NetEase.com Inc, China's second largest online game operator, saw its net profit jump 137 percent in the third quarter from a year earlier, but its share price fell as that figure was below investors' expectations.

The company reported net profit of 258.6 million yuan (US$32 million), equivalent to 89 US cents for each American Depositary Share. This represents a 6.5 percent increase over the preceding quarter.

Total revenue for the quarter increased 11 percent, compared to last quarter, and 82.6 percent year-on-year to 462.6 million yuan (US$57.2 million)

The results fell short of the company's previous forecasts for third-quarter profit of US$32.6 million to US$34.2 million on revenue of US$58 million to US$59.7 million.

Shares of NetEase.com Inc fell more than 15 percent after the company failed to match earnings expectations. But its share price has gained approximately 120 percent since February.

"We were pleased with the continued growth of our online game business in the third quarter. But it experienced a slower than expected summer season, which was in part because of more competition," said the company's Chief Operating Officer Michael Tong.

Revenue from online game services increased 8.4 percent over the previous quarter, lower than the expected 12 percent, to 372.7 million yuan (US$46.1 million). Online games account for about 80 percent of the company's total revenue.

Gross margins for online games declined slightly to 89.7 percent in the third quarter from 90.2 percent in the previous quarter as a result of higher bandwidth costs.

During the quarter, the company was able to maintain its number one and number three position in China in terms of the number of players for its two games, Fantasy Westward Journey and Westward Journey Online Two.

According to the company's analysts, the firm topped China's online game market in terms of revenue in the third quarter together with Shanda, China's largest online game operator.

The company will keep efforts heavily concentrated on the game business by developing high-quality next generation MMORPG games, Tong said.

In order to maintain its strong position in the market, NetEase invested heavily in developing new games, including Datang and Tianxia. Currently both games are being tested, with their commercial launch expected in the first half of next year.

The firm's online advertising revenue saw robust growth of 37.3 percent over the previous quarter to 73.4 million yuan (US$9.1 million).

The company is extremely satisfied with the stronger than expected revenue growth in this area and believes it will grow further, it said.

(China Daily November 9, 2005)