Goldman on Shanda Interactive (SNDA)

Goldman analyst James Mitchell published a note on online game operator and developer Shanda Interactive (ticker: SNDA) last week. Key extracts:

Highlights

After sustaining its popularity for longer than we expected, age is now catching up with Shanda's original Mir 2 title, and we estimate that Mir 2's revenue declined ~20% qoq in 3Q2005. Meanwhile Shanda is also incurring higher staff, marketing, and product development costs. We are reducing our 3Q2005 fully diluted EPADS estimate by 13% to $0.36; FY2005 by 15% to $1.48; and FY2006 by 16% to $1.69. We believe the current $27 stock price largely discounts this scenario given ex-Sina stake it is at $23, and given we forecast Shanda earning ~$0.32 per quarter or ~$1.30 per annum (i.e., a 18X multiple) even at the trough of its product cycle. We cut our 12 month target price by 8% to $33, based on 20X 2006 EPADS (now not diluted for convertible bond). Risks include failure to popularize new titles.

On Catalysts for SNDA's Stock

Stock price unlikely to move higher until early 2006. Possible catalysts include: (1) Dungeons and Dragons Online commencing open beta testing in the US in early 2006; Shanda has distribution rights in China. (2) Ragnarok Online 2 commencing open beta testing in Korea in mid 2006; Shanda has distribution rights in China. (3) Affiliate Actoz releasing the first of three 3D games in its pipeline in Korea in early 2006.

SNDA chart.