The Chinese company's revenue climbed just 9% to $128.8 million
during the same three months. Earnings held up better, increasing 26%
to $0.44 a share. Perfect World was a tough act to follow, but NetEase
didn't even live up to Mr. Market's expectations. Analysts were
targeting a profit of $0.49 a share on $138.7 million in revenue (which
would have called for revenue to grow twice as quickly as it ultimately
did).
NetEase has a scapegoat, but it's on a short leash. Regulators kept NetEase from launching its licensed version of Activision Blizzard's (Nasdaq: ATVI) World of Warcraft in China until Sept. 19, less than two weeks before the quarter came to a close. There is still some uncertainty as regulators fight among themselves
over the game's status, but at least the game's already been up and
running in China a lot longer during the current quarter than it was
during the previous one.
Even without WoW, however, NetEase still should have been
able to deliver better growth organically. All of the company's growth
came from its online gaming business, which now accounts for a meaty
88% of revenue. Online advertising through its NetEase.com portal, and
its content services for mobile phones, just aren't moving the needle
anymore.
Beyond World of Warcraft, NetEase has a rich pipeline of
new games and expansion packs for existing franchises on the way. Slow
growth is still better than no growth, and at the service's peak usage
for the quarter, on Aug. 2, as many as 2.5 million Chinese gamers were
playing NetEase titles simultaneously.
The company still has plenty to prove. After blowing analysts away
in each of its three previous quarters, last night's miss is
problematic. Perfect World and ChangYou.com (Nasdaq: CYOU) had no problem beating Wall Street guesstimates during the same period. Rivals Giant Interactive (NYSE: GA) and Shanda (Nasdaq: SNDA) report over the next two weeks.
It's time to get back in the game, NetEase. You may have fewer
investors than you do paying gamers, but the former are far hungrier
for a win next time around.
© 2009 UCLICK L.L.C.
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