On Thursday, Citi reaffirmed its Buy rating on NetEase.com (NASDAQ:NTES) with a consistent price target of $116.00. The company's first-quarter 2024 financial results surpassed expectations, with total net revenues reaching Rmb26.9 billion, marking a 7.2% increase year-over-year and a slight 1.1% decrease quarter-over-quarter. This performance exceeded Citi's forecast of Rmb25.6 billion and aligned with the consensus estimate of Rmb26.74 billion.
NetEase’s revenue growth was driven by a 7.0% year-over-year increase in gaming-related revenues, which totaled Rmb21.5 billion against Citi's Rmb20.3 billion projection. Online gaming revenues contributed significantly with Rmb20.4 billion, up by 10% compared to the previous year. Additionally, Youdao (NYSE:DAO) revenues climbed by 19.7% year-over-year to Rmb1.4 billion, surpassing Citi's estimate of Rmb1.3 billion.
The company's Cloud Music revenues also outperformed expectations, reaching Rmb2.0 billion, a 3.6% year-over-year increase and above Citi's Rmb1.9 billion forecast. Revenues from other innovative businesses matched Citi's predictions at Rmb2.0 billion, showing a 6.1% increase year-over-year.
NetEase's non-GAAP net profit reached Rmb8.5 billion, resulting in a 31.7% margin, which was ahead of both Citi's Rmb6.96 billion estimation and the consensus of Rmb8.33 billion. The higher-than-anticipated profit was attributed to an increased gross profit margin and lower-than-expected general and administrative as well as research and development expenses, although these were partially offset by higher sales and marketing costs.
The non-GAAP earnings per ADS reported were Rmb13.10, exceeding both the estimated Rmb10.68 and the consensus of Rmb12.76.
The report also highlighted that deferred revenues saw a significant year-over-year increase of 14.7% and a quarter-over-quarter increase of 11.6%, reaching Rmb14.9 billion. Mobile games continued to be a strong revenue driver, accounting for 78.6% of total games-only revenues, up from 76.7% in the previous quarter.
InvestingPro Insights
Following Citi's positive outlook on NetEase.com (NASDAQ:NTES), the company's financial health and market performance offer additional insights for potential investors. With a robust market capitalization of $63.39 billion, NetEase stands out as a significant player in the Entertainment industry—a fact underscored by its consistent dividend payments over the past 12 years. The company's strategic financial position is highlighted by its ability to hold more cash than debt, ensuring that it can comfortably cover interest payments and maintain liquidity to exceed short-term obligations.
InvestingPro data underscores NetEase's sound fiscal management, with a P/E ratio of 15.46, suggesting the stock is trading at a reasonable valuation relative to near-term earnings growth. Moreover, the company's gross profit margin for the last twelve months as of Q4 2023 was a healthy 60.95%, indicating efficient operations and profitability over the last twelve months. Additionally, NetEase's revenue growth of 7.23% during the same period reflects a steady upward trend in its financial performance.
Investors seeking further insights can explore additional InvestingPro Tips for NetEase, which include analyses of earnings revisions, P/E ratios, and long-term profitability. For those considering a deeper dive into NetEase's investment potential, use coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to over 10 additional InvestingPro Tips that could guide investment decisions.
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