NetEase Is Ridiculously Cheap

NetEase Inc (NTES) has been performing very nicely over the last two years, roughly doubling over that period. Over the past ten quarters, the company has increased revenue at an average rate of 59%.

Now that's growth.

In its most recent quarter, the company posted earnings per share of $3.67, $1.06 more than the estimates. The company’s revenue also came in $90 million greater than the average estimate. Revenues have surged by a whopping 83% year-over-year.

Many investors have used the rapidly rising share price to lock in gains, but I think the growth has only just begun.

Benefiting from long-term tailwinds 

NetEase is one of the most popular Chinese internet companies, with a robust presence in businesses such as e-commerce, gaming, and media.
What makes the company even better is the transparent management and their communication with shareholders. For instance, every quarter, the company shares the quarter wise performance of its business and plans for the long term.

What makes the company even better is the transparent management and their communication with shareholders.
NetEase Is Ridiculously Cheap
Image by /
For instance, every quarter, the company shares a detailed performance breakout of its business and updates its long-term guidance.

The primary reason why NetEase is growing at a rapid rate is because of its strong presence in high-growth industries such as mobile and e-commerce. As per a report from competitor SINA Corp (SINA), mobile games accounted for approximately half of the Chinese online game market in 2016.

Currently, Tencent Holdings Ltd is the undisputed leader of the online gaming, followed by NetEase at second position. At present, there is a huge gap between the online game net revenue generated by NetEase and Tencent, but Netease is putting in a lot of effort in reducing that gap. So far, it has managed to do it efficiently.

Today, Tencent is growing at a slower pace primarily due to its bigger size. The gap between NetEase and Tencent should continue shrinking in the future.

Apart from this, the company is also focusing on the virtual and augmented reality markets. It recently detailed that it has various internal projects that are still in the testing phase. The company has also invested in NextVR, a virtual reality company, in an effort to make users "feel" live sporting events.

The company has also produced its first game for Google’s Daydream platform. As a result, the company is ardent on getting an early lead in the VR gaming market.

Believe in the momentum

NetEase has been growing at a rapid pace, with the company expected to post another quarter of 50%+ growth. Given that the stock is trading at just 24 times trailing earnings, I think the stock is too cheap and is a great buy going forward.
Published on Oct 13, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

Posted in ...