Shanda Games looks to ride industry wave in IPO

Tue Sep 15, 2009 6:29pm EDT
 
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By Phil Wahba and Alexei Oreskovic

NEW YORK/SAN FRANCISCO (Reuters) - Many people outside of China have never played the online video games operated by Shanda Games.

But Shanda Interactive Entertainment Ltd, the parent company of Shanda Games, is betting that fact won't hurt investor demand when it begins selling off its stake in its online gaming unit in a Nasdaq-listed initial public offering set to price next week.

Shanda Games hopes to follow in the footsteps of Changyou.com Ltd, another Chinese online game outfit that was spun off from Chinese Internet portal Sohu.com Inc, which listed its shares on Nasdaq in April.

Changyou.com is the top performing U.S.-listed IPO this year, with its shares up 157 percent since its debut.

On Monday, Shanda Games set the price range for its $725 million IPO, estimating it will sell 63 million American depositary shares for $10.50 to $12.50.

But that range could prove to be conservative given Shanda Games' growing sales and strong position in the industry, according to one analyst.

Using annualized data for the quarter ended in June 2009 and the midpoint price, Francis Gaskins, president of IPO Desktop, estimated that Shanda's IPO is being priced at a price-to-earnings valuation of 13.8, compared to 15.3 for Changyou.com and 19.8 for NetEase.com Inc, its chief rivals.

Another leading rival, Giant Interactive, has a lower ratio of 12.5 because its revenues have not shown the same consistency in their growth, Gaskins said.   Continued...