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NetEase (NTES) Q4 2006 Earnings: What Does History Tell Us?

NetEase (NTES) will report Q4 2006 earnings next Monday (Feb 26) after market close. The stock has been performing well recently. Will it maintain the momentum following the earnings report? What should investors focus on when looking at the press release and listening to the conference call?

In this article, we will analyze NetEase's earnings history for the past six quaters, and try to find some useful patterns that can be used by investors to evaluate the incoming earnings report.

The table below shows NetEase's key financial numbers from 2Q05 to 3Q06, and compares them with company guidance and Wall Street consensus. Stock prices and EPS have been adjusted for stock splits. We highlighted the key metrics (in red borders or shaded backgrounds) that determined the direction of the stock following earnings reports. And we concludes several useful patterns and rules below the table:

BIDU: Disappointing Results May Lead to Lower P/E and Lower Price

Baidu (BIDU) has reported Q4 2006 earnings. The results are obviously dissappointing, as shown by the table below:

1. Revenue barely met consensus. The spread between actual and consensus revenues continued to shrink to 0%.

2. Guidance for 1Q07 ($34-$35M) indicates 0% quarter-over-quarter growth, and is below consensus estimate of $39.0M. Last quarter when BIDU reported, the stock dropped largely because the guidance for this quarter ($34-$35M) missed Wall Street consensus ($36M).

BIDU 4Q06 Earnings: What Can We Learn from History?

Baidu (BIDU) will report Q4 2006 earnings on Wed, Feb 14, 2007 after market close (for conference call details, refer to this article). In this article, we will analyze BIDU's earnings reports history since its IPO. Hopefully investors can make more knowledgeable decision based on the information.

The table below compares actual financial results with Wall Street consensus and Baidu's own guidance. Whether the actual results beat the consensus and guidance, and whether next quarter's guidance meets Wall Street's next quarter consensus estimates, will largely determine where the stock is going following the earnings report.

Guess How Sina and Tencent Commented on Sohu's Q4 2006 Earnings?

Sohu has reported Q4 2006 earnings. How would Sohu's rivals, Sina and Tencent, comment on the results? Let's look at some screen shots of their websites:

Wall Street Luckily Found Something to Congratulate SOHU on

Here's something interesting during the SOHU earnings conference call (those who listened to it may have caught this):

In an earnings conference call, when the results are good, Wall Street analysts would typically say "Congratulations on a great quarter!" before asking questions. In SOHU's Q4 2006 call, several analysts did say "congratulations". HOWEVER, instead of talking about the quarter, they were congratulating Carol Yu, the CFO, on her promotion to co-President!

IN FACT, during the call, none of the analysts congratulated SOHU on its Q4 2006 results. This is NOT a good sign. Obviously, those analysts wanted to create goodwill with Charles Zhang and Carol Yu, but the earnings made it a difficult task. They finally decided to find something else to congratulate on, and what they luckily found was the CFO's promotion.

The truth is not pretty: SOHU has missed both the revenue and EPS consensus for Q4 2006:

Actual revenue: $34.4M vs. Wall Street Consensus: $35.5M
Actual GAAP EPS: $0.16 vs. Wall Street Consensus: $0.17

Based on the revenue and EPS misses, and the downbeat atmosphere of the conference call, it's clear that the Wall Street are not satisfied with SOHU's results. We will likely see several negative research reports on SOHU coming out on the morning of Tuesday Feb 6, 2007. The stock will likely be under downward pressure following the earnings report.

Related articles:

• SOHU's Q4 2006 Report - What to Watch
• Why Has SINA Outperformed SOHU?
• YTD Performance Ranking of US-Listed Chinese Stocks
• What Can We Learn from China Internet Guide 2007? (2) 
• Watch Chinese Stocks: Q4 2006 Guidance & Consensus
• Watch Chinese Stocks: Q4 2006 Reporting Schedules

SOHU's Q4 2006 Report - What to Watch

Sohu is reporting Q4 2006 results on Monday Feb 5th, the first among China Internet companies (for a detailed reporting schedule of Chinese companies, click here). Sohu's financial and operating results can be used as an indicator of how its peers (BIDU, SINA, TOMO, CHINA) are doing in online brand advertising, WVAS, and paid search.

In this article, we will outline positive and negative factors for Sohu during Q4, and key issues that investors should watch closely, when looking at the press release and listening to the conference call.

Why Has SINA Outperformed SOHU?

Investors following Chinese Internet stocks may have noticed this: Since late June, 2006,  SINA has outperformed SOHU by a large margin - in this period, SINA shares have climbed nearly 60%, while SOHU shares have gained 10%. There are many theories regarding this performance gap by the two major Internet portals in China. In this article, we will summarize several mainstream explanations.

First, let's get a better feeling of the phenomenon that we are trying to explain: The chart below shows the ratio of SINA price divided by SOHU price over the last two years.

What Can We Learn from China Internet Guide 2007? (2)

In its Internet Guide 2007, Internet Society of China revealed some data points that can help investors make more knowledgable decisions on stocks such as SINA, SOHU, NTES, SNDA, BIDU, etc. Key points:

1. Sina remains No.1 in portal and became No.1 in blog.

2. Sohu is no longer among the top three portals in China.

3. Baidu has solidified market leadership over Google and Yahoo.

4. Tencent's QQ has maintained No.1 in instant messaging.

5. Alibaba's Taobao.com is still No.1 in C2C, ahead of eBay China.

The table below summarizes the top three companies in 10 segments, according to Internet Guide 2007.

BIDU: What Can We Learn from China Internet Guide 2007? (1)

On Jan. 10, 2007, the Internet Society of China (ISC) released Internet Guide 2007, a survey report on China's Internet industry. Major U.S.-listed Chinese companies such as Sina, Sohu, NetEase, and Shanda, were evaluated in the report.

In the past, similar surveys have largely contributed to the rise and fall of certain Chinese Internet stocks. Baidu (BIDU) is a perfect example:

BIDU: Have You Noticed the Change?

There have been news reports that Baidu has obtained an Internet News License from the Chinese government. However, the company has not made a public announcement about this. Comparing this with Baidu's upbeat press release on entering the Janpanese market, you may be wondering: why not put out an announcement if it indeed got the news license?

Seeing is believing. Let's do some digging to judge whether this is a rumor or a fact.