Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

The Chinese OBESSION with Video Games Offers Investment Opportunities 2010

Stock-Markets / Investing 2010 Jan 07, 2010 - 07:43 AM GMT

By: Tony_Sagami

Stock-Markets

Best Financial Markets Analysis ArticleMy sister calls them Asian nerds. She is talking about some of our single Asian male friends who spend most of their spare time playing games, like golf and video games, instead of meeting girls.

My three boys have a little bit of that nerd in them, too. They are great kids, but one of the things that we regularly butt heads over is how much time they spend playing video games. They’d play all day long if I let them.


The most enthusiastic video gamers in the world might be the Chinese, though. There are millions of young Chinese boys that love video games and play them so much that the Chinese government enacted strict rules that limited playing time.

These rules impose penalties on players who spend more than three hours a day by reducing the abilities of their characters and any players that spend more than five hours simply are forced to take a five-hour break before they can return to a game.

Video gaming got so out of hand that the Chinese government opened video game addiction clinics and while it sounds extreme to me, these clinics used electro-shock treatments to zap players out of their addiction.

Video gaming has really changed in the last few years. Instead of playing on a console, like an Xbox or Sony PlayStation, most Chinese play video games on personal computers. Chinese youths flock to internet cafes to play these games.

The reasons are twofold: (1) Most Chinese youth cannot afford the $200 to $500 cost of a gaming console and (2) a new generation of video games called massively multi-player online role-playing games, or MMORPGs.

MMORPGs? It is a mouthful of a name and something that a hopelessly out-of-touch parent like me will never play, but MMORPGs are a new genre of video games that are played over the internet instead of a game console.

Players assume fictional roles and play over the internet with a large number of players — sometimes in the thousands — within a make-believe, virtual world. It is a world in which general gamers can shed away their true identities and assume the characters of anyone or anything that they desire. Not only that, but they can assume great and wonderful powers.

Chinese boys spend so much time playing video games that the government enacted strict rules to limit play time.
Chinese boys spend so much time playing video games that the government enacted strict rules to limit play time.

Players take control of a character and guide it through certain tasks such as killing a monster to receive skill level points for successfully completing the task. In combat games, a player’s fighting ability increases when he slays opponents, finds weapons, or reaches goals.

A great aspect of playing an MMORPG is that players work together to combat difficult enemies or pool resources in order to advance the goals of the team.

This team or community aspect is reinforced from real-time chat between players. Typed messages can be displayed to other players and the other players — who may be thousands of miles away — help form friendships. These internet friendships are what make MMORPGs so popular … addictive … to players. A few companies are making a mountain of money from all those MMORPG players and you can, too, by investing in their stock. The one I like the best is Shanda Games Limited (Nasdaq:GAME).

Shanda Games operates 18 popular MMORPGs such as The World of Legend, Aion, and Company of Heroes, as well as 20 other games in development. Plus, it is China’s largest operator of MMORPGs in China with 10 million active paying customers.

Shanda Games recently went public and is my #1 pick to profit from the video gaming obsession of Chinese youths.

The Chinese OBESSION with Video Games

My boys love to play video games, but Chinese youth really LOVE their video games.

Gaming is one of the cheapest social activities available in China. Online games are a cheap form of entertainment, for the average young person in China that makes the equivalent of $100 to $120 per month. An hour’s worth of play at an internet gaming café in China costs 25 cents versus $12 for a movie.

According to researcher IBISWorld, Chinese youth spent $1.4 billion in online games in 2008. Now, that’s a lot of money and it is going to do nothing but grow larger.

I say that because gaming penetration is at only 19% among Chinese internet users, which is less than half of Korea, and that is why ROTH Capital forecasts that China’s online gaming industry will grow at a 25% annual rate over the next five years to $8.3 billion by 2013.

300 Million (and Growing) Potential Customers

According to the China Internet Network Information Center (CNNIC), the number of Chinese connected to the internet grew by 41.9% in 2008 and now stands at a staggering 300 million.

Internet gaming is one of the cheapest social activities available in China.
Internet gaming is one of the cheapest social activities available in China.

That makes China the most “wired” country in the world. China, however, has only scratched the surface of the wired world because 300 million still only represents a 22% penetration rate.

