Shanda Interactive (SNDA), an electronic media company based in China that distributes online games and other content, reported Q3 earnings on Tuesday after the bell. According to our earnings preview, analysts were expecting 88 cents per American Depositary Share (ADS). On a reported basis, 90 cents per ADS was recorded. On an adjusted basis, the business achieved $1.08 per ADS.
Shanda not only did well in terms of an earnings beat, but it grew the top line quite admirably. Gross margin, unfortunately, saw a dip on both a year-over-year and a sequential basis.
This is an impressive company with interesting long-term potential. Shanda is pretty good about beating the consensus forecast. Its valuation isn't too bad right now, and the stock has done well over many time periods. It compares very favorably with colleagues Activision Blizzard (ATVI) and Electronic Arts (ERTS).
I'm not sure if the price action in Shanda's shares will be as exciting as they were in the past, but I have a feeling the trend will remain positive for some time to come. Plus, the recent IPO of Shanda Games (GAME) has given management a bunch of cash to play with. As Reuters points out, there could be acquisitions in the offing. A few smart purchases could enhance shareholder value.
There is risk here, but for those investors looking to own a foreign stock, Shanda is worth a round of due diligence. Online gaming is a thesis that should continue to be viable. Look to get the shares lower from where they closed on Tuesday if you do decide to invest in the company. I would not necessarily trade this one.
Disclosure: I own Activision Blizzard; positions can change without notice.
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