Shares of The9 Shine on EA Investment, Earnings Beat

Shares of The9 Ltd., one of China's largest online game operators, soared more than 10% to $43.54 to a new all-time high during normal trading, on news of a $167 million investment (15% stake) from Electronic Arts. After announcing better-than-expected earnings, The9 added another 2% to $44.40 in extended trading on light volume of just over 34,000. The9 gained as much as 17.7% to $46.46 intra-day, recouping recent losses following a May 11 high of $43.20. In addition to its equity investment, EA and The9 announced a licensing agreement giving The9 exclusive publishing rights for EA SPORTS FIFA Online in mainland China. "We are seeing strong interest in online sports games in China with the upcoming 2008 Beijing Olympics and the FIFA World Cup in 2010, and FIFA Online is set to be a top favorite in the Chinese market," said Jun Zhu, CEO of The9. The Company's Q1 net income increased 13% to $8.6m, or $0.34/share, beating analysts' average estimate of $0.32/share. Revenues rose 27% to $35m, compared to analysts' average forecast of $35.8m. Sales from the "World of Warcraft" by Vivendi's Blizzard Entertainment accounted for nearly 99% of its revenues. Shares of EA gained 1.3% to $49.21.

Sources: The9 Q1 2007 Earnings Call Transcript, Press releases [EA-The9, Q1'07 Earnings]
Commentary: The9 Q1 Earnings Preview: Expecting EPS Drop; New Games Should Fuel Solid Growth • 10 China Stocks To Consider Buying Now • Electronic Arts Beats Expectations, Shares Drop on Weak Guidance
Stocks/ETFs to watch: Electronic Arts Inc. (ERTS), The9 Ltd. (NCTY). Competitors: Netease.com Inc. (NTES), Shanda Interactive Entertainment Ltd. (SNDA), Sina Corp. (SINA), Activision Inc. (ATVI), TakeTwo Interactive Software Inc. (TTWO), THQ Inc. (THQI). ETFs: iShares Goldman Sachs Software Index Fund (IGV)

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