HANGZHOU, China - NetEase, Inc. (NASDAQ: NASDAQ:NTES), a prominent internet and game services provider, reported a fourth-quarter revenue shortfall, leading to a 5.1% decline in its shares.
The company's revenue for the quarter was RMB27.14 billion ($3.8 billion), falling short of the consensus estimate of RMB28.2 billion.
The fourth quarter saw NetEase's revenue rise by 7.0% compared to the same quarter last year, indicating some growth despite the miss against analyst expectations. The company's games and related value-added services, which form the core of its business, increased by 9.6% year-over-year (YoY) to RMB20.9 billion ($2.9 billion). However, Cloud Music revenues experienced a significant decline of 16.4% YoY.
NetEase's adjusted earnings per share (EPS) for the fourth quarter stood at RMB11.34, with no comparative consensus estimate provided. The company's gross profit increased by 27.0% YoY to RMB16.8 billion ($2.4 billion), and the gross profit margin for games and related value-added services improved from 59.1% in the previous year to 69.5%.
CEO William Ding attributed the year's success to the enduring appeal of franchises like Fantasy Westward Journey and Westward Journey Online, as well as the significant breakthrough of Eggy Party, which engaged over 500 million cumulative registered players. He also highlighted the company's social responsibility efforts, including the integration of a 'Minors Mode' across domestic games to promote a healthier gaming ecosystem.
Despite the revenue miss and subsequent stock decline, NetEase remains committed to innovation and global expansion, as evidenced by the success of new titles and strategic advantages in its MMO roots. The company's diversified business segments, such as Cloud Music and Youdao (NYSE:DAO), continue to deliver premium content, with Youdao achieving record-high operating cash flow driven by robust performance in digital content services and online marketing services.
InvestingPro Insights
As NetEase, Inc. (NASDAQ: NTES) navigates the post-earnings share decline, investors may find solace in the company's robust financial health and market positioning. According to InvestingPro's analysis, NetEase boasts a perfect Piotroski Score of 9, indicating strong financial conditions and operational efficiency. This metric is particularly relevant for investors seeking companies with solid fundamentals, especially in the volatile tech sector.
Moreover, NetEase's commitment to maintaining a healthy balance sheet is evident as the company holds more cash than debt. This financial prudence is a reassuring sign for investors, especially in an era of economic uncertainty. The company's cash position, combined with its ability to generate strong shareholder yield, underscores its potential for long-term value creation.
From a valuation standpoint, NetEase's P/E ratio stands at 17.86, suggesting that the stock is trading at a reasonable price relative to its near-term earnings growth. Additionally, the company's PEG ratio, which measures the P/E ratio in relation to earnings growth, is at an attractive 0.82, indicating that investors may be getting a good deal for the growth they are buying.
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