China's World of Wow Craft

Sure, The9 (Nasdaq: NCTY  ) is a one-trick pony. Of the $35 million in net revenues it recorded in the first quarter, $34.5 million came from its role as the company behind Blizzard's World of Warcraft in China. So it's a one-trick pony that doesn't even own the trick. Still, it's hard to bet against the online-gaming specialist when that pony is actually more like a stallion.

The9 scored another market-thumping quarter, according to the numbers released last night. No surprise there, since that is what the company has done in each of the past six quarters. Thanks to the Warcraft stallion, The9 saw net revenue soar 27% higher as earnings clocked in at $0.34 per American depositary share. The pros thought the company was only good for a profit of $0.32 a share.

Blizzard's game is a global hit, so why shouldn't it be an online sensation in a country with a booming economy and more than 100,000 Internet cafes? The9 has activated 7.5 million paid accounts. At any given time, an average of 330,000 users are playing the fantasy game. There were as many as 680,000 users playing at the same time this past quarter.

A couple of years ago, The9 was a low-profile company that earned its keep by distributing titles in mainland China that were made by South Korea's WebZen (Nasdaq: WZEN  ) . Now it has a compelling pipeline in the works to make sure it doesn't have too much riding on World of Warcraft.

Sure, there is a big expansion pack coming out for the game. The company is also in open beta testing of WebZen's Soul of the Ultimate Nation. Things look promising there, with as many as 400,000 people checking it out at its peak. However, there's a different kind of blizzard in the company's future: yesterday's announcement that Electronic Arts (Nasdaq: ERTS  ) is taking a 15% stake in the company. The9 will also be distributing the Internet version of EA's popular FIFA-sanctioned soccer game.

The EA news led to a 10% stock surge yesterday, and that was before the company posted its impressive first-quarter results after the market's closing bell rang. It may be just the beginning, too. Until EA stepped into the picture, The9 didn't have the varied catalog of titles that older and larger leaders such as NetEase (Nasdaq: NTES  ) and Shanda Interactive (Nasdaq: SNDA  ) have been amassing over the years. Now The9 is a partner of the mighty EA. How would The Sims or some of's casual games play out in mainland China? It may not be long before we find out.

The9 has ridden that one-trick pony well. Here come the horses. 

NetEase and Shanda are Motley Fool Rule Breakers recommendations. Electronic Arts is a Motley Fool Stock Advisor pick. A free 30-day subscription offer is available for either newsletter service.

Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.

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10/24/2016 3:20 PM
NCTY $1.66 Down +0.00 +0.00%
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