By Jiahui Huang


NetEase's Hong Kong-listed shares fell after the company failed to meet the market's high earnings expectations, even as analysts remained largely bullish and described the drop as an opportunity to buy.

The Chinese videogame publisher's shares fell as much as 4.6% to 168.10 Hong Kong dollars (US$21.47) in early Hong Kong trade Friday--coming after U.S.-listed ADRs closed 3.9% lower overnight--after the company missed hopes for record revenue and posted higher-than-expected marketing expenses in its fourth-quarter results. The shares' year-to-date gains are still above 20%.

Net profit in the quarter rose 67% compared with the same period a year earlier, slightly missing a consensus expectation compiled by FactSet, while revenue rose 7.0% to 27.14 billion Chinese yuan (US$3.8 billion), short of expectations for CNY28.21 billion.

Analysts described the results as solid overall, attributing the revenue miss to too-high expectations coming after the company's blockbuster third quarter. They said plans for new game releases this year and NetEase's competitive advantage with its most popular titles, along with guidance for more stable marketing expenses this year, all bode well for prospects.

NetEase's popular Eggy Party has three times more daily active users than Yuanmeng Star's on iOS devices two months after Tencent launched Yuanmeng in direct competition with Eggy Party in December, Nomura analysts Jialong Shi and Rachel Guo said in a note.

The company's marketing expenses rose 24% on year, higher than estimates, which management attributed to spending on Eggy Party amid game promotions and rising competition on the earnings call. Citi analysts in a note highlighted the company's suggestion that it will remain "highly disciplined" with its marketing campaign this year.

Both Citi and Nomura expect a solid game pipeline for 2024 and 2025. New releases in the second quarter should boost the company's stock, Nomura added.

Nomura and Citi maintained their buy ratings. Citi raised its ADR target price to US$138.00 from US$131.00, while Nomura analysts said they "recommend to use any correction in the stock price due to 4Q miss as an opportunity to accumulate the stock further."

NetEase ADRs ended at $107.92 Thursday.


Write to Jiahui Huang at jiahui.huang@wsj.com


(END) Dow Jones Newswires

02-29-24 2222ET