After Pinduoduo’s U.S. stock market value surpassed Alibaba, the top echelons of Chinese Internet companies are once again undergoing a reshuffle.NetEase, which had previously been firmly in the top five Internet companies in terms of market capitalization, recently successfully surpassed Meituan and moved up one spot, winning the new honor of being the fourth largest Internet company in China by market capitalization.Looking back at the development of China's Internet, NetEase, headed by Ding Lei, can be regarded as a veteran player of the domestic Internet. Ding Lei once won the title of China's richest man with NetEase. In the third quarter of this year, NetEase delivered an impressive report card with revenue of 27.3 billion yuan and net profit of 7.8 billion yuan.
However, whether compared with veteran Internet players Alibaba and Tencent, or compared with newcomers such as Pinduoduo and ByteDance, NetEase, now led by Ding Lei, is much more "low-key" than before.But it is worth mentioning that Ding Lei is one of the few founders among Internet giants who holds nearly half of the company's shares. This means that even if Ding Lei does not reduce his holdings and cash out, he can "make a fortune silently" by relying on dividends.
Although NetEase currently owns games and related value-added services, Youdao, Cloud Music, Innovation and other businesses, it is mainly games and related value-added services that support most of its revenue. In the third quarter of this year, this segment contributed nearly 80% of NetEase’s revenue. At the same time, NetEase’s gaming industry is also extremely competitive. NetEase not only needs to face the attack of Tencent, which has always dominated the top spot, but also needs to resist the challenge from the fast-growing junior MiHoYo. Behind the top three in the industry, there are a large number of game manufacturers trying to gain momentum to overtake.
NetEase becomes China’s fourth largest Internet company
On December 13, NetEase surpassed Meituan, as well as JD.com and Baidu, with a market value of HK$542.5 billion, becoming the fourth largest Internet company in China by market value. The only three giants whose market value ranks ahead of NetEase are Tencent, Pinduoduo and Alibaba.
As early as February 2021, when Chinese concept stocks were overall rising, Meituan's market value was once about four NetEase. Less than three years later, NetEase has surpassed Meituan in market value. The reason why NetEase was able to seize the position of China's fourth largest Internet company by market value from Meituan has a lot to do with the relatively small decline in its stock price. In other words, Meituan's stock price has fallen sharply in recent years, while NetEase's stock price has been relatively stable.
Compared with NetEase's market value of HK$7,177.54 at its peak, its market value dropped by 25%, while Meituan's market value at its peak was HK$26,203.11, with a drop of 80%.
Radar Finance found that since the beginning of this year, the stock prices of Internet companies such as Alibaba, Tencent, Meituan, JD.com, and Kuaishou have all fallen, while NetEase and Pinduoduo are among the few Chinese Internet companies whose stock prices have increased during the year.
According to the financial report released by NetEase not long ago, in the third quarter of this year, NetEase recorded a total net income of 27.3 billion yuan, an increase of 11.6% compared with the same period last year; in terms of profit, NetEase's net profit this quarter reached 7.8 billion yuan, an increase of nearly 18% compared with the same period last year.
According to the financial report released by Meituan, Meituan recorded a total revenue of 76.5 billion yuan in the third quarter of this year, a year-on-year increase of 22.1%. During the same period, Meituan’s profit for the period was 3.6 billion yuan, and its adjusted EBITDA and adjusted net profit increased by 28.9% and 62.4% year-on-year to 6.2 billion yuan and 5.7 billion yuan respectively.
Due to different main businesses, Meituan's revenue in the third quarter was significantly ahead of NetEase, about 2.8 times that of NetEase. However, in terms of profitability, Meituan is not as good as NetEase. In terms of gross profit margin, Meituan’s gross profit margin in the third quarter was 35%, while NetEase’s gross profit margin in the same period was as high as 62%.
In fact, strictly speaking, although NetEase and Meituan are both Internet companies, there is not much overlap between their businesses. NetEase's most powerful cards are games, NetEase Cloud Music and Youdao, while Meituan's main position is the local life track.
