Investment company Day Hao Capital released today investment Report

The following is a summary of the contents of the report:

NetEase's third-quarter earnings were relatively sluggish, with revenues and diluted earnings per share lower than Wall Street's expectations. We believe that this is mainly the drag of online games, which is the current problem facing the industry. Because of the transfer to the mobile platform, as well as the in-depth development of PC Internet, users have more choice space, so the part of the game time allocated to other activities. We think it is more difficult for game providers to develop an MMO game on a PC platform than in the past. But as the market leader in the field of content research and development, we believe that NetEase's expansion to foreign markets, transfer to the mobile platform strategy to help solve the current problem. To this end, we continue to maintain the NetEase stock "buy" rating.

Expanding overseas, moving to mobile platforms: Two challenges for internet users: 1 spend more time on other activities on the PC platform, such as online video, shopping and social networking, and less time on PC MMO games. 2 spend more time on mobile devices, such as micro-mail, video and games. We believe that game companies have felt this shift. and NetEase use content advantage to expand overseas, move to mobile platform to help solve these problems. We believe that NetEase's chances of success are greater.

The rise of mobile games, the lack of high-quality MMO games: Current mobile game penetration rate is still low, 35%. If the penetration rate eventually reaches 59% of smartphone users, it means there is still room for greater improvement in the industry. This year, the smartphone gaming market is expected to grow 371% to $1.5 billion trillion, while 2014 will grow 94% to 2.9 billion dollars. But at present the market is very dispersed, only a few popular games. As of September 30 this year, the total number of mobile games in China's main Android app store was about 217,000, with the number of MMO games only 76, representing a total of 0.03%. Moreover, most games have a shorter life cycle, so the market requires high-quality MMO games. We believe that NetEase has the potential to successfully introduce MMO games on its PC platform to mobile platforms.

New game: NetEase in the quarter and 2014 will launch a number of new games, including: "Datang 2" and "World 3" and other games of new information, as well as "Crisis 2015", "Revelation" and "Stone Legend: Warcraft Heroes Biography" and so on.

Challenges to the success of mobile games: A key element in moving games to success is the release platform. At present, all traditional MMO game manufacturers have launched their own mobile games, and has been a certain success, but these games quickly by Tencent through the micro-letter platform, "Every day cool run" beyond. Therefore, the publishing platform is critical to the success of mobile gaming. NetEase also has a similar release channel easy Letter, as well as e-mail services, NetEase is now vigorously promote easy to believe, but the channel can be successful at present is difficult to judge. This is also netease in the mobile game market is faced with uncertainties.

Third-quarter results were lower than Wall Street's FORECAST: Net revenue was $385 million trillion, well below Wall Street's projected $394.9 million trillion and our expected $389.6 million trillion. Advertising revenue of 44 million dollars, lower than we expected 47.9 million dollars. NET game revenue is 324.4 million dollars, lower than we expected 329.5 million dollars. Diluted earnings per share of $1.31 trillion, below Wall Street's expected $1.34 trillion and our projected $1.38 trillion.

Adjust performance expectations: We will be netease quarter revenue forecast from 406 million U.S. dollars to 397 million U.S. dollars, the diluted earnings per share forecast from 1.46 U.S. dollars to $1.38. For the entire 2013 fiscal year, we have reduced our revenue forecast from $1.511 billion to $1.4976 billion, and reduced the projected earnings per share from $5.52 to $5.39. As for fiscal year 2014, we have reduced our revenue forecast from $1.7409 billion to $1.661 billion, and reduced the projected earnings per share from $6.25 to $5.85.

Valuation: We continue to maintain the NetEase stock "buy" rating, while maintaining a 75 dollar target share price unchanged.