February 26, 2009 / 12:11 AM / 10 years ago

UPDATE 2-China's NetEase beats Street View, shares jump

* Earned 65 cents per ADS vs Street view 44 cents

* Ad revenue climbs 14 pct

* Shares spike 7 pct (Recasts with COO’s departure; adds executive’s comments on earnings, details on revenue breakdown, market data, bylines)

By Janet Kornblum and Michael Wei

LOS ANGELES/BEIJING, Feb 25 (Reuters) - NetEase.com Inc (NTES.O), China’s No. 2 online games operator, beat quarterly earnings expectations as ad sales and Web gaming held up in a sputtering economy, and it said on Wednesday a top executive had quit for personal reasons.

NetEase reported a 48 percent jump in profit in its fourth quarter, crediting a 14 percent rise in advertising sales and the roll-out of expansions to its “Tianxia II” franchise.

The firm announced that co-chief operating officer Michael Tong was leaving the post March 12 but would remain a director on the board. It said he was resigning for personal reasons, without elaborating.

Shares in NetEase gained 6.7 percent after closing at $18.70, down 2 percent, on the Nasdaq on Wednesday.

The stock has lost about 30 percent of its value since hitting a record high of $27.16 last August, but outperformed the Nasdaq's 43 percent decline .IXIC over the period.

“NetEase will further capitalize on the opportunities brought about by the continuing shift from traditional advertising media to online advertising platforms,” Chief Executive William Ding said in a statement.

The firm — rival to Shanda Interactive Entertainment Ltd SNDA.O in the booming Chinese online gaming market — said its net profit jumped by nearly half to $84.4 million, or 65 cents an American Depositary Share.

That handily surpassed analysts’ average forecast of $56.1 million, or 44 cents per ADS, according to Reuters Estimates.

NetEase posted a near-30 percent rise in revenue to $117.5 million from October to December, in line with the $117.8 million estimated by analysts. [ID:nWNAB7070]

Online games such as NetEase’s mainstay, “Fantasy Westward Journey”, make up one of the largest Internet segments in China, linking millions of players who compete in a virtual role-playing world. China is the world’s largest Web market after the United States.

The online gaming market had 3 million users in 2007 and will grow by 85 percent annually until 2011 when it is expected to reach 34.8 million, according to Analysys International, a Beijing-based research firm.

NetEase’s revenue from its online gaming business leaped by a third to nearly $100 million in the fourth quarter.

Advertising was another bright spot, with ad revenue in the fourth quarter rising 14 percent to $16.4 million. Though the recession is walloping ad sales in general as companies cut back on marketing spending, some online players like Google Inc (GOOG.O) have outperformed expectations. [ID:nN2247795]

Ding told Reuters late last year that he expected 2009 earnings to maintain their current rate of growth despite the global recession and slowing growth in its own home base, the world’s third-largest economy.

But, like other Internet operators in the country, it remains vulnerable to regulatory risks, analysts say.

China launched a renewed crackdown in January to stamp out what it called vulgar content on the Internet. Officials named and shamed 19 Internet operators and Web sites, including NetEase, which later issued apologies on its websites. ($=6.84 yuan) (Editing by Edwin Chan; Editing by Gary Hill)

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