What Makes It a Perfect World?

By Eric Jackson
RealMoney Contributor
7/11/2011 10:45 AM EDT
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Perfect World (PWRD - commentary - Trade Now) is one of the best-known online gaming companies in China. The storylines and characters for its top games are sourced from popular legends in Chinese literature, so there is an immediate familiarity for gamers.

Similar to all Chinese gaming stocks, Perfect World pulled back in 2010 from the fall 2009 highs, when the stock hit over $40. In the rally earlier this year, Perfect World and other gaming stocks underperformed. It bottomed at $17 a few weeks ago. Now it's back over $21.
Despite the company's conservative guidance, Perfect Worls has a number of promising new games coming out this year and going into next year. Management is playing it down, but the stock is likely to exceed expectations, which is why I took a position in the name a couple of months ago.

Last month, I met with Perfect World Investor Relations Officer Vivien Wang at the company's headquarters, a 22-story building overlooking Beijing's suburbs. What follows is a summary of our conversation.

Eric: So can you tell me about your company and your strategies for the next six to 12 months?

Wang: The company was founded in 1997, and the senior management has worked together for a very long time. Our revenue is not as concentrated as other companies, none of our games contribute more than 30% of the total revenue, whereas some of our competitors rely on 70% of their revenue from a single game.

For the near term, there are no major catalysts, but right now, we are targeting European investors because they tend to have a longer-term vision.

Moreover, we are trying to lengthen the life cycle of our games from one year to two years, and we focus on a low turnover rate.

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My First-Hand Impressions of the Chinese Tech Sector

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The Next Great Chinese Stock - And it's Not an IPO

Chinese gaming company Perfect World has had a disappointing last 12 months, but some new games are about to change its luck. Expect a $47 stock by the end of the year.

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Perfect World Is Just Perfect

By Eric Jackson
RealMoney Contributor
4/7/2011 12:15 PM EDT
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There has been a recent amazing run-up in some Chinese Internet stocks. Sina (SINA - commentary -Trade Now) is up 61% year-to-date, Baidu (BIDU - commentary - Trade Now) is up 42% year-to-date. And Sohu (SOHU - commentary - Trade Now) is up 49% year-to-date.

Investor reasoning appears to be that all three of these companies are experiencing the rising tide of online advertising growth in China. The local economy in China keeps holding up, despite the China bears worrying about inflation, social unrest and the local property market. All these problems have been contained to this point by the Chinese government. In the meantime, people keep surfing the Web. And, while that's going on -- and the Internet penetration rate in China keeps rising from only one-third today -- advertisers need to spend money to get people to buy their stuff. Sina has also benefited from the explosion in popularity of its Twitter-like Weibo service.

These big Chinese destination portals have been the chief beneficiaries of this trend. One group, however, hasn't participated in this big Chinese stock rally over the past few months: Chinese online-gaming companies.

As Americans, we know that online games are big over in China. I don't think you really appreciate it, however, until you go over there and visit. Among young people especially, these games become an intricate part of their lives.

I was in China last year, and a friend was telling me a story about how it's a problem now that many youths lack good social manners because they spend too much time playing games and texting. He talked about how young people he knows will text each other during the week and suggest getting together on a Saturday at a Starbucks (SBUX - commentary - Trade Now). When they arrive there, they will all sit and play games on their phones separately -- without talking to each other.

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The World of the Web in China

By Eric Jackson
RealMoney Contributor
11/18/2010 5:30 PM EST
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Has there been a downturn lately in the markets? You wouldn't know it from looking at some of the China Web names.

In the last month, the Nasdaq is basically flat. However, the big China Web names Sina (SINA -commentary - Trade Now) and Sohu (SOHU -commentary - Trade Now) are up 12% and 20% respectively. Just yesterday, on another down day for the markets, Sina was up 6% after it released a positive earnings report the night before. Investors had first sold off the stock in after-hours trading because the company's outlook for future revenues appeared to be lower than what analysts had expected.

However, given some time to study the report, Sina investors saw that the short-term hit to the company was primarily due to stricter government rules and regulations affecting the fourth quarter. Yet, for 2011, the company was continuing to expect strong growth.

The whole portal space in China has been buoyant this year. China has seen media ad spending jump by 18%, thanks to big events like the recently closed Expo in Shanghai and the current Asian Games in Guangzhou. Big portals are having a big second half of 2010. NetEase.com (NTES - commentary - Trade Now) is up 27% in the last six months.

Of all the Chinese Internet stocks, Baidu (BIDU - commentary - Trade Now) is the best known to U.S. investors. It's now trading around $110, giving it a $37 billion market capitalization. Once Google (GOOG -commentary - Trade Now) exited the mainland earlier this year, Baidu stepped on the gas pedal, and it hasn't looked back. The stock is up 153% for the last 12 months and -- would you believe -- it is a 10-bagger from about two years ago, when it closed at a low of $10.91 on Dec. 5, 2008.

As a reference point, Baidu is now valued at twice the level of Yahoo! (YHOO - commentary - Trade Now) and the same as eBay (EBAY - commentary - Trade Now).

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