Chinese online game provider Shanda Interactive Entertainment, Ltd, (NASD: SNDA) will report the company's financial results for the first quarter of 2010 on June 2, 2010 in China and June 1 in the U.S. A conference call to discuss the results will be held on June 1 at 10:30 AM eastern time.
The consensus forecast for Shanda's earnings is 65¢ per share on revenues of just under $202 million. The range of estimates from the 10 analysts following SNDA is from 54¢ to 76¢ per share. In the first quarter of 2009, Shanda Interactive Entertainment earned 77¢ per share on $162 million in revenues.
Over the previous four quarters, the reported earnings have been pretty close to the estimated number. The largest deviation is 6¢ per share or a 7% miss in the last quarter of 2009. The consecutive quarterly results for last year had the net peaking in the 2nd and 3rd quarter, then starting to decline in the last quarter of the year. The 4th quarter miss on the earnings broke a string of positive surprises.
For the last three years revenues and earnings at Shanda have been increasing at a 50% per year clip. In 2009, the sales and net income were better than 2008 by 47% and 34% respectively. Although the 4th quarter results missed the estimates, the results for that quarter showed similar positive results over the same quarter in 2008.
In September 2009, Shanda Interactive Entertainment spun off the a portion of their business as IPO called Shanda Games (NASD: GAME). The IPO was initially valued GAME at $3.1 billion and Shanda Interactive retained 71% of the stock. Revenues from GAME consolidated into SNDA account for almost 90% of the parent company sales. The stock price of SNDA has lost a third of its value since the IPO and GAME is down by about half.
During the conference call discussing the 4th quarter results, company management commented that 2010 first quarter revenues would be down 10% to 15%. These comments led to a rush by analysts to downgrade the stock and the consensus estimate for this upcoming earnings release has fallen from 88¢ per share to the current consensus of 65¢. The Street has slashed the consensus for the quarter by over 25% in the last 90 days.
Both SNDA and GAME will release the respective company earnings at the same time. Since the results from GAME make up the majority of revenues and earnings for SNDA, the effect of the actual results should be in parallel. The question is: Did the company management over or under-estimate the slowdown in the two companys' revenues for the quarter? For this quarter Shanda Interactive Entertainment has jumped off the train of steady strong quarter over quarter growth. The results for this 1st quarter of 2010 should give investors a picture if the decline is just a bump in the the road of growth or whether the company's future is now taking a different path.
