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As a leading internet technology company based in China, NetEase is dedicated to providing premium online services centred around innovative and diverse content, community, communication and commerce. NetEase develops and operates some of China’s most popular mobile and PC-client games. As of March 31, NetEase had over 100 mobile games offered in China and mobile games contributed 55% of its total revenues. In more recent years, NetEase has expanded into international markets including Japan and North America. Overseas games revenue presently accounts for approximately 10% of total online games revenue. In addition to its self-developed game content, NetEase partners with other leading game developers, such as Blizzard Entertainment and Mojang AB (a Microsoft subsidiary), to operate globally renowned games in China. Thanks to its digital activities, the company is more or less protected against the coronavirus crisis, and can even thrive on it as more people are obliged to stay at home.

The company is active in four business segments: online games, online music, online education and e-commerce & others. NetEase generated revenues of RMB46.4bn (US$6.7bn) in the first segment, making it the second-largest online game player in China after Tencent. NetEase has a stronger overseas presence and is the top-ranking foreign publisher in Japan. Knives out and Identify V have seen considerable, on-going success with both games remaining at the forefront of Japan’s top grossing games chart. According to Sensor Tower, NetEase had achieved approximately 5% market share in Japan by November 2019.

In the second segment, NetEase Cloud Music is one of the largest online music streaming platforms in China with more than 800 million users, as well as China’s most active music platform with more than 160,000 independent artists. NetEase Cloud Music not only enjoys the fastest growth among the top players, it had Alibaba take a minority stake in it last year to share some of their previously-exclusive catalogues which will likely be beneficial in terms of user retention rate, user time spent on the platform and the level of user-generated content.

In the third segment, it includes its majority-controlled subsidiary, Youdao, which is the leading intelligent learning service provider in China dedicated to developing and using technologies to provide learning content, applications and solutions to users of all ages.

In the fourth and last segment, it is a cutting-edge service provider of private label e-commerce through Yanxuan, a platform offers access to a comprehensive selection of affordable and high-quality products in China; others include one of the largest providers of free email services in China, one of the most popular internet media service providers in China, as well as a CC livestreaming platform.

Global games will be an increasingly international phenomenon. Newzoo forecasts global mobile revenue is set to grow from US$68.5bn in 2019e (2.4bn mobile gamers) to US$95.4bn in 2022. NetEase is confident of delivering at least 30% of game revenue from overseas in 3-5 years with notable increases from Japan. The Japanese market represented 89% of overseas mobile games revenue for NetEase in 2019.

Overseas investments (e.g. Bungie, Behaviour, Quantic Dream) continue to enrich NetEase's games genre diversification ability, putting NetEase in the front seat of tailwind of globalization of mobile games. NetEase launched a studio in Montreal in July, and has opened offices in LA and Vancouver and is looking to expand in the UK and other European countries.

On May 20, the company released quarterly results. NetEase’s 1Q20 results beat with total revenue up 18% year-on-year to Rmb17.1bn, 2.5% above estimate and 9% above consensus. Online games was in-line, up 14% year-on year driven by record PC games revenue (+21% year-on-year) with the successful CNY expansion packs. Mobile games also grew 11% year-on-year. Its pipeline is strong with new games under Onmyoji, Ghost, Harry Potter and Marvel IPs. Youdao also beat with gross billing accelerated growth at 287% year-on-year, driven by K12 online courses. Adjusted Ebit was up 18% year-on-year to Rmb5.1bn with a stable 30% margin. It will continue its prudent investment approach. NetEase raised its share repurchase program to US$2bn. NetEase declared a quarterly dividend of US$1.16/share, implying a 30% pay-out and an annualised yield of 1.2%.

The company is an excellent way to tap into several secular trends, that are currently being reinforced by the coronavirus situation. The company generates ample free cash flow, has a sound balance sheet, an international footprint in rapidly growing markets and also dedicates attention to sustainability challenges.


A revolution in global business is under way. Companies based in emerging markets, boasting ambitious leaders, appealing products or services and state-of-the-art facilities and systems are expanding overseas and transforming industries and markets across the globe. The few emerging markets companies that have captured media attention only represent a small fraction of a larger phenomenon of the many emerging markets companies that are actively expanding beyond their domestic markets, or are planning to do so. As corporate governance has always been a key risk of emerging market investing, Econopolis opened up a Singapore research hub in 2013 to increase proximity to the companies we invest in and observe and listen to the signals you cannot get by just doing desktop research.

Our experienced investment team applies a disciplined, bottom-up fundamental investment approach. We believe in a ‘boots on the ground approach’, visiting and talking to companies. A high-conviction investment approach translates into a willingness to take active positions regardless of benchmarks. This results in a select number of strong franchises with clear competitive advantages and trustworthy management.

The Global Challengers we are looking for, are set to grow into global powerhouses with credible aspirations to build global footprints. The capabilities of these Global Challengers go beyond mere cost advantages. They have been building new capabilities, such as manufacturing higher-quality products, harnessing their cash resources, and investing in R&D. These Global Challengers can be divided into three groups:

  • early movers (that started to globalise early on);
  • fast followers (making rapid progress); and
  • up-and-comers (whose ambitions have until recently been more regional than global).


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About the author

Gino Delaere

Gino Delaere

Gino Delaere is master in Applied Economics (University of Antwerp) and holds an MBA (Xavier Institute of Management in Bhubaneswar, India). For over a decade he has been specializing in emerging markets worldwide and traveling the world looking for interesting investment opportunities. Previously he worked for several large asset managers where he was actively involved in several thematically inspired equity funds. Today, as the head of the Econopolis office in Singapore, he spends a significant amount of his time in Asia and Latin America, and is responsible for the stock selection in the emerging markets funds.

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