NetEase (NTES) – Throwing An Eggy Party
This morning in Conversations, I brought up shares of NetEase (NTES), the Chinese gaming company. Before mentioning any fundamentals, I emphasized how there was no trade idea in this stock until the technicals provide a more concrete entry point. As you will see at the end of this write-up, since 2021, the stock has been in a well-defined downward trending channel. There were four instances where the stock made its way back up to channel resistance only to get rejected. Therefore, we need to see a true breakout before recommending a trade idea to clients.
Turning to fundamentals, NetEase seems to have a lot going for it in 2023. Let’s begin with a mobile game called Eggy Party, which can be described as a battle royale obstacle course party game for all ages. In the game, according to SuperPixel, players go through various obstacles and strive to become the last Eggy standing. Players will meet obstacles that freeze, shock, and blow them up. The traps include lifting doors, rotating fans, flipping floors, etc. The game features a toy style, and players can use currency they earn or buy within the game to purchase outfits and other cosmetics through randomized “toy boxes.” First launched in China in May 2022, it recently launched on Android in the Netherlands and UK last month.
On its Q4 earnings call, CFO Zhaozuan Yang would say, “Our new game, Eggy Party took the game market in China by storm in the fourth quarter. The game was initially launched in May of last year, and the number of daily active users has been continuously growing after a few months of operation and fine-tuning. During the Chinese New Year, Eggy Party further grew its user base exponentially through word-of-mouth and scaled new heights to the #3 position in China’s iOS growth [ in chat ]. Its daily active users have now exceeded 30 million, making it the largest game in NetEase’s history in terms of user scale.”
Most recently, Morgan Stanley is pointing out that the daily iOS grossing run rate during the March 2nd – 4th period was approximately 40% higher than January 21st – 27th (i.e. Chinese New Year), per Sensor Tower data.
Meanwhile, the company discussed their “exciting 2023 pipeline” on the Q4 call, which according to analysts has eight games with license approval. This would be the highest number in the last 2-3 years. Of the games in the pipeline, the ones that are garnering the most attention are:
Justice Mobile – A martial arts MMORPG (massive multiplayer online role playing game). JPMorgan estimates Rmb500M first month cash grossing. Meanwhile, Game World Observer reporting that the company plans to use AI technology in the game. Niko Partners Director of Research Daniel Ahmed would write on Tiwtter that “the first game version of ChatGPT” will soon appear in the game.
Badlanders – A competitive survival looter shooter mobile game that already has 11M pre-registrations
Racing Master – A real-time simulation racing game featuring real-world vehicles and tracks for all racing enthusiasts.
JPMorgan is forecasting online game revenue Y/Y growth to accelerate from 1% in Q4 2022 to +2%, +8%, +9%, and +13% in Q1 2023 – Q4 2023, respectively.
