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Shanda Reports First Quarter 2005 Financial Results
17 May 2005
Shanda Interactive Entertainment Limited (Nasdaq: SNDA - News), or Shanda, a leading interactive entertainment media company and the largest operator of online games in China, today announced its unaudited financial results for the first quarter ended March 31, 2005.
Summary of the first quarter 2005:
-- Net revenues increased 118.3% year-over-year and 15.3% quarter-over-
quarter to RMB497.0 million (US$60.0 million); Shanda finds that
focusing the discussion on net revenues provides the most clear and
consistent presentation of our results, and Shanda will be referencing
net revenues, rather than gross revenues, in the presentations for this
period and future periods.
-- Online games revenues, including MMORPG and casual games, for the first
quarter of 2005 increased 96.7% year-over-year and 13.2% quarter-over-
quarter to RMB441.6million (US$53.3 million), accounting for 88.9% of
total revenues; first quarter MMORPG revenues grew 10.3% quarter-over-
quarter to RMB331.2 million (US$40.0million) and casual game revenues
grew 22.7% quarter-over-quarter to RMB110.4million (US$13.3 million);
-- Other revenues for the first quarter, which primarily include revenues
from online advertising, and other value-added services and products,
increased 36.2% quarter-over-quarter to RMB55.4million (US$6.7
million), accounting for 11.1% of total revenues;
-- Gross profit margin increased to 71.0% in the first quarter compared to
67.1% in the fourth quarter of 2004, while operating margin increased
to 51.1% in the first quarter compared to 43.5% in the fourth quarter
of 2004;
-- Net income for the first quarter of 2005 was RMB220.1 million (US$26.6
million), and diluted earnings per ADS were RMB3.00 (US$0.36).
"We continue to deliver strong growth in our online game business, which in turn is driving higher profit margins as our platform enjoys the benefits of scale," said Tianqiao Chen, Chairman and CEO of Shanda. "With new MMORPG games like Magical Land in beta test and a solid pipeline of new content, including Dungeons & Dragons® Online, we believe we are poised to continue our momentum. Meanwhile we continue to strategically diversify into new revenue streams like online advertising and potential new platforms for delivering content and services to a growing base of Chinese consumers."
Financial Results (Preliminary Unaudited)
Net Revenues. In the first quarter of 2005, Shanda reported record net revenues of RMB497.0 million (US$60.0 million), representing a 118.3% increase compared to RMB227.6 million in the first quarter of 2004 and a 15.3% increase compared to RMB430.9 million in the fourth quarter of 2004.
Online game revenues increased 96.7% year-over-year and 13.2% quarter-over-quarter to RMB441.6 million (US$53.3 million) in the first quarter of 2005. Total peak concurrent users for all Shanda games in commercial service in the first quarter of 2005 increased to 2.1 million from 2.0 million in the fourth quarter of 2004.
Revenues from MMORPGs in the first quarter of 2005 increased 65.7% year-over-year and 10.3% quarter-over-quarter to RMB331.2 million (US$40.0 million), and accounted for 66.7% of total revenues. The increase in revenues from MMORPGs was primarily due to an increase in the average concurrent users and average revenue per user hour, or ARPU for MMORPGs. The average concurrent users of Shanda's MMORPGs in commercial service increased to approximately 748,000 in the first quarter of 2005 from 695,000 in the last quarter and the ARPU for Shanda's MMORPGs increased to RMB 0.22 in the first quarter of 2005 compared to RMB 0.21 in the previous quarter.
Revenues from casual games in the first quarter increased 348.8% year- over-year and 22.7% quarter-over-quarter to RMB110.4 million (US$13.3 million) driven by the strong growth in active paying accounts for casual games to 4.4 million in the first quarter. Revenues from casual games accounted for 22.2% of total revenues.
Shanda's other revenues increased 36.2% to RMB55.4 million (US$6.7 million) in the first quarter of 2005 from RMB40.7 million (US$4.9 million) in the fourth quarter of 2004. The increase in Shanda's other revenues was primarily due to the increase of online advertising revenues and of the revenue from the sale of Shanda Mibao, a user account protection product, which Shanda launched in the third quarter of 2004.
