Net Revenues Grew 7.7% Over Q2 2006 to US$ 55.2 Million
-- Operating Income up 23.4% Over Q2 2006 to US $14.2 Million
SHANGHAI, China, Nov. 10 /Xinhua-PRNewswire/ -- Shanda Interactive
Entertainment Limited (Nasdaq: SNDA), or Shanda, a leading interactive
entertainment media company in China, today announced its unaudited financial
results for the third quarter ended September 30, 2006.
Summary of the Third Quarter 2006:
-- Total net revenues increased 7.7% quarter-over-quarter and decreased
12.6% year-over-year to RMB436.8 million (US$ 55.2 million).
-- Online game revenues, including MMORPGs and casual games, increased
9.4% quarter-over-quarter and decreased 6.6% year-over-year to RMB409.1
million (US$ 51.7 million).
-- Average monthly revenue per active paying account for MMORPGs increased
13.4% quarter-over-quarter to RMB51.6.
-- Operating income increased 23.4% quarter-over-quarter and decreased
25.7% year-over-year to RMB112.7 million (US$14.2 million).
-- Net income was RMB143.5 million (US$ 18.1 million), compared to net
income of RMB133.6 million in the second quarter of 2006 and RMB261.1
million in the third quarter of 2005. Earnings per diluted ADS were RMB
1.98 (US$ 0.26), compared to earnings per diluted ADS of RMB 1.86 in
the second quarter of 2006 and RMB 3.56 in the third quarter of 2005.
"Shanda posted solid third quarter results which were primarily driven by
growth in our MMORPG and casual game business over second quarter 2006
levels," said Tianqiao Chen, Chairman & Chief Executive Officer of
Shanda. "The continuous growth illustrates again that the new revenue model
is sustainable and scalable. We believe this new model has now justified
itself as an effective way to most efficiently discover and satisfy user
demands, extend the life cycle of games and build a sustainable community
experience for our interactive entertainment offerings. The successful
transition has once again proven that Shanda's core competence lies in its
operational ability to quickly address changing user demands. We are also
excited about the MMORPGs and casual games in our pipeline. In the fourth
quarter, we plan to commercially launch Dungeons & Dragons(R) Online in
addition to the launch of three new casual games including Kong-Fu Masters."
Financial Results (Preliminary Unaudited)
Net Revenues. In the third quarter of 2006, Shanda reported net revenues
of RMB436.8 million (US$ 55.2 million), representing a 7.7% increase compared
to RMB405.7 million in the second quarter of 2006 and a 12.6% decrease from
RMB499.7 million in the third quarter of 2005.
Online game revenues in the third quarter of 2006 increased 9.4% quarter-
over-quarter and declined 6.6% year-over-year to RMB409.1 million (US$51.7
million). Total peak concurrent users for all Shanda games in commercial
service in the third quarter of 2006 decreased 8.0% to 2.06 million from 2.24
million in the second quarter of 2006. The sequential decline of peak
concurrent users was primarily due to the launch of a larger-scale campaign
to combat robot-cheating programs in our MMORPGs in the third quarter to
improve the integrity of the game experience as well as reduce server leasing
and maintenance costs.
Revenues from MMORPGs in the third quarter of 2006 increased 9.1% quarter-
over-quarter and were flat year-over-year at RMB332.3 million (US$42.0
million), accounting for 76.1% of total revenues. The sequential growth in
MMORPGs revenues is primarily due to increased revenues from Mir II and
Magical Land, as well as initial contributions from ArchLord.
The number of active paying accounts for MMORPGs was 2.14 million in the
third quarter of 2006, compared to 2.23 million in the second quarter of
2006. The reduction in active paying accounts was primarily caused by the
implementation of anti-robot-cheating techniques to improve game experience
and reduce operating costs. Average monthly revenue per active paying account
for MMORPGs increased to RMB51.6 in the third quarter of 2006 from RMB45.5 in
the second quarter, due to increased consumption of in-game premium features.
In the third quarter, Shanda continued to improve upon its virtual shopping
malls and value-added services.
Revenues from casual games in the third quarter of 2006 increased 10.7%
quarter-over-quarter and decreased 27.9% year-over-year to RMB76.8 million
(US$9.7 million). The sequential increase in revenues from casual games was
primarily due to the improved performance of Maple Story, BNB, and GetAmped,
as well as seasonality related to the summer holiday during this quarter.
Shanda's other revenues in the third quarter of 2006 decreased 12.5%
quarter-over-quarter and 55.1% year-over-year to RMB27.7 million (US$3.5
million). The sequential decrease was primarily due to a seasonal decline in
EZ Products sales in the third quarter of 2006.
Gross Profit.
Gross margin was 56.2% in the third quarter of 2006, down from 56.5% in
the second quarter of 2006 and 68.9% in the third quarter of 2005.
Income from Operations.
