NetEase (NTES) has started to feel the heat amid a heightened regulatory crackdown targeting the video gaming sector in China. Citing the South China Morning Post, Reuters reports that the gaming firm has started to downsize its gaming studios and projects. NTES shares fell 4.15% to close at $84.52 on September 14.
NetEase provides online services focusing on gaming commerce and communication in China. It also develops PC and mobile games.
Citing the South China Morning Post, Reuters reports that NetEase programmers, designers, and creative artists at the Shanghai and Hangzhou offices have been taken off their original jobs. The report also claims that some of the employees have been told to look for new assignments inside and outside the company as part of the restructuring.
NetEase has started downsizing its operations in response to China slowing down the approval of new online games. The crackdown seeks to curb gaming addiction among young people. (See NetEase stock charts on TipRanks)
The country has already placed restrictions on the number of hours that under 18’s can play video games. As it stands, one cannot play video games for more than three hours a week, with the restrictions applying to any device, including smartphones.
China’s video game crackdown is not only a big blow for NetEase alone, but for the global gaming industry, which caters to tens of millions of people worldwide.
Recently, HSBC analyst Ritchie Sun reiterated a Buy rating on the stock but lowered the price target to $125 from $137, implying 47.89% upside potential to current levels. According to the analyst, minor gaming restrictions in China will not significantly impact the company.
Consensus among analysts is a Strong Buy based on 6 Buys. The average NetEase price target of $132.50 implies 56.77% upside potential to current levels.
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