Growth investors are having no problem feeding at the online-gaming trough in China. Perfect World
Revenue soared 56% to $76.3 million. Earnings hit the accelerator even harder and soared by 60% to $38.4 million, or $0.72 a share. That was good enough to beat even the analysts' lofty targets of 50% top-line growth and $0.64 a share on the bottom line.
You're not misreading the earnings as they relate to revenue. Net margins did clock in at 50.3%, so a little more than half of every dollar generated in revenue survived the income statement's digestive tract.
The high-margin nature of Web-based games and China's kind taxation rates combine to produce profit margins that will make stateside companies blush.
Shanda
There are risks, of course. Beyond the prospects of buying into a booming yet politically volatile nation, investors should also remember that China has spent the past few years casting a dubious eye toward the addictive nature of Web-based gaming. Controversial "treatment clinics" have popped up. Usage curbs at Internet cafes have kicked in. And censorship standards always pose a potential stumbling block. Activision Blizzard's
Yet Perfect World still offers a risk worth taking. You know those high-octane spurts we discussed earlier? Perfect World is fetching just 15 times this year's projected profitability, along with a mere earnings multiple of less than 13 if you look out to 2010.
A lot can change between now and then, although in the near term, analysts are likely to revise their guesstimates higher.
Online gaming is still a winner in China, even if it's one that needs to be monitored closely.
Three more ways to play in China:
