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Giant Interactive Group, Inc. (GA)

Q4 2010 Earnings Call

February 22, 2011 08:00 PM ET

Executives

Richard Chiang – Manager, IR

Eric He – CFO

Wei Liu – President

Xuefeng Ji – VP, Research and Development

Analysts

Alicia Yap – Citigroup

Lisa Yuan – Goldman Sachs

Jenny Wu – Morgan Stanley

Eddie Leung – Merrill Lynch

Mark Marostica – Piper Jaffray

Wendy Huang – RBS

Gary Ngan – UBS

Atul Bagga – ThinkEquity

Adam Krejcik – Roth Capital Partners

George [ph] – Nomura

Presentation

Operator

Good morning and good evening, ladies and gentlemen. I would like to welcome everyone to Giant Interactive Group’s Fourth Quarter and Full Year 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. Please follow the instructions given at that time, if you would like to ask a question.

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

Richard Chiang

Good morning, ladies and gentlemen. Welcome to the fourth quarter and full year 2010 earnings conference call for Giant Interactive Group. With me today are Ms. Wei Liu, President; Mr. Eric He, Chief Financial Officer; 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 terminologies such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and other 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 20-F filed on June 7, 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’d 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 ended the 2010 with another quarter of top and bottom line growth. Throughout the year our ZT Online segmentation strategy and our commitment to ongoing enhancements encourage a steady return of end game spending.

In addition to ongoing success of our ZT Series of games, we are moving forward with the components for our pipeline games, which will position us for sustained growth in the long run. In November, we commenced unlimited closed beta testing for ZT Online 2. So far reception of the game has been very encouraging as PCU has already approached 200,000 peak concurrent users with minimum marketing support.

We view this as a positive sign that ZT Online 2 will continue to grow in popularity going forward. The strength of ZT Online Series, the introduction of ZT Online 2 and suite of pipeline games all provide a solid foundation for the future growth and we are excited about the opportunities in front us.

With a solid strategy for growing the games couple with effective cost structures we are confident in our ability to deliver encouraging results going into 2011. Our key operational metrics on slide six.

Total active paying accounts or APA grew 13.1% sequentially and grew 48.8% year-over-year to 1.69 million. Average revenue per user or ARPU was RMB215, down 4.3% over last quarter, and down 10.6% over the fourth quarter in 2009. Average concurrent users or ACU was 584,000, and 8.5% sequential increase and a 20.3% increase year-over-year. Peak Concurrent Users or PCU was up 16.9% sequentially and up 23.2% year-over-year to 1.71 million.

We are very pleased with this key performance indicator as the rising ACU, PCU, APA all signify the growing popularity of our games and more important the increase number of gamers who are choosing to pay in the games.

We also – we are also – we also view the rising APA coupled with slight decline in ARPU as an encouraging sign that our strategy to attract users across a broader range of spending habit is working. Thus, creating a healthier and more sustainable revenue base.

Once again, this improving operating metrics have lent us – lend themselves to a solid test of financial results as seen on slide seven. Net revenue for the quarter was 55.8 million, representing an 8.7% increase from the third quarter 2010 and 33.4% increase from the fourth quarter last year.

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