Shares of China’s NetEase (NTES) climbed to a nearly 1-year high Monday and may be poised to move even higher after the company released new online games that ranked among the country's top three highest grossing video games. Since posting a 3-1/2 year low last October, NetEase has soared more than +87% and is one of China’s best-performing stocks.
According to Goldman Sachs Group, NetEase’s Justice Mobile AI-powered martial arts video game, along with the company’s Eggy Party and Racing Master games, were China’s three most downloaded video games on July 2. The new blockbuster video games from NetEase have fueled a sharp rebound in the stock, which had suffered a sharp selloff last year after China cracked down on the online gaming sector and froze new gaming approvals.
Some analysts believe that even if China’s economy slows, NetEase will continue to perform well. Nomura International said, “The online gaming sector is one of the best sectors across the whole Internet space, and investors should consider holding on to these stocks in times of macro uncertainty. We think NetEase will do better than most of these online gaming peers on the back of a stronger game pipeline.”
The online video game market may continue to perform well despite any economic setbacks that may force consumers to cut back on their spending. While e-commerce and online advertising are directly impacted by weak consumption, mobile game revenue is considered less vulnerable to economic volatility as its users tend to maintain their spending on games regardless of economic conditions. According to Bloomberg data, analysts expect NetEase to climb another 17% from current levels over the next year. That compares with an expected 12-month target price estimate of +9.5% in shares of Activision Blizzard (ATVI) and a -0.5% decline for Nintendo Co (NTDOF).
On Monday, Goldman Sachs raised their NetEase price target by 5% and said the company still offers “attractive upsides,” even after the sector-beating rally. Also, NetEase is still cheaper than its global rivals as it trades at 18.7 times forward earnings. That is cheaper than peers Nintendo and Activision Blizzard, which are trading at about 20 times. In addition, Morningstar Inc. said, “Earnings revisions should come through as new titles achieve successes overseas. We expect strong performance to continue” and “investors should take advantage of market weakness to buy this narrow-moat business.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
