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Giant Interactive Group Inc. (GA)

Q2 2010 Earnings Call Transcript

August 9, 2010 9:00 pm ET

Executives

Rich Chiang – IR Manager

Eric He – CFO

Wei Liu – President

Xuefeng Ji – VP of Product Development, Quality Control & Project Management

Analysts

Andrey Glukhov – Brean Murray

Jenny Wu – Morgan Stanley

Thomas Chong – Banc of America/Merrill Lynch

Atul Bagga – ThinkEquity

Adam Krejcik – Roth Capital Partners

Gary Ngan – UBS

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group's second quarter 2010 earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. (Operator Instructions)

Now, I would like to transfer the call to the moderator, Mr. Rich Chiang, Investor Relations Manager of Giant Interactive.

Rich Chiang

Good morning, ladies and gentlemen. Welcome to the second quarter 2010 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Mr. Eric He, Chief Financial Officer; and Mr. Xuefeng Ji, Vice President of Research and Development.

As we proceed through our prepared remarks, we will refer to our results presentation, which can be downloaded from our website at www.ga-me.com. Following the remarks, Ms. Liu, Mr. He, and Mr. Ji will be happy to take your questions.

Before we continue, I would like to remind you that statements on this call that are not strictly historical in nature constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements and include, among others, statements regarding our continued efforts to increase shareholder value through strategic investments and expansion or adjustment of game content and features.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results of Giant to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, risks and uncertainties related to the progress, timing, costs, and results of game testing and product development; competition from other online game companies; and the additional risks discussed in filings with the Securities and Exchange Commission, including our Annual Report on Form 20F filed on June 7th, 2010.

All forward-looking statements are qualified by their entirety by this cautionary statement and Giant undertakes no obligation to revise or update this information to reflect events or circumstances after the date hereof. In addition, please note that references in the presentation to dollars refer to U.S. dollars.

Now, I would like to pass the call over to Eric He, our Chief Financial Officer.

Eric He

Thank you, Rich. Good morning and good evening, everyone. Thank you for joining us today. We continued to build positive momentums in second quarter with further improvement in ZT Online and steady ramp-up of players in our newly launched games. These factors ultimately allowed us to deliver a consecutive quarter of top line growth.

Revenue grew 5.7% from last quarter and although our year-over-year comparisons still reflect the impact of the Treasure Box cancellation in the third quarter of 2009, we are nevertheless encouraged by the positive progress in the past several quarters. Our overall player numbers have increased as has the number of paying players within our games, a clear sign that our segmentation and diversification strategies are creating a more stable and suitable – a sustainable revenue base.

As expected, our top line growth is outpacing profit expansion. However, we are confident that as we continue executing on our key initiatives and attract new and former players to our games, our bottom line will stabilize going forward. Supported by the broadening game portfolio, innovative, continuously updated game place, and robust sales and marketing capabilities, we are well equipped to both attract new gamers with varying preferences and keep them engaged. I believe our improving operating metrics are a testimony to this ability.

As seen on the Slide 6, total active paying accounts or APA grew 4.5% sequentially and 19.2% year-over-year to 1.435 million. Average revenue per user or ARPU was 223 renminbi per quarter, which grew 1.4% over last quarter and declined 25.7% over the second quarter in 2009. Average concurrent users or ACU was 670,000, a 13.9% sequential increase and 48% increase from the year-ago period. Peak concurrent users or PCU was up 2.8% sequentially and 15% year-over-year to 1.657 million.

You can see from these key performance metrics that our ZT Online segmentation strategy and portfolio diversification initiatives are clearly moving us toward our objective of creating a healthier and more sustainable revenue model. This increase in overall players and rise in the number of playing accounts are especially important indicators of our successful efforts on this front.

Moving on to our financial results as shown on the Slide 7, net revenue for the quarter was $47.4 million, representing a 5.7% increase from last quarter and 11.7% decrease from the second quarter 2009. As mentioned, the sequential top line expansion was attributable to the continued recovery of ZT Online along with ongoing incremental contribution from some of our new games such as King of Kings III and XT Online.

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