Netease Inc Adr (NTES) is the global leader in mobile game publishing, with Revenue ahead of Tencent Holdings Ltd (Tencent) in recent iOS monthly data for November and December. NTES 4Q15 results were strong but, we believe, also show a peak in gaming revenue growth. Sequential growth has started to moderate and while advertising revenue surprised on the upside, there is a lack of visibility around this part of the business. The Lottery business also remains uncertain.
The Stock fell sharply after the earnings release and has struggled since. While NTES has been hugely successful as a gaming company, it remains essentially a one trick pony (games). We prefer the more balanced Tencent with its broader revenue streams. That said, from the current share price the stock looks quite attractive even with a slower growth profile. It is also a rarity in the internet space: it has a real dividend yield.
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