There's never a good time to mix stocks with nostalgia.

Investors who remember when Shanda Interactive (Nasdaq: SNDA) was the speedy trailblazer of online gaming in China have to realize that the company no longer laces up its running shoes.

Net revenue for the quarter did climb 25% to $248.7 million, but it's not the once-promising Shanda Games (Nasdaq: GAME) division that's driving the growth. Online gaming revenue climbed just 10% during the period, though it still represents nearly 77% of Shana Interactive's net revenue.

The real growth at Shanda these days is coming from its Cloudary Web-based literature platform, its stake in the Ku6 (Nasdaq: KUTV) video-sharing site, and other online initiatives.

The bottom line isn't pretty. Profitability was more than cut in half to $0.22 a share. Analysts were holding out for a chunkier profit, but what else is new?


EPS est.



Q2 2010 $0.53 $0.40 (25%)
Q3 2010 $0.50 $0.26 (48%)
Q4 2010 $0.39 $0.34 (13%)
Q1 2011 $0.26 $0.22 (15%)

Source: Yahoo! Finance.

The sad contrast to another Shanda letdown is that its four publicly traded rivals in Chinese online gaming -- (Nasdaq: NTES), Perfect World (Nasdaq: PWRD), Giant Interactive (NYSE: GA), and (Nasdaq: CYOU) -- all posted better-than-expected quarterly earnings.

Shanda may have some interesting things going on, but it's going to be hard to move the needle if it remains a laggard in online gaming.

Are you worried about the future of online gaming in China? Share your thoughts in the comment box below.

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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 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.