Shanda Reports First Quarter 2005 Financial Results
biz.yahoo.com
Monday May 16, 4:30 pm ET
- Casual games drive solid revenue growth
- Record net revenues of US$ 60.0 million, up 15.3% quarter-over-quarter
- Gross profit margin increases to 71.0%, and operating margin reaches 51.1%
SHANGHAI, China, May 16 /Xinhua-PRNewswire/ -- Shanda Interactive Entertainment Limited (Nasdaq: SNDA), or Shanda, a leading interactive entertainment media company and the largest operator of online games in China, today announced its unaudited financial results for the first quarter ended March 31, 2005.
Summary of the first quarter 2005:
-- Net revenues increased 118.3% year-over-year and 15.3% quarter-over-
quarter to RMB497.0 million (US$60.0 million); Shanda finds that
focusing the discussion on net revenues provides the most clear and
consistent presentation of our results, and Shanda will be referencing
net revenues, rather than gross revenues, in the presentations for this
period and future periods.
-- Online games revenues, including MMORPG and casual games, for the first
quarter of 2005 increased 96.7% year-over-year and 13.2% quarter-over-
quarter to RMB441.6million (US$53.3 million), accounting for 88.9% of
total revenues; first quarter MMORPG revenues grew 10.3% quarter-over-
quarter to RMB331.2 million (US$40.0million) and casual game revenues
grew 22.7% quarter-over-quarter to RMB110.4million (US$13.3 million);
-- Other revenues for the first quarter, which primarily include revenues
from online advertising, and other value-added services and products,
increased 36.2% quarter-over-quarter to RMB55.4million (US$6.7
million), accounting for 11.1% of total revenues;
-- Gross profit margin increased to 71.0% in the first quarter compared to
67.1% in the fourth quarter of 2004, while operating margin increased
to 51.1% in the first quarter compared to 43.5% in the fourth quarter
of 2004;
-- Net income for the first quarter of 2005 was RMB220.1 million (US$26.6
million), and diluted earnings per ADS were RMB3.00 (US$0.36).
"We continue to deliver strong growth in our online game business, which in turn is driving higher profit margins as our platform enjoys the benefits of scale," said Tianqiao Chen, Chairman and CEO of Shanda. "With new MMORPG games like Magical Land in beta test and a solid pipeline of new content, including Dungeons & Dragons® Online, we believe we are poised to continue our momentum. Meanwhile we continue to strategically diversify into new revenue streams like online advertising and potential new platforms for delivering content and services to a growing base of Chinese consumers."
Financial Results (Preliminary Unaudited)
Net Revenues. In the first quarter of 2005, Shanda reported record net revenues of RMB497.0 million (US$60.0 million), representing a 118.3% increase compared to RMB227.6 million in the first quarter of 2004 and a 15.3% increase compared to RMB430.9 million in the fourth quarter of 2004.
Online game revenues increased 96.7% year-over-year and 13.2% quarter-over-quarter to RMB441.6 million (US$53.3 million) in the first quarter of 2005. Total peak concurrent users for all Shanda games in commercial service in the first quarter of 2005 increased to 2.1 million from 2.0 million in the fourth quarter of 2004.
Revenues from MMORPGs in the first quarter of 2005 increased 65.7% year-over-year and 10.3% quarter-over-quarter to RMB331.2 million (US$40.0 million), and accounted for 66.7% of total revenues. The increase in revenues from MMORPGs was primarily due to an increase in the average concurrent users and average revenue per user hour, or ARPU for MMORPGs. The average concurrent users of Shanda's MMORPGs in commercial service increased to approximately 748,000 in the first quarter of 2005 from 695,000 in the last quarter and the ARPU for Shanda's MMORPGs increased to RMB 0.22 in the first quarter of 2005 compared to RMB 0.21 in the previous quarter.
Revenues from casual games in the first quarter increased 348.8% year- over-year and 22.7% quarter-over-quarter to RMB110.4 million (US$13.3 million) driven by the strong growth in active paying accounts for casual games to 4.4 million in the first quarter. Revenues from casual games accounted for 22.2% of total revenues.
Shanda's other revenues increased 36.2% to RMB55.4 million (US$6.7 million) in the first quarter of 2005 from RMB40.7 million (US$4.9 million) in the fourth quarter of 2004. The increase in Shanda's other revenues was primarily due to the increase of online advertising revenues and of the revenue from the sale of Shanda Mibao, a user account protection product, which Shanda launched in the third quarter of 2004.
Gross Profit. Gross margin improved to a record high of 71.0% for the first quarter of 2005, up from 60.2% in the first quarter of 2004 and 67.1% in the fourth quarter of 2004. The increase in gross margin was mainly due to the increase in revenues from our in-house developed games, growth in the relatively high margin online advertising revenue and increasing economies of scale relating to online game business.
