BANGALORE (Reuters) - Shares of China's No. 2 online games operator NetEase.com Inc (NTES.O) fell 14 percent on Thursday, a day after the company posted weak second-quarter margins and said it expects margins to
be pressured in the second half.
NetEase, which has a deep game pipeline for the second half, expects higher sales and marketing and personnel costs for the third and fourth quarters as it launches new games.
It will also operate Activision Blizzard's (ATVI.O) popular online role-playing game World of Warcraft in China.
"While some people on the Street think Blizzard's revenue share is going to be 25 percent, I think it'll be close to 35 to 40 percent. That's going to affect margins," Think Equity analyst Atul Bagga said.
Investors are also concerned about falling average concurrent users (ACUs) of Fantasy Westward Journey Online and Westward Journey Online 2 as the games are maturing, analyst C Ming Zhao of Susquehanna Financial Group said in a note to clients.
"The fluctuations (in ACUs) in the second quarter were a bit bigger than our expectations, but should still be within the normal range, in light of the competition in the market, as well as weak seasonality in the second quarter," Zhao said.
"That being said, we do not advise investors to overreact to them, because both games have seen usage rebounding substantially in summer seasons as a result of new content and stronger seasonality," Zhao added.
The company's
gross profit fell 4.3 percent compared to the same period a year ago and it posted a lower gross profit margin for its online games on increased personnel costs.
Shares of NetEase were trading down 12 percent at $41.12 Thursday afternoon on Nasdaq.
(Reporting by Mansi Dutta in Bangalore; Editing by Anne Pallivathuckal)
Article Source: www.reuters.com.
