Annual Checkup -- NTES

There won't be a lot new to say about Netease (NTES -- click to register for free RT streaming quote) until they release earnings, which I expect will be sometime in the second or third week of February (that's just a guess, I haven't seen an announcement yet). NTES has been the more stable of my Chinese internet gaming investments, and the stock has performed much better this year than has Shanda. I wrote a bit about both companies back in November when they were on the ropes -- NTES because they didn't keep up the growth rate of the previous quarter, and SNDA because of their new "free games" revenue model and continuing poor results at the bottom of their game development cycle. I bought in to NTES right around $50 a share, so it has done fine for me to date (though it's much lower than during it's spectacular run earlier this year), and I'm still confident in the company's long term prospects -- not because I have great insight into the company, but because their market is potentially so massive that all of the companies should do well and they are very inexpensive relative to that growth potential right now. I find the China Stock Blog to be a great way to keep up on these "hard to follow" companies, especially analyst notes and conference call transcripts. With full positions in both NTES and SNDA I think I am probably already overexposed to this very volatile Chinese internet gaming sector, especially given all the political and regulatory risk on top of the strong competitive environment and execution risk, so I have no intention of adding to this one in the near future -- but I also see great potential for gains with these long-term speculative investments and do not plan to sell.

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