China’s Changyou.com scores with its U.S. IPO
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Online game developer Changyou.com Ltd. picked a great day to launch its U.S. initial public stock offering.
Amid a broad market advance today, investors bid the company’s new shares as high as $23.93 from the IPO price of $16. The stock closed at $20.02 on Nasdaq, up 25%.
Changyou.com, which raised $60 million in the stock sale, is just the second IPO in U.S. markets this year. Wall Street’s meltdown in January and February caused most IPO hopefuls to shelve their plans.
The only deal to be priced in the first quarter was from well-known infant-formula company Mead Johnson Nutrition, which was spun off from drug giant Bristol-Myers Squibb. Mead Johnson sold 30 million shares at $24 each on Feb. 10. The stock has gained 14% since then, to $27.35 today.
Changyou.com is a unit of Sohu.com Inc., which bills itself as China’s leading online media company. Of the 7.5 million shares issued in the IPO, half were from Changyou.com and half were from Sohu.com, which remains Changyou.com’s controlling shareholder.
Changyou.com is a developer of so-called massively multi-player online role-playing games (MMORPGs).
I asked my Times colleague Alex Pham to explain MMORPGs. She writes:
The best-known example is World of Warcraft, developed by Irvine-based Blizzard Entertainment. Like other MMOs, World of Warcraft is an online game that can be played by millions of people simultaneously, pursuing fantasy-themed quests or explorations. More than 11.5 million people worldwide pay about $15 a month to play the game, giving Blizzard’s owner, Vivendi, a highly stable and hugely profitable stream of revenue. While the game requires players to buy a packaged disc to begin playing, it’s an attractive business because its online nature makes it piracy-proof -- only players who pay their monthly fees are allowed to play. It’s also a risky and highly competitive area of games. MMOs are expensive to build and even more costly to maintain (Blizzard employs more than 1,700 people to monitor the game and provide customer service). Dozens of publishers have attempted to launch MMOs over the years, only to see their sizable investments disappear. Examples include LucasArt’s Star Wars Galaxies, The Matrix Online (based on the movie franchise), and The Sims Online, created by Electronic Arts.
In China, Changyou.com has a hit on its hands with a martial-arts game called Tian Long Ba Bu (‘Novel of Eight Demigods’). The company reported net income of $108 million last year on sales of $202 million -- and 94% of those sales were derived from Tian Long Ba Bu. The company said the game had 1.8 million active paying accounts at year-end.
Although Changyou.com says it has three new games in the pipeline, it’s still reliant for now on its one big hit, and ‘we cannot guarantee how long TLBB will continue to sustain its current level of popularity,’ the company says in its prospectus for the IPO.
The Changyou.com IPO is the biggest U.S. offering by a Chinese company since Gushan Environmental Energy Ltd.’s $185-million deal in December 2007, according to Bloomberg News data.
-- Tom Petruno