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Investing.com - JPMorgan downgraded NetEase (NASDAQ:NTES) from Overweight to Neutral on Monday, while raising its price target to $140.00 from $135.00, citing valuation concerns following the stock’s 54.52% rally year-to-date. According to InvestingPro data, the company currently trades at a P/E ratio of 19.15x and is approaching its 52-week high of $141.45.
The firm maintained its financial forecasts for NetEase, acknowledging positive developments including successful new game launches like Where Winds Meet and Marvel Rivals, the resumption of legacy games, and optimization of operating expenses. InvestingPro analysis shows the company maintains a strong financial position with a "GREAT" overall health score and an impressive gross profit margin of 62.71%.
Despite these strengths, JPMorgan expressed concerns about rising sales and marketing expenses expected over the next 1-2 years for both new games and legacy titles, which could lead to lower near-term profits as promotion costs may exceed immediate revenue gains.
The downgrade also reflects JPMorgan’s view that NetEase faces a lack of blockbuster game launches in the second half of 2025, uncertainty around revenue potential for upcoming open-world games in 2026 due to increased competition, and the possibility of investors shifting focus back to AI stocks.
NetEase currently trades at approximately 16 times estimated 2025 earnings, against a projected 6% earnings per share compound annual growth rate for 2026-2027, according to JPMorgan’s analysis.
In other recent news, NetEase reported first-quarter earnings and revenue that exceeded analyst expectations. This positive financial performance highlights the company’s consistent earnings delivery. Jefferies has responded by raising its price target for NetEase to $155, citing upcoming catalysts in the online games sector as reasons for optimism. CFRA also adjusted its price target for NetEase, increasing it to $130 while maintaining a Hold rating, reflecting the company’s improving earnings visibility and disciplined cost management.
Meanwhile, Tencent Music Entertainment Group (NYSE:TME) saw its stock price target raised by Jefferies to $22, with a maintained Buy rating. The research firm emphasized the growth potential in Tencent (HK:0700) Music’s subscription revenue as a driving factor. These developments reflect analyst confidence in the Chinese entertainment sector, particularly in music streaming and online gaming. Both companies are positioned to benefit from favorable market conditions and strategic initiatives.
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