Operating income for the third quarter of 2006 was RMB112.7 million
(US$14.2 million), representing a 23.4% increase compared to RMB91.3 million
in the second quarter of 2006 and a 25.7% decrease compared to RMB151.7
million in the third quarter of 2005. Operating margin was 25.8% in the third
quarter of 2006, compared to 22.5% in the second quarter of 2006 and 30.4% in
the third quarter of 2005. The sequential improvement of operating margin
resulted from higher revenues as well as lower operating expenses. The
decrease in operating expenses was mainly due to the decline of EZ initiative
research & development expenses and the reduction in sales & marketing
expenses caused from further budget control, partially offset by increase in
share-based compensation and provisions for doubtful debts. Share-based
compensation was up from RMB6.1 million in the previous quarter to RMB10.9
million (US$1.4 million) in the third quarter of 2006, as new stock options
were issued at the end of June 2006.
Other Income.
In the third quarter of 2006, Shanda reported other income of RMB47.8
million (US$6.0 million), representing a decrease of 3.1% from RMB49.4
million in the second quarter of 2006 and a decrease of 46.3% from RMB89.1
million in the third quarter of 2005. Other Income primarily consists of
government financial incentives of RMB 29.1 million (US$ 3.7 million)
received in the third quarter of 2006 and a foreign exchange gain of RMB 20.9
million (US$ 2.6 million).
Net Income.
In the third quarter of 2006, Shanda had net income of RMB143.5 million
(US$18.1 million), compared to net income of RMB133.6 million in the second
quarter of 2006 and RMB261.1 million in the third quarter of 2005. Earnings
per diluted ADS were RMB 1.98(US$ 0.26), compared to earnings per diluted ADS
of RMB 1.86 in the second quarter of 2006 and RMB 3.56 in the third quarter
of 2005.
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 September 30, 2006, which was RMB7.9087 to
US$1.00. The percentages stated in this press release are calculated based on
the RMB amounts.
Recent Business Highlights
On September 7, Shanda, its affiliated company Interjoy Technology Ltd.
and the Chinese Academy of Sciences' Institute of Automation announced they
will work closely together to establish a Digital Interactive Entertainment
Laboratory, or the Lab, to develop the latest digital interactive
entertainment technology. In addition to continuously providing healthy and
customized intelligent interactive games for Shanda's home entertainment
platform, the Lab will also focus on the application of digital interactive
entertainment technologies and will train Masters and doctorate students as
well as employees from Shanda's research and development department.
On October 26, 2006, Shanda announced that it entered into an agreement
with JoyChina, a leading Chinese game developer headquartered in Beijing, for
an exclusive license to operate a 3D advanced casual game entitled Kong-Fu
Masters globally excluding Hong Kong and Taiwan. Kong-Fu Masters, which is
expected to enter open-beta testing by end of 2006, is a martial arts
fighting game featuring a cast of well-known characters from Chinese folklore
and history including the Monkey King and Mulan, and brings users a new level
of visual sophistication and dynamic gameplay.
On November 6, 2006, Shanda announced that it has entered into an
agreement with Citigroup Global Markets Inc. for the sale by Shanda of an
aggregate of 3,703,487 ordinary shares of SINA Corporation representing an
aggregate net proceeds of approximately US$ 99,105,312. The sale of the SINA
shares was completed on November 9, 2006. Following the sale, Shanda will
continue to hold 6,118,278 SINA shares, representing approximately 11.4% of
the issued and outstanding share capital of SINA based on information
furnished by SINA in their public filings.
Other News
At Shanda's annual general meeting of shareholders held on October 25,
2006, the Company's shareholders elected nine directors to its Board. The
elected directors include six prior directors and three new directors. Each
director will hold office until the next annual general meeting of
shareholders. The three new directors are Qunzhao Tan, Yong Zhang and Bruno
Wu. Haibin Qu, Shujun Li and W. Mark Evans retired from their positions as
directors.
Conference Call
Shanda's management team will host a conference call today at 8:00 p.m.
Eastern Time, corresponding with November 10, 2006, 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 888-371-9318 and international callers should dial 973-935-2986. The
pass code for the live call is 8041452. 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 November 16,
2006, 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 8041452.
