Sohu’s TLBB 4Q2008 Prediction

My last article on TLBB can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/sohu-2q2008-prediction.html

In this article, I am going to calculate the percent of growth for the game XYQ from 3Q 2008 to 4Q2008. I will be doing it using the server count.

The acronyms first -

ACU = Average Concurrent Users

PCU = Peak Concurrent Users

APA = Active Paying Account

ARPU = Average (Quarterly) Revenue per (Active Paying) User

QoQ = Quarter over Quarter

YoY = Year over Year

Now, let's do the 4Q2008 estimate for XYQ.

The server counts for the XYQ can be found in the following table:

There are 3 months in a quarter. Each month has either 4 or 5 weeks. I only use 2 days in a week. I don't do server count every weekend. I only put in the number where I have a server count in both quarter. I also pick 3 days of holidays in this calculation.

I have some computer problem during the months of November and December. That causes me to miss the server count for most of these two months. Therefore, I am not able to get the amount of server counts as I would like.

From the above table, I have a 4Q2008 ACU increase of 5.37% quarter over quarter (QoQ).

To calculate the revenue estimate for the 4Q2008, I use the following table:

	1Q2008	2Q2008	3Q2008	4Q2008
ACU QoQ		4.47%	-0.77%	5.37%
Revenue	38.9	45.5	51	58.65
Revenue QoQ	77%	17%	12%	15%
APA	1.39	1.68	1.86	2.14
APA QoQ	26.4%	21%	10.7%	15%
ARPU	199	179	178	178

The second row is the ACU QoQ increase (or decrease). SOHU only provides PCU in its earning conference. The ACU are my estimates and therefore is not official. The third row is quarterly revenue in millions of dollars. The fourth row is the QoQ comparison for the quarterly revenue. The fifth row is the APA in millions of players. The sixth row is the QoQ comparison for the APA. The Final row is the ARPU in Chinese currency (RMB).

Note that every number in the last column (for the 4Q2008) are my estimates. From previous table, I derive an ACU QoQ estimate of 5.37%. I use that number to give me a rough estimate for the APA QoQ. I conservatively estimate the 4Q APA QoQ number to be 15%. For ARPU, I think it has reach a stable point. Therefore, I use the last quarter estimate for the current quarter, or, it stays as 178 RMB.

With APA grows by 15% while ARPU stays the same, the revenue will grow by 15%. Therefore, the 4Q2008 revenue is estimated to be 58.65 millions.

Now I need to give derive an estimate for SOHU's other game, Blade Online (BO). The following table is the revenue for BO:

	4Q2007	1Q2008	2Q2008	3Q2008	4Q2008
BO Revenue	2.0	2.1	2.4	3.6	4

If any thing can symbolize how can the number 1 gaming vertical, 17173.com (owned by Sohu) and number 2 internet portal can help drive traffic to a game, the recent rejuvenation of BO speaks volumes.

Even though TLBB is not a revolutionary game nor is it very pretty, it is a fun game to play. But a game like BO is a game that really has no redeeming features to it. On top of that, it is a licensed game.

But in the end, a game like BO will not be a major game. I think the recent surge will level off. I think the level off will occur this quarter. Therefore, I predict the revenue of 4 millions dollars.

Adds up the revenue estimates for the two games, we get a quarterly gaming revenue of 62.65 millions for this quarter. It is significantly more than the guidance of 57 to 59 millions SOHU given in the 3Q earning conference.

But I don't have much visibility on how well (or badly) SOHU's other branches (Advertising and wireless) will do this quarter.

Sohu 2Q2008 Prediction

My last prediction on 1Q2008 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/03/tlbb-status-update.html

First, let’s see how I did in my last prediction. The following table compares my TLBB prediction on the previous quarter vs. the actual numbers:

TLBB	1Q2008
My Prediction – ACU QoQ	4%
My Prediction – PCU QoQ
My Prediction – APA QoQ	8%
My Prediction – ARPU QoQ	5%
My Prediction – Revenue QoQ	13.4%
Actual – ACU QoQ
Actual – PCU QoQ	20%
Actual – APA QoQ	35%
Actual – ARPU QoQ	35%
Actual – Revenue QoQ	77%

The acronyms first -
ACU = Average Concurrent Users
PCU = Peak Concurrent Users
APA – numbers of Active Paying Account
ARPU – Average Revenue per Active Paying Account

From the above table, it is clear that I completely misjudged my prediction. I only have an estimate for the ACU, it is virtually impossible to give reasonable guesses for other parameters.

