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The IPO market is still batting 1.000 in 2009. Unfortunately, it's only had a pair of chances to swing away at the plate.
Chinese gaming specialist Changyou (Nasdaq: CYOU ) went public this morning, pricing at the top of its original $14 to $16 range. It wasn't enough. Changyou opened at a whopping $22.06 today.
It's been a punishing drought on the IPO front, with Changyou becoming only the second company to go public this year. Infant formula maker Mead Johnson (NYSE: MJN ) went public in February, also pricing at the high end of its range and opening higher.
Sohu.com (Nasdaq: SOHU ) is offering up half of the 7.5 million Changyou ADSs made available this morning, yet will still retain 71% of Changyou (and an even larger voting stake in the company). That's clearly one of the reasons Sohu's shares were inching higher this morning.
Playing the money game
Changyou is a fast-growing player in the realm of multiplayer Web-based role-playing games. Market leaders in the niche include NetEase.com (Nasdaq: NTES ) and Shanda Interactive (Nasdaq: SNDA ) .
Changyou's flagship title is a socially interactive martial arts game called Tian Long Ba Bu. As many as 800,000 players were immersed in Changyou's fantasy world at this time last month.
The company's on a heady growth trajectory. Revenue grew nearly fivefold in 2008, to $201.8 million. Earnings grew even faster, clocking in at $108 million. Yes, high net margins are a delicious trademark of online gaming companies in China.
Another trademark is ridiculously low valuations. As I pointed out when Changyou filed to go public last month, all five of China's publicly traded stand-alone gaming companies are fetching forward P/E ratios in the pre-teens or lower.
Changyou is the young speedster in the lot, but investors are clearly apprehensive here. It probably doesn't help that the two most recent Chinese gaming IPOs -- the 2007 debuts of Perfect World (Nasdaq: PWRD ) and Giant Interactive (NYSE: GA ) -- are trading below their debutante prices of $16 and $15.50, respectively.
The trepidation isn't entirely warranted. Companies like NetEase and Shanda have been at it for several years, so it's not as if the niche should be considered faddish. China has tried to crack down on Internet cafe growth and curb usage by minors, but most of the players are still growing nicely.
Hopefully Changyou helps change the flawed perceptions. It is now not only a shiny new name for investors to mull over, but also a rare infusion of fresh IPO blood.
The game is really just getting started.
Other games to play: