The9 To Enter Licensing Agreement With Russia's Innova Systems

| About: The9 Limited (NCTY)

According to news released by a major Chinese gaming news site, The9 (NCTY) will be signing a licensing agreement for more than $10MM with Russian game operator Innova Systems.

According to these news sources, Innova Systems is the second largest game operator in Russia. Innova Systems has over 2MM active users on its online platform and operates games such as "Point Blank," "Lineage 2," "Aion," "Atlantica Online" and other popular online games in Russia. As the operator of "Point Blank," they are the leading game operator in the First Player Shooter (FPS) category in Russia. This bodes well for "Firefall" in Russia as Firefall targets both the FPS market and the Massively Multiplayer Online Role-Playing Game (MMORPG) market.

Innova Systems has had great success in running Point Blank and has initiated international tournaments, attracting more than 400 teams. These tournaments receive traditional media coverage and have become a regular game in the World Cyber Games in Russia.

According to these news sources, Innova Systems looks to maintain its leading market position in the Russian FPS market with the addition of Firefall.

This deal affirms the worldwide interest in Firefall. Firefall is a unique game as we believe it will draw interest from gamers who play FPSs and gamers who play MMORPGs. The FPS aspect of the game appeals to one of the largest segments of the gaming industry. The RPG aspect of the game will drive long-term play as this feature introduces an addictive element to the game.

In addition to the fact that the game targets a huge worldwide market, it is a AAA game that will be offered under the free-to-play model. This model has proven to drive faster revenue growth as it draws in a larger user base upfront. As a AAA quality game with an innovative combination of MMO, FPS, RPG, and Free-To-Play, we believe "Firefall" has the potential to ramp revenue faster than blockbuster games such as Activision Blizzard's (ATVI) "World of Warcraft." The recent $23MM deal with Garena and the upcoming $10MM deal with Innova Systems affirms this belief.

We expect shares of NCTY to continue to appreciate over the next 12-18 months as new licensing deals are signed and Firefall's revenue ramps. We think the stock is currently a steal as it trades below its cash value of $6.96 per share. Shares closed at $5.69 on April 9, 2012.

Disclosure: I am long NCTY.

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