- Q2 net revenues hit record high of US$74.1 million
- Q2 operating income up 8.8% quarter-over-quarter to US$32.1million
- Q2 non-GAAP net income up 16.9% quarter-over-quarter to US$31.3
million
SHANGHAI, China, Aug. 27 /Xinhua-PRNewswire/ -- Shanda Interactive Entertainment Limited (Nasdaq: SNDA), or Shanda, a leading interactive entertainment media company in China, today announced its unaudited financial results for the second quarter ended June 30, 2007.
Summary of the Second Quarter 2007:
-- Total net revenues increased 6.0% quarter-over-quarter and increased
39.1% year-over-year to a record high of RMB564.4 million (US$74.1
million), hitting the upper end of the Company's guidance of a quarter-
over-quarter growth between 3% and 6%.
-- Online game revenues, including MMORPGs and casual games, increased
7.6% quarter-over-quarter and increased 45.3% year-over-year to
RMB543.6 million (US$71.4million).
-- Active paying accounts (APA) for MMORPGs increased 16.3% quarter-over-
quarter to 2.72 million and average monthly revenue per active paying
account (ARPU) for MMORPGs declined 1.8% quarter-over-quarter to
RMB57.9.
-- Operating income increased 8.8% quarter-over-quarter and increased
167.5% year-over-year to RMB244.3million (US$32.1 million).
-- Net income was RMB415.9 million (US$54.6 million), compared to net
income of RMB448.8 million in the first quarter of 2007, and net
income of RMB133.6 million in the second quarter of 2006. Earnings per
diluted ADS were RMB5.70 (US$0.74), compared to earnings per diluted
ADS of RMB6.14 in the first quarter of 2007 and earnings per diluted
ADS of RMB1.86 in the second quarter of 2006.
-- Non-GAAP net income excluding a net gain from the disposal of SINA
Corporation ("SINA") shares was RMB238.4 million (US$31.3 million),
up 16.9% from non-GAAP net income of RMB204.0 million in the first
quarter of 2007. No adjustments to net income were made to the second
quarter of 2006. Non-GAAP earnings per diluted ADS were RMB3.28
(US$0.42), compared to non-GAAP earnings per diluted ADS of RMB2.79 in
the first quarter of 2007.
"Shanda has achieved another quarter of strong sequential growth despite seasonal weakness during the period," said Tianqiao Chen, Chairman and Chief Executive Officer of Shanda. "On the MMORPG business side, as we continue to see strong growth from our existing titles, we are proud to report that our newly launched game LaTale has, thus far, been a success under the CSP model. We have also successfully expanded our pipeline through licensing and co-developing several high-quality games, enhanced our current portfolio of content through a strategic acquisition, and entered into license agreements that will introduce several of our popular games into new markets outside of mainland China. Looking ahead, as our platform becomes stronger and more unified, as our CSP model becomes more mature, and as we continue to roll out high-quality content, we are confident that Shanda will achieve greater success in the future."
Financial Results
Net Revenues. In the second quarter of 2007, Shanda reported net revenues of RMB564.4 million (US$74.1 million), representing a 6.0% increase compared to RMB532.3 million in the first quarter of 2007 and a 39.1% increase compared to RMB405.7 million in the second quarter of 2006.
Online game revenues in the second quarter of 2007 increased 7.6% quarter-over-quarter and 45.3% year-over-year to RMB543.6 million (US$71.4 million).
Revenues from MMORPGs in the second quarter of 2007 increased 14.2% quarter-over-quarter and 55.2% year-over-year to RMB472.9 million (US$62.1 million), accounting for 83.8% of total revenues. The sequential growth in MMORPG revenues was primarily due to the continued increase of revenues generated by our existing titles, including Mir II and Woool, and initial contributions of a newly launched MMORPG, LaTale, which was commercialized in April 2007.
