NetEase.com (NTES)

[eastunder]

NetEase Q3 Misses Estimates On Rising Costs, Lower Revs; Shares Slide.

By Reshma Kapadia

Chinese Internet gaming firm NetEase (NTES) posted third quarter sales of $318.5 million and profits of $129 million, or 98 cents an ADS, versus analysts’ estimates of $1.07 a share that disappointed analysts, adding to the recent flow of pessimism from the sector. The company’s ADS was down 5.6% at $47.48 in morning trading.

The company’s operating margin came in at the lowest in a decade amid the quarter’s marketing and promotional activity and research and development expenses, Citi analyst Muzhi Li writes.

On the good news front, Netease announced a $1 a share special dividend and said its board approved a $100 million share buyback plan.

Citi’s Muzhi Li cut the firm’s price target by 8% on the company to $56.80, noting increased product risks, shortened game life cycles and the “weakening cost structure” but retained a neutral rating.

Li adds: “We believe Netease is beginning to face gamer fatigue between product cycles whereas game sales increasingly depend on the launch of new games or expansion packs.”