This summary is based on the first quarter fiscal 2008 earnings call conducted by Shanda Interactive Entertainment Ltd. (SNDA: chart) on May 28, 2008.

Management:

- Chairman of the Board, Chief Executive Officer: Tianqiao Chen
- President and Chief Technology Officer: Alan Qunzhao Tan
- Chief Financial Officer: Grace Wu
- Investor Relations Manager: Maggie Yun Zhou

Key Investors Issues

- Net revenues increased 46.5% to $111 million.
- Net income was $41.2 million or 56 cents a share, down marginally from $41.7 million or 88 cents a share in the prior year.
- The firm launched games with India’s top online game operator, Zapak, to introduce Crazy Kart into the Indian market.

First Quarter Highlights

Net revenues increased 46.5% to $111 million from $75.8 million in the prior year as online games revenues increased 50% to reach $107.9 million on continuous accumulation of diversified games for the portfolio strategy.

- Other revenues were $3.2 million, decreasing by $0.48 million from the prior period reflecting seasonal weakness of some of the subsidiaries.
- The firm released a total of 38 expansion packs for all of the games in operation and organized various in-game promotions targeted towards winter holiday vacations and two online carnivals to celebrate the new year and the Chinese New Year holiday.

It also organized the various online and offline games to enhance user stickiness and these efforts were well-received by users as evidenced by the double-digit sequential growth in active paying accounts for both MMORPGs and casual games.

- Net revenues for the MMORPG games rose 54.8 to $91.3 million and active paying accounts grew 18.3% from $3.47 million in 2007 to $4.11 million.
- New pay accounts technically have lower levels of spending initially and as a result, the high growth in the number of new users diluted the monthly ARPU for MMORPG games by 10.1% quarter over quarter.

In casual games, revenues increased to 28.1% year over year to $16.6 million as active paying accounts for casual games increased 21.3% to $1.92 million.

- Due to the seasonal strengths related primarily to Chinese New Year, ARPU increased to 41% to RMB20.3.
- The firm will continue adding titles to the online game platform through the multi-pronged strategy, which includes investments through the Project 18 investment fund for early stage game developments, and an in-house development, co-development, and a third-party licensing.
- The firm has originally scheduled to commence open beta testing for Tianxia Online in late June, however, in consideration of the recent tragedy in Sichuan, it has decided to postpone wide-scale promotional activities until the third quarter of 2008.

The firm launched games with India’s top online game operator, Zapak, to introduce Crazy Kart into the Indian market and also successfully licensed Crazy Kart, Superstar, and Feng Yun Online to other countries and regions in Asia.

- Gross profit was $77.2 million compared to $49.4 million in 2007, giving gross margin of 69.5% compared to 65.2% a year ago.
- Product development expenses increased 17.5% quarter over quarter to $9.2 million, mainly due to development costs related to new titles and R&D related compensation expenses.
- Sales and marketing expenses increased 15.2% sequentially to $8.4 million, mainly from an increase in advertising and marketing promotion expenses during a winter vacation and Chinese New Year, as well as staff related compensation costs.
- G&A expenses increased 12.9% to $15.1 million, primarily attributed to high staff related expenses and increased business tax charges from a profit transfer.

Net non-operating income was $0.8 million, compared with $35.4 million a year ago, with the decline mainly due to a one-time gain of $34.9 million recorded in 2007 resulting from the sale of some of shares.

- Non-operating income from government subsidies was $0.3 million compared with $2 million in 2007 as receipt of government financial incentives is subject to time lags and the government administrative practice.
- Income tax expenses was $4.1 million, up from $3.4 million in the prior year as the Chinese Government adopted a new income tax law which unified the enterprise income tax payable by domestic and foreign invested enterprises at 25%.
- Net income was $41.2 million or 56 cents a share, down marginally from $41.7 million or 88 cents a share in the prior year, due to the higher expenses.
- Cash and cash equivalents totaled $318.6 million and amounted to $464.2 million including short-term investments and marketable securities.

Strategic Insights:

- On content, Shanda''s primary content offering remains online games and currently operates the highest number of games simultaneously in China.
- The online game strategy is a balanced portfolio approach of acquiring or developing in-house a diverse offering of games targeting each sectors of the diverse user base.
- The firm has added six new titles into the current portfolio and currently are operating 14 MMORPGs, nine casual games, and a free game platform, with 11 MMORPGs and six casual games in the pipeline.
- The content portfolio and pipeline includes 3D and 2D MMORPG, casual games, web games, martial arts games, and sports games sourced from multiple channels, including in-house development, licensing, co-development and investment.

In addition to the subsidiary Qidian, the number literature website in China, the firm has also made strategic investments into the two most popular female literature websites in China, Literature City.

- These three websites, which together form Shanda''s literature business, currently represent a small portion of the overall revenues.
- However, they have combined to capture a dominant position of the online literature market, with nearly 300 million daily page views with 11 billion words being published and 13 million words updated daily.
- In addition to the subscription business model, they also start to sell the copyright for production into other forms of media, such as games and movies.

Community and commerce are also integral parts in the developing strategy as it helps to retain users and monetize on the user base and in turn, attract more users.

- Shanda''s operating platform will integrate online communities, whether online game communities or online literature communities.
- The community will have all of the advantage of a web 2.0 community while allowing the firm to generate revenues and remain profitable.
- The independent e-commerce system is built on the success of the online games, and offers the user interactive entertainment through the Internet, therefore eliminating the logistic issues of delivery and inventory.