3SOF

I covered NTES yesterday with a video analysis, and I believe the stock is quite attractive:




We also have this article from Motley Fool that explains why NTES is undervalued:

Fun: China's Endangered Species (http://www.fool.com/investing/international/2007/04/17/fun-chinas-endangered-species.aspx)

The article compares NTES with Phillip Morris a few years ago, when everybody was very worried about those warning labels on cigarettes and lawsuits, remember? Well, those times represented a wonderful buying opportunity of MO's shares.

My take is the government regulations the article talks about will harm NTES a lot less than what the market is discounting, and this is the right time to buy the stock for long term purposes. NTES has the highest net profit margin I've ever seen, and $504 M in cash and equivalents, for a $2.4 B market cap company.

On the video analysis I have just 10% revenue growth expected for the next 3 years, but I'm going to raise it to 15%, and the valuation model says the following:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35885;image)

NTES isn't a bombastic pick, but I believe there's room for upside on the estimates I have. Even if actual results end up being on the low side, I still see the stock as attractive, so I believe there's nowhere to go but up for NTES over the long term.

Trading Plan:

Buy NTES, 6.66% of capital as always.

Technically perhaps NTES needs to go down a bit to close the gap opened at $18.06, but you know I don't care about the first +5% or -5%.

NTES revenues grew 150% in 2003, 68% in 2004, 83% in 2005 and 39% in 2006. I'm expecting just 15% average annual growth for the next 3 years, do you think I'm an optimist? I don't think so. And even with just 15% revenue growth NTES is attractive, according to my valuation model:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35981;image)

I'll continue holding NTES.

Nothing new on NTES today, the stock still didn't close that minor gap it has at $18.06 - $18.08 (now I see it is just a 1 cent gap, the stock probably will be able to ignore that).

Fundamentals remain quite attractive as you can see on my valuation model (http://www.3stocksonfire.org/fundamental.model.php?ticker=NTES&portfolio=main) and the initial analysis on this thread. I'll continue holding NTES.

Finally NTES closed that micro gap at $18.06, since yesterday's low of the day was $18.05. I'm curious to see if the stock reacts positively today, but this analysis is just short term technical noise that is meaningless for our long term capital appreciation purposes.

In 2006 Q1 results were out on May 17, so probably this year results will be out around that date.

We have plenty of time to think about analysts estimates for this quarter, but as we can read on this thread, probably they're too much pessimistic for the future, given the past fundamental trends.

I'll continue holding NTES.

Hi David,

I was reviewing NTES and noticed an apparent discrepancy in the share count between your analysis and the financial statements posted on the Netease web site. You report 06 count of 132



http://corp.163.com/eng/investor/pdf/2006/fsQ406_en.pdf

NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS Dec 06

Weighted average number of
ADS outstanding, basic 06

129,273,280

Weighted average number of
ordinary shares outstanding, diluted 06

3,498,405,110

Weighted average number of ADS outstanding, diluted 06

139,936,204

Where did you get your numbers?   

Quote from: ravenquork on April 25, 2007, 03:31:49 PM
Hi David,

I was reviewing NTES and noticed an apparent discrepancy in the share count between your analysis and the financial statements posted on the Netease web site. You report 06 count of 132

http://corp.163.com/eng/investor/pdf/2006/fsQ406_en.pdf

NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS Dec 06

Weighted average number of
ADS outstanding, basic 06

129,273,280

Weighted average number of
ordinary shares outstanding, diluted 06

3,498,405,110

Weighted average number of ADS outstanding, diluted 06

139,936,204

Where did you get your numbers?   

I got them from the latest income statement published, at a company's press release dated February 26, 2007:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36184;image)

The initial share count I'm using on my valuation model is 130,523,762, which is the weighted average number of ordinary shares outstanding, basic. But probably I should use the fully diluted number of 143,224,228. Let me change that right away:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36185;image)

The share price CAGR was reduced from 41% to about 37%. Still attractive.

Technically NTES bounced back higher after closing that micro gap, as expected. I'll keep holding NTES.

Nice bullish breakout above the 50 days SMA on NTES yesterday. Even though I find the stock attractive, the expected share price CAGR is just 35.4%. I bet there are more powerful stocks outthere. I'll keep holding NTES for now, but will start working hard to replace it for a more attractive holding, probably a smaller company, since NTES is already a ... wow, I just saw the stock was up 3.13% in after hours trading, on 362,071 shares traded.

Hmm, but it was due to perhaps small fish reaction to a few blocks that were traded just after the close: NTES Extended Trading (http://quotes.nasdaq.com/aspxcontent/ExtendedTradingTrades.aspx?mode=&page=afterhours&symbol=NTES&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&selected=ntes&FormType=&kind=&Leap=&mkttype=after&sel=afterhours&userinput=&x=6&y=12)

The optimal selling price for NTES is $30.45:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36249;image)

I'll continue holding this $2.44 B market cap, for now.

This morning the bid is at 19.32. Can ntes be going up in sympathy with BIDU,which is really rocking?

Quote from: soxguy on April 27, 2007, 08:21:54 AM
This morning the bid is at 19.32. Can ntes be going up in sympathy with BIDU,which is really rocking?

Wow, now that I look at BIDU, I'm glad I closed that short sale with a small profit, what a jump :o

And BIDU reported Q1 EPS of $0.32 on a fully diluted basis. If we multiply this by four quarters we get EPS of $1.28 and an EPS multiple of $124.57/$1.28 = 97.3. By comparison, NTES is trading at a trailing earnings multiple of 16.8. If NTES were to trade at BIDU's earnings multiple it would then be a $111 stock.

But expected rates of growth are different, since analysts are very optimistic for BIDU and quite pessimistic for NTES. I don't any reason to be that pessimistic on NTES and I believe the company will easily surpass analysts for 2007 and beyond.

I'll keep holding NTES.

Press Release Source: NetEase.com, Inc.


NetEase to Extend Game Development and Beta Testing for Tianxia II
Monday April 30, 8:00 am ET


BEIJING, April 30 /Xinhua-PRNewswire/ -- NetEase.com, Inc. (Nasdaq: NTES - News), one of China's leading Internet and online game services providers, today reported that the Company plans to extend development and beta testing for its next generation online 3-Dimensional MMORPG (massively multiplayer online role-playing game) Tianxia II.
ADVERTISEMENT


Based on results from the Phase II unlimited open beta testing of Tianxia II commenced on March 1, 2007, NetEase has determined that additional time for game development and design is needed to address feedback from gamers. Consequently, during this extended development phase, NetEase's Tianxia II research and development team will focus primarily on improving hardware functionality, enhancing group play and player advancement features, and reducing game complexity for beginners.

William Ding, Chief Executive Officer and Director of NetEase stated, ''We will continue the unlimited open beta test until our extended research, re- design and re-development work is completed. Accordingly, the commercial launch of Tianxia II will be postponed until satisfactory results from our forthcoming round of open beta testing are achieved. We appreciate the feedback from the gamers who have taken part in the closed and open testing of Tianxia II. We believe our development and testing extension is an invaluable investment in the long-term marketability and player appeal of our new next generation game and will position it to follow in the footsteps of Fantasy Westward Journey and Westward Journey Online II to become a market leading MMORPG title.''

Additional details on the extended game development and open beta testing for Tianxia II will be provided when the Company reports financial results for the first quarter of 2007.

Thanks for posting the news soxguy :)

I guess yesterday's sell off in NTES had more to do with a general selling of China related stocks than that specific news item. I remain confident in my NTES long term outlook (http://www.3stocksonfire.org/fundamental.model.php?ticker=NTES&portfolio=main) and will continue holding the stock.

i believe ntes will retest $17 if it breaks support of 17.80, but won't go back to the $15 range, since the company is still growing easily at double digit. A buy in the $17 teensssssss long holdhttp://stockcharts.com/h-sc/ui?s=NTES&p=D&yr=0&mn=1&dy=0&id=p57556816012 (http://stockcharts.com/h-sc/ui?s=NTES&p=D&yr=0&mn=1&dy=0&id=p57556816012)

Quote from: yukiii on May 01, 2007, 05:56:28 PM
i believe ntes will retest $17 if it breaks support of 17.80, but won't go back to the $15 range, since the company is still growing easily at double digit. A buy in the $17 teensssssss long holdhttp://stockcharts.com/h-sc/ui?s=NTES&p=D&yr=0&mn=1&dy=0&id=p57556816012 (http://stockcharts.com/h-sc/ui?s=NTES&p=D&yr=0&mn=1&dy=0&id=p57556816012)

Yes, $17 is a strong ascending medium term support. I hope it doesn't get that low, but it's possible. Or else it will just push higher and breakout above the descending trendline, coming down at $21.14 now. NTES is too cheap, trading at 15.6 times earnings, I'll keep holding the stock.

