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Giant Interactive Group Inc. (GA)

Q3 2010 Earnings Call Transcript

November 16, 2010 8:00 pm ET

Executives

Rich Chiang – IR Manager

Eric He – CFO

Xuefeng Ji – VP, Product Development, Quality Control and Project Management

Wei Liu – President

Analysts

Alicia Yapp – Citigroup

Jenny Wu – Morgan Stanley

Thomas [ph] – Bank of America

Gary Ngan – UBS

Mark Marostica – Piper Jaffray

Atul Bagga – ThinkEquity

Sam Lowen [ph] – Oppenheimer

Amanda Inn [ph] – Royal Bank of Scotland

Nick Ling – Roth Capital

Presentation

Operator

Good morning and good evening, ladies and gentlemen, I would like to welcome everyone to Giant Interactive Group's third 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 third 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 in 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. In third quarter, we continued to make sound progress on our key strategic imperatives and as expected delivered steady growth and overall improved financial performance. This quarter marks one year since cancellation of Treasure Box, and as you can see from our 16.7% year-over-year and 5.7% sequential top line growth.

Our efforts to appeal through a broader range of spending habits and key players engaged has clearly been successful in driving the recovery of our ZT Online flagship games. We continue to expand the number of players choosing to partake in in-game spending, which we believe is an essential step in fostering a healthier and more sustainable revenue base.

At the same time, our expanding portfolio of games is allowing us to target a more diverse and group of gamers and further bolster our long-term growth prospects. You can see our key operational metrics on Slide 6. Total active paying accounts or APA grew 4.4% sequentially and 35.1% year-over-year to 1.497 million. Average revenue per user or ARPU was 225 RMB, which grew 0.8% over last quarter, but declined 13.4% over the third quarter in 2009.

Average concurrent user or ACU, was 538,000, a 19.7% sequential decrease and 26.3% increase from the year-ago period. Peak concurrent user or PCU was down 11.5% sequentially, but up 14.5% year-over-year to 1.466 million. ACU and PCU were down on a sequential basis due to our cleanup of gold farming and robot accounts in the ZT Online Series of games.

As demonstrated by the growth in APA, our segmentation and diversification strategies are successfully allowing us to attain a broader and more sustainable revenue base. Our ZT Online franchise continues to make steady progress, and is attracting users across a range of spending habits. While our new games are effectively appealing to gamers across a wider spectrum of preferences, these very encouraging trends in operational results have once again resulted in improving financial performance.

Moving on to our financial results, as shown on Slide 7, net revenue for the quarter was $50.6 million, representing a 5.3% increase from last quarter and 16.7% increase from the third quarter of 2009. The drivers behind these increases are consistent with the operational trends seen in recent quarters, mainly ongoing recovery of ZT Online and the more meaningful contribution from ZT Online Green Edition.

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