The number of APA of MMORPGs increased 16.3% to 2.72 million in the second quarter of 2007 from 2.34 million in the first quarter of 2007. ARPU for MMORPGs decreased 1.8% to RMB57.9 in the second quarter of 2007 from RMB59.0 in the first quarter of 2007. The significant quarter-over-quarter increase in APA is mainly due to the continued growth of users of our existing titles and the launch of LaTale. The quarter-over-quarter decrease in ARPU was primarily due to the dilution caused by the relatively low APRU generated by new APAs in the second quarter of 2007.
Revenues from casual games in the second quarter of 2007 decreased 22.3% quarter-over-quarter and increased 1.8% year-over-year to RMB70.7 million (US$9.3 million). The sequential decline in revenues from casual games was mainly a result of weaker seasonality related to student exams and the aging of BNB.
Shanda's other revenues in the second quarter of 2007 decreased 23.6% quarter-over-quarter and decreased 33.9% year-over-year to RMB20.9 million (US$2.7 million). The decrease in Shanda's other revenues was primarily due to a decline in sales of EZ products.
Gross Profit. Gross profit for the second quarter of 2007 was RMB379.5 million (US$49.8 million), up 9.4% from RMB347.0 million in the first quarter of 2007 and up 65.6% from RMB229.2 million in the second quarter of 2006. Gross margin was 67.2% in the second quarter of 2007, up from 65.2% in the first quarter of 2007 and from 56.5% in the second quarter of 2006. The sequential improvement in gross margin was primarily due to higher revenues as well as lower cost of service as a percentage of revenues. The lower cost of services as a percentage of revenues was mainly attributable to a reduction in cost of EZ products and the more efficient absorption of fixed cost of services as a result of continued revenue growth. .
Income from Operations. Operating income for the second quarter of 2007 was RMB244.3 million (US$32.1 million), representing an increase of 8.8% from RMB224.5 million in the first quarter of 2007 and an increase of 167.5% from RMB91.3 million in the second quarter of 2006. Operating margin was 43.3% in the second quarter of 2007, up from 42.2% in the first quarter of 2007 and from 22.5% in the second quarter of 2006. The sequential improvement in operating margin was primarily due to the higher gross margin, partially offset by an increase of operation expenses as a percentage of revenues. The quarter-over-quarter increase in operation expenses was mainly due to a merit-based salary raise for our employees started from June 2007, as well as to the increase in marketing promotion expenses incurred in connection with the launch of our new games during the quarter.
Share-based compensation was RMB15.1million (US$2.0 million) in the second quarter of 2007, compared to RMB11.4 million in the first quarter of 2007, as we issued new stock options in April 2007.
Investment Income. In the second quarter of 2007, Shanda reported investment income of RMB189.8 million (US$24.9 million), compared to RMB249.8 million in the first quarter of 2007 and RMB1.2 million in the second quarter of 2006. Investment income includes a net gain of RMB177.5 million (US$23.3 million), or RMB2.42 (US$0.32) per diluted ADS, on the sales of 2,118,278 ordinary shares of SINA in the second quarter of 2007. As of the end of the second quarter of 2007, Shanda had fully disposed of all its SINA shareholding.
Other Income. In the second quarter of 2007, Shanda reported other income of RMB11.2 million (US$1.5 million), representing a 47.3% increase from RMB7.6 million in the first quarter of 2007 and a 77.4% decrease from RMB49.4 million in the second quarter of 2006. The sequential increase in other income was mainly due to a reduction of foreign exchange loss from RMB5.0 million in the first quarter of 2007 to RMB1.4 million (US$0.2 million) in the second quarter of 2007. Government financial incentives amounted to RMB14.0 million (US$1.8 million) in the second quarter of 2007, compared to RMB14.4 million in the first quarter of 2007.
