Shanda Games Limited (ADR) (GAME): Is This Cheap Stock Finally Going to Fly?

Competition is strong

Giant Interactive Group Inc (ADR) (NYSE:GA) is one of the stalwarts in the Chinese gaming industry, and the stickiness factor of its games seems to be high. The company has been expanding itself into various online gaming formats and mobile as well. Giant Interactive Group Inc (ADR) (NYSE:GA)’s expertise and solid execution has already pushed Shanda behind in the online gaming market in China, and Shanda would need to be at its best to stave off competition in mobile.

And as I said, Shanda’s mobile strategy looks good now, but it would do itself a favor by looking at the failings of Glu Mobile Inc. (NASDAQ:GLUU) and learn from them. Glu was, once upon a time, a pioneer in the mobile gaming industry, but it seems to have lost its focus. As a result, the company’s mobile games aren’t as good as they used to be (in my personal opinion) as the company is hunting for riches in real money gambling.

However, Glu Mobile Inc. (NASDAQ:GLUU) is still a revered name in the mobile gaming arena and it’s trying new strategies such as a Games as a Service (GaaS) model, which seems to be working to some extent. Given Glu’s expertise in mobile games, it still poses a threat to Shanda Games Limited(ADR) (NASDAQ:GAME) as it saw its average revenue per daily active user triple in the previous quarter, which means that Glu’s strategy might be working.

The bottom line

Shanda Games Limited(ADR) (NASDAQ:GAME) has had a pretty tough time and has underperformed its peers this year. Falling revenue, declining earnings, and erosion of its user base are some solid reasons why you shouldn’t invest in the stock. But then, a dirt-cheap valuation and glimmer of hope in its mobile and online gaming businesses might be good reasons why you could initiate a long position in the company.

The article Is This Cheap Stock Finally Going to Fly? originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Giant Interactive Group. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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