Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Shanda Games Limited (NASDAQ:GAME)

Q1 2012 Earnings Call

June 11, 2012 9:00 p.m. EDT

Executives

Ellen Chiu – IR Director

Alan Tan – Chairman and CEO

Richard Wei – CFO

Analysts

Catherine Leung – Goldman Sachs

Timothy Chan – Morgan Stanley

Jin Yoon – Nomura Securities

Alex Yao – Deutsche Bank

Andy Yeung – Oppenheimer

Wendy Huang – RBS

Atul Bagga – Lazard Capital

Operator

Welcome to Shanda Games Limited’s first quarter 2012 financial results conference call. The conference call will be recorded and available for replay in its entirety. A copy of Shanda Games’ 2012 first quarter results announcement can be found and downloaded from its Investor Relations website http://ir.shandagames.com. At this time all lines have been placed on 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 2012 first quarter financial results conference call. With me today are Mr. Alan Tan, our Chairman and CEO, and Mr. Richard Wei, our CFO.

Before we begin, I would also 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 from liability for such statements established in the US Private Securities Litigation Reform Act of 1995. All statements that are not statements of historical facts 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, please take a minute to read the Safe Harbor statement in Shanda Games’ first quarter 2012 earnings release.

In addition, please note, for discussion purposes, all numbers will translate into US dollars based on the exchange rate of RMB6.2943 per US dollar.

Now I would like to turn the call over to our Chairman and CEO, Mr. Alan Tan.

Alan Tan

Thank you, Ellen, and thank you all for joining us today.

The first quarter of 2012 marked the first full year since we’ve begun implementing our Triple-A strategy. In this time, we have effectively broadened our strategy and started to develop the key products and titles that have enabled us to not only emerge domestically as one of China’s leading online gaming companies, but also expand out further and deeper into new territories. We have continued to focus on the areas that we expect to drive growth over the next few years, namely, this includes our strong portfolio of games and franchisees, and continuous investment in our exciting pipeline.

Our results for the first quarter of 2012 once again demonstrated our ability to grow the business despite traditional first quarter seasonality. Total net revenues increased 10.9% year over year and 2.5% quarter over quarter. Net revenues from online games operated in China increased 6.7% year over year and 2.1% quarter over quarter. And finally, other revenues, primarily representing net overseas revenues, increased 49.8% year over year and 7.2% quarter over quarter. This good start to the year gives us confidence in our strategy in a rapidly-changing industry.

As I mentioned before, our Triple-A strategy recently celebrated its one-year anniversary, once again delivering the outstanding results we have come to expect from it. I will now briefly provide an update on the strategy. As a reminder, the three A’s stand for the three critical elements: All-Star, All-Platform and All-Region. Let me start with an update on the All-Star component for our strategy.

Our All-Star strategy is [getting] the innovative franchises and games that we believe will continue through next generation of online gaming industry. Our investment in the development of our pipeline have created category-defining franchises that are setting new standards and a very engaged gamer for years after its release.

Our broad game portfolio and pipeline has truly set us apart and has provided us with a unique competitive advantage. This year [inaudible] particular, we plan to release several highly-anticipated titles from our pipeline. These titles are currently progressing through the various stages of development on schedule. Age of Wushu, an exciting 3D MMORPG jointly operated with Snail Game [inaudible] with positive feedback; RIFT, a 3D fantasy MMORPG licensed from Trion Worlds, is currently undergoing [mobilization] but it’s scheduled to launch sometime during the fourth quarter; World Zero, having already completed its first round of closed beta testing, is currently being refined based on the very positive reviews it’s received from gamers, and we will undergo the next round of testing sometime in the third quarter of 2012.

Aside from these new games, we saw strong growth from Dragon Nest, AION, MapleStory and Legend of Immortals, driven by the release of major expansion packs and the new in-game quest during the first quarter. In particular, AION 3.0, the major expansion pack for AION launched this past quarter and has contributed largely into its growth.

