Top Chinese online games firm NetEase yesterday reported "better than expected" second-quarter results, but gave a flat forecast for its core online game business in this quarter.

 

Beijing-based NetEase said its revenue in the past quarter was US$72 million, 8.6 percent up on the first quarter and a year-on-year rise of 38 percent.

 

Meanwhile, the net profit of NASDAQ-listed NetEase reached US$39.3 million or 28 US cents per diluted American depository share, a year-on-year increase of 29 percent.

 

"We experienced another quarter of solid revenue growth driven by sequential growth in all business lines," said Ding Lei, CEO and controlling director of NetEase.

 

A Shanghai-based Internet industry analyst, who wished to remain anonymous, said that the results were "better" than his expectations.

 

According to a poll by US firm Thomson Financial, analysts expected NetEase's earnings per share to be 27 US cents and its revenue to be US$68.5 million.

 

The online gaming business of NetEase, the biggest in China, grew almost 8 percent quarter-on-quarter to US$60.80 million.

 

Its advertising business grew 11.7 percent to US$8.6 million, while wireless and other revenue also rose 16 percent to US$2.6 million.

 

However, NetEase, whose profit margin on its game business rose 90.7 percent in the quarter due to its strong in-house game development capability, also saw its research and development expenses rise 50 percent quarter-on-quarter to US$5.79 million.

 

Despite its good second-quarter results, the company's shares fell 2 percent in the after-hours NASDAQ trading to US$18.30.

 

This was mainly a result of the "very conservative" forecast offered by Chief Operating Officer Michael Tong about the performance of its online gaming business in the third quarter, which is expected to either rise or fall 1 percent from this quarter's US$60.80 million.

 

Tong attributed this to the fact that many gamers were glued to their TVs during the FIFA World Cup in June and July and complaints about the alleged pro-Japanese nature of some of NetEase's games.

 

Tong said that both of these were one-off problems.

 

However, what is more worrying is that NetEase's new game Datang, which was launched on July 19, has only attracted 30,000 players.

 

"In the short term, NetEase appears to be a healthy business, but in the long term, the attractiveness of its new games remains to be seen," said the Shanghai-based analyst.

 

Shanda Interactive Entertainment, NetEase's major competitor, which is also listed on the NASDAQ, is expected to announce its results today.

 

The9 Ltd, another of NetEase's competitors, reported "better than expected" results last Thursday.

 

KongZhong Corp, one of China's major mobile value-added service providers, also released its financial results yesterday, saying its net income rose 15 percent year-on-year to US$7.6 million on sales of US$30.07 million. Its diluted earnings per share were 21 US cents.

 

The mobile value-added service business, which includes text and multimedia messages, ringtone downloads, and ringback tones, is under severe regulatory pressure, as the Chinese Government strives to prevent the spread of pornographic and violent content on mobile phones, and is cracking down on fraudsters in the sector.

 

Mobile operators such as China Mobile and China Unicom want to strengthen their controls on service providers and develop their own value-added services, further squeezing companies such as KongZhong.

 

(China Daily August 16, 2006)