NetEase Gaming Revenue Growth Slows, Causing Q2 Miss

NetEase's (NTES) advertising sales growth outpaced online game sales growth, as the Chinese Internet portal late Wednesday missed Wall Street's Q2 forecast.

NetEase reported sales of $315.5 million, up 17.6% from $268.2 million in the year-ago quarter. But the company missed the $333.9 million consensus forecast from Wall Street analysts polled by Thomson Reuters.

NetEase posted per-share profit of $1.05, up 15% but lagging views of $1.08.

U.S. shares were down 8% late Wednesday, after rising 3.8% in the regular session.

NetEase relies heavily on income from its online gaming, which includes an exclusive license for Activision Blizzard 's (ATVI) "World of Warcraft" in mainland China. But the percentage of NetEase's pretax revenue that's coming from gaming slipped in the quarter to 87% from 91% in the quarter prior.

Executives from Activision Blizzard had said early this month that overall subscriptions for WoW had fallen about 10% in the three months ended June 30, as we reported.

NetEase executives on Wednesday acknowledged that the subscriber slowdown affected NetEase sales.

"Although playing time for Blizzard Entertainment's 'World of Warcraft' declined in the second quarter, leading to a quarter-over-quarter decrease of online game revenues, 'World of Warcraft' continues to have a very enthusiastic community of players in China," NetEase CEO William Ding said in the company's earnings release.

Online game revenue rose 12.7% year-over-year, but fell 5% from the prior quarter. Online gaming revenue rose 37% year-over-year in Q1.

Online ad sales, which make up much of the rest of NetEase's overall revenue, rose 22.5% from Q2 2011 and 41% from Q1

Cisco Systems Shares Rise 5% After Q4 Earnings Beat

Cisco Systems (CSCO) kept growing despite a challenging economy.

The world's No. 1 maker of computer networking gear sidestepped macroeconomic issues to post Q4 earnings and sales late Wednesday that beat Wall Street expectations.

Sales guidance slightly lagged views, however, with Chief Executive John Chambers pointing to a familiar culprit.

CEO John Chambers says Cisco "squarely at center" of big trends. View Enlarged Image

"We are modeling Europe to be very challenging over the next several quarters," Chambers said on a conference call with analysts.

Cisco has kept to a conservative game plan of late, however, and investors voted thumbs up on the report. Shares were up 5% after hours, after Cisco released results for its fiscal Q4 ended July 28. The stock rose 1.1% in the regular session, to 17.35, but is down 4% on the year.

San Jose, Calif.-based Cisco launched a restructuring program a year ago to seek to recharge growth. And while sales rose just 4% year over year, that still edged analyst views.

Cisco remains a top supplier of many of the key pieces companies need to keep data centers humming and to move into key information technology areas such as cloud computing, says Rohit Mehra, an analyst for research firm IDC.

"All of the building blocks and the foundations that are required for next-generation IT infrastructures are still very much in place at Cisco," he said. "The move toward cloud computing is driving next-generation converge infrastructures in the data center.

"That is a transition that takes as many as 10 years," he said, saying companies will press on with that transition even in a slow economy.

In the company's earnings release, Chambers said " ... Cisco is squarely at the center of major technology market transitions — cloud, mobile, visual, virtual and social."

Cisco posted Q4 revenue of $11.7 billion, up from $11.2 billion in the year-ago quarter. Per-share profit minus items rose 17.5% to 47 cents. Analysts polled by Thomson Reuters had expected $11.6 billion and 45 cents.

For the current quarter, the company expects revenue of roughly $11.5 billion to $11.7 billion, up 2% to 4% from the year-earlier quarter. It sees per-share profit minus items of 45 cents to 47 cents, up 5% to 9%. Sales exclude Cisco's NDS Group acquisition. In March, Cisco said it would buy video software maker NDS for $5 billion.

Analysts were expecting $11.62 billion and 46 cents for fiscal Q1.

The company also announced it was boosting its dividend by 75%, to 14 cents per share. "We are listening to our shareholders," Frank Calderoni, Cisco's chief financial officer, said in a statement.

Facebook Lock-Up Expiration Adds 271 Million Shares

Facebook's (FB) underperforming stock is about to face another test, but whether stern or mild is hard to say.

The lockup period on 271 million Facebook shares owned by insiders who already sold some shares in the IPO expires on Thursday. If a sizable number of those shares are sold, the stock could fall.

A lockup period prevents pre-IPO investors and company executives from selling big blocks of shares too soon after an initial public offering. But with the stock doing so poorly — closing at 21.17 Wednesday after starting trading May 18 at $38 a share — many analysts don't expect too many unlocked shares to trade right away.

A Times Square sign told of Facebook's May IPO. Buyers of initial shares may rue the "True Blood" billboard. View Enlarged Image

"I don't think the group eligible to sell their shares will need the money," said Michael Pachter, an equity analyst at Wedbush. "It's the same group that sold in the initial public offering" and pocketed a nice profit.

Besides, said Pachter, "It would send a bad signal if they start flushing the stock."

Those eligible to sell shares include Zynga (ZNGA) founder Mark Pincus, Netflix (NFLX) founder Reid Hoffman and Pay-Pal co-founder Peter Thiel — all early investors. Thiel and Hoffman are on Facebook's board. Also unlocked are shares held by venture capital firms Accel Partners and Elevation Partners, and shares held by co-lead IPO underwriterGoldman Sachs (GS) and Microsoft (MSFT), a Facebook ally in terms of their mutual competition with Google (GOOG) and Apple (AAPL).

"We think much has been made of a lockup expiration occurring, but do not necessarily see a significant negative impact," Scott Kessler, an analyst with S&P Capital IQ, wrote in a report Tuesday.

But Facebook seldom follows expectations.

Its highly anticipated IPO was considered a dud. One reason was the surprising disclosure just before its IPO that the company was struggling to make money off its mobile users, and it still is.

"I don't have confidence in anything they put out," said Francis Gaskins, founder of ipoDesktop.com.

Complex Social Experiment

Getting a handle on Facebook isn't easy. As the world's largest social networking company, it's been one big social experiment for analysts trying to evaluate the business model.

Even reports of Facebook's market capitalization, a standard measure for what a company is worth, vary by some $13 billion.

A company's market cap is calculated by multiplying its shares outstanding by the current stock price.

At the basic level, it's simple. Yahoo Finance and Google Finance on Wednesday showed Facebook with a market cap of about $45 billion. That comes from multiplying the current share price times 2.14 billion shares outstanding. But Facebook says it's more accurate to use 2.74 billion shares in the calculation, which results in a $58 billion market cap.