Morgan Stanley says this China stock is a global video game ‘powerhouse’ with 40% upside

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Investors should scoop up shares of NetEase before it hits the global runway, according to Morgan Stanley. Analyst Alex Poon maintained his overweight rating on the China-based technology company and raised his price target by $15 to $150. The firm’s forecast implies roughly 44% upside from Tuesday’s close. “After tripling its market share in China in the last decade, NetEase is emerging as a global video games content powerhouse by forming synergistic partnerships with gaming industry veterans globally that will likely drive a similar runway for its global market share,” Poon wrote in a Tuesday note. Shares traded up about 1% on Wednesday. The stock has soared by 43% so far this year. Morgan Stanley expects NetEase to reach a $100 billion market cap in 12 to 18 months — substantially higher than its roughly $67 billion current valuation — assuming it sustains its double-digit game revenue growth of the last 16 years for longer. In the past decade, the company has increased its game revenue tenfold and tripled its market share in China from 8% to 9% in 2013-2014 to 24% by the end of 2023, as it kept up with PC-to-mobile trends and prioritized content diversification, Poon said. “Now we see a globalization era approaching for NetEase that should expand its effective [total addressable market] by 5x from > US$40bn for China to > US$200bn globally, which we expect to drive its revenue, profit, capital returns, and market cap proportionally in future,” he added. Another potential boost to NetEase’s growth is its long-term goal to develop at least one-third of its global IPs in future, which would drive half of its game revenue from international markets and provide “significant upside” to its current global market share of roughly 1%, the analyst said. NetEase expects its international studios to start releasing game titles in 2025. — CNBC’s Michael Bloom contributed to this report.