Stock (Symbol) |
Netease (NTES) |
Stock Price |
$301 |
Sector |
| Technology |
Data is as of |
| July 1, 2017 |
Expected to Report |
| Aug 15 |
Company Description |
 NetEase 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. NTES 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. Games account for around three-quarters of company revenue, Email & e-commerce 20%, and Advertising services is around 5% of sales. Mobile games accounted for 73% of NTES’s total online game revenue last qtr, up from 64% in both the qtr prior and the year-ago period. Although NTES gets a majority of revenue from games, the company also runs one of China’s most popular web portals in 163.com, the top news app on iOS platforms, and the leading email service in China. As the world moves to virtual reality gaming, a new form of entertainment is taking place. People are lining up (or getting online) to watch matches. The surge in popularity for gaming gives great growth opportunity to Netease. Netease management makes sound decisions with its profits including share buybacks and hefty dividends. In November management announced a buyback program to repurchase up to $1 billion in stock over the next year (around 3% of shares) and the company pays a qtrly dividend of 25% of the anticipated profits for the coming qtr. This qtr the dividend will be $1.08 which means NTES thinks it will make $4 in profits this qtr. NTES has grown profits 27% a year the past decade, has an Est. LTG of 20%, and a very reasonable P/E of 19. What’s amazing to me is that P/E of just 19 — investors haven’t appreciated this company enough. They did that with Priceline too. Last qtr NTES dropped 72% sales growth and 56% profit growth — boom! This is clearly one of the top growth stocks in the market, with good growth opportunity in both mobile gaming and eventually virtual gaming. |
One Year Chart |
 Last qtr NTES delivered sales growth of 73% due to some new games the company debuted. Profits grew 56% and beat estimates of 43%. Annual estimates rose but qtrly estimates fell. What’s a little concerning is analysts expect profit growth to flatten out later this year, then accelerate again in 2018. Qtrly profit Estimates are 27%, 22%, -3% and 2%. But NTES has been beating the street for a while now, so I may be worrying about nothing. The Est. LTG fell from 28% to 20% this qtr, but I still feel the company can grow long-term around 28% a year. |
Fair Value |
 NTES has had an excellent history of record profits each year during the last decade. And there’s no reason to think this growth won’t continue. My Fair Value is a reasonable 25x earnings, which gives the stock great upside. |
Bottom Line |
 Netease is making waves with its mobile gaming, and next up with be virtual gaming. The stock looks high on the chart, but the P/E is so reasonable that I’m not concerned with this parabolic move. NTES ranks 4th in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. It’s one of the best stocks of our generation. |
Power Rankings |
Growth Stock Portfolio
4 of 33Aggressive Growth Portfolio 4 of 16Conservative Stock Portfolio N/A |
