You Shouldn't Miss Out on this Game

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Online game developer Perfect World (NASDAQ: PWRD) saw its shares jump an astounding 27% after the company trumped the Street’s revenue and earnings expectations. But there were more goodies on the way for investors. The company is now going to give away a special dividend amounting to $2 per ADR as it looks to share its success with investors.

With the euphoria around earnings now settled, it will make sense to take a closer look at what went right for Perfect World and check how it might perform in the future.

Gaming on
A solid performance from Perfect World’s game titles, such as “Zhu Xian,” along with presence in global markets helped the company grow its top line almost 10% sequentially and 25% for the fiscal 2011. Perfect World kept its pipeline strong by delivering consistent updates and expansion packs for the users. In addition, the company expanded its global reach by launching its famous gaming title, Empire of the Immortals, in Japan and also in Europe and North America under the name of War of the Immortals.

The company went on with the release of its titles after the quarter ended and launched games in North America, Taiwan, Hong Kong, Macau and Korea, Russia and Latin America. The company managed to add more gamers to its list and finished the quarter with 873,000 users as compared to 828,000 users in the third quarter.

Perfect World is keeping its foot on the gas as it strives to build on the last quarter’s performance. New gaming titles are in the works and the company is constantly pushing its global network further. As a result, Perfect World has stitched up ties with game studios in the U.S. such as Cryptic Studios and Zombie Studios.

Pulling back and doing more
Competition in the form of Giant Interactive (NYSE: GA), whose revenue jumped 34% in the last quarter, and Shanda Games had taken away some market from Perfect World. But the company re-captured some of its lost market share in the just-concluded quarter. It looks like the aforementioned moves did their bit in helping Perfect World’s cause.

Moreover, the company is pushing its R&D unit pretty hard and saw its R&D expenses rise 36% from last year. This tells us that Perfect World is investing substantially in developing new titles and also looks to improve its gaming engine.

Cheap valuation
Thus we see that Perfect World made the right moves and it continuing to do so. Moreover, the company’s cheap valuation is another bright point to consider. Perfect World trades at a trailing P/E of 6.22, which is less than half of the 12.95 industry average. Also, it trades cheaper than Chinese peer Giant Interactive’s P/E of 8.38. This tells us that Perfect World has room for improvement and can unlock value going forward, a fact further backed by analysts who project a forward P/E of 4.4 for the next twelve months.

The Foolish takeaway
The stock has already added 53% to investors’ wealth so far this year. And with the way Perfect World is going about its business, I won’t be surprised if the company brings some more joy to its shareholders.



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