I don't know how this NTES trade can go wrong, since this is a $2.3 B market cap company with $503 M in cash and equivalents, a 57.7% net profit margin and it is trading at 15.7 times 2006 EPS.

I'll keep holding NTES.

NTES 1st quarter results will probably be released on May 17. Estimates look benign for a positive surprise:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36505;image)

Like it has been happening:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36506;image)

I'll keep holding NTES.

NTES usually doesn't issue many press releases, so probably we won't hear anything from the company until the 1st quarter results, to be published around May 17. Expectations are pretty low, as we've seen on previous updates, even though the historical trend is very positive. Therefore I expect positive surprises going forward.

I'll continue holding NTES.

Nothing new on NTES, I'll keep holding the stock.

NTES story was already told on this thread, it resembles Phillip Morris a few years ago when that stock was very cheap due to fears of the warning labels we see today on cigarette packs and lawsuits - that was a great time to buy MO.

The company has been beating estimates every quarter, and I expect that to continue going forward:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36629;image)

I'll keep on holding NTES.

what does this mean for NTES for options expiring May 19th?
   Symbol   Open   Volume   Net Change   Last   Bid   Ask   Strike   Bid   Ask   Last   Net Change   Volume   Open   Symbol   
      Interest                  Price                  Interest      
Trade   NQGEB   0   0   0   0   7.7   7.9   10   0   0.05   0   0   0   0   NQGQB   Trade
Trade   NQGEV   5   0   0   5.7   5.3   5.4   12.5   0   0.05   0   0   0   0   NQGQV   Trade
Trade   NQGEC   82   0   0   2.9   2.8   2.95   15   0   0.05   0.03   0   0   48   NQGQC   Trade
Trade   NQGEW   1,789   277   0.05   0.8   0.75   0.85   17.5   0.4   0.45   0.45   0   274   2,296   NQGQW   Trade
Trade   NQGED   7,784   60   -0.05   0.05   0.05   0.1   20   2.15   2.3   2.22   -0.05   13   681   NQGQD   Trade
Trade   NQGEX   114   0   0   0.05   0   0.05   22.5   4.6   4.8   4   0   0   1   NQGQX   Trade
Trade   NQGEE   0   0   0   0   0   0.05   25   7.1   7.3   6.6   0   0   0   NQGQE   Trade

Quote from: pinoleropuro on May 08, 2007, 09:35:12 PM
what does this mean for NTES for options expiring May 19th?
   Symbol   Open   Volume   Net Change   Last   Bid   Ask   Strike   Bid   Ask   Last   Net Change   Volume   Open   Symbol   
      Interest                  Price                  Interest      
Trade   NQGEB   0   0   0   0   7.7   7.9   10   0   0.05   0   0   0   0   NQGQB   Trade
Trade   NQGEV   5   0   0   5.7   5.3   5.4   12.5   0   0.05   0   0   0   0   NQGQV   Trade
Trade   NQGEC   82   0   0   2.9   2.8   2.95   15   0   0.05   0.03   0   0   48   NQGQC   Trade
Trade   NQGEW   1,789   277   0.05   0.8   0.75   0.85   17.5   0.4   0.45   0.45   0   274   2,296   NQGQW   Trade
Trade   NQGED   7,784   60   -0.05   0.05   0.05   0.1   20   2.15   2.3   2.22   -0.05   13   681   NQGQD   Trade
Trade   NQGEX   114   0   0   0.05   0   0.05   22.5   4.6   4.8   4   0   0   1   NQGQX   Trade
Trade   NQGEE   0   0   0   0   0   0.05   25   7.1   7.3   6.6   0   0   0   NQGQE   Trade

Jesus, I don't know pinoleropuro, it means nothing to me. When I look at the volume traded on options and the actual cash market I find it extremely hard to believe that someone is willing to move the share price to make a profit on options, because it would have to spend a lot more than whatever there is to gain at the options. Unless they're unscrupulous fund managers trading options with their own personal accounts (or of "friends"), I just don't see it.

Anyway, fundamentals drive stock prices, not options activity. To me options trading is just another way of gambling in a leveraged way, I'll never consider or touch options again in my entire trading career.

NTES moved up by 1% today on volume above average, that's nice. I'll continue holding the stock, as I'm expecting the company to shine, despite analysts pessimistic views of the future.

NTES at support $17.70 short term don't expect anything. Long term hold.

Quote from: yukiii on May 10, 2007, 11:16:01 PM
NTES at support $17.70 short term don't expect anything. Long term hold.

I agree. Nothing new on NTES yesterday, either on a technical or fundamental basis. The four estimates I have on the valuation model (http://www.3stocksonfire.org/fundamental.model.php?ticker=NTES&portfolio=main) point to a superior value. I'll keep holding NTES.

Let's compare NTES and its main competitors:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36789;image)

1) NTES has more than double of the quarterly revenue growth;
2) It has more revenue;
3) NTES gross margin is 20 pp higher than the one of its competitors;
4) NTES operating margin is 59%, SINA's and SOHU's is about 16%;
5) NTES net income is more than 4 four times larger;
6) NTES earnings multiple is about 15, SINA's is 51 and SOHU's is 39.

The conclusion is NTES is outrageously undervalued when compared to its industry peers. I'll keep holding NTES.

Nothing new on NTES, I'll keep holding the stock.

Since NTES is a foreign company it has more time to file the quarterly results, so we still didn't get Q1 numbers. As the title of this thread shows, I see room for positive surprises. I'll keep holding NTES.

Still nothing new on NTES, I'll continue holding it.

NTES finally said something:

• NetEase.com to Report First Quarter 2007 (http://biz.yahoo.com/prnews/070517/cnth024.html?.v=3)
PR Newswire (Thu 6:38am)

Earnings will be out on Monday after the close. I enjoy the business description NTES has on this press release:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=36947;image)

Don't you find it strange that a company like this is trading at 15.5 times 2006 EPS of $1.14? I do, and I believe the stock is undervalued.

I'll hold NTES through earnings, there's room for a positive surprise.

Next week will be important for the Main Portfolio, with CIMT, GIGM, NTES and EXM reporting 1st quarter results. NTES earnings will be released Monday after the close and as I wrote previously on this thread I expect the company to beat estimates for this quarter and going forward.

Even if that doesn't happen, I don't worry much because NTES is already trading at a very cheap valuation of 15.5 times 2006 EPS, considering its historical growth rate.

Interestingly volume picked up yesterday, to 996,300 shares traded. I'll hold NTES through earnings.

Press Release Source: NetEase.com, Inc.


NetEase.com Reports First Quarter 2007 Unaudited Financial Results
Monday May 21, 5:00 pm ET 
Record Peak Concurrent Users for Fantasy Westward Journey


BEIJING, May 21 /Xinhua-PRNewswire-FirstCall/ -- NetEase.com, Inc. (Nasdaq: NTES - News), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the quarter ended March 31, 2007.

    Highlights for the First Quarter 2007

    -- Online game revenues increased 6.7% to RMB481.9 million (US$62.4
       million) compared to the preceding quarter;
    -- Net profit for the quarter was RMB301.5 million (US$39.0 million),
       equivalent to US$0.31 (basic) and US$0.29 (diluted) earnings per
       American Depositary Share (ADS) compared to RMB320.2 million,
       equivalent to US$0.32 (basic) and US$0.30 (diluted) earnings per ADS
       for the preceding quarter; and
    -- Fantasy Westward Journey reported record peak concurrent user (PCU)
       numbers of approximately 1,503,000;

William Ding, Chief Executive Officer and Director of NetEase stated, "Fantasy Westward Journey's record PCU during the first quarter, driven in part by major weekend events and the Chinese Valentine's Day holiday, is a strong indicator of the popularity and long lifecycle of this game. We continue to have positive expectations for Fantasy Westward Journey and plan to release an expansion pack in the second half of the year to capitalize on this game's momentum. In addition, Westward Journey III, the upgraded version of Westward Journey Online II entered internal closed beta testing on May 20, 2007. We are confident in our ability to migrate the existing players to the upgraded version and will launch our marketing campaign concurrent with the internal closed beta. Clearly, we were not satisfied with the results of the open beta testing for Tianxia II in March. We are therefore delaying the commercial launch to allow time to correct certain design issues that will gear the game toward a broader audience of both experienced gamers and beginners."

