NetEase Inc. (NTES, Financial) rewarded shareholders with healthy returns in 2016, and the stock has been performing amazingly well since the beginning of 2017 as it is up nearly 28% year to date. Over the past 12 months, the stock has surged over 80% and it does not look like the company’s run will end anytime soon.
NetEase reported stunning first-quarter results on May 10. For the first quarter, the company logged earnings per share of $4.54, easily surpassing the analysts’ estimate by 77 cents. On the other hand, its revenue came in at $2 billion, again surpassing the consensus by $280 million. Most significantly, that figure represents a growth of nearly 74% year over year.
Revenue from the online games segment was driven by its popular mobile games such as “Onmyoji.” In the first quarter, mobile games made up nearly 73% of the company’s overall online games net revenues, representing a sequential surge of 9%.
In point of fact, virtual reality/augmented reality are the next big thing in the tech industry, and it will certainly have a positive impact on the gaming segment as well. Therefore, to gain an early lead, the company introduced its first VR game titled “Twilight Pioneers” last year. It also integrated several AR features into “Onmyoji.”
NetEase’s “Onmyoji” has performed pretty well in China, and it looks like the company made a smart move by launching this popular game in Japan. Also, the company plans to make games available worldwide rather than just in its home market as it will unlock new growth opportunities in the long run.
The video games market is one of the most lucrative markets around the globe. Although the video games industry is already huge in China, it is projected to grow at a healthy rate in the future as well. According to a forecast report from newzoo.com, the worldwide gaming market is expected to grow at a compound annual growth rate (CAGR) of 6.2% during the period of 2016-2020.
Moving onward, China is anticipated to generate $27.5 billion or one-quarter of overall revenue this year. The primary reason behind the high worldwide gaming market growth is the increasingly rising mobile gaming trend. Mobile gaming segment is likely to generate 42% of entire global game revenue this year.
Keeping in mind the positive outlook of the video games industry, NetEase looks well positioned to gain massive benefits in the year ahead.
Apart from the gaming business, the company’s other businesses are also performing very well. Net revenues from its advertising services and email, e-commerce and all other segments surged 15% and 63%.
Summing up
Since 2013, NetEase has managed to reward shareholders with impressive returns every year. Moreover, it looks like the company will continue doing so in the long run, considering the healthy outlook for the mobile gaming market.
In the first quarter, NetEase also raised its dividend to $1.08 per share, representing a 7% surge. The company now offers a healthy dividend yield of 1.46%. NetEase comprises a well-diversified business which has a healthy exposure to the mobile gaming market and currently trades at a price-earnings (P/E) ratio of almost 21 which means it still has tremendous upside potential.
As a result, shareholders should consider adding NetEase at the current market price.
Disclosure: No position in the stocks mentioned in this article.
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