Extracts from notes by ThinkEquity analyst Jason Tsai, and Goldman's James Mitchell, evaluating NetEase's (ticker: NTES) earnings:
....Despite demonstrating the ability to effectively reinvigorate its core franchises through expansion packs, we remain concerned with the growing competitive environment and the title line up beyond current games. The stock has had a nice run despite our rating, and we believe it could trade higher on the strong quarter, but we are maintaining our Source of Funds rating and increasing our price target to $48 from $40 which reflects 18x our FY05 EPS (10% taxed) estimate of $2.69.Goldman Sachs:
....For 2Q05, management guided revenue +18% qoq (games up 18%-20% qoq), and profit +26% qoq. We raise our 2005 forecast diluted EPS by 3% to $2.45; keep 2006 EPS unchanged; and introduce 2007 estimates. We have an IL rating and a 12-month target price of US$50 based on 22X 2006 forecast diluted EPS. We believe risks are moving to the downside given: (1) the launch of rival games during the quarter; (2) Netease's low spending on marketing/R&D and reluctance to license big budget games, reminding us of the smaller Korean game developers; (3) the possibility that Netease is capitalizing costs for Fly For Fun (FFF), a game that it may not commercially release.For access to both research reports, see here.