There is a big demographic shift in China: There will be a surplus of 24 million Chinese Men who will not be able to find a wife in China because of the large imbalance of bachelors to bachelorettes.
Times Online (in the UK) has an article on this.
What are the implications of this big Chinese demographic change? Violence? Revolution? War?
Or could this be an opportunity for Chinese online gaming companies? The online gamers are predominantly male and spending time on gaming could be a pastime and serious hobby for those who are unable to find wives.
There are Chinese Online Gaming companies such as:
Showing posts with label NCTY. Show all posts
Showing posts with label NCTY. Show all posts
Sunday, January 31, 2010
Saturday, August 23, 2008
Chinese Demographic: Lonely Young Tech Savvy People Looking for Friends, Fun, and Games Online
Pearl Research Calls them the "Phoenix Generation". These people are China's 16 to 30 year olds who have $135 billion in spending power.
These young people have grown up during China's economic boom, and they are very tech savvy.
Many of these young people are also lonely. Because of China's one child per family policy, these people have no brothers and sisters and are looking for friends. Since Chinese don't normally organize around sports or church, China's Phoenix Generation uses the Web and Social Networks to Fill that void.
According to a joint study by advertising companies JWT and IAC, 16 to 25 year olds in China:
Many ideas above from this article.
Profit from this
Chinese Social Networking would be one way to play this.
Chinese Online Games
However a more interesting way is through Chinese Online Games especially MMORPG, Massively Multi player Online Role Playing Games such as Activision-Blizzard's (ATVI) very popular World of Warcraft game.
Many people around the world, especially, East Asians and Chinese, have taken these online games and MMORPGs to a new level.
Stock Performance Now
Stock Performance: Aug. 11, 2008 to Aug. 22, 2008
These young people have grown up during China's economic boom, and they are very tech savvy.
Many of these young people are also lonely. Because of China's one child per family policy, these people have no brothers and sisters and are looking for friends. Since Chinese don't normally organize around sports or church, China's Phoenix Generation uses the Web and Social Networks to Fill that void.
According to a joint study by advertising companies JWT and IAC, 16 to 25 year olds in China:
- Using the Internet to make friends: China, about 75 percent; U.S. 30 percent.
- Going online to find, share opinions: China, about 75 percent; U.S., 43 percent.
- Expressing personal opinions or writing about themselves online: China, 72 percent; U.S., 56 percent
Many ideas above from this article.
Profit from this
Chinese Social Networking would be one way to play this.
Chinese Online Games
However a more interesting way is through Chinese Online Games especially MMORPG, Massively Multi player Online Role Playing Games such as Activision-Blizzard's (ATVI) very popular World of Warcraft game.
Many people around the world, especially, East Asians and Chinese, have taken these online games and MMORPGs to a new level.
- Activision Blizzard (ATVI): Aside from making the popular Guitar Hero and Call of Duty Games, ATVI also owns the World of Warcraft MMORPG franchise. As of 2008, World of Warcraft has a subscriber base of 16 million.
- Shanda Interactive (SNDA): Chinese Online Game Company. They too have MMORPGs.
- The9 Limited (NCTY): Chinse Online Game Company. They have MMORPGs games as well, and they are allowed to operate World of Warcraft in China.
- Perfect World (PWRD): Another Chinese Online Game Company that provides MMORPG (and other) games.
- Giant Interactive (GA): Chinese Online Game Company including MMORPG games.
- NetEase (NTES): Chinese company has an Online Game Service, Advertising services, and Wireless value Added Service Departments.
