Mobile games have become an inseparable element of the growth in the industry. It is the same story across the industry and NetEase (NTES, Financial) is no exception. China’s leading internet and online game service provider NetEase recently stepped into fiscal 2015 with robust results and growth across its key metrics.
The company has largely benefited from the introduction of new games and content across its community of online PC clients and mobile users. This solid growth has also boosted NetEase’s confidence and now with the growing technology and gaming industry, the company looks prepared for another solid performance in the upcoming quarters. Let us have a look at the overall underlying business.
A strong performance
NetEase is on fire. A strong 54.2% growth rate in the year-over-year revenue is a solid achievement and 44% growth in its business clearly states solid traction for its products in the market. The company now looks well prepared for the future. The analysts are expecting the booming global market for games to continue being a major growth driver for China’s online games market in the future. Looking at the growth opportunities, NetEase is now focusing on various initiatives to capture good growth. Under this, it is now planning to diversify its substantial user base.
NetEase is largely counting on its robust product portfolio. The company is now offering above 20 mobile games across variety of channels worldwide. Seeing the growth momentum, it is now engaged in deploying more licensed mobile titles in the upcoming months, which will strengthen its product portfolio as well as market presence.
Strong plans
NetEase has solid plans for 2015. In 2015, it is planning to expand its portfolio with an exciting pipeline including a number of new online PC-client and mobile games, as well as new content for its already existing games. In fact, NetEase is pleased to see good progress in towards this goal. It is bringing in new games with a commercial launch of Demon Seals, a 2.5D MMORPG and also introducing expansion packs for New Westward Journey Online II and Ghost II.
It is interesting to know that NetEase is also working closely with Blizzard Entertainment and is delighted by the success of the open beta testing for the Chinese version of Diablo III: Reaper of Souls. It is a solid achievement for the company, as the game in its testing period sold over one million copies within 10 days of its launch in late April. In line with this achievement, NetEase is now planning to begin open beta testing for Blizzard’s Heroes of Storm.
Besides all these, NetEase is also seeing great opportunities in ecommerce platform. Its efforts in this are in the infancy stage, but its cross border self-operated ecommerce platform Kaola is pleased with the response. While in 2015, NetEase is expecting high demand for Mobile games and content giving good opportunities for its online PC-client games and services, its strategy will remain focused on diversity, excellence and international expansion to achieve healthy growth across all of its Internet businesses.
Conclusion
Moving to the fundamentals, the stock is reasonable with trailing P/E of 25.60 while the forward P/E of 2.68 shows weak earnings growth in the near term. Investors should not worry much about it as the stock is still impressive with a profit margin of 40.61%. As the company is seeing good growth in the demand for the games it can also be a solid long term holding as its earnings are growing at a CAGR of 21.53% for the next five years as compared to the industry average of 15.81%. Considering all this, NetEase is definitely a good pick as of now.
