Shanda giving it away? (SNDA)
Shanda Interactive Entertainment has taken another clobbering today -- down another 13% as I type this note. Their online gaming competitors, Netease (NTES) are having a rough day, too, but in NTES' case it seems directly related to the changeover at the top of the company. NTES has brought the founder back in to serve as CEO, and apparently some investors don't approve.
I've written about Shanda and Netease a few times before, and while my NTES position is still in the black I bought SNDA at significantly higher prices than we're seeing right now -- my two positions were purchased at around $32 and $28, so I'm well under water with this one today.
There are two significant trends that seem to be moving Shanda down over the past few months -- fear of Chinese regulation, and fear that the Shanda pipeline won't replace the declining earnings of their headline games.
In the short term, I'd say that both of those things are certainly fears -- but of all the many gaming companies in China Shanda is arguably the closest to the government, so I'm not too worried about the government negatively impacting them in any significant way.
Much more at issue is whether Shanda's new licensed games from Actoz and the new Dungeons and Dragons MMPORPG will help to make up for the declining revelue from Mir II, the game that made Shanda but which is getting very old in the tooth. I'm certainly willing to wait to see how that plays out, especially given the other two big developments for Shanda recently.
It seems that the analysts are all quite afraid of Shanda's new strategy to be an entertainment and education platform in the Chinese home. Their new "EZ" strategy, which encompasses a set-top box and a handheld computer, both running on Intel architecture and developed by subcontractors, is designed to allow Shanda to provide fee-based entertainment, including games, music and television, and educational materials to Chinese homes. It's certainly a risky gamble -- it's going to take significant marketing to make it work, and it's going to start out as an upper class toy, given the prices the hardware suppliers are charging ... at least at first.
But if it works, this can help Shanda become much more central to the Chinese internet experience than any pure gaming company -- even if their games continue to be very successful, as we hope they will be. The "media center" PC hasn't been much of a hit in the US, but perhaps in a country with little cable TV and few home computers the computer can begin its service in the living room, instead of making the long and treacherous trek there from the den.
And on the gaming side the news today, the catalyst for sending the shares down so quickly, stands out as a very interesting experiment on which are riding the short-term revenues of the company. Shanda is taking advantage of declining competitiveness of some of its larger games to offer them for free and adopt a different business strategy. Instead of selling game playing time, which will now be given away for free, they will sell special features, special experiences, tools or toys for use in the game. This has been huge for some games -- notably the Kart Racer game in Korea -- and it might well work in China, I have no way of knowing.
But it is certainly going to make the earnings less predictable in the near future, and the company seems to think that it's very likely to reduce fourth quarter earnings.
For anyone who didn't listen to the last Shanda earnings conference call, the folks over at China Stock Blog have done a great service by putting the call and Q&A transcripts up online -- they're both worth a read. My impression of Chen Tiangtiao is still good, and I like the aggressive moves by the company to change the pricing structure even as they're moving to a much more diversified product offering and trying to take over the Chinese living room. They are clearly not motivated by the need to hit quarterly earnings numbers or achieve short-term results, but they do seem to have a solid long term plan for building a great company. Whether it will work is anyone's guess, but I'm willing to give them a long leash.
I won't be making any more buys or sells in Shanda until there is a lot more clarity in their prospects -- and that means I want to see a few quarters of this new pricing plan for their games, and the initial response to their EZ products and services. Until then, I'll hold my underwater shares and watch.
I've written about Shanda and Netease a few times before, and while my NTES position is still in the black I bought SNDA at significantly higher prices than we're seeing right now -- my two positions were purchased at around $32 and $28, so I'm well under water with this one today.
There are two significant trends that seem to be moving Shanda down over the past few months -- fear of Chinese regulation, and fear that the Shanda pipeline won't replace the declining earnings of their headline games.
In the short term, I'd say that both of those things are certainly fears -- but of all the many gaming companies in China Shanda is arguably the closest to the government, so I'm not too worried about the government negatively impacting them in any significant way.
Much more at issue is whether Shanda's new licensed games from Actoz and the new Dungeons and Dragons MMPORPG will help to make up for the declining revelue from Mir II, the game that made Shanda but which is getting very old in the tooth. I'm certainly willing to wait to see how that plays out, especially given the other two big developments for Shanda recently.
It seems that the analysts are all quite afraid of Shanda's new strategy to be an entertainment and education platform in the Chinese home. Their new "EZ" strategy, which encompasses a set-top box and a handheld computer, both running on Intel architecture and developed by subcontractors, is designed to allow Shanda to provide fee-based entertainment, including games, music and television, and educational materials to Chinese homes. It's certainly a risky gamble -- it's going to take significant marketing to make it work, and it's going to start out as an upper class toy, given the prices the hardware suppliers are charging ... at least at first.
But if it works, this can help Shanda become much more central to the Chinese internet experience than any pure gaming company -- even if their games continue to be very successful, as we hope they will be. The "media center" PC hasn't been much of a hit in the US, but perhaps in a country with little cable TV and few home computers the computer can begin its service in the living room, instead of making the long and treacherous trek there from the den.
And on the gaming side the news today, the catalyst for sending the shares down so quickly, stands out as a very interesting experiment on which are riding the short-term revenues of the company. Shanda is taking advantage of declining competitiveness of some of its larger games to offer them for free and adopt a different business strategy. Instead of selling game playing time, which will now be given away for free, they will sell special features, special experiences, tools or toys for use in the game. This has been huge for some games -- notably the Kart Racer game in Korea -- and it might well work in China, I have no way of knowing.
But it is certainly going to make the earnings less predictable in the near future, and the company seems to think that it's very likely to reduce fourth quarter earnings.
For anyone who didn't listen to the last Shanda earnings conference call, the folks over at China Stock Blog have done a great service by putting the call and Q&A transcripts up online -- they're both worth a read. My impression of Chen Tiangtiao is still good, and I like the aggressive moves by the company to change the pricing structure even as they're moving to a much more diversified product offering and trying to take over the Chinese living room. They are clearly not motivated by the need to hit quarterly earnings numbers or achieve short-term results, but they do seem to have a solid long term plan for building a great company. Whether it will work is anyone's guess, but I'm willing to give them a long leash.
I won't be making any more buys or sells in Shanda until there is a lot more clarity in their prospects -- and that means I want to see a few quarters of this new pricing plan for their games, and the initial response to their EZ products and services. Until then, I'll hold my underwater shares and watch.
Labels: SNDA
This article posted by One Guy @ 11/28/2005 11:57:00 AM 0 comments
Add to: del.icio.us *Furl *Google *Spurl *reddit *StumbleUpon *Yahoo MyWeb *
Add to: del.icio.us *Furl *Google *Spurl *reddit *StumbleUpon *Yahoo MyWeb *
