information and media. The Sohu Group’s legal structure and scope of operations in China could be subject to restrictions, which could result in limits on its ability to conduct business in the PRC. Certain risks related to PRC law that could affect the Sohu Group’s VIE structure are discussed in Note 10 - VIEs.

~~-24-~~

Regulatory risks also encompass interpretation by PRC tax authorities of current tax law, including the applicability of certain preferential tax treatments.

The Sohu Group’s sales, purchase and expense transactions are generally denominated in RMB and a significant portion of its assets and liabilities are denominated in RMB. The RMB is not freely convertible into foreign currencies. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB by its subsidiaries in China may require certain supporting documentation in order to effect the remittance.

10. ~~VIES~~VIEs

Background

PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which the Sohu Group is engaged or could be deemed to be engaged. Consequently, the Sohu Group conducts certain of its operations and businesses in the PRC through its VIEs. The Sohu Group consolidates in its consolidated financial statements all of the VIEs of which the Group is the primary beneficiary.

VIEs Consolidated within the Sohu Group

The Sohu Group adopted the guidance of accounting for VIEs, which requires VIEs to be consolidated by the primary beneficiary of the entity. Management made evaluations of the relationships between the Sohu Group and its VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of contractual arrangements with its consolidated VIEs, the Sohu Group controls the shareholders’ voting interests in those VIEs. As a result of such evaluation, the management concluded that the Sohu Group is the primary beneficiary of the VIEs which the Group consolidates.

All of the consolidated VIEs are incorporated and operated in the PRC, and the Group’s principal VIEs are directly or indirectly owned by Dr. Charles Zhang, the Sohu Group’s Chairman and Chief Executive Officer, or other executive officers and employees of the Sohu Group identified below. Capital for the consolidated VIEs was funded by the Sohu Group through loans provided to Dr. Charles Zhang and other executive officers and employees, and was initially recorded as loans to related parties. These loans are eliminated for accounting purposes against the capital of the VIEs upon consolidation.

Under contractual agreements with the Sohu Group, Dr. Charles Zhang and those other executive officers and employees of the Sohu Group who are shareholders of the consolidated VIEs are required to transfer their ownership in these entities to the Group, if permitted by PRC laws and regulations, or, if not so permitted, to designees of the Group at any time as requested by the Group to repay the loans outstanding. All voting rights of the consolidated VIEs are assigned to the Sohu Group, and the Group has the right to designate all directors and senior management personnel of the consolidated VIEs, and also has the obligation to absorb losses of the consolidated VIEs. Dr. Charles Zhang and those other executive officers and employees of the Sohu Group who are shareholders of the consolidated VIEs have pledged their shares in the consolidated VIEs as collateral for the loans. As of March 31, ~~2017,~~2018, the aggregate amount of these loans was ~~$9.4~~$7.7 million.

Under its contractual arrangements with the consolidated VIEs, the Sohu Group has the power to direct activities of the VIEs, and can have assets transferred freely out of the VIEs without any restrictions. Therefore, the Group considers that there is no asset of a consolidated VIE that can be used only to settle obligations of the VIEs, except for registered capital and PRC statutory reserves of the

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VIEs. As of March 31, ~~2017,~~2018, the registered capital and PRC statutory reserves of the consolidated VIEs totaled ~~$79.6~~$71.9 million. As all of the consolidated VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the consolidated VIEs do not have recourse to the general credit of the Sohu Group for any of the liabilities of the consolidated VIEs. Currently there is no contractual arrangement that could require the Sohu Group to provide additional financial support to the consolidated VIEs. As the Sohu Group is conducting certain business in the PRC mainly through the consolidated VIEs, the Group may provide such support on a discretionary basis in the future, which could expose the Group to a loss.

The Sohu Group classified the consolidated VIEs within the Sohu Group as principal VIEs or immaterial VIEs based on certain criteria, such as the VIEs’ total assets or revenues. The following is a summary of the principal VIEs within the Sohu Group:

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Basic Information for Principal VIEs and Subsidiaries of Principal VIEs

For Sohu’s Business

High Century

Beijing Century High Tech Investment Co., Ltd. (“High Century”) was incorporated in 2001. As of March 31, ~~2017, the registered capital of High Century was $4.6 million and~~2018, Dr. Charles Zhang and Wei Li held 80% and 20% interests, respectively, in this entity.

Heng Da Yi Tong

Beijing Heng Da Yi Tong Information Technology Co., Ltd. (“Heng Da Yi Tong”) was incorporated in 2002. As of March 31, ~~2017, the registered capital of Heng Da Yi Tong was $1.2 million and~~2018, Dr. Charles Zhang and Wei Li held 80% and 20% interests, respectively, in this entity.

Sohu Internet

Sohu Internet was incorporated in 2003. As of March 31, ~~2017, the registered capital of Sohu Internet was $1.6 million and~~2018, High Century held a 100% interest in this entity.

Donglin

Beijing Sohu Donglin Advertising Co., Ltd. (“Donglin”) was incorporated in 2010. As of March 31, ~~2017, the registered capital of Donglin was $1.5 million and~~2018, Sohu Internet held a 100% interest in this entity.

Tianjin Jinhu

Tianjin Jinhu Culture Development Co., Ltd. (“Tianjin Jinhu”) was incorporated in 2011. In October 2016, Ye Deng transferred its 50% equity interest in Tianjin Jinhu to Xiufeng Deng. As of March 31, ~~2017, the registered capital of Tianjin Jinhu was $0.5 million and~~2018, Xiufeng Deng and Xuemei Zhang each held a 50% interest in this entity.

Guangzhou Qianjun

Guangzhou Qianjun was acquired in November 2014. As of March 31, ~~2017, the registered capital of Guangzhou Qianjun was $3.3 million and~~2018, Tianjin Jinhu held a 100% interest in this entity.

Focus Interactive

Beijing Focus Interactive Information Service Co., Ltd. (“Focus Interactive”) was incorporated in July 2014. As of March 31, ~~2017, the registered capital of Focus Interactive was $1.6 million and~~2018, Heng Da Yi Tong held 100% of the equity interests in this entity.

For Sogou’s Business

Sogou Information

Sogou Information was incorporated in 2005. As of March 31, ~~2017, the registered capital of Sogou Information was $2.5 million and~~2018, Xiaochuan Wang, Sogou’s Chief Executive Officer, High Century and Tencent held 10%, 45% and 45% interests, respectively, in this entity.

For Changyou’s Business

Gamease

Gamease was incorporated in 2007. As of March 31, ~~2017, the registered capital of Gamease was $1.3 million and~~2018, High Century held a 100% interest in this entity.

~~Guanyou Gamespace~~

Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“Guanyou Gamespace”) was incorporated in 2010. As of March 31, 2017, the registered capital of Guanyou Gamespace was $1.5 million and Beijing Changyou Star Digital Technology Co., Ltd (“Changyou Star”) held a 100% interest in this entity.

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Shanghai ICE

Shanghai ICE Information Technology Co., Ltd. (“Shanghai ICE”) was acquired by Changyou in 2010. As of March 31, ~~2017, the registered capital of Shanghai ICE was $1.2 million and~~2018, Gamease held a 100% interest in this entity.

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~~Wuhan Baina Information~~Guanyou Gamespace

~~Baina (Wuhan) Information~~Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“~~Wuhan Baina Information”~~Guanyou Gamespace”) was ~~acquired by Gamease~~incorporated in ~~July 2014.~~2010. As of March 31, ~~2017, the registered capital of Wuhan Baina Information was $3.0 million and~~2018, Beijing Changyou Star ~~and Yongzhi Yang, the former chief executive officer of MoboTap,~~Digital Technology Co., Ltd (“Changyou Star”) held ~~60% and 40% interests, respectively,~~a 100% interest in this entity.

Financial Information

The following financial information of the Sohu Group’s consolidated VIEs (including subsidiaries of VIEs) is included in the accompanying consolidated financial statements (in thousands):


	As of				As of
	December 31, 2016		March 31, 2017		December 31, 2017		March 31, 2018
ASSETS:
Cash and cash equivalents	$	94,859	$	88,530	$	43,618	$	17,280
Accounts receivable, net		72,151		69,203		95,305		80,468
Prepaid and other current assets		86,722		35,279		26,755		30,302
Assets held for sale		12,551		0
Intercompany receivables due from the Company’s subsidiaries		197,438		292,904
Short-term investments						12,303		19,132
Intra-Group receivables due from the Company’s subsidiaries						398,135		436,640

Total current assets		463,721		485,916		576,116		583,822

Long-term investments, net		17,472		16,522		32,266		51,054
Fixed assets, net		4,372		4,054		2,414		2,448
Intangible assets, net		14,545		13,611		11,719		10,873
Goodwill		35,161		36,256		37,291		38,056
Other non-current assets		4,052		2,857		2,614		2,542

Total assets	$	539,323	$	559,216	$	662,420	$	688,795

LIABILITIES:
Accounts payable	$	15,824	$	17,599	$	53,842	$	83,403
Accrued liabilities		96,695		67,368		76,883		66,470
Receipts in advance and deferred revenue		44,797		45,163		46,939		48,895
Liabilities held for sale		3,232		0
Other current liabilities		111,775		110,365		97,991		87,950
Intercompany payables due to the Company’s subsidiaries		129,431		171,552
Intra-Group payables due to the Company’s subsidiaries						197,367		231,676

Total current liabilities		401,754		412,047		473,022		518,394

Long-term taxes payable		13,463		13,537		14,293		14,794
Deferred tax liabilities		1,273		1,255		3,451		3,853
Intercompany payables due to the Company’s subsidiaries		19,620		19,726
Intra-Group payables due to the Company’s subsidiaries						20,560		20,678

Total liabilities	$	436,110	$	446,565	$	511,326	$	557,719

   Three months ended March 31,
   2016    2017
Net revenue
   $ 218,664    $ 190,708
Net income
   5,592    9,432


	Three months ended March 31,
	2017		2018
Net revenue	$	190,708	$	210,900
Net income /(loss)		9,432		(21,909	)

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	Three months ended March 31,						Three months ended March 31,
	2016			2017			2017			2018
Net cash provided by /(used in) operating activities	$	2,291		$	(18,854	)
Net cash used in operating activities							$	(18,854	)	$	(3,624	)
Net cash provided by /(used in) investing activities		(2,502	)		4,278			4,278			(24,559	)
Net cash provided by financing activities		0			0			0			0

Summary of Significant Agreements Currently in Effect

Agreements ~~Between~~between Subsidiaries, Consolidated VIEs and Nominee Shareholders

Loan and share pledge agreementbetween Sohu Media and the shareholders of High Century: The agreement provides for loans to the shareholders of High Century for them to make contributions to the registered capital of High Century in exchange for the equity interests in High Century, and the shareholders pledge those equity interests to Sohu Media as security for the loans. The agreement

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includes powers of attorney that give Sohu Media the power to appoint nominees to act on behalf of the shareholders of High Century in connection with all actions to be taken by High Century. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in High Century, which are held by the Sohu Group’s legal department and may be completed and effected at Sohu Media’s election.

Loan and share pledge agreementbetween Sohu Focus (HK) Limited (“Focus HK”) and the shareholders of Heng Da Yi Tong: The agreement provides for loans to the shareholders of Heng Da Yi Tong for them to make contributions to the registered capital of Heng Da Yi Tong in exchange for the equity interests in Heng Da Yi Tong, and the shareholders pledge those equity interests to Focus HK as security for the loans. The agreement includes powers of attorney that give Focus HK the power to appoint nominees to act on behalf of the shareholders of Heng Da Yi Tong in connection with all actions to be taken by Heng Da Yi Tong. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in Heng Da Yi Tong, which are held by the Sohu Group’s legal department and may be completed and effected at Focus HK’s election.

Loan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for a loan to Xiaochuan Wang, the individual shareholder of Sogou Information, to be used by him to make contributions to the registered capital of Sogou Information in exchange for his equity interest in Sogou Information. The loan is interestfree-and is repayable on demand, but the shareholder may repay the loan only by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of the shareholders of Sogou Information pledge their equity interests to Sogou Technology to secure the performance of their obligations under the variousVIE-related agreements. If any shareholder of Sogou Information breaches any of his or its obligations under anyVIE-related agreements, Sogou Technology is entitled to exercise its right as the beneficiary under the share pledge agreement. The share pledge agreement terminates only after all of the obligations of the shareholders under the variousVIE-related agreements are no longer in effect.

~~Exclusive equity~~Equity interest purchase right agreements between Sogou Technology, Sogou Information and the shareholders of Sogou Information. Pursuant to these agreements, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law, to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase price permissible under PRC law.

Business operation agreementamong Sogou Technology, Sogou Information and the shareholders of Sogou Information. The agreement sets forth the right of Sogou Technology to control the actions of the shareholders of Sogou Information. The agreement has a term of 10 years, renewable at the request of Sogou Technology.

Powers of Attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years, extendable at the request of Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of the three Sogou Information shareholders in connection with all actions to be taken by Sogou Information.

Loan agreements and equity pledge agreements between Fox Information Technology (Tianjin) Limited (“Video Tianjin”) and the shareholders of Tianjin Jinhu. The loan agreements provide for loans to the shareholders of Tianjin Jinhu for them to make contributions to the registered capital of Tianjin Jinhu in exchange for the equity interests in Tianjin Jinhu. Under the equity pledge agreements, the shareholders of Tianjin Jinhu pledge to Video Tianjin their equity interests in Tianjin Jinhu to secure the performance of their obligations under the loan agreements and Tianjin Jinhu’s obligations to Video Tianjin under their business agreements. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans by transferring to Video Tianjin their equity interests in Tianjin Jinhu.

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Equity interest purchase right agreements between Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. Pursuant to these agreements, Video Tianjin and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law, to purchase from the shareholders of Tianjin Jinhu all or any part of their equity interests at the lowest purchase price permissible under PRC law.

Business operation agreementamong Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. The agreement sets forth the right of Video Tianjin to control the actions of the shareholders of Tianjin Jinhu. The agreement has a term of 10 years, renewable at the request of Video Tianjin.

Powers of Attorney executed by the shareholders of Tianjin Jinhu in favor of Video Tianjin with a term of 10 years, extendable at the request of Video Tianjin. These powers of attorney give Video Tianjin the right to appoint nominees to act on behalf of each of the Tianjin Jinhu shareholders in connection with all actions to be taken by Tianjin Jinhu.

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Loan agreements and equity pledge agreements between AmazGame and the sole shareholder of Gamease and between Gamespace and the sole shareholder of Guanyou Gamespace. The loan agreements provide for loans to the respective shareholders of Gamease and Guanyou Gamespace for the shareholders to make contributions to the registered capital of Gamease and Guanyou Gamespace in exchange for 100% of the equity interests in Gamease and Guanyou Gamespace. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans by transferring to AmazGame and Gamespace, as the case may be, their equity interests in Gamease and Guanyou Gamespace. Under the equity pledge agreements, the respective shareholders of Gamease and Guanyou Gamespace pledge to AmazGame and Gamespace, their equity interests in Gamease and Guanyou Gamespace to secure the performance of their obligations under the loan agreements and Gamease’s and Guanyou Gamespace’s obligations to AmazGame and Gamespace under the variousVIE-related agreements. If the shareholders breach their obligations under anyVIE-related agreements (Gamease’s or Guanyou Gamespace’s breach of any of its obligations under the various applicableVIE-related agreements will be treated as its shareholder’s breach of its obligations), including the equity pledge agreements, AmazGame and Gamespace are entitled to exercise their rights as the beneficiaries under the applicable equity pledge agreements, including all rights the respective shareholders have as shareholders of Gamease or Guanyou Gamespace.

Equity interest purchase right agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace and the sole shareholder of Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the right, exercisable at any time if and when it is legal to do so under PRC law, to purchase from the respective shareholders of Gamease and Guanyou Gamespace all or any part of their equity interests in Gamease and Guanyou Gamespace at a purchase price equal to their initial contributions to the registered capital of Gamease and Guanyou Gamespace.

Powers of attorney executed by the sole shareholder of Gamease in favor of AmazGame and by the sole shareholder of Guanyou Gamespace in favor of Gamespace, with a term of 10 years. These powers of attorney give the respective boards of directors of AmazGame and Gamespace the exclusive right to appoint nominees to act on behalf of their respective shareholders in connection with all actions to be taken by Gamease and Guanyou Gamespace.

Business operation agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace and the sole shareholder of Guanyou Gamespace. These agreements set forth the right of AmazGame and Gamespace to control the actions of Gamease and Guanyou Gamespace, as the case may be, and the respective shareholders of Gamease and Guanyou Gamespace. Each agreement has a term of 10 years.

~~Share pledge agreement~~among Baina Zhiyuan (Beijing) Technology Co., Ltd. (“Beijing Baina Technology”), Wuhan Baina Information and the shareholders of Wuhan Baina Information, which are Gamease and Yongzhi Yang, pursuant to which the shareholders pledged to Beijing Baina Technology their equity interests in Wuhan Baina Information to secure the performance of their obligations and Wuhan Baina Information’s obligations under the various VIE-related agreements. If the shareholders breach their obligations under any VIE-related agreements (Wuhan Baina Information’s breach of any of its obligations under the various VIE-related agreements will be treated as the shareholders’ breach of their obligations), including the share pledge agreement, Beijing Baina Technology is entitled to exercise its rights as the beneficiary under the share pledge agreement, including all rights of the shareholders as shareholders of Wuhan Baina Information.

~~Call option agreement~~among Beijing Baina Technology, Wuhan Baina Information, Changyou Star and Yongzhi Yang. This agreement provides to Beijing Baina Technology and any third party designated by Beijing Baina Technology the right, exercisable at any time during the term of the agreement, if and when it is legal to do so under PRC law, to purchase from Changyou Star and Yongzhi Yang all or any part of their shares in Wuhan Baina Information or to purchase from Wuhan Baina Information all or part of its assets or business at the lower of RMB1.00 (approximately $0.15) or the lowest purchase price permissible under PRC law.

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~~Business Operation Agreement~~ ~~among Beijing Baina Technology, Wuhan Baina Information, Changyou Star and Yongzhi Yang. This agreement grants Beijing Baina Technology effective control of Wuhan Baina Information.~~

Business Arrangements ~~Between~~between Subsidiaries and Consolidated VIEs

~~Exclusive technology~~Technology consulting and service agreementbetween Sohu Era and Sohu Internet. Pursuant to this agreement Sohu Era has the exclusive right to provide technical consultation and other related services to Sohu Internet, in exchange for a percentage of the gross revenue of Sohu Internet. The agreement has an initial term of two years, and is renewable at the request of Sohu Era.

~~Business cooperation agreement~~ ~~between Sogou~~ Technology and Sogou Information. Pursuant to this agreement, Sogou Information provides Internet information services to Sogou Technology’s customers in exchange for a fee payable to Sogou Information. The agreement has a term of 10 years, and is renewable at the request of Sogou Technology.

~~Exclusive technology~~ consulting and service agreementbetween Sogou Technology and Sogou Information. Pursuant to this agreement Sogou Technology has the exclusive right to provide technical consultation and other related services to Sogou Information in exchange for a fee. The agreement has a term of 10 years and is renewable at the request of Sogou Technology.

~~Exclusive technology~~Technology consulting and service agreementbetween Video Tianjin and Tianjin Jinhu. Pursuant to this agreement Video Tianjin has the exclusive right to provide technical consultation and other related services to Tianjin Jinhu in exchange for a fee. The agreement has a term of 10 years and is renewable at the request of Video Tianjin.

Technology support and utilization agreements between AmazGame and Gamease and between Gamespace and Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the exclusive right to provide certain product development and application services and technology support to Gamease and Guanyou Gamespace, respectively, for a fee equal to a predetermined percentage, subject to adjustment by AmazGame or Gamespace at any time, of Gamease’s and Guanyou Gamespace’s respective revenues. Each agreement terminates only when AmazGame or Gamespace is dissolved.

Services and maintenance agreementsbetween AmazGame and Gamease between Gamespace and Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace, respectively, provide marketing, staffing, business operation and maintenance services to Gamease and Guanyou Gamespace, respectively, in exchange for a fee equal to the cost of providing such services plus a predetermined margin. Each agreement terminates only when AmazGame or Gamespace, as the case may be, is dissolved.

~~Exclusive Services agreement~~between Beijing Baina Technology and Wuhan Baina Information. Beijing Baina Technology agrees to provide Wuhan Baina Information with technical services, business consulting, capital equipment lease, market consulting, integration of systems, research and development of products and maintenance of systems. Service fees are to be determined with reference to the specific services provided, based on a transfer pricing analysis.

Certain of the contractual arrangements described above between the VIEs and the related wholly-owned subsidiaries of the Sohu Group are silent regarding renewals. However, because the VIEs are controlled by the Sohu Group through powers of attorney granted to the Sohu Group by the shareholders of the VIEs, the contractual arrangements can be, and are expected to be, renewed at the subsidiaries’ election.

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VIE-Related Risks

It is possible that the Sohu Group’s operation of certain of its operations and businesses through VIEs could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Sohu Group’s management considers the possibility of such a finding by PRC regulatory authorities under current law and regulations to be remote, on January 19, 2015, the Ministry of Commerce of the PRC, or (the “MOFCOM”) released on its Website for public comment a proposed PRC law (the “Draft FIE Law”) that appears to include VIEs within the scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of “actual control.” If the Draft FIE Law is passed by the People’s Congress of the PRC and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed to reach the Sohu Group’s VIE arrangements, and as a result the Sohu Group’s VIEs could become explicitly subject to the current restrictions on foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt from the definition of foreign invested enterprises entities where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized under PRC law or individuals who are PRC citizens. If a finding were made by PRC authorities, under existing law and regulations or under the Draft FIE Law if it becomes effective, that the Sohu Group’s operation of certain of its operations and businesses through VIEs is prohibited, regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Sohu Group’s income, revoking the business or operating licenses of the affected businesses, requiring the Sohu Group to restructure its ownership structure or operations, or requiring the Sohu Group to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Sohu Group’s business operations, and have a severe adverse impact on the Sohu Group’s cash flows, financial position and operating performance.

In addition, it is possible that the contracts among the Sohu Group, the Sohu Group’s VIEs and shareholders of its VIEs would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC law and regulations or are otherwise not enforceable for public policy reasons. In the event that the Sohu Group was unable to enforce these contractual arrangements, the Sohu Group would not be able to exert effective control over the affected VIEs. Consequently, such VIE’s results of operations, assets and liabilities would not be included in the Sohu Group’s consolidated financial statements. If such were the case, the Sohu Group’s cash flows, financial position and operating performance would be severely adversely affected. The Sohu Group’s contractual arrangements with respect to its consolidated VIEs are in place. The Sohu Group’s management believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Sohu Group’s operations and contractual relationships would find the contracts to be unenforceable.

The Sohu Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognized revenue-producing assets. The recognized revenue-producing assets include goodwill and intangible assets acquired through business acquisitions. Goodwill primarily represents the expected synergies from combining an acquired business with the Sohu Group. Intangible assets acquired through business acquisitions mainly consist of customer relationships,non-compete agreements, user bases, copyrights, trademarks and developed technologies. Unrecognized revenue-producing assets mainly consist of licenses and intellectual property. Licenses include operations licenses, such as Internet information service licenses and licenses for providing content. Intellectual property developed by the Sohu Group mainly consists of patents, copyrights, trademarks, and domain names. The Sohu Group’s operations and businesses may be adversely impacted if the Sohu Group loses the ability to use and enjoy assets held by these VIEs.

11. SOHU.COM INC. SHAREHOLDERS’ EQUITY

Takeover Defense

Sohu intends to adopt appropriate defensive measures in the future on a case by case basis as and to the extent that Sohu’s Board of Directors determines that such measures are necessary or advisable to protect Sohu stockholder value in the face of any coercive takeover threats or to prevent an acquirer from gaining control of Sohu without offering fair and adequate price and terms.

Treasury Stock

Treasury stock consists of shares repurchased by Sohu.com Inc. that are no longer outstanding and are held by Sohu.com Inc. Treasury stock is accounted for under the cost method. For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, the Company did not repurchase any shares of its common stock.

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Stock Incentive Plans

Sohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including options and restricted share units, to their directors, management and other key employees.

Sohu.com Inc. Share-based Awards

~~Sohu’s 2000 Stock Incentive Plan~~

Sohu’s 2000 Stock Incentive Plan (the “Sohu 2000 Stock Incentive Plan”) provided for the issuance of up to 9,500,000 shares of common stock, including those issued pursuant to the exercise of stock options and upon vesting and settlement of restricted share units. Most of these awards vest over a period of four years. The maximum term of any issued stock right under the Sohu 2000 Stock Incentive Plan is ten years from the grant date. The Sohu 2000 Stock Incentive Plan expired on January 24, 2010. A new plan (the “Sohu 2010 Stock Incentive Plan”) was adopted by Sohu’s shareholders on July 2, 2010.

There has been no share-based compensation expense recognized under the Sohu 2000 Stock Incentive Plan since 2015, as the requisite service periods for all these awards had been completed by the end of 2014. No cash has been received under the Sohu 2000 Stock Incentive Plan since 2016, as all of these awards had been exercised by the end of 2015.

Sohu’s 2010 Stock Incentive Plan

On July 2, 2010, the Company’s shareholders adopted the Sohu 2010 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 shares of common stock, including stock issued pursuant to the vesting and settlement of restricted stock units and pursuant to the exercise of stock options. The maximum term of any stock right granted under the Sohu 2010 Stock Incentive Plan is ten years from the grant date. The Sohu 2010 Stock Incentive Plan will expire on July 1, 2020. As of March 31, ~~2017, 573,680~~2018, 587,530 shares were available for grant under the Sohu 2010 Stock Incentive Plan.

Summary of Stock Option Activity

OnIn February 7, 2015, May 2016, September 2017 and ~~May 1, 2016,~~November 2017, the Company’s Board of Directors approved contractual grants to members of the Company’s management and key employees of options for the purchase of an aggregate of 1,068,000, 13,000, 32,000 and ~~13,000~~6,000 shares of common stock, respectively, with nominal exercise prices of $0.001. These stock options vest and become exercisable in four equal installments over a period of four years, with each installment vesting upon the satisfaction of a service period requirement and certain subjective performance targets. These stock options are substantially similar to restricted stock units except for the nominal exercise price, which would be zero for restricted stock units.

UnderASC718-10-25 andASC718-10-55,, no grant date can be established for these stock options until a mutual understanding is reached between the Company and the recipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensation expense should be accrued beginning on the service inception date, andre-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. To determine the fair value of these stock options, the public market price of the underlying shares at each reporting date is used and a binomial valuation model is applied.

