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On Thursday, CFRA analyst Ahmad Halim updated the price target on NetEase.com (NASDAQ:NTES) to $110.00, up from the previous $88.00, while retaining a Hold rating on the stock. The adjustment follows a detailed review of the company’s financial outlook and market position. The gaming giant, with a market capitalization of $68.45 billion, has shown resilience with a 16.7% year-to-date return. According to InvestingPro data, the company maintains strong financial health with an overall score of "GREAT."
Halim noted that although NetEase’s earnings for 2024 met expectations, the forecast for 2025 earnings per ADS has been reduced to CNY48 from CNY50. This revision takes into account a slowdown in revenue growth, with InvestingPro reporting a modest 3.94% revenue growth in the last twelve months. Looking ahead, the initial earnings forecast for 2026 is set at CNY52 per ADS. The new 12-month price target of $110 is based on a 2025 price-to-earnings (P/E) ratio of 16.6 times, which is slightly below the five-year average P/E ratio of 18 times. Currently, the stock trades at a P/E of 14.8x.
The analyst highlighted that the increase in the price target is supported by improving margins resulting from effective cost control and a shift in product mix, as well as enhanced capital returns through share buybacks and dividends. These factors contribute to a valuation that aligns more closely with historical levels. InvestingPro analysis reveals the company has raised its dividend for 5 consecutive years, with an impressive 44.5% dividend growth in the last twelve months. The company’s strong balance sheet is evidenced by its healthy current ratio of 3.08 and minimal debt-to-equity ratio of 0.08.
The report anticipates that gaming revenue will benefit from the entire year’s impact of Blizzard’s relaunch and several international game releases. However, Halim cautions that successful execution of these plans is a risk factor. Organic growth in non-gaming revenue is expected from NetEase’s Cloud Music subscriptions and Youdao (NYSE:DAO) services.
Despite the potential for revenue growth, the CFRA analyst believes that cost management, margin improvements in Youdao and Cloud Music, along with continued share repurchases, will be the primary drivers of earnings in 2025. The mobile gaming segment, in particular, poses a significant risk; should it continue to underperform, it could negatively impact overall revenue and restrict earnings per share (EPS) growth.
In other recent news, NetEase reported its fourth-quarter and full-year 2024 financial results, revealing a mixed performance. The company achieved adjusted earnings per share of RMB15.09, surpassing analyst expectations of RMB12.42. However, total net revenues for the fourth quarter were RMB26.75 billion, falling short of the projected RMB27.13 billion. This shortfall was largely due to weaker-than-expected revenues in non-gaming segments, although online gaming revenues grew by 1.5% year-over-year to RMB21.2 billion. NetEase’s non-GAAP net profit reached RMB9.7 billion, exceeding Citi’s estimate by 24.1%, attributed to strong performance in online games and lower operating expenses. Citi analysts maintained their Buy rating for NetEase with a price target of $121, despite the revenue miss. The company reported a 1.1% increase in full-year revenue to RMB8.0 billion, with significant growth in online music services. NetEase’s gross profit for the year rose 27.5% to RMB2.7 billion, reflecting improved gross margins.
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