Some analysts pointed out that the local lifestyle sector that Meituan has been deeply involved in for a long time is currently facing a fierce offensive from its opponents represented by Douyin. At the same time, Meituan’s new business is still losing money and its prospects are unclear. This may be one of the main reasons why Meituan has lost confidence in many investors.
In the third quarter earnings conference call, Meituan CEO Wang Xing also talked about Meituan’s performance in the capital market. Wang Xing emphasized that the management has full confidence in the company's long-term growth potential. The current stock price of Meituan in the secondary market only reflects the valuation of the single food delivery business and is not in line with the company's intrinsic value. He also said that he is considering promoting a repurchase plan worth US$1 billion. "The company will make prudent decisions based on comprehensive consideration of business investment, cash position and market conditions."
On November 29, Meituan announced on the Hong Kong Stock Exchange that starting from December 1, based on the general share repurchase authorization passed by the company's shareholders at the annual general meeting of shareholders on June 30, 2023, and any subsequent general share repurchase authorization approved by shareholders to be renewed or updated from time to time, the company's shares will be repurchased in the open market from time to time for a total amount not exceeding US$1 billion.
China's richest man in the past is now "making a fortune quietly"
NetEase's market value surpassed that of Meituan, which also brought its founder Ding Lei into the public eye again. Radar Finance learned that Ding Lei, who was born in 1971, grew up in a family of senior intellectuals in Ningbo City, Zhejiang Province. He has been interested in radios since he was a child and assembled his first six-tube radio in 1986.
In 1993, after Ding Lei received his bachelor's degree in engineering from the University of Electronic Science and Technology of China (formerly Chengdu Institute of Telecommunications Engineering), he returned to his hometown of Ningbo and worked in the local telecommunications bureau. However, the job regarded as an "iron rice bowl" by the outside world is far from Ding Lei's ambition. So, despite the opposition of his family, Ding Lei resolutely quit his job at the telecommunications bureau and decided to go out and try his luck. After that, Ding Lei worked in several companies, mainly engaged in computer-related work.
The story of NetEase begins in 1997. At that time, Ding Lei, who decided to start a business overseas, founded NetEase in an 8-square-meter rental house in Guangzhou. In the two years since its launch, NetEase has successively launched China's first all-Chinese search engine, the first free personal homepage, the first free e-card site, the first online virtual community and the first online auction platform.
In May 1998, the portal craze swept across China. At this time, Ding Lei, a keen eye, decided to transform NetEase into a portal model. A year later, NetEase moved north and settled in Beijing. The company's strategy also officially shifted from "system integrator" to "Internet service provider." In the fiercely competitive portal field, Ding Lei clearly proposed the concept of "interactivity", making portals a medium for communication and transactions.
In the third year after the company was born, Ding Lei successfully sent NetEase to Nasdaq for listing.However, NetEase, which is new to the capital market, feels the sadness. At that time, the global Internet bubble burst, and NetEase's stock price fell below the issue price on the day it went public. It was described by many media as a "bloody listing." A year later, NetEase was even suspended for misreporting its revenue, and its stock price fell to as low as $0.53. The company was on the verge of delisting and faced the biggest challenge since its founding.
After the company encountered a crisis, Ding Lei finally did not admit defeat, but made the decision to lead the company through the cold winter. Subsequently, Ding Lei, who was at a low point, used his forward-looking judgment to help NetEase get out of the predicament. NetEase's painstaking focus and investment in the SMS business enabled it to become China's first profitable portal a year later. Ding Lei led the NetEase team to develop and launch "Westward Journey Online II", which found a new growth point for the company and laid the foundation for NetEase's current game-focused basics.
By 2003, NetEase, which had been ridiculed by the outside world for its "bleeding listing", saw its stock price jump from US$0.95 in early 2002 to US$70 in 2003, becoming the "No. 1 Nasdaq stock" at the time.Ding Lei, who was only 32 years old, once aspired to be the richest man in China with a fortune of 7.5 billion yuan.
