UPDATE 2-Shanda profit lowest in over 2 yrs, misses forecasts

* Q2 EPS at 40 cents per ADS vs Street view 53 cents

* Shanda Games shrs down about 2 pct in after-hours trade

* Shanda Games forms JV with China Network Television

* Shanda Interactive/Games shrs underperform market

(Adds details, background, company, analysts’ comments)

By Melanie Lee

SHANGHAI, Sept 9 (BestGrowthStock) – Chinese Internet media firm
Shanda Interactive Entertainment (SNDA.O: ) said its quarterly
profit fell to its lowest level in more than two years, as its
key online games unit posted lacklustre growth amidst fierce
competition.

Shanda’s online game unit, Shanda Games (GAME.O: ), which
contributed 81.7 percent to the group’s total revenue, posted a
7 percent decline in gross profit, as its blockbuster titles
like “Woool” and “MirII” declined in popularity.

Shanda Games released a new game Dragon Nest in July.
Analysts said the game has become a hit with gamers but the new
title’s popularity was not enough to lift falling user numbers.

Shanda Games also said in a separate announcement on
Wednesday that it has acquired the developer of Dragon Nest,
Eyedentity Games, for approximately $95 million in cash.

The transaction is expected to close in the third quarter
of this year. [ID:nWNAB4371]

China’s Internet space is becoming more cut-throat as users
become more sophisticated and selective over which products and
services they use and companies jostle for attention in an
increasingly crowded arena.

Shanda Interactive posted a second-quarter net profit of
$24.8 million, or 40 cents per American Depositary Share,
versus $62.5 million, or 90 cents per ADS a year earlier.
Analysts were expecting earnings of 53 cents a share, according
to a poll by Thomson Reuters I/B/E/S.

Total revenue for the quarter rose 10.8 percent to $200.6
million.

Shanda Games’ revenue and gross margin fell in the quarter.
Its shares fell about 2 percent in after-hours trade.

Shanda Interactive’s chief financial officer Grace Wu said
it expects costs to rise in the second half of the year.

“As we continue to grow our revenue lines and expand our
infrastructure to provide better service for our users and
business partners, we expect to see the related expenses
continue to expand,” she said.

NEW CHINA JV

Shanda Games also said on Wednesday it has entered into a
joint venture with China Network Television, a national online
broadcaster, to establish an online game video channel.
[ID:nWNAB4371]

China is the world’s largest Internet market by users, with
more than 420 million netizens.

Its online games market shrank in the second quarter for
the first time in more than a year, shedding 1.8 percent on the
prior quarter to 7.34 billion yuan ($1.1 billion) as
competition continues to be fierce and the market matures, data
from iResearch showed.

Tencent Holdings (0700.HK: ) had the biggest market share at
27.2 percent, extending its lead over Shanda Games, the former
market leader, which had a share of 15.9 percent. NetEase
(NTES.O: ) was No.3 with 15.2 percent of the market.

Based on Thomson Reuters’ StarMine Analysts Revision Model,
a measure of change in analyst sentiment, Shanda Interactive
ranks below its key rivals, Netease and Tencent. The ranking is
for analysts’ upward revisions in earnings and revenue
estimates and changes in their recommendations.

Shanda Interactive said 38 percent of its revenue came from
other revenue streams such as online literature and online
video, as it tries to transform itself from its roots as an
online game company into a more diversified media firm. It
plans to release an e-reading device similar to Kindle this
month.

Shanda shares have fallen about 23 percent since the start
of the year, outpacing the Nasdaq’s 2 percent fall. Shanda
Games shares are down an even steeper 43 percent this year, and
have lost 46 percent since their IPO about a year ago.
(Additional reporting from New York Equities desk and
Bangalore Equities desk; Editing by Jacqueline Wong and Valerie
Lee) (([email protected]; +86 21 6104 1778;
Reuters Messaging: [email protected])) ((If
you have a query or comment on this story, send an email to
[email protected]))

UPDATE 2-Shanda profit lowest in over 2 yrs, misses forecasts