On February 27th, Beijing time, NetEase released its fourth quarter 2019 financial report. Judging from the financial report, NetEase's revenue and profit in this quarter were higher than expected, and the overall performance is still very stable. Looking back on 2019, NetEase has made a lot of big moves in its business. Compared with the original "multi-point blossom" development idea, NetEase's adjustment last year obviously began to return to the content consumption channel, regulate resources, and concentrate its efforts.
After the strategic focus, NetEase not only made the ecological map more concentrated, but also allowed the capital market to see the growth potential of other businesses. NetEase's stock price also had a relatively satisfactory increase last year. According to Tencent's U.S. stocks report, NetEase's stock growth in 2019 has exceeded 31%, even surpassing the S & P 500 index's 29% over the same period.
This freshly released new financial report is also an assessment of the NetEase business after a major adjustment. How did the core data perform this time?
Revenue and profits are higher than expected growth is still very stable
According to the financial report, according to the United States General Accounting Standards (GAAP), NetEase ’s fourth quarter net revenue was 157.4348 billion yuan (RMB, the same below) (approximately US $ 2.2602 billion), an increase of 9.2% year-on-year; Operating net profit was 3,053.7 billion yuan (approximately 438.6 million US dollars), an increase of 20% over the same period last year of 2,536,200 million yuan.
From the perspective of business revenue, the net revenue of the online game business was 11.643 billion yuan (about 1.669 billion US dollars), which was 11.534 trillion yuan and 11.011 billion yuan in the third quarter and the same period of the previous year respectively; the net revenue of mobile games in online games The proportion in China is about 70.4%, compared with 71% and 69.7% in the third quarter and the same period of last year;
Net revenue from Youdao was 410.4 million yuan (approximately $ 59 million), compared with 345.9 million and 230.1 million yuan in the third quarter and the same period of the previous year; Innovation and other business net revenue was 3.72 billion yuan (approximately 5.344 US $ 100 million), in the third quarter and the same period last year were 2.755 billion and 3.155 billion yuan, respectively
This quarter, gross profit was 8.214 billion yuan (about 1.194 billion US dollars), the third quarter and the same period last year were 7.874 billion yuan and 7.535 billion yuan, respectively; the net profit attributable to NetEase shareholders of continuing operations was 3.0537 billion yuan (about 438.6 million US dollars), the third quarter and the same period last year were 4.1342 billion and 2.5362 billion yuan respectively;
As of December 31, 2019, the total amount of cash, cash equivalents, time deposits and short-term investments held by Netease was 74.406 billion yuan (approximately US $ 10.878 billion), and as of December 31, 2018 was 49.625 billion yuan; The annual cash flow generated by operating activities was 16.911 billion yuan (approximately US $ 2.4291 billion), compared with 14.658 billion yuan in the previous year.
Full year results for fiscal year 2019:
Total net revenue was 59.241 billion yuan (approximately US $ 8.5095 billion), compared with 51.178 billion yuan in the previous year; gross profit was 31.553 billion yuan (approximately US $ 4.5362 billion), last year was 27.346 billion yuan; continued attributable to NetEase shareholders Net profit from operating business was 13.275 billion yuan (approximately US $ 1.9068 billion), compared with 8.291 billion yuan in the previous year;
Calculated according to non-U.S. GAAP, the net profit of continuing operations attributable to NetEase shareholders was 15.6267 billion yuan (approximately US $ 2.2498 billion), compared with 10.7613 billion yuan in the previous year; basic and diluted earnings per ADS of continuing operations They were US $ 14.8 and US $ 14.67 respectively, compared with US $ 9.2 and US $ 9.15 in the previous year; according to non-US GAAP, the basic and diluted earnings per share of U.S. depositary shares for continuing operations were US $ 17.46 and US $ 17.31 respectively, compared with US $ 11.94 in the previous year USD 11.87.
Judging from the financial report, this time the revenue can be higher than market expectations, "stability" is the key, while maintaining growth, the revenue and gross profit margin of Youdao and the innovation sector have increased. After the financial report was released last quarter, NetEase's stock price showed a relatively stable upward trend, and it also gained a buy rating from many investment institutions. From the perspective of market sentiment, many investment institutions are actively singing about the future development of Netease. Nearly a year after boldly implementing strategic adjustments, NetEase's report card proved to the market that its decision-making was forward-looking.
