Shares of NetEase (NASDAQ: NTES) have been on a tear this year thanks to a couple of strong earnings reports. Investors have been betting big time on the Chinese online and mobile gaming specialist given that it is one of the leading players in the booming Chinese video gaming industry, thanks to its tie-ups with the likes of Activision Blizzard and Microsoft.
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Investors will be looking forward to another quarter of terrific growth from NetEase when the company reports its second-quarter fiscal 2017 results on Aug. 9. But can the gaming giant trump expectations once again? Let's find out.
NetEase is primed for terrific financial growth
Wall Street expects NetEase's second-quarter earnings to come in at $3.79 per share on revenue of $1.91 billion. The estimates suggest that the company's revenue and earnings will grow quite substantially given the year-ago earnings of $3.05 per share on sales of $1.32 billion.
But NetEase doesn't provide any specific guidance, so it is difficult to judge how the company is foreseeing the quarter. However, NetEase had said earlier this year that it will grow at a faster pace in 2017 as compared to last year, which can give us an idea about its potential second-quarter performance.
NetEase's top line had jumped just over 13% on a quarter-over-quarter basis during the second quarter of the fiscal year 2016 to $1.32 billion. An identical increment this time will push the company's revenue to $2.26 billion as compared to the first quarter of 2017, which is much higher than what analysts expect.
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If the company can deliver on its promise of growing at an improved pace in 2017 it should deliver higher-than-expected results. Additionally, investors can also expect a strong outlook given the company's impressive gaming pipeline for the rest of the year.
A strong gaming pipeline will boost growth
NetEase has grown at a terrific pace this year thanks to the growing popularity of its mobile games, which now supply a massive 73% of its overall revenue. Looking ahead, this segment will continue to remain a major catalyst for the company, as mobile gaming revenue in China could rise to $21 billion by 2020 from $11.2 billion in 2016, according to estimates from Newzoo.
NetEase doesn't want to miss this gravy train, so it has lined up 13 new mobile gaming titles for launch. However, investors will be eagerly waiting to see the impact of Minecraft on the company's performance. NetEase had licensed Minecraft from Microsoft in May of last year, signing a five-year agreement to distribute the game on the mobile and PC platforms in the country.
Microsoft subsidiary Mojang has optimized the game for the Chinese market, and NetEase is now using its distribution power to boost the reach of the game in the country. The good news for NetEase investors is that Minecraft is already a very popular game on mobile and PC. In fact, Minecraft had more than 100 million registered players worldwide earlier this year, and over half of the player base in the Asia-Pacific region is on mobile.
Now, NetEase has the distribution rights for both these platforms. This should help it tap a base of over 560 million gamers in the Chinese market, with 36% of them ready to spend money on gaming. Not surprisingly, analysts expect the company's revenue to jump another 41% during the ongoing third quarter as more of its games hit the market.
Investors, therefore, can expect the terrific momentum at NetEase to continue past its second-quarter results in light of the impressive catalysts that the company is sitting on.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and NetEase. The Motley Fool has a disclosure policy.