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Perfect World CEO Discusses Q2 2010 Results - Earnings Call Transcript

Perfect World CEO Discusses Q2 2010 Results - Earnings Call Transcript

Perfect World Co., Ltd. (PWRD)

Q2 2010 Earnings Call Transcript

August 16, 2010 9:00 pm ET


Vivien Wang – IR Officer

Michael Chi – Founder, Chairman and CEO

Kelvin Lau – CFO


Richard Ji – Morgan Stanley

Wallace Cheung – Credit Suisse

Alicia Yap – Citigroup

Tian Hou – Auriga

Wendy Huang – RBS

Eddie Leung – Banc of America

Paul Keung – Oppenheimer

Adam Krejcik – Roth Capital Partners

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Yvonne Yang – BNP

Andrey Glukhov – Brean Murray Carret & Co

Tucker Grinnan – HSBC

Ming Zhao – SIG

James Lee – CLSA

Atul Bagga – ThinkEquity

Mike Hickey [ph] – Janco Partners [ph]



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Ladies and gentlemen, thank you for standing by, and welcome to the Perfect World Q2 2010 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator instructions) I would now like to hand the conference over to your host today, Ms. Vivien Wang, Investor Relations Officer. Please go ahead ma'am.

Vivien Wang

Thank you, operator, and thank you, everyone, for joining us today for Perfect World’s second quarter 2010 earnings release conference call. We distributed our unaudited earnings release earlier today. You may find a copy of the press release on our official web site or through the newswire.

Today, you will hear from Mr. Michael Chi, our Chairman and CEO, who will give us a brief introduction and overview. Mr. Kelvin Lau, our CFO, will then discuss some of our latest business and operational developments and take us through our financial performance in the second quarter of 2010. Following the prepared marks, Mr. Chi, Mr. Lau and I will be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectation. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F. For more information about these risks and uncertainties please refer to our filings with the SEC.

Perfect World does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. Our earnings release and this call include discussion of certain non-GAAP financial measures. Our earnings release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. And it’s available on our Web site, at under the IR section.

I would now like to turn the call over to Michael.

Michael Chi

Thank you, Vivien, and thanks everyone for joining us today. The second quarter results largely came in line with our expectations. We experienced a slight sequential revenue decline in the second quarter. During the second quarter we decelerated some promotional and monetization activities within our games, in order to further nurture our games and lengthen the lifecycles.

The pipeline of truly genuinely differentiated 2D, 2.5D and 3D games continues to be encouraging. We are effectively utilizing our specialized game engines and production studios to build solid franchises in each of the market segments. A number of our games in the pipeline are very exciting, but as we learned from previous experience, it is best for us to take time in testing and fine tuning new games before officially launching them. This way we will avoid potential issues and the risks of losing players at what is essentially the most critical period of a new game.

Some of the games that we are excited about include ‘Forsaken World,’ our newest 3D

Western-themed MMORPG and ‘Dragon Excalibur,’ our first 2D real-time MMORPG. We are also anticipating the launch of ‘XiaoAoJiangHu,’ which will be known as ‘Swordsman Online’ in Western markets. This game is based on a famous martial arts novel written by renowned author Louis Cha, and is highly anticipated by gamers.

One of our key competitive advantages continues to be in research and development. In order to further strengthen our game development capabilities and increase our talent in creating new and innovative games, we continue to invest in build our R&D team. During the quarter, we acquired a majority stake in Runic Games, a top-tier game development studio based in the U.S. This strategic investment immediately strengthened the global R&D capabilities, and as we work closely with Runic Game’s professional and experienced team, we seek to create global titles that cater to the tastes of both Eastern and Western gamers.

Our overseas penetration continues to progress and we are pleased with our development thus far. During the second quarter, we signed several licensing agreements and launched a number of our games in various markets through overseas operators. We also acquired C&C Media, our long-time Japanese operation partner, to further expand our overseas operating capabilities and capture the growth opportunities in Japan. We continue to launch games through our wholly-owned subsidiary in the U.S. and seeking healthy growth from North America operations. In the near future, we will be launching our games through our newly established European subsidiary.

Making strategic acquisitions that are complementary to our core business remains a large part of our growth strategy. We are seeing an increasing amount of potential in the broader entertainment industry in China, and believe that furthering our involvement in the industry will lead to further benefits to our core business through content generation and co-promotion. Therefore one of our controlled entities, Beijing Perfect World Cultural Communication Co., Ltd., recently signed agreements to invest in and take majority stakes in Beijing Xinbaoyuan Movie & TV Investment Co., Ltd. and Shanghai Baohong Entertainment & Media Co., Ltd. Both companies are engaged in film and television production and distribution business, and we are excited to work together with such a reputable team to further the development of the entertainment industry in China.

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