GA reports on Wednesday. I think I am going to take a position.
Should see good yearly and sequential growth... IPO'ed at the $20 range, and has been trending at $10 since..... See what you think.
GIANT INTERACTIVE GROUP INC. ANNOUNCES
THIRD QUARTER 2007 RESULTS
SHANGHAI, PRC — November 19, 2007 — Giant Interactive Group Inc. (NYSE: GA), one of China’s leading online game developers and operators in terms of revenues, announced today its unaudited financial results for the third quarter ended September 30, 2007.
Third Quarter 2007 Highlights:
• Net revenue for the third quarter of 2007 was RMB405.2 million (US$54.1 million), an increase of 164.2% over the third quarter of 2006 and 9.5% over the second quarter of 2007.
• Gross profit for the third quarter of 2007 was RMB359.8million (US$48.0million), an increase of 152.8% over the third quarter of 2006 and 8.5% over the second quarter of 2007. Gross profit margin for the third quarter of 2007 was 88.8%.
• Net income for the third quarter of 2007 was RMB290.2 million (US$38.7 million), an increase of 152.6% over the third quarter of 2006 and 9.8% over the second quarter of 2007. Net income margin for the third quarter of 2007 was 71.6%.
• Net income per ordinary share for the third quarter of 2007 was RMB1.44 (US$0.19), compared to RMB0.57 for the third quarter of 2006. After the recent initial public offering, each ADS represents one ordinary share.
• Active Paying Accounts (“APA”) for ZT Online in the third quarter of 2007 reached 1,318,000, an increase of 88.9% from the third quarter of 2006 and 5.6% from the second quarter of 2007.
• Average Revenue Per User (“ARPU”) for ZT Online in the third quarter of 2007 was RMB305.2, an increase of 38.8% from the third quarter of 2006 and 3.3% from the second quarter of 2007.
• Average Concurrent User (“ACU”) for ZT Online in the third quarter of 2007 was 481,000, an increase of 77.6% from the third quarter of 2006 and a decrease of 6.6% from the second quarter of 2007.
• Peak Concurrent User (“PCU”) for ZT Online in the third quarter of 2007 was 888,000, an increase of 59.2% from the third quarter of 2006 and a decrease of 17.2% from the second quarter of 2007.
Mr. Yuzhu Shi, Chairman and Chief Executive Officer of Giant Interactive Group Inc. (“Giant”), commented, “2007 has been a historic year for Giant, highlighted by our successful listing on the NYSE on November 1, 2007. Our listing represents a major milestone towards our goal of becoming the largest online game developer and operator in Asia. Our passion for games remains the main driving force behind our strategy, while our strong R&D and technology capabilities, extensive distribution and marketing support network and clear insight into the Chinese mass market continue to underpin our growth. As such, we are pleased to announce strong earnings for the third quarter of 2007 with 164.2% growth in net revenue and a 152.6% increase in net income, as well as continued strong high gross profit and net income margins. Our ZT Online game continued to deliver solid performance with the successful launch of the expansion packs and with the execution of our marketing strategy of targeting new users in medium and smaller cities. The increases in both APA and ARPU demonstrate the continued expansion of our paying player base and increasing player loyalty to ZT Online. The development of our second major game, Giant Online, is on track and feedback from closed beta testing has been very positive.”
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“We are excited for our future prospects.” Mr. Shi continued, “We believe with the recent milestones and our unwavering commitment to game play, we are well positioned to enhance our market leadership.”
Third Quarter 2007 Unaudited Financial Results
Total net revenue. Total net revenues for the third quarter of 2007 were RMB405.2 million (US$54.1 million), representing a 9.5% increase compared to RMB370.2 million in the second quarter of 2007, and a 164.2% increase compared to RMB153.4 million in the third quarter of 2006.
Online game net revenues for the third quarter of 2007 were RMB404.0 million (US$53.9 million), an increase of 9.7% from RMB368.4 million in the second quarter of 2007, and an increase of 163.4% from RMB153.4 million in the third quarter of 2006. The significant year-over-year increase in online game net revenues was mainly due to the strong performance achieved by ZT Online, especially from our recent expansion pack release in the third quarter of 2007. Although both ACU and PCU had a slight decrease in the third quarter of 2007 as compared to those in the second quarter of 2007 due to the game rule change instituted by us to discourage “gold farming” activities in June of 2007, we believe that the recent expansion pack Zhong Zhi Cheng Cheng (“ZZCC”) released in July has enhanced our player interactivity and loyalty to the game, and helped drive APA and ARPU up by 5.6% and 3.3%, respectively, from the second quarter 2007. In addition, the ZZCC expansion pack has led to improved ACU and PCU during the course of the third quarter 2007.
Cost of Services. Cost of services for the third quarter of 2007 was RMB45.4 million (US$6.1 million), representing a 311.2% increase over the same period last year, and an increase of 17.7%, over the second quarter of 2007. The quarter-over-quarter rise in cost of services was mainly due to a RMB2.8 million increase in co-location and Internet access costs, a RMB1.7 million increase in depreciation of servers and an increase of RMB0.8 million in compensation costs. The increased costs related to these items were a result of the expansion of our business, including the purchase of additional servers to provide better service and performance for current game players and the expansion of our infrastructure capabilities in advance of the launch of both ZT Online expansion packs and Giant Online.
