NetEase: Masked Margin Miss (Archive)
Favorable PC mix exposed a structural 360 bps margin headwind in core gaming.
This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.
Elevator Pitch
- My most important takeaway from NetEase's Q4 FY22 earnings call yesterday is on the margin dynamics:
- The headline ~300bps gross profit margin miss vs consensus is understandable as it is due to a one-time effect.
- But a favorable mix effect toward PC games - which have materially higher margins than mobile games - failed to translate into higher margins.
- Based on this, I deduce that NetEase is seeing a 360bps margin headwind in its core online gaming business. I expect this weakness to continue as the underlying drivers look weak.
- Technical analysis supports my view, which is a 'Sell' stance on the stock.
Read the full article here.
Disclosures and Disclaimers
Past performance ≠ future results. Not investment advice. See full Disclaimer.
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