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China plays in online gaming Print E-mail Digg It!
Friday, 22 August 2008

 In The China Trader, editor Keith Fitz-Gerald looks at two plays in Chinese online gaming, noting, "Each has spectacular numbers in recent months and stellar growth prospects."

"In general terms, we may not be quite at the bottom of things just yet when it comes to Chinese markets, but as the legendary Jim Rogers put it when we talked in Vancouver recently, '“so what!'

"Even if China declines another 40% from here, the returns are going to be spectacular over time. 'It will be like landing in New York in 1908,' Rogers said. There’s just that much potential.

"Perfect World Co., Ltd. (NASDAQ: PWRD), a rising video game producer, saw its profit rise 213.9% from 52.4 million Renminbi a year ago to a staggering 164.5 million Renminbi as of the second quarter. At the same time, revenues jumped 157.82% to 334.4 million Renminbi.

"Yet the stock dropped after the company stated that paying customers dropped by 200,000 people. We think this is a knee-jerk reaction since average revenue per customer is up 25% at the same time.

"It’s also important to note that the company missed earnings estimates by a mere penny. Not because they did anything wrong, but because the Sichuan earthquake robbed them of three days of revenue.

""Perfect World has five additional massively multiplayer games under development and expects to debut them later this year and early in 2009 which will lead to still more expansion and profits.

"Online gaming phenomenon NetEase.com (NASDAQ: NTES) saw its total revenue accelerate 28%, with 83% of growth coming from online gaming.

"Critics don’t like the fact that nearly 20% of gross profit is from a one-time tax charge but we think that’s shortsighted. Especially since online advertising, another key market for NetEase, rose 60% and revenue growth itself is actually accelerating. 

"The company is holding $772 million in cash, which suggests some more intensive business development and expansion efforts are on their way.We note that Chinese companies don’t tend to stockpile cash for long."




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