NetEase's middle age anxiety: electricity business is not up to date, 2B business is slightly weak.

NetEase's middle age anxiety: electricity business is not up to date, 2B business is slightly weak.

ABSTRACT: A day after the game, middle-aged Netease has found a new way to find its own position in the red sea of Commerce and entertainment, but it has not improved significantly. At the same time, faced with the transformation of to B business by BAT and other giants, Netease ceiling began to appear. Now, Netease, trying to return to the first echelon of the Internet, is facing an important choice.

Author Ma Ma Cheng

Established in 1997, Netease has entered middle age. It is similar to the Internet companies that were popular at the same time, such as Sina and Sohu, relying on the advantages of portals, and hovering between the two-tier Internet echelons all the year round.

NetEase was once regarded as the "least greasy" middle-aged company. At the age of 32, Ding Lei became the richest man in China. The most famous label is * pig raising. From portal website to game, and then to electricity supplier, he carried out many transformations with NetEase. Be good at depending on unique taste and product ideas, and create new paths. In the Red Sea, Netease has its own way, which makes Netease occupy an important position in the hearts of many netizens. For example, every time Netease cloud music marketing, can cause a brush screen in the circle of friends, Netease once became a synonym for the middle class.

For investors, Netease, listed in 2001, has been a good target for U.S. stocks, with steady revenue growth and low market value, but has been relatively stable. However, since 2018, NetEase's share price has dropped by about 35%, and its market value has shrunk by 29 billion 500 million US dollars. After the release of the third quarter earnings, the stock price did not rise significantly even though the revenue growth of games and businesses exceeded expectations.

The declining share price shows a fact that can hardly be covered up: the capital market is no longer optimistic about NetEase. Game growth encounters policy barriers, e-commerce is facing cruel competition, To B business development is slow, the next step in front of Netease is hard battle.

As the first group of Internet bigwigs, Ding Lei has been keeping his pace. Wuzhen dinner has always been Ding Lei's home. Over the past few years, he has brought good pork to entertain the big boys from all sides. But after the banquet, he did not pretend to be a team member, nor did he like to show his advice.

In this year's Wuzhen, Ding Lei has repeatedly raised his voice in the face of doubts, expressing his confidence in Netease's game business, saying that Netease has become a world-class game company, and even in front of the camera, he has not evaded suspicion to publicize Netease's strictly selected products to all the big guys.

Investors close to NetEase say that the game still determines the direction of NetEase. The decline of "Yin and Yang Division" and other explosive games is the focus of investors'concern, "e-commerce or other business in the whole Netease pattern is not a high proportion, not too much consideration." An investor who has long focused on U.S. stocks also mentioned that nowadays, apart from investors in the entertainment sector, his peers seldom pay attention to Netease's stocks.

Recently, Netease cloud music, Youdao and other brands have been independently financed, and it is reported that the comic book business will be sold. Netease may take the opportunity to divest part of its business and focus on the field of electronics business.

But just like Ding Lei's conservative and patient style, Netease's anxiety has not been obvious. The clarion call for NetEase transformation has not been officially launched.

E-commerce breakthrough "small and beautiful"

In the past two eleventh, June began to transform the comprehensive e-commerce network Ekola submitted the first answer - 3 minutes and 49 seconds, the total sales exceeded 100 million yuan, the platform sales reached 2.4 times the same period last year.

E-commerce business has gradually become another pole of NetEase revenue. In the third quarter of 2018, electricity business accounted for nearly 30% of total revenue. Ding Lei places great expectations on the business of electronic commerce. "It takes three to five years to rebuild Netease through such e-commerce businesses as Netease Koala and Netease's strict selection."

But in the industry, the scale of Netease's e-commerce is only a drop in the bucket in the tens of trillion-level domestic market. When double eleven was sold, koala broke through 100 million, Tmall had already exceeded 10 billion.

This year, when the state promulgated the Haitao policy and Haitao business suffered heavy losses, NetEase Koala decisively announced the transformation of integrated e-commerce, and on the basis of overseas purchases, through the establishment of world factories and stores, and strict selection of the model to get through.

The transformation of integrated e-commerce has brought about a substantial increase in earnings for NetEase, but also means a larger investment.

On November 15, Netease released its third-quarter earnings report. Netease's e-commerce business revenue was 4.458 billion yuan, up 67.2% year-on-year. Since the fourth quarter of 2017, it has maintained a comparative growth trend of more than 50%, but the third-quarter growth rate is lower than the 75.2% of the previous quarter.

But at the same time, the other two data are not clear. First, the gross margin of e-commerce business declined year-on-year. The gross margin of e-commerce business was 10.0% in the third quarter and 11.5% in the same period last year. Netease explained that the comparative decline in gross margin of e-commerce business was mainly due to the relatively high promotion intensity in the third quarter of 2018.

Two, NetEase's overall net profit in the third quarter was 329 million US dollars, down 25.3% compared with the same period last year. Previously reported second quarter earnings, net profit of $318 million, down 29% over the same period.

Although business growth has exceeded expectations, net profit has been declining. Zhu Yue, CEO of CIC Consulting, mentioned that Netease has invested more in industries, especially in electricity business. Because its e-commerce business model and form belong to a relatively primary stage, compared with Jingdong, Tianmao and Taobao, it needs to pay more cost to divert the market, including building the supply chain system, to the bottom. Tour customer service and so on.

