Deutsche Bank maintains Buy rating on NetEase and raises target price to US$174

Overview

This report is Deutsche Bank's forecast revision and outlook report on NetEase. The core view is that NetEase delivered solid 1Q26 results, existing key games performed steadily, and new games Sea of Remnants and Ananta provide follow-on growth optionality, while products such as Where Winds Meet and Marvel Rivals are advancing globalization and supporting the company's 2026 growth path.

Core views

The report maintains a positive view on NetEase. In the short term, Fantasy Westward Journey, Where Winds Meet, Marvel Rivals, Eggy Party, and Blizzard-licensed games are maintaining activity and content updates, supporting the resilience of the gaming business; in the medium term, the 3Q launch window for Sea of Remnants and Ananta's differentiated urban open-world positioning are expected to supplement the new product cycle; overseas, the Steam positive review rate and global best-seller ranking of Where Winds Meet indicate that its international potential is still being unlocked.

Analysis framework

The report uses 1Q26 earnings review, key game grossings and user momentum, new game launch cadence, overseas publishing potential, revenue performance by business segment, shareholder returns, and DCF valuation as its main analytical framework, and compares its earnings forecasts with market consensus expectations.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  WACC 9%, perpetual growth rate 2%

  The report uses the DCF valuation method, assuming a risk-free rate of 2.5%, equity risk premium of 5%, WACC of 9%, and a perpetual growth rate of 2%, and accordingly raises the target price to US$174.

• RatingTSR 12-month rating framework

  Total shareholder return

  Deutsche Bank's Buy rating is based on a 12-month total shareholder return perspective, namely the change in target price relative to the current share price plus expected dividend yield.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NETEASE INC (NTES.US / NTES.OQ)

  Covered company and primary traded security

  Strengths

  Its core game portfolio is resilient, 1Q26 results beat expectations, the new game pipeline is clear, overseas expansion provides incremental upside, and it continues to return capital to shareholders through dividends and repurchases.

  Weaknesses

  Revenue growth still depends heavily on the gaming content cycle, and there is uncertainty around the launch timing and monetization performance of new games; revenue from innovative businesses and others is declining.

  Comparison

  The report compares the company's forecasts with market consensus expectations and notes that 1Q26 revenue and adjusted net profit beat expectations by 4% and 13%, respectively.

  Risks

  Macro volatility, intensifying competition, game development and operating risks, talent acquisition and retention, risks related to third-party developers, and regulatory risks.

• NetEase (09999.HK)

  Related mapping of the same company's Hong Kong-listed security; the main body of the report primarily discusses NTES US ADR

  Strengths

  Shares the same company fundamentals, game pipeline, and shareholder return logic as NTES.US.

  Weaknesses

  The report does not separately provide a rating, target price, or local market trading assumptions for 09999.HK.

  Comparison

  It can serve as a mapped asset for the same issuer across different markets, but the valuation and market identifiers in this report are primarily based on NTES.OQ and NTES US.

  Risks

  In addition to company fundamental risks, attention should also be paid to Hong Kong market liquidity, exchange rates, and cross-market valuation differences.

Key data

• 1Q26 total revenueRMB30.6bnUp 6.1% year over year.
• 1Q26 games and related value-added services revenueRMB25.7bnUp 6.9% year over year, driven by key games such as Fantasy Westward Journey, Eggy Party, and Where Winds Meet.
• Performance versus consensus expectationsRevenue +4%, adjusted net profit +13%1Q26 revenue and adjusted net profit both exceeded market consensus expectations.
• FY26E forecast revisionRevenue +1%, adjusted net profit +1%Deutsche Bank raised its FY26E revenue and adjusted net profit forecasts.
• Target priceUS$174Maintain Buy rating and raise target price.
• Fantasy Westward Journey Online peak concurrent users3.9mnHit a new record high in 1Q.
• Youdao revenueRMB1.3bnUp 3.8% year over year, driven by its AI-native strategy and AI subscription products.
• NetEase Cloud Music revenueRMB2.0bnUp 6.6% year over year.
• Innovative businesses and others revenueRMB1.5bnDown 4.6% year over year, mainly due to declining revenue from e-commerce and advertising businesses.
• 1Q26 dividend per ADSUS$0.720Quarterly dividend approved by the board.
• Cumulative repurchaseabout 23.2mn ADS at a cost of US$2.1bnAs of March 31, 2026, the repurchase program was extended to January 9, 2029.

Impact & implications

The report implies that the key variables for NetEase's growth in the second half will shift from pure operation of existing games to a combination of 'resilience of existing games + new launches + overseas expansion.' If Sea of Remnants launches as planned and Where Winds Meet continues to scale overseas, revenue growth and margin improvement may jointly support a valuation re-rating; however, competition in open-world games, regulation, and operating risks for new games still need to be monitored.

Risks

• Macroeconomic risks may affect consumption, advertising, and valuation discount rates.
• Competition in the gaming industry is intense, and new game performance and legacy game life cycles may fall short of expectations.
• There are execution risks in game development, launch cadence, operational quality, and monetization design.
• Talent acquisition and retention may affect R&D and content update capabilities.
• There is uncertainty in partnerships involving third-party game developers or licensed content.
• Regulatory changes may affect game approvals, operations, monetization, and overseas expansion.

What to watch

• Testing feedback, official launch cadence, and monetization performance of Sea of Remnants in 3Q.
• Ranking, word of mouth, cross-device compatibility, platform expansion, and localization progress of Where Winds Meet in overseas markets.
• Whether Ananta can differentiate itself through an urban open world and immersive daily-life experience.
• Content update frequency and user retention for Fantasy Westward Journey, Eggy Party, Marvel Rivals, and Blizzard-licensed games.
• Whether channel cost optimization can continue to drive gross margin improvement.
• The ongoing contribution of Youdao's AI-native strategy to learning services and online marketing revenue.
• The execution pace of dividend and repurchase plans and their contribution to TSR.