Shanda Reports Fourth Quarter and Full-Year 2004 Financial Results

Shanda Reports Fourth Quarter and Full-Year 2004 Financial Results

- Company Reports Record Q4 Net Revenues of US$52.1 million, up 22.0% quarter-

over-quarter -

- Gross profit margins for Q4 increase to 67.1%, while operating margins
reaches 43.5% -



- Full-year 2004 revenue and net income both up 100+% over full-year 2003 -

SHANGHAI, China, Feb. 3 /Xinhua-PRNewswire/ -- Shanda Interactive Entertainment Limited (NASDAQ:SNDA), or Shanda, the largest operator of online games in China, today announced its unaudited financial results for the fourth quarter and for the full year ended December 31, 2004.

Summary of the fourth quarter 2004:

* Revenues for the fourth quarter of 2004 increased 133.3% year-over-year,
and 21.9% quarter-over-quarter to RMB453.1 million (US$54.7 million),
and net revenues increased 134.2% year-over-year and 22.0% quarter-over-
quarter to RMB430.9 million (US$52.1 million);

* Online games revenues for the fourth quarter of 2004 increased 118.6%
year-over-year and 20.7% quarter-over-quarter to RMB411.8 million
(US$49.8 million), accounting for 90.9% of total revenues; fourth
quarter MMORPG revenues grew 11.7% quarter-over-quarter to RMB 316.9
million (US$38.3 million) and casual game revenues grew 64.9% quarter-
over-quarter to RMB 94.9 million (US$11.5 million);

* Other revenues for the fourth quarter, which primarily include revenues
from online advertising, and other value-added services and products,
increased 35.5% quarter-over-quarter to RMB41.3 million (US$5.0
million), accounting for 9.1% of total revenues;

* Gross profit margin increased to 67.1% in the fourth quarter compared to
62.7% in the third quarter of 2004, while operating margin increased to
43.5% in the fourth quarter compared to 40.2% in the third quarter of
2004;

* Net income for the fourth quarter of 2004 was RMB231.4 million (US$28.0
million), and diluted earnings per ADS were RMB3.12 (US$0.38)

Summary of fiscal 2004:

* Total revenues for the full year 2004 were RMB1,367.2 million (US$165.2
million), a 115.8% increase from RMB633.4 million (US$76.5 million)
reported in the full year 2003.

* Revenue diversification for the full year 2004 included revenues from
MMORPGs, casual games and others each contributing 76.8%, 16.6% and 6.6%
respectively of total revenues, compared with 96.7%, 1.4% and 1.9%
respectively in 2003.

* Net income for the full year was RMB609.5 million (US$73.6 million), a
123.4% increase from the full year 2003, and diluted earnings per ADS
for the full year 2004 were RMB8.10 (US$0.98), compared to RMB4.14
(US$0.50) for the full year 2003.



"2004 was a defining year for Shanda, capped by an outstanding fourth quarter as we continued to expand both the revenue and profitability of our business," said Tianqiao Chen, Chairman and CEO of Shanda. "As we look ahead, our business is showing excellent momentum as we continue to expand our content offerings and strengthen our operating platform, in order to diversify our revenue streams and broaden our user demographics to capture the growing entertainment spending by millions of consumers in China."

Financial Results (Preliminary Unaudited)

Revenues. In the fourth quarter of 2004, Shanda reported record revenues of RMB453.1 million (US$54.7 million), and net revenues after business tax and related surcharges of RMB 430.9 million (US$52.1 million), representing a 134.2% increase year-over-year and a 22.0% increase quarter-over-quarter.

For the full year 2004, revenues were RMB1,367.2 million (US$165.2 million), and net revenues were RMB1,298.7 million (US$156.9 million), a 116.5% increase from the full year 2003.

Online game revenues increased 20.7% to RMB411.8 million (US$49.8 million) in the fourth quarter of 2004 from RMB341.2 million (US$41.2 million) in the third quarter of 2004. Total peak concurrent users for all Shanda games in commercial service in the fourth quarter of 2004 increased to 2.0 million from 1.7 million in the third quarter of 2004. For the full year 2004, online game revenues increased 105.4% to RMB1,276.2 million (US$154.2 million), from RMB621.2 million for the full year 2003.

Revenues from MMORPGs in the fourth quarter of 2004 increased 11.7% quarter-over-quarter to RMB316.9 million (US$38.3 million), and accounted for 69.9% of total revenues. For the full year 2004, MMORPG revenues were RMB1,049.8 million (US$126.8 million), a 71.4% increase from the full year 2003.

