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Shares in NetEase rise nearly 2pc on strong second-quarter revenue growth to US$2 billion

Nasdaq-traded company, ranked as mainland China’s second-largest online video games provider after Tencent, reports net revenue grew nearly 50pc in the quarter ended June 30

PUBLISHED : Thursday, 10 August, 2017, 10:16am
UPDATED : Thursday, 10 August, 2017, 11:25pm

NetEase, mainland China’s second-largest online video game services provider, is looking to accelerate its international expansion after posting solid financial results for the quarter ended June 30.

Founder and chief executive William Ding Lei said in a conference call with analysts on Thursday that NetEase was actively seeking new foreign titles that it can bring to the mainland, while exploring opportunities for its own intellectual property in overseas markets.

The Nasdaq-listed company saw its shares reach a four-week high to US$315.05, up 1.89 per cent at the close of trading on Wednesday.

NetEase, which also runs an e-commerce business, reported a 9.2 per cent increase in second-quarter net profit to about 3 billion yuan (US$447 million), up from 2.7 billion yuan in the same period last year, on the back of higher online game services, advertising and e-commerce revenue.

That missed the market consensus of 3.3 billion yuan second-quarter net profit from a Bloomberg survey of analysts’ estimates.

Total revenue rose 49.4 per cent to 13.4 billion yuan (US$2 billion) from 8.9 billion yuan a year earlier, which beat the consensus estimate of 13 billion yuan.

Mobile games accounted for 72.4 per cent of net revenue from online games, which reached 9.4 billion in the second quarter.

Online advertising revenue in the same quarter totalled 595.6 million yuan, led by the automobile, internet services and real estate market segments.

NetEase’s e-commerce, e-mail and other businesses contributed 3.3 billion yuan to total revenue last quarter.

“During the second quarter, many legacy [game] titles maintained their popularity, while our instant hit title Onmyoji had a natural ebb and flow,” Ding said.

Onmyoji, an anime-style smartphone game, expanded its global distribution in the second quarter, achieving record-high downloads in Japan and markets in Southeast Asia.

“We will continue to invest resources overseas,” Ding said. Apart from Japan, South Korea and Southeast Asia, Ding pointed out that NetEase was also developing games for North America and Europe.

“For instance, [mobile games] Crusaders of Light and Land of Glory were successfully launched into the United States,” he said.

We believe it will take a few quarters for NetEase to transfer existing Minecraft [a game licensed from Microsoft-owned Swedish developer Mojang] players to its servers, which suggest to us a minimal revenue contribution from it over the next two to three quarters
John Choi, Daiwa Capital Markets analyst

Beijing-based NetEase’s upcoming titles include Minecraft, a game licensed from Microsoft-owned Swedish developer and publisher Mojang, as well as Japanese-themed role-playing games Index and Forever 7.

Daiwa Capital Markets analyst John Choi said in a report that NetEase’s online game pipeline in the second half of this year was “relatively weak compared with that of Tencent”.

Headquartered in Shenzhen, Tencent is the world’s largest video games company by revenue.

Choi said there was no new blockbuster mobile game title expected from NetEase since Onmyoji, which was launched in September last year, and is expected to see gradual revenue deceleration.

“We believe it will take a few quarters for NetEase to transfer existing Minecraft players to its servers, which suggest to us a minimal revenue contribution from Minecraft over the next two to three quarters,” Choi said.

Minecraft was initially released by Mojang in November 2011, and is available worldwide in desktop computer, console and mobile versions.

The global video games market is forecast to cross the US$100-billion mark this year, driven by the huge appetite for online and mobile content of mainland China’s more than half-a-billion gamers.

The mainland games market is predicted to be worth US$27.5 billion this year, making it the world’s leader as global market revenue advances to US$109 billion from US$99.6 billion last year, according to research firm Newzoo.