Gross Profit. Gross margin improved to a record high of 71.0% for the first quarter of 2005, up from 60.2% in the first quarter of 2004 and 67.1% in the fourth quarter of 2004. The increase in gross margin was mainly due to the increase in revenues from our in-house developed games, growth in the relatively high margin online advertising revenue and increasing economies of scale relating to online game business.
Income from Operations. Operating income for the first quarter of 2005 was RMB253.9 million (US$30.7 million), representing a 262.7% increase compared to RMB70.0 million in the first quarter of 2004 and a 35.6% increase compared to RMB187.2 million in the fourth quarter of 2004. Operating margin increased to 51.1% in the first quarter of 2005 from 43.5% in the fourth quarter of 2004. This increase was mainly due to the increase of gross margin and the decrease in sales and marketing expense compared with the fourth quarter of 2004. The decrease in sales and marketing expense was primarily due to higher than usual sales and marketing expenses in the fourth quarter of 2004 resulting from specific year-end heavier marketing activities and higher promotional expenses.
Net Income. In the first quarter of 2005, Shanda had net income of RMB220.1 million (US26.6 million), representing a 205.9% increase compared to net income of RMB71.9 million (US$8.7 million) in the first quarter of 2004 and a 4.9% decrease compared to net income of RMB231.4 million in the fourth quarter of 2004. Diluted earnings per ADS were RMB3.00 (US$0.36) for this quarter, representing a 163.2% increase compared to diluted earnings per ADS of RMB1.14 in the same period of 2004 and a 3.8% decrease compared to diluted earnings per ADS of RMB3.12 in the fourth quarter of 2004.
The quarter-over-quarter decrease in Shanda's net income and diluted earnings per ADS was primarily due to two generally non-recurring factors. Firstly, Shanda recorded investment income of US$5.0 million in the fourth quarter of 2004, which was mainly due to a partial sale of a prior strategic investment. In addition, Shanda recorded a loss in equity of Actoz mainly representing the immediate write-off of the valuation of In Process R&D of US$1.9 million in the first quarter of 2005.
The decrease in net income was also partially due to the increase in the anticipated effective tax rate for the first quarter of 2005. A significant portion of our operations are conducted by Shengqu, our wholly owned foreign enterprise, which was previously exempted from paying income tax but became subject to a 7.5% tax rate starting on January 1, 2005. In addition, we recently restructured our game operations into three operating companies and two of these companies are still in the process of applying for preferential tax treatments. Currently, these companies are subject to the standard income tax rate of 33%.
The conversion of Renminbi (RMB) into U.S. dollars in this release is based on the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of March 31, 2005, which was RMB8.2765 to US$1.00. The percentages stated in this press release are calculated based on RMB.
Certain transactions out of the ordinary course of business have occurred in the first quarter of 2005 and have significantly affected our liquidity and capital resources. In February of 2005, we completed our acquisition of a 29% equity stake in Actoz, following our purchase in December 2004 of a 9% equity stake in Actoz, for an aggregate purchase price of US$106.1 million in cash. In February 2005, we also completed our acquisition of an approximately 19.5% stake in Sina at an aggregate purchase price of US$230.4 million. As a result of these purchases, as of March 31, 2005, our cash and cash equivalents were US$136.5 million.
Recent Business Highlights
Shanda continues to build its game pipeline and expand its content offerings. Shanda recently entered into a license agreement with Turbine, Inc., subject to certain third party approvals, for Dungeons & Dragons® Online, a highly anticipated 3D MMORPG based on the world-renowned Hasbro and Wizards of the Coast Dungeons & Dragons® franchise. On April 29 2005, Shanda began open beta testing of Magical Land, an in-house developed fantasy cartoon-style MMORPG mainly targeted at the female user base. The open beta testing generated satisfactory initial results, attracting over 100,000 peak concurrent users within the first two weeks, and continues to build in momentum. In addition, Shanda and the Chinese Academy of Sciences' Institute of Automation (CASIA) formed a strategic partnership in April 2005, through which Shanda will introduce visual reality games using proven CASIA technology. Shanda believes that these games will be particularly well suited for home users and can serve educational and physical exercise purposes.
Also in April 2005, Shanda extended its interactive entertainment content offerings into the music arena by forming a strategic partnership with Universal Music. Pursuant to a memorandum of understanding, Shanda will offer Universal Music's online music content to Shanda's millions of users through streaming and, in the future, on a downloadable basis over Shanda's interactive entertainment portal at http://www.poptang.com, as well as within the game operation platform.