Revenues from casual games in the fourth quarter increased 64.9% quarter- over-quarter to RMB 94.9 million (US$11.5 million), and accounted for 21.0% of total revenues. For the full year 2004, casual games revenues were RMB226.4 million (US$27.4 million), compared to RMB8.8 million (US$1.1 million) for the full year 2003. Casual games revenues accounted for 16.6% of the total revenues in 2004, compared to 1.4% in 2003. The increase in casual games revenues for the quarter and for the year was primarily driven by the introduction and the growing acceptance of premium feature item sales within the casual games.

Shanda's other revenues increased 35.5% to RMB41.3 million (US$5.0 million) in the fourth quarter of 2004 from RMB30.5 million (US$3.7 million) in the third quarter of 2004. The increase in Shanda's other revenues was primarily due to the increase of online advertising revenues, and the increase of revenue from other value-added services and products.

For the full year 2004, other revenues were RMB91.0 million (US$11.0 million), compared to RMB12.2 million (US$1.5 million) for the full year 2003.

Gross Profit. Gross margin, which is equal to gross profits divided by net revenues, was a record high of 67.1% for the fourth quarter of 2004, up from 61.6% in the fourth quarter of 2003 and 62.7% reported in the third quarter of 2004. For the full year 2004, the gross margin was 63.7%, up from 61.0% for the full year 2003. The increase in gross margin for the quarter and for the year was primarily due to the expansion into higher margin revenue lines such as internally developed games and online advertisement.

Income from Operations. Operating income for the fourth quarter of 2004 was RMB187.2 million (US$22.6 million), representing a 303.6% increase compared to RMB46.4 million in the fourth quarter of 2003 and a 31.8% increase compared to RMB142.0 million in the third quarter of 2004. Operating margin, which is equal to income from operations divided by net revenues, increased to 43.5% in the fourth quarter of 2004 from 40.2% in the third quarter of 2004.

For the full year 2004, operating income was RMB511.0 million (US$61.7 million), up 139.7% from RMB213.2 million (US$25.8 million) in the full year 2003. Operating income margin for the full year 2004 was 39.3%, compared to operating income margin of 35.5% for the full year 2003.

Net Income. In the fourth quarter of 2004, Shanda had net income of RMB231.4 million (US$28.0 million), representing a 238.9% increase compared to net income of RMB68.3 million (US$8.3 million) in the fourth quarter of 2003 and a 40.1% increase compared to net income of RMB165.1 million in the third quarter of 2004. The quarter-over-quarter increase in Shanda's net income was primarily due to the increase in Shanda's income from operations, interest and investment income, partially offset by a decrease in government financial incentives Shanda received in the fourth quarter compared with the third quarter. Diluted earnings per ADS were RMB3.12 (US$0.38) for the quarter, representing a 194.3% increase compared to diluted earnings per ADS of RMB1.06 in the same period of 2003 and a 41.8% increase compared to diluted earnings per ADS of RMB2.20 in the third quarter of 2004.

For the full year 2004, Shanda's net income was RMB609.5 million (US$73.6 million), representing a 123.4% increase compared to net income of RMB272.9 (US$33.0 million) for the full year 2003. Diluted earnings per ADS were RMB8.10 (US$0.98) for the full year 2004, representing an increase of 95.7% compared to diluted earnings per ADS of RMB4.14 (US$0.50) for the full year 2003.

The conversion of Renminbi (RMB) into U.S. dollars in this release is based on the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2004, which was RMB8.2765 to US$1.00. The percentages stated in this press release are calculated based on RMB.

Recent Business Highlights

On February 2, 2005, Shanda completed the acquisition of an approximately 29% controlling stake of Actoz Soft Co., Ltd., a Korean developer, operator and publisher of online games, from certain shareholders of Actoz for approximately US$91.7 million, in an all cash transaction. In addition, in December 2004, Shanda purchased an additional amount of Actoz's shares on the KOSDAQ market equal to approximately 9% of Actoz's issued and outstanding shares at an aggregate cost of approximately US$14.4 million. In total, Shanda currently owns approximately 38% of Actoz and will be accounted for under equity method in 2005. Through this acquisition, Shanda solidified an important alliance with the supplier of one of its leading games, The Legend of Mir II. According to the user survey conducted by International Data Center, or IDC, in late 2004, Mir II is the most popular online game in China.

In the fourth quarter of 2004, Shanda continued to expand its user base not only through organic growth, but also through successful integration of businesses it acquired or invested in. Bianfeng, a developer and operator of chess and board online games which Shanda acquired in August 2004, had peak concurrent users (or PCU) of 200,000 at the time of the acquisition. Bianfeng's PCU number had since increased to 277,000 in the fourth quarter. Haofang, an operator of a network PC game platform, saw its PCU increase to 425,000 in the fourth quarter from 320,000 in July 2004 when Shanda agreed to make a minority investment, which would lead to acquisition of majority stake in 2006.

Other Company News

On January 28, 2005, Andrew Yan resigned as a member of the board of directors of the Company. The board of the Company has accepted Mr. Yan's resignation with effect from Feb 1, 2005.

