Why NetEase Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese online gaming specialist NetEase (Nasdaq: NTES  ) sank 13% today after its quarterly results disappointed Wall Street.

So what: NetEase's second-quarter profit managed to grow a solid 13%, but a wide miss on the top line -- revenue of just $308.9 million versus the consensus of $333.9 million -- is triggering concerns over slowing online gaming growth. Declining subscriptions for Activision Blizzard's World of Warcraft -- for which NetEase holds an exclusive license in China -- continue to weigh particularly heavily on results, reinforcing worries over the waning popularity of one its main revenue drivers.

Now what: For the rest of 2012, management plans on launching several new games and adding expansion packs to existing franchises like Fantasy Westward Journey, Tianxia III, and Ghost. "We continue to build our products and services to meet customers' demands for new content with a robust pipeline of games and activities planned for the second half of the year," CEO William Ding reassured investors. More important, with the stock now trading at a single-digit forward P/E, buying into that bullishness comes at a pretty decent price.

Interested in more info on NetEase? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of NetEase and Activision Blizzard, as well as creating a synthetic long position in Activision Blizzard. The Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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