You Should Take a Look at this Giant
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I really love to play games, and don’t feel ashamed when I’m pulled up for playing hours at a stretch. Because when I’m playing, I forget about all the worries in life to focus on how to kill that big, bad boss or work on my next great strategy. It’s an addiction and a very costly one for me at least. I have spent quite a few dollars on buying in-game upgrades, war bucks, guns and stuff of that sort.
And the best place where you can spend your dollars the easy way -- is online gaming. You are pitted against a multitude of players from across the city, state or nation, and you never want to be second best. You buy more in-game improvements in your quest for one-upmanship.
Now when there are more than 1.3 billion people in a country (yes I’m talking about China), with a median age of 35.9 years, and only 9% of the population being 65 or above, I expect there will be some millions like me in there. When these millions pour their money into online games, the companies that operate these games see their war-chest overflowing and their investors glowing.
Impressive so far
The same is the case with those who put their money on Giant Interactive Group (NYSE: GA), a developer and operator of online games in the Middle Kingdom. The company operates around nine massively multiplayer online role-playing games (MMORPG) and has seen a steady growth in its top line over the past few years. As more and more people like me in China played Giant’s games, investors’ wallets kept getting fatter. Giant has made investors greener by some 17% already this year, and holds some more ammo.
Giant once again met targets set by the boss, Mr. Market in this case, in its recently reported second quarter. While we see analysts and pundits talk of a recession and fall in consumer spending, this online gaming company just took things easy. The number of active paying accounts grew 11% from last year while average revenue per user (ARPU) grew almost 10% over the same time. These led to a 21% year-over-year jump in revenue to $83.1 million in the quarter.
The legacy game
The company’s cult game, ZT Online 2 has been stupendously successful, so much so that it kept players engaged in the first quarter even though there was no expansion pack pushed out. This time, Giant released the first expansion pack of the popular franchise and this worked to the company’s advantage as shown by the metrics mentioned earlier. To make its prospects sweeter, Giant is ready to launch a micro-client version of the game, and expects to hit the bull’s eye with it.
The most famous game companies have at least one game which keeps users coming back to it. For example, Activision Blizzard (NASDAQ: ATVI) has World of Warcraft and Call of Duty in its portfolio while Tencent has CrossFire, the most successful online game in China. ZT Online seems to be working in the same way for Giant but there’s still a long, long way to go before it can catch up with the titans.
But the presence of one sticky game can be seen as a green flag since a company can continue generating cash through it over a considerable period of time through updates and expansions, like World of Warcraft.
The pipeline
Apart from ZT Online, Giant has some other aces in the pack. It is ready to release Allods Online, which happens to be Giant’s first MMO game based on a western theme. A first-person-shooter game, known as Glorious Mission, and other role-playing games such as Genesis of the Empire, World of Xianxia, Marine Tycoon and The Sky make up the rest of Giant’s pipeline.
A steep climb for Giant, but going well so far
The Chinese online gaming market is a huge one and has been growing at a fast clip. The market is dominated by the likes of Tencent, NetEase (NASDAQ: NTES) and Shanda Games. However, Giant is still a not-so-giant player in this market, but intends to grow big through its games. It faces, and would face stiff competition from the bigger players in the market.
Recently, Activision decided to introduce Call of Duty Online in China, while it already operates World of Warcraft through NetEase, which happens to be the second-best behind Tencent in the country. But Activision, despite being a solid company, has been a dud when it comes to stock price performance. So you might take a look at Giant which has been in the green this year and aspires to do more.
In addition, Giant has been building up its cash pile quite well over the years and also sports a handsome dividend-yield of 6.6%, which adds further to the stock’s attraction. The company is slowly but steadily climbing the steps in the Chinese online gaming market and has outpaced a number of big and illustrious players when it comes to stock price performance. Keeping its track record and upcoming releases in mind, it won’t be a bad idea to take a look at Giant Interactive.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard and NetEase.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
