NetEase Inc. shares are closing in on their first new all-time high in over four years, as a wave of youthful consumerism adds to a host of positives for China’s game stocks.
Hong Kong-listed shares of the company behind hits like Eggy Party are now less than 3% away from their 2021 record. The stock ranks among the top gainers this year on indexes of Chinese tech and global game companies.
Chinese gamemakers are benefiting as younger consumers snap up creature comforts in a slowing economy. In addition, they’re getting help from an improved domestic regulatory and competitive environment, as well as the safehaven appeal of game stocks globally amid US tariffs and chip-export restrictions.
Investors are also buying the shares because they’re cheap, with NetEase and larger rival Tencent Holdings Ltd. trading at less than half the earnings-based valuation of Nintendo Co. and about a quarter that of Take-Two Interactive Software Inc.
“The resilience of video games is a result of savvy Chinese consumers shifting spending to cheaper services that offer emotional support, rather than big-ticket physical goods,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management. “The trend of consumer spending crowding to top games and the biggest companies is unlikely to change in the short term if deflation persists.”
NetEase shares have surged 45% this year, while Tencent’s are up 22%, boosted by strength in older titles. NetEase said the player base of its seven-year-old survival horror game Identity V reached a quarterly record, while momentum has grown for World of Warcraft since the company helped bring it back to China last year. Tencent reported record receipts for its Honor of Kings and CrossFire Mobile in the first quarter.
Newer games have helped too, like NetEase’s Where Winds Meet, a role-playing game whose mobile version was released in January. Tencent’s first-person shooter game Delta Force was an instant hit upon its September launch, and still among the top-five free-to-play games in Apple Inc.’s app store in China.
Rivalry between the the two game giants has eased since they went head-to-head more than a year ago in the party-game category. That contrasts sharply with the brutal price competition still raging in other parts of China’s tech industry, including food delivery and electric vehicles.
There are also signs that regulators are turning more supportive on China’s $40 billion-plus game sector, along with a gradual warming on the broader tech industry following crackdowns in years past. Authorities this year have approved 654 domestic and imported games, about 15% higher than the same period last year, according to a tally by Bloomberg.
“There is some comfort with the regulatory body, that what they have put in place is good for now and is effective,” said Elias Erickson, a fund manager at Ninety One Plc who owns NetEase and Tencent shares. “We’ve seen some attenuation to the volatility and uncertainty around game approvals.”
In addition, Chinese gaming stocks’ deep valuation discounts versus global peers leave room for a catch-up, said Celia Qiu, a senior investment analyst at Mirae Asset Global Investments Co. in Hong Kong, especially as “China gaming companies’ revenue and earnings growth outlook are more promising for 2025.”
Looking ahead, updates of legacy franchises are still seen as key for tapping into the pockets of Chinese consumption that are doing well. Tencent’s Honor of Kings: World and NetEase’s Destiny: Rising are among titles expected later this year.
“Evergreen games have stronger user loyalty,” said Jialong Shi, an analyst at Nomura International HK Ltd. “Games are one of the few affordable areas of online entertainment for many young people due to the freemium model, which makes the industry defensive to macro slowdown.”
