Perfect World Is Just Perfect

By Eric Jackson
RealMoney Contributor
4/7/2011 12:15 PM EDT
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There has been a recent amazing run-up in some Chinese Internet stocks. Sina (SINA - commentary -Trade Now) is up 61% year-to-date, Baidu (BIDU - commentary - Trade Now) is up 42% year-to-date. And Sohu (SOHU - commentary - Trade Now) is up 49% year-to-date.

Investor reasoning appears to be that all three of these companies are experiencing the rising tide of online advertising growth in China. The local economy in China keeps holding up, despite the China bears worrying about inflation, social unrest and the local property market. All these problems have been contained to this point by the Chinese government. In the meantime, people keep surfing the Web. And, while that's going on -- and the Internet penetration rate in China keeps rising from only one-third today -- advertisers need to spend money to get people to buy their stuff. Sina has also benefited from the explosion in popularity of its Twitter-like Weibo service.

These big Chinese destination portals have been the chief beneficiaries of this trend. One group, however, hasn't participated in this big Chinese stock rally over the past few months: Chinese online-gaming companies.

As Americans, we know that online games are big over in China. I don't think you really appreciate it, however, until you go over there and visit. Among young people especially, these games become an intricate part of their lives.

I was in China last year, and a friend was telling me a story about how it's a problem now that many youths lack good social manners because they spend too much time playing games and texting. He talked about how young people he knows will text each other during the week and suggest getting together on a Saturday at a Starbucks (SBUX - commentary - Trade Now). When they arrive there, they will all sit and play games on their phones separately -- without talking to each other.

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Earthquake Won't Shake Tech Stocks

By Eric Jackson
RealMoney Contributor
3/14/2011 8:00 AM EDT
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With the frantic headlines and devastating imagery over the weekend of the Japanese earthquake and tsunami, what are the implications to your portfolio of tech stocks and Chinese stocks?

I believe we are nearing the end of the uncertainty weighing on the markets over the current nuclear concerns. If we were focused on rebuilding, the markets would be having an easier time moving forward. As it is, we are still not sure of the situation with the nuclear reactors. Every time the word "nuclear meltdown" is used in describing the event unfolding, the market jitters.

But this is not the '80s in Chernobyl. This is modern-day Japan. The fears are outpacing the reality of the situation. By the end of the week, I suspect our fears will have subsided and our full attention will be focused on the improving American economy, not Japan.

I listened in on a conference call of BAML Capital Partners' top Japan and Asian analysts last night. One of their key messages was that the Japan crisis would have little if any impact on the rest of Asia. Yes, China exports a lot to Japan, and the Japanese consumer is going to be in hunker-down mode for a while. Yet this headwind will likely be more than offset by Japan's need for stuff in order to rebuild.

Electronics, basic materials, food, energy. Japan needs them. China will sell them a lot.

It's been interesting to watch over the past week (especially Friday) how a number of Chinese tech names have been performing well. On Friday, there were big gains in Baidu (BIDU - commentary - Trade Now),Sohu (SOHU - commentary - Trade Now), Sina (SINA - commentary - Trade Now), Shanda Interactive(SNDA - commentary - Trade Now), Perfect World (PWRD - commentary - Trade Now), Changyou.com(CYOU - commentary - Trade Now), SouFun (SFUN - commentary - Trade Now), and Shanda Games(GAME - commentary - Trade Now).

NetEase.com (NTES - commentary - Trade Now) was down on Friday but has had a strong couple of weeks since its earnings came out.

Why have these Chinese Web and gaming companies been doing so well, even after the massive earthquake hit at midnight last Thursday night? Despite the jitters about energy in North Africa in the last month, most investors are seeing the strength in all these names with rising advertising revenues and increased game usage from a confident Chinese consumer. Those local factors will trump tragic events next door in Japan.

These companies will continue to see their stock prices rise and fall solely on their own performance and the continued strength of the Chinese economy.

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Video: Unloved China Gem: Shanda Interactive

Contributor Eric Jackson says Shanda Interactive (SNDA) is basically trading for its cash. Yet it has a number of initiatives in games, literature, and payments that could pay off big this year. It reports earnings on Wednesday. Eric owns YHOO.

Wed 03/02/11 13:52 PM EST -- Eric Jackson

Stocks in this video: YHOO | AMZN | BIDU | SNDA | GAME

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Shanda Shows Promise

By Eric Jackson
RealMoney Contributor
2/28/2011 1:45 PM EST
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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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Bettting on Shanda Interactive

By Eric Jackson10/27/10 - 07:00 AM EDT

SHANGHAI (TheStreet) -- I have been in China for the last week visiting with different companies. Throughout the trip, I'm going to be reporting on it in regular updates in TheStreetas well as RealMoney.

On Monday, I met with Shanda Interactive Entertainment (SNDA_) in Shanghai. Going into the meeting, I had no idea that Chinese gaming and Internet stocks were going to have such a strong week. What sent the entire sector rocketing higher was Sohu.com's (SOHU_) positive earnings results which showed advertising revenue strongly ahead of analysts' expectations. This sent other Chinese portals like Sina(SINA_) and online gaming companies like Changyou(CYOU_) rocketing higher. Changyou is the publicly-traded online gaming company owned by Sohu.

The good news of Sohu showed that China's economy is still hot and growing, bringing more and more advertising revenue and usage to Web companies there.

Which brings us back to Shanda. The company is as old as other first-generation Chinese Internet companies like Sohu and Sina, yet they haven't been as high-flying of late -- especially after missing their second-quarter earnings' estimates by 12 cents a share. The key questions are why have they lost their mojo and can they get it back?

There are two Shanda-related companies which trade in the U.S.: Shanda Interactive, which is the original parent company with whom I met, and Shanda Gaming(GAME_), which is the online gaming business subsidiary of Shanda Interactive.

Shanda Gaming was spun-out from Shanda last year to better let investors assign its value as a stand-alone from the parent. However, investors have tended to ignore both the online gaming company and the parent since that spin-out. The enterprise value to EBITDA ratios of Shanda and Shanda Gaming are 3.6x and 5.2x respectively. Contrast that to Sohu's and its online gaming subsidiary Changyou's of 10x and 8.6x. It's clear that Shanda has been lost in the shuffle.

The parent Shanda relies on its online gaming group as its cash cow to bring users back. It has done a great job over the last 10 years of producing a number of hit games. It's also established its platform as a popular enough forum for developers to build and show their games on. The company is relying on the belief that its open and popular platform will continue to attract gamers. Most of their games are played online on computers, but they are working to allow more and more games to be available to play on mobile phones, including the very popular iPhone 4 and iPad from Apple(AAPL_).

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