A look at China’s gaming stocks

Posted on December 6, 2005 , filed under Stocks | Print This Post

NTES, Netease.com, Inc., and SNDA, Shanda Interactive Entertainment Limited are both part of my watchlist of Chinese stocks. Today I have added NCTY, The9 Limited to my watchlist. I see tough times ahead for Chinese online gaming companies. The Chinese government is imposing regulations to prevent the growth of online gaming. The fear from the Chinese government is that the youth of China is becoming addicted to the online world that the game publishers are creating. I believe that the Chinese publishers of these MMORPG’s, massively multiplayer online role playing games, will have a hard time producing consistent hits. The game publishers are similar to movie studios, there is strong interest when a new game arrives but a follow up success is never a guarantee. The roll off in interest is less severe than a movie since there is a degree of interactivity in MMORPG’s not found from movies. Investors would do well to remember that the attention span of the youth playing these games tends to be brief. Retaining interest from these players will prove to be a complicated task. I believe shares of NTES, SNDA and NCTY have jumped over the novelty of China’s youth joining the online gaming community en masse. For many of the new Chinese players, they have never played or seen a MMORPG so they aren’t sure what to expect.

Shares of NTES, SNDA and NCTY have all seen setbacks from their one year highs. I believe NTES, SNDA and NCTY will struggle to become the diversified, long proven companies like ERTS, Electronic Arts, Inc. or ATVI, Activision, Inc.. It will be hard to make long term investment decisions on NTES, SNDA and NCTY. I’m sure there will be additional start-ups to create heated competition among the companies. I expect to see stock prices stable going into the holiday season with additional declines in early 2006.

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