Perfect World Co., Ltd. (PWRD)

online game growth in china to continue

China lets them play.

Upthumb. The fastest growing game company in China. Cash cow. Lots of cash on-hand. No debt. Very high margins. Very high growth rate.

china growth play. Valuation is fine.

Zacks Rank 1-StrongBuy, Recommend Outperform, Industry Rank 105 / 217, Target 50.50, Avg Target of 12 analysts 44.31

canslim

They have plenty of room to run in the Chinese online game market. Super fast grower with great margins.

China gaming.

Fads, fancies, and foibles - don't get me wrong, you can bank on the fact that people will behave foolishly. Perhaps the next big craze is for a wood and peg game (takes no electricity). Who can say?

(60% down on this, other factors only add to 40.) net thumbs down.

Great company. Online gaming trend in China seems huge and this company is a player poised for growth. Rule Breaker.

Putting it here to follow the price -- All I can say is: Huge Growth vs. low p/e. Major risk factor is odd-ball regulation from the Chinese Gov't.

Good chart setup, good rating from IBD, Good rating from MSN, good rating from VectorVest

-Leading online game developer and operator in China

Why Buy?

- Leading online MMORPG in China is growing fast, and trades at very low multiples
- Strong Cash Flows allows the company to produce new games, advertise and market current games
- Strong pipeline of games and huge market of potential users is driving revenues beyond analysts estimates

Notes:

From 2006 to present Perfect World has launched 7 self developed MMORPGs (Massively Multiplayer Online Role Playing Games)
Perfect World, Legend of Martial Arts, Perfect World II, Zhu Xian, Chi Bi, Pocketpet Journey West, and Battle of the Immortals.

In Q1 2009, PWRD games recorded approximately 615,000 average concurrent users in China,

In April 2008, the company created a subsidiary, PW USA to promote its online games in North America

Game development platforms enable the company to create and develop games with 6 to 24 months.

Almost all of their games are ranked in the Top 10 of “Popular Online Games”, “Most Favorite Online Games among Game Players”.

For their Perfect World Game, the company charges users based on the amount of time they spend playing the game.

For the other 6 games, the company uses a “item-based” revenue model. Players are allowed to play for free, but are charged for purchases of in-game items, such as accessories, clothes, pets, and performance enhancing items. (I don’t think they are referring to steroids). 97% of revenue was derived from the item-based revenue model in 2008.

Anti-Cheating technology – All their games have built in detection mechanisms, which ensures players’ confidence and reliability while playing.

In March 2008, the company opened a R&D center in Shanghai to take advantage of the skilled workforce located there.

Many competitors: Shanda, Netease, Changyou, Giant Interactive, Nineyou, and The9

Numbers:

July 2007 IPO at $16 per share ADS. Raised $133.1mln.

Net Income in 2008: $94.8mln
CFFO in 2008: $142.44mln
$3.42 per share in cash

2008 EPS 1.69 P/E 18
2009 EPS est 2.34 Growth 38% P/E 13
2010 EPS est 2.76 Growth 18% P/E 11

Analysts keep raising estimates. 2010 Figures too low?
May be the cheapest in its peer group

Things to watch:

The current # of paying players, equals plenty of room for growth, should continue to grow aggressively

Consolidation in the industry – will they acquire or be acquired?

R&D center is operational; some of the staff has been together for 10+ years. Can they continue to produce new games in the timeframe they quote? (6-24 months)

How will management treat shareholders?

In closing, I think Changyou (CYOU) could make a fine selection too, but I figured it is so closely linked to current RB rec Sohu.com, that I would try evaluating a different company.

Thanks again for reading!
let me know if you have any questions/comments/concerns/noodle shop jokes

Foolishly,
Matt

an ever expanding business model--

fast growing sector

Online gaming is big in China. Further everybody seems to play World of Warcraft. Great company with great margins and a low PEG ratio.

Chinese gaming. good balance sheet

I've been to China 5 times in the past 2 years for business, and have seen kids pack the internet cafes to play for hours on end... Guangzhou, Shanghai, Nanning, Shenzhen, etc. School is out, numbers are growing, the future is bright for growth.

Good products in growing market, and capturing oversea markets.