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On Thursday, Jefferies made adjustments to its outlook on shares of NetEase.com (NASDAQ:NTES), a leading Chinese internet technology company. The firm lowered its price target on the company's stock to $103.00, decreasing from the previous target of $126.00. Despite this change, Jefferies continues to recommend a Buy rating on NetEase shares.
The revision follows NetEase's second-quarter earnings report. The analyst from Jefferies attributed the recent volatility in NetEase's share price to a decline in deferred revenue.
This decline was partly due to operational changes in the PC version of the game Fantasy Westward Journey (FWJ), as well as seasonal effects impacting Eggy Party and Justice Mobile after the Chinese New Year.
For the third quarter, Jefferies anticipates that NetEase will see quarter-over-quarter growth in its online games revenue. However, the firm also expects that there will be a high base effect when comparing year-over-year results, suggesting that the comparison to the previous year's figures may show less growth due to a particularly strong past performance.
The firm's stance suggests that while there are short-term challenges, the long-term prospects for NetEase remain strong.
In other recent news, NetEase Inc. experienced a drop in shares following its Q2 earnings report. The company's earnings per share stood at RMB12.15 ($1.67), surpassing the consensus forecast of RMB11.97. However, with revenue of RMB25.49 billion ($3.51 billion), it fell short of the projected RMB26.11 billion. This development has been a focus of investors, despite the company exceeding earnings expectations.
The core games and related value-added services segment of NetEase saw a year-over-year revenue increase of 6.7% to RMB20.06 billion ($2.76 billion). However, this is a sequential decrease from RMB21.46 billion in the first quarter.
Other segments of the company also reported growth, with the Youdao (NYSE:DAO) education technology unit posting a 9.5% revenue increase to RMB1.32 billion ($181.9 million) and the Cloud Music streaming division growing revenue by 4.7% to RMB2.04 billion ($280.8 million).
InvestingPro Insights
Amid the analysis of NetEase's (NASDAQ:NTES) performance and Jefferies' revised outlook, recent data and insights from InvestingPro offer additional context for investors considering the company's stock. NetEase is currently trading at a low P/E ratio of 14.4, which is attractive relative to its near-term earnings growth. This is further emphasized by the adjusted P/E ratio for the last twelve months as of Q1 2024, which stands at 14.07, suggesting a potentially undervalued stock given the company's earnings potential.
Furthermore, the company boasts a robust gross profit margin of 61.92% for the same period, highlighting its ability to retain a significant portion of its revenue as gross profit. With a dividend yield of 2.79% and a notable dividend growth of 87.72% in the last twelve months as of Q1 2024, NetEase demonstrates its commitment to returning value to shareholders, having maintained dividend payments for 12 consecutive years.
InvestingPro Tips also reveal that NetEase holds more cash than debt on its balance sheet and has liquid assets that exceed short-term obligations. These financial health indicators, along with the fact that analysts predict the company will be profitable this year, provide a reassuring signal for investors looking at the long-term viability of NetEase. For those interested in deeper analysis, additional InvestingPro Tips are available, offering further insights into NetEase's market position and financial metrics.
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