Strategic focus to strengthen content consumption channel core business all show strong profitability
At the beginning of last year, NetEase proposed a strategically focused plan, and a series of subsequent actions were also launched around this strategic goal. Judging from the ecological layout of NetEase, at this stage its development goal is focused on the content consumption channel, and its main business covers games, education, music, e-commerce and other sectors. Among them, the two businesses of Youdao and Cloud Music have been pulled to the main line, and the outside world has high expectations. In this quarter, how did several major businesses perform?
1. Ace business game's ability to absorb gold is stable and long-term operation is a highlight
In the quarter, Netease's online game service net income was 11.60 billion yuan, a year-on-year increase of 5%. While maintaining revenue of more than 10 billion yuan for seven consecutive quarters, it continued to grow. For the whole year of 2019, the net income of online games was 46.42 billion yuan, a year-on-year increase of 16%.
NetEase has always been good at long-term operations. It can be seen that this ability still allows NetEase to maintain its excellent competitiveness in the highly competitive game industry. Netease games have a high number of daily active users at home and abroad, and the ARPU value is also constantly increasing, which shows that Netease's games have great appeal in converting users to pay. According to App Annie's 2020 mobile market report, among the top 10 protagonists of Chinese user spending in 2019, NetEase games alone accounted for 4 of them.
Looking back on the overall performance of NetEase Games in 2019, it still shows a "steady progress" attitude. "Stable" represents Netease's profound internal skills accumulated in product development and long-term operation. "In" represents its determination to make breakthroughs in game category innovation, overseas expansion, and content value upgrade. It can be predicted that a series of blockbuster games represented by "Fantasy Westward Journey 3D Edition" are expected to contribute considerable revenue in 2020.
Second, Youdao has shown scale effect and the subsequent incremental space is still expected
In the quarter, NetEase Youdao's revenue growth performance was quite impressive. After NetEase will split Youdao into the market, on the one hand, it can release Youdao's greater growth potential, and on the other hand, it can also allow NetEase's value to be more accurately evaluated. Although the time to market is still short, Youdao has used its growth value to attract more and more investors' attention.
In the Q4 quarter, several core data performances of NetEase Youdao were recognized by many investors. In the fourth quarter, Youdao's revenue was 410 million. Among them, learning products and services have become the main source of revenue for NetEase Youdao. Revenue reached 310 million, a year-on-year increase of 129%, and the gross profit margin increased to 29.3%. In the fourth quarter, NetEase Youdao online course sales reached 350 million, a year-on-year increase of 211%.
Inheriting NetEase's consistent mantle of producing high-quality products, Youdao always insists on perfecting the content in the process of establishing superior disciplines, and has many courses that are widely recognized by the market. At the same time, Youdao quickly copied the successful experience accumulated in each link to other disciplines, allowing Youdao to better control its costs and expenses. This quarter, the gross profit margin of learning products and services reached 29.3%, compared with 21.6% in the same period last year, a significant increase. With the further increase in gross profit margin, it will promote the platform to scale growth in the future.
Recently, the online education platform has become the industry with the largest share price increase during the epidemic. The epidemic is only a short-term factor, and more importantly, Youdao and its online education industry still have a lot of imagination in the future.
From the industry perspective, the K12 online after-school tutoring industry has grown rapidly. In 2018, the market turnover was 30.2 billion yuan, and the five-year compound growth rate was as high as 97.13%. At 9.5%, there is a lot of room for improvement.
It is right to have an advantageous position in online education. In the past three and a half months, the market value has doubled. But this may very well be a small step for Youdao to climb the slope, and its future incremental space is still not small.
3. The diversified realization of diversified monetization paths of innovative business has its own advantages
In Netease's business section, innovative business is placed higher expectations. In the quarter, net income from innovation and other businesses was 3.72 billion yuan, an increase of 18% year-on-year; gross profit margin increased to 20.6%. In the performance of the Internet giant's financial report, the performance of innovative business occupies a large part. The businesses covered by this segment, such as Netease Cloud Music and Netease Yanxuan, are important attempts to help NetEase open up new growth points.
