NetEase Turns to 1st-Qtr Profit on Text-Messages, Online Games

By Chi-Chu Tschang

Beijing, April 29 (Bloomberg) -- NetEase.com Inc., one of China's biggest three Internet companies and the best-performing stock on the Nasdaq in the past year, said it turned to first- quarter profit. The stock rose in after-hours trading.



NetEase turned to net income of 68.9 million yuan ($8.3 million), or 27 cents a share, from a net loss of 17.8 million yuan a year ago. The stock rose 6.2 percent to close at $21.48.


The Beijing-based company cited more users of online games and text messaging for the improved earnings. ``It's primarily driven by the mobile data services like icons, multimedia services (MMS), ring tones,'' said Zhang Dongming, analyst at BDA China Ltd. in Beijing. ``In addition, it's driven by online gaming services as well. NetEase is doing very well in gaming, especially compared with Sina and Sohu.''


NetEase and rivals Sina Corp. and Sohu.com Inc. offer short-messaging services to China's 222 million mobile-phone users and online games. That's given the company a lucrative alternate source of income to advertising, allowing NetEase to post a third straight quarter of profit.


First-quarter sales almost quadrupled to 117.9 million yuan. Non-advertising sales quintupled to 105.8 million yuan, and advertising revenue tripled to 12 million yuan.


Signing Up Users


NetEase is becoming increasingly aggressive in signing up users for its short-messaging service and making it tougher for customers to back out, Zhang said.


NetEase was fined 500 million yuan ($60 million) in Guangdong province where one of its games was found attached to a local China Mobile card, acting Chief Executive Ted Sun said in a conference call. NetEase was banned from applying for new service in the southern province, Sun said.


``The real reason behind the scenes might be because the operators are getting jealous because the portals are reaping in so much money because of SMS,'' Zhang said.


NetEase didn't provide guidance for the current quarter. Sun was optimistic about earnings even amid an outbreak of severe acute respiratory syndrome.


``We have seen a number of advertisers increase their marketing online as more people stay home and spend more time online,'' said Sun. ``The closure of certain online cafes in certain regions does have a negative impact on the number of online players, but this is also being mitigated by more people staying home and spending more time playing online games.''


Beijing temporarily shut Internet cafes and other entertainment venues over the weekend to contain the spread of SARS. The disease has infected 3,106 people in China in 26 provinces and municipalities.


NetEase's shares have risen more than 19-fold in the past year, making it the best performing stock on the Nasdaq Composite Index, according to Bloomberg data. The company's share price has risen 67 percent this year.


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