Stock Performance Now
Stock Performance: Aug. 11, 2008 to Aug. 22, 2008
- SPY (S&P 500 ETF): -0.81%
- QQQQ (Nasdaq ETF): -0.54%
- ATVI: +2.88%
- NCTY: -13.35%
- SNDA: +13.81%
- GA: +5.92%
- PWRD: +0.92%
- NTES: +17.54%
Tuesday, August 7, 2007
The Chinese Online Gaming Boom
There's a boom in the video and computer gaming market. Gamestop (GME) the game retailer, has seen its stock soar thanks to the current video game cycle. Recently, Microsoft (MSFT), Sony (SNE), and Nintendo (NTDOY.pk) have released major next generation gaming consoles (Microsoft Xbox 360, Sony Playstation 3, and Nintendo Wii). Gaming software manufacturers such as Electronic Arts (ERTS) and Activision (ATVI) also benefit from this cycle. Even companies like Nvidia Corporation (NVDA), which offer programmable graphic processor technologies needed by game players, benefit.
However, the most intriguing and high growth area of this industry is the growth in online gaming, especially in China.
Online Gaming revenue in China, according to Wu Shulin, deputy Director of China's General Administration of Press and Publication (GAPP), was $1.04 Billion at the end of 2006, and is expected to grow to $3.9 Billion by 2010. The Chinese economy is booming, the middle class is growing, and internet access, especially through internet cafes is growing, trends that are helping the gaming boom in China.
According to the US based market research company International Data Corporation (IDC), there are an estimated 31 million people playing games online in China. Many people, especially those between the ages of 18 and 30, can be seen in packed internet cafes playing online games till the early hours.
There are three main Chinese companies that can benefit from this trend:
1. The9 Limited (NCTY) is a $1.3 Billion Chinese company, with a forward PE of 17.5, a five year estimated growth rate of 25%, for a Price Earnings to Growth Rate (PEG) of 0.7, very cheap (less than 1 is cheap). The company has virtually no debt.
The Company primarily engages in the development of massively multiplayer online role playing games (MMORPGs) for Chinese online game players.
The9 also has the rights to bring Western games such as Blizzard Entertainment's very popular World of Warcraft Multiplayer Online Role Playing game to China. World of Warcraft in the West is part of Pop Culture as evidenced by being prominently featured in Comedy Central's (VIA.B) "South Park" show in an Emmy nominated episode about World of Warcraft. World of Warcraft is the most popular western MMORPG in Asia and the third most popular in China with peak concurrent users numbering 688,000 and revenues of $36.1 million in late 2006.
The9 also implemented a pay-for-time system in the game, differing from the monthly subscription method in other territories.
Electronic Arts (ERTS), the US electronic software producer, will own 15% of The9. As part of the deal, The9 will gain exclusive publishing rights for EA Sports FIFA Online.
2. Shanda Interactive (SNDA) is a $2 Billion Chinese company with a forward PE of 16.84, a five year estimated growth rate of 26.9% for a PEG of 0.62, again, very cheap (PEG less than 1.0 is cheap).
Shanda Interactive engages in development and operation of online games in China including Massively Multiplayer Online Role Playing Games and Online Casual Games such as chess. Shanda maintains a large number of popular games produced by Western, Chinese, and Korean companies, with the Chinese and Korean games being the most popular.
In a recent China online gaming survey conducted by Piper Jaffray, 55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within games. Shanda also tied with competitor The9 as the company in its market that offers the best games.
3. NetEase (NTES) is a $2.04 Billion Chinese company with a forward PE of 13, a five year estimated growth rate of 15% for a PEG of 0.86. the company has a low Total Debt to Equity Ratio of only 0.217.
The company has an online games business that focuses on massively multiplayer online role playing games by selling prepaid point cards to the end user. These cards could be distributed through wholesalers, internet cafes, supermarkets and other venues.
Netease manages Fantasy Westward Journey, the most popular online game in China in terms of Peak Concurrent Users.
The company also has a wide array of internet services outside of its online games business.
Online gaming in China has a bright future. Electronic Arts (ERTS) 15% stake in Chinese online Gaming Company The9 is evidence that US companies believe in the great growth in the Chinese Online Gaming Market. Why not follow Electronic Arts lead and invest in the growth area of the gaming industry: Chinese Online Gaming.
However, the most intriguing and high growth area of this industry is the growth in online gaming, especially in China.
