Company Rating - Buy/Buy rating for NetEase (NTES.O) and NetEase-S (09999.HK) with a current price of $86.98/133.10 HKD and a fair value of $132.34/206.01 HKD [1] Core Views - NetEase reported 24Q2 revenue of 254.9 billion RMB, a YoY increase of 6% but a QoQ decrease of 5% [2] - Gross margin improved by 3.08 percentage points to 62.9% in 24Q2 [2] - GAAP net profit attributable to shareholders was 6.759 billion RMB, while Non-GAAP net profit was 7.819 billion RMB, with a Non-GAAP net margin of 30.68% [2] - Game-related value-added services revenue reached 200.56 billion RMB, a YoY increase of 6.7%, with mobile games contributing 76.4% of online game revenue [2] - New games such as "World Beyond," "Naraka: Bladepoint Mobile," and "Marvel Duel" contributed to performance growth [2] - The company has a strong pipeline of games, including "Marvel Rivals" and "Where Winds Meet," expected to launch within the year [2] Business Performance - Mobile games revenue grew by 16.06% YoY to 147.25 billion RMB, while PC games revenue slightly declined by 0.05% to 45.49 billion RMB [2] - Classic mobile games like "Fantasy Westward Journey" and "Identity V" maintained strong performance, with "Identity V" showing significant improvement in revenue rankings [2][9] - NetEase's Youdao segment reported a 9.54% YoY increase in revenue to 1.322 billion RMB, with a focus on AI+education driving future growth [11] - Cloud Music's H1 revenue reached 4.07 billion RMB, exceeding expectations, with a 48% YoY increase in gross profit and a 176% YoY increase in net profit [12] Financial Projections - NetEase's total revenue is projected to be 1.09 trillion RMB in 2024, 1.225 trillion RMB in 2025, and 1.336 trillion RMB in 2026 [2] - Non-GAAP net profit is expected to be 33.3 billion RMB in 2024, 37.2 billion RMB in 2025, and 40.7 billion RMB in 2026 [2] - The SOTP valuation method yields a fair value of $132.34 per ADS (US) and 206.01 HKD per share (HK) [2] Game Pipeline and Strategy - NetEase has a robust game pipeline, including "Marvel Rivals" and "Where Winds Meet," which are expected to launch within the year [2] - The return of Blizzard games in China is expected to provide additional support to the PC gaming segment [2] - Long-term growth is supported by the company's strong R&D capabilities and its ability to consistently produce high-quality games [2] Segment Valuation - The gaming segment is valued at 574.5 billion RMB based on a 20x PE multiple [16] - Youdao is valued at 3.1 billion RMB with a 1x PS multiple [17] - Cloud Music is valued at 13.2 billion RMB with a 16x PE multiple [18] - The total SOTP valuation for NetEase is 596.6 billion RMB, translating to $850 billion USD or 661.5 billion HKD [18]

Investment Rating - The report maintains a "Buy" rating for the company, indicating a strong expectation of performance exceeding the market by over 20% [3][4]. Core Insights - The company's Q2 mobile game revenue grew by 16% year-on-year, outperforming the industry average decline of 5.7%, with significant contributions from titles like "Dreamland Mobile" and "Identity V" [3]. - The outlook for the second half of the year is positive, with expectations for growth driven by new PC game releases and the stabilization of existing titles [3][4]. - Online music revenue increased by 27% year-on-year, indicating strong growth potential in this segment despite some offset from a strategic reduction in live streaming [3][4]. Financial Data and Earnings Forecast - Revenue projections for 2024E, 2025E, and 2026E are estimated at 107,588 million RMB, 119,644 million RMB, and 127,182 million RMB respectively, with growth rates of 4%, 11%, and 6% [2][6]. - Adjusted net profit for 2024E, 2025E, and 2026E is forecasted to be 32,822 million RMB, 36,374 million RMB, and 39,738 million RMB, reflecting growth rates of 0%, 11%, and 9% [2][6]. - The company’s price-to-earnings (PE) ratio is projected to decrease from 11x in 2024 to 9x in 2026, indicating a potentially undervalued stock [4].

Investment Rating - The report maintains a "Recommended" rating for NetEase-S (09999.HK) with a target price of 156 HKD, while the current price is 119.60 HKD [6][4]. Core Views - The company's Q2 2024 revenue reached 25.486 billion CNY, representing a year-over-year increase of 6.14% but a quarter-over-quarter decrease of 5.08%. The gaming and related services revenue was 20.056 billion CNY, up 6.69% year-over-year but down 6.54% quarter-over-quarter. The net profit attributable to shareholders was 6.759 billion CNY, down 18% year-over-year [1][11]. - The mobile gaming segment showed year-over-year growth of 16.06% but a quarter-over-quarter decline of 8.3%. The overall gross margin for gaming-related businesses improved to 70% in Q2 2024, an increase of 0.5 percentage points from the previous quarter [2][18]. - The report highlights the ongoing improvement in the profitability of Youdao and Cloud Music, with Youdao's revenue at 1.322 billion CNY (up 9.5% year-over-year) and Cloud Music's revenue at 2.041 billion CNY (up 4.74% year-over-year) [3][23]. Summary by Sections 1. Resilience of Existing Games and Impact of Exchange Rate Losses - NetEase's Q2 2024 revenue was 25.486 billion CNY, with gaming and related services revenue at 20.056 billion CNY. The company experienced a net profit of 6.759 billion CNY, impacted by exchange rate losses [1][11]. 2. Mobile Gaming Growth and Margin Improvement - Mobile gaming revenue was 14.73 billion CNY, showing a year-over-year increase of 16.06%. The overall gross margin for gaming-related services reached 70% [2][18]. 3. Profitability of Youdao and Cloud Music - Youdao's revenue was 1.322 billion CNY, with a narrowed net loss of 0.099 billion CNY. Cloud Music's revenue was 2.041 billion CNY, with a significant profit increase in the first half of the year [3][23]. 4. Gross Margin Trends - The overall gross margin for gaming-related businesses improved to 70% in Q2 2024, indicating a positive trend in profitability [2][26]. 5. Financial Forecasts and Valuation - The report adjusts profit forecasts for 2024-2026, predicting net profits of 29.8 billion CNY, 33.3 billion CNY, and 35.9 billion CNY respectively. The corresponding PE ratios are 11.8, 10.5, and 9.8 [4][30].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 136.96 [2][5] Core Insights - The company's Q2 revenue reached HKD 25.49 billion, showing a year-over-year increase of 6.1% but a quarter-over-quarter decrease of 5.1%. The growth is primarily attributed to increased mobile game revenue [4][5] - The gross margin for Q2 was 62.95%, up 3.1 percentage points year-over-year, mainly driven by growth in the gross margin of cloud music [4][5] - The company expects new game launches to drive future growth, with projected net profits for 2024, 2025, and 2026 at HKD 29.62 billion, HKD 35.21 billion, and HKD 39.62 billion respectively [5][6] Financial Summary - The company's revenue for 2022 was HKD 96.496 billion, with a year-over-year growth of 10.15%. For 2023, the revenue is projected to be HKD 103.468 billion, reflecting a growth rate of 7.23% [4][6] - The net profit attributable to the parent company for 2022 was HKD 20.338 billion, with a year-over-year growth of 20.65%. The projected net profit for 2023 is HKD 29.417 billion, indicating a growth of 44.64% [4][6] - The earnings per share (EPS) for 2022 was HKD 6.33, expected to rise to HKD 9.16 in 2023 [4][6] Business Segments - Revenue from games and related value-added services in Q2 was HKD 20.06 billion, with a gross margin of 70%, reflecting a year-over-year increase of 2.61 percentage points [5][6] - Cloud music revenue for Q2 was HKD 2.04 billion, with a gross margin of 32.1%, up 5.1 percentage points year-over-year [5][6] - The education segment, represented by Youdao, generated revenue of HKD 1.322 billion in Q2, with a gross margin of 48.2% [5][6]

Investment Rating - The investment rating for the company is "Buy" [3][28]. Core Insights - The company's Q2 2024 revenue and profit were below market expectations, but game performance met predictions. Q2 revenue was 25.5 billion RMB, a year-on-year increase of 6%, with game and value-added services growing by 7% and 10% respectively. Adjusted net profit was 7.8 billion RMB, down 13% year-on-year, primarily due to changes in non-operating income, while adjusted operating profit increased by 18% [1][2]. - The target price has been adjusted from $117 to $113, reflecting a 37.4% potential upside from the current price of $82.25. The company expects a recovery in PC games in Q3, while mobile games face short-term growth pressure due to high base effects [2][28]. Financial Summary - For Q2 2024, the company reported a net income of 25.5 billion RMB, with a gross profit margin of 63%. The adjusted operating profit margin was 32%, indicating a stable operational performance despite the revenue dip [5][15]. - The forecast for 2024 includes a revenue adjustment of 1.7% and a profit adjustment of 1.3%, with the gaming business expected to maintain stable operational potential after digesting high base impacts [2][11].

Investment Rating - The report assigns a rating of "Accumulate" (downgraded) for the company [1]. Core Views - The overall performance of the company remains robust, with a focus on the release schedule of upcoming game products [1]. - The company achieved a revenue of 25.485 billion RMB in Q2 2024, reflecting a year-on-year increase of 6.1% but a quarter-on-quarter decrease of 5.1% [4]. - The net profit attributable to shareholders was 6.759 billion RMB, down 18.0% year-on-year and 11.5% quarter-on-quarter [4]. - The non-GAAP net profit attributable to shareholders was 7.819 billion RMB, down 13.3% year-on-year and 8.1% quarter-on-quarter [4]. - The gross margin decreased to 62.9%, with a year-on-year increase of 3.1 percentage points and a quarter-on-quarter decrease of 0.4 percentage points [2]. Financial Performance - The gaming and value-added services segment generated revenue of 20.1 billion RMB in Q2 2024, up 6.7% year-on-year but down 6.5% quarter-on-quarter, with a gross margin of 69.5% [3]. - Mobile game revenue saw a strong year-on-year growth of 16.1%, while PC game revenue declined by 0.1% due to base effects [3]. - Notable games such as "Party of Eggs," "Identity V," and "Rate the Land" continue to attract players, with "Naraka: Bladepoint" achieving record daily active users [3]. - The company has several major products lined up for release in the second half of the year, including "Yanyun Sixteen Sounds" and "Marvel: Battle Lines" [3]. Other Business Segments - NetEase Youdao reported Q2 2024 revenue of 1.32 billion RMB, a year-on-year increase of 9.5%, with significant growth in digital content services and online marketing services [3]. - NetEase Cloud Music achieved revenue of 2.04 billion RMB in Q2 2024, up 4.7% year-on-year, with a gross margin improvement to 32% [3]. - The innovation and other business segment generated revenue of 2.07 billion RMB, a slight increase of 0.5% year-on-year [3]. Earnings Forecast and Valuation - The company is expected to achieve revenues of 104.7 billion RMB, 115.9 billion RMB, and 124.9 billion RMB for FY2024-2026, respectively [6]. - Adjusted net profits are projected to be 31.9 billion RMB, 36.0 billion RMB, and 39.9 billion RMB for the same period [6]. - The target price is set at 144 HKD, maintaining a "Buy" rating based on a sum-of-the-parts valuation [6].

Investment Rating - The report maintains a "Buy" rating for the company [1][3]. Core Insights - The company achieved a revenue of 25.5 billion RMB in Q2 2024, representing a year-on-year growth of 6%. However, the Non-GAAP net profit decreased by 13% to 7.8 billion RMB, primarily due to reduced foreign exchange gains [2]. - The online gaming segment showed robust performance with revenues of 19.3 billion RMB, a 12% increase year-on-year, driven by successful new game launches and a strong pipeline of upcoming titles [2][3]. - Cloud music revenue grew by 4.7% to 2 billion RMB, with an improved gross margin of 32.1%, attributed to accelerated membership growth and better cost control [2]. - The AI-driven education platform, Youdao, reported a revenue of 1.3 billion RMB, up 9.5%, with significant growth in AI subscription services [2]. - The innovative segment remained stable with revenues of 2.1 billion RMB, maintaining its position in the market [2]. Summary by Sections Revenue and Profitability - Q2 2024 revenue was 25.5 billion RMB, up 6% year-on-year. Non-GAAP net profit was 7.8 billion RMB, down 13% [2]. - The gaming segment's revenue was 19.3 billion RMB, a 12% increase, with mobile games contributing 14.7 billion RMB, up 16% [2]. Future Projections - The company expects Non-GAAP net profits of 35.5 billion RMB, 38.3 billion RMB, and 41.3 billion RMB for 2024, 2025, and 2026 respectively, with corresponding EPS of 10.26 RMB, 11.09 RMB, and 11.95 RMB [3][11]. Business Segments - Cloud music revenue is projected to grow, with a focus on enhancing user experience and subscription services [8]. - Youdao's revenue is expected to continue its upward trend, driven by AI integration and educational services [8]. - The innovative segment is anticipated to maintain stable growth, focusing on product quality and market demand [8].

o u T a " L C 10% L 21 l e F 0 # on 1 04 0 E 5 I 0 n t r t t 1 0 一生 t a a cle I 0 T 0 le H 0 1 I l l n 1 I n 0 0 E 1 E 0 1 l 0 日 0 e D 1 BirgitKorber I last covered NetEase (NASDAQ:NTES) in July; I put out a Buy rating at the time, and since then, the stock has lost 12% in price, particularly following its Q2 results, released on August 22nd. The results showed top-line strength but bottom-line weakness, which, while immediately concerning and caused a stock sell-off, is not likely to last into FY25 and bey ...

Investment Rating - The investment rating for the company is "Outperform the Market" [4][21]. Core Views - The company reported a revenue growth of 6% year-on-year in Q2 2024, with total revenue reaching 25.5 billion yuan. The growth was primarily driven by mobile gaming and Youdao [1][7]. - The company's Non-GAAP net profit for Q2 2024 was 7.8 billion yuan, a decrease of 13% year-on-year, with a Non-GAAP net profit margin of 31%, down 7 percentage points [1][7]. - The online gaming business generated revenue of 19.27 billion yuan, a 12% increase year-on-year, with mobile game revenue growing by 16% to 14.7 billion yuan [12][14]. - The company has a strong game pipeline, with several new titles expected to launch soon, including "Eternal Return Mobile" and "Yanyun Sixteen Sounds" [14][21]. Financial Summary - For 2024, the company is projected to achieve a revenue of 117.5 billion yuan, representing a 13.2% increase from 2023. The Non-GAAP net profit is expected to be 36.03 billion yuan, a 10.5% increase [3][23]. - The company's gross margin for Q2 2024 was 63%, an increase of 3 percentage points year-on-year, with the gaming and value-added services gross margin at 70% [1][8]. - The total operating expense ratio for Q2 2024 was 36%, up 1 percentage point year-on-year, with a sales expense ratio of 13.7% [1][8]. Business Segment Performance - Youdao's revenue for Q2 2024 was 1.3 billion yuan, a 10% increase year-on-year, with advertising service revenue doubling to 510 million yuan, a 68% increase [15][21]. - NetEase Cloud Music reported a revenue of 2 billion yuan in Q2 2024, a 5% increase year-on-year, with a gross margin of 32.1%, up 5.1 percentage points [18][21].

Group 1 - NetEase reported a second-quarter net income of 6.8 billion yuan (approximately $952 million), representing a 17% year-over-year decline and falling short of analysts' expectations [1][2] - The company's revenue for the quarter was 25.5 billion yuan (about $3.6 billion), which is a 6.1% increase year-over-year but still below expectations [1] - Following the earnings report, NetEase's stock experienced a decline of 11.17% [1] Group 2 - Revenue growth was primarily driven by games and related value-added services, which increased by 6.7% to 20.1 billion yuan (approximately $2.8 billion) [2] - Notable performances were seen in the games "Naraka: Bladepoint" and "Identity V," both achieving record daily active users (DAUs) [2] - CEO William Ding emphasized the company's commitment to innovation and expanding its gaming portfolio to reach more players globally [2]