The actual growth in the number of video gamers confirms the size of the market. A study from Nikko Partners showed that the number of online gamers increased by 26% in 2008. Wow!

To put that into perspective, the United States is at 75%, so China’s rate is going to climb as incomes grow. Also, the Chinese government has recently awarded 3G or Third Generation licenses, which means more bandwidth and faster speed. That’s a heavenly combination for gamers.

All those hundreds of millions of Chinese internet users don’t mean squat unless Shanda Games can get them to become paying users. Let me tell you … Shanda is signing them up like crazy.

Shanda Is on Fire!

In the first half of this year, sales jumped by 49% to $322 million and profits soared 75% to $98 million. That’s extremely impressive, but there’s more:

arrow Revenge of the Asian Nerds  In just the last 90 days, the number of active, paying MMORPG accounts increased by 19.4%!

arrow Revenge of the Asian Nerds  Despite that rapid growth, Shanda Games has been able to maintain its sky-high profit margins. Its gross profits margin was 72.7% in Q2, compared with 72.8% in the second quarter of 2008 and 72.3% in the first quarter of 2009.

arrow Revenge of the Asian Nerds  The Chinese Online Game Industry gave Shanda Games the #1 ranking in all three of its award categories. That’s the video game equivalent of winning an Academy Award for Best Picture, Best Actor, and Best Actress all in the same year!

arrow Revenge of the Asian Nerds  Fortune magazine ranked Shanda Games as the 7th fastest growing company in the world and the 2nd fastest growing entertainment company.

Those accomplishments are impressive, but it really is a matter of being in the right business at the right time.

Buy Your Straw Hats in January

As a child, I never understood what my father meant by that slogan, but I sure understand it today because I do love finding stock market bargains and Shanda Games sure qualifies.

Founded in 2001 as a division of Shanda Interactive (sort of a Yahoo-type internet portal), Shanda Games just went public in September at $12.50 a share. Investors were so enthusiastic about Shanda Games that the company increased the size of the IPO from 63 million to 83 million shares.

On the first day of trading, however, Shanda Games dropped by 14%; hardly a successful IPO.

What happened? There isn’t a simple answer, but it does create a fantastic opportunity for you.

Buy the Parent, Not the Child

I’m going to throw you a curveball here because the best way to invest in Shanda Games is not by buying its stock. The best way is to invest in Shanda Interactive (Nasdaq:SNDA), the parent company of Shanda Games. Here’s why:

1. Even after selling 83 million shares and raising $1 billion, parent company Shanda Interactive still owns 71% of the outstanding stock. What that means is whatever profits Shanda Games makes, the parent company is going to get to keep most of it.

2. It is always a positive when so much stock is in “strong hands” that will hold on to the shares for years … if not decades. Unlike a lot of IPOs, you won’t have to worry about a zillion shares hitting the open market after the “lock-up” period expires.

3. After spinning off Shanda Games, Shanda Interactive added $1 BILLION of cash to the $778 million of cash it already had in the bank. We’re talking about almost $1.8 billion dollars of cold, hard cash.

4. At the current market price, I calculate that the market value of Shanda Interactive’s 71% of GAME is at least $2 billion. That $2 billion of GAME plus $1.8 billion of cash means that you are buying $1 worth of assets for only 85 cents. I’ll take that deal all day long.

5. Not only are you paying 85 cents on the dollar for a fantastic gaming business, you are essentially getting Shanda Interactive for FREE! Let me tell you, Shanda Interactive is a pretty darn good business by itself.

As I mentioned, Shanda Interactive is a Yahoo-type portal in China. Internet users use the Shanda portal to access online chess and board games, several sports games, and a wide variety of cartoons, literature, news, music, community chat, and even online bill paying.

To be fair, I must disclose that my Asia Stock Alert subscribers already own Shanda Interactive and are sitting on a BIG open gain. I am confident, however, that it is headed even higher but like always, there are no guarantees when it comes to investing in the stock market.

Lastly, I’m not suggesting that you rush out and invest today. As I just said, Shanda Interactive has moved sharply higher so you should wait for a correction.

Best wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules