Updates on Perfect World's New Games

| About: Perfect World (PWRD)

Shares of Chinese online game company Perfect World (NASDAQ:PWRD) have declined 41.6% year-to-date, due to lack of new game launches and rising operating expenses. In late October, the company finally launched the open beta testing of two new games - Forsaken World and Dragon Excalibur. These two games will largely determine Perfect World's financial results for 4Q10 and 1H11. Based on my proprietary tracking, Forsaken World has proven Perfect World's industry-leading expertise in 3D game development, while Dragon Excalibur is off to a so-so start.

Forsaken World had 170000 Peak Concurrent Users (PCU) last week. The game currently has 45 server groups, up 200% from 15 at the beginning of the October 21 open beta. The pace of server additions has been steady so far, demonstrating solid demand from players. In my view, the early success of Forsaken World is simply due to the its good overall quality: the graphics, storylines, and in-game balance are all impressive, forming a "complete package". Players are just rewarding the hard work and good work by the development team, which reportedly consists of Perfect World's best R&D staff. I believe Forsaken World's successful launch is sufficient evidence that Perfect World is still the best 3D game developer in China.

Dragon Excalibur had 70000 PCU last week. The game currently has 24 server groups, up 20% from 20 at the beginning of the October 28 open beta. Dragon Excalibur has been adding servers at a much slower pace than Forsaken World, indicating lukewarm interest from players. Moreover, it is a little alarming to see the game merge two servers on December 16, merely 49 days after the open beta launch. I believe the game's so-so start is mainly due to its lack of unique features to sufficiently distinguish itself from competing games. After all, it is very difficult to attract gamers away from the other 100+ 2D role-playing online games that are currently in commercial operations in China.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.