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Stock Strategist

Should Shanda Games Play a Role in Your Portfolio?

While currently a leader in the lucrative and fast-growing online gaming market, several factors make us wary of this IPO's longer-term prospects.

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This report is made available compliments of Morningstar IPO Research Services. For more information on Morningstar IPO Research, please contact Marc DeMoss at marc.demoss@morningstar.com or +1 312 384-4052.

While Shanda Games is in a hot industry, and its spin-off getting lots of buzz, we think there are too many issues surrounding its long-term prospects to give this IPO an endorsement. Parent company  Shanda Interactive Entertainment (SNDA) is spinning out Shanda Games in a gigantic $1 billion deal Friday. There's no doubt that Shanda Interactive management saw the success of the Changyou IPO from March 2009 and wanted in on the action. The IPO priced at the top of its range of $10.50-$12.50 per share. Morningstar equity analyst Iris Tan brings us up to speed on the company and the offering:

Bill Buhr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.