Mr. Ding continued, "We plan to increase our marketing spending around each of our MMORPGs (massively multiplayer online role-playing games) as necessary in order to stay ahead of the competition and promote our games in an increasingly competitive market. Despite a temporary setback with our Tianxia II testing, NetEase continues to benefit from a number of core competitive strengths in the MMORPG market including game self development, ample resources and funding for sales and marketing investment and superior customer service."

"Marketing for our new proprietary search engine will begin at the end of the second quarter of 2007, and with regard to our portal strategy, we are continuing to see positive trends as we continually enhance the quality of our content," Mr. Ding added.

First Quarter 2007 Financial Results

Total revenues for the first quarter of 2007 were RMB554.6 million (US$71.8 million), compared to RMB540.3 million (US$69.2 million) and RMB529.8 million (US$66.1 million) for the fourth and first quarters of 2006, respectively.

Revenues from online games were RMB481.9 million (US$62.4 million) for the first quarter of 2007, compared to RMB451.6 million (US$57.9 million) and RMB450.6 million (US$56.2 million) for the fourth and first quarters of 2006, respectively.

Revenues from advertising services were RMB56.2 million (US$7.3 million) for the first quarter of 2007, compared to RMB72.1million (US$9.2 million) and RMB61.6 million (US$7.7 million) for the fourth and first quarters of 2006, respectively.

Revenues from wireless value-added services and others remained relatively flat at RMB16.6 million (US$2.1 million) for the first quarter of 2007 and the fourth quarter of 2006, compared to RMB17.6 million (US$2.2 million) for the first quarter of 2006.

Gross profit for the first quarter of 2007 was RMB430.1 million (US$55.7 million), compared to RMB456.7 million (US$58.5 million) and RMB420.8 million (US$52.5 million) for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease in gross profit was primarily due to a one- time business tax refund of RMB35.5 million (US$4.5 million) recorded in the fourth quarter of 2006. The year-over-year increase in gross profit was mainly due to higher online game services revenue in the first quarter of 2007.

Gross margin for the online game business for the first quarter of 2007 was 89.6%, compared to 90.3% and 90.4% for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease was primarily due to a one-time business tax refund of RMB35.5 million (US$4.5 million) recorded in the fourth quarter of 2006. The year-over-year decrease was primarily due to higher staff-related costs as a result of an increase in headcount and increased server custody fees and deprecation charges for enhancing the Company's online game development and on-going business capacity requirements.

Gross margin for the advertising business for the first quarter of 2007 was 35.7%, compared to 50.5% and 51.2% for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decline in gross margin was primarily due to the seasonal decline in demand for advertising services while costs remained relatively stable in the first quarter of 2007. The year-over- year decline in gross margin was due to lower advertising services revenue as a result of increased competition, increased production costs for content enhancement and higher server custody fees and depreciation charges to support the Company's online advertising business capacity requirements.

Gross loss margin for the wireless value-added services and others business for the first quarter of 2007 was 36.1%, compared to gross loss margin of 18.9% and 12.0% for the fourth and the first quarters of 2006, respectively. The quarter-over-quarter and the year-over-year decline in gross margin was mainly due to higher server depreciation costs and server custody fees to support the Company's expanding free email and photo storage capacities offered to its registered email account-holders.

Total operating expenses for the first quarter of 2007 were RMB117.7 million (US$15.2 million), compared to RMB123.9 million (US$15.9 million) and RMB113.5 million (US$14.2 million) for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease was due to a reversal of provision for doubtful debts of approximately RMB8.2 million (US$1.0 million) as a result of the collection of outstanding accounts receivables with respect to the advertising business during the first quarter of 2007, compared to an increase in provision for doubtful debts of RMB4.3 million (US$0.6 million) made during the fourth quarter of 2006. This was partially offset by an overall increase in selling and marketing costs of RMB6.3 million (US$0.8 million). The increase in selling and marketing costs was mainly in relation to the marketing of Tianxia II during the first quarter of 2007. The year- over-year increase was mainly due to an increase in research and development expenses associated with increased staffing for enhancement of existing products and for the development of new products.

Net profit for the first quarter of 2007 totaled RMB301.5 million (US$39.0 million), compared to RMB320.2 million (US$41.0 million) and RMB293.7 million (US$36.6 million) for the fourth and first quarters of 2006, respectively. NetEase reported basic and diluted earnings per ADS of US$0.31 and US$0.29 for the first quarter of 2007, respectively. The Company reported basic and diluted earnings per ADS of US$0.32 and US$0.30 and US$0.28 and US$0.26 for the fourth and first quarters of 2006, respectively.

Other Information

As of March 31, 2007, the Company's total cash and time deposit balance was RMB4.0 billion (US$520.6 million), compared to RMB3.9 billion (US$504.6 million) and RMB3.8 billion (US$469.8 million) as of December 31, 2006 and March 31, 2006, respectively. Cash flow generated from operating activities was approximately RMB277.0 million (US$35.9 million) for the first quarter of 2007, compared to RMB531.5 million (US$68.1 million) for the preceding quarter and RMB412.4 million (US$51.4 million) for the first quarter of 2006.

On March 13, 2007, the Company's Board authorized a share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed three months. As of March 31, 2007, the Company had effected transactions in the open market purchasing approximately 1.1 million ADSs for an aggregate purchase consideration of approximately US$20.8 million (including transaction costs). With respect to the separate share repurchase program of up to US$100 million authorized by the Company's Board on August 28, 2006, the Company had repurchased approximately 3.6 million of its issued and outstanding ADSs for an aggregate purchase consideration of US$60.1 million (including transaction costs) when the share repurchase program ended on February 27, 2007.

Other Announcements

The Company also announced today that Denny Lee, Chief Financial Officer and a Director, submitted his resignation as an employee of the Company effective June 30, 2007 for personal reasons. He will remain a member of the Board of Directors of the Company following his resignation from management. Onward Choi, currently the Company's Financial Controller, has been named as the Acting Chief Financial Officer. "We would like to thank Denny for his unceasing dedication to NetEase," said William Ding. "As a member of our executive team, Denny has made valuable contributions during a remarkable period of growth for our Company. We look forward to continuing to benefit from his guidance as a member of our Board," added Mr. Ding.

"We are extremely pleased to name Onward as our Acting Chief Financial Officer. He has been invaluable in his role as our Financial Controller, and with his broad base of financial experience and expertise, he is well-prepared to take on this new leadership role and to help NetEase in achieving future growth," said Mr. Ding.

Mr. Choi has served as Financial Controller for NetEase since January 2005. Previously, he was Corporate Finance Director since joining NetEase in November 2003. Prior to joining the Company, Mr. Choi worked in the Beijing office of Ernst & Young for three years, culminating in the position of Senior Manager in one of the audit departments where he specialized in auditing international clients. During his employment with Ernst & Young, he also worked with a number of Chinese companies with respect to accounting and other aspects of their initial public offerings on the Hong Kong Stock Exchange, due diligence work in relation to potential investments in Chinese companies, and financial and operational reviews of Chinese companies in connection with proposed investments in such companies by foreign investors. Prior to that, Mr. Choi worked at the Hong Kong office of KPMG for five years and at the Hong Kong Trade Development Council for three years. Mr. Choi graduated with a Bachelor of Arts degree with honors from the Hong Kong Polytechnic University with a major in Accountancy. He is a member of the Institute of Chartered Accountants in England and Wales, a fellow member of the Association of Charted Certified Accountants, United Kingdom and a fellow (practicing) member of the Hong Kong Institute of Certified Public Accountants.

In addition, the Company announced that Mr. Donghua Ding has resigned from its Board of Directors, on which he had served since June 2003. William Ding stated, "Donghua has been an important contributor to our board, and we will miss him. We understand that he is resigning due to his retirement and sincerely wish him every happiness in the future."

** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB7.7232 on March 31, 2007 in The City of New York for the cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2007, or at any other certain date. The percentages stated are calculated based on RMB.

Notes to Unaudited Financial Information

The unaudited financial information disclosed in this release is preliminary. The audit of the financial statements and related notes to be included in our annual report on Form 20-F for the year ended December 31, 2006 is still in progress. In addition, because an audit of our internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, we make no representation as to the effectiveness of those internal controls as of the end of fiscal 2006.

Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between our audited financial statements and this preliminary unaudited financial information.

Conference Call

NetEase's management team will host a conference call at 8:00 pm Eastern Time on Monday, May 21, 2007 (Beijing/Hong Kong Time: 8:00 am, Tuesday, May 22, 2007). Chief Executive Officer William Ding, Acting Chief Financial Officer Onward Choi, and Co-Chief Operating Officer Michael Tong will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 888- 208-1812 (international: 719-457-2654), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 888-203-1112 (international 719-457-0820), and entering passcode 6823345. The replay will be available through June 3, 2007 Eastern Time.

This call is being webcast live and archived, and will be available for 12 months on NetEase's corporate web site at http://corp.netease.com, Investor Info: Earnings Call.

About NetEase

NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. NetEase's online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates. For the month of March 2007, the NetEase websites had more than 676 million average daily page views, making the Group one of the most popular destinations in China and on the World Wide Web. In particular, NetEase provides online game services to Internet users through the licensing or in-house development of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II and Datang.

NetEase also offers online advertising on its websites which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified ads services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the Web which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.

Other community services which the NetEase websites offer include instant messaging, online personal ads, matchmaking, alumni clubs, personal home pages and community forums. NetEase is also the largest provider of free e-mail services in China. Furthermore, the NetEase websites provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and domestic content providers.

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward- looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that NetEase will not be able to adequately address feedback from gamers to enhance the appeal Tianxia II; the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenue or cause revenue to decline; the risk that NetEase may not be able to continuously develop new and creative online services; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates), general competition and price pressures in the marketplace; the risk that security, reliability and confidentiality concerns may impede broad use of the Internet and e-commerce and other services; the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.



I hope this doesn't give me a cimt type headache. LOL We'll see how it plays out.

Looks like it will go down a bit still not much growth, sold AH

Yukii,

I hate to say this buddy but I think selling was a big mistake.
NTES beat the street by two cents and matched the high end of the earnings estimate.
The Revenues surpassed the High Estimates as well.
Lastly, the stock has been depressed for a long time. From Yahoo:
52-Week Change: -11.17%

I can see selling NTES if there was a huge run-up this year or before earnings.
This stock looks like prime pickins to me.

Quote from: wxmang on May 21, 2007, 08:31:03 PM
Yukii,

I hate to say this buddy but I think selling was a big mistake.
NTES beat the street by two cents and matched the high end of the earnings estimate.
The Revenues surpassed the High Estimates as well.
Lastly, the stock has been depressed for a long time. From Yahoo:
52-Week Change: -11.17%

I can see selling NTES if there was a huge run-up this year or before earnings.
This stock looks like prime pickins to me.

Not much to get excited to me about earnings pretty lame to me. Better places to put your money
look at TWIN  2005 $1.19  2006 $2.43 2007 $4.00 Now that is growth.
Wheres the growth not hope..  last 4 quarter for NTES .28 .29 .30 and now .29

Quote from: yukiii on May 21, 2007, 08:51:44 PM

Quote from: wxmang on May 21, 2007, 08:31:03 PM
Yukii,

I hate to say this buddy but I think selling was a big mistake.
NTES beat the street by two cents and matched the high end of the earnings estimate.
The Revenues surpassed the High Estimates as well.
Lastly, the stock has been depressed for a long time. From Yahoo:
52-Week Change: -11.17%

I can see selling NTES if there was a huge run-up this year or before earnings.
This stock looks like prime pickins to me.

Not much to get excited to me about earnings pretty lame to me. Better places to put your money
look at TWIN  2005 $1.19  2006 $2.43 2007 $4.00 Now that is growth.
Wheres the growth not hope..  last 4 quarter for NTES .28 .29 .30 and now .29

TWIN is no doubt a good company and will continue growing, but it is now up like 39% since announcing  March Q on April 24. If it were me, I would take profits on TWIN if you have any.

Quote from: BigSully1 on May 21, 2007, 11:26:50 PM

Quote from: yukiii on May 21, 2007, 08:51:44 PM

Quote from: wxmang on May 21, 2007, 08:31:03 PM
Yukii,

I hate to say this buddy but I think selling was a big mistake.
NTES beat the street by two cents and matched the high end of the earnings estimate.
The Revenues surpassed the High Estimates as well.
Lastly, the stock has been depressed for a long time. From Yahoo:
52-Week Change: -11.17%

I can see selling NTES if there was a huge run-up this year or before earnings.
This stock looks like prime pickins to me.

Not much to get excited to me about earnings pretty lame to me. Better places to put your money
look at TWIN  2005 $1.19  2006 $2.43 2007 $4.00 Now that is growth.
Wheres the growth not hope..  last 4 quarter for NTES .28 .29 .30 and now .29

TWIN is no doubt a good company and will continue growing, but it is now up like 39% since announcing  March Q on April 24. If it were me, I would take profits on TWIN if you have any.

Why take profits when its value is $100 and will split soon.

I can tell you this much, UpsideStocks has had it on their buy list since Dec 2005 at $21.58. They generally hold only small cap stocks for very long periods. Tuesday they issued a downgrade to sell, citing a big overall drop in their scoring system (only 53 out of 100) and said that it is now trading at the high end of it's historical valuation range. Others reasons for the drop in score weren't explained.

Quote from: BigSully1 on May 21, 2007, 11:55:33 PM
I can tell you this much, UpsideStocks has had it on their buy list since Dec 2005 at $21.58. They generally hold only small cap stocks for very long periods. Tuesday they issued a downgrade to sell, citing a big overall drop in their scoring system (only 53 out of 100) and said that it is now trading at the high end of it's historical valuation range. Others reasons for the drop in score weren't explained.

Well that really explains it, sell because someone says sell for no reason.
TWIN is trading at only 17x LTM EPS of $3.91 which is still too cheap for a company which is growing earnings 100%. The company has said that Q4 will be better than Q3 and that next FY will be even better than this fiscal year. 

As I expected, NTES beat the consensus estimates, both in terms of revenue and EPS. Analysts expected Q1 revenue to be $67.77 M, and it was $71.8 M. Analysts also expected EPS of $0.27 and it was $0.29.

The company is on track to make $1.2 EPS for the full year of 2007 (no sequential growth needed, just due to seasonality), and that means it is trading at 15.2 times forward earnings.

Let's compare this quarter's results with what I expected in my valuation model (http://www.3stocksonfire.org/fundamental.model.php?ticker=NTES&portfolio=main):

1) Dilution factor

I have 1.02 in the valuation model. Wow, the company bought back shares in a rage. I had 143.22 million ADS as the initial share count, but now the company has 126,405,148 ADS basic and 136,425,912 ADS on a fully diluted basis (I'll change my initial share count). The share count declined 3.8% from the year ago levels. I'm also going to change my dilution factor from 1.02 to 1.

2) Revenue CAGR

I expected 15% revenue CAGR for the next three years. Q1 2007 revenue growth from the year ago levels was just 4.77%, especially due to a decline in advertising revenues, since online gaming revenues rose 6.7% from Q4 2006. Advertising now accounts for just about 10% of the company's revenues, with online gaming accounting for about 85%. If we annualize the 1st quarter growth in online revenues we'll get to a full year growth rate of 29.6%. Even if advertising falls to almost zero (I don't think this will happen), if online gaming revenue continues to grow at this pace it will exceed my 15% revenue growth target.

I'll keep 1.15 as my revenue CAGR estimate.

3) Net profit margin estimate

Net profit margin in Q1 2007 was 54.36%. I had 50% in my valuation model and I'll maintain that.

4) EPS multiple estimate

The Internet Information Providers industry trades at 32.85 times earnings (http://finance.yahoo.com/q/co?s=NTES). SINA trades at 55 times EPS and SOHU at 41 times. NTES at 15 times.

The results of the valuation model come as follows:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=37095;image)

I expect NTES to return 40% a year going forward. The optimal selling price is $32.49. I'll continue holding NTES.

Quote from: wxmang on May 21, 2007, 08:31:03 PM
Yukii,

I hate to say this buddy but I think selling was a big mistake.
NTES beat the street by two cents and matched the high end of the earnings estimate.
The Revenues surpassed the High Estimates as well.
Lastly, the stock has been depressed for a long time. From Yahoo:
52-Week Change: -11.17%

I can see selling NTES if there was a huge run-up this year or before earnings.
This stock looks like prime pickins to me.

don't see it............

Quotedon't see it.......

Big movements take time to develop. Come back in a couple of months.

As has been the case lately, investors opted to see the glass half empty on NTES, focusing on the bad aspects of the earnings report, and ignoring for example that the company beat estimates for the 5th quarter in a row and that it is trading at just 15 times earnings.

I enjoy the candlestick left on the chart, it seems NTES is poised for a rally over the next few days. I'll keep holding NTES for the long term.

Quote
I expect NTES to return 40% a year going forward. The optimal selling price is $32.49. I'll continue holding NTES.

David how does a company growing at 13% give you 40% a year??

Quote from: yukiii on May 22, 2007, 06:46:28 PM

Quote
I expect NTES to return 40% a year going forward. The optimal selling price is $32.49. I'll continue holding NTES.

