SAN FRANCISCO (AP) ¿ U.S.-traded shares of NetEase.com Inc. fell Thursday after the Chinese online gaming company reported second-quarter results ahead of analyst expectations but indicated a boost came from the recognition of revenue related to the cleanup of dormant user accounts. American Depositary Shares of NetEase fell $5.72, or 12.3 percent, to $40.93 in afternoon trading. Beijing-based NetEase said late Wednesday its profit for the quarter that ended June 30 rose 7 percent to 468.1 million RMB ($68.5 million), or 3.60 RMB (53 cents) per American Depositary Share. This compares with 438.2 million RMB, or 3.39 RMB per share, in the year-ago quarter. Revenue climbed 22 percent to 872.1 million RMB ($127.7 million), from 715.9 million RMB in the year-ago quarter. Analysts polled by Thomson Reuters were expecting a profit of 45 cents per share on $120.3 million in revenue. Revenue from online games climbed to 781.5 million RMB ($114.4 million), from 595 million RMB, while revenue from advertising services fell to 72.8 million RMB ($10.7 million) from 103.9 million RMB, last year.
The company said 83.3 million RMB ($12.2 million) of revenue resulted from its cleaning of dormant gaming accounts in June. NetEase changed its user agreement in May to say that points in accounts that are unused for 540 days or longer would be removed in June, and the company is now going to recognize revenue each quarter that comes from points taken out of dormant accounts. In a note to clients, Credit Suisse analyst Wallace Cheung downgraded the stock to "Neutral" from "Outperform," citing the stock's valuation. The stock has more than doubled since the start of the year. Cheung raised his target price to $41.30 from $38, which implies downside of 11.5 percent from its closing price Wednesday. Excluding the dormant account revenue, gaming revenue fell year over year and was 8 percent below his forecast, Cheung said. The analyst expects that the popular game "World of Warcraft" will be relaunched publicly in September. Earlier this year, NetEase won a three-year license from Activision Blizzard Inc. to run the game ¿ which is the world's most popular multiplayer online game ¿ in mainland China once a previous license deal with a competitor ends. NetEase said Wednesday that China's Ministry of Culture approved the game's content and the country's General Administration of Press and Publication still needed to approve it. The company has been beta testing the game since July 30 and said it planned to roll it out publicly once receiving that governmental office's approval.