Online Gaming revenue in China, according to Wu Shulin, deputy Director of China's General Administration of Press and Publication (GAPP), was $1.04 Billion at the end of 2006, and is expected to grow to $3.9 Billion by 2010. The Chinese economy is booming, the middle class is growing, and internet access, especially through internet cafes is growing, trends that are helping the gaming boom in China.
According to the US based market research company International Data Corporation (IDC), there are an estimated 31 million people playing games online in China. Many people, especially those between the ages of 18 and 30, can be seen in packed internet cafes playing online games till the early hours.
There are three main Chinese companies that can benefit from this trend:
1. The9 Limited (NCTY) is a $1.3 Billion Chinese company, with a forward PE of 17.5, a five year estimated growth rate of 25%, for a Price Earnings to Growth Rate (PEG) of 0.7, very cheap (less than 1 is cheap). The company has virtually no debt.
The Company primarily engages in the development of massively multiplayer online role playing games (MMORPGs) for Chinese online game players.
The9 also has the rights to bring Western games such as Blizzard Entertainment's very popular World of Warcraft Multiplayer Online Role Playing game to China. World of Warcraft in the West is part of Pop Culture as evidenced by being prominently featured in Comedy Central's (VIA.B) "South Park" show in an Emmy nominated episode about World of Warcraft. World of Warcraft is the most popular western MMORPG in Asia and the third most popular in China with peak concurrent users numbering 688,000 and revenues of $36.1 million in late 2006.
The9 also implemented a pay-for-time system in the game, differing from the monthly subscription method in other territories.
Electronic Arts (ERTS), the US electronic software producer, will own 15% of The9. As part of the deal, The9 will gain exclusive publishing rights for EA Sports FIFA Online.
2. Shanda Interactive (SNDA) is a $2 Billion Chinese company with a forward PE of 16.84, a five year estimated growth rate of 26.9% for a PEG of 0.62, again, very cheap (PEG less than 1.0 is cheap).
Shanda Interactive engages in development and operation of online games in China including Massively Multiplayer Online Role Playing Games and Online Casual Games such as chess. Shanda maintains a large number of popular games produced by Western, Chinese, and Korean companies, with the Chinese and Korean games being the most popular.
In a recent China online gaming survey conducted by Piper Jaffray, 55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within games. Shanda also tied with competitor The9 as the company in its market that offers the best games.
3. NetEase (NTES) is a $2.04 Billion Chinese company with a forward PE of 13, a five year estimated growth rate of 15% for a PEG of 0.86. the company has a low Total Debt to Equity Ratio of only 0.217.
The company has an online games business that focuses on massively multiplayer online role playing games by selling prepaid point cards to the end user. These cards could be distributed through wholesalers, internet cafes, supermarkets and other venues.
Netease manages Fantasy Westward Journey, the most popular online game in China in terms of Peak Concurrent Users.
The company also has a wide array of internet services outside of its online games business.
Online gaming in China has a bright future. Electronic Arts (ERTS) 15% stake in Chinese online Gaming Company The9 is evidence that US companies believe in the great growth in the Chinese Online Gaming Market. Why not follow Electronic Arts lead and invest in the growth area of the gaming industry: Chinese Online Gaming.
Wednesday, July 11, 2007
Growth in Online Computer Gaming: China, India, Korea, and Japan
China Gaming
The China Gaming market is a very big market. The Chinese middle class is growing and showing their increasing purchasing power. According to play.tm, and according to research from American Market research firm, DFC Intelligence, "analysts predict strong growth for online games in China. Following the trend of South Korea, online gaming is already one of China's favourite pastimes, but it is expected to be worth a great deal more by 2010: 1.7 billion USD we're told. That's up from a 2005 value of about 560 million USD. " "The game market in China is all about online play and charging by usage. There is even a growing market for the items used in games like weapons and characters," states Alexis Madrigal, one of the experts behind the new report."
