NetEase Profit Jumped Despite Falling Short on Record Sales Hopes — Update
By Jiahui Huang
Chinese videogame publisher NetEase posted a steep rise in fourth-quarter profit, even as lower-than-expected sales of its games kept revenue from reaching the record levels analysts forecast.
The technology company's net profit rose 67% from a year earlier to 6.58 billion yuan ($914.2 million), it said Thursday, just missing an estimate of CNY6.85 billion in a FactSet poll of analysts. Non-GAAP net profit, a closely watched metric that excludes share-based compensation expenses, rose 53% to CNY7.38 billion, compared with FactSet expectations for CNY7.86 billion.
Revenue grew 7.0% to CNY27.14 billion, short of an estimate of CNY28.21 billion. Sales from games and related value-added services, NetEase's largest segment, rose 9.6% but missed analyst expectations.
Games gross profit margin was 69.5%, up from 69.0% in the third quarter and 59.1% a year earlier. The year-over-year improvement was due mainly to a higher proportion of sales from self-developed games, NetEase said.
NetEase's gaming sector has been growing rapidly in recent years amid rising demand in China, successfully expanding its audience through the release of flagship titles such as the "Justice" mobile game and "Eggy Party" while navigating heightened industry scrutiny by Chinese regulators and warding off competition from the likes of Tencent. Eggy Party "made a significant breakthrough of 40 million daily active users during the Lunar New Year," the company said.
It has also won heavy investor interest. The company's Hong Kong-listed shares are up 46% over the past year, against a 17% decline in the city's benchmark index, a period that has coincided with a continuing buyback program.
NetEase said Thursday that it spent almost $645 million buying back U.S.-listed ADRs in 2023, the first year of a three-year, up to $5 billion program. The buyback was initiated after shares hit a record low in 2022 when it failed to renew a long-term licensing deal with California-based gaming giant Blizzard Entertainment.
Analysts said part of the revenue miss in its latest results was due to high expectations following record sales in the third quarter.
"Market expectations on gaming revenue was too optimistic," 86 Research equity analyst Charlie Chai said. "It's a sequentially tough comparison, but overall results still look promising."
Citi analysts in a research note attributed the miss to seasonality and "some slowdown from older aging games."
Still, they wrote, "with resilient performance of flagship titles and...[the] upcoming release of some notable titles, we believe growth prospects for NetEase remain intact in 2024."
Write to Jiahui Huang at jiahui.huang@wsj.com
(END) Dow Jones Newswires
February 29, 2024 07:02 ET (12:02 GMT)
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