Tech stock under pressure: NetEase Inc (ADR) (NASDAQ: NTES)

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NetEase Inc (ADR) (NASDAQ: NTES) stock lost over 10.7% on 9th August, 2018 (as of 12:46 PM GMT-4; Source: Google finance). Gross profit margin for advertising services reached 67% in 2Q18 against 68% in pcp. Moreover Gross loss margin for e-mail and other business reached 7.3% against 7.7% in pcp hurt by fall in revenue from certain online platform businesses, which have relatively higher gross profit margins as well as higher licensed music content costs related to their cloud music business in the second quarter.

Moreover, NTES’ online games reached RMB10.1 billion, which represents 15% sequential growth. This is the strongest growth rate for this segment since the first quarter of 2017. The company’s mobile and PC client games continues to be the dual growth engines for online games. The company has launched several new games in non-MMO categories during the second quarter, including Shadwoverse, Identity V and QwQ. Each of these titles quickly rose to the top of the download chart in China. While the company continue to dominate the MMO market, NTES are rapidly finding a place in the non-MMO space. Further, the company’s games in more casual genres are cultivating a completely different and incremental user base.

Additionally, in Japan, Knives Out has been consistently ranked in the top three on the iOS grossing chart and took the number one position for most of June. Similarly Identity V was launched in Japan in early July and has become number iOS and Google Play downloads chart in Japan. To expand the geographic footprint, the company will be adding more localized content to the games specifically to cater to local user appetite. In the U.S. the company also had a strong start with the launch of Rules of Survival and Onmyoji Arena earlier this year. The company is also very encouraged by the performance of Identity V in the U.S. launched in July.

NTES has approved a dividend of US$0.61 per ADS for the second quarter of 2018, which is expected to be paid on August 31, 2018 to shareholders of record as of the close of business on August 24, 2018. Further, NTES has approved an amendment to its share repurchase program, authorizing the repurchase of up to an additional US$1.0 billion of the company’s outstanding ADSs. This increases the US$1.0 billion repurchase program that was approved on November 15, 2017 for a period not to exceed 12 months, bringing the total authorized repurchase amount to US$2.0 billion. As of June 30, 2018, the Company had repurchased approximately 3.4 million ADSs for approximately US$912.0 million under this program.

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