NetEase: Fair Value Estimate Unchanged; Policy Risks High but Offset by Promising Game Launches

After reviewing our assumptions for narrow-moat NetEase, we are maintaining our fair value estimate at $150 but raising our Uncertainty Rating to Very High from High. This comes after considering the sequence of developments that suggest a likely softening of some provisions in China’s potential gaming policies that should dilute their impact on gaming revenue substantially. Nevertheless, until the finalization of these regulations, we acknowledge increased uncertainty, primarily due to the government's ambiguous regulatory approach to the domestic gaming industry. Even if the new gaming regulations are fully implemented, we anticipate less than a 15% impact on NetEase's revenue. With the company's shares trading at a 40% discount to our fair value estimate, a substantial margin of safety should absorb the most severe regulatory challenges.