~~On February 7, 2016 and 2017, 253,250 and 175,000, respectively,~~As of March 31, 2018, 562,500 of these stock options ~~were~~had been granted and ~~became~~had become vested on their respective vesting dates, as a mutual understanding of the subjective performance targets was reached between the Company and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. The cumulative share-based compensation expense for these granted stock options has been adjusted and fixed based on ~~the~~their aggregate fair ~~value~~values, at ~~the~~their respective grant ~~date~~dates, of ~~$10.8 million and $7.0 million, respectively.~~$22.4 million.

~~-32-~~

A summary of stock option activity under the Sohu 2010 Stock Incentive Plan as of and for the three months ended March 31, ~~2017~~2018 is presented below:


						Weighted
	Number			Weighted		Average		Aggregate
	Of			Average		Remaining		Intrinsic
	Shares			Exercise		Contractual		Value (1)
Options	(in thousands)			Price		Life (Years)		(in thousands)		Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding at January 1, 2017		193		$				$
Outstanding at January 1, 2018											223		$				$
Granted		175			0.001						131			0.001
Exercised		(97	)		0.001						(18	)		0.001
Forfeited or expired		0									0

Outstanding at March 31, 2017		271			0.001		7.85		10,684
Outstanding at March 31, 2018											336			0.001		6.86		11,031

Vested at March 31, 2017		271			0.001		7.85		10,684
Vested at March 31, 2018											336			0.001		6.86		11,031

Exercisable at March 31, 2017		271			0.001		7.85		10,684
Exercisable at March 31, 2018											336			0.001		6.86		11,031

Note (1): The aggregated intrinsic value in the preceding table represents the difference between Sohu’s closing stock price of ~~$39.33~~$32.88 on March 31, ~~2017~~2018 and the nominal exercise prices of the stock options.

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, total share-based compensation expense recognized for these stock options was negative ~~$2.5~~$4.0 million and negative ~~$0.7~~$2.5 million, respectively. The total fair values of these Sohu share options vested on their respective vesting dates for the three months ended March 31, 2018 and 2017 were $4.5 million and $7.0 million, respectively. For the three months ended March 31, 2018 and 2017, total intrinsic value of share options exercised was $0.6 million and $3.6 million, respectively.

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Summary of Restricted Stock Unit Activity

A summary of restricted stock unit activity under the Sohu 2010 Stock Incentive Plan as of and for the three months ended March 31, ~~2017~~2018 is presented below:


Restricted Stock Units	Number of Units (in thousands)			Weighted-Average Grant-Date Fair Value		Number of Units (in thousands)			Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2017		11		$	70.24
Unvested at January 1, 2018							1		$	72.92
Granted		0			—		0			—
Vested		(2	)		64.00		(1	)		72.92
Forfeited		(3	)		63.35		0			—

Unvested at March 31, 2017		6			82.85
Unvested at March 31, 2018							0			—

Expected to vest after March 31, 2017		4			82.85
Expected to vest after March 31, 2018							0			—

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, total share-based compensation expense recognized for restricted stock units was ~~$0.1 million~~$nil and ~~$0.4~~$0.1 million, respectively.

As of March 31, ~~2017,~~2018, there was ~~$0.2 million~~$nil of unrecognized compensation expense related to unvested restricted stock units. The ~~expense is expected to be recognized over a weighted average period of 0.43 years. The~~ total fair value on their respective vesting dates of restricted ~~share~~stock units that vested during the three months ended March 31, 2018 and 2017 was nil and ~~2016 was~~ $86,078, ~~and $169,701,~~ respectively.

Sogou Inc. Share-based Awards

Sogou 2010 Share Incentive Plan

Sogou adopted a share incentive plan on October 20, 2010. The number of Sogou ordinary shares issuable under the plan was 41,500,000 after an amendment that was effective August 22, 2014 (as amended, the “Sogou 2010 Share Incentive Plan”). Awards of share rights may be granted under the Sogou 2010 Share Incentive Plan to management and employees of Sogou and of any present or future parents or subsidiaries or VIEs of Sogou. The maximum term of any share right granted under the Sogou 2010 Share Incentive Plan is ten years from the grant date. The Sogou 2010 Share Incentive Plan will expire on October 19, 2020. As of March 31, ~~2017,~~2018, Sogou had contractually granted options for the purchase of ~~38,171,450~~39,700,127 Sogou ordinary shares under the 2010 Sogou Share Incentive Plan.

~~-33-~~

Of the contractually-granted Sogou share options for the purchase of ~~38,171,450~~39,700,127 Sogou ~~ordinary shares,~~Class A Ordinary Shares, options for the purchase of ~~30,971,450~~30,251,935 Sogou ~~ordinary shares~~Class A Ordinary Shares vest and become exercisable in four equal installments or in two to four installments over varying periods upon a service period requirement being met, as well as Sogou’s achievement of performance targets for the corresponding period. Subject to achievement of the applicable performance targets, of these Sogou share options for the purchase of 30,971,450 Sogou ordinary shares, options for the purchase of 29,799,500 Sogou ordinary shares vest and become exercisable in four equal installments and options for the purchase of 1,171,950 Sogou ordinary shares vest and become exercisable in two to four installments over varying periods. For purposes of recognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance target has been set. As of March 31, ~~2017,~~2018, Sogou had granted options for the purchase of ~~25,242,120~~27,051,057 Sogou ~~ordinary shares~~Class A Ordinary Shares under the 2010 Sogou Share Incentive Plan. As of March 31, ~~2017,~~2018, options for the purchase of ~~24,894,886~~26,800,559 Sogou ~~ordinary shares~~Class A Ordinary Shares had become vested and exercisable because both the service period and the performance requirements had been met, and of such vested options, options for the purchase of ~~22,995,009~~25,180,458 Sogou ~~ordinary shares~~Class A Ordinary Shares had been exercised.

Of the contractually granted options for the purchase of 39,700,127 Sogou ~~share~~Class A Ordinary Shares, vesting of options for the purchase of 7,250,000 Class A Ordinary Shares was subject to completion of an IPO and, of such options, options for the purchase of 7,200,000 ~~Sogou ordinary shares~~Class A Ordinary Shares vest and become exercisable in five equal installments, with (i) the first installment vesting upon ~~Sogou’s IPO and~~ the expiration of all underwriters’ lockup periods applicable to Sogou’s IPO and (ii) each of the four subsequent installments vesting on the first, second, third, and fourth anniversary dates, respectively, of the ~~closing~~completion of Sogou’s IPO. The ~~completion of an IPO is considered to be a performance condition of the awards. An IPO is not considered to be probable until it is completed. Under~~~~ASC 718~~, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, no compensation expense will be recognized related to these Sogou share options until the completion of an IPO, and hence no share-based compensation expense was recognized for the three months ended March 31, 2017 for theremaining options for the purchase of ~~7,200,000~~50,000 Class A Ordinary Shares will vest and become exercisable on July 21, 2018. None of the options had become vested, exercisable, or exercised.

Of the contractually-granted Sogou ~~ordinary shares~~share options for the purchase of 39,700,127 Sogou Class A Ordinary Shares, options for the purchase of 2,198,192 Sogou Class A Ordinary Shares vest and become exercisable in four equal installments or in two to four installments over varying periods upon a service period requirement being met. Of these options, options for the purchase of 2,181,192 Sogou Class A Ordinary Shares that ~~are subject~~had previously included as vesting conditions a service period requirement as well as Sogou’s achievement of performance targets for the corresponding period were amended in the first quarter of 2018 to remove as a condition of vesting ~~upon completion~~Sogou’s achievement of ~~Sogou’s IPO.~~performance targets for the corresponding period. None of the options had become vested or had been exercised as of March 31, 2018.

As of March 31, ~~2017,~~2018, for purposes of recognition of share-based compensation expense, Sogou had granted Sogou share options for the purchase of ~~32,442,120~~36,499,249 Sogou ~~ordinary shares,~~Class A Ordinary Shares, of which options for the purchase of ~~9,447,111~~

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11,318,791 Sogou ~~ordinary shares~~Class A Ordinary Shares were outstanding. A summary of Sogou share option activity under the Sogou 2010 Share Incentive Plan as of and for the three months ended March 31, ~~2017~~2018 is presented below:


						Weighted
	Number			Weighted		Average
	Of			Average		Remaining
	Shares			Exercise		Contractual
Options	(in thousands)			Price		Life (Years)		Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands) Aggregate
Outstanding at January 1, 2017		9,451		$	0.476
Outstanding at January 1, 2018									9,753		$	0.462		5.56
Granted		0							1,696			0.001
Exercised		0							(17	)		0.001
Forfeited or expired		(4	)		0.001				(113	)		0.001

Outstanding at March 31, 2017		9,447			0.477		6.06
Outstanding at March 31, 2018									11,319			0.398		5.81		88,876

Vested at March 31, 2017 and expected to vest thereafter		2,247
Vested at March 31, 2018 and expected to vest thereafter									10,952			0.411		5.70		85,846

Exercisable at March 31, 2017		1,900
Exercisable at March 31, 2018									1,620			0.001		5.43		13,346

Note (1): The aggregate intrinsic values in the preceding table represent the difference between Sogou’s closing price of $8.25 per Class A Ordinary Share on March 31, 2018 and the exercise prices of the share options.

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, total share-based compensation expense recognized for Sogou share options under the Sogou 2010 Share Incentive Plan was $4.2 million and $0.3 million, ~~and $1.1 million,~~ respectively.

As of March 31, ~~2017,~~2018, there was ~~$0.4~~$19.6 million of unrecognized compensation expense related to the unvested Sogou share options. The expense is expected to be recognized over a weighted average period of ~~0.34~~2.27 years.

~~The~~For the three months ended March 31, 2018 and 2017, the total intrinsic value of options exercised was $0.1 million and $443, respectively.

Prior to the completion of Sogou’s IPO, the fair ~~value~~values of the ordinary shares of Sogou ~~was~~were assessed using the income approach /discounted cash flow method or based on themid-point of the estimated Sogou IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards were not publicly traded at the time of grant, and was determined with the assistance of a qualified professional appraiser using management’s estimates and assumptions. This assessment required complex and subjective judgments regarding Sogou’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made. After the completion of Sogou’s IPO, the fair values of the ordinary shares of Sogou was determined based on the market price of Sogou’s ADSs.

~~-34-~~

The fair value of the Sogou share options granted to Sogou management and key employees was estimated on ~~the~~their respective date of grant using the ~~Binomial option - pricing~~binomial valuation model ~~(the “BP Model”)~~ with the following assumptions used:


Assumptions Adopted
Average risk-free interest rate			~~2.14%~~2.61%~~~2.26%~~3.51%
Exercise multiple			2~3
Expected forfeiture rate (post-vesting)			~~1%~12%~~0%-12%
Weighted average expected option life			9
Volatility rate			39%~47%
Dividend yield			0%
~~Fair~~Weighted average fair value of share options			~~3.18~~12.28

Sogou estimated the risk-free rate based on the market yields of U.S. Treasury securities with an estimated country-risk differential as of the valuation date. An exercise multiple was estimated as the ratio of the fair value of the Sogou ordinary shares over the exercise price as of the time the Sogou share option is exercised, based on consideration of research studies regarding exercise patterns based on historical statistical data. In Sogou’s valuation analysis, a multiple of three was applied for management and a multiple of two was applied for ~~employees and a multiple of three was applied for management.~~other key employees. Sogou estimated the forfeiture rate to be 0% or 1% for the Sogou share options granted to Sogou management ~~as of the valuation date~~ and 12% for the Sogou share options granted to ~~Sogou employees~~Sogou’s other key employees. As Sogou’s ordinary shares had been publicly traded for less than six months as of the valuation date. The life of the Sogou share options is the contract life of the option. Based on the option agreement, the contract life of the Sogou share options is 10 years. As there is no trading market for Sogou’s ordinary shares,March 31, 2018, the expected volatility at the valuation date was estimated based on the historical volatility of ~~comparable~~guideline companies for the ~~period~~periods before the grant ~~date~~dates with length commensurate with the expected term of the Sogou share options. Sogou has no history or expectation of paying dividends on its ordinary shares. Accordingly, the dividend yield was estimated to be 0%.

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Sohu Management Sogou Share Option Arrangement

Under an arrangement ~~providing for Sogou share-based awards to be available for grants to members of Sohu’s Board of Directors, management and other key employees (“Sohu~~(the “Sohu Management Sogou Share Option Arrangement”)~~, which~~ that was approved by the boards of directors of Sohu and Sogou in March 2011, Sohu has the right to provide to members of Sohu’s Board of Directors, management and ~~other~~ key employees of the Sohu Group the opportunity to purchase from Sohu up to 12,000,000 ~~ordinary shares~~Class A Ordinary Shares of Sogou at a fixed exercise price of $0.625 or $0.001 per share. Of these 12,000,000 ordinary shares, 8,800,000 are Sogou ~~ordinary shares~~Class A Ordinary Shares previously held by Sohu and 3,200,000 are Sogou ~~ordinary shares~~Class A Ordinary Shares that were newly-issued on April 14, 2011 by Sogou to Sohu at a price of $0.625 per share, or a total of $2.0 million. As of March 31, ~~2017,~~2018, Sohu had contractually granted options for the purchase of ~~10,705,000~~8,305,000 Sogou ~~ordinary shares to members of Sohu’s Board of Directors, management and other key employees~~Class A Ordinary Shares under the Sohu Management Sogou Share Option Arrangement.

Of the contractually-granted Sogou share options for the purchase of ~~10,705,000~~8,305,000 Sogou ~~ordinary shares,~~Class A Ordinary Shares, options for the purchase of 8,290,000 Sogou ~~ordinary shares~~Class A Ordinary Shares vest and become exercisable in four equal installments, with each installment vesting upon a service period requirement for Sohu’s management and key employees being met, as well as Sogou’s achievement of performance targets for the corresponding period. For purposes of recognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance target has been set. As of March 31, ~~2017,~~2018, Sohu had granted Sogou share options for the purchase of 8,290,000 Sogou ~~ordinary shares~~Class A Ordinary Shares under the Sohu Management Sogou Share Option Arrangement. As of March 31, ~~2017,~~2018, options for the purchase of 8,290,000 Sogou ~~ordinary shares~~Class A Ordinary Shares had become vested and exercisable because both the service period and the performance requirements had been met, and vested options for the purchase of ~~8,232,500~~8,290,000 Sogou ~~ordinary shares~~Class A Ordinary Shares had been exercised.

~~Options~~Of thecontractually-granted options for the purchase of 8,305,000 Sogou Class A Ordinary shares, options for the purchase of 15,000 Sogou ~~ordinary shares~~Class A Ordinary Shares that were granted to members of Sohu’s Board of Directors ~~in 2015~~ vested and became exercisable in 2015, as the service period requirement for vesting had been met.

~~The remaining~~ As of March 31, 2018, of such vested options, options for the purchase of ~~2,400,000~~6,000 Sogou ordinary shares vest and become exercisable in five equal installments, with (i) the first installment vesting upon Sogou’s IPO and the expiration of all underwriters’ lockup periods applicable to the IPO, and (ii) each of the four subsequent installments vesting on the first, second, third and fourth anniversary dates, respectively, of the closing of Sogou’s IPO. All installments of the Sogou share options for the purchase of 2,400,000 Sogou ordinary shares that are subject to vesting upon the completion of Sogou’s IPO were considered granted upon the issuance of the options. The completion of a firm commitment IPO is considered to be a performance condition of the awards. An IPO event is not considered to be probable until it is completed. Under~~ASC 718~~, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, no compensation expense will be recognized related to these Sogou share options until the completion of an IPO, and hence no share-based compensation expense was recognized for the three months ended March 31, 2017 for these options for the purchase of 2,400,000 Sogou ordinary shares.Class A Ordinary Shares had been exercised.

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As of March 31, ~~2017,~~2018, for purposes of recognition of share-based compensation expense, Sohu had granted options for the purchase of ~~10,705,000~~8,305,000 Sogou ~~ordinary shares,~~Class A Ordinary Shares, of which options for the purchase of ~~2,469,500~~9,000 Sogou ~~ordinary shares~~Class A Ordinary Shares were outstanding. A summary of Sogou share option activity under the Sohu Management Sogou Share Option Arrangement as of and for the three months ended March 31, ~~2017~~2018 is presented below:


						Weighted
	Number			Weighted		Average
	Of			Average		Remaining
	Shares			Exercise		Contractual
Options	(in thousands)			Price		Life (Years)		Number Of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding at January 1, 2017		3,190		$	0.623
Outstanding at January 1, 2018									9	$	0.001		7.38
Granted		0							0
Exercised		(720	)		0.625				0
Forfeited or expired		0							0

Outstanding at March 31, 2017		2,470			0.622		5.93
Outstanding at March 31, 2018									9		0.001		7.14	$	74

Vested at March 31, 2017		70
Vested at March 31, 2018									9		0.001		7.14		74

Exercisable at March 31, 2017		70
Exercisable at March 31, 2018									9		0.001		7.14		74

~~For~~Note (1): The aggregate intrinsic value in the ~~three months ended~~preceding table represents the difference between Sogou’s closing price of $8.25 per Class A ordinary share on March 31, 2018 and the exercise prices of the share options.

Sogou 2017 ~~and 2016, total share-based compensation expense recognized~~Share Incentive Plan

In October 2017, Sogou adopted a share incentive plan (the “Sogou 2017 Share Incentive Plan”) that provides for the issuance of up to an aggregate of 28,000,000 Sogou ~~share options~~Class A Ordinary Shares. Share incentive awards may be granted under the ~~Sohu Management~~ Sogou 2017 Share ~~Option Arrangement was nil~~Incentive Plan to Sogou’s management and ~~$297,106, respectively.~~

employees and of any of its present or future parents or subsidiaries. The maximum term of any share incentive award granted under the Sogou 2017 Share Incentive Plan is ten years from the grant date. As of March 31, ~~2017, there was no unrecognized compensation expense related to unvested Sogou share options.~~

~~The method used to determine~~2018, none of the ~~fair value of Sogou share~~ options had been contractually granted to members of Sohu’s Board of Directors, management and other employees was the same as the method used for the Sogou share options granted to Sogou’s management and key employees as described above. There was no share-based compensation expense recognized under the ~~Sohu Management~~2017 Sogou Share ~~Option Arrangement for the three months ended March 31, 2017.~~Incentive Plan.

Sogou Share Repurchase Transaction

In January 2017, Sogou repurchased 720,000 of itsPre-IPO Class A Ordinary Shares from the former President and Chief Financial Officer of the Sohu Group for an aggregate price of $7.2 million. Approximately $4.0 million incremental

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share-based compensation expense associated with the repurchase, which was made pursuant to letter agreements entered into in 2016 between the Sohu Group and the former President and Chief Financial Officer of the Sohu Group in connection with her resignation, which amount is equal to the excess of the repurchase price over the fair value of SogouPre-IPO Class A Ordinary Shares as of the repurchase date, related to events occurring in 2016 and was recorded in the Sohu Group’s statements of comprehensive income for the first quarter ~~ended March 31,~~of 2017. The Group assessed the impact and determined that it was not material to the quarter ended December 31, 2016 ~~the year ended December 31, 2016, or the quarter ended~~and March 31, 2017.

Option Modification

In the first and second quarter of 2013, a portion of the Sogou share options granted under the Sogou 2010 Share Incentive Plan and the Sohu Management Sogou Share Option Arrangement were exercised early, and the resulting Sogou ordinary shares issued upon exercise were transferred to trusts with the original option grantees as beneficiaries. The trusts will distribute the Sogou ordinary shares to those beneficiaries in installments based on the vesting requirements under the original option agreements. Although these trust arrangements caused a modification of the terms of these Sogou share options, the modification was not considered substantive. Accordingly, no incremental fair value related to these Sogou ordinary shares resulted from the modification, and the remaining share-based compensation expense for these Sogou ordinary shares ~~will continue~~continued to be recognized over the original remaining vesting period.

As of March 31, ~~2017,~~2018, 10,327,500 Sogou Class A Ordinary Shares that were purchased upon the early exercise of options ~~for the purchase of 11,370,000 Sogou ordinary shares~~ granted under the Sogou 2010 Share Incentive Plan ~~had been exercised early but had not been distributed to the beneficiaries of the trusts. All of the early-exercised Sogou ordinary shares that were distributed to those beneficiaries by the trusts~~remained unvested in accordance with the vesting requirements under the original option ~~agreements~~agreements. All Sogou Class A Ordinary Shares purchased upon such early exercise that have become vested have been included in the disclosures under the heading “Sogou 2010 Share Incentive Plan” and “Sohu Management Sogou Share Option Arrangement” above.

In the first quarter of 2018, Sogou changed the vesting conditions of 2,181,192 shares of Sogou share options contractually granted under the Sogou 2010 Share Incentive Plan by removing as a condition of vesting Sogou’s achievement of performance targets for the period corresponding to the vesting schedule. Of these options, 1,601,427 share options had not been deemed granted, because their performance targets for the current period had not been set, so the removal of the performance targets resulted in these options becoming service-based and being deemed granted immediately upon the effectiveness of the changes. For the remaining 579,765 Sogou share options, which had been deemed granted, the removal of the performance targets constituted a modification. The modification was not considered substantive, because their performance targets had been achieved before the modification. Based on valuation results, no incremental fair value related to these Sogou ordinary shares was recognized in connection with the modification, and the remaining share-based compensation expense for these Sogou ordinary shares continued to be recognized over the remaining vesting period.

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Tencent Share-based Awards Granted to Employees Who Transferred to Sogou with the Soso Search and Search-related Businesses

Certain persons who became Sogou employees when Tencent’s Soso search and search-related businesses were transferred to Sogou on September 16, 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses. Following the transfer of the businesses, ~~to Sogou. These~~these Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided the transferred employees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search and search-related businesses to Sogou, Sogou applied the guidance inASC505-50 to measure the related compensation expense, based on the then-current fair value at each reporting date, which is deemed to have been incurred by Tencent as an investor on Sogou’s behalf. To determine the then-current fair value of the Tencent restricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. ~~Because Sogou is not required to reimburse Tencent for such share-based compensation expense, the related amount was recorded by Sogou as a capital contribution from Tencent.~~

As of March 31, 2017, unvested Tencent restricted share unit awards held by these employees provided for the issuance of up to 40,300 ordinary shares of Tencent, taking into consideration a five-for-one split of Tencent’s shares that became effective in May 2014. For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, share-based compensation expense of ~~$298~~$32,694 and ~~$0.3 million,~~$298, respectively, related to these Tencent restricted share units was recognized in the Group’s consolidated statements of comprehensive income. As of March 31, ~~2017,~~2018, there was ~~$0.1 million~~$30,246 of unrecognized compensation expense related to these unvested Tencent restricted share units. This amount is expected to be recognized over a weighted average period of ~~1.03~~0.26 years.

Changyou.com Limited Share-based Awards

~~Changyou’s~~Changyou 2008 Share Incentive Plan

Changyou’s 2008 Share Incentive Plan (the “Changyou 2008 Share Incentive Plan”) originally provided for the issuance of up to 2,000,000 Changyou ordinary shares, including Changyou ordinary shares issued pursuant to the exercise of share options and upon vesting and settlement of restricted share units. The 2,000,000 reserved Changyou ordinary shares became 20,000,000 Changyou ordinary shares in March 2009 when Changyou effected aten-for-one share split of its ordinary shares. Most of the awards granted under the Changyou 2008 Share Incentive Plan vest over a period of four years. The maximum term of any share right granted under the Changyou 2008 Share Incentive Plan is ten years from the grant date. The Changyou 2008 Share Incentive Plan will expire in August 2018.

Prior to the completion of Changyou’s initial public offering, Changyou had granted under the Changyou 2008 Share Incentive Plan 15,000,000 Changyou ordinary shares to its former chief executive officer Tao Wang, through Prominence Investments Ltd., which is an entity that may be deemed under applicable rules of the Securities and Exchange Commission to be beneficially owned by Tao Wang. Through March 31, 2017, Changyou had also granted under the Changyou 2008 Share Incentive Plan restricted share units, settleable upon vesting by the issuance of an aggregate of 4,614,098 Changyou ordinary shares, to certain members of its management other than Tao Wang, and certain other Changyou employees.

~~Share-based Awards granted before Changyou’s IPO~~

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All of the restricted Changyou ordinary shares and restricted share units granted ~~before Changyou’s IPO became~~under the Changyou 2008 Share Incentive Plan were vested byas of December 31, 2017, as the ~~end of 2013. Hence there~~requisite service period for all these awards had been completed. There has been no share-based compensation expense recognized ~~with respect to such restricted Changyou ordinary shares and restricted share units since their respective vesting dates.~~

~~Share-based Awards granted after Changyou’s IPO~~

Through March 31, 2017, in addition to the share-based awards granted before Changyou’s IPO, Changyou had granted restricted share units, settleable upon vesting with the issuance of an aggregate of 1,581,226 Changyou ordinary shares, to certain members of its management other than Tao Wang and to certain of its other employees. These Changyou restricted share units are subject to vesting over a four-year period commencing on their grant dates. Share-based compensation expense for such Changyou restricted share units is recognized on an accelerated basis over the requisite service period. The fair value of Changyou restricted share units was determined based on the market price of Changyou’s ADSs on the grant date.

~~-37-~~

~~A summary of activity for these restricted share units as of and for the three months ended March 31, 2017 is presented below:~~

Restricted Share Units
   Number of
Units
(in thousands)    Weighted-Average
Grant-Date
Fair Value
Unvested at January 1, 2017
   10    $ 14.25
Granted
   0
Vested
   0
Forfeited
   0



Unvested at March 31, 2017
   10    14.25



Expected to vest after March 31, 2017
   10    14.25

~~For the three months ended March 31, 2017 and 2016, total share-based compensation expense recognized for~~under the Changyou ~~restricted share units described above was $9,000 and $22,000, respectively.~~

As of March 31, 2017, there was $21,000 of unrecognized compensation expense related to the unvested restricted share units. The expense is expected to be recognized over a weighted average period of 0.55 years. The total fair value of the unvested restricted share units was nil during both the three months ended March 31, 2017 and the three months ended March 31, 2016.2008 Share Incentive Plan since then.