Net Income. In the second quarter of 2007, Shanda generated net income of RMB415.9 million (US$54.6 million), representing a decrease of 7.3% from RMB448.8 million in the first quarter of 2007, and an increase of 211.3% from RMB133.6 million in the second quarter of 2006. Earnings per diluted ADS were RMB5.70 (US$0.74), compared to earnings per diluted ADS of RMB6.14 in the first quarter of 2007 and earnings per diluted ADS of RMB1.86 in the second quarter of 2006.
Non-GAAP net income excluding a net gain from the disposal of SINA shares was RMB238.4 million (US$31.3million), up 16.9% from non-GAAP net income of RMB204.0 million in the first quarter of 2007. No adjustments to net income were made to the second quarter of 2006. Non-GAAP earnings per diluted ADS were RMB3.28 (US$0.42), compared to non-GAAP earnings per diluted ADS of RMB2.79 in the first quarter of 2007.
The conversion of Renminbi (RMB) into U.S. dollars in this release is based on the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of June 29, 2007, which was RMB7.6155 to US$1.00. 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 Shanda's stake in SINA. Shanda believes these non-GAAP financial measures are important to help investors understand Shanda's current financial performance and future prospects, compare business trends among different reporting periods on a consistent basis and access Shanda'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.
Recent Business Highlights
On May 22, 2007, Shanda announced that it has entered into an agreement with Nowcom Co., Ltd, or Nowcom, a leading Korean online game distributor and operator, for the exclusive license to operate TalesRunner, a 3D online sports-themed running game, in mainland China. The game entered commercialization in China in July 2007.
On June 8, 2007, Shanda announced it had entered into two agreements with Vietnam-based online game operator IT Investment and Development Company, or VTC Intecom. Under the agreements, VTC Intecom was granted exclusive rights to operate Woool and Crazy Kart in Vietnam for a term of three years. Shanda also entered into two agreements with the Hong Kong-based online game operator CSOFT. Under the agreements, CSOFT was granted exclusive rights to operate Magical Land and Crazy Kart in Hong Kong and Macao.
On June 13, 2007, Shanda announced it had entered into an exclusive agreement with South Korean online game developer Actoz Soft Co., Ltd. (Kosdaq: 052790), for the exclusive license to operate X-Up, a competitive, action-packed online 3D table tennis game featuring uniquely detailed characters, authentic apparel and equipment, distinct styles of play, and lifelike player animation.
On July 2, 2007, Shanda announced it had entered into an exclusive agreement with TECMO, LTD., a veteran Japanese developer to operate the online version of its flagship video game Dead or Alive, or DOA ONLINE, in mainland China, Hong Kong and Macao. Under the terms of the agreement, DOA ONLINE will be developed by TECMO, LTD.'s online game development studio "Lievo Studio", and Shanda will provide its online game-related experience and technologies to assist development.
On July 5, 2007, Shanda announced that it had signed an agreement to acquire Chengdu Aurora Technology Development Co. Ltd, or Aurora Technology, a leading developer and operator of MMORPGs in China. Established in July 2004, Aurora Technology is recognized as one of the top brands in the domestic MMORPG market, with experienced team members and strong operational capabilities. The company also has an extensive nationwide online and offline multi-channel pre-paid game card distribution network. Aurora Technology currently operates two in-house developed 3D MMORPGs, Feng Yun Online and Legend Online, in mainland China.
On July 19, 2007, Shanda announced a co-development and publishing agreement for an online-only version of THQ's critically acclaimed 3D Real-Time Strategy (RTS) PC game Company of Heroes(TM). Company of Heroes Online(TM) (working title) is currently being co-developed by THQ studio Relic Entertainment, the creators of Company of Heroes, and Shanda. As part of the agreement, Shanda has obtained the exclusive license to operate Company of Heroes Online in Mainland China, and THQ and Shanda will also share the benefits of the game's potential release outside that region.
As of early July 2007, Shanda has acquired over a 50% stake in Actoz Soft Co., Ltd ("Actoz"), a South Korea online game developer. As a result, Shanda will be the majority shareholder of Actoz and will consolidate Actoz's financial statements starting from the third quarter of 2007.
