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NetEase Profits Up As Company Eyes Call of Duty License

While major Chinese gaming network NetEase showed greatly increased profits for the first quarter of 2011, Janco analyst Mike Hickey says negotiating Chinese rights to the Call of Duty franchise could boost earnings further.
Major Chinese gaming network NetEase announced revenues for the financial quarter ended March 31 were up 25 percent from the same period a year before, to RMB1.5 billion ($234.9 million). Online game revenue of RMB1.4 billion ($211.6 million) made up the vast majority of those total sales, up 28 percent from a year before, while advertising revenue was up 39 percent to RMB126.8 million ($19.4 million). Internally developed games were responsible for most of that rise, but revenue from Blizzard's World of Warcraft - which NetEase distributes in China - was up 3 percent quarter-to-quarter as well. The increased revenues helped lead net profits to rise 63 percent year-over-year to RMB737.4 million ($112.6 million) for the quarter Janco Partners analyst Mike Hickey said he remained "grudgingly positive" on the company after the report, saying favorable market conditions are balanced by the company's "limited exposure / development within web based online games, where accelerated relative market growth is anticipated." If NetEase can extend its relationship with Activision Blizzard to include the Call of Duty franchise, however, Hickey sees the potential for an extra $50 to $100 million in sales for fiscal 2012. However, competing gaming networks Shanda and Tencent could get in the way of those plans, he warns. Despite NetEase statements regarding a successfully concluded Chinese beta test for Blizzard's Starcraft II, Hickey said he was skeptical the game would be an important part of NetEase's portfolio in the near future.

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