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With the worst margin contraction likely behind NetEase Inc (ADR) (NASDAQ: NTES), driven by improving e-commerce profitability, Jefferies’ Karen Chan believes the stock is fairly valued at present.
Chan initiated coverage of the company with a Hold rating and price target of $245.
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“As the company transitions into a more stable growth stage, we see more attractive risk/reward opportunities in other China Internet segments,” the analyst mentioned.
Mobile Game Leader
Chan expects NetEase to continue to be one of the mobile game leaders in China, with robust performances by its recently released titles, A Chinese Ghost Story and Onmyoji.
However, the failure to replicate the success of Fantasy Westward Journey (FWJ), given the more competitive mobile RPG environment, the analyst expects mobile game growth to slow to 28 percent in FY17 from 115 percent in FY16.
Robust China Growth
At the same time, Chan expects “solid growth in China’s mobile game market driven by increasing game time, paying user ratio and ARPU.”
The analyst believes that following the increased marketing and R&D costs in 2015 and H1:16, and NetEase and Tencent taking 57 percent market share, IP and eSports would be key to prolonging the lifetime value of a game.
In fact, Chan stated that the “remarkable success of FWJ and Westward Journey Online (WJ) testifies to Netease’s strong IP conversion capability.”
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.