Selling NetEase (NTES)
Every time I sell a stock, it feels like a little bit of a failure. Today is no different, as I've offloaded my shares of Chinese gaming company NetEase (NTES) following their weak earnings outlook.
The catalyst for this sale was certainly the much-worse-than-expected outlook given by the company in their conference call last night (regrettably, I didn't see that coming or I would have sold in the pre-call 10% runup following the solid earnings report). From a broader perspective, however, I've come to the realization that it is simply time for me to give up trying to predict the volatile gaming market cycle in China, which is essentially what those who are investing in NTES and its competitors must do.
The market is certainly still a great one -- onling gaming remains very robust in China, but it is so extraordinarily competitive that the fall from hitmaker to has-been can be frighteningly rapid. I witnessed the decline of Shanda following the quick fall from grace of their most popular games, and after losing money on that company I've decided to take my gains in NetEase and move on.
I still think NTES is a better company than Shanda, certainly, and they do have the powerful Fantasy Westward Journey game franchise that remains very popular, even as it has clearly plateaued in user growth ... but I have absolutely no confidence that I'll be able to tell whether or not NetEase's game pipeline is any good before it's too late.
NTES was downgraded by Lehman and Citigroup today, with the Citi analyst essentially saying that NTES is no longer a growth company -- the business is too competitive, with lots of home-grown companies already actively pushing new games and a world of game developers trying to break into the marketplace. That could be overstating it -- and there may be plenty of money still to be made in Chinese online gaming, but I'm unlikely to be the person who can figure out how to make it.
It's quite possible that I'll put this money to work in Baidu (BIDU), which I wrote about recently as I was tempted to buy shares before the earnings release (I didn't, though the price is just about the same today). Though still very risky and highly valued compared with NetEase, I have a much better understanding of Baidu's industry and much more faith in the growth prospects of their business -- especially given the much less competitive and hit-driven environment they work in, and their ability to thrive against that competition (as evidenced by their continuing market share gains versus both Yahoo and Google).
NetEase may remain a good investment for some people, particularly those with their fingers on the pulse of the Chinese gaming market, but I'm taking my profits and admitting my inability to read these tea leaves.
I purchased NTES shares last year for $12.61 (split adjusted), and have now sold my full position at $15.55.
The catalyst for this sale was certainly the much-worse-than-expected outlook given by the company in their conference call last night (regrettably, I didn't see that coming or I would have sold in the pre-call 10% runup following the solid earnings report). From a broader perspective, however, I've come to the realization that it is simply time for me to give up trying to predict the volatile gaming market cycle in China, which is essentially what those who are investing in NTES and its competitors must do.
The market is certainly still a great one -- onling gaming remains very robust in China, but it is so extraordinarily competitive that the fall from hitmaker to has-been can be frighteningly rapid. I witnessed the decline of Shanda following the quick fall from grace of their most popular games, and after losing money on that company I've decided to take my gains in NetEase and move on.
I still think NTES is a better company than Shanda, certainly, and they do have the powerful Fantasy Westward Journey game franchise that remains very popular, even as it has clearly plateaued in user growth ... but I have absolutely no confidence that I'll be able to tell whether or not NetEase's game pipeline is any good before it's too late.
NTES was downgraded by Lehman and Citigroup today, with the Citi analyst essentially saying that NTES is no longer a growth company -- the business is too competitive, with lots of home-grown companies already actively pushing new games and a world of game developers trying to break into the marketplace. That could be overstating it -- and there may be plenty of money still to be made in Chinese online gaming, but I'm unlikely to be the person who can figure out how to make it.
It's quite possible that I'll put this money to work in Baidu (BIDU), which I wrote about recently as I was tempted to buy shares before the earnings release (I didn't, though the price is just about the same today). Though still very risky and highly valued compared with NetEase, I have a much better understanding of Baidu's industry and much more faith in the growth prospects of their business -- especially given the much less competitive and hit-driven environment they work in, and their ability to thrive against that competition (as evidenced by their continuing market share gains versus both Yahoo and Google).
NetEase may remain a good investment for some people, particularly those with their fingers on the pulse of the Chinese gaming market, but I'm taking my profits and admitting my inability to read these tea leaves.
I purchased NTES shares last year for $12.61 (split adjusted), and have now sold my full position at $15.55.
This article posted by One Guy @ 11/07/2006 11:19:00 AM 0 comments
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