NetEase Builds An Uneasy, First-Stage Base

   Date:2011/09/14

By ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY
Posted 06:07 PM ET
 

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ATVI Activision Blizzard Inc COOL Majesco Entertainment Co CYOU Changyou.Com Ltd Ads KNM * Konami Corp Adr MSFT Microsoft Corp NTDOY Nintendo Co Ltd Adr NTES * Netease.Com Inc Adr SNE Sony Corp American Shrs SOHU Sohu.Com Inc TTWO Take-Two Interactv Sftwr
* Top-Rated Company
1" 2" 3" 4" Makers of computer software games have inched further ahead in IBD's industry rankings this week, adding to three weeks of strong gains.

Several stocks, including low-priced Majesco Entertainment (COOL), Take-Two Interactive Software (TTWO) and Japan-based Konami (KNM), have played an important role in the advance.

But NetEase (NTES) is the group leader with a 97 Composite Rating. Changyou.com (CYOU) holds a 96 and Sohu.com (SOHU)weighs in with a 95. But the latter two remain deep in their corrections.

California-based Activision Blizzard (ATVI) holds a 94 Composite Rating. But its fundamentals have been erratic, and the stock has remained range-bound below 13 a share since October 2008.

Companies like Activision, Electronic Arts (EA) and Nintendo (NTDOY) make packaged games, sold at retail and installed on consoles like the Microsoft (MSFT) Xbox or Sony's (SNE) PlayStation.

NetEase, Sohu.com and Changyou provide their games online. NetEase offers the "World of Warcraft" game under a license agreement with Activision. But its biggest moneymakers are its own "Westward Journey" series.

The company reportedly sees 90% of its sales from online gaming. But during the first quarter, it launched mobile news software for smartphones, hinting at plans to expand to new ad platforms.

NetEase's fundamentals are tough to criticize. The company ended a streak of five quarters of declining after-tax margins in Q1. The timing of that turn was crucial, because investors have been watching carefully as rising costs affect earnings across a broadening range of sectors in China.

NetEase has so far allayed those fears, with earnings up more than 60% in Q1 and Q2. Sales grew at a better-than-30% rate.

Shares are up a healthy 31% for the year, but have had trouble clearing resistance near 50.

The stock is in the seventh week of a n undefined base. The pattern has its issues, most notably wide swings. But it is a first-stage pattern, and trading has tightened up, with quieter volume across the handle.

Source:investors

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