What's Going On With Leading Chinese Gaming Giant NetEase Tuesday?

NetEase Inc NTES lost about $7 billion from its market value this week, driven by concerns over competition from Tencent Holdings Ltd's TCEHY upcoming party game, Dream Star. NetEase closed lower by 4.75% on Monday. 

Dream Star, set to launch on December 15, is expected to directly challenge NetEase's popular game Eggy Party, one of China's top mobile games.

Analysts at Goldman Sachs, including Lincoln Kong, noted that the competition between Eggy Party and Dream Star will be crucial, potentially impacting NetEase's market position, Bloomberg reports.

Dream Star, where players compete in various challenges, is part of Tencent's strategic investment of 1.4 billion yuan ($196 million) in game development.

Despite this, Goldman Sachs anticipates the total gaming market will increase, suggesting both games could attract new users instead of merely dividing the existing market share. 

The bank predicts Dream Star could generate up to 6 billion yuan in sales in its first year, closely monitoring user growth and iOS rankings post-release. 

Conversely, Eggy Party's revenue might decrease to about 4 billion yuan in 2024, down from over 7 billion yuan this year.

In November, NetEase reported third-quarter FY23 revenue growth of 11.6% year-on-year to $3.74 billion, missing the consensus of $3.8 billion.

China's second-largest gaming player's adjusted EPADS of $1.82 beat the consensus of $1.46. Games and related value-added services revenues grew 16.5% Y/Y to $2.99 billion. 

Charles Zhaoxuan Yang resigned as CFO effective November 30, 2023, for personal reasons and to pursue other career interests. 

The NetEase stock has gained 36.3% year-to-date versus Tencent which has lost 8.7%.

Price Action: NTES shares are trading lower by 1.98% at $102.12 on the last check Tuesday.