Online media and entertainment services provider
Sohu.com Inc's (
online gaming subsidiary,
recently announced that an open beta version of the upcoming new
is now available to Chinese players.
is the Chinese online version of
Electronic Arts (
popular first person shooter ("FPS") game
. However, the Chinese version is not a conventional FPS as it
allows players to use jet fighters, tanks and aircraft carriers
as the primary weapons, while firearms and ammunitions become
not only allows players to compete as small teams but also
provides a large scale combat mode that may involve up to 100
players. The Chinese version offers different infantry classes
for players to select.
is Changyou's first FPS game. Although the Chinese FPS market is
quite overcrowded, we believe that the distinct features and new
variations of the upcoming game will attract new players, thereby
expanding its subscriber base going forward.
Changyou has a dominant position in the Chinese online gaming
industry (Changyou operates
Tian Long Ba Bu
, one of the most popular massively multi-player online games in
, one of the top-ranking web-based games in China), which will
help the new game to solidify its position going forward.
Online gaming in China, which includes massively multiplayer
online role playing games (MMORPG), and casual, social & web
games grew 32% in 2011. Changyou ranked #4 in terms of revenue in
the Chinese market and garnered approximately $485.0 million from
online games. In a recent study from Pearl research, China's
online gaming market is expected to touch $9.2 billion by 2014
from $6.6 billion in 2011. We believe that Changyou will continue
to benefit from the strong growth trends of online gaming in
China over the long term.
, Changyou's turn-based MMORPG
is also expected to drive revenue growth going forward. Changyou
has three more MMO games scheduled to release this year along
with four web-based games. We believe that this strong product
pipeline will drive Changyou's top-line growth going forward.
Lately, online gaming operated by Changyou has been a major
revenue driver for Sohu. In the recently ended third quarter of
2012, online game revenue increased 30.5% year over year to
$151.1 million, well ahead of management's expectation of $141.0
million-$144.0 million. We believe that Changyou's improving
subscriber base will boost Sohu's top-line growth over the long
However, both Changyou and Sohu are facing significant
competition from Tencent,
Shanda Games (
Renren Inc. (
. This has compelled both the companies to increase spending on
product development and promotional expenses, which is hurting
profitability. Moreover, a slowing Chinese macro environment
(declining auto sales and weakness in real estate) may hurt
Sohu's growth in the near term. Thus we remain Neutral on Sohu
and Changyou over the long term.
Currently, both Sohu and Changyou have a Zacks #2 Rank, which
implies a Buy rating in the near term.
CHANGYOU.COM (CYOU): Free Stock Analysis
ELECTR ARTS INC (EA): Free Stock Analysis
SHANDA GAME-ADR (GAME): Free Stock Analysis
RENREN INC-ADR (RENN): Free Stock Analysis
SOHU.COM INC (SOHU): Free Stock Analysis
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