Third Quarter 2007 Net Revenues Increased 16.3% QoQ and 50.3% YoY to US$87.4 million, EPS per ADS US$0.44, Results Top Guidance
SHANGHAI, China, Nov. 28 /Xinhua-PRNewswire/ -- Shanda Interactive Entertainment Limited (Nasdaq: SNDA), or Shanda, a leading interactive entertainment media company in China, today announced its unaudited consolidated financial results for the third quarter ended September 30, 2007.
Third Quarter 2007 Highlights:
-- Consolidated net revenues achieved a record high of RMB656.3 million
(US$87.4 million), an increase of 16.3% QoQ and 50.3% YoY, exceeding
the upper end of the Company's guidance of QoQ growth between 8% and
11%.
-- Online game revenues, including MMORPGs and casual games, was
RMB633.7 million (US$84.4million), an increase of 16.6% QoQ and 54.9%
YoY.
-- Gross profit was RMB457.9 million (US$61.0 million), an increase of
20.6% QoQ and 86.6% YoY.
-- Operating income was RMB257.9 million (US$34.3 million), an increase
of 5.6% QoQ and 128.9% YoY. Operating margin was 39.3% in the third
quarter of 2007, compared to the Company's guidance of no less than
35%.
-- Net income was RMB238.9 million (US$31.8 million), compared to
adjusted net income of RMB238.4 million in the second quarter of 2007
(excluding the net gain of RMB177.5 million from the disposal of SINA
shares), and net income of RMB143.5 million in the third quarter of
2006.
-- Earnings per diluted ADS were RMB3.26 (US$0.44), compared to adjusted
earnings per diluted ADS of RMB3.28 in the second quarter of 2007
(excluding the net gain of RMB2.42 per diluted ADS from the disposal
of SINA shares) and earnings per diluted ADS of RMB1.98 in the third
quarter of 2006.
-- Active paying accounts (APA) for MMORPGs increased 13.2% QoQ to 3.08
million.
-- Average monthly revenue per active paying account (ARPU) for MMORPGs
increased 3.0% QoQ to RMB59.7.
"Our game revenues reached a record high in the third quarter due to the strong organic growth of our main titles," said Tianqiao Chen, Chairman and Chief Executive Officer of Shanda. "Leveraging our CSP model and operating platform, we introduced new expansion packs and held special promotions during the summer holidays, which translated to growth in both our ARPU and APA. We have also built a strong game pipeline for 2008 to include a series of exciting new MMORPGs, casual games and expansion packs. We believe the growth of our content will allow us to continue to expand our business going forward."
Conference Call and Webcast Notice
Shanda will host a conference call on November 28, 2007 at 9:00 a.m. Beijing/Hong Kong time, corresponding with November 27, 2007 at 8:00 p.m. Eastern Standard Time, to present an overview of the Company's financial performance and business operations. A live webcast of the conference call will be available on the Company's corporate website at http://www.snda.com.
Financial Results
Net Revenues
Shanda reported net revenues of RMB656.3 million (US$87.4 million) for the third quarter of 2007, representing a 16.3% increase compared to RMB564.4 million in the second quarter of 2007 and a 50.3% increase compared to RMB436.8 million in the third quarter of 2006.
Online game revenues in the third quarter of 2007 increased 16.6% quarter-over-quarter and 54.9% year-over-year to RMB633.7 million (US$84.4 million).
Revenues from MMORPGs in the third quarter of 2007 increased 16.6% quarter-over-quarter and 66.0% year-over-year to RMB551.5 million (US$73.4 million), accounting for 84.0% of net revenues. The sequential growth in MMORPG revenues was primarily due to continued increase in revenues generated by the Company's major titles, including Mir II, Woool and Latale, and an initial contribution from Feng Yun Online, which was acquired in conjunction with the Company's acquisition of Aurora Technology Development Co. Ltd. ("Aurora"), in July 2007.
