NetEase Inc.:dbAccess China Internet conference takeaway
NetEase reassures investors on its strategic focus
We hosted NetEase's CFO during the morning session of our dbAccess ChinaInternet conference in Hong Kong. Between some ongoing discussion withindustry participants and the CFO's clarification on business developments, wefelt more confident about NetEase's market position and outlook. Maintain Buy.
Current pipeline emphasis on experimentation and R&D rather than onmonetization
Gaming is one part entertainment and one part business, and we found NTESmanagement emphasizing the point that the company has been focusing onthe artistic and creative R&D aspect rather than on the pursuit of near-termcommercial success. We think the market data support NTES' claims. Analysis ofNTES' key games from 2015to 2017YTD does indicate that the game downloadto-grossing ranking is slipping away from 1x; NTES games continue to rank highlyon the download ranking and reviews for individual games are broadly positive.Management also exuded significantly more confidence around the momentumbehind its e-commerce initiative, highlighting >100% growth rate on a number ofoccasions and that the business could be profitable if the company wanted it tobe, but management would rather focus on market expansion instead.
3Q17may end on a high note
Game momentum has been rather muted quarter-to-date, but we felt NTES wouldbe making a stronger push to end September on a high note. We received theimpression that there could be a significant marketing push with the release ofMinecraft mobile on Sept 15, emphasizing that a lot of the technical issues thathave temporarily delayed the game's release have been addressed. Sept 9is alsothe first year anniversary of Onmyoji and we received the impression that a majorupdate with some promotion would help revive momentum in the near term.
Global de-brief call on Sept 11
Please join our global summary call when we plan to discuss other takeawaysincluding trend shifts in mobile game distribution and dark horse games loomingon the horizon, PUBG. Mon Sept 1110am ET/10PM HK time. Conference ID:
82278820. US toll-free dial-in number: (800) 309-8606; US international dialinnumber: +1(706) 679-0645; France: 0800909322; Germany: 08001815287;
United Kingdom: 08000288438; Hong Kong: 800966253; China: 4006828609