Tag Archives: NetEase

NetEase latest business and financial analysis ( NetEase, Inc. (NTES)) – written by Business expert on Chinese market Doug Young

NetEase: Still a Gamer With WoW Renewal　　网易续签《魔兽世界》运营权

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Just a week after commending NetEase (Nasdaq: NTES) for being one of China’s few successful developers of popular online games, we’re seeing what investors really think of the company as they bid up its shares to new all-time highs after the company reaffirmed it will continue to offer its popular World of Warcraft title for at least the next 3 years. (company announcement; Chinese article) But avid gamers will quickly realize that far from being a self-developed title for NetEase, WoW is actually property of US game developer Activision Blizzard (Nasdaq: ATVI), which has just extended NetEase’s licensing deal for the wildly popular title by 3 years. The announcement sparked a rally for NetEase shares, which rose 3 percent to reach a new all-time high — a rarity for most US-listed Chinese firms whose shares all now trade well below such high points following a series of accounting scandals last year. While the renewal is certainly good news for NetEase, the Wall Street reaction highlights the fact that the company is perhaps still more dependent on games licensed from outside companies than I had  suggested in my previous posting. Investors realize that such dependence is ok when you have a hot title and a fresh licensing agreement, but can be quite dangerous when that same title fades in popularity or a licensing agreement expires. The9 (Nasdaq: NCTY) knows that lesson all too well, as it was a previous hiigh-flyer whose success was largely based on its own previous licensing agreement for World of Warcraft. Industry watchers will recall that the company lost its rights to the game to NetEase when its license expired 3 years ago, setting the company’s shares on a downward slide that have seen them lose about half their value since that major development. This new licensing deal means that NetEase looks safe as an online gaming bet, at least for the next 3 years. In the meantime, I do have to commend the company for continuing to develop its own games, even though such an approach is much riskier since it takes lots of time and money, and there’s no guarantee of success. At the same time, the company is also looking to diversify a bit beyond its dependence on games by taking steps to reinvigorate its well-known but neglected Internet portal business. (previous post) Clearly investors like the broader NetEase story, which indeed does seem to paint a picture of a company taking a small number of focused steps to keep its business growing. Now the key will be execution by continuing to develop popular new games and getting some new value out of its portal business. If it fails to do either of those well, shareholders could equally punish the company stock the same way they are rewarding it now.

Bottom line: NetEase’s new licensing deal for a popular game title will give it a 3-year cushion as it works to develop its own new game titles and relaunch its Internet portal business.

Related postings 相关文章:

◙ NetEase Name Change: Spin-Off Coming 网易更名：预示业务分拆

◙ Online Games: Where’s the Excitement? 中国网游企业增长有限

◙ SouFun, NetEase: Slowing Growth Stories 搜房网、网易：增长放缓

Online Games: Where’s the Excitement? 中国网游企业增长有限

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A press release from ChinaJoy, China’s oldest online gaming show now celebrating its 10th anniversary, reminded me of how little I write about this once-exciting industry anymore, which has become mostly a bumper crop of companies with poor track records at innovation despite their huge home market. ChinaJoy announced its big anniversary with fanfare, unveiling a new logo and announcing a slate of its latest shows centered on the online game industry. (official announcement) But from where I sit, there’s very little to celebrate. The industry posted revenue of 32.4 billion yuan in 2010, about $5 billion, rising a respectable 26 percent from the year before but still sharply slower than growth rates 5 or 6 years ago when the hype was loudest. Perhaps the company that best illustrates the disappointment surrounding this sector is Shanda Interactive, which became the sector’s first player to go public with its Nasdaq IPO in 2004. The company then spun off its gaming unit into a separate company, Shanda Games (Nasdaq: GAME), and then finally itself went private earlier this year due in part to lackluster investor interest. (previous post) Since its listing, Shanda Games has failed to attract much investor interest and the stock now trades at about one-third of its IPO price in 2009. Other hopefuls from the sector included The9 (Nasdaq: NCTY), Perfect World (Nasdaq: PWRD) and Giant Interactive (NYSE: GA), which have all seen similar lackluster performance. One notable exception to this uninspired group has been NetEase (Nasdaq: NTES), one of China’s earliest Internet companies, which has actually done quite well in the space due to its strong ability to self-develop games that have found strong fan bases among domestic Chinese gamers. By comparison, Shanda and the others, despite their best efforts, have largely failed to create popular titles and instead rely on licensing games developed by foreign companies for most of their revenue. That model is not only less profitable, as profit margins are much smaller, but also dangerous as companies can quickly lose much of their revenue when a license expires if they fail to renew it. That case was illustrated 2 years ago when The9 saw its business disappear almost overnight when it lost its most popular game, World of Warcraft, after failing to renew a licensing deal with the game’s owner, US firm Activision Blizzard (Nasdaq: ATVI). The9 got a recent lift when it announced a new self-developed title and a global licensing deal, providing a boost to its stagnant shares. (previous post) But somewhat ironically, the title was developed by a US-based game developer purchased by The9, rather than the company’s own China-based design house. For all of these reasons, NetEase may remain the only interesting company in this once-promising space for the near future, though The9 could potentially also rise if its US-based design house can produce more successful titles.

