UPDATE 2-NetEase bullish on H2 games; misses Q2 profit

* Q2 net profit $71.6 mln versus $76.6 mln estimate

* Confirms imminent release of key game expansion pack

* Gives positive outlook for online games in H2

* Shares rise in after-hours
(Adds quotes, details, adds dateline)

By Melanie Lee and Helen Kearney

SHANGHAI/NEW YORK, Aug 19 (BestGrowthStock) – China’s No.3 online
game operator NetEase.com (NTES.O: ) flagged the release of
sequels to its hit games, helping boost its shares though the
company’s quarterly profit missed analysts’ forecasts.

NetEase said it expects to release at least four expansion
packs for its self-developed hit titles in the second half of
the year as well as the expansion pack to Activision Blizzard’s
(ATVI.O: ) blockbuster game “World of Warcraft”.

China is the world’s largest Internet market with more than
420 million web surfers. However, its red-hot online games
segment has faced strong headwinds this year on a lack of new
titles and an increasingly competitive environment.

Earlier this month, China’s Ministry of Culture said it had
approved NetEase’s release of an expansion pack to the “World
of Warcraft” game in China, which analysts hope will energize
the company’s earnings in the fourth quarter.

“I think the outlook is good, the World of Warcraft will
have a good quarter and then seems like some of their existing
games will continue to grow,”said Wallace Cheung, an analyst
with Credit Suisse.

“It looks like profitability will improve in the next two
quarters at least.”

NetEase said it is looking to release the game as soon as
possible after completing some technical procedures.

For the second quarter, NetEase net profit rose 4.5 percent
to $71.6 million, or 55 cents per ADS, from $68.5 million, or
53 cents per ADS a year ago.

This missed analysts’ estimates of $76.6 million or 58.9
cents per ADS on a fully reported basis, according to Thomson
Reuters I/B/E/S.

“In the third quarter and fourth quarter this year we will
be expecting a much more satisfactory or a more positive
results delivery in terms of the gaming revenues,” Onward Choi,
NetEase’s acting chief financial officer told investors in a
call.

NetEase shares rose 1.37 percent to $37.00 in after-hours
U.S. trade after closing 1.8 percent lower in regular trading.

The company said quarterly revenue came in at $198.6
million, beating the consensus forecast of $184.96 million,
according to 12 analysts polled by Thomson Reuters I/B/E/S.

Netease competes with Changyou.com (CYOU.O: ), Shanda Games
(GAME.O: ), Perfect World (PWRD.O: ) and Tencent Holdings (0700.HK: )
in China’s increasingly crowded and competitive gaming
landscape.

NetEase operates some of China’s most popular online games,
including self-developed martial arts game Fantasy Westward
Journey.

China’s online games market shrank in the second quarter
for the first time in more than a year, shedding 1.8 percent
from the prior quarter to 7.34 billion yuan ($1.1 billion),
data from iResearch shows.
(Editing by Anshuman Daga)

UPDATE 2-NetEase bullish on H2 games; misses Q2 profit