Changyou 2014 Share Incentive Plan

On June 27, 2014, Changyou reserved 2,000,000 of its Class A ordinary shares under the Changyou.com Limited 2014 Share Incentive Plan (the “Changyou 2014 Share Incentive Plan”) for the purpose of making share incentive awards to certain members of its management and key employees. On November 2, 2014, Changyou’s Board approved an increase in the number of Class A ordinary shares reserved under the Changyou 2014 Share Incentive Plan ~~increased~~ from 2,000,000 to 6,000,000. The maximum term of any share right granted under the Changyou 2014 Share Incentive Plan is ten years from the grant date. The Changyou 2014 Share Incentive Plan will expire in June 2024. As of March 31, ~~2017, 2,823,000~~2018, 2,988,000 shares were available for grant under the Changyou 2014 Share Incentive Plan.

Summary of Share Option Activity

On November 2, 2014, Changyou approved the contractual grant of an aggregate of 2,416,000 Class A restricted share units to certain members of its management and certain other employees. On February 16, 2015, Changyou’s Board of Directors approved the conversion of 2,400,000 of these Class A restricted share units into options for the purchase of Class A ordinary shares at an exercise price of $0.01. On June 1, 2015, Changyou’s Board of Directors approved the contractual grant of options for the purchase of an aggregate of 1,998,000 Class A ordinary shares to certain members of its management and certain other employees at an exercise price of $0.01. On July 28, 2016, Changyou’s Board of Directors approved the contractual grant of options for the purchase of an aggregate of 100,000 Class A ordinary shares to certain member of its management at an exercise price of $0.01. These Changyou share options vest in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and the achievement of certain subjective performance targets. These Changyou share options are substantially similar to restricted share units except for the nominal exercise price, which would be zero for restricted share units.

UnderASC718-10-25 andASC718-10-55,, no grant date can be established until a mutual understanding is reached between the Company and the recipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensation expense should be accrued beginning on the service inception date, andre-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. To determine the fair value of these Changyou share options, the public market price of the underlying Changyou Class A ordinary shares at each reporting date is used and a binomial valuation model is applied.

~~On November 2, 2015, June 1, 2016 and November 2, 2016, 450,000, 329,000 and 450,000, respectively,~~As of March 31, 2018, 1,999,000 of these Changyou share options ~~were~~had been granted and ~~became~~had become vested on their respective vesting dates, as a mutual understanding of the subjective performance targets had been reached between Changyou and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. The cumulative share-based compensation expense of $28.6 million for these granted ~~Changyou~~ share options ~~has been~~was adjusted and fixed based on the aggregate amounts of the fair values of these granted share options at their ~~fair value of $4.7 million, $3.2 million and $5.9 million, respectively, at the~~respective grant ~~date.~~dates.

~~-38-~~

A summary of share option activity under the Changyou 2014 Share Incentive Plan as of and for the three months ended March 31, ~~2017~~2018 is presented below:


Options	Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)		Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding at January 1, 2017		852		$	0.01		7.93	$	9,032
Outstanding at January 1, 2018											947		$	0.01		7.01	$	17,240
Granted		0									0			0.01
Exercised		(22	)		0.01						(400	)		0.01
Forfeited or expired		0									0

Outstanding at March 31, 2017		830			0.01		7.67		11,628
Outstanding at March 31, 2018											547			0.01		6.85		7,622

Vested at March 31, 2017		830			0.01				11,628
Vested at March 31, 2018											547			0.01				7,622

Exercisable at March 31, 2017		830			0.01
Exercisable at March 31, 2018											547			0.01

Note (1): The aggregated intrinsic value in the preceding table represents the difference between Changyou’s closing price of ~~$28.04~~$27.89 per ADS, or ~~$14.02~~$13.95 per Class A ordinary share, on March 31, ~~2017~~2018 and the nominal exercise price of share option.

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For the three months ended March 31, 2018 and 2017, ~~and 2016,~~total share-based compensation expense recognized for these share options under the Changyou 2014 Share Incentive Plan was negative $2.4 million and $5.5 million, ~~and negative $1.3 million,~~ respectively.

~~Summary of Restricted Share Unit Activity~~

On November 2, 2014, Changyou had contractually granted under the 2014 Share Incentive Plan an aggregate of 16,000 Changyou Class A restricted share units to an employee. These Class A restricted share units are subject to vesting over a four-year period commencing on their grant dates. The total fair values ~~as of the grant dates~~ of these Changyou ~~restricted~~ share ~~units~~options vested on their respective vesting dates for the three months ended March 31, 2018 and 2017 were ~~determined based on market price~~both nil. The total intrinsic value of ~~Changyou’s ADSs on~~share options exercised for the ~~grant dates.~~

Due to the termination of employment of an employee during the second quarter of 2015 prior to vesting of Changyou restricted share units held by the employee, Changyou reversed share-based compensation expense in the amount of $17,000. Therethree months ended March 31, 2018 and 2017 was ~~no unrecognized compensation expense for these restricted share units after the second quarter of 2015, as all of them were forfeited during that quarter.~~$5.6 million and $0.3 million, respectively.

Sohu Video Share-based Awards

On January 4, 2012, Sohu Video adopted the Video 2011 Share Incentive Plan, under which 25,000,000 ordinary shares of Sohu Video are reserved for the purpose of making share incentive awards to management and key employees of Sohu Video and to Sohu management. The maximum term of any share incentive award granted under the Video 2011 Share Incentive Plan is ten years from the grant date. The Video 2011 Share Incentive Plan will expire on January 3, 2021. As of March 31, ~~2017,~~2018, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made and were subject to vesting in four equal installments, with each installment vesting upon a service period requirement being met, as well as Sohu Video’s achievement of performance targets for the corresponding period. For purposes ofASC718-10-25,, as of March 31, ~~2017,~~2018, no grant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with the recipients. As of March 31, ~~2017,~~2018, options for the purchase of 4,972,800 Sohu Video ordinary shares were vested.

For the three months ended March 31, ~~2017~~2018 and the three months ended March 31, ~~2016,~~2017, total share-based compensation expense recognized for vested options under the Video 2011 Share Incentive Plan was ~~$0.2~~negative $0.1 million and ~~negative~~ $0.2 million, respectively.

~~-39-~~

The fair value as of March 31, ~~2017~~2018 of the Sohu Video options contractually granted to management and key employees of Sohu Video and to Sohu management was estimated on the reporting date using the BP Model, with the following assumptions used:


Assumptions Adopted
Average risk-free interest rate	~~2.6~~3.19	%
Exercise multiple	2.8
Expected forfeiture rate (post-vesting)	14	%
Weighted average expected option life	~~4.8~~3.8
Volatility rate	~~45.6~~44.2	%
Dividend yield	0.00	%
Fair value	~~0.66~~0.61

12. NONCONTROLLING INTEREST

The noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist of noncontrolling interests for Sogou and Changyou.

Noncontrolling Interest in the Consolidated Balance Sheets

As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, noncontrolling interest in the consolidated balance sheets was ~~$582.7 million~~$1.10 billion and ~~$564.2 million,~~$1.07 billion, respectively.


	As of				As of
	December 31, 2016		March 31, 2017		December 31, 2017		March 31, 2018
Sogou	$	165,584	$	167,416	$	623,785	$	648,867
Changyou		398,631		415,120		442,818		449,389
Other		0		178

Total	$	564,215	$	582,714	$	1,066,603	$	1,098,256

Noncontrolling Interest of Sogou

As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, noncontrolling interest of Sogou of ~~$167.4~~$648.9 million and ~~$165.6~~$623.8 million, respectively, was recognized in the Sohu Group’s consolidated balance sheets, both representing an economic interest of 66%, in Sogou’s net assets held by shareholders other than Sohu.com Inc. and reflecting the reclassification of Sogou’s share-based compensation expense from shareholders’ additionalpaid-in capital to noncontrolling interest.

-43-

Noncontrolling Interest of Changyou

As of March 31, 2018 and December 31, 2017, noncontrolling interest of Changyou of $449.4 million and $442.8 million, respectively, was recognized in the Sohu Group’s consolidated balance sheets, representing ~~Sogou’s cumulative results of operations attributable to shareholders other than Sohu.com Inc.,~~a 32% and ~~reflecting the reclassification of Sogou’s share-based compensation expense from shareholders’ additional paid-in capital to noncontrolling~~32% economic interest, the investments of shareholders other than Sohu.com Inc. in Preferred Shares and Ordinary Shares of Sogou, the repurchase of Sogou Series A Preferred Shares from noncontrolling shareholders in March 2014 and September 2015, and Sogou’s repurchase of Class A Ordinary Shares from noncontrolling shareholders in June 2014 and January 2017.

~~Noncontrolling Interest of Changyou~~

~~As of March 31, 2017 and December 31, 2016, noncontrolling interest of Changyou of $415.1 million and $398.6 million,~~ respectively, ~~was recognized in the Sohu Group’s consolidated balance sheets, representing both of a 31% economic interest~~ in Changyou’s net assets held by shareholders other than Sohu.com ~~Inc,~~Inc. and ~~reflected~~reflecting the reclassification of Changyou’s share-based compensation expense from shareholders’ additionalpaid-in capital to noncontrolling interest.

Noncontrolling Interest in the Consolidated Statements of Comprehensive Income /(Loss)

For the three months ended March 31, 2018 and 2017, ~~and 2016,~~the Sohu Group had net income of ~~$17.9~~$5.6 million and ~~$31.2~~net income of $17.9 million, respectively, attributable to the noncontrolling interest ~~was recognized~~ in the ~~Sohu Group’s~~ consolidated statements of comprehensive ~~income.~~income /(loss).

   Three Months Ended
March 31,
   2016    2017
Sogou
   $ 20,612    $ 8,398
Changyou
   10,619    9,508
Other
   0    (11 )




Total
   $ 31,231    $ 17,895

~~-40-~~


	Three Months Ended March 31,
	2017			2018
Sogou	$	8,398		$	10,135
Changyou		9,508			(4,518	)
Other		(11	)		0

Total	$	17,895		$	5,617

Noncontrolling Interest of Sogou

For the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, net income of ~~$8.4~~$10.1 million and ~~$20.6~~$8.4 million, respectively, attributable to the noncontrolling interest of Sogou was recognized in the Sohu Group’s consolidated statements of comprehensive income, representing Sogou’s net income /(loss) attributable to shareholders other than Sohu.com Inc.

Noncontrolling Interest of Changyou

For the three months ended March 31, 2018 and 2017, net loss of $4.5 million and ~~2016,~~ net income of $9.5 ~~million and $10.6~~ million, respectively, attributable to the noncontrolling interest of Changyou was recognized in the Sohu Group’s consolidated statements of comprehensive income /(loss), representing a 32% and 31% economic interest, respectively, in Changyou attributable to shareholders other than Sohu.com Inc. ~~for both periods.~~

13. NET INCOME /(LOSS) PER SHARE

Basic net income /(loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income /(loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stock method. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. The computation of diluted net income /(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income /(loss) per share. For the three months ended March 31, 2018 and 2017, 347,000 and ~~2016, 302,646 and 265,000~~303,000 common shares potentially issuable upon the exercise or settlement of share-based awards using the treasury stock method were anti-dilutive and excluded from the denominator for calculation of diluted net loss per share.

Additionally, for purposes of calculating the numerator of diluted net income /(loss) per share, the net income /(loss) attributable to Sohu.com Inc. is adjusted as follows. The adjustment will not be made if there is an anti-dilutive effect.

Sogou’s Net income /(loss) Attributable to Sohu.com Inc.

~~(i)~~

Sogou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represents of the weighted average number of Sogou Preferred Shares and Ordinary Shares, shares issuable upon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and is not determined by allocating Sogou’s net income /(loss) to Sohu.com Inc. using the methodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders discussed in Note 12—Noncontrolling Interest.

Before Sogou’s IPO

Before Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu.com Inc. was determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represented of the weighted average number of SogouPre-IPO Preferred Shares and SogouPre-IPO Ordinary Shares outstanding, shares issuable upon the conversion of convertible preferred shares under theif-converted method, and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and was not determined by allocating Sogou’s net income /(loss) to Sohu.com Inc. using the methodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.

-44-

After Sogou’s IPO

After Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu.com Inc. of the total economic interest in Sogou, which is used for the calculation of basic net income per share.

In the calculation of Sohu.com Inc.’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu.com Inc.’s shareholding in Sogou was calculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou share options with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. The dilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. The effect of this calculation is presented as “incremental dilution from Sogou” in the table below. Assuming an anti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu.com Inc.’s diluted income /(loss) per share. As a result, Sogou’s net income /(loss) attributable to Sohu.com Inc. on a diluted basis equals the number used for the calculation of Sohu.com Inc.’s basic net income /(loss) per share.

InFor the ~~first quarter of 2017,~~three months ended March 31, 2018, all of ~~these~~the Sogou ~~shares and~~ share options had ~~an anti-dilutive~~a dilutive effect, and therefore were ~~excluded from~~included in the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. For the three months ended March 31, 2017, all of the Sogou share options had an anti-dilutive effect, and therefore were included in the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. This impact is presented as “incremental dilution from Sogou” in the table ~~below was zero.~~below.

~~(ii)~~

Changyou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Changyou shares held by Sohu.com Inc. represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu.com Inc. of the total economic interest in Changyou, which is used for the calculation of basic net income per share.

~~-41-~~

In the calculation of Sohu.com Inc.’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share units and share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyou under the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu.com Inc. in Changyou to decrease. As a result, Changyou’s net income /(loss) attributable to Sohu.com Inc. on a diluted basis decreased accordingly. The effect of this calculation is presented as “incremental dilution from Changyou” in the table below. Assuming an anti-dilutive effect, all of these Changyou restricted share units and share options are excluded from the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. As a result, Changyou’s net income /(loss) attributable to Sohu.com Inc. on a diluted basis equals the number used for the calculation of Sohu.com Inc.’s basic net income /(loss) per share.

InFor the ~~first quarter~~three months ended March 31, 2018, all of these Changyou restricted share units and share options had an anti-dilutive effect, and therefore were excluded in the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. For the three months ended March 31, 2017, all of these Changyou restricted share units and share options had a dilutive effect, and therefore were included in the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. This impact is presented as “incremental dilution from Changyou” in the table below.

The following table presents the calculation of the Sohu Group’s basic and diluted net loss per share (in thousands, except per share data).


	Three Months Ended March 31,						Three Months Ended March 31,
	2016			2017			2017			2018
Numerator:
Net loss attributable to Sohu.com Inc., basic	$	(20,286	)	$	(68,248	)	$	(68,248	)	$	(92,818	)
Effect of dilutive securities:
Incremental dilution from Sogou		0			0			0			(107	)
Incremental dilution from Changyou		(291	)		(416	)		(416	)		0

Net loss attributable to Sohu.com Inc., diluted	$	(20,577	)	$	(68,664	)	$	(68,664	)	$	(92,925	)

Denominator:
Weighted average basic common shares outstanding		38,666			38,811			38,811			38,904
Effect of dilutive securities:
Share options and restricted share units		0			0			0			0

Weighted average diluted common shares outstanding		38,666			38,811			38,811			38,904

Basic net loss per share attributable to Sohu.com Inc.	$	(0.52	)	$	(1.76	)	$	(1.76	)	$	(2.39	)

Diluted net loss per share attributable to Sohu.com Inc.	$	(0.53	)	$	(1.77	)	$	(1.77	)	$	(2.39	)

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14. ~~IMPACT OF~~ RECENTLY ~~ISSUED~~ADOPTED ACCOUNTING ~~PRONOUNCEMENTS~~PRONOUNCEMENT

Revenue from Contracts with ~~Customers.~~Customers. In May 2014, the FASB issued ASUNo. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ This guidance supersedes current guidance on revenue recognition in Topic 605, ‘‘Revenue Recognition.”’’ In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Sohu Group will apply the new revenue standard beginningOn January 1, 2018, ~~and will not early adopt. The~~the Sohu Group ~~has set up an implementation team~~adopted ASC 606, applying the modified retrospective method to contracts that ~~is currently in the process~~were not completed as of ~~analyzing each~~January 1, 2018. Adoption did not have a material impact on retained earnings as of ~~the Sohu Group’s revenue streams~~January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the ~~new revenue standard~~Group’s historic accounting under ASC 605. Additional disclosures have been made. Please see the Notes to determine the impact on the Group’s consolidated financial statements. The Sohu Group plans to continue the evaluation, analysis, and documentation of its adoption of ASU 2014-09 (including those subsequently issued updates that clarify ASU 2014-09’s provisions) throughout 2017 as the Sohu Group works towards the implementation and finalizes its determination of the impact that the adoption will have on its consolidated financial statements.

Condensed Consolidated Financial Statements for details.

~~-42-~~

~~Recognition and Measurement of Financial Assets and Financial Liabilities. On January 5, 2016, the FASB issued~~ASU2016-01 (“ASU2016-01”), Recognition and Measurement of Financial Assets and Financial Liabilities, ~~which~~ amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ~~This amendment requires all~~The main provisions require equity investments ~~to be measured at fair value, with changes in the fair value recognized through net income (other than~~(except those accounted for under the equity method of accounting or those that result in consolidation of the investee)~~. This standard~~ to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance will require modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively. Additional disclosures have been made. Please see the Notes to Condensed Consolidated Financial Statements for details.

Statements of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued Accounting Standards Update (“ASU”)No. 2016-18,Statements of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statements of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, ~~including~~and interim periods within those fiscal years. The ~~Sohu Group is currently evaluating the impact~~standard should be applied to each period presented using a retrospective transition method. The adoption of ~~adopting~~ this standard does not have a material impact on ~~its~~the Sohu Group’s consolidated financial statements, but resulted in restricted cash being included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statements of cash flows.

Other accounting standards adopted beginning January 1, 2018 do not have a significant impact on the Sohu Group’s condensed consolidated financial statements.

15. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Leases. On February 25, 2016, the FASB issuedASUNo. 2016-02 (“ASU2016-02”), ~~Leases~~. Leases. ASU2016-02 specifies the accounting for leases. For operating leases,ASU2016-02 requires a lessee to recognize aright-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a ~~generally~~ straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions.ASU2016-02 is effective for ~~public~~publicly-traded companies for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Sohu Group is currently evaluating the impact of adopting this standard on its consolidated financial statements.

~~Compensation – Stock Compensation. On March 30, 2016, the FASB issued~~~~ASU 2016-09 (“ASU 2016-09”), Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows; (d) accounting for forfeitures of share-based payments. This guidance became effective for reporting periods beginning after December 15, 2016. The Group adopted this new guidance on January 1, 2017. The Sohu Group elected to continue to account for forfeitures by estimating expected forfeitures, and this standard does not have a material impact on the Group’s consolidated financial statements.

Financial Instruments-Credit Losses. In June 2016, the FASB issued Accounting Standards Update(“ASU”)2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized ~~cost.~~cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Sohu Group is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

~~Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15,~~ ~~Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments,~~ which clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Sohu Group is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

~~Statement of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash~~. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Sohu Group is currently evaluating the impact of adopting this standard on its consolidated financial statements.

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~~Business Combinations (Topic 805): Clarifying~~Simplifying the ~~Definition of a Business.~~Test for Goodwill Impairment. In January 2017, the FASB issued Accounting Standards Update (“ASU”) ~~No. 2017-01,~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business, which~~ clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Sohu Group will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.

~~Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued Accounting Standards Update (“ASU”)~~ 2017-04,“Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Sohu Group is currently evaluating the impact of adopting this standard on its consolidated financial statements.

16. SUBSEQUENT EVENTS

On April 5, 2018, Changyou announced that its board of directors has declared a special cash dividend of $4.70 per Class A ordinary or Class B ordinary share, or $9.40 per American depositary share (“ADS”), each of which represents two Class A ordinary shares; and that the aggregate amount of the special cash dividend will be approximately $500 million. The amount of the dividend payable to Sohu is expected to be approximately $340 million. Sohu does not expect to pay any of such dividend to its stockholders, as the proceeds will be used to support Sohu’s operations. Thenon-controlling interests on the consolidated balance sheet will be reduced by the declared dividend attributable tonon-controlling shareholders of Changyou. The special cash dividend was paid by Changyou on April 26, 2018.

On April 11, 2018, Sohu entered into a credit facility agreement with China Merchants Bank Co., Ltd. (“CMB”), pursuant to which Sohu is entitled to borrow up to an aggregate of RMB700 million (or approximately $111.3 million) (the “CMB Loan”). Also on April 11, 2018, Sohu made an initial drawdown of RMB400 million (or approximately $63.6 million) (the “First Drawdown”) under the CMB Loan. Interest will accrue on the outstanding principal balance of the First Drawdown at a rate of 6% per year and all outstanding principal of the First Drawdown will be due on April 10, 2019. The proceeds of the First Drawdown were used by Sohu to repay in full, on April 13, 2018, the outstanding balance under credit agreements between Sohu and Ping An Bank. On April 28, 2018, Ping An Bank released an existing first lien that Ping An Bank holds on a building of Sohu in Beijing, China, and CMB was granted a first lien on the building to secure the CMB Loan.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this report, references to “us,” “we,” “our,” “our company,” “our Group,” the “Sohu Group,” the “Group,” and “Sohu.com” are to Sohu.com Inc. and, except where the context requires otherwise, our subsidiaries and variable interest entities (“VIEs”) Sohu.com Limited, Sohu.com (Hong Kong) Limited (“Sohu Hong Kong”), All Honest International Limited (“All Honest”), Sohu.com (Game) Limited (“Sohu Game”), Go2Map Inc., Sohu.com (Search) Limited (“Sohu Search”), Sogou Inc. (“Sogou”), Sogou (BVI) Limited (“Sogou BVI”), Sogou Hong Kong Limited (“Sogou HK”), Vast Creation Advertising Media Services Limited (“Vast Creation”), Sogou Technology Hong Kong Limited, Fox Video Investment Holding Limited (“Video Investment”), Fox Video Limited (“Sohu Video”), Fox Video (HK) Limited (“Video HK”), Focus Investment Holding Limited, Sohu Focus Limited, Sohu Focus (HK) Limited, Beijing Sohu New Era Information Technology Co., Ltd. (“Sohu Era”~~), Beijing Sohu Software Technology Co., Ltd., Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”), Beijing Sogou Network Technology Co., Ltd (“Sogou Network”~~), Fox Information Technology (Tianjin) Limited (“Video Tianjin”), Beijing Sohu New Media Information Technology Co., Ltd. (“Sohu Media”), Beijing Sohu New Momentum Information Technology Co., Ltd. (“Sohu New Momentum”), Beijing Century High Tech Investment Co., Ltd. (“High Century”), Beijing Heng Da Yi Tong Information Technology Co., Ltd. (“Heng Da Yi Tong”, formerly known as Beijing Sohu Entertainment Culture Media Co., Ltd.), Beijing Sohu Internet Information Service Co., Ltd. (“Sohu Internet”), Beijing GoodFeel Technology Co., Ltd., Beijing ~~Sogou Information Service Co., Ltd. (“Sogou Information”), Beijing 21 East Culture Development Co., Ltd., Beijing~~ Sohu Donglin Advertising Co., Ltd.(“Donglin”), Beijing Pilot New Era Advertising Co., Ltd. (“Pilot New Era”), Beijing Focus Yiju Network Information Technology Co., Ltd., SohuPay Science and Technology Co., Ltd., ~~Beijing Yi He Jia Xun Information Technology Co., Ltd.,~~ Tianjin Jinhu Culture Development Co., Ltd. (“Tianjin Jinhu”), Guangzhou Qianjun Network Technology Co., Ltd. (“Guangzhou Qianjun”), Beijing Modu Legendary Culture Media ~~Co., Ltd., Shenzhen Shi Ji Guang Su Information Technology Co., Ltd., Chengdu Sogou Easypay Technology Co., Ltd., Beijing Shi Ji Si Su Technology~~ Co., Ltd., Chongqing Qogir Enterprise Management Consulting Co., Ltd., Beijing Focus Interactive Information Service Co., Ltd., Beijing Focus Xin Gan Xian Information Technology Co., Ltd., Beijing Focus Real Estate Agency Co., Ltd., our independently-listed subsidiary Sogou Inc. (“Sogou”) as well as the following direct and indirect subsidiaries and VIEs of Sogou: Sogou (BVI) Limited (“Sogou BVI”), Sogou Hong Kong Limited (“Sogou HK”), Vast Creation Advertising Media Services Limited (“Vast Creation”), Sogou Technology Hong Kong Limited (“Sogou Technology HK”), Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”), Beijing Sogou Network Technology Co., Ltd (“Sogou Network”), Beijing Sogou Information Service Co., Ltd. (“Sogou Information”), Shenzhen Shi Ji Guang Su Information Technology Co., Ltd., Chengdu Easypay Technology Co., Ltd., Beijing Shi Ji Si Su Technology Co., Ltd., Sogou (Shantou) Internet Small Loan Co., Ltd., Tianjin Sogou Network Technology Co., Ltd, and our independently-listed majority-owned subsidiary Changyou.com Limited (“Changyou”) as well as the following direct and indirect subsidiaries and VIEs of Changyou: Changyou.com HK Limited (“Changyou HK”) formerly known as TL Age Hong Kong Limited), Changyou.com Webgames (HK) Limited (“Changyou HK Webgames”), Changyou.com Gamepower (HK) Limited, ICE Entertainment (HK) Limited (“ICE HK”), Changyou.com Gamestar (HK) Limited, Changyou.com Korea Limited, Changyou.com India Private Limited, ~~Changyou BILISIM HIZMETLERI TICARET LIMITED SIRKETI,~~ Kylie Enterprises Limited, Mobogarden Enterprises Limited, Heroic Vision Holdings Limited, TalkTalk Limited, RaidCall (HK) Limited, 7Road.com Limited (“7Road”), 7Road.com HK Limited (“7Road HK”), Changyou.com (TH) Limited, ~~Changyou.com Rus Limited,~~ PT. CHANGYOU TECHNOLOGY INDONESIA, ~~Changyou Middle East FZ-LLC,~~ Changyou.com Technology Brazil Desenvolvimento De Programas LTDA, Greative Entertainment Limited (formerly known as Greative Digital Limited), Glory Loop Limited (“Glory Loop”), ~~MoboTap Inc. (“MoboTap”, a Cayman Islands company), MoboTap Inc. Limited (“MoboTap HK”), MoboTap Inc. (a Delaware corporation), Dolphin Browser Inc.,~~ TMobi Limited (formerly known as Muse Entertainment Limited), ~~Dstore Technology Limited,~~ Mobo Information Technology Pte. Ltd., Changyou Mobo Glint ~~Limited, Global Cool~~ Limited, Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”), Beijing Changyou Skyline Property Management Co. Ltd, ~~Beijing Cruise stars Technology Co., Ltd.,~~ Beijing Changyou Chuangxiang Software Technology Co., Ltd., Beijing Changyou Gamespace Software Technology Co., Ltd. (“Gamespace”), ICE Information Technology (Shanghai) Co., Ltd. (“ICE Information”), Beijing Changyou RaidCall Internet Technology Co., Ltd. (“RaidCall”), Beijing Yang Fan Jing He Information Consulting Co., Ltd. (“Yang Fan Jing He”), Shanghai Jingmao Culture Communication Co., Ltd. (“Shanghai Jingmao”), Shanghai Hejin Data Consulting Co., Ltd., Beijing Changyou Jingmao Film & Culture Communication Co., Ltd. (“Beijing Jingmao”), Beijing Gamease Age Digital Technology Co., Ltd. (“Gamease”), Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“Guanyou Gamespace”), Beijing Zhi Hui You Information Technology Co., Ltd., Shanghai ICE Information Technology Co., Ltd. (“Shanghai ICE”), Shenzhen 7Road Network Technologies Co., Ltd. (“7Road Technology”), Beijing Changyou Star Digital Technology Co., Ltd (“Changyou Star”), Beijing Changyou Creation Information Technology Co., Ltd. (formerly known as Beijing Changyoue-pay Co. Ltd.), Shenzhen Brilliant Imagination Technologies Co., Ltd. (“Brilliant Imagination”), Beijing Baina Information Technology Co., Ltd., Baina Zhiyuan (Beijing) Technology Co., Ltd. (“Beijing Baina Technology”), Baina Zhiyuan (Chengdu) Technology Co., Ltd., Chengdu Xingyu Technology Co., Ltd., Baina (Wuhan) Information Technology Co., Ltd. (“Wuhan Baina Information”), Wuhan Xingyu ~~Technology Co., Ltd., Wuhan Hualian Chuangke~~ Technology Co., Ltd., Beijing Changyou Creative Technology Co., Ltd., BeiJing Changmica Culture Co., Ltd., ~~and~~ HongKong New Xinlang Electron Group Limited, and Shanghai Changhu Software Technology Co.,Ltd., and these references should be interpreted accordingly. Unless otherwise specified, references to “China” or “PRC” refer to the People’s Republic of China and do not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, ~~2016~~2017 filed with the Securities and Exchange Commission (“SEC”) on February ~~27, 2017,~~28, 2018, as updated by Part II Item 1A of this report. Readers are cautioned not to place undue reliance on these forward-looking statements.

