NEW YORK (TheStreet) -- Changyou.com (CYOU) was falling 11.72% to $26.44 on Monday after the Chinese online game developer and operator issued guidance for the first quarter below analysts' expectations.
Changyou.com said it expects a loss of 30 cents to 42 cents a share in the first quarter; analysts surveyed by Capital IQ expect earnings per share of $1.04. The company also said it expects revenue of $174 million to $180 million, compared to the consensus estimate of $199.69 million.
Changyou.com said it expects revenue to decrease, while it plans to increase spending on marketing of software applications for PCs and mobile devices in China and abroad, according to a company's statement. Changyou.com also plans to increase its investment in human capital.
For the fourth quarter, Changyou.com reported earnings per share of 82 cents, better than the consensus estimate of 40 cents. Revenue increased 12.3% year over year to $194.9 million, compared to the consensus estimate of $195.66 million.
Online game revenue increased 6% quarter over quarter and 9% year over year to reach a record $172 million, while online advertising revenue increased 3% quarter over quarter and 35% year over year to reach a record $16.9 million.
The company also announced that Chief Financial Officer Alex Ho resigned to start his own business.
TheStreet Ratings team rates CHANGYOU.COM LTD as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about its recommendation:
"We rate CHANGYOU.COM LTD (CYOU) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.9%. Since the same quarter one year prior, revenues rose by 10.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The gross profit margin for CHANGYOU.COM LTD is currently very high, coming in at 83.54%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.78% significantly outperformed against the industry average.
- Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CYOU's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.63 is high and demonstrates strong liquidity.
- CHANGYOU.COM LTD reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CHANGYOU.COM LTD increased its bottom line by earning $5.29 versus $4.61 in the prior year. For the next year, the market is expecting a contraction of 12.9% in earnings ($4.61 versus $5.29).
- You can view the full analysis from the report here: CYOU Ratings Report