Significant control over The9 by retail investors implies that the general public has more power to influence management and governance-related decisions
A total of 8 investors have a majority stake in the company with 50% ownership
Every investor in The9 Limited (NASDAQ:NCTY) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 49% to be precise, is retail investors. Put another way, the group faces the maximum upside potential (or downside risk).
Individual insiders, on the other hand, account for 47% of the company's stockholders. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies.
Let's delve deeper into each type of owner of The9, beginning with the chart below.
NasdaqCM:NCTY Ownership Breakdown October 2nd 2023
What Does The Institutional Ownership Tell Us About The9?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
Institutions have a very small stake in The9. That indicates that the company is on the radar of some funds, but it isn't particularly popular with professional investors at the moment. If the company is growing earnings, that may indicate that it is just beginning to catch the attention of these deep-pocketed investors. We sometimes see a rising share price when a few big institutions want to buy a certain stock at the same time. The history of earnings and revenue, which you can see below, could be helpful in considering if more institutional investors will want the stock. Of course, there are plenty of other factors to consider, too.
NasdaqCM:NCTY Earnings and Revenue Growth October 2nd 2023
We note that hedge funds don't have a meaningful investment in The9. With a 45% stake, CEO Jun Zhu is the largest shareholder. With 2.2% and 1.0% of the shares outstanding respectively, Plutux Labs Limited and Kwok Ho Lai are the second and third largest shareholders. Interestingly, the third-largest shareholder, Kwok Ho Lai is also a Member of the Board of Directors, again, indicating strong insider ownership amongst the company's top shareholders.
We did some more digging and found that 8 of the top shareholders account for roughly 50% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.
Insider Ownership Of The9
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.
Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.
Our most recent data indicates that insiders own a reasonable proportion of The9 Limited. Insiders have a US$101m stake in this US$213m business. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.
General Public Ownership
With a 49% ownership, the general public, mostly comprising of individual investors, have some degree of sway over The9. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand The9 better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for The9 (of which 2 are concerning!) you should know about.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
