Baby steps, Giant Interactive (NYSE: GA ) . Baby steps.
One of the hottest online gaming companies in China put out pedestrian numbers in last night's quarterly report.
Don't get me wrong. They're good. When revenue climbs 36% to $73.6 million and earnings soar 33% to the post-IPO equivalent of $0.21 a share, you're not a slacker. When you consider that Giant -- like all of its Chinese peers -- shut down for three days in observance of the Sichuan earthquake's mourning period, the already solid performance gets a shinier coat.
However, the results barely topped market expectations of $0.20 a share in net income on $72.2 million in revenue. Giant had humbled the pros by chunkier margins in its two most recent periods.
The company is also refraining from providing guidance for the current quarter, given a pricing strategy tweak to its flagship ZT Online game. In order to attract more long-term paying accounts -- which have risen by 41% to nearly 1.8 million over the past year -- Giant is scaling back some of the in-game monetization. Near-term hit for a long-term gain? Perhaps, but Mr. Market doesn't like to play by those rules.
Giant's peers have mostly scored passing grades during the challenging second quarter. Perfect World (Nasdaq: PWRD ) simply met expectations, but The9 (Nasdaq: NCTY ) and NetEase.com (Nasdaq: NTES ) beat analyst profit targets. Pioneer Shanda Interactive (Nasdaq: SNDA ) reports next week.
China's online gaming market is one to watch, and not just because South Korea's Webzen (Nasdaq: WZEN ) and Gravity (Nasdaq: GRVY ) are Wall Street disappointments trading for pocket change these days. The world's most populous nation and its fresh appetite for leisure are worthy investing themes. It also doesn't hurt that the stocks are cheap. Giant is trading at less than ten times next year's projected profitability. Good luck finding that kind of value proposition in slower-growing Western gaming companies.
Sure, there are greater risks in a nascent gaming market like China, but the same goes for the opportunities. Giant risks. Giant opportunities. Giant Interactive.
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