|
|
 | | | |
- close
- close
- close
- close
Shanda Interactive Entertainment (SNDA) |
| Revision as of 17:02, April 19, 2008 (edit) Jennayy - Sr. Associate (Talk | contribs) ← Previous diff |
Revision as of 10:36, May 21, 2008 (edit) (undo) Ajhsieh - Sr. Director (Talk | contribs) Next diff → |
||
| Line 1: | Line 1: | ||
| - | 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. | ||
| - | 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. | + | Shanda Interactive is a diversified online-gaming operating catering to Mainland [[China]] . It operates both popular and sophisticated MMORPGs (massive multiplayer online role play games) such as the titles ''Archlord'', ''Woool'' and ''Mir 2'', as well as casual games such as ''Maple Story'' and online chess that require less user-time to play and are typically less sophisticated. These games typically appeal to different markets and the diversification allows for maximum revenue generation. Shanda is also involved in associated business, licensing software to manage internet cafes in China, as well as promoting its new “EZ” platform, a home-entertainment set-top box that delivers entertainment content to to end users without a required subscription. |
| - | 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. | + | MMORPGs make up Shanda’s largest reporting segment, with _% of revenues in FY 2007. However, these sales are largely earned from two MMORPG titles, ''Woool'' and ''Mir 2'', which were released in 2001 and 2003, respectively(CITE). These two titles are nearing their end-of-life and as such the company has begun licensing new games from foreign companies in efforts to find a new blockbuster hit, in addition to its other operations (casual gaming, associated gaming sales, as well as the EZ initiative). |
| + | In 2007, Shanda was the #1 market player in the Chinese Online-gaming market by revenues, despite its transition to a new business model, competing against [[The9 (NCTY)]], [[Netease.com (NTES)]], and other gaming operators that monopolize the time and money of many Chinese youths. The company chose to move from a pay-to-play model based on play time, to a new free-to-play model where revenue is earned from micro-transactions made in the game, where gamers pay for premium content. This move was largely made due to the end-of-life of their main titles. This move initially dented revenue growth and margins in 2006, (numbers) but the margin structure has improved in 2007 as the new-business structure matured and gamers ecame comfortable with it. It remains to be seen how the end-of-life and new structure, as well as the development of new businesses, will play out in Shanda’s future, but the markets expectations China’s #1 player are very high | ||
| - | 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. | + | ==Business Description== |
| - | {{clr}} | + | *'''MMORPG''' – The MMO RPG segment caters to “hardcore” Chinese gaming youth, with immersive typically require and command a significant amount of time from Chinese youths. Due to the new free-to-play model, revenue earned as based on paying subscribers who buy content, as well as the average revenue earned per subscriber. 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''' – 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 wella s earnings earned from internet-revenues. | ||
| + | *'''Other '''– 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, with advertising and the internet café software each earnings about 80MM rmb in 2006, and EZ earnings about 20MM rmb in revenues. EZ’s sales come from bundling with computer manufacturers , and sis thus dependent on Shanda’s agreement with computer manufacturers. While it has a number on board, Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such an agreement would likely dramatically imrove sales figures for this new business. | ||
| - | <autowikidata/> | + | |
| + | Fore more information about the split between licensed/unlicensed, see the 20-F | ||
| + | ==Financial Analysis== | ||
| + | Margin structure changes due to business model | ||
| + | ==Trends/Forces== | ||
| + | ====Primary two MMORPGs are games nearing end of life (2001 and 2003), and new businesses largely licensed from foreigners and unproven==== | ||
| + | ====Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularities==== | ||
| + | ====Government intervention on online-gaming and [[China's Internet Growth|internet]] a risk to revenue growth ==== | ||
| + | ====EZ-Play new business big potential for revenue growth==== | ||
| + | ====Shanda exposed to currency fluctuations as it has overvalued operations earned in RMB for a USD denominated shares==== | ||
| + | |||
| + | |||
| + | ==Competition== | ||
| + | Primary competitors are Chinese operators of online-games. Although there is some competition from Foreigners, 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)]] | ||
| + | *'''[[Netease.com (NTES)]] | ||
| + | *'''[[The9 (NCTY)]] | ||
| + | |||
| ==References== | ==References== | ||
Revision as of 10:36, May 21, 2008
Shanda Interactive is a diversified online-gaming operating catering to Mainland China . It operates both popular and sophisticated MMORPGs (massive multiplayer online role play games) such as the titles Archlord, Woool and Mir 2, as well as casual games such as Maple Story and online chess that require less user-time to play and are typically less sophisticated. These games typically appeal to different markets and the diversification allows for maximum revenue generation. Shanda is also involved in associated business, licensing software to manage internet cafes in China, as well as promoting its new “EZ” platform, a home-entertainment set-top box that delivers entertainment content to to end users without a required subscription.
MMORPGs make up Shanda’s largest reporting segment, with _% of revenues in FY 2007. However, these sales are largely earned from two MMORPG titles, Woool and Mir 2, which were released in 2001 and 2003, respectively(CITE). These two titles are nearing their end-of-life and as such the company has begun licensing new games from foreign companies in efforts to find a new blockbuster hit, in addition to its other operations (casual gaming, associated gaming sales, as well as the EZ initiative). In 2007, Shanda was the #1 market player in the Chinese Online-gaming market by revenues, despite its transition to a new business model, competing against The9 (NCTY), Netease.com (NTES), and other gaming operators that monopolize the time and money of many Chinese youths. The company chose to move from a pay-to-play model based on play time, to a new free-to-play model where revenue is earned from micro-transactions made in the game, where gamers pay for premium content. This move was largely made due to the end-of-life of their main titles. This move initially dented revenue growth and margins in 2006, (numbers) but the margin structure has improved in 2007 as the new-business structure matured and gamers ecame comfortable with it. It remains to be seen how the end-of-life and new structure, as well as the development of new businesses, will play out in Shanda’s future, but the markets expectations China’s #1 player are very high
Business Description
- MMORPG – The MMO RPG segment caters to “hardcore” Chinese gaming youth, with immersive typically require and command a significant amount of time from Chinese youths. Due to the new free-to-play model, revenue earned as based on paying subscribers who buy content, as well as the average revenue earned per subscriber. 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 – 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 wella s earnings earned from internet-revenues.
- Other – 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, with advertising and the internet café software each earnings about 80MM rmb in 2006, and EZ earnings about 20MM rmb in revenues. EZ’s sales come from bundling with computer manufacturers , and sis thus dependent on Shanda’s agreement with computer manufacturers. While it has a number on board, Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such an agreement would likely dramatically imrove sales figures for this new business.
Fore more information about the split between licensed/unlicensed, see the 20-F
Financial Analysis
Margin structure changes due to business model
Trends/Forces
Primary two MMORPGs are games nearing end of life (2001 and 2003), and new businesses largely licensed from foreigners and unproven
Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularities
Government intervention on online-gaming and internet a risk to revenue growth
EZ-Play new business big potential for revenue growth
Shanda exposed to currency fluctuations as it has overvalued operations earned in RMB for a USD denominated shares
Competition
Primary competitors are Chinese operators of online-games. Although there is some competition from Foreigners, 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:
References
| |||||||
