Chinese Gaming Stocks Win Again

Shanda Games (Nasdaq: GAME  ) became the fifth and final Chinese gaming company to report its financials for the three months ending in June last night.

Despite shares of fellow web-based gamer Perfect World (Nasdaq: PWRD  ) soaring 15% higher yesterday after blowing past Wall Street estimates -- and peers NetEase.com (Nasdaq: NTES  ) , Changyou.com (Nasdaq: CYOU  ) , and Giant Interactive (NYSE: GA  ) all besting the prognosticators before that -- Shanda Games was one of the few stocks to close lower during yesterday's market rally in anticipation of last night's report.

Poor Shanda Games. Is it now the Rodney Dangerfield of Chinese gaming stocks?

The pessimism was not warranted. Revenue rose 19% to a slightly-better-than-expected $204 million. Shanda posted earnings of $0.17 per ADS -- or $0.20 per ADS on an adjusted basis. Analysts were targeting net income of $0.18 per ADS.

It wasn't a perfect report. Average monthly active users clocking in at 24 million is a healthy advance from the 20.3 million gamers it was attracting just three months earlier, but average paying users and the average revenue per premium user declined sequentially.

Then again, when your stock's been meandering in the single digits since early last year, it doesn't have to be a complete victory to be scored as a win.

Let's peek at the second quarter scoreboard.

Company

EPS

EPS Estimate

NetEase.com

$0.91

$0.78

Changyou.com

$1.02

$0.93

Giant Interactive

$0.18

$0.15

Perfect World

$1.01

$0.57

Shanda Games

$0.20

$0.18

 Source: Yahoo! Finance.

It was a quarter of redemption for the niche, especially given the sharp share declines at most of these companies in recent months. Investors may fear that the Chinese government will get more restrictive when it comes to the time-slurping ways of online gaming with the country's impressionable youth -- or that a global economic slowdown will scale back the industry's growth -- but these five companies continue to scale this great wall of worry with every passing report.

The niche didn't save the best for last with the ho-hum report out of Shanda Games, but the recent correction provides investors attractive entry prices into a market that is constantly underestimated.

How many Chinese stocks are in your portfolio? Share your thoughts in the comment box below.

Motley Fool newsletter services have recommended buying shares of NetEase.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a fan of China’s high-margin online stocks for a long time. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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