"For our latest recommendations, we’re ?shing in the strongest sector, China," says Timothy Lutts.
In
The Cabot Stock of the Month the leading growth stock advisors looks at NetEase.com (NASDAQ:
NTES) and Shanda Interactive (NASDAQ:
SNDA), both leading players in the Chinese online gaming sector.
"NetEase and Shanda are the leaders of the Chinese Internet gaming industry. Global video game software revenues hit $26.5 billion in 2008, just a hair behind the ?lm industry’s $26.7 billion.
"The largest market for video games is still North America, but it’s a slowing market, growing at 17% last year.
"By contrast, the Chinese market is growing at a 28% annual rate—and is expected to continue to grow at a 20%-plus rate for years to come, as more and more Chinese are able to afford computers. The Chinese gaming market totaled $2.8 billion last year.
"NetEase, founded in 1997, gets 84% of its revenues from gaming services and 14% from advertising.
"Its big winner—the most popular online game in China—is the 'Westward Journey' series, a game that still commands pay-to-play status when many game companies have been forced to switch to a free-to-play/pay-for-extras billing model.
"But the big news is that NetEase has won the Chinese license to host 'World of Warcraft'—the fourth most popular game in China in 2008—for the next three years.
"Shanda, founded in 1999, gets 83% of its revenues from serious role-playing games that demand a lot of time (like the two mentioned above) and 13% of it revenues from casual games, like chess and Go.
"Its serious titles include 'Latale,' 'Dungeons and Dragons Online,' 'Fengyun Online” and 'AION,' which just launched in April and by some reports already has more than a million users.
"Like NetEase, it has no debt. Most impressive of all from our perspective is the companies’ growth. Both boast rapid growth of revenues and earnings, as well as plump pro? t margins and increased analysts’ estimates for both 2009 and 2010.
"And both boast excellent charts, which have recently hit new highs. NTES is most impressive, and our technical analysis tells us the new uptrend can run a lot further. We also think SNDA is an attractive buy."
