November 2010 CHANGYOU.COM LIMITED (NASDAQ: CYOU) Safe Harbor - - PowerPoint PPT Presentation

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

November 2010

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Safe Harbor Statement

This announcement contains forward-looking statements. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on

• them. Forward-looking statements involve inherent risks and uncertainties. The

Company cautions that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the current global financial and credit markets crisis and its potential impact on the Chinese economy, the slower growth the Chinese economy experienced during the latter half of 2008 and in 2009, which could return at some point in the future, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Changyou's quarterly operating results, and the Company's reliance on Tian Long Ba Bu as its major revenue source. Further information regarding these and other risks is included in Changyou's Annual Report

• n Form 20-F filed on February 26, 2010, and other filings with the Securities and

Exchange Commission.

2

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Industry Update

3

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

3.8 5.7 6.3 8.5 9.8 11.7 14.4 15.6 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10

China online game revenue Source: CNNIC, Analysys

Internet user growth drives the expansion of the online game market in China Government strengthens online games management, encourages creativity and focuses on healthy and sustainable development of the industry

China – world’s largest Internet market and still growing

(In RMB billions)

Macro trends driving robust online game revenue growth

(In millions) 137.0 162.0 210.0 253.0 298.0 338.0 384.0 420.0 50

100 150 200 250 300 350 400 450 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10

Internet users in China

China’s Growing Online Game Market

4

• On July 28, 2010, Chinese government officials stated that the government will:
• Introduce policies related to online gaming in China to provide a solid foundation for the sustainable

growth of the industry

• Explore ways to effectively protect intellectual property rights
• Encourage innovation and support domestic online games companies to expand overseas
• We believe the formalization of a standard set of regulations will help the sustained development of the
• industry. Changyou will continue to strongly support the work of the regulators and join in the formulation and

implementation of these regulations and make greater contributions to the industry’s development.

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Financial Overview

5

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

2010 Q3 2010 Q2 2009 Q3 QoQ YoY 2010 Q4 Guidance Total revenues Game operation revenues Overseas licensing revenues $85.6m $83.6m $2.0m $77.7m $75.6m $2.1m $68.7m $66.9m $1.8m 10% 11%

• 7%

25% 25% 11% $86.0m~89.0m N/A N/A Gross margin (non-GAAP)* 90% 91% 93% N/A N/A N/A Operating margin (non-GAAP)* 64% 63% 67% N/A N/A N/A Net income (non-GAAP)* $47.1 m $44.1 m $41.3m 7% 14% $46.5m~48.0m Diluted EPS (non-GAAP)* $0.88 $0.82 $0.77 7% 14% $0.87~0.90 Cash Balance $292.0m $294.5m $312.9m

• 1%
• 7%

N/A Debt Balance $0 $0 $0 N/A N/A N/A Cash inflow from operations $55.5m $49.2m $46.2m 13% 20% N/A

Changyou is a highly profitable online game developer with a strong, debt-free balance sheet and rich cash flows.

Strong Financial Track Record

6

* Non-GAAP numbers exclude share-based compensation costs. Please refer to our earnings release, which is posted on the IR section of Changyou’s website at http://www.changyou.com/ir/ for GAAP numbers.

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Business Highlights

7

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

1

Solid Growth Momentum in Existing Games

8

Diversified Portfolio of Games Adding Incremental Growth TLBB Remains Our Flagship Game

Tian Long Ba Bu (“TLBB”):

• Latest upgrades include new content introduced in July and October

featuring new in-game events and more customization options for avatar and in-game chat to cater to the social needs of today’s youngsters

• Plan to launch TLBB 3, another major expansion pack, in 2011 to further

enrich the in-game experience of users and extend the game’s lifespan

User-centric game development model incorporating extensive feedback and solid operating strategy deliver organic growth and maintain healthy game portfolio

20 40 60 80 100 120 500 1,000 1,500 2,000 2,500 3,000 0% 25% 50% 75% 100% 125% 150%

Aggregate Registered Accounts * Aggregate APA * ARPU * * as a Percentage of Peers’

Regular game content updates drives steady expansion of user base with potential for further upside growth in ARPU

(In millions) (In thousands)

Average:73%

• We are also adding incremental growth from our growing portfolio
• f differentiated games, including Blade Online, Blade Hero 2, Da

Hua Shui Hu, Zhong Hua Ying Xiong and the newly released Immortal Faith

• We’ll continue to update the games based on user feedback

* Comprises the following games operated in China: Tian Long Ba Bu (“TLBB”), Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong and Immortal Faith

* * Based on company filings and research

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Solid Growth Momentum in Existing Games(Cont’d)

• Franchise Games are Cornerstone of Growth

TLBB remains our flagship title and a testament to our ability to create a sustained blockbuster

