By Kimberley Kao

NetEase's shares surged in Hong Kong as investors looked past the earnings miss and analysts remained largely confident that its robust pipeline of new gaming titles will support stronger gaming revenue in 2025.

Shares of the Chinese videogame giant were 13% higher by midday Friday, on track for their biggest one-day percentage gain in more than two years. The stock remains about 3.6% lower this year. NetEase's American depositary receipts rose 10% overnight, closing at $84.22.

The advance came despite the company missing consensus estimates for both net profit and revenue due to lower sales from games and value-added services.

NetEase late Thursday reported that net profit dropped 17% from a year earlier to 6.54 billion yuan, equivalent to $904.5 million. Its closely watched adjusted net profit figure declined 13% and revenue fell 3.9%.

Yet analysts described the results as solid overall, pointing to the high base for mobile gaming revenue last year--which accounts for three-quarters of total game revenue--when the highly anticipated "Justice Mobile" title was launched.

Analysts at Citi and Nomura highlighted that plans for new game releases by the end of the year bode well for NetEase's gaming revenue prospects in 2025. Its deferred game revenue was also a positive surprise and should help a gradual recovery in game revenue from the fourth quarter, Nomura said in a research note.

Citi, meanwhile, maintained a buy rating on the company's ADRs and raised the target price to $115 from $108, citing its attractive valuation, strong cash-flow generation and shareholder returns.

NetEase's earnings may bottom out in the fourth quarter, Daiwa Capital Markets analysts wrote in a note. The latest quarter's higher deferred revenue showed that game cash sales remain healthy, they said.

Its 2025 PC game pipeline seems more interesting now, and the "risk-reward profile looks more appealing," the analysts said. For now, Daiwa trims the target price on NetEase's ADRs to $125 from $128 due to the light pipeline for mobile games.

Write to Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

November 14, 2024 23:25 ET (04:25 GMT)

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