Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Chinese OBESSION with Video Games Offers Investment Opportunities 2010

Stock-Markets / Investing 2010 Jan 07, 2010 - 07:43 AM GMT

By: Tony_Sagami


Best Financial Markets Analysis ArticleMy sister calls them Asian nerds. She is talking about some of our single Asian male friends who spend most of their spare time playing games, like golf and video games, instead of meeting girls.

My three boys have a little bit of that nerd in them, too. They are great kids, but one of the things that we regularly butt heads over is how much time they spend playing video games. They’d play all day long if I let them.

The most enthusiastic video gamers in the world might be the Chinese, though. There are millions of young Chinese boys that love video games and play them so much that the Chinese government enacted strict rules that limited playing time.

These rules impose penalties on players who spend more than three hours a day by reducing the abilities of their characters and any players that spend more than five hours simply are forced to take a five-hour break before they can return to a game.

Video gaming got so out of hand that the Chinese government opened video game addiction clinics and while it sounds extreme to me, these clinics used electro-shock treatments to zap players out of their addiction.

Video gaming has really changed in the last few years. Instead of playing on a console, like an Xbox or Sony PlayStation, most Chinese play video games on personal computers. Chinese youths flock to internet cafes to play these games.

The reasons are twofold: (1) Most Chinese youth cannot afford the $200 to $500 cost of a gaming console and (2) a new generation of video games called massively multi-player online role-playing games, or MMORPGs.

MMORPGs? It is a mouthful of a name and something that a hopelessly out-of-touch parent like me will never play, but MMORPGs are a new genre of video games that are played over the internet instead of a game console.

Players assume fictional roles and play over the internet with a large number of players — sometimes in the thousands — within a make-believe, virtual world. It is a world in which general gamers can shed away their true identities and assume the characters of anyone or anything that they desire. Not only that, but they can assume great and wonderful powers.

Chinese boys spend so much time playing video games that the government enacted strict rules to limit play time.
Chinese boys spend so much time playing video games that the government enacted strict rules to limit play time.

Players take control of a character and guide it through certain tasks such as killing a monster to receive skill level points for successfully completing the task. In combat games, a player’s fighting ability increases when he slays opponents, finds weapons, or reaches goals.

A great aspect of playing an MMORPG is that players work together to combat difficult enemies or pool resources in order to advance the goals of the team.

This team or community aspect is reinforced from real-time chat between players. Typed messages can be displayed to other players and the other players — who may be thousands of miles away — help form friendships. These internet friendships are what make MMORPGs so popular … addictive … to players. A few companies are making a mountain of money from all those MMORPG players and you can, too, by investing in their stock. The one I like the best is Shanda Games Limited (Nasdaq:GAME).

Shanda Games operates 18 popular MMORPGs such as The World of Legend, Aion, and Company of Heroes, as well as 20 other games in development. Plus, it is China’s largest operator of MMORPGs in China with 10 million active paying customers.

Shanda Games recently went public and is my #1 pick to profit from the video gaming obsession of Chinese youths.

The Chinese OBESSION with Video Games

My boys love to play video games, but Chinese youth really LOVE their video games.

Gaming is one of the cheapest social activities available in China. Online games are a cheap form of entertainment, for the average young person in China that makes the equivalent of $100 to $120 per month. An hour’s worth of play at an internet gaming café in China costs 25 cents versus $12 for a movie.

According to researcher IBISWorld, Chinese youth spent $1.4 billion in online games in 2008. Now, that’s a lot of money and it is going to do nothing but grow larger.

I say that because gaming penetration is at only 19% among Chinese internet users, which is less than half of Korea, and that is why ROTH Capital forecasts that China’s online gaming industry will grow at a 25% annual rate over the next five years to $8.3 billion by 2013.

300 Million (and Growing) Potential Customers

According to the China Internet Network Information Center (CNNIC), the number of Chinese connected to the internet grew by 41.9% in 2008 and now stands at a staggering 300 million.

Internet gaming is one of the cheapest social activities available in China.
Internet gaming is one of the cheapest social activities available in China.

That makes China the most “wired” country in the world. China, however, has only scratched the surface of the wired world because 300 million still only represents a 22% penetration rate.

