Please ensure Javascript is enabled for purposes of website accessibility

Why Is No One Talking About NetEase Inc. Stock?

By Anders Bylund – May 29, 2018 at 4:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese gaming and online media veteran is probably easier to understand than you'd expect.

Chinese online media giant NetEase Inc. (NTES 0.56%) is hardly the talk of the town. Sporting a $30 billion market cap, NetEase works in a consumer-facing industry, and share prices have bounced between $222 and $378 over the last year. And these are the hallmarks of the market's most-discussed tickers.

But other than around the time of the company's earnings reports, NetEase rarely receives much press coverage. As of this writing, the last news report about NetEase on the Yahoo Finance feeds is five days old. Excluding The Motley Fool's efforts to keep investors informed, the newest article from other sources was published 12 days ago.

So what's the deal with the radio silence?

Man with a megaphone separated from a large crowd by a wide stretch of bare concrete.

NetEase could rightly ask: Is anybody listening? Image source: Getty Images.

Beijing is a long way away

First and foremost, NetEase is huge in China but doesn't do any business anywhere else. That makes it nearly invisible to American consumers, which leads to less interest in NetEase's headlines. In a news cycle where clicks and views often drive the editorial decisions, it just makes sense to give outsiders like NetEase less coverage.

Furthermore, American investors are often intimidated by foreign stocks that report their results under different market rules and reporting standards. Converting Chinese yuan to U.S. dollars can be a hassle, and who knows what accounting practices NetEase might use? This goes for both readers and writers, by the way -- I can't write about companies I don't understand.

Reasons to pay closer attention to NetEase

I can't really rebut the fact that NetEase works in a very different market with nearly zero ties to North America. That's going to keep a lid on NetEase coverage until the company decides to explore international expansion. The company is looking at some international expansion opportunities, but it's not an easy play. NetEase hasn't saturated the Chinese markets yet, and Beijing's regulators can make it difficult to get any overseas operations going.

On the other hand, NetEase's stock is only listed on the all-American Nasdaq exchange. There is no underlying stock on the Beijing exchange, so the financial reports must comply with Nasdaq's rules and the same SEC accounting rules as any American company. NetEase recently adopted the same Topic 606 revenue accounting rules that have resulted in large changes to many earnings reports over the last quarter and a half. Management also supplies most of its financial information in both Chinese and American currencies, allowing U.S. investors to skip the currency conversion step when analyzing NetEase's results.

So it's actually not that hard to keep an American eye on NetEase and its financial progress. In a nutshell, it's a solidly profitable video gaming and online media player in the world's largest consumer market. Earnings have seen annual growth of 24% over the last five years, while annual sales skyrocketed 46% higher. Right now, NetEase offers a modest price-to-earnings ratio of 19 times forward earnings as share prices have plunged 35% lower in the last six months.

It might not be a slam-dunk buy today, but NetEase could sure use increased media interest at the very least.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NetEase. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NetEase, Inc. Stock Quote
NetEase, Inc.
NTES
$75.60 (0.56%) $0.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.