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The purpose of this blog is for my personal use. It serves as my personal diary as I investigate Chinese internet/gaming companies for investment purpose. If you have any comments or disagreement, please give me feedbacks.

Thursday, January 8, 2009

NTES Games 4Q2008 Prediction

This is the final part of a long series of articles.

For the article on XYQ, it can be found here:


For the article on XY2, it can be found here:


For the article on XY3, it can be found here:


For the article on XYW, it can be found here:


For the article on TX2, it can be found here:


Now I have the revenue prediction for TX2 and XYW. I also have the ACU prediction for XY2, XY3, and XYQ. Later on in this article, I will convert the ACU into the revenue estimates.

But first, I need to talk about DT, FF2, and DT2.

DT is a failed game. Its revenue per quarter had been fluctuate around 0.6 million to 0.8 million. I will use an estimate of 0.7 millions of revenue for DT this quarter.

DT2 is still in closed beta testing as of now. There will be no revenue from this game in this quarter.

FF2 is in advanced stages of closed beta testing. It will most likely be released in the 1Q2009. But as of now, I don't think NTES is getting any revenue from this game yet.

XYQ is doing very well. It is still growing at a very healthy clip.

XY2 is a big surprise. An ACU QoQ increase of 24% is simply amazing. XY2 is just a breath away from being the second million players mega-hit game for NTES.

XY3 is disappointing. Its traffic actually decreased in this quarter.

But XYW is the new star for this quarter. It has mega-hit written all over it. Even though its revenue contribution is very small during this quarter. But that is to be expected for a free-to-play game. Unlike paying games (where ACU and revenue have a linear relationships), a free-to-play game tends to explode exponentially during the first few quarters (from very low level of revenue in the first quarter to very high level in the next few quarters). XYW has all the marking to be the next mega-game after XYQ and XY2 for NTES. Most of all, I don't think NTES expected that, certainly not me.

XY2 has a very long lineage. It is one of the very rare mega game in China. Then NTES modified it and make a more cartoon-like game out of it in the form of XYQ. XYQ eventually becomes the number 1 game in China (some say in the world).

As XY2 getting long in the tooth. NTES builds its sequel, XY3, from the ground up. But somehow, XY3 is not as successful as NTES expected.

NTES made the decision to operate both games, XY2 and XY3, at the same time. But surprisingly, it is the older game (XY2) that starts to grow in an exponential way while the newer game languish.

NTES spent a lot of resource to develop the underlining game engine for XY3. NTES wants to get more out of its investment than just XY3. So they build the XYW. To everyone's surprise, XYW took off like a rocket.

Currently, NTES has four lines of games in its arsenals. The XY2 line of games will probably have 3 mega-hit games out of it. All four games are 2D turned based Cartoon style MMORPG game. XYQ is more cartoon-like while XY2 has more realistic cartoon drawing. XY3 is the same as XY2 except it is build on a brand new game engine. XYW is basically the same as XY2 and XY3 except it is the only free-to-play game out of the four.

The FF1 game is a failure so far. Hopefully FF2 will do better. FF1 and FF2 are cartoon like MMORPG games. They are free-to-play games. They are the only western themed games for NTES. They are also the only modern theme games for NTES. I expect FF2 will be released in 1Q (2Q at the latest) this year.

The DT1 game is also a failure. Again, hopefully DT2 will do better. The DTs are the so called 2.5D MMORPG games. They are highly realistic and very beautiful to behold. The underlining game engine was written in-house. DT1 is a paying game while DT2 will most likely be a free-to-play game. I think DT2 will be ready to be released by the 2Q2009. But there is a possibility that NTES will delay that for marketing reasons.

The fourth line of game is TX2. So far it is on its way to be a major game. Whether it be another mega game (half of million or more of players) is hard to tell. TX2 is NTES's first venture into the 3D MMORPG games. It is a free-to-play game. The game engine is licensed from an Australian company. Part of the reason of why this game might be hard to become a mega-hit game is because it requires users to have powerful computers to play this game. But I do think the revenue per users will be very high.

Now, let's find an estimate for the revenue for XY2, XY3, and XYQ. I will use the following table to calculate the estimate:




















Total ACU





Game Revenue




Revenue - DT










The 2nd to 4th row are the ACU number for the three games. When you adds up all three rows, you get the 5th row, total ACU. The 6th row is the game revenue. Assuming DT has revenue of 0.7 million per quarter, the 7th row is the total game revenue – DT revenue. By dividing that number by the total ACU, it will give us the 8th row.

From 2Q2008 to 3Q2008, (Rev –DT)/ACU ranges from 0.104 to 0.11. For the 4Q2008, I pick the middle number (0.107). By multiplying 0.107 with the total ACU of 972k, I got a Revenue-DT = 104 millions.

Now, we can find the total gaming revenue for NTES. It is calculated in the following table:


XY2 + XY3 + XYQ










Finally, we got the total gaming revenue of 110 million for the 4Q2008. Now, to get the total quarterly revenue estimate for the whole company, all one has to do is to add the estimated revenues for advertising and wireless services.

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