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Shanda Games Limited (GAME) Message Board

  • lawstuff22 lawstuff22 Sep 3, 2013 8:25 AM Flag

    Nomora comments on GAME

    Nomura analysts Jin Yoon and Yong Wang have a different take. But first, takeaways from the earnings call:

    G-Home [the game app store] aims to provide high-quality games to high-end users, where only the top 1% of mobile games selected from the market will be published, leveraging Shanda Games’ rich experience in selecting and running MMO games.

    We continue to be positive on Shanda Games’ mobile strategy in light of the rollout of GHome platform, following the acquisitions of Shenzhan and Shenjing, the operating and distribution businesses from parent company.

    Citi analysts do not like the idea of G-Home because Shanda is a much smaller company. It has to compete with much bigger Internet companies such as Baidu (BIDU), Tencent (HK:700) and Qihoo (QIHU) and won’t be able to scale up.

    I can see the company’s argument, too. If they are only catering to the high-end consumers, user mass is not all that relevant.

    Having a in-house game app store also means Shanda does not have to split revenue with app store providers and can have decent margins on its mobile games too, when its core massively multi-player online (MMO) games revenue is starting to turn soft. MMO game revenue was $158.9 million last quarter, a 8.9% decline from a year earlier. Shanda made $16.5 million from mobile games. Gross margin in the second quarter was 65%.

    Here is Nomura again:

    Management noted that mobile games on G-Home without third party cooperation has similar margin profile as licensed MMOs, while games the company needs to sharing revenue with both developer and platforms could have much lower margins, which, however, would account for only a minority of its revenue pool. Hence, we believe the potential margin impact from G-Home could be limited.

    Nomura has a Buy on Shanda, with $6 target price.

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