Having concluded the closed beta testing for its action oriented MMORPG – RaiderZ earlier this month, Perfect World (NASDAQ:PWRD) recently announced the open beta testing date for the same. RaiderZ is a fast paced, monster slaying, team-oriented free MMORPG set in the world of Rendel, and will be open for testing to the public at large, starting October 24. We expect that with a robust pipeline of upcoming games and expansion packs, Perfect World is well-equipped to stabilize its declining business in China as well as increase its presence in international markets.
Stabilizing Chinese Business
Perfect World has witnessed a continuous decline in its number of active paying customers in China since 2009 as the company has been facing rising threats from players such as NetEase, Tencent, Shanda Interactive, Giant Interactive, and ChangYou. However, it has a deep and diverse pipeline of upcoming games in the near future according to the company. Perfect World recently launched the open beta testing for its 2-D turn-based MMORPG – Return of the Condor Heroes. Apart from a few web-based games, the company has Swordsman online and Neverwinter in its pipeline for launch next year.
Additionally, Perfect World continues to work toward content enhancement and developing a number of expansion packs to maintain a healthy lifecycle for its existing games. We estimate Perfect World to derive just under 30% of its valuation from its China business, though cash still makes up for almost half of our valuation for the company.
While we forecast Perfect World’s active paying customers to decline significantly this year, we believe the rate of decline will slow down and stabilize by the end of our forecast period as the company continues to launch new games as well as expansion packs for existing games in coming years.
Focus On International Markets
Perfect World’s international gaming revenue nearly doubled in 2011. The company has been focusing on expanding its presence in international markets such as Europe, America and Japan through its subsidiaries as well as by licensing its games to other game publishers in countries such as Indonesia and Brazil. Perfect World recently acquired US-based Cryptic Studios aiming to add additional world-class titles to its portfolio.
We estimate international markets to contribute close to 22% to Perfect World’s valuation and forecast the same to be an important driver to steer revenue growth in the future.