Shares of Perfect World
Revenue slid 13% to $106.5 million. Given the scalable nature of the business, profitability was essentially cut in half.
Things won't get any easier for Perfect World in the near term. The midpoint of the company's guidance calls for yet another decline both sequentially and on a year-over-year basis.
Rival Shanda Games
Shanda isn't the only company that came up short in projected revenue. Two weeks ago, it was market darling NetEase.com
Analysts aren't impressed. They see Perfect World and Shanda Games posting declining revenue for all of 2012. The news gets relatively better for NetEase and Giant Interactive
The valuations are certainly compelling. Shanda, Perfect World, and Giant Interactive are all fetching earnings multiples in the single digits this year. NetEase isn't necessarily expensive, either, fetching less than 12 times this year's projected profitability and 10 times next year's income forecast.
However, the uncertain reports and uninspiring near-term outlooks make it hard to get excited here. Online gaming stocks in China are cheap, but they're going to have to prove that they're worth the investing risk.
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.