The three main players in this market are Shanda Interactive (SNDA), The9 Limited (NCTY), and NetEase (NTES). Shanda Interactive and The9 Limited seem the most investable, having MyPEGs of 0.56 and 0.71 (very cheap). The9 Limited has the right to bring Blizzard's World of Warcraft to China. Shanda Interactive also has a good business model. According to a China online gaming survey conducted by Piper Jaffray, "55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within the games. Shanda also tied with competitor The9 Ltd. as the company in its market that offers the best games."
(Analysis of Computer and Video Game Sector here.)
India
Now, what about the India online gaming market? According to a report by San Francisco based analyst and consulting firm Pearl Research (and reported by Gamasutra.com), " online games market in India will exceed $200 million in 2010, as part of a new “Online Games Market in India” report."
According to the report, the "rapid adoption of the Internet with 39 million current users; increasing broadband penetration; growth in Internet cafes with more than 100,000 outlets; and a sizable middle-class with rising disposable income. Most importantly, game operators are promoting and educating consumers about online games including MMOGs."
Local and International publishers are investing in the Indian online games market, as this is one of the few viable publishing models, where "software piracy rates exceed 85%".
However, the $200 Million Indian market by 2010 pales in comparison to China's estimated online gaming market of 1.7 Billion.
Allison Luong, Managing Director of Pearl Ressearch says that "India in 2006 is often compared to China in 2001, when China’s games market started to develop and an online games culture started to form. Within a decade, India has the potential to emerge as one of the top online markets in Asia, along with China, Korea and Taiwan."
India is slow to adopt Online Gaming
However, according to an article by John Ribeiro of IDG News Service (and reported by NetworkWorld.com), the Internet and mobile Association of India and research firm IMRB International (both in Mumbai, India), says the slow uptake in online gaming is partially caused by the "negative perceptions among parents and education institutions." Sohil Kunwar of IMRB says that "Online gaming is considered to be alien and disruptive, and to have an adverse impact on education."
In addition, Sohhil Kunwar says that India has too few broadband connections to homes. There are only 2.21 million broadband subscribers (February 2007), in a country of more than a Billion People.
Opportunity in Indian Mobile Games
In the same report, the big opportunity in India might be mobile games. According to TRAI, "India had 162.5 million mobile subscriber at the end of February. Currently, Indian mobile users can download games from Web sites but are unable to play online."
Korea online gaming
Online gaming in Korea is also very popular. Gravity (GRVY) and Webzen are two popular Korean online gaming companies. Gravity is a small cap publicly traded company (US exchanges) that provides online Games in Korea, but the fundamentals don't look very good. According to an MSNBC article, in Korea, 17 million people play games regularly in a country of 48 million. Close to 70 percent of South Korean households have broadband. And the transfer data speeds in Korea can be up to 50 megabits per second (Mbps). Compare this to AT&T Yahoo! Elite package (DSL) which has download speeds up to 6.0 Mbps. All these, plus the fact that the young people of the country have grown up with the technology help make online gaming in Korea big business.
What about Online gaming in Japan?
Japan, home of Nintendo, and Sony, are more console driven than China and Korea. So, online gaming in Japan is not as popular as it is in Korea and China.
The China Gaming market is a very big market. The Chinese middle class is growing and showing their increasing purchasing power. According to play.tm, and according to research from American Market research firm, DFC Intelligence, "analysts predict strong growth for online games in China. Following the trend of South Korea, online gaming is already one of China's favourite pastimes, but it is expected to be worth a great deal more by 2010: 1.7 billion USD we're told. That's up from a 2005 value of about 560 million USD. " "The game market in China is all about online play and charging by usage. There is even a growing market for the items used in games like weapons and characters," states Alexis Madrigal, one of the experts behind the new report."
The three main players in this market are Shanda Interactive (SNDA), The9 Limited (NCTY), and NetEase (NTES). Shanda Interactive and The9 Limited seem the most investable, having MyPEGs of 0.56 and 0.71 (very cheap). The9 Limited has the right to bring Blizzard's World of Warcraft to China. Shanda Interactive also has a good business model. According to a China online gaming survey conducted by Piper Jaffray, "55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within the games. Shanda also tied with competitor The9 Ltd. as the company in its market that offers the best games."
(Analysis of Computer and Video Game Sector here.)
India
Now, what about the India online gaming market? According to a report by San Francisco based analyst and consulting firm Pearl Research (and reported by Gamasutra.com), " online games market in India will exceed $200 million in 2010, as part of a new “Online Games Market in India” report."
According to the report, the "rapid adoption of the Internet with 39 million current users; increasing broadband penetration; growth in Internet cafes with more than 100,000 outlets; and a sizable middle-class with rising disposable income. Most importantly, game operators are promoting and educating consumers about online games including MMOGs."
Local and International publishers are investing in the Indian online games market, as this is one of the few viable publishing models, where "software piracy rates exceed 85%".
However, the $200 Million Indian market by 2010 pales in comparison to China's estimated online gaming market of 1.7 Billion.
Allison Luong, Managing Director of Pearl Ressearch says that "India in 2006 is often compared to China in 2001, when China’s games market started to develop and an online games culture started to form. Within a decade, India has the potential to emerge as one of the top online markets in Asia, along with China, Korea and Taiwan."
India is slow to adopt Online Gaming
However, according to an article by John Ribeiro of IDG News Service (and reported by NetworkWorld.com), the Internet and mobile Association of India and research firm IMRB International (both in Mumbai, India), says the slow uptake in online gaming is partially caused by the "negative perceptions among parents and education institutions." Sohil Kunwar of IMRB says that "Online gaming is considered to be alien and disruptive, and to have an adverse impact on education."
In addition, Sohhil Kunwar says that India has too few broadband connections to homes. There are only 2.21 million broadband subscribers (February 2007), in a country of more than a Billion People.
Opportunity in Indian Mobile Games
In the same report, the big opportunity in India might be mobile games. According to TRAI, "India had 162.5 million mobile subscriber at the end of February. Currently, Indian mobile users can download games from Web sites but are unable to play online."
Korea online gaming
Online gaming in Korea is also very popular. Gravity (GRVY) and Webzen are two popular Korean online gaming companies. Gravity is a small cap publicly traded company (US exchanges) that provides online Games in Korea, but the fundamentals don't look very good. According to an MSNBC article, in Korea, 17 million people play games regularly in a country of 48 million. Close to 70 percent of South Korean households have broadband. And the transfer data speeds in Korea can be up to 50 megabits per second (Mbps). Compare this to AT&T Yahoo! Elite package (DSL) which has download speeds up to 6.0 Mbps. All these, plus the fact that the young people of the country have grown up with the technology help make online gaming in Korea big business.
What about Online gaming in Japan?
Japan, home of Nintendo, and Sony, are more console driven than China and Korea. So, online gaming in Japan is not as popular as it is in Korea and China.
Sunday, July 8, 2007
Computer and Video Game Stocks: By the Numbers
The Computer and Video Game Sector
According to the Entertainment Software Association, in 2006, the US computer and video game software sales grew to $7.4 billion, tripling industry software sales since 1996. This is a large, high growth industry.
In addition, there are other reasons to be bullish on the Video and Computer Game Sector:
Demographics of the Computer and Video Game User
According to the Entertainment Software association, here are some facts about the US Game Playing Demographic:
The Gaming Console Makers
The main three console makers, Microsoft (MSFT), Sony (SNE), and Nintendo (NTDOY.PK) are not listed in the charts below because Microsoft and Sony are not pure plays on video games, and Nintendo is missing some key financial information on Yahoo Finance. I don't think Microsoft or Sony should be bought purely because of their Gaming Divisions. Nintendo, with the popularity of the Nintendo Wii and the portable Nintendo DS, might be worth researching as a stock to invest in.
Gaming Retailers
The dominant Gaming retailer here is Gamestop (GME), a very good investment whose stock has been doing well, and still only has a MyPEG of around 1. Their former competitor, Electronic Boutique, is part of Gamestop. People can buy games and gaming hardware from other places too such as Best Buy (BBY) and Amazon (AMZN), but these two companies are not pure plays on gaming.
