NetEase: TX2 Enters 2010 with All-Time High Usage

| About: NetEase, Inc (NTES)

TX2's PCU reached a new high of 302500 last Saturday. Based on my tracking in Chart 1, NetEase's (NASDAQ:NTES) popular online game Tian Xia II (TX2) reached 302500 Peak Concurrent Users (PCU) on Saturday, January 2 at around 3PM Beijing time. This is the game's all-time high usage, with an overall server utilization rate of 93%. My tracking also shows TX2's total usage surged more than 50% Q/Q in 4Q09, driven by its September 20 open beta. I estimate TX2 was NetEase's fourth biggest game in 4Q09, generating about $18 million revenue in 4Q and accounting for approximately 11% of NetEase's online game revenues.

TX2's growth will slow down despite this record PCU. Based on my checks, TX2's new PCU record was created by several generous promotional activities during the Christmas/New Year's Day period. This reminds me of the recent record PCUs created by NetEase's flagship games FWWJ on August 2 and WWJ2 on October 1 (Chart 2) - special activities created strong one-day usage, but players quickly returned to their normal playing patterns after the promotions ended. TX2 will likely follow a similar usage pattern, in my opinion. Based on TX2's recent usage trend during non-promotional days, I continue to believe that TX2 has matured into a "cash cow" game for NetEase. Its cash flow generation will be strong in the first half of 2010, but its quarter-over-quarter growth will slow down significantly and will not repeat the explosive growth recorded in 4Q09.

Chart 1: Usage Trend of Tian Xia II (TX2)

click to enlarge
Source: Tracking by Xiaofan Zhang

Chart 2: Usage Trends of FWWJ and WWJ2
Source: Tracking by Xiaofan Zhang

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