Giant Interactive Group Inc. (Public, NYSE:GA) is one of China's leading online game developers and operators in terms of revenues, and their free-to-play online game ZT Online was the most popular online game in China in 2006, according to a report published by IDC. Giant is the massively multiplayer online, or MMO games answer for China and with shares down to $11 and change, it's got our attention.
A must read article on Giant put out by Cabeza Howe on Dec 24th can be found here -- Click to Read - China Gaming: Giant Interactive Cannot Be Ignored
They commercially launched their first game, ZT Online, in January 2006. ZT Online's quarterly peak concurrent users and quarterly average concurrent users have increased rapidly since its commercial launch, growing at compound quarterly rates of 55.0% and 58.7%, respectively, over the six quarters ended June 30, 2007. Giant is presently closed testing two new games: ZT Online PTP, a pay-to-play game based on the ZT Online free-to-play game, and Giant Online, a free-to-play game.
Giant Interactive’s marketing network currently consists of about 3,000 personnel. The CEO Mr. Yuzhu Shi has a plan to expand it to 20,000 in three years so that he can maintain his superior market share in tier II and III cities.
With an industry leading position, complementary product portfolio that is set to grow in the next few years, and competitive advantages in terms of superior R&D and marketing muscles, Giant Interactive promises to be a company that will win over the long term.
Shares of Giant have fallen 37% in the last 3 months so their P/E of 19 becomes a more reasonable investment. Some good news came out Christmas Eve when China-based online game operator Giant Interactive Group Inc (GA.N) said it may buyback up to $200 million worth of American depositary shares (ADS). Giant Interactive plans to fund the repurchases from available working capital, it said in a statement. The company said it expects to implement the program over the next 12 months.
The Masters love their revenue over the past few quarters, the numbers speak for themselves:
In Millions of CNY (except for per share items)
|
3 months Ending 2007-09-30 |
3 months Ending 2007-06-30 |
3 months Ending 2007-03-31 |
3 months Ending 2006-12-31 |
3 months Ending 2006-09-30 |
| Revenue |
405.25 |
370.22 |
317.22 |
172.72 |
153.36 |
| Other Revenue, Total |
- |
- |
- |
- |
- |
| Total Revenue |
405.25 |
370.22 |
317.22 |
172.72 |
153.36 |
|
| Cost of Revenue, Total |
45.45 |
38.62 |
27.98 |
25.34 |
11.05 |
| Gross Profit |
359.80 |
331.61 |
289.24 |
147.38 |
142.31 |
So what's not to like and why the 30% drop in share price?
Back on Nov 27th, Giant Interactive Group Inc. said it will "vigorously" defend itself in a class action lawsuit in New York, in which the company is accused of misleading investors about the number of people playing its games.
The China-based company said the lawsuit, filed in U.S. District Court for the Southern District of New York, alleges breach of the 1933 Securities Act, which bans misleading statements by companies offering securities for sale.
The case is being filed by law firm Coughlin Stoia Geller Rudman & Robbins LLP. It alleges that the company filed an IPO registration statement with the SEC in late October that did not state there was a decline in average concurrent game users and peak concurrent game users in the third quarter of 2007.
The law firm said that the company's prospectus also failed to record the decline. It said that on Nov. 20, the price of Giant Interactive's American Depositary Shares dropped from $14.88 to $11.10 on "extremely heavy trading volume" after the company announced the decline.
Giant Interactive is an online game developer and operator and says its prepaid game cards are sold in more than 100,000 stores throughout China.
Now that shares have been worked over, it's time to take a 2nd look.
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