The number of APA of MMORPGs increased 13.2% to 3.08 million in the third quarter of 2007 from 2.72 million in the second quarter of 2007. ARPU for MMORPGs increased 3.0% to RMB59.7 in the third quarter of 2007 from RMB57.9 in the second quarter of 2007. The quarter-over-quarter increase in APA is mainly due to the continued growth of users of existing titles and the initial contribution from Feng Yun Online. The quarter-over-quarter increase in ARPU was primarily due to an increased consumption of in-game premium features in connection with the launching of new expansion packs for the Company's major titles and in-game promotions.
Revenues from casual games in the third quarter of 2007 increased 16.2% quarter-over-quarter and 6.9% year-over-year to RMB82.2 million (US$10.9 million). The sequential increase in revenues from casual games was due to the release of new expansion packs for Maple Story, GetAmped, Crazy Kart and Tales Runner, as well as the seasonal revenue improvement related to students' summer holidays.
Gross Profit
Gross profit for the third quarter of 2007 was RMB457.9 million (US$61.0 million), an increase of 20.6% from RMB379.5 million in the second quarter of 2007 and 86.6% from RMB245.5 million in the third quarter of 2006. Gross margin was 69.8% in the third quarter of 2007, compared to 67.2% in the second quarter of 2007 and 56.2% in the third quarter of 2006. The sequential improvement in gross margin was primarily due to the consolidation of Korean software developer Actoz Soft Co., Ltd. ("Actoz") into Shanda's financial statements from the third quarter of 2007, which reduced the Company's licensing fees relating to Mir II.
Income from Operations
Operating income for the third quarter of 2007 was RMB257.9 million (US$34.3 million), an increase of 5.6% from RMB244.3 million in the second quarter of 2007 and 128.9% from RMB112.7 million in the third quarter of 2006. Operating margin was 39.3% in the third quarter of 2007, compared to 43.3% in the second quarter of 2007 and 25.8% in the third quarter of 2006. The quarter-over-quarter change in operating margin was primarily due to the increased operating expenses from the consolidation of Actoz, an increase in marketing expenses during the summer holidays, and the full-quarter increase in payroll costs as a result of employee salary raises commencing from June 2007.
Excluding the consolidation of Actoz and Aurora, gross margin and operating margin for the third quarter of 2007 would have been 65.9% and 40.4%, respectively.
Non-Operating Income
Net non-operating income for the third quarter of 2007 was RMB29.0 million (US$3.9 million), compared to RMB209.7 million in the second quarter of 2007 and RMB46.7 million in the third quarter of 2006. The major difference is investment income of RMB177.5 million recorded from the disposal of SINA shares in the second quarter of 2007. Non-operating income contributed from government financial incentives amounted to RMB14.9 million (US$2.0 million) in the third quarter of 2007, compared to RMB14.0 million in the second quarter of 2007 and RMB29.1 million in the third quarter of 2006.
Net Income
Net income for the third quarter of 2007 was RMB238.9 million (US$31.8 million), compared to adjusted net income of RMB238.4 million in the second quarter of 2007 (excluding the net gain of RMB177.5 million from the disposal of SINA shares), and net income of RMB143.5 million in the third quarter of 2006. Earnings per diluted ADS for the third quarter of 2007 were RMB3.26 (US$0.44), compared to adjusted earnings per diluted ADS of RMB3.28 in the second quarter of 2007 (excluding the net gain of RMB2.42 per diluted ADS from the disposal of SINA shares) and earnings per diluted ADS of RMB1.98 in the third quarter of 2006. Earnings per diluted ADS including the gain on the disposal of SINA shares were RMB5.70 per diluted ADS in the second quarter of 2007.
The conversion of Renminbi (RMB) into U.S. dollars in this release is based on RMB7.5108 to US$1.00 as published by the People's Bank of China on September 28, 2007. The percentages stated in this press release are calculated based on the RMB amounts.
Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with generally accepted accounting principals in the United States, or GAAP, this press release includes non-GAAP financial measures of adjusted net income and adjusted earning per ADS, each of which is adjusted to exclude the net gain from disposal of the Company's stake in SINA. The Company believes these non-GAAP financial measures are important to help investors understand the Company's current financial performance and future prospects, compare business trends among different reporting periods on a consistent basis and access the Company's core operating results. These non-GAAP financial measures should be considered in addition to financial measures prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, financial measures prepared in accordance with GAAP. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure, please see the financial statements included with this press release.
Important Events & Announcements:
-- Shanda obtained an exclusive license to operate an online free-
running game FreeJack in mainland China, Hong Kong and Macao.
(2007/09/04)
-- Shanda announced the appointment of Donald Chan as Senior Vice
President of Shanda's new in-game advertising ("IGA") business.
(2007/10/23)
-- Shanda announced three new online games currently under development
for 2008 pipeline: Gui Chui Deng Online, Creation of the Gods and
World Hegemony. (2007/10/26)
-- Shanda and NCsoft announced a strategic alliance pursuant to which
Shanda will become a strategic investor of NCsoft's Chinese
subsidiary, NCsoft China. Shanda also obtained an exclusive license
to operate AION: The Tower of Eternity, NCsoft's highly-anticipated
3D MMORPG, in mainland China. (2007/11/06)
-- Shanda's US$275 million Principal Amount of Zero Coupon Senior
Convertible Notes due 2014 have been fully redeemed. (2007/11/15)
-- Shanda announced the appointment of Grace Wu as the Company's Chief
Financial Officer. (2007/11/28)
* Please visit Shanda's website (http://www.snda.com) for details about
these and other announcements.
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements in this announcement that are not historical facts, including but not limited to statements regarding the Company's pipeline of games and expectations of future growth, represent only the Company's current expectations, assumptions, estimates and projections and are forward-looking statements. These forward-looking statements involve various risks and uncertainties. Important risks and uncertainties that could cause the Company's actual results to be materially different from expectations include but are not limited to that the newly added titles in our pipeline may not be well received by the users and the risks set forth in the Company's filings with the U.S. Securities and Exchange Commission, including the Company's annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
About Shanda Interactive Entertainment Limited
Shanda Interactive Entertainment Limited (Nasdaq: SNDA) is a leading interactive entertainment media company in China. Shanda offers a portfolio of diversified entertainment content including some of the most popular massively multi-player online role-playing games (MMORPGs) and casual online games in China, as well as online chess and board games, network PC games and a variety of cartoons, literature works and music. Shanda's interactive entertainment platform attracts a large and loyal user base, of which more and more is coming from homes. Each user can interact with thousands of other users and enjoy the interactive entertainment content that Shanda provides. Interaction enriches your life. For more information about Shanda, please visit http://www.snda.com.
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands)
As of December 31, As of September 30,
2006 2007
RMB RMB US$
(audited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents 1,291,901 3,679,836 489,939
Short-term investment 407,399 437,836 58,294
Marketable securities 1,844,966 469,025 62,447
Accounts receivable 31,685 37,248 4,959
Inventories 8,972 2,873 383
Deferred licensing fees
and related costs 27,433 52,804 7,030
