Tuesday, July 12, 2011

What Makes It a Perfect World?

By Eric Jackson
RealMoney Contributor
7/11/2011 10:45 AM EDT
Click here for more stories by Eric Jackson

Perfect World (PWRD - commentary - Trade Now) is one of the best-known online gaming companies in China. The storylines and characters for its top games are sourced from popular legends in Chinese literature, so there is an immediate familiarity for gamers.

Similar to all Chinese gaming stocks, Perfect World pulled back in 2010 from the fall 2009 highs, when the stock hit over $40. In the rally earlier this year, Perfect World and other gaming stocks underperformed. It bottomed at $17 a few weeks ago. Now it's back over $21.
Despite the company's conservative guidance, Perfect Worls has a number of promising new games coming out this year and going into next year. Management is playing it down, but the stock is likely to exceed expectations, which is why I took a position in the name a couple of months ago.

Last month, I met with Perfect World Investor Relations Officer Vivien Wang at the company's headquarters, a 22-story building overlooking Beijing's suburbs. What follows is a summary of our conversation.

Eric: So can you tell me about your company and your strategies for the next six to 12 months?

Wang: The company was founded in 1997, and the senior management has worked together for a very long time. Our revenue is not as concentrated as other companies, none of our games contribute more than 30% of the total revenue, whereas some of our competitors rely on 70% of their revenue from a single game.

For the near term, there are no major catalysts, but right now, we are targeting European investors because they tend to have a longer-term vision.

Moreover, we are trying to lengthen the life cycle of our games from one year to two years, and we focus on a low turnover rate.

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