Shanda Plays to Win

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Just in case you thought we weren't being serious when we told you that our Rule Breakers newsletter service was going to single out some amazing growth stocks early in their cycle of defiance, Shanda Interactive (Nasdaq: SNDA) came through with heady earnings last night.

The online gaming specialist, singled out in January's issue of Rule Breakers, saw fourth-quarter revenue soar by 133%, with earnings more than tripling to hit $0.38 a share. With operating margins coming in at a sharp 43.5%, it's easy to get excited about a company like Shanda taking the lead in the lucrative online gaming market in China. Yet what's even more tantalizing here is that the quarter's numbers show that sales and earnings growth are actually accelerating.

That's because earnings for the year nearly doubled from $0.50 per depository share to $0.98, while revenues grew by 116% to reach $132 million. While the company continues to grow its online advertising business, it's the online games that still make up more than 90% of the company's revenue base -- and that's not a bad place to be, given the hungry market that Shanda is feeding with its addictive diversions.

Shanda is the biggest player, but it certainly isn't alone. NetEase.com (Nasdaq: NTES) and SINA (Nasdaq: SINA) have become key rivals, especially now that their wireless services business has cooled off. The9 (Nasdaq: NCTY) is another publicly traded player specializing in the massively multiplayer online role-playing games that are so popular in the world's most populous nation.

Clearly others will try to enter the market. You don't produce impressive results like these on fat margins and not draw an eventual crowd. Yet Shanda's market dominance is too loud to ignore. The company broke the rules and now it's more than worthy of cashing in on its renegade ways.

Want to learn more about Shanda?

• We were excited about the region a couple of years ago.
• The prospects remain strong.
• Why not discuss the country's investing potential in our China Connection discussion board?

Longtime Fool contributor Rick Munarriz believes in the sector, but he does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.