Perfect World (PWRD) expects Q3 revenue of RMB779M-RMB815M ($127.3M-$133.4M), well above a $116.8M consensus. The company cites expected revenue from newly-launched titles Swordsman Online and Saint Seiya Online.
It looks as if the good news was priced in. Like many other Chinese Internet stocks, Perfect World has been on a tear in recent months.
The Q2 beat is attributed to successful launches for Saint Seiya Online (launched in China) and Neverwinter (launched in North America/Europe, Chinese launch upcoming). The company launched numerous Web/mobile titles during the quarter, and is looking to further diversify its pipeline.
Sales/marketing spend +102% Q/Q to $31.8M thanks to ad/promotional efforts for new games. R&D +5% Y/Y to $32.5M.
Gross margin was 75.5%, -100 bps Q/Q and -580 bps Y/Y.
Perfect World's global network (covers both subsidiaries and partners) accounted for over 1/4 of its revenue.
Shanda (GAME) is nosediving as investors balk at the price it's paying to acquire affiliates responsible for handling its online game billing and customer service work, among other activities.
One of the affiliates (Shengzhan) owns valuable data about user activity. The other (Shengjiang) runs a network that sells 2M+ real/virtual prepaid gaming cards via 180K distribution channels.
Shanda claims service fees paid to the affiliates made up 21.3% of its Q1 revenue, and that buying the companies will help it deliver the kind of integrated platform it considers crucial for mobile success.
Shanda is paying for the deals with cash, deferred payments, and the settlement of an outstanding loan receivable.
Fellow online game providers NetEase (NTES -2.6%), Qihoo (QIHU -4.1%), Perfect World (PWRD -5.3%), and Giant Interactive (GA -5%) are selling off. Sohu and subsidiary Changyou's disappointing Q2 results and Q3 guidance are the main trigger, though a moderate selloff in Shanghai isn't helping either.
A roundup of tech analyst ratings changes: 1) Baidu (BIDU +4.7%) has been upgraded to Neutral by Citi following the 91 Wireless deal. 2) Sonus (SONS +4.7%) has been upgraded to Buy by Lazard. 3) Stamps.com (STMP -7.7%) has been cut to Neutral by B. Riley. 4) Move (MOVE +2.9%) has been started at Overweight by Stephens. 5) Cavium (CAVM -2%) has been started at Reduce by Nomura. 6) Perfect World (PWRD +1.8%) has been upgraded to Buy by Citi. 7) Trina (TSL -0.5%) has been cut to Underperform by Raymond James; shares would be faring worse if not for ReneSola's guidance hike.
The Chinese government is reportedly planning to end a 13-year ban on game console sales, on the condition the consoles are made in a proposed Shanghai free trade zone. The legalization of console sales could be a modest negative for Chinese online gaming firms such as NTES, GA, GAME, PWRD, CYOU, and TCEHY.PK, but TechInAsia thinks Sony (SNE) and Nintendo (NTDOY.PK) investors shouldn't rush to celebrate. Consoles aren't hard to find on the black market today, and buyers tend to go for hacked systems that support pirated games. On the other hand, legalization will allow console vendors to advertise in China and sell translated titles.
More on Perfect World: Q1 revenue was $100.6M (-13% Y/Y), beating consensus by $2.8M. Q2 guidance is for revenue of RMB656M-RMB687M ($105.6M-$110.6M), above a consensus of $102.5M. Online game revenue (89% of total) -16% Y/Y (share loss to Tencent and NetEase); average concurrent game users fell 11% Q/Q and 31% Y/Y to 554K. Gross margin was 76.5%, -40 bps Q/Q and -580 bps Y/Y. Opex -3% Y/Y. PWRD +3.9% AH, CC at 9PM ET (webcast). (PR)
Chinese Internet stocks jump in response to Qihoo's Q1 beat and very strong Q2 guidance, highlighted by ramping search ad sales and soaring online game revenue. YY +6.5%. RENN +6.8%. NTES +5.5%. BIDU +2.4%. PWRD +3.2%. SOHU +3%. SINA +2.3%.
A recent Chinese government proposal to allow local investors to buy stocks traded elsewhere could give a lift to "companies familiar to them," argues Stifel. The firm mentions Baidu (BIDU +3.3%), Qihoo (QIHU +2.1%), Youku (YOKU +1.2%), and Tencent (TCEHY.PK - trades in HK) as beneficiaries. All 3 U.S.-traded names are rallying, as are YY (YY +8.9%), Sohu (SOHU +5.1%), Perfect World (PWRD +1.6%), and Changyou (CYOU +3.1%). Youku fell yesterday after Baidu confirmed it's buying video site PPS, and will integrate it with its iQiyi site. Baidu claims PPS/iQiyi will create China's largest Web video platform in terms of mobile users and viewing time.