Monday, September 11, 2006

Calls of Note Part 7

- CIBC notes that reflecting on their recent visit to China, they are incrementally negative on online gaming sector. Overall, the firm believes a busy calendar of new titles, emergence of free-to-play games, rising levels of promotional spending, and higher talent costs could result in lower margins and returns on capital.

They expect regulatory risks to increase near term with the potential launch of the Real Name system, slower approvals for foreign titles, and new policies curbing addictive or improper content. That said, the market is not zero sum and should grow w/more home users & emerging revenue models.

Despite these concerns, they remain bullish on NCTY as they believe they have the most attractive pipeline which could lead to upward revisions in '07. Short term, NCTY may be range bound as growth of World of Warcraft moderates in advance of the Burning Crusades expansion pack in 1H'07.

Although SNDA's outlook has improved, shares are likely to remain range bound in mid-teens, as a sustainable move is unlikely given expectations of low ARPU growth and margin pressures. In firm's opinion, NTES is the most vulnerable due to gaps in game pipeline, partly offset by $100M buybacks.

Notablecalls: Remember the cautious comments from Goldman on NTES couple of weeks back? I suspect NTES will keep rolling over.

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