Shanda still on track for expansion

PUBLISHED : Saturday, 03 December, 2011, 12:00am
UPDATED : Saturday, 03 December, 2011, 12:00am


Shanda Interactive Entertainment, which owns the mainland's third-largest online games operator, expects its expansion initiatives to remain on track despite posting a 90 per cent dive in earnings during the third quarter.

The poor results followed the Shanghai-based media firm's deal last week to be privatised by a buyout group led by Chen Tianqiao, its chairman, chief executive and president.

As a result of higher operating expenses and lower gross margins between July and September, the firm's net profit plunged to 9.7 million yuan (HK$11.9 million), from 96.7 million yuan a year earlier.

That offset a 28 per cent surge in revenue to 1.77 billion yuan, from 1.38 billion yuan a year ago.

Nasdaq-listed Shanda Interactive offers a broad range of online entertainment content through subsidiaries and affiliates that include Shanda Games, Cloudary, Shanda Online and Ku6 Media.

Total operating expenses in the third quarter rose 30.6 per cent to 883.9 million yuan, from 676.8 million yuan a year ago.

While the gross margin for Shanda Games climbed to 61.3 per cent, from 59 per cent in the previous year, those of other business units came up short.

Shanda Online's gross margin fell to 66.7 per cent, from 76.2 per cent. The gross margin for the rest of the group shrunk to 1.7 per cent, from 14.5 per cent.

However, Chen noted that in the last quarter Shanda Interactive managed to continue expanding its various business segments, integrate its diverse content portfolio and invest in future growth.

'We believe these efforts will enhance our strength, competitiveness and adaptability as we continue to evolve into a leading global interactive entertainment media group,' he said yesterday.

A JPMorgan report said Shanda Interactive's 'investment phase will continue over the next one to two years'.

In a conference call with analysts yesterday, Chen declined to comment on whether there would be a change in business strategy after the company is privatised.

Shanda Interactive has agreed to be privatised under a US$2.3 billion buyout deal proposed by parent firm Premium Lead and New Era Investment. The takeover is expected to be completed in the first quarter of next year.

Premium Lead is a British Virgin Islands firm that is jointly owned by Chen, his wife, and his brother Chen Danian, who serves as the chief operating officer of Shanda Interactive.

New Era Investment is a wholly owned subsidiary of Premium Lead.

The buyout group collectively owns about 69.7 per cent of Shanda Interactive's outstanding shares.

It intends to fund the transaction through a combination of proceeds from a US$180 million loan facility provided by JPMorgan Chase, cash in the company and its subsidiaries, and cash contribution from the three Chen family members.