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Shanda Games Ltd. (GAME)

Q1 2013 Earnings Conference Call

May 22, 2013, 21:00 PM ET

Executives

Xiangdong Zhang - CEO and Chief Producer

Richard Wei - CFO

Tunghai Chien - President

Ellen Chiu - IR

Analysts

Timothy Chan - Morgan Stanley

Thomas Chong - Bank of China

Mark Marostica - Piper Jaffray

Evan Zhou - JPMorgan

George Meng - Macquarie Securities

William Hill - Barclays

Andy Yeung - Oppenheimer & Co.

Muzhi Li - Citigroup

Operator

Welcome to Shanda Games Limited First Quarter 2013 Financial Results Conference Call. The conference call will be recorded and available for replay in its entirety. A copy of Shanda Games 2013 first quarter results announcement can be found and downloaded from its Investor Relations website at http://ir.shandagames.com. At this time, all lines have been placed in a listen-only mode and the floor will be open for questions following today's presentation.

I would now like to turn the call over to Ellen Chiu, Shanda Games' Investor Relations Director. Please proceed, ma'am.

Ellen Chiu

Thank you. Good morning and good evening, everyone. On behalf of Shanda Games, I would like to welcome everyone to our 2013 first quarter financial results conference call. With me today are Mr. Xiangdong Zhang, our CEO; Mr. Richard Wei, our CFO.

Before we begin, I would like to remind you that management comments during the call will include forward-looking statements that are based on our current expectations, and are intended to qualify for the Safe Harbor liability for such statements established in the US Private Securities Litigation Reform Act of 1995. All statements are the statements of historical fact during the conference call are forward-looking statements, which are subject to significant risks and uncertainties.

Actual results may differ materially from those contained in the forward-looking statements. So you are please recommended to read the Safe Harbor statement and Shanda Games’ third quarter 2012 earnings release. In addition, please note for discussion purposes all numbers are translated in to US numbers based on exchange rate of 6.341 RMB per US dollar.

Now I would like to turn the call over to our CEO Mr. Xiangdong Zhang.

Xiangdong Zhang

Thank you, Ellen. Thank you all for joining us today. I would like to start by introducing Mr. Tunghai Chien who now serves as our President. Mr. Chien has extensive experience in mobile games development and overseas expansion, which I believe will help us on the future potential of our current strategy, as mobile game has become a critical part of our business, accounting for 10% of total revenue this quarter and in effect to better demonstrate the results of our current strategies.

Let's begin providing a breakdown of our revenues into MMO games revenues, mobile games revenues and other revenues starting this quarter. This development reflect the changes taking place in new business segments as a result of our strategy to expand overseas and further develop mobile games. We continue to introduce our proprietary intellectual property including mobile and MMO games to overseas markets while at the same time developing more franchise to enhance our game portfolio.

As the user traffic increases to our rapidly growing mobile user base, we will leverage this user base for cross promotion of our own games. Nine months ago, I was appointed by the Board of Directors to serve as the company in the CEO and to oversee redefining of the company. Management has since been diligently working on assuring new business opportunities and expanding our strategies.

The mobile games segment has become one of our main strategic focuses. We have launched several mobile games in China and overseas, including [Woool of Paladin], mobile version of war and Million Arthur. The [significant] launch of Million Arthur in South Korea and Taiwan represents a milestone in our mobile games development. Million Arthur currently remains highly popular and was ranked number five on Google Play's global top gamers by the amount of revenue in March 2013.

According to (inaudible), an industry leader in (inaudible) Million Arthur contributed 9% of total revenues in the first quarter, which does not include revenue contribution for China yet. It plans to launch the game in China in June with Singapore and Malaysia launch expected to follow this summer. The success of Million Arthur demonstrates the enormous potential that game has when launched in the direct market. We intend to learn from and based upon our achievements by generating more titles that match local user preference in the future.

In addition to Million Arthur, we have a number of mobile games in the pipeline including the mobile version of Dragon Nest, which is scheduled to be launched in South Korea and Taiwan in the second half of this year. Through our strategic partnership with Square Enix, we will continue to strengthen our mobile game pipeline by jointly developing and the lessons in future games. So the mobile game market has presented ample opportunities which we – and to see the future in both our core brands and franchise.

