Perfect World (
), China's leading online gaming company, created a new console
division in December 2013 to target current and next-generation
console (such as XBox One and Playstation 4) users. Perfect
World specializes in developing MMORPGs (massively multiplayer
online role playing games). A MMORPG is a genre of video games in
which a number of players interact with each other in a virtual
world by assuming character roles. The company intends
to bring its free-to-play online games from PCs to consoles
through its new division.
We think that Perfect World's move to create a console division
is well-timed since the Chinese government recently lifted its ban
on the sale of video gaming consoles. This will open the doors for
consoles to the world's third largest video game market by revenue.
Perfect World is the leader in free-to-play PC titles in China, and
its new division will give it leverage to capture the console
market. The company's active paying customer base has been falling
year over year since 2009. We believe that Perfect World's games
for consoles could help it keep its customer base from declining
a price estimate of $17.14 for Perfect World's
, implying a discount of about 15% to its market price.
Consoles Could Help Perfect World Cap The Decline In Its
The Chinese video game industry generated $13 billion in
revenues in 2013. This represents about 15% of the worldwide video
game marketplace even though video consoles were banned in China
until recently. The Chinese government lifted the ban in early
January 2014. Online client-based games account for more than
60% of the Chinese video game market and presently dominate the
industry due to the 14-year ban on console sales.
Online game developers such as Perfect World have benefited from
the ban. Developers must however keep adding new games and
extension packs to maintain user stickiness to games. While Perfect
World's revenue from games in China increased from $177 million in
2008 to $235 million in 2012, we estimate that its active paying
customer base declined from 1.6 million to 1.0 million during the
same period due to factors such as 1) failure to achieve the
desired level of popularity for certain games; 2) slow pace in
launching new games; 3) increased competition; and 4) the
company's anti-cheating efforts.
Perfect World will be able to reach out to a whole new
audience-and therefore protect its customer base-by offering its
games on consoles. Over the past years, consoles have become
increasingly popular among video gamers. Gartner estimates that
consoles accounted for about 47% of the $93 billion worldwide video
game market in 2013. Consoles are expected to continue their
dominance over the video gaming market, which is forecast to reach
$111 billion by 2015.
In addition, Chinese gamers prefer free-to-play games with
in-game buying activity over game titles that require to be
purchased. According to Hong Kong-based brokerage CLSA, the average
Chinese gamer earns over $600 a month, making console titles
expensive since they usually cost between $33 and $50. We
believe that Perfect World has a greater advantage over paid game
publishers since its games can be played for free. The company also
has a vast international market for consoles to explore.
Perfect World has already confirmed the launch of Neverwinter
for consoles. Neverwinter is an MMORPG developed by Cryptic
Studios, a subsidiary of Perfect World, and was ranked second by
MMORPG.com in its list of "The Best MMOs of 2013". We expect
Perfect World to launch more existing and future games on consoles
in order to reach out to more users.
Check out our complete analysis of Perfect
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