Investors
seeking
exposure
to
China’s
growing
mobile
gaming
industry
should
look
at
technology
giants
Tencent
and
NetEase
,
according
to
Goldman
Sachs.
The
investment
bank
expects
“China
to
see
faster
growth
from
mid
2024
supported
by
game
launches
and
a
loosening
regulatory
environment.”
Goldman’s
optimism
on
Tencent
and
NetEase
despite
expectations
that
both
companies
will
have
a
slow
first
quarter
“given
[a]
lack
of
new
game
contributions
and
a
high
base
last
year.”
“However,
2Q24
is
set
to
be
an
accelerating
quarter
with
blockbuster
title
launches,”
the
Wall
Street
bank’s
analysts,
led
by
Lincoln
Kong,
wrote
in
an
April
16
note.
The
launches
include
NetEase’s
Naraka
Bladepoint
and
Tencent’s
DnF
(Dungeon
and
Fighter)
mobile,
which
is
expected
to
hit
the
market
in
May.
The
analysts
also
foresee
that
the
overseas
market
will
be
a
“more
important
growth
driver.”
Tencent
Tencent’s
game
sales
were
up
14%
year
on
year
domestically
in
March
and
36%
internationally.
That
was
thanks
in
large
part
to
growth
in
in
its
evergreen
and
legacy
games
such
as
Honor
of
Kings,
Cross
Fire
and
Golden
Spatula,
Goldman’s
analysts
wrote.
The
investment
bank
expects
shares
of Tencent to
rise
by
around
20.5%
to
408
Hong
Kong
dollars
($52.11)
over
the
next
12
months.
Key
risks
they
foresee
include
more
intense
industry
competition
in
performance-based
advertising,
unexpected
delays
in
game
launches,
and
slower-than-expected
growth
in
its
fintech
and
cloud
businesses.
The
median
price
target
of
58
analysts
polled
by
FactSet
points
to
a
21%
upside
for
the
stock.
Among
the
analysts,
56
having
a
buy
or
overweight
rating,
one
has
a
hold
rating
and
one
has
a
sell
rating.
NetEase
NetEase
posted
a
16%
year-on-year
rise
in
domestic
sales
growth
and
1%
rise
in
international
sales
growth
last
month,
Goldman’s
analysts
noted.
They
are
now
expecting
shares
in
the
tech
giant
to
rise
by
around
nearly
40%
to
$129
in
the
next
12
months.
NetEase’s
shares
are
traded
on
Nasdaq
and
the
Hong
Kong
Stock
Exchange.
The
median
price
target
of
42
analysts
polled
by
FactSet
points
to
a
41.5%
upside
for
its
Hong
Kong-listed
shares.
China
versus
Japan
and
South
Korea
The
growth
in
sales
for
Tencent
and
NetEase
is
in
line
with
an
industry-wide
expansion
in
China.
Goldman’s
analysts
said
Chinese
publishers
like
Tencent
and
NetEase
“stand
out
on
a
relative
risk-reward
basis”
and
are
trading
at
a
price-to-earnings
discount
of
up
to
40%
against
the
counterparts
in
Japan
and
South
Korea.
Domestic
mobile
game
sales
fell
by
12%
year-on-year
Japan
in
the
first
quarter
of
the
year.
Goldman’s
analysts
remain
more
bullish
on
its
console
game
market
than
its
mobile
game
market,
saying
there’s
reason
to
be
“upbeat
on
earnings
owing
to
an
upcycle
for
console
hardware
accompanying
growth
in
the
PS5
installed
base.”
As
for
South
Korea,
the
analysts
said
“most
players
have
seen
an
apparent
downward
trend
in
existing
IPs,
while
market
expectations
focus
around
resuming
new
pipeline
launches.”
—
CNBC’s
Michael
Bloom
contributed
to
this
report.
