Shanda Games' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Shanda Games Limited (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

Presentation

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.

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