An Award-winning Game

The Most-liked Online Game by Game Players by ChinaJoy for five consecutive years from 2006 to 2010 World’s Top Five Most Profitable Game Franchises in 2009 by Forbes

• To date, we have

released 16 expansion packs based on a vast amount of user feedback

• We will continue to

release expansion packs regularly to grow the community and build TLBB into an even more valuable franchise

* Data from barchina.net for the period Oct 18-24, 2010

The Most-installed MMORPGs in China’s Internet Café *

Fantasy Westward Journey Dragon Nest Wendao 1 2 5 NetEase Changyou TLBB Shanda Games 4 World of Warcraft Netdragon NetEase Launched a hit game

1

3

9

Year 2-3 Year 4 Year 1

• Launched a hit game that

surpassed 400,000 peak concurrent users during the first month of its launch

• Introduced the first 2.5D

game that combines both martial arts and community-building features in China

• Continued to grow user

base by releasing regular game updates and expansion packs

• The game has become a

leading 2.5D martial arts MMORPG in China’s

• nline game market
• Major expansion pack

TLBB 2 launched in April 2010 with important upgrades, boosting PCU to a record high

• Another major expansion

pack in development for 2011 to further grow the game’s community

Continued to grow user base Formed a large community

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Multiple graphic modes Social interactive game-play Cartoonish graphic style

• The first in the industry to allow players

to freely switch between multiple graphic modes

• Vivid graphics and 360 degree viewing

angles

• Target a wide range of people, across

different genders and nationalities

• Various forms of social activities to

foster larger community and enhance gamer stickiness

• Adorable exaggerations of characters
• Visually attractive scenery and realistic

weather effects

Unique features to differentiate game from others on the market

Moon and stars in the sky Dawn in the main city Realistic snow view Adorable characters

Content development for the game has been completed and we are evaluating marketing proposals for the game’s launch

Team-based cooking game Team-based activities

2

Delivering Growth with New Inhouse-developed Games

10

Duke of Mount Deer

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Continue to bring new games to market that complement our portfolio and attract different types and demographics of users

Legend of Ancient World (“LAW”) Game title Plan Development Progress Theme

New games put in operation in 2010

Immortal Faith (“IF”)



2D mystical adventure game Da Hua Shui Hu (“DHSH”) Zhong Hua Ying Xiong (“ZHYX”)



2D turn-based, cartoon-style game



Plan to introduce expansion pack in 2010Q4 to further stimulate interest from students and casual gamers



Began open beta testing on March 18



Released the first expansion pack in July



Continue to work with developer to launch new virtual in- game items and localize the game for hardcore domestic gamers



Began open beta testing on September 9



3D martial arts game



Plan to introduce new content based on user feedback in the coming quarters

Upcoming games



Under close beta testing



2.5D fantasy game



Plan to launch the game in December

3

Diversify Game Portfolio through Licensing

11

San Jie Qi Yuan (“SJQY”)



2D turn-based, cartoon-style game



Plan to launch the game in 2011



Began open beta testing on May 20



Under close beta testing



Continue to collect user feedback and data to fine-tune the game

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Domestic market Export market Market for self-operations

Export Strategy

• We began open beta testing of Dragon Oath,

the English version of TLBB, in the United States in December 2009

• We began open beta testing of TLBB in the

United Kingdom in April 2010

• Our objective is to deepen our understanding
• f Western gaming markets and gain valuable

insight on user protection and customer service standards so as to introduce these back in China

Self-Operation Strategy

• Changyou’s TLBB franchise has been licensed

to game operators in Vietnam, Taiwan, Hong Kong, Malaysia, Singapore and Thailand

• We will pursue strategic licensing opportunities

to selective countries to broaden our exposure to different online game markets and cultures

4

Gain International Exposure with Strategic Overseas Expansion

12

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

Streamlined hiring and training practices strengthen foundation for long-term growth

• Added over 300 game engineers in the third

quarter of 2010

• Total employees were approximately 2,050 as of

Sept 30, 2010

• Focused on recruiting fresh graduates from

leading universities across China to enhance our R&D and game operation capabilities

• Plan to recruit another 100 marketing and offline

promotional staff to promote upcoming games

• Developed a number of new in-house training programs for engineers in the third quarter of 2010
• TLBB’s well-established game development platform is a training base for R&D talent
• Experienced game development personnel provide valuable guidance to new hires and help them assimilate into

Changyou’s culture

• After new hires are properly trained, core developers are allocated to new game projects
• The team currently working on TLBB is already the third generation of game developers
• Unique incentive systems ensure maximum sharing of experience and know-how

Recruit top-notch talent Train and incentivize R&D engineers

5

Building Human Capital for Long-term Development

13

1,000 2,000 3,000 Jun 2009A Dec 2009A Jun 2010A Sep 2010A Dec 2010E

Total Headcount

~2,200

CHANGYOU.COM LIMITED (NASDAQ: CYOU)

14