NetEase and Cloud Music: We See Resilience and Value in the Interactive Media Sector

We fine-tuned our NetEase and Cloud Music estimates but maintained our fair value estimates. Both companies are significantly undervalued and contrary to concerns over a negative macroeconomic climate, we believe their earnings possess a degree of resilience to further economic downturns. Our top pick in the interactive media space remains NetEase. We like that its videogame business should continue to benefit from this year’s launches of a slate of open-world titles and a growing number of government-issued game licenses. Meanwhile, NetEase’s separately listed subsidiary, Cloud Music, could benefit as consumers favor affordable streaming over more costly leisure activities, especially during economic downturns. The ease of access can lead to increased usage as people spend more time at home, and the habitual nature of these subscriptions means they will be the last discretionary expenses consumers choose to cut.