Income from Operations. Operating income for the first quarter of 2005 was RMB253.9 million (US$30.7 million), representing a 262.7% increase compared to RMB70.0 million in the first quarter of 2004 and a 35.6% increase compared to RMB187.2 million in the fourth quarter of 2004. Operating margin increased to 51.1% in the first quarter of 2005 from 43.5% in the fourth quarter of 2004. This increase was mainly due to the increase of gross margin and the decrease in sales and marketing expense compared with the fourth quarter of 2004. The decrease in sales and marketing expense was primarily due to higher than usual sales and marketing expenses in the fourth quarter of 2004 resulting from specific year-end heavier marketing activities and higher promotional expenses.
Net Income. In the first quarter of 2005, Shanda had net income of RMB220.1 million (US26.6 million), representing a 205.9% increase compared to net income of RMB71.9 million (US$8.7 million) in the first quarter of 2004 and a 4.9% decrease compared to net income of RMB231.4 million in the fourth quarter of 2004. Diluted earnings per ADS were RMB3.00 (US$0.36) for this quarter, representing a 163.2% increase compared to diluted earnings per ADS of RMB1.14 in the same period of 2004 and a 3.8% decrease compared to diluted earnings per ADS of RMB3.12 in the fourth quarter of 2004.
The quarter-over-quarter decrease in Shanda's net income and diluted earnings per ADS was primarily due to two generally non-recurring factors. Firstly, Shanda recorded investment income of US$5.0 million in the fourth quarter of 2004, which was mainly due to a partial sale of a prior strategic investment. In addition, Shanda recorded a loss in equity of Actoz mainly representing the immediate write-off of the valuation of In Process R&D of US$1.9 million in the first quarter of 2005.
The decrease in net income was also partially due to the increase in the anticipated effective tax rate for the first quarter of 2005. A significant portion of our operations are conducted by Shengqu, our wholly owned foreign enterprise, which was previously exempted from paying income tax but became subject to a 7.5% tax rate starting on January 1, 2005. In addition, we recently restructured our game operations into three operating companies and two of these companies are still in the process of applying for preferential tax treatments. Currently, these companies are subject to the standard income tax rate of 33%.
The conversion of Renminbi (RMB) into U.S. dollars in this release is based on the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of March 31, 2005, which was RMB8.2765 to US$1.00. The percentages stated in this press release are calculated based on RMB.
Certain transactions out of the ordinary course of business have occurred in the first quarter of 2005 and have significantly affected our liquidity and capital resources. In February of 2005, we completed our acquisition of a 29% equity stake in Actoz, following our purchase in December 2004 of a 9% equity stake in Actoz, for an aggregate purchase price of US$106.1 million in cash. In February 2005, we also completed our acquisition of an approximately 19.5% stake in Sina at an aggregate purchase price of US$230.4 million. As a result of these purchases, as of March 31, 2005, our cash and cash equivalents were US$136.5 million.
Recent Business Highlights
Shanda continues to build its game pipeline and expand its content offerings. Shanda recently entered into a license agreement with Turbine, Inc., subject to certain third party approvals, for Dungeons & Dragons® Online, a highly anticipated 3D MMORPG based on the world-renowned Hasbro and Wizards of the Coast Dungeons & Dragons® franchise. On April 29 2005, Shanda began open beta testing of Magical Land, an in-house developed fantasy cartoon-style MMORPG mainly targeted at the female user base. The open beta testing generated satisfactory initial results, attracting over 100,000 peak concurrent users within the first two weeks, and continues to build in momentum. In addition, Shanda and the Chinese Academy of Sciences' Institute of Automation (CASIA) formed a strategic partnership in April 2005, through which Shanda will introduce visual reality games using proven CASIA technology. Shanda believes that these games will be particularly well suited for home users and can serve educational and physical exercise purposes.
Also in April 2005, Shanda extended its interactive entertainment content offerings into the music arena by forming a strategic partnership with Universal Music. Pursuant to a memorandum of understanding, Shanda will offer Universal Music's online music content to Shanda's millions of users through streaming and, in the future, on a downloadable basis over Shanda's interactive entertainment portal at poptang.com, as well as within the game operation platform.
In the first quarter of 2005 Shanda announced a strategic partnership with Baidu.com, Inc., developer and operator of the world's largest Chinese language search engine, to make our content offerings more easily available to a broader user base. Baidu will leverage its search platform to help introduce Shanda's extended interactive entertainment content offerings to a broad audience base, and Shanda will have Baidu's search tools embedded in Shanda's user platform, further strengthening Baidu's leadership position in the search market. In addition, the two companies will explore cross marketing opportunities on each other's platform.
Other Company News
On February 18, 2005 Shanda disclosed it had, together with its controlling shareholder Skyline Media Limited, purchased approximately 19.5% of the outstanding ordinary shares of Sina Corporation (Nasdaq: SINA - News) through open market transactions. For more detailed information in connections with these purchases, please refer to the Schedule 13D that Shanda filed with the United States Securities and Exchange Commission. |
