Is Netease Still Young? The First Day Of Public Offering Was Oversubscribed By 45 Times.

The 20 year old NetEase will be listed on the two market in Hongkong in June 11th.

In June 2nd, according to Fu road data, as at 20:00, the total amount of NetEase HK Stock new shares subscribed by Fu Road Securities was HK $6 billion 402 million. Combined with 8 brokerages, NetEase has been subscribed for about HK $29 billion 304 million in financing, and the purchase multiple is 45.16 times.

This will trigger the public offering of NetEase back to 12%, and the offering price ceiling will be HK $126 per share, with 100 shares per hand. After listing in Hongkong, the company's shares will be completely interchangeable with the US Depositary Receipts (ADS) listed on NASDAQ.

In addition, NetEase, a subsidiary of the New York Stock Exchange in October last year, has said that NetEase will become the Internet company listed on the NYSE, NASDAQ and HKEx.

This year, Hongkong's new stock market is very hot. Although the number of listed companies is decreasing, capital has become more concentrated. This makes the first quarter of the listing of new shares, are generally sought after by investors. According to DDT's statistics, 95% of IPO in Q1 shares were oversubscribed in 2020, and 49% of the new shares were over subscribed over 20 times.

The industry is concerned that the game business is still the absolute leading role in the globalization strategy of NetEase. Whether the funds raised will continue to provide power for subsequent business will become the focus.

Return or youth?

As the Internet's "evergreen tree" that has been established for 20 years, the performance of NetEase has been in a stable state. Prospectus data show that in 2017-2019 years, net income was 44 billion 437 million yuan, 51 billion 179 million yuan, and 59 billion 241 million yuan respectively. In the first quarter of 2020, net income was 17 billion 62 million yuan, an increase of 18.3% over the same period last year.

In the 2017-2019 year, the net profit attributable to NetEase shareholders was 11 billion 542 million yuan, 8 billion 291 million yuan and 13 billion 275 million yuan respectively. In 2019, net profit of continuing operation increased by 60.1% over the same period last year. In the first quarter of 2020, net profit attributable to shareholders of NetEase was 3 billion 551 million yuan, an increase of about 30% over the same period last year.

In 2017-2019 years, NetEase's gross margin remained above 53%. The gross profit margin of NetEase reached 55% in the first quarter of 2020.

High gross margins are rare in the industry. The prospectus shows that the international sale price will be determined by NetEase in June 5, 2020. The final sale price of Hongkong will be the lower international sale price and the highest selling price (HK $126 per share).

The NetEase intends to use the net proceeds from the offering to three aspects, namely, globalization strategy, promotion innovation and general enterprise use. Among them, the strategy of promoting globalization accounts for about 45%, innovation accounts for about 45%, and general enterprise uses about 10%. Ding Lei, chairman and CEO of NetEase, mentioned in his letter to shareholders that globalization is the inevitable choice that NetEase will make on the basis of its own strength. "NetEase will base itself on China, and continue to promote innovation and breakthroughs in overseas markets through internal incubation, investment, cooperative development and strategic alliances."

In the regression tide of China's stock market, NetEase acted very fast, second only to Alibaba. In the prospectus, NetEase expressed the purpose of the two listing of Hongkong's return to Hong Kong: "the listing of the stock exchange of Hong Kong will provide us with more opportunities to enter the capital market, especially the Asian capital market, and also attract more Asian and international investors to represent our Chinese and international user base."

The "return" followed by Jingdong and other listed companies. Zhou Zheng, adviser to the global trading department of Fu De De law firm, told the twenty-first Century economic news reporter that the uncertainty of Sino US trade friction has spread to the performance of China's stock market. The recent financial scandals in the stock market has deepened the trust of American investors in the governance structure and information disclosure of Chinese companies, resulting in a big drop in share price in the stock market. General decline.

Many of China's stock prices dropped sharply, especially small and medium-sized companies. These enterprises are becoming the whirlpool center of the privatization tide. "After the successful listing of Alibaba in Hongkong last year, the two listing is also a good choice for many companies that are not yet ready to withdraw from the US but want to enter the mainland and Hongkong markets," he said. Zhou Zheng said.

How big is the imagination?

At present, NetEase includes online games, intelligent learning, innovation and other three main businesses, and innovative business and other services include NetEase cloud music, NetEase strict selection, NetEase media, e-mail and so on. As of the first quarter of 2020, the three largest revenue sources accounted for 79%, 3% and 18% respectively. In the past few years, the electricity supplier business has not been listed in the main camp.

Consistent with the path of Tencent Inc, games become the core tool of revenue. Since the advent of "big talk Westward Journey" in 2001, NetEase's "Yin Yang", "wilderness action" and "fifth personality" have been popular in the market. In 2019, in the negative growth of NetEase's overall revenue, mobile game revenue remained positive double digit growth. According to the data of App Annie, NetEase is the second largest gaming company in the world by calculating the total user expenditure of iOS and Google Play in 2019.

In the 2017-2019 years, the net income of online game services was RMB 36 billion 282 million yuan, 40 billion 190 million yuan and 46 billion 423 million yuan respectively. Among them, in 2019, NetEase game net income exceeded Activision Blizzard. NetEase Q1 2020 financial results show that the first quarter net income of 17 billion 100 million yuan, of which the game business net income of 13 billion 500 million yuan, accounting for 78.9% of revenue.

However, in the increasingly fierce competition in the domestic game market, NetEase has begun to focus on its core business in the face of the strength of its main rival Tencent. In May 20th, NetEase released 20 game announcements. PWC released the "2019-2023 entertainment and media industry outlook" shows that China's video game market giants are still Tencent and NetEase, occupy nearly 70% of the market share.

As of June 2nd closing, Tencent Inc reported HK $430.4 in Hong Kong stocks, with a total market value of HK $4 trillion and 111 billion 698 million. NetEase's US stock market value is US $51 billion 230 million. Industry analysts believe that as the second largest online game developer and publisher in China after Tencent, NetEase is expected to attract a lot of money for long-term investment. However, due to the fact that the company has been listed on the US stock market, the imagination space has also declined.

In the view of Zhou Zheng, unlike the 2012 and 2015, the attraction of the Chinese market seems to be a bit confusing. In past privatization transactions, an important consideration of buyers is that they can be re listed on the A or H-share market with an overvalued value. Many delisting companies in the US have successfully listed on the mainland or Hongkong at several times the value of their delisting. However, it is difficult to determine whether such a high return can be obtained.

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