20230529-招银国际-Solid_mobile_games_and_margin_improvement_support_strong_1Q23_results_7页_1mb

NetEase (NTES US) Q1 2023 Results and Analysis Summary

• Q1 Performance Overview: NetEase reported a 6% year-over-year (YoY) increase in total revenue to RMB25.0 billion in Q1 2023, aligning with estimates, and a 48% YoY rise in non-GAAP net income to RMB7.6 billion, exceeding consensus by 36%. Key drivers included a 5 percentage point improvement in gross margin to 59.5% and effective control of marketing expenses.

• Business Segments:

  • Online Games: Revenue increased 8% YoY to RMB20.1 billion, with mobile games growing 16% YoY to RMB13.4 billion, heavily driven by hits like "Eggy Party." PC games declined 10% YoY due to licensed Blizzard game terminations. New mobile games scheduled for Q2 2023 include "Justice Mobile," "Racing Master," and "Badlanders."
  • Non-Game Businesses: Net profit improved to 30.2%, aided by Cloud Music's gross profit jump of 75% YoY to 22.4% margin, and innovative businesses (e.g., Yanxuan) growth of 13% YoY. Youdao revenue fell 3% YoY, impacted by course declines.

• Financial Projections and Valuation: Revisions raise 2023-25E non-GAAP net income forecast by 8-10%, expecting a 7% CAGR in total revenue and 15% in operating income despite macro risks. SOTP valuation lifts to US$123, based on business segments with online games leading valuations at 16x 2023E EV/EBIT.

• Risk Factors: Challenges persist with macroeconomic uncertainty, competition, and revenue mix shifts, though the company maintains a BUY rating with a 46.8% upside from current price. Peer comparisons show NetEase aligning with industry averages in valuation multiples.

This summary highlights NetEase's solid results, margin expansions, and positive future outlook, supported by game performance and innovative business growth.