March 5, 2010 (Chinavestor) With Giant Interactive (NYSE:GA) releasing earnings today most Chinese online game developers and operators have reported financials. This gives investors an opportunity to assess the latest developments of the sector. Changyou.com (NASDAQ:CYOU), the online game unit of Sohu.com (NASDAQ:SOHU) that spun-off last year, opened up the earnings season. The most profitable online gamer, NetEase.com Inc. (NASDAQ:NTES) followed up last week, reporting revenue and earnings increase on the same time. But the mood changed fast on Monday after net income for Shanda Games (NASDAQ:GAME) fell last quarter as margins eroded. Perfect World (NASDAQ:PRWD) reported similar to Shanda, revenues increased by profits fell, sending her shares sharply lower along with Shanda Interactive (NASDAQ:SNDA) and Shanda Games (NASDAQ:GAME).
Giant Interactive (NYSE:GA) reported a slight increase from last month but revenues and earnings came out way below 2008 fourth quarter figures. As the following chart suggests, the stock has been trading in a narrow range and upside is limited for Giant Interactive (NYSE:GA). While the company suggested a positive revenue outlook, earnings are not going to recover according to the latest financial report:
"However, Giant does not expect profit to move in-line with revenues in the near term due to an expected reduction in contribution from certain non-operating factors such as financial incentive."
To fully understand the differences between online gamers, take a look at the following charts. They depict revenue and earnings growth for the rest of the sector. Given that NetEase.com Inc. (NASDAQ:NTES) reported the most impressive revenue and earnings figures for the last quarter, expect the company to outperform the rest of the sector for the time being.
Chnagyou.com (NASDAQ:CYOU) reported revenue and income growth - yet stock price is lagging behind.
Shanda Interactive (NASDAQ:SNDA) reported strong revenue growth but profits fell from previous quarter - and the stock is paying for it. Nevertheless investors have no reason to abandon Shanda Interactive (NASDAQ:SNDA).
Revenues leveled-off or slightly increased for Perfect World (NASDAQ:PWRD) while profits fell. Shares of the company feel the pinch...
The good news is that each and every online gamer mentioned above reported increased revenues for the last quarter. Given that the online game industry is the largest revenue generator off the internet in China, surpassing total revenues from online advertisement or search related revenues, revenue growth all across the board is excellent news. Fierce competition puts pressure on stocks, but the fittest are here to thrive. The industry looks healthy, competition will just make these companies even better. Wish you profitable investing!
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