Bottom line: China’s online game operators will see little or no growth in the next few years except for the handful that can develop their own successful titles rather than rely on licensing deals.

Related postings 相关文章:

◙ The9 WoWs Wall Street With New Deal

◙ Shanda Delists: Thanks for the Profits 盛大网络退市：获利可喜

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

 

News Digest: March 13, 2012 报摘： 2012年3月13日

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The following press releases and media reports about Chinese companies were carried on March 13. To view a full article or story, click on the link next to the headline.

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◙ Youku (NYSE: YOKU), Tudou (Nasdaq: TUDO) to Create China’s Top Online Video Company (PRNewswire)

◙ China Vanke (Shenzhen: 000002) 2011 Profit Up 32% on Rising Mass-Mkt Home Sales (English article)

◙ China’s Haitong Eyes $1.5 Billion HK Listing in April: IFR (English article)

◙ Suntech (NYSE: STP) Sets World Record 20.3% Efficiency for Pluto Cell Technology (PRNewswire)

◙ NetEase (Nasdaq: NTES) Portal Unit Chief Li Yong to Leave Next Month (Chinese article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

Tudou Plus Youku: Two Small Potatoes

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Note to readers: This article was written and published on Tuesday, March 13, in Hong Kong’s Economic Journal, but I’m just posting it today (Thursday) on  my blog as part of my agreement with them.

It’s not often that mergers happen among publicly traded companies in China’s crowded Internet space, so I’m not even sure where to begin in discussing the just-announced deal that will see leading online video site Youku (NYSE: YOKU) buy rival Tudou (Nasdaq: TUDO) to form an undisputed domestic leader in online video. (company announcement) On paper and in theory the deal sounds quite attractive, combining China’s biggest and second biggest video sharing sites in an interesting marriage between Youku’s more corporate style and Tudou, which has a much more entrepreneurial background under the leadership of outspoken founder Gary Wang. But the reality is much less interesting, with this newly merged company still a relatively small entity likely to face numerous challenges going forward. For Tudou shareholders at least, the deal looks quite sweet. After seeing Tudou shares sink steadily to lose about half of their value following the company’s initial public offering last August, investors who had enough patience to hold on will get a rare premium of 38 percent to the company’s original IPO price, and an even juicier 160 percent to its last closing price before the deal was announced. Investors bid Tudou shares up by nearly that amount in Monday trade after the deal was announced, in a jump that should surprise no one. But perhaps more telling, Youku shares also rose 27 percent, a jump partly due to excitement about this new industry leader but also, in my view, because many believe the new company could itself soon become an acquisition target. At the end of the day, the deal itself is relatively tiny, valuing Tudou at just over $1 billion even after the big premium. That, combined with Youku’s own market value of $2.85 billion, means the entire merged company will be worth just under $4 billion — hardly a figure to get anyone too excited, and still trailing most other big Chinese Internet names like Sina (Nasdaq: SINA), NetEase (NTES) and well behind Internet search leaders Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700). Youku now controls about 22 percent of China’s online video market and Tudou another 14 percent, meaning the combined company will still control less than half of this highly fragmented space. Both Youku and Tudou are also currently losing money, though this deal could help them move to profitability more quickly than each might have done as an individual company. Still, both companies’ latest quarterly results are hardly reassuring. Youku saw its loss actually widen 32 percent in the fourth quarter from a year earlier, not the best sign for a company aiming for profitability. Tudou, meantime, also saw its fourth-quarter loss balloon ten-fold from a year ago, after it notched an unexpected profit in the third quarter. The situation doesn’t look set to improve anytime soon, with a looming advertising slowdown for the broader Internet market also likely to hurt video sites in general, since advertisers looking for the most effective channel for their money are likely to skip those sites in favor of more effective platforms like Sina’s popular web portal and Baidu’s sector-leading search page. From the perspective of someone who has watched China’s Internet space for years, I have to say that I like this deal from a historical perspective as it represents one of the largest friendly mergers to date of two companies that strongly complement each other. But from the perspective of an investor, I honestly can’t get too excited about this deal, since both Youku and Tudou are ultimately just little players in China’s huge Internet realm that will quickly find that one small potato plus another small potato still equals a small potato. Furthermore, both companies have a number of factors working against them, including bottom lines moving in the wrong direction, potential integration issues of 2 very different corporate cultures, and a looming slowdown in advertising, their key revenue source. If I were a gambling man, I would bet that this new merged company will face a number of issues in the next year, but could ultimately still reward investors if it gets acquired by an even bigger company in the next 2 years, much the way that Google (Nasdaq: GOOG) purchased Youtube.

