China Online Game, Retail Sales Soar

2015-11-13 14:09 Resource:IBD yangbingbing

Economic reports out of China on Wednesday showed fixed-asset investment and factory output weakened ever so slightly in October, while retail sales growth accelerated.

The message: The country's strategy to slow its once-superheated economy and transition from overdependence on exports to a more domestically driven, consumer-based economy remains on track.

Also on Wednesday, China hosted its one-day Singles' Day online shopping holiday, which Alibaba Group (NYSE:BABA) calls the 11.11 Shopping Festival. Internet retailers reported that orders rose 130% over last year's holiday, with Alibaba alone reporting one-day sales of $14.3 billion.11-13-0.png

Overrun by all this economic data and holiday shopping news was the third-quarter report from online games and content provider NetEase (NASDAQ:NTES). The above-expectations report gave a bit of added lift to other China-based gaming issues, including (NASDAQ:SOHU), Shanda Games (NASDAQ:GAME) and (NASDAQ:CYOU).

Guangzhou-based NetEase reported a 61% EPS gain and a 114% surge in revenue, both well beyond analyst estimates. The gain was NetEase's third quarter of accelerating EPS growth, its sixth quarter on the revenue side.

Gaming revenue, which represents 75% of the total take, surged 125%. Gross margins shrunk to 67.9% from 77.2% a year ago, due to the rise in lower-margin mobile games and to a temporary suspension of high-margin e-commerce lottery products.

Investors sent shares to a new high in heavy trade Thursday and broke the stock out in heavy trade past two optional cup-based buy points: one at 154.62 and another at 154.98. NetEase pared gains to end the session slightly below both buy points. It is up 55% since Dec. 31.

Sohu and Shanda are climbing the right sides of four- to five-month consolidations.

Mobile games publisher iDreamSky (NASDAQ:DSKY) is thinly traded and set up below a possible handle buy point at 12.40, an aggressive entry for sure. The stock began forming a fresh base in June after receiving a nonbinding offer to buy out the company's American depositary receipts at 14 each.

The offer represented a 15% premium to where iDreamSky traded on Thursday.

Analysts expect a 64% gain in EPS and a 57% jump in revenue when the firm reports Q3 results; no reporting date has been set.


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