Giant Interactive's Management Discusses Q1 2012 Results - Earnings Call Transcript

Giant Interactive Group, Inc. (GA)

Q1 2012 Earnings Call

May 7, 2012 9:00 p.m. EDT

Executives

Rich Chiang – IR Director

Jazy Zhang – CFO

Wei Liu – President

Xuefeng Ji – VP of R&D

Analysts

Timothy Chan – Morgan Stanley

Eddie Leung – Merrill Lynch

Steve Zhang – Macquarie

Jake Lee – Citigroup

[May Gehr] – UBS

[William Chan] – Barclays Capital

Wendy Huang – RBS

[Ruby] – Nomura Securities

Mark Marostica – Piper Jaffray

Jialong Shi – CLSA

Andy Yeung – Oppenheimer

Adam Krejcik – Roth Capital Partners

Atul Bagga – Lazard Capital

Martin Bao – CICC

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group’s first quarter 2012 earnings conference call. (Operator Instructions).

Now I would like to transfer the call to the moderator, Mr. Rich Chiang, Investor Relations Director of Giant Interactive.

Rich Chiang

Good morning, ladies and gentlemen. Welcome to the first quarter 2012 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Ms. Jazy Zhang, Chief Financial Officer; and Mr. Xuefeng Ji, Vice President of Research and Development.

As we proceed through our prepared remarks, we will refer to our results presentation which can be downloaded from our website at www.ga-me.com. Following the remarks, Ms. Liu, Ms. Zhang and Mr. Ji will be happy to take your questions.

Before we continue, I would like to remind you that statements on this call that are not strictly historical in nature constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, and similar statements, and including, among others, statements regarding our expectation of sequential top-line growth in the second quarter 2012, the continued improvement of our operating metrics, the continued growth of ZT Online 2, the effects of our studio reorganization, and the timetable for engineering testing, closed beta testing, open beta testing, introduction, and commercial launch of the various products in our game pipeline.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of Giant to be materially different from the historical results or from any results expressed or implied by such forward-looking statements. These factors include but are not limited to the risks discussed in filings with the Securities and Exchange Commission, including our annual report on Form 20-F filed on April 23, 2012. All forward-looking statements are qualified by their entirety by this cautionary statement and Giant undertakes no obligation to revise or update this information to reflect events or circumstances the date hereof. In addition, please note that references in the presentation to dollars refer to US dollars.

Now, I would like to turn the call over to our CFO, Jazy Zhang. Jazy?

Jazy Zhang

Thank you, Rich. Good morning to those of you in the east and good evening to those in the west. First, I would like to read the prepared remarks from our President, Ms. Wei Liu, and then I will walk you through our financial highlights and update you on our game development progress.

We are pleased to report a strong start to 2012, having delivered healthy top and bottom-line financial growth and an improvement in our key operating metrics. The successful development of ZT Online 2 into a new blockbuster game continued to drive our results for the first quarter and demonstrate our ability to continue developing hit games in the current competitive MMO market.

We’re especially encouraged by the sequential increase in average paying accounts and average revenue per user in a quarter in which we did not launch any significant game upgrades or marketing campaigns. We believe that incremental improvement in these operating metrics highlight the underlying appeal of a truly innovative game such ZT Online 2. And with the strong response to the launch of the first expansion pack of ZT Online 2 in April, we believe there is still room for further growth of this blockbuster game in coming quarters.

We’re also pleased to see continued stable performance in our legacy game portfolio, namely the ZT Online 1 series where continuous game enhancements have helped to keep players engaged and attract former players to return to these games. Extending the life span of all of our games and increasing user stickiness is a key element of our growth strategy, and we are pleased to see our continued execution and success on this front.

While ZT Online 2 represents our latest success, we’re working extremely hard on developing the next generation of hit games, whether they are MMORPGs or web games. The reorganization of our game development studios and the new revenue-sharing plan that was put into place in 2011 have begun to bear fruit as we are seeing a high degree of productivity and motivation among our research and development teams. As a well-known company in China, we strive to offer our R&D staff the opportunity to turn their ambitions into commercially viable products and be rewarded based on the success of those products. We’re dedicated to building a brand that not only attracts users seeking quality games, but also attracts developers dedicated to building those games. With talented game developers, substantial resources and a focused strategy, we believe we will be able to deliver more hit games in the future.

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