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NetEase Inc ADR NTES

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Regulatory Talks Another Blow to the China Gaming and Internet Sector

Chelsey Tam Senior Equity Analyst

Analyst Note

| Chelsey Tam |

Several departments of the Chinese government have held talks with Tencent, NetEase platforms for gaming accounts rental and sales and gaming livestreaming platforms as per Caixin. To us, most notable during the discussions are new requirements around antimarket concentration, strengthening controls of in-app purchases, and game designs that induce addiction. Faced with growing regulatory uncertainty in domestic gaming, we expect Chinese gaming companies to speed up international market expansion, which is supported by the government, and could be a long-term margin driver because overseas app stores take a cut of 30% versus non-Apple app stores’ 50% in China. We maintain the fair value estimate of Tencent, NetEase and CMGE as we don’t factor in a substantial threat in the base-case scenario. This is another demonstration by the government of its ability to enforce stringent regulations on Internet companies, and our conversations with investors indicate they are unlikely to accumulate Chinese Internet stocks yet until the regulatory overhang is removed.

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Company Profile

Business Description

NetEase, which started on an Internet portal service in 1997, is a leading online services provider in China. Its key services include online/mobile games, cloud music, media, advertising, email, live streaming, online education, and e-commerce. The company develops and operates some of the China's most popular PC client and mobile games, and it partners with global leading game developers, such as Blizzard Entertainment and Mojang (a Microsoft subsidiary).

No.599 Wangshang Road, NetEase Building
Hangzhou, 310052, China, People's Republic of
T +86 57189853378
Sector Communication Services
Industry Electronic Gaming & Multimedia
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type
Employees 28,239