Chinese Internet portal Sohu.com Inc and its recently listed gaming unit Changyou.com warned on their fourth quarter revenue outlook coming in below Wall Street estimates, sending their shares down.
Changyou said registered accounts for its games, which include popular multiplayer online games such as Tian Long Ba Bu and Blade Online, jumped 46 percent to 75.1 million.
However, analysts said the strong user growth would take three to six months to convert to paying users.
The company is not expecting much revenue from these new users in the fourth quarter and therefore relatively weaker guidance, Think Equity analyst Atul Bagga said.
Typically, online role-playing games are free to play but users have to buy virtual enhancements to advance to higher levels.
For the fourth quarter, Sohu expects revenue of $134.5 million to $138.5 million compared with analysts' estimate of $140.77 million. This includes revenue from Changyou.
Changyou is looking at revenue of $69 million to $71 million -- below analysts' estimates of $73.65 million.
The company, however, confirmed that it is still looking to launch its new game DMD in the third quarter of 2010.
This should allay some investors' concerns around development of this anticipated title, Bagga said.
The delay could mean cash flows from the game are pushed out to future, Susquehanna Financial analyst C Ming Zhao wrote in a note. But historically, games such as NetEase's Tian Xia II and Blizzard's World of Warcraft have been delayed, and have finally worked out well. So we do not view game delay as a negative for long-term investors.
Shares of Sohu were trading down 16 percent at $60 Monday on Nasdaq. Changyou shares were down 9 percent at $31.81.
For the third quarter, Sohu's net income attributable to shareholders fell to $37.35 million, or 88 cents per American Depository Share (ADS) from $40.26 million, or $1.02 per ADS, a year ago.
Revenue for the company rose 13 percent to $136.6 million.
Revenue from game operations rose 29 percent to $67 million heled by Changyou's flagship game Tian Long Ba Bu.
Analysts on average were looking for a profit of 89 cents per ADS, before special items, on revenue of $136.4 million, according to Thomson Reuters I/B/E/S.
(Reporting by Mansi Dutta in Bangalore; Editing by Pradeep Kurup)