NetEase raised $2.7 Billion in Hong Kong

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NetEase raised $2.7 Billion in Hong Kong

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NetEase Inc. (NASDAQ: NTES) raised about $2.7 billion (HK$21 billion) in a Hong Kong secondary offering at a share price of HK$123 ($15.87) each.

The U.S.-listed internet company launching itself in Hong Kong. This is due to tensions between Washington and Beijing threatened to cut back Chinese companies’ access to U.S. capital markets. This came out after high-flying Luckin Coffee Inc. crashed in the middle of an accounting transgression. It was the big success for Hong Kong, coming afterwards Alibaba Group Holding Ltd.’s $13 billion share sale and the passing of National Security Law.

NetEase’s is expected to be the second-largest deal in Hong Kong after Alibaba this year.

China’s second-largest online gaming firm NetEase (NTES) had planned to sell 171.48 million shares, priced at HK$123 ($15.87) each, equivalent to 2% discount closing price on NASDAQ. The Company has the option of selling another 25.7 million shares, as a “Greenshoe” option. (A greenshoe option is an over-allotment option)

Charles Li, CEO of Hong Kong Exchanges and Clearing Ltd (0388.HK), said he is expecting 2020 to be “a big year” for what he called “returnees” from the U.S. markets.

Earlier, the company set a maximum price of HK$126. Trading of shares in Hong Kong is expected to start on June 11. In its earlier regulatory filings, the company said they planned to use the money raised in its Hong Kong listing to fund its international expansion plans.

On May 19, 2020, Company announced its unaudited financial results for the first quarter ended March 31, 2020.

 Key Highlights of First Quarter 2020

(Source: NetEase Inc.)

  • Net revenues were RMB17.1 billion (US$2.4 billion), an increase of 18.3% compared with the first quarter of 2019.
    • Online game services net revenues were RMB13.5 billion (US$1.9 billion), an increase of 14.1% compared with the first quarter of 2019.
    • Net revenues were RMB541.4 million (US$76.5 million), an increase of 139.8% compared with the first quarter of 2019.
    • Innovative businesses and other net revenues were RMB3.0 billion (US$424.1 million), an increase of 28.0% compared with the first quarter of 2019.
  • Gross profit was RMB9.4 billion (US$1.3 billion), an increase of 21.2% compared with the first quarter of 2019.
  • Total operating expenses were RMB4.9 billion (US$690.8 million), an increase of 22.8% compared with the first quarter of 2019.
  • Net income from continuing operations attributable to the Company’s shareholders was RMB3.6 billion (US$501.5 million). Non-GAAP net income from continuing operations attributable to the Company’s shareholders was RMB4.2 billion (US$595.0 million).
  • Basic net income from continuing operations per ADS was US$3.88. Non-GAAP basic net income from continuing operations per ADS was US$4.60.

Net Revenues

For the first quarter of 2020, net revenues were RMB17,062.4 million (US$2,409.7 million), compared to RMB15,734.8 million and RMB14,422.2 million for the preceding quarter and the first quarter of 2019, respectively.

Net revenues from online game services were RMB13,518.2 million (US$1,909.1 million) for the first quarter of 2020, compared to RMB11,604.3 million and RMB11,850.2 million for the preceding quarter and the first quarter of 2019, respectively

Gross Profit

Gross profit for the first quarter of 2020 is RMB9,377.6 million (US$1,324.4 million), as compared to RMB8,210.4 million and RMB7,737.7 million for the preceding quarter and the first quarter of 2019, respectively.

The quarter-over-quarter and year-over-year increases in online game services gross profit were primarily due to increased net revenues from self-developed games including Fantasy Westward Journey 3D, Fantasy Westward Journey mobile game, Fantasy Westward Journey Online, and New Westward Journey Online II, as well as certain licensed games.

Net Revenue and Gross Profit for the year 2019

Nasdaq-listed NetEase, China’s second-largest online game producer, announced its fourth-quarter 2019 revenue of RMB 15.7 billion (USD 2.3 billion), a 9.2% increase year-over-year. Net revenue for the fiscal year 2019 was RMB 59.2 billion (USD 8.5 billion).

Beating market expectations on both revenue and net income in Q4, NetEase now took over Baidu as the fifth most valued Chinese internet companies, trailing after Alibaba, Tencent, Meituan Dianping, and JD.com.

NetEase Net Revenue 2019

(Source: Buisness Quant)

The year-over-year increase in:

  • Online game service’s gross profit for the fiscal year 2019 was primarily attributable to increased revenue contribution from mobile games such as Life-After, Invincible, and Identity V.
  • Gross profit for the fiscal year 2019 was primarily attributable to the rapid development of its learning services and products.
  • Innovative businesses and other’s gross profit for the fiscal year 2019 was primarily due to increased net revenues from NetEase Cloud Music, CC live-streaming, and Yanxuan, as well as improved cost control.

NetEase Gross Profit 2019

(Source: Buisness Quant)

NetEase, Inc. is a Chinese Internet technology company providing online services. It is one of the largest Internet and video game companies in the world. NetEase develops and operates online PC and mobile games, advertising services, email services, and e-commerce platforms in China. In 2019 NetEase obtains a minority stake in Quantic Dream for an undisclosed investment.

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