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OVERVIEW

Sohu.com Inc. (NASDAQ: SOHU), a Delaware corporation organized in 1996, is a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs and mobile devices in the People’s Republic of China (the “PRC” or “China”). Our businesses are conducted by Sohu.com Inc. and its subsidiaries and VIEs (collectively referred to as the “Sohu Group” or the “Group”). The Sohu Group consists of Sohu, which when referred to in ~~this report,~~these condensed consolidated financial statements, unless the context requires otherwise, excludes the businesses and the corresponding subsidiaries and VIEs of Sogou Inc. (“Sogou”) and Changyou.com Limited (“Changyou”), Sogou and Changyou. Sogou and Changyou are indirect controlled subsidiaries of Sohu.com Inc. Sohu is a leading Chinese language online media content and services provider. Sogou is ~~a leading online~~an innovator in search and a leader in China’s internet industry. With a mission to make it easy to communicate and get information, Sogou has grown to become the second largest search engine by mobile ~~Internet product provider~~queries and the fourth largest internet company by monthly active users (“MAU”) in ~~China.~~China, according to iResearch. Changyou is a leading online game developer and operator in China as measured by the popularity of its PC game Tian Long Ba Bu (“TLBB”) and its mobile game Legacy TLBB, ~~3D,~~ and engages primarily in the development, operation and licensing of online games for PCs and mobile devices. Most of our operations are conducted through our China-based subsidiaries and VIEs.

Factors and Trends Affecting our Business

With the accelerated shift in user activities from PCs to mobile devices and an increase in the number of Internet users, the use of various kinds of mobile Internet services continued to increase. At Sohu, we focused our efforts on developing a portfolio of leading mobile products across our business lines that we believed our users would like.

~~For~~Smartphones have reshaped the online media business in China, asin-stream feeds have become a mainstream format through which users have become accustomed to receiving personalized information. To ensure we remain as a premiere destination for our audience, we invested extensively in content and technology for Sohu Media ~~Portal, we concentrated our focus on content and product~~Portal. We continually refined the design ~~to accelerate the usage~~ of our ~~core mobile products — the~~key product Sohu News APP, and ~~the Web-based HTML5 Portal m.sohu.com. We continuously refined Sohu News App’s design and introduce new~~introduced innovative features to meet users’ appetites. InWe improved the ~~first quarter~~algorithm used by the recommendation engine of ~~2017,~~Sohu News APP to ~~address~~enhance the ~~changing habits~~user experience. We also improved our delivery of users, we also launched a re-designed front page of the PC portal Sohu.com. On the sales front, in the first quarter of 2017, large brand advertisers’ performance was still disappointing, while we continued to see growth fromadvertising for small and medium enterprise (“SME”) ~~customers.~~customers in order to increase their number. As the user base of Sohu Media Portal gains momentum, we will gradually increase the ad load. We expect advertising revenues to rebound from the second quarter of 2018.

Online video services remained one of the most popular Internet applications, and continued to gain viewers from television stations. ~~The video industry continued~~Due to ~~be deeply competitive as~~intensified competition among major ~~online platforms aggressively competed for popular content. The competition led to an escalation in~~players, the price of ~~content. Since 2016,~~content, especially the prices of premium TV programs, went up sharply in the past few years. This caused industry-wide financial losses. For Sohu Video, ~~has been shifting~~we have changed our ~~focus to the~~content procurement strategy and stopped buying expensive new TV programs. We now concentrate on self-developed content ~~category,~~and other short-form video program categories, which ~~in our view, will create long-lasting value to our platform and offer better financial returns compared to~~are much less expensive than TV ~~station~~ content. Leveraging our exclusive original content, we also actively ~~explored~~explore opportunities with subscription services that we believe will become an important revenue source in addition to traditional advertising revenues. ~~Financially, we expect advertising sales to bottom out beginning~~As a result of these measures, the operating loss of Sohu Video in the ~~second~~first quarter of ~~2017. Meanwhile we believe that subscription revenues, supported~~2018 decreased by ~~our original dramas,~~45%year-on-year. We expect the loss will ~~also ramp up. Despite~~continue to narrow in the ~~expected pick-up in revenues, given that our overall content spending will remain at a high level, we still expect Sohu Video to incur a financial loss in 2017.~~rest of 2018.

For our search and search-related business, Sogou is ~~one~~China’ second-largest search engine by mobile queries. In March 2018, Sogou Search had an 18% market share in China based on mobile queries, as compared to 15% in March 2017, according to iResearch. Sogou continued to strengthen its competitive advantages in search from channel to content, leveraging the robust ecosystem it has built and shared with Tencent. Since October 2017, Tencent has been testing, on a trial basis and for purposes of assessment, the integration of Sogou Search into Weixin/WeChat. With this initiative, users of Weixin/WeChat can use Sogou Search as a general search function within Weixin/WeChat to access Internet information outside Weixin/WeChat. Sogou is working closely with Tencent on product testing and optimization and intend to discuss commercial arrangements upon the completion of the ~~top players~~trial stage. In addition, Sogou continued to differentiate its search offerings across key verticals, especially in healthcare, law, and education. It will continue to invest in companies with valuable content, data, and technology, and look to build strategic partnerships through equity investments that help to solidify its competitive edge and drive the ~~online~~long-term growth of its search ~~sector in China. We have reinforced our competitive position through cooperation with Tencent, which~~business. At the same time, Sogou focused on developing AI technology centered on natural language processing, and has helped us build exclusive access to Tencent’s social platforms and bring in unique and high-quality content. In 2016, we launched and upgraded a series of vertical channels, including English, Academic and Healthcare. These new services helped us stand out from competing products. By the end of March 2017, Sogou’s mobile search traffic had grown 50% from the end of March 2016. Mobile search revenues accounted for 72% of total search revenues. We also made solid progress in ~~artificial intelligence, in particular with~~ voice, ~~technology. As of March 31, 2017, daily use of voice input through~~computer vision, translation and Q&A. Sogou ~~Mobile Keyboard had more than doubled from a year ago.~~has further leveraged these AI capabilities to enhance the search experience for users.

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For Changyou’s online game business, ~~both~~PC games revenue remained stable and mobile games revenue experienced a decrease during the PCthree months ended March 31, 2018. Changyou intends to be unremitting to further enrich the content and gameplay, address the needs of core users, and extend the lifecycle of its games. While Changyou continues to focus on MMORPG development, it also aims to improve its R&D and product innovation capabilities in advanced casual and simulation games (“SLG games”). Changyou intends to keep improving game ~~TLBB~~quality and gameplay innovation with the goal of ensuring that its new games follow changes in user needs and the mobile game TLBB 3D exceeded Changyou management’s expectations in the first quarter of 2017. Despite the impact of the Chinese New Year, TLBB saw a smaller decline than management’s previous expectations and TLBB 3D was flat in the first quarter, rather than declining as expected. Changyou’s top priority is to retain a core base of game players and maintain a sustainable in-game environment. For Changyou’s game pipeline, an important round of tests of the mobile game Legacy TLBB were conducted in the first quarter of 2017 and the results were in line with Changyou management’s expectations. In the mid to long term, with new game launches such as Legacy TLBB in 2017, management expects revenues from new games to pick up in the second half of the year.market. For the three months ended March 31, ~~2017,~~2018, the PC games and mobile games that Changyou operates had approximately ~~3.5~~5.1 million total average monthly active accounts and approximately ~~1.2~~1.6 million total active paying accounts.

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Our Business

Through the operation of Sohu, Sogou and Changyou, we generate online advertising revenues, ~~(including~~including brand advertising revenues and search and search-related ~~revenues),~~advertising revenues; online games ~~revenues~~revenues; and other revenues. Online advertising and online games are our core businesses. For the three months ended March 31, ~~2017,~~2018, total revenues generated by Sohu, Sogou and Changyou were approximately ~~$374.1~~$455.0 million, including:

Sohu:

$~~75.5~~51.2 million in brand advertising revenues, of which ~~$36.8~~$30.7 million was from Sohu Media Portal, ~~$21.7~~$12.6 million was from Sohu Video, and ~~$17.0~~$7.9 million was from Focus; and

$~~16.5~~18.5 million in other revenues, mainly attributable to revenues from paid subscription services, interactive broadcasting services, ~~sub-licensing of purchased video content to third parties, and~~ content provided through the platforms of the three main telecommunications operators in ~~China.~~China, andsub-licensing of purchased video content to third parties.

Total revenues generated by Sohu were ~~$92.0~~$69.7 million.

Sogou:

$~~142.0~~220.3 million in search and search-related advertising revenues; and

$~~20.2~~27.8 million in other revenues, attributable to Sogou’s offering of Internet value-added services (or “IVAS”), primarily with respect to the operation of Web games and mobile games developed by third parties and the provision of online reading services, as well as Sogou’s offering of other products and services, ~~provided to users.~~including smart hardware products.

Total revenues generated by Sogou were ~~$162.2~~$248.1 million.

Changyou:

$~~85.3~~105.5 million in online game revenues;

$~~5.9~~5.1 million in brand advertising revenues, mainly attributable to Changyou’s 17173.com Website; and

$~~28.7~~26.6 million in other revenues attributable to Changyou’s cinema advertising business and IVAS business.

Total revenues generated by Changyou were ~~$119.9~~$137.2 million.

For the three months ended March 31, ~~2017,~~2018, our total brand advertising revenues were ~~$81.4~~$56.3 million, total search and search-related advertising revenues were ~~$142.0~~$220.3 million, total online game revenues were ~~$85.3~~$105.5 million, and total other revenues were ~~$65.4~~$72.9 million.

Sohu’s Business

Brand Advertising Business

Sohu’s main business is the brand advertising business, which offers to users, over our matrices of Chinese language online media, various content, products and services across multiple Internet-enabled devices, such as PCs, mobile phones and tablets. The majority of our products and services are provided through Sohu Media Portal, Sohu Video and Focus.

Sohu Media Portal.Sohu Media Portal is a leading online news and information provider in China. Sohu Media Portal provides users comprehensive content through ~~www.sohu.com for PCs,~~ the mobile phone application Sohu News APP, www.sohu.com for PCs and the mobile portal m.sohu.com;

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Sohu Video. Sohu Video is a leading online video content and service provider in China through tv.sohu.com for PCs and the mobile phone application Sohu Video APP; and

Focus. Focus (www.focus.cn) is a leading online real estate information and services provider in China.

Revenues generated by the brand advertising business are classified as brand advertising revenues in our consolidated statements of comprehensive income.

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Other Sohu Business

of purchased video content to third parties. Revenues generated by Sohu from the other business are classified as other revenues in our consolidated statements of comprehensive income.

Sogou’s Business

Search and Search-related Business

The search and search-related business consists primarily ~~offers advertisers pay-for-click~~of search and search-related advertising services ~~as well as online marketing services on Web directories operated~~offered by Sogou. ~~Pay-for-click~~Search and search-related advertising services enable advertisers’ promotional links to be displayed on ~~the Sogou~~Sogou’s search ~~result~~results pages and ~~Sogou Website Alliance members’~~other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. ~~Both pay-for-click~~Sogou’s advertising services ~~and online marketing services on Web directories operated by Sogou~~ expand ~~the~~ distribution of ~~our~~ advertisers’ promotional links and advertisements by leveraging traffic on ~~Sogou Website Alliance members’~~third parties’ Internet properties, including Web content, software, and mobile applications. Our search and search-related business benefits from ~~our~~Sogou’s collaboration with Tencent, ~~Holdings Limited (“Tencent”),~~ which provides usSogou access to traffic and content generated from users of products and services provided by Tencent.

Revenues generated by the search and search-related business are classified as search and search-related advertising revenues in our consolidated statements of comprehensive income.

Other Sogou Business

Sogou also ~~engages in the other business, by offering~~offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third parties ~~as well as~~and the provision of online reading services, and offers other products and services, ~~provided to users.~~including smart hardware products. Revenues generated by Sogou from the other business are classified as other revenues in our consolidated statements of comprehensive income.

Initial Public Offering of Sogou

On November 13, 2017, Sogou completed its IPO on the NYSE, trading under the symbol “SOGO.”

Sogou’s IPO consisted of ADSs, with each ADS representing one Class A Ordinary Share. Sogou issued and sold in the IPO 50,643,856 Class A Ordinary Shares represented by 50,643,856 ADSs, including 5,643,856 Class A Ordinary Shares represented by 5,643,856 ADSs sold pursuant to the exercise of the underwriters’ over-allotment option. Proceeds to Sogou from the IPO were approximately $622.1 million, after deducting underwriting discounts and commissions and offering expenses.

In the fourth quarter of 2017, we recognized aone-time credit to additionalpaid-in capital of $278.4 million in shareholders’ equity in our consolidated balance sheets to reflect an increase in the value of our equity in Sogou that resulted from the completion of Sogou’s IPO.

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Voting Agreement between Sohu and Tencent

Pursuant to the Sogou Voting Agreement, which took effect upon the completion of Sogou’s IPO, and Sogou’s amended and restated memorandum and articles of association, Sohu has the right to appoint a majority of Sogou’s Board of Directors, and Sohu continues to consolidate Sogou in Sohu’s financial statements and provide for noncontrolling interests reflecting ordinary shares in Sogou held by shareholders other than Sohu.

Sogou’s Share Structure

As of March 31, 2018, Sogou had a combined total of 397,183,397 Class A Ordinary Shares and Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu: 127,200,000 Class B Ordinary Shares held by Sohu for its own account, and 3,717,250 Class A Ordinary Shares held by Sohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards;

(ii)	Tencent: 151,557,875 Class B Ordinary Shares;

(iii)

Photon: 32,000,000 Class A Ordinary Shares; and

(iv)	Shareholders other than Sohu, Tencent, and Photon: 82,708,272 Class A Ordinary Shares.

Changyou’s Business

Online Game Business

Changyou’s online game business offers PC games and mobile games to game players. All of Changyou’s games are operated under the item-based revenue model, meaning that game players ~~(a)~~ can play the games for free, but can choose to pay for virtual items, which arenon-physical items that game players can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks. Revenues derived from the operation of online games are classified as online game revenues in our consolidated statements of comprehensive income.

PC Games

PC games ~~which~~ are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personal computers and require that localclient-end game access software be installed on the computers ~~used; (b) mobile~~used. Changyou’s dominant game is TLBB, a PC basedclient-end game. For the three months ended March 31, 2018, revenues from TLBB were $50.8 million, accounting for approximately 48% of Changyou’s online game revenues, approximately 37% of Changyou’s total revenues and approximately 11% of the Sohu Group’s total revenues.

Mobile Games

Mobile games ~~which~~ are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a new mobile game, Legacy TLBB, which is operated by Tencent under license from Changyou. For the three months ended March 31, 2018, revenues from Legacy TLBB were $28.2 million, accounting for approximately 27% of Changyou’s online game revenues, approximately 21% of Changyou’s total revenues, and approximately 6% of the Sohu Group’s total revenues.

Web Games

Prior to the sale of Shenzhen 7Road in August 2015, Changyou’s online games also included Web games, which are online games that are played through a Web browser with no local game software installation requirements. Following the sale of Shenzhen 7Road, Web games became an insignificant part of Changyou’s online game business. All of Changyou’s games are operated under the item-based revenue model, meaning that game players can play the games for free, but can choose to pay for virtual items, which are non-physical items that game players can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks. Revenues derived from the operation of online games are classified as online game revenues in our consolidated statements of comprehensive income.

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Platform Channel Business

17173.com Website

The 17173.com Website is one of the leading information portals in China, ~~which~~and provides news, electronic forums, online videos and other information services regarding online games to game players. ~~Changyou’s platform channel business also offers a number of software applications for PCs and mobile devices through RaidCall and~~All revenues generated by the ~~Dolphin Browser.~~ 17173.com Website are classified as brand advertising revenues.

RaidCall

RaidCall provides online music and entertainment services, primarily in Taiwan. ~~The~~All revenues generated by RaidCall from IVAS are classified as other revenues in our consolidated statements of comprehensive income.

MoboTap

MoboTap provides (a) software applications for PCs and mobile devices through the Dolphin Browser, which ~~is operated by MoboTap Inc. (collectively with its subsidiaries and VIEs “MoboTap”),~~ is a gateway to a host of user activities on mobile devices with the majority of its users based in ~~Europe, Russia~~overseas markets, and Japan. As Changyou management had determined that the Dolphin Browser was unable to provide expected synergies with Changyou’s platform channel business, in 2016 Changyou’s Board of Directors approved the disposal of Changyou’s 51% equity interest in MoboTap, which is the mobile technology developer behind the Dolphin Browser. Accordingly, the assets(b) domestic online card and liabilities attributable to MoboTap are classified as assets and liabilities held for sale and measured at the lower of their carrying amounts or their fair value, less cost to sell, in our consolidated balance sheet as of December 31, 2016. Due to the suspension of negotiations with a potential buyer of MoboTap in the first quarter of 2017, Changyou’s management determined that the disposal is unlikely to be completed within one year. As a result, the assets held for sale and liabilities held for sale related to MoboTap have been reclassified as assets and liabilities held for use and measured at the lower of the carrying value before MoboTap was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the assets and liabilities been continuously classified as held for use, or the fair value at reclassification day, respectively, in the Sohu Group’s consolidated balance sheet as of March 31, 2017. In the first quarter of 2017, Changyou recorded a $1.4 million expense in the consolidated statements of comprehensive income for catch-up of depreciation and amortization expense of the assets held for sale before the reclassification. All revenues generated by the 17173.com Website are classified as brand advertising revenues,board games. IVAS revenues generated by the Dolphin Browser ~~and by RaidCall~~ are classified as other revenues and ~~a relatively small amount of~~ online ~~game~~card and board games revenues generated by ~~the Dolphin Browser~~MoboTap are ~~included in~~classified as online game revenues in our consolidated statements of comprehensive income. Changyou disposed of MoboTap for $3.0 million in the first quarter of 2018.

Cinema Advertising Business

Changyou also operates a cinema advertising business, which consists primarily of the acquisition from operators of movie theaters, and the sale to advertisers, ofpre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theatre. Revenues generated by Changyou’s cinema advertising business are classified as other revenues in our consolidated statements of comprehensive income.

Changyou’s Share Structure

As of March 31, 2018, Changyou had a combined total of 105,836,420 Class A and Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu.com Inc.: 1,500,000 Class A Ordinary Shares and 70,250,000 Class B Ordinary Shares; and

(ii)	Public shareholders: 34,086,420 Class A Ordinary Shares.

As of March 31, 2018, we held approximately 68% of the combined total of Changyou’s outstanding ordinary shares, and controlled approximately 95% of the total voting power in Changyou. As Changyou’s controlling shareholder, we consolidate Changyou in our financial statements and provide for noncontrolling interests reflecting ordinary shares in Changyou held by shareholders other than us.

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES

Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On anon-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect our most significant estimates and judgments, and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements.

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Basis of Consolidation and Recognition of Noncontrolling Interest

Our consolidated financial statements include the accounts of Sohu.com Inc. and its subsidiaries and consolidated VIEs. All ~~intercompany~~intra-Group transactions are eliminated.

VIE Consolidation

Our VIEs are wholly or partially owned by certain of our employees as nominee shareholders. For our consolidated VIEs, management made evaluations of the relationships between us and our VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, we control the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that we are the primary beneficiary of our consolidated VIEs.

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Noncontrolling Interest Recognition

Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, to the controlling shareholder. ~~The~~Currently, the noncontrolling interests in our consolidated financial statements primarily consist of noncontrolling interests for Sogou and Changyou.

Noncontrolling Interest for Sogou

Sogou completed its IPO on the NYSE in November 2017. Prior to the completion of Sogou’s ~~Share Structure~~

~~As of March 31, 2017, Sogou had outstanding a combined total of 334,026,595 ordinary shares and preferred shares held as follows:~~

~~(i)~~IPO, Sohu.com Inc.~~: 130,977,750 Class A Ordinary Shares, of which 3,764,500 shares may be purchased by Sohu management and key employees under an option arrangement;~~

~~(ii) Photon Group Limited, an investment vehicle of the Sohu Group’s Chairman and Chief Executive Officer Charles Zhang (“Photon”): 32,000,000 Series A Preferred Shares;~~

~~(iii) Tencent: 6,757,875 Class A Ordinary Shares, 65,431,579 Series B Preferred Shares and 79,368,421 non-voting Class B Ordinary Shares; and~~

~~(iv) Various employees of Sogou and Sohu: 19,490,970 Class A Ordinary Shares.~~

~~Sohu’s Shareholding in and Control of Sogou~~

As of March 31, 2017, we held approximately 36% of the outstanding equity capital of Sogou on a fully-diluted basis, assuming for such purpose that all share options under the Sogou 2010 Share Incentive Plan and all share options under the Sohu Management Sogou Share Option Arrangement are granted and exercised, and that all of the Sogou Class A Ordinary Shares that Sogou has repurchased are re-issued to shareholders other than us. Also as of March 31, 2017, we held over 50% of the total voting power of Sogou on a fully-diluted basis and controlled the election of a majority of the Board of Directors of Sogou ~~assuming~~pursuant to a shareholders’ agreement that ~~Tencent’s non-voting Class B Ordinary Shares are converted to voting shares, that all~~expired upon the completion of the ~~Sogou Class A Ordinary Shares that Sogou has repurchased are re-issued~~IPO. Following the completion of Sogou’s IPO, pursuant to ~~shareholders other than us, and that all Sogou share options under~~ the Sogou ~~2010 Share Incentive Plan~~Voting Agreement and ~~all Sogou share options under~~Sogou’s amended and restated memorandum and articles of association, Sohu.com Inc. still has the ~~Sohu Management Sogou Share Option Arrangement are granted and exercised.~~right to appoint a majority of Sogou’s Board of Directors.

As Sogou’s controlling shareholder, we consolidate Sogou in our consolidated financial statements, and recognize noncontrolling interest reflecting economic interests in Sogou held by shareholders other than us (the “Sogou noncontrolling shareholders”). Sogou’s net ~~income/(loss)~~income /(loss) attributable to the Sogou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income.

Noncontrolling Interest Recognition before Sogou’s IPO

Based on the principles of allocation of Sogou’s profit and loss set forth below, Sogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, along with changes in shareholders’ equity/(deficit) and ~~adjustment~~adjustments for share-based compensation expense in relation to those share-based awards ~~which are~~that were unvested and vested but not yet settled and the Sogou noncontrolling shareholders’ investments in ~~Sogou’s~~SogouPre-IPO Series A Preferred Shares, ~~and~~SogouPre-IPO Series B Preferred Shares, ~~(collectively, the “Sogou Preferred Shares”) and~~SogouPre-IPO Class A Ordinary Shares, ~~are~~and SogouPre-IPO Class B Ordinary Shares, were accounted for as a noncontrolling interest classified as permanent equity in our consolidated balance sheets, as we ~~have~~had the ~~right~~power to reject a redemption requested by the noncontrolling shareholders. These treatments ~~are~~were based on the terms governing ~~investments from,~~investment, and on the terms of the classes of Sogou shares held, by the noncontrolling shareholders in ~~Sogou.~~Sogou before Sogou’s IPO.

