Why China Mobile Games & Entertainment Group Shares Temporarily Popped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China Mobile Games & Entertainment Group, Ltd. initially popped more than 10% during Friday's intraday trading, then gave up those gains to close down more than 3% after the company reported third-quarter earnings.

So what: Quarterly revenue rose 125% year over year to $16 million, which translated to adjusted net income of $4.1 million, or $0.16 per diluted share. China Mobile Games recorded a net loss of  There are no analyst estimates to which investors can compare the results.


However, the company also announced it had entered into an agreement to sell a private placement of shares at $14.50 for gross proceeds of roughly $16.4 million, which it plans to use for "acquisition of third parties game licenses and intellectual properties, product development, R&D enhancement, expanding sale and distribution channels and general corporate purposes."

For those of you keeping track, that also represents around 4.1% of the company's total issued share capital.

Now what: To be sure, China Mobile Games's results looked great on the surface, especially having grown its paying user accounts for social games to 2.8 million, compared with just 67,995 in the same year-ago quarter and just 1.4 million in Q2.

However, following the same trend fellow Fool Sean Williams pointed out a few weeks ago, it's also disconcerting to note China Mobile Games' average revenue per user plunged to just $4.09 during the quarter, compared with an impressive $32.81 per user this time last year. Once again, it's evident gamers are spending significantly less on social games, which could make it increasingly difficult for companies like China Mobile Games to keep up their momentum going forward. With shares currently up more than 360% so far this year, that's why I prefer to stay on the sidelines.

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The article Why China Mobile Games & Entertainment Group Shares Temporarily Popped originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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