While our mobile franchise formed an integral part of our overseas expansion, we will continue to develop our mobile game segment through our subsidiary. In Korea in the meantime, we will continue to [fluctuate] to the mobile game market in China. With just the pace we have seen in our mobile game segment, we have managed to amount a broad base of mobile users.

In the first quarter of 2013, we have average daily active users of approximately 300,000. We're going to return and grow this user base where we'll take advantage of the mobile [traffic] to cross promote our MMO games. This will facilitate the introduction of our new content, including both mobile games and MMO games in the future. Aside from China, we continued to push our games to overseas markets, leveraging the solid fluctuation we have in overseas with the release of Dragon Nest, we plan to deliver more MMO to gamers to our global service platform or GSP.

Dragon Nest was just launched in March in Europe by our subsidiary eFusion. eFusion was [dealt] as the center of European GSP for the release of our games in the future. Dungeon Striker has made a big progress with its launch in South Korea last week with overall mainly positive feedback from users. According to Gametrix, (inaudible) internet traffic metrics, Dungeon Striker ranked number eight among the most popular online games in Korea within just the four days following its launch. We will soon launch in Japan in the following quarters. We anticipate that China launch will follow sometime in 2014.

As we continue to enrich our game portfolio, we expect to engage global gamers with more high quality game content. As for our traditional MMO segment, 2013 continued to be a year of challenges. We officially launched RIFT in China in March, despite the very important feedback and the excitement generated. During the beta testing, the result has so far fallen below our expectation. We are currently working on version 2.0 and looking forward to rejuvenating the game by addressing some of the issues.

In contrast to the performance of RIFT, AION version 4.0 was launched last month and has performed far better than we expected. AION version 4.0 is a major expansion pack that has helped attract many new gamers through the addition of new (inaudible). We expect revenue from AION to grow substantially in the second quarter with the support of new version. This demonstrates our ability to maintain and improve our gaming performance [old tab] by regularly providing updates with new contents.

In addition, we'll begin beta testing for 1.0 during the third quarter. The core operational model of (inaudible) also has so far proven to be successful. Plans are already in place to implement this core operational model in more game titles in the coming quarters.

We continue to divulge results to improve our franchise and expand our game portfolio. At the end of the first quarter, we further diversified our portfolio and expanded our revenue stream by introducing new games. Games with revenue contribution of over 10% of total revenues in the first quarter include Mir II, Dragon Nest and Woool which contributed 31%, 15% and 13% respectively. We expect to deliver more innovative content which will help grow revenues and make our game portfolio healthy.

We're extremely excited about the good opportunities that are rising with transition from PC to mobile. We successfully navigated through a similar transition period eight years ago from time-based to item-based model for our MMO games having begun 2013-2014. I'm confident in our ability to effectively leverage our know-how and expertise to adapt to evolving market environment. Million Arthur's stellar performance has led Shanda for our mobile game development and overseas expansion.

We will continue to work through our strategy to introduce new franchise and reenergizing the long-term goals of our existing games to solidify our position.

[Technical Difficulty]

Operator

Ladies and gentlemen, your speaker is currently experiencing some technical difficulties with their line. Please stand by while we address the situation. Your lines will be placed on the music hold until the conference resumes. Thank you for your patience.

Ellen Chiu

Hello. Hi, everyone. Sorry. We got cut off. The CEO will restart from where we were last left off.

Xiangdong Zhang

We believe the initiative we have implemented will start on the path to growth over the long run. We look forward to improving our financial and operational performance and thereby create value for our shareholders for the years to come.

With that, I would like to conclude my remarks and turn the call to Richard.

Richard Wei

Thank you. As always our earnings release with financial statements is available on our website as well as most major financial quarters. I will now briefly review the highlights of our first quarter results and provide an outlook for the second quarter of this year. We will take questions afterwards.

Before I begin I would like to point out that the company has begun adjusting the presentation of the financial statements and which to provide investors with the data of the changing business. Sometime this quarter, we'll be providing a breakout of online game revenues, mobile game revenues and other revenues in addition to the MAU, MPU and ARPU metrics that we have provided previously for MMO games, we'll also start providing DAU and ARDAU for our mobile games. We'll disclose daily active users or DAUs and average revenue per DAU, also ARDAU, for mobile games because these are the metrics we use most frequently to monitor mobile game performance and because it is also the industry practice.

