【行业研究报告】网易-Preparing for next strong product cycle

18Nov2022
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
Netease(NTESUS)
Preparingfornextstrongproductcycle
NetEaseannouncedits3Q22resultson17Nov.Totalrevenuegrewby10%
YoYtoRMB24.4bnin3Q22,inlinewithour&consensusestimatesof
RMB24.4bn.Drivenbyresilientperformanceoflegacytitlesandlaunchofnew
titleslikeDiabloImmortal,totalrevenuewasup13%YoYin9M22.Non-GAAP
netincomein3Q22grewby23%YoYtoRMB4.7bn(excl.RMB2.7bn
extraordinarygainslikeinvestmentincomeandFXgain),whichislargelyinline
withour/consensusestimatesofRMB5.0/4.9bn.DuetothesupplyandBanhao
constraintsofgametitles,webelieveitstilltakestimeforNetEasetolaunchthe
nextstrongproductcycle.WerevisedupourFY22earningsforecastby9%to
reflecttheextraordinarygainsin3Q22,buttrimmedFY23-24earningforecast
by1-4%tofactorinthenon-renewaloflicenseswithBlizzard.Welowerour
SOTP-basedtargetpriceby2%toUS$112.3.MaintainBUY.
Eyesonnextproductcycle.Onlinegamesrevenueincreasedby9%YoY
toRMB18.7bnin3Q22(1Q22/2Q22:+15.7/15.0%YoY),withmobileand
toRMB18.7bnin3Q22(1Q22/2Q22:+15.7/15.0%YoY),withmobileand
PCgamesrevenueupby8%YoYand11%YoYrespectively.Keygame
titlesinthepipelineincludeNaraka:BladepointMobile(development
progresswellontrack)andJusticeMobile(recorded10mnpre-registration).
NetEasealsoobtainedBanhaoapprovalforitsWestwardJourneyIPon17
Nov,whichisacasualwebgame.Fortheoverseasmarket,NetEaseplans
tolaunchHarryPotter:MagicAwakenedgloballyin2023E,and3&4games
ofvariousgenresintheJapan&USmarketsrespectively.Cloudmusic
revenuegrewby22%YoYtoRMB2.4bnin3Q22(9.7%oftotalrevenue),
withGPMupfrom2.2/13.0%in3Q21/2Q22to14.2%in3Q22.Innovative
businessesrevenuewasupby14%YoYtoRMB2.0bnin3Q22(8.1%of
totalrevenue),mainlyduetogrowthinrevenuefromYanxuan.Youdao
revenuegrewby1%YoYtoRMB1.4bnin3Q22(5.7%oftotalrevenue),
mainlydrivenbyinnovationinlearningservicesandsmartdevices,but
partiallyoffsetbythecessationofK9after-schooltutoringbusiness.
Investingforfuturegrowth.Non-GAAPnetincomegrewby23%YoYto
RMB4.7bnexcludinginvestmentincomeandFXgain,withnetmarginup
by1.5pptYoYto19.3%in3Q22,thankstotheGPMexpansion,and
operatingleverageonR&DandG&Aexpenses.OverallGPMrosefrom
53.2%in3Q21to56.3%in3Q22,supportedbytheimprovingmarginprofile
ofnon-gamingbusinesses.Lookingforward,managementexpectstosee
furthergrowthinoperatingexpensesastheycontinuetoinvestintheglobal
gamingdevelopmentcapability,andtheoperatingleveragewillemergeuntil
thenextstrongproductcycle.
Limitedimpactfromnon-renewaloflicenseswithBlizzard.Regarding
non-renewaloflicenseswithBlizzard,managementcitedthatitwillhaveno
materialimpactonNetEase’sfinancialperformancegivenrevenuesandnet
incomeoftheselicensedgamesonlyaccountedforlowsingledigitsof
NetEase’srevenueandnetincomein9M22.