Turnaround is fair play at NetEase.com
Three months ago, China's online gaming giant posted a quarterly profit that wasn't as good as it initially appeared. This time around, NetEase is coming through with a third quarter earnings report that is better than it may seem.
NetEase delivered third quarter earnings of $0.36 a share last night, well ahead of the $0.29 a share it generated a year ago, but short of the $0.38 a share that Wall Street was expecting. Not so fast. Included in last night's profit is a net foreign exchange loss that is greater than a fifth of the net profit. NetEase isn't breaking out its per share earnings without the currency hit, but it obviously would have topped expectations without it.
It's only fair. A chunky business tax refund helped pepper up this year's second quarter showing.
In a nutshell, NetEase is doing just fine. Third-quarter revenue climbed 41% to $118.8 million -- well ahead of Mr. Market's $108.8 million target -- as all three of its categories grew during the period.
Online gaming continues to lead the way, up a sharp 44% during the quarter. Catering to China's youth with magnetic Internet role-playing is a winner for NetEase, now accounting for a huge 84% slice of the revenue mix. A well-received summer promotion of its flagship Fantasy Westward Journey game found as many as 2.3 million gamers online at the same time in August.
Online advertising through its namesake Web portal also grew nicely, up a respectable 32% during the period. The less noteworthy 8% advance in wireless value-added services barely deserves mentioning at this point. Why? Because NetEase is a gaming company now.
It may have started out as a portal with a wireless data-pushing bent, but now it's a leader in a fast-growing niche where all of the publicly-traded players -- Perfect World
NetEase is a leader, naturally. Its power broker status was confirmed this summer when it struck a deal with Activision Blizzard
With a whopping $777.5 million in cash, NetEase is also in a perfect position to acquire smaller players at fire sale prices if it ever doubts its pipeline.
So, don't let headlines of NetEase coming up short trick you. The only thing being missed here is Wall Street missing out on NetEase.
Three more ways to play in China:
Longtime Fool contributor Rick Munarriz has been a fan of China’s high-margin gaming stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.