I'd like to first start with our first quarter 2013 results. In line with our previous guidance, the first quarter net revenues were RMB1.08 billion on the equivalent to $173 million, an increase of 0.2% quarter-over-quarter and a decrease of 21.9% year-over-year. Net revenues generated from MMO games declined 7.1% quarter-over-quarter and 28.3% year-over-year to RMB976 million equivalent to $156 million. The quarter-over-quarter decrease was primarily due to typical first quarter seasonality in China, as it includes New Year and Chinese New Year holidays where many gamers tend to be less active.

The expected revenue decline from AION also contributed to the decline, as its users played less in anticipation of the launch of AION version 4.0 expansion pack in April of this year. As a result, average MAU for MMO games decreased 2.1% quarter-over-quarter to 18.8 million. Average MPU for MMO games decreased 1.2% quarter-over-quarter to 3.4 million. ARPU decreased 5.6% quarter-over-quarter to RMB93.

Net revenues generated from mobile games were RMB107 million equivalent to $17 million, an increase of 12 times from RMB8 million in Q4 last year. The quarter-over-quarter increase was primarily due to the first full quarter of revenue contribution from Million Arthur, which was launched in Korea in December of last year.

Average DAU for mobile games was 302,000 in the first quarter of this year compared with 41,000 in the prior quarter. Average revenue per DAU for mobile games increased 80.2% quarter-over-quarter to RMB3.9.

Other revenues were RMB1.7 million equivalent to $0.2 million in the first quarter of this year compared with RMB22 million last quarter and RMB28 million in the same period last year. The decreases were primarily due to a decrease in revenues generated from advertising.

Cost of revenues were RMB387 million equivalent to $62 million, an increase of 2.5% from the last quarter and a decrease of 24.9% from the same period last year. Cost of revenues represented 35.7% of net revenues compared with 34.6% in the fourth quarter of last year and 37.1% in the first quarter of last year.

Cost of revenues as a percentage of net revenues increased quarter-over-quarter, mainly due to an increase in revenues generated from licensed games as a percentage of net revenues.

Gross profit decreased 1.4% quarter-over-quarter and 20.2% year-over-year to RMB697 million equivalent to $111 million. Gross margin was 64.3% down from 65.4% in the preceding quarter and up from 62.9% in the same period last year.

Operating income decreased 2.1% quarter-over-quarter and 31.8% year-over-year to RMB398 million equivalent to $48 million. Operating margin was 27.4% compared to 28.4% in the preceding quarter and 31.4% in the same period last year.

In line with our previous guidance, non-GAAP operating margin was 31.0% during the first quarter of this year compared with 32.4% in Q4 last year and 35.5% in Q1 last year. Income tax expense was RMB80 million equivalent to $30 million compared with RMB122 million in the fourth quarter of last year and RMB106 million in the first quarter of last year.

Effective tax rate was 23.4% in the first quarter of this year compared with 35.3% in the preceding quarter and 22.9% in the same period last year. The sequential decrease in effective tax rate was mainly due to a one-time tax expense of RMB36 million equivalent to $6 million related to Actoz purchase of 20.5% equity interest in Eyedentity during the fourth quarter of last year. Excluding the impacts, adjusted effective tax rate would have been 24.8% in the fourth quarter of last year.

Net income attributed to ownership holders was RMB245 million equivalent to $39 million, an increase of 14.3% quarter-over-quarter and a decrease of 27.3% year-over-year. Earnings per diluted ADS were RMB0.90 equivalent to $0.14 compared with RMB0.78 in the fourth quarter last year and RMB1.20 in the first quarter last year.

Non-GAAP net income attributable to owner shareholders totaled RMB275 million equivalent to US44 million, an increase of 10.3% quarter-over-quarter and a decrease of 27.9% year-over-year. Non-GAAP earnings per diluted ADS were RMB1.02 equivalent to $0.16 compared with RMB0.92 in the fourth quarter last year and RMB1.36 in the same period last year.

