Shares of NetEase (NASDAQ: NTES) declined 11.4% last month, according to data provided by S&P Global Market Intelligence, after the Chinese internet technology company's second-quarter earnings fell a bit short of investor expectations.
Continue Reading Below
NetEase's revenue soared 49.4% year over year, to 13.4 billion Chinese renminbi (RMB), or roughly $2 billion. These gains were fueled by a 46.5% jump in online game services revenue and a 68.9% surge in e-commerce sales.
"Our total net revenues grew nearly 50% in the second quarter compared with last year as we continued to invest in new content development that broadens our offering and engages our community across our business lines," CEO William Ding said in a press release.
Those investments, however, dented margins, leading non-GAAP earnings per American depositary share (ADS) to rise only 7% year over year to $3.86. That was well below the $4.82 NetEase earned in the first quarter and lower than Wall Street's expectations of $4.02.
NetEase's management is wisely sacrificing short-term profits in order to position the company for long-term success. China's online game market is massive and growing rapidly, so NetEase's move to expand its game lineup is shrewd. E-commerce is another exciting growth market in China, and NetEase's aggressive investments in this area are helping it take share here, too.
There will come a time when it will be prudent for NetEase to focus more on its margins and overall profitability, but that time is not now. The company knows this, and it's doing what it needs to do to win in the Middle Kingdom in the decade to come. Thus, patient, long-term-minded investors my wish to use the opportunity created by NetEase's August sell-off to initiate -- or add to -- a position in this intriguing growth story.
10 stocks we like better than NetEaseWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and NetEase wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017
Continue Reading Below