Bottom line: The Youku-Tudou merger is notable for setting a precedent, but will ultimately still create a small Internet player most likely to get purchased itself in the next 2 years.

Related postings 相关文章:

◙ Regulator Eyes Online Video in Ad Crackdown 广电总局或限制视频网站广告

◙ Tudou-Sina Tie-Up: More to Come？ 土豆网联手新浪

◙ Tudou Surprises With Profit, Licensing Deal 土豆网意外扭亏为盈视频分享市场的好兆头

NetEase Name Change: Spin-Off Coming 网易更名：预示业务分拆

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So, when is the dropping of the .com suffix from a company’s name big news? The answer: When you’re an Internet veteran like NetEase (Nasdaq: NTES), whose new announcement that it plans to formally change its name from NetEase.com to simply NetEase Inc will fuel expectation that the company is nearing a spin-off of its portal business, its oldest asset since it originally went public in the late 1990s. In a decidedly low-key announcement, NetEase said it has scheduled a rare extraordinary general shareholder meeting for March 29, at which owners of its stock will be asked to approve the name change. (company announcement) China Internet historians will note that NetEase began its life as a web portal operator, competing directly with China’s other 2 web stalwarts, Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU). But its path diverged about a decade ago, when it found more success as an operator of online games, which now account for the large majority of its revenue. During that time, the company’s portal business, which includes a popular email service, started to languish, even though it remains a well-known and respected brand to this day. Realizing there may still be some value in the portal business, NetEase made signals last year that it  might spin off the unit in a bid to breathe new life into it by making it stand on its own. (previous post) Since then, industry buzz has also surfaced that the portal could make a nice asset to sell  or put into a joint venture with another Internet site operator, which could use the portal to diversify its own holdings and drive traffic to its core site. The number of such potential buyers could be huge, running the range from social networking sites like Renren (NYSE: RENN) to video sites like Youku (NYSE: YOKU) and perhaps even one or 2 e-commerce sites like Dangdang (NYSE: DANG). I haven’t heard any specific rumors about M&A talks, but this name change by NetEase looks like it is paving the way for the company to make a big move soon. If I were a gambler, I would bet we will see some kind of deal involving the portal business by September. What that deal will be is still probably under discussion, with a sale, joint venture or even a spin-off into a separate publicly listed company all possible. I think the joint venture is probably the most likely, as NetEase would like to retain a stake in this asset since it is so closely identified with the company. At the same time, the joint venture structure would allow NetEase to delegate management of the portal to someone else to let it focus on its core online game business.

Bottom line: NetEase’s pending name change means a spin-off of its portal business is likely in the next 6 months, with a new joint venture the most likely option.

