Even if earnings don't grow but simply remain flat, one year from now GAME will have paid off the $200 million debt for the acquisition and will be cash positive around $60 million, with a PE ratio of around $4.
As for GAME being "too small a player" to market apps on it's own mobile platform- that's simply not true. Shanda Interactive also owns the extremely popular and fast growing video sharing portal KU6- currently ranked #20 in China, and KU6 has been directing tons of traffic to GAME. So, like Netease and Tencent, GAME now has a major portal tethered to their site.
You cannot analyze GAME without also looking at KU6, as the two are intertwined in Shanda Interactive's overall strategy and vision.
As for Million Arthur being a one trick pony, Shanda has 36 more mobile games in the pipeline, all of which have been tested for popularity, and there's no doubt that a year from now they'll have hundreds of these games in their pipeline. Gaming analysts in China predict that many of the mobile gaming companies will fold by the end of the year, and the competition will be left to Tencent, Shanda, Perfect World and a few other big players, so there's no doubt that Shanda is large enough to see this transition through. No, obviously I'd never replace one of my blue chips with GAME as a core holding, but this company has enormous potential if you simply look ahead one to five years.
at this current pace ku6 losses has been mounting without really any indications of when it may go cash positive. knowing chen tianqiao, he might use game to buyout ku6 at a much higher price so his pocket book can get fatter. this might again put game in a bad situation financially. not saying game is bad long term, but you really got to figure out what is chen's motives. i think he's there to maximize his own personal wealth using company's money.
Yes, KU6 continues to lose money, but over the past six months KU6 has moved from near obscurity to #83 on the planet, and #20 in China, as traffic has risen 400%- according to Alexa and Statscrop. And yet, KU6 has a market cap of around $70 million, compared to Youku, with a market cap of $4 billion- and the traffic is about even.
Okay, so Tianqiao Chen wants to fatten his pocketbook. As he owns the majority of both KUTV and GAME, wouldn't it be in his best interests to do everything in his power to increase the stock prices of these companies? Given that KUTV is trading for 2% of Youku, there is a potential 5000% upside if KU6 is able to adequately monetize traffic and eventually turn a profit. This would triple Chen's wealth.
Chen took a risk and turned Shanda Interactive from nothing into a multi billion dollar company before spinning off the gaming unit. With so much exponential change and money to be made in this mobile surge, it makes sense that Chen would be far more interested in building his empire than robbing his own companies of a few hundred million dollars when he's already worth $1.5 billion and could potentially be the wealthiest and one of the most influential men in China if he plays his cards right.