There's finally a winner in what was shaping up to be a ho-hum quarter for China's leading online gaming companies.
In short, it was a knockout.
Revenue soared 52% to $198.6 million, well ahead of the 46% surge that Wall Street was expecting. A good chunk of that growth came from Activision Blizzard's
An encouraging sign came from the company's namesake portal, where advertising revenue doubled and operating profits grew nearly sixfold. Investors shouldn't get too excited. Online advertising is still just 11% of the revenue mix here, with gaming contributing the beefiest 88% slice. However, cyberspace growth is great for diversification. Going by the lofty earnings multiples commanded by dot-com speedsters Baidu
Earnings clocked in at $0.55 a share, barely ahead of the $0.53 a share it earned a year ago and short of the $0.58 a share that analysts were expecting. No matter how many times you read that, you'll have to trust me when I tell you that this still was a blowout quarter.
For starters, last year's profit included a foreign exchange gain. This quarter's profit was stung by a net foreign exchange loss of $10 million. Back that out and tax it at a nominal rate and NetEase would have earned much more than $0.60 a share. Back out last year's one-time currency gain, and it would have earned quite a bit less than $0.53 a share.
Yes, margins were dented on the bread-and-butter gaming end of the business, but that's the difference between last year's slate of proprietary games and having to shell out licensing royalties to Activision Blizzard this time around. All investors need to know is that clearly this is ultimately incremental to the bottom line.
I was started to grow concerned after the first few bland reports from the sector, but NetEase.com -- a stock that has nearly tripled since I recommended it to Motley Fool Rule Breakers subscribers six years ago -- has vindicated the industry.
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