Shanda announced today that Daniel Zhang has resigned as Vice President and Chief Financial Officer of the Company, effective August 29, 2007. He will remain a member of the Board of Directors of the Company following his resignation from management. Mr. Jun Tang, currently the Company's President, will be named as an Acting Chief Financial Officer upon Mr. Zhang's departure. "We would like to thank Daniel for his great dedications to Shanda. As a member of our executive team, Daniel has made valuable contributions to the successful transitions undertaken by Shanda during his time at the company," said Tianqiao Chen, Shanda's Chairman and CEO. "We are delighted that he will continue to serve us in the capacity of a Board of Director, and wish him great success as he pursues new challenges."
Conference Call
Shanda's management team will host a conference call today at 9:00 p.m. Eastern Time, corresponding with August 28, 2007 at 9:00 a.m. Beijing/Hong Kong time, to present an overview of the company's financial performance and business operations. To participate in the live call, U.S. callers should dial 888-459-5609 and international callers should dial 973-321-1024. The conference ID number for the live call is 9091569. A live webcast of the presentation will be available at the company's corporate website at http://www.snda.com .
A replay of the conference call will be available until September 3, 2007, at midnight ET. The dial-in number for calls placed in the U.S. is 877-519-4471 and 973-341-3080 for calls placed outside of the U.S. The pass code for the replay is 9091569.
Safe Harbor Statement
This announcement contains forward-looking statements that are based on current expectations, assumptions, estimates and projections about the company and the industry. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to the statements regarding the introduction of game titles to new markets outside of mainland China, improved operation of the CSP model, the introduction of expansion packs for existing titles, the release of new MMORPG and casual game titles and the joint development of DOA ONLINE and Company of Heroes Online(TM). These forward-looking statements involve various risks and uncertainties. Although the company believes that its expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct. Important risks and uncertainties that could cause actual results to be materially different from expectations include but are not limited to the risk that there are delays in the localization and/or development of DOA ONLINE, Company of Heroes Online(TM), and our other MMORPGs and casual games that the Company intends to release in the future or operate in markets outside of mainland China, the risk that DOA ONLINE, Company of Heroes Online(TM), and our other MMORPGs and casual games are not well received by users in Mainland China or in markets outside of mainland China, the risk that the games or expansion packs fail to be commercialized or the commercialized results fail to meet the expectations of end users, and the risks set forth in Shanda's filings with the U.S. Securities and Exchanges Commission, including Shanda's annual report on Form 20-F.
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 and casual online games in China, along with 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 others 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 As of
December 31, June 30,
2006 2007
RMB RMB US$
(unaudited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents 1,291,901 2,712,889 356,233
Short-term investment 407,399 742,378 97,483
Marketable securities 1,844,966 475,654 62,459
Accounts receivable 31,685 28,011 3,678
Inventories 8,972 3,186 418
Deferred licensing fees and related
costs 27,433 38,842 5,100
Prepayments and other current assets 51,708 58,562 7,690
Deferred tax assets 17,421 21,904 2,876