That year, among the top twenty people on the "Mainland China's 100 Rich List" list, the names of Jack Ma, Ma Huateng, Robin Li and others did not appear. In addition to Ding Lei, the top five richest people are CITIC Pacific Rongzhijian, Shimao Group Xu Rongmao, Wanxiang Group Lu Guanqiu, and Hong Kong Fu Wah International Group Chen Laiwa.
Looking back on the past, NetEase, run by Ding Lei, was once one of the four major portals as famous as Tencent, Sina, and Sohu. At the same time, NetEase also has star products such as Mailbox, Youdao, NetEase Cloud Music, and games. However, in China's Internet war, which is fiercely competitive and has frequent newbies, NetEase seems to have become "low-key" in recent years. It is neither as strong a presence as "veterans" like Tencent and Alibaba, nor is it as popular as Pinduoduo and ByteDance.
However, such a company that seems to have some "elderly care" implications has been living a pretty good life recently. For example, NetEase's net income of 27.3 billion yuan and net profit of 7.8 billion yuan in the third quarter of this year have proven that NetEase has no worries about food and drink.
Although compared with the peak moment in 2003, Ding Lei still failed to retain the throne of China's richest man after ups and downs twenty years later. However, this year Ding Lei still topped the list of "2023" with a wealth of 240 billion yuan. Hengchang Shaofang·Hurun Rich List ranked sixth, and the five big bosses ahead of it are Nongfuquan Zhong Suisui, Tencent Ma Huateng, Pinduoduo Huang Zheng, Ningde Times Zeng Yuqun and ByteDance Zhang Yiming.
And relying on the company he built by himself, 52-year-old Ding Lei is also "making a fortune silently." The financial report shows that NetEase’s board of directors has approved a dividend of US$0.0990 per share (US$0.4950 per ADS) to common stock holders (holders of American depositary shares) in the third quarter of 2023.
In March this year, NetEase paid a dividend of US$0.0540 per share in the fourth quarter of 2022 (US$0.27 per ADS per share); in June, NetEase paid a dividend of US$0.0930 per share in the first quarter of 2023 (US$0.46500 per ADS per share); in September, NetEase paid a dividend of US$0.1050 per share in the second quarter of 2023 (US$0.5250 per ADS per share).
As of the end of the first quarter of this year, Ding Lei held 45% of the company's equity. Among the many Internet tycoons in China today, there are very few people who can hold as much equity in the company as Ding Lei. According to Leidi.com, Ding Lei can earn more than 2 billion yuan in dividends a year with the company's equity he holds.
Games account for 80% of revenue, and NetEase is faced with a situation where the former is a wolf and the latter is a tiger.
Radar Finance has learned that NetEase’s current revenue can be mainly divided into four sectors, which are games and related value-added services, Youdao, cloud music, and innovation and other businesses. However, judging from the proportion of each business to total revenue, NetEase has the problem of being "partial".
In the third quarter of this year, games and related value-added services contributed 21.8 billion yuan in net income to NetEase, single-handedly contributing to nearly 80% of NetEase's total net income this quarter. During the same period, Youdao, Cloud Music, Innovation and other businesses earned NetEase 1.5 billion yuan, 2 billion yuan, and 2 billion yuan in net income respectively. However, the total revenue from the aforementioned businesses accounted for only about 20% of NetEase's total net income during the same period.
Unlike other businesses, which all achieved net income growth, Cloud Music was a drag on NetEase this quarter. The sector's net income this quarter fell 16.3% year-on-year.Or in order to further stimulate the growth of this sector, NetEase Cloud Music recently launched the student area and launched a new student-exclusive membership package with a super-value exclusive price of 5 yuan per month for users aged 14-22. Ding Lei also said that there are many young people in Yuncun community, and Yuncun hopes to be closer to young people and provide better services.
From the perspective of revenue contribution, games and related value-added services support most of NetEase's sky. In fact, NetEase is indeed qualified to be among the first-tier domestic game operators. Popular games such as "Onmyoji", "Identity V", and "Fantasy Westward Journey" are all created by NetEase. In its latest three-quarter report, NetEase also disclosed the latest status of its many games.
For example, the mobile game "Backwater" has achieved strong revenue and user growth, with the number of registered players exceeding 50 million; NetEase's first self-developed basketball game "All-Star Streetball Party" topped China's iOS best-selling list at the end of October; at the same time, NetEase's classic flagship game products such as the "Fantasy Westward Journey" series are still supported by players, and other popular games such as "Eggman Party", "Identity V" and "Forever" are still popular.
Although NetEase has launched many hit games, the strength of many players on the same gaming track as NetEase cannot be underestimated. According to the global revenue ranking list of Chinese mobile game publishers in November 2023 recently released by SensorTower, a total of 37 Chinese manufacturers were shortlisted for the Top 100 global mobile game publisher revenue list this month. The aforementioned manufacturers collectively attracted US$1.87 billion, accounting for 38.3% of the revenue of the top 100 global mobile game publishers in this period.
Among them, NetEase ranks second on the list, preceded by NetEase's old rival Tencent. The latter has long dominated the industry with its national-level games such as "Honor of Kings", "Peace Elite", "League of Legends Mobile Game" and "Golden Shovel War".
On December 15, the party mobile game "Yuanmeng Star" developed by Tencent's Tianmei Studio Group was officially launched. In the eyes of many outsiders, this game is aimed at NetEase's party game "Egg Boy Party". Tencent has also officially authorized "Jelly Bean Man" and "Human Fall" as one of the promotion focuses of this new game.
In order to build momentum for this new game, Tencent not only spent 1.4 billion yuan on the construction of the game ecosystem, but also invited Zhang Daxian, a leading game anchor who had just officially announced that he would join Douyin for his live broadcast debut, to play "Yuanmeng Star" live to attract traffic to the game.
Interestingly, in the process of this top-level business war in the field of party games, Tencent and NetEase also used "sarcasm" skills in their respective games in order to compete. According to media reports, "Yuanmeng Star" has launched a zebra skin called "Yi Banban" in the game.
At the same time, NetEase was not to be outdone, and launched a skin called "Penguin Heart" in "Danzi Party", with the introduction of "a little penguin who came to Danzi Island to study. Goose birth is a process of continuous learning." The two skins "Yi Banban" and "Penguin Xinxin" are homophonic for "so-so" and "disgusting", which made many melon-eating netizens who watched the excitement and did not take it too seriously to feel the strong smell of gunpowder.
Gao Dongxu, chief analyst of China Entertainment Think Tank, believes that the core element of party games is social interaction. User stickiness is related to the setting of social mode. Objectively, there is a so-called life cycle and fatigue period. The future potential of this type of game depends to a certain extent on the game's team operation capabilities and whether it can continue to have new hot spots or new gameplay, allowing users to continue to invest time and energy.
However, while NetEase is constantly fighting with Tencent, the gaming giant, it also needs to be wary of attacks from other players.For example, in the global revenue ranking list of Chinese mobile game publishers in November, MiHoYo, which ranked behind NetEase in recent years with popular products such as "Honkai Impact" and "Genshin Impact", has dominated the gaming industry.
With the launch of version 4.2 of "Sinner Dance" on November 8, the daily revenue of "Genshin Impact" hit the highest record this year, and it topped the best-selling list of China's iPhone mobile games for two consecutive days. According to calculations on the list, the mobile revenue of "Genshin Impact" increased by 33% month-on-month in November, contributing to MiHoYo's consolidation of its third position. MiHoYo's new game "Honkai: Star Rail" launched in April this year also received a good response in the market. Not long after the game was launched, it topped the overseas revenue list of Chinese mobile games.
In addition, manufacturers such as Diandian Interactive, Sanqi Interactive Entertainment, Lilith, Lingxi Interactive Entertainment, Kemu Games, and Zhaoxi Guangnian, which is backed by Byte and announced at the end of November that it will conduct large-scale business contraction, are also eyeing the cake of NetEase's gaming track.
For NetEase, surpassing Meituan in market capitalization is something worth celebrating, but there are certain hidden concerns in relying too much on the game business. If there are adjustments to policies and other factors, the company's operations may be affected.
Text | Edited by Morn League | Deep Sea