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The following excerpts explain why Zacks senior information technology analyst Paul Cheung, CFA remains neutral on NetEase.com, Inc. (NTES), the online content provider:
'NetEase's revenue from online games for the third quarter slightly declined sequentially. Its revenue exceeded market consensus, but EPS did not meet the consensus due to higher marketing expenses of online games. We think NetEase's results demonstrate that it has the ability and experience to expand the life cycle of its online games despite the fierce competition in the Chinese online gaming market.
'However, we are concerned that NetEase's current games have gotten long in the tooth, and new games may not be as successful as its current games. Therefore, we are maintaining our Hold rating on NetEase. Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 15.3x, which is well below the industry average and its Chinese peers.
'Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 13.5x, which is far below the industry average. Using a P/E multiple of 14x our fiscal year 2009 earnings per ADS estimate yields a target price of $19.50 which we believe reflects the company's prospects.'
Read the full analyst report on NTES.
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