March 2, 2010 (Chinavestor) Shares of online game companies took a huge blow on Monday following earnings releases of Perfect World (NASDAQ:PWRD), Shanda Games (NASDAQ:GAME) and her parent, Shanda Interactive (NASDAQ:SNDA). Weakness of industry leaders took a toll on the rest of the market, NetEase.com Inc. (NASDAQ:NTES), Changyou.com (NASDAQ:CYOU) and Giant Interactive (NYSE:GA) ending the day in the red as well. Given that stock prices are driven by profits, except when markets are inefficient for a short period of time, revenue and earnings growth are paramount in determining future stock prices. For this reason we have created revenue and earnings growth charts of Shanda Interactive (NASDAQ:SNDA), Perfect World (NASDAQ:PWRD), NetEase.com Inc. (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU). In addition to the regular chart we added the stock price development so investors can assess if current stock price is out of sync with fundamentals.
The good news is that revenues grew for each and every online gamer that reported 2009 fourth quarter earnings so far, Giant Interactive (NYSE:GA) is scheduled to report on March 4 after the market close. This suggests that the sector remains attractive and offers money to be made for the intelligent investor.
But the Street favors stocks that DELIVER earnings and from this respect NetEase.com (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU) are standing out. But it would be a huge mistake to write off Shanda Interactive (NASDAQ:SNDA) or Shanda Games (NASDAQ:GAME). These latter two are the largest in terms of revenues and boost the most diversified game pipeline. The -20% drop in GAME's price since Friday is an opportunity to buy rather then sell, in my opinion.
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