Competitive gaming is huge in China, where the booming country's youth play immersive online fantasy games. That spunk and spirit, apparently, can also be found in its regulators.
China's Ministry of Culture and its General Administration of Press and Publications are butting heads over Activision Blizzard's (Nasdaq: ATVI ) World of Warcraft. One regulatory agency is arguing that Activision partner NetEase.com (Nasdaq: NTES ) should stop signing up new accounts for the multiplayer fantasy game until it is granted approval. The rival regulatory body is countering that NetEase's paperwork for the title is just fine.
The regulatory wrangling would be somewhat amusing, if not for the dark cloud that is looming over the industry. Regulators are tightening the screws, cracking down on foreign ownership and forcing developers to jump through more hoops in the approval process.
Activision Blizzard's popular title even went dark in China for a few months, when the company decided to switch licensing partners from The9 (Nasdaq: NCTY ) to market leader NetEase.
If investors have the same competitive zeal as Chinese regulators, the key players offer compelling valuations.
|
Company
|
11/4/09
|
2010 EPS
|
2010 P/E
|
|
NetEase.com
|
$39.58
|
$2.89
|
14
|
|
Shanda (Nasdaq: SNDA )
|
$49.33
|
$3.77
|
13
|
|
Changyou.com (Nasdaq: CYOU )
|
$30.68
|
$3.19
|
10
|
|
Perfect World (Nasdaq: PWRD )
|
$44.33
|
$3.46
|
13
|
|
Giant Interactive (NYSE: GA )
|
$7.28
|
$0.58
|
13
|
Source: Yahoo! Finance.
As China's economy grows, and more of its booming population migrates online, it's a real eye-opener to see fast-growing companies trading at 10-14 times next year's projected profitability.
The risks are real. Chinese regulators are clamping down on the industry, even at the risk of losing respect from the global investing community along all Chinese equities. A few flipped switches, and those 2010 targets are toast. There is huge upside here in terms of the potential rewards, but investors can't ignore the heightened risks.
In China, this is more than just a game.
Are the low valuations on Chinese gaming stocks attractive or would you prefer to stay away until regulators ease up? The question isn't rhetorical. Chime in with your thoughts in the comment box below.
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