Shanda Faces Fierce Competition

Shanda Interactive's (SNDA - Snapshot Report) revenue and earnings for the fourth quarter showed strong growth, which exceeded market expectations. We think Shanda's results demonstrate the strengths of its item-based revenue model and its comprehensive operating platform, despite the fierce competition in the Chinese online gaming market.

However, we are concerned how long the company can maintain this growth momentum without new hit games in this competitive market. Therefore, we are maintaining Hold rating on Shanda.

Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 18.8x, which is much lower than the industry average and similar to its Chinese peers. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 14.2x, which is still far below the industry average. Using a P/E multiple of 15.0x our fiscal year 2009 earnings per ADS estimate yields a target price of $39.00 which we believe reflects the company's prospects.

Read the full analyst report on SNDA.