One of last week's biggest winners was NetEase (NTES 0.02%), moving 15.47% higher after posting blowout financial results. The strong showing was enough to motivate a couple of bullish analysts to boost their price targets on the stock while a more cautious Wall Street pro changed its tune.
It was an encouraging report out of the Chinese online gaming giant. Net revenue for the quarter shot 53% higher to hit $1.74 billion, fueled mostly by a 63% spike in the online games revenue that now accounts for all but a quarter of NetEase's business. Adjusted earnings soared 68% to $4.30 a share. Analysts were only holding out for revenue and earnings per share to climb 37% and 38%, respectively.
NetEase pays out roughly a quarter of its earnings as dividends, so the strong growth was enough for it to declare a record payout of $1.01 a share for the quarter. NetEase is growing at a heady pace despite its large size, and investors are benefiting from both the beefier distributions and the buoyant stock price.
Image source: NetEase.
Wall Street weighs in
Analysts were generally encouraged by the strong performance. Jialong Shi at Nomura stuck to his buy rating, boosting his price target from $315 to $322 following the report. Shi's bullishness was fortified by deferred game revenue growth accelerating from 36% during the third quarter to 62% this time around. Strong deferred revenue should translate into healthy growth through at least early 2017.
Deutsche Bank analyst Han Joon Kim also raised his price goal -- going from $288 to $298 -- while sticking to his buy rating. The strength of NetEase's success on both the PC and mobile fronts is a good sign, and Kim feels as if the market is underestimating the potential of the dozens of games that NetEase plans to introduce through 2017.
NetEase's strong results even encouraged one naysayer to become less bearish. Mizuho upgraded the stock from underperform to neutral.
It's not just NetEase's stock moving higher. Analysts have been juicing up their profit targets. They now see NetEase earning $15.17 a share this year, up from the $14.48 a share just a week ago. The stock moved higher than the forward earnings estimate last week, so it's not as if the stock is cheaper than it was a week ago. However, NetEase stock seems reasonably priced at less than 20 times this year's earnings and 17 times next year's forecast.
Stateside investors have been burned by the fickle nature of publishers of mobile games that are hot one quarter and cold the next, but NetEase has debunked those concerns in China. It has been able to grow its empire consistently for more than a decade. NetEase is trading at a discount to its current and historical growth rates, making it a compelling bargain stock even after last week's pop.
