NetEase (NTES, Financial) reported excellent first quarter of 2015 financial results with net revenue growth of 54.2% on a year-over-year basis across all of its key business segments, primarily driven by significant progress in its mobile games and online PC clients with the introduction of innovative contents and services.
Growing its gaming base successfully
There’s significant ongoing expansion in the company’s online games business with total revenue from these segments growing by 44% during the first quarter. China’s huge online games market is particularly driven by innovatively designed global games and NetEase plans to capitalize on this significant growth opportunity by diversifying its worldwide gaming user base.
The notable increase in the company’s online gaming user base, particularly driven by healthy customer traction from the big size gaming market of China is forecast to drive significant top line growth for the company.
NetEase has witnessed solid interest in its self-designed mobile games, especially for its key games The World HD and Battle to the West, both of which were launched during the fourth quarter. In addition, its leading game, Fantasy Westward Journey, is continually becoming popular, with the mobile version of this game achieving top position in the iOS China app store and gaining the highest number of total simultaneous user of 1.6 million after its launch in March end.
An impressive pipeline
The innovatively developed Heroes of Tang Dynasty Zero is a 2.5D item-based martial arts-themed game whose newest expansion pack was launched in December 2014 with the upcoming expansion pack estimated to be released in second quarter of 2015.
The strategically designed Heroes of Tang Dynasty Zero and Tianxia III games are estimated to drive significant global customer traction and benefit NetEase with improved revenue streams, benefiting the investors.
Again, Ghost II which is a 2.5D item-based game is capturing superior customer demand with its consolidated upgrade introduced in April 2013 and newest expansion pack launched in April 2015.
NetEase currently offer more than 20 mobile games across several broadcasting channels and targets on developing on this growth opportunity with the deployment of several other innovatively self-created and licensed mobile games in the forthcoming months.
The significant expansion in the customer demand for the company’s self-developed games for both PC and mobile platforms is believed to hugely benefit the company’s top-line growth and excite the key stakeholders with improved returns.
Fantasy Westword Journey II is NetEase’s flagship MMORPG games in China, initially introduced in 2004. NetEase launched the game’s integrated upgrade in July 2013 and expansion pack launched in October 2014. NetEase plans to introduce its next expansion pack in third quarter of 2015.
The innovative Westword Journey Online II was first launched in August 2002 and successively several expansion packs of the game were released. The item-based version was introduced in August 2014 to complement initial time-based game. This game gained significant user traction during the fourth quarter of 2014 with its newest expansion pack introduced in April 2015.
The continued release of unique new games along with their planned expansion packs all through the quarters in 2013 and 2014 signifies the robustness of the company’s gaming development process which is believed to progress in 2015 as well.
The well-planned line of innovatively designed games for both PC and mobile platforms are expected to be introduced in a timely manner and grab significant customer attention, hugely benefiting the company’s top-line growth and, thus, improving shareholder returns.
NetEase is strategically partnering with major game developers to license new mobile games like Tower of Odin, Dark Blade, Ninja Must Die 2 and KONAMI World Soccer Collections.
The game development major is working closely with Blizzard Entertainment to continually develop and launch World of Warcraft series to Chinese gamers since 2009 with its 5th expansion pack Warlords of Draenor introduced in PRC during November 2014. NetEase released StarCraft II: Heart of the Swarm in PRC in July 2013. Also, it released Blizzard’s free-to-play digital strategy card game Hearthstone: Heroes of Warcraft in PRC in January 2014. Moreover, NetEase concluded beta testing of Blizzard’s free-to-play, online team brawler Heroes of the Storm started in PRC in January 2015. Importantly, NetEase sold more than 1 million copies of Diablo III: Reaper of Souls in just 10 days of release of open Beta testing in PRC in April 2015.
The continued launch of newly developed games by NetEase in partnerships with KONAMI and Blizzard is forecasted to hugely grow the targeted gamer base of NetEase, bringing in newer game development concepts and increasingly exciting the existing and new gamers.
The differentiated set of application offerings for both PC and mobile platforms are believed to prove hugely beneficial for advertisers through well-diversified content channels, online and community services. In addition, a diversified portfolio of entertainment, virtual products, Finance and ecommerce services are estimated to drive long-term company growth allowed by a robust balance sheet.
Conclusion
Further, NetEase is significantly backed by a robust balance sheet with impressive total cash position of $3.63 billion against extremely weak total debt inventory of $329.82 million, supporting the company’s prospective expansion plans.
