Goldman Sachs Prefers Shanda Games To Shanda Interactive

According to an unconfirmed Sina.com (Nasdaq: SINA) article, Shanda Interactive (Nasdaq: SNDA) may spend up to $100 million to set up an entertainment firm with Hunan Broadcasting Group

Goldman Sachs said investment in entertainment and content production would fit with Shanda’s strategy of building its content business and developing into an entertainment company, but investing in entertainment content may bring regulatory and "hit versus miss" risks.

Goldman Sachs maintains its Neutral rating on Shanda Interactive and reiterates its preference for Shanda Games (Nasdaq:GAME), which is on Goldman's Conviction Buy List. Goldman says there is less acquisition risk and a cleaner investment into Shanda’s core online game business.

Goldman Sachs expects Shanda Games to exhibit above-peer revenue growth rate over the next couple of quarters and find its valuation attractive.

Goldman believes a large discount is justified on Shanda Interactive’s net cash balance (around 50% of its market cap) until GS gets more clarity on cash usage.