The actual growth in the number of video gamers confirms the size of the market. A study from Nikko Partners showed that the number of online gamers increased by 26% in 2008. Wow!

To put that into perspective, the United States is at 75%, so China’s rate is going to climb as incomes grow. Also, the Chinese government has recently awarded 3G or Third Generation licenses, which means more bandwidth and faster speed. That’s a heavenly combination for gamers.

All those hundreds of millions of Chinese internet users don’t mean squat unless Shanda Games can get them to become paying users. Let me tell you … Shanda is signing them up like crazy.

Shanda Is on Fire!

In the first half of this year, sales jumped by 49% to $322 million and profits soared 75% to $98 million. That’s extremely impressive, but there’s more:

arrow Revenge of the Asian Nerds  In just the last 90 days, the number of active, paying MMORPG accounts increased by 19.4%!

arrow Revenge of the Asian Nerds  Despite that rapid growth, Shanda Games has been able to maintain its sky-high profit margins. Its gross profits margin was 72.7% in Q2, compared with 72.8% in the second quarter of 2008 and 72.3% in the first quarter of 2009.

arrow Revenge of the Asian Nerds  The Chinese Online Game Industry gave Shanda Games the #1 ranking in all three of its award categories. That’s the video game equivalent of winning an Academy Award for Best Picture, Best Actor, and Best Actress all in the same year!

arrow Revenge of the Asian Nerds  Fortune magazine ranked Shanda Games as the 7th fastest growing company in the world and the 2nd fastest growing entertainment company.

Those accomplishments are impressive, but it really is a matter of being in the right business at the right time.

Buy Your Straw Hats in January

As a child, I never understood what my father meant by that slogan, but I sure understand it today because I do love finding stock market bargains and Shanda Games sure qualifies.

Founded in 2001 as a division of Shanda Interactive (sort of a Yahoo-type internet portal), Shanda Games just went public in September at $12.50 a share. Investors were so enthusiastic about Shanda Games that the company increased the size of the IPO from 63 million to 83 million shares.

On the first day of trading, however, Shanda Games dropped by 14%; hardly a successful IPO.

What happened? There isn’t a simple answer, but it does create a fantastic opportunity for you.

Buy the Parent, Not the Child

I’m going to throw you a curveball here because the best way to invest in Shanda Games is not by buying its stock. The best way is to invest in Shanda Interactive (Nasdaq:SNDA), the parent company of Shanda Games. Here’s why:

1. Even after selling 83 million shares and raising $1 billion, parent company Shanda Interactive still owns 71% of the outstanding stock. What that means is whatever profits Shanda Games makes, the parent company is going to get to keep most of it.

2. It is always a positive when so much stock is in “strong hands” that will hold on to the shares for years … if not decades. Unlike a lot of IPOs, you won’t have to worry about a zillion shares hitting the open market after the “lock-up” period expires.

3. After spinning off Shanda Games, Shanda Interactive added $1 BILLION of cash to the $778 million of cash it already had in the bank. We’re talking about almost $1.8 billion dollars of cold, hard cash.

4. At the current market price, I calculate that the market value of Shanda Interactive’s 71% of GAME is at least $2 billion. That $2 billion of GAME plus $1.8 billion of cash means that you are buying $1 worth of assets for only 85 cents. I’ll take that deal all day long.

5. Not only are you paying 85 cents on the dollar for a fantastic gaming business, you are essentially getting Shanda Interactive for FREE! Let me tell you, Shanda Interactive is a pretty darn good business by itself.

As I mentioned, Shanda Interactive is a Yahoo-type portal in China. Internet users use the Shanda portal to access online chess and board games, several sports games, and a wide variety of cartoons, literature, news, music, community chat, and even online bill paying.

To be fair, I must disclose that my Asia Stock Alert subscribers already own Shanda Interactive and are sitting on a BIG open gain. I am confident, however, that it is headed even higher but like always, there are no guarantees when it comes to investing in the stock market.

Lastly, I’m not suggesting that you rush out and invest today. As I just said, Shanda Interactive has moved sharply higher so you should wait for a correction.

Best wishes,


This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in