Shanda Interactive Entertainment Limited

Shanda Interactive Entertainment is tapping into China's emerging middle class with online games and entertainment. The company has surprised on estimates 4 consecutive quarters by an average of 13.45%. Shanda trades at only 9.7x projected earnings.

Company Description

Shanda Interactive Entertainment Limited (SNDA - Snapshot Report) is a Chinese-based media company that offers a variety of entertainment such as online role playing games (Massively Multiplayer Online Role-Playing Games, or MMORPGs), casual games, chess and board games, network PC games, cartoons, literature, and music.

As of Mar 31, Shanda had over 700 million registered accounts.

Second Quarter Revenues Jump 48.4%

On Sep 2, Shanda reported second quarter earnings that beat Wall Street estimates by 12%, or 6 cents per share. Net income was $40.8 million, or 56 cents per share compared to analysts' expectations of 50 cents per share. This was a decrease of 32.7% from the year ago period due to the sale of SINA shares in that quarter.

Net revenues increased 48.4% to a record high $122.1 million compared to a year ago. Quarter-over-quarter revenues rose 7.4%. This beat the company's own guidance which called for quarter-over-quarter growth between 0% and 5%.

Revenues in the MMORPGs category grew 47% to a record high of $101.3 million from the year ago period and rose 8.5% quarter-over-quarter. The casual games segment was also hot, growing 52.1% from the second quarter of 2007.

"Shanda delivered significant revenue growth in the second quarter of 2008 despite the impact of the devastating Sichuan earthquake. Quarterly net revenue grew 7.4% sequentially, which exceeded our previous guidance," said Tianqiao Chen, Chairman and Chief Executive Officer.

Stock Repurchase Program Approved

On Sep 8, the company announced the authorization of a $200 million stock repurchase program of its outstanding American Depository Shares (ADSs) over the next 12 months. The stock purchases will be made from time to time depending on the market conditions. The program can be discontinued at any time.

Consensus Estimates Rise

Covering analysts are bullish on Shanda's third-quarter and full year. Consensus estimates rose 3 cents to 54 cents per share in the last 30 days. 5 out of 7 covering analysts raised full year estimates in the last month by 7 cents to $2.21.

Value Fundamentals

Shanda's forward P/E is 9.71. Its price-to-book is 2.90. The company has an average 5 year return on equity (ROE) of 32.28%.