Changyou.com Earnings Cheat Sheet: Monster Quarter for Chinese Game Stock

Changyou.com Limited (NASDAQ:CYOU) reported net income above Wall Street’s expectations for the first quarter. The company is an online game developer and operator in China.

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Changyou.com Earnings Cheat Sheet for the First Quarter

Results: Net income for Changyou.com Limited rose to $52.8 million (99 cents/share) vs. $39.7 million (77 cents/share) in the same quarter a year earlier. A rise of 33.1% from the year earlier quarter.

Revenue: Rose 34.7% to $97.1 million YoY.

Actual vs. Wall St. Expectations: CYOU beat the mean analyst estimate of 92 cents/share. Estimates ranged from 90 cents per share to 94 cents per share.

Quoting Management: Mr. Tao Wang, Changyou’s Chief Executive Officer, commented, “2011 is an exciting year for Changyou as we prepare for the launch of new games, such as Duke of Mount Deer, or DMD, while our current games continue to generate solid returns. Our leading game franchise, Tian Long Ba Bu, or TLBB, has continued to attract new, existing and returning players to its thriving community as we constantly update the game with new content. Similarly, we are seeing growing interest from players for our upcoming game. DMD, which entered a new round of closed beta testing today, is slated for a launch this summer. In this round of testing, game testers will also be able to carry over user accounts through the full launch period. With the updated version, we have unveiled a new, self-developed server technology and a host of unique gameplay not found in any other existing massively multiplayer online games. With the continued strength of the online games industry in China, the imminent launch of DMD, and the ongoing success of our TLBB franchise, we look to accelerate our position as a leading online game company in China.”

Key Stats: The company has enjoyed double-digit year-over-year revenue growth for the past five quarters. Over that span, the company has averaged growth of 24.6%, with the biggest boost coming in the most recent quarter when revenue rose 34.7% from the year earlier quarter.

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 4.4 percentage points to 88.1% from the year earlier quarter. Over that time, margins have contracted on average 3.1 percentage points per quarter on a year-over-year basis.

The company has now seen net income rise in three-straight quarters. In the fourth quarter of the last fiscal year, net income rose 23.1% and in the third quarter of the last fiscal year, the figure rose 19.8%.

Competitors to Watch: The9 Limited (NASDAQ:NCTY), Shanda Games Limited (NASDAQ:GAME), Giant Interactive Group Inc (NYSE:GA), Perfect World Co., Ltd. (NASDAQ:PWRD), Shanda Interactive Entertainment Ltd (NASDAQ:SNDA), NetEase.com, Inc. (NASDAQ:NTES), Webzen Inc. (WZENY), Gravity Co., LTD. (NASDAQ:GRVY), Electronic Arts (NASDAQ:ERTS), Activision (NASDAQ:ATVI), Take-Two (NASDAQ:TTWO), Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE) and China CGame Inc (CCGM).

Today’s Performance: Shares of CYOU are trading at $43.74 as of April 25, 2011 at 10:35 AM ET, up 9/95% from the previous closing price of $39.78.


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