David how does a company growing at 13% give you 40% a year??

Simple, the stock is trading at 15 times earnings, it should be trading at more than double that valuation, that's where its industry peers are (http://finance.yahoo.com/q/co?s=ntes), and they're growing less than NTES.

Maybe ntes will be up today in sympathy with snda, which is up sharply premarket after reporting earnings. It would seem there's plenty of room for all these companies to operate in,including ncty.

Quote from: soxguy on May 23, 2007, 09:14:55 AM
Maybe ntes will be up today in sympathy with snda, which is up sharply premarket after reporting earnings. It would seem there's plenty of room for all these companies to operate in,including ncty.

SNDA ended up just 1.57% on the day after opening sharply higher. I should take a more in depth look at it. NCTY went down 4.5%. The Fool's have an interesting article about SNDA and NTES:

Shanda in Demand-a (http://www.fool.com/investing/high-growth/2007/05/23/shanda-in-demand-a.aspx)

NTES touched its $17.53 - $17.55 short term support level again yesterday. Let's see if it bounces, but perhaps it will have to go down to test the long term ascending trendline before bouncing strongly, that would be a nice trap (the ascending trendline currently stands at $16.98).

I'll continue holding NTES.

Quote from: David Randolph on May 24, 2007, 06:11:29 AM

Quote from: soxguy on May 23, 2007, 09:14:55 AM
Maybe ntes will be up today in sympathy with snda, which is up sharply premarket after reporting earnings. It would seem there's plenty of room for all these companies to operate in,including ncty.

SNDA ended up just 1.57% on the day after opening sharply higher. I should take a more in depth look at it. NCTY went down 4.5%. The Fool's have an interesting article about SNDA and NTES:

Shanda in Demand-a (http://www.fool.com/investing/high-growth/2007/05/23/shanda-in-demand-a.aspx)


NTES touched its $17.53 - $17.55 short term support level again yesterday. Let's see if it bounces, but perhaps it will have to go down to test the long term ascending trendline before bouncing strongly, that would be a nice trap (the ascending trendline currently stands at $16.98).

I'll continue holding NTES.

Picked up NTES @ $17.00. Hope the trendline holds.

I said this:

QuoteNTES touched its $17.53 - $17.55 short term support level again yesterday. Let's see if it bounces, but perhaps it will have to go down to test the long term ascending trendline before bouncing strongly, that would be a nice trap (the ascending trendline currently stands at $16.98).

The low of the day was $16.97 and BigSully1 ...

QuotePicked up NTES @ $17.00. Hope the trendline holds.

... bought right at support. The only thing lacking is the a rally now. Let's see what the next few days bring, I hope it's not a breakdown, since NTES is now trading at 14.8 times this year's estimated earnings (http://finance.yahoo.com/q/ae?s=NTES).

I'll continue holding NTES.

Quote from: David Randolph on May 25, 2007, 05:04:38 AM
I said this:

QuoteNTES touched its $17.53 - $17.55 short term support level again yesterday. Let's see if it bounces, but perhaps it will have to go down to test the long term ascending trendline before bouncing strongly, that would be a nice trap (the ascending trendline currently stands at $16.98).

The low of the day was $16.97 and BigSully1 ...

QuotePicked up NTES @ $17.00. Hope the trendline holds.

... bought right at support. The only thing lacking is the a rally now. Let's see what the next few days bring, I hope it's not a breakdown, since NTES is now trading at 14.8 times this year's estimated earnings (http://finance.yahoo.com/q/ae?s=NTES).

I'll continue holding NTES.

I already sold at $17.50. I didn't buy for an investment. Just saw an easy way to skim 3%. Sorry.

QuoteI already sold at $17.50. I didn't buy for an investment. Just saw an easy way to skim 3%. Sorry.

Lol, you don't need to be sorry BigSully1 :D I don't have a problem if you guys use the information I provide in your own personal way. Nice short term gain :)

Quote from: David Randolph on May 25, 2007, 10:06:33 AM

QuoteI already sold at $17.50. I didn't buy for an investment. Just saw an easy way to skim 3%. Sorry.

Lol, you don't need to be sorry BigSully1 :D I don't have a problem if you guys use the information I provide in your own personal way. Nice short term gain :)

Thanks David. I did use your information to make the trade. Without it, it wouldn't have happened. You're a generous man. Applaud.

QuoteThanks David. I did use your information to make the trade. Without it, it wouldn't have happened. You're a generous man. Applaud.

Thanks BigSully1, just doing my job :)

Ok, even though BigSully1 was able to capture 3% or so from NTES, the Main Portfolio is losing 7.59% on this stock, so obviously I'm not pleased with it.

There are alternatives to NTES in the same exact sector (China's online gaming), namely SNDA and NCTY. Let me make a quick comparison between the three:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=37309;image)

As we can see, NTES is the cheapest in terms of earnings multiple and has the highest net profit margin, but the smallest revenue growth rate. If we look at the balance sheets, we'll see that NTES has $520 M in cash, SNDA has $462 M and NCTY has just $111 M.

It's incredible the amount of cash these companies have, with little debt. It's also amazing how they've achieved this with just 1 star online game. I can see the significance of Tianxia 2 and why NTES went down 5.9% on the day it was postponed.

Technically SNDA and NCTY are behaving much better than NTES. The question here is: should I chase the ones the market likes more at the current time, or buy the out of favor but fundamentally stronger company?

I believe NTES recent slower growth is due to temporary issues, and growth will probably pick up again in the future. The company has the resources and knowledge to make it happen.

I'll continue holding NTES, but I wonder if I shouldn't also buy SNDA or NCTY, they also look very attractive.

I sure like the way NTES is responding, after touching the medium term ascending trendline support. Volume was quite strong today.

My take is the stock is too cheap to handle at current levels. The 1st quarter results were further confirmation of my long term views for this company.

NTES has the highest net profit margin of the Chinese online gaming group, and therefore it is the more efficient company. It is very hard to justify a P/E of 15 for a company operating in this booming sector. Their subscriber base can be multiplied by 10, what's 20 million subscribers in a country with 1.3 billion people?

Moreover, I believe that in this sector the Chinese are being trully innovative, I don't know of any European company (or even American company), being even remotely as successful as NTES or SNDA in online gaming. Who knows, maybe these companies will even expand overseas ... there's a huge market waiting for them. Well, they don't need that for now, China is big enough.

I'll keep holding NTES, I see it approaching the top of the symmetrical channel, currently at $20.79. 

NTES opened down because of Shangai's 9% fall overnight. But that fall happened because the Chinese government tripled the tax on transactions on the exchange overnight, in another attempt to cool down the red hot bull market going on there. Of course, the tax rate on transactions doesn't change companies values, so the 9% fall wasn't due to a fundamental reason.

Therefore it was irrational to sell NTES because of that motive, and in fact the stock closed higher on the day, as it naturally should. I hope NTES is able to breakout above $18, there's a short term resistance there. Volume has been strong enough to support a bullish breakout.

Fundamentally you already know what I think of it, NTES, operating in such a high growth/high profitability sector like online gaming, is terribly cheap at these levels.

I'll continue to be a long term investor in NTES shares.

Technically NTES was able to close above the $18 short term resistance level. It seems the way is clear for a move towards the medium term descending trendline, currently at $20.8.

NTES, a Chinese online gaming company with strong growth and more than 50% net profit margin is trading at 15 times 2007 estimated EPS of $1.16. Too cheap to handle at current levels.

I'll keep holding NTES.

BigSully1 bought NTES right at the low of the swing, but I bet I'm going to make a lot more money than him holding this stock ;D

Anyway, I'm still losing 2.67%. But I don't see that lasting, the market is responding extremely well to the exact touch in the ascending trendline on the chart below. NTES is now above the initial earnings reaction, so everybody that sold after the earnings news (which by the way were above expectations), were wrong.

I almost can't believe I'm buying a strong growth, extremely fat net profit margin, Chinese online gaming company for 15 times earnings :o

I'll keep on holding NTES.

Quote from: David Randolph on June 02, 2007, 06:27:49 PM
BigSully1 bought NTES right at the low of the swing, but I bet I'm going to make a lot more money than him holding this stock ;D

I won't take that bet David, because I'd say the odds are not nearly as good for me as they were of me gaining a very quick 3% overnight. Hit my target and ST expectation, and I'm happy. :)

QuoteI won't take that bet David, because I'd say the odds are not nearly as good for me as they were of me gaining a very quick 3% overnight. Hit my target and ST expectation, and I'm happy. :)

I'm glad you're happy BigSully1, but I wonder how you conciliate short term and long term trading. I mean, if you care about a 3% overnight gain, you will also care about a 3% overnight loss, so you'll try to be on top of all short term swings, and that makes you a short term trader, with all the problems that involves. Anyway, maybe you can capture short term gains in some stocks and in others let them run for a long period ... I can't, at least not in a justifiable manner, one that wouldn't put my readers scratching their heads, thinking ???