Related postings 相关文章:

◙ NetEase Sharpens Up Messaging in Run-Up to Portal Spin-Off 网易剥离门户网站 再度磨砺电邮服务

◙ NetEase Looks to Reinvigorate Portal 网易似要重振门户

◙ NetEase Makes Buzz With Buyback, Pigs 网易回购股票和养猪重大决策或在即

SouFun, NetEase: Slowing Growth Stories 搜房网、网易：增长放缓

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The latest earnings results from real estate and online game bellwethers SouFun (NYSE: SFUN) and NetEase (Nasdaq: NTES) are showing a broader story of slowing growth, with the former in danger of slipping into the red while the latter needs to rein in its rapidly rising costs. Let’s look at SouFun first, which is taking a hit from China’s stagnating real estate market. Despite rapidly falling prices and anemic transaction volumes, SouFun managed to post 18 percent revenue growth for the quarter, which was sharply lower than its 53 percent growth for the year. (results announcement) In a cautiously positive sign, the company said revenue would grow 10-15 percent this year, meaning growth will slow but should still remain positive. One bright spot for SouFun was its listing services revenue, which makes up about 20 percent of its total and was up 38 percent in the fourth quarter. I suspect this figure will continue to be strong and perhaps even accelerate this year, as transaction volumes finally start to grow when people start to sell their homes after realizing Beijing has no plans to relax its strict restrictions on the market anytime soon. That said, the company still faces the very real prospect of joining rival E-House (NYSE: EJ) in the net loss column, which investors seem to realize, bidding SouFun stock down 9 percent after the results came out. Turning to NetEase, the company’s results look a bit stronger, with revenues up 32 percent, led by strong growth for its core online games business. (results announcement) I like the fact that the company is returning to its strength as a developer of its own games, which are more profitable than licensing titles from third-party developers, which is what most of NetEase’s rivals do. The company’s profits also posted a relatively strong 26 percent gain, though they were up just 8 percent quarter on quarter. The most worrisome sign is the company’s operating expenses, which jumped 65 percent year-on-year. It blamed that jump on marketing for new self-developed games, which is a fair enough explanation. But that kind of rapid acceleration of expenses is clearly unsustainable over the long term, and could easily kill the company’s profit growth if NetEase isn’t careful.

Bottom line: SouFun is in danger of slipping into the red as China’s real estate market stagnates, while NetEase could see profit growth stall unless it gets its expenses under control.

Related postings 相关文章:

◙ Soufun Looks For More Support With New Dividend 搜房网借新派息计划寻求支撑股价

◙ E-House Foundations Looking Outright Shaky 易居中国根基明显摇晃

◙ NetEase Makes Buzz With Buyback, Pigs 网易回购股票和养猪重大决策或在即

 

News Digest: February 16, 2012 报摘： 2012年2月16日

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he following press releases and media reports about Chinese companies were carried on February 16. To view a full article or story, click on the link next to the headline.

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◙ China Mobile (HKEx: 941) to Build Second National Call Center (English article)

◙ Apple (Nasdaq: AAPL) Asks Amazon (Nasdaq: AMZN), Suning to Drop iPad (English article)

◙ SouFun (NYSE: SFUN) Announces Q4 and Fiscal Year 2011 Results (Businesswire)

◙ NetEase (Nasdaq: NTES)  Reports Q4 and Fiscal Year 2011 Financial Results (PRNewswire)

◙ Former Acer (Taipei: 2353) China VP Named 360Buy’s CMO (Chinese article)

◙ Latest calendar for Q1 earnings reports (Earnings calendar)

