The9 Limited's (NASDAQ:NCTY) stock price dropped 10% last week; private companies would not be happy

Key Insights

• The considerable ownership by private companies in The9 indicates that they collectively have a greater say in management and business strategy
• A total of 5 investors have a majority stake in the company with 54% ownership
• 19% of The9 is held by insiders

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If you want to know who really controls The9 Limited (NASDAQ:NCTY), then you'll have to look at the makeup of its share registry. We can see that private companies own the lion's share in the company with 35% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And following last week's 10% decline in share price, private companies suffered the most losses.

Let's delve deeper into each type of owner of The9, beginning with the chart below.

View our latest analysis for The9

What Does The Institutional Ownership Tell Us About The9?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

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. So if the company itself can improve over time, we may well see more institutional buyers in the future. 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.

Hedge funds don't have many shares in The9. The company's CEO Jun Zhu is the largest shareholder with 16% of shares outstanding. In comparison, the second and third largest shareholders hold about 12% and 11% of the stock.

On looking further, we found that 54% of the shares are owned by the top 5 shareholders. In other words, these shareholders have a meaningful say in the decisions of the company.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of The9

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our most recent data indicates that insiders own a reasonable proportion of The9 Limited. Insiders have a US$26m stake in this US$138m 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

The general public-- including retail investors -- own 31% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Company Ownership

It seems that Private Companies own 35%, of the The9 stock. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Public Company Ownership

We can see that public companies hold 12% of the The9 shares on issue. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with The9 (at least 2 which are potentially serious) , and understanding them should be part of your investment process.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.