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November 20, 2009

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Fewer ads and higher costs hit NetEase

NET profit at NetEase Inc, China's second-largest online game portal, was lower than expected in the third quarter because online advertising fell while operating costs to run the "World of Warcraft" increased.

Its profit rose 26 percent from a year ago to 393.8 million yuan (US$57.5 million), or 3.02 yuan per share, but it was down 16 percent from the previous quarter, the company said in a statement yesterday.

Total revenue climbed 10 percent year on year to 879.4 million yuan and online games generated 775.1 million yuan, down 15 percent from a year ago.

Advertising income totaled 86 million yuan in the third quarter, a decline of 24 percent from the same period last year.

NetEase won the licensing of the "World of Warcraft" from Activision Blizzard Inc to run the game on China's mainland in April from rival The9 Ltd. The game resumed commercial operations on September 19 after waiting for three months for regulatory approval.

The company also has the license to run Activision's "StarCraft II," hoping to generate more income.

It also develops its own games and two of them, Ghost and Heroes of Tang Dynasty, will be put into operation in December to expand its game portfolio.

China bans direct foreign investment in its lucrative online games industry.

Its biggest rival, Tencent Holdings, reported third-quarter net profit at 1.42 billion yuan.

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