Gaming Accessories
Logitech (LOGI) makes computer accessories and peripherals including devices used by gamers. Nvidia (NVDA) makes programmable graphics processor technlogies, many of which are used and needed by Gamers.
Software makers
Electronic Arts (ERTS), THQ Inc (THQI), Activision (ATVI), and Take-Two Entertainment (TTWO) are all gaming software makers. Atari (ATAR), Konami (KNM), and Majestic Entertainment (COOL), were not listed below because they are lacking some financial information from Yahoo Finance. Among these, from a growth at a reasonable price (GARP) view, THQ Inc. (THQI) with a MyPEG of only 0.76, very cheap. Electronic Arts (ERTS) still remains one of the major players in the gaming software industry, and sports a MyPEG of 0.95.
Mobile Gaming
Glu Mobile (GLUU) is a small company providing some games on mobile devices. Their former competitor, Jamdat, was bought out by Electronic Arts (ERTS).
China Gaming
The China Gaming market is a very big market. The Chinese middle class is growing and showing their increasing purchasing power. According to play.tm, and according to research from American Market research firm, DFC Intelligence, "analysts predict strong growth for online games in China. Following the trend of South Korea, online gaming is already one of China's favourite pastimes, but it is expected to be worth a great deal more by 2010: 1.7 billion USD we're told. That's up from a 2005 value of about 560 million USD. " "The game market in China is all about online play and charging by usage. There is even a growing market for the items used in games like weapons and characters," states Alexis Madrigal, one of the experts behind the new report."
The three main players in this market are Shanda Interactive (SNDA), The9 Limited (NCTY), and NetEase (NTES). Shanda Interactive and The9 Limited seem the most investable, having MyPEGs of 0.56 and 0.71 (very cheap). The9 Limited has the right to bring Blizzard's World of Warcraft to China. Shanda Interactive also has a good business model. According to a China online gaming survey conducted by Piper Jaffray, "55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within the games. Shanda also tied with competitor The9 Ltd. as the company in its market that offers the best games."
International Gaming
There are other International Gaming plays such as GigaMedia (GIGM), a Taiwanese company, "through its subsidiaries, develops and licenses online gaming software, and provides application services, as well as owns and operates an online games portal." Gigamedia has a very low MyPEG of 0.36. Even if people don't trust the 40% growth rate, the forward PE is still a low 15.67, so GigaMedia seems like a good value with respect to its growth.
According to the American firm DFC Intelligence, online gaming is also popular in Korea. I wouldn't be surprised if there is good growth all around the world, and growth in the online gaming market.
By the Numbers
Data taken from Yahoo Finance on Friday, July 6, 2007:
In order to understand the chart, we have to understand the different elements.
MyPEG
MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link. MyPEG incorporates the yield and cash per share.
Forward PE
Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.
5 Yr Growth
5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market
).
Yield
The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.
EV/EBITDA
Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization. It is another measure of valuation. The lower the Better. A value of 8 or less is very good.
% Short
The higher the percentage, the higher number of people who believe the stock should go down. However, the higher the percentage, the better for those who go long because if good news is to hit a stock, not only does the price go up, but all those people who are shorting have to "cover" (Buy a stock to fulfill their loan obligation to the broker) their short position further fueling the gains. This is often called a "short squeeze".
% Institutional Ownership
People have different theories on this. Some people, like Peter Lynch, prefer a stock without that much institutional ownership. Because once the big mutual funds discover the stock, this could propel the stock to multibagger (make many times your money on your original investment) heights. However, some prefer a higher institutional ownership because that means that mutual funds and other institutional investors are already buying the stock (and may have them in their approved to buy list), and when more money comes in, they may add to their position.
According to the Entertainment Software Association, in 2006, the US computer and video game software sales grew to $7.4 billion, tripling industry software sales since 1996. This is a large, high growth industry.
