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One of China’s leading online game developers, Giant Interactive Group Inc.’s fourth quarter 2013 adjusted earnings of 29 cents increased 23.1% year over year (on a local currency basis) on the back of top-line growth. Earnings also beat the Zacks Consensus Estimate of 23 cents by 26.1%.

Net revenue of $99.9 million was in line with the Zacks Consensus Estimate and increased 5.8% year over year (on a local currency basis), driven by an increase in the demand for online games. The company witnessed a 2.7% increase in active paying accounts (APA) for online games and a 3.7% increase in average revenue per user (ARPU) for online games during the quarter. Gross profit also increased 8.9% year over year to $88.7 million on account of higher sales.

Full Year 2013 Results

In 2013, the company delivered adjusted earnings of $1.03 per share, which increased 10.7% (on a local currency basis) from the prior-year period driven by higher revenues. Earnings also beat the Zacks Consensus Estimate of 93 cents by 10.8%.

Net revenue grew 9.5% (on a local currency basis) to $389.1 million in 2013, driven by double-digit annual growth in online game revenues. Revenues also beat the Zacks Consensus Estimate of $386 million.

In 2013, the company launched World of Xianxia, an online game, which has successfully expanded the portfolio without cannibalizing the sales of existing games. In addition, the company successfully diversified into new growth areas such as web games and mobile games in 2013.

The company is optimistic about expanding its portfolio in 2014 and hopes to launch several new mobile games. The company has a prudent expense management system and it continues to explore other cost effective distribution channels to enhance profitability.

Buyout Offer

In late Nov 2013, the company received a buyout offer from its chairman Yuzhu Shi and an affiliate of BaringPrivate Equity Asia (collectively called ‘consortium’). The consortium proposed the acquisition of all of the company’s shares, including American Depositary Share (ADS) for $11.75 per share/ADS. Each ADS represents one ordinary share of the company. The consortium will pay about $2.82 billion in cash, which will be financed using a combination of debt and equity capital.

Giant Interactive is currently evaluating the preliminary offer and has formed a special committee, comprising three independent directors of the company, to review the proposal. They will assess the offer and negotiate terms to provide maximum value to the company’s shareholders.

Giant Interactive is a leading online game developer and operator in China in terms of market share and focuses on massively multiplayer online role playing games. Giant Interactive holds a Zacks Rank #2 (Buy). Investors interested in Internet retailers can also consider stocks like WebMD Health Corp. (WBMD - Snapshot Report), YY Inc. (YY - Snapshot Report) and China Distance Education Holdings Limited (DL - Snapshot Report). While WebMD Health and YY sport a Zacks Rank #1 (Strong Buy), China Distance Education Holdings holds a Zacks Rank #2.

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