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$18.68 -0.98 (-4.98%)
10/10/2008 4:00 PM

NetEase.com, Inc. (ADR) (NTES)

CAPS Rating:
*****

The Company through its subsidiaries, operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet portal and wireless value-added services businesses.

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Avatar NetscribeGames (43.59) Submitted: 11/29/06 12:49 AM : Outperform Start Price: $18.10 NTES Score: 39.79

Westward seems Northward for NetEase.com. Averaging 535 million daily page views, it is one of China's most visited websites, providing Chinese language content for interactive online and wireless community in China. The company concentrates on three key areas, namely: Online Games, Advertising Services, and Wireless Value-Added Services.

Online Games business offers massively multi-player online role-playing games (MMORPGs), where thousands of players simultaneously play and interact. Players are charged according to game playtime. It is the major revenue producer for the company, generating around 82% of the overall revenue. While Adverting Services, which includes channel sponsorships, banner advertising, and direct e-mails generate around 15%.

The Chinese gaming industry looks very alluring with online game players likely to grow to 80 million by 2010 from the current 37 million, among which almost half in 2010 will be paying to play. Further, the number of broadband households in China is also estimated to increase to 130 million by 2010 at an annual rate of 29.3%. NetEase, being the market leader with 38% market share based on its revenue, is surely to benefit from this.

It will be an understatement to call the company a good performer, with its track record of 489% returns to investors since going public in June 2000. The great performance of its MMORP games like Westward Journey II, which brought in more than 83 million registered users to become China's most popular domestically produced online game, is largely responsible for the company’s growth.

Moreover, 2007 also looks set to increase the user base, with the launch of the much awaited Westward Journey III and Tianxia II. To aid the company’s focus on continuous introduction of new products like new blog services, launching a new home page, and new games, it has devoted $400 million for developing new products over the next five years. Further, considering the expected robust growth in advertising revenues, due to larger user base and attractive market conditions, one should not miss this stock.

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Avatar NetscribeGames (43.59) Submitted: 4/16/07 4:11 AM

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NetEase delivered another solid performance beating the Wall Street estimates yet again. For the fiscal 2006, revenues were up by 34% as a result of improved sales from online game services, while advertising revenues also sustained its upsurge. The continued strong performance of wireless value added services and massively multi-player online role playing games (MMORPGs) worked as a catalyst, also resulting in net profits rising by 33%. However increased selling and marketing cost and higher R&D expenses were the only negative factors.

The company recently announced its plans to offer a new search engine based on proprietary technology, which will act in direct competition with market leaders Baidu and Google for the fast growing internet search market. The move can prove a very profitable venture for the company, given the large number of registered users and active paying accounts, while massive online communities and over 30 million active e-mail users provides a built-in audience for the search engine.

The current stock price of company doesn’t fully justify the strong performance and healthy future outlook. It is currently trading at a modest P/E in comparison to the competitor Shanda, which is trading at a much higher valuation. Looking ahead, the recently announced new share repurchase program of up to $100 million of the company's outstanding ADS within coming three months will aid to improve the returns for the investors. While as beta testing for Tianxia II and Westward Journey III nears commercial release, the already healthy performance of the company is sure to get a boost.

Moreover, the advertising revenues which were up 4.3% to over $10m in the fourth quarter of 2006, will continue to scale new highs, considering the strong product pipeline and NetEase’s newly announced search engine venture. Endorsing the same, the company seems to be well poised for an interesting year in 2007.

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