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NetEase (NTES) to Report Q3 Earnings: What's in the Cards?

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Zacks Equity Research
·4 min read
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NetEase NTES is set to report third-quarter 2020 results on Nov 19.

The Zacks Consensus Estimate for third-quarter revenues currently stands at $2.64 billion, suggesting an increase of 29.1% from the figure reported in the year-ago quarter.

The consensus mark for earnings has remained steady at 26 cents per share over the past 30 days, indicating a decline of 90.6% from the year-ago quarter’s reported figure.

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 133.2%.

Let’s see how things have shaped up for this announcement.

NetEase, Inc. Price and EPS Surprise

NetEase, Inc. Price and EPS Surprise
NetEase, Inc. Price and EPS Surprise

NetEase, Inc. price-eps-surprise | NetEase, Inc. Quote

Factors to Consider

NetEase’s diversified online gaming portfolio is expected to have been a major contributor to the top line in the to-be-reported quarter.

Additionally, coronavirus-led social distancing norm is expected to have driven the number of active users in the to-be-reported quarter.

Moreover, NetEase’s expanding gaming portfolio in 2020 including Fantasy Westward Journey 3D, Xuan Yuan Sword: Dragon Upon the Cloud, Bloom & Blade, Onmyoji: The Card Game, Champion of the Fields, The Ninth Institute, and Astracraft is expected to have driven user growth and contributed to the company’s top line in the soon-to-be reported quarter.

Markedly, the availability of Activision Blizzard’s ATVI World of Warcraft Classic in China and continued popularity of the franchise is expected to have aided subscriber growth in the to-be-reported quarter amid coronavirus-induced confinement.

Further, its expanded international presence with titles like Knives Out, Identity V and Marvel Super War is noteworthy.

Meanwhile, increased efforts to monetize NetEase Cloud Music are expected to have driven Innovative business segment’s top line.

However, increasing government regulations related to gaming and stiff competition from Tencent are expected to have negatively impacted the top line.  

Moreover, coronavirus-induced weak online advertising environment is expected to have hurt NetEase Cloud Music’s top line in the third quarter.

Key Developments in Q3

On Aug 10, NetEase Cloud Music announced a multi-year licensing agreement with Universal Music Group. Per the agreement, NetEase Cloud Music will directly distribute UMG's music, including domestic and international recording artists, on its streaming NetEase Cloud Music platform and associated digital services in China.

Moreover, NetEase also entered into a strategic music partnership with BMG under which NetEase Cloud Music will gain access to BMG's extensive global music catalogue and partner with BMG in new music-related endeavors including live concert performances, artist promotions, live streaming and online karaoke.

On Sep 18, the company announced changing the ratio of its American depositary shares (ADS), representing ordinary shares, from the current one ADS for every twenty-five ordinary shares to one ADS for every five ordinary shares effective Oct 1, 2020 at the close of business.

What Our Model Says

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

NetEase has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are couple of companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming release.

Momo Inc. MOMO has an Earnings ESP of +5.41% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

DocuSign DOCU has an Earnings ESP of +4.35% and a Zacks Rank #3.

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