NetEase.com Inc. ADRNTES

Morningstar Rating

Stock Research and Analysis

by Iris Tan

NetEase has enjoyed much success in the past because of the popularity of its massively multiplayer games and its Internet portal. And its recent deal with Activision Blizzard ATVI to some extent eases our longtime worries about the company's overdependence Read more

Bulls Say

China's video game market has huge potential. In 2007, total market size of video games was merely $73.5 million, compared with the $1.829 billion online gaming market in China.

The company has spent $13.1 million toward its $100 million stock-repurchase program announced last September.

NetEase held a net cash balance of about $939 million at the end of September 2009, or about $7.20 per ADR.

NetEase's search engine is expected to benefit from the firm's deep penetration in the Pearl River Delta and Hangzhou areas, where there are numerous small and midsize enterprises. Read more

Bears Say

Recent research conducted by 17173.com shows that over 65% of WOW's gamers in China said they will stop playing WOW on NetEase's platform if their gamer information were missed during the transition.

Major users of NetEase are younger than those of Sina SINA and Sohu SOHU, making NetEase's user base less attractive to the biggest-spending advertisers in China--those that market real estate, automobile, and IT products.

Media influence of NetEase's portal seems to weaken as the company shifts much of its focus to the online game business.

Blizzard's Battle.net faces illegal competition from several network PC game platforms in China, including Shanda's SNDA Haofang and Tencent's Duizhan, which, similar to Battle.net, provide online play of Blizzard's games. Read more

Strategy

NetEase leverages its built-in base of portal and gaming customers to expand its business. In the future, revenue should come from launching new games that could either be developed in-house or based Read more

Management

Founder and CEO William Ding owns 43.8% of NetEase, and management as a whole owns 44.4% of the company. In 2008, the company paid aggregate cash compensation of approximately $2.4 million, or about 1% of its net income, to NetEase's executive officers. Read more

Profile

NetEase operates one of China's most popular Internet portals and is a leading online game developer and operator in China. It operates three subscription-based multiplayer Read more

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