UPDATE: Nomura Downgrades Changyou.com to Reduce, Reiterates $25 PT on Flat Growth

In a report published Wednesday, Nomura downgraded its rating on Changyou.com CYOU from Neutral to Reduce, and reiterated its $25.00 price target. Nomura noted, “ARPU-driven growth; sustainability questioned. We believe that Changyou‟s top and bottom lines in 4Q12 beat owing to continued strength in ARPU for Tian Long Ba Bu (TLBB) and for new web games. However, excluding contributions from 7Road, core business was largely flat q-o-q. We remain cautious on the sustainability of ARPU-driven growth. We believe that excess ARPU growth comes at the expense of game life, and that the quarter‟s results reflect weakness in TLBB. We believe Changyou‟s top line continues to be driven by ARPU strength. For 4Q12, Changyou generated total revenue of USD 173m, vs our estimate of USD 168.8m, and beating the guidance range of USD 166m-170m. On our revised numbers, our TP implies 3.2x FY13F P/E ex-cash, largely in line with the adjusted peer-group average of 3.1x. Shares of Changyou trade at 3.8x FY13F P/E ex-cash.” Changyou.com closed on Tuesday at $28.09.