NetEase, Inc. (NASDAQ: NTES)

Sector: Communication Services Industry: Electronic Gaming & Multimedia CIK: 0001110646
Market Cap 76.19 Bn
P/B 3.35
P/E 15.89
P/S 4.76
ROIC (Qtr) 127.98
Div Yield % 2.54
Rev 1y % (Qtr) 6.79
Total Debt (Qtr) 906.88 Mn
Debt/Equity (Qtr) 0.04
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About

NetEase, Inc., a prominent player in the technology sector, has established itself as a major force in the online gaming industry. With a stock symbol of NTES on the Nasdaq stock exchange, the company has made significant strides in its field since its inception in 1997. Its headquarters in Hangzhou, China, has been the epicenter of its growth and development, fueling its rise as a pioneer in the online gaming space. NetEase's main business activities encompass the development and distribution of online games, reaching a global audience across...

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Investment thesis

Bull case

  • Strong operating cash flow of 7.21B provides robust 7.95x coverage of total debt 906.88M, indicating excellent debt servicing capability and financial flexibility.
  • Healthy cash reserves of 20.47B provide 22.57x coverage of short-term debt 906.88M, demonstrating strong liquidity position and minimal refinancing risk.
  • Strong tangible asset base of 30.88B provides 34.05x coverage of total debt 906.88M, indicating robust asset backing and low credit risk.
  • Operating cash flow of 7.21B provides exceptional 48.88x coverage of minority interest expenses 147.44M, showing strong core operations.
  • Operating cash flow of 7.21B provides strong 13.91x coverage of stock compensation 518.13M, indicating sustainable incentive practices.

Bear case

  • Operating cash flow of 7.21B barely covers its investment activities of (4.71B), with a coverage ratio of -1.53, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 7.21B provides thin coverage of dividend payments of (1.96B) with a -3.67 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Investment activities of (4.71B) provide weak support for R&D spending of 2.52B, which is -1.87x, suggesting potentially insufficient investment in innovation relative to other capital deployment.
  • Cash reserves of 20.47B provide limited coverage of acquisition spending of (213.67M), which is -95.81x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
  • High receivables of 758.21M relative to inventory of 97.90M (7.75 ratio) suggests aggressive credit terms or collection difficulties, potentially masking revenue quality issues.

Segments Breakdown of Revenue (2024)

Timing of Transfer of Good or Service Breakdown of Revenue (2024)

Peer comparison

Companies in the Electronic Gaming & Multimedia
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 NTES NetEase, Inc. 76.19 Bn 15.89 4.76 0.91 Bn
2 EA Electronic Arts Inc. 50.25 Bn 73.90 6.88 1.89 Bn
3 RBLX Roblox Corp 43.57 Bn -40.91 8.91 1.64 Bn
4 TTWO Take Two Interactive Software Inc 34.06 Bn -8.59 5.19 3.51 Bn
5 PLTK Playtika Holding Corp. 1.22 Bn 14.21 0.45 2.54 Bn
6 SOHU Sohu.com Ltd 0.46 Bn 1.16 0.78 0.00 Bn
7 GRVY GRAVITY Co., Ltd. 0.45 Bn 8.02 1.09 0.00 Bn
8 DDI DoubleDown Interactive Co., Ltd. 0.43 Bn 4.17 1.19 0.04 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets -0.05 0.73
EV to Cash from Ops. EV/CFO -0.23 9.02
EV to Debt EV to Debt -1.86 42.93
EV to EBIT EV/EBIT -0.30 5.14
EV to EBITDA EV/EBITDA -0.31 -0.17
EV to Free Cash Flow [EV/FCF] EV/FCF -0.24 2.00
EV to Market Cap EV to Market Cap -0.02 0.31
EV to Revenue EV/Rev -0.11 -278.61
Price to Book Value [P/B] P/B 3.35 5.21
Price to Earnings [P/E] P/E 15.89 5.61
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 0.35 1,143.22
Dividend Payout Ratio % Div Payout % (Qtr) 40.40 15.62
Dividend per Basic Share Div per Share (Qtr) 3.04 0.31
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 3.97 21.95
Interest Coverage Interest Coverage 0.00 2.42
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) 5.07 -144.92
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) 15.04 2,047.52
Dividend Growth (1y) % Div 1y % (Qtr) 24.13 2.39
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 17.88 10.58
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 23.40 -40.36
EBIT Growth (1y) % EBIT 1y % (Qtr) 17.36 28.44
EBT Growth (1y) % EBT 1y % (Qtr) 17.36 -25.09
EPS Growth (1y) % EPS 1y % (Qtr) 18.33 -25.14
FCF Growth (1y) % FCF 1y % (Qtr) 34.81 -203.71
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 14.08 977.78
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.07 0.61
Cash Payout Ratio Cash Payout (Qtr) 0.26 0.03
Cash Ratio Cash Ratio (Qtr) 2.75 1.98
Current Ratio Curr Ratio (Qtr) 3.45 4.93
Debt to Equity Ratio Debt/Equity (Qtr) 0.04 -1.05
Interest Cover Ratio Interest Cover Ratio 0.00 2.42
Times Interest Earned Times Interest Earned 0.00 2.42
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 37.30 9,395.66
EBIT Margin % EBIT Margin % (Qtr) 248.73 10,488.08
EBT Margin % EBT Margin % (Qtr) 35.33 -43,333.75
Gross Margin % Gross Margin % (Qtr) 64.30 57.20
Net Profit Margin % Net Margin % (Qtr) 30.00 -43,332.40