GA 1st Quarterly Call After IPO
November 20th, 2007Giant Interactive, a Chinese online gaming company that had its IPO earlier this month, will report its first quarterly results post-IPO in a conference call tomorrow (also available here).
A Reuters preview of the numbers is here. Some highlights:
Net revenue for the third quarter of 2007 was RMB405.2 million (US$54.1 million), an increase of 164.2% over the third quarter of 2006 and 9.5% over the second quarter of 2007.
Gross profit for the third quarter of 2007 was RMB359.8million (US$48.0million), an increase of 152.8% over the third quarter of 2006 and 8.5% over the second quarter of 2007. Gross profit margin for the third quarter of 2007 was 88.8%.
Astounding year-to-year growth (modest growth month-to-month). Also, great profit margins. So far GA has created rather than licensed games (some firms pay the World of Warcraft creators or Korean game companies heavy licensing fees, then localize the game for China), so GA has enjoyed tremendous margins.
GA listed in a tough climate. US markets have been in general decline. These results are coming out on a day when the Dow is down more than 200 points.
Plus, besides this general market risk, people fear the Chinese bubble is near a popping point, and that kind of analysis may not discriminate between A-shares, H-shares, PetroChina and Giant Interactive. I keep hearing Jim Cramer tell people on his CNBC show to stay away from Chinese stocks except Bidu and “China Tel.” It’s hard to imagine he really means to recommend the land-line carrier, not China Mobile (and even if he does mean China Tel, he’s clearly not terribly well informed about distinctions among Chinese issuers and so is saying avoid the “sector” rather than specific companies).
Third, I think many investors in the US just don’t “get” online gaming. To the extent most people my age and older think about gaming at all, we think of our kids playing Microsoft’s XBox, Sony’s PlayStation 3 or Nintendo’s Wii (or the PSP and DS handsets). But the console market is less important than the online market in China. Chinese gamers can go to internet cafes (which are very nice now) and play for a few kuai, whereas buying a console is big capital outlay even if they use pirated games, which they will, which means those console businesses are less promising in China, too.
GA’s CEO Shi Yuzhu is the guy behind Nao Bai Jin (脑白金), a medicinal/nutritional supplement advertised so ubiquitously in China that anybody who’s lived in China in recent years knows the jingle. Shi wears track suits and may not look like an insurance company exec, but I think he’s a major plus factor for GA.
I’m still bullish (and long) GA. I previously wrote about the company here.