Profitable quarter shows ChangYou heading in the right direction

ChangYou has reported its Q4 and full-year financials for 2014, showing a record quarter for revenues but a bottom line which is still in flux.

Sales for the quarter ending December 31, 2014 were $215.9 million. That record-breaking figure for the Chinese firm represents a growth of 19 per cent since Q3 and an 11 per cent growth since the same quarter for the year previous. Nonetheless, non-GAAP net income dropped to $13.7 million from $43.3 million in the fourth quarter of 2013.

In the wider picture, full-year revenues grew by two per cent year-on-year to $755.3 million, of which $652 million was generated by online gaming revenues and $59 million from online advertising. That demonstrates a mild annual shrinkage of three per cent for the games business and an 18 per cent growth in advertising. Non-GAAP net income for the year was $0.7 million, a considerable drop from $269.9 million in 2013. ChangYou's management team, which underwent considerable changes towards the end of last year, remains optimistic.

"Since Dewen and I took office three months ago, Changyou's senior management team is united and has worked diligently together," commented co-CEO Carol Yu. "Our common goal is to take the Company to new heights built upon the strong foundation that Tao Wang, our former CEO, created. I am pleased to report a quarter of solid performance, as demonstrated by a sustainable revenue stream from TLBB PC, a successful launch of the mobile game TLBB 3D, as well as a more cost-conscious approach to our mobile internet business."

Her counterpart, Dewen Chen, added: "We are pleased with the progress in our games business. Our flagship title TLBB marched forward into the eighth year of outstanding and profitable performance. With its achieved sustainability, TLBB has become one of the most enviable games in the industry, expected to generate significant revenue and profitability for years to come. On mobile games, we are excited about the initial success of TLBB 3D, which generated gross billing of over US$65 million in the first two months of operation. This reflected firstly the current demand for hardcore MMO mobile games matched well with our core expertise, secondly our strong operation and publishing capabilities, and on top of that, TLBB's strong game IP. We have worked diligently and prepared a strong pipeline of both self-developed and licensed mobile games, which will be launched in the coming quarters.

"For our mobile internet business, our focus now is to optimize our operations and take a more targeted approach in key markets with the largest potential. We will work more closely with local partners and look to elevate our products by offering more localized services and functions tailored for the local needs," concluded Mr. Chen.

"We are pleased to see the above efforts combined has brought Changyou a new record revenue of US$216 million this quarter, exceeding our guidance by a wide margin," added CFO Jasmine Zhou. "The enhanced revenue coupled with our rigorous cost control measures, streamlined operational structures and reduced headcount have brought Changyou back to profitability. We expect to see a bigger impact of these cost-control measures and further margin improvements in the first quarter of 2015."

Changyou experienced a drop in expectations last year, with consecutive quarters showed downturn, prompting the change in management.