Turning to balance sheet, the company's cash and cash equivalents, short-term investments and restricted cash, net of loans and dividends payable, increased from RMB3.27 billion as of December 31, 2012 to RMB3.49 billion equivalent to $556 million as of March 31, 2013. Short-term investments decreased by RMB1.07 primarily due to a repayment of a loan due in the quarter.

Now turning to guidance for the second quarter 2013, we expect our revenues in Q2 to be flat compared with Q1 2013 and expect our non-GAAP operating margin which may exclude the impact of share-based compensation, amortization of acquisition-related tangible assets and related income tax effects to be between 30% to 31% compared with 31% in Q1.

The projected modest sequential decline margin is primarily due to a shift in the mix as revenue from license fees is expected to become a slightly larger percent of total revenue. Share-based compensation expense in Q2 is projected to be approximately RMB9 million. We also expect approximately RMB29 in revenue subsidiaries in Q2.

Finally, we expect effective tax rate for Q2 2013 to be similar to the effective tax rate in Q1 2013. In addition, in Q2 this year one of the company's subsidiaries was approved as a key national enterprise and this subsidiary therefore became eligible for preferred tax rate which will be 10% instead of 15% starting from the year 2011. Thus, we expect to reimburse approximately RMB98 million in tax expenses in Q2 this year for the extra charge in 2011 and 2012 as the subsidiary did not receive approval for preferred tax benefit until end of Q2 this year.

That concludes my discussion. I'll now turn the call back to Ellen.

Ellen Chiu

Thank you, Richard. We will now take your questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Good afternoon, ladies and gentlemen. We will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Timothy Chan from Morgan Stanley. Please ask your question.

Timothy Chan - Morgan Stanley

Good morning. Thanks very much for taking my questions. I have two questions. The first question is on the mobile games. We know that you didn't pay for the channel distribution of the games. I just wonder what is the margin profile of your mobile games? And related to that, what is the percentage of gaming contribution during the quarter for mobile games after deducting the minority interest? That's my first question. And my second question [Technical Difficulty] and was it due to the competition as a factor. Thank you very much.

Ellen Chiu

Timothy, we didn't hear your second question very clearly. Can you repeat your second question?

Timothy Chan - Morgan Stanley

Okay. My second question is on RIFT, maybe talk about the reasons why the game fell below your initial expectations? Was it due to the game play of RIFT or was it because of the competition as a factor, any insights would be very helpful? Thank you.

Richard Wei

Let me take the first question. In terms of the margin structure for mobile game based on what we are seeing with Million Arthur, a licensed game would be comparable to a licensed MMO game that we've had in China on an operating margin basis. I think the gross margin is very different because there are some expenses that are booked as sales and marketing still as cost of revenue, but on the operating margin basis the licensed games are comparable. If a game is developed in-house, I think it would be comparable to a game that we develop in-house for MMOs.

Xiangdong Zhang

[Foreign Language]

The game has turned out to fallen behind our expectation because of a couple of reasons. First of all, the complexity of the game seems to be too difficult for Chinese gamers. So we actually lost a certain amount of gamers. And second, the server, we also encountered some issue with the server because we actually have a lot bigger user base in China comparing with the U.S.-based users. So we also have some server issues. And finally, that nature of the graphics also run against a typical pace in the Chinese gaming market. And we're currently working on a different version in hope to resolve some of the issues.

Timothy Chan - Morgan Stanley

Thank you. That's helpful.

Ellen Chiu

Thank you.

Operator

Your next question comes from the line of Thomas Chong from BOCI. Please ask your question.

Thomas Chong - Bank of China

Hi. Good morning, everyone. I have a couple of questions. The first question is regarding your mobile games business. Can you provide some color about the monthly active users and registered users for your mobile games in the first quarter? And my second question is regarding some accounting treatment. I've also seen your press release that you guys are saying you pay commissions in sales and marketing expenses to the third-party platforms. My question is, do you guys booked gross or net mobile revenues in the top line? And my third question is regarding the second quarter guidance, because I cannot hear clearly, can management say again about the second quarter revenue guidance? Thanks.

