The9£¨NCTY US) 4Q08 review

Discussion in 'Stocks' started by CNThomas, Feb 24, 2009.

  1. CNThomas


    Following its worse-than-expected earnings in 4Q08, we think The9¡¯s shares would suffer selling-off by some unhappy investors with The9 magt¡¯s ambiguity about the exact date to roll out WLK and the pending uncertainty over WoW¡¯s renewal. However, as the company still has net cash of US$ 326.6 mn, about US$ 11.9 per share, on its book, we think its shares price will be well buttressed abound US$ 11 per share.

    We think the near term upside surprise to its share price will be any clarity on WoW¡¯s renewal and the exact launch date for the expansion pack, WLK.

    What are we looking for going into 1Q09?

    We think chances that 1Q09 will bring us any upside surprise in earnings are very low. Based on our checks of various gaming forums, we understand that The9¡¯s WoW has been suffering gamer cannibalization from its peers in Taiwan and elsewhere, which were already upgraded with the expansion pack in 4Q08. Though the introduction of WoW 3.0 might have helped maintain WoW¡¯s attraction for 4Q08, we would expect some impatient gamers to continue to walk away for the WLK operated elsewhere.

    Further more, we believe the earliest date for the9 to roll out WLK will be sometime towards the end of March, meaning that the earnings contribution from WLK, if any, to 1Q09 would be extremely limited. However, as we pointed out above, any announcement of such publish date for WLK will be a catalyst for the company¡¯s shares.

    Meanwhile, we expect to see continued dwindling margins, given growing R&D and marketing headcounts. The company management indicated to expand its current marketing headcounts from 300 plus to 1200 by end of 2009 and meanwhile to continue to recruit R&D talents to enhance game development capabilities.

    Important takeaways from the meeting with The9¡¯s management:

    1 World of War (WoW)¡¯s renewal negotiation with Activision/blizzard?