The9 Soars On World Of Warcraft Chinese Success

Chinese MMORPG publisher The9, which operates Blizzard's World of Warcraft in China, announced its second quarter 2006 financial results for the period ended June 30, 2006, during which the company reported earnings that beat expectations. In addition, the company noted that it currently plans to operate other online titles so that it does not remain so heavily leveraged on Blizzard's popular MMORPG. The company reported net revenues for the second quarter that climbed an impressive 21 percent from the previous quarter, and an astounding 363 percent since the same period a year ago to RMB 257.6 million ($32.2 million). Earlier analyst expectations for the company were $28.96 million according to Reuters Estimates. In addition, net revenues attributed to the operation of Blizzard's World of Warcraft were RMB 256.2 million ($32.0 million), a 22 percent increase over the previous quarter. Net income for the period was RMB84.3 million ($10.5 million), a 43 percent increase from the previous quarter's RMB 58.8 million ($7.4 million). "We are very pleased to report financial results for the second quarter 2006 with strong top line and bottom line growth,” commented Jun Zhu, chairman and chief executive officer of The9. “In the second quarter, Blizzard Entertainment's World of Warcraft attained peak and average concurrent WoW users of approximately 630,000 and 330,000, respectively, in mainland China. As of June 30, 2006, over 5 million paid accounts have been activated.” Zhu continued: “In addition to our already strong game pipeline consisting of Guild Wars, Soul of the Ultimate Nation and Granado Espada, in May 2006, we successfully obtained the exclusive license to operate the Hellgate: London game. While WoW continues to enjoy steady growth and with our game pipeline becoming even stronger, I believe The9 is well positioned to further capitalize on the growth of China's online game market." However, despite the company's plans to expand its portfolio, analyst firm Bear Stearns commented in a research note obtained by Gamasutra that it does not expect a significant financial impact for The9, at least in the short term, noting that “although The9 is targeting the commercial launch of at least one new game by year's end, we believe new titles will not meaningfully impact earnings until 1Q07. We note that no pricing has yet been established for Guild Wars, and though our estimates are conservative, lower than expected pricing adversely impact our forecasts.” That said, the firm raised its 2006 year-end target price for The9 stock from $30 to $35 due to the company's higher than expected reported earnings. The analyst also maintained its stock rating of “Outperform.”