Perfect World (PWRD, Financial), a leading online game developer and operator based in China, recently posted third-quarter results that came in line with its own expectation. Perfect World’s results were primarily driven by the strong performance of its newly launched mobile games CrossGate Mobile and Forsaken World. Also, DOTA2 made significant contribution to its performance this quarter. Perfect World has additionally obtained exclusive rights for DOTA2 to operate in mainland China.
Its revenue for the third-quarter rose approximately 17% to $158.7 million as compared to $136.2 million in the same quarter a year earlier. However, its net income decreased 49% to $9.9 million or earnings of $0.41 per share as against $19.6 million or earnings of $0.39 per share in the third quarter last year. The consensus was estimating earnings of $0.45 per share on the revenue of $160.9 million for the quarter.
New games and expansion packs
Perfect World is aggressively engaged in enlarging its product portfolio. It is bringing in new games and releasing expansion packs for its existing games. After having launched CrossGate Mobile and Forsaken World, it has newly launched "Legend of the Condor Heroes." It is a 3D MMORPG grounded on one of the famous classic martial arts novels called Louis Cha’s. It launched a new mobile game called Touch at the end of the third quarter.
In addition, the company launched a new console version of Neverwinter in mainland China by the Xbox One platform. Perfect World further is focusing on releasing a PC version of Neverwinter in China. In fact, it has ies number of potential titles for its mobile game pipeline like Forever Mars, Dawn after Dark, Swordsman Mobile and Saint Seiya Mobile. These upcoming games should possibly fuel up its profitability this year and into 2015 and enhance its growth in the long run.
Overseas partners and subsidiaries to add value to its growth
Perfect World is investing heavily in the research and development activities. The company has of late announced that it would form five new subsidiaries. These new subsidiaries are expected to assist the company to react faster to changing market trends and improve game development.
Moreover, these investments in overseas partners and subsidiaries should enable the company to effectively launch and market its new as well as existing games. The company remains confident about its United State subsidiary that has strong R&D, operational capabilities and promising pipelines. Perfect World has a widespread overseas network covering over 100 countries across the world. Further it is expanding its overseas capabilities that should not only help the company better penetrate in the global market but to facilitate rich entertainment to gamers around the world.
Apart from these strategic moves, the company has introduced its flagship title, Swordsman Online to its players in various overseas markets. Also, it has launched this game in Thailand, Korea, North America and Europe. Further, the company remains on track to launch this game in Indonesia this holiday season.
Conclusion
Perfect World expects these investment and new games to augment its growth in the coming years. Also, the analysts anticipate its earnings to grow at CAGR of 18.30%, greater than average industry CAGR of 9.67% for the next five years that solidifies its growth in the long-run. It has exciting short term return as its earnings are estimated to grow at CAGR of 37.70% this year. Moreover, the stock still has a cheap valuation with a trailing P/E of 8.92 and a forward P/E of 8.45. Its profit and operating profit margins are very attractive.
