Perfect World Co., Ltd. (PWRD)

Q3 2010 Earnings Call Transcript

November 15, 2010 8:00 pm ET

Executives

Vivien Wang – IR Officer

Michael Yufeng Chi – Founder, Chairman and CEO

Kelvin Wing Kee Lau – CFO

Analysts

Paul Wuh – Samsung Securities

Timothy Chen [ph] – Morgan Stanley

Alicia Yap – Citigroup

Lisa Yuan – Goldman Sachs

Wendy Huang – RBS

Wallace Cheung – Credit Suisse

Mark Marostica – Piper Jaffray

Tian Hou – Auriga

Eddie Leung – Merrill Lynch

Sam [ph] – Oppenheimer

Mike Hickey – Janco Partners

James Lee – CLSA

Atul Bagga – ThinkPanmure

Nick Ning – Roth Capital

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to the Perfect World Q3 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 must advise that this conference is being recorded today, Tuesday the 16

th

of November, 2010. I would now like to hand the conference over to your speaker today, Ms. Vivien Wang of Perfect World. Thank you. Please go ahead.

Vivien Wang

Thank you, operator, and thank you, everyone, for joining us today for Perfect World’s third 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 website 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 third 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 expectations. 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 is available on our website, at www.pwrd.com under the Investor Relations section.

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

Michael Chi

Thank you, Vivien, and thanks to everyone for joining us today. Our third quarter results were mixed as our overall revenues came in ahead of our guidance due to the contribution from our television and movie business. Our performance in the online gaming business was slightly softer than we anticipated. However, our ongoing strategic expansion into film and television business is not only broadening our revenue streams, but also providing access to content and the resources that are expected to create synergies between different segments of our business in the future.

In our online gaming business, we didn’t release any new games or major expansion packs during the quarter as we concentrated on a number of longer-term projects to bring new excitement to our games portfolio. There is much to look forward to in terms of these projects.

As we have stated in the past, in an effort to give new games the best chance of success upon release, we have been extending the development cycle while we enhance our effort in fine-tuning and testing our upcoming releases. We have seen steady progress in terms of such efforts.

In late October, we released 'Forsaken World,' our 3D Western-themed MMORPG. The game has received a pretty positive response from gamers and it’s still ramping up, making for another solid addition to our portfolio.

And even more recently, we also launched 'Dragon Excalibur,' our first 2D real-time MMORPG. This game further diversified our portfolio into a new game segment. And we look forward to further growing this game.

We are making great progress in developing a number of differentiated games to deepen our pipeline. Our collection of new titles will position us well as we target multiple segments and new user groups in the online gaming market. We are also in the final stage of preparation for the upcoming launch of 'Empire of the Immortals,' which will be a sister title to 'Battle of the Immortals,’ under the same 'Immortals' franchise.

‘Empire of the Immortals' has already attracted considerable buzz in the market and we are excited about its prospects. After some early promotions for the game during the quarter, we saw some gamers take a wait-and-see approach with 'Battle of the Immortals,' (inaudible) as they study the new game prior to its launch. But we are confident that, after the launch of 'Empire of the Immortals,' we will be able to broaden the overall user base of both games by targeting slightly different sub-segments of gamers and build the two into an even greater overall franchise.

Additionally, we plan to launch a major new expansion pack for 'Battle of the Immortals' in the coming months. With this, and other expansion packs and updates to our key existing key titles, we expect to draw new gamers and additional interest across our portfolio.

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