Total current assets 3,681,485 4,081,426 535,937
Investments in affiliated companies 334,693 382,477 50,224
Property, equipment and software 349,153 325,938 42,799
Intangible assets 186,062 177,535 23,313
Goodwill 493,564 493,564 64,810
Long-term deposits -- -- --
Long-term prepayments 100,160 112,216 14,735
Other long-term assets -- 238,961 31,378
Total assets 5,145,117 5,812,117 763,196
LIABILITIES
Current liabilities:
Accounts payable 91,184 47,120 6,187
Licensing fees payable 14,135 13,393 1,759
Taxes payable 80,253 71,589 9,400
Deferred revenue 201,650 251,724 33,054
Licensing fees payable to a related
party 46,090 54,165 7,112
Due to related parties 3,044 3,153 414
Acquisition related obligation 3,047 3,131 411
Convertible debt due within one year 2,147,393 2,094,263 275,000
Other payables and accruals 138,017 201,842 26,505
Total current liabilities 2,724,813 2,740,380 359,842
Other long term liabilities -- 5,835 766
Total liabilities 2,724,813 2,746,215 360,608
Minority interests 2,910 2,618 345
Shareholders' equity
Ordinary shares 11,849 11,841 1,555
Additional paid-in capital 1,468,825 1,537,236 201,856
Statutory reserves 142,019 146,869 19,286
Deferred share-based compensation -- -- --
Accumulated other comprehensive gain 205,082 26,443 3,471
Retained earnings 589,619 1,340,895 176,075
Total shareholders' equity 2,417,394 3,063,284 402,243
Total liabilities and shareholders'
equity 5,145,117 5,812,117 763,196
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
For the three month periods ended,
June 30, March 31, June 30,
2006 2007 2007
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues
MMORPG 304,646 413,976 472,869 62,093
Casual game 69,439 91,023 70,701 9,283
Others 31,567 27,329 20,879 2,742
Total net revenues 405,652 532,328 564,449 74,118
Cost of services
Ongoing licensing fees
for online games -67,676 -98,288 -104,012 -13,658
Amortization of
upfront licensing
fees -11,791 -14,651 -15,063 -1,978
Server leasing and
maintenance fees -25,515 -20,457 -19,931 -2,617
Salary and benefits -12,647 -12,884 -14,028 -1,842
Depreciation of
property, equipment
and software -12,870 -14,455 -13,092 -1,719
Others -45,949 -24,581 -18,779 -2,466
Total cost of services -176,448 -185,316 -184,905 -24,280
Gross profit 229,204 347,012 379,544 49,838
Operating expenses
Product development -46,855 -27,860 -30,678 -4,028
Sales and marketing -39,168 -29,577 -38,011 -4,991
General and
administrative -51,862 -65,075 -66,577 -8,743
Total operating
expenses -137,885 -122,512 -135,266 -17,762
Income from operations 91,319 224,500 244,278 32,076
Interest income 5,510 11,216 13,046 1,713
Amortization of
convertible debt
issuance cost -4,383 -4,483 -4,511 -592
Investment income 1,196 249,765 189,765 24,918
Other income, net 49,358 7,569 11,152 1,465
Income before income
tax expenses, equity
in loss of affiliates
and minority
interests 143,000 488,567 453,730 59,580
Income tax expenses -2,077 -23,835 -38,141 -5,008
Equity in (loss) gain
of affiliates -7,431 -16,118 189 25
Minority interests 90 206 86 11
Net income 133,582 448,820 415,864 54,608
Earnings per share:
Basic 0.94 3.14 2.92 0.38
Diluted 0.93 3.07 2.85 0.37
Earnings per ADS:
Basic 1.88 6.28 5.84 0.76
Diluted 1.86 6.14 5.7 0.74
Weighted average
ordinary shares
outstanding:
Basic 142,430,444 143,163,288 142,397,374 142,397,374
Diluted 144,231,071 146,027,417 145,689,850 145,689,850
Weighted average ADS
outstanding:
Basic 71,215,222 71,581,644 71,198,687 71,198,687
Diluted 72,115,536 73,013,709 72,844,925 72,844,925
Reconciliation from
Non-GAAP measures to
GAAP measures:
Non-GAAP income 133,582 203,971 238,356 31,299
Net gain from disposal
of SINA's Stake -- 244,849 177,508 23,309
Net income 133,582 448,820 415,864 54,608
Non-GAAP diluted
earnings per ADS 1.86 2.79 3.28 0.42
Net gain from disposal
of SINA's Stake per
ADS -- 3.35 2.42 0.32
Diluted earnings per
ADS 1.86 6.14 5.7 0.74
