CDC Corporation's (CHINA) results for the third third quarter ended September 30, 2006 show the company has dramatically increased its overall revenue.
Total revenue for the quarter was US$78.2 million, an increase of 26.3% from US$61.9 million in Q3 2005.
"We are seeing strong execution across the board as demonstrated by our results," said Peter Yip, CEO, CDC Corporation. "In the software business, we have developed a formula for success which is built around a verticalization strategy. We are realizing strong success from this approach, as evidenced by our robust license revenue growth, especially when considering the seasonally weak third quarter which affects the global software industry. Also, in the china.com business, we are becoming a new media company in a market that has enormous potential and is largely untapped. Over the last four months, we were pleased to have twice raised guidance for 2006. This is a result of the robust organic growth and synergies generated from acquisitions. We are extremely well positioned to be a leader in each of our markets.
Total software revenues in Q3 2006 were US$61.4 million, an increase of 22.5% from US$50.1 million in Q3 2005. Software consulting and services revenues were US$14.1 million, software license revenues were US$11.9 million, maintenance revenues were US$16.2 million and business services revenues were US$19.1 million. The strong results were driven primarily by license revenue growth of 35.4% year over year and resulting in record quarterly license sales for the company, despite the traditional third quarter slowdown in sales for Europe.
New customers accounted for 46% of total software license revenue for the quarter, with repeat business to existing customers accounting for 54% of total software license revenue. This high percentage of new customer business continues to rank among the highest in the enterprise software industry and is attributed to the company's focus on vertical applications that address the key requirements in targeted industries such as the financial services, homebuilding, food processing and pharmaceutical industries.
Total revenues for China.com during Q3 2006 were US$16.9 million, an increase of 42.3% from US$11.9 million in Q3 2005. Gross profit for China.com Inc. during Q3 2006 was US$10.5 million, an increase of 56.7% from US$6.7 million in Q3 2005.
Operating income as a percentage of revenue for the quarter was 7.3% compared to negative 2.8% in Q3 2005 and 5.6% in Q2 2006. The improvements year over year and quarter over quarter are the result of faster growth in higher profit segments, as well as the company maintaining its focus on cost controls and leveraging offshore resources.
With a differentiated combination of online games, portals and mobile applications, China.com is one of the China's leading new media companies, well positioned to take advantage of the burgeoning demand for online services and entertainment. China.com is focusing on entertainment for both young adults and professionals by leveraging its extensive distribution network to achieve its growth objectives.
During the quarter, CDC Game's Yulgang continued to deliver strong performance metrics with registered users exceeding 37 million, an increase of 23% from Q2 2006. Average concurrent users declined by 7% from the prior quarter while the number of virtual items sold reached 27.4 million, an increase of 29% from Q2 2006. Server groups throughout China supporting Yulgang and the Group's other online games numbered 54, an increase of 13% from 48 server groups in Q2 2006.
The next version of Yulgang is scheduled for release in Q4 2006. With a growing base of registered users, the new release is expected to increase the number of average concurrent users going forward. Additional new games scheduled for release throughout 2007 are anticipated to further grow both registered and concurrent users. Games planned for release over the next 12 months include Special Force, Stone Age II and The Lord of the Rings Online(TM). In addition to the pipeline of licensed games for 2007, CDC Games continues to pursue options for internal games development via acquisition and strategic investment.
Based on the agreement signed by Google and China.com in July 2006, Google is extending its advertisers' reach to China.com's broad audience, in both China and abroad. China.com is leveraging Google's leading technology to provide search service for its users. Two months into the partnership, Google is expanding its presence on China.com beyond text search functions and will be launching video ads in China.com's English Channel, which is primarily serving multinational companies investing in China. This is the first time Google's Video Adsense will enter China's Internet space. The company also forged an agreement with BDL Media, one of China's leading business information providers to multinationals in China.
As expected, the company's MVAS business activity was initially depressed at the beginning of the third quarter due to regulatory changes. July revenue from mobile services and applications experienced a 39% month-on-month decline and a 29% decrease compared to the same period last year. However, the company has been recording month-on-month increases since August.
The effort made to recover revenues, combined with adjustments to the company's operating strategy to reduce operating expenses and become more efficient, have minimized the overall impact of the regulatory changes and the company believes it positions China.com well over the longer term.
