Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

The9 Limited (NASDAQ:NCTY) is an online game operator and developer in China. The9 directly, or through affiliates, operates licensed Massively Multiplayer Online Role-Playing Games ((MMORPG)) including "Soul of The Ultimate Nation™", "Atlantica" and "Kingdom Heroes 2 Online," as well as its proprietary MMORPGs and web and social games including "World of Fighter," "Winning Goal" and "Q Jiang San Guo," in mainland China.

It has also obtained exclusive licenses to operate other games in mainland China, including Seoyugi, Rosh, Free Realms and Planetside 2. In addition, The9 is developing various proprietary games, including Shen Xian Zhuan, FireFall, Era Zero and other MMORPGs and web and social games. In 2010, The9 established its Mobile Internet Unit to focus on mobile internet business.

Initial Public Offering

The company became public in December 2004. The IPO was priced at $17. The company offered 6 million shares for total proceeds of $103 million. The underwriter was Bear, Stearns & Co. Inc.

Financials

On August 16, 2011 (pdf), the company announced its unaudited financial results for the quarters ended March 31, and June 30.

First-Quarter 2011

Net revenue for the first quarter of 2011 decreased by 10% from the fourth quarter of 2010, and increased by 17% from the first quarter of 2010 to $4.0 million.

Net loss available to ordinary shareholders for the first quarter of 2011 decreased by 82% from the fourth quarter of 2010 and decreased by 31% from the first quarter of 2010 to $8.1 million.

Second-Quarter 2011

Net revenue for the second quarter of 2011 decreased by 1% from the first quarter of 2011, and increased by 1% from the second quarter of 2010 to $3.9 million.

Net loss available to ordinary shareholders for the second quarter of 2011 decreased by 77% from the first quarter of 2011 and decreased by 82% from the second quarter of 2010 to $1.9 million. Commenting on the results of the first half of 2011, Jun Zhu, Chairman and Chief Executive Officer of The9 said:

With one year dedicated effort to implement our global strategy, we are very pleased to report that we have made good progress in diversifying our business into multiple fields in the online gaming industry. Our new game titles, Page 2 Shen Xian Zhuan and Firefall are expected to launch in the third and fourth quarter this year respectively. Our web games and social games have shown high growth potential. The9 Game Zone was officially launched in the second quarter which will enhance our core competitiveness in mobile gaming field. With our new business structure as well as our gaming platform and contents, we believe The9 is now entering into a new phase of development and the coming year will be a fruitful one despite many challenges we may have.

Share Repurchase Program

On June 13, 2011 the company announced that its Board of Directors has approved a share repurchase program to purchase up to $25 million of its American Depositary Shares over the next 12 months.

Red 5 Singapore Licenses Firefall to Garena for Southeast Asia and Taiwan

Garena strikes deal to distribute one of the year's most anticipated team-based shooter games in Southeast Asia and Taiwan for $23 million.

On November 28, 2011, Red 5 Singapore Pte. Ltd., a wholly owned subsidiary of The9 Limited, announced that its highly anticipated team-based shooter game, Firefall, is licensed to Garena Online Private Limited for distribution across Southeast Asia and Taiwan. The agreement is for a term of six years, during which Garena will pay Red 5 Singapore $23 million, plus royalties, for the exclusive right to distribute Firefall to game players in Taiwan, Singapore, Malaysia, Vietnam, Thailand, Indonesia, Hong Kong, and the Philippines, and is an important step in the global rollout of Firefall. This collaboration between The9, Red 5 Singapore and Garena is expected to deliver enhanced outreach of Firefall in these markets, as well as unrivalled gaming experience. Mr. Zhu Jun, CEO of Red 5 Singapore, and CEO and Chairman of The9 said:

This agreement is not merely a good start, we view it as an exciting leap forward. Together with Garena, we will deliver Firefall into the hands of eager Asian gamers. When we entered Singapore, we made a commitment to deliver an incredible gaming experience to customers across Asia, and this partnership brings us closer to fulfilling that promise. This license marks a great milestone for The9, Red 5 Singapore and Garena. Now we will turn our attention to China, Korea and Japan.

Conclusion

I recommend buying this stock under $7.20. The company has net cash of $7.20 per share.

Source: The9 Limited Announces A Major Deal And Buys Back Shares