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Changyou.com (CYOU) |
CYOU, C+, 6.5 |
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Online games |
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Post-IPO ADRs: 51.25mm |
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Beijing, China |
2005 |
2006 |
2007 |
2008 |
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IPO Mkt |
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Rev ($mm) |
$5.8 |
$8.5 |
$42.1 |
$202.0 |
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Cap (mm) |
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Gross profit % |
43% |
54% |
83% |
93% |
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$769 |
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Net after-tax income |
-$1.3 |
$0.0 |
$5.3 |
$108.0 |
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@$15, ADR |
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Net income % |
-22.4% |
0.0% |
12.6% |
53.5% |
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2008 Quarterly Progression |
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March |
June |
Sept |
Dec |
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Rev ($mm) |
$40 |
$48 |
$55 |
$58 |
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Gross profit % |
95% |
92% |
93% |
93% |
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Net after-tax income |
$15.0 |
$32.0 |
$32.0 |
$29.0 |
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Net income % |
38% |
67% |
58% |
50% |
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% revenue from lead product |
96% |
88% |
88% |
89% |
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Notice the heavy revenue dependence on the lead product |
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CYOU is a one trick pony so far |
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VALUATION RATIOS |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
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Changyou.com |
$769 |
3.3 |
6.6 |
13.7 |
13.6 |
15% |
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SCORECARD |
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Mgt* |
Market |
Market Do- |
Proprie- |
Total |
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1-5, 5 is high |
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Growth |
mination |
tary |
rating |
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20 is perfect |
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1 |
2 |
2 |
1.5 |
6.5 |
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* rated low because CEO owns the company's intellectual property |
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SUMMARY |
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. Lead game product contributed 93% of 2008 revenue (one trick pony so far, in the game
business a single hit doesn’t guarantee future hits)
. Driven by the lead product, revenue growth is topping out (see quarterly summary)
. Lead product intellectual property is held outside the corporate entity, 60% by the CEO & 40%
by an 'employee'
. The Chinese government has begun to tighten regulation of Internet cafes, which are currently
one of the primary places where CYOU’s games are played.
. At price range mid-point CYOU will have half the market cap of it’s parent SOHU, which will own
71% post-IPO |
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BUSINESS |
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. Online game developer and operator in China as measured by the popularity of the 2-D martial
arts saga, Tian Long Ba Bu (TLBB). TLBB, launched in May 2007, was ranked by IDC for 2007
as the third most popular online game overall in China and the second most popular online game
in China among locally-developed online games.
. TLBB contributed 93% of revenue for the year ended Dec31, 2008
. CYOU is an indirect subsidiary of Sohu.com Inc., which operates a leading Internet portal,
Sohu.com (SOHU, $1.6bb market cap), in China. SOHU will own 71% post-IPO |
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. Currently operates two MMORPGs ( definition) |
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. TLBB, developed in-house, and BO, licensed from a third party. For the three months
ended December 31, 2008, had approximately 1.8 million active paying accounts for TLBB and
approximately 159,000 active paying accounts for BO. |
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PRODUCT DEVELOPMENT |
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. Three new MMORPGs in the pipeline, including DMD, which are being developing in-house, IF
and LAW, both of which are licensed from third parties.
. Expects to begin open beta testing of IF and DMD in the second and fourth quarters of 2009,
respectively, and of LAW in early 2010. |
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Dividend
Will pay out $97mm to shareholders pre IPO |
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Use of $48mm in IPO proceeds (the half sold by the parent, Sohu)
General corporate purposes, including capital expenditures and funding possible future
acquisitions. |
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