In addition, there are other reasons to be bullish on the Video and Computer Game Sector:
- We are at the beginning of the Gaming Cycle with three major gaming consoles out (Nintendo Wii, Sony Playstation 3, Microsoft Xbox, plus Nintendo DS, Sony PSP, and other devices),
- Growth in online gaming in the United States, and in other emerging countries such as China, whose middle class is growing and increasing their purchasing power.
- Demographics favors growth in the industry. Generation Y is 2nd in size to the Baby Boomers, and they've grown up with games and computer and internet interactivity.
Demographics of the Computer and Video Game User
According to the Entertainment Software association, here are some facts about the US Game Playing Demographic:
- The average game player is 33 years old and has been playing games for 12 years.
- 38% of all game players are women.
- The average age of the most frequent game buyer is 40 years old.
- Age of game Players: 31% under 18 years old, 44% 18-49 years old, 25% 50+ years old.
- Average Adult woman plays 7.4 hours per week. Average adult male, 7.6 hours per week.
- 44% of frequent game players say they play games online.
- 58% of online game players are male, 42% are female.
- Those gamers 18 years and younger tend to play console games more, and those over 35 tend to play computer games more.
- 32% of heads of households play games on a wireless device such as a cell phone or PDA.
- 35% of American parents say they play computer and video games. 80% of gamer parents play video or computer games with their children.
The Gaming Console Makers
The main three console makers, Microsoft (MSFT), Sony (SNE), and Nintendo (NTDOY.PK) are not listed in the charts below because Microsoft and Sony are not pure plays on video games, and Nintendo is missing some key financial information on Yahoo Finance. I don't think Microsoft or Sony should be bought purely because of their Gaming Divisions. Nintendo, with the popularity of the Nintendo Wii and the portable Nintendo DS, might be worth researching as a stock to invest in.
Gaming Retailers
The dominant Gaming retailer here is Gamestop (GME), a very good investment whose stock has been doing well, and still only has a MyPEG of around 1. Their former competitor, Electronic Boutique, is part of Gamestop. People can buy games and gaming hardware from other places too such as Best Buy (BBY) and Amazon (AMZN), but these two companies are not pure plays on gaming.
Gaming Accessories
Logitech (LOGI) makes computer accessories and peripherals including devices used by gamers. Nvidia (NVDA) makes programmable graphics processor technlogies, many of which are used and needed by Gamers.
Software makers
Electronic Arts (ERTS), THQ Inc (THQI), Activision (ATVI), and Take-Two Entertainment (TTWO) are all gaming software makers. Atari (ATAR), Konami (KNM), and Majestic Entertainment (COOL), were not listed below because they are lacking some financial information from Yahoo Finance. Among these, from a growth at a reasonable price (GARP) view, THQ Inc. (THQI) with a MyPEG of only 0.76, very cheap. Electronic Arts (ERTS) still remains one of the major players in the gaming software industry, and sports a MyPEG of 0.95.
Mobile Gaming
Glu Mobile (GLUU) is a small company providing some games on mobile devices. Their former competitor, Jamdat, was bought out by Electronic Arts (ERTS).
China Gaming
The China Gaming market is a very big market. The Chinese middle class is growing and showing their increasing purchasing power. According to play.tm, and according to research from American Market research firm, DFC Intelligence, "analysts predict strong growth for online games in China. Following the trend of South Korea, online gaming is already one of China's favourite pastimes, but it is expected to be worth a great deal more by 2010: 1.7 billion USD we're told. That's up from a 2005 value of about 560 million USD. " "The game market in China is all about online play and charging by usage. There is even a growing market for the items used in games like weapons and characters," states Alexis Madrigal, one of the experts behind the new report."
The three main players in this market are Shanda Interactive (SNDA), The9 Limited (NCTY), and NetEase (NTES). Shanda Interactive and The9 Limited seem the most investable, having MyPEGs of 0.56 and 0.71 (very cheap). The9 Limited has the right to bring Blizzard's World of Warcraft to China. Shanda Interactive also has a good business model. According to a China online gaming survey conducted by Piper Jaffray, "55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within the games. Shanda also tied with competitor The9 Ltd. as the company in its market that offers the best games."
