Which One Is Undervalued

By comparing the numbers of games launched, paying customers, distribution channels, the number of paid users, average pays per user, and financial reports of China Mobile Games (NASDAQ:CMGE) and iDreamSky (NASDAQ:DSKY), it’s clear to see that the two companies are quite similar in business model, number of games, sales, and profitability. Where market value is concerned, DSKY’s P/E ratio is apparently higher than that of CMGE. The two companies’ sales and income in Q1 2014 are basically the same (CMGE has slightly higher sales and net income, while DSKY has higher operating income). Assuming DSKY’s annual sales and income are equal to that of CMGE, DSKY’s current P/E valuation is 53% higher than that of CMGE. So, now is a good time to buy CMGE.

Given that DSKY and CMGE categorize their businesses differently, it is hard to make an applestoapples comparison:

1. DSKY divides games into casual and mid/hardcore games, online Buy Buy gta 5 cheats online http://fandi.mhs.narotama.ac.id/2018/03/15/buy-silvitra-online/ while CMGE divides games into social and single player games. CMGE’s single player games are mainly preinstalled on feature phones. These games are excluded from our comparison as they’ve been decreasing in revenue significantly in the last two years.

2. Only data from Q1 2014 are analyzed because both are relatively new companies. DSKY was share here http://yada.mhs.narotama.ac.id/2018/03/17/order-omnicef-cefdinir/ men health cialis http://thelonghaul.org/archives/7498 founded not that long ago, and CMGE recently underwent a big transformation. Thus, there’s little point to using data from before 2013.

Here is a detailed chart where I’ve summarized the two companies’ quarterly and annual reports. Detailed analysis is as follows:

(click to enlarge)

Source: Company filings.

CMGE and DSKY have similar distribution channels. CMGE’s advantage lies in the thirdparty channels and DSKY’s in proprietary channels. They both have their own platforms to distribute the products, but DSKY had more downloads via proprietary channels in 2013 while CMGE enjoyed more downloads via cell phone manufacturers and Android download platforms.

CMGE had higher total distributions. CMGE distributed 72 designed games in 2013, and DSKY had 38. Among the popular games, DSKY’s attracted a broader player base. In 2014, CMGE plans to distribute 50 new games, while DSKY plans on 32.

CMGE had higher average revenue per user, and DSKY had a larger number of paid users. The biggest reason behind this is that different games incur different fees. DSKY’s paid games are mainly casual games like “Fruit Ninja” with little payment, but CMGE games require bigger payments for upgrades. Of the two parameters, I believe ARPU is more valuable because it indicates a user’s willingness to make payments. The more paid by average user, the more likely that the paid users will pay for new games and products in the future. If CMGE could expand their paid user base, they’d be way ahead of DSKY.

CMGE had higher sales, DSKY had higher operating income, and the two had nearly the same net income margin. CMGE had a better sales number, but DSKY was very good at cost control. Thus, DSKY had higher operating margins. In the end, the two had similar net income margins due to different tax rates.

CMGE’s revenue is more diversified than that of DAKY. The top five games for CMGE accounted for 42% of the revenue, whereas the top three games for DSKY cost of himalaya pilex tablets Buy Cheap gta 5 hack ios accounted for 57% of its revenue in Q1 2014. Because mobile games have a short life cycle, there is bigger risk associated with DSKY.

DSKY and CMGE are estimated to report similar results for the year ending Dec. 31, 2014. Judging from the number games, average spending per user, and financials for Q1 2014, in my opinion DSKY and CMGE will differ little in annual financial results for 2014.

DSKY’s valuation is 53% higher than that of CMGE. Assuming our projection for financial results of 2014 are accurate, the P/E valuation of DSKY would be 53% higher than that of CMGE.

In sum, CMGE and DSKY are competitors in many aspects, so it’s hard to pinpoint who is stronger. CMGE is more radical and better at developing new customers. If this statement holds true, it’s either that CMGE is underestimated or DSKY is overrated. If we take a closer look at CMGE’s stock price and recall that it was once over $40 per share, it’s very possible that CMGE is undervalued.

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