Shanda Interactive Entertainment Ltd ADR (SNDA)

For anyone who is a game enthusiast and is always looking for interesting interactive games, the only place to be is Shanda Interactive. Shanda is the third largest online gaming company in China. The company has captured around 16% of the mammoth Chinese gaming market, while facing stiff competition from market leader NetEase. Its core product online games are mainly segregated into massive multi player online role playing games (MMORPG’s) and casual games.

MMORPGs including the company’s in-house developed games like Magic Land and The Age, produce around 76% of the company’s overall revenue. On the other hand, casual games, targeted toward less-experienced online game players and home users, generate 18% of the company’s overall revenue. The casual games offer a range of games like Maple Story and Three kingdoms.

In the coming years, Shanda would reap the benefits of change in its revenue model from traditional subscription-base to Free-to-Play and Pay-for in-Game Value. This new model will assist in increasing the user base and will have a positive affect on Active paying Accounts, which is currently around the 2.14 million mark. Placed in an immensely attractive Chinese market where online gamers are set to increase to 80 million by 2010, out of which half of them are expected to be paying players, and backed by high penetration of broadband connection to 130 million households growth of Shanda looks promising.

"The most immoral thing for an enterprise is its inability to make profits. The goal of an enterprise is to make profits and control costs." Shi Yuzhu President of Giant Interactive Group (GA).
China Adopts New Regulations to Keep Out Foreign Online Game Companies January 17th, 2008 by Kenan Farrell
http://virtuallyblind.com/2008/01/17/china-regulates-foreign...
CAPS and monopoly money only as Shi stole your R&D
http://pop.6park.com/chan2/messages/51195.html
Giant Interactive Group (GA) Shareholder
All China's Online Game Companies will continue to beat analyst expectations until analysts truly understand the industry. Are we there yet? Not even close when Analysts are still asking "What is gold farming?".

I love playing games online at work and at home. I do not live in China, but I am guessing that people there are not that different.

Shanda is located in the ultimate pessimistic market, being in China, and the collapse that Chinese markets have experienced over the last year. But what is known about this company:

1) This company is down from it's all time high of just over $40, now at approximately $28.

2) The companies Mkt Cap is currently at just over $2 Bill.

3) The company has just over $500 Mill in cash on the Balance Sheet and just a total of $200 Mill in total obligations, with no long-term debt.

4) The company is extremely capital light, not requiring large amounts of capital re-investment to continue operations.

5) The capital light business model results in an enormous ROIC of over 50% meaning continued cash generation.

6) The company currently trades at just over 12 times free cash flow, providing a good margin of safety.

7) Shanda provides gaming entertainment which will become increasingly popular among the biggest population as the middle-class continues to expand. The company continues to expand into the on-line content business (books, etc.)

The unknowns are:

1) Is this company going to be able to maintain is leading position in a changing industry.

2) Is the price in the stock good enough to make up for quick changing pace of the on-line market place.

Not impressed by our visit to their Shanghai HQ. Beautiful, palatial compound that was half-empty. That set off warning signals to my mind.

This Chinese gaming company is down, but not out. Look for this one to turnaround with the release of Archlord.

They took a gamble by changing their revenue model and trying to take this to the next level/prempt competition in a soon to be saturated/highly competitive market. Looking at similar models in other avenues it's got a chance to succeed. The temporary dip in earnings is part of the gamble and the reaction from the market is typical in its short-term focus on. Question is how much will the gamble payoff. Even a decent increase that gets them somewhere close to earlier performance should justify a premium over current price. Anything over that is gravy - and there could be a lot of it.

Games. China.

Even with a revaluation of the yuan, this has great potential, as it is pretty well insulated against geopolitical and currency issues. Creativity and quality matter in the game world, a truly knowledge-based business of skill.

Oriental growth market for games is huge, many Chinese not yet hooked up to the net will be playing SNDA products soon.

Looks like earnings are rebounding after they changed from fee for play to free play+pay for extras. Earnings rebounded from a loss a few quarters ago to $0.23, way ahead of expectations of $0.06. Unless I'm missing something, eps is heading for $1.00 if not there already on an annualize basis. I know their future depends on new successful games and continued earnings growth, and at this point, things look ok at $15 and $1.00 eps, stable user base. Could hit $20 in 2007.

Company has "street smarts" and good connections with the Chinese government. Knows how to attract players. New format allowing players to buy "avatars" for use in game seems promising. As the CEO, Tianqiao Chen, says (paraphrased): People walk into a mall for free, but usually come out buying something.
Company has many new games and services for subscribers about to come online: DDO is one exciting game. Downloading music and books are two exciting areas just now (or soon) to be available. And IPTV is likely to be licensed to them in the future - shortly, I hope. With the Int'l Olympics scheduled in 2008 (I think), these things should all be available within a couple of years. I'm very hopeful!

This stock is way undervalued. I rate it at about $60 with current grow rates and cash on hand. A very low PE right now, really not related to the grow rate.

Law part of institutions is not so good, in my opinion but I hope this will change if all continue as is. The entrance of the institution can also generate the lift I am looking for.

should hit $35-40 range in the next few months. everyone wants games and its bigtime in Asia

BIDU AND CHINA AND INDIA NEED I SAY MORE

Another Chinese online games play, but that's only a good thing. The demand is unquenchable, and Shanda has shown they know not only how to make a popular online game but also, far more importantly, how to make real money off of those games. They have a 5-star rating from S&P and 12-month target price of $40.

The chinese bubble is not over yet. The stock is growing at extremely strong growth rates and I find it a compelling buy. When earnings come in, if they continue as in the past, I expect the stock to start moving strongly upward.

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, subscribers are growing, and the future looks bright for growth.

SNDA is experiencing great growth (59.43% Revenue growth, PEG = .51) in the past four quarters and will only continue to expand in a vibrant Chinese market of online gaming.

The key to me when considering the growth potential of these gaming stocks is the ability to attract and retain paying subscribers. Shanda had a 12.7% increase in paying accounts over last quarter. Being a long time gamer myself of certain U.S. games, I can testify that more people in a game means more attraction to that game. Interestingly enough, it's much of a social aspect of why people are willing to buy and participate in a game online. Geeks like myself find it much easier to have a life behind a computer screen. The only downside I see is that Shanda's paying accounts are paying out less over that time period. I still expect this to be a great buy at or around $32.

With China exploding onto the internet and growth scene, it's a surefire bet that this industry is going to carry a ton of momentum within the future. Shanda is a bargain to me at a PE of 12.25.

Founder/CEO successfully changed the business model of this company ahead of competition. Valuation still reasonable with strong growth potential

With fat margins, a forward PE of 19, a PEG=0.8, Shanda Entertainment is blowing the doors off its industry. Similar to reasons why I think NCTY (The9 Limited) will continue to do well (namely, the huge wellspring of millions of Chinese youth ready to pay up for the ability to play these online games), I think SNDA will do well too. Its financials are not quite as good as NCTY, but I like what I see: profit/operating margins at 52.4% and 31.6%; RoE=41.2% (though RoA is only 6.8%, pretty anemic for a gaming company); quarterly Rev & EPS growth of 55.9% and 3700+%, respectively. I am concerned that the Debt/Equity ratio is so high (currently 78%); hopefully, this is a short term thing.