Gaming companies record strong 2Q results

China's leading online gaming companies have been recording strong second quarter results. Earlier this month China's number three online gaming operator, The9 Ltd., recorded net income over the last quarter up to US$10.5 million up from US$7.4 million in the previous quarter. Net revenue was posted at US$32.2 million up more than 20 percent on the first quarter. These results were better than general market expectations which had forecast revenues at around three quarters of this level on revenues of around US$29 million.

The markets were also pleased to hear The9 announce plans to expand its armoury of games to overcome its heavy reliance on its very popular World of Warcraft game.

China boasts one of the world's fastest growing online game markets, worth an estimated $587 million in 2005 and potentially growing to $886 million this year, according to DBS. But many of the industry's top players rely on one or two hit games, making their business highly volatile and less attractive to investors.

Meanwhile last week China's number two online gaming company Nasdaq-listed Shanda Interactive Entertainment, also recorded better-than-expected results for the second quarter, even if they included a fall of 40 percent in net profits. Shanda reported that net profits for the three months to June downl to US$16.7 million from US$26.9 million a year ago, with revenues down 25 percent to US$50.7 million. Market predictions suggested around US$12 million in net profits on on sales of US$43 million. However, despite the falls, the results have been hailed by the company as a recognition that its policy to offer some if its old favourite games for free at the end of last year is paying off (see also China Media Intelligence, Volume 5, Issue 14 (7/12/05)). The company said that the monthly average revenue per user (arpu) since launching the free-gaming policy on games such as the Legend of Mir II, has risen by as much as 50 percent to US$5.68 even as registered paying user numbers have dropped. The free-to-play policy looks to make additional revenue from added-value services associated with playing the games rather than charging for playing the games themselves.

CMI - 22/8/06