Shanda Reports Second Quarter 2008 Unaudited Results

-- Second Quarter 2008 revenues increased 7.4% QoQ and 48.4% YoY to US$122.1
million

SHANGHAI, China, Sept. 2 /Xinhua-PRNewswire/ -- Shanda Interactive
Entertainment Limited (Nasdaq: SNDA, "Shanda" or the "Company"), a leading
interactive entertainment media company in China, today announced its
unaudited consolidated financial results for the second quarter ended June 30,
2008.
Second Quarter 2008 Highlights(1)
-- Consolidated net revenues increased 48.4% year-over-year and 7.4%
quarter-over-quarter to a record high of RMB837.6 million (US$122.1
million), compared with the Company's earlier guidance of quarter-over-
quarter growth between 0% and 5%.
-- Revenues from massively multiplayer online role-playing games (MMORPGs)
increased 47.0% year-over-year and 8.5% quarter-over-quarter to a
record high of RMB695.1 million (US$101.3 million).
-- Revenues from casual games increased 52.1% year-over-year and decreased
7.8% quarter-over-quarter to RMB107.5 million (US$15.7 million) due to
seasonality for casual games.
-- Operating income increased 37.4% year-over-year and 7.5% quarter-over-
quarter to a record high of RMB335.6 million (US$48.9 million).
-- Non-GAAP(2) net income was RMB294.9 million (US$43.0 million), compared
with RMB253.5 million in the second quarter of 2007 and RMB304.2
million in the first quarter of 2008. Non-GAAP earnings per diluted
ADS were RMB4.00 (US$0.58), compared with RMB3.48 in the second quarter
of 2007 and RMB4.14 in the first quarter of 2008.
-- Net income was RMB279.8 million (US$40.8 million), compared with
RMB415.9 million in the second quarter of 2007 (including the net gain
of RMB177.5 million from the disposal of SINA shares) and RMB288.8
million in the first quarter of 2008. Earnings per diluted ADS were
RMB3.80 (US$0.56), compared with RMB5.70 in the second quarter of 2007
(including the net gain of RMB2.42 per diluted ADS from the disposal
of SINA shares) and RMB3.94 in the first quarter of 2008.
-- Active paying accounts (APA) for MMORPGs increased 3.1% quarter-over-
quarter to 4.24 million. Average monthly revenue per active paying
account (ARPU) for MMORPGs increased 5.2% quarter-over-quarter to
RMB54.7.
-- APA for casual games decreased 14.1% quarter-over-quarter to 1.65
million due to seasonality. ARPU for casual games increased 7.4%
quarter-over-quarter to RMB21.8.
(1) The conversion of Renminbi (RMB) into U.S. dollars in this release is
based on RMB6.8591 to US$1.00 as published by the People's Bank of
China on June 30, 2008. The percentages stated in this press release
are calculated based on the RMB amounts.
(2) Non-GAAP measures are disclosed below and reconciled to the
corresponding GAAP measures in the section below titled "Non-GAAP
Financial Measures".

