Today, shares of NetEase Inc. (NTES) are falling after the internet technology company smashed estimates for the second quarter.
Yes, you read that correctly. NetEase, which is known for its blockbuster online games, is getting punished for a stunning second-quarter earnings report. In this blog, I’ll go over the details of this report and explain why NTES is an excellent buy on the dip.
Let’s start by digging into the earnings report itself. Compared with the year ago quarter, revenue nearly doubled from RMB4.57 billion to RMB8.95 billion, or $1.35 billion USD. This beat the $1.26 billion USD consensus estimate by 7%.
Breaking it down, mobile gaming revenue skyrocketed 182%, online gaming revenue jumped 76%, and PC gaming revenue increased 11%. Meanwhile, e-Commerce business revenues soared 311%.
Over the same period, net income skyrocketed 103% to RMB3.22 billion, or RMB24.41 per share. Adjusted earnings per ADR was $3.70, which beat the $2.64 consensus estimate by a whopping 40%.
Despite the better-than-expected results, NTES shares pulled back on Thursday morning. As far as I can tell, this is just some normal profit taking. NTES has been on quite a run over the past several months, and it looks like some investors decided to sell on earnings.
In my opinion, this is a shortsighted view. NetEase shows no signs of slowing down, especially now that China has the world’s largest online gaming market.
As an added bonus, NetEase declared a quarterly dividend of $0.78 per ADS. Shareholders of record on August 31 will receive the dividend on September 9. At current prices, NTES has a 1.1% annual dividend yield.
NTES currently earns top marks in Portfolio Grader, with a B Fundamental Grade and an A Quantitative Grade. Overall, I consider it a Strong Buy, and I even recommend it in my Blue Chip Growth newsletter. The bottom line is that today’s pullback should be viewed as a buying opportunity.