NetEase (NASDAQ:NTES) is becoming a bit of a broken record -- it just keeps crushing the market, thanks to the growing popularity of its online games.
The company earned $0.26 per share in the March quarter, or $0.28 per share before stock-based compensation charges. It's a far cry from the $0.13 a share NetEase had earned a year earlier, or the $0.24 a stub that analysts were expecting this time around. Margins continued to improve; the 100% surge on the bottom line came from a healthy 62% spike in revenue.
NetEase is clearly a gaming company these days. The company was originally seen mostly as a popular Internet portal and a provider of wireless messaging entertainment, but that all changed in 2004 when Fantasy Westward Journey debuted. It's now China's most popular game, with as many as 1.3 million gamers playing simultaneously. Online gaming revenue grew by 72% year over year in the latest quarter, and it now represents 85% of the company's top-line production. Internet advertising sales grew by 36% in the same period, while the company's fading wireless business improved sequentially but dipped 13% below last year's showing.
NetEase shares have been hot since they were singled out to Motley Fool Rule Breakers newsletter service subscribers 18 months ago. The stock has soared 72% higher since then, and the steamy stock recently went through a 4-for-1 split to keep its price in the same low-twenties range as fellow Chinese growth stocks Sina (NASDAQ:SINA), Tom Online (NASDAQ:TOMO), and Sohu.com (NASDAQ:SOHU).
Thanks to the company's low overhead and friendly tax rates, NetEase generated whopping net margins of 58%. Good luck finding another company that can squeeze $36 million in profits out of $66 million in revenue.
Flush with cash, NetEase is rolling out new games to hold the interest of any gamers who might tire of Fantasy Westward Journey. As for the stock, its journey keeps heading in a more northerly direction.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He does not own shares in any of the companies in this story. Sina is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy . Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
