Everbright Securities released a research report saying that maintaining the NetEase S (09999) “buy” rating, considering that Blizzard China Service is expected to return in the summer of '24, which will have a slight positive effect on NetEase's subsequent revenue expectations; maintaining the 24-26 adjusted net profit forecast of 340.2/382.5/41.47 billion yuan, respectively. Considering that there are still many key products in the future, the 24M4 “Eternity” mobile game has begun testing, and “The Sixteen Voices of Yan Yun” is also expected to be gradually launched after 24 years. The new products are expected to contribute to performance growth, with a target price of HK$205.4.
Incident: On April 10, NetEase announced: A new game distribution agreement has been reached with Microsoft and Blizzard Entertainment. Blizzard games such as “World of Warcraft” and “Hearthstone” will return to the mainland China market one after another in the summer of 2024, and account data for players from all countries will be kept in full; NetEase will cooperate more widely with Microsoft and try to promote new NetEase games to Xbox and other platforms in the future.
The main views of Everbright Securities are as follows:
The return of Blizzard games such as “World of Warcraft” has boosted NetEase's mobile game performance.
It has been observed that since Blizzard's national service was suspended, some players are still looking forward to Blizzard's return. This time, Blizzard's return is expected to attract old players who have temporarily gone to other servers and are waiting to return to the national service. The return of the Blizzard series of games will benefit NetEase's recovery in mobile game revenue growth. However, with the launch of key mobile game products such as “Egg Boy Party” and “Against the Cold,” NetEase mobile game revenue grew rapidly. As of 23Q4, NetEase mobile games accounted for 76.7% of game revenue. In the future, new products such as “Eternity” mobile games will also be launched. Dependence on Blizzard series products is expected to continue to decline in the long run.
The “Popular Game IP+ NetEase Technically Produced Product by Major Overseas Manufacturers” business model is expected to be replicated, or bring revenue growth to NetEase in the future.
According to gamma data, the mobile game “Diablo: Immortal”, which Blizzard and NetEase previously collaborated on, is estimated to have sold over 900 million dollars in the first month, showing the growth potential of the Blizzard IP series of mobile games. Another collaboration with Blizzard may provide NetEase with mobile gamification and other top overseas game IP opportunities, continue NetEase's blockbuster product line, and enhance the game's long-term brand value and market competitiveness.
The new agreement with Microsoft may help NetEase games expand overseas.
NetEase Vice President Hu Zhipeng said at 21M8 that NetEase games accounted for only about 10% of overseas market revenue. Considering the promotion of “Egg Party” and “Against the Cold” in 22/23, the bank believes that NetEase's overseas market revenue share is still low, compared to Tencent's 21/22/23 overseas game share of 26%/27%/30%, respectively. 23M3 NetEase launched the overseas distribution brand “Exptional Global” to launch games such as “Blood Strike.” The “Eternal Evil” mobile game has successfully landed on the Xbox platform. This time, we are collaborating more extensively with Microsoft to provide a new opportunity for NetEase to use the advantages of the Microsoft platform to promote new games developed by itself.