It could be said that video games are to today's generation what board games were to past generations. But games have come a long way since cardboard and dice. Unlike the simpler forms of past entertainment, modern video games have transcended weekend family fun to become a part of everyday life for many young people. The meteoric rise of video gaming is not exclusively an American phenomenon; there are legions of followers the world over.

In China, ever-growing PC and Internet usage along with blistering-fast broadband networks have spawned large online entertainment communities filled with tech-savvy gamers. Today, Chinese youth spend hours at home and in Internet cafés fixated on massive multi-player online role-playing games (MMORPGs, for short), where huge numbers of players create their own unique characters and engage in complex adventure and fantasy games.

Chinese online game developer and operator The9 Limited (Nasdaq:NCTY) has used its gaming-design smarts and huge following to become a major force in the multiplayer online gaming business. The9's primary business is subscription-based MMORPGs (The9 has licenses to own and operate seven MMORPGs in China, which may be accessed from any location with Internet access). The company’s MMORPGs include the immensely successful World of Warcraft, an engaging online full-view 3-D game with over 1 million users. The9 also offers other products and services such as game operation support, short message service, Web solutions and advertising services, and sales of Pass9, the company’s integrated membership management and payment system.

As reported May 19 the gaming company's first-quarter 2008 profit surged 36% on higher subscriptions, reaching $12.8 million, or $0.46 per share, while revenue shot up to $65.9 million, a 64% increase over the year-ago quarter. Analysts expected a profit of $0.32 per share on $58.1 million in revenue. Net income was $14.6 million.

After the release of earnings news, the pundits had their say: on May 20 Piper Jaffray raised its price target on The9's stock to $26 from $21 while maintaining a “neutral” rating; Brean Murray reiterated its "buy" rating and raised target estimates to $30 from $23. Analysts at Piper Jaffrey said the higher price target reflects an increase in earnings estimates due to the company's strong first-quarter results (the firm raised its 2008 EPS and revenue estimates to $1.65 from $1.47 and to $271 million from $265 million, respectively). It also upped its target P/E multiple to about 16 times from 14.5 times due to an "improving game pipeline, increased visibility and improving fundamentals."

Brean Murray's Andrey Glukhov attributes The9's recent success to the strong performance of World of Warcraft, cost control and the use of foreign exchange reserves. He added that the destruction of telecommunication infrastructure resulting from the recent earthquake in central China likely will not affect The9, since most of its subscribers are located in China's coastal cities, far from the devastation.

Last year, sales of online games in China reached an estimated $986 million, up from $608 million in 2006, according to a recent Research and Markets report. The Dublin, Ireland-based market research and data firm forecasts the industry's overall revenues will grow to more than $1.5 billion in 2008. As of December 2007, the number of Chinese online gamers reached a mind-blowing 40 million, a 23% year-over-year increase.

Roth Capital Partners analyst Adam Krejcik said recently that China's online game sector provides one of the best ways to gain investment exposure to the country's growing Internet population, and he predicts the online gaming market will show solid growth over the next five years.

With a new CEO and CFO at the helm and plans to aggressively expand internationally and pour money into the in-house development of MMORPGs (beginning with the establishment of game R&D teams in Beijing, Chengdu and Nanjing), The9 is poised to tap even more of the fast-growing market in China and beyond.

In April, the company purchased a minority stake in Korean game developer G10 Entertainment, a leading force in the Asian-Pacific region, for $38 million. The deal will strengthen the relationship between the two companies and open up opportunities for The9 to become further involved with the support of G10's popular "Audition 2" game in mainland China. And the gaming outfit is close to sealing a partnership deal with a yet-unnamed major bank that would include cross-sector promotional products such as World of Warcraft-branded credit cards, banking database marketing methods and other joint promotions with the financial institution.

The9, it appears, is proving that gaming isn't just for video game-crazed teenagers anymore. Wall Street has taken notice and serious-minded adults are becoming devotees, at least from the standpoint of investing. Considering China's white-hot games market, The9’s business is much more than mere fun and games.

On Wednesday, shares closed at $25.02. The stock has traded between $15.05 and $52.44 over the past 52 weeks. Analysts have a consensus one-year target of $28.80.