NetEase.com (NTES)

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NetEase Gaming Revenue Growth Slows, Causing Q2 Miss

By KEVIN SHALVEY

INVESTOR'S BUSINESS DAILY

http://news.investors.com/article/622396/201208151859/netease-gaming-revenue-hurts-overall-sales.htm?ven=yahoocp,yahoo

NetEase's (NTES) advertising sales growth outpaced online game sales growth, as the Chinese Internet portal late Wednesday missed Wall Street's Q2 forecast.

NetEase reported sales of $315.5 million, up 17.6% from $268.2 million in the year-ago quarter. But the company missed the $333.9 million consensus forecast from Wall Street analysts polled by Thomson Reuters.

NetEase posted per-share profit of $1.05, up 15% but lagging views of $1.08.

U.S. shares were down 8% late Wednesday, after rising 3.8% in the regular session.

NetEase relies heavily on income from its online gaming, which includes an exclusive license for Activision Blizzard 's (ATVI) "World of Warcraft" in mainland China. But the percentage of NetEase's pretax revenue that's coming from gaming slipped in the quarter to 87% from 91% in the quarter prior.

Executives from Activision Blizzard had said early this month that overall subscriptions for WoW had fallen about 10% in the three months ended June 30, as we reported.

NetEase executives on Wednesday acknowledged that the subscriber slowdown affected NetEase sales.

"Although playing time for Blizzard Entertainment's 'World of Warcraft' declined in the second quarter, leading to a quarter-over-quarter decrease of online game revenues, 'World of Warcraft' continues to have a very enthusiastic community of players in China," NetEase CEO William Ding said in the company's earnings release.

Online game revenue rose 12.7% year-over-year, but fell 5% from the prior quarter. Online gaming revenue rose 37% year-over-year in Q1.

Online ad sales, which make up much of the rest of NetEase's overall revenue, rose 22.5% from Q2 2011 and 41% from Q1.