Gross Profit and Gross Margin. Gross profit for the third quarter of 2007 was RMB359.8 million (US$48.0 million), representing a RMB28.2 million sequential increase and a significant RMB217.5 million year-over-year increase. Gross margin for the third quarter of 2007 was 88.8%, down slightly from 92.8% in the third quarter of 2006 and 89.6% in the second quarter 2007. The slight decrease in gross margin was mainly due to increased investment in services, as we further developed infrastructure and technology platforms in anticipation of the launch of both ZT Online expansion packs and Giant Online.
Operating Expenses. Total operating expenses for the third quarter of 2007 were RMB70.2 million (US$9.4 million), representing an increase of 3.3% from RMB67.9 million in the second quarter of 2007, and an increase of 152.6% from RMB27.8 million in the third quarter of 2006. The sequential increase in operating expenses is mainly attributable to the rise in research and product development and sales and marketing expenses, while the year-over-year increase in operating expenses was primarily a result of continuous investment to accelerate our business expansion.
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Research and product development expenses were RMB7.2 million (US$1.0 million), an increase of 118.9% from RMB3.3 million in the previous quarter, and up 141.8% from RMB3.0 million in the third quarter of 2006. The increased expenses resulted from the hiring of additional senior game architects and engineers in an effort to further strengthen R&D capabilities, enrich our game designs and drive the launch of expansion packs for ZT Online and Giant Online.
Sales and marketing expenses increased to RMB59.6 million (US$8.0 million) for the third quarter 2007, up 34.3% from RMB44.4 million in the previous quarter and up 169.9% from RMB22.1million in the third quarter of 2006. We have significantly expanded our liaison personnel from 1,300 as of June 30, 2007 to 2,500 as of October 1, 2007, in order to accelerate our marketing campaigns aimed at increasing penetration in China’s medium and small cities. We have also added 220 liaison offices during the third quarter, bringing the total number of our liaison offices to be over 470 as of September 30, 2007, and increased our advertising initiatives to support our sales and marketing efforts in these cities.
General and administrative expenses were RMB20.1 million (US$2.7 million) in the third quarter of 2007, representing a sequential decrease of 0.6% from RMB20.2 million. The relative stability of general and administrative expenses quarter-over-quarter is mainly attributable to our ongoing efforts to optimize operational and cost efficiency.
Income Tax Expense. There was no income tax expense to report in the third quarter of 2007 due to the current tax holiday we are experiencing.
Net Income. Net income for the third quarter of 2007 was RMB290.2 million (US$38.7 million), a year-over-year increase of 152.6% from RMB114.9 million, a quarter-over-quarter increase of 9.8% from RMB264.2 million. Net income margin was up slightly to 71.6% for the third quarter of 2007, as compared to 71.4% in the preceding quarter and 74.9% in the third quarter of 2006.
Cash and Cash Equivalents. Cash and cash equivalents as of September 30, 2007 grew to RMB1,170 million (US$156.1 million) from RMB98.9 million as of June 30, 2007. This increase was mainly due to the receipt of RMB900.0 million from Jiante, a related party of the Company, as payment for advances provided by Giant earlier in 2007.
Advance from Distributors. Advance from distributors increased by RMB55.2 million from RMB63.4 million as of June 30, 2007 to RMB118.6 million (US$15.8 million) as of September 30, 2007, which was mainly due to the increase in sales of prepaid game cards at the end of September 2007. Since the first week of October was Chinese National Holiday and there was no sale of prepaid game cards in that week, all the cards were sold just before the National Holiday.
Currency Convenience Translation
Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB7.4928 on September 28, 2007 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
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Business Highlights and Outlook
ZT Online—The latest expansion pack, Zhong Zhi Cheng Cheng (“ZZCC”) for ZT Online, was released in July 2007 and has been well received by the players. We believe that this pack has greatly improved the community features of ZT Online by further enhancing the interactivity amongst players through development and expansion of collaborative and combative features in the game. It further enhances the retention of players and player loyalty to the game.
With unwavering commitment to game play, we continue to develop new enhancements and features to deliver a better gaming experience. Another expansion pack of ZT Online is expected to be released in the fourth quarter of 2007, and beta testing of it is already in progress. The new version includes innovations in online game design to further enhance the geographical and dimensional interactive experience for players. Also, the ZT Online PTP version is aimed at deepening our penetration into other uncaptured niche segment and public beta testing has been in process since September.
Giant Online— Engineering testing, internal tests and closed beta testing for this highly anticipated game were successfully completed by the end of August. The dual version beta test commenced in September with over 100,000 daily registered volunteer participants and concurrent user of 30,000 as of the end of the third quarter of 2007. Giant Online has already been commercially launched in the fourth quarter of 2007 and we anticipate to start ramping up users by the first quarter of 2008.
King of Kings III—Developments to launch King of Kings III, which Giant acquired from a Taiwan-based company, continues to remain on schedule and will soon enter into the internal testing phase.
Initial Public Offering—On November 1, 2007, Giant Interactive Group successfully listed on the New York Stock Exchange in an initial public offering of 57,197,423 shares and a new issuance of 1,612,903 shares to a third-party cornerstone investor. After inclusion of an additional 8,579,613 ADSs, representing the over-allotment shares, the total offering size was approximately US$1.04 billion.
Fourth Quarter Guidance— Based on the current outlook, Giant expects to generate total net revenues for the fourth quarter in the range of RMB425 million to RMB430 million.