Microblog Clampdown: Only Chapter 1? 实名制向网络行业吹去冷风

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A new rule requiring microbloggers to register using their real names continues to send chills through the online world, with a new report saying the campaign will soon be extended to other social media. The domestic media reports cite an unnamed government official in Beijing, which announced the initial rule late last week (previous post), saying more guidelines will follow requiring all sites to implement real-name registration throughout their various social networking sites to give operators like Sina (Nasdaq: SINA), Tencent (HKEx: 700) and Renren (NYSE: REN) quick and easy access to who is doing what and pass that information to government officials upon request. (English article) If China was looking to kill or severely stifle development of its fledgling but vibrant social media, this certainly looks like a good way to do it. The initial rule appeared to target microblogging sites, which would have dealt a blow to a limited number of companies, most notably Sina’s popular Weibo service. But this new expanded rule would potentially affect any and every kind of social media service, from microblogging to social networking services (SNS) operated by Renren and Kaixin and even instant messaging services like Tencent’s popular QQ. The traditional SNS services may be best positioned to weather this storm, as most encourage their users to register using their real names, whereas the big majority of microblogging and instant messaging users use Internet names that are often difficult or impossible to trace. But regardless of any of that, this expanded requirement will send a strong signal that anything and everything a person writes in any of these sites is being monitored by the government, discouraging many from using the services at all. In some ways, this latest crackdown looks similar to one 5 or 6 years ago on the then-vibrant text messaging services industry, a mainstay of Sina, Sohu and NetEase (Nasdaq: NTES) at that time. That crackdown effectively killed the industry in the years that followed. I doubt results of this crackdown will be as severe, but I would still look for activity on these social media sites to slow and even drop off sharply in the next year.

Bottom line: Beijing’s potential expansion of its real-name policy to all social media will send a chill through the industry and severely hamper its development.

Related postings 相关文章:

◙ New Rule Hits Sina, Instant Messaging to Benefit? 微博实名重创新浪 即时信息服务有望受益

◙ Govt’s Microblog Shift Looks Good for Weibo 政府口风转变或有利於新浪微博

◙ Weibo Still Faces Crackdown Despite Govt Tie-Up 新浪微博难改“被监管”命运

New Rule Hits Sina, Instant Messaging to Benefit? 微博实名重创新浪 即时信息服务有望受益

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The Internet world has been buzzing over the weekend about a new rule announced by the Beijing municipal government late last week requiring all microbloggers to use their real names. First off, I should applaud regulators for at least flagging this issue before making the actual move, as a high-ranking official said back in October that such a rule was being considered. (previous post) But that said, the new rule itself has left lots of people scratching their heads over what it all means. Clearly the big loser is Sina’s (Nasdaq: SINA) Weibo service, which stands to lose many of its more than 200 million users when the new rule is fully implemented. At least a few of my friends say they won’t keep using Weibo if they have to register with their real names, and I wouldn’t be surprised to see the service lose up to half of its active users by the time things settled down. Sina, which is already struggling after taking massive write-downs for its real estate and e-commerce investments (previous post), said it is still studying the new rules to figure out their impact. (company announcement) The news marks a major setback for Weibo, often called the Chinese equivalent of Twitter, which Sina was in the process of trying to monetize though progress was slow. This new rule may make Sina think twice about putting too much emphasis on Weibo, potentially killing plans for a separate IPO for this formerly promising business. In the meantime, one of my sources tells me the move by the Beijing city government is likely to be followed by other cities, meaning rival services from companies like NetEase (Nasdaq: NTES) will also be affected, though the impact should be limited since most of those have far fewer users than Weibo. What’s far less clear is how, if at all, instant messaging services, which have many microblogging-type characteristics, will be affected. I wrote about one of those in the mobile space last week, the Weixin service being developed by Tencent (HKEx: 700) (previous post), and many other companies are developing similar services, especially for use on mobile phones. I suspect these instant messaging services will escape regulation for now under this new rule, and could  even potentially benefit when droves of microbloggers start to defect from Weibo and other services in the months ahead.

Bottom line: Sina’s Weibo is the clear loser in Beijing’s new campaign to clamp down on microblogging, while instant messaging firms like Tencent could emerge as possible beneficiaries.

