Other non-advertising revenues, mainly search and other fee-based revenues, were US$1.6 million for the second quarter of 2007, representing a decline of 10% from the same period last year and an increase of 27% from last quarter. The sequential increase was mostly due to an increase in search revenues, only a small portion of which is related to the Google arrangement.

    Gross margin for the second quarter of 2007 was 62%, compared to 63% in the same period last year and 59% in the last quarter. Advertising gross margin for the second quarter of 2007 was 62%, compared to 65% in the same period last year and 58% in the previous quarter.

    Advertising gross margin in the second quarter of 2007 included stock-based compensation, which was equivalent to 1% of advertising revenues. Excluding this item, advertising gross margin in the second quarter of 2007 was 63%, compared to 66% in the same period last year and 59% in the previous quarter. The year over year decline in advertising gross margin was mainly due to higher content, web production and bandwidth costs.

    The sequential increasein advertising gross margin was due to revenues growing faster than advertising cost of sales. MVAS gross margin for the second quarter of 2007 was 61%, compared to 60% in the same period last year and last quarter.

    Operating expenses for the second quarter of 2007 totaled US$24.5 million, a decline of 7% from the same period last year and an increase of 7% from last quarter. Non-GAAP operating expenses for the second quarter of 2007, which exclude stock-based compensation and amortization expense of intangible assets, was US$22.6 million, representing a decline of 3% from the same period last year and an increase of 9% from last quarter. The year over year decline was mainly due to lower marketing spending, particularly related to MVAS promotions, offset by higher expenses related to payroll, depreciation and bad debt as well as the impact of renminbi appreciation on spending in China. The quarter over quarter increase in operating expenses was primarily due to higher payroll-related costs as well as increased travel and entertainment expenses.