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Sherman So

Burning Crusade helps lift The9 above rivals
The online  gaming sector's strong momentum  on the mainland is continuing, with most industry leaders  posting better than expected  profits in the final months of  last year.
Of the top five online gaming companies, Netease, Shanda, The9 and Perfect World  beat analysts' revenue and profit  forecasts for the fourth quarter. The9 reported the best results,  after launching Burning Crusade, the highly anticipated upgrade to its hit game World of Warcraft  in September.
'[The9] benefited from a complete quarter of the Burning Crusade,' said Alicia Yap, a Citigroup analyst.
Sales  growth of  34 per cent  quarter on quarter and 50 per cent  year on year  again made The9  the mainland's third-largest online gaming company.  Revenue was US$61.3 million  in the fourth quarter,  beating Giant Interactive's US$59.6 million. Profit soared 125 per cent  to US$11.8 million from last quarter, though  still 18 per cent  lower than a year earlier.
Still, Ms Yap said The9 may struggle to keep up the pace. Gamers  had  waited long for  Burning Crusade,  launch of which had been delayed since last summer, and that anticipation drove  up sales  substantially in the fourth quarter.
'Gamers want to try out all the new content and features,' said Ms Yap. 'Afterwards, they  play less and go back to their regular hours.'
She said the  Lunar New Year also would hurt The9's first-quarter revenue this year as gamers who work in cities  returned  to their hometowns in  remote areas, where broadband connections were  more scarce.
There were also concerns about whether The9 could renew its licence with US-based Blizzard for World of Warcraft when it expires  next year, said Dick Wei, China internet analyst at JP Morgan. 'They can renew the licence but at what price?' he said.
Ms Yap's top pick in the  sector is smaller rival Perfect World. Its revenue grew 20 per cent from last quarter and 325 per cent from a year earlier to US$35.4 million. Profit  for the quarter  was US$20 million, a  turnaround from a  US$3 million loss a year earlier.
Perfect World, unlike  The9,  developed its own games rather than licensing them from others, said Ms Yap. This contributed to its much higher net  margin of 56 per cent, compared with The9's 20 per cent.
The company has the best technology of  mainland online game  providers. 'It has its own 3D engine and can develop a new game in six months, while others take several years.'
She said investors were previously  concerned the company could only  increase  its revenue by launching new games. But  in the fourth quarter,   it launched only expansion packs  for existing games.
'Still, they could achieve significant growth,' said Ms Yap. 'I think their growth is sustainable.'
The two  top online gaming firms, Shanda and Netease, are still growing despite their relatively old games.
'Netease's strong quarterly growth  of 9 per cent was beyond people's expectations,' said Ms Yap. 'We did not have high hopes for Netease.'
The second-largest gaming firm  has failed to launch a new hit for  more than two years.  But the performance of its existing lead titles, Fantasy Westward  Journey and Westward  Journey II, seemed to be  longer-lasting than people had expected, with both  seeing higher sales during winter holidays.
To  boost  revenue, Ms Yap said Netease, which  develops its own games, is working toward licensing a major hit title from aboard.
The performance of Shanda, the largest mainland gaming company,  has been the most predicable  in the sector, said Ms Yap. 'They continued to deliver and beat their own guidance,' she said.
Although most of the games Shanda runs are past their prime, by consistently adding new games and new expansion packs to existing titles,  the company has been able to  raise its revenue steadily.
Its fourth-quarter revenue grew 9 per cent quarter on quarter  to US$97.8 million and is expected to rise  6 to 9 per cent  in the first quarter.



Online gaming leaders pull earnings surprises