"Shanda delivered significant revenue growth in the second quarter of 2008
despite the impact of the devastating Sichuan earthquake. Quarterly net
revenue grew 7.4% sequentially, which exceeded our previous guidance," said
Tianqiao Chen, Chairman and Chief Executive Officer of Shanda.
Conference Call and Webcast Notice
Shanda will host a conference call on Tuesday, September 2, 2008 at 9:00
pm Eastern Daylight Time (9:00 am on September 3, 2008Beijing/Hong Kong time),
to present an overview of the Company's financial performance and business
operations. A live webcast of the conference call will be available on the
Company's corporate website at http://www.snda.com .
Second Quarter 2008 Financial Results(1)
Net Revenues. In the second quarter of 2008, Shanda reported net revenues
of RMB837.6 million (US$122.1 million), representing an increase of 48.4% from
RMB564.5 million in the second quarter of 2007 and 7.4% from RMB779.8 million
in the first quarter of 2008.
Online game revenues, including both MMORPGs and casual games, were
RMB802.6 million (US$117.0 million) in the second quarter of 2008,
representing an increase of 47.7% from RMB543.6 million in the second quarter
of 2007 and 6.0% from RMB757.4 million in the first quarter of 2008.
Revenues from MMORPGs in the second quarter of 2008 increased 47.0% year-
over-year and 8.5% quarter-over-quarter to RMB695.1 million (US$101.3
million),
accounting for 83.0% of total revenues. The sequential growth in MMORPG
revenues was primarily driven by expansion packs for existing game titles and
the strong performance of newly-launched games, as well as the increased user
stickiness of our unified platform.
APA for MMORPGs increased 3.1% from 4.11 million in the first quarter of
2008 to 4.24 million in the second quarter of 2008, primarily as a result of
our continuous efforts to attract new users and to convert non-paying users to
paying users. ARPU for MMORPGs increased 5.2% to RMB54.7 in the second
quarter of 2008 from RMB52.0 in the first quarter of 2008.
Revenues from casual games in the second quarter of 2008 increased 52.1%
year-over-year but decreased 7.8% quarter-over-quarter to RMB107.5 million
(US$15.7 million), accounting for 12.8% of total revenues. The quarter-over-
quarter decline in casual games revenues is primarily due to seasonality in
casual games for which the first quarter of each year is usually a high season
with the winter holidays and Chinese New Year.
APA for casual games decreased 14.1% from 1.92 million in the first
quarter of 2008 to 1.65 million in the second quarter of 2008. ARPU for
casual games increased 7.4% quarter-over-quarter to RMB21.8.
Other revenues in the second quarter of 2008 were RMB35.0 million (US$5.1
million), compared with RMB20.9 million in the second quarter of 2007 and
RMB22.4 million in the first quarter of 2008.
Gross Profit. Gross profit for the second quarter of 2008 was RMB610.1
million (US$88.9million), representing a 60.7% increase from RMB379.5 million
in the second quarter of 2007 and a 12.6% increase from RMB542.1 million in
the first quarter of 2008. Gross margin was 72.8% in the second quarter of
2008, compared with 67.2% in the second quarter of 2007 and 69.5% in the first
quarter of 2008.
Income from Operations. Operating income for the second quarter of 2008
was RMB335.6 million (US$48.9 million), representing a 37.4% increase from
RMB244.2 million in the second quarter of 2007 and a 7.5% increase from
RMB312.1 million in the first quarter of 2008. Operating margin was 40.1% in
the second quarter of 2008, compared with 43.3% in the second quarter of 2007
and 40.0% in the first quarter of 2008.
Share-based compensation was RMB15.1 million (US$2.2 million) in the
second quarter of 2008, compared with RMB15.1 million in the second quarter of
2007 and RMB15.4 million in the first quarter of 2008.
Non-Operating Income. Net non-operating income for the second quarter of
2008 was RMB5.7 million (US$0.8 million), compared with non-operating income
of RMB209.7 million in the second quarter of 2007 and RMB5.4 million in the
first quarter of 2008. The year-over-year difference was primarily due to
investment income of RMB177.5 million from the disposal of SINA shares in the
second quarter of 2007. Non-operating income derived from government
financial incentives amounted to RMB5.4 million (US$0.8 million) in the second
quarter of 2008, compared with RMB14.0 million in the second quarter of 2007
and RMB1.8 million in the first quarter of 2008.
Income Tax Expense. Income tax expense for the second quarter of 2008 was
RMB61.5 million (US$8.9 million), compared with income tax expenses of RMB38.0
million in the second quarter of 2007 and RMB28.7 million in the first quarter
of 2008, primarily due to a one-time tax benefit of approximately RMB20.0
million that the Company had recognized in the first quarter of 2008 relating
to temporary differences brought forward from the quarter ended December 31,
2007, as a result of the new income tax law.
Effective as of January 1, 2008, the Chinese government adopted a new
income tax law that unified the enterprise income tax payable by domestic and
foreign-invested enterprises at 25%. Prior to the adoption of the new law, a
number of the Company's subsidiaries and variable interest entities, or VIEs
were entitled to various preferential tax treatments. The Company's
subsidiaries and VIEs are currently in the process of applying for the New and
High Technology Enterprises tax treatment pursuant to the "Working Guidelines
for Assessment of New/High Technology Enterprises" issued by the Chinese tax
authorities on July 8, 2008. The Company reported its income tax provision at
the statutory income tax rate of 25%, except for certain subsidiaries of the
Company that are subject to a tax holiday. The Company expects to reverse any
excess tax provisions in subsequent periods as and when its subsidiaries and
VIEs are deemed to qualify as high and new technology enterprises or are
entitled to other tax incentives, which the Company expects will be partially
offset by the expected reduction to the Company's deferred tax assets recorded
at the lower preferred tax rates.
Non-GAAP Net Income. Non-GAAP net income in the second quarter of 2008
was RMB294.9 million (US$43.0 million), an increase of 16.3% from RMB253.5
million in the second quarter of 2007 and a decrease of 3.1% from RMB304.2
million in the first quarter of 2008. Non-GAAP earnings per diluted ADS in
the second quarter of 2008 were RMB4.00(US$0.58), compared with RMB3.48 in
the second quarter of 2007 and RMB4.14 in the first quarter of 2008.
Net Income. Net income in the second quarter of 2008 was RMB279.8 million
(US$40.8 million), a decrease of 32.7% from RMB415.9 million in the second
quarter of 2007 (including the net gain of RMB177.5 million from the disposal
of SINA shares) and a decrease of 3.1% from RMB288.8 million in the first
quarter of 2008. Earnings per diluted ADS in the second quarter of 2008 were
RMB3.80(US$0.56), compared with RMB5.70 in the second quarter of 2007
(including the net gain of RMB2.42 per diluted ADS from the disposal of SINA
shares) and RMB3.94 in the first quarter of 2008.
Recent Business Highlights
On July 4, 2008, Shanda announced the establishment of its third business
unit, Shanda Literature Limited ("Shanda Literature"), which aims to be the
leading company in China's robust online original literature market, targeting
a diversified base of readers. In addition, Shanda announced, on the same
date, the appointment of Mr. Xiaoqiang Hou as Shanda Literature's chief
executive officer, Mr. Wenhui Wu as its president, and Mr. Xuesong Shang, Mr.
Peng Sun and Mr. Xudong Liu as vice presidents.
* Please visit Shanda's website ( http://www.snda.com ) for details about
these and other announcements.