Safe Harbor Statement
This announcement contains forward-looking statements that are based on
current expectations, assumptions, estimates and projections about the
companies 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 commercial launch
of Dungeons & Dragons(R) Online and the launch of Kong-Fu Masters and two
additional casual games in the fourth quarter of 2006, results yielded by the
cooperation between the three parties and statements regarding the date open-
beta testing of Kong-Fu Masters is expected to begin. These forward-looking
statements involve various risks and uncertainties. Although the companies
believe that their expectations expressed in these forward-looking statements
are reasonable, they cannot assure you that their expectations will turn out
to be correct. Important risks and uncertainties could cause actual results
to be materially different from expectations include but not limited to the
risk that there are delays in the localization and/or development of the
MMORPGs and casual games Shanda intends to release in 2006, the risk that
such MMORPGs and casual games are not well received by users in China, the
risk that the cooperation fails to yield the intended results, the risk that
the results fail to be commercialized or the commercialized results fail to
meet the expectations of end users, the risk that open-beta testing of Kong-
Fu Masters is delayed 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, September 30,
2005 2006
RMB RMB US$
(audited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents 949,622 1,072,765 135,644
Restricted cash 150,779 5,551 702
Short-term investment 126,360 150,132 18,983
Marketable securities 1,933,674 1,963,823 248,312
Accounts receivable 81,127 36,874 4,662
Inventories 28,481 6,409 810
Due from related parties -- 4,000 506
Deferred licensing fees and
related costs 24,067 26,887 3,400
Prepayments and other current assets 41,085 29,727 3,759
Deferred tax assets 17,125 13,473 1,703
Total current assets 3,352,320 3,309,641 418,481
Investments in affiliated companies 328,582 321,970 40,711
Property, equipment and software 258,352 272,443 34,449
Intangible assets 212,315 202,928 25,659
Goodwill 245,092 493,564 62,408
Long-term deposits 2,863 2,270 287
Long-term prepayments 18,158 89,048 11,259
Other long-term assets 52,771 17,130 2,166
Total assets 4,470,453 4,708,994 595,420
LIABILITIES
Current liabilities:
Accounts payable 65,390 45,734 5,783
Licensing fees payable 18,158 18,788 2,376
Taxes payable 37,045 42,036 5,315
Deferred revenue 172,455 207,555 26,244
Licensing fees payable to a
related party 13,830 46,669 5,901
Due to related parties 3,040 3,044 385
Acquisition related obligation 158,430 10,402 1,315
Other payables and accruals 141,552 134,656 17,026
Total current liabilities 609,900 508,884 64,345
Convertible debt 2,219,305 2,174,893 275,000
Total liabilities 2,829,205 2,683,777 339,345
Minority interests 3,389 2,961 375
Shareholders' equity
Ordinary shares 11,751 11,827 1,495
Additional paid-in capital 1,397,092 1,445,114 182,725
Statutory reserves 87,619 94,138 11,903
Deferred share-based
compensation (3,595) -- --
Accumulated other comprehensive
gain 30,182 73,986 9,355
Retained earnings 114,810 397,191 50,222
Total shareholders' equity 1,637,859 2,022,256 255,700
Total liabilities and
shareholders' equity 4,470,453 4,708,994 595,420
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
For the three months period ended,
September 30, June 30, September 30,
2005 2006 2006
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues
MMORPG 331,467 304,646 332,292 42,016
Casual game 106,633 69,439 76,845 9,716
Others 61,565 31,567 27,632 3,494
Total net revenues 499,665 405,652 436,769 55,226
Cost of services
Ongoing licensing fees for
online games (70,303) (67,676) (82,242) (10,399)
Amortization of upfront
licensing fees (12,164) (11,791) (13,310) (1,683)
Server leasing and
maintenance fees (22,963) (25,515) (24,273) (3,069)
Salary and benefits (12,122) (12,647) (13,441) (1,699)
Depreciation of property,
equipment and software (11,526) (12,870) (13,310) (1,683)
Others (26,216) (45,949) (44,741) (5,657)
Total cost of services (155,294) (176,448) (191,317) (24,190)
Gross profit 344,371 229,204 245,452 31,036
Operating expenses
Product development (46,122) (46,855) (35,965) (4,548)
Sales and marketing (78,273) (39,168) (31,860) (4,028)
General and administrative (68,249) (51,862) (64,953) (8,213)
Total operating expenses (192,644) (137,885) (132,778) (16,789)
Income from operations 151,727 91,319 112,674 14,247
Interest income 6,893 5,510 5,863 741
Amortization of convertible
debt issuance cost (4,798) (4,383) (4,402) (557)
Investment income 400 1,196 141 18
Other income, net 89,120 49,358 47,832 6,048
Income before income tax
expenses, equity in loss of
affiliates and minority
interests 243,342 143,000 162,108 20,497
Income tax expenses 18,623 (2,077) (15,877) (2,007)
Equity in loss of affiliates (1,425) (7,431) (2,909) (368)
Minority interests 599 90 203 26
Net income 261,139 133,582 143,525 18,148
Earnings per share:
Basic 1.83 0.94 1.00 0.13
Diluted 1.78 0.93 0.99 0.13
Earnings per ADS:
Basic 3.66 1.88 2.00 0.26
Diluted 3.56 1.86 1.98 0.26
Weighted average ordinary shares
outstanding:
Basic 142,469,921 142,430,444 142,903,595 142,903,595
Diluted 147,094,084 144,231,071 144,732,342 144,732,342
Weighted average ADS
outstanding:
Basic 71,234,961 71,215,222 71,451,798 71,451,798
Diluted 73,547,042 72,115,536 72,366,171 72,366,171
