Online game leader Shanda posts 21.8pc profit rise

PUBLISHED : Wednesday, 27 February, 2008, 12:00am
UPDATED : Wednesday, 27 February, 2008, 12:00am

Shanda Interactive Entertainment, the largest online game company on the mainland, reported a 21.8 per cent increase in fourth-quarter profit after it upgraded titles and strengthened promotions.

Profit for the quarter hit US$40.1 million, as sales surged 51.8 per cent to US$97.8 million from a year earlier. Diluted earnings per share were 54 US cents, beating a consensus estimate by analysts of 45 US cents.

The company expected first-quarter revenue to grow another 6 per cent to 9 per cent to between US$103.6 million and US$106.6 million, against a consensus estimate of US$97.5 million.

Active paying accounts at the Shanghai-based company increased 12.7 per cent from the previous quarter to 3.47 million, but the average rate dropped 3.1 per cent to 57.8 yuan per month.

Players were drawn to Shanda's games because of the release of upgrade packs and promotions, said Citigroup analyst Alicia Yap.

The launch of World Hegemony, however, did not boost revenue significantly. Seventy per cent of Shanda's revenue still came from two older titles, Mir II and World of Legend, Ms Yap said.

World Hegemony 'is only a small game', Ms Yap said.

Shanda's portfolio is diverse compared with other leading mainland game companies, said Dick Wei, China internet analyst at JP Morgan.

More than 90 per cent of revenue at The9 comes from World of Warcraft and the same is true for Giant Interactive with its title ZT Online.

'By comparison, Shanda is less risky. The diverse game portfolio also provides opportunities for cross-selling,' Mr Wei said.

Shanda operates 11 games and plans to launch eight more in the next two years. It also runs a set of casual games, such as card games, which account for 12 per cent of its total revenue.

Ms Yap expected the company to fuel growth by launching new upgrade packs and promotions. However, to boost revenue significantly, it would need another big hit, she said.

Changchun, a game from Wemade Entertainment of South Korea - the developer of Mir II - is the most anticipated title in Shanda's pipeline. It is due in the first half of this year.

However, Ms Yap said the game might drain users from Mir II and affect the company's sales growth.

Mr Wei said another game to watch for was Aion, expected to be launched next year.