NetEase joins China sell-off despite second-quarter earnings beat

NetEase rose premarket following better-than-expected second-quarter earnings, but has turned 4.9% lower amid a sell-off in Chinese and Southeast Asian tech names.

Among stocks selling off Thursday, Baidu was 2.8% lower; Sea Limited was down 4.7%; Bilibili -2.6%; and NetEase unit Youdao -7.7%.

At NetEase, revenue that grew 12.8% to 23.2B yuan (about $3.5B) narrowly topped consensus, though online game revenues saw some seasonal weakness and fell on a sequential basis.

Margin improvements, though, drove stronger beats in profitability. Gross margin for games rose to 64.9% from last quarter’s 62.2%.

Overall, NetEase gross profit rose 15.7% to 12.9B yuan ($1.9B), and operating profit jumped 32% to 5.5B yuan (about $738.5M).

“Players continued to gravitate to our longstanding games in the second quarter, highlighting our strength in game operations longevity,” said CEO William Ding. “Moreover, the launch of Diablo Immortal attracted the attention of gamers around the world, showcasing our exceptional mobile game development capabilities.”

Meanwhile, “Youdao and Cloud Music are also making key advancements that bolster their operations,” Ding added.

Revenue breakout: Games and related value-added services, 18.1B yuan (up 15%); Youdao, 956.2M yuan (down 26.1%); Cloud Music, 2.2B yuan (up 29.5%); Innovative businesses and other, 1.9B yuan (up 6.1%).

Source: Seeking Alpha

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