Gaming Didn't Die in China

Even China isn't immune to the waning global popularity of Activision Blizzard's (Nasdaq: ATVI  ) World of Warcraft.

NetEase.com (Nasdaq: NTES  ) came through with better-than-expected quarterly results last night, despite seeing a sequential decline in its licensed World of Warcraft game.

This is actually a good thing for NetEase, since it's now able to prove that it can grow just fine with its proprietary releases. The recent success of last year's Tianxia III and Ghost -- along with the continued success of its older Fantasy Westward Journey, Westward Journey Online II, and Heroes of Tang Dynasty -- find the Beijing-based company posting another market-thumping report.

Net revenue climbed 28% to $333.5 million for the online gaming pioneer. Earnings clocked in at $1.09 a share, well ahead of last year's $0.87-a-share showing. Analysts were settling for a profit of $1.02 a share on $317.3 million in net revenue.

There's more to NetEase than just multiplayer fantasy games. NetEase's portal now has 97.6 million users of its micro-blogging platform. It's no Weibo, but it shows that NetEase can still draw a crowd of non-gamers. The company runs China's largest free email service with 450 million registered users, though stateside investors know how hard it is to monetize email accounts.

However, online gaming is still the key driver at NetEase, accounting for 85% of its quarterly revenue.

As an industry bellwether, NetEase's report should calm investors that were spooked by smaller rival Changyou.com (Nasdaq: CYOU  ) last week. Changyou beat Wall Street targets, but provided a gloomy near-term outlook. NetEase doesn't provide guidance, but there's nothing in last night's report that suggests bumpy near-term performance.

We'll get a clearer picture of the industry when Shanda Games (Nasdaq: GAME  ) reports next week. The final snapshot will develop when Perfect World (Nasdaq: PWRD  ) checks in next month. Like Changyou, both Perfect World and Shanda Games are trading near their 52-week lows. NetEase, on the other hand, is a good pop away from hitting a fresh high.

If this is a game, NetEase is winning.

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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of NetEase.com and Activision Blizzard. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. 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.


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  • Report this Comment On February 16, 2012, at 11:36 PM, crca99 wrote:

    I love that you do these reports.

  • Report this Comment On February 17, 2012, at 6:38 PM, steveat wrote:

    You do realize that profit yield in China is about 75% less than the western world. Additionally, ATVI's poor customer services doesn't help much which is why there are a lot of "illegal" private World of Warcraft servers out there.

    there are a ton of gamers in asia, just most of them don't want to pay.

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