This post is part of a 12 articles feature on the best bets for investing in China. To see all the other recommendations in this special report, click here.
"We're fishing in the strongest sector, China," says Timothy Lutts, who looks to NetEase.com (NASDAQ: NTES) and Shanda Interactive (NASDAQ: SNDA) in The Cabot Stock of the Month.
"NetEase and Shanda are the leaders of the Chinese Internet gaming industry. Global video game software revenues hit $26.5 billion in 2008, just a hair behind the film industry's $26.7 billion. The largest market for video games is still North America, but it's a slowing market, growing at 17% last year.
"By contrast, the Chinese market is growing at a 28% annual rate-and is expected to continue to grow at a 20%-plus rate for years to come, as more and more Chinese are able to afford computers. The Chinese gaming market totaled $2.8 billion last year.
"NetEase, founded in 1997, gets 84% of its revenues from gaming services and 14% from advertising.
"Its big winner-the most popular online game in China-is the 'Westward Journey' series, a game that still commands pay-to-play status when many game companies have been forced to switch to a free-to-play/pay-for-extras billing model.
"But the big news is that NetEase has won the Chinese license to host 'World of Warcraft'-the fourth most popular game in China in 2008-for the next three years.
"Shanda, founded in 1999, gets 83% of its revenues from serious role-playing games that demand a lot of time (like the two mentioned above) and 13% of it revenues from casual games, like chess and Go.
"Its serious titles include 'Latale,' 'Dungeons and Dragons Online,' 'Fengyun Online" and 'AION,' which just launched in April and by some reports already has more than a million users.
"Like NetEase, it has no debt. Most impressive of all from our perspective is the companies' growth. Both boast rapid growth of revenues and earnings, as well as plump pro? t margins and increased analysts' estimates for both 2009 and 2010.
"And both boast excellent charts, which have recently hit new highs. NTES is most impressive, and our technical analysis tells us the new uptrend can run a lot further. We also think SNDA is an attractive buy."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
5-08-2009 @ 5:50PM
tedamus said...
I'm very interested in the Chinese gaming stocks,it's a red hot sector and I have been involved for about 3 years in GIGM and NCTY. I also belong to a stock club and we own both stocks as well. I probably should have been trading this stock instead of holding. If anyone has this stock...what's your thoughts about the future of GIGM, and where it could be a year from now?