Prepayments and other
current assets 51,708 110,572 14,723
Deferred tax assets 17,421 66,909 8,908
Total current assets 3,681,485 4,857,103 646,683
Investments in affiliated
companies 334,693 3,704 493
Property, equipment and
software 349,153 332,223 44,233
Intangible assets 186,062 373,878 49,779
Goodwill 493,564 608,647 81,036
Long-term deposits -- 59,849 7,968
Long-term prepayments 100,160 124,148 16,529
Other long-term assets -- 187,641 24,983
Non-current deferred tax assets 72,578 9,663
Total assets 5,145,117 6,619,771 881,367
LIABILITIES
Current liabilities:
Accounts payable 91,184 44,234 5,890
Licensing fees payable 14,135 84,842 11,296
Taxes payable 80,253 164,914 21,957
Deferred revenue 201,650 417,452 55,580
Licensing fees payable to
a related party 46,090 -- --
Due to related parties 3,044 3,044 405
Acquisition related obligation 3,047 2,955 393
Convertible debt due
within one year 2,147,393 2,065,470 275,000
Other payables and accruals 138,017 207,497 27,627
Deferred tax liabilities 6,302 839
Total current liabilities 2,724,813 2,996,710 398,987
Other long term liabilities -- 7,528 1,002
Non-current deferred tax
liabilities 37,197 4,952
Total liabilities 2,724,813 3,041,435 404,941
Minority interests 2,910 225,109 29,972
Shareholders' equity
Ordinary shares 11,849 11,931 1,589
Additional paid-in capital 1,468,825 1,593,283 212,132
Statutory reserves 142,019 146,869 19,554
Deferred share-based
compensation --
Accumulated other
comprehensive gain 205,082 21,372 2,845
Retained earnings 589,619 1,579,772 210,334
Total shareholders' equity 2,417,394 3,353,227 446,454
Total liabilities and
shareholders' equity 5,145,117 6,619,771 881,367
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
For the three month periods ended,
September 30, June 30, September 30,
2006 2007 2007
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues
MMORPG 332,292 472,869 551,483 73,425
Casual game 76,845 70,701 82,177 10,941
Others 27,632 20,879 22,656 3,017
Total net
revenues 436,769 564,449 656,316 87,383
Cost of services
Ongoing
licensing fees
for online
games (82,242) (104,012) (86,154) (11,471)
Amortization of
upfront
licensing fees (13,310) (15,063) (31,649) (4,214)
Server leasing
and maintenance
fees (24,273) (19,931) (23,136) (3,080)
Salary and
benefits (13,441) (14,028) (19,106) (2,544)
Depreciation of
property,
equipment
and software (13,310) (13,092) (13,845) (1,843)
Others (44,741) (18,779) (24,510) (3,263)
Total cost of
services (191,317) (184,905) (198,400) (26,415)
Gross profit 245,452 379,544 457,916 60,968
Operating
expenses
Product
development (35,965) (30,678) (49,923) (6,647)
Sales and
marketing (31,860) (38,011) (60,749) (8,088)
General and
administrative (64,953) (66,577) (89,339) (11,895)
Total operating
expenses (132,778) (135,266) (200,011) (26,630)
Income from
operations 112,674 244,278 257,905 34,338
Interest income 5,863 13,046 19,403 2,583
Amortization of
convertible
debt issuance
cost (4,402) (4,511) (4,138) (551)
Investment
income 141 189,765 14,864 1,979
Other income,
net 47,832 11,152 5,695 759
Income before
income tax
expenses,
equity in loss
of affiliates
and minority
interests 162,108 453,730 293,729 39,108
Income tax
expenses (15,877) (38,141) (48,028) (6,394)
Equity in (loss)
gain of
affiliates (2,909) 189 (510) (69)
Minority
interests 203 86 (6,315) (841)
Net income 143,525 415,864 238,876 31,804
Earnings per
share:
Basic 1.00 2.92 1.67 0.22
Diluted 0.99 2.85 1.63 0.22
Earnings per
ADS:
Basic 2.00 5.84 3.34 0.44
Diluted 1.98 5.70 3.26 0.44
Weighted average
ordinary shares
outstanding:
Basic 142,903,595 142,397,374 143,358,691 143,358,691
Diluted 144,732,342 145,689,850 146,389,982 146,389,982
Weighted average
ADS
outstanding:
Basic 71,451,798 71,198,687 71,679,346 71,679,346
Diluted 72,366,171 72,844,925 73,194,991 73,194,991
Reconciliation
from Non-GAAP
measures to
GAAP measures:
Non-GAAP income 143,525 238,356 238,876 31,804
Net gain from
disposal of
Sina's Stake -- 177,508 -- --
Net income 143,525 415,864 238,876 31,804
Non-GAAP diluted
earnings per
ADS 1.98 3.28 3.26 0.44
Net gain from
disposal of
Sina's Stake
per ADS -- 2.42 -- --
Diluted earnings
per ADS 1.98 5.7 3.26 0.44