Richard Wei

Sure. I think regarding the first question, our monthly user numbers for mobile games, I'm afraid we don't have those numbers. What we have disclosed are the DAU numbers and the average revenue per DAU which is in the press release and also we just mentioned. Regarding the accounting treatment, we mentioned the commission paid because for mobile game distribution, for example on the iOS platform, the platform provider charges a 30% distribution fee and so that's booked as a sales and marketing expense in the P&L. And given that we determined the pricing and we have the responsibility for customer service and the product and all that, and therefore we book gross revenue.

Thomas Chong - Bank of China

And my final question is regarding the second quarter guidance. Can you repeat once again? Sorry about that.

Richard Wei

Sure, sure. For revenue, we're expecting revenue to be flat compared to Q1. We're also expecting for the non-GAAP operating margin to be approximately between 30%, 31% compared with 31% in Q1. The reason for the modest sequential decline in operating margin is because there is a shift in revenue mix as revenue from license gains will be a slightly bigger percent of total revenue.

Thomas Chong - Bank of China

I see. I appreciate it. And my final question is regarding the effective tax rate. If we factor in the reversal of the RMB98 million, how should we think about the effective tax rate in the second quarter on a non-GAAP basis?

Richard Wei

On the earlier question, the effective tax rate should be comparable to Q1 which was 23.4%. If you just take Q1 as an example, Q1's total expense was RMB80 million. If Q2 is same as Q1, you would then add a RMB98 million credit to that which will give you a negative effective tax rate.

Thomas Chong - Bank of China

I see. I appreciate it. My final question is regarding the issuance of the due shares for Actoz, because you guys currently have 51% of the shareholdings in the company, is there any chance that you guys will have below 50% of the shareholdings in that company? Thanks.

Richard Wei

No. We did a press release earlier to indicate that we'll participate fully in our allocation of the fund raising done by Actoz. And so we will maintain our shareholding in Actoz.

Thomas Chong - Bank of China

I see. Thanks. I will get back to the queue.

Richard Wei

Thank you.

Operator

Your next question comes from the line of Mark Marostica from Piper Jaffray. Please ask your question.

Mark Marostica - Piper Jaffray

Yes, thank you for taking my question. Could you give us your thoughts regarding comparing and contrasting your mobile user base? Understanding its early days and Million Arthur is likely the game you'll point to, but compare it and contrast it with your MMO user base in terms of customer, demographics, retention, ARPU potential and any overlap of the gamer basis? Thanks.

Xiangdong Zhang

[Foreign Language]

Just for the mobile game users, the users are essentially younger ranging from 20 to 30 years old and those set of gamers are essentially younger than our MMO users. The mobile game ratio is also lower at single digits, which is also a lot lower than our MMO paying ratio. But we see great potential in the growth of users, also the paying ratio on the mobile game business.

Mark Marostica - Piper Jaffray

Got it, thank you. And then as a follow-up question, you talked a lot about mobile games and also your MMO pipeline. Can you talk to your web game strategy, if that's part of the strategy? Just your thoughts on web games will be helpful. Thank you.

Xiangdong Zhang

[Foreign Language]

Sure. For web game strategy, we currently are developing the web version for our major game patterns such as Woool, Mir II and Dragon Nest. Currently we're testing the web version of Woool. And for the web version of Mir II and Dragon Nest, we're also developing and looking forward to putting out those titles in the second half of this year. And indeed the game play and also in users characteristics are pretty different from the time-based games. So we're also refining and fine-tuning the games and looking forward to good launches for those titles.

Mark Marostica - Piper Jaffray

Thank you very much.

Ellen Chiu

Thank you.

Operator

Your next question comes from the line of Evan Zhou from JPMorgan. Please ask your question.

Evan Zhou - JPMorgan

Hi. Good morning, everyone. Thanks for taking my questions. My question is about some features on mobile. So I imagine the share for Million Arthur, what's the approximate revenue contribution from Million Arthur to the total web game revenue? And also what's the split between iOS and Android? And also can you maybe comment on how [costly] the term arrangement between the Actoz and Square Enix for the revenue spilt of this title? Thanks.

