NetEase¬†launched in 1997 as an e-mail and search-engine operation. It was an early entrant into the “massively multiplayer online role-playing games” (MMORPG) market, launching its “Westward Journey Online” in December 2001. At a time when China stocks have largely, for now, fallen by the wayside, NetEase’s fundamentals remain strong, and its chart is well into a viable base. Many China-based stocks plunged deeply as the country’s markets suffered a significant shakeout, but NetEase corrected only 33%. On Tuesday, it had regained more than half of that decline and was working on a possible handle for its 13-week cup. Fears of China’s slowing economy have scattered many foreign investors. But GDP on the services side of the economy, in which NetEase operates, grew at a strong 8.4% in the third quarter.

NetEase’s current MMORPGs include “Fantasy Westward Journey II,” “New Westward Journey Online III,” “Ghost II” and “Heroes of the Tang Dynasty Zero,” among others. It also operates under licenses allowing it to provide “World of Warcraft” and several other games owned and developed by Activision Blizzard (NASDAQ:ATVI). Mobile gaming is one new frontier. NetEase launched the mobile version of “Fantasy Westward Journey” in March and, as of September, it remained the country’s top revenue earner, according to analytics site App Annie. Mobile games have lower margins, dragging NetEase’s gross margin to 69% in Q2, vs. 78% a year ago.

Online gaming accounted for 78% of 2014 total revenue. Advertising services were 12%, and e-mail and e-commerce were 9%. NetEase is also trying to strengthen its e-commerce arm with Kaola.com, a platform partnered with logistics firm Sinotrans. It aims to secure order processing and speed delivery times both inside and outside China. As of Dec. 31, 2014, management owned 44% of NetEase’s outstanding shares. In early September, NetEase launched a program to repurchase up to $500 million in U.S.-traded American depositary receipts (ADRs) over the subsequent 12 months. Revenue is forecast to rise 63% in 2015 and 28% next year. Consensus views see a 23% EPS gain on a 77% surge in revenue in the third quarter. NetEase hasn’t yet announced a reporting date.
Source: Investor’s Business Daily

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