Financial Analysis and Investment in The Games Industry

Abstract

Since 2008, revenues from the web and mobile games have grown rapidly due to the development of internet technology and the popularity of smart mobile devices. Many games are no longer tied to a specific place or time, which has led to an increase in the number of users. In the gaming industry as a whole, mobile gaming has gradually become the mainstream of the modern gaming industry. However, the game industry is particularly mature at this stage, and a new phase of change may be coming. And in the development of a game company, business risk is one of the main factors of concern for investors. Indeed, the investment risk of a gaming company determines whether it is sufficient to ensure the future development of the entire company. In this paper, three companies, namely 37Interactive Entertainment Network Technology Group, Perfect World, and Zhejiang Century Huatong Group were chosen to compare the operational risk of a game company and the current state of the company. In this comparison, WACC is used to measure the average required return. In addition, the three companies' cost of equity is examined using both operational and financial leverage. These are employed in the analysis of the three organizations' operational and financial risks. Assumptions and interpretations are also made based on specific industry characteristics and operating rules. Overall, due to the growth of the Internet, this epidemic has raised expectations of the gambling industry in a short period, so factors such as company size and type of stock have become less important. The rapid growth of the gaming industry as a whole during this period has raised some questions about the growth prospects and operational risks of these three companies.