If an investor wishes to capitalize on the spectacular growth in video gaming now would be the time. China is reaching a 40% expansion in this industry accelerated by the abandonment of prohibitions against game consoles that were made at the end of December 2013. The Chinese government had previously decided in 2001 that the content of these new games were inappropriate to the civility of Chinese society. The surge in other venues of this industry has made the previous bans on one segment of this commercial enterprise no longer effective.
Perfect World Co., Ltd. (PWRD) is an on line video game developer based in China. By investing in a local partner one can avoid the legal and cultural challenges that a foreign company will face on attempting to enter or expand into the Chinese market.
Perfect World uses patented game engines and development platforms in order to provide a multitude of games across numerous devices. The company specializes in desktop-based Massively Multiplayer Online games known as MMO in the industry.
PWRD experienced a $0.05 increase in the price of company stock at the close of the business day in New York on May 06, 2014. This would be a gain of 0.27% bringing the share price to $18.55 USD. The range in price for the day was from a low of $18.33 USD to a high of $18.96 USD. The volume traded was 264,228. The stock was trading below $18.00 USD last week.
The company founded in 2004 and based in Beijing China through its subsidiaries operates in a number of geographic areas including North America. The most popular MMOs consist of Perfect World, Legend of Martial Arts, Perfect World II, Zhu Xian, Chi Bi, Pocketpet, Journey West, Forsaken World, Saint Seiya Online, and Swordsman Online. The company also developed Holy King and Hot Dance Party that are 3D online casual games. Included in the company game portfolio is two 2.5D MMO, one named Empire of the Immortals the other Battle of the Immortals. They also own two 2D turn based MMO comprising of Return of the Condor Heroes and Fantasy Zhu Xian as well as a 2D real time MMO known as Dragon Excalibur.
Perfect World employs nearly 5000 full time workers. The 52 week range for the share price has been from a low of $11.75 USD to a high of $26.25 USD. The average volume traded for the last 3 months was 788,664 shares. Market capitalization for the company stands at $916.30 million USD.
The video gaming industry in China is said to be worth $13 billion USD and has grown by 40% in the last 12 months. In comparison the market in the United States is estimated to be worth $20.5 billion. The dramatic growth rate in China shows that this market will overtake the United States in the next two to three years if current rates of expansion continue.
What makes the Chinese market different from the American market is the continuing strength of the personal computer (PC) gaming venue in China. Close to 65% of video gaming revenue in 2013 came from individual customer based PC games. That equates to a total of $8.7 billion USD. Browser based video games in China was worth $2 billion USD and mobile games were valued at $1.8 billion USD. Social games came in at less than $1 billion USD.
Before 2013 domestic video game companies based in China had a lower portion of the market share inside the country. This was reversed with a 30% surge in growth allowing these companies to take in close to $8 billion USD in revenue.
Two of the market leaders in the industry in China are going private. These are Shanda Games and Giant Interactive. Of the remaining companies Perfect World seems to provide the best opportunity for growth not only in the Chinese market but internationally as well. The remaining Chinese players consist of The9 Limited, Changyou, Tencent Holdings Ltd., and NetEase.
Perfect World saw revenue growth of $504 million USD in 2013. Net income totaled $90 million USD giving the company a solid PE ratio of approximately 10. The company has a well proportionate and strong balance sheet. Total assets exceed $1 billion USD while liabilities are only $300 million USD. Revenues increased 10% in 2013. It is true that profits are down from 2012 but the company is making major investments in the development of new games and marketing strategies. Perfect World released several new games in 2013 and more are expected to arrive in 2014 (Swordsman Online).
Perfect World is also making major moves internationally. In 2011 the company bought outright Cryptic Studios, a United States based developer of video games. Cryptic Studios is known for a number of popular games worldwide. These would include Champions OnLine, Neverwinter and Star Trek Online.
Another notable move recently, was the $100 million USD investment Perfect World made in Shanda Games, giving the company a 7% stake as the aforementioned company goes private.
In addition, Perfect World is partnering exclusively with Valve to bring Dota 2 a very popular game internationally to China. Valve is also the creators of Steam and the Half Life series. This is important because Dota 2 alone increased its monthly participation rate a total of 600,000 players from December 2013 to January 2014. As a result the total subscriber list reached over 7 million unique players at the beginning of this year. The rate of expansion for Valve has been excellent and is about to get even better with the new foray into China.
Perfect World is a fast moving company that is not debt ridden like so many other enterprises are. It is continuing to invest in new products and business partnerships that will allow it to make a impressive dent in the Chinese video gaming market. The present dividend yield of 2.5% is a better return then one can receive in many other traditional investment vehicles at the present time. One can expect the share price of this stock to increase 50% to 100% in the next year or two if not sooner.