games: takeaways from meetings in india

Please see analyst certification (Reg. AC) and other important disclosures on pages 3-5 of this report.

Think Entertainment: Gaming

Games: Takeaways From Meetings In India

THINK SUMMARY:Over the last few days, we met with Zapak, the largest games company inIndia (according to the company's CEO), a couple games start ups and VCs inthe media space, and spoke to a few games retailers in India. We areencouraged with an apparent strong video games culture amongst the youthand youngsters in India and believe that India could emerge as another gamespowerhouse (similar to China) over the next few years with a potential $1.5-2.0billion market opportunity. We believe that the inflection point could come overthe next 12-18 months, with expected strong growth in broadband penetrationon the back of a recent award of wireless broadband spectrum by thegovernment to the private sector. Similarly, with about 600 million subscribersand upcoming rollout of 3G, mobile games could emerge as anothermeaningful potential opportunity. We believe that Activision and Electronic Artsmay have play in the Indian markets given the popularity of their franchises inIndia and their aggressive plans for online.

KEY POINTS:• With a population of 1.2 billion (roughly 250 million middle-class population

according to the World Bank), we believe India is an attractive market forconsumer products. Games culture seems to have grown significantly overthe last few years with a considerable media expansion that led to anincreased exposure to the Western culture. In our conversations with theretailers and some of the users, it seems that the children and youth are veryfamiliar with the top franchises (such as Call of Duty, Need for Speed, FIFA,Grand Theft Auto, Smackdown vs. Raw) and latest titles. Using China as abenchmark, we estimate that India has the potential to emerge as a $1.5-2.0billion market for video games.

• Penetration of consoles seems miniscule, given the high price point ofconsoles ($350-400 for an Xbox 360 Arcade or Wii versus $150-199 in theU.S.) and the video games ($55-66 for video games) that may be out ofreach for a large majority of the population (average per-capita income inIndia is at $1,030, per IMF). Pirated games for PC (selling at $1-4 per title)seem extremely popular, according to our conversation with retailers, gamingcompanies, and VCs, which makes us believe that, like China, the online andfree-to-play model could be the credible way to monetize the users in India.Our conversation with Zapak (the largest games company in India, accordingto the company's CEO), suggests that users are willing to spend for thevirtual goods, and ARPPU at $20 seems in the range of that of internationalmarkets.

• With only 81 million Internet users (per Internet World Stats) and roughly fivemillion broadband users (according to International TelecommunicationUnion), the market for online games could be limited. However, in June 2010,the Indian government auctioned the licenses for wireless broadbandspectrum, and with some aggressive private investment planned (fromgroups such as Reliance Industries, QUALCOMM, Bharti, and Aircel), wewould expect to see meaningful growth in broadband penetration over thenext 12-18 months, which we believe could be an inflection point for onlinegames in India.

Reason for Report:

Industry UpdateAtul Bagga

415-249-6362, [email protected]

July 23, 2010Industry Report

• Similarly, mobile could be another significant opportunity with over 600 million mobile users (according to TelecomRegulatory Authority of India) and with the recent auctioning of 3G licenses and planned investment by the private sectorin 3G.

• While it may be too early to comment on the potential beneficiaries, we believe that companies with an aggressive plan forthe online, free-to-play might have an interesting play in the Indian markets. Furthermore, India might be an easier marketthan China in terms of regulatory stand point and could have more direct upside for the global publishers. With awarenessof top franchises (Call of Duty, Need for Speed, FIFA) and aggressive plans for the online, ATVI (planning online versionof Call of Duty for emerging markets, Starcraft 2 and popularity of World Of Warcraft), and ERTS (Online version of Needfor Speed, Tiger Woods, Battlefield Heroes) could have some play in the India markets, in our opinion.

INVESTMENT RISKS:Gaming continues to be a hit-or-miss-driven business, and predicting successful titles versus unsuccessful titlesis extremely difficult. The risk is especially high for the new and unproven IPs, and a company's reliance on the new IPsand the titles in the established franchises to reach the revenue target opens it to risk of a revenue miss.

Macro headwinds and popularity of the used games and free-to-play online games. Given the current macroheadwinds, used games and free-to-play online games create higher substitute competition for video games.

The industry is dependent on the console cycle; unexpected start of the new console cycle will likely constrain therevenue growth and affect profitability of gaming vendors.

Foreign currency exchange risk. These companies generate revenue from international operations, which exposes thecompanies to foreign currency exchange risks.


COMPANIES MENTIONED IN THIS REPORT:Company Exchange Symbol Price Rating

Activision Blizzard, Inc. NASDAQ ATVI $11.62 Buy

Electronic Arts Inc. NASDAQ ERTS $15.59 Buy

QUALCOMM Inc. NASDAQ QCOM $39.11 Hold

Important Research Disclosures

Analyst CertificationI, Atul Bagga, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specificrecommendations or views expressed in this research report.

The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's totalrevenues, a portion of which is generated by investment banking activities.

ThinkEquity LLC makes a market in QUALCOMM Inc., Electronic Arts Inc., and Activision Blizzard, Inc. securities; and/or associatedpersons may sell to or buy from customers on a principal basis.

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q316

24

32

40

48

56

2008 2009 2010

01/28/10H

Rating History for: QUALCOMM Inc. (QCOM) as of 07-22-2010

Created by BlueMatrix


Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

15

30

45

60

75

2008 2009 2010

05/27/09I:H

07/09/09B

Rating History for: Electronic Arts Inc. (ERTS) as of 07-22-2010


Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q36

9

12

15

18

21

2008 2009 2010

06/15/09I:B

Rating History for: Activision Blizzard, Inc. (ATVI) as of 07-22-2010


Rating Definitions

Effective October 7, 2009, ThinkEquity LLC moved from a four-tier Buy/Accumulate/Source of Funds/Sell rating system to a three-tierBuy/Hold/Sell system. The new ratings appear in our Distribution of Ratings, Firmwide chart. To request historical information, includingpreviously published reports or statistical information, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600Montgomery Street, San Francisco, California, 94111.

Buy: ThinkEquity expects the stock to generate positive risk-adjusted returns of more than 10% over the next 12 months. ThinkEquityrecommends initiating or increasing exposure to the stock.


Hold: ThinkEquity expects the stock to generate risk-adjusted returns of +/-10% over the next 12 months. ThinkEquity believes the stockis fairly valued.

Sell: ThinkEquity expects the stock to generate negative risk-adjusted returns of more than 10% during the next 12 months. ThinkEquityrecommends decreasing exposure to the stock.

Distribution of Ratings, Firmwide

ThinkEquity LLC

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [B] 150 69.10 17 11.33HOLD [H] 66 30.40 2 3.03SELL [S] 1 0.50 0 0.00

This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. Theinformation provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. Theopinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Pastperformance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express orimplied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shallthere be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration orqualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clientsof ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of theirpersonal financial advisors before making any investment decisions based on this report. Additional information on the securitiesreferenced is available upon request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-coveredsubject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. To requestmore information regarding these disclosures, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unlessotherwise mentioned. Member of FINRA and SIPC. Copyright 2010 ThinkEquity LLC, A Panmure Gordon Company


games: takeaways from meetings in india

Documents