Shanda Interactive Posts Q2 Decline, Beats Estimates

Shanghai-based Chinese MMO/casual game developer and publisher Shanda Entertainment (Legend Of Mir II) has announced its second quarter 2006 earnings, during which it reported quarterly profits that beat Wall Street estimates, despite falling 40 percent to $16.7 million. In addition, the company also saw its revenue decline for the quarter by 25 percent to $50.7 million, down from the $67.5 million posted during the same period in 2005. However, the reported revenues still beat financial analyst firm Bear Stearns' revenue estimates of $42 million for the period. Revenue derived from Shanda's massively multiplayer online role-playing games (MMORPG), which make up 75 percent of the company's sales and includes the popular Legend of Mir II, dropped off by 16 percent from the same period a year ago, to $38.1 million. Similarly, active paying accounts for its multiplayer online titles declined slightly from last year's 2.5 million to 2.2 million in the second quarter. In addition, casual game revenue, which accounts for 17 percent of the company's total revenue, was also down by 18 percent. According to commentary from a Bear Stearns analyst note obtained by Gamasutra, this overall droop was due to the World Cup drawing attention away from games, as well as seasonality related to school exams, and the aging of Shanda's flagship casual game, BnB. However, despite this, total game revenues were still up over the previous quarter by 21 percent to $47 million, but were still well below the same period a year ago - by around 20 percent. Bear Stearns noted that this increase from the previous quarter was primarily due to “greater MMORPG traction of in-game virtual item sales from a stabilized player base, which improved monthly.” In late 2005, Shanda announced a shift in its business model for its MMORPGs, making Legend of Mir II, as well as Magical Land, The World of Legend, and the recently launched ArchLord, free to play with no subscription fee required. Instead, the company charges players for premium features and in-game items, calculating that the greater pool of players will result in healthy profits from its virtual item business. Bear Stearns commented that it has raised its rating for shares of Shanda Entertainment to Peer Perform, with the firm noting that the change was based chiefly on “improved performance of the flagship MMORPG games.” It added, however, that the firm noted that it remains “uncertain” regarding the company's future earnings, particularly considering Shanda's lack of an upcoming breakthrough title announced for what it calls an “intense competitive environment looming in 2007.”