NCTY

The9 Limited (NCTY)

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The9 Limited (NCTY)

Q2 2009 Earnings Call

August 27, 2009 9:00 pm ET

Executives

Phyllis Sai - IR

Xiaowei Chen - President

George Lai - CFO

Analysts

Alicia Yap - Citigroup

Andrey Glukhov - Brean Murray

Atul Bagga - Thinkequity

Wallace Cheung - Credit Suisse

Wendy Huang - RBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to The9 Limited first and second quarter 2009 financial results conference call. My name is Krista and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now turn the presentation over to your host for today’s conference, Ms. Phyllis Sai, IR Manager of The9. Please proceed, ma’am.

Phyllis Sai

Thanks, operator. Hello, everyone, and thank you for joining us today for The9's first and second quarter year 2009, financial results conference call. The management with me today are Ms. Xiaowei Chen, President, and Mr. George Lai, Chief Financial Officer. As always, I'll start the call with a review of the Safe Harbor Statements before our management begins their prepared remarks.

During the course of today’s call, certain projections or forward-looking statements may be made regarding The9's future financial performance or future events. We wish to caution you that such statements or predictions are based on current information and expectations and actual results may differ materially from those projected in the forward-looking statements.

We would also like to refer you to the documents that the company filed with the United States Securities and Exchange Commission. Those documents contain additional information concerning factors that could cause actual results to differ materially from those contained in the management’s projection or forward-looking statements.

Now, we would like to begin with our President, Ms. Xiaowei Chen, who will give you an overview of our financial results and operational reports for the quarter, followed by our Chief Financial Officer, Mr. George Lai, who will follow with a detailed discussion of our financials. Ms. Xiaowei?

Xiaowei Chen

Thank you, Phyllis. Good day and evening, ladies and gentlemen. Thank you for participating in our discussion of The9’s first and second quarter 2009 results. 2009 is a challenging year for The9. In June, we (ceased) the World of Warcraft operation upon expiration of the license and our revenues have significantly declined.

However, our proven track record clearly demonstrates The9's first class game operations capability and deep insights in bringing the best online games to Chinese players.

Furthermore, our proprietary development capabilities have substantially grown in the last two years. We believed we will have a turnaround in the near future. We will continue to pursue our 4D strategy. We will continue to license high quality online games and develop our own proprietary games.

In addition to Soul of The Ultimate Nation or SUN and Granado Espada or GE, we launched EA SPORTS FIFA Online 2 and Atlantica in Q2 of 2009 to further enhance our portfolio diversification. Together with Audition 2 and our newly licensed game Kingdom Heroes 2 Online and other proprietary games as well, we have a very strong 2010 licensed games pipeline. We’re increasing our investments in research and development for our own proprietary games.

As of the second quarter, our headcounts in TDC or The9 Development Center had a 57% increase to 300, since its establishment in July 2008. Our proprietary games underdevelopments include World of Fighter or (inaudible), Dragon Emperor, or Jiu Zhou Zhan Ji, Miracles: Ultimate X, Monster of War, Tiny Tribe and other advanced casual games and web based games. Among these proprietary games, World of Fighter has already been licensed to Hong Kong, Macau and Taiwan.

In addition, we made equity investments in a number of games studios in the first half of 2009, which further strengthen our propriety game pipeline.

Now, let me go over some highlights of our games operations during the first half of the year. First of fall, World of Warcraft, with our strong game operation capability, World of Warcraft continue to show a stellar performance in the first quarter despite the negative impact of seasonality.

PCCU reached historical high in Q1 of 2009. Affected by the exploration of contract between The9 and Blizzard, World of Warcraft experienced a decline in the second quarter. Net revenue attributable to WoW for the first and second quarter is $59.0 million and $39.5 million respectively.

Now let's move on to SUN and GE. For SUN, we launched the new expansion pack, SUN: World Edition on June 22nd and after the last massive content upgrade of previous expansion pack, survival of [solo quest] on March 4th. We have conducted various in-game campaigns such as offerings double experience points in April for the celebration of the second anniversary of SUN's commercial launch.

For GE, a content upgrade patch called The Legend of The Master was released on June 25th after the last content upgrade patch Revolution on April 14. A testing server was launched on June 18 where players can experience the most updated content synchronized with the version in Korea.

Let me now move on to our first casual game, FIFA Online 2. FIFA Online 2 began its open beta testing on April 22nd and was commercially launched on May 20th. It has been well received by sports game players and soccer fans.

Currently 15 server sites are open for FIFA Online 2. We expect its performance will continue to improve with increasing virtual items being opened to the players. We will continue to launch various marketing promotions for FIFA Online 2.

Read the rest of this transcript for free on seekingalpha.com