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NetEase Inc (NASDAQ:NTES) Helps to Ease Concerns about Chinese Tech

NetEase Inc (NASDAQ:NTES) is another stock that provides a little window of confidence here. The online Chinese gaming and e-commerce company issued strong, upside Q3 results — while also announcing a new $1.0 bln share repurchase program — which had shares jumping sharply higher this morning.

The source of the robust growth and execution would appear to be principally about the mobile gaming and e-commerce segments, with a light counterweight drag coming from the advertising segment, which was really more about stagnation than a true contracting drag.

NetEase Inc (NASDAQ:NTES), by the numbers, reported Q3 (Sep) earnings of $2.55 per ADS, excluding items, $0.04 better than the S&P Capital IQ Consensus of $2.51; revenues rose 30.9% year/year to $2.45 bln vs the $2.42 bln S&P Capital IQ Consensus.

The board of directors also approved a dividend of US$0.45 per ADS for the third quarter of 2018, paid dividend of US$0.61 per ADS for the second quarter of 2018. Under the Company’s quarterly dividend policy announced on May 13, 2014, quarterly dividends will be set at an amount equivalent to approximately 25% of the Company’s anticipated net income after tax in each fiscal quarter.

In addition, to really help solidify the positive market reaction, the company’s board approved a share repurchase program of up to US$1.0 billion of the Company’s outstanding ADSs for a period not to exceed 12 months beginning on November 16, 2017.

With mobile and PC-client games growth out-pacing the growth of the company’s traditional online games, gross margin in this segment has expanded, improving to 65.1% from 62.5% in the year-ago quarter.

The other primary catalyst for the quarter was robust growth in the company’s e-commerce business, which surged by 67% to $649.2 mln — its fastest growing segment.

In October, NTES signed a contract with global shipping company Maersk to support and improve the global transportation and logistics business of its Kaola unit. With this agreement in place, NTES expects deliveries of overseas procurement to be timelier and for Kaola’s cross-border logistics to run more smoothly. E-commerce platforms Kaola and Yanxuan are both complementary components of the company’s e-commerce strategy.

Finally, although the company did not provide any specific financial guidance going forward, it did highlight one if its core growth strategies.

Specifically, NTES is looking to aggressively expand the reach of its gaming segments on an international basis. In fact, for the first time in its history, international revenue accounted for more than 10% of total gaming revenue during the quarter.

So far, this has been almost entirely driven by its success in Japan as it launches new titles there. But NTES’ ambitions are even bigger as it begins targeting the U.S. market. During the earnings call last night, management commented that it has entered into a collaboration with Blizzard Entertainment (ATVI) to develop Diablo Immortal for the U.S., stating that it views this as a “huge opportunity” for NTES.


Bird’s Eye View

NetEase Inc (NASDAQ:NTES) frames itself as a company that operates an interactive online community in the People’s Republic of China.

The company operates through Online Game Services; E-Commerce; Advertising Services; and Email and Others segments. It offers various games in a range of genres through mobile devices and PCs, including role playing games, MMORPGs, battle arena games, simulation games, collectible card games, first-person shooter games, sandbox games, and other types of games to the Chinese market.

The company also operates Kaola that sells imported maternity and baby products, skincare and cosmetics, and other general merchandise; and Yanxuan, which sells its private label products, including apparel, homeware, kitchenware, and other general merchandise, as well as NetEase News App and NetEase Websites, which provide Internet users with Chinese language-based online services that are centered around content and interactive community.

In addition, it provides online advertising services comprising banner advertising, channel sponsorships, direct email, interactive media-rich sites, sponsored special events, games, contests, and other activities; and email services to individual and corporate users.

Further, NetEase, Inc. offers online services, such as CC, a live video streaming platform; Cloud Music, a music streaming platform; Wangyibao, a payment platform; EaseRead, an e-reading platform; NetEase Cloud Classroom, an online education platform; and Youdao Dictionary, an e-dictionary services platform. The company was formerly known as, Inc. and changed its name to NetEase, Inc. in March 2012. NetEase, Inc. was founded in 1997 and is based in Beijing, the People’s Republic of China.

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