International Gaming
There are other International Gaming plays such as GigaMedia (GIGM), a Taiwanese company, "through its subsidiaries, develops and licenses online gaming software, and provides application services, as well as owns and operates an online games portal." Gigamedia has a very low MyPEG of 0.36. Even if people don't trust the 40% growth rate, the forward PE is still a low 15.67, so GigaMedia seems like a good value with respect to its growth.
According to the American firm DFC Intelligence, online gaming is also popular in Korea. I wouldn't be surprised if there is good growth all around the world, and growth in the online gaming market.
By the Numbers
Data taken from Yahoo Finance on Friday, July 6, 2007:
| Symbol | Stock Name | MyPEG | Forward PE | 5 yr growth | Yield |
|---|---|---|---|---|---|
| GIGM | GigaMedia | 0.37 | 15.67 | 40.00% | 0% |
| SNDA | Shanda Interactive | 0.56 | 19.20 | 27.27% | 0% |
| NCTY | The9 Limited | 0.71 | 19.72 | 25.18% | 0% |
| THQI | THQ Inc. | 0.76 | 17.94 | 18.23% | 0% |
| NTES | NetEase | 0.92 | 15.36 | 13.00% | 0% |
| ERTS | Electronic Arts | 0.95 | 25.84 | 22.04% | 0% |
| NVDA | Nvidia | 0.98 | 20.84 | 19.46% | 0% |
| GME | Gamestop | 1.03 | 22.46 | 20.75% | 0% |
| ATVI | Activision | 1.06 | 32.00 | 24.75% | 0% |
| LOGI | Logitech | 1.14 | 18.09 | 14.62% | 0% |
| GLUU | Glu Mobile | 1.57 | 48.79 | 25.00% | 0% |
| TTWO | Take-Two Interactive | 1.67 | 29.97 | 16.71% | 0% |
In order to understand the chart, we have to understand the different elements.
MyPEG
MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link. MyPEG incorporates the yield and cash per share.
Forward PE
Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.
5 Yr Growth
5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market
).Yield
The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.
| Symbol | Stock Name | EV/EBITDA | %Short | %Inst. Own |
|---|---|---|---|---|
| GIGM | GigaMedia | N/A | 8.20% | 36.70% |
| SNDA | Shanda Interactive | N/A | 0% | 12.00% |
| NCTY | The9 Limited | N/A | 0% | 35.70% |
| THQI | THQ Inc. | 5.45 | 9.80% | 109.20% |
| NTES | NetEase | 10.092 | 0% | 1.20% |
| ERTS | Electronic Arts | 38.214 | 3.40% | 92.50% |
| NVDA | Nvidia | 18.933 | 6% | 76.30% |
| GME | Gamestop | 14.059 | 3.90% | 81.70% |
| ATVI | Activision | 19.536 | 6.50% | 95.20% |
| LOGI | Logitech | 15.827 | 0% | 3.40% |
| GLUU | Glu Mobile | N/A | 2.70% | N/A |
| TTWO | Take-Two Interactive | 75.161 | 38.50% | 92.30% |
EV/EBITDA
Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization. It is another measure of valuation. The lower the Better. A value of 8 or less is very good.
% Short
The higher the percentage, the higher number of people who believe the stock should go down. However, the higher the percentage, the better for those who go long because if good news is to hit a stock, not only does the price go up, but all those people who are shorting have to "cover" (Buy a stock to fulfill their loan obligation to the broker) their short position further fueling the gains. This is often called a "short squeeze".
% Institutional Ownership
People have different theories on this. Some people, like Peter Lynch, prefer a stock without that much institutional ownership. Because once the big mutual funds discover the stock, this could propel the stock to multibagger (make many times your money on your original investment) heights. However, some prefer a higher institutional ownership because that means that mutual funds and other institutional investors are already buying the stock (and may have them in their approved to buy list), and when more money comes in, they may add to their position.
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