The Feng Shui of It All

Now that Shanda (Nasdaq: SNDA) is back on the growth track, its acquisitive juices are starting to flow. The Internet gaming pioneer is buying smaller rival Aurora Technology for an undisclosed price.

Aurora is the company behind China's popular Feng Yun Online. The multiplayer role-playing game has amassed 6 million registered users, with a quarter of those accounts actively playing this past quarter.

Shanda shareholders should welcome the addition. The company had begun to diversify into ad-supported casual games, Web portals, and a big gamble in home entertainment hardware. The Aurora buy finds Shanda re-embracing the high-margin niche of community-driven fantasy games that put it on the map a few years ago.

Shanda was already on a roll. After a few disappointing quarters, the company posted a 56% surge in first-quarter revenue this year. Profits skyrocketed, though that was mostly the result of selling its remaining stake in SINA (Nasdaq: SINA).

Despite the recent government crackdown on Internet cafes in mainland China, online gaming leaders Shanda, NetEase (Nasdaq: NTES), and The9 (Nasdaq: NCTY) are doing just fine. The climate is ripe enough that Perfect World -- the company behind the 3-D Chinese mythological game that bears its name -- filed this week to go public.

Aurora could have probably followed suit and gone public stateside as a stand-alone company. However, with the bubbly Chinese market capable of turning at any moment, one can't blame Aurora for cashing out to a pioneer that knows the market as well as anyone.

NetEase and Shanda are Motley Fool Rule Breakers recommendations. A free 30-day subscription is available if you want to kick those tires. SINA is a Stock Advisor pick.

Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He is 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.