Chinese society is known for its fads and consumer obsessions. Add China’s nearly 1.4 billion people and the results can be heady for any company that’s smart enough to tap the right zeitgeist.
One such company is China Mobile Games & Entertainment Grp Ltd (CMGE), the biggest publisher and a major developer of mobile games in China. Yesterday, the company released robust third quarter 2014 operating results that underscore its dominance of a vast and growing market. Economic and demographic trends make CMGE stock a great play for investors seeking growth in a global equity market that remains overbought.
China Mobile Games’ offerings include social as well as single-player games. The company also develops operating system software for handsets and installation services for mobile phone manufacturers.
Founded in 2011 and based in Guangzhou, the company’s game portfolio includes 717 mobile games. China is brimming with young people who are technologically proficient, increasingly affluent and eager for new diversions. As the dominant company of its kind in China, China Mobile Games is in the right place at the right time.
The statistics are compelling. According to a recent report from the research firm SuperData, global mobile gaming revenue is expected to come in at $21.1 billion in 2014, up from $17.7 billion in 2013. SuperData projects that this figure will reach $25.3 billion in 2015 and $38.2 billion in 2016.
Online gaming is by far the most popular in China. According to a separate report from the research firm Niko Partners, the Chinese mobile-game market has exploded, with revenue expected to grow 93 percent to $2.9 billion in 2014, and that expansion should continue at a compound annual growth rate of 37.6 percent from 2013 to 2018.
China Mobile Games is now making marketing forays outside of its home country. What’s more, online gaming isn’t just a passion among adolescent computer nerds — an increasing number of “grown-ups” (including women) are getting addicted to mobile gaming. The pastime is so popular that the ruling Communist Party of China no longer fulminates against mobile online gaming as decadent and allows the industry to flourish.
These interrelated developments will provide a big, lasting lift to CMGE stock well into the future. A major competitor is Shenzhen-based Tencent Holdings ADR (TCEHY), but Tencent isn’t the dominant company in the more promising niche of mobile gaming and it also generates revenue from social media, online ads and e-commerce, making it less of a pure play on the trend.
CMGE: Let the Games Begin!
On Nov. 17, China Mobile Games reported third-quarter 2014 operating results that reflected not only robust past performance but also auspicious future prospects, as operating losses disappeared into the rear view mirror.
Third-quarter revenue came in at RMB357.6 million ($58.3 million), compared to RMB98.1 million in the same quarter a year ago, for a whopping year-over-year gain of 264.5%. Earnings came in at RMB73.3 million ($11.9 million), compared with an operating loss of RMB1.9 million in the third quarter of 2013.
China Mobile Games dominates a fast-growing trend that shows no signs of losing steam. Not only does the company dominate mobile gaming in the Middle Kingdom, but it’s also making a push to develop a greater number of in-house games, which will enhance its existing portfolio of proprietary offerings.
As an investment in Chinese economic and demographic opportunities, CMGE stock plays to win.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