Principles of Allocation of Sogou’s Profit and Loss

- By virtue of the terms of the SogouPre-IPO Preferred Shares, ~~and~~Pre-IPO Class A Ordinary Shares, andPre-IPO Class B Ordinary Shares, Sogou’s losses ~~are~~were allocated in the following ~~order:~~order before Sogou’s IPO:

(i) net losses ~~are~~were allocated to holders of the SogouPre-IPO Class A Ordinary Shares and the holder of the SogouPre-IPO Class B Ordinary Shares until their basis in Sogou ~~decreases~~decreased to zero;

(ii) additional net losses ~~are~~were allocated to holders of the SogouPre-IPO Series A Preferred Shares until their basis in Sogou ~~decreases~~decreased to zero;

(iii) additional net losses ~~are~~were allocated to the holder of the SogouPre-IPO Series B Preferred Shares until its basis in Sogou ~~decreases~~decreased to zero; and

(iv) further net losses ~~are~~were allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

~~-50-~~

Net income from Sogou iswas allocated in the following ~~order:~~order before Sogou’s IPO:

(i) net income iswas allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis in Sogou ~~increases~~increased to zero;

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(ii) additional net income iswas allocated to the holder of the SogouPre-IPO Series B Preferred Shares to bring its basis back;

(iii) additional net income iswas allocated to holders of the SogouPre-IPO Series A Preferred Shares to bring their basis back;

(iv) further net income iswas allocated to holders of the SogouPre-IPO Class A Ordinary Shares and the holder of the SogouPre-IPO Class B Ordinary Shares to bring their basis back; and

(v) further net income iswas allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

~~Key Terms of Sogou Preferred Shares~~Noncontrolling Interest Recognition after Sogou’s IPO

~~The following is a summary~~Sogou’s cumulative results of ~~some of the key terms of the Sogou Preferred Shares under Sogou’s Memorandum and Articles of Association as currently in effect.~~

~~(i) Dividend Rights~~

~~(ii) Liquidation Rights~~

In the event of any “Liquidation Event,” such as the liquidation, dissolution or winding up of Sogou, a merger or consolidation of Sogou resulting in a change of control, the sale of substantially all of Sogou’s assets or similar events, the holders of Series B Preferred Shares are entitled to receive an amount per share equal to the greater of (i) $6.847 plus any unpaid Accruing Dividends or (ii) such amount per share as would have been payable if the Series B Preferred Shares had been converted into Ordinary Shares prior the Liquidation Event, and holders of Series A Preferred Shares are entitled to receive, after payment to the holders of the Series B Preferred Shares but before any payment to holders of Ordinary Shares, an amount equal to the greater of (i) 1.3 times their original investment in the Series A Preferred Shares plus all accrued but unpaid Accruing Dividends or (ii) such amount per share as would be payable if the Series A Preferred Shares had been converted into Ordinary Shares immediately prior to the Liquidation Event.

~~(iii) Redemption Rights~~

~~The Sogou Preferred Shares are not redeemable at the option of the holders.~~

~~(iv) Conversion Rights~~

Each Sogou Preferred Share is convertible, at the option of the holder, at any time, and without the payment of additional consideration by the holder. Each Sogou Preferred Share is convertible into such number of Class A Ordinary Shares as is determined, in the case of Series A Preferred Shares, by dividing $0.625 by the then-effective conversion price for Series A Preferred Shares, which is initially $0.625, and, in the case of Series B Preferred Shares, by dividing $7.267 by the then-effective conversion price for Series B Preferred Shares, which is initially $7.267. The conversion prices of the Sogou Preferred Shares are subject to adjustment on a weighted average basis upon the issuance of additional equity shares, or securities convertible into equity shares, at a price per share less than $0.625, in the case of Series A Preferred Shares, or less than $7.267, in the case of Series B Preferred Shares, subject to certain customary exceptions, such as shares issued pursuantoperations attributable to the Sogou ~~2010 Share Incentive Plan. Each Sogou Preferred Share will be automatically converted into Class A Ordinary Shares of Sogou upon the closing of a qualified IPO of Sogou~~noncontrolling shareholders, based on ~~the then-effective conversion ratio of such Sogou Preferred Share, which is currently one-for-one for both Series A Preferred Shares and Series B Preferred Shares.~~

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~~(v) Voting Rights~~

~~(vi) Other Rights~~

~~The holders of Sogou Preferred Shares have various other rights typical of preferred~~their share ~~investments.~~

~~Key Terms of Sogou Class A Ordinary Shares and Class B Ordinary Shares~~

~~The Class A Ordinary Shares and Class B Ordinary Shares have identical rights, except that Class B Ordinary Shares do not have voting rights unless the holders of at least a majority~~ of the ~~then outstanding Class B Ordinary Shares elect, by written notice~~economic interest in Sogou, along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that are unvested and vested but not yet settled and adjustment for changes in our ownership percentage in Sogou, ~~to convert them into shares with voting rights.~~are recorded as noncontrolling interest in our consolidated balance sheets.

Noncontrolling Interest for Changyou

Changyou is a public company listed on the NASDAQ Global Select Market. As of March ~~1, 2017,~~31, 2018, we held approximately ~~69%~~68% of the combined total of Changyou’s outstanding ordinary shares, and controlled approximately ~~96%~~95% of the total voting power in Changyou.

As Changyou’s controlling shareholder, we consolidate Changyou in our consolidated financial statements, and recognize noncontrolling interest reflecting the economic interest in Changyou held by shareholders other than us (the “Changyou noncontrolling shareholders”). Changyou’s net income /(loss) attributable to the Changyou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income, based on their share of the economic interest in Changyou. Changyou’s cumulative results of operations attributable to the Changyou noncontrolling shareholders, along with changes in shareholders’ equity, adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in our ownership in Changyou, are recorded as noncontrolling interest in our consolidated balance sheets.

Segment Reporting

Our Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision making group, in deciding how to allocate resources and in assessing performance. The CODM is Sohu.com Inc.’s Chief Executive Officer.

Revenue Recognition

~~We recognize revenue~~Adoption of ASC 606

On January 1, 2018, we adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. Adoption did not have a material impact on accumulated deficit as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

Under ASC 605,advertising-for-advertising barter transactions for which the fair value of the advertising services was not determinable was recorded at the carrying amount of the advertising surrendered since we did not settle such barter transactions with the counterparties in cash. As ASC 605 has been superseded by ASC 606 on this subject,advertising-for-advertising barter transactions should be recorded at the fair value of the advertising received by reference to the fair value of advertising services provided to other customers. The impact for the first quarter of 2018 was an increase of approximately $6.7 million in revenues, with a corresponding increase in cost of revenues and sales and marketing expenses, most of which were generated from Sogou for services provided to and received from Tencent. To a lesser extent, there is a potential impact on our accounting for exchanges of brand advertising placements with other platforms by Sohu. Revenues are recognized in the same amount with costs and expenses. Therefore, there was no net profit and loss impact to us for the first quarter of 2018.

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   As reported    Without adoption of
ASC 606
Effect of change
Higher/(Lower)

Revenue-Online advertising-Brand advertising
   $ 56,254    55,913    341
Revenue-Online advertising-Search and search related advertising
   220,301    213,987    6,314
Cost of revenue- Online advertising-Search and search related advertising
   144,696    138,955    5,741
Gross profit
   194,162    193,248    914
Operating expenses- Sales and marketing
   90,273    89,359    914
Operating loss
   (31,490 )    (31,490 )    0
Income tax expenses
   63,379    63,379    0
Net loss
   (87,201 )    (87,201 )    0
Basic net loss per share attributable to Sohu.com Inc.
   (2.39 )    (2.39 )    0
Diluted net loss per share attributable to Sohu.com Inc.
   (2.39 )    (2.39 )    0
The adoption of ASC 606 did not change our condensed consolidated balance sheet, condensed consolidated statement of cash flows, or condensed consolidated statement of changes in equity for the three months ended March 31, 2018.
Revenues are recognized when ~~persuasive evidence~~control of the promised goods or services is transferred to our customers, in an ~~arrangement exists, delivery has occurred,~~amount that reflects the ~~sales price is fixed~~consideration we expect to be entitled to in exchange for those goods or ~~determinable, and collectability is reasonably assured.~~services. The recognition of revenues involves certain management ~~judgments. The~~judgments, including estimated lives of virtual items purchased by game players, the estimation of the fair value of anadvertising-for-advertising barter transaction, allocation of upfront license fees forlicensed-out games between license and post-sale services, and the volume sales rebates. We do not believe that significant management judgements are involved in revenue recognition, but the amount and timing of our revenues could be ~~materially~~ different for any period if management made different judgments or utilized different estimates.
~~Barter trade transactions in which physical goods or services (other than advertising services) are received in exchange for advertising services are recorded based on the fair values of the goods~~The following table presents our revenues disaggregated by products and services ~~received. For online advertising-for-online advertising barter transactions, no revenue or expense is recognized because~~(unaudited):
   Three Months Ended
March 31, 2018
(in thousands)    Three Months Ended
March 31, 2017
(in thousands)
   Sohu    Sogou    Changyou    Total    Sohu    Sogou    Changyou    Total
Brand advertising:

Sohu Media Portal
   $ 30,674    0    0    30,674    $ 36,844    0    0    36,844
Sohu Video
   12,635    0    0    12,635    21,696    0    0    21,696
Focus
   7,868    0    0    7,868    17,018    0    0    17,018
17173.com Website
   0    0    5,078    5,078    0    0    5,854    5,854
Search and search related advertising
   0    220,301    0    220,301    0    142,035    0    142,035
Online games:

PC games
   0    0    59,425    59,425    0    0    64,881    64,881
Mobile games
   0    0    45,735    45,735    0    0    19,838    19,838
Other games
   0    0    301    301    0    0    606    606
Others:

Paid subscription services
   9,257    0    0    9,257    6,316    0    0    6,316
Cinema advertising business
   0    0    24,870    24,870    0    0    24,600    24,600
Others
   9,305    27,749    1,797    38,851    10,090    20,234    4,091    34,415
















Total
   $ 69,739    248,050    137,206    454,995    $ 91,964    162,269    119,870    374,103
















As noted above, in accordance with the ~~fair value~~modified retrospective method upon adoption of ~~neither the advertising surrendered nor the advertising received is determinable.~~ASC 606, prior period amounts have not been adjusted.
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Online Advertising Revenues
Online advertising revenues include revenues from brand advertising services as well as search and search-related advertising services. Certain customers may receive sales rebates, which are accounted for as variable consideration. We estimate annual expected revenue volume of each individual agent with reference to their historical results. The sales rebate will reduce revenues recognized. We recognize revenue for the amount of fees we receive from our advertisers, after deducting ~~agent~~sales rebates and net of value-added tax (“VAT”) and related surcharges. We believe that there will not be significant changes to our estimates of variable consideration.
~~-52-~~
Brand Advertising Revenues
~~Business~~Revenue Recognition of Multiple Performance Obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices of each distinct performance obligation based on the prices charged to customers when sold on a standalone basis. Where standalone selling price is not directly observable, we generally estimate selling prices based on when they are sold to customers of a similar nature and geography. Most of such contracts have all performance obligations completed within the same quarter.
Pricing Model
Through PCs and mobile devices, we provide advertisement placements to our advertisers on different Internet platforms and in different formats, which include banners, links, logos, buttons, full screen,pre-roll,mid-roll, post-roll video screens, pause video screens, loading page ads, news feed ads andin-feed video infomercial ads.
Currently we have ~~four~~three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model, and the Cost Per click (“CPC”) ~~model, and the E-commerce~~ model.
(i) Fixed Price model
~~(i)~~ ~~Fixed Price model~~
Under the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. WeGiven
the advertisers benefit from the displayed advertising evenly, we recognize revenue ~~based~~ on ~~the contract price and~~a straight-line basis over the period of ~~display.~~display, provided all revenue recognition criteria have been met.
(ii) CPM model
Under the CPM model, the unit price for each qualifying display is fixed ~~but there is no overall fixed price for the advertising services~~and stated in the contract with the advertiser. A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract. WeGiven that the fees are priced consistently throughout the contract and the unit prices are consistent with the our pricing practices with similar customers, we recognize revenue based on the ~~fees we charge the advertisers, which are based on the~~fixed unit prices and the number of qualifying ~~displays.~~displays upon occurrence of display, provided all revenue recognition criteria have been met.
(iii) CPC model
Under the CPC model, there is no ~~overall~~ fixed price for advertising services stated in the contract with the ~~advertiser.~~advertiser and the unit price for each click is auction-based. We charge advertisers on aper-click basis when the users click on the advertisements. ~~The~~Given that the fees are priced consistently throughout the contract and the unit ~~price for each click is auction-based. We~~prices are consistent with our pricing practices with similar customers, we recognize revenue based on qualifying clicks and the unit ~~price.~~
~~(iv) E-commerce model~~
~~Under~~price upon the ~~e-commerce model, revenues were mainly generated from sales~~occurrence of ~~membership cards which allow potential home buyers to purchase specified properties from real estate developers at~~ a discount greater than the price that Focus charges for the card. Membership fees are refundable until the potential home buyer uses the discounts to purchase properties. Focus recognizes such revenues upon obtaining confirmation that the membership card has been redeemed to purchase a property.
~~Revenue Recognition~~
For brand advertising revenue recognition, prior to entering into contracts, we make a credit assessment of the advertiser. For contracts for which collectability is determined to be reasonably assured, we recognize revenue whenclick, provided all revenue recognition criteria ~~are~~have been met. ~~In other cases, we only recognize revenue when the cash is received and all other revenue recognition criteria are met.~~
We treat advertising contracts with multiple deliverable elements as separate units of accounting for revenue recognition purposes and recognize revenue on a periodic basis during the contract period when each deliverable service is provided. Since the contract price is for all deliverables under one advertising contract, we allocate the contract price among all the deliverables at the inception of the arrangement on the basis of their relative selling prices according to the selling price hierarchy established by~~ASU No. 2009-13~~. We first use vendor-specific objective evidence of selling price, if it exists. If vendor-specific objective evidence of selling price does not exist, we use third-party evidence of selling price. If neither vendor-specific objective evidence of selling price nor third-party evidence of selling price exists, we use management’s best estimate of selling price for the deliverables.
Search and Search-related Advertising Revenues
Search and search-related services consist primarily ~~include pay-for-click~~of search and search-related advertising services ~~as well as online marketing services on Web directories operated~~offered by Sogou.
~~-53-~~
Pay-for-click Services
~~Pay-for-click~~Pay for click services ~~are services that~~ enable ~~our~~ advertisers’ promotional links to be displayed on Sogou search result pages and ~~Sogou Website Alliance members’~~other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. For ~~pay-for-click~~pay
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for click services, ~~we introduce~~Sogou introduces Internet users to ~~our~~its advertisers through ~~our~~ auction-basedpay-for-click systems and ~~charge~~charges advertisers on aper-click basis when the users click on the displayed links. Revenue forpay-for-click services is recognized on a ~~per-click~~per click basis when the users click on the displayed links.
Other Online ~~Marketing~~Advertising Services ~~on Web Directories Operated by Sogou~~
~~Online marketing~~Other online advertising services ~~on Web directories operated by Sogou~~ mainly consist of displaying advertisers’ promotional links on ~~the Web pages of Web directories.~~Sogou’s Internet properties. Revenue for ~~online marketing services on Web directories operated by Sogou~~time-based advertising is normally recognized on a straight-line basis over the ~~contract~~advertising period, provided ~~our~~Sogou’s obligations under the contract ~~have been met~~ and all revenue recognition criteria have been met. Revenue for performance-based advertising services is recognized when Sogou’s performance obligations under the contract have been satisfied.
~~Both pay-for-click~~Sogou’s online advertising services ~~and online marketing services on Web directories operated by Sogou~~ expand distribution of advertisers’ promotional links orand advertisements by leveraging traffic on ~~Sogou Website Alliance members’~~third parties’ Internet properties, including Web content, software, and mobile applications. ~~We recognize gross revenue for the amount of fees we receive from advertisers, as we have~~Sogou is the primary ~~responsibility for fulfillment~~obligor to the advertisers and ~~acceptability. Payments~~payments made to ~~Sogou Website Alliance members~~operators of third-party Internet properties are included in traffic acquisition costs, which are included in cost of search and search-related revenues as traffic acquisition costs. We pay Sogou Website Alliance members based on either revenue-sharing arrangements, under which we pay a percentage of pay-for-click revenues generated from clicks by users of their properties, or on a pre-agreed unit price.advertising revenues.
Online Game Revenues
Changyou’s online game revenues are generated primarily from its self-operated andlicensed-out PC games and mobile games. Prior to the sale of the Shenzhen 7Road business in 2015, Changyou generated online game revenues from Web games, which have been an insignificant part of Changyou’s business since the sale. Changyou’s online game revenues also include a small amount of revenues generated from online card and board games offered by MoboTap on the Dolphin Browser. All of Changyou’s games are operated under the item-based revenue model, where the basic game play functions are free of charge and players are charged for purchases ofin-game virtual items, including those with a predetermined expiration time and perpetual virtual items.
~~Self-Operated Games~~
Changyou is the primary obligor of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketing of the games as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/or mobile APP stores, but ~~are~~ net of ~~business tax/~~VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale ofin-game virtual items. Revenues are recognized as the virtual items are consumed or over the estimated lives of the virtual items, ~~purchased~~which are estimated by ~~game~~considering the average period that paying players ~~or as the virtual items are consumed.~~typically play Changyou’s games and other player behavior patterns derived from operating data. If different assumptions were used in deriving the estimated lives of the virtual items, the timing of the recording of the revenues ~~would~~could be impacted.
PC Games
Proceeds from ~~the self-operation of~~Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s game points on its online payment platform and prepaid game cards.
~~Self-operated~~Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC
games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the ~~balance pursuant to revenue-sharing agreements.~~balance. Such revenue-sharing amounts paid to third-party developers are recorded in Changyou’s cost of revenues.
Mobile Games
Self-operated Mobile Games
For self-operated mobile games, Changyou sells game points to its game players via third-party mobile APP stores. The mobile APP stores in turn pay Changyou proceeds after deducting their share ofpre-agreed revenue-sharing amounts.
~~-54-~~
~~Self-operated~~Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensed and jointly developed mobile games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the ~~balance pursuant to revenue-sharing agreements.~~balance. Such revenue-sharing amounts paid to mobile application stores and third-party developers are recorded in Changyou’s cost of revenues.
~~Web~~Licensed Out Mobile Games
Changyou continued to operate a small portfolio of self-operated Web games after its sale of the Shenzhen 7Road in 2015. Proceeds from those self-operated Web games are collected from players through the sale of game points.
~~Licensed-Out Games~~
Changyou also authorizes third parties to operate its ~~online~~mobile games. Licensed out games mainly include ~~PC games and~~ mobile games developed in house Legacy TLBB and mobile games jointly developed with third-party developers. For mobile games developed in house, the license arrangements also include post-sale services. Changyou receives monthly revenue-based royalty payments from all the third-party licensee operators. Changyou receives additionalup-front license fees from certain third-party licensee operators who are
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entitled to an exclusive right to operate Changyou’s games in specified geographic areas. ~~Since~~ Changyou ~~is obligated to provide~~determined that the game license and the post-sale services are distinct performance obligations and that theup-front license fee should be allocated between the ~~initial~~ license ~~fees are~~and the post-sale services based on the relative standalone selling price, which is determined by using expected cost plus margin. The amounts allocated to the license should be recognized ~~as revenue ratably over~~upon the commencement of the license period, given that the license is considered to be a functional license, and the amount allocated to post-sale services should be recognized over the service period on a straight-line basis as the post-sale services are regarded to be performed evenly. The monthly revenue-based royalty payments are recognized when ~~relevant services are delivered,~~the sales occur, provided that collectability is reasonably assured. Changyou views the third-party licensee operators as Changyou’s customers and recognizes revenues on a net basis, as Changyou does not have the primary responsibility for fulfillment and acceptability of the game services. Changyou remits to the third-party developers apre-agreed percentage of revenues ~~from jointly developed~~pursuant to revenue-sharing agreements, and ~~licensed out mobile games, and recognizes~~keeps the balance. Such revenue-sharing amounts paid to third-party developers are included in Changyou’s cost of revenues ~~on a net basis.~~or product development expenses.
Other Revenues
Sohu
Other revenues attributable to Sohu consist primarily of revenues from paid subscription services, interactive broadcasting services, ~~sub-licensing of purchased video content to third parties, and~~ content provided through the platforms of the three main telecommunications operators in ~~China.~~China, andsub-licensing of purchased video content to third parties.
Sogou
Other revenues attributable to Sogou are IVAS revenues, ~~primarily derived~~which are mainly from the operation of Web games and mobile games developed by third parties ~~as well as~~and the provision of online reading services, and revenues from other products and services, ~~that Sogou provides to users.~~including smart hardware products.
Changyou
Other revenues attributable to Changyou are primarily from its cinema advertising business and ~~are also~~ from IVAS.
In its cinema advertising business, Changyou provides clients advertising placements in slots that are shown in theaters before the screening of movies. The rights to place advertisements in such advertising slots are granted to Changyou, which takes inventory risk under the contracts Changyou signs with different theaters. When all the recognition criteria are met, revenues from cinema advertising are recognized based on a percentage of the advertising slots actually ~~delivered or on a straight-line basis over~~delivered. As Changyou is considered to be the ~~contract period.~~principal in the arrangements with the theaters, the fees paid to the theaters are recognized as cost of revenues.
Changyou provides IVAS primarily through software applications for PCs and mobile devices offered by ~~MoboTap on the Dolphin Browser and by~~ RaidCall. Revenues from IVAS are recognized during the period the ~~service is~~services are rendered or items are consumed under the gross method, as Changyou is the principal obligor for provision of the services.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when we have satisfied our performance obligations and have the unconditional right to payment. The allowance for doubtful accounts and authorized credits is estimated based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. Contract assets as of March 31, 2018 were not material. The allowance for doubtful accounts and authorized credits was $5.5 million and $5.7 million, respectively, as of March 31, 2018 and December 31, 2017.
Receipts in advance and deferred revenue related to unsatisfied performance obligations at the end of the period and consist of fees received from the game players with online gaming business and advertisers with searching and searching related advertising business. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $104.3 million for the three month periods ended March 31, 2018.
There is no significant change in contract liability balance during the first quarter of 2018.
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Revenue recognized in the current period from performance obligations related to prior periods was not material.
Practical Expedients
We have used the following practical expedients as allowed under ASC 606:
(i)    The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, has not been disclosed as substantially all of the our contracts have a duration of one year or less.
(ii)    Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component.
(iii)    We applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for the recongnition of games revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually.
(iv)    We generally expense sales commissions when incurred, because the amortization period would be one year or less. These costs are recorded within sales and marketing expenses.
Product Development Expenses
Product development expenses mainly consist of salary and benefits expenses, technical service fees, content and license expenses, ~~technical service fees,~~ depreciation and amortization expenses, ~~share-based compensation, and~~ facilities expenses. These expenses are incurred for the enhancement and maintenance of our Internet platforms as well as for our products and services, including the development costs of online games prior to the establishment of technological feasibility and maintenance costs after the online games are available for marketing.
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Advertising Expenses
Advertising expenses are included in sales and marketing expenses, and generally represent the expenses of promotions to create or stimulate a positive image of us or a desire to subscribe for our products and services. Advertising and promotional expenses are expensed as incurred.
Share-based Compensation Expense
Sohu (excluding Fox Video Limited), Sogou, Changyou, and Fox Video Limited (“Sohu Video”) have incentive plans for the granting of share-based awards, including stock options, share options and restricted share units, to members of the boards of directors, management and other key employees.
For share-based awards for which a grant date has occurred, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income based on the fair value of the related share-based awards on their grant dates. For share-based awards for which the service inception date precedes the grant date, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income beginning on the service inception date and isre-measured on each subsequent reporting date before the grant date, based on the estimated fair value of the related share-based awards. Share-based compensation expense is charged to the shareholders’ equity or noncontrolling interest section in the consolidated balance sheets. The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. If factors change or different assumptions are used, our share-based compensation expense could be materially different for any period. Moreover, the estimates of fair value are not intended to predict actual future events or the value that ultimately will be realized by employees who receive equity ~~awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us for accounting purposes.~~awards.
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Sohu (excluding Sohu Video), Sogou, and Changyou Share-based Awards
Sohu (excluding Sohu Video) Share-based Awards
In determining the fair value of stock options granted by Sohu (excluding Sohu Video) as share-based awards before 2006, the Black-Scholes valuation model was applied. In determining the fair value of restricted share units granted, the public market price of the underlying shares on the grant dates was applied.
Options for the purchase of Sohu common stock contractually granted under the Sohu 2010 Stock Incentive Plan are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. Under ASC718-10-25,, no grant date can be established until a mutual understanding is reached between Sohu and the recipients clarifying the subjective performance requirements. In accordance withASC718-10-55,, as the service inception date preceded the grant date, compensation expense was accrued beginning on the service inception date and will bere-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. The estimate of the awards’ fair values will be fixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair value at the grant date. In determining the fair values of the stock options granted, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied.
Sogou Share-based Awards
In determining the fair value of share options granted by Sogou as share-based awards, a binomial valuation model was applied. The determination of the fair value is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including risk-free interest rates, exercise multiples, expected forfeiture rates, expected share price volatility rates, and expected dividends. Before the completion of Sogou’s IPO, the fair values of the ordinary shares were assessed using the income ~~approach /discounted~~approach/discounted cash flow method or based on themid-point of the estimated IPO price range, in each case with a discount for lack of marketability, ~~was applied,~~ given that the shares underlying the awards were not publicly traded at the time of grant. After the completion of Sogou’s IPO, the fair values of the ordinary shares were determined based on the market price of Sogou’ ADSs. Certain persons who became Sogou employees when Tencent’s Soso search and search-related businesses were transferred to Sogou on September 16, 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses to Sogou. These Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided the transferred employees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search and search-related businesses to Sogou, Sogou applied the guidance inASC505-50 to measure the related compensation expense, ~~based on the then-current fair value at each reporting date,~~ as the expense is deemed to have been incurred by Tencent as an investor on Sogou’s ~~behalf.~~behalf, based on the then-current fair value at each reporting date. To determine the then-current fair value of the Tencent restricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. Because Sogou is not required to reimburse Tencent for such share-based compensation expense, the related amount was recorded by Sogou as a capital contribution from Tencent.
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Changyou Share-based Awards
In determining the fair value of ordinary shares and restricted share units granted by Changyou as share-based awards in 2008, the income approach /discounted cash flow method with a discount for lack of marketability was applied, given that the shares underlying the awards were not publicly traded at the time of grant. In determining the fair value of restricted share units granted in 2009 shortly before Changyou’s initial public offering, the fair value of the underlying shares was determined based on Changyou’s offering price for its initial public offering. In determining the fair value of restricted share units granted after Changyou’s ~~initial public offering,~~IPO, the public market price of the underlying shares on the grant dates was applied.
Options for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. UnderASC718-10-25,, no grant date can be established until a mutual understanding is reached between Changyou and the recipients clarifying the subjective performance requirements. In accordance withASC718-10-55,, as the service inception date preceded the grant date, compensation expense was accrued beginning on the service inception date and will bere-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. The estimate of the awards’ fair values will be fixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair values at the grant date. In determining the fair values of Changyou share options granted, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied.
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Compensation Expense Recognition
For options and restricted share units granted with respect to Sohu (excluding Sohu Video) shares and Changyou shares, compensation expense is recognized on an accelerated basis over the requisite service period. For share options granted with respect to Sogou shares, compensation expense is recognized ~~on a straight-line basis~~ over the estimated period during which the service period requirement and performance target will be ~~met.~~met, which is usually within one year, or, after the performance target of Sogou’s completion of an IPO was met upon the completion of Sogou’s IPO on November 13, 2017, on an accelerated basis over the requisite service period, or, for options with only service period requirement, on an accelerated basis over the requisite service period. For Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses, compensation expense is recognized by Sogou on an accelerated basis over the requisite service period, and the fair value of the share-based compensation isre-measured at each reporting date until ~~vesting occurs.~~the service has been provided. The number of share-based awards for which the service is not expected to be rendered over the requisite period is estimated, and no compensation expense is recorded for the number of awards so estimated.
For SogouPre-IPO Class A Ordinary Shares repurchased from our former President and Chief Financial Officer in the first quarter of 2017, share-based compensation expense iswas recognized by ~~the Sohu Group~~us in the consolidated statements of comprehensive income in an amount equal to the excess of the repurchase price over the fair value of the SogouPre-IPO Class A Ordinary Shares at the repurchase date.
Sohu Video Share-based Awards
On January 4, 2012, Sohu Video, the holding entity of Sohu’s video division, adopted a 2011 Share Incentive Plan (the “Video 2011 Share Incentive Plan”) which provides for the issuance of up to 25,000,000 ordinary shares of Sohu Video (representing approximately 10% of the outstanding Sohu Video shares on a fully-diluted basis) to management and key employees of the video division and to Sohu management. As of March 31, ~~2017,~~2018, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made, of which options for the purchase of 4,972,800 ordinary shares were vested.
For purposes ofASC718-10-25,, as of March 31, ~~2017,~~2018, no grant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with the recipients. Therefore the fair value of the awards was not determinable and could not be accounted for. In accordance withASC718-10-55,, our management determined that the service inception date with respect to vested option awards for the purchase of 4,972,800 shares had preceded the grant date. Therefore, we recognized compensation expense for these vested Sohu Video share-based awards andre-measured, and willre-measure, the compensation expense on each subsequent reporting date based on the then-current fair values of these vested awards until the grant date is established.
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Taxation
Income Taxes
Recognition
Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, we consider factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would allow us to realize more of our deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would require us to realize less of our deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.
Our deferred tax assets are related to net operating losses and temporary differences between accounting basis and tax basis for our China-Based Subsidiaries and VIEs, which are subject to corporate income tax in the PRC under the CIT law.
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Applicable Income Tax Rate
Principal Entities Qualified as HNTEs
The CIT Law generally applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to HNTEs. Under this preferential tax treatment, HNTEs can enjoy an income tax rate of 15%, but need tore-apply every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead use the regular 25% CIT rate.
As of March 31, ~~2017,~~2018, the following principal entities were qualified as HNTEs and were entitled to an income tax rate of 15%.
For Sohu’s Business

Sohu New Momentum. Sohu New Momentum qualified as an HNTE for the years 2016 tothrough 2018, and will need tore-apply for HNTE qualification in 2019.

