NetEase Sees Extra Profit On Chinese MMO Success

Leading Chinese MMO operator NetEase (Fantasy Westward Journey) has posted its second quarter 2006 earnings, revealing revenues of $72 million, a 8.6 percent jump from the previous quarter and a significant 38 percent from the same period in 2005. Despite this, however, shares of NetEase fell sharply 10.1 percent Tuesday morning to $16.80 before climbing slightly to the current trading price of $17.06. The company posted net profits of $39.3 million for the quarter, a 7 percent rise over the previous period. Revenues for NetEase's online games resulted in $60.8 million for the period, a 7.9 percent increase from the previous quarter, and key MMO Fantasy Westward Journey saw average concurrent users of 494,000 during the period. However, the new 2.5D game Datang, which launched on July 19 following a month and a half of beta testing, saw peak concurrent usage that fell well below expectations. While in beta the game saw highs of 150,000 users, this number quickly fell to around 30,000 following its commercial launch. Looking forward, the company anticipates a much flatter third quarter, with profits falling between $39 - 40.5 million on revenue between $73.2 - 75 million, down slightly from period expectations, according to Reuters Estimates. According to commentary from a Bear Stearns analyst note obtained by Gamasutra, this is due to the World Cup drawing attention away from games, as well as “an in-game misunderstanding that led to a temporary player boycott.” Despite this, Bear Stearns commented that it has maintained its rating of Outperform for shares of NetEase, with the firm noting that it plans to meet with NetEase management this week in order to get a better idea of the company's launch plans, competitive environment, and overall strategy, including NetEase's non-game business areas. Bear Stearns commented that, based on the outcome of the meeting, it may revisit its rating and estimates for NetEase going forward.