What happened

Changyou.com (NASDAQ:CYOU) stock dipped 15.5% in January, according to data provided by S&P Global Market Intelligence. The media company delivered fourth-quarter earnings results that fell short of the guidance it issued and indicated that one of its most important new video game releases was underperforming benchmarks.

So what

Changyou reported fourth-quarter earnings results for its December-ended quarter on Jan. 29, delivering sales and earnings that missed its own targets and Wall Street's expectations. Revenue for the period came in at roughly $144.5 million and net income was $0.64 a share, whereas the average analyst estimate called for quarterly sales of $168.1 million and earnings per share of $0.81.

A group of people using mobile phones.

Image source: Getty Images.

Weaker-than-anticipated performance for TLBB Mobile, the company's most important game release in the last year, was the biggest contributor to the earnings miss. However, a delay for one of its other gaming releases was also a contributing factor.

Now what

Changyou's video game business is largely hit driven, so future performance is somewhat difficult to predict. That means there's still significant risk despite the stock grading at just 11 times forward earnings estimates, but I think there's enough upside to make the media company a promising investment.

Even though sales for Legacy TLBB Mobile came in below expectations in the fourth quarter, the company anticipates slowing sales declines for the game and expects the game to have a long life cycle sustained by regular updates. Changyou has somewhere in the neighborhood of 20 games in development, and it would likely only take a couple of those titles emerging as hits to create substantial upward momentum for the stock. Healthy growth for China's mobile gaming and movie industries looks to present continued tailwinds for Changyou's business.

Changyou is a potential acquisitions target as well, a factor that could have a significant near-term impact on its share price. The head of the company's board has tendered an offer to acquire outstanding shares and take the company private, and it's also possible that one of the company's partners, like Tencent Holdings, could make a bid.

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