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Investing.com -- JP Morgan downgraded NetEase (NASDAQ:NTES) and Bilibili (NASDAQ:BILI) to Neutral from Overweight, saying the recent rally in China’s digital entertainment stocks has made their near-term risk-reward less attractive.
The firm cited stretched valuations and a lack of major catalysts in the second half of 2025.
NetEase shares have risen 57% year-to-date, while Bilibili is up 30%, outpacing the Hang Seng Index’s 27% gain.
However, JP Morgan said further upside for NetEase may be capped by rising marketing expenses and a limited pipeline of blockbuster game launches.
“We believe room for earnings upside is limited, with potential hikes in game promotion expenses in future quarters and limited blockbuster game launches in 2H25,” analysts at JPM said.
The stock trades at 16 times 2025 earnings, versus 18 times for Tencent (HK:0700), despite slower estimated profit growth of 6% in 2026-27 compared with Tencent’s 13%.
For Bilibili, JP Morgan sees revenue growth decelerating sharply in the second half as the mobile game Sanmou laps a strong year-ago performance.
While advertising remains a bright spot, the brokerage flagged limited near-term catalysts for another rerating, with the stock now trading at 34 times 2025 earnings.
Instead, JP Morgan prefers Kuaishou in the sector, citing lower valuation, strong ad momentum, and faster expected earnings growth.