Richard Wei

The Q1 mobile revenue of RMB107 million was substantially derived from Million Arthur – as a vast majority of it came from Million Arthur. In terms of the split between platforms was approximately 70-30; 70 coming from Android and 30 coming from the iOS platform. In terms of the specific term arrangement between Square Enix and Actoz, I won't get into that but just clarify by saying that as I said earlier, a license mobile gain such as Million Arthur has comparable operating margin to license MMO game that we have.

Evan Zhou - JPMorgan

Great, thanks. That's very helpful. And just a quick follow-up. Your second quarter guidance, approximately how much of that flat revenue quarter-over-quarter come from mobile? Can you comment on that? Thanks.

Richard Wei

I'll let our President elaborate, but let me just say that we think that the mobile revenue will grow in Q2.

Tunghai Chien

[Foreign Language]

Million Arthur has been launched in Taiwan by end Q1 and so in the second quarter, there will be full quarter contribution from Taiwan. So we expect Million Arthur game really to grow in second quarter on a quarter-over-quarter basis.

Evan Zhou - JPMorgan

Great, that's helpful. Thanks.

Operator

Your next question comes from the line of George Meng from Macquarie. Please ask your question.

George Meng - Macquarie Securities

Hi. Good morning, everyone. Thank you very much for taking my questions. I have a couple of question on mobile games, so the first one is on Million Arthur. We know that it's one of the top growth in games in Shanda career and actually if you look at the other top growth in games, most of them are on the cost platform. So my question is, would you consider put it on the cost platform for (inaudible) those other games going forward? And the in part question is why you actually bring this game to China (inaudible) reach out or other kind of platforms? That's my first question.

Xiangdong Zhang

[Foreign Language]

In Korea, we normally operate on app with iOS and Google Play platforms. And we also are cooperating with major telco company's platforms we have such as [T-Store]. Currently, we are not talking with Kakao yet because we believe that media also has a very strong social function. And so we are not relying on Kakao for the promotion yet. But we will continue to consider the possibility.

George Meng - Macquarie Securities

And what about (inaudible) if you bring this game to China, would you also consider that?

Xiangdong Zhang

[Foreign Language]

In China, we are operating on Apple's iOS. For Android, we're cooperating with a lot of third-party app stores.

George Meng - Macquarie Securities

Okay, thank you. My second question is relating to the user retention of your mobile games. So I noticed that the growth in rank for Million Arthur is still kicking nicely but the dollar ranking is actually dropping. It's a natural phenomenon because then new users are – new user adds are declining, but I wonder if you guys can share some of the metrics like the normal industry practice like that seven-day user retention or maybe one-month user retention on your Million Arthur or other mobile games? And what do you think about the [essence] and life span of a typical mobile game? Thanks.

Richard Wei

Sorry, I can't disclose those numbers. But let me just say that Million Arthur game had been operated in Japan for over a year now and remains a top game in the Japanese market. And based on what we've seen, we believe that our Q2 numbers are going to be below than Q1. So I can't share what the seven-day, 30-day number. We do disclose our DAU number and in Q1 it was 202,000 DAU number.

George Meng - Macquarie Securities

Okay, cool. My final question was regarding your strategy. You mentioned in your press release that you wanted to build a mobile community around the mobile games. So what's your detailed plan here? Are you going to do it a one platform across all different regions or are you going to be a different communicate for different countries? Can you elaborate more on that? Thanks a lot.

Xiangdong Zhang

[Foreign Language]

We continue to get mobile games from multiple sources such as the strategic alliance with Square Enix, but this is not the only one. We're also looking for to cooperating with other developers. And also for the (inaudible) expansion is also very critical in our mobile game development. As you can see, our subsidiary in Korea, Actoz and also in Taiwan we are getting a very good result by launching Million Arthur. So we will continue to expand on mobile game through our global service platform. And with that user base, we are also building our social platform in the cross promotion platform where we look forward to integrating our resources and continue to put out our mobile games on these platforms.

George Meng - Macquarie Securities

Okay. Thank you very much. That's very helpful.

Ellen Chiu

Thank you.

Operator

Your next question comes from the line of William Hill from Barclays. Please ask your question.

