Shanda hits jackpot on Sina share sale and free-to-play model

PUBLISHED : Thursday, 24 May, 2007, 12:00am
UPDATED : Thursday, 24 May, 2007, 12:00am

Shanda Interactive Entertainment, the mainland's second-largest online game operator, increased its first-quarter profit 38-fold from a year earlier after selling shares in Sina and on higher revenue from its free-to-play game model.

The Shanghai-based company said profit jumped to 448.8 million yuan in the first quarter, compared with 11.8 million yuan a year earlier and 240.3 million yuan in the previous quarter.

Net revenue grew to 532.3 million yuan, 55.9 per cent higher than a year earlier and a 13.1 per cent increase on the previous quarter.

The company forecast net revenue of between US$70.9 million and US$72.9 million for the second quarter.

Shanda, which pioneered online games in the mainland, has allowed users to play its top three titles for free since the end of 2005. The firm makes money by charging users for adding special features, such as extra power or colours, to their avatars.

'The company has started to master how to charge users under the free-to-play model,' JP Morgan China internet analyst Dick Wei said.

Shanda, which increased its active paying customers by 2.3 per cent from the previous quarter to 2.34 million, raised the average monthly revenue per customer to 59 yuan from 51 yuan at the end of last year. That compared with the average of 30 to 40 yuan the industry usually earns from customers who pay for games on a time basis.

Shanda is looking to develop online advertising as an additional source of revenue. '[This] will not be a significant source of revenue until 2008,' Mr Wei said.

Marketing expense fell to 29 million yuan in the first quarter from 45 million yuan three months earlier and 64 million yuan in the previous year. Operating margin improved to 42.2 per cent from 33 per cent in the previous quarter and 5.4 per cent a year earlier.

Investment income of 249.8 million yuan, compared with 700,000 yuan a year earlier, included a net gain of 244.8 million yuan on the sale of four million Sina ordinary shares.

Shanda shares, whose value has almost doubled in the past year, rose 3.35 per cent to US$28.64 in Nasdaq after-hours trading yesterday.