Netease profit misses forecasts, shares slide

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SHANGHAI/SAN FRANCISCO, Nov 8 (Reuters) China's No.2 online gaming firm NetEase missed forecasts with a 17 percent drop in quarterly net profit, dented by competition from rivals like Sohu.com, sending its shares down 10 percent after hours.

Recent U.S. initial public offerings by Chinese gaming rivals, such as No. 3 online game maker Giant Interactive Group Inc and Perfect World Co Ltd mean competition will only get tougher, Chief Executive William Ding told analysts in a conference call.

''While we continue to see the overall growth of the industry being very healthy ... there has been a lot more competition in the gaming industry,'' Ding said.

On Oct. 30 Sohu.com Inc reported a five-fold surge in third-quarter gaming sales, boosted by the popularity of its Tian Long Ba Bu (Sky Dragon Eight Factions) game.

China's online gaming market hit 2.9 billion yuan (0 million) in the third quarter, according to research firm Analysys International. The industry is expected to grow 30 percent or more this year and next.

Although higher marketing expenses weighed on earnings, its new game ''Westward Journey Online III'' and an extension pack for the Fantasy Westward Journey game were likely to boost earnings in the fourth quarter, Citigroup analyst Jason Brueschke said in a report after the results. He added the fourth quarter is traditionally strong.

NetEase.com Inc's stock, which had risen 19 percent this year, closed down 2.7 percent at .28 on Nasdaq ahead of the report. The shares slumped a further 10.2 percent in extended trade to after the results were published.

LAGS FORECASTS NetEase posted third-quarter profit of 260.2 million yuan (.7 million), or 27 cents per share, compared with a restated year-earlier 314.8 million yuan, or 30 cents per diluted American Depositary Share.

The results lagged the expected net profit, on average, of 29 cents per share, according to analysts surveyed by Reuters Estimates. Excluding one-time items, the expected profit in the latest quarter was 28 cents a share.

Sohu.com's profit soared 47 percent, thanks to its new game and growth in advertising sales.

NetEase competes against Shanda Interactive Entertainment Ltd , The9 Ltd and Tencent Holdings The market was led by Shanda with a 19.3 percent share, followed by NetEase with a 17.1 percent share and Giant Interactive with a 13.5 percent slice. The9 ranked fourth with a 10.1 percent share.

Total operating expenses at NetEase were 179 million yuan, or .9 million, in the third quarter, compared to 131.5 million yuan a year earlier, due to increased marketing spending for Westward Journey Online III and Fantasy Westward Journey.

Revenue growth was flat at 571.1 million yuan, or .2 million in the quarter, compared to .3 million a year earlier.

Analysts, on average, were looking for revenue of .6 million, according to Reuters Estimates, but the restated figures did not appear to be comparable.

REUTERS AK DS1150

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