Mat Hayward
NetEase (NASDAQ:NTES) confirmed it had renewed a recently expired publishing deal with Blizzard Entertainment -- now part of Microsoft (NASDAQ:MSFT) -- that will bring Blizzard's popular multiplayer games back to China.
A previous deal that had covered 14 years expired at the end of 2022 (when Blizzard was still part of Activision Blizzard) amid a dispute on terms.
Now hit titles including World of Warcraft (and other titles in Blizzard's Warcraft game universe), Overwatch, Diablo and Hearthstone will return to mainland China in a phased approach beginning this summer.
The two companies also announced an agreement to explore bringing NetEase's titles to Xbox consoles and other platforms.
“Blizzard and NetEase have done incredible work to renew our commitment to players – Blizzard’s universes have been part of players’ lives in the region for many years," Microsoft Gaming chief Phil Spencer said. "Returning Blizzard’s legendary games to players in China while exploring ways to bring more new titles to Xbox demonstrates our commitment to bringing more games to more players around the world.”
The move likely means more favorable financial terms for NetEase, Morgan Stanley estimated. Blizzard's return likely adds up to revenue of 3B yuan (about $415M) per year for NetEase (NTES) -- about 14% of its PC game revenues, and 4% of total revenues, in 2023, analyst Alex Poon figured.
What's different in the new agreement? NetEase titles potentially coming to Xbox, for one. NetEase's (NTES) Naraka Bladepoint was its first Xbox console title in June 2022, and it is still among the top 25 free-to-play titles on the platform, Poon noted. The game maker also has a number of multi-terminal titles in its pipeline.
Meanwhile, while cost structure wasn't part of the announcement, Poon writes that the previous terms meant limited profits for NetEase (NTES) because of high royalty fees. "Better financial terms could also open avenues for additional game licensing in the future, such as Diablo IV, released in June 2023, and the cancelled World of Warcraft mobile game in August 2022 due to a dispute over financial terms. We think they also imply better longevity for existing titles."
Morgan Stanley is Overweight on NetEase (NTES) with a $135 price target, implying 37% upside.
NetEase stock (NTES), which gained 3.8% Tuesday alongside reports the new deal was near, was down 1.9% at midday Wednesday as part of a marketwide downdraft in the wake of hot inflation numbers.
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