Related postings 相关文章:

◙ Watch Out Weibo, Weixin Is Growing 新浪微博要小心腾讯微信要崛起

◙ Govt’s Microblog Shift Looks Good for Weibo 政府口风转变或有利於新浪微博

◙ Sina Results: Not So Diversified After All 新浪仍依赖广告,突围遇阻

NetEase Makes Buzz With Buyback, Pigs 网易回购股票和养猪重大决策或在即

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There’s a mini-flurry of news out about online game specialist NetEase (Nasdaq: NTES), as the normally low-key company generate some buzz, perhaps in the prelude to a bigger announcement about the future of its portal business. None of the latest news is that exciting, but it’s all interesting nonetheless. In perhaps the biggest news, the company has joined many of its US-listed peers in announcing  a share buyback program worth up to $50 million, a relatively small amount but still significant enough to blip onto investor radar screens. (English article) The news helped to lift NetEase shares nearly 3 percent on Wall Street, outpacing the broader market but still a relatively modest move for this kind of company. In a more intriguing piece of news, the company’s soft-spoken founder Ding Lei has said an IPO is in store for his separate pig-raising business next year. (Chinese article) He made the comments in the city of Ningbo at an event centered on agriculture, which seems to be Ding’s relatively newfound passion as he also invests in red wine. The pig venture could actually be an interesting investment proposition, considering China’s love for pork and the country’s recent concerns about food safety. This kind of big publicly-listed pork company could easily become an industry leader, as this kind of massive producer  can better guarantee food quality and safety. In one additional tidbit, NetEase is also reporting on its own news page that it has officially launched a social networking site (SNS) called Lofter. This is probably the least interesting news, as Sina (Nasdaq: SINA) launched a similar product earlier this year to complement its Weibo microblogging service (previous post), and both products will have to compete with more established sites operated by Renren (NYSE: RENN) and Kaixin. From my perspective, this recent flurry of news could be a prelude to a decision on what NetEase plans to do with its Internet portal, which was its main business many years ago but later took a back seat to games that now make up the bulk of its revenue. The company said earlier this year it is aiming to revitalize its portal and spin it off (previous post), and I expect this new flurry of news could presage an announcement soon about the portal’s future.

Bottom line: A recent flurry of news from NetEase could presage an announcement about future plans for its portal business, involving a potential sale or  public listing.

Related postings 相关文章:

◙ NetEase Sharpens Up Messaging in Run-Up to Portal Spin-Off 网易剥离门户网站 再度磨砺电邮服务

◙ NetEase Looks to Reinvigorate Portal 网易似要重振门户

◙ Renren Discovers Microblogging Too Late

The9 WoWs Wall Street With New Deal

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What a difference a deal makes. That seems to be the lesson for faded online game developer and operator The9 (Nasdaq: NCTY), whose shares have soared on a new licensing deal some 2 years after it disappeared from  investors’ radar screens after losing the rights to its hit game World of Warcraft, or WoW to gaming enthusiasts. The latest development underscores just how dependent companies like The9 and rivals like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) are on individual hit titles, which can sometimes account for half or more of a company’s top and bottom lines. Interestingly, this latest development has seen The9 turn away from licensing other people’s games toward the developing its own titles, whose costs are much higher but also offers much bigger potential rewards from outside licensing fees for popular titles. In this case, a Singaporean company called Garena Online is paying a nifty $23 million for licensing rights for 6 years to The9’s self-developed game, “Firefall”, in Southeast Asia and Taiwan. (English article) Investors were clearly excited about the deal, bidding up The9 shares by 36 percent since the day before it was announced, presumably as rumors started to circulate in the market. “Firefall” was actually developed by an American company called Red 5, which The9 purchased last year. Red 5’s founder headed the team that developed The9’s former blockbuster World of Warcraft series, which The9 was licensing from Activision Blizzard (Nasdaq: ATVI) before losing those rights to NetEase a couple of years ago. So clearly the market is excited not only about the potential for more “Firefall” licensing deals, but also for the game’s potential in China, one of the world’s biggest online game markets, and perhaps for Red 5’s broader potential to develop more hit titles. It’s a bit ironic that The9 is having to turn to a US game developer to boost its fortunes when it should be able to develop its own titles for much cheaper in China. But when you’re looking for success, you’ll take it anywhere you can get it.

Bottom line: A licensing deal for a new game developed by The9 could signal a change of fortune for the company, but it will have to follow quickly with more such deals to prove the turnaround is real.

Related postings 相关文章:

◙ Baidu, Sohu Highlight China Shell Games 百度搜狐拆分业务让金融骗局再度受关注

◙ Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

◙ Perfect World: Trouble Brewing in Online Games? 完美世界调降财测释放行业预警信号