Weekly Chinese Internet Notes: Perfect World, Sina and Baidu

In this article will give updates on game developer Perfect World (NASDAQ: PWRD), media company Sina (NASDAQ:SINA) and search giant Baidu (NASDAQ:BIDU) for the last week in the Chinese Internet segment. It is worth noting that all these company stocks are trading lower compared to their levels at the beginning of the week. This is on account of expectations of sluggish economic growth in China, after officials ruled out stimulus measures to boost its economy. ^[1]. Last week, Perfect World announced an expansion pack to one of its most popular games. Sina, on the other hand, was accused of spreading pornographic content by the Chinese Government. Baidu continues sealing strategic agreements by partnering with Chinese banks and an Australian advertising agency.

Perfect World Expands Its Best-Selling Game

Perfect World  announced last week that it would release an expansion pack for its MMORPG (Massively Multi-player Online Role Playing Game) Neverwinter, titled Rise Of Tiamat. Neverwinter has been a very successful title for Perfect World. Within a month of its launch, over two million people had registered to play the game ^[2]. It has also been credited with helping Perfect World’s international subsidiaries register 15% Y-o-Y revenue growth last year. Our forecasts for international revenues of Perfect World below.

Earlier we have written on how new game launches are helping Perfect World grow its revenue (see New Games Fuel Perfect World’s Growth). Expansion packs are the next best thing to new game launches for online gaming companies as they help sustain player interest in the game. With new in-game purchases, they can also help augment the game’s revenue generation potential. Hence this expansion pack is expected to help Perfect World  grow its revenue for the remainder of the year, especially outside China.

Perfect World lost ~$1 per share this week. At the time of writing this report, the stock is trading at $19.69 per share. We have a price estimate of ~$18 per share for this stock. Our revenue estimate for Perfect World in the calendar year 2014 is $594 million, lower than the Reuters consensus estimate of  $628 million.

Sina Fined For Hosting Objectionable Content

Sina has once again come under the Chinese Government scanner. Sina’s micro-blogging site Weibo was found to have hosted more than 20 erotic stories on a photo-blog format. Character restrictions on Weibo posts were overcome in the said posts by keeping the text inside the images. Sina had been fined close to $815,000 in April for allowing such content. ^[3] Such incidents highlight the regulatory risks that even home grown Chinese companies face in doing business online in China.

Sina dropped by over $2 a share in trading this week to reach ~$43 per share. We have estimated the value of Sina’s equity to be $71.25 per share. We have a revenue estimate of $719 million for Sina in the year ending December 2014, lower than the Reuters consensus estimate of $765 million.

See our complete analysis of Sina here

Baidu’s New Agreements

Baidu has entered into strategic partnerships with China Guangfa Bank and Industrial Bank Co Ltd. China Guangfa Bank is seeking big data analytics support from Baidu to help it evaluate and understand potential customers for its wealth management products. The bank is also interested  in availing Baidu’s location-based service in optimizing the location of its brick and mortar banking infrastructure. ^[4] Industrial Bank seeks to avail Baidu’s competencies in data analysis, customer investigation and online marketing to improving its online banking business. ^[5] Such business development activities can help establish Baidu as a strong player in the big data domain going ahead, especially among the firms in the BFSI sector.

See our complete analysis of Baidu here

We had also reported about Baidu’s strategic research agreements with Seagate Technology and BMW (See Baidu Inks Strategic Research Agreements). It has now also tied up with an advertising firm called Belimark Australia, to help Australian businesses gain access to potential customers in China through Baidu’s search advertising. The services to be offered by Australian firms to Chinese consumers through this channel are likely to be travel and accommodation, real estate, retail and educational services. This tie-up could provide an opportunity for Baidu to increase its $5.12 billion revenue from online advertisng in China that it earned last year. ^[6]

Baidu lost ~$12 per share in trading this week. Its current market price is ~$218. Trefis price estimate for  this stock is $225. Bloomberg BusinessWeek has a consensus estimate of $7.9 billion revenues for Baidu in calendar year 2014. Trefis estimate for this metric is $7.7 billion.

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1. China’s Economic Growth Woes Bring Down Stocks [↩]
2. Neverwinter MMORPG has 2 Million Players [↩]
3. Sina Weibo Punished [↩]
4. Baidu And CBG Join Hands [↩]
5. Baidu Helps Industrial Bank [↩]
6. Baidu Opens To Aussie Business [↩]