Sohu Internet. Sohu Internet qualified as an HNTE for the years 2015 tothrough 2017, and will need tore-apply for HNTE qualification in 2018.

Sohu ~~Era, Sohu~~ Media and Guangzhou Qianjun. Sohu ~~Era, Sohu~~Media and Guangzhou Qianjunre-applied for HNTE qualification and received approval in November 2017 and December 2017, respectively. New Media and Guangzhou Qianjun ~~each qualified~~are entitled to continue to enjoy the beneficial tax rate as HNTEs for ~~2014~~the years 2017 through 2019, and will need to ~~2016. Sohu Media and Guangzhou Qianjun will~~ re-apply for HNTE qualification in ~~2017.~~2020.
For Sogou’s Business

Sogou Information. Sogou Information qualified as an HNTE for the years 2015 tothrough 2017, and will need tore-apply for HNTE qualification in 2018.

Sogou Technology. Sogou Technology ~~qualified~~re-applied for HNTE qualification and received approval in December 2017. Sogou Technology is entitled to continue to enjoy the beneficial tax rate as an HNTE for ~~2014 to 2016,~~the years 2017 through 2019, and will need tore-apply for HNTE qualification in ~~2017.~~2020.

Sogou Network. Sogou Network qualified as an HNTE for the years 2016 tothrough 2018, and will need tore-apply for HNTE qualification in 2019.
For Changyou’s Business

Gamease and AmazGame. Gamease and AmazGamere-applied for HNTE qualification and received approval in October 2017 and December 2017, respectively. Gamease and AmazGame ~~and Gamease. AmazGame and Gamease each qualified~~are entitled to continue to enjoy the beneficial tax rate as HNTEs for ~~2014 to 2016,~~the years 2017 through 2019, and will need tore-apply for HNTE qualification in ~~2017.~~2020.

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Gamespace. Gamespace qualified as HNTE for the years ~~2017 to 2019,~~2016 through 2018, and will need tore-apply for HNTE qualification in ~~2020.~~2019.
Principal Entities Qualified as Software Enterprises and ~~KNSE~~KNSEs
The CIT Law and its implementing regulations provide that a “Software Enterprise” is entitled to an income tax exemption for two years beginning with its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a “Key National Software Enterprise” (a “KNSE”) is entitled to a further reduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferential CIT rates. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferential CIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status.
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For Sohu’s Business

Sohu New Momentum. In 2017, Sohu New Momentum ~~will perform~~completed a self-assessment, ~~and file~~filed required supporting documents, ~~to entitle~~and was qualified as a Software Enterprise, which entitled it to the first year of an income tax rate reduction from 25% to 12.5% ~~as a Software Enterprise~~ for ~~2016, and~~2016. Sohu New Momentum will follow the same process in 2018 to entitle it to the second year of an income tax rate reduction from 25% to 12.5% for 2017.
For Sogou’s Business

Sogou Technology. In 2017, Sogou Technology ~~will perform~~completed a self-assessment and ~~file~~filed required supporting documents for KNSE status for ~~2016,~~2016. In 2017, Sogou Technology was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential income tax rate of 10% for 2016. Sogou Technology will follow the same process in 2018 for KNSE status for 2017.
For Changyou’s Business

AmazGame. In 2017, AmazGame ~~will perform~~completed a self-assessment and ~~file~~filed required supporting documents for KNSE status for ~~2016,~~2016. Also in 2017, AmazGame was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential income tax rate of 10% for 2016. AmazGame will follow the same process in 2018 for KNSE status ~~for 2017.~~
Wuhan Baina Information. In 2017, Wuhan Baina Information will perform a self-assessment and file required supporting documents to entitle it to the first year of an income tax exemption as a Software Enterprise for 2016, and will follow the same process in 2018 to entitle it to the second year of an income tax exemption for 2017.
PRC Withholding Tax on Dividends
The CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holding companies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital,” if such holding company is considered anon-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to a withholding tax rate of 10%.
PRC Value Added Tax
Effective September 1, 2012, a pilot program (the “Pilot Program”) for transition from the imposition of PRC business tax (“Business Tax”) to the imposition of VAT for revenues from certain industries was implemented in certain cities and provinces in China, including Beijing and Tianjin. Prior to the Pilot Program, the Group was mainly subject to a 5% PRC business tax and related surcharges on revenues in the PRC. PRC business tax and the related surcharges were recognized when the revenue was earned.
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On May 1, 2016, the transition from the imposition of Business Tax to the imposition of VAT was expanded to all industries in China, and all of our revenues have been subject to VAT since that date. To record VAT payable, we adopted the net presentation method, which presents the difference between the output VAT (at a rate of 6%) and the available input VAT amount (at the rate applicable to the supplier).
U.S. Corporate Income Tax
Sohu.com Inc. is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with aone-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay theone-time transition tax over eight years, or in a singlelump-sum payment.
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Certain activities conducted in the PRC may result in U.S. corporate income taxes being imposed on Sohu.com Inc. when its subsidiaries that are controlled foreign corporations (“CFCs”) generate income that is subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally, passive income, such as rents, royalties, interest, dividends, and gains from disposal of our investments, is among the types of income subject to taxation under Subpart F. Any income taxable under Subpart F is taxable in the U.S. at federal corporate income tax rates of up to 21%. Subpart F income also includes certain income from intra-Group transactions between Sohu.com Inc.’snon-U.S. subsidiaries and VIEs and Changyou’snon-U.S. subsidiaries and VIEs or Sogou’snon-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’snon-U.S. subsidiaries or VIEs make an “investment in U.S. property,” such as holding the stock in, or making a loan to, a U.S. corporation. Under a provision of the U.S. tax code commonly referred to as the CFC look-through rule, Sohu.com Inc. has not had to treat dividends received by its CFC subsidiaries as Subpart F income includible in Sohu.com Inc.’s taxable income in the U.S. The CFC look-through rule, which is currently scheduled to expire for taxable years beginning after December 31, 2019, has been extended several times by the U.S. Congress. Unless further extended, the CFC look-through rule will be available for Sohu.com Inc.’s CFC subsidiaries and their VIEs only through their taxable years ending November 30, 2020.
To the extent that portions of ~~its~~Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or ~~a dividend,~~GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that Sohu.com Inc. receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. will generally not be required to pay U.S. corporate income tax on those dividends. Any ~~remaining~~ liabilities ~~are~~for U.S. corporate income tax will be accrued in our consolidated statements of comprehensive income and estimated tax payments ~~are~~will be made when required by U.S. law.
One-Time Transition Tax Related to U.S. Tax Reform
In the fourth quarter of 2017, the Group recognized aone-time transition tax of $218.5 million that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of Sohu’s share of previously deferred earnings of certainnon-U.S. subsidiaries of Sohu mandated by the U.S. Tax Reform, offset by a reduction of $3.7 million in liability for deferred U.S. income tax as a result of the U.S. Tax Reform. Sohu.com Inc. may make an election to pay theone-time transition tax over eight years commencing in April 2019, or pay in a single lump sum. The actual impact of the U.S. Tax Reform on Sohu.com Inc. may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued by the U.S. Department of the Treasury. There is no development for the impact from U.S. Tax Reform on Sohu.com Inc. during the first quarter of 2018, so the balance ofone-time transition tax remains unchanged as of March 31, 2018.
Uncertain Tax Positions
We are subject to various taxes in different jurisdictions, primarily the U.S. and the PRC. Management reviews regularly the adequacy of the provisions for taxes as they relate to our income and transactions. In order to assess uncertain tax positions, we apply a more likely than not threshold and atwo-step approach for tax position measurement and financial statement recognition. For thetwo-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.
Net Income /(Loss) per Share
Basic net income ~~/ (loss)~~/(loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income ~~/ (loss)~~/(loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stock method. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. The computation of diluted net income ~~/ (loss)~~/(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income ~~/ (loss)~~/(loss) per share.
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Additionally, for purposes of calculating the numerator of diluted net income ~~/ (loss)~~/(loss) per share, the net income ~~/ (loss)~~/(loss) attributable to the Sohu Group is ~~adjusted~~calculated as ~~follows. The adjustment will~~follows:
Sogou’s net income /(loss) attributable to Sohu.com Inc.
Before Sogou’s IPO
Before Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu.com Inc. was determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represented of the weighted average number of the SogouPre-IPO Preferred Shares andPre-IPO Ordinary Shares, shares issuable upon the conversion of convertible preferred shares under theif-converted method, and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and was not ~~be made if there~~determined by allocating Sogou’s net income /(loss) to Sohu.com Inc. using the methodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.
After Sogou’s IPO
After Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu.com Inc. is ~~an anti-dilutive effect.~~determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu.com Inc. of the total economic interest in Sogou, which is used for the calculation of basic net income per share.
~~(i)~~ Sogou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Sogou shares held by Sohu.com Inc. represents of the weighted average number of Sogou Preferred Shares and Ordinary Shares, shares issuable upon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and is not determined by allocating Sogou’s net income /(loss) to Sohu.com Inc. using the methodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.
In the calculation of Sohu.com Inc.’s diluted net income ~~/ (loss)~~/(loss) per share, assuming a dilutive effect, the percentage of Sohu.com Inc.’s shareholding in Sogou was calculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou share options with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. The dilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. Assuming an anti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu.com Inc.’s diluted income /(loss) per share. As a result, Sogou’s net income /(loss) attributable to Sohu.com Inc. on a diluted basis equals the number used for the calculation of Sohu.com Inc.’s basic net income /(loss) per share.
~~(ii)~~ Changyou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Changyou shares held by Sohu.com Inc. represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu.com Inc. of the total economic interest in Changyou, which is used for the calculation of basic net income per share.
Changyou’s net income /(loss) attributable to Sohu.com Inc.
Changyou’s net income /(loss) attributable to Sohu.com Inc. is determined using the percentage that the weighted average number of Changyou shares held by Sohu.com Inc. represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu.com Inc. of the total economic interest in Changyou, which is used for the calculation of basic net income per share.
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In the calculation of Sohu.com Inc.’s diluted net ~~income/ (loss)~~income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share units and share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyou under the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu.com Inc. in Changyou to decrease. As a result, Changyou’s net income ~~/ (loss)~~/(loss) attributable to Sohu.com Inc. on a diluted basis decreased accordingly. Assuming an anti-dilutive effect, all of these Changyou restricted share units and share options are excluded from the calculation of Sohu.com Inc.’s diluted net income /(loss) per share. As a result, Changyou’s net income /(loss) attributable to Sohu.com Inc. on a diluted basis equals the number used for the calculation of Sohu.com Inc.’s basic net income /(loss) per share.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - include other inputs that are directly or indirectly observable in the market place.
Level 3 - unobservable inputs which are supported by little or no market activity.
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Our financial instruments ~~mainly include~~consist primarily of cash equivalents, short-term investments, accounts receivable, ~~assets held for sale,~~ prepaid and other current assets, long-term investments, ~~(including available-for-sale equity securities), restricted time deposits,~~ accounts payable, accrued liabilities, receipts in advance and deferred revenue, ~~liabilities held for sale,~~short-term bank loans, other short-term liabilities, long-term bank loans and long-term accounts payable.
Cash Equivalents
Our cash equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that are readily convertible to known amounts of cash.
Short-term Investments
For investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, we elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of comprehensive income.
Accounts Receivable, Net
The carrying value of accounts receivable is reduced by an allowance that reflects our best estimate of the amounts that will not be collected. We make estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and current economic trends.
~~Available-for-Sale Securities~~
Investments in debt securities and equity securities that have readily determinable fair values not classified as trading securities or as held-to-maturity securities are classified as available-for-sale securities, and are included in long-term investments. Available-for-sale securities are reported at fair value, with unrealized gains or losses recorded in other comprehensive income or losses in the consolidated balance sheets. Realized gains or losses are included in the consolidated statements of comprehensive income during the period in which the gain or loss is realized. An impairment loss on the available-for-sale securities is recognized in the consolidated statements of comprehensive income when the decline in value is determined to be other-than-temporary.
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Foreign exchange forward contracts
Foreign exchange forward contracts are initially recognized on the date a foreign exchange forward contract is entered into and are subsequently measured at fair value. Changyou entered into such foreign exchange forward contracts in compliance with its risk management policy for the purpose of eliminating the negative impact on earnings and equity resulting from fluctuations in the exchange rate between the U.S. dollar and the RMB. The instruments aremarked-to-market at eachperiod-end with the associated changes in fair value recognized in the line item “Other income ~~/(expense)~~/(loss), net” in the consolidated statements of comprehensive income and “Other short-term liabilities” or “Prepaid and other current assets” in the consolidated balance sheets. The net cash inflow and outflow related to the settlement of the forward contracts are recorded in the line item “Other investing activities” under “Cash flows from investing activities” in the consolidated statements of cash flows.
Equity Investments
Investments in entities are recorded as equity investments under long-term investments. For ~~entities over which we do not have significant influence, the cost method is applied, as there is no readily determinable fair value; for~~ entities over which we can exercise significant influence but do not own a majority equity interest or control, the equity method is ~~applied. For cost method investments, we carry the investment at historical cost after the date of investment. For equity method investments,~~applied, and we adjust the carrying amount of an investment and recognize investment income or loss for our share of the earnings or loss of the investee after the date of investment. For those equity investments accounted for other than under the equity method or those that result in consolidation, the fair value method is applied. However, for equity investments that do not have readily determinable fair values, we choose to account for them at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Long-Lived Assets
Long-lived assets include fixed assets and intangible assets.
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Fixed Assets
Fixed assets mainly comprise office buildings, leasehold improvements, building improvements, vehicles, office furniture and computer equipment and hardware. Fixed assets are recorded at cost less accumulated depreciation with no residual value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Fixed Assets

Estimated Useful Lives (years)
Office buildings
   36-47
Leasehold improvements
   Lesser of term of the lease or the estimated useful lives of the assets
~~Building improvements~~
10
Vehicles
   4-10
Office furniture
   5
Computer equipment and hardware
   2-5
Expenditure for maintenance and repairs is expensed as incurred.
The gain or loss on the disposal of fixed assets is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in operating expenses in the consolidated statements of comprehensive income.
Intangible Assets
Intangible assets mainly comprise domain names and trademarks, developed technologies, computer software, purchased video content, cinema advertising slot rights and operating rights for licensed games. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets other than purchased video content is computed using the straight-line method over their estimated useful lives.
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The estimated useful lives of our intangible assets are listed below:

Intangible Assets

Estimated Useful Lives (years)
Domain names and trademarks
   4-30
Developed technologies
   3-10
Computer software
   1-5
~~Purchased video~~Video content
   46 months to 2 years, or over the applicable licensing period
Cinema advertising slot rights
   over the contract terms
Operating rights for licensed games
   over the contract terms
Impairment of Long-lived Assets
In accordance withASC360-10-35,, we review the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, we measure any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on our historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in our business model is determined by our management. An impairment loss would be recorded if we determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets.
Video Content
Video content consists primarily of purchased video content and self-developed video content. Purchased video content is recognized as intangible assets. Amortization of purchased video content is computed based on the trend in viewership accumulation. For self-developed video content, production costs incurred in excess of the amount of revenue contracted for are expensed as incurred, instead of being recorded as intangible assets.
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Sohu Video enters into nonmonetary transactions to exchange online broadcasting rights for purchased video content with other online video broadcasting companies. UnderASC 845,, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain the acquired nonmonetary asset, and a gain or loss should be recognized on the exchange. The fair value of the asset received should be used to measure the cost if the fair value of the asset received is more reliable than the fair value of the asset surrendered. We record these nonmonetary exchanges at the fair values of the online broadcasting rights for purchased video content and recognize any net gain or loss from such exchange transactions.
Impairment of Video Content
Purchased video content is stated at the lower of cost less accumulated amortization, or net realizable value (“NRV”).
In accordance withASC920-350-35,, if management’s expectations of the programming usefulness of a program, series, package, or program segment are revised downward, it may be necessary to write down unamortized cost to estimated NRV. A write-down from unamortized cost to a lower estimated NRV establishes a new cost basis. Accordingly, we measure the video content’s impairment loss by comparing the content’s carrying value to its NRV. An impairment loss will be recorded if the carrying value of video content is higher than its NRV. The impairment to be recognized is measured by the amount by which the carrying value of video content exceeds its NRV.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of our acquisitions of interests in our subsidiaries and consolidated VIEs. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we report in our financial statements provisional amounts for the items for which the accounting is incomplete. If a measurement period adjustment is identified, we recognize the adjustment as part of the acquisition accounting. We increase or decrease the provisional amounts of identifiable assets or liabilities by means of increases or decreases in goodwill for measurement period adjustments.
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In accordance withASC 350,, we do not amortize goodwill, but test it for impairment. We test goodwill for impairment at the reporting unit level on an annual basis as of October 1, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. UnderASC350-20-35,, we have the option to choose whether we will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply a quantitative assessment directly. For reporting units applying a qualitative assessment first, we start the goodwill impairment test by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of goodwill with its carrying value. For reporting units directly applying the quantitative assessment, we perform the goodwill impairment test by quantitatively comparing the fair values of those reporting units to their carrying amounts. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair value, we perform the second step of thetwo-step quantitative goodwill impairment test.
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. We estimate fair value using the income approach or the market approach. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates, control premium, comparable companies’ multipliers, and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
Comprehensive Income
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on our consolidated balance sheets, includes a cumulative foreign currency translation ~~adjustment and an unrealized gain/(loss) on available-for-sale securities.~~adjustment.
Functional Currency and Foreign Currency Translation
An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to
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determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and ~~inter-company~~intra-Group transactions and arrangements. The functional currency of Sohu.com Inc. is the U.S. dollar. The functional currency of our subsidiaries in the U.S., the Cayman Islands, the British Virgin Islands and Hong Kong is the U.S. dollar. The functional currencies of our subsidiaries and VIEs in other countries are the national currencies of those counties, rather than the U.S. dollar.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date arere-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currencyre-measurement are included in the consolidated statements of comprehensive income.
Financial statements of entities with a functional currency other than the U.S. dollar are translated into U.S. dollars, which is the reporting currency. Assets and liabilities are translated at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Shareholders’ equity accounts are translated using the historical exchange rates at the date the entry to shareholders’ equity was recorded, except for the change in retained earnings during the year, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating a foreign currency to the reporting currency are recorded in accumulated other comprehensive income in the consolidated balance sheets.
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RESULTS OF OPERATIONS
Revenues
The following table presents our revenues by revenue source and by proportion for the periods indicated (in thousands, except percentages):

   Three Months Ended March 31,    Three Months Ended March 31,
   2016 2017 2017 vs 2016    2017 2018 2018 vs 2017
   Amount    Percentage
of the total
revenue Amount    Percentage
of the total
revenue Amount Incremental
ratio    Amount    Percentage
of the total
revenue Amount    Percentage
of the total
revenue Amount Incremental
ratio
Revenues

Online advertising:

Brand advertising
   $ 125,503    31 % $ 81,412    22 % $ (44,091 ) (35 )%    $ 81,412    22 % 56,254    12 % (25,158 ) (31 )%
Search and search-related
   133,814    33 % 142,035    38 % 8,221 6 %
Search and search-related advertising
   142,035    38 % 220,301    48 % 78,266 55 %












Subtotal of online advertising revenues
   259,317    64 % 223,447    60 % (35,870 ) (14 )%    223,447    60 % 276,555    60 % 53,108 24 %












Online game
   102,529    25 % 85,325    23 % (17,204 ) (17 )%    85,325    23 % 105,461    23 % 20,136 24 %
Others
   46,106    11 % 65,331    17 % 19,225 42 %    65,331    17 % 72,979    17 % 7,648 12 %












Total revenues
   $ 407,952    100 % $ 374,103    100 % $ (33,849 ) (8 )%    $ 374,103    100 % 454,995    100 % 80,892 22 %












Online Advertising Revenues
Online advertising revenues were ~~$223.4~~$276.6 million and ~~$259.3~~$223.4 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year ~~decrease~~ increase of ~~14%~~24%.
Brand Advertising Revenues Generated by Sohu and Changyou
Brand advertising revenues were ~~$81.4~~$56.3 million and ~~$125.5~~$81.4 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of ~~35%~~31%. The ~~decreases~~year-on-year reduction in brand advertising revenues ~~were~~was mainly from reductions in the revenues of Sohu Video and Focus.
Sohu

• ~~Sohu Media Portal~~
Sohu Media Portal
Revenues from Sohu Media Portal were ~~$36.8~~$30.7 million and ~~$45.1~~$36.8 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of ~~18%~~17%. The average amount spent per advertiser was approximately ~~$22,000~~$20,000 and ~~$37,000,~~$22,000, respectively, for the three months ended March 31, ~~2017~~2018 and 2016. While the slowdown in the growth of the economy in China shrank the budgets of brand advertisers, rapid growth in the number of small and medium enterprise (“SME”) customers advertising on Sohu Media Portal helped offset the impact to some extent.2017. The number of advertisers for Sohu Media Portal was ~~1,694~~1,511 and ~~1,222,~~1,694, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.

• ~~Sohu Video~~
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Sohu Video
Revenues from Sohu Video were ~~$21.7~~$12.6 million and ~~$41.4~~$21.7 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of ~~48%~~42%. The changes were mainly attributable to ~~fluctuations both~~reductions in the number of ~~advertisers and in the average amount spent per advertiser.~~advertisers. The number of advertisers on Sohu Video sites was ~~171~~103 and ~~214,~~171 respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of ~~20%~~40%. The average amount spent per advertiser was approximately ~~$127,000~~$122,000 and ~~$193,000,~~$127,000, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~
2017.

