"China's growth and rapid penetration of Internet usage among its population are reflected in SOHU's financial results. Total revenues jumped 40.7% in 2007 to $188.9 million led by a five-fold increase in online
game revenues and a 41.9% rise in brand advertising.

"SOHU is benefiting from the growing popularity of its role-playing games known as MMORPGs, its sponsorship of the 2008 Olympic Games, and China's strong online advertising market.

"SOHU capped off the year with a 90.2% year-over-year surge in revenues for Q4. Pro forma net income more than doubled to $17 million or 43 cents per share. The stock more than doubled in price in 2007.

"Despite promising prospects, competition remains fierce. Baidu.com,Yahoo, Google, Microsoft, and a host of new entrants are looking to exploit China's rapid economic growth. Furthermore, SOHU must operate under
China's sometimes capricious laws and regulations.

"Tighter government controls on the flow of information and greater government involvement in business transactions could impede SOHU's ability to grow. Nonetheless, SOHU's prospects indicate the stock
deserves a rich valuation.

"According to the China Internet Information Center, the number of Internet users in the country grew 53% in 2007 to 210 million. Yet this is just 16% of China's overall population, suggesting there is still plenty of opportunity for growth."

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