Why Perfect World Shares Found Their Happy Place

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Perfect World (NASDAQ: PWRD  ) , a China-based online video game developer, soared as much as 13% after the company reported better-than-expected first-quarter results.

So what: For the quarter, Perfect World reported a nearly 12% decline in year-over-year revenue to $100.6 million with adjusted EPS falling to $0.49. However, these results were considerably better than the $98.8 million in revenue and $0.47 in EPS that Wall Street was expecting. CEO Robert Xiao accepted that sales have recently been soft, but is keeping the company focused on its pipeline of upcoming games. Looking ahead, Perfect World forecast second-quarter revenue in a range of $105.6 million to $110.7 million, which is slightly higher than the $104.1 million consensus estimate.

Now what: Perfect World's results certainly speak to the uncertainty surrounding the gaming sector all over the world, but the thesis behind the run higher today makes sense. Much of the gaming console and content commoditization that we've witnessed in the U.S. just isn't mature enough to occur in China, leaving plenty of room for margin expansion for developers like Perfect World. In addition, the company is loaded with cash and it pays a handsome 3% yield. It could take time before the results turn markedly higher here, but the growing wealth of China's middle-class is certain to keep developers at Perfect World busy.

Craving more input? Start by adding Perfect World to your free and personalized watchlist so you can keep up on the latest news with the company.

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