Shanda Beats by $0.06; But Revenue Weak on Decline of Online Game "Mir II"; Stock Down 9% in After-Hours Trading (SNDA 3Q05 Earnings)

| About: Shanda Interactive (SNDA)

Online game operator and developer Shanda Interactive (ticker: SNDA) reported Q3 2005 earnings results today that beat consensus earnings per ADS estimates by $0.06. Key stats from the quarter:

Q3 Results
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes RMB 8.0920 : US $ 1)

  • Total net revenue rose 41.4% to $61.7 million, but fell 7.4% sequentially. Consensus estimate of $67.1 million.
  • Online game revenue rose 35.5% to $54.1 million, but fell 6.1% sequentially.
  • MMORPG revenue rose 23.3% to $40.96 million, but fell 8.4% sequentially.
  • Casual game revenue rose 95.5% to $13.2 million, and rose 1.9% sequentially.
  • Other revenue rose 105.3% to $7.6 million.
  • Gross margin was 68.9% vs 62.7%.
  • Total operating expenses rose 142.4% to $23.8 million.
  • Product development expenses rose 138.7% to $5.7 million.
  • Sales and marketing expenses rose 267.9% to $9.67 million.
  • General and adminstrative expenses rose 75.6% to $8.4 million.
  • Operating income rose 6.9% to $18.75 million, but fell 37.8% sequentially.
  • Operating margin was 30.4% vs 40.2%.
  • Net income rose 58.1% to $32.3 million.
  • Net margin was 52.3% vs 46.7%.
  • Diluted earnings per ADS of $0.44 vs $0.27, and vs consensus estimate of $0.38.
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes RMB 8.0920 : US $ 1)
  • Revenue from Mir II fell 33.5% sequentially to $19.1 million.
  • Revenue from all other games (excluding Mir II) rose 81.0% to $35.0 million, and rose 21.0% sequentially.

Balance Sheet
(as of September 30, 2005, assumes RMB 8.0920 : US $ 1)

  • Cash and equivalents of $151.7 million.
  • Restricted cash of $18.6 million.
  • Short-term investments of $2.9 million.
  • Marketable securities of $272.6 million.

CEO Tianqiao Chen

While the circumstances with Mir II have led to quarter-over-quarter revenue decline, we are pleased to see that the rest of our game portfolio performed well during the summer season. This is evidence of the strength of a diversified content platform, which we continued to expand during the last two years. In addition to three new in-house developed casual games that we intend to launch in the fourth quarter this year, we expect to launch Dungeons & Dragons and three new games from Actoz in 2006. Furthermore, with the introduction of the Shanda EZ Series including the EZ Mini, EZ Center/EZ Pod and EZ Station, which are expected to contribute new revenue streams starting from the fourth quarter of 2005, we believe our home entertainment strategy is well positioned and we will continue to invest in such initiatives in order to take Shanda through the next phase of growth.

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