Giant Interactive Group Inc (ADR) (GA): Why Buying This Stock Makes Sense After Its Recent Dip

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Shares of Chinese online gaming company Giant Interactive Group Inc (ADR) (NYSE:GA) have been under pressure over the past few days after the company announced that Vogel Holding Group Limited, an affiliate of its chairman, Mr. Yuzhu Shi, will be selling its shares. Vogel had initially decided to offer 15.1 million American depository shares, but the offering was reduced to 11 million shares with the option of selling another 1.65 million shares in a 30-day period.

Giant Interactive Group IncWith the stock flirting with 52-week highs and having gained around 60% this year prior to the news, Mr. Shi chose an opportune moment to cash out. The stock has dropped around 10% since the offering was announced as investors would probably be having reservations as to why the chairman has decided to sell. But then, with the stock having appreciated tremendously, that question has an obvious answer.

Now, since this is a secondary offering by a selling stockholder, Giant Interactive Group Inc (ADR) (NYSE:GA) won’t receive any proceeds from the transaction and there won’t be any new shares issued. As such, I think it’s a good time for retail investors to buy shares of the company after its recent dip as its prospects are promising and valuation is enticing.

Solid prospects

Being one of the major players in the booming Chinese online gaming market, there’s a lot of opportunity for Giant Interactive Group Inc (ADR) (NYSE:GA) to grow its revenue and earnings, and so far, the company hasn’t disappointed. It has been growing its revenue and earnings at a decent clip over the past year and has kept gamers engaged through different strategies. The company has a pretty solid track record of quarterly results and its moves to grow its business should keep the trend intact.

Giant Interactive Group Inc (ADR) (NYSE:GA) has been pursuing different areas of expansion as it looks to benefit from the proliferation of online gaming in China. Its games have generally been well-received so far and the company does its bit to enhance their popularity through the tried and tested method of releasing expansion packs.

Active paying accounts and average revenue per user have been increasing, as was seen in the previous quarter, and Giant Interactive Group Inc (ADR) (NYSE:GA) is looking to keep up the momentum by releasing new games and venturing into platforms such as mobile, web games, and micro-client games.

ZT Online, one of the company’s most famous franchises, has done pretty well so far and an expansion pack in the previous quarter propped up revenue. Throw in the expectations from the company’s next high-profile game, World of Xianxia, which has exceeded Giant’s expectations in closed beta testing, and there are some solid reasons why Giant’s growth engine should continue revving up.

More importantly, Giant has chosen a good distribution partner for its web games in the form of Qihoo 360 Technology Co Ltd (NYSE:QIHU). Giant had opted for Qihoo’s platform for operating the micro-client format of ZT Online 2 and recently it decided to operate another web game, The Sky, on the same platform. Going forward, even World of Xianxia is expected to be distributed by Qihoo.

This is undoubtedly a very fruitful partnership for Giant as Qihoo is a fast growing internet company in China with a user base of 457 million at the end of March. More importantly, Qihoo is well known for its security products and this should add to the confidence of users. Also, the company witnessed a 102% jump in paying users of its web game platform and this bodes well for Giant.

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