Yesterday NTES opened down, like most China related stocks, but closed higher. I guess the people that sold at yesterday's open will buy at today's open (at a higher price, of course), since the Shangai stock index rose 9% overnight :o

I'll keep holding NTES.

I don't think my 2.25% loss in NTES will last much longer, as the stock, slowly but surely, has been moving back up.

I'll keep holding NTES.

People insist in selling NTES at the open, but the stock ends higher on the day. I feel quite safe holding NTES, I don't think online gaming depends on the economic cycle, and the more people playing games, the more people will play. It will just keep growing, it's absurd to value this stock at 15 times trailing earnings.

I'll continue holding NTES.

Unfortunately NTES opened down and stayed down yesterday. Fundamentally it is one of the most attractive stocks I've ever seen:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=37794;image)

EPS growth is impressive. Net profit margin in 2006 was 57.4%, the highest I've ever found. And the company trades at half the industry's average valuation, it's ridiculous.

Analysts don't think there will be much growth going forward. They think online gaming in China will slowdown. Do you believe them? I don't, I believe the number of online gamers will continue to rise, and as personal income in China rises, they'll be able to spend more.

I'll keep holding NTES.

I'm very bullish on Chinese online gaming stocks, but I especially admire NTES, because it boasts the highest profit margin of the group (around 57% :o). It is also the cheapest, trading at 16 times 2006 EPS.

I'll keep holding NTES.

NetEase (NTES) held their 1Q F07 conference call recently and the news was not all that good. The company seems to have goofed in their market research for their new online game Tianxia II. Investors have slammed the stock which has dropped nearly $1.2 a share in just a few days, and looks poised to drop even more as worries over a Chinese stock market bubble sits on investor's mind. This is rather remarkable since Netease actually beat their numbers for this quarter. This did little to stop selling in the stock once investors heard the bad news during the conference call. The stock currently trades at $17.20 a share. The price per sales ratio is close to 8, rather high for a company with a market cap of over 2 billion. The P/E ratio is only 14.83 possibly indicating that investors don't seem to feel that future growth is likely.

During the recent conference call the company was asked about the delay for Tianxia II. Netease indicated that the game did not do well in beta testing because the game design and player functionality needs to be more conducive to beginner play. Users felt the game was too advanced and users had trouble achieving higher levels in the game. Missing was the more fun parts of the game that seemed to be important to the users while they attempted to get to higher levels. Netease is taking the game back into development to change the beginner levels.

Unfortunately Netease does not see the game situation improving enough to impact the bottom line before late 2007, or probably 2008. The company does have other games in development but again these will not start producing revenue until late 2007 or early 2008. The only bright spot for 2007 is that Westward Journey II appears to still be doing well and Westward Journey III is nearing release. This is an updated version of Westard Journey II that has completely new graphics and some additional gameplay features. It entered a closed beta testing period last week. The hardware requirements and game levels will remain the same as Westward Journey II.

In other areas Netease did not do as well with their financial numbers. Advertising and wireless service revenues both dropped this quarter. The better than expected game revenue kept the overall financial picture above analyst's expectations. Compared to the same period one year ago several key financial indicators have taken a turn for the worse. Cash from operations is down 28.8% and free cash flow is down 33.6%. Capital expenditures are up 58.2%. However, long-term debt declined 11.1% to $90.2 million. Clearly, the company has some work to do in order to protect cash flow so that it will have enough R&D money for future games. Getting Westward III and Tianxia II out the door soon is critical.

just fyi:
NTES: Smith Barney Ups to Buy from Sell; Ups Tgt to $23.5 vs $14; Analyst Notes
Tuesday , May 29, 2007 08:32ET
Issuer: Netease.com Incorated ADS (NasdaqNM: NTES)
Analyst Firm:  Smith Barney
Ratings Action: UPGRADE
Current Rating: Buy (from Sell)
Target Price Action: INCREASE
Target Price: $23.50 (+67.86% from $14.00)
Analyst Comments: The firm highlights that a year ago, with sentiment for NetEase peaking due to its past success, they looked to the future and saw a new game pipeline and strategy that were seriously flawed. They have now come full circle: Their once non-consensus views are now mainstream, and sentiment toward the NetEase stock is at an all-time low. At 15x 08E P/E, valuation looks cheap, and we believe the shares have largely bottomed. Any significant new license deals should re-rate the shares. The firm advises buying ahead of such news.

&

Sohu and Netease ordered to correct irregularities
Friday , June 08, 2007 04:39ET

BEIJING, Jun 8, 2007 (Xinhua via COMTEX) -- China's Ministry of Information Industry has ordered 265 IT Internet companies including Sohu.com Inc. (Nasdaq: SOHU) and Netease.com Inc. (Nasdaq: NTES) to correct their irregularities in operations within a prescribed time.
nteThe Ministry of Information Industry found that 265 IT Internet companies had problems such as irregular operation, failing to launch business on schedule or alternating shareholders without authorization during the annual survey of their trans-regional value- added telecom business licenses. The ministry ordered these companies to make corrections before June 24 2007. If these companies' improvement is still dissatisfying after June 24 2007, they will be labeled "disqualification" by the ministry. Once they are deemed "disqualification", most of the aforesaid companies' main business will be deemed as illegal operations.

http://www.knobias.com/story.htm?eid=3.1.dc6d601fd9019e517b04710e5b57f389420721edc607d92839c87bcd70859112

QuoteNTES: Smith Barney Ups to Buy from Sell; Ups Tgt to $23.5 vs $14; Analyst Notes
Tuesday , May 29, 2007 08:32ET
Issuer: Netease.com Incorated ADS (NasdaqNM: NTES)
Analyst Firm:  Smith Barney
Ratings Action: UPGRADE
Current Rating: Buy (from Sell)
Target Price Action: INCREASE
Target Price: $23.50 (+67.86% from $14.00)
Analyst Comments: The firm highlights that a year ago, with sentiment for NetEase peaking due to its past success, they looked to the future and saw a new game pipeline and strategy that were seriously flawed. They have now come full circle: Their once non-consensus views are now mainstream, and sentiment toward the NetEase stock is at an all-time low. At 15x 08E P/E, valuation looks cheap, and we believe the shares have largely bottomed. Any significant new license deals should re-rate the shares. The firm advises buying ahead of such news.

Thanks la-onda, perhaps this upgrade will be the catalyst to take NTES significantly higher. I fully agree with Smith Barney, the worst case scenario is priced in, there's only upside to NTES shares. They seem to know good news is coming ...

I'll keep holding NTES.

NTES down 1.93% today. Nothing new on the fundamental side. I don't know what can go wrong with online gaming in China, only if the Government forbids it, but I don't think so, several games are thought "educational" by the Ministry of Culture.

The future I see is these companies expanding to international markets and make games played worldwide, not just in China. That I see.

NTES trading at 15 times EPS, given its net profit margin, seems like an absurd. Because if revenue grows just a bit, 57% of that growth will go to the bottom line.

I'll keep holding NTES despite the short term weakness, losing 5% here.

Triple bottom for NTES would be around 17.13

Quote from: yukiii on June 12, 2007, 10:27:11 PM
Triple bottom for NTES would be around 17.13

Hmmm, I think what's happening is more of an inverted head and shoulders pattern, take a look at my chart below. I know Ramsburg is going to say "that's not a valid pattern", but if we look for perfect technical patterns ... well, they're rare.

It's hard for me to understand why NTES doesn't go up like immediately, but if this is a bottoming process as I think it is, well, they're always hard to understand, as the stock goes back and forth trying to take all weak hands out of ship before initiating the ascending trend.

Keep holding NTES.

