NetEase (SEHK:9999) Gets A Fresh Console Push As Undervalued Narrative Holds
NetEase (SEHK:9999) is back in focus after launching its free to play survival game Once Human on PlayStation 5 and Xbox Series X|S, alongside an Isles of Abyss expansion planned for October.
Despite the Once Human console launch putting NetEase back in the headlines, the share price tells a mixed story. The 1 day share price return of 3.33% at HK$189.1 contrasts with a year to date share price return that is down 17.35% and a 1 year total shareholder return that is down 7.78%. This is set against 3 year and 5 year total shareholder returns of 31.11% and 53.19%, which point to a stronger longer term record than the recent softness suggests.
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After the recent bounce in NetEase shares and a wider pullback so far this year, the gap between the current HK$189.1 price, analyst targets and intrinsic value estimates is hard to ignore. Where does fair value really sit now?
Most Popular Narrative: 24.3% Undervalued
On the latest close, NetEase at HK$189.1 sits well below a narrative fair value of HK$249.78, which sets up a clear debate over what the current price reflects.
NetEase is accelerating global expansion with self-developed and licensed games that have performed strongly in overseas markets (e.g., Marvel Mystic Mayhem, FragPunk, Once Human, Eggy Party). This is increasing the company's addressable market and diversifying revenue streams beyond China, supporting higher long-term revenue growth and earnings stability.
Want to understand why this narrative points to a higher fair value for NetEase? The story leans heavily on future revenue, earnings and margin assumptions, plus the valuation multiple that those numbers would need to support.
The analysts behind this widely followed narrative are working off a detailed set of forecasts for NetEase that cover revenue growth, profit margins, future earnings levels and an implied P/E multiple several years out. Their model also discounts those future cash flows back at a specific required return of 9.07%, which is what produces the HK$249.78 fair value estimate against today’s HK$189.1 share price.
Result: Fair Value of HK$249.78 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, NetEase still faces two key swing factors for this story: its heavy reliance on China for revenue and execution risk in overseas expansion.
Find out about the key risks to this NetEase narrative.
Another View on NetEase Valuation
The analyst narrative and our SWS DCF model both point to NetEase trading below estimated fair value, with the shares at HK$189.1 compared with a DCF fair value of HK$331.89. That is a large gap. The key question is whether the cash flow assumptions are too optimistic or the market is too cautious.
Look into how the SWS DCF model arrives at its fair value.
Next Steps
With the discussion leaning toward upside potential for NetEase, it makes sense to review the figures yourself and decide how convincing that really feels. Take a closer look at the 3 key rewards
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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