Changyou.com Limited (NASDAQ: CYOU), Reports 1st Quarter 2K19 Unaudited Financial Results

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Changyou.com Limited (“Changyou” or the “Company”) (NASDAQ: CYOU), a leading online game developer and operator in China, recently declared its unaudited financial results for the 1st quarter finished March 31, 2K19.

1st Quarter 2K19 Highlights

  1. Whole revenue was US$123M, a declined of 10 percent Y-o-Y and a boost of 5 percent quarter-over-quarter, surpassing the Company’s guidance.
  2. Online game revenue was US$99M, a declined of 6 percent Y-o-Y and a boost of 5 percent quarter-over-quarter, surpassing the Company’s guidance.
  3. GAAP net income attributable to Changyou.com Limited was US$37M, contrast with a net loss of US$13M[1] in the 1st quarter of 2018 and net income of US$10M[2] in the fourth quarter of 2018.
  4. Non-GAAP[3] net income attributable to Changyou.com Limited was US$37M, contrast with a net loss of US$16M[1] in the 1st quarter of 2018 and net income of US$11M[2] in the fourth quarter of 2018.

Mr. Dewen Chen, CEO, commented, “Throughout the quarter, TLBB PC performed better than our expectations, which demonstrates that players are happy with the current in-game environment and the long-term outlook for the game.

Legacy TLBB Mobile also showed its resilience and did better than we expected because of new content and other improvements that we made to the game. In 2K19, we will continue to manage player engagement through our long-term oriented operational strategies. With our tireless efforts to improve game quality, we believe we are well prepared to roll out exciting new games in the future.”

1st Quarter 2K19 Operational Results

  1. Whole average monthly active accounts[4] of the Company’s PC games were 1.9M, a declined of 24 percent Y-o-Y and 5 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds reflected the natural declining life cycles of the Company’s older games, counting TLBB PC.
  2. Whole average monthly active accounts of the Company’s mobile games were 2.7M, flat Y-o-Y and a declined of 7 percent quarter-over-quarter. The quarter-over-quarter declined reflected the natural declining life cycles of the Company’s older games, counting Legacy TLBB Mobile.
  3. Whole quarterly aggregate active paying accounts[5] of the Company’s PC games were 0.9M, a boost of 13 percent Y-o-Y and flat quarter-over-quarter. The Y-o-Y raise was mainly driven by the greater willingness of TLBB PC players to pay as the Company launched some anticipated in-game promotional events in the 1st quarter of 2K19.
  4. Whole quarterly aggregate active paying accounts of the Company’s mobile games were 0.6M, a declined of 25 percent Y-o-Y and 14 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds reflected the natural declining life cycles of the Company’s older games.

1st Quarter 2K19 Unaudited Financial Results

Revenue

Whole revenue was US$123M, a declined of 10 percent Y-o-Y and a boost of 5 percent quarter-over-quarter.

Online game revenue was US$99M, a declined of 6 percent Y-o-Y and a boost of 5 percent quarter-over-quarter. The Y-o-Y declined was because of the natural decline in revenue of the Company’s older games, counting Legacy TLBB Mobile.

The quarter-over-quarter raise was mostly because of better-than-expected performance of TLBB PC as a result of in-game promotional events that were launched around the Chinese Spring Festival in the 1st quarter of 2K19.

Online advertising revenue was US$3M, a declined of 33 percent Y-o-Y and 19 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds were mainly because of fewer games being marketed on the 17173.com Website.

Cinema advertising revenue was US$20M, a declined of 19 percent Y-o-Y and a boost of 12 percent quarter-over-quarter. The Y-o-Y declined reflected the impact of a strategy adjustment in the second quarter of 2018 related to the acquisition and sale of advertising resources. The quarter-over-quarter raise was a result of a recovery in revenue following the strategy adjustment, in addition to the release of several popular movies in the 1st quarter of 2K19.

Internet value-added services (“IVAS”) revenue was US$1M, a declined of 58 percent Y-o-Y and 51 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds were mainly because the RaidCall business was wound down in the 1st quarter of 2K19.

Gross profit/ (loss)

GAAP and non-GAAP gross profit were both US$88M, a declined of 7 percent Y-o-Y and a boost of 14 percent quarter-over-quarter. GAAP and non-GAAP gross margin were both 71 percent, contrast with 69 percent in the 1st quarter of 2018, and 66 percent in the fourth quarter of 2018.

