Shanda Interactive Entertainment Ltd. (...

Shanda Interactive Entertainment is tapping into China's emerging middle class with online games and entertainment. The company has surprised on estimates 4 consecutive quarters by an average of 13.45%. Shanda trades at only 9.7x projected earnings.

Company Description

Shanda Interactive Entertainment Limited (SNDA) is a Chinese-based media company that offers a variety of entertainment such as online role playing games (Massively Multiplayer Online Role-Playing Games, or MMORPGs), casual games, chess and board games, network PC games, cartoons, literature, and music.

Users can interact with each other using the company's platform which offers 24/7 customer service and technical support.

As of Mar 31, Shanda had over 700 million registered accounts.

Second Quarter Revenues Jump 48.4%

On Sep 2, Shanda reported second quarter earnings that beat Wall Street estimates by 12%, or 6 cents per share. Net income was $40.8 million, or 56 cents per share compared to analysts' expectations

...

Dolby Laboratories (DLB), based in San Francisco, is a recognized innovator in audio entertainment. The company was founded in London, England by Ray Dolby in 1965 after Dolby received his Ph.D. in physics from Cambridge University. Though Dolby Laboratories was a U.S. corporation at the time of its inception (Dolby started his career in high school as a part-time employee for Ampex Corporation in Redwood City, California), the company moved its headquarters to San Francisco in 1976.

Dolby, at the Austin Game Developer’s Conference, recently announced the availability of software development kits for Dolby® Axon, a voice communication platform designed to deliver a 3-D voice experience in online games and virtual worlds that is clearer, more realistic, and more immersing.

Axon includes such features as 3-D voice complete with surround panning and distance attenuation; an occlusion engine that dynamically responds to game geometry, enabling gamers to experience voice

...

The9 is tapping China's gaming obsession for big profits. The company grew revenues 69% in the second quarter. It has surprised on earnings 3 out of the last 4 quarters by an average of 33.60%. The9 has a forward P/E of only 8.93.

Company Description

The9 Limited (NCTY) develops online games for the Chinese market. The company's current game line-up consists of MU, Blizzard Entertainment's World of Warcraft, Soul of The Ultimate Nation, Granado Espada, and Joyful Journey West.

The9, headquartered in Shanghai, also has exclusive licenses to operate games in Mainland China including Hellgate:London, Emil Chronicle Online, Field of Honor and Atlantica.

Net Income Rises 129% in a Record Second Quarter

On Aug 8, The9 reported second quarter earnings and easily surprised on estimates by 27.08%, or 13 cents. Net income jumped 129% to $16.9 million from $7.4 million in the second quarter of 2007. Net income

...

NetEase.com, Inc. (NTES) is one of the leading providers of online gaming, advertising, web-based communication services, and a variety of interactive content in China.

NetEase is currently trading at 16.8x estimated 2008 EPADR of $1.56, a discount to the industry. Rolling our valuation to fiscal 2009 EPADR estimate of $1.74, the company is trading at 15.1x, which is far below the industry average. NetEase faces intense competition in the gaming and advertising market. Delayed product launches and growing operating expenses have hurt profitability.

NetEase appears to have turned the corner, posting better-than-expected revenue and earnings results in the first half of 2008. The company’s solid execution in its online games and advertising business has helped NTES grow its top and bottom line. We believe that China's online gaming and advertising industry is in the midst of unparalleled growth and NetEase is well positioned to benefit from this trend.

Although

...

CDC Corp.’s (CHINA) loss for the second quarter of 2008 was $0.10 per share. However, its adjusted EPS again exceeded market expectations. We still think CDC is well positioned to leverage the growth opportunities in the small-to-medium business enterprise software market and China’s online game market.

In addition, its stock is trading under book value and the company will continue to repurchase its shares. Overall, we don’t think its current stock price fully reflects the company’s intrinsic value. Therefore, we are maintaining our Buy rating on CDC shares.

With a differentiated combination of online games, mobile applications, and Internet portals and media services, CDC's New Media Business is positioned to take advantage of the burgeoning demand for online services and entertainment in the China market.

China has 253 million internet users as of June 30, 2008. The internet users are expected to increase at 15% annually in the next three years.

...

NetEase.com’s (NTES) revenue and earnings for the second quarter exceeded market expectations due to strong growth from its online games and advertising business and business tax refund.

We think NetEase’s results demonstrate that it has the ability and experience to expand the life cycle of its online games despite the fierce competition in the Chinese online gaming market. However, we are concerned that NetEase’s current games have gotten long in the tooth, and new games may not be as successful as its current popular games. We need more time to confirm whether its growth momentum in the fourth quarter is sustainable in the future. Therefore, we are maintaining our Hold rating on NetEase.

The factors in the company’s favor are online gaming and advertising revenues. The potential opportunity for online usage in China is huge, with 253 million internet users. This means only 19% of its 1.3 billion citizens use

...

Joytoto USA Inc. (JYTO.OB) has announced that it plans to distribute the popular Korean online game, “Gersang”, on its U.S. site. The game will be marketed as “The Great Merchant” on the U.S. website. Work continues on the English translation, which should be completed and available for closed beta service during the fourth quarter of 2008.

Joytoto selected “The Great Merchant” for U.S. release due to its popularity in the Korean online gaming market. This game is one of the most successful Massively Multi-Player Online Role Playing Games (MMORPG) that Joytoto has released to the Korean market. Daum, which is South Korea’s second-largest web portal and search engine, rated the Korean release of the game as the fourth most popular online game played in Korea. The game has also received a variety of awards, including the Korean Entertainment Grand Prize.

Online gaming is one of Joytoto’s business segments. Joytoto

...

This week, Joytoto USA, Inc. announced the launch of its first online game to be available for download in the US, “Pang Pang Terrible”. It is one of the first online, first-person shooter games to allow character customization, and has a ‘cartoon’ feel to appeal to younger players.

Joytoto has had several successful game launches in Korea, and will now attempt to capture the attention of American gamers. This is part of the company’s ongoing expansion strategy, which has been progressing rapidly in 2008. The game will be available through Joytoto’s distribution portal, playolive.com.

Regarding the release of the new title, CEO Michael Cho states: “We are very excited about our first downloadable online game release, as it demonstrates our commitment to the US online gaming market and the growing demand of the US consumer. The company continues to commit a substantial amount of time and resources

...

S&P Equity Research Analyst Scott Kessler rates SHANDA INTERACTIVE ENTERTAINMENT (SNDA) a STRONG BUY based on : 1. Solid first quarter results and conservative second quarter guidance provided early yesterday. 2. The recent sell-off offers an enhanced entry point. 3. Company is a well-diversified leader in the high-growth Chinese online games category, and in-game advertising unit and literature portal have considerable unrealized value. 4. Company is very undervalued. Follow the performance of this pick and Scott Kessler’s other recommendations at: http://www.trackthepros.com/categories.php?category_id=229