Shanda Profit Falls 77%

Shanda Profit Falls 77%: Source: Wall Street Journal by John Kell

Shanda Interactive Entertainment Ltd.'s third-quarter profit slid 77% as expenses jumped, while the company it spun off—Shanda Games Ltd.—saw its net decline 21% on lower revenue and margins.

The American depositary shares of Chinese online-game developer Shanda Games fell 3.3% to $5.50 in after-hours trading, while Shanda Interactive's ADS dropped 0.6% to $39.75. The bottom line for both missed analysts' estimates.

Shanda Games was spun off from Shanda Interactive, a Chinese online media company, a year ago, but Shanda Interactive still owns 78% of Shanda Games' shares and 97% of its voting rights.

Shanda Games makes most of its revenue from massively multiplayer role-playing games, the kind that support thousands of players at the same time. The market for the games has grown rapidly in China but has attracted increased government regulation as well as more software piracy. Its results make up a bulk of Shanda Interactive's business.

Shanda Interactive reported a profit of 99.3 million yuan ($14.9 million), or 1.68 yuan (26 cents) per ADS, down from 435.3 million yuan, or 6.18 yuan per ADS, a year earlier. The results include share-based compensation, which reduced Shanda Interactive's earnings by 10 cents.

Revenue inched up 0.7% to 1.39 billion yuan.

Analysts surveyed by Thomson Reuters expected a profit of 50 cents on revenue of $201 million.

Gross margin slid to 59.7% from 71.1%.

For the latest quarter, Shanda Games reported a profit of 289 million yuan, or 1.02 yuan per American depositary share, down from 366.6 million yuan, or 1.32 yuan per ADS, a year earlier. Wall Street expected 18 cents on revenue of $160 million. Gross margin narrowed to 59% from 59.3%.

Revenue from Shanda Games' massively multiplaying online role-playing games fell 17% from a year earlier and 2.9% from the second quarter. Average monthly revenue per account increased 1.5% from the second quarter, while active paying accounts were down 4.3% sequentially.

At casual games—the much smaller division for card games and the like—revenue decreased 11% from a year earlier but grew 8.8% from the second quarter. Average monthly revenue per account grew 21% from the second quarter, although active paying accounts fell 9.7%.

Shanda Games in September acquired Eyedentity Games, a Korean game developer and creator of 'Dragon Nest.' Earlier Monday, investment firm Auriga said the acquisition would add to Shanda Games' top line in the current quarter, adding the game has performed well since its launch in July.

Foreign currency conversion were based on the rate published by the People's Bank of China on Sept. 30.

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