NetEase (NTES) Q3 2019 Earnings Prep

in EARNINGS/INVESTING IDEAS by

NetEase, Inc. (NASDAQGS:NTES) is scheduled to report Q3 earnings results on Wednesday, November 20, 2019, after the close of the U.S. markets. The company is expected to report earnings of $3.13/share on revenue of $2.485 billion. The consensus earnings per share (EPS) of $3.13/share is based on a poll of 8 analysts and represents a growth of 22.8% over the same quarter last year when the company reported earnings of $2.55/share.

The revenue forecast of $2.485 billion based on a poll of 6 analysts implies a year-over-year (YoY) growth of 2.5%. Last year the company reported $2.425 billion in revenue for the quarter.

Expected to report EPS growth of $0.58/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $2,485.30 $2,424.87 2.5%
EPS $3.13 $2.55 22.8%

Earnings Call Trends

Historically, management has exceeded analyst expectations 6 out of the last 8 tracked quarters, and missed expectations 2 quarters.

What are your expectations from NetEase for earnings this quarter? Let us know in the comments!

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2019 $2.71 $3.97 46.6% Beat
Q1, 2019 $2.51 $3.39 35.2% Beat
Q4, 2018 $2.44 $2.73 11.8% Beat
Q3, 2018 $2.52 $2.55 1.2% Beat
Q2, 2018 $2.78 $3.06 10.1% Beat
Q1, 2018 $2.20 $1.59 -27.7% Missed
Q4, 2017 $2.32 $2.26 -2.5% Missed
Q3, 2017 $3.14 $3.44 9.8% Beat

One question we always consider here at the Bankers’ Tribune is how important are earnings reports to NetEase’s stock price performance? It’s more important for some companies than for others.

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2019, the stock price reacted by increasing by 11.9%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-07 $212.67 $238.02 11.9% Increase
2019-05-15 $262.37 $279.11 6.4% Increase
2019-02-20 $229.64 $218.91 -4.7% Decline
2018-11-14 $214.19 $231.39 8.0% Increase

Fundamentals And Technical Analysis

NetEase is currently trading at $288.16/share, down -0.1% for the day. The company is trading at approximately 97.7% of its 52-week high of $295/share. The company’s stock price is up 35.5% since the last earnings report and down -2.7% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 54.72 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of 29.0x and a forward P/E multiple of 20.9x. NetEase’s current share price also implies a price-to-book (P/B) multiple of 5.1x. The following table summarizes some other key fundamental ratios:

Data as of November 20, 2019
Metric Value
Last Fiscal Period FY2019.Q2
Period End Date June 30, 2019
Stock Price (Current) $288.16
P/E Ratio 29.0x
P/E Ratio (Fwd) 20.9x
PEG Ratio 1.7
Total Debt to Capital (%) 5.1%
Levered Free Cash Flow $15.602 billion
Enterprise Value / EBITDA 16.4x

Company Profile: NetEase, Inc.

NetEase, Inc. is a large-cap stock with a market capitalization of $36.917 billion and a total enterprise value of $31.862 billion. The company operates in the Communication Services sector and Entertainment industry.

NetEase, Inc. is a leading internet technology company based in China dedicated to providing premium online services centered around content, community, communication, and commerce. NetEase develops and operates some of the most popular PC-client and mobile games in China and has been expanding rapidly into other international markets such as Japan and North America in more recent years. In addition to its self-developed game content, NetEase also operates some of the most popular international online games in China by partnering with Blizzard Entertainment, Mojang AB (a Microsoft subsidiary) and other global game developers. NetEase also operates Yanxuan, an e-commerce platform that caters to the rising middle-class consumer market in China as well as offering advertising, e-mail and other innovative services including music and online education.

Source: http://ir.netease.com/company-overview/corporate-profile

Online Games
NetEase has produced some of China’s most renowned and longest-running online PC-client games, including Fantasy Westward Journey Online and New Westward Journey Online II, as well as other highly successful games, such as Tianxia IIINew Ghost, and Justice. In partnership with Blizzard Entertainment, Inc., NetEase operates some of the most popular international online games in China, including World of Warcraft®Hearthstone®: Heroes of Warcraft™StarCraft® II and Diablo III®: Reaper of Souls™.

NetEase has also achieved marked success in the mobile games market, both with self-developed titles such as OnmyojiInvincibleKnives OutIdentify VChu Liu XiangNight Falls: Survival and the mobile version of Fantasy Westward Journey, as well as with licensed games.

E-commerce Business
NetEase has a diverse portfolio of services available to Chinese consumers on both desktop and mobile including Yanxuan, NetEase’s private label e-commerce business.

Internet Media Business
Our internet media business, which is conducted mainly through the NetEase News App and the NetEase websites, offers the Chinese Internet users a network of Chinese language-based online content channels and an interactive community to share news and opinions, which in turn creates an attractive venue for our online advertising clients.

Innovative Businesses and Others
Our wide range of other online services includes offering live video streaming through our most popular streaming platform CC, music streaming through NetEase Cloud Music, online education services through NetEase Youdao and online reading services through NetEase EaseRead.

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