CDC Playing Games in China

In a field that is already crowded with publicly traded players like NetEase (Nasdaq: NTES), The9 (Nasdaq: NCTY), and Shanda Interactive (Nasdaq: SNDA), CDC (Nasdaq: CHINA) has a hit on its hands with its Yulgang online game -- and it wants to make sure you know it.

The company once better known for its 77% stake in China.com has become a pretty prolific player in enterprise software. Lately, it's been making inroads in the fast-growing area of Internet-based multiplayer games.

Yesterday, CDC issued a press release detailing the progress of Yulgang. The company closed out the third quarter with 37 million registered users, a 23% improvement. The number of virtual items that have been sold within the game to enhance the gaming experience climbed 29% higher to hit 27.4 million.

Unfortunately, the growth is cumulative. It doesn't mean that they're all playing. In fact, they're probably not. The most important metric in gauging a game's popularity is concurrent usage -- or the average number of gamers playing at any given time. For Yulgang, that figure actually fell from 235,000 in the quarter that ended in June to 218,000 in the most recent period. In contrast, The9's World of Warcraft is generating three times as many concurrent players as CDC's title.

That's OK. The China gaming pipeline at CDC is pretty thick at the moment. Next year, it will introduce Special Force -- a hot game in Korea's Internet cafe community -- as well as Stone Age 2 and The Lord of the Rings Online: Shadows of Angmar.

If Yulgang's popularity does indeed continue to taper off, hopefully one of the 2007 titles will help win back gamers for CDC.

Even though the online gaming market is much more competitive these days, companies like NetEase are still feasting on fat margins. The crowded marketplace may eventually find the software developers aiming for hit singles instead of homers, but until the gamers stop coming, it will remain a vibrant growth industry.

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