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Shanda Interactive Entertainment (SNDA) |
| Revision as of 17:02, April 19, 2008 (edit) Jennayy - Sr. Associate (Talk | contribs) ← Previous diff |
Current revision (15:39, June 22, 2010) (edit) (undo) ANielsen - Sr. Director (Talk | contribs) |
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| - | Shanda Interactive Entertainment Limited (Shanda), founded in Shanghai in 1999, is a leading online gaming company in China. Shanda offers a portfolio of diversified entertainment content including some of the most popular massively multi-player online role-playing games (MMORPGs) and casual online games in China, as well as online chess and board games, network PC games and a variety of cartoons, literature works and music. Shanda's interactive entertainment platform attracts a large and loyal user base, of which more and more is coming from homes. | + | {{hide_logo|path=[[image: SNDA.gif |left]]}}'''Shanda Interactive''' is an online [[Video Game Industry|video-gaming]] company catering to Mainland [[China]] . It sells MMORPGs ('''M'''assive '''M'''ultiplayer '''O'''nline '''R'''ole '''P'''laying '''G'''ames) such as the titles ''Archlord'', ''Woool'' and ''Mir 2''<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 4]</ref> which tend to sell to hardcore gamers, as well as casual games such as ''Maple Story'' and online chess that appeal to a much broader audience.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Operating Results" pg. 45]</ref>. Shanda also licenses management software to internet cafes in China and is promoting its new “EZ” platform, a home-entertainment set-top box that delivers games and movies without a required subscription.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 6-7]</ref> |
| - | Shanda has traditionally made its money mainly from subscription fees that gamers pay in order to access its popular massive multiplayer games, which, combined with its casual games, have attracted as many as 3.08 million active paying users at the end of September 2007. For its games, which reached their mature stages of the lifecycles, Shanda uses item-based revenue model to attract game players. Item-based revenue means that Shanda would no longer charge for access to the games, but rather would generate fee income from providing in-game services to players. This item-based revenue model has been very successful to extend the lifecycles of its games and increase the revenues. | + | ==Business Overview== |
| - | In 2005, Shanda made one significant move to grow its business through aiming to become a leader in interactive entertainment in China, offering movies, music, games, and other services. It created a series of software products to that end, partnering with [[Vivendi Universal]] [V], [[Apple]] [AAPL], and [[Intel]] [INTC], among others. Shanda hoped to charge users monthly subscription fees to access services provided on its platform. Eventually, Shanda gave up this strategy because such markets didn't exist at that time in China. Although this unsuccessful move almost killed Shanda, the management team managed to recover its profitability. | + | ===Business & Financial Metrics<ref name=10K-F3>{{cite 10k|ticker=SNDA|form=20-F|year=2009|link=http://www.wikinvest.com/stock/Shanda_Interactive_Entertainment_(SNDA)/Filing/20-F/2010/F62488821|pg=F-3}}</ref>=== |
| - | Shanda s revenue and earnings for the third quarter showed strong growth, which exceeded market expectations. We think Shanda s results demonstrate the strengths of its item-based revenue model and its comprehensive operating platform despite the fierce competition in the Chinese online gaming market. However, we are concerned how long the company can maintain this growth momentum without new hit games in this competitive market. Therefore, we are initiating coverage on Shanda with a Hold rating. | + | In 2009, Shanda generated a net income of $233.3 million on revenues of $767.8 million. This represents the first year the company reported its earnings in US dollars. |
| - | {{clr}} | + | ===Business Segments<ref name=10K-69>{{cite 10k|ticker=SNDA|form=20-F|year=2009|link=http://www.wikinvest.com/stock/Shanda_Interactive_Entertainment_(SNDA)/Filing/20-F/2010/F62488821|pg=69}}</ref>=== |
| - | <autowikidata/> | + | The company generates revenue in three primary reporting segments. |
| + | |||
| + | *'''MMORPG (86.8% of total revenue:)''' The MMORPG segment caters to “hardcore” Chinese gaming youth, with an immersive game experience that typically requires and commands a significant amount of time from Chinese youths. "Younger" games typically have lower revenue per subscriber since users have not been in the game world that long and don't have as much reason to spend money. The company can earn more revenues by compelling customers to spend more time in the game, thus motivating them to consider making purchases and improving their characters in game. This improves the performance of both metrics at the same time. This business is exposed to the age of the primary two titles, and is seeking a new replacement blockbuster title. | ||
| + | |||
| + | *'''Casual Gaming (12.1% of total revenue):''' Casual games require less user-game time and typically can be played to conclusion within a shorter period of time in one session. These simpler games appeal to a larger demographic than the MMORPGs and thus diversify the company’s earnings. These games also use the free-to-play model, as well as earnings earned from internet-revenues. | ||
| + | |||
| + | *'''Other (1.1% of total revenue):''' The company sells software associated with running internet cafes, and also is attempting to launch its “EZ” series of home-entertainment devices. However, revenues any one of these minors business are not significant. EZ’s sales come from bundling with computer manufacturers, and is thus dependent on Shanda’s agreements with computer manufacturers. While it has a number on board<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm Shanda Interactive FY 2007 20-F "Our EZ Initiative" pg. 33]</ref>, Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such a type of agreement would likely dramatically improve sales figures for this new business. | ||
| + | |||
| + | [[IMAGE:SNDA-Segments2009.jpg]] | ||
| + | |||
| + | ==Trends/Forces== | ||
| + | ====Primary two MMORPGs are games nearing end of life, and new businesses are largely licensed from foreigners and unproven==== | ||
| + | |||
| + | ''Woool'' and ''Mir 2'' are both very old titles, running on older graphics and slowly losing parts of their user base. Gamers are turning to other alternatives, such as ''World of Warcraft'', operated in [[China]] by [[The9 (NCTY)]], that use more sophisticated 3-D graphics running on newer computers in Chinese internet cafes. It is necessary, but difficult, for the company to find a new "hit" title, and this will be dependent on a number of soft factors that accumulate into end-user appeal. | ||
