Shanda (GAME) is nosediving as investors balk at the price it's paying to acquire affiliates responsible for handling its online game billing and customer service work, among other activities.
One of the affiliates (Shengzhan) owns valuable data about user activity. The other (Shengjiang) runs a network that sells 2M+ real/virtual prepaid gaming cards via 180K distribution channels.
Shanda claims service fees paid to the affiliates made up 21.3% of its Q1 revenue, and that buying the companies will help it deliver the kind of integrated platform it considers crucial for mobile success.
Shanda is paying for the deals with cash, deferred payments, and the settlement of an outstanding loan receivable.
Fellow online game providers NetEase (NTES -2.6%), Qihoo (QIHU -4.1%), Perfect World (PWRD -5.3%), and Giant Interactive (GA -5%) are selling off. Sohu and subsidiary Changyou's disappointing Q2 results and Q3 guidance are the main trigger, though a moderate selloff in Shanghai isn't helping either.
A roundup of tech analyst ratings changes: 1) Baidu (BIDU +4.7%) has been upgraded to Neutral by Citi following the 91 Wireless deal. 2) Sonus (SONS +4.7%) has been upgraded to Buy by Lazard. 3) Stamps.com (STMP -7.7%) has been cut to Neutral by B. Riley. 4) Move (MOVE +2.9%) has been started at Overweight by Stephens. 5) Cavium (CAVM -2%) has been started at Reduce by Nomura. 6) Perfect World (PWRD +1.8%) has been upgraded to Buy by Citi. 7) Trina (TSL -0.5%) has been cut to Underperform by Raymond James; shares would be faring worse if not for ReneSola's guidance hike.
More on Perfect World: Q1 revenue was $100.6M (-13% Y/Y), beating consensus by $2.8M. Q2 guidance is for revenue of RMB656M-RMB687M ($105.6M-$110.6M), above a consensus of $102.5M. Online game revenue (89% of total) -16% Y/Y (share loss to Tencent and NetEase); average concurrent game users fell 11% Q/Q and 31% Y/Y to 554K. Gross margin was 76.5%, -40 bps Q/Q and -580 bps Y/Y. Opex -3% Y/Y. PWRD +3.9% AH, CC at 9PM ET (webcast). (PR)
Chinese Internet stocks jump in response to Qihoo's Q1 beat and very strong Q2 guidance, highlighted by ramping search ad sales and soaring online game revenue. YY +6.5%. RENN +6.8%. NTES +5.5%. BIDU +2.4%. PWRD +3.2%. SOHU +3%. SINA +2.3%.
A recent Chinese government proposal to allow local investors to buy stocks traded elsewhere could give a lift to "companies familiar to them," argues Stifel. The firm mentions Baidu (BIDU +3.3%), Qihoo (QIHU +2.1%), Youku (YOKU +1.2%), and Tencent (TCEHY.PK - trades in HK) as beneficiaries. All 3 U.S.-traded names are rallying, as are YY (YY +8.9%), Sohu (SOHU +5.1%), Perfect World (PWRD +1.6%), and Changyou (CYOU +3.1%). Youku fell yesterday after Baidu confirmed it's buying video site PPS, and will integrate it with its iQiyi site. Baidu claims PPS/iQiyi will create China's largest Web video platform in terms of mobile users and viewing time.
Chinese Internet stocks are surging after equities rallied in Shanghai and Hong Kong in spite of a major drop in China's services PMI. In addition to Qihoo (previous), winners include Renren (RENN +12.2%), YY (YY +13.3%), Baidu (BIDU +3.8%), Sina (SINA +2.8%), Sohu (SOHU +3.4%), Changyou (CYOU +4.3%), and Perfect World (PWRD +5%). YY is now up 20% since posting a strong Q1 report on Thursday afternoon; revenue rose 130.5% Y/Y to RMB315M ($50.7M), and EPS of $0.23 beat consensus by $0.06. Revenue is expected to hit RMB330M-340M in Q2.
Solid earnings from Tencent (TCEHY.PK) and a rally in Shanghai help Chinese Internet stocks trade higher. YOKU +3.8%. SINA +2.8%. QIHU +2.5%. SOHU +1.8%. YY +1.8%. NTES +1.5%. PWRD +1.7%. Tencent, which rose 1.5% in Hong Kong, reported a 53% Y/Y increase in Q4 sales to $1.96B, and a 37% increase in net income to $557M. Ad sales were better than expected, and value-added service sales (includes online games) rose 32%. Registered accounts for Tencent's WeChat mobile IM platform, which competes with Sina's Weibo, have topped 300M.
A selloff in Shanghai and poor guidance from Perfect World (PWRD -7.9%) lead some Chinese Internet stocks to underperform. YY -7.1%. BIDU -2%. SINA -2.5%. GAME -2.6%. Citi has downgraded Perfect World to Neutral on sales and margin concerns. On the earnings call, management mentioned sales of PWRD's popular Torchlight 2 game are expected to see a Q1 drop. One title the company has high hopes for (Neverwinter) will launch in Q2, while two others (Saint Seiya and Swordsman Online) are expected around mid-year.