Software

Shanda Q3 Revenues Drop From Previous Quarter

Shanda's (SNDA) newly reported financial results for the third quarter ended September 30, 2005 show that though total net revenues increased 41.4% year-over-year, frevenue decreased 7.4% quarter-over-quarter to CNY499.7 million.

Online game revenues increased 35.5% year-over-year and declined 6.1% quarter-over-quarter to CNY438.1 million in the third quarter of 2005.

Total peak concurrent users for all Shanda games in commercial service in the third quarter of 2005 increased to 2.55 million from 2.52 million in the previous quarter.

Revenues from MMORPGs in the third quarter of 2005 increased 23.3% year- over-year and decreased 8.4% quarter-over-quarter to CNY331.5 million, accounting for 66.3% of total revenues.

The sequential decrease in revenues from MMORPGs was primarily due to a decline in Mir II revenue, which decreased 33.5% quarter-over-quarter to CNY154.6 million. The company says that after four years of operation in China and several years as China's leading MMORPG title, Mir II has now entered the later stages of its life cycle.

The number of average concurrent users of Shanda's MMORPGs in commercial service decreased to approximately 630,000 in the third quarter of 2005 from 763,000 in the previous quarter. The decline is primarily due to the weakening user base of Mir II, which had 233,000 average concurrent users in the third quarter of 2005 compared to 381,000 in the previous quarter. Average revenue per user hour, for Shanda's MMORPGs increased to CNY0.24 quarter-over-quarter from CNY0.22.

Revenues from casual games in the third quarter increased 95.5% year-over- year and 1.9% quarter-over-quarter to CNY106.6 million. The number of peak concurrent users of Shanda's casual games, including Bianfeng and Haofang, was 1,521,000 in the third quarter of 2005.

Shanda's other revenues increased 105.3% year-over-year and decreased 15.4% quarter-over-quarter to CNY61.6 million in this quarter.

The sequential decline was primarily attributable to lower sales of Mibao, Shanda's user ID security product. Apart from the fact that Shanda has already sold approximately 1,500,000 Mibaos since the commercial launch of this product in the third quarter of 2004, we believe that the decline in Mibao sales is also due to the decline in Mir II users, who have traditionally accounted for the majority of Mibao sales.

Gross margin was 68.9% in the third quarter of 2005, up from 62.7% in the third quarter of 2004 and from 68.4% in the second quarter of 2005. Shanda says the increase is primarily due to a decrease in on-going license fees paid in connection with Mir II operations and the increase in revenue from in- house developed games.

Operating income for the third quarter of 2005 was CNY151.7million, representing a 6.9% increase compared to CNY142.0 million in the third quarter of 2004 and a 37.8% decrease compared to CNY243.8 million in the second quarter of 2005.

Operating margin was 30.4% in the third quarter of 2005, compared to 40.2% in the third quarter of 2004 and 45.2% in the second quarter of 2005.

In the third quarter of 2005, Shanda reported Income Before Taxation and MI of CNY243.3 million, representing a 38.8% increase compared to CNY175.3 million in the third quarter of 2004 and a 8.0% decrease compared to CNY264.6 million in the second quarter of 2005.

In the third quarter of 2005, Shanda had net income of CNY261.1 million, representing a 58.1% increase compared to net income of CNY165.1 million in the third quarter of 2004 and a 17.1% increase compared to net income of CNY223.0 million in the second quarter of 2005.

Diluted earnings per ADS were CNY3.56 for this quarter, representing a 61.8% increase compared to diluted earnings per ADS of CNY2.20 in the same period of 2004 and a 16.3% increase compared to diluted earnings per ADS of CNY3.06 in the second quarter of 2005.

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