| + | |||
| + | ====Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularity==== | ||
| + | The free-to-play model works in the case of ''Woool'' and ''Mir 2'' because they were old games with large user bases. Since gamers had already spent a large amount of time in the game, they were "invested" in their characters and thus more willing to pay for premium content. The free-to-play model requires these "hard-core" users in order to pay for the operation of servers and to subsidize for the users who are not willing to put additional money into their characters. Acquiring these paying subscribers is dependent on each individual game's popularity, as gamers are less likely to invest in an online-gaming character without other people to socialize with and compete against online. Therefore an unpopular game will not ever recoup its initial capital outlays in the free-to-play model. | ||
| + | |||
| + | ==Competition== | ||
| + | Primary competitors are Chinese operators of online-games. Although there is some competition from foreign companies, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are: | ||
| + | |||
| + | *'''[[Perfect World (PWRD)]]''' - Another developer and operator of online games in Mainland China, using its own technologies. Its main product is self-titled Perfect World. | ||
| + | *'''[[Netease.com (NTES)]]''' - the second largest company. However, concerns in 2008 surrounding the company indicate that its development pipeline is weak. | ||
| + | *'''[[The9 (NCTY)]]''' - The9 operates ''World of Warcraft'' in China on behalf of [[Vivendi (EPA: VIV)|Vivendi Games]]. ''World of Warcraft'' is the world's most single popular MMORPG title.<ref>[http://gigaom.com/2007/06/10/is-wow-the-most-popular-mmo/ GigaOm "Is WoW the Most Popular MMO" June 10, 2007]</ref> | ||
| ==References== | ==References== | ||
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| [[category:Technology]] | [[category:Technology]] | ||
| [[category:Internet Software & Services*]] | [[category:Internet Software & Services*]] | ||
| + | [[category:China]] | ||
| + | [[category:Video Games]] | ||
| + | [[Category:Mature]] | ||
Current revision
Shanda Interactive is an online video-gaming company catering to Mainland China . It sells MMORPGs (Massive Multiplayer Online Role Playing Games) such as the titles Archlord, Woool and Mir 2[1] which tend to sell to hardcore gamers, as well as casual games such as Maple Story and online chess that appeal to a much broader audience.[2]. Shanda also licenses management software to internet cafes in China and is promoting its new “EZ” platform, a home-entertainment set-top box that delivers games and movies without a required subscription.[3]
Business Overview
Business & Financial Metrics[4]
In 2009, Shanda generated a net income of $233.3 million on revenues of $767.8 million. This represents the first year the company reported its earnings in US dollars.
Business Segments[5]
The company generates revenue in three primary reporting segments.
- MMORPG (86.8% of total revenue:) The MMORPG segment caters to “hardcore” Chinese gaming youth, with an immersive game experience that typically requires and commands a significant amount of time from Chinese youths. "Younger" games typically have lower revenue per subscriber since users have not been in the game world that long and don't have as much reason to spend money. The company can earn more revenues by compelling customers to spend more time in the game, thus motivating them to consider making purchases and improving their characters in game. This improves the performance of both metrics at the same time. This business is exposed to the age of the primary two titles, and is seeking a new replacement blockbuster title.
- Casual Gaming (12.1% of total revenue): Casual games require less user-game time and typically can be played to conclusion within a shorter period of time in one session. These simpler games appeal to a larger demographic than the MMORPGs and thus diversify the company’s earnings. These games also use the free-to-play model, as well as earnings earned from internet-revenues.
- Other (1.1% of total revenue): The company sells software associated with running internet cafes, and also is attempting to launch its “EZ” series of home-entertainment devices. However, revenues any one of these minors business are not significant. EZ’s sales come from bundling with computer manufacturers, and is thus dependent on Shanda’s agreements with computer manufacturers. While it has a number on board[6], Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such a type of agreement would likely dramatically improve sales figures for this new business.
Trends/Forces
Primary two MMORPGs are games nearing end of life, and new businesses are largely licensed from foreigners and unproven
Woool and Mir 2 are both very old titles, running on older graphics and slowly losing parts of their user base. Gamers are turning to other alternatives, such as World of Warcraft, operated in China by The9 (NCTY), that use more sophisticated 3-D graphics running on newer computers in Chinese internet cafes. It is necessary, but difficult, for the company to find a new "hit" title, and this will be dependent on a number of soft factors that accumulate into end-user appeal.
Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularity
The free-to-play model works in the case of Woool and Mir 2 because they were old games with large user bases. Since gamers had already spent a large amount of time in the game, they were "invested" in their characters and thus more willing to pay for premium content. The free-to-play model requires these "hard-core" users in order to pay for the operation of servers and to subsidize for the users who are not willing to put additional money into their characters. Acquiring these paying subscribers is dependent on each individual game's popularity, as gamers are less likely to invest in an online-gaming character without other people to socialize with and compete against online. Therefore an unpopular game will not ever recoup its initial capital outlays in the free-to-play model.
Competition
Primary competitors are Chinese operators of online-games. Although there is some competition from foreign companies, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are:
- Perfect World (PWRD) - Another developer and operator of online games in Mainland China, using its own technologies. Its main product is self-titled Perfect World.
- Netease.com (NTES) - the second largest company. However, concerns in 2008 surrounding the company indicate that its development pipeline is weak.
- The9 (NCTY) - The9 operates World of Warcraft in China on behalf of Vivendi Games. World of Warcraft is the world's most single popular MMORPG title.[7]
References
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