More Games From Renren, Shanda
Internet companies Shanda Games (Nasdaq: GAME) and Renren (NYSE: RENN) are playing new games to try and boost their struggling prospects, with the former announcing a major executive appointment and the latter a major new product development campaign. In Shanda Games’ case, the move looks potentially interesting because it’s most likely coming from the parent company’s recently named new president who was brought in to make the group’s various parts work better together. (previous post) In Renren’s case, the move also looks like a potentially good one as the company chases its ultimate goal of becoming profitable.
Let’s start with Shanda Games, which has struggled for most of its life as a listed company. The company’s shares have lost about half of their value in the last year alone, and it recently reported a 12 percent drop in fourth-quarter profit and revenue that didn’t do much to improve market sentiment. Investors didn’t seem too excited either when the company named its former president of business development Tunghai Chien as its new president, with Shanda Games’ shares rising 1 percent on Wednesday in New York. (company announcement)
This move looks potentially like the work of Robert Chiu, a Taiwanese Chinese who was named as president of Shanda Group late last year and may be starting to make this kind of “adjustment” after 4 months on the job. From my perspective, this move looks like potentially interesting and could help to boost Shanda Games’ prospects. I like the fact that Chien is a company insider, which means he can start to play an active role in his new job much more quickly. His Taiwanese background also should help him work well with Chiu, and means he probably has more exposure to the kinds of western business practices that could help the company.
Of course it will take some time to see if Chien’s appointment will really make a difference. But I’m cautiously optimistic that he could breathe some fresh new ideas into Shanda Games’ broader corporate strategy, perhaps bringing in some interesting new game titles and marketing ideas that could help to revive the company in the next couple of years.
From Shanda, let’s move on to Renren, which is preparing to embark on a major expansion of its promising game unit. According to Chinese media reports, Renren is planning a major push into mobile gaming by developing titles that run on Google’s (Nasdaq: GOOG) popular Android operating system that powers the majority of Chinese smartphones. (Chinese article) The reports also quote a Renren executive saying the company will sign up more agents to promote its game titles rather than doing everything itself, a strategy that looks aimed at quickly growing the business.
Renren operates a social networking (SNS) platform similar to Facebook (Nasdaq: FB) as its core business. But like Facebook, it has struggled to make the SNS portion of its business profitable, and reported its net loss widened by 46 percent in the fourth quarter of last year. Its inability to earn profits has taken a toll on its stock, which is down 60 percent in the last year alone and now trades near an all-time low.
While its SNS business has struggled, Renren has done much better in its online game business, and even previously suggested it could eventually spin off the unit for a separate IPO. Renren’s gaming business more than doubled to $26 million in revenue in the fourth quarter, accounting for more than half the company’s total revenue.
Renren certainly wouldn’t be the first Chinese Internet firm to start its life in another business and then slowly transform to an online game company. NetEase (Nasdaq: NTES) underwent a similar transformation in the mid-2000s after its original SMS and portal businesses faltered, and Tencent (HKEx: 700) began life as an SNS firm but went on to become China’s leading online game operator.
The big challenge for Renren will be competing with the big names like Tencent, NetEase and Shanda Games, which are all much more experienced at online game operation. But the rapid growth of Renren’s own online game operations is certainly encouraging, and this aggressive expansion into mobile gaming looks like a good next step. If all goes smoothly, perhaps we really could see an IPO for Renren’s game business in the next year or 2; but more likely, Renren will follow in the footsteps of Tencent and NetEase, and eventually stop using the SNS monicker to describe itself and instead become the newest Chinese online game company.
Bottom line: Shanda Games’ naming of a new president and Renren’s push into mobile games look like smart moves that could help reverse both companies’ sagging fortunes.
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