NetEase (NTES, Financial) is witnessing solid growth across its mobile and online games both on sequential and year-over-year bases. The resource-driven games from its licensed and developed online games were enabled by superior performances from its popular online games, Blizzard Entertainment's Hearthstone: Heroes of Warcraft, Mini Westward Journey coupled with Fantasy Westward Journey II and its mobile versions.
Gaining good momentum
Hearthstone is gaining extreme popularity with the launch of its iPad versions in April. NetEase launched Curse of Naxxramas, which is the primary single player for the game.
The advertising business of NetEase also continues to perform excellently with sequential and year-over-year growth in food and beverages service coupled with automobile internet services. The healthy growth was enabled by solid industry demand and excellent monetization linked to its mobile applications and the 2014 FIFA World Cup.
There’s encouraging growth of its e-mail services, reaching 680 million email users and nearly 200 million phone mail box users by the period end. The ecommerce services are also illustrating extraordinary revenue growth during the second quarter. For the rest of the year, NetEase plans to expand opportunities for diversifying its conventional online and mobile platforms, by utilizing its in-house growth capabilities coupled with increasing office licensing and developing other growth opportunities.
NetEase has approved a dividend of $0.37 per ADS to be paid to its shareholders and in line with its continued focus on maximizing shareholder returns.
The extremely poor growth in revenue contribution from the company’s mobile games efforts worries analysts.
Conclusion
The trailing P/E ratios of 14.62 and forward P/E of 1.98 indicates that NetEase will improve in the long run. Also, it’s far better than the industry’s average P/E of 25.37. The PEG ratio of 0.95, below 1 is good and better than the industry’s average of 1.20, reflecting impressive company’s growth. The profit margin of 46.52% indicates healthy company profits. The revenue per share and diluted EPS of 12.40 and 5.70 respectively signifies robust company earnings.
The quarterly revenue growth and quarterly earnings growth of 22.20% and 9.80%, respectively, show excellent growth of investor earnings. The current ratio of 4.25 signifies the robustness of the company’s balance sheet. Finally, the investors are advised to invest into NetEase looking at the solid long-term growth prospects, indicated by the CAGR for the next 5 years per annum of 14.42% comparable to the industry’s average of 16.30% and expect promising returns in a long run.
