For the better part of the year, Chinese Internet stocks have been out of favor. Fears of a weakening Chinese economy and poor earnings forced investors to avoid these stocks. However, the current earnings season has changed how investors are looking at the space after companies like Alibaba(BABA - Analyst Report) , JD.com(JD - Snapshot Report) , and Sina Corp(SINA - Analyst Report) jumped over 10% after earrings announcements.
Below I list four stocks that have recently beat earnings and are trending higher. In addition, these stocks are either Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy).
Netease (NTES - Snapshot Report) is a Zacks Rank #1 (Strong Buy) that is an Internet technology company engaged in the development of applications, services and other technologies for the Internet in China.The company was founded in 1997, employs almost 13,000 people and is headquartered in Beijing, China.
Netease is valued at $28 Billion and has a forward PE of 19. The stock sports a Zacks Style Score of “B” in both Growth and Momentum and has an expected EPS growth rate of 23%.
Last week the company beat on the top line, had a 33% EPS beat and raised its dividend 6.8%. Online game revenue growth continues to amaze with revenues coming in at 6.4 billion Yuan (CNY), 69% higher than the CNY3.78 Billion seen last year. Advertising revenue year over year was up 24%, from CNY428 Million to CNY531 Million. The email, ecommerce and other segments also saw impressive growth, seeing revenue jump from CNY483 Million to CNY1.98 Billion.
CEO Lei Ding had some comments on the quarter and the online gaming segment: “Our business and the overall online games industry are being driven by the popularity and demand for mobile games. We are well positioned to exploit this trend with a mobile game portfolio that now includes more than 100 titles. In the second quarter, we launched the mobile version of New Ghost, which ranked as a top 10 grossing title on China's iOS app store, and Fantasy Westward Journey.”
The stock has had a nice run, up over 60% since the February lows. However, some analysts believe there is room higher and have price targets over $250. Estimates over the last 7 days have been revised higher, with fiscal year 2016 being revised 1.3% higher and 2017 3% higher.
Changeyou.com (CYOU - Snapshot Report) is a Zacks Rank #1 (Strong Buy) that is a developer and operator of online games in China.It develops, operates, and licenses online games, including interactive online games that are accessed and played simultaneously by various game players through personal computers; mobile games played on mobile devices; and Web games, which are online games that are played through a Web browser. Changeyou was founded in 2003, is based in Beijing, China and employs over 3,000 people.
The company has a market cap of $1.1Billion and a forward PE of 10. The stock sports Zacks Style Scores of “A” in Value, “C” in Growth and “B” in Momentum.
Earlier in the month Changyou.com saw a 10% EPS surprise to the upside, which has since caused the stock to trade up over 8%. The beat shouldn’t have been a surprise to investors as it was ninth straight surprise to the upside. What is different this time to previous quarters is that the stock is now trending higher and estimates are rising.
For fiscal year 2016, estimates have risen 15% over the last month, from $1.90 to $2.20. For fiscal year 2017, estimates have gone 5% higher, from $2.10 to $2.20.
Weibo (WB - Snapshot Report) is a Zacks Rank #2 (Buy) that is a social media and microblogging company that is similar to Twitter(TWTR - Analyst Report) and Facebook(FB - Analyst Report) . The company offers self-expression products; social products; discovery products; notifications; third-party online games. Weibo employs about 3.000, was founded in 2009 and is headquartered in Beijing, China.
Weibo is valued at $9 Billion and has a forward PE of 89. The stock sports Zacks Style Scores of “B” in Momentum and “C” in Growth, but an “F” in value due to the high PE.
On August 8th Weibo reported Q1 earnings of $0.16 verse the $0.09 expected. Revenue came in at $146.9 Million verse the $107.8 Million expected. Investors have rewarded the stock after the report as it is up over 20% since earnings.
Estimates for both fiscal year 2016 and 2017 have been raised over the last month. For 2016, estimates have seen a 22% jump from $0.41 to $0.50. For 2017, estimates have ticked 7% higher, from $0.86 to $0.92.
Bitauto Holdings(BITA - Snapshot Report) is a Zacks Rank #2 (Buy) that isengaged in providing internet content and marketing services for automotive industry in China. Its bitauto.com and ucar.cn websites provide consumers new and used automobile pricing information, specifications, reviews and consumer feedback. The company is based in Beijing, China and has over 6,000 employees.
BITA has a market cap of $2 Billion and has yet to turn a profit. The stock sports Zacks Style Scores of “D” in Value and “F” in Growth and Momentum. However, the company is coming over a massive earnings and revenue beats after reporting on August 9th.
EPS saw a surprise of 174.43%, trumping the 171% beat the quarter before. Shares have responded with only a modest rally, something newer investors may want to consider, as the stock is well off its 2014 highs. The beat was the third in a row and the stock looks to be consolidating in a range between $20-30, before its next move higher.
CEO Li Bin had some comments on the quarter: “Bitauto will continue to execute on our core business strategies to enhance our long-term competitiveness. First, we plan to further develop our automobile transaction services, including e-commerce, CRM and online automotive financial platform services, with better consumer purchasing experience and greater efficiency of our online and offline service infrastructure. Second, we will strive to further increase our mobile monetization capability as we continue to improve our mobile offerings with more targeted marketing solutions enabled by our big data analytics. Third, we will continue to strengthen our dealer services offerings particularly on mobile devices and social media.”
The volatility that Chinese stocks, and more specifically Chinese internet stocks, can scare investors away. But after a quarter with multiple high profile companies reporting solid reports the space should be revisited. With risk comes reward and the risky aspect that Chinese internet companies provide can also bring about solid returns.
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