Why Giant Interactive Is a Good Short

Giant Interactive (GA), a Chinese online game company, announced its preliminary results for Q3 yesterday morning. It sees its quarterly sales between $40 million and $43 million, which is lower than its guidance of $45 to $50 million issued on August 18th.

This result is very disappointing given that the previous guidance was a disappointment to begin with when the Street was expecting $58 million before the last earning report. Merely 40 days later, Giant found that it was at least 10% below the forecast. If we assume that Giant management was telling the truth on August 18th and Giant was on track to make its forecasted revenue at that time, then its running rate after August 18th further deteriorated to probably 20% below what was expected.