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June 1, 2006 Stock Pick: The9 Ltd. (NCTY)

Stock Price: $27.35

The9 Limited is an online game operator and developer in China. The company offers its self-developed online virtual game community, the9 City.

This company focuses on massively multiplayer online games and has locked up the licensing rights to Blizzard Entertainment's World of Warcraft. World of Warcraft has become a craze with American and Asian gamers. Aside from the $49.99 price to buy the game, gamers are also charged $14.99 monthly to play the game online. The game can not be played without a connection to this game world. This thwarts pirates and increases revenue for Blizzard and its licensors.

The deal with Blizzard Entertainment was the turning point for NCTY. For the latest quarter, the company reported revenue of $26.5 million and net income of $7.3 million. All but $0.3 million of the revenue came from World of Warcraft licensing. There is no doubt that NCTY will grow revenue and profit significantly as WoW's popularity grows in China.

Computer use and disposable income will be increasing in China leading gamers right into World of Warcraft. We expect NCTY to close more licenses in the future, but none as big as World of Warcraft. World of Warcraft is the best computer game license a company can close.

NCTY has the ability to move quickly with only 8.37 million shares in the float. Insiders are invested heavily in this company with over a 56% control. Institutions own 25.60% of the NCTY's outstanding shares.

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