NCTY

The9 Limited (NCTY)

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The9 Limited (NCTY)

Q3 2009 Earnings Call

November 23, 2009 8:00 pm ET

Executives

Phyllis Sai - IR

Xiaowei Chen - President

George Lai - CFO

Lingdong Huang - VP, Product Department

Analysts

Andrey Glukhov - Brean Murray

Dick Wei - J.P. Morgan

Analyst for Eddie Leung - Banc of America

Max Choi - Citigroup

Atul Bagga - Thinkequity

Eric Wang - Main First

Presentation

Operator

Good day, ladies and gentlemen, and welcome to The9 Limited third quarter 2009 financial results conference call. (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, Madam.

Phyllis Sai

Thanks, Operator. Hello, everyone, and thank you for joining us today for The9's third quarter year 2009 financial results conference call. The management with me today are Ms. Xiaowei Chen, President, and Mr. George Lai, Chief Financial Officer. Before management begins their prepared remarks, I would like to read you the Safe Harbor Statements in connection with today's call.

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 CFO, Mr. George Lai, who will give a detailed discussion of our financials. Xiaowei.

Xiaowei Chen

Thank you, Phyllis. Good day and evening, ladies and gentlemen. Thank you for participating in our discussion of The9's third quarter 2009 results.

As we mentioned in the previous quarter, we ceased the World of Warcraft, or WoW operation, upon expiration of the license in June and we had cautioned you that our revenue had significantly declined since the cease of WoW operations. In the third quarter of 2009, our net revenue decreased by 91% quarter over quarter and 94% year over year to $3.7 million, due to the cease of WoW operations. Although our revenue cannot be recovered from the loss of WoW within a short period of time, it is encouraging to see that there has been a 55% increase from last quarter in net revenue attributable to our current gain. This is achieved due to the enhancement of our game portfolio diversification and we will continue our intense efforts in turnaround.

In the third quarter, we had Soul of the Ultimate Nation, or SUN, Granado Espada, or GE, EA Sports FIFA Online 2, or FIFA Online 2, Atlantica, and Jiu Zhou Zhan Ji, generating revenues. On a combined basis, our commercialized games had aggregate active users of 3.4 million in the the third quarter, of which 108,000 were active paying accounts, compared with 3.2 million and 73,000 respectively in the second quarter. The quarterly ARPU of these games was RMB241, increasing from RMB221 in the previous quarter. The increased active users and active paying accounts were mainly contributed by Jiu Zhou Zhan Ji and SUN World Edition.

Now let me go over some highlights of our game development and operations during the third quarter. On the research and development side, we continued to increase our investments in R&D for our own proprietary gains. As of the end of third quarter, we had 330 headcounts in The9 development center, or TDC, representing a 10% increase from the previous quarter. We expect this number will continue to grow to 350 by the end of this year. While we are actively extending our internal R&D team, we have also outsourced part of our R&D work to talented external developers, which we believe is an efficient way to accelerate the pace of our game development.

During the third quarter, Jiu Zhou Zhan Ji, our first web based card playing game under the background of the spring and autumn warring period in Ancient China, continued to perform well within the web based game sector. Currently, we have 18 official service sites for this game on our own and 20 other service sites by partnership, compared with seven official service sites and 15 partnership service sites in the previous quarter. We will continue to open new service sites for this game.

Also, we have cooperated with a local game operator to operate a web-based game named Business Tycoon, since September 18th. Currently, four server sites have been opened for this game and we expect it can start to generate revenue in the fourth quarter. We will continue to explore business opportunities to cooperate with other web-based game operators. Besides Jiu Zhou Zhan Ji I mentioned above, we now have a number of proprietary games, including Road Fighter, Tiny Tribe, Miracles Ultimate X, Monster of War, and other MMORPGs, casual games, and web-based games in our development pipeline.

For Road Fighter, our first in-house developed 2D action MMORPG with the historical background with the historical background of the three kingdoms, we have the third round internal alpha testing during August 10th to September 14th and the next round closed beta testing was just started yesterday. We now continue to work on polishing the game to prepare for its open beta testing.

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