Thursday, April 28, 2005

More on the9

Can't wait for the9 to release some skyrocketing numbers for WoW? Be patient, I assure you the managers of the9 are more anxious to have something to release ASAP, simply because they know their stock will be in deep trouble without tantalizing hope from WoW. They may also know the key is to keep feeding investors with hope, so that as time goes by, hopefully the IPO lock period also come closer and closer, they may be able to sell some shares at decent prices. Still remember that insiders rushed to sell at IPO?

But the problem is, they simply do not have anything good to brag about YET. However, no need to panic for those longs, because sooner or later, they will come with some 'sounds good' news, they are under cooking.

These days I saw a lot of research reports that have cited or analyses WoW, a lot of them are from famous broker firms. It is clear people are expecting A LOT from this game, which I believe will have a hard time to satisfy such an greedy audience. These analysts not only claimed that WoW very likely will be a huge hit in China market, and provided this, it may have material negative impacts over its peers, like SNDA, NETS, and others. The rationale is simple, WoW is one of the most popular games in North America and it is made by a famous gaming maker:Blizzard, which have made world famous games such as StarCraft. People naturally think such an glaring classic masterpiece will be so superior to those inferior games in China that it will grab followers like a super hero, killing peers like a brave knight. Hold a second, are we talking about investment or Hollywood movie? This story sounds too fabulous to be true.

Forget those disturbing emotions, either bullish or bearish, I did not see anybody give a reasonable revenue and earning analysis for WoW. When you sit down and play with the numbers, you may start to think differently when everybody hails on WoW.

Tuesday, April 26, 2005

NCTY: Open test started, now what?

The long waited open beta test of WoW started on 4/26th, three days ahead of the original scheduled starting date.

Up to now, there is no hitting news yet, The9 just vaguely played words game by saying it is very popular, thousands of thousands players are coming to will come, blah blah blah.... But wait a second, do not tell me these nonsenses, where are the hard numbers? If they tell me the peak concurrent users below 100,000, that would bring their stock a lot of trouble, if they say the number is 200,000, it may give some confidence to those longs.

With that said, The9 has no choice but to release the hard numbers sooner or later, vague phrases with lots of emotional colors won't speak much.

I am still holding a small short interest in NCTY, and will keep watching to see how the story goes. In the long term, I am bearish on it, even a popular WoW may have difficulty to justify this stock's valuation.

NTES, a solid quarter

We should say "Nice job, guys!" to NTES people.

The earnings are extraordinary, forward looking statements are not bad. In particular, it mentioned its two new games are going well, plus, they are going to release a package of casual games in the second quarter, which could be another growth driver for this company. If you want to pick something to justify the anxiety on the market,that would be an 18% tax rate increase for one of its subsidiaries.

A lot seem to be bothered by the short interest. It is not a problem because since 2003, short interest for NTES has been above 3 million all the time. Why? It is mainly because NTES has 100 mil USD zero coupon convertible bonds outstanding, each 1000 USD face could be converted to about 20.5 shares. These bonds are usually held by hedge funds, who will buy the bond and short the stock to 'hedge'. This strategy will be profitable as long as the underlying stock goes, no matter which direction. I roughly calculated that at current price level, it will need more than 2 million shares to keep these bonds hedged. That is why you do not need to be bothered by the short interest, which is not high at all compared to historical levels.

This stock has shown a up and down pattern in the past, which naturally reminds people to sell when prices are high (usually in the 50s) and buy when it is low(usually in the 30s or 20s). I guess this is one of the factors why the stock is not moving a lot after good earnings. However, this time may be different. Those guys who shorts based on the speculation that this stock will always follow the up then down pattern may have huge risks. NTES has been working hard in the past few years to penetrate into online gaming market, today's success is the result of a few years' efforts. It is just the beginning, the game is far from over. Fly for fun is being tested, its two in-house developed 2.5D and 3.D games could drive its gaming revenue much higher in the next one or two years. Also, in the casual game front, this company is going to release a package of games, which could be another source of revenue contributor. Besides games, another big source of fund is online ads, do not forget NTES is a major online portal. Increased online ad spending by companies will further benefit this company. Forget the decline in wireless service revenue, it only accounts for 6% of current quarter's revenue.

After today's huge sell-off by Pacific Growth's downgrade, this stock is not going up much even with such a solid earning report. This is a bothering sign, seems people are worrying about something. What is it? I can not tell yet. Maybe tomorrow after a round of analyst reaffirmation of 'buy' rating, people will shrug off hesitations and start to buy.

Full disclosure, I am holding some shares, with a target price about 63.