Note to the Financial Information
The unaudited financial information disclosed above is preliminary.
Adjustments to the financial statements may be identified when audit of the
Company's financial statements and related notes for the year ended December
31, 2008, is completed, which could result in significant differences between
the audited financial statements and this preliminary unaudited financial
information relating to, for example, the Company's income tax expenses.
Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with generally
accepted accounting principals in the United States, or GAAP, this press
release includes non-GAAP financial measures of adjusted net income and
adjusted earning per ADS, each of which is adjusted to exclude share-based
compensation and the net gain from the disposal of the Company's stake in
SINA.
The Company believes these non-GAAP financial measures are important to help
investors to understand the Company's current financial performance and future
prospects, compare business trends among different reporting periods on a
consistent basis and access the Company's core operating results. These non-
GAAP financial measures should be considered in addition to financial measures
prepared in accordance with GAAP, but should not be considered a substitute
for, or superior to, financial measures prepared in accordance with GAAP. For
a reconciliation of each of these non-GAAP financial measures to the most
directly comparable GAAP financial measure, please see the financial
statements included with this press release.
Safe Harbor Statement
This announcement contains forward-looking statements that are based on
current expectations, assumptions, estimates and projections about the Company
and the industry. All statements other than statements of historical fact in
this announcement are forward-looking statements, including but not limited to
the statements regarding the Company's long-term strategy. These forward-
looking statements involve various risks and uncertainties. Although the
Company believes that its expectations expressed in these forward-looking
statements are reasonable, it cannot assure you that its expectations will
turn out to be correct. Important risks and uncertainties that could cause
actual results to be materially different from expectations include but are
not limited to the risk that there are delays in the localization and/or
development of the MMORPGs and casual games Shanda intends to release in 2008,
the risk that such MMORPGs and casual games are not well received by users in
China, the risk that such games fail to be commercialized or the
commercialized results fail to meet the expectations of end users, and the
risks set forth in Shanda's filings with the U.S. Securities and Exchanges
Commission, including Shanda's annual report on Form 20-F for the fiscal year
ended December 31, 2007, as filed on June 27, 2008.
About Shanda Interactive Entertainment Limited
Shanda Interactive Entertainment Limited (Nasdaq: SNDA) is a leading
interactive entertainment media company in China. Shanda offers a portfolio
of diversified entertainment content including some of the most popular
massively multi-player online role-playing games (MMORPGs) and casual online
games in China, as well as online chess and board games, network PC games and
a variety of cartoons, literature works and music. Shanda's interactive
entertainment platform attracts a large and loyal user base. Each user can
interact with thousands of other users and enjoy the interactive entertainment
content that Shanda provides. Interaction enriches your life. For more
information about Shanda, please visit http://www.snda.com/ .
For more information, please contact:

Maggie Yun Zhou
Investor Relations Manager
Shanda Interactive Entertainment Limited
Phone: +86-21-5050-4740 (Shanghai)
Email: IR@shanda.com.cn

SHANDA INTERACTIVE ENTERTAINMENT LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)

As of
December 31, As of June 30,
2007 2008
RMB RMB US$
ASSETS
Current assets:
Cash and cash equivalents 1,985.2 2,595.4 378.4
Short-term investments 791.3 924.9 134.8
Marketable securities 11.2 11.4 1.7
Accounts receivable 32.2 35.6 5.2
Inventories 2.2 0.4 0.1
Deferred licensing fees and related
costs 51.3 48.0 7.0
Prepayments and other current assets 68.0 70.8 10.3
Deferred tax assets 67.3 111.2 16.2
Total current assets 3,008.7 3,797.7 553.7

Investment in affiliated companies 8.5 19.3 2.8
Property, equipment and software 316.2 323.7 47.1
Intangible assets 314.1 276.3 40.3
Goodwill 606.2 606.2 88.4
Long-term deposits 56.3 50.5 7.4
Long-term prepayments 135.2 126.1 18.4
Long-term prepaid license fee 234.4 265.1 38.7
Non-current deferred tax assets 83.1 68.7 10.0
Total assets 4,762.7 5,533.6 806.8