Conference Call

Shanda's management team will host a conference call on February 3, 2005 at 8:00 p.m. Eastern Standard Time, corresponding with February 4, 2005 at 9:00 a.m. Beijing/Hong Kong time, to present an overview of Shanda's financial performance and business operations. To participate in the live call, U.S. callers should dial 800-900-0012 and international callers should dial 973- 935-2056. A live webcast of the presentation can also be accessed through Shanda's website at http://www.snda.com/.

A replay of the conference call will be available through February 10, 2005 at midnight Eastern Standard Time. The dial-in number is 877-519-4471 within the U.S., and 973-341-3080 internationally. The pass code for the replay is 5634829.

About Shanda

Shanda Interactive Entertainment Limited (NASDAQ:SNDA) is the largest operator of online games in China. Shanda offers a portfolio of massively multi-player and casual online games that users play over the Internet, including several of the most popular online games in China. Shanda's game platform attracts a large and loyal user base, each member of which can interact with thousands of others, which creates a strong community among users. For more information about Shanda, please visit http://www.snda.com/.

Safe Harbor Statement

This announcement contains forward-looking statements that are based on Shanda's current expectations, assumptions, estimates and projections about the company and the industry. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to statements regarding content expansion, revenue diversification and user demographics broadening. These forward-looking statements involve various risks and uncertainties. Although Shanda believes that its expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct. Shanda's actual results could be materially different from and worse than its expectations. Important risks and uncertainties could cause Shanda's actual results to be materially different from Shanda's expectations include but not limited to risks set forth in Shanda's filings with the U.S. Securities and Exchanges Commission, including Shanda's registration statement on Form F-1.

SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED BALANCE SHEET
(In thousands)

As of As of
December 31, December 31,
2003 2004
RMB RMB US$
(audited) (unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents 598,922 3,123,971 377,451
Marketable securities 10,126 532,089 64,289
Accounts receivable 6,200 39,308 4,749
Loan and interest receivable 57,622 - -
Due from related parties 2,865 1,515 183
Deferred licensing fees and
related costs 53,142 48,716 5,886
Inventories - 6,039 730
Prepayments and other current
assets 12,141 27,621 3,337
Deferred tax assets 22,088 29,632 3,580
Total current assets 763,106 3,808,891 460,205

Investments in equity
securities 3,455 40,497 4,893
Property, equipment and
software 106,872 159,170 19,232
Intangible assets 40,720 89,934 10,866
Goodwill 12,476 133,959 16,185
Long-term deposits 2,349 2,363 286
Other long-term assets - 47,221 5,705
Total assets 928,978 4,282,035 517,372

LIABILITIES
Current liabilities:
Accounts payable 20,934 47,342 5,720
Licensing fees payable 47,051 70,365 8,502
Taxes payable 12,637 40,197 4,857
Deferred revenue 197,480 247,282 29,877
Due to related parties - 1,758 212
Other payables and accruals 25,559 91,268 11,027
Total current liabilities 303,661 498,212 60,195

Long-term liabilities
(Convertible bonds) - 2,276,175 275,017
Total liabilities 303,661 2,774,387 335,212

Minority interests 2,716 6,879 831
Commitments and contingencies - - -

Shareholders' equity
Ordinary shares 7,427 11,585 1,400
Convertible preferred shares 2,488 - -
Additional paid-in capital 425,561 1,300,454 157,126
Statutory reserves 27,313 40,025 4,836
Deferred share-based
compensation (51,572) (20,623) (2,492)
Accumulated other comprehensive
gain 116 124,686 15,065
Retained earnings 211,268 44,642 5,394
Total shareholders' equity 622,601 1,500,769 181,329
Total liabilities and
shareholders' equity 928,978 4,282,035 517,372


For the three months period ended,
December 31, September 30, December 31,
2003 2004 2004
RMB RMB RMB US$
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues
Online game revenues 188,335 341,182 411,794 49,755
Others 5,867 30,470 41,280 4,988
Total revenues 194,202 371,652 453,074 54,743

Less: Business tax and
related surcharges (10,195) (18,400) (22,210) (2,684)
Net revenues 184,007 353,252 430,864 52,059

Cost of services
Ongoing licensing fees
for online games (29,439) (69,654) (76,144) (9,200)
Amortization of
upfront licensing
fees (5,772) (7,680) (7,403) (894)
Server leasing and
maintenance fees (12,786) (21,391) (21,427) (2,589)
Salary and benefits (5,337) (6,512) (7,601) (919)
Depreciation of
property, equipment
and software (7,368) (7,505) (7,794) (942)
Others (10,016) (19,048) (21,468) (2,593)
Total cost of services (70,718) (131,790) (141,837) (17,137)

