Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Three months later, NetEase.com (Nasdaq: NTES ) is cleaning up nicely.
The Chinese online-gaming giant posted better-than-expected fourth-quarter results last night, overcoming its weak third-quarter showing.
Revenue soared by 62% to $189 million. NetEase put out several games toward the end of last year, including the ninth expansion pack for its flagship Fantasy Westward Journey franchise.
This was also the first complete quarter of World of Warcraft in the company's books. NetEase was finally able to relaunch its licensed version of Activision Blizzard's (Nasdaq: ATVI ) global juggernaut in mid-September.
The only downside to the popular franchise is that it doesn't pack the same kind of lofty profit margins that NetEase typically scores with its homegrown games. Forking over meaty royalties to Activision Blizzard caused gross margin to slip from 88% a year ago to a still-respectable 71% this time around.
Releasing a flurry of new games also entails heavy initial marketing outlays, so chunky operating expenses weighed down the already suppressed gross margins. In the end, NetEase earned $0.64 a share, essentially flat with last year's $0.65 a share showing.
Investors typically run for the hills when they see flat earnings on top-line spikes, but the margin contraction isn't problematic under these unique circumstances. Analysts were expecting a profit of only $0.59 a share on $179 million in revenue.
Online gaming makes up 84% of NetEase's revenue, but we should also cover the company's healthy gains in online advertising. Rival portal operators Sohu.com (Nasdaq: SOHU ) and SINA (Nasdaq: SINA ) have been sluggish in recent quarters, but NetEase's ad revenue shot up by 64%.
This is certainly impressive, but online gaming will remain the key driver here as NetEase's fate aligns closer to Chinese multiplayer mavens Shanda Games (Nasdaq: GAME ) , Perfect World (Nasdaq: PWRD ) , and Giant Interactive (NYSE: GA ) .
Judging by last night's results, apparently that's not a bad place to be.
Are you comfortable investing in Chinese stocks these days? Share your thoughts in the comments box below.