Nasdaq listed Shanda Interactive Entertainment Limited reports a loss of 66.8 million US dollars in the fourth quarter of 2005 and an annual profit drop of over 70 percent, according to financial statements released by Shanda on Tuesday.
Lv Weigang, an Internet company observer said it was an astonishing quarterly loss and that had never before been seen in the financial reports of a Chinese listed Internet company.
In the report, Shanda attributes the net loss mainly to a non-cash impairment charge of 64.6 million US dollars to reflect the fair value of Shanda's 38 percent stake in Actoz, an on-line game company of the Republic of Korea (ROK).
Lv said that the loss is indirectly related to the operation of Actoz which has offered some of its on-ling games free of charge.
In November 2004, Shanda acquired the controlling shares of Actoz, which is listed on the Korea Securities Dealers Automated Quotations or Kosdaq.
Chen Tianqiao, Shanda's chief executive officer, attributed the loss partly to the strategy the company has taken recently.
Shanda has taken a number of key steps in its strategy to both build its content portfolio and extend its presence into the emerging digital home in China, which has affected the financial results of the company, said Chen.
Lv said that the success of Shanda's move into the digital home largely depends on the operation of its Internet gaming business.
If it were not for the investment of 64.6 million US dollars in Actoz, Shanda's net profits in 2005 were 85.1 million US dollars, up 12.7 percent year on year, said the report.
Shanda is not expected to maintain its double-digit growth on the Nasdaq.
Lv said Shanda's share price may still face downward pressure for some time.
Zhuge Hui, spokesman of Shanda, said that Shanda will continue its fee-free and home entertainment strategy for Internet games despite the discouraging reports.