Shanda, Kongzhong revenue growth soars
By Liu Baijia (China Daily)
Updated: 2004-08-11 08:42

Chinese online game operator Shanda Interactive Entertainment Limited and mobile value-added service provider Kongzhong Corp achieved soaring revenues in the second quarter with diversified product offerings.

NASDAQ-listed Shanda said yesterday its revenues for the quarter more than doubled those of the same period a year ago to US$36.5 million.

Its profits reached US$17 million, 75.3 per cent higher than the same period last year, or 24 US cents per diluted American Depository Share (ADS), compared with 15 US cents per ADS a year ago.

"We have continued to strengthen our leadership position with a quarter of strong growth of revenues, users and profits," said Chen Tianqiao, chairman and chief executive officer (CEO) of the biggest online game operator.

Chen attributed the rapid growth to the increasing numbers of game players and diversified product offerings.

The number of Shanda's concurrent players grew by 16.8 per cent quarter-on-quarter to 798,000 in the past quarter.

Revenues from multi player online role play games in the second quarter reached US$28.8 million, 13 per cent higher than the first quarter.

Casual games, a comparatively new business, generated US$5.8 million in revenue, 85 per cent higher than the previous quarter.

Revenues from game-related merchandise, wireless messages and online advertising increased sharply from US$411,000 in the first quarter to US$1.9 million in the April-June period.

Wallace Cheung, an analyst with Hong Kong-based DBS Vickers, said: "The results are very brilliant and much beyond the expectations of many analysts."

The price of Shanda's ADS rose to US$21.29 in after-hour trading from a market close of US$18.72, after the announcement of the second quarter results.

Cheung said the robust growth of casual games and other revenues was a big factor in Shanda's good performance.

Jim Sun, a senior telecom and Internet analyst with London-based Evolution Securities, gave a 'buy' rating to Shanda.

"While the market is cautious about wireless service companies, the good performance of Shanda has attracted many investors," Sun said.

DBS Vickers' Cheung estimated Shanda will achieve 10 per cent quarter-on-quarter growth in the third quarter.

On the same day, Beijing-based Kongzhong also reported record revenues of US$11.97 million in the second quarter, rising almost eight-fold.

Profits stood at US$5.3 million, almost 21 times higher than those in the same period last year. Its diluted earnings per ADS was 19 US cents, compared with 1 US cent one year ago.

The price of the company's ADS gained 2 per cent in after-hour trading to US$8.48.

Zhou Yunfan, chairman and CEO of Kongzhong, said he believed the fast growth of the company's 2.5G wireless services based on the 2.5-generation mobile system was a major driving engine.

Kongzhong's 2.5G services, which include multimedia messaging services (MMS), wireless application protocols and JAVA downloads, grew by 950 per cent year-on-year to US$9.61 million.

Traditional 2G services including text messaging service (SMS), interactive voice response and ringback tones, grew by 655 per cent year-on-year to US$2.36 million in the past quarter, but its contribution to the company shrank from 27 per cent in the first quarter to 20 per cent.

"Kongzhong's second quarter results are excellent," said Sun from Evolution Securities.

He believed the focus on high-end 2.5G services would help the company offset the decline of SMS, which has become a trend in the industry.

Major wireless value-added service providers Sohu.com Inc, Netease.com Inc, and Linktone have already experienced declines in SMS, which is their dominant wireless revenue pool.

Zhou Yunfan also said his company's SMS revenues would fall this quarter.

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