Gross profit 113,289 221,462 289,027 34,922

Operating expenses
Product development (17,731) (19,324) (22,548) (2,724)
Sales and marketing (16,074) (21,273) (34,631) (4,184)
General and
administrative (18,040) (35,351) (41,119) (4,968)
Share-based
compensation (15,056) (3,516) (3,516) (425)
Total operating
expenses (66,901) (79,464) (101,814) (12,301)

Income from operations 46,388 141,998 187,213 22,621

Interest income 3,000 3,708 11,389 1,376
Interest expense (3,524) (426)
Investment income 3,717 1,126 41,418 5,004
Other income
(expenses), net 17,673 28,457 21,302 2,574
Income before income
tax expenses and
minority interests 70,778 175,289 257,798 31,149

Income tax expenses (4,404) (9,918) (19,925) (2,407)
Equity in earnings of
affiliates (4,180) (505)
Minority interests 1,918 (227) (2,252 (272)
Net income 68,292 165,144 231,441 27,965

Accretion for
preferred shares (4,370) - - -
Income attributable to
Series A and A-1
preferred
shareholders (13,964) - - -
Net income
attributable to
ordinary
shareholders 49,958 165,144 231,441 27,965

Earnings per share:
Basic 0.56 1.16 1.66 0.20
Diluted 0.53 1.10 1.56 0.19

Earnings per ADS:
Basic 1.12 2.32 3.32 0.40
Diluted 1.06 2.20 3.12 0.38

Weighted average
ordinary shares
outstanding:
Basic 89,728,818 141,818,280 139,343,240 139,343,240
Diluted 95,001,888 150,275,053 148,513,111 148,513,111

Weighted average ADS
outstanding:
Basic 44,864,409 70,909,140 69,671,620 69,671,620
Diluted 47,500,944 75,137,527 74,256,556 74,256,556


For the year ended,
December 31, December 31,
2003 2004
RMB RMB US$
(audited) (unaudited) (unaudited)
Revenues
Online game revenues 621,243 1,276,211 154,197
Others 12,167 90,978 10,992
Total revenues 633,410 1,367,189 165,189

Less: Business tax
and related
surcharges (33,430) (68,464) (8,272)
Net revenues 599,980 1,298,725 156,917

Cost of services
Ongoing licensing
fees for online
games (134,515) (249,289) (30,120)
Amortization of
upfront licensing
fees (11,672) (27,241) (3,291)
Server leasing and
maintenance fees (39,683) (79,918) (9,656)
Salary and benefits (13,705) (23,802) (2,876)
Depreciation of
property, equipment
and software (14,062) (28,403) (3,432)
Others (20,064) (62,531) (7,555)
Total cost of
services (233,701) (471,184) (56,930)

Gross profit 366,279 827,541 99,987

Operating expenses
Product development (28,751) (70,829) (8,558)
Sales and marketing (43,750) (91,083) (11,005)
General and
administrative (65,548) (130,655) (15,786)
Share-based
compensation (15,056) (24,012) (2,901)
Total operating
expenses (153,105) (316,579) (38,250)

Income from
operations 213,174 510,962 61,737

Interest income 6,980 19,677 2,377
Interest expense (3,524) (426)
Investment income 6,551 43,494 5,255
Other income
(expenses), net 61,152 83,656 10,108
Income before income
tax expenses and
minority interests 287,857 654,265 79,051

Income tax expenses (18,647) (38,941) (4,705)
Equity in earnings
of affiliates (4,180) (505)
Minority interests 3,641 (1,661) (201)
Net income 272,851 609,483 73,640

Accretion for
preferred shares (24,963) - -
Income attributable
to Series A and A-1
preferred
shareholders (48,358) (82,479) (9,965)
Net income
attributable to
ordinary
shareholders 199,530 527,004 63,675

Earnings per share:
Basic 2.14 4.32 0.52
Diluted 2.07 4.05 0.49

Earnings per ADS:
Basic 4.28 8.64 1.04
Diluted 4.14 8.1 0.98

Weighted average
ordinary shares
outstanding:
Basic 93,246,726 122,136,580 122,136,580
Diluted 96,325,957 130,167,656 130,167,656

Weighted average ADS
outstanding:
Basic 46,623,363 61,068,290 61,068,290
Diluted 48,162,979 65,083,828 65,083,828



Source: Shanda Interactive Entertainment Limited

CONTACT: Donglei Zhou, Director of Investor Relations, Shanda
Interactive Entertainment Limited, +8621-50504740, IR@shanda.com.cn; Todd St.
Onge (investors), stonge@braincomm.com, or Michael DiPaolo, (media)
dipaolo@braincomm.com, both of Brainerd Communicators, Inc.,
+1-212-986-6667, for Shanda Interactive Entertainment Limited

Web site: http://shandaentertainment.com/


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