Shanda Games' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Shanda Games Limited (GAME)

Q2 2012 Earnings Conference Call

August 26, 2012, 21:00 p.m. ET

Executives

Ellen Chiu - Director, IR

Xiangdong Zhang - CEO

Richard Wei - CFO

Analysts

Timothy Chan - Morgan Stanley

Dick Wei - J.P. Morgan

Muzhi Li - Citigroup

Thomas Chong - BOCI

Martin Bao - CICC

Andy Yeung - Oppenheimer

Mark Marostica - Piper Jaffray

Presentation

Operator

Ladies and gentlemen welcome to Shanda Games Limited Second 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 second quarter results announcement can be found and downloaded from its Investor Relations website at ir.ShandaGames.com. At this time all lines have been placed in listen-only mode and the floor will be opened for questions following today’s presentation.

I’d 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’d like to welcome everyone to our 2012 second quarter financial results conference call. With me today are Mr. Xiangdong Zhang, our CEO; and Mr. Richard Wei, our CFO.

Before we begin, I’d also like to remind you that managements comments during the call will include forward-looking statements that are based on current expectations and are intended to qualify for a Safe Harbor from liability for such statements established in the U.S. 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’ second quarter 2012 earnings release.

In addition, please note, for discussion purposes, all numbers will translate into U.S. dollars based on the exchange rate of RMB6.3249 per U.S. dollar.

Now I’d like to turn the call over to our CEO, Mr. Xiangdong Zhang.

Xiangdong Zhang

Thank you, Ellen, and thank you all for joining us today. Especially, those of you who are taking time from your Sunday evening. Before we begin I’d like to command an announcement issued earlier on the resignation of Mr. Alan Tan as company’s Chairman and CEO. I’d like to thank Alan for his tremendous contribution to the company over past several years in his help for us. We do have a strong management system and a team to execute the company’s corporate strategy. We wish him success in his future endeavor. In the meantime I’m honor to take over Alan’s duty as CEO during this period of time. I look forward to leading the company to solidify its position as one of the premier online game companies in China and drive its long-term growth.

Our second quarter results were in line with our guidance. However, we remained cautious given the current macroeconomic conditions. We believe we are moving into the third quarter with improved games and healthier volume. In the second quarter of 2012, total net revenue declined 14.4 percentage year-over-year and 18.6 percentage quarter-over-quarter. Net revenue from online games operated in China decreased 16.6 percentage year-over-year and 19.3 percentage quarter-over-quarter.

Other revenues primarily representing net overseas revenues increased 23.3 percentage year-over-year and decreased 10.6 percentage quarter-over-quarter. The decline of overseas revenues is mainly due to the sale of Mochi Media in the first quarter. Slow down in the second quarter occurred primarily because we reduced a level of monetization in our legacy games in order to lengthen our life cycles in Beijing.

We delayed the released schedule for server expansion packs in order to take advantage and a push through a number of other initiatives that we believe could help revive our performance in the second half and down. Overall, we continue to enhance and to verify our portfolio of games and franchise. We believe it is critical for long-term success of our business and continue to believe creative and compelling new game content. We remained focused on the games that we expelled to drive growth in the quarters to come.

I’d like to reiterate our AAA strategy which will continue to serve as the cornerstone of our approach to grow our business. The three As stand for three critical element: All-Star, All-Platform and All-Region.

All-Star, interest that we have a strong pipeline of games and that we are able to successfully launch these games. All-Platform enables us to take our successful clan-based titles and port them to other platforms and the developers are really interested that we extend our successful games to other geographic areas.

Let me start with All-Star component of our strategy tends to provide game players with rich content derived from our pipeline of new games and franchise. Our pipeline is anchored by numerous titles or in various strategic stage of development, Age of Wushu. And exciting 3D MMORPG jointly operated with Snail Game finished open-beta testing early this month and has received a positive feedback. The collaboration with Snail Game represents a new channel of game surfing. We are also excited about the first quarter launch of RIFT, a 3D fantasy MMORPG we licensed from Trion Worlds. We have just received government approval and are the final stage of localization. For World Zero we plan to conduct another round of testing in the fourth quarter. For Final Fantasy XIV we plan to commence localization of its new version in the fourth quarter.

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