Shanda Gets Social

Shanda Games (NAS: GAME) , the online gaming developer and operator in China, saw its revenue soar to record levels, exceeding analyst expectations. The company mainly operates in the ever-so-popular massively multiplayer online gaming industry. So let's take a closer, Foolish look at Shanda's quarterly scores.

The scores
Shanda saw its revenue rise 23.4% higher than the previous year's quarter and 2.4% on a sequential basis, to a record high of $212.9 million. It also managed to increase its average number of paying users. Net income also grew by 18.5% to $53.9 million. But unfortunately, average revenues per paying user fell by 2.9% and average monthly active users for all games fell by 13%, both on a sequential basis.

Revenues from its online gaming operations in China alone rose by 22.2% to $201.5 million. Other revenues -- including overseas revenue -- from licensing, operations, and advertising shot up by 49.3% to $11.4 million.

Online gaming companies have been on a roll lately. Take for example, Giant Interactive (NYS: GA) , which saw revenues bounce up by 35% to $71.8 million. Net income also took an impressive 73.1% leap to $56.6 million mainly due to lower expenses and strong top-line growth.

Shanda's operating expenses increased by 37% to $73.7 million from the year-ago quarter. This was mainly due to a 59.5% increase in product development expenses coupled with 38.5% higher general and administrative expenses. Nevertheless, operating income increased by 18% to $56.9 million despite the heavy expenditures, albeit with a decline in operating margins by 70 basis points to 26.7%.

Going mobile
People are increasingly accessing games from mobile platforms. This in turn poses a challenge for gaming companies that solely deliver their gaming content to computers. So in order to keep up with the times, Shanda has been promoting games for mobile devices in order to increase its user base. Two mobile games are slated to debut in the fourth quarter of this year. Even though Shanda has just recently entered the mobile gaming market, it has been on the fast track to growing this line of business.

Going social
The Chinese gaming company is also in the process of offering its gaming titles on Facebook beginning of next year to boost its overseas presence. The company is currently testing out these games in the U.S. before they launch in the first half of 2012. Besides using Facebook, Shanda also plans to use $500 million on acquiring good gaming companies and platforms that would expand its overseas operations.

The Foolish bottom line
Shanda is certainly digging where the gold is by expanding on the mobile gaming front. With the huge surge in the popularity of smartphones such as Apple's iPhone and tablets, the demand for games for such devices are bound to skyrocket. Another great development is the company's focus on gaming in the social networking space.

I feel that these game-changing moves are the right ones to make to achieve success in the long run. However, intense competition would still be the biggest stumbling block for Shanda.

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At the time thisarticle was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of and Activision Blizzard, as well as creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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