In the first quarter of 2005 Shanda announced a strategic partnership with Baidu.com, Inc., developer and operator of the world's largest Chinese language search engine, to make our content offerings more easily available to a broader user base. Baidu will leverage its search platform to help introduce Shanda's extended interactive entertainment content offerings to a broad audience base, and Shanda will have Baidu's search tools embedded in Shanda's user platform, further strengthening Baidu's leadership position in the search market. In addition, the two companies will explore cross marketing opportunities on each other's platform.
Other Company News
On February 18, 2005 Shanda disclosed it had, together with its controlling shareholder Skyline Media Limited, purchased approximately 19.5% of the outstanding ordinary shares of Sina Corporation (Nasdaq: SINA - News) through open market transactions. For more detailed information in connections with these purchases, please refer to the Schedule 13D that Shanda filed with the United States Securities and Exchange Commission.
Conference Call
Shanda's management team will host a conference call on May 16, 2005 at 9:00 p.m. Eastern Standard Time, corresponding with May 17, 2005 at 9:00 a.m. Beijing/Hong Kong time, to present an overview of Shanda's financial performance and business operations. To participate in the live call, U.S. callers should dial 800-900-0012 and international callers should dial 973-935-2056. A live webcast of the presentation can also be accessed through Shanda's website at http://www.snda.com.
A replay of the conference call will be available through May 23, 2005 at midnight ET. The dial-in number is 877-519-4471 within the U.S. and 973-341-3080 internationally. The pass code for the replay is 6009333.
About Shanda Interactive Entertainment Limited
Shanda Interactive Entertainment Limited (Nasdaq: SNDA - News) is a leading interactive entertainment media company in China. Shanda offers a portfolio of diversified entertainment content including some of the most popular massively multi-player and casual online games in China, along with online chess and board games, a network PC game platform and a variety of cartoons, literature works and music. Shanda's interactive entertainment platform attracts a large and loyal user base, of which an increasing number access our content from home. Each user can interact with thousands of others and enjoy the interactive entertainment content that Shanda provides. Interaction enriches your life. For more information about Shanda, please visit http://www.snda.com.
Safe Harbor Statement
This announcement contains forward-looking statements that are based on Shanda's current expectations, assumptions, estimates and projections about the company and the industry. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to statements regarding the introduction of visual reality games using CASIA technology and offering online music content. These forward- looking statements involve various risks and uncertainties. Although Shanda believes that its expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct. Shanda's actual results could be materially different from and worse than its expectations. Important risks and uncertainties could cause Shanda's actual results to be materially different from Shanda's expectations include but not limited to risks set forth in Shanda's filings with the U.S. Securities and Exchanges Commission, including Shanda's registration statement on Form F-1.
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED BALANCE SHEET
(In thousands)
As of December 31, As of March 31,
2004 2005
RMB RMB US$
(audited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents 3,123,971 1,130,068 136,539
Restricted cash - 151,821 18,344
Marketable securities 422,327 2,550,290 308,137
Accounts receivable 39,308 52,213 6,309
Inventories 6,039 13,459 1,626
Due from related parties 1,515 1,516 183
Deferred licensing fees and
related costs 48,716 44,147 5,334
Prepayments and other current
assets 27,621 30,196 3,648
Deferred tax assets 29,632 49,562 5,988
Total current assets 3,699,129 4,023,272 486,108
Investments in affiliated companies 155,936 901,494 108,922
Property, equipment and software 159,170 166,528 20,121
Intangible assets 89,934 81,720 9,874
Goodwill 133,959 133,959 16,185
Long-term deposits 2,363 2,498 302
