(iChinaStock News) Shanda was one of the early internet giants in China via the strength of its online gaming. But it has since fallen far behind other Chinese Internet empires such as Netease, Sohu, and Tencent that have expanded from one core business into a range of others.
Yet Shanda still harbors grand ambitions in video, literature, and social games. The problem is that those businesses come at the cost of profits in its core gaming business Shanda Games (NASDAQ: GAME).
Shanda Interactive Entertainment Limited (NASDAQ: SNDA) recently released its Q2 financial report. Consolidated net revenue was RMB 1.7 billion ($264.2 million) with 5% QoQ growth rate and 26% YoY growth rate.
Yet net income was only RMB 8.8 million ($1.4 million), compared with RMB 169.9 million in the second quarter of 2010. The plunge in the net income is attributed to “other business” aside from gaming, including Ku6 Media (NASDAQ: KUTV) in online video, Cloudary in online literature, and Shanda’s social network games.
High costs in “other business”
The three main businesses in Shanda all grew revenues in this quarter compared with the same period last year.
However, the cost showed even greater increase in this quarter, especially in its other businesses. This led to a decrease in net income.
Moreover, the gross profit of other businesses decreased sharply.
The revenue of Cloudary was RMB 173 million, and Ku6 made $4 million revenue in this quarter, meaning these two segments accounted for half of the overall revenue in ‘other business’. But losses in these two segments are growing.
Ku6’s net loss from continuing operations in Q2 was $21.6 million, an increase of 39.4% from a loss of $15.5 million in the second quarter of 2010, and an increase of 98.2% from a loss of $10.9 million in the first quarter of 2011.
And Cloudary Corporation had an RMB 10.5 million net loss in second quarter, an increase of 53% compared with the same period in last year, and an increase of 183% from the first quarter.
In addition to these two segments, Shanda launched a number of new businesses in 2011, which cover mobile internet, e-commerce and social networking. Shanda has invested big money in these new businesses without specifying a timetable for returns.
（source: Netease Tech）Red: Operating profit Blue: Operating margin
Shanda harbors grand ambitions to be a comprehensive platform covering online games, literature, video, music and social networking. But so far only online games are making money. High costs and huge losses directly harm the overall financial status for the company in the moment.