Credit Suisse Assumes Coverage On NetEase With Neutral Rating

Credit Suisse assumed coverage on NetEase Inc (ADR) (NASDAQ: NTES) with a Neutral rating and boosted the price target from $200 to $230. The brokerage earlier had an Outperform rating on the stock.

The comments come on the heels of the company reporting better-than-expected earnings and revenue on August 18. However, the stock fell following the news. Incidentally, the stock rallied about 61 percent in the last four months, implying a P/E of 15x17, which was 1.5 SD more than the historical average. Analysts Kenneth Fong and Ivy Ji expect the stock to consolidate.

The lead analyst believes NetEase was able to deliver better-than-predicted results due to 7 percent quarter-over-quarter growth in game revenue apart from the successful introduction of PC game "Overwatch." They think that it offered the company the cushion of managing the slower revenue growth of 3 percent on a quarter-over-quarter basis from mobile.

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Credit Suisse said, "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."

The brokerage believes NetEase's earnings growth would normalize, citing that shift to mobile game from PC were mostly done with it. However, the lead analyst liked the strong pipeline and the development platform of the company.

On Thursday, the stock shed 2.68 percent to trade at $207.62, while it was up 0.76 percent to $209.20 at time of writing on Friday.

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