Other long-term assets 50,673 42,727 5,162
Total assets 4,291,164 5,352,198 646,674
LIABILITIES
Current liabilities:
Accounts payable 47,342 40,290 4,868
Licensing fees payable 70,365 76,360 9,226
Taxes payable 40,197 76,617 9,257
Deferred revenue 247,282 250,185 30,228
Due to related parties 1,758 91,994 11,115
Other payables and accruals 91,268 248,768 30,057
Total current liabilities 498,212 784,214 94,751
Convertible debt 2,276,175 2,276,192 275,019
Total liabilities 2,774,387 3,060,406 369,770
Minority interests 6,879 5,030 608
Commitments and contingencies -
Shareholders' equity
Ordinary shares 11,585 11,587 1,400
Series A and Series A-1 Convertible
preferred shares - -
Additional paid-in capital 1,300,454 1,344,421 162,439
Statutory reserves 40,025 40,025 4,836
Deferred share-based compensation (20,623) (15,294) (1,848)
Accumulated other comprehensive gain 133,815 641,305 77,485
Retained earnings 44,642 264,718 31,984
Total shareholders' equity 1,509,898 2,286,762 276,296
Total liabilities and
shareholders' equity 4,291,164 5,352,198 646,674
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
For the three months period ended,
March 31, December 31, March 31,
2004 2004 2005
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues
MMORPG 199,849 300,234 331,227 40,020
Casual game 24,587 89,941 110,339 13,332
Others 3,203 40,689 55,410 6,695
Total net revenues 227,639 430,864 496,976 60,047
Cost of services
Ongoing licensing fees for
online games (48,374) (76,144) (80,100) (9,678)
Amortization of upfront
licensing fees (5,813) (7,403) (6,451) (779)
Server leasing and
maintenance fees (16,319) (21,427) (19,819) (2,395)
Salary and benefits (4,027) (7,601) (7,541) (911)
Depreciation of property,
equipment and software (6,445) (7,794) (9,662) (1,167)
Others (9,705) (21,468) (20,383) (2,463)
Total cost of services (90,683) (141,837) (143,956) (17,393)
Gross profit 136,956 289,027 353,020 42,654
Operating expenses
Product development (12,447) (22,548) (26,522) (3,205)
Sales and marketing (18,135) (34,631) (26,644) (3,219)
General and administrative (22,901) (41,119) (42,902) (5,184)
Share-based compensation (13,463) (3,516) (3,028) (366)
Total operating expenses (66,946) (101,814) (99,096) (11,974)
Income from operations 70,010 187,213 253,924 30,680
Interest income 2,727 11,389 9,650 1,166
Amortization of convertible
debt issuance cost - (3,524) (4,494) (543)
Investment income 137 41,418 (3,408) (412)
Other income (expenses), net (541) 21,302 18,524 2,238
Income before income tax
expenses, equity in loss
of affiliated companies and
minority interests 72,333 257,798 274,196 33,129
Income tax expenses (1,366) (19,925) (42,123) (5,089)
Equity in loss of
affiliated companies - (4,180) (13,846) (1,673)
Minority interests 975 (2,252) 1,849 223
Net income 71,942 231,441 220,076 26,590
Income attributable to
Series A and Series A-1
preferred shareholders (18,053) - - -
Net income attributable to
ordinary shareholders 53,889 231,441 220,076 26,590
Earnings per share:
Basic 0.60 1.66 1.57 0.19
Diluted 0.57 1.56 1.50 0.18
Earnings per ADS:
Basic 1.20 3.32 3.14 0.38
Diluted 1.14 3.12 3.00 0.36
Weighted average ordinary shares
outstanding:
Basic 89,728,818 139,343,240 139,977,991 139,977,991
Diluted 94,605,398 148,513,111 147,087,994 147,087,994
Weighted average ADS
outstanding:
Basic 44,864,409 69,671,620 69,988,996 69,988,996
Diluted 47,302,699 74,256,556 73,543,997 73,543,997
Note:
On February 2, 2005, we completed the acquisition of an approximately 29% stake of Actoz Soft Co., Ltd, or Actoz, a Korean developer, operator and publisher of online games, from certain shareholders of Actoz for approximately US$91.7 million, equivalent to RMB759.0 million, in an all cash transaction. After this acquisition, we own in total approximately 38% of Actoz and will account for the investment in Actoz under equity method of accounting in 2005. As a result, as required by APB 18 "The Equity Method of Accounting for Investments in Common Stock", we have retroactively applied the equity method of accounting to account for our 9% investment in Actoz for the year ended December 31, 2004.
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Source: Shanda Interactive Entertainment Limited
Source: PR Newswire
All trademarks and copyrighted information contained herein are the property of their respective owners.
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