Internet and Game Stocks to Watch

The Internet and game business began to grow after the end of the so-called “dot com bubble.” From 2000 to 2004, companies in this industry tried to find business models regarding the foundation of traffic and users. The period between 2005 and 2007 was a growing period, with fast growth in the areas of online advertisements, e-commerce and games. During this time, some companies emerged as the dominant players in their sectors, such as NHN and Daum in the portal business, Gmarket and Auction in the e-commerce sector, and NC Soft and Neowiz Games in the online game market. The KOSDAQ Internet index rose to 18,000 points at the end of 2007, up from 3,000 points at the beginning of 2005. However, in 2008 the growth of these companies hit a snag due to market saturation.

With a limited increase in the number of online users, the growth of the domestic online advertisement market slowed, with the KOSDAQ Internet Index falling to 9,000 points, much to the disappointment of investors. Beginning 2009, the industry began seeking new growth engines. Furthermore, the mobile Internet market began, thus affecting the stock prices of related companies.

In 2010, stock prices will be heavily influenced by mobile Internet and advancement into overseas markets.

With the advent of the mobile Internet market, a change is being made in the Internet business. It has been seen that people spend more time using contents when they change their cell phones from ordinary ones to smartphones. Accordingly, companies in the digital content industry, such as game developers, music producers, and e-book publishers qre experiencing a boom. With a sharp increase in smartphone sales and a drop in wireless Internet service costs, the mobile Internet environment is becoming similar to that of the wired Internet.

Portal service providers and other communication players have taken part in the mobile Internet market, making competition fierce. However, companies are expected to continue to advance into overseas markets in order to increase profits. In the past, NC Soft made a foray into the Asian market in countries such as China and Japan. However, it has recently succeeded in advancing into the American and European markets via Aion. NHN launched the Naver Japan service in July, 2009 and is now enjoying an increase in the number of users. Meanwhile, Neowiz Games is performing well in the online game market of China via Tencent, a Chinese publisher, while the new CEO of CJ Internet announced that the company is aiming to strengthen its overseas business.

1) NHN (035420)

NHN has good factors regarding its mid to long-term business outlook.

The portal service company is expected to enjoy a sharp increase in e-commerce sales thanks to the launch of shopping cast and a new charging system. Mobile game applications are expected to be released in the near future, while it is also aiming to establish a search advertisement business subsidiary in order to promote its search advertisement sales. Furthermore, visitors to Naver Japan are on rise, with the company likely to raise charges for advertisements in the second quarter as the second quarter is seen as a lucrative season and will have a special boom thanks to the World Cup. “Buy” is suggested for NHN whose target price is 250,000 won. At present, foreigner investors own about 53% of the stocks. Foreign net buying has continued since early February.

2) NC Soft (036570)

NC Soft recorded its highest-ever performances in the fourth quarter of 2009, with “Aion,” an online game, making a successful debut onto the global game market. Aion began commercial services in the U.S. and Europe, recording 600,000 registered members in September 2009. This success means additional new NC Soft games have a big possibility of enjoying success in the U.S. and Europe. The company is planning beta tests for two new games, Blade and Soul and Guild War 2, with commercial services expected to begin by the end of 2011, and thus helping to increase sales. At present, foreigner investors own about 34% of the stocks. Since the second half of 2009, foreign net buying has continued for this stock.

3) Neowiz Games (095660)

At present, Tencent publishes Crossfire and AVA, FPS games of Neowiz Games in China. Tencent announced that the PCU for Crossfire in China surpassed 1.8 million in the fourth quarter of 2009. The stock price of Neowiz Games has been synchronized with that of Tencent and has been rising following buying by foreign investors. Neowiz Games is expected to enjoy not only strong sales in China but also positive effects from launching new games and the World Cup, with new versions of its games also expected to generate sales. FIFA2, a football game, will increase its sales in Korea and China thanks to the 2010 World Cup in South Africa. “Buy” is suggested for Neowiz Games whose target price is 54,000 won. At present, foreign investors own about 31% of the stocks, the highest level in two years.