Perfect World (NASDAQ:PWRD) will release its quarterly report on Monday, and shareholders have been pretty happy with the company's success over the past year. But with strong competition from Giant Interactive (NYSE:GA), NetEase (NASDAQ:NTES), and a host of other Chinese gaming companies, can Perfect World really stand out and sustain its share-price growth?

Perfect World has been one of the many beneficiaries of the strength in the Chinese online gaming industry, with the explosive growth in Internet use helping the company and its rivals get a lot of attention from investors. Yet when you look at the fundamentals of the industry, you can see the effect that competition has had on the financial health of the companies involved. With Giant Interactive and NetEase both joining Perfect World with strong share-price gains this year, which company will end up the victor in the industry? Let's take an early look at what's been happening with Perfect World over the past quarter and what we're likely to see in its report.

Stats on Perfect World

Analyst EPS Estimate

$0.33

Change From Year-Ago EPS

17.9%

Revenue Estimate

$131.53 million

Change From Year-Ago Revenue

18.8%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Perfect World stay perfect this quarter?
Analysts in recent months have cut back on their views on Perfect World earnings, reducing third-quarter estimates by $0.01 per share and cutting full-year 2014 projections by 6%. The stock has been stuck in neutral, falling less than 1% since late August.

Perfect World didn't do as well last quarter as many investors had hoped. Revenue grew by only 5%, contributing to a 44% drop in adjusted net income as the company failed to keep up with NetEase, Giant, and other online-gaming peers. Its efforts to re-establish dominance have forced it to spend more on marketing and other expenses, and that could continue to weigh on results for a while.

The big problem is that Perfect World faces plenty of competition, and those competitors have stepped up their game recently. Giant has done well, posting an 8.6% jump in revenue in its third quarter, pushing adjusted earnings up almost 9%. Giant's partnership with Qihoo 360 has given it an advantage with online games over Perfect World and other rivals, as cybersecurity becomes a more important aspect of gaming online. NetEase has also pushed hard to build up its own game-building prowess in efforts to move beyond its heavy exposure to World of Warcraft; a separate initiative with China Telecom to create an instant message platform shows how NetEase is trying to diversify beyond the online-gaming segment.

Still, Perfect World has a solid pipeline of good gaming prospects. Games like Swordsman Online have gotten positive reviews, and the company is seeking to combine the popularity of massively multiplayer online games with Web-based games where competition isn't quite as fierce. Moreover, Perfect World is trying to make smart strategic moves of its own, investing in two gaming portals in order to get more information about gaming customers and help support its own offerings.

In the Perfect World earnings report, watch to see how well the company does compared to Giant Interactive's recent results. Without a solid rebound, Perfect World risks losing the war among Chinese online gaming stocks, especially as conditions in the industry are likely only to get more cutthroat in the future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Giant Interactive Group and 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.