Chinese Internet portal


(NTES) - Get Report

reported a 30% jump in second-quarter earnings and said it entered an agreement to use


pay-per-click advertising service.

NetEase, whose shares have been cut in half since last fall, earned $11.9 million, or 36 cents an American depositary share, in the three months ended June 30, up from $9.2 million, or 28 cents an ADS, last year. Revenue rose 52% from a year ago to $25 million.

Analysts surveyed by Thomson First Call had been forecasting earnings of 40 cents an ADS on revenue of $22.6 million in the most recent quarter.

The onetime highflier has been victimized by stiff competition and stricter regulation in China for so-called short-message wireless service, a NetEase segment that saw second-quarter revenue plunge 37% from a year ago to $4.5 million. Revenue from the company's online-game segment rose 25% to $15.9 million.

Operating expenses ballooned 115% from a year ago to $7.7 million in the quarter, due to a new marketing campaign, and NetEase predicted the cost will be even higher in the current quarter, when a series of new television ads will air. The company also paid out generous banking fees in connection with a subordinated bond financing during the quarter.

"While our wireless value-added and other fee-based premium services business suffered setbacks in the second quarter of 2004, we are focused on turning around the business through a variety of strategic initiatives designed to stabilize and enhance revenues," NetEase said in a release.

Regarding Google, NetEase signed a contract under which its new search engine will use the soon-to-be-public company's Web page-search function and cost-per-click advertising service. Terms weren't disclosed.

NetEase was bouncing around in after-hours trading, recently trading up 84 cents, or 2.2%, to $38.90. It closed regular trading at $38.06, up 81 cents, or 2.2%.