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Foreign media: Netease game revenue decline is less fear of electricity providers will promote earnings growth

via:博客园     time:2018/2/27 13:01:07     readed:223

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Tencent Technology News, according to foreign media reports, Netease stock price by leaps and bounds in 2017, but after the release of the fourth quarter earnings report, the momentum of this rising halted. Investors believe that despite the overall performance of Netease is still strong, but its online game revenue decline is still enough for them to press the "sell" button.

In the fourth quarter, Netease's revenue and profit exceeded expectations. Its revenue increased 21% from a year earlier to 2.25 billion U.S. dollars, while analysts' consensus forecast was 2.2 billion U.S. dollars. Earnings performance is also surprising, adjusted earnings per share 2.18 US dollars, exceeding the analyst forecast of 2.11 US dollars.

However, the problem is that NetEase's online game unit revenue fell 10.6%, the department contributed nearly 55% of NetEase's total revenue. In the same period of last year, NetEase game revenue achieved a huge year-on-year growth. Although Netease introduced a variety of new work in the fourth quarter, but the game still shows a decline in revenue, which makes investors feel uneasy.

Why game revenue decline?

According to NetEase, the weak revenue from online games was mainly due to the decrease in its contribution to self-study handbooks. However, management did not elaborate on why the company failed to make a significant contribution to the game as it continued to upgrade content and introduce new products.

A closer look at the earnings call conference shows that NetEase management has upgraded many games to keep users interested and has introduced a number of popular games such as "My World" to the Chinese market. "Onmyouji" and "New Ghost Story" revitalized the content of the user interest, the former also landed in Thailand in November last year. Netease said that these upgrades let the old user back to the game, but also brought new users.

NetEase also said that the "Wilder Action" and "Terminator 2" by the player's warm welcome, respectively, gains 100 million and 80 million registered users.

These comments make one wonder: why NetEase's revenue will decline in the previous quarter? It seems that there is only one word that can explain, that is, cash.

Although Netease did not make it clear that its new game has not yet been profitable, but it does give enough hints. For example, the company made it clear that it launched an early phase of cashback operations on The Wilderness and Terminator 2 in December last year and will begin to "My World" in the first half of 2018.

Netease did not provide performance outlook. However, if its liquidation moves smoothly, online games could recover in the future or resume growth. As a result, investors should not be scared by the recent decline in revenues as the company is considering monetizing millions of users attracted to the new game.

More importantly, NetEase does not rely solely on the online gaming business, as evidenced by the rapid growth of its e-commerce business.

E-commerce into a new growth point

NetEase e-commerce business grew rapidly during the holiday season. The fourth quarter, the department revenue up 175%, mainly due to the company's efforts to expand the product mix. Currently, e-commerce business contributed 32% of Netease's total revenue, and is expected to continue to improve.

Netease's e-commerce business, including koalas and strict selection, the company hopes to provide users with more choices, and a substantial investment in business. Last November, NetEase announced that it will buy 11 billion U.S. dollars of products from overseas markets in the next three years in an attempt to find a way out in the Chinese electricity market.

NetEase also through the opening of warehouses to strengthen the electricity supplier infrastructure, thereby consolidating its fulfillment channel. According to industry data, the Chinese e-commerce market will grow from 500 billion U.S. dollars last year to 956 billion U.S. dollars by 2022, so NetEase is ready to take full advantage of this market opportunity.

However, the growth of e-commerce business also had a negative impact on the profit margin of Netease. Specifically, NetEase's gross margin for the quarter was only 7.4%, down sharply from 12.5% ​​in the same period of previous year. However, NetEase can make up for the impact of the declining profit margin through sustained and rapid revenue growth.

This is why a number of Yahoo financial analysts expect NetEase's earnings per share will grow in the next two years, despite its profit margins continue to narrow. Analysts said investors should not overreact to the slump in game revenues because NetEase has many catalysts to drive future growth. More importantly, the recent decline in stock prices Netease makes the stock has become very cheap, its current price-earnings ratio is only 18.7 times, well below the industry average of 47.4 times.

For investors, the recent decline in Netease's share price is an opportunity to catch the windfall of China's e-commerce and game growth.

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