Taomee Holdings (TAOM) reports 3Q11 results some time today (November 28.) The Street expects the company to earn $0.09 per share on $12.37 million in revenue.
In Q2, Taomee earned $0.14 per share, compared with $0.19 in 2Q10, on $11.8 million in revenue (+22.6% year/year). Both revenue and EPS results beat the consensus estimates.
Online business revenue was $10.7 million (+19% y/y), driven by its new virtual world launched early this year. Offline business revenue was $1.1 million (+83% y/y), driven by strong merchandise and book licensing.
Total active accounts decreased 12% to 24 million from 27.3 million due to seasonality as the second quarter has fewer non-school days compared with the other three quarters of the year.
Since June, Taomee launched a fully animated TV show based on its top selling Mole’s World franchise and an animated movie, "Legend of the Moles-The Frozen Horror," which generated $2.8 million in box office revenue. In addition, the company began beta testing "Seer 2," the second virtual world based on the Seer franchise, and released its animated movie, "Seer: The Search for the Sacred Phoenix," that generated over $6.2 million.
For the rest of the year and 1H12, Taomee is expected to continue to invest in R&D, advertising, and movie production to increase its brand awareness and total active accounts. However, the company will also likely see lower average revenue per user as a result.
Finally, a critical component of the company’s future growth is “Taomee Bus,” the first children’s SNS in China. I expect internet users from the 7- 13 age bracket to drive the majority of the social networking site’s growth because this age group is not drawn to other SNS sites such as Kaixin, Renren (RENN), or Sina’s (SINA) Weibo, which are mostly used by people who are 15 years old and up. As of last quarter, the total active user base reached 2 million. Taomee Bus will likely generate user stickiness as Taomee plans to make the platform more interactively appealing to children by introducing social games later this year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.