For Chinese gaming upstart The9 (NASDAQ:NCTY), there are no more freebies. Sure, the company posted a small loss last night on a rather uninspiring $1.5 million in revenue for its March quarter, but this is when the fun begins. Next month, the company will be launching Blizzard Entertainment's World of Warcraft online game in China, and that's what investors are really showing up to see.
That's because until now, The9 has been a fringe player, teaming up with struggling Korean game maker Webzen (NASDAQ:WZEN) in a largely unsuccessful attempt to stir up demand for its ported titles.
World of Warcraft changes everything. Since the game's beta release last month, as many as 500,000 players in China have given it a try at the same time. Then again, since most beta tests are free, it's still unknown what kind of crowd the game will draw once the commercial version rolls out later this quarter.
Given the title's success just about everywhere else, expectations are high. Assuming that what works in one country can be easily ported somewhere else would be pompous, but things are off to a good start if you go by the massive amount of early tire-kickers.
But for investors looking to ride the online-gaming boom in China, perhaps the better bet is with proven winners like Shanda Interactive (NASDAQ:SNDA) and NetEase.com (NASDAQ:NTES). Both of those companies, which our Rule Breakers newsletter service singled out late last year, have been consistent producers.
Revenues have been soaring for both companies, and their online-gaming businesses have more than doubled over the past year. Net profit margins have been even more impressive, coming in at 44% and 47%, respectively.
Investors shouldn't categorically dismiss The9's chances to succeed, but they also need to buy in realistically. The stock closed yesterday with a market cap of $480 million, far greater than the cheaper starting lines for Chinese stocks like NetEase, Motley Fool Stock Advisor pick Sina (NASDAQ:SINA), and Sohu (NASDAQ:SOHU) when they tore up the market in a good way two years ago. Then again, if World of Warcraft is a huge hit and the money comes rolling in, it would be funny to observe how people tend to forget where the starting line was when the finish line is so inviting.
Some more stories about online gaming in China:
- Last month, NetEase.com reported a great quarter.
- Shanda followed suit a few weeks later.
And you can discuss China's investing potential by going to our China Connection discussion board.
Fool contributor Rick Munarriz believes in the sector, but he does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Check out Rule Breakers for the latest ultimate growth-stock recommendation.