C.E. Unterberg, Towbin

NTES 1Q07 top and bottom line results beat consensus. Net
revenue of $69.1M (up 4% Q/Q and 9% Y/Y) was higher than
consensus of $65.1M while EPS of $0.29 beat consensus by two
pennies. As indicated in 4Q06, management will not be
providing guidance going forward. 
1Q07 Actual Consensus Estimates
Gross Rev $71.8M $67.8M $72.4M
Net Revenue $69.1M $65.1M $69.6M
Net Online Game $60.3M  $60.2M
Net Advertising  $6.7M  $7.6M
Net WVAS $2.1M  $1.7M
EPS (GAAP) $0.29 $0.27 $0.28
Solid 1Q07 gaming revenue - 1Q07 net gaming revenue of
$60.3M was up 8% Q/Q and 11% Y/Y due to the expansion
packs, strength in FWJ2 (1.5M PCUs reported), strong
seasonality and the Valentines Day holiday event. 
1Q07 advertising revenue fell 21% Q/Q and 5% Y/Y to $6.7M
due to weak seasonality. As a point of reference, SINA and
SOHU reported 43% Y/Y and 41% Y/Y advertising growth,
respectively. We believe that NTES continues to experience
challenges in developing its online advertising business. 
1Q07 EPS estimate of $0.29 was 2 pennies above consensus -
We believe it is attributed to the decline in S&M and G&A
expense of 11.8% in 1Q07 vs. 17% in 4Q06. 
Expect slight decline in 2Q07 – Our 2Q07 net revenue estimate
of $68.6M (decline 0.6% Q/Q and 0.7% Y/Y) assumes 2% Q/Q
decline in gaming, 12% growth in advertising and flat SMS
revenue. Our 2Q07 EPS estimate of $0.28 is in line with
consensus of $0.28. 
Pipeline uncertainty remains in the NT – While NTES
announced that it expects to open beta test WWJ3 in 2H07 as
well as release an expansion pack for WWJO2 in 2H07, the
timing for the commercial launch of its next blockbuster title,
Tianxia II, remains elusive as the game remains in development
stage. We remain cautious for the time being as there are few
near term positive catalysts. 
Valuation & Price Target – Our estimates have been revised
downward because of uncertainty relating to Tianxia II. NTES is
trading at 14.0x our 2008 EPS of $1.31. We believe it will
continue to trade at a discount to its peers until there is greater
visibility in its pipeline. We recommend that
investors stay on the side lines and maintain
our Market Perform rating. 

Key Data 
52-Week Range $15.05 - $23.10
Shares Outstanding (MM) 127.2
Float (MM) 68.7
% Held Institutionally 1%
Market Capitalization (MM) $2,330
Average Daily Volume (000) 1,026
Revenues – LTM (MM) $274.1
Total Debt (MM) $88.7
Cash per Share $3.82
Long-Term Growth Rate 25%

Fiscal Year Ends: Dec. 2006A 2007E 2008E
Revenue (MM) $268.5 $283.1 $317.9
Prev. Revenue   $303.1 $355.2
Earnings per Share   
Q1 $0.26A $0.29A $0.29
Q2 $0.28A $0.28 $0.30
Q3 $0.29A $0.30 $0.34
Q4 $0.30A $0.29 $0.37
EPS $1.12A $1.16 $1.31
Prev. EPS  $1.24 $1.47
P/E 16.3x 15.8x 14.0x
Diluted Shares (MM) 139.9 136.8 137.8

Quote from: David Randolph on June 13, 2007, 05:03:50 PM
Hmmm, I think what's happening is more of an inverted head and shoulders pattern, take a look at my chart below. I know Ramsburg is going to say "that's not a valid pattern", but if we look for perfect technical patterns ... well, they're rare.

Hum… ;) heheh… let me put some short term TA over your pick ;)

Let me see… The pattern is still developing, but I think its a valid Inverted H&S Project for now, ascending neckline (no problem), distance between shoulders is tolerable (assuming NTES is just doing the S2 now), neckline is around $18.60, so if this is going to turn into an effective Inverted H&S play the stock needs to break that level up during the next 3 to 5 sessions (recent volatility / trading range corroborates that option), if that happens, a target of $19.80 will be in play.

There’s an ascending support around $17.25, the last relative lows (since April) had been successively higher with volume present during these reversal sessions (bullish).

In general I would say there is a very strong support level between $17 and $17.50, with nice odds for an upside breakout in the short term, something like the April’s move, but now it would create a real technical signal. NTES trading below $16.89 would invalidate this technical scenario.

Regards ;)

 :o :o :o :o

cheers from Singapore
Oliver

Thanks for those analyst's comments and your chart Ramsburg :)

Well, NTES closed just barely above the "second shoulder scenario". Of course, the H&S pattern will only be completed if the stock closes above the neckline, which currently stands at about $18.4. Let's see what the future holds for NTES.

In fundamental terms, if we read la-onda's post, basically people think there's not a lot of upside, but also no downside potential either. They don't expect anything new over the short/medium term. But valuation already reflects that.

I see only upside for NTES in fundamental terms, new games may come sooner or later, but no doubt they'll come and they'll produce growing revenues and profits, and I mean profits, since net profit margin is 57% :o

NTES isn't behaving well, going down while the general market rose. It seems that what's affecting the stock is the following news release:

• NetEase to Extend Game Development and Beta Testing for Tianxia II (http://biz.yahoo.com/prnews/070430/cnm019.html?.v=6)
PR Newswire (Mon, Apr 30)

My take is the game may take less or more time to be ready to enroll subscriptions, but it will be ready sometime in the near future. The longer they take to make the game, probably the better it will be and the more it will last, in terms of consumer addiction.

NTES is trading at 15 times trailing earnings, and I can only see upside to its revenues and principally profits, because net profit margin is 57%.

I'll continue holding NTES, despite the short term technical weakness.

Ok, forget about the H&S pattern, the stock closed below the shoulder 2 possibility. But it touched the ascending support and bounced a bit ... perhaps that was the low, only time will tell. Well, I can say that NTES was really getting on my nerves today, going down like that. It made my head started thinking something like "maybe low valuation isn't enough, I should also look for a catalyst".

Anyway, when there's a catalyst, it will probably be a bullish one, because the worst case scenario, that is, no growth whatsoever seems to be priced in already.

I'll keep holding NTES.

NTES reacted a bit to the ascending support line. I believe the worst case scenario is priced in now, as I've written throughout this thread. I'll keep holding NTES.

First of all, hats off to BigSully1, he made 3% on NTES, I'm currently losing 7.75% on the stock.

The market sees NTES as the big elephant of online gaming, a company that isn't growing or innovating all that much lately, that's why it trades at 14.5 times earnings. But I don't think they're resting on past performance:

« William Ding, Chief Executive Officer and Director of NetEase stated, "Fantasy Westward Journey's record PCU during the first quarter, driven in part by major weekend events and the Chinese Valentine's Day holiday, is a strong indicator of the popularity and long lifecycle of this game. We continue to have positive expectations for Fantasy Westward Journey and plan to release an expansion pack in the second half of the year to capitalize on this game's momentum. In addition, Westward Journey III, the upgraded version of Westward Journey Online II entered internal closed beta testing on May 20, 2007. We are confident in our ability to migrate the existing players to the upgraded version and will launch our marketing campaign concurrent with the internal closed beta. Clearly, we were not satisfied with the results of the open beta testing for Tianxia II in March. We are therefore delaying the commercial launch to allow time to correct certain design issues that will gear the game toward a broader audience of both experienced gamers and beginners."

Mr. Ding continued, "We plan to increase our marketing spending around each of our MMORPGs (massively multiplayer online role-playing games) as necessary in order to stay ahead of the competition and promote our games in an increasingly competitive market. Despite a temporary setback with our Tianxia II testing, NetEase continues to benefit from a number of core competitive strengths in the MMORPG market including game self development, ample resources and funding for sales and marketing investment and superior customer service."

"Marketing for our new proprietary search engine will begin at the end of the second quarter of 2007, and with regard to our portal strategy, we are continuing to see positive trends as we continually enhance the quality of our content," Mr. Ding added.»

Expect a positive press release when they launch their new proprietary search engine. What are they up to with it, competing with BIDU?

Technically the stock closed right around the medium term ascending trendline. Let's see what the future holds for NTES. I'm not prepared to let go of it, I'll keep holding whatever happens over the short term.

I just bought back again. Regardless of current sentiment on the stock right now, I have to agree with David in that I see great value here, and there may never be a better time to buy. I will likely hold some of it for the LT now.

Quote from: BigSully1 on June 21, 2007, 10:18:09 AM
I just bought back again. Regardless of current sentiment on the stock right now, I have to agree with David in that I see great value here, and there may never be a better time to buy. I will likely hold some of it for the LT now.

The two legacy games are aging. FWJ's server utilization levels for April and May show a decline from the levels registered during the first quarter.

Furthermore, Tianxia II, the most anticipated game in the company's pipeline failed to capture gamers' interest. Netease was forced to postpone the game's release and send the game back to the development department. In an already crowded Chinese gaming market this is definitely not positive.

Absence of any positive new developments, and given the current lack of visibility into the company's future earnings growth, I don't expect the stock to resume its upward trend anytime soon.