The inherent strength of games like this outside the traditional [inaudible] associated with Mir II and Woool during the first quarter. During the second quarter we’ll have temporarily the accelerated monetization of Mir II and Woool in order to improve [game trading], ensuring a longer lifecycle. Meanwhile, we’ll delay the major expansion pack for Dragon Nest until the third quarter in order to ensure a smooth launch.

Due to these adjustments in Mir II and Woool and [inaudible] between the launch of the expansion packs, we expect the second quarter of 2012 to be softer. However, we anticipate that revenue growth and the monetization will resume in the third quarter on the back of the new games and expansion pack launches.

Indeed, our major game launches this year following the second half aside from Dragon Nest expansion pack, we are introducing an upgraded version of Woool and Mir II in the third and in the fourth quarter, respectively. This will enable [inaudible] improve on graphics engine and includes new in-game [applications]. We believe the new versions can [inaudible] create a [inaudible] game player [inaudible] the two titles. Coupled with new hit game titles, Age of Wushu and RIFT, we believe in the second half we’ll reach the revenue growth again.

For the first quarter, Mir II, Woool and Dragon Nest contributed 34%, 15% and 18% of total revenue, respectively. Since the implementation of our All-Star strategy, our [inaudible] Mir II and Woool have steadily increased as we developed various new sources of revenue. This quarter, for the first time ever, Mir II and Woool accounted for 50% of our revenue.

Looking ahead, our All-Star strategy has developed an incredible portfolio of games and our gamers are eagerly awaiting. We’re looking forward to the upcoming launch of our new titles as this shows the creativity, drive and focus of our development teams. As we attract new users to our platform, we’re committed to providing a constant supply of new high-quality content by developing and [operating] the very best games for our players in order to keep them coming back. With the proven track record of prestigious games, operations and [mobilization concept], the All-Star component of our strategy serves as the growth engine for our future.

Moving on, I will give you an update on our All-Platform strategy. During the first quarter, we continued to roll out micro-clients, web and mobile games. Utilizing the latest technology, our micro-clients increased [flexibility] by requiring users to download the initial components of games, thus avoiding the long download times typically associated with large files. This provides the flexibility demanded by users who are increasingly [inaudible] our content from a range of devices. The value this has brought to our users has already been exhibited by the release of [consumer] micro-client games, including [Mir III] and [inaudible] which has -- which was [inaudible] the Woool franchise. These two games have both kicked off more momentum since their launch. To [consolidate] these successes, we are harnessing this technology to further develop many of our other existing franchise games. These include [inaudible] model which happens early in the second quarter.

In our web game division, we have co-developed [inaudible] designed web games from our most popular franchise Woool, and developed new [inaudible] such as [inaudible]. These two games are set to launch by the end of this month and early next quarter, respectively. Other web games in the pipeline include Knights of Tang Dynasty and Immortals, which will also launch soon.

On the mobile front, our mobile gaming division continues to capitalize on the global trend that are using online social interaction with gaming. We’re now building our mobile game platform into an integrated game center, which in cooperation with [inaudible] operation and publishing platform. Through this platform, we expect to launch the mobile version of Woool by the end of this month.

We are also expanding the product line into licensing and original self-developed mobile games as well. After obtaining the license to operate one of the world’s most popular and longest-running [inaudible] Final Fantasy XIV, we are forming a strategic partnership with them to develop and operate mobile games globally. This partnership will [inaudible] the release of mobile versions of Final Fantasy’s earlier games, Final Fantasy I, II and III. With this agreement, we are leveraging each other’s advantages to broaden our footprint in the mobile game business globally. We expect more strategic partnerships with other top-tier mobile game developers in the coming future.

We’ll continue the investment into our mobile games. We plan on launching a number of new titles through the development of our in-house studios, licensing agreements and partnerships. As the market continues to develop, we remain intent on acquiring more mobile game titles as opportunities arise.

While we are still in the early stage of our expansion into mobile web and micro-client games, there is much to be excited about. This development represents the next step in social connectivity and mobility for online games. We believe that the rapidly-expanding user base on our new platforms will increasingly demand high-quality content. Based on our expertise and knowhow, we will continue to provide [inaudible] content of in-game systems [inaudible] by executing an item-based revenue model in the near future.

Finally, an update on our All-Region strategy. For the past few quarters, our overseas operations has been one of our fastest-growing segments as we push our game portfolio into new regions. This quarter, we’ll continue to push forward as we build out our strong and growing global businesses. With the [inaudible] games coming out of the All-Star component of our strategy, we have simultaneously boosted the portfolio of games with long lifecycles to various regions across the globe.

Following the successful launch of Jungle Master in Singapore, our Singapore global service platform, or GSP, [inaudible]. We plan to replicate this accomplishment with [inaudible] launch plans scheduled in Russia and Indonesia in the third quarter. We’re also looking forward to the launch of digital remodel of the [inaudible] later this year.

I'm happy to announce that Eyedentity Studio’s second game, Dungeon Striker, just completed its first round of closed beta testing in South Korea about a month ago. This [inaudible] action-style MMORPG featuring outstanding visual effects and [inaudible] will incorporate [inaudible] skills and customization options. This is sure to attract the attention of gamers around the world. Given the success of its previous game, Dragon Nest globally, we are highly optimistic about the prospects of Dungeon Striker.

At the same time, we have begun participating in several Korean joint venture funds that are investing in Game Studios. These investments already include the company developing MMO, web and mobile games. Allocating resources towards investments such as this, intended to expand our overseas [inaudible] in not only MMORPGs but also web and mobile games. While this is just an initial step, we expect further such opportunities will emerge as we continue to grow.

Looking forward, we expect growth in overseas revenue to accelerate as we continue to develop new opportunities for licensing, [inaudible] and operating games in new countries and regions. Leveraging our investment in intellectual property abroad has created a new long-term revenue stream. We will continue to invest and expand our franchises to entering new markets and replicating our proven business models.

In summary, this year we will continue to re-implement our Triple-A strategy to generate solid financial and operational results. Our All-Star games form the basis for our progress as we enrich the content of our pipeline and portfolio of games, broaden our user base through easier access to device and platforms, and expanding into new territories. This will provide us with new opportunities as we obtain new sources of revenue to create a sustainable growth and value to our shareholders over the long term.

We look forward to enhancing playing experience of our gamers and introducing it to our users around the world.

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

Richard Wei

Thank you, Alan. As always, our full earnings release with financial statements is available on our website as well as most major financial portals. I will now briefly review the highlights of our first quarter of 2012 results and provide an outlook for the second quarter. We will take questions afterwards.

During the first quarter of 2012, our net revenues increased 2.5% sequentially and 10.9% year over year to RMB1,389 million, equivalent to USD221 million, in line with our previous guidance, despite the negative impact of first quarter seasonality to MMOs where many gamers tend to be less active during the New Year and Chinese New Year holidays in January. We’ll continue to roll out expansion packs, new in-game quests and organized [retro] activities for major games, and saw a strong performance on Dragon Nest, AION, MapleStory and Legend of Immortals during the first quarter.

Net revenues from online games generated in China were RMB1,289 million, equivalent to USD205 million, representing an increase of 2.1% quarter over quarter and 8.7% year over year.

Average time for the active users, or MAUs, for all games operated in China were 19.1 million in Q1 compared with 20.4 million in Q4 last year. Average monthly paying users, or MPUs, for all games operated in China were 4.3 million in Q1 compared with 4.5 million in Q4 last year. The sequential decrease in MAUs and MPUs were mainly attributable to the negative effect of seasonality in Q1 2012 as mentioned just now.

Monthly ARPU for all games operated in China increased 7.6% quarter over quarter to RMB99.9 in Q1. Other revenues, which primarily include overseas revenues from game licensing, game operations and advertising, were RMB101 million, equivalent to USD16 million, representing an increase of 7.2% quarter over quarter and 49.8% year over year. This sequential increase was mainly due to one-time increase in advertising revenues related to cross-market activities in China during the first quarter of 2012.

Gross profit increased 4.7% quarter over quarter and 14.8% year over year to RMB174 million, equivalent to USD139 million. Gross margin was 62.9%, up from 61.5% in the fourth quarter of 2011 and 60.8% in the first quarter of 2011. Operating income increased 8.8% quarter over quarter and 24.6% year over year to RMB436 million, equivalent to USD69 million. Operating margin was 31.4% in Q1, up from 29.6% in the preceding quarter and 27.9% in the same period last year.

Non-GAAP operating income increased 11.3% sequentially and 18.6% year over year to RMB493 million, equivalent to USD78 million. Non-GAAP operating margin was 35.5%, up from 32.7% in Q4 last year and 33.2% a year ago. Our non-GAAP calculation excludes the impact of share-based compensation, amortization of acquisition-related intangible assets and their related income taxes.

Income tax expenses were RMB106 million, equivalent to USD17 million, compared with RMB226 million in the preceding quarter and RMB84 million in the year-ago period. The sequential decrease in income tax expenses was primarily due to RMB134 million cash withholding accrued in the preceding quarter associated with dividend distributions from the company’s subsidiaries to their overseas holding companies.

Effective tax rate for Q1 2012 was 22.9% compared with 21.1% in Q1 last year and 41.4% in Q4 last year. The company expects effective tax rate for Q2 this year to be similar to Q1 this year.

Net income attributed to ordinary shareholders was RMB337 million, equivalent to USD53 million, representing an increase of 10.7% quarter over quarter and 7.6% year over year. Earnings per diluted EPS were RMB1.20, equivalent to USD0.19, compared with RMB1.08 in the fourth quarter of last year and RMB1.10 in the first quarter of last year.

Non-GAAP net income attributable to ordinary shareholders totaled RMB282 million, equivalent to USD51 million, representing increase of 13.8% quarter over quarter and 2.6% year over year. Non-GAAP earnings per diluted EPS were RMB1.36, equivalent to USD0.22, compared with RMB1.20 in the fourth quarter last year and RMB1.30 in the same period last year.

Turning to balance sheet and cash flow positions, the company’s cash and cash equivalents, short-term investments, restricted cash and time deposits net of loans and dividend payable were RMB2.66 billion, equivalent to USD423 million, an increase from RMB2.16 billion as of December 31 last year. The increase was mainly due to operating cash flow generated during the first quarter.

Dividend payable decreased from RMB1.82 billion as of December 31 last year to RMB22 million, equivalent to USD3.5 million as the company paid its initial cash dividend in January 2012, the remaining dividend payable was added to the restricted shares granted to employees but not yet invested.

Short-term borrowings increased RMB859 million as of December 31 last year to RMB2.88 billion, primarily as a result of one US dollar loans borrowed to take advantage of difference in spot and forward exchange rates and interest rates between RMB and US dollars and to US dollar loans borrowed [inaudible] difference in spot and forward exchange rates. [inaudible] collateralize by RMB short-term investments which accounted for most of the increase in short-term investments from RMB2.2 billion as of December 31 to RMB3.5 billion at end of Q1. A portion of the collateral was borrowed from an affiliate company at an interest rate of 2.0% and was reflected mainly by the quarter-over-quarter increase in other payables [inaudible] parties from RMB126 million to RMB1 billion.

The company also lends funds to its affiliates with interest rates ranging from 3% to 5.92%, reflecting the sequential increase in other receivables [inaudible] parties from RMB931 million to RMB2 billion as of December 31 -- as of March 31 this year that the company sold Mochi Media, a platform for distributing and monetizing browser-based mini casual games for USD60 million to a company under the control of Shanda Interactive Entertainment Limited [inaudible] transaction.

The financial impact of the transaction for this quarter was mainly reflected in a quarter-over-quarter decrease in intangible assets, goodwill and non-current deferred tax liabilities which primarily arose from the acquisition of Mochi in January 2010 and increased investment in affiliate companies as well as increase in additional [inaudible] capital which was related to our investment in the company under [inaudible] control. We expect the transaction to be mildly earnings accretive.

Concurrent with this earnings release, the Board of Directors authorized the company to repurchase up to USD100 million worth of outstanding American Depository Shares from time to time over the next 12 months depending on market conditions, share price and other factors, as well as subject to the relevant rules under US securities regulations. The share repurchases may be made on the open market, in block trades or otherwise, and may include derivative transactions. The program may be suspended or discontinued at any time.

Now, turning to the guidance for the second quarter of this year. We expect our revenues in Q2 to decline by 15% to 20% sequentially and expect our non-GAAP operating margin, which excludes the impact of share-based compensation, amortization of acquisition-related intangible assets and the related income tax effects to decline by 1 percentage point compared with Q1 non-GAAP operating margin as a result of revenue decline.

We expect non-GAAP operating margin to improve in the second half as we continue to work on better expense control and as revenue improves in the second half. Share-based compensation expenses in Q2 is projected to be approximately RMB14 million. We also expect to book approximately RMB50 million in government subsidies in Q2.

That concludes my discussion. I will 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

Certainly. We will now begin the question-and-answer session. (Operator Instructions).

The first question comes from the line of Catherine Leung from Goldman Sachs. Please go ahead.

Catherine Leung – Goldman Sachs

Hi, good morning. Firstly, I was wondering if you can comment on the ARPU differences between your major game titles and whether the growth in ARPU in the first quarter reflected any mix shift towards any of the higher ARPU titles. And secondly, if you could share your product development hiring plans for the rest of the year. Thank you.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Indeed, different games have their different players of their group and also different economic system inside the game. So we wouldn’t pursue for a certain level of ARPU for each game. Yeah.

Alan Tan

[Chinese language spoken]

Ellen Chiu

For games that have gamers based with -- with older gamers and also hard-core gamers, their ARPU would be higher. But for more casual or [cartoon-style] kind of game, their ARPU would be lower as well.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Hope that answers your questions.

Catherine, what is your second question?

Catherine Leung – Goldman Sachs

Secondly is the headcount expansion plans for product development for the remainder of this year.

Alan Tan

[Chinese language spoken]

Ellen Chiu

For this year, we will control our -- we’ll try to manage our product portfolio in terms of enhancing the efficiency of R&D personnel. So this year we should maintain our R&D personnel at a flattish level.

Catherine Leung – Goldman Sachs

Okay, great. Thank you.

Alan Tan

Okay.

Operator

Thank you. Next on the line, we have Timothy Chan from Morgan Stanley. Please go ahead.

Timothy Chan – Morgan Stanley

Hi, Ellen, Richard and Alan. Good morning and thanks for taking my question. My first question would be relating to your guidance for the second quarter. Could you maybe discuss further what games are contributing to your 15% to 20% Q-on-Q sales decline in the second quarter? And relating to that, what are your trends for your operating expenses by line item in the second quarter? Thank you.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. For the second quarter, it’s a seasonal weak season for casual type of games, especially like Dragon Nest. As for MMO, indeed, for Mir II and Woool, we are selling down the monetization for the game in second quarter. In the second half, we will introduce the bigger expansion pack by introducing new engines and bigger updates inside the game. So we also sold down the corresponding activities inside the game in the second quarter. We also will -- the revenue to -- revenue growth resume again by -- after we introduce the new version of Mir II and Woool.

Richard Wei

Regarding expenses for Q2, I think we’re guiding for operating margin, non-GAAP operating margin to decline by 1 percentage point compared to Q1, and I think this should be spread across the three different line item categories, the R&D, sales and marketing and G&A.

Timothy Chan – Morgan Stanley

Okay, thank you.

Operator

Thank you. Next on the line, we have Jin Yoon from Nomura Securities. Please go ahead.

Jin Yoon – Nomura Securities

Hi. Actually my question has already been answered. Thank you.

Operator

Thank you. Next on the line, we have Alex Yao from Deutsche Bank. Please go ahead.

Alex Yao – Deutsche Bank

Hi. Good morning, everyone, and thank you for taking my question. I have two questions. One is regarding your micro-client strategy. Do you expect the micro-client strategy to attract new users at different demographics or is the micro-client strategy mainly to remain the usage from existing users?

The second one is regarding the web game strategy. We’ve been seeing web games, the market has been growing very fast in the past around two years. Are you seeing [usage game] from web game through the MMO games? And do you expect the new web game volume of the existing 3D titles to regain the usage? Thank you very much.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. For our micro-client strategy, indeed, especially lower the entry barrier for new gamers. And by introducing the micro-client technology, we enable gamers to experience MMORPG by playing through the browser and therefore create a new set of user base.

Alan Tan

[Chinese language spoken]

Ellen Chiu

For web game, we are also --

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. Sorry. In the old games, in addition to the micro-client version, we’re also introducing the browser version to better monetize and to introduce different ways to get it more accessible to gamers.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. Web game is indeed a highly -- is a market withhigh growth, and we believe that web game gamers also become more and more demanding in terms of game quality. So we -- and we recently, yeah, we recently discovered that the popular web games are more and more involve the MMORPG factor inside the game. So we believe that we can leverage our experience in MMORPG to introduce more high-quality web game to our gamers.

Alex Yao – Deutsche Bank

Thank you very much.

Alan Tan

Thank you.

Operator

All right, thank you. Next on the line, we have Andy Yeung from Oppenheimer. Please go ahead.

Andy Yeung – Oppenheimer

Hi, good morning. Thank you for taking my questions. My question is actually about web-based game strategies. You recently sold Mochi Media to Shanda Interactive. Can you give us some color behind the rationale behind this transaction? And also, what’s the potential impact the transaction have on the top line and the bottom line. And my follow-up question is also about the web-based game, what’s your view on line between [line-based] and MMORPGs and web-based MMORPGs? Thanks.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Mochi Media is [inaudible] web-based casual game publishing platform. However, its business model is -- the revenue is mainly contributed from the advertisement revenue. After a period of time of operation, we found out that the business model actually doesn’t really match our item-based model that well. And so we feel that it’s actually -- it will make more sense for it to be operated by another affiliate under the group.

Richard Wei

Okay. In terms of the financial impact from the disposal, Mochi [inaudible] less than 1% of revenue in Q1, and so I think that revenue [inaudible] from Q2. In terms of the margin impact, I think it’s approximately 1%.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. For web games, indeed, a couple of years ago we believe the online gaming trend will become -- for web game, it will become more and more popular in online game industry. So, right now we have micro-client [inaudible] as the flash-based web games that are -- that we plan to develop. And we are also searching for other technologies such as [indeed] 3D engine --

Alan Tan

And HTML5.

Ellen Chiu

And HTML5 to develop our web game genre better. Yes. That’s our strategy.

Andy Yeung – Oppenheimer

Great. Thank you so much.

Operator

Thank you. The next question comes from the line of Wendy Huang from RBS. Please go ahead.

Wendy Huang – RBS

Thanks for taking my questions. So, besides the share repurchase, do you plan any other cash usage? Thank you.

Richard Wei

Well, we continue to look at how to generate return to shareholder, but right now there is no other disclosed plan. We also are attempting to look for additional investments to make, and [inaudible] use of cash, right now nothing to disclose.

Wendy Huang – RBS

Okay. Thank you.

Operator

All right, thank you. (Operator Instructions).

Your next question comes from the line of Atul Bagga from Lazard Capital. Please go ahead.

Atul Bagga – Lazard Capital

Hey, guys. Thanks for taking my question. A couple of questions for you. Can you clarify your pipeline for the rest of the year quarter by quarter and also for 2013? And of these, what games you are more excited about?

And second, regarding World of Legends and Mir II, we understand that you're trying to reduce the monetization of these games. Can you highlight, were there any specific event issues that you noticed during Q1 which is encouraging you to take the step now? Are you seeing any reduced engagement or something like that which is kind of taking this drastic step on monetization for these two games? Thank you.

Alan Tan

[Chinese language spoken]

Ellen Chiu

For our pipeline, in second quarter -- in second half we have Age of Wushu [inaudible] which has started the testing, and also RIFT as well as World Zero. Aside from those three, we also have smaller MMOs such as [inaudible] which we announced before, developed by [inaudible] Point Blank. In 2013 we are planning to launch Dungeon Striker by Eyedentity, as well as Final Fantasy XIV. So, those are the highlight of key launches for second half in 2013. And aside from those, we have a couple that we haven’t announced but we are also preparing to launch fairly soon.

Alan Tan

[Chinese language spoken]

Ellen Chiu

For [inaudible] indeed, we are -- we plan to launch the major expansion pack for them, for both of them, in the second half. And they are probably the biggest updates since their launches. So that’s why we -- there is a shortage in terms of expansion packs.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Mir II has already been in place for 11 years, and every year we will launch a small or big scale of expansion packs, but we never launched the expansion pack involved in the update of engine. And this is what we’re going to launch in the second half of this year.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Okay. The update of engine will enable better graphics and interface of the game, and also it will allow gamers to play the game across servers, so that also will include -- the update will also include the infrastructure of servers.

Alan Tan

[Chinese language spoken]

Ellen Chiu

We believe this update of basic will allow the game to -- will enable longer lifecycle of the game in -- as well as to attract new and younger users.

Alan Tan

[Chinese language spoken]

Ellen Chiu

The recent slowdown of monetization is indeed preparing for the launch of the expansion pack, and that is to allow the gamers to better prepare for the new content in -- so we expect fourth quarter gamers will start to spend again inside the game.

Alan Tan

[Chinese language spoken]

Ellen Chiu

So, other than our proactive slowdown of monetization, because we announced our new expansion pack line, so, our gamers also proactively slow down their spending inside game, awaiting for the new expansion packs.

Alan Tan

[Chinese language spoken]

Ellen Chiu

Regarding the recent efforts, we expect gamers should [inaudible] and also anticipation for a new version, and after new versions are launched or we expect to bring a brand-new experience to the gamers.

Alan Tan

[Chinese language spoken]

Ellen Chiu

And as well as to attract new users. Thank you.

Atul Bagga – Lazard Capital

This is very helpful. Just a quick follow-up, so, after the launch of expansion pack, how long before you expect the monetization to get back to the level that we saw in Q1 and 4Q? Thank you.

Alan Tan

[Chinese language spoken]

Ellen Chiu

As we wait launching new expansion packs, of course there are certain -- there are a series of testing that has to be done before the new expansion packs are launched. And after that, we will open new servers as well as new [masks] for gamers. And we believe after all those have been done, gamers will start -- will increase their spending inside the game again.

Atul Bagga – Lazard Capital

Thank you.

Ellen Chiu

Thank you.

Operator

All right, thank you. And we’ll now hand the call back over to Ellen Chiu. Please.

Ellen Chiu

Thank you very much again for attending the call. And as usual, if you have further questions, please feel free to contact us. Thank you and have a great day.

Alan Tan

Thank you.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Shanda Games' CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts