Hua Er Jie Jian Wen·2026-02-12 02:19Core Viewpoint - NetEase's Q4 2025 financial results showed a revenue growth of only 3% year-on-year and a net profit decline of 27%, both falling short of Bloomberg consensus estimates by approximately 4% and 23% respectively, leading to a 4% drop in stock price at the opening [1][8] Financial Performance - Q4 gaming revenue growth was only 4% year-on-year and decreased by 7% quarter-on-quarter, raising concerns about growth potential [4] - Net profit fell by 27%, significantly lower than the expected decline of 23%, primarily due to investment losses [8] - The actual cash flow for Q4 was estimated to have increased by 10% year-on-year, driven by strong performance from new games [6] Investment Insights - Morgan Stanley highlighted that the strong cash flow from new games like "Yan Yun Shi Liu Sheng" is reflected in contract liabilities rather than recognized revenue, indicating robust core operating profit [3][4] - The company confirmed RMB 2.2 billion in equity investment and exchange losses in Q4, contrasting with a gain of RMB 1 billion in the same period last year, which negatively impacted net profit [9] - Excluding these non-recurring items, the core profitability of the company remains strong, with operating profit actually increasing by 5% year-on-year [9][11] Future Growth Potential - Morgan Stanley maintains a "buy" rating for NetEase with a target price of HKD 295 (USD 190), based on an attractive valuation of 13 times the projected earnings for 2026 [3][12] - Anticipated new game releases, including "Infinite" and "Forgotten Sea," are expected to drive a compound annual growth rate of 13% in gaming revenue from 2026 to 2027 [3][13] - The potential inclusion of NetEase in the Hong Kong Stock Connect in 2026 could enhance liquidity and further boost valuation [14]