The Simplified Investor

Amgen (NYSE:AMGN) made its reputation as one of the premier firms in the biotechnology industry with its blockbuster anemia drugs, Aranesp and Epogen. Worldwide sales of anemia drugs made up around half of Amgen’s $14.8B revenue in 2007 and an even larger percentage of its profit - Epogen, its original bestselling medicine, brought in revenues of $2.5B, while Aranesp sales hit $3.6B. But these impressive totals obscure falling demand for the drugs - in the the second quarter of 2008, for example, sales in the United States plunged 26 percent.
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Given the sorry state of the market these days, lots of investors are looking for so-called “recession-proof” investments - companies that will perform consistently in bull runs and bear markets to keep their money secure.  What better place to look than a company that dedicates itself to safekeeping?  Iron Mountain (NYSE:IRM) helps customers store and discard paper documents securely.  In effect, this means driving a van to a customer’s location, filling it with documents in boxes that IRM has sold to its customers, then driving them to a secure location to be retrieved when the company needs them, or shredded when the docs have outlived their usefulness.
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Southwest Airlines (NYSE:LUV) reported earnings today - and for the 69th straight quarter, the airline turned a profit. Its quarterly net income increased 15% from a year ago, to $321 million. These results are worth a closer look, considering the rest of the major airlines lost a combined $6 billion in the second quarter. How does Southwest stay in the black as the rest of its peers bleed red? The secret - it hedges its fuel prices better than anyone in the business

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It seems curious at first when a bank reports losses of $9B, as Wachovia (NYSE:WB) did today, and its stock price isn’t punished. It’s even more counter-intuitive when the company’s stock price goes up, as it did after Wachovia said it lost $8.9B in the second quarter of 2008. Despite the sour news, Wachovia was up over in 15% this afternoon on the New York Stock Exchange. Why are investors rewarding the beat-up bank with a share price boost? A closer look at Wachovia’s recent history helps solve the WB mystery and explains why its investors are still riding high.

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For decades, video game companies have relied on a tried and true business model - spend on development of new titles, sell them to customers at high prices, and then roll out one sequel after another to capitalize on popular franchises. But the game is changing, literally, for the companies that make video games. The growth of the internet means that users want to download games right to their computers - and what’s more, they don’t want to pay for them anymore.

But companies like Shanda Interactive Entertainment (NDAQ:SNDA) and The9 (NCTY) have figured out a way to monetize the new, play-for-free market. These Chinese video game makers no longer charge for their premier titles - they allow users to download them free. Then, once users get hooked, they can pay for upgrades to the game - clothes and accessories for their avatar in a role-playing game, for instance, or increased abilities for their character that will help them make it through more challenging levels.

These Massively Multiplayer Online games (MMOs) have taken the Chinese market by storm. The9 licenses the World of Warcraft to the Chinese market with brilliant success - the game reached 1 million concurrent users in April 2008, meaning a million players were logged on and playing the game at the same time. Meanwhile, Shanda was the #1 market player in the Chinese online-gaming market by 2007 revenues, relying on its two popular MMO role playing games Mir 2 and Woool. Shanda moved to the play-for-free, transactions based model for its games in 2006.

Innovation has always been at the heart of the video game business - new consoles with better graphics, games with more realistic characters, and creative ways to control players are staples of the industry. But a fundamental change to the business model of gaming is more than innovation - it is evolution. If the current trends continue, the Chinese market could lead the world into a new era of game play.