An Online Gaming Stock You Shouldn't Ignore
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems like online gaming in China is doing pretty well. After online game developer Perfect World (NASDAQ: PWRD) delivered an estimate topping quarter late in March, it was time for Giant Interactive Group (NYSE: GA) to follow its footsteps in the first quarter.
We will now zoom through what Giant did right and how it might play out going forward.
Playing well
Giant’s revenue jumped an impressive 26% from last year to $81 million in the quarter. The growth in top line was primarily driven by the success of the company’s ZT Online 2 franchise, which became a “blockbuster” according to Giant’s management. But one thing really struck me about the company’s performance in the quarter. Giant didn’t release any new game, didn’t push out any updates or expansion packs and didn’t undertake any significant marketing campaign. Still they managed to turn in a laudable performance.
Despite not taking up any major initiative as mentioned above, the company’s active paying accounts leapt 23% from last year and now stand at around 2.2 million. Also, its average revenue per user (ARPU) grew 5.6% from last year’s first quarter. The reason behind the improvement in these metrics was none other than ZT Online 2. As the players crossed stage after stage and spent more on transactions within the game, Giant’s top line went on going north.
Reaching the next level
And it looks like that the top line would climb a bit more in the ongoing quarter. Giant released the first expansion pack for ZT Online 2 in April and saw a record 541,000 peak concurrent users. The company is putting its weight behind this franchise and has deployed marketing initiatives to promote awareness and get more players on board. It seems as if Giant is doing its best to turn this game into its primary revenue generating weapon.
But building your team around just one player isn’t a great idea. Giant knows that and it has a few projects in the works. Management says that the company is currently working on six games, including two casual games which will be published on social networking sites. It has also launched a massively multiplayer online role playing game (MMORPG) known as World of XianXia, a 3D Chinese fantasy game. Management says that the idea behind this game is quite novel and anticipates it to be a hit in China.
Game on in China
China is the biggest online gaming market in the world, which isn’t surprising considering it has the maximum population on the internet. Research says that the online gaming industry in China might be worth as much as $13 billion in the next two years from about $9 billion this year. Now that’s a huge jump and online gaming companies like Perfect World and Giant Interactive look set to ride this growth on the back of the industry’s rapid growth.
Game over? Not yet
The success of companies in this industry depends on one key factor, the success of their games. The success of games reflects on the stock prices and the same holds good for Giant, with its stock already making investors rich some 33% this year. With a decent legacy of games behind it and aspirations to build upon its accomplishments, I believe Giant Interactive can continue to deliver value as it has done so far this year.
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