Giant Interactive Group Inc (GA): A Small Cap Stock You Should not Miss

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Diversification delivers

Giant’s growth is not dependent on just new expansion packs. The company is aggressively moving on to different platforms in order to capture a wide and diverse audience. Giant pulled off a masterstroke last year by launching a micro-client version of ZT Online, its most famous franchise, and tying up with Qihoo 360 for operating it.

Qihoo has an active user base of around 450 million, representing 95% of active PC internet users in China according to iResearch. Qihoo’s revenue from operating games has shot up in recent quarters, and this shows in Giant’s results as ZT Online2 has benefited by delivering incremental revenue. Moreover, Giant’s next expected blockbuster, World of Xianxia, will also be operated on Qihoo 360’s platform and should benefit both companies.

While World of Xianxia is expected to be the biggest revenue driver for Giant this year, the company expects its web games to be the second driving force. Giant will release two web games in the first half of the year to capitalize on one of the hottest gaming trends in China in the form of web games. Thus, Giant’s focus on both web games and micro-client games this year could be a major catalyst.

Mobile is next

It’s evident that Giant Interactive is focused on making its presence felt across as many platforms as possible. Therefore, the company’s newfound interest in mobile gaming doesn’t come as a surprise. Rampant sales of smartphones and tablets have added another dimension to gaming, forcing traditional gaming industry leaders such as Activision Blizzard (NASDAQ:ATVI) to focus on mobile games.

Activision is wary of how the next generational change in gaming hardware might affect its prospects. Hence, it released five mobile games last year and is expected to invest more money in the platform this year so that it could benefit from the huge opportunity in mobile gaming.

Thus, Giant’s decision of moving into mobile is surely a step in the right direction and the company believes that it can deliver its high-quality games on mobile as well. It had started assembling its internal mobile game development team last year and intends to release a few interesting games in the near future.

The takeaway

There is a lot of room for Giant Interactive to run. Its focus on up and coming gaming platforms apart from the continued success of its ZT Online franchise and others should enable it to perform even better this year. Moreover, the fact that the stock sells so cheaply makes it even more enticing. The current quarter might not be as spectacular as the last one due to the Chinese New Year holiday and lack of any new releases, but the company is confident of delivering solid results as the year progresses and even I think the same.

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