UPDATE: Credit Suisse Restarts NetEase.com (NTES) at Neutral; Positive on Pipeline, but Sees Earnings Growth Normalizing
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(Updated - August 19, 2016 7:50 AM EDT)
Credit Suisse downgraded NetEase.com (NASDAQ: NTES) from Outperform to Neutral with a price target of $230.00 (from $200.00).
The firm commented:
- 2Q beat con. revenue and profit by 6% and 24%, respectively due to: (1) game revenue +7% QoQ-the successful launch of PC game Overwatch helped offset slower mobile revenue (+3% QoQ) and (2) surprise strength from e-commerce and related business on scale built-up and mix shift (more platform business).
- Looking ahead, new game launches/ramping up and expansion packs should help sustain online game revenue growth, albeit at a milder pace, and scale improvement of Kaola.com (eCommerce platform launched in 2015) should help lift margin. Medium term, management is exploring AR/VR technology potential.
- While we continue to like the solid development platform and robust pipeline of NTES, as the PC to mobile game transformation (driver for past year) is largely done, its earnings growth is likely to normalise. The share has rallied (past four months: +61%) to 15x 17 P/E (1.5 SD above hist. avg.), and it may consolidate, in our view.
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