NetEase.com Inc, China's third- biggest online games provider, said it may acquire companies to expand its Internet search business, after Google Inc moved its Chinese service offshore.
"If an acquisition can help the development of our search business, then why not go for it," NetEase Chief Executive Officer William Ding said on a conference call. The Beijing-based company will also consider acquisitions beyond web search, he said.
Google, owner of the world's most-popular search service, lost market share in China after redirecting its Google.cn service to a Hong Kong site. NetEase's Youdao search service now accounts for 0.4 percent of the local search-engine market, according to researcher Analysys International.
NetEase, trailing Tencent Holdings Ltd and Shanda Games Ltd in China's $3.95 billion online games market, yesterday reported first-quarter profit rose 8.5 percent to 452.3 million yuan ($66.2 million), from 416.7 million yuan a year earlier.
NetEase ADRs fell less than 1 percent to $31.11 in Nasdaq Stock Market trading yesterday before the earnings announcement. The receipts have declined 17 percent this year, compared with a 10 percent drop in the Hong Kong-traded shares of Tencent, China's biggest Internet company by market value.Profitability declined
Google accounted for 30.9 percent of China's online search market last quarter, compared with 35.6 percent in the previous three months, according to data from Analysys. Baidu Inc increased its market share to 64 percent from 58.4 percent, according to the Beijing-based researcher.
The 0.4 percent market share for NetEase's Youdao service ranks it below Sohu.com Inc's Sogou service, the third-most- popular web search service in China, according to Analysys.
Revenue from online games rose 50 percent to 1.09 billion yuan in the quarter, NetEase said. Sales of online advertising more than doubled to 91.5 million yuan.
Profitability declined last quarter as NetEase incurred higher marketing expenses and royalty fees for its "World of Warcraft" role-playing game, licensed from Activision Blizzard Inc. Gross profit margin for the online games division narrowed to 72.1 percent in the first quarter, declining from 90 percent a year earlier.
NetEase began operating "World of Warcraft" in China on September 19, after taking over from previous licensee The9 Ltd, and gaining approval from the Ministry of Culture.
Most popular game
"World of Warcraft" was China's most popular game with three-dimensional graphics, according to a January 20 Morgan Stanley report.
Online-game sales in China, the world's biggest Internet market by users, rose 30 percent to 27 billion yuan last year, according to iResearch, a Shanghai-based research company.
NetEase may consider a share buyback if the price is right, Ding said today. The company's cash holdings increased to 7.7 billion yuan at the end of March, compared with 7 billion yuan three months earlier, it said.
