4/17/2008
By Brian Sozzi

It continues to be our contention that shares of Shanda Interactive Ltd. (ticker: SNDA) are extremely oversold, and therefore we would be aggressive purchasers ahead of the company’s mid-May 1Q`08 earnings release.  Serving as inputs to our thesis on Shanda include: 1) continued monetization of top game franchises through the steady stream of expansion packs; 2) valuation is discounting strong industry growth characteristics as well as Shanda’s development pipeline; 3) analyst consensus earnings estimates are on the rise for 2008; 4) recent management changes position the company well for future game development; 5) licensing deal inked to bring Crazy Kart to India hints at further opportunities in the country and within other international gaming markets. 

Key Analysis Inputs

Pipeline

•  Consists of 20 games mixed between 3D/2D MMORPGs, casual games, martial arts, and sports.

Business Model

• Highly diversified portfolio of games
• Management has a proven ability in creating virtual communities that are generating a desire to transition to paying accounts and premium character upgrades
• Approximately 30.0%-40.0% of total revenues are generated through direct payment transactions; this minimizes external risk
• Shanda’s distribution network now totals over 100,000 internet cafes       

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