Monday, February 28, 2011

Shanda Shows Promise

By Eric Jackson
RealMoney Contributor

2/28/2011 1:45 PM EST
Click here for more stories by Eric Jackson

Shanda Interactive Entertainment (SNDA - commentary - Trade Now) will report its earnings before the market opens tomorrow morning. Though Shanda has become lost in the shuffle of other Chinese technology names, 2011 could prove to be a good year for its stock. Several positive trends are blowing at the company's back. Moreover, the overlooked nature of the stock could play in investors' favor.

In this piece, I have highlighted some of the trends and initiatives that are helping Shanda along. Followers of this stock should pay attention to updates during tomorrow's conference call.

Online Gaming

Shanda came to prominence 10 years ago due to the popularity of its online games. The company was around long before anyone in North America had ever thought of the idea of online gaming. Due to Shanda's success in the space, it was able to spin-out Shanda Games(GAME - commentary - Trade Now) in 2009 as a separately listed company. However, Shanda (the parent) and Shanda Games have seen their respective prominences in this hotly competitive niche wane in recent years. Much like movies, online gaming is a "hits" business.

Because Shanda has not been as strong in the space recently, the market has significantly discounted the company's stock. It's doubtful that analysts will upwardly revise their price targets for the stock until there is clear evidence that the company has a hot new game on its hands. As an investor, though, you have to look for earlier signs of an upward move in order to make money.

Several signs indicate that Shanda's gaming business may be about to turn the corner. Its big game that's currently in development is called "Legend of the Immortal." This game was designed by a small, core team within Shanda. Shanda's management has recently said that it will be to Shanda what Mickey Mouse is to Disney (DIS - commentary - Trade Now). That's quite a comparison. The player community within China is equally excited about the game.


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