In a recent interview with Adam Krejcik of Roth Capital Partners, LLC, for our Gaming & Leisure Report, we discussed the growth opportunity for the Online Gaming Industry in China.

Mr. Krejcik: The industry has been growing at a pretty staggering rate. I think the five-year CAGR through 2008 was 60%. Going forward we expect the industry to grow at an annual rate of 20%-30%, which is still very impressive. The two main drivers of the industry are, one, a growing Internet population and two, an increase in consumer disposable income. The number of Internet users has been growing at a rapid pace in China and now exceeds that of the US despite a penetration rate well below ours. We see no real slowdown in Internet growth in the next five years. Number two, GDP growth is leading to a rise in the standard of living, which should translate into to greater levels of disposable discretionary income. This will eventually lead to higher price points and user spending within online games. So we think the macro trends are pretty favorable, and while you could argue that the spending levels may slow down here in the near term depending on how severe this economic downturn is, we believe the longer-term trends are very promising.

Valuations are very depressed right now but the companies have a significant amount of cash on their balance sheets and no debt, so for investors trying to avoid companies that are overlevered or facing financing issues, this sector fits that profile.

This entry was posted on Wednesday, April 15th, 2009 at 10:22 am and is filed under Consumer Stocks. You can follow any responses to this entry through the RSS 2.0 feed.