With the online music market gradually embarking on the path of payment, NetEase Cloud Music ushered in the best development period, and gradually became Netease's new growth baton. In the fourth quarter, regardless of volume or growth rate, NetEase Cloud Music's growth has been recognized by many markets. Back to the business behavior, NetEase Cloud Music is commercializing this: look live broadcast before, UGC and other plans later, are all good means of monetization.
This quarter, NetEase Cloud Music continued to set new highs in terms of paying subscribers, which also doubled member revenues and recorded new business revenues. Hua Chenyu's digital single "I really want to love this world" was released on December 4th, with sales exceeding 58 million yuan and sales exceeding 19.6 million copies, breaking the record of digital singles in the entire network.
Innovative breakthroughs in digital albums, live broadcasts, etc. have already brought revenue growth to NetEase Cloud Music, and diversified revenue monetization paths have also increased NetEase Cloud Music's future commercial potential.
As the number two leader in innovative business, Netease's performance in this quarter is also remarkable. During the Double Eleven promotion in 2019, the total order volume of Netease Yanxuan increased by 53% year-on-year; the first-hour turnover of the main station increased by 146% year-on-year, and the order volume increased by 215% year-on-year.
For NetEase, innovative business is not only an important exploration of its attempts to diversify revenue, but more importantly, it allows NetEase's ecological layout to present a greater imagination. As these two businesses have maintained a relatively stable growth rate, and the continuous improvement of gross profit, it is only a matter of time before NetEase makes profits.
Netease's financial performance and stock price performed well this quarter. More of it came from the market seeing new growth batons. How much growth space can these new growth points bring to NetEase?
Valuation is underestimated, diversified business potential is neglected, innovation sector will drive Netease's next round of growth
2019 is a year of bold changes for NetEase. After substantial business adjustments, NetEase's strategic organizational structure became clearer. The business focuses on the content consumption channel. For NetEase, it has both experience and potential to tap. Although Netease's stock price has increased a lot last year, some industry insiders believe that NetEase's stock price and its valuation still have the possibility of being underestimated by the market.
On the one hand, many investors are only concerned about NetEase's current profitability. Today's market investors rely on NetEase's overall valuation mainly on the basis of their history and current profitability. They only see games and advertisements with high profit margins as profitable businesses.
On the other hand, NetEase's diversified business value has not been fully recognized by the market. In Netease's business sector, games have always been the most important source of cash flow, but as NetEase increases its emphasis on ethical and innovative businesses, these two businesses also show strong growth potential. Because some investors do not fully understand the innovative business of NetEase while it is still in the investment stage, they have not even given enough patience to objectively give this business a reasonable valuation, which affects their overall valuation of NetEase Accurate judgment.
According to the Dolphin Think Tank's estimates, according to the total valuation of the three major segments of the NetEase business: gaming, Youdao, innovative business and other segments, NetEase's valuation is about US $ 56 billion, corresponding to a stock price of about US $ 433. Compared with NetEase's current stock price, there is indeed a lot of room for growth in the future.
At present, NetEase's game business maintains a stable basic market as before, and will continue to grow while maintaining a certain income scale in the future. After pulling Youdao and Netease Cloud Music to the main line, they also attracted more investors' attention for NetEase. After the Q3 financial report was released, NetEase not only continued to rise in share price, but also received buy ratings from investment institutions such as Macquarie, Nomura Securities, and Goldman Sachs. Being sung more by more investment institutions is mainly based on the current development of NetEase, which allows analysts to see the growth potential.
Earlier, everyone did not understand NetEase ’s several rounds of adjustments, but from this financial report, NetEase ’s pattern has been very clear: NetEase has always been good at creating high-quality content. On the track of sticking to the game, choose education and music The track can continue to use the advantages it has accumulated over the years, and this time the good financial performance and market response also proves this. On the basis of the simultaneous development of the three major business sectors, Netease's future growth value is worth looking forward to. This may also allow NetEase to usher in high-speed development in the next round.
Source of this article: US Stock Research Institute-designed to help Chinese investors understand the world, focus on US technology stocks and Chinese stocks, and friends who are interested in US stocks quickly follow us
