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pww.comNetease.com Inc., Q2 2008 Earnings Call, Aug-14-2008 - NasdaqGS:NTES

NasdaqGS:NTES

** Summary of Executives' Statements**

Brandi Piacente

  • Role: Executives
  • Summary:
    • Noted that the discussion would contain forward-looking statements.
    • Reminded participants that the conference call was being recorded and a webcast replay would be available on the NetEase corporate website.
    • Introduced Michael Tong, Co-Chief Operating Officer, to read the prepared remarks on behalf of Mr. William Ding, Chief Executive Officer.

Michael Tong

  • Role: Co-Chief Operating Officer
  • Summary:
    • Highlighted the strong performance in the second quarter of 2008, with total revenues of $104.4 million, up from $95 million in the previous quarter and $81.3 million in the second quarter of 2007.
    • Emphasized the growth in the online games business, with revenues totaling $86.8 million, up from $81 million in the previous quarter and $69.3 million in the second quarter of 2007.
    • Discussed the performance of key games:
      • Fantasy Westward Journey: Set a record with PCUs of over 2 million in April.
      • Westward Journey II: Steady growth, with PCUs hitting 544,000 in June.
      • Westward Journey III: Progressing nicely, with plans to release an expansion pack in the second half of 2008.
    • Announced the successful completion and open beta testing of Tianxia II, the first 3D item-based game, and the testing of Datang II.
    • Mentioned the joint venture with Blizzard Entertainment to license and introduce StarCraft II and BattleNet.
    • Discussed the development of the search engine, yodao.com, and the launch of new features.
    • Highlighted the growth in advertising services, with revenues of $15.2 million, up from $11.2 million in the previous quarter and $9.5 million in the second quarter of 2007.
    • Emphasized the strategic importance of the 2008 Beijing Olympics and the acquisition of video rights from Sina and Tencent.
    • Addressed the competitive landscape and the company's efforts to enhance its portal content and attract advertisers.

Onward Choi

  • Role: Acting Chief Financial Officer
  • Summary:

    • Provided an overview of the second quarter financial highlights:

      • Gross profit was $105.4 million, up from $77.6 million in the previous quarter and $63.8 million in the second quarter of 2007.
      • The increase in gross profit was driven by a business tax refund of $21.4 million and higher demand for game and advertising services.
      • Gross profit margins for the online game business were 91.2%, up from 90.2% in the previous quarter and the second quarter of 2007.
      • Gross profit margins for the advertising business were 52.6%, up from 45.8% in the previous quarter and 47.2% in the second quarter of 2007.
      • Gross profit margins for the wireless value-added services and others business improved to 28.8%.

    • Discussed total operating expenses, which were $21.8 million, up from $18.6 million in the previous quarter and $20.8 million in the second quarter of 2007.

    • Reported net profit of $63.9 million, up from $39.3 million in the previous quarter and $45.6 million in the second quarter of 2007.

    • Addressed the new tax law in China, which unified the enterprise income tax rate at 25%, and the company's application for new and high technology enterprises tax treatment.

    • Provided an update on the share repurchase program and the conversion of zero-coupon convertible subordinated notes.

    • Discussed the impact of the Olympics on content costs and the company's expectations for future margins.

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