Shanda Games Q4 Adj Profit Matches View, But Revenues Miss

(RTTNews) - Chinese online-games provider Shanda Games Ltd. (GAME) reported Friday a profit for the fourth quarter that declined from last year, reflecting a revenue decline and lower operating margins amid higher expenses. Adjusted earnings per share matched analysts' expectations, while quarterly revenues missed their estimates.

The company in late January received a $1.9 billion offer to be taken private by a consortium comprising its controlling shareholder Shanda Interactive Entertainment Ltd. and an affiliate of investment firm Primavera Capital Ltd. Shanda Games' board is reviewing and evaluating the consortium's proposal.

The consortium has proposed to acquire Shanda Games in a 'going private' transaction for $3.45 per class A or class B ordinary share, or $6.90 per American Depositary Share. Each ADS represents two class A ordinary shares. The consortium members already beneficially own about 76.2 percent of the company's outstanding shares.

"Our mobile game revenues for 2013 grew significantly year-over-year as we worked to expand our mobile game portfolio across multiple regions," CEO Xiangdong Zhang said in a statement.

The Shanghai, China-based company reported net income of RMB 335.3 million or $55.0 million for the fourth quarter, down from RMB 357.4 million in the prior-year quarter. Earnings per ADS decreased to RMB 1.24 or $0.20 from RMB 1.32 in the year-ago quarter. Earnings per share was RMB 0.62 or $0.10, down from RMB 0.66 last year.

Excluding the items, adjusted net income for the quarter was RMB 361.6 million or $59.4 million, compared to RMB 393.8 million in the same quarter last year. Adjusted earnings per ADS was RMB 1.34 or $0.22, compared to RMB 1.46 a year-ago. Earnings per share was RMB 0.67 or $0.11, compared to RMB 0.73 last year.

On average, three analysts polled by Thomson Reuters expected the company to report earnings of $0.22 per share for the quarter. Analysts estimates typically exclude special items.

Total net revenues for the quarter decreased 6.0 percent to RMB 1.03 billion or $168.8 million from RMB 1.10 billion in the same quarter last year. Five Wall Street analysts had a consensus revenue estimate of $187.49 million for the quarter.

On segment basis, net revenues from the company's major revenue contributor, massively multi-player online or MMO, games for the quarter declined 14.0 percent to RMB 898.5 million or $147.4 million from RMB 1.05 billion in the prior-year quarter.

Other revenues plunged 76.3 percent to RMB 9.9 million or $1.6 million from RMB 41.7 million in the year-ago quarter. Mobile game revenues totaled RMB 120.0 million or $19.8 million, compared to RMB 8.2 million last year. The company began reporting mobile game revenues separately from the first quarter of 2013.

Operating margin contracted 440 basis points to 38.7 percent from last year's 43.1 percent as gross margin was down 140 basis points, and from last year, operation expenses, as a percentage of total revenues surged 300 basis points.

"We continue to expand our mobile game pipeline in China and overseas as we look forward to the launch of our two most anticipated MMO's, 'Final Fantasy XIV' and 'Dungeon Striker,' later this year. I am confident that our strategy has aligned our competitive advantages and years of experience with the long-term fundamentals of the online game industry," Zhang added.

GAME closed Thursday's regular trading session at 6.59, down $0.03 on a volume of 0.59 million shares.