Here’s Why Perfect World Is Focusing On International Growth

20.15
Trefis
PWRD: Perfect World logo
PWRD
Perfect World

    Quick Take 

  • Perfect World’s revenue declined by 7% in 2012 on account of growing competition in the Chinese market. As a result, the company is increasingly focusing on international growth.
  • The global MMO games market was estimated at more than $12 billion in 2012 and is forecast to reach $17.5 billion by 2015, according to research by SuperData Research and Newzoo.
  • Perfect World recently launched a number of games in the international markets, and we expect its international gaming revenues to grow over our forecast horizon.

Perfect World (NASDAQ:PWRD) is a Chinese online gaming company that specializes in developing 3D MMORPGs (massively multiplayer online role playing games). Facing increased competition in the Chinese gaming market, Perfect World is expanding its international operations to grow its revenues. Estimated at more than $12 billion in 2012, the global MMO (massively multiplayer online) games market presents various opportunities for future growth and Perfect World is launching several games in the international markets to tap this market potential. On account of these efforts, we expect the company’s international gaming revenues to grow over our forecast horizon.

Check out our complete analysis of Perfect World

Relevant Articles
  1. Why We Are Revising Our Price Estimate For Perfect World
  2. Perfect World Q4 2014 Earnings Preview: Environment Has Improved, But Challenges Remain
  3. Why We Expect Perfect World’s Paying User Base To Shrink
  4. Perfect World’s 2014: The Quest For Sustained Gamer Interest
  5. Perfect World Q3 Earnings: Mobile Games Deliver Revenue Growth
  6. Perfect World Earnings Preview: Lack Of New Game Releases The Only Concern

Perfect World was one of the earliest entrants to the Chinese online gaming market. It quickly gained traction in the market with its revenues rising from $211 million in 2008 to $474 million in 2011. However, recently the company has struggled to grow in China owing to intense competition from other heavyweights such as Tencent, NetEase, Shanda Games, ChangYou and Giant Interactive Group as well as increased popularity of casual games. During 2012, its revenues saw a drop of 7% along with a decrease in user numbers. Correspondingly, its Chinese market share declined from 7.8% in Q1 2010 to 6.7% in Q1 2012. [1] [2]

Facing intense competition in the Chinese market, Perfect World is expanding its international presence to grow its revenues. The global MMO games market is growing and provides potential for future growth. Estimated at more than $12 billion in 2012, the global MMO market is expected to reach $17.5 billion by 2015, according to SuperData Research and Newzoo. The growth rates vary across different markets – the U.S. and German MMO market were estimated to grow by 14% and 24% in 2012 to reach $2.9 billion and $700 million respectively. [3] An interesting trend to note is that despite growth in the overall market, individual game revenues have not grown correspondingly since the number of available MMO games have increased rapidly in the recent past.

Perfect World aims to tap the growth in the global MMO market by expanding its network of overseas subsidiaries and licensing partners. It has also strengthened its global R&D capabilities by partnering with other specialized studios such as Cryptic Studios.

Recently, Perfect World launched a number of games in various international markets: [4]

  • In February 2013, Battle of the Immortals was launched in Korea
  • In January 2013, Forsaken World was licensed to a game operator in Vietnam
  • In December 2012, Zhu Xian and Chi Bi were released in Southeast Asia
  • Blacklight Retribution was recently introduced in Turkey
  • In November 2012, the Polish, Russian and German versions of Torchlight 2 were launched
  • Moreover, a new game Neverwinter, which is being developed in collaboration with Cryptic Studios, is expected to be launched in North America soon.

Perfect World recently also undertook organizational changes, which enhanced its focus on the international markets. Mr. Qi Zhu and Mr. Alan Chen were designated as Chief Publishing Officer (Asia) and Chief Publishing Officer (U.S. & Europe) respectively, to strengthen the company’s operations in these respective markets.

Perfect World’s revenues from international markets grew by 25% in 2012, according to our estimates. Taking into consideration that the global MMO market is growing and Perfect World continues to launch games abroad, we estimate its international revenues to grow at a CAGR of 6% during our forecast horizon.

Notes:
  1. Analysys International: Tencent Took Over 25% of China Online Game Market in Q1, 2010, Analysys International, September 09, 2010 []
  2. Tencent’s Online Gaming Dominance Grows as Market Expands to $1.78 Billion, TECH IN ASIA, May 25, 2012 []
  3. Global MMO Games Spending Exceeds $12 Billion, SuperData Research, July 12, 2012 []
  4. Perfect World Announces Recent Business Developments, PRNewswire, March 11, 2013 []