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• ~~Focus~~
Focus
Revenues from Focus were ~~$17.0~~$7.9 million and ~~$31.1~~$17.0 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of ~~45%~~54%.
Revenues from Focus were primarily generated through the Fixed Price ~~model and the E-commerce~~ model.
For the Fixed Price model, revenues were ~~$11.2~~$6.7 million and ~~$16.0~~$11.2 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing a decrease of ~~30%~~40%. ~~In the currently soft Chinese macro economy, advertisers~~
Changyou
17173.com Website
Revenues from the ~~real estate business are less willing to adopt the Fixed Price model, which caused our revenues from this model to decrease.~~
~~For the E-commerce model, revenues~~17173.com Website were ~~$5.8~~$5.1 million and ~~$15.1~~$5.9 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease rate of 62%. The decrease was mainly driven by sharp declines in the numbers of paying subscribers and cooperative developers, resulting from the PRC government’s implementation of tightened real estate policies in the first quarter of 2017. For the three months ended March 31, 2017 and 2016, the number of paying subscribers for the membership services was 11,088 and 23,172, respectively, and the number of developers with which we had cooperation arrangements was 456 and 539, respectively.
~~Changyou~~
• ~~17173.com Website~~
~~Revenues from the 17173.com Website were $5.9 million and $7.9 million, respectively, for the three months ended March 31, 2017 and 2016, representing a year-on-year~~ decrease of ~~25%~~14%. The decrease was primarily a result of fewer Web games being marketed on the ~~17173.com~~17173 Website. The number of advertisers for the 17173.com Website was 8468 and ~~80,~~84, respectively, and the average amount spent per advertiser was approximately ~~$70,000~~$75,000 and ~~$99,000,~~$70,000, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
Search and Search-related Advertising Revenues, Generated by Sogou
Revenues from search and search-related services were ~~$142.0~~$220.3 million and ~~$133.8~~$142.0 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year growth rate of 6%55%. The increase was mainly due to continued traffic growth and improved monetization in mobile search.
The increase in revenues from search and search-related services was mainly attributable to an increase in revenues from auction-basedpay-for-click services.
Revenues frompay-for-click services accounted for approximately ~~85%~~83% and 81%, respectively, of the total search and search-related advertising revenues for the three months ended March 31, ~~2017~~2018 and ~~2016.~~ 2017.
The growth in revenues from auction-basedpay-for-click services resulted from increases both in average revenue per advertiser (or “ARPA”) and in the number of advertisers. The ARPA for auction-basedpay-for-click services was ~~principally~~$2,427 and $1,707, respectively, for the three months ended March 31, 2018 and 2017. The number of auction-basedpay-for-click advertisers was approximately 75,000 and 67,000, respectively, for the three months ended March 31, 2018 and 2017. The increase in ARPA was primarily attributable to an increase in the number of paid clicks primarily driven by strong growth in mobile paid clicks as a result of rapidly-growing mobile search ~~traffic.~~traffic, and a higher averagecost-per-click.
Online Game Revenues Generated by Changyou
~~Online Game revenues~~Revenues from the online game business were ~~$85.3~~$105.5 million and ~~$102.5~~$85.3 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year ~~decrease~~ increase of ~~17%~~24%. The ~~decrease~~increase was mainly due to the ~~natural decline~~revenue contribution of the mobile game Legacy TLBB, which was launched in ~~revenues~~the second quarter of ~~Changyou’s older games.~~2017.
PC Gamesand and Mobile Games
Revenues from PC games were ~~$64.9~~$59.5 million and ~~$68.3~~$64.9 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of 5%8%. Revenues from PC games accounted for ~~76%~~56% and ~~67%~~76%, respectively, of Changyou online game revenues for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017. Theyear-on-year decrease in revenues from PC games was mainly due to the natural decline in revenues of TLBB, which is an older PC game. InFor the ~~first quarter of 2017,~~three months ended March 31, 2018, the PC game TLBB generated ~~$53.3~~$50.8 million in revenues, accounting for approximately ~~63%~~48% of Changyou’s online game revenues, approximately ~~44%~~37% of Changyou’s total revenues and approximately ~~14%~~11% of the Sohu Group’s total revenues.
Revenues from mobile games were ~~$19.8~~$45.7 million and ~~$32.7~~$19.8 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017. The dominant mobile game operated by Changyou was Legacy TLBB. Theyear-on-year ~~decrease~~ increase was mainly due to ~~due to~~the
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revenue contribution of Legacy TLBB. For the ~~natural decline in revenues of~~three months ended March 31, 2018, the mobile game Legacy TLBB ~~3D.~~generated $28.2 in revenues, accounting for approximately 27% of Changyou’s online game revenues, approximately 21% of Changyou’s total revenues, and approximately 6% of the Sohu Group’s total revenues.
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The following table sets forth certain operating data for Changyou’s PC games and mobile games for the periods indicated:

Average Monthly Active
Accounts (1)
   For the Three Months Ended    For the Three Months Ended
(in millions)    PC games    Mobile games    PC games    Mobile games
March 31, 2016
   3.0    3.2
March 31, 2017
   2.4    1.1
2017
   2.4    1.1
2018
   2.5    2.6
Quarterly Aggregate Active
Paying Accounts (2)
   For the Three Months Ended    For the Three Months Ended
(in millions)    PC games    Mobile games    PC games    Mobile games
March 31, 2016
   1.1    0.8
March 31, 2017
   0.9    0.3
2017
   0.9    0.3
2018
   0.8    0.8

(1) Average Monthly Active Accounts for a given period refers to the number of registered accounts that were logged in to these games at least once during the period.
(2) Quarterly Aggregate Active Paying Accounts for a given quarter refers to the number of accounts from which game points were used at least once during the quarter.
Web Games
Revenues from Web games were ~~$0.6~~$0.3 million and ~~$1.6~~$0.6 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
Other Revenues
Revenues from other services were ~~$65.4~~$72.9 million and ~~$46.1~~$65.4 million, respectively, for the three months ended March 31, 2018 and 2017, ~~and 2016,~~ representingyear-on-year growth of ~~42%~~12%.
The ~~year-on-year~~ increase from the three months ended March 31, 2017 to the corresponding period of 2018 was ~~mainly due to increased~~$7.5 million, consisting of a $2.9 million increase in revenues from paid subscription services, a $2.7 million increase in revenues from smart hardware products, a $2.4 million increase in revenues from IVAS, and a $1.1 million increase in revenues from content provided through the ~~cinema advertisement business, as Changyou took an active approach~~platforms of the three main telecommunications operators in China, offset by a $2.5 million decrease in revenues fromsub-licensing of purchased video content to ~~acquiring more advertising resources.~~third parties.
Costs and Expenses
Cost of Revenues
The following table presents our cost of revenues by source and by proportion for the periods indicated (in thousands, except percentages):

   Three Months Ended March 31,    Three Months Ended March 31,
   2016 2017 2017 vs 2016    2017 2018 2018 vs 2017
   Amount    Percentage
of the total
cost Amount    Percentage
of the total
cost Amount Incremental
ratio    Amount    Percentage
of the total
cost Amount    Percentage
of the total
cost Amount Incremental
ratio
Cost of revenues:

Online advertising:

Brand advertising
   $ 85,636    44 % $ 80,197    36 % (5,439 ) (6 )%    $ 80,197    36 % 50,611    19 % (29,586 ) (37 )%
Search and search-related
   62,092    32 % 82,107    38 % 20,015 32 %
Search and search-related advertising
   82,107    38 % 144,696    55 % 62,589 76 %












Subtotal of cost of online advertising revenues
   147,728    76 % 162,304    74 % 14,576 10 %    162,304    74 % 195,307    74 % 33,003 20 %












Online game
   26,133    14 % 16,505    8 % (9,628 ) (37 )%    16,505    8 % 17,119    7 % 614 4 %
Others
   18,986    10 % 40,070    18 % 21,084 111 %    40,070    18 % 48,407    19 % 8,337 21 %












Total cost of revenues
   $ 192,847    100 % $ 218,879    100 % $ 26,032 13 %    $ 218,879    100 % 260,833    100 % 41,954 19 %












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Cost of Online Advertising Revenues
Cost of online advertising revenues was ~~$162.3~~$195.3 million and ~~$147.7~~$162.3 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year increase of ~~10%~~20%.
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Cost of Brand Advertising Revenues
Cost of brand advertising revenues mainly consists of content and license costs, bandwidth leasing costs, and salary and benefits ~~expense.~~expenses.
Cost of brand advertising revenues was ~~$80.2~~$50.6 million and ~~$85.6~~$80.2 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year decrease of 6%37%. The ~~$5.4~~$29.6 million decrease mainly consisted of a ~~$5.5~~$24.8 million decrease in ~~bandwidth leasing~~content and license costs, a $1.5 million decrease in salary and benefits ~~expense, offset by~~expenses, a ~~$2.1~~$1.0 million ~~increase~~decrease in ~~content~~bandwidth leasing costs, and ~~license costs.~~a $0.8 million decrease in share-based compensation expense.
Our brand advertising gross margin was 1%10% and ~~32%~~1%, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017. The decrease in our brand advertising gross margin was mainly due to ~~the decrease in brand advertising revenues having outpaced the decrease in brand advertising costs.~~decreased video content cost.
Cost of Search and Search-related Advertising Revenues
Cost of search and search-related advertising revenues mainly consists of traffic acquisition costs, bandwidth leasing costs, depreciation ~~and amortization~~ expenses, as well as salary and benefits expenses.
Cost of search and search-related advertising revenues was ~~$82.1~~$144.7 million and ~~$62.1~~$82.1 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, representing ayear-on-year increase of ~~32%~~76%. The ~~$20.0~~$62.6 million increase mainly consisted of a ~~$14.2~~$54.1 million increase in traffic acquisition costs, a ~~$3.3~~$4.0 million increase in depreciation and amortization expenses, and a ~~$2.0~~$3.4 million increase in bandwidth leasing costs.
Our search and search-related advertising gross margin was ~~42%~~34% and ~~54%~~42%, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017. The decrease in our search and search-related advertising gross margin was mainly due to ~~higher~~ traffic acquisition costs asincreasing at a ~~percentage of search and search-related~~faster rate than revenues.
Cost of Online Game Revenues
Cost of online game revenues mainly consists of revenue-sharing payments, salary and benefits expense, and bandwidth ~~leasing costs,~~ and ~~amortization and depreciation expenses.~~communication costs.
Cost of online game revenues was ~~$16.5~~$17.1 million and ~~$26.1~~$16.5 million, respectively, for the three months ended March 31, 2018 and 2017, and 2016, representing a year-on-year decrease of 37%. The $9.6 million decrease consisted primarily of a $3.7 million decrease in revenue-sharing payments to mobile app stores, a $2.2 million decrease in salary and benefits expense and a $1.7 million decrease in revenue-sharing payments to third-party developers, and a $0.8 million decrease in bandwidth leasing costs.which was stable.
Our online game gross margin was ~~81%~~84% and ~~75%~~81%, respectively, for the three months ended March 31, ~~2017~~2018 and the three months ended March 31, 2016. The year-on-year increase in gross margin was due to a smaller percentage revenue contribution from mobile games, which typically require revenue-sharing payments, while PC games typically do not.2017.
Cost of Other Revenues
Cost of other revenues mainly consists of payments to theaters forpre-film screening advertising slots, content and license costs related to paid subscription services, revenue-sharing payments related to the IVAS business, cost of smart hardware products, and revenue-sharing payments related to interactive broadcasting services.
Cost of revenues for other services was ~~$40.1~~$48.4 million and ~~$19.0~~$40.1 million, respectively, for the three months ended March 31, 2018 and 2017, ~~and 2016,~~ representingyear-on-year growth of ~~111%~~21%. The ~~$21.1~~$8.3 millionyear-on-year increase mainly consisted of a ~~$9.3 million increase in content and license costs related to paid subscription services and an $8.6~~$4.5 million increase in payments to theaters forpre-film screening advertising ~~slots.~~slots, a $2.0 million increase in Sogou’s smart hardware products cost, a $1.5 million increase in revenue-sharing payments related to China mobile network operators, and a $1.1 million increase in revenue-sharing payments related to the IVAS business.

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Operating Expenses
The following table presents our operating expenses by nature and by proportion for the periods indicated (in thousands, except percentages):

   Three Months Ended March 31,    Three Months Ended March 31,
   2016 2017 2017 vs 2016    2017 2018 2018 vs 2017
Amount    Percentage
of the total
expense Amount    Percentage
of the total
expense Amount    Incremental
ratio Amount    Percentage
of the total
expense Amount    Percentage
of the total
expense Amount Incremental
ratio
Operating expenses: Product development
   $ 82,679    41 % $ 84,098    42 % $ 1,419    2 %
Operating expenses:

Product development
   $ 84,098    42 % 111,543    49 % 27,445 33 %
Sales and marketing
   90,047    45 % 90,086    44 % 39    0 %    90,086    44 % 90,273    40 % 187 0 %
General and administrative
   27,607    14 % 28,350    14 % 743    3 %    28,350    14 % 23,836    11 % (4,514 ) (16 )%
Total operating expenses
   $ 200,333    100 % $ 202,534    100 % $ 2,201    1 %    $ 202,534    100 % 225,652    100 % 23,118 11 %












Product Development Expenses
Product development expenses mainly consist of salary and benefits expenses, technical service fees, content and license expenses, depreciation and amortization expenses, ~~content and license expenses,~~ facilities expenses, and ~~technical service fees.~~travelling and entertainment expenses.
Product development expense was ~~$84.1~~$111.5 million for the three months ended March 31, ~~2017, which was generally stable~~2018, compared to ~~$82.7~~$84.1 million for the corresponding period of ~~2016.~~2017.
The increase in product development expenses from the three months ended March 31, 2017 to the three months ended March 31, 2018 was $27.4 million. The increase mainly consisted of a $22.0 million increase in salary and benefits expenses, and a $2.9 million increase in technical service fees.
Sales and Marketing Expenses
Sales and marketing expenses mainly consist of advertising and promotional ~~expenses,~~expenditures, salary and benefits expenses, ~~travel~~travelling and entertainment expenses, and facility expenses.
Sales and marketing expenses were ~~$90.0~~$90.3 million for the three months ended March 31, ~~2017, unchanged from~~2018, which was generally stable compared to $90.1 million for the corresponding period of ~~2016.~~2017.
The increase in sales and marketing expenses from the three months ended March 31, 2017 to the three months ended March 31, 2018 was $0.2 million. The increase mainly consisted of a $2.4 million increase in salary and benefits expenses and a $2.1 million increase in travelling and entertainment expenses, offset by a $4.3 million decrease in advertising and promotional expenditures.
General and Administrative Expenses
General and administrative expenses mainly consist of salary and benefits expenses, ~~share-based compensation expense,~~ professional ~~service~~ fees, ~~bad debt provisions,~~travelling and entertainment expenses, depreciation and amortization expenses, and facility expenses.
General and administrative expenses were ~~$28.4~~$23.8 million for the three months ended March 31, ~~2017, generally stable when~~2018, compared to ~~$27.6~~$28.4 million for the corresponding period of ~~2016.~~2017.
The decrease in general and administrative expenses from the three months ended March 31, 2017 to the three months ended March 31, 2018 was $4.5 million. The decrease mainly consisted of a $6.6 million decrease in share-based compensation expense, a $2.0 million decrease in bad debts, a $1.6 million decrease in salary and benefits expenses, offset by a $5.8 million increase in professional fees.
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Share-based Compensation Expense
Share-based compensation expense was recognized in costs and expenses for the three months ended March 31, 2017 and ~~2016,~~2018, respectively, as follows (in thousands):

   Three Months Ended March 31,    Three Months Ended March 31,
Share-based compensation expense    2016    2017    2017    2018
Cost of revenues
   $ 55    $ 186    $ 186    $ (450 )
Product development expenses ~~(1)~~
   (3 )    2,327    2,327    715
Sales and marketing expenses
   14    665    665    (89 )
General and administrative expenses
   367    4,051    4,051    (2,520 )








   $ 433    $ 7,229    $ 7,229    $ (2,344 )








Share-based compensation expense recognized for share awards of Sohu (excluding Sohu Video), Sogou, Changyou and Sohu Video was as follows (in thousands):

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   Three Months Ended March 31,    Three Months Ended March 31,
Share-based compensation expense    2016    2017    2017    2018
For Sohu (excluding Sohu Video) share-based awards ~~(1)~~
   $ (272 )    $ (2,443 )    $ (2,443 )    $ (4,049 )
For Sogou share-based awards (2)
   1,730    4,337    4,337    4,279
For Changyou share-based awards ~~(1)~~
   (1,274 )    5,533    5,533    (2,425 )
For Sohu Video share-based awards ~~(1)~~
   249    (198 )    (198 )    (149 )








   $ 433    $ 7,229    $ 7,229    $ (2,344 )








Note (1): The negative amount ~~represented~~ resulted fromre-measured compensation expense based on the then-current fair value of the awards on the reporting date, as well as reversals of share-based compensation expense for awards that were forfeited due to termination of employment prior to vesting. The difference for the three months ended March 31, 2017 compared to the corresponding period of 2016 was mainly due to differences in the fair values of certain awards as of the respective reporting dates, as well as reversals of share-based compensation expense for awards that were forfeited due to termination of employment prior to vesting.date.
Note (2): Compensation expense for Sogou share-based awards also includes compensation expense for Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses and compensation expense of $4.0 million recognized in the first quarter of 2017 in connection with Sogou’s repurchase of SogouPre-IPO Class A Ordinary Shares from the former President and Chief Financial Officer of the Sohu Group, which is equal to the excess of the repurchase price over the fair value of the SogouPre-IPO Class A Ordinary Shares as of the repurchase date.
As of March 31, ~~2017,~~2018, unrecognized share-based compensation expense for Sohu (excluding Sohu Video), Sogou and Changyou share-based awards was as follows (in thousands):

Unrecognized share-based compensation expense    As of March 31, 2017    As of March 31, 2018
For Sohu (excluding Sohu Video) share-based awards
   $ 193    $ 0
For Sogou share-based awards (3)
   576    19,614
For Changyou share-based awards
   40    2,674




   $ 809    $ 22,288




Note (3): Includes the unrecognized compensation expense for employees who transferred from Tencent with Soso search and search-related businesses.
Operating ~~Profit/(Loss)~~Loss
We had an operating loss of ~~$47.3~~$31.5 million and an operating ~~profit~~loss of ~~$14.8~~$47.3 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
Other Income
Other income was ~~$4.1~~$12.3 million and ~~$3.9~~$4.1 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
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Interest Income
Interest income was ~~$4.5~~$7.8 million and ~~$5.8~~$4.5 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
Interest Expense
Interest expense was ~~$0.2~~$3.1 million and ~~$0.7~~$0.2 million, respectively, for the three months ended March 31, ~~2017~~2018 and ~~2016.~~2017.
Income Tax Expense
Income tax expense was $63.4 million for the three months ended March 31, 2018, compared to $10.7 million for the three months ended March 31, 2017.
The increase in income tax expense was mainly due to Changyou’s accrual of additional withholding income taxes of approximately $47 million for the period before December 31, 2017 ~~compared~~recognized in relation to ~~$11.9~~a change in policy for Changyou’s PRC subsidiaries with respect to their distribution of cash dividends.
Net Loss
We had a net loss of $87.2 million for the three months ended March 31, ~~2016.~~
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~~Net Income / (Loss)~~
~~We had~~2018, compared to a net loss of $50.4 million for the three months ended March 31, ~~2017, compared to a net profit of $10.9 million for the three months ended March 31, 2016.~~2017.
Net Income Attributable to Noncontrolling Interest
We had net income attributable to noncontrolling interest of ~~$17.9~~$5.6 million and ~~$31.2~~$17.9 million, respectively, for the three months ended March 31, ~~2017~~2018 and the three months ended March 31, ~~2016.~~2017.
Net Loss Attributable to Sohu.com Inc.
As a result of the foregoing, we had a net loss attributable to Sohu.com Inc. of ~~$68.2~~$92.8 million and ~~$20.3~~$68.2 million, respectively, for the three months ended March 31, ~~2017~~2018 and the three months ended March 31, ~~2016.~~2017.
LIQUIDITY AND CAPITAL RESOURCES
Resources Analysis
Liquidity Sources and Balances
Our principal sources of liquidity are cash and cash equivalents, short-term investments, and cash flows generated from our operations. Cash equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that are readily convertible to known amounts of cash. Short-term investments comprise investment instruments issued by commercial banks in China, with a variable interest rate indexed to performance of underlying assets and maturity dates within one year.
As of March 31, ~~2017,~~2018, we had cash and cash equivalents of approximately ~~$968.9~~$1.16 billion, restricted cash of $2.1 million, and short-term investments of ~~$283.0 million.~~$1.07 billion. Of our cash and cash equivalents, ~~$360.4~~$458.3 million was held in financial institutions inside Mainland China and ~~$608.5~~$698.1 million was held in financial institutions outside of Mainland China. ~~Our VIEs held $88.5 million of our~~Of the cash and cash equivalents ~~and $880.4~~held in financial institutions inside Mainland China, $17.3 million was held ~~outside of~~by our ~~VIEs.~~VIEs and $441.0 million was held by ourPRC-based subsidiaries.
We believe our current liquidity and capital resources are sufficient to meet anticipated working capital needs (net cash used in operating activities), commitments, capital expenditures, and investment activities over the next twelve months. We may, however, require additional cash resources due to changes in business conditions and other future developments, or changes in general economic conditions.
See “Restrictions and Limitations on Cash Available to Sohu.com Inc.” below and Item 3 “Quantitative and Qualitative Disclosure About Market Risk - Foreign Currency Exchange Rate Risk.”
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Contractual Obligations
The following table sets forth our contractual obligations as of March 31, ~~2017~~2018 (in thousands):

As of March 31,
   2017    2018    2019    2020    2021    Thereafter    Total
Payments
Required
Purchase of cinema advertisement slot rights
   48,622    61,663    25,906    9,177    639    0    146,007
Purchase of content and services – video
   90,867    25,352    17,002    0    0    0    133,221
Purchase of bandwidth
   60,936    4,646    1,235    1,061    309    0    68,187
Operating lease obligations
   14,246    13,784    2,855    618    58    10    31,571
Expenditures for operating rights for licensed games with technological feasibility
   2,381    17,222    0    0    0    0    19,603
Purchase of content and services – others
   9,311    473    72    30    0    0    9,886
Purchase of fixed assets
   3,556    0    0    0    0    0    3,556
Fees for operating rights for licensed games in development
   1,369    348    0    0    0    0    1,717
Expenditures for rights to titles of games in development
   259    1,186    0    0    0    0    1,445
Others
   3,644    3    0    0    0    0    3,647














Total Payments Required
   235,191    124,677    47,070    10,886    1,006    10    418,840














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As of March 31,
   2018    2019    2020    2021    2022    Thereafter    Total
Payments
Required
Purchase of cinema advertisement slot rights
   54,015    59,022    32,845    12,805    1,356    1,352    161,395
Purchase of bandwidth
   72,087    2,569    1,242    340    0    0    76,238
Purchase of content and services - video
   23,311    19,405    1,179    0    0    0    43,895
Operating lease obligations
   14,604    9,431    4,087    77    11    0    28,210
Expenditures for operating rights for licensed games with technological feasibility
   11,681    3,531    2,633    0    0    0    17,845
Purchase of content and services - others
   10,251    382    93    33    0    0    10,759
Fees for operating rights for licensed games in development
   500    0    0    0    0    0    500
Others
   4,850    1,301    0    0    0    0    6,151














Total Payments Required
   191,299    95,641    42,079    13,255    1,367    1,352    344,993














Cash Generating Ability
Our cash flows are summarized below (in thousands):

   Three Months Ended March 31,
   2016    2017
Net cash provided by / (used in) operating activities
   $ 59,606    $ (31,670 )
Net cash provided by / (used in) investing activities
   209,815    (62,756 )
Net cash used in financing activities
   (314,559 )    (2,740 )
Effect of exchange rate change on cash and cash equivalents
   2,309    3,474
Reclassification of cash and cash equivalents from assets held for sale to assets held for use
   0    11,684




Net decrease in cash and cash equivalents
   (42,829 )    (82,008 )
Cash and cash equivalents at beginning of period
   1,245,205    1,050,957




Cash and cash equivalents at end of period
   $ 1,202,376    $ 968,949




   Three Months Ended
March 31,
   2017    2018
Net cash provided by /(used in) operating activities
   $ (31,670 )    $ 18,630
Net cash used in investing activities
   (62,756 )    (249,343 )
Net cash provided by /(used in) financing activities
   (2,740 )    4
Effect of exchange rate change on cash and cash equivalents, and restricted cash
   3,474    21,233
Reclassification of cash and cash equivalents from /(to) assets held for sale
   11,684    0




Net decrease in cash and cash equivalents, and restricted cash
   (82,008 )    (209,476 )
Cash and cash equivalents, and restricted cash at beginning of period
   1,050,957    1,368,024




Cash and cash equivalents, and restricted cash at end of period
   $ 968,949    $ 1,158,548




