Changyou.com Earnings Preview
Xiaofan Zhang submits:
Chinese online gaming company Changyou.com (CYOU), a subsidiary of Sohu.com (SOHU), will report 4Q09 earnings on February 1 before market open. I expect the company to report revenue of $71 million and non-GAAP EPS of $0.80, both at the high end of management’s guidance range. I believe such solid performance, driven by steady growth of flagship game TLBB, has enabled Changyou to remain the 5th largest Chinese online gaming company in terms of revenue. Looking ahead, I expect TLBB (Exhibit 1) and Da Hua Shui Hu (DHSH) (Exhibit 2) to be Changyou’s major growth drivers in 1Q10.
Core game TLBB continued to grow steadily. In 4Q09, TLBB’s average concurrent users (ACU) increased 4.5% quarter-over-quarter from 470000 to 490000, according to my research. The growth was primarily driven by "Formal Edition", TLBB’s 12th expansion pack, which was launched on September 23 and had its first full quarter of revenue contribution in 4Q09. In my opinion, such quarter-over-quarter performance is very impressive, considering TLBB’s usage was already high in 3Q due to positive seasonality. On December 16 and January 22, Changyou launched two expansion packs for TLBB ahead of Christmas/New Year’s Day and Chinese New Year, respectively. Based on my checks, these two well-timed content updates have been well-received by players, and have laid solid foundation for TLBB’s continuous growth in 1Q10. I expect TLBB’s ACU to grow between 4%-6% Q/Q in 1Q10.