Back in 2003, the Chinese portal company Sohu.com (Nasdaq: SOHU) started a new division: Changyou.com. The focus was on the massively multi-player online role-playing games (MMORPG) space.
Now, the division has filed to go public. Crazy? Perhaps not.
Since the launch of its Tian Long Ba Bu game, Changyou.com has been growing at lightning speed. From 2006 to 2008, revenues have spiked from $8.5 million to $201.8 million (net income is a stunning $108 million). In all, there are about 1.8 million active paying accounts. Essentially, game users buy so-called virtual goods like gems, magic medicine, riding animals, hierograms, skill books, and fireworks and so on.
No doubt, Changyou.com has benefited nicely from the Sohu.com relationship, which has more than 250 million registered users. The company has also been savvy in leveraging known brands (such as popular novelists).
Of course, it's not easy to keep up the momentum. So, Changyou.com has been diligently building its pipeline of new games. As with anything in the entertainment business, there are no guarantees.
But, in the short-run, this probably doesn't concern IPO investors, who are looking for growth plays. And, Changyou.com seems to fit the bill.
The public offering is expected to hit the markets within two weeks. Moreover, you can locate the prospectus at the SEC's website.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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