Growth of related investment or take a long time to get back

The following is a summary of the contents of the report:

Increase the investment or take a long time to get a return; maintain a "hold" rating

In the first quarter of the 2014 fiscal year, revenue exceeded average Wall Street analysts ' expectations and earnings were expected. However, the outlook for the second quarter of fiscal year 2014 failed to meet the average Wall Street analyst's expectations, especially the dip forecast of a net loss of $14 million to 20 million trillion in the second quarter, while Wall Street analysts averaged a net profit of $7.4 million.

In the face of the challenges of the industry's momentum and the stagnation of its own gaming products, the company is expanding its product development and marketing-related investments to boost future growth. Although we believe that it is necessary to invest in a swim, it will take some time to bring about any meaningful results. Based on this, we maintain the "hold" of the stock rating.

-Growth-related investments to meet a variety of challenges:

Since the third quarter of 2013, the tour has been experiencing stagnant growth because the economic benefits of acquiring Seventh Avenue and 17173 sites have been depleted. From organic growth, since the launch of "Tianlong eight" a few years ago, the tour has not been able to launch another successful large-scale multiplayer online game. Today, as the gaming business shifts from pc to mobile, even if it invests heavily in sales and marketing, it has become harder than ever to extend the existing massively multiplayer online games and web games that have already been aged.

In the past year, sales and marketing spending rose 519.8% from 2013 in the first quarter of fiscal year to $80.5 million in the first quarter of the fiscal year, but not in the first quarter of the fiscal year ( Accounting for $1.2 million trillion in mergers and acquisitions is $180.8 million, compared with $177.6 million in the first quarter of fiscal 2013.

Therefore, through investment activities to improve revenue for the trip is a priority, mainly product development investment, including the development of independent games, platform innovation and licensing games. Although product development spending has grown from $20.1 million in the first quarter of fiscal year 2013 to $69.6 million in the first quarter of fiscal year 2014, we believe that this growth trend is likely to continue for some time before any meaningful results can be achieved.

-Investment growth will further reduce profit margins:

The operating profit margin for the first quarter of the 2014 fiscal year was 16.6%, lower than the 15% and 2013 of the first quarter of the fiscal year in the quarter of 2013, mainly due to product development and sales and marketing spending growth. During the first quarter, the share of product development spending was 38.5%, and sales and marketing expenditures accounted for 44.6% of the total revenue. For the time being, these investments have not yet brought positive results.

We believe that the tour will have to continue to invest until sustainable revenue growth is achieved. We further lowered our forecast for a 2014-year operating profit margin from 11% to 4.2% per cent, and we also expect to run a 2015-year operating profit margin of 1.1% below the previously expected 10.2%, The premise is to assume that the tour will reduce sales and marketing spending from the third quarter of fiscal year 2014.

-Game products in development:

The tour plans to release 3 new massively multiplayer online games for the remainder of 2014, 3 to 4 new web games, as well as 10 to 15 new mobile games: 1 is scheduled to be released in June mobile phone version of "Pinball Hall"; 2 released in the third quarter of 2014 authorized large multiplayer online game "Fantasy God Domain" ( Fantasy Frontier Online) as well as the web game "deity's Crown"; 3 the fourth quarter of 2014 authorized large multiplayer on-line game "ASTA" and "Echo of Walk"; web Game "TK" and other games.

-The second-quarter results were less than average Wall Street analysts ' expectations, as the game business performance was weak:

Tour forecast, The total revenue for the second quarter of fiscal year 2014 was $182 million to $188 million, below Wall Street analysts ' average forecast of 191.4 million dollars and our expected 190.9 million dollars; online gaming revenues are expected to be 161 million US dollars to 166 million dollars, below our expected $168.3 million trillion.

Swim also predicted that the second-quarter net loss (not in accordance with US GAAP) was USD 14 million to $16 million, as the company plans to continue marketing and promotional investments in PC-side and mobile-side software applications, and losses per share (not in accordance with US GAAP) are expected to be 0.26 to 0.38 dollars. The U.S. general accounting standards for each share loss is expected to be 0.27 U.S. dollars to 0.40 U.S. dollars, lower than the average Wall Street analyst expected earnings per share of 0.08 dollars.

-The first quarter revenue exceeded expectations, each share loss in line with expectations:

The total revenue for the first quarter was 180.8 million dollars, slightly above the upper limit of the company's previous expected interval (USD 180 million), Beyond the average Wall Street analyst's forecast of $177.7 million trillion and our expected $177.9 million trillion, online gaming revenues of 163.4 million dollars, the median of the company's previously expected 160 million to 165 million dollar interval, but slightly below our expected $164.8 million trillion, advertising revenue of 9.2 million dollars, above the company's previous expected range (USD 9 million), exceeding our expected $8.5 million trillion, with a loss of $0.36 per share, in line with Wall Street analysts ' average expectations.

-Adjustment of performance expectations:

We are expected to cut our revenue from 190.9 million US dollars to $186.8 million in the second quarter of fiscal year 2014, with earnings expected to fall from 0.64 to $0.28 trillion per share. We expect a 2014-year dip in revenue of $763.1 million, with a loss of $0.05 per share, previously expected to be revenue 776.1 million dollars and 1.66 dollars per share. We expect a 2015-year dip in revenue of $834.2 million per share, with a revenue of $0.62, which is expected to be 862.3 million U.S. dollars and 1.69 dollars per share respectively.

-Maintain a "hold" rating:

The earnings per share (excluding cash), as we expect in the 2015 fiscal year, are 29.3 times times higher than the average for the interbank companies. We believe that, given the above challenges, the current share price is in line with its fair value. Based on this, we maintain the "hold" of the stock rating.