Net Cash Provided by ~~/ (Used~~/(Used in) Operating Activities
For the three months ended March 31, 2018, $18.6 million net cash provided by operating activities was primarily attributable to our net loss of $87.2 million, adjusted by (i) the add back ofnon-cash items consisting of $39.3 million in depreciation and amortization, $1.1 million in impairment of intangible assets, and $0.3 million in provision for allowance for doubtful accounts, (ii) offset by $9.3 million in change in fair value of financial instruments, $2.3 million in share-based compensation expense, and $2.1 million in investment loss from equity investments. An increase in cash from $78.8 million in working capital items is also included in operating cash flow.
For the three months ended March 31, 2017, $31.7 million net cash used in operating activities was primarily attributable to our net loss of $50.4 million, adjusted by (i) the add back ofnon-cash items consisting of $55.1 million in depreciation and amortization, $3.2 million in share-based compensation expense, $2.0 million in provision for allowance for doubtful accounts, $0.6 million in investment loss from equity investments, and $0.4 million in impairment of intangible assets, (ii) offset by $2.1 million in change in fair value of financial instruments, and $0.3 million of other items . A decrease in cash from $40.2 million in working capital items is also included in operating cash flow.
Net Cash Used in Investing Activities
For the three months ended March 31, ~~2016, $59.6~~2018, $249.3 million net cash ~~provided by operating~~used in investing activities was primarily attributable to ~~our net income~~(i) $663.4 million used in purchase of ~~$10.9~~financial instruments, $25.8 million ~~adjusted by (i) the add back~~used in purchase of ~~non-cash items consisting of $46.3 million in depreciation~~fixed assets and ~~amortization, $3.5 million in impairment of~~ intangible assets, ~~$1.1~~and $17.0 million used in ~~provision for allowance for doubtful accounts, and $0.7 million other items,~~the purchase of a long-term investment, (ii) offset by ~~$2.5~~$456.9 million in ~~change in fair value of short-term investments and time deposits. A decrease in cash~~proceeds from ~~$0.4 million in working capital items is also included in operating cash flow.~~financial instruments.
~~Net Cash Provided by / (Used in) Investing Activities~~
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For the three months ended March 31, 2017, $62.8 million net cash used in investing activities was primarily attributable to (i) $119.0 million used in purchase of financial instruments, $33.8 million used in purchase of fixed assets and intangible assets, and $2.2 million used in the purchase of a long-term investment, (ii) offset by $87.3 million in proceeds from financial instruments, and $4.9 million from loan repayment to Changyou by a third party.
Net Cash Provided by /(Used in) Financing Activities
For the three months ended March 31, ~~2016, $209.8 million~~2018, $4,000 net cash provided by ~~investing~~financing activities was primarily attributable to ~~(i) $225.5 million withdrawal~~$4,000 received from exercise of restricted time deposits originally used as collateral for Changyou loans from offshore banks, $171.1 million proceeds from financial instruments, and $0.6 million of other cash proceeds (ii) offset by $104.4 million purchase of financial instruments, $41.1 million used in purchase of fixed assets and intangible assets, $30.2 million usedshare-based awards in a ~~matching loan from Changyou to Fox Financial, and $11.7 million used in purchase of long-term investments.~~
~~Net Cash Used in Financing Activities~~subsidiary.
For the three months ended March 31, 2017, $2.7 million net cash used in financing activities was primarily attributable to (i) $3.2 million used in the repurchase of SogouPre-IPO Class A Common Shares from a noncontrolling shareholder, (ii) offset by $0.5 million received from exercise of share-based awards in a subsidiary.
For the three months ended March 31, 2016, $314.6 million net cash used in financing activities was primarily attributable to (i) $344.5 million used in repayments of Changyou loans from offshore banks, (ii) offset by $29.9 million Changyou received from the matching loan with Fox Financial.
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Restrictions and Limitations on Cash Available to Sohu.com Inc.
To fund any cash requirements it may have, Sohu.com Inc. may need to rely on dividends and other distributions on equity paid by our subsidiaries Sohu.com Limited, Sogou Inc., and Changyou.com Limited. Since substantially all of our operations are conducted through our indirect Mainland China-based subsidiaries and VIEs, Sohu.com Limited, Sogou Inc., and Changyou.com Limited may need to rely on dividends, loans or advances made by our PRC subsidiaries and VIEs in order to make dividends and other distributions to us.
The ability of Sohu.com Limited, Sogou Inc., and Changyou.com Limited to receive dividends and distributions from our China-based subsidiaries and VIEs, and the amount of cash available for distribution to, and use by, Sohu.com Inc., are subject to certain restrictions and limitations related to PRC law and our subsidiary and VIE ~~structure and U.S. corporate income tax.~~structure. We do not expect any of such restrictions or taxes to have a material impact on our ability to meet our cash obligations. However, such restrictions and taxes limit our ability to use Sohu Group cash and cash equivalents held by Changyou and its subsidiaries and VIEs, and by Sogou and its subsidiaries and VIEs, for our Sohu business separate from Changyou and Sogou. See “Risk Factors – Risks Related to Our Corporate Structure – Although the Sohu Group holds substantial amounts of cash and cash equivalents, a significant portion of such cash and cash equivalents is held by Changyou and Sogou, and it can be difficult for Sohu to have access to the portion held by Changyou and Sogou.” of our Annual Report on Form10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018.
PRC Regulations Related to Profit Appropriation, Withholding Tax on Dividends and Foreign Currency Exchange
Regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Our China-based WFOEs are also required to set aside each year to their general reserves at least 10% of theirafter-tax profit based on PRC accounting standards, until the cumulative amount reaches 50% of theirpaid-in capital. These reserves may not be distributed as cash dividends, or as loans or advances. Our WFOEs may also allocate a portion of theirafter-tax profits, at the discretion of their Boards of Directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed by Sohu.com Limited, Sogou’s parent company Sohu.com (Search) Limited, or Changyou.com Limited and, accordingly, would not be available for distribution to Sohu.com Inc.
The CIT Law imposes a 10% withholding income tax onfor dividends distributed by foreign-invested enterprises in the PRC to their immediate holding companies outside Mainland China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between Mainland China and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital” if such holding company is considered anon-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to withholding tax at a rate of 10%. As of March 31, ~~2017,~~2018, we had accrued deferred tax liabilities in the amount of ~~$26.9~~$82.7 million for withholding taxes associated with dividends paid by Changyou’s Mainland China-based WFOEs to Changyou’s Hong Kong subsidiary.
Under regulations of the PRC State Administration of Foreign Exchange (“SAFE”), the RMB is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of Mainland China, unless prior approval of the SAFE is obtained and prior registration with the SAFE is made.
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PRC Restrictions Related to Our VIE Structure
~~Substantially all~~A significant portion of ~~Changyou.com Limited’s~~our operations ~~are~~is conducted through ~~its~~our VIEs, which generate ~~most~~a significant amount of ~~Changyou’s online game~~our revenues. Although Changyou’s subsidiaries received or absorbed a majority of the VIEs’ profits or losses pursuant to contractual agreements between the VIEs and Changyou’s PRC subsidiaries providing for payments to the subsidiaries in return for services provided to the VIEs by the PRC subsidiaries, significantSignificant cash balances remained in ~~Changyou’s~~certain of our VIEs as of March 31, ~~2017.~~2018. As ~~Changyou’s~~our VIEs are not owned by ~~Changyou’s~~our PRC subsidiaries, the VIEs are not able to make dividend payments to the subsidiaries. Therefore, in order for Sohu.com Inc. or our subsidiaries outside of Mainland China to receive any dividends, loans, or advances from ~~Changyou’s~~our PRC subsidiaries, in some cases we ~~will~~may need to rely on ~~these contractual~~ payments made by ~~Changyou’s~~our VIEs to ~~Changyou’s~~our PRC ~~subsidiaries.~~subsidiaries pursuant to service contracts between them. Depending on the nature of services provided by ~~Changyou’s~~our PRC subsidiaries to their corresponding VIEs, certain of these payments will subject to PRC taxes, such as VAT, which will effectively reduce the amount that the PRC subsidiary receives from its corresponding VIE. In addition, the PRC government could impose restrictions on such payments or change the tax rates applicable to such payments.
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U.S. Corporate Income Tax
Sohu.com Inc. is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and of up to 35%. for prior tax years. The U.S. Tax Reform significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with aone-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay theone-time transition tax over eight years, or in a singlelump-sum payment.
To the extent that portions of its U.S. taxable income, such as Subpart F income or ~~a dividend,~~GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may be able to claim foreign tax credits to offset its U.S. income tax liabilities. Any remaining liabilities are accrued in our consolidated statements of comprehensive income and estimated tax payments are made when required by U.S. law.
In accordance with U.S. GAAP, we do not provide for U.S. federal income taxes or tax benefits on the undistributed earnings or losses of our non-U.S. subsidiaries or consolidated VIEs because, for the foreseeable future, we do not have the intention to repatriate those undistributed earnings or losses to the U.S. (except that, under certain circumstances, we may repatriate to the U.S. income that was previously included in our income for U.S. corporate income tax purposes). However, certain activities conducted in the PRC may give rise to U.S. corporate income tax, even if there are no distributions to Sohu.com Inc. U.S. corporate income taxes would be imposed on Sohu.com Inc. when its subsidiaries that are controlled foreign corporations (“CFCs”) generate income that is subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally, passive income, such as rents, royalties, interest, dividends, and gains from disposal of our investments is among the types of income subject to taxation under Subpart F. Any income taxable under Subpart F is taxable in the U.S. at federal corporate income tax rates of up to 35%. Subpart F income also includes certain income from intercompany transactions between Sohu.com Inc.’s non-U.S. subsidiaries and VIEs and Changyou’s non-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’s non-U.S. subsidiaries or VIEs make an “investment in U.S. property,” such as holding the stock in, or making a loan to, a U.S. corporation. Under a provision of the U.S. tax code commonly referred to as the CFC look-through rule, Sohu.com Inc. has not had to treat dividends received by its CFC subsidiaries as Subpart F income includible in Sohu.com Inc.’s taxable income in the U.S. The CFC look-through rule, which is currently scheduled to expire for taxable years beginning after December 31, 2019, has been extended several times by the U.S. Congress. Unless further extended, the CFC look-through rule will be available for Sohu.com Inc.’s CFC subsidiaries and their VIEs only through their taxable years ending November 30, 2020.
Dividend Policy
The Sohu Group intends to retain all available funds and any future earnings for use in the operation and expansion of its own business, and does not anticipate paying any cash dividends on Sohu.com Inc.’s common stock for the foreseeable future. Future cash dividends distributed by Sohu.com Inc., if any, will be declared at the discretion of Sohu.com Inc.’s Board of Directors and will depend upon future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as our Board of Directors may deem relevant. For the revision of dividend policy of Changyou’s PRC subsidiaries, please refer to “PRC Withholding Tax on Dividends”
OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We are not subject to any additional potential payments. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or product development services with us.
~~IMPACT OF~~ RECENTLY ~~ISSUED~~ADOPTED ACCOUNTING ~~PRONOUNCEMENTS~~PRONOUNCEMENT
Revenue from Contracts with Customers. In May 2014, the FASB issued ASUNo. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ This guidance supersedes current guidance on revenue recognition in Topic 605, ‘‘Revenue Recognition.’’ In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For publicly-traded business entities that follow U.S. GAAP, the deferral results in the new revenue standards’ being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. We will apply the new revenue standard beginningOn January 1, 2018, we adopted ASC 606, applying using the modified retrospective method to contracts that were not completed as of January 1, 2018. Adoption did not have a material impact on retained earnings as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and ~~will not early adopt. We have set up an implementation team that is currently in the process of analyzing each of our revenue streams~~continue to be reported in accordance with our historic accounting under ASC 605. Additional disclosures have been made. Please see the ~~new revenue standard~~Notes to determine the impact on our consolidated financial statements. We plan to continue the evaluation, analysis, and documentation of our adoption of ASU 2014-09 (including those subsequently issued updates that clarify ASU 2014-09’s provisions) throughout 2017 as we work towards the implementation and finalize our determination of the impact that the adoption will have on our consolidated financial statements.Condensed Consolidated Financial Statements for details.

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ASU2016-01 (“ASU2016-01”),Recognition and Measurement of Financial Assets and Financial Liabilities~~. On January 5, 2016, the FASB issued ASU 2016-01 (“ASU 2016-01”), Recognition and Measurement of Financial Assets and Financial Liabilities, which~~ amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ~~This amendment requires all~~The main provisions require equity investments ~~to be measured at fair value, with changes in the fair value recognized through net income (other than~~(except those accounted for under the equity method of accounting or those that result in consolidation of the investee)~~. This standard~~ to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance will require modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively. Additional disclosures have been made. Please see the Notes to Condensed Consolidated Financial Statements for details.
Statements of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued Accounting Standards Update (“ASU”)No. 2016-18,Statements of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statements of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, ~~including~~and interim periods within those fiscal years. ~~We are evaluating the impact~~The standard should be applied to each period presented using a retrospective transition method. The adoption of ~~adopting~~ this standard does not have a material impact on our consolidated financial statements, but resulted in restricted cash being included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statements of cash flows.
Other accounting standards adopted beginning January 1, 2018 do not have a significant impact on our condensed consolidated financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Leases. On February 25, 2016, the FASB issued ASUNo. 2016-02 (“ASU2016-02”), Leases. ASU2016-02 specifies the accounting for leases. For operating leases, ASU2016-02 requires a lessee to recognize aright-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. ASU2016-02 is effective for publicly-traded companies for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of adopting this standard on our consolidated financial statements.
~~Compensation – Stock Compensation.~~ On March 30, 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based compensation. This standard addresses several aspects of the accounting for share-based award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; (c) classification in the statement of cash flows; and (d) accounting for forfeitures of share-based awards. This guidance became effective for reporting periods beginning after December 15, 2016. We adopted this new guidance on January 1, 2017. We elected to continue to account for forfeitures by estimating expected forfeitures, and this standard does not have a material impact on our consolidated financial statements.
Financial Instruments-Credit Losses. In June 2016, the FASB issued Accounting Standards Update (“ASU”)2016-13,Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.
~~Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.~~ ~~In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15,~~ ~~Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments,~~ which clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.
~~Statement of Cash Flows (Topic 230): Restricted Cash.~~ ~~In November 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash~~. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. We are currently evaluating the impact of adopting this standard on our consolidated financial statements.
~~Business Combinations (Topic 805): Clarifying the Definition of a Business.~~ ~~In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01,~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business, which~~ clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. We will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
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Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued Accounting Standards Update (“ASU”)2017-04,“Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting this standard on our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATE RISK
While our reporting currency is the U.S. dollar, to date the majority of our revenues and costs are denominated in RMB and a significant portion of our assets and liabilities are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues and assets as expressed in our U.S. dollar financial statements will decline.
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The RMB is currently freely convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment. In addition, commencing on July 21, 2005, China reformed its exchange rate regime by changing to a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Under the managed floating exchange rate regime, the RMB is no longer pegged to the U.S. dollar, and the People’s Bank of China will announce the closing prices of foreign currencies such as the U.S. dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each business day, and will make such prices the central parity for trading against the RMB on the following business day. On June 19, 2010, the People’s Bank of China announced that it had decided to proceed further with the reform of the RMB exchange rate regime to enhance the flexibility of the RMB exchange rate and that emphasis would be placed on reflecting market supply and demand with reference to a basket of currencies. While so indicating its intention to make the RMB’s exchange rate more flexible, the People’s Bank of China ruled out any sharp fluctuations in the currency or aone-off adjustment. On March 17, 2014, the People’s Bank of China announced a policy to expand the maximum daily floating range of RMB trading prices against the U.S. dollar in the inter-bank spot foreign exchange market to 2%. In the long term, the RMB may appreciate or depreciate more significantly in value against the U.S. dollar or other foreign currencies, depending on the market supply and demand with reference to a basket of currencies.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure. Accordingly, we may incur economic losses in the future due to foreign exchange rate fluctuations, which could have a negative impact on our financial condition and results of operations.
The following table sets forth a summary of our foreign currency sensitive financial instruments as of March 31, ~~2017.~~2018. These financial instruments are recorded at their fair value.

   Denominated in (in thousands)       Denominated in (in thousands)
   US$    RMB    HK$    Others    Total    US$    RMB    HK$    Others    Total
Cash and cash equivalents
   $ 605,166    $ 358,474    $ 3,794    $ 1,515    $ 968,949    $ 692,232    $ 457,667    $ 5,238    $ 1,271    $ 1,156,408
Restricted cash
   0    2,140    0    0    2,140
Short-term investments
   0    282,976    0    0    282,976    558,513    516,025    0    0    1,074,538
Accounts receivable, net
   3,094    170,042    365    0    173,501    3,783    212,123    1,084    158    217,148
Prepaid and other current assets
   4,384    251,689    88    885    257,046    3,667    207,860    0    169    211,696
Available-for-sale equity securities
   9,703    0    0    0    9,703
Equity investments with readily determinable fair values
   0    12,725    0    0    12,725
Restricted time deposits
   240    29    0    0    269    240    32    0    0    272
Current liabilities
   42,890    848,412    740    12    892,054    52,748    1,153,128    2,132    496    1,208,504
Long-term bank loans
   0    127,224    0    0    127,224
Long-term accounts payable
   0    1,046    0    0    1,046    0    1,203    0    0    1,203
INTEREST RATE RISK
The basic objectives of our investment program are to protect the invested funds from excessive risk and to provide for liquidity that is sufficient to meet operating and investment cash requirements. Under the investment policy, our excess cash is invested in high-quality securities which are limited as to length of time to maturity and the amount of credit exposure.
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Our exposure to interest rate risk primarily relates to the interest income generated from excess cash invested in demand deposits, and interest expense generated from loans to Changyou from offshore banks. We have not used derivative financial instruments in our investment portfolio in order to reduce this risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
INFLATION RATE RISK
According to the National Bureau of Statistics of China, the consumer price index grew 2.1% in the first quarter of 2018, compared to an increase of 1.4% in the first quarter of ~~2017, compared to an~~2017. The increase ~~of 2.1% in the first quarter of 2016. While the increase for the first quarter of 2017 represented a decline~~ in the rate of inflation ~~compared to the corresponding period in 2016, there may be increases~~and any additional increase in the ~~rate of inflation in the~~ future ~~that~~ could have an adverse effect on our business.

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ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and ~~Acting~~ Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange ~~Act of 1934)~~Act) as of the end of the period covered by this report (the “Evaluation Date”), have concluded that as of the Evaluation Date our disclosure controls and procedures were effective and designed to ensure that all material information relating to Sohu.com Inc. required to be included in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
During the period covered by this quarterly report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
From time to time we become subject to legal proceedings and claims in the ordinary course of our business. Such legal proceedings and claims, even if not meritorious, could result in the expenditure of significant financial and management resources.

ITEM 1A. RISK FACTORS
There are no material changes or updates to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, ~~2016~~2017 filed with the SEC on February ~~27, 2017.~~28, 2018.

~~ITEM 2.~~ ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS
On July 17, 2000, Sohu.com Inc. completed an underwritten ~~initial public offering~~IPO of ~~its~~our common stock pursuant to a Registration Statement on FormS-1 (SEC fileNo. 333-96137), which became effective on July 10, 2000. There has been no change in the information regarding use of proceeds from the ~~offering~~IPO that was included in our Annual Report on Form10-K for the year ended December 31, ~~2016~~2017 filed with the SEC on February ~~27, 2017.~~28, 2018.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
None.

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ITEM 5. OTHER INFORMATION
None.

ITEM 6. EXHIBITS
Please see the ~~Exhibit~~Exhibits Index attached hereto.

~~-78-~~-82-
Sohu.com Inc.
Quarterly Report on Form10-Q for Quarter Ended March 31, 2018
EXHIBITS INDEX
10.1(1) English translation of Credit Facility Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media Information Technology Co., Ltd.
10.2(1) English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Era Information Technology Co., Ltd.
10.3(1) English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media Information Technology Co., Ltd.
10.4(1) English translation of Letter of Commitment, dated April 11, 2018, issued by Sohu.com Inc.
31.1(2) Rule13a-14(a)/15d-14(a) Certification of Charles Zhang
31.2(2) Rule13a-14(a)/15d-14(a) Certification of Joanna Lv
32.1(2) Section 1350 Certification of Charles Zhang
32.2(2)   Section 1350 Certification of Joanna Lv
101(2) Interactive data files pursuant to Rule 405 of RegulationS-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017; (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017; (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017; (iv) Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2018 and 2017; and (v) Notes to Condensed Consolidated Financial Statements, tagged using four different levels of detail.
(1) Incorporated herein by reference to the registrant’s Current Report on Form8-K filed on April 16, 2018.
(2) Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 8, ~~2017~~2018

SOHU.COM INC.
By:
/s/ Joanna Lv
Joanna Lv
~~Acting~~ Chief Financial Officer

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~~Sohu.com Inc.~~
~~Quarterly Report on Form 10-Q for Quarter Ended March 31, 2017~~
~~EXHIBITS INDEX~~
~~31.1~~ ~~Rule 13a-14(a)/15d-14(a) Certification of Charles Zhang~~
~~31.2~~ ~~Rule 13a-14(a)/15d-14(a) Certification of Joanna Lv~~
~~32.1~~ ~~Section 1350 Certification of Charles Zhang~~
~~32.2~~ ~~Section 1350 Certification of Joanna Lv~~
~~101~~ Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016; (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016; (iv) Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2017 and 2016; and (v) Notes to Condensed Consolidated Financial Statements, tagged using four different levels of detail.
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	Three Months Ended March 31, 2016
	Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	131,572		$	147,329		$	129,840		$	(789	)	$	407,952
Segment cost of revenues		(86,422	)		(64,571	)		(41,857	)		58			(192,792	)

Segment gross profit		45,150			82,758			87,983			(731	)		215,160
SBC (2) in cost of revenues		(62	)		0			7			0			(55	)

Gross profit		45,088			82,758			87,990			(731	)		215,105

Operating expenses:
Product development (3)		(22,536	)		(30,722	)		(30,597	)		1,173			(82,682	)
Sales and marketing (1)		(51,371	)		(27,099	)		(12,556	)		993			(90,033	)
General and administrative		(12,231	)		(3,390	)		(11,647	)		28			(27,240	)
SBC (2) in operating expenses		99			(1,744	)		1,267			0			(378	)

Total operating expenses		(86,039	)		(62,955	)		(53,533	)		2,194			(200,333	)

Operating profit /(loss)		(40,951	)		19,803			34,457			1,463			14,772

Other income (3)		1,376			164			3,847			(1,463	)		3,924
Interest income (4)		2,261			1,704			4,051			(2,179	)		5,837
Interest expense (4)		(1,666	)		0			(1,211	)		2,179			(698	)
Exchange difference		(334	)		(81	)		(607	)		0			(1,022	)

Income /(loss) before income tax expense		(39,314	)		21,590			40,537			0			22,813

Income tax expense		(2,647	)		(1,487	)		(7,734	)		0			(11,868	)

Net income /(loss)	$	(41,961	)	$	20,103		$	32,803		$	0		$	10,945


	As of December 31, 2016
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	167,691	$	286,078	$	597,188	$	0		$	1,050,957
Accounts receivable, net		100,317		41,781		47,150		(81	)		189,167
Fixed assets, net		196,839		117,022		189,770		0			503,631
Total assets (1)	$	1,241,844	$	499,589	$	1,708,037	$	(885,780	)	$	2,563,690


	As of March 31, 2017
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	113,541	$	294,734	$	560,674	$	0		$	968,949
Accounts receivable, net		87,421		36,065		50,097		(82	)		173,501
Fixed assets, net		194,716		114,474		187,892		0			497,082
Total assets (1)	$	1,170,143	$	508,559	$	1,750,861	$	(953,136	)	$	2,476,427


			Fair value measurements at reporting date using
Items	As of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	626,697	$	0	$	626,697	$	0
Short-term investments		247,926		0		247,926		0
Available-for-sale equity securities		10,381		10,381		0		0
Foreign exchange forward contracts		3,040		0		3,040		0
Restricted time deposits		269		0		269		0

Total	$	888,313	$	10,381	$	877,932	$	0


			Fair value measurements at reporting date using
Items	As of March 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	573,742	$	0	$	573,742	$	0
Short-term investments		282,976		0		282,976		0
Available-for-sale equity securities		9,703		9,703		0		0
Foreign exchange forward contracts		2,517		0		2,517		0
Restricted time deposits		269		0		269		0

Total	$	869,207	$	9,703	$	859,504	$	0


Restricted Share Units	Number of Units (in thousands)		Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2017		10	$	14.25
Granted		0
Vested		0
Forfeited		0

Unvested at March 31, 2017		10		14.25

Expected to vest after March 31, 2017		10		14.25


	As reported			Without adoption of ASC 606			Effect of change Higher/(Lower)
Revenue-Online advertising-Brand advertising	$	56,254			55,913			341
Revenue-Online advertising-Search and search related advertising		220,301			213,987			6,314
Cost of revenue- Online advertising-Search and search related advertising		144,696			138,955			5,741
Gross profit		194,162			193,248			914
Operating expenses- Sales and marketing		90,273			89,359			914
Operating loss		(31,490	)		(31,490	)		0
Income tax expenses		63,379			63,379			0
Net loss		(87,201	)		(87,201	)		0
Basic net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.39	)		0
Diluted net loss per share attributable to Sohu.com Inc.		(2.39	)		(2.39	)		0


Fixed Assets		Estimated Useful Lives (years)
Office buildings		36-47
Leasehold improvements		Lesser of term of the lease or the estimated useful lives of the assets
~~Building improvements~~		10
Vehicles		4-10
Office furniture		5
Computer equipment and hardware		2-5


Intangible Assets		Estimated Useful Lives (years)
Domain names and trademarks		4-30
Developed technologies		3-10
Computer software		1-5
~~Purchased video~~Video content		46 months to 2 years, or over the applicable licensing period
Cinema advertising slot rights		over the contract terms
Operating rights for licensed games		over the contract terms


Average Monthly Active Accounts (1)	For the Three Months Ended				For the Three Months Ended
(in millions)	PC games		Mobile games		PC games		Mobile games
March 31, 2016		3.0		3.2
March 31, 2017		2.4		1.1
2017						2.4		1.1
2018						2.5		2.6

Quarterly Aggregate Active Paying Accounts (2)	For the Three Months Ended				For the Three Months Ended
(in millions)	PC games		Mobile games		PC games		Mobile games
March 31, 2016		1.1		0.8
March 31, 2017		0.9		0.3
2017						0.9		0.3
2018						0.8		0.8


Unrecognized share-based compensation expense	As of March 31, 2017		As of March 31, 2018
For Sohu (excluding Sohu Video) share-based awards	$	193	$	0
For Sogou share-based awards (3)		576		19,614
For Changyou share-based awards		40		2,674

	$	809	$	22,288


	Three Months Ended March 31,
	2017			2018
Net cash provided by /(used in) operating activities	$	(31,670	)	$	18,630
Net cash used in investing activities		(62,756	)		(249,343	)
Net cash provided by /(used in) financing activities		(2,740	)		4
Effect of exchange rate change on cash and cash equivalents, and restricted cash		3,474			21,233
Reclassification of cash and cash equivalents from /(to) assets held for sale		11,684			0

Net decrease in cash and cash equivalents, and restricted cash		(82,008	)		(209,476	)
Cash and cash equivalents, and restricted cash at beginning of period		1,050,957			1,368,024

Cash and cash equivalents, and restricted cash at end of period	$	968,949		$	1,158,548


	Denominated in (in thousands)										Denominated in (in thousands)
	US$		RMB		HK$		Others		Total		US$		RMB		HK$		Others		Total
Cash and cash equivalents	$	605,166	$	358,474	$	3,794	$	1,515	$	968,949	$	692,232	$	457,667	$	5,238	$	1,271	$	1,156,408
Restricted cash												0		2,140		0		0		2,140
Short-term investments		0		282,976		0		0		282,976		558,513		516,025		0		0		1,074,538
Accounts receivable, net		3,094		170,042		365		0		173,501		3,783		212,123		1,084		158		217,148
Prepaid and other current assets		4,384		251,689		88		885		257,046		3,667		207,860		0		169		211,696
Available-for-sale equity securities		9,703		0		0		0		9,703
Equity investments with readily determinable fair values												0		12,725		0		0		12,725
Restricted time deposits		240		29		0		0		269		240		32		0		0		272
Current liabilities		42,890		848,412		740		12		892,054		52,748		1,153,128		2,132		496		1,208,504
Long-term bank loans												0		127,224		0		0		127,224
Long-term accounts payable		0		1,046		0		0		1,046		0		1,203		0		0		1,203



10.1(1)		English translation of Credit Facility Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media Information Technology Co., Ltd.

10.2(1)		English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Era Information Technology Co., Ltd.

10.3(1)		English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media Information Technology Co., Ltd.

10.4(1)		English translation of Letter of Commitment, dated April 11, 2018, issued by Sohu.com Inc.

31.1(2)		Rule13a-14(a)/15d-14(a) Certification of Charles Zhang

31.2(2)		Rule13a-14(a)/15d-14(a) Certification of Joanna Lv

32.1(2)		Section 1350 Certification of Charles Zhang

32.2(2)		Section 1350 Certification of Joanna Lv

101(2)		Interactive data files pursuant to Rule 405 of RegulationS-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017; (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017; (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017; (iv) Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2018 and 2017; and (v) Notes to Condensed Consolidated Financial Statements, tagged using four different levels of detail.


SOHU.COM INC.

By:		/s/ Joanna Lv
		Joanna Lv
		~~Acting~~ Chief Financial Officer



~~31.1~~		~~Rule 13a-14(a)/15d-14(a) Certification of Charles Zhang~~

~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification of Joanna Lv~~

~~32.1~~		~~Section 1350 Certification of Charles Zhang~~

~~32.2~~		~~Section 1350 Certification of Joanna Lv~~

~~101~~		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016; (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016; (iv) Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2017 and 2016; and (v) Notes to Condensed Consolidated Financial Statements, tagged using four different levels of detail.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company