XYQ and XY2 Players Number Update, part 8

One can find my last NTES related post here:

part 7 here

The numbers are wonderful for NTES. It is definitely better than what I thought. The following are the player statistics numbers:

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The following is the player statistics for XYQ:

	Date	Date	Number of Players (in thousands)	Comments
1	1/12/2013	Saturday	1420
2	1/19/2013	Saturday	1377
3	1/26/2013	Saturday	1395
4	2/2/2013	Saturday	1299
5	2/9/2013	Saturday	1153	New Year Eve
6	2/10/2013	Sunday	1170	50% fee increase, New Year Holiday
7	2/11/2013	Monday	1047	Chinese New Year Holiday
8	2/12/2013	Tuesday	1046	Chinese New Year Holiday
9	2/13/2013	Wednesday	1068	Chinese New Year Holiday
10	2/16/2013	Saturday		Work date, server count not recorded
11	2/23/2013	Saturday	1377	Holiday + Weekend
12	3/2/2013	Saturday	1166

As one can see, there is a distinct decrease in the number players playing XYQ. If we make 2/9/2013 as the separation point, and average the first four row (number 1 to 4) and compare to the average the next five rows (number 5 to 9). In addition, we compare to the average of last two rows (number 11 and 12), we will have the following numbers:

Average number of XYQ players BEFORE the 50% fee increase = average of 1 to 4 = 1373

Average number of XYQ players immediately AFTER the 50% fee increase = average of 5 to 9 = 1097

Average number of XYQ players several weeks AFTER the 50% fee increase = average of 11 and 12 = 1272

Thus, the decrease immediately after the 50% fee increase = (1097-1373)/1373 = -20.1%

and the decrease several weeks after the 50% fee increase = (1272-1373)/1373 = -7.4%

A little note on the player numbers on 2/23/2013 and 3/2/2013. On 2/23/2013, it is the lantern festival in China. Every year during lantern festival, XYQ has special promotion where players gets extra experience points. It is nice to see XYQ can still get lots of players playing. On 3/2/2013, it is just a typical weekend. While not as good as on 2/23/2013 (because there are no special promotion), there are definitely much more players than during the Chinese New Year holiday (and immediately after the gaming fee increase). It is clear that the players are coming back. The initial player loss due to the 50% fee increase is receding quickly. This is great news to NTES investors.

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The following is the player statistics for XY2:

	Date	Date	Number of Players (in thousands)	Comments
1	1/12/2013	Saturday	708
2	1/19/2013	Saturday	710
3	1/26/2013	Saturday	705
4	2/2/2013	Saturday	696
5	2/9/2013	Saturday	587	New Year Eve
6	2/10/2013	Sunday	605	50% fee increase, New Year Holiday
7	2/11/2013	Monday	604	Chinese New Year Holiday
8	2/12/2013	Tuesday	597	Chinese New Year Holiday
9	2/16/2013	Saturday		Work date, server count not recorded
10	2/23/2013	Saturday	648	Holiday + Weekend
11	3/2/2013	Saturday	665

Again, we make 2/9/2013 as the date of separation, and average the first four rows (number 1 to 4) and compare to the average the next four rows (number 5 to 8). In addition, we also compare to the average of the last two rows (number 10 and 11), we will have the following numbers:

Average number of XY2 players BEFORE the 50% fee increase = average of 1 to 4 = 705

Average number of XY2 players immediately AFTER the 50% fee increase = average of 5 to 8 = 598

Average number of XY2 players several weeks AFTER the 50% fee increase = average of 10 and 11 = 657

Thus, the decrease immediately after the 50% fee increase = (598-705)/705 = -15.2%

and the decrease several weeks after the 50% fee increase = (657-705)/705 = -6.8%

Just like XYQ, the players are coming back quickly to XY2 after the initial shock.

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Finally, let me compile the above data into a final table to more clearly see the pattern of players loss after the 50% gaming fee increase.

	Gaming fee increase immediate impact	Gaming fee increase medium term impact
XYQ	-20.1%	-7.4%
XY2	-15.2%	-6.8%

The above table is telling us several points.

First, as expected, players don't like the new policy of increased fee to play the game as well as the addition of item-based purchase to time-based games.

Second, the impact on XY2 is less pronounced than that of XYQ. I didn't expect that since XY2 is the oldest game in NTES staple. As the oldest game, one would think it would be the weaker game, thus should suffer more player loss. But it turns out to be the opposite. One possible explanation is that XY2 is so old that players regards it more as a social game. Thus, players stay because their friends are staying. XY2 is extremely sticky.

Third, the immediate impact is 15% to 20% player loss. But as time goes by, majority of those players come back as they see the games are still healthy and their friends are staying. Thus, at this point, the player loss is only about 6% to 7%.

This is great news for NTES. The net effect of 50% gaming fee increase is going to be 150%*(100%-7%) = 1.5*0.93 = 1.395 = around 1.4. Or roughly 40% increase in revenue.

So far, NTES stopped all advertising for those games. The last thing NTES wants is to generate publicity when there are negative news (gaming fee increase is regarded as negative by the players). Also, NTES doesn't need to spend money to purchase new equipment or hire new engineers since there is no player increase. But this is great news for NTES investors, this gaming fee increase doesn't requires any NTES expenditure. All the 40% additional revenue increase go directly to the earning. Finally, the policy is permanent. Those revenue and earnings increases are permanent going forward.

I am a little surprised that only 15% to 20% stopped playing at the beginning. I am even more surprised how fast most of those players come back. It is very clear that those old games (XY2 is about 11 years old and XYQ is about 9 years old) are really becoming social games. They are extremely sticky because, unlike more modern games, players go there to socialize. As long as their friends are there, they will stay (no matter how mad they are at the 50% increase in gaming fee).

Finally, one probably get more certain one month from now. But the direction is pretty certain. I am pretty confident that NTES had played an extremely dangerous game of poker with their customers and won. My calculation above of 1.395 or 39.5% revenue increase is still a little premature and one do need to get more data points. But the most likely scenario is that even more players will continue to come back, thus there might be even more than 39.5% additional revenue from those games.

end.