Stock (Symbol) |
Netease (NTES) |
Stock Price |
$227 |
Sector |
| Technology |
Data is as of |
| January 7, 2017 |
Expected to Report |
| Feb 22 – 27 |
Company Description |
 NetEase, Inc. (NetEase) is a technology company. The Company operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet media, e-mail, e-commerce and other businesses. The Company operates through three segments: Online Game Services; Advertising Services, and E-mail, E-commerce and Others. Its online games business primarily focuses on offering personal computer (PC)-client massively multi-player online role-playing games (PC-client MMORPGs), as well as mobile games to the Chinese market. Its online advertising offerings include banner advertising, direct e-mail, sponsored special events, games, contests and other activities. It offers free and fee-based premium e-mail services to its individual users and corporate users. Source: Thomson Financial |
Sharek’s Take |
 Netease is a monster in China’s online gaming community, with games for both PCs and mobile devices and hot titles such as World of Warcraft and Minecraft. Although NTES gets 70% of revenue from games, this isn’t a one-trick pony. NTES runs one of China’s most popular web portals in 163.com, the top news app on iOS platforms, as well as the leading email service in China. Here’s NTES’ divisional breakdown:
Email & e-commerce revenue jumped 107% because the company changed some platforms from direct sales to marketplace, which is what Alibaba does. Although Netease is all-about gaming, management shows it’s not playing around. The stock has been fabulous stock the past decade — it’s up ten-fold! In November management announced a buyback program to repurchase up to $1 billion in stock over the next year, which is around 3% of shares. It also pays out 25% of profits in the form on dividends. Although the shares are up around 40% in the last year, they still sell for just 16x 2017 profit estimates. I feel the P/E should be 25 which equates to Fair Values of $365 this year and $420 in 2018. |
One Year Chart |
 NTES delivered sales growth of 38% last qtr, as profits rose 40% and beat analysts estimates of 34% profit growth. The stock fell a bit after the company reported as (1) profit growth slowed from the previous qtr (2) the company beat the street by just 11 cents, compared to 52 cents and 55 cents the prior 2 qtrs (3) sales came in under expectations. Annual profit estimates rose, but not as much as they did the prior qtr. Qtrly profit Estimates stand at 37%, 20%, 13% and 24% as analysts see profit growth slowing from an estimated 51% in 2016 to 18% in 2017. |
Fair Value |
 It’s unreal how this stock had a P/E in the teens this past decade, yet profits are set to climb almost ten-fold in a decade. This stock reminds me of Priceline, which used to grow profits 40% a year yet still had a P/E in the 20s. My Fair Value of 25x earnings isn’t high, but it’s often tough getting a stock to attain a higher multiple that it has had in the past. |
Bottom Line |
 Netease has grown profits every year during the past decade at a rate of 25% a year, with the stock climbing 27% a year. The stock went parabolic in 2016, but has since settled down and now the chart looks better. At just 16 times 2017 earnings this stock has what it takes to be a big winner — a low P/E and rapid profit growth. NTES ranks 2nd in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings, |
Power Rankings |
Growth Stock Portfolio
2 of 34Aggressive Growth Portfolio 2 of 18Conservative Stock Portfolio N/A |
