On Thursday, Citi revised its price target on shares of NetEase.com (NASDAQ:NTES), a leading Chinese internet technology company, to $112 from the previous $116, while sustaining a Buy rating on the stock.
The adjustment follows NetEase's second quarter earnings for 2024, which fell modestly short of market expectations for revenue and non-GAAP profit, influenced by a weaker-than-expected launch of Naraka Bladepoint Mobile and adjustments to Fantasy Westward Journey (FWJ) PC.
The company's stock experienced an over 12% drop overnight, which Citi believes was an overreaction. The firm maintains that NetEase's overall gaming portfolio performance is still robust, noting a strong pipeline of titles set to launch. Management at NetEase has indicated that the FWJ PC adjustments have reached a floor and are beginning to stabilize, although it may take some time for the game to return to its previous performance levels.
World of Warcraft (WoW) has made a strong comeback, and Hearthstone is on the schedule for a September release. Additionally, the recent successful traction of Once Human in overseas markets and NetEase's steady dividend payout were highlighted as factors reinforcing the company's defensive qualities.
After revising estimates, Citi's sum-of-the-parts (SOTP) valuation has been adjusted to $112. The firm advises that the current weakness in NetEase's share price presents a better accumulation opportunity for long-term investors. Citi's stance remains optimistic about the company's future performance despite the recent setbacks.
In other recent news, Chinese internet technology company, NetEase, has been the center of investor attention due to its second-quarter earnings report. The company recorded earnings per share at RMB12.15 ($1.67), surpassing the consensus forecast of RMB11.97.
However, with a revenue of RMB25.49 billion ($3.51 billion), it fell short of the projected RMB26.11 billion. This has led to Jefferies, an investment firm, lowering its price target on NetEase's stock from $126 to $103, despite maintaining a Buy rating.
In terms of segment performance, NetEase's core games and related value-added services saw a year-over-year revenue increase of 6.7% to RMB20.06 billion ($2.76 billion). Other areas of growth included the Youdao (NYSE:DAO) education technology unit, which posted a 9.5% revenue increase to RMB1.32 billion ($181.9 million), and the Cloud Music streaming division, which grew revenue by 4.7% to RMB2.04 billion ($280.8 million).
Looking ahead, Jefferies anticipates that NetEase will see quarter-over-quarter growth in its online games revenue. However, the firm also expects a high base effect when comparing year-over-year results, due to strong past performance. These are among the recent developments for NetEase, serving as crucial information for investors.
InvestingPro Insights
InvestingPro data highlights that NetEase (NASDAQ:NTES) currently holds a market capitalization of $59.67 billion, with a P/E ratio of 14.07 for the last twelve months as of Q1 2024. This valuation reflects a company trading at a low P/E ratio relative to its near-term earnings growth potential. Moreover, the company's revenue has grown by 7.44% over the last twelve months, showcasing its ability to expand despite industry challenges. With a robust gross profit margin of 61.92%, NetEase demonstrates significant efficiency in its operations.
Two InvestingPro Tips for NetEase underscore its financial stability and potential for investment. First, the company is noted for holding more cash than debt on its balance sheet, suggesting a strong liquidity position. Second, NetEase is recognized for trading near its 52-week low, which, combined with its status as a prominent player in the Entertainment industry, may present a compelling entry point for investors. For those considering a deeper dive, InvestingPro offers a range of additional tips, including 10 more specific insights into NetEase's financial performance and market position.
These metrics and tips provide a clearer picture of NetEase's financial health and potential as an investment, aligning with Citi's view that the recent dip in share price may offer a favorable opportunity for long-term investors. The company's ability to maintain dividend payments for 12 consecutive years, as noted in one of the InvestingPro Tips, further attests to its defensive qualities and may be especially attractive to income-focused investors.
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