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Why Shares of NetEase Inc. Surged Today

By Timothy Green - Nov 6, 2017 at 4:34PM

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The internet company is planning to give its e-commerce business a major boost.

What happened

Shares of Chinese video game publisher and e-commerce specialist NetEase Inc. (NTES -2.25%) jumped on Monday following reports that the company was increasing its spending on foreign products to sell to Chinese consumers. The stock finished the day up 10.4%.

So what

NetEase's Kaola e-commerce business expects to buy about $11 billion worth of inventory from the U.S., Europe, and Japan over the next three years, with purchases from Australia and South Korea likely adding to that total. The company is looking to harness established international brands to grow its presence in the Chinese e-commerce market.

A rising stock chart.

Image source: Getty Images.

About $3 billion will go to U.S. suppliers, $4.4 billion will go to Japanese suppliers, and $3.5 will go to European suppliers.

Kaola is already the leader in the cross-border e-commerce market in China, with a 24% share during the first half of this year. The company plans to open a new 300,000-square-meter warehouse to accommodate its expected growth.

Now what

The online game services segment is still NetEase's core business, generating $1.4 billion of revenue during the second quarter. E-mail, e-commerce, and other revenue totaled $494 million, with e-commerce sales making up an undisclosed chunk of that total.

With a plan to plow $11 billion into inventory over the next three years, NetEase's e-commerce segment is poised to become a larger part of the overall business. Given the stock's jump, investors seem on board.

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