According to a report by Haitong Int'l, Netease (NTES.US) recently made commercial adjustments to the "Dreamy Journey" endgame, which raised concerns in the market about the game's life cycle and its impact on Netease's high ARPPU monetization model. Since May 21, the company's stock price has continued to decline, falling by more than 10%.

The bank believes that the market is overly concerned about this issue. The adjustment to "Dreamy Journey" actually helps to extend the game's life cycle. The negative impact of the adjustment has been fully reflected in the first quarter, and the recent signs of recovery in the game suggest that the decline in second-quarter revenue from the endgame can be controlled, with the potential to resume quarterly growth in the third quarter. From the perspective of the adjustment reasons, the bank believes that Netease has also completed adjustments for other games and is unlikely to see similar large-scale adjustments like "Dreamy Journey".

The bank is bullish on Netease's new summer gaming performance and long-term leading game development capabilities. It is expected that "JX: YJZS" will be launched before early August. The website has already received over 30 million reservations and TapTap reservations are up to 6.48 million. The public test began on June 19th, and player feedback has been positive. It is estimated that its first-year revenue will exceed 5 billion yuan, making it one of the company's major sources of elasticity in the second half of the year. According to the bank's forecast, the company's valuation is currently equivalent to a PE ratio of 12 times for the 2024 fiscal year and 11 times for the 2025 fiscal year, which is at a historical low in terms of valuation.