Now, let’s do the 2Q2008 estimate for TLBB.



The server counts for the TLBB can be found in the following table:


There are 3 months in a quarter. Each month has either 4 or 5 weeks. I only use 2 days in a week. I don’t do server count every weekend. I only put in the number where I have a server count in both quarter. I also pick 3 days of holidays in this calculation.

From the above table, I have a 2Q2008 ACU increase of 4.47% quarter over quarter (QoQ). But I need to take into consideration that the company suspended operation for 3 days. It counts as 2.56% of revenue in a quarter

By taking into consideration of the 3 days off due to Sichuan earthquake, the new ACU increase is only 1.8%

I used Zhengtu of Giant Online as a guide. It has maximum APA = 1.405 million and maximum ARPU = 309.

I am going to have the APA follows my calculated ACU estimate. I am going to predict the 2Q2008 APA = 2% QoQ increase.

Now, for the ARPU, I am going to give an increase of 20% QoQ. 20% is probably a pretty good estimate considering we had an increase of 35% in the 1st quarter.

Therefore, the revenue increase will be 1.02*1.2 = 1.224 or 22.4% increase quarter over quarter.

We can now put my new estimates into the following table:

TLBB	1Q2008	2Q2008
My Prediction – ACU QoQ	4%	1.8%
My Prediction – PCU QoQ
My Prediction – APA QoQ	8%	2%
My Prediction – ARPU QoQ	5%	20%
My Prediction – Revenue QoQ	13.4%	22.4%
Actual – ACU QoQ
Actual – PCU QoQ	20%
Actual – APA QoQ	35%
Actual – ARPU QoQ	35%
Actual – Revenue QoQ	77%

Given the the 1Q TLBB revenue is 38.9M, 22.4% increase will give it $47.6M.

Now, let’s figure the revenue contribution from Blade Online. The following table is the revenue from Sohu’s other game, Blade Online

	2Q2007	3Q2007	4Q2007	1Q2008
Blade Revenue	1.5	1.8	2.0	2.1

From the my server count, Blade Online seems to be increasing during the 2nd quarter. I didn’t bother to do a detailed calculation. I am going to give a rough estimate of 2.5M for the 2Q2008. Take off 2.56% (due to the Sichuan earthquake) gives me 2.4M.

Combine the two, we have the total game revenue of 47.6+2.4 = 50M for 1Q2008. This is considerable more than Sohu’s gaming revenue guidance of 43 to 45 millions.

For wireless, it was 9.1M for the 1Q2008. There were no adverse regulations from China during this quarter. China’s telecom companies are busying with merger and 3G technology. They don’t have time to mess with the wireless value added providers. Therefore, I predict 10M for the 2Q2008.

For brand ads, the 1Q2008 revenue is 33.2M (and 26.6M for 2Q2007). Sohu had a very stable year over year growth of 40 to 45% for the last 5 quarters. Most people think there will be a spike (or extreme acceleration) in brand ads as we get close to the Olympics. I never think so. I believe we will still see a YoY growth of 45% during the 2Q2008. Thus, I predict we will have 26.6*1.45=38.57M. This is going to be in the very low range of Sohu’s guidance.

Search, however, is going to be another story. Sohu had started to do some major push in monetizing search. But the push starts at the end of 2nd quarter, so we will not see it reflected too much during the 2Q. Still, I predict we will see the true turnaround in Sohu’s search business. I think 2Q will be the first quarter where it would experience both QoQ and YoY increase. I predicted 1.8M for search in 2Q2008.

If we add them up together, we would get
50+10+38.57+1.8 = 100.37M

This is better than both the Sohu’s estimate of 93M to 96M and analysts’ estimate of 96.12M.

TLBB Status Update

My last TLBB specific post is here:

http://chinese-net-gaming-stock.blogspot.com/2008/02/tlbb-expands-oversea.html

The server counts for the TLBB can be found in the following table:

Month	Saturday	4Q2007	1Q2008
1	1
	2
	3	447	545
	4	450	496
2	1	481	461
	2
	3	502	499
	4	500	526
3	1	500	480
	2	510	482
Holiday	4	395	431
	5	401	436
Total		4186	4356

The first column is the month. There are three months in each quarter. Both 4Q2007 and 1Q2008 have a one-week long national holiday. I compare the holiday between the two quarters also.