LIABILITIES
Current liabilities:
Accounts payable 48.6 58.9 8.6
Licensing fees payable 88.5 95.8 14.0
Taxes payable 127.5 132.0 19.2
Deferred revenue 408.6 426.5 62.2
Due to related parties 3.0 3.0 0.4
Other payables and accruals 191.6 274.7 40.1
Deferred tax liabilities 7.5 10.8 1.6
Total current liabilities 875.3 1,001.7 146.1

Minority interests 216.3 317.1 46.2
Non-current deferred tax liabilities 34.1 31.5 4.6
Non-current income tax liabilities 9.4 9.4 1.4
Long-term liabilities 4.2 2.6 0.4
Non-current deferred revenue -- 0.7 0.1

Shareholders' equity
Ordinary shares 12.0 12.0 1.8
Additional paid-in capital 1,614.4 1,665.3 242.7
Statutory reserves 147.7 183.8 26.8
Accumulated other comprehensive loss -22.2 -94.6 -13.8
Retained earnings 1,871.5 2,404.1 350.5
Total shareholders' equity 3,623.4 4,170.6 608.0
Total liabilities and shareholders'
equity 4,762.7 5,533.6 806.8

SHANDA INTERACTIVE ENTERTAINMENT LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except for share and per share data)

For the three months period ended,
June 30, March 31, June 30,
2007 2008 2008
RMB RMB RMB US$
Net revenues
MMORPG 472.9 640.8 695.1 101.3
Casual game 70.7 116.6 107.5 15.7
Others 20.9 22.4 35.0 5.1
Net revenues 564.5 779.8 837.6 122.1

Cost of services
Ongoing licensing fees
for online games -104.0 -107.7 -109.0 -15.9
Amortization of
intangible assets -15.1 -21.7 -22.5 -3.3
Server leasing and
maintenance fees -19.9 -23.6 -23.5 -3.4
Salary and benefits -14.0 -21.7 -22.1 -3.2
Depreciation of
property, equipment
and software -13.1 -13.5 -14.1 -2.0
Others -18.9 -49.5 -36.3 -5.4
Total cost of services -185.0 -237.7 -227.5 -33.2

Gross profit 379.5 542.1 610.1 88.9

Operating expenses:
Product development -30.7 -64.7 -67.7 -9.9
Sales and marketing -38.0 -59.2 -78.6 -11.5
General and
administrative -66.6 -106.1 -128.2 -18.6
Total operating
expenses -135.3 -230.0 -274.5 -40.0

Income from operations 244.2 312.1 335.6 48.9

Interest income 13.0 18.9 19.3 2.8
Amortization of
convertible debt
issuance cost -4.5 -- -- --
Investment income 189.8 2.8 2.0 0.3
Other
income(expenses), net 11.2 -13.3 -13.1 -1.9
Income before income
tax expenses, equity
in loss of affiliates
and minority interests 453.7 320.5 343.8 50.1

Income tax expense -38.0 -28.7 -61.5 -8.9
Equity in loss of
affiliates 0.2 -0.4 -0.4 -0.1
Minority interests 0.0 -2.6 -2.1 -0.3
Net income 415.9 288.8 279.8 40.8

Earnings per share:
Basic 2.92 1.99 1.93 0.28
Diluted 2.85 1.97 1.90 0.28
Earnings per ADS:
Basic 5.84 3.98 3.86 0.56
Diluted 5.70 3.94 3.80 0.56
Weighted average
ordinary shares
outstanding:
Basic 142,397,374 144,885,662 145,310,329 145,310,329
Diluted 145,689,850 146,794,340 147,111,301 147,111,301
Weighted average ADS
outstanding:
Basic 71,198,687 72,442,831 72,655,165 72,655,165
Diluted 72,844,925 73,397,170 73,555,651 73,555,651

Reconciliation from
Non-GAAP measures to
GAAP measures:
Non-GAAP income 253.5 304.2 294.9 43.0
Net gain from disposal
of Sina's Stake 177.5 -- -- --
Share-based
compensation cost -15.1 -15.4 -15.1 -2.2
Net income 415.9 288.8 279.8 40.8

Non-GAAP diluted
earnings per ADS 3.48 4.14 4.00 0.58
Net gain from disposal
of Sina's Stake per ADS 2.42 -- -- --
Share-based
compensation cost per ADS -0.20 -0.20 -0.20 -0.02
Diluted earnings per ADS 5.7 3.94 3.80 0.56

SOURCE Shanda Interactive Entertainment Limited

Shanda Interactive Entertainment Ltd., Maggie Yun Zhou, Investor Relations
Manager, +86-21-5050-4740 (Shanghai), or IR@shanda.com.cn