Sell #2 -- Shanda Interactive (SNDA)
This sale is a little bittersweet. I really had high hopes for Shanda (SNDA). I sold off some of my holdings in this Chinese Internet and gaming company about two months ago, but held on to a portion in hopes that the company would be able to right the ship.
It may still happen, and there hasn't been any big news since then, but I've lost confidence in management's ability and, more importantly, in their new business plan.
So I sold the balance of my Shanda holdings today at $13.27 -- not too far a cry from the price I got back in March, but certainly well below the purchases I made at roughly $28 and $32 over the past year or so to build this position.
Shanda is now banking not just on a few new games over the coming year or two -- and new games that will enter an incredibly competitive environment, it's much harder to sell games now than it was just two years ago when Shanda was the dominant player -- but on their new EZ hardware/software solution that will essentially bring an entertainment version of the internet to people's homes and hands.
And regardless of whether their new games, like Dungeons and Dragons, capture a big audience, I see management focusing largely on the EZ stuff and I no longer believe this is going to work.
EZ looks to me like a combination of an inferior console/handheld gaming system with a way to deliver a dumbed down, supposedly easier to use, version of the internet -- they'll have something like Napster or Itunes for music, something for video on demand and/or internet television, something for educational materials.
But really, the internet can provide all of those things, in an increasingly user-friendly way, without intermediaries. In someways, EZ seems like the America Online of 1995 ... and my guess is that China, with their tremendous growth of internet usage, will skip the "intermediated internet" that the US latched on to for several years in AOL and just go straight to the real thing, using home grown products and tools like Netease's games and email, Baidu's search, and some of the various IM systems being pushed in the middle kingdom. I don't think EZPod, EZStation, EZCenter or whatever else they're now calling this confusing mishmash of products will find much of a market.
I don't think that a set-top box a'la webtv, or a handheld PSP clone, or special computer software a'la AOL, will be needed to encourage Chinese users to go online or use the new generation of interactive media ... it's possible that they might succeed, especially if they dramatically cut prices (right now all the EZ stuff I've seen is only going to be affordable for China's truly wealthy families -- who can probably just as easily afford a Lenovo computer and figure out how to use it just fine) ... but I don't think this is going to be a growth industry in the long term. Shanda is only creating the online platform and the content for these devices, they're licensing the design to hardware manufacturers like HP ... and I'm imagining that these hardware companies will drop it like a hot potato if it sells as tepidly as initial reports indicate may be the case.
Shanda's CEO Shen Tiangtiao has basically implied that any critics of Shanda's business model don't understand the Chinese market -- that may be true, I certainly don't understand Chinese consumers very well ... but I think they're going to get up to speed on computer technology much faster than US consumers did in the 1990s, if only because the WWW and associated products that are now available to them are much more sophisticated than we saw ten or fifteen years ago, when many of us thought that AOL's content WAS the Internet.
I still hold Netease, and I think their gaming focus is continuing to work well and, as importantly, they still have a focus on maintaining web traffic on their sites and building audiences for their games, and introducing new games from a solid pipeline. That doesn't seem to be the case for Shanda anymore.
I wrote a few months ago,when I sold a portion of my Shanda shares, that I thought they might still make it work. That's still possible, but I'm no longer a believer. It may be that I'm selling at the bottom, that we're in a bout of pessimism over SNDA that will be overcome with spectacular success from their new games or from the EZ business ... but I'm not wiling to bet on that.
It may still happen, and there hasn't been any big news since then, but I've lost confidence in management's ability and, more importantly, in their new business plan.
So I sold the balance of my Shanda holdings today at $13.27 -- not too far a cry from the price I got back in March, but certainly well below the purchases I made at roughly $28 and $32 over the past year or so to build this position.
Shanda is now banking not just on a few new games over the coming year or two -- and new games that will enter an incredibly competitive environment, it's much harder to sell games now than it was just two years ago when Shanda was the dominant player -- but on their new EZ hardware/software solution that will essentially bring an entertainment version of the internet to people's homes and hands.
And regardless of whether their new games, like Dungeons and Dragons, capture a big audience, I see management focusing largely on the EZ stuff and I no longer believe this is going to work.
EZ looks to me like a combination of an inferior console/handheld gaming system with a way to deliver a dumbed down, supposedly easier to use, version of the internet -- they'll have something like Napster or Itunes for music, something for video on demand and/or internet television, something for educational materials.
But really, the internet can provide all of those things, in an increasingly user-friendly way, without intermediaries. In someways, EZ seems like the America Online of 1995 ... and my guess is that China, with their tremendous growth of internet usage, will skip the "intermediated internet" that the US latched on to for several years in AOL and just go straight to the real thing, using home grown products and tools like Netease's games and email, Baidu's search, and some of the various IM systems being pushed in the middle kingdom. I don't think EZPod, EZStation, EZCenter or whatever else they're now calling this confusing mishmash of products will find much of a market.
I don't think that a set-top box a'la webtv, or a handheld PSP clone, or special computer software a'la AOL, will be needed to encourage Chinese users to go online or use the new generation of interactive media ... it's possible that they might succeed, especially if they dramatically cut prices (right now all the EZ stuff I've seen is only going to be affordable for China's truly wealthy families -- who can probably just as easily afford a Lenovo computer and figure out how to use it just fine) ... but I don't think this is going to be a growth industry in the long term. Shanda is only creating the online platform and the content for these devices, they're licensing the design to hardware manufacturers like HP ... and I'm imagining that these hardware companies will drop it like a hot potato if it sells as tepidly as initial reports indicate may be the case.
Shanda's CEO Shen Tiangtiao has basically implied that any critics of Shanda's business model don't understand the Chinese market -- that may be true, I certainly don't understand Chinese consumers very well ... but I think they're going to get up to speed on computer technology much faster than US consumers did in the 1990s, if only because the WWW and associated products that are now available to them are much more sophisticated than we saw ten or fifteen years ago, when many of us thought that AOL's content WAS the Internet.
I still hold Netease, and I think their gaming focus is continuing to work well and, as importantly, they still have a focus on maintaining web traffic on their sites and building audiences for their games, and introducing new games from a solid pipeline. That doesn't seem to be the case for Shanda anymore.
I wrote a few months ago,when I sold a portion of my Shanda shares, that I thought they might still make it work. That's still possible, but I'm no longer a believer. It may be that I'm selling at the bottom, that we're in a bout of pessimism over SNDA that will be overcome with spectacular success from their new games or from the EZ business ... but I'm not wiling to bet on that.
This article posted by One Guy @ 5/12/2006 11:25:00 AM 0 comments
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