Tuesday, September 05, 2006

Calls of Note Part 2

- Goldman Sachs comments on Netease (NASDAQ:NTES) saying 2Q06 earnings reports suggest that free-to-play massively multiplayer online (MMO) games have carved out over a quarter of the Chinese MMO industry by users and revenue. Firm believes that rising home internet access (13% broadband penetration of urban homes in 2004, 26% in 2006E) together with low levels of credit and debit card penetration among game players may render free-to-play MMOs increasingly convenient versus pay-to-play in China.

They believe that Netease could ease the transition from a mostly PC caf user base to a mostly home user base for its games by releasing free-to-play MMO titles. However Netease appears reluctant to repurpose existing games as free-to-play, or to publish licensed games. Assuming that Tian Xia and the next mainstream MMO are pay-to-play, it may release its planned strategy MMO as a free-to-play game in 2008. Owning Netease between now and 2008 remains, in firm's view, a call on whether Tian Xia contributions can offset potentially declining income from WJ2 and FWJ, which generate 85% of its revenue.

Notablecalls: Notes like these can destory stocks. I would not want to be long NTES here.

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