Today Chinese online gaming company Changyou opened trading on the NASDAQ market after a successful $16 million public offering of 7.5 million shares priced at $16 each. Share price rose 40% to $22 in initial trading, with 3 million Changyou shares traded in the first ten minutes of the day. Changyou operates two MMORPGs in mainland China that monetize through virtual goods sales, netting a $201.8 million revenue and $108 million net profit for 2008. Changyou is the first new company to be listed on the NASDAQ since last November and the first Chinese company added renewable energy firm GT Solar International in August 2008.
"Changyou's parent, Sohu.com Inc., has been listed with us since 2000, and we are excited to welcome Changyou to the NASDAQ family," said Bob McCooey, Senior Vice President of NASDAQ OMX. "Changyou's successful IPO proves that, even in difficult times, innovative, fast-growing [foreign] companies are looking to the efficient, electronic trading platform, lower volatility and unparalleled service and value that only The NASDAQ OMX Group can provide."
Half of the shares in Changyou's initial IPO were provided by Sohu.com as part of the process of spinning off the firm. To celebrate the successful IPO, Sohu CEO Charles Zhang and Changyou CEO Tao Wang rang the opening bell at the start of NASDAQ trading today along with Sohu and Changyou staff. Demand for Changyou was so high that the company was able to close its order books a day early and begin trading ahead of schedule. The deal was handled by Credit Suisse and Merill Lynch.
Changyou's two MMORPG properties are Tian Long Ba Bu and Blade Online, with three more currently in development: Duke of Mount Deer, Immortal Faith, and Legend of the Ancient World. Changyou's current titles attract peak usage as high as 738,000 players. Its primary game is Tian Long Ba Bu, which launched as a subscription title but didn't become truly successful until it changed its business model to free-to-play. Duke of Mount Deer is expected to be its next major title.
Now most of Changyou's revenue is generated by converting about 10% of its current userbase into paying customers through in-game item stores that sell the usual assortments of equipment and useful items. While most fit the usual Western idea of microtransaction prices, prices for some extremely powerful items can get as high as $180. As China's economy is cash-based, all microtransactions must be paid for with pre-paid game cards sold at a variety of different retail locations.
Changyou's successful IPO puts it alongside Shanda Interactive, The9, and Perfect World in the ranks of major Chinese publicly-trading gaming companies. Virtually all monetize primarily through games run on the free-to-play model, with some also selling other types of virtual and digital goods to add to their revenue. Right now China seems to be leading the way in demonstrating the profitability of the virtual goods space in online gaming, though it remains to be seen if these companies can duplicate their original success with American versions of the same products.
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