On Monday, Morgan Stanley reiterated its Overweight rating on NetEase.com (NASDAQ:NTES) with a steady price target of $120.00. The firm’s latest commentary highlights the approval of a game license for NetEase's new Match-3 mobile game, which is an extension of the Eggy Party intellectual property (IP). The game, now known as "Project Three," builds on the success of Eggy Party, a highly popular game in China.
The National Press and Publication Administration (NPPA) granted the license on May 20, confirming reports from August 14, 2023, that indicated NetEase was developing a Match-3 game under its Eggy Party studio.
The analyst pointed out that the popularity of Eggy Party, evidenced by its status as the most downloaded mobile game in China in 2023 and its significant daily active user (DAU) count of over 40 million during the Chinese New Year (CNY) in 2024, is a positive indicator for the new game's potential success.
The new game is expected to contribute to the expansion of the Eggy Party IP both within China and potentially in international markets. It could also enhance NetEase's presence in the casual game genre. The casual nature of Match-3 games, along with their low Average Revenue Per Paying User (ARPPU), positions them well to capture market share in China, especially considering the momentum of mini-games and low ARPPU games in the region.
Anipop, currently the largest Match-3 game in China, boasts approximately 150 million monthly active users (MAU), 30 million DAU, and an average engagement of 60 minutes per DAU per day. In 2023, Anipop generated over Rmb2 billion in revenue. The analyst estimates that there are about 90 Match-3 related mobile games in China, with a combined MAU of roughly 200 million, factoring in user overlap.
InvestingPro Insights
NetEase (NASDAQ:NTES) has recently been in the spotlight following Morgan Stanley's Overweight rating and the anticipated success of its new Match-3 mobile game. To provide a more comprehensive financial perspective, InvestingPro data indicates that NetEase holds a market capitalization of $67.65 billion, with a solid P/E ratio of 15.46, suggesting a reasonable valuation relative to its earnings.
The company's revenue for the last twelve months as of Q4 2023 stands at $14.58 billion, highlighting a growth of 7.23%, which aligns with the positive outlook suggested by Morgan Stanley.
Two InvestingPro Tips that are particularly pertinent to the article are that NetEase is trading at a low P/E ratio relative to near-term earnings growth and that it has maintained dividend payments for 12 consecutive years. These factors may appeal to investors looking for growth potential coupled with a history of returning value to shareholders. Moreover, with analysts predicting that the company will be profitable this year and considering its strong return over the last five years, NetEase appears to be well-positioned for continued success.
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