A press release from ChinaJoy, China’s oldest online gaming show now celebrating its 10th anniversary, reminded me of how little I write about this once-exciting industry anymore, which has become mostly a bumper crop of companies with poor track records at innovation despite their huge home market. ChinaJoy announced its big anniversary with fanfare, unveiling a new logo and announcing a slate of its latest shows centered on the online game industry. (official announcement) But from where I sit, there’s very little to celebrate. The industry posted revenue of 32.4 billion yuan in 2010, about $5 billion, rising a respectable 26 percent from the year before but still sharply slower than growth rates 5 or 6 years ago when the hype was loudest. Perhaps the company that best illustrates the disappointment surrounding this sector is Shanda Interactive, which became the sector’s first player to go public with its Nasdaq IPO in 2004. The company then spun off its gaming unit into a separate company, Shanda Games (Nasdaq: GAME), and then finally itself went private earlier this year due in part to lackluster investor interest. (previous post) Since its listing, Shanda Games has failed to attract much investor interest and the stock now trades at about one-third of its IPO price in 2009. Other hopefuls from the sector included The9 (Nasdaq: NCTY), Perfect World (Nasdaq: PWRD) and Giant Interactive (NYSE: GA), which have all seen similar lackluster performance. One notable exception to this uninspired group has been NetEase (Nasdaq: NTES), one of China’s earliest Internet companies, which has actually done quite well in the space due to its strong ability to self-develop games that have found strong fan bases among domestic Chinese gamers. By comparison, Shanda and the others, despite their best efforts, have largely failed to create popular titles and instead rely on licensing games developed by foreign companies for most of their revenue. That model is not only less profitable, as profit margins are much smaller, but also dangerous as companies can quickly lose much of their revenue when a license expires if they fail to renew it. That case was illustrated 2 years ago when The9 saw its business disappear almost overnight when it lost its most popular game, World of Warcraft, after failing to renew a licensing deal with the game’s owner, US firm Activision Blizzard (Nasdaq: ATVI). The9 got a recent lift when it announced a new self-developed title and a global licensing deal, providing a boost to its stagnant shares. (previous post) But somewhat ironically, the title was developed by a US-based game developer purchased by The9, rather than the company’s own China-based design house. For all of these reasons, NetEase may remain the only interesting company in this once-promising space for the near future, though The9 could potentially also rise if its US-based design house can produce more successful titles.
Bottom line: China’s online game operators will see little or no growth in the next few years except for the handful that can develop their own successful titles rather than rely on licensing deals.
Related postings 相关文章:
◙ The9 WoWs Wall Street With New Deal
◙ Shanda Delists: Thanks for the Profits 盛大网络退市：获利可喜
◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价
The race to make China’s first New York IPO of 2012 is nearing the finish line, with online discount retailer Vipshop emerging as the likely winner after getting off to a late start.The listing will mark not only the first Chinese IPO in New York this year, but also the first in months following disastrous debuts for a few companies that launched offerings last summer at the height of a confidence crisis towards US-listed Chinese stocks after series of accounting scandals. I previously said that growing signs are emerging that the worst of the crisis has passed (
Dangdang (NYSE: DANG), China’s only major listed e-commerce site, has just released its latest quarterly results that show its losses ballooning, reflecting the overheated competition in the space that is already starting to hit many smaller companies and could soon even claim a bigger player. Dangdang’s latest report shows its loss jumped to 130 million yuan, or nearly $21 million, in the final quarter of last year, reversing a $2 million profit the previous year. (
There’s a couple of interesting new developments on the listings and de-listings front, with a unit of Xinhua making what looks like a low-key but also significant offering in Hong Kong even as one of the oldest US-listed China firms, AsiaInfo (Nasdaq: ASIA) may be preparing to de-list. The Xinhua listing represents China’s easing of restrictions for such offerings in one of its most sensitive sectors, the media; while the AsiaInfo development marks the latest chapter in a clean-up of US-listed Chinese firms, which have been plagued for much of the last year by a serious of accounting scandals. Let’s look at Xinhua first, which has done a backdoor listing for its relatively obscure TV arm, China Xinhua News Network Corp. (
