Zynga Slips; Netease.com Still Leads Gaming Group
By ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY Posted 12/16/2011 06:05 PM ET
The buzz in the computer gaming industry Friday revolved around Zynga (ZNGA). The billion-dollar initial offering launched in a tough session and closed 5% below its $10 initial price.
Collectively, the 20 stocks in the Computer Software-Gaming industry group rose a fraction, led by Sohu.com's (SOHU) 2% advance. Unfortunately, the China-based gaming stock was still 56% off its April high.
But other China-based game providers were not nearly so grim.
An estimated 300 million users are driving China's online gaming market toward $6 billion in revenue this year. The country's 800-pound gaming gorilla is Tencent Holdings, a broad-based Internet content provider that commands 30% of the country's gaming market.
Netease.com (NTES) and Shanda Interactive Entertainment (SNDA) wrestle for second place, but neither has quite reached a 20% share.
In fundamental terms, Netease.com is the group's bulldozer. It holds the group's strongest Composite Rating, a 99. Its strong, steady EPS growth has topped analyst consensus views in the past five quarters. Quarterly sales growth has held above 34% since Q4 2009. Netease saw its after-tax margins slip in each quarter last year.
Netease.com's chart action is open to some interpretation. It's clear the stock broke out of a first- stage cup base in February. One school argues the stock has been consolidating since April and has yet to present a workable, second-stage pattern.
Another view sees a flawed double-bottom base forming since August. A handle on that base has now grown to six weeks.
A third view reads the six-week handle as a potential base in its own right, now building its own handle with a possible buy point at 48.42.
This base is tighter and more contained than the prior pattern, but also has its flaws.
A sharp spike and reversal in mid-November interrupt the cup's symmetry. The base has yet to show any real accumulation, and the stock's relative price strength lags below its high.
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