Perfect World (Nasdaq: PWRD) was anything but after shedding 25% of its value yesterday. The Beijing-based online gaming specialist delivered ho-hum first-quarter results and a disappointing near-term outlook.

The quarter itself wasn't horrendous. Revenue growth of 47% to $91.6 million was just shy of the $92.9 million that analysts were banking on, but the bottom line still nailed Wall Street's $0.84-a-share target.

However, cracks in the system have begun to show. The number of active paying customers shrank from 2.2 million during last year's fourth quarter to 1.7 million in its latest quarter.

The company faults seasonality, technical glitches, and a crackdown on cheating for the diminishing audience, but it's still not a pretty sight. Are China's fickle youth moving on to new games, or simply tiring of the genre in general? Investors are starting to hedge their bets now, as shares of Shanda Games (Nasdaq: GAME), (Nasdaq: NTES), Giant Interactive (NYSE: GA), and (Nasdaq: CYOU) closed 2% to 4% lower yesterday.

Perfect World offset the dramatic dip in gamer headcount by milking more out of its active users. The average revenue per user rose a sharp 37% compared to last year's fourth quarter, resulting in an ultimate 3% sequential gain on the top line.

The current quarter won't be so lucky. Perfect World projects 14% to 20% year-over-year growth. That's less than the 29% spurt analysts expected, implying flat to negative sequential growth.

Perfect World has spent the past few months cautiously expanding outside of China. It seemed like an advantageous strategy at the time, but now Perfect World's broadened horizons seem like an effort to offset fading organic growth.

It's hard to give up on Perfect World at this point. The company's packing the equivalent of $275 million in a yuan-rich balance sheet. After earning $3.12 a share over the past four quarters, shares of Perfect World were bashed down to just eight times trailing earnings.

It's also too soon to give up on this promising sector. NetEase and Shanda Interactive's (Nasdaq: SNDA) reports will give us more detail on the industry, but Changyou already provided a less dreary view.

Changyou had 2.4 million active paying accounts during the first three months of this year, sequentially flat. Then again, Changyou didn't experience the huge uptick in revenue per user that Perfect World managed to achieve with its promotional activity.

Giant Interactive delivered an entirely different flavor last night, with active paying gamers climbing a healthy 21%, even though revenue per account took a noticeable step back.

In the end, we can't lump all of these online gaming companies in China together, because they're all clearly working off entirely different playbooks. The one thing that is consistent is that they are all trading at attractively low earnings multiples given the industry's growth potential in a market with a hotter economy than most of the planet.

These are imperfect circumstances, but it's still a Perfect World.

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