China's Changyou Falls Before Report Amid Technology Stock Rout

Updated on
  • Shares of online games developer down 32% since May 1 peak
  • Analysts say 2Q sales to grow at slowest pace since September Ltd. fell the most in two weeks on speculation that the Chinese online games developer’s sales are slowing as it struggles to come up with new offerings amid a transition from personal computers to mobile usage.

The American depositary receipts of Changyou sank 3.6 percent to $23.58 Wednesday in New York, extending a 32 percent decline from an 18-month high on May 1. Its parent Inc. slid 3.5 percent as both companies are scheduled to report second-quarter earnings on July 27. A Bloomberg gauge of the most-traded Chinese companies in the U.S. rose 0.2 percent while technology stocks fell around the world after a disappointing forecast from Apple Inc.

Changyou, which relies on a multi-player martial arts game called Tian Long Ba Bu for most of its revenue, has tried to lure smartphone users with a mobile version and add new products as China’s Internet users play less on desktops. Analysts project Changyou’s sales for the three months ended in June grew 7.2 percent from a year earlier, which would be the slowest pace in three quarters and in line with the company’s previous forecast.

“The company’s second-quarter results may come in line while it may guide for weak results for the third quarter due to the underperformance of new games and the maturing of Tian Long Ba Bu’s mobile version,” Nick Ning, a Shanghai-based analyst at 86Research Ltd., said by phone. “They are not successful in the transition to mobile, and a big reason is it lacks new developments of the game franchise since the PC era.”

Beijing-based Changyou may report second-quarter revenue of $190.6 million, according to the average estimate of seven analysts surveyed by Bloomberg, compared with $208.7 million in the prior three months.

Sohu, which owns about 68 percent of Changyou, sank to a two-week low of $46.18, while the Bloomberg China-U.S. Index rose to the highest level in three weeks. Disappointing earnings from Apple to Yahoo! Inc. rippled through technology stocks trading in New York, dragging down the Nasdaq Composite Index by 0.7 percent.

The Deutsche X-trackers A-Shares Exchange-Traded Fund climbed less than 0.1 percent to $43.02. The iShares China Large-Cap ETF tracking Hong Kong shares declined 1 percent to $42.31.