William Hill - Barclays

Hi. Thank you for taking my call and congratulations to solid performance on the mobile side. I just want to follow-up with some questions about mobile game. Given that you guys have plans to release Million Arthur in China in two, can management share with us in terms of your view on the difference between China market and the Korean market? And do you see any challenges to monetize this game in China? And my second question, can you update us in terms of the latest traction for your in-house mobile game (inaudible)? Thank you.

Xiangdong Zhang

[Foreign Language]

Okay. There are a couple of differences in the Korean and China market. One of the main differences is in Korea there are two very large and established official platform. One is iOS, the other is Google Play. So it's very easy for us to know and discipline our mobile games. However, in China, the official markets of Android and iOS is not as established as [it is for] Google Play. There are a lot of the – in China, the Google Play is not a big platform. So a lot of the games we cannot distribute through this official platform of Google.

[Foreign Language]

For monetization in terms of payment, Korea is very easy and straightforward. They use credit card and/or carrier billing to pay for the mobile game consumption. However, in China, it is not as straightforward but the advantage of that is we have the Shanda gift card, the distribution channel. So we will utilize that for the payment of Million Arthur in China.

[Foreign Language]

The mobile version of Woool is our first in-house mobile title and we have gathered all of the experience and know-how through the development of this title, although the performance of this title is not good as Million Arthur, but we have together a lot of experience by launching this title. And while currently it's utilizing this experience in developing the second mobile title which is going to be launched in the future.

Ellen Chiu

Thank you.

Operator

Your next question comes from the line of Andy Yeung from Oppenheimer. Please ask you question.

Andy Yeung - Oppenheimer & Co.

Hi. Good morning. Thank you for taking my questions. My first question is also about the mobile gaming side. Can you – beside Million Arthur, can you give us an idea of how many other games you're operating on the mobile platform? And so what's the pipeline there?

Xiangdong Zhang

[Foreign Language]

For the titles in the pipeline, we are currently developing the mobile version of Dragon Nest and also others. We actually are developing in the total of seven titles which are going to be in-house. And aside from in-house title, we're using our strategic alliance with Square Enix to get more titles from the cooperation.

Andy Yeung - Oppenheimer & Co.

Great, thanks. And then my next question is about your MMO business, the business seems to continue to undergo (inaudible) periods. Can you give us some updates in terms of your MMO pipeline for the rest of the year?

Xiangdong Zhang

[Foreign Language]

In Q1 we just launched RIFT and this 2.0 version is expected to launch in Q3. AION was launched – 4.0 version was launched last month and there are proposed similar updates that we're scheduled to launch in June. In Q3 we're launching our in-house developed title 1.0 and there are also a couple of titles that we're going to launch in 2014, including Dungeon Striker and Final Fantasy XIV.

Andy Yeung - Oppenheimer & Co.

Great. Thank you.

Ellen Chiu

Thank you.

Operator

Your final question comes from the line of Muzhi Li from Citigroup. Please ask you question.

Muzhi Li - Citigroup

Hi. Thank you for taking my questions. My first question is regarding the mobile game distribution revenue sharing scheme. What do you expect of the revenue sharing scheme in China versus the Google Play in Korea and Taiwan? This is my first question. And the second question is regarding the classical gains like Woool and Mir, do you expect that their revenue will start to ramp up in sometime this year or maybe next year? And another follow-up is regarding the mobile game portfolio, how many mobile game portfolios is actually contributing revenues at the moment? Thank you.

Xiangdong Zhang

[Foreign Language]

For your first and sub questions, in China iOS is still charging 30% for distribution. For other third-party platforms, it's averaged by different platforms. Different platforms are charging different kind of sharing rates really case-by-case. For games in our mobile game portfolio, we currently have following Million Arthur Mini Gears which is a smaller game in Korea. Also the mobile version of Woool.

[Foreign Language]

We're currently working on the expansion title of Mir III which we'll introduce the new – Mir II, sorry, and which we'll introduce the new features and new carriers inside the expansion pack. For Woool, we're also developing the 3D version of the game. We look forward to increase the users' activity inside the game by introducing expansion packs and also cross promotion through some of our mobile games.

Muzhi Li - Citigroup

Thank you very much.

Ellen Chiu

Thank you. Thank you again for joining us today. And as usual, if you have any further questions, please feel free to contact us. Have a nice day.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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