The Chinese game industry is hot hot hot, and money is burning a hole in the pocket of some of the big players like Shanda. Unfortunately, the hot market has led to plenty of companies overvaluing their worth, and despite capital burning a hole in the collective pocket of the big companies, they're starting to realise that snapping up small companies for massive prices isn't the giant payoff they're looking for:
"Maybe they hit the wrong button on the calculator," said a source close to Shanda regarding small and medium size gaming companies overshooting their values.
Ye Youzhong, CEO of Kaixin Investments, said that online game companies had recently overvalued themselves by over tenfold, making investments in them unprofitable when considering that the current price-to-earnings ratio of listed Chinese gaming companies is around 30. He said that if bought for a price of 12-15 times their real value, it would take a full three years—including the market listing process—before the investing company saw any profit. Moreover, he added, a lot of these companies had no chance to be listed in the first place.
I'm sure everything will balance out in the long run, and I can't imagine this will have a huge impact on the speed with which the industry in general is growing. Still, it's interesting to look at the inner workings of some of these big companies and what they're worrying about.