Tencent (700 HK) & NetEase (NTES US) US
Technology
While China’s e-commerce sector is mired in subsidy fuelled competition, Arete argues this is outweighed by strength in gaming and online entertainment. Record approvals and blockbuster titles underpin upgrades for Tencent and NetEase, while Alibaba shows early signs of a turnaround in quick commerce and cloud. The report also examines mounting cost pressures at Meituan, the lack of near term catalysts at Xiaomi and SEA, and the structural headwinds still facing JD and Baidu.
Edition: 219
- 05 September, 2025
Communications
Blue Lotus expects Tencent to beat 2Q25 revenue, IFRS operating profit and net income forecasts, supported by success in the extraction shooter genre, which has exploded in popularity within the Chinese market recently. Tencent’s Delta Force has surged from ~5m MAUs in Jan to 38m in July, making it the company’s 3rd largest game. Arena Breakout is also proving to be extremely popular. While both Tencent and NetEase have blockbuster titles in development, the former appears to be moving faster - likely due to its generative modelling strengths. With upside to valuation and near-term catalysts, Blue Lotus names Tencent as their Top Pick in the gaming sector.
Edition: 217
- 08 August, 2025
Online gaming bucks the trend of weak consumption
Communications
Blue Lotus’s research suggests game and online video revenues are holding up better than movie theatres and that Tencent, NetEase and Bilibili’s 2Q24 NI will comfortably beat consensus forecasts. Over the past seven years, they have found an inverse relationship between online game and video with offline movie receipts. Gross billings of China’s gaming industry grew by 2.1% Y/Y in 1H24, reversing a decline since 2022. Online video grew by 1.4%. While smaller developers continue to struggle (economies of scale / large companies benefitting from AI investments and acquisitions), Blue Lotus raises their target prices for NetEase and Bilibili. Tencent remains their top pick.
Edition: 192
- 09 August, 2024
Technology
Whilst the Chinese online games market has struggled since 2023, NetEase (9999-HK) has continued to gain revenue market share driven by the success of its mobile titles. Medium-term revenue growth will depend on the continued success of NetEase’s legacy titles and its robust pipeline of upcoming releases, including several highly anticipated launches. NetEase trades nearly 2 standard deviations below its 5-year historic average PE trading range, a level that has proved to be a very good entry point. A steady quarterly dividend policy, ongoing share repurchases, a strong balance, and cash flow generation should further support its share price.
Edition: 188
- 14 June, 2024
China Gaming: A misstep overshadows positives
Communications
The Christmas massacre of Tencent and NetEase was another grim reminder of the regulatory exhaustion sapping investor confidence in China. However, RedTech argues that the underlying policy stance is more supportive of gaming than it has been for some years and the introduction of the draft rules was a ham-fisted misfire and not another change in course. The regulator has already hinted that the final draft is negotiable and the companies’ own actions (buybacks) also suggest they are not overly concerned. If the new rules are more bark than bite, then investors should be looking for opportunities instead of the exits.
Edition: 177
- 12 January, 2024
Global Funds: Investor positioning insights
EM Unwind - Allocations among active Global managers have taken an aggressive move lower led by China & HK, South Korea and Brazil.
China & HK Style Switch - Value and Yield managers have aggressively reduced underweights, whilst Growth and Aggressive Growth managers have moved to new lows. AIA Group takes the crown as the most widely held stock and largest overweight.
Asia's Communication Services Fall - Ownership breaking new lows led by Tencent, Nintendo, NetEase and Nippon Telegraph.
Energy Conviction Underweight - TotalEnergies is the most widely held stock, but there is little conviction or consensus to suggest managers are concerned over long-term outperformance of Energy vs. sector peers.
Edition: 129
- 18 February, 2022