NetEase Wins With Online Gaming. Pago Electrónico :: e-Payment

NetEase Wins With Online Gaming


Fecha Miércoles, abril 30 @ 16:42:18
Tema Pago Electrónico :: e-Payment


It's also great for shareholders in Nasdaq-listed Chinese Internet company http://NetEase.com . Profits and revenue have been expanding rapidly in part because of the popularity of online games in China among youthful customers who spend hours per day in places like Cizhandi. NetEase, one of the Nasdaq's best-performing stocks last year, said on Monday that net profit in the first three months of 2003 totaled $8.3 million, compared with a loss of $2.1 million a year earlier. Revenue rose almost five-fold to $14.2 million--including $4.5 million from online gaming; in the first quarter of last year, NetEase's online game revenue was less than $100,000.


"We're cautiously optimistic that online games will continue to be a key revenue source despite SARS," says acting Chief Executive Ted Sun. Other NetEase businesses such as short-message service and online-advertising revenue will grow steadily, he says. Others aren't so sanguine about online gaming in the near-term: Framingham, Mass.-based International Data Corp. said in Beijing today it expects to lower its forecast for online-game revenue growth in China this year from a forecast of $232 million (versus $112 million in 2002) as the government shuts down Internet cafes in Beijing to control the spread of SARS. IDC didn't say by how much it would reduce its estimate.

Sun remains optimistic about online games. Unlike South Korea, where online gaming is popular and has industry leaders such as NCsoft, "there is no dominant player" in China, he says. NetEase has more than 50 of its own game developers. Because it got in early, the Beijing-based company also has relatively good distribution of prepaid cards for online games, a key to taking in revenue.

Hopes for a big gain in NetEase's profit sent the stock up 4% to $20.22 on Monday before the company's earnings were posted. The stock gained another 5% in early trading today. Compared with other Nasdaq-listed China portals http://Sina.com and http://Sohu.com --which have both reported higher income lately--NetEase shares look cheap, trading at more than 20 times projected 2003 earnings versus more than 30 times for the others, according to earnings-estimate services. But the stock is thinly covered in the financial industry, making the estimates rough at best.

SARS or no SARS, NetEase's results mark a startling recovery for a company that two years ago was a poster boy for bad corporate governance at Chinese companies. Two top NetEase officials resigned in mid-2001 after delays in issuing financial reports and its shares were suspended in the last four months of 2001 after NetEase said it had to restate earnings. Last year, the company settled a class-action lawsuit, agreeing to pay $4.4 million in connection with the incident. In its darkest hour after the dot-com bubble, NetEase's shares traded as low as 53 cents.

Founded in 1997, NetEase has thrived in part by solving the puzzle of how to "monetize eyeballs." Today, besides online games, it provides services for sending text messages to mobile phones, which opens up a market of 200 million-plus mobile phone users in China and generated 48% of its first-quarter revenue.

Even traditional advertising revenue has gained, totaling $1.4 million in the first quarter versus about $500,000 a year earlier. NetEase's management overhaul and financial reporting controversy "generated a lot of bad publicity for us in the year 2001," says Sun, who has steered the company to recovery since taking over as acting chief executive in September 2001. The company lost a lot of market share while management focused on the financial issues instead of business growth, he adds. Now, it's back on track.

How does it keep growing? It's not likely to be through mergers with big traditional media companies, he suggested, downplaying the strategy of companies such as AOL Time Warner (nyse: AOL - news - people ). "I think the synergy for cross-media is smaller than the market expects," Sun says. "The audience is different. Also, the advertisers usually have different teams for online advertising and printed media. It's not like people think."

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