NetEase’s stock returns
NetEase (NTES) shares rose 3.3% in the last month. Like other Chinese stocks, NetEase had a volatile run in the last 18 months. The stock gained 24.0% in the first four months of 2019. Since April 30, NetEase shares have fallen 8.0%.
Since the beginning of 2019, NetEase stock has gained more than 12.0%. NetEase was trading around $365.0 per share in December 2017. The stock has fallen 28.0% since that peak.
NetEase is part of the high-growth gaming space. Newzoo, a gaming research company, expects gaming revenues to reach $151.9 billion in 2019—up from $137.9 billion in 2018. The revenues are estimated to be $165.9 billion in 2020 and $180.1 billion in 2021.
Revenue and market share
The market opportunity is huge for NetEase. The company is the seventh-largest gaming player in the world. Tencent is the biggest gaming company in terms of revenues. The company’s gaming sales were $19.7 billion in 2018. Other top players include Sony (SNE), Microsoft (MSFT), and Apple with revenues of $14.2 billion, $9.76 billion, and $9.45 billion, respectively.
Traditional gaming companies like Activision Blizzard, Electronic Arts, and Take-Two Interactive are ranked fifth, eight, and 11th, respectively. NetEase accounted for 5.2% of the total gaming industry in 2016. NetEase shares accounted for 7.1% in 2017 and 7.3% in 2018. Analysts expect NetEase’s revenues to rise 18.3% to $11.8 billion in 2019 and 17.4% to $13.85 billion in 2020.
The increase will translate to a market share of 7.4% in 2019 and 7.7% in 2020. NetEase is growing at a faster pace compared to the global gaming market. As a result, the company is able to expand its market share.
NetEase’s growth drivers are popular gaming titles like Fantasy Westward Journey and Night Falls: Survival and Invincible.
NetEase stock is trading at a forward PE ratio of 19.7x. NetEase’s earnings are estimated to rise 71.5% in 2019. The company’s revenues are expected to expand by 13.4% in 2020. The stock looks undervalued at its current price. The stock should move higher if it meets analysts’ estimates.
The 29 analysts covering NetEase stock have a 12-month average target price of $306.31. The target price indicates an upside potential of 16.6% from its current price. NetEase stock has generated returns of 40.8% in the last three years and 244.0% in the last five years.