Earthquake and Stock Prices

Last week China went through three days of national mourning for the victims of the Sichuan earthquake. As I mentioned in my previous post major portals as Sina, Sohu, and Netease decided to show their content in black and white and were limited to news only. Entertainment websites had to cope with the mourning more drastically: during the 3 days the government restricted access to entertainment content both on the Internet and broadcast media. China-Daily reported the following about it: “All public amusements will be suspended for three days from Monday.”

Perfect World:PW stocks plunge because of the mourning?




Video-sharing sites Tudou and Youku, but also gaming sites such as Giant Interactive, Perfect World, and Shanda were forced to shut down and suspend their services for three days from Monday the 19th. Marc van der Chijs has posted a nice story about the actual series of events before shutting down a casual gaming (Spill Group) and video-sharing site (Tudou). Competing entertainment websites are anxiously keeping an eye on each others actions in order to prevent losing users, or worse, losing their patriotic reputation. Benjamin Joffe from Plus8Star made an interesting remark about this: ‘Over-reaction is not a choice in China. Better follow and over-follow government guidelines else your competitor will label you unpatriotic.’

Giant Interactive:GA stocks plunge because of the mourning?




As a result of the entertainment suspension most web entertainment related stocks are falling. After the earthquake I have been closely following the news and stocks of three of the gaming companies I visited during my time in China: Shanda Interactive Entertainment Ltd (Public, NASDAQ:SNDA), Giant Interactive Group Inc (Public, NYSE:GA), and Perfect World Co., Ltd. (Public, NASDAQ:PWRD). Coincidentally the week after the earthquake both Perfect World and Giant Interactive had their financial reports due. Shanda will announce their financial results for the first quarter on May 27th.

Shanda:Shanda stocks plunge because of mourning?




Despite that Perfect World even beat Wall Street estimates for the first-quarter, the stock price still plunged around 12%. It seems that the only reason for the stocks to decrease is that they lowered their second-quarter revenue forecast due to the suspension of their services. Also Giant Interactive stocks plunged even though they surprised the analysts with a a first-quarter profit of $0.20 per American depositary share (analysts were expecting $0.16 a share). As you can see in the graphs of all 3 companies the decrease in value is quite drastic, especially when considering the suspension of only a few days. It seems that besides the companies themselves also shareholders are overreacting.

It is surprising though that the stock value has not yet recovered to the level it was before the earthquake so there might be something else that influences the stock value. Did the quake result in a general distrust in this particular market? Did the areas in Sichuan that were affected by the earthquake contribute a considerable part of revenue for MMORPG companies?

[UPDATE] Frank Yu has some good insights in the reason for distrust in the gaming market [UPDATE]


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