Chinese Internet portal Netease.com (NTES) says its online game revenue growth has not had any major upsurge as it announced its unaudited financial results for the quarter ended June 30, 2007.

"Despite relatively flat game revenues quarter-over-quarter, we are aligning the right balance of resources with our long-standing MMORPG expertise and market leadership to build and diversify our game portfolio for near-term growth," said William Ding, CEO of Netease. "Open beta testing for Westward Journey Online III, the upgraded version of Westward Journey Online II, is scheduled to begin in August 2007, and we plan to release an expansion pack for Fantasy Westward Journey during the fourth quarter of 2007. We are also making positive progress with our programming and design improvements for Tianxia II."

Total revenues for the second quarter of 2007 were CNY558.0 million, compared to CNY554.6 million and CNY575.3 million for the preceding quarter and the second quarter of 2006, respectively. Revenues from online games were CNY475.1 million for the second quarter of 2007, compared to CNY481.9 million and CNY486.0 million for preceding quarter and the second quarter of 2006, respectively.

Gross profit for the second quarter of 2007 was CNY437.8 million, compared to CNY430.1 million and CNY457.4 million for the preceding quarter and the second quarter of 2006, respectively. Gross margin for the online game business for the second quarter of 2007 was 90.2%, compared to 89.6% and 90.7% for the preceding quarter and the second quarter of 2006, respectively. The company says the quarter-over-quarter increase primarily resulted from operational cost savings which more than offset a decrease in online game revenues in the second quarter of 2007. The year- over-year decrease was primarily driven by a decrease in online game services revenue from Westward Journey Online II and higher staff-related costs as a result of an increase in headcount.

Gross loss margin for the wireless value-added services and others business for the second quarter of 2007 was 28.1%, compared to gross loss margin of 36.1% and 2.3% for the preceding quarter and the second quarter of 2006, respectively. The quarter-over-quarter improved gross loss margin was primarily due to increased revenues from online fee-based premium services supplied to registered users of the Netease websites, including premium matchmaking and dating services and product sales generated from registered users. The year-over-year decline in gross margin was primarily driven by a decrease in revenue from wireless services.

Total operating expenses for the second quarter of 2007 were CNY142.8 million, compared to CNY117.7 million for the preceding quarter.

Net profit for the second quarter of 2007 totaled CNY312.6 million, compared to CNY301.5 million and CNY314.1 million for the preceding quarter and the second quarter of 2006, respectively.

As of June 30, 2007, the Netease's total cash and time deposit balance was CNY3 billion, compared to CNY3.9 billion and CNY3.6 billion as of December 31, 2006 and June 30, 2006, respectively.

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