On Wednesday, Morgan Stanley (NYSE:MS) upgraded NetEase.com (NASDAQ:NTES) stock from Equalweight to Overweight and increased the price target to $108.00 from the previous $90.00. The upgrade for the $57 billion market cap company aligns with InvestingPro data showing three analysts recently revising their earnings estimates upward. The adjustment reflects a positive outlook on the company's future revenue, particularly from its PC gaming division.
Morgan Stanley's optimism is based on a series of factors expected to drive NetEase's game revenue higher in the coming years. The company's strong financial foundation, evidenced by its "GREAT" financial health score on InvestingPro, supports this outlook.
Key drivers include sustained high earnings from Blizzard games reintroduced in China, potential strong international revenue from the newly released PC game Marvel Rivals, and the anticipated launch of FragPunk in the first quarter of 2025.
Additionally, increased payments for multi-terminal games and a sequential stabilization or slight rebound for FWJ in 2025 were noted as positive indicators.
The analyst also pointed out that the market has already absorbed NetEase's weak mobile game performance after its underperformance in 2024. The launch of Where Winds Meet is expected to mark a turnaround for the company, potentially ending a series of near-term negative impacts.
Despite the positive forecast, the analyst acknowledges risks associated with the lack of high-frequency data to track PC game performance. The company's solid fundamentals, including a P/E ratio of 14.8 and strong cash flow generation, provide some confidence.
Assuming NetEase maintains stringent control over sales and marketing expenses and secures better terms with Blizzard, Morgan Stanley has raised its non-GAAP EPS estimates for NetEase by 8% for 2025 and 12% for 2026.
The upgrade reflects a broader belief that NetEase will reverse its market share trend in 2025, positioning itself for growth in the PC gaming sector amidst a challenging environment.
In other recent news, NetEase Inc.'s third-quarter earnings report revealed a total net revenue of $3.7 billion, a 3% increase from the previous quarter, primarily driven by the company's gaming division. This growth was significantly contributed by PC games, which saw a 29% year-over-year increase. The company's education technology sector, Youdao (NYSE:DAO), reported its first profitable quarter, while NetEase Cloud Music continued to expand its content ecosystem.
Bernstein SocGen Group maintained its Outperform rating for NetEase, citing the company's sound operations, reasonable valuation, and stable market sentiment. The firm also highlighted NetEase's potential to leverage the global video gaming market's shifting dynamics, with several new game launches anticipated.
In other developments, US-listed Chinese stocks, including NetEase, experienced a significant rally followed by a downturn as investors secured profits. This fluctuation was triggered by China's policy shift towards more accommodating monetary and fiscal policies, which initially spurred a quick uplift in Chinese shares.
However, investors are emphasizing the need for further stimulus measures, a topic expected to be addressed in China's upcoming annual Central Economic Work Conference. These are the recent developments regarding NetEase Inc.
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