According to Zhuangshuai, the founder of Bailian Science and Technology and IT commentator, Netease's mailboxes, cloud music and Netease news are introducing traffic for e-commerce business and attracting old users of Netease into new fields. "Now open, 163 games, full screen are koala ads."

But Netease is facing many obstacles in transforming e-commerce. First of all, it must burn a lot of money in the early stage, expand categories and import traffic. For NetEase, which is famous for its "small and beautiful", it must change its thinking.

Established in 2015 and in 2016, Koala has now made an appearance in cross-border e-commerce and quality e-commerce, illustrating Ding Lei's vision.

Ding Lei distinguishes Netease from other companies by using the key word "taste". Netease's products have brought high-quality and high-grade aura.

However, Zhuangshuai believes that the disadvantage of Netease e-commerce lies in the lack of prominent technical reform. "Compared with Jingdong and Pingduo, Netease is still taking the old road to become a koala, so the GMV is getting higher and higher, and the degree of money burning is also getting higher and higher."

While many urban white-collar workers hailed Netease's strict selection, it took two years to cut down GMV and "sink" became the key word in 2018 to focus on the "outside of the Five Rings" crowd. As the most potential contributor of the current C-terminal traffic, cities on the third or fourth tier and below have pushed companies like Pingduo, Interesting Headlines and Fast Hands to Nasdaq. This is part of the group that NetEase is hard to reach.

NetEase seems to have realized this. In September, after a lot of listing, NetEase strictly elected to enter the market and set up a brand store. This "cross dimensional cooperation" reflects the urgent need for NetEase to expand traffic and users.

"The selection model refers to non-print products, but for an Internet company, this model is still too heavy." Zhuangshuai said, "The prospects for millet products are more noteworthy as well as exquisite selection projects. Millet as an ecological chain has invested more than 200 companies in the industrial chain, which can greatly reduce millet's investment in human and material resources."

In the field of electronic commerce, NetEase has a tough battle to fight.

Lonely games and content that can not be helped

Compared with the electricity supplier business, the recent performance of the game business can let Ding Lei breathe a sigh of relief. In the two or three quarter of 2018, NetEase game revenues reached 10 billion orders in the two quarter.

Although in the past year, the game "Yin and Yang Master" has been weak successively, Fifth Personality has not raised the performance banner, Wilderness Action is still chatting with Blue Hole, but in the winter of the game, Netease game revenue is still rising, the third quarter of 10.348 billion yuan, an increase of 28% over the same period last year, and Tencent game third. Quarterly revenue fell 4% over the same period last year. This contrast also reflects the deep foundation of NetEase's game department.

However, compared with Tencent in animation, games, film and television, literature, music and other business has actively tried to carry out linkage, a "full-time master" cartoon, can form the upsurge of film and animation linkage. But NetEase's game department is in a state of isolation.

Netease once laid out a large-scale pan-entertainment industry, but in addition to Netease cloud music, other sectors are not well known to the public.

Recently, financial and other media broke out, the two yuan video community B station intends to acquire NetEase cartoons. Some investors close to the deal mentioned that Netease intends to sell original comics business because comics are not important to Netease. Netease comics have not created a truly influential IP in recent years. On the contrary, comics rely largely on the reverse output of Netease games such as Master Yin and Yang.

By the end of 2016, Netease had integrated its animation brand, including secondary community GACHA, photo social software LOFTER, Netease comics, Netease Cloud Reading has been integrated into a unified department, the original independent technology, products, operation team has also been merged. "At that time, NetEase wanted to pack the animation brand onto the market. But in the end it did not succeed. Now comics are relatively tasteless in the overall layout of NetEase. The two generation of industry revealed to all weather technology.

Live broadcast is another draught for NetEase. In 2012 and 2016, Netease launched live CCs with game broadcasting as the main part and live menthol broadcasts with show as the main part, but in the end, it did not get much attention.

"Taobao live broadcasting is now doing smoothly, Netease if a live broadcasting system, links to e-commerce and games, is a good choice." Zhuang Shuai mentioned.

It can be said that there is no strong association in the content section of NetEase. Netease Literature, Netease Cartoon and other businesses are difficult to commercialize under the circumstance of limited user size and volume.

After four years of independent development, NetEase has completed 750 million yuan financing in 2017 with an estimated value of 8 billion yuan, and recently completed a new round of 600 million yuan financing led by Baidu, Pan-Atlantic Investment Group and Boyu Capital.

But compared with the ultra-high user reputation, NetEase's valuation is still far behind Tencent's $30 billion valuation. In the copyright war, Netease Cloud Music needs strong financial support, and in terms of traffic, it must also rely on greater channel support.

Zhu Yue believes that under the pinch of the giants, the overall development of Netease content sector is under enemy from all sides, and the "small and beautiful" model is further challenged.

The third quarter results show that Netease's advertising revenue is 644 million yuan, up only 2% from the same period last year, a new low growth rate in the near future. Behind the slow growth of advertising revenue, it has nothing to do with the decline in the size and growth rate of the C side.

This may be an important reason why Netease is preparing to split cloud music, seek independent listing, and divest its comic business.

B terminal business is weak

To B business is the focus of giant transformation in recent two years. From Baidu All in AI to Tencent structural adjustment, cloud and intelligent departments are set up, and enterprise services are next.

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