Bear Stearns upgrades Shanda Interactive

Here are the key points:

Price target:

• Raises 2005 year-end target price to $46 from $35 based on a 2005E P/E multiple of 35x

Game outlook:

• Expect Shanda's MMORPG segment to grow at a more subdued rate in 2005, offering 35% YOY growth vs. expected 75% growth in 2004
• Casual games should grow much faster at 126% YOY, and comprise 23% of total sales vs. an estimated 16% in 2004

Game pipeline:

• Recent acquisition of Actoz Soft should fortify Shanda's game pipeline
• Actoz will aid Shanda in prolonging the life of its "Mir2" franchise

Risks:

• Competition and possible development changes due to the release of The9's (ticker: NCTY) revolutionary "World of Warcraft" in mid-2005
• Questions about demand for Shanda's planned IPTV offering, especially in light of competition from China's fixed-line telecom operators