NTES    $ 17.05
Netease.com Inc.   -0.20
Shares Short   5,874,000
Days to Cover (Short Ratio)   6.4
Short % of Float   8.55 %
Shares Short - Prior   5,024,500
Short % Increase / Decrease   16.91 %

QuoteThe two legacy games are aging. FWJ's server utilization levels for April and May show a decline from the levels registered during the first quarter.

Furthermore, Tianxia II, the most anticipated game in the company's pipeline failed to capture gamers' interest. Netease was forced to postpone the game's release and send the game back to the development department. In an already crowded Chinese gaming market this is definitely not positive.

Absence of any positive new developments, and given the current lack of visibility into the company's future earnings growth, I don't expect the stock to resume its upward trend anytime soon.

NTES    $ 17.05
Netease.com Inc.   -0.20
Shares Short   5,874,000
Days to Cover (Short Ratio)   6.4
Short % of Float   8.55 %
Shares Short - Prior   5,024,500
Short % Increase / Decrease   16.91 %

This is a valid way to see things yukiii. And the market seems to agree with you, at least for now. But, considering the valuation of the company (15 times trailing earnings) and the cash it has in its balance sheet ($520 M), I would say that the bearish perspective is already priced in.

Unless there's really an earnings debacle going forward. I'm starting to think that a very high net profit margin works both ways. If revenue grows EPS grows a lot. But if revenue shrinks it also has a massive effect on EPS.

Moreover, maybe NTES has such a high net profit margin (57% in fiscal 2006) because it didn't invest in R&D as much as it should. Well, but R&D spending has been moving up, it was $1 M in 2002, $2 M in 2003, $4 M in 2004, $11 M in 2005 and $19 M in 2006. Let me compare R&D spending with SNDA, NCTY and GIGM, for example. In 2006 SNDA spent $21 M, NCTY spent $3 M and GIGM spent $5 M. So, no, one can't say that NTES has been investing less than competitors in its future. It's just that its investments don't seem as productive as the other's investments, at least at the current moment.

Technically the stock closed below its long term ascending trendline, which is a negative sign.
I'm losing 8.77% on NTES and ... well, I must say that I'm starting to open my mind to being wrong here. My hands are weakening, because I'm afraid that the older games start losing gamers and if the new game isn't appealing enough, EPS can go down. If that happens, EPS multiple will go up even as the stock goes down.

However, I've taken four losses in a row here at the Main Portfolio and I know nobody likes losses. But that shouldn't be an input to the decision making process. Of course, I could also take 4 profits or more in a row if I were to sell out my winners, but I don't want to.

I already have SNDA and GIGM in the online gaming space. NTES is the market leader, but it seems it is about to lose that status. I have doubts, but I opt to limit the loss at 8-9% and move on to find more attractive picks.

The trading plan for NTES is SELL.

Quote from: David Randolph on June 22, 2007, 06:30:48 AM

QuoteThe two legacy games are aging. FWJ's server utilization levels for April and May show a decline from the levels registered during the first quarter.

Furthermore, Tianxia II, the most anticipated game in the company's pipeline failed to capture gamers' interest. Netease was forced to postpone the game's release and send the game back to the development department. In an already crowded Chinese gaming market this is definitely not positive.

Absence of any positive new developments, and given the current lack of visibility into the company's future earnings growth, I don't expect the stock to resume its upward trend anytime soon.

NTES    $ 17.05
Netease.com Inc.   -0.20
Shares Short   5,874,000
Days to Cover (Short Ratio)   6.4
Short % of Float   8.55 %
Shares Short - Prior   5,024,500
Short % Increase / Decrease   16.91 %

This is a valid way to see things yukiii. And the market seems to agree with you, at least for now. But, considering the valuation of the company (15 times trailing earnings) and the cash it has in its balance sheet ($520 M), I would say that the bearish perspective is already priced in.

Unless there's really an earnings debacle going forward. I'm starting to think that a very high net profit margin works both ways. If revenue grows EPS grows a lot. But if revenue shrinks it also has a massive effect on EPS.

Moreover, maybe NTES has such a high net profit margin (57% in fiscal 2006) because it didn't invest in R&D as much as it should. Well, but R&D spending has been moving up, it was $1 M in 2002, $2 M in 2003, $4 M in 2004, $11 M in 2005 and $19 M in 2006. Let me compare R&D spending with SNDA, NCTY and GIGM, for example. In 2006 SNDA spent $21 M, NCTY spent $3 M and GIGM spent $5 M. So, no, one can't say that NTES has been investing less than competitors in its future. It's just that its investments don't seem as productive as the other's investments, at least at the current moment.

Technically the stock closed below its long term ascending trendline, which is a negative sign.
I'm losing 8.77% on NTES and ... well, I must say that I'm starting to open my mind to being wrong here. My hands are weakening, because I'm afraid that the older games start losing gamers and if the new game isn't appealing enough, EPS can go down. If that happens, EPS multiple will go up even as the stock goes down.

However, I've taken four losses in a row here at the Main Portfolio and I know nobody likes losses. But that shouldn't be an input to the decision making process. Of course, I could also take 4 profits or more in a row if I were to sell out my winners, but I don't want to.

I already have SNDA and GIGM in the online gaming space. NTES is the market leader, but it seems it is about to lose that status. I have doubts, but I opt to limit the loss at 8-9% and move on to find more attractive picks.

The trading plan for NTES is SELL.

Hmmm... Looks to me like the 16.90 to 17.00 area should be very strong support. You may be right to sell but it seems strange to me to sell right in that area without any further breakdown, unless you need the funds for better prospects.

Are there more stocks in the portfolio where you're hands are not really near as strong as you have led us to believe?

QuoteHmmm... Looks to me like the 16.90 to 17.00 area should be very strong support. You may be right to sell but it seems strange to me to sell right in that area without any further breakdown, unless you need the funds for better prospects.

I saw the break of the long term ascending trendline as technically significant. I guess the experience with VPHM, where I've waited for more and more confirmation and ended up losing more than I should also played a factor here.

QuoteAre there more stocks in the portfolio where you're hands are not really near as strong as you have led us to believe?

I believe in everything I write at the moment I write it. But when the positive information is obvious and yet the market refuses to react accordingly, I start opening my mind to other possibilities. I was disappointed by the failure of the inverted head and shoulders formation. Then I got more disappointed by the breakdown below the long term ascending trendline. And yukiii wrote a bear case that made sense to me.

Anyway, maybe this was just another case of "weak hands" and the stock will go up.

As for other stocks, each case is a specific case, in some holdings my hands are stronger than others. I write about them everyday at their specific threads. Fundamentals may change and my ideas about fundamentals may also change. That's why I keep updating the initial analysis, or else I would just have an idea and close my mind to incoming information. I don't think that would be the right course of action.

Thanks for your question BigSully1, good luck :)

Buyback announced.

http://biz.yahoo.com/prnews/070702/lnm501.html?.v=10

back above the 50 AND the 200 MA's now.

I'm still holding. That was welcomed news this morning. I want to think this is a cheap stock that is suddenly way under valued. I hope that's how the market sees things in the weeks ahead.But what's a realistic price target? $20? $30? We,ll see.

Quote from: soxguy on July 02, 2007, 08:48:59 PM
I'm still holding. That was welcomed news this morning. I want to think this is a cheap stock that is suddenly way under valued. I hope that's how the market sees things in the weeks ahead.But what's a realistic price target? $20? $30? We,ll see.

I agree.
I'm not even going to try to put a ST price target on it at this time. I feel very comfortable holding for now. They did the right thing postponing Tianxia II until all refinements and testing are done, so when it is finally released it has a real chance at a blockbuster for several years. Tuck it away  and who knows, might still be holding this 3 years from now, with very nice gains.

"Netease (NTES - Cramer's Take - Stockpickr - Rating): This stock fits all of the criteria, and it's an online gaming company (like Shanda). The company has $438 million in net cash. So with a $2.2 billion market cap and $200 million in cash flow, it trades at only nine times cash flows. Analysts expect earnings to go to $1.23 per share in 2008 from $1.15 in 2007.

Analysts have not been correct often in the past. Netease beat analysts' expectations the past four quarters in a row, and if it beats again in 2008, then the forward P/E will be 13, or even lower, which is why it is first on my list of Chinese Rocket Stocks. Netease is also on an interesting portfolio of the companies of young billionaires."

I sold (I guess, it was a mistake), but my wife is still holding - we trade separately to leverage out the emotions. NTES is a "hold" for now in my opinion.

Moving...

Moving today on good volume

New year high on good volume!  :o  Still holding...

New 1 year high!

Two year high stands at $25.25

Anyone?

NTES has no trend and gaps wildly on news: