What happened
Shares of NetEase (NTES +2.35%) gained 10.5% in August, according to data from S&P Global Market Intelligence. The stock climbed following the publication of the company's second-quarter earnings results on Aug. 7 and trended higher from there.
Sales for the second quarter rose 15.3% year over year, to come in at roughly $2.73 billion, falling a bit short of the average analyst estimate's call for revenue of $2.75 billion. Non-GAAP (adjusted) net income for the June quarter was $531 million, working out to adjusted earnings of $4.09 per American depository share (ADS) and crushing the average analyst estimate's target for per-share earnings of $2.69, and rising roughly 30% year over year.
Image source: Activision Blizzard.
So what
The company's online-game segment grew revenue 13.6% year over year, e-commerce sales expanded 20.2%, internet media revenue fell 8.2% year over year due to challenging trends in China's advertising market, and its innovative businesses and others segment climbed 23.2%, thanks to momentum for the company's Youdao online-education platform and NetEase Cloud Music. NetEase's music platform ended the quarter with over 800 million active users.
Strong performance for the online-games segment helped power results in the quarter, and the company is making efforts to expand its gaming-business' reach. It opened a new development studio in Montreal in August and has recently secured production partnerships with The Pokemon Company and Disney's Marvel unit.
Now what
NetEase stock has continued to gain ground in September, with shares trading up roughly 6% in the month so far on news that the company's Koala e-commerce division is being sold to Alibaba in a $2 billion deal.
Koala is an online retail business focused on importing foreign luxury brands, and plans to sell the unit were made public in a press release published on Sept. 5. Alibaba plans to keep Koala as a separate business and brand rather than absorbing it into its Tmall online-shopping platform. Alibaba also became a minority stakeholder in NetEase's music-streaming business, with the e-commerce giant and the Jack Ma-backed Yunfeng Financial making a $700 million investment in the service.
NetEase still maintains ownership and control of its Yanxuan e-commerce business, its fast-growing online market that revolves around budget-priced, off-brand products. Between its core online-games segment, fast-growing services like Youdao and NetEase Cloud Music, and its remaining online retail business, the company still has a diverse array of businesses that are capable of driving earnings growth.
