NetEase eyes mobile games growth after mixed third-quarter results

Net profit increases 46pc to 2.74bn yuan, ahead of expectation, but revenue falls shy of target, rising 38pc to 9.21bn yuan

PUBLISHED : Thursday, 10 November, 2016, 3:34pm
UPDATED : Thursday, 10 November, 2016, 10:15pm

NetEase, mainland China’s second-largest online video game service provider, plans to step up expansion of its mobile games business after posting steady earnings growth in the quarter to September 30.

The Nasdaq-listed company reported on Wednesday, after the close of trading in the United States, that third-quarter net profit increased 46 per cent to 2.74 billion yuan, up from 1.88 billion yuan in the same period last year, on the back of strong online games service growth.

The result was higher than market estimates of 2.59 billion yuan as of Tuesday.

Total revenue rose 38 per cent to 9.21 billion yuan from 6.67 billion yuan a year earlier, which fell short of the consensus estimate of 9.65 billion yuan for the quarter.

“We maintained steady growth across each of our primary business lines in the third quarter with a continued focus on providing first-rate games,” NetEase chief executive William Ding Lei said in a conference call with analysts early on Thursday.

The missed revenue estimate, however, sliced nearly 5 per cent from the company’s share price in after-hours trading. In the regular session on Wednesday in the US, the company’s shares were up 1.16 per cent to close at US$251.86.

“Mobile game revenue came in 13 per cent below our estimate at 3.9 billion yuan, which was up 35.5 per cent year on year but down 4.5 per cent quarter on quarter,” Jefferies equity analyst Karen Chan said in a report on Thursday.

Chan said mobile games represented 57 per cent of NetEase’s total online games revenue of 6.57 billion yuan in the third quarter.

Ding pointed out there was still “extensive opportunity in the thriving mobile game industry where we continue to introduce chart-topping games”.

In the three months to September, NetEase added a number of new hit mobile games to its portfolio of more than 100 titles.

“Our latest mobile 3D game Onmyoji was an instant success, surpassing our expectations,” Ding said. “Onmyoji quickly became one of the top-grossing games in China’s iOS app store for both the iPhone and iPad following its release in early September.”

He added that its Fantasy Westward Journey and Westward Journey Online mobile games, as well as the mobile version of New Ghost, also remained popular.

We maintained steady growth across each of our primary business lines in the third quarter with a continued focus on providing first-rate games
William Ding Lei, NetEase chief executive

NetEase plans to bring new original titles in the near term, including Heroes of Tang Dynasty Mobile, Demon Seals Mobile and Land of Glory.”

“Our classic personal computer client games also maintained a steady presence in the third quarter,” Ding said.

That included the launch of new expansion packs for games such as Fantasy Westward Journey Online, New Westward Journey Online II and Heroes of Tang Dynasty Zero.

Ding said licensed Blizzard Entertainment games Overwatch and World of Warcraft continued to increase their revenue contribution to NetEase’s online games business last quarter.

Beijing-based NetEase also reported a 23.8 per cent year on year increase to 563.3 million yuan in its advertising services business segment and 107.2 per cent year on year jump to 2.08 billion yuan in its e-mail, e-commerce and others business segment.