October 3, 2017

NTES – Market expectations are for collapsing Uniform ROA, but management’s confidence about revenue growth and their e-commerce strategy implies this may be unwarranted


  • NetEase, Inc. (NTES:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings with a 13.6x Uniform P/E, implying bearish expectations for the firm. However, given management’s confidence about revenue growth and their e-commerce strategy, this may be unwarranted
  • Specifically, management is confident about the sustainability of net revenue growth, and that they will not undermine the profitability of their e-commerce business by doing subsidies in their other activities. As such, expectations for material declines in Uniform ROA appear too bearish, and multiple expansion and equity upside may be warranted

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