Game Off in China

Investors in Chinese gaming stocks felt aftershocks of last week's disastrous earthquake. Shares of Giant Interactive (NYSE: GA  ) , Perfect World (Nasdaq: PWRD  ) , NetEase.com (Nasdaq: NTES  ) , and Shanda Interactive (Nasdaq: SNDA  ) fell by 6% to 13% yesterday, on news that China was shutting down Internet cafes as part of a three-day mourning period for the quake's victims. Most, if not all, of the companies are shutting off their servers until the country's roughly 100,000 cafes reopen on Thursday in observance.

The9 (Nasdaq: NCTY  ) was the lone exception. Its stock rose slightly yesterday, then continued even higher after the close, when the developer posted better-than-expected quarterly results.

The9 saw first-quarter revenue soar 63% to $62.7 million. Earnings climbed 36% to $0.46 per share. Analysts were expecting a profit of only $0.32 a share on $58.1 million.  

The company's flagship title is the Chinese port of Blizzard's globally popular World of Warcraft. Along with smaller titles in the company's portfolio, The9's registered user base now stands at 38.1 million gamers, with as many as 1.2 million playing the multiplayer games at the same time.

The9's stellar report followed a mixed showing at Perfect World. The quarter was spectacular for Perfect World, with revenue shooting 248% higher to $43.2 million, and earnings growing even faster, to $0.38 a share. The performance beat expectations, but Perfect World stung investors with a bleak near-term outlook.

Leaning partly on the three-day mourning lull, but also on its own ramped-up operating overhead, Perfect World is looking for meager sequential growth of 0% to 5% for the current quarter, and lower operating and net margins.

That's not good, but it's also about the only blemish here. Things should be business as usual come Thursday at all of the companies -- including other companies like SINA (Nasdaq: SINA  ) and CDC (Nasdaq: CHINA  ) that have a little skin in the online gaming game.

With Giant, Perfect World, and now The9 having easily topped market guesstimates, it would be a surprise if NetEase (which posts tomorrow) and Shanda (which posts next week) don't keep the streak going.

Related Foolishness:

NetEase and Shanda are recommendations of Motley Fool Rule Breakers. SINA is a Motley Fool Stock Advisor selection. Take a free 30-day trial to either newsletter.

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.


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