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World of Warcraft, online ads drive NetEase to strong 2011 results

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Netease ( NTES , quote ) CEO William Ding said 2011 was a year of "strong growth" when the company reported its quarterly results on February 15. With revenues increasing 32% to $1.2 billion and a gross profit of $781 million, it's hard to argue.

Online gaming led the way for NetEase's revenue growth with a 32.5% increase. Original games got the spotlight -- especially Tianxia III , a fantasy MMORPG launched October 2011 -- but a license of Activision Blizzard's ( ATVI , quote ) World of Warcraft was also credited as a "primary driver" of growth.

World of Warcraft is a sore subject with Western analysts, who are concerned that it is not providing enough revenue to NetEase. The company's license with Activision Blizzard expires in mid-2012, and it is unclear whether it will be renewed or whether other titles will be added to the NetEase lineup. NetEase stock dropped 4% after the earnings call, largely due to these concerns.

NetEase's advertising services grew a relatively modest 25.6%. According to Ding, advertising growth was led by ads for financial services, food and beverages and internet services.

Other ventures did not fare as well. NetEase shut down its L.163 luxury shopping site on December 31.

Looking ahead to 2012, NetEase plans "numerous" expansion packs for its games, and has two completely new games in development. The company is continuing to develop new products for advertisers and expand its user base.

This last goal may be difficult, since the company already has 450 million registered email users and is adding new ones relatively slowly. Microblogging is growing faster, with 97 million users and a 10% increase over last year, but its spread may be slowed down by Chinese government crackdowns .

NetEase trades briskly on the NASDAQ, and World of Warcraft concerns may have pushed it down to an attractive price. Investors looking for a broader mix of Chinese Internet stocks should look at the Global X Social Media Index ETF ( SOCL , quote ) or the iShares FTSE China 25 ( FXI,quote ), which have substantial holdings in Chinese social media and telecom companies.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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