Perfect World’s 2014: The Quest For Sustained Gamer Interest

2014 was a year in which Perfect World (NASDAQ: PWRD) was let down by its lack of new game releases, but redeemed by its marketing capability. The paucity of new game releases in the latter half of the year was a break from previous years, when the company had a steady pipeline of games. Yet the company managed to sustain player interest in their games through a number of expansion packs for some of its best-selling games.

We have a price estimate for Perfect World of approximately $15, roughly in line with its current market price.

See our complete analysis of Perfect World here

New Game Development

In the second half of 2014, the only new game released by Perfect World was a 2D turn-based cartoon-style RPG mobile game CrossGate Mobile. On the PC game front, Perfect World has been unable to release any new games this year. To make up for this lack of new game releases, the company has taken the collaboration route, investing in game developers outside China to acquire licensing rights for their games in the country.

This led to the purchase of a 3% stake in Canadian game developer Digital Extremes, the owner of one of the world’s most popular online games, Warframes. In August 2014, Warframes’ user base was 10 million, double the February figure. It is a free to play game that earns revenues through in-game purchases, which is how Perfect World’s games earn most of their revenues as well. It is believed that Perfect World’s participation in the deal was aimed at having exclusive distribution rights to this game in China (See Perfect World Invests In Canadian Game-Maker To Sustain Its Mojo).

As part of its efforts to build its game console pipeline, Perfect World has also established a long-term partnership with Microsoft. Through Microsoft’s Xbox One platform, Perfect World plans to bring several console games to players in China. Neverwinter is one of the highly-anticipated titles to be launched along with the debut of the Xbox One devices in mainland China. Video consoles such as the Xbox were banned in China until recently. The Chinese government lifted the ban after almost 14 years in early January 2014 (See Our Coverage Of Perfect World’s Q2 Earnings).

Expansion Packs In Lieu Of New Games

Expansion packs for existing games can provide a revenue boost for gaming companies when new game releases are delayed. This was the case with Perfect World in Q3, when it released several expansion packs to prolong the life-cycles of its best selling titles. For instance, it released 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 . It has also been credited with helping Perfect World’s international subsidiaries register 15% Y-o-Y revenue growth in 2013. In Q2 2014, it released expansion packs for at least seven other games. ^[1]

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1. Perfect World Recent Business Developments [↩]