The second column is the Saturday in each month. Most month has 4 Saturdays. I also compare the 4^th and 5^th day of the 1-week long national holiday. The third column and fourth column are the peak concurrent user number for that particular Saturday (or holiday).

The last row is the total (or the sum of all the rows).

You may ask why are so many days missing. Well, I can no longer stay up during the wee-hours every day to keep track of the server counts.

From the last row of the table, you can see the average concurrent user has increase by about (4356-4186)/4186 = 4%

But how can we use this estimate (+4% in ACU) to give us an estimate for the game revenue for Sohu? The answer is we need to do a lot of guess work.

Note that since I only have a few data point in calculating ACU, this ACU estimate won’t have any relevance when compare with ACU that were developed using more data points. But it is ok to use it for this particular case.

The following is a table for Giant Online’s (ZhengTu) game statistics

	3Q2006	4Q2006	1Q2007	2Q2007	3Q2007	4Q2007
APA	.698			1.248	1.318	1.405
APA (%)					5.6%	6.6%
ARPU	220		320	295	305	309
ACU	271			515	481	512
ACU (%)					-6.6%	6.4%
PCU	558			1072	880	983
PCU (%)					-18%	12%
Revenue	23.7			48.9	54.1	59.6
Rev (%)					10.6%	10.2%

The second row is APA or Active Paying Account in unit of millions. The third row is the quarter over quarter (QoQ) growth of the APA. The fourth row is ARPU, or Average revenue per active paying customers. The fifth row is ACU (Average Concurrent Users) in unit of thousands. The sixth row the QoQ growth of ACU. The seventh row is PCU (Peak Concurrent Users) in unit of thousands. The eighth row is the QoQ growth rate for PCU. The ninth row is the monthly revenue in millions. Since Giant Online only have one game of significance (ZhengTu), they also represent the revenue generated from this one game. The final row is the QoQ revenue growth.

One thing interesting can be found on 3Q2007 estimate. On 3Q2007, the ACU decreased by 6.6% and PCU decreased by 18%, yet the APA increased by 5.6% and the revenue increased by 10.6%.

This shows that both PCU and ACU are not very reliable estimate for free-to-play games. APA and ARPU are much more reliable. I think since ZhengTu is a relatively new game, both APA and ARPU tend to trend up from quarter to quarter. While increase in ACU tend to for-tell increase in APA, the reverse might not be true.

The following table has the statistics for TLBB.

	2Q2007	3Q2007	4Q2007
PCU	400k	400k	500k
PCU (%)			25%
APA	209k	690k	1100k
APA (%)			59%
ARPU	82	118	147
ARPU (%)			25%
Game Revenue	3.8	12.7	24
TLBB Revenue	2.3	10.9	22
TLBB Rev. (%)			102%

This table is pretty self explanatory. Compare this table with the table for ZhengTu, we can see several points. Compare TLBB’s PCU of 500k and ZhengTu’s PCU of 1072k, TLBB may still have a way to go. Not saying TLBB will eventually has as many users as ZhengTu, but considering how young TLBB is, the odds are TLBB’s PCU will significantly improve.

Compare TLBB’s APA of 1100k with ZhengTu’s APA of 1405k, you would think TLBB’s APA will grow, but not by a very big percentage from quarter to quarter.

Compare TLBB’s ARPU of 147 with ZhengTu’s ARPU of 309, I think TLBB’s ARPU can still have some distance to grow. In the earning conference, Sohu say that they predict the peak ARPU is 170. I think they are way too conservative.

I think in two to three quarters, the APA will probably be something like 1600k (or 45% increase) while ARPU be something like 190 (or 29% increase).

Now, given an ACU increase of 4% quarter to quarter, I estimate we shall have APA increase of 8%. For the ARPU, I estimate we might have 5% increase. Thus, the revenue from TLBB shall have an quarter over quarter increase of 1.08 * 1.05 = 1.134, or 13.4%. or the revenue from TLBB will be 22 * 1.134 = 24.95M

The following table is the revenue from Sohu’s other game, Blade Online

	2Q2007	3Q2007	4Q2007
Blade Revenue	1.5	1.8	2.0

Assuming Blade Online no longer grows, I predict that Sohu will get 2M from Blade Online in 1Q2008.

Combine the two, we have the total game revenue of 24.95+2 = 26.95M for 1Q2008. Compare to Sohu’s guidance of 25.5 to 26.5 millions, I think Sohu gave a pretty good guidance for the gaming portion of her revenue mix.