Shanda Games Limited(ADR) (GAME), Giant Interactive Group Inc (ADR) (GA): This Beaten-Down Company Is Getting Better

ZT Online has been one of Giant Interactive Group Inc (ADR) (NYSE:GA)’s successes in the MMO arena and the company has kept the game interesting by way of expansion packs. In addition, Giant Interactive Group Inc (ADR) (NYSE:GA) is expecting its next MMO, World of Xianxia, to become a strong revenue driver going forward. The game has received good feedback in closed beta testing, according to management .

Giant Interactive Group Inc (ADR) (NYSE:GA) has done well with its MMO games, and Shanda needs to bolster this side of its business if it is to benefit from the booming Chinese online gaming market. As such, Shanda will be releasing expansion packs for Mir II and Woool this year. Mir II is Shanda’s highest revenue generator with 31% of revenue, and new content should keep players interested .

Shanda has already rolled out fresh content for some of its games and it will continue following this strategy to keep revenue from MMO games flowing. Testing for Final Fantasy XIV is progressing well according to management, while another game, Dungeon Striker, is slated for launch in China and Japan going forward .

But Shanda will have to be on top of its game in MMO games, as this market is very competitive with players such as Giant Interactive Group Inc (ADR) (NYSE:GA), Tencent, and NetEase, Inc (ADR) (NASDAQ:NTES) in the fray. NetEase, Inc (ADR) (NASDAQ:NTES), a much bigger competitor, has been aggressively moving into the MMO space with games such as Heroes of Three Kingdoms and Dragon Sword, while also releasing expansion packs for its other games.

NetEase is looking to reduce its reliance on Activision Blizzard‘s World of Warcraft and as such, it is focusing on its self-developed games. Moreover, NetEase, Inc (ADR) (NASDAQ:NTES)’s management stated during the previous conference call that it has “several mobile games” in the pipeline .

With Shanda competing with the likes of NetEase for game time, investors should closely watch how its games are progressing and check for signs of any weakness.

The bottom line
Shanda Games Limited(ADR) (NASDAQ:GAME) fell more than 10% after the earnings report despite a good performance, probably because analysts have doubts about Shanda’s strategy. However, considering its dirt cheap valuation with a trailing P/E of less than 7 and probability of improvement in its business going forward, investors might consider initiating a long position at current levels.

The article This Beaten-Down Company Is Getting Better originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Giant Interactive Group (NYSE:GA) and NetEase.com.

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