GAAP and non-GAAP gross profit of the online games business were both US$85M, a declined of 4 percent Y-o-Y and a boost of 6 percent quarter-over-quarter. GAAP and non-GAAP gross margin of the online games business were both 86 percent, contrast with 84 percent in the 1st quarter of 2018 and 85 percent in the fourth quarter of 2018.

GAAP and non-GAAP gross profit of the online advertising business were both US$2M, a declined of 39 percent Y-o-Y and 26 percent quarter-over-quarter.

GAAP and non-GAAP gross margin of the online advertising business were both 65 percent, contrast with 71 percent in the 1st quarter of 2018 and 70 percent in the fourth quarter of 2018. The Y-o-Y and quarter-over-quarter declineds in gross margin were mainly because of lower online advertising revenue in the 1st quarter of 2K19.

GAAP and non-GAAP gross profit of the cinema advertising business were both US$1M, contrast with a gross profit of US$2M in the 1st quarter of 2018 and a gross loss of US$6M in the fourth quarter of 2018. GAAP and non-GAAP gross margin of the cinema advertising business were both 7 percent, contrast with 9 percent in the 1st quarter of 2018 and negative 31 percent in the fourth quarter of 2018.

The quarter-over-quarter raise in gross margin was mainly because of a declined in cinema advertising costs as the Company partnered with fewer cinemas, in addition to a boost in cinema advertising revenue in the 1st quarter of 2K19. In the coming months the Company will look to add a number of additional higher-quality cinema resources.

GAAP and non-GAAP gross loss of the IVAS business were both US$0.3M, contrast with gross profit of US$0.2M in the 1st quarter of 2018 and gross profit of US$0.2M in the fourth quarter of 2018.

Operating expenses

Whole operating expenses were US$47M, a declined of 18 percent Y-o-Y and 32 percent quarter-over-quarter.

Product development expenses were US$31M, a declined of 8 percent Y-o-Y and 5 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds were mainly because of a decline in salary and benefit expenses as a result of a reduction in bonus expenses that mainly related to Legacy TLBB Mobile.

Sales and marketing expenses were US$11M, a declined of 31 percent Y-o-Y and 12 percent quarter-over-quarter. The Y-o-Y and quarter-over-quarter declineds were mainly because of lower marketing and promotional spending for online games in the 1st quarter of 2K19.

General and administrative expenses were US$5M, a declined of 33 percent Y-o-Y and 35 percent quarter-over-quarter. The Y-o-Y declined was mainly because of a decline in salary and benefit expenses as a result of a reduction in bonus expenses and workforce. The quarter-over-quarter declined was mainly because of a decline in salary and benefit expenses as a result of a reduction in bonus expenses.

Operating profit

Operating profit was US$41M, contrast with an operating profit of US$37M in the 1st quarter of 2018 and an operating profit of US$8M in the fourth quarter of 2018.

Non-GAAP operating profit was US$41M, contrast with a non-GAAP operating profit of US$35M in the 1st quarter of 2018 and a non-GAAP operating profit of US$9M in the fourth quarter of 2018.

The quarter-over-quarter change in operating profit due in part to impairment charges related to the 17173.com Website business that were recognized throughout the fourth quarter of 2018.

Other income, net

Other income was US$4M, contrast with US$5M in the 1st quarter of 2018 and US$3M in the fourth quarter of 2018.

Income tax expense

Income tax expense was US$11M, contrast with income tax expense of US$61M in the 1st quarter of 2018 and income tax expense of US$8M in the fourth quarter of 2018.

The income tax expense for the 1st quarter of 2018 included the accrual of additional withholding income taxes of US$47M that were recognized in relation to a change in policy for the Company’s PRC auxiliaries with respect to their distribution of cash dividends.

Net income/ (loss)

Net income was US$37M, contrast with a net loss of US$13M in the 1st quarter of 2018 and net income of US$10M in the fourth quarter of 2018.

Non-GAAP net income was US$37M, contrast with a non-GAAP net loss of US$16M in the 1st quarter of 2018 and non-GAAP net income of US$11M in the fourth quarter of 2018.

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