I’ll finish my postings on this Winter Solstice day with a few tidbits from the retail sector, which offer some interesting glimpses into the potential power of e-commerce to help Chinese firms expand both at home and abroad. The biggest of these news bits comes from Dangdang (NYSE: DANG), China’s only listed major e-commerce firm, which is launching an electronic book service to complement its industry-leading online book store. (
2011 could well go down as one of the most schizophrenic years for IPOs in recent memory, with the latest pulling of a mega-offering by Haitong Securities (Shanghai: 600837) symbolizing the dismal sentiment that has set in over the last 6 months after a strong start to the year. According to foreign media reports, Haitong, which is already listed in Shanghai, has decided to scrap its Hong Kong offering that would have seen it raise up to $1.7 billion due to dismal market sentiment. The decision comes after a steady string of other deals that were either scrapped or went forward with weak results. One of the biggest, a Hong Kong offering by Haitong rival CITIC Securities (HKEx: 6030; Shanghai: 600030) had to be scaled back but still went ahead despite the weak sentiment. Since then, the company’s shares have sunk about 3 percent from their IPO price in September, despite its premier status as China’s biggest brokerage. Other smaller offerings by online video site Xunlei and Shanda‘s (Nasdaq: SNDA) online literature unit Cloudary had to be were pulled as well, again due to weak investor sentiment. These smaller US companies have been hit not only by that weak broader sentiment, but also by more specific concerns about Chinese firms’ accounting practices following a series of accounting scandals earlier in the year. Companies that have gone forward with offerings this year have hardly offered any reassurance. Shares of Renren (NYSE: RENN), a leading Chinese social networking site, now trade at about a quarter of their IPO price since their May offering; while shares of video sharing site Tudou (Nasdaq: TUDO), which made its IPO in August when sentiment was already weak, have sunk by more than half from their IPO price even after the company reported a surprise third-quarter profit. The combination of confidence crisis and broader weak market sentiment is no doubt behind the huge losses for US-listed China stocks. That said, investor sentiment is notoriously cyclical, and I would expect people to rediscover the big potential of China stocks sometime next year, probably around the second quarter, at which time we should see names like Haitong and perhaps even Cloudary or Xunlei make a second try at an IPO. In the meantime, braver investors with money to spare could position themselves for some nice returns by buying shares now ahead of the next uptick.
What a difference a deal makes. That seems to be the lesson for faded online game developer and operator The9 (Nasdaq: NCTY), whose shares have soared on a new licensing deal some 2 years after it disappeared from investors’ radar screens after losing the rights to its hit game World of Warcraft, or WoW to gaming enthusiasts. The latest development underscores just how dependent companies like The9 and rivals like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) are on individual hit titles, which can sometimes account for half or more of a company’s top and bottom lines. Interestingly, this latest development has seen The9 turn away from licensing other people’s games toward the developing its own titles, whose costs are much higher but also offers much bigger potential rewards from outside licensing fees for popular titles. In this case, a Singaporean company called Garena Online is paying a nifty $23 million for licensing rights for 6 years to The9’s self-developed game, “Firefall”, in Southeast Asia and Taiwan. (
When was the last time you saw Google (Nasdaq: GOOG) or Amazon (Nasdaq: AMZN) spin off one of its units into a separately listed company or inject assets from its parent company into a listed unit? The answer of course is that they never engage in any of these common practices of big China state-run companies, but that hasn’t stopped the country’s booming private Internet sector from becoming increasing masters at such games. The latest machinations in these games have seen Sohu (Nasdaq: SOHU) sell its online game information site, 17173.com, to its separately listed online game unit, Changyou (Nasdaq: CYOU) for a nifty $162 million (
