Taomee’s 2011 Financial Results Revealed, No Fairytale Ending

The Chinese children’s entertainment network Taomee (NYSE:TAOM) – sometimes compared to Disney – has not had a fairytale ending to its 2011 financial year, with profits down and operating expenses up.

Taomee – which runs most of its children’s games, such as Mole’s Garden (pictured above) from 61.com – saw its stock drop just over 5 percent to close at $5.98 on Tuesday night on the New York Stock Exchange. But that’s just about the average it has been at since last September.

At the end of Q4 2011, net revenues were at US$8.6 million, down 32.5 percent from the previous quarter, but up slightly from $9.6 million in the same period of 2010. Looking at the year as a whole, net revenues were $45.4 million in 2011, an increase of 26.2 percent from $36.0 million in 2010.

But Taomee profits shrank to virtually nothing. Q4 2011 profits were a mere $0.6 million, compared with $4.1 million in the third quarter of 2011 and $4.9 million in the fourth quarter of 2010. Part of that came from rising operating expenses, doubling the 2010 level to stand at $22.8 million for 2011 as a whole. That was blamed on rising salaries, benefits, R&D, and marketing costs.

The main rise in revenue seems to have been, interestingly, from offline items, especially merchandise – that more than doubled to $5.1 million in 2011. So while the online games for kids seem to be struggling, good old-fashioned toys looked to be stronger products.

In addition to the games and merchandising, Taomee makes animated shows based on its gaming characters, which it licenses to local video-sharing sites such as Youku (NYSE:YOKU) and Baidu’s iQiyi and features on its v.61.com portal. So, while Taomee had a rough year in 2011, it’ll be interesting to see if it causes the company to push less into games, and perhaps more into cartoons and toys.

See the full results in the Taomee announcement.