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Jefferies maintained its Buy rating on NetEase.com (NASDAQ:NTES) while raising its price target to $155.00 from $131.00 on Monday. The company, which InvestingPro data shows has achieved a remarkable 47.56% return year-to-date and maintains a "GREAT" financial health score, continues to demonstrate strong momentum. The research firm cited multiple catalysts expected for the online games sector in the second half of the year, despite the high comparison base from last year for major gaming companies.
The firm views the entertainment sector as defensive with upcoming catalysts. NetEase, which has maintained dividend payments for 6 consecutive years and holds more cash than debt on its balance sheet, is positioned to benefit from these catalysts despite facing challenging year-over-year comparisons in the second half.
Jefferies also highlighted NetEase Cloud Music as having better earnings visibility compared to other subsectors. The firm believes subscription revenue has significant growth potential due to low average revenue per paying user and steady subscriber growth.
The research firm’s analysis extends to the broader Chinese internet entertainment landscape, noting that Kuaishou appears attractive based on valuation given its large and engaged user base, AI ecosystem integration, and its video generation model Kling.
Jefferies also observed that Bilibili (NASDAQ:BILI)’s fundamentals continue to improve, supported by its strong content and community ecosystem that resonates with Generation Z users.
In other recent news, NetEase reported first-quarter earnings and revenue that exceeded analyst expectations. The company posted adjusted earnings per share of RMB17.51 ($2.41), surpassing the consensus estimate of RMB13.89. Revenue increased by 7.4% year-over-year to RMB28.8 billion ($4.0 billion), which was above analysts’ projections of RMB28.51 billion. NetEase’s core games and related services segment saw a revenue climb of 12.1% to RMB24.0 billion ($3.3 billion), driven by strong performances from titles like Identity V and new releases such as Where Winds Meet and Marvel Rivals. Meanwhile, Youdao (NYSE:DAO), NetEase’s intelligent learning unit, reported a 6.7% revenue decline to RMB1.3 billion but achieved a record high first-quarter operating profit. Additionally, CFRA analyst Ahmad Halim raised the price target for NetEase shares to $130, citing improving earnings visibility and disciplined cost management. The analyst maintained a Hold rating, noting NetEase’s robust financial position and its success in global game monetization as factors for the valuation premium. For the second quarter, NetEase declared a dividend of $0.1350 per share, payable on June 10 to shareholders of record as of May 30.
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