(Nov. 4, 2009) New potential revenue resource from New Fly for Fun
Among several self-developed online games, New Fly for Fun (New FF) should catch iattention of nvestors. We believe that New FF will be a new important growth source for NetEase.com Inc. (NASDAQ:NTES).
New FF is derived from a Korean online game called Fly for Fun (FF). FF was licensed to NTES by a Korean company called Aeonsoft on July 2004. Then it went to beta test on December 2004. The initial game did not meet NTES’s expectation. Therefore, NetEase.com Inc. (NASDAQ:NTES) brought the source code and right to re-develop the game. However, they found that the game engine was too limited to support their new ideas. NetEase.com Inc. (NASDAQ:NTES) thus determined that they would write a new engine by themselves and re-develop FF. On May 2009, New FF was finished finally. It went to open beta on May 15, 2009. Since New FF is an item-based game, which means game players need to pay for in-game items but free to play, open beta test is equivalent to commercialization.
Figure.1 Number of Servers (New FF)
On 26th April, NetEase.com Inc. (NASDAQ:NTES) announced that New FF would go to open beta test on 15th May. Since then, the number of required game servers was increased to satisfy the growth of new players. Compared to NTES’s TX2, which has 37 servers after 1year closed beta, New FF is apparently more successful. In fact, NTES put little expense on the marketing of New FF. Such popularity can be attributed to pubic praise. New FF includes most of elements that are popular in Chinese online game market. It is believed that PCU (Peak Concurrent Users) of New FF will achieved 500 thousand in less than one year.
Competitors
SINA and SOHU compete with NetEase directly in terms of internet portal. SINA (NASDAQ:SINA), as an online media company and information services provider, underwent a downturn in the second quarter of 2009. Its total revenue decrease by 1.1% quarter-over-quarter, and the net income even shrank by 40.9% to US$13.3 million, compared to US$22.5 million in 2008Q2. SOHU (NASDAQ:SOHU), however increased 24.6% in total revenue and 21.6% in operating income. But its net income has a negative growth due to the large proportion of provision for income taxes.
Since online game services contribute 89.6% revenue, obtaining a good position in this competition are more crucial for NetEase.com Inc. (NASDAQ:NTES) to survive. The main rivals include Shanda Interactive (NASDAQ:SNDA), Changyou.com (NASDAQ:CYOU), Giant Interactive (NYSE:GA) and The9 Ltd (NASDAQ:NCTY). Figure 4 and 5 are comparisons of NetEase.com Inc. (NASDAQ:NTES) and its rivals in terms of total revenue and net profit margin.
Figure.4 Total Revenue in online game industry
As shown in the sector graph above, NetEase.com Inc. (NASDAQ:NTES) has taken the second large market share in online game industry. Although Shanda Interactive enjoys the largest part of the market, its net profit margin is relative lower than NetEase.com Inc. (NASDAQ:NTES) (Fig.5). Giant Interactive has the highest net margin, but its market share is smaller than NetEase. Thus, it is believed that NetEase.com Inc. (NASDAQ:NTES) is the most profitable online game services provider with relatively large market share and high net profit margin
Figure.5 Net Profit Margin (2009Q2), NTES
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