Intrinsic value of NetEase, Inc. - NTES

Previous Close

$258.48

  Intrinsic Value

$2,888

stock screener

  Rating & Target

str. buy

+999%

Previous close

$258.48

 
Intrinsic value

$2,888

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of NTES stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 33.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  48.80
  44.42
  40.48
  36.93
  33.74
  30.86
  28.28
  25.95
  23.85
  21.97
  20.27
  18.74
  17.37
  16.13
  15.02
  14.02
  13.12
  12.30
  11.57
  10.92
  10.33
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
Revenue, $m
  12,167
  17,572
  24,685
  33,801
  45,205
  59,156
  75,884
  95,576
  118,375
  144,381
  173,650
  206,200
  242,018
  281,064
  323,279
  368,597
  416,943
  468,246
  522,441
  579,475
  639,306
  701,910
  767,281
  835,431
  906,391
  980,211
  1,056,961
  1,136,729
  1,219,622
  1,305,765
Variable operating expenses, $m
  8,136
  11,745
  16,496
  22,585
  30,201
  39,520
  50,692
  63,844
  79,071
  96,441
  115,980
  137,721
  161,644
  187,722
  215,918
  246,186
  278,476
  312,741
  348,938
  387,031
  426,992
  468,806
  512,467
  557,984
  605,378
  654,682
  705,943
  759,221
  814,585
  872,119
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,136
  11,745
  16,496
  22,585
  30,201
  39,520
  50,692
  63,844
  79,071
  96,441
  115,980
  137,721
  161,644
  187,722
  215,918
  246,186
  278,476
  312,741
  348,938
  387,031
  426,992
  468,806
  512,467
  557,984
  605,378
  654,682
  705,943
  759,221
  814,585
  872,119
Operating income, $m
  4,032
  5,827
  8,189
  11,216
  15,004
  19,637
  25,192
  31,732
  39,303
  47,940
  57,669
  68,479
  80,374
  93,341
  107,361
  122,411
  138,467
  155,505
  173,503
  192,444
  212,314
  233,105
  254,815
  277,447
  301,013
  325,529
  351,017
  377,508
  405,037
  433,645
EBITDA, $m
  4,189
  6,050
  8,499
  11,638
  15,564
  20,368
  26,127
  32,907
  40,757
  49,710
  59,788
  70,995
  83,327
  96,770
  111,305
  126,908
  143,554
  161,217
  179,877
  199,514
  220,113
  241,668
  264,175
  287,639
  312,071
  337,487
  363,912
  391,377
  419,917
  449,576
Interest expense (income), $m
  0
  54
  125
  222
  350
  513
  718
  968
  1,267
  1,620
  2,029
  2,495
  3,019
  3,603
  4,245
  4,945
  5,701
  6,513
  7,380
  8,299
  9,271
  10,293
  11,365
  12,487
  13,659
  14,880
  16,152
  17,475
  18,850
  20,280
  21,765
Earnings before tax, $m
  3,978
  5,701
  7,967
  10,867
  14,490
  18,919
  24,225
  30,464
  37,683
  45,911
  55,174
  65,460
  76,771
  89,097
  102,417
  116,710
  131,954
  148,125
  165,204
  183,173
  202,021
  221,740
  242,328
  263,789
  286,133
  309,377
  333,543
  358,658
  384,758
  411,880
Tax expense, $m
  1,074
  1,539
  2,151
  2,934
  3,912
  5,108
  6,541
  8,225
  10,174
  12,396
  14,897
  17,674
  20,728
  24,056
  27,653
  31,512
  35,627
  39,994
  44,605
  49,457
  54,546
  59,870
  65,428
  71,223
  77,256
  83,532
  90,057
  96,838
  103,885
  111,208
Net income, $m
  2,904
  4,162
  5,816
  7,933
  10,578
  13,811
  17,684
  22,239
  27,509
  33,515
  40,277
  47,786
  56,043
  65,041
  74,764
  85,198
  96,326
  108,131
  120,599
  133,717
  147,476
  161,870
  176,899
  192,566
  208,877
  225,845
  243,486
  261,821
  280,873
  300,672

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  8,798
  12,706
  17,849
  24,440
  32,686
  42,774
  54,869
  69,108
  85,593
  104,397
  125,560
  149,096
  174,995
  203,227
  233,752
  266,520
  301,477
  338,573
  377,760
  418,998
  462,260
  507,527
  554,795
  604,072
  655,380
  708,757
  764,252
  821,930
  881,867
  944,154
Adjusted assets (=assets-cash), $m
  8,798
  12,706
  17,849
  24,440
  32,686
  42,774
  54,869
  69,108
  85,593
  104,397
  125,560
  149,096
  174,995
  203,227
  233,752
  266,520
  301,477
  338,573
  377,760
  418,998
  462,260
  507,527
  554,795
  604,072
  655,380
  708,757
  764,252
  821,930
  881,867
  944,154
Revenue / Adjusted assets
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
Average production assets, $m
  742
  1,072
  1,506
  2,062
  2,757
  3,609
  4,629
  5,830
  7,221
  8,807
  10,593
  12,578
  14,763
  17,145
  19,720
  22,484
  25,434
  28,563
  31,869
  35,348
  38,998
  42,817
  46,804
  50,961
  55,290
  59,793
  64,475
  69,340
  74,397
  79,652
Working capital, $m
  -949
  -1,371
  -1,925
  -2,636
  -3,526
  -4,614
  -5,919
  -7,455
  -9,233
  -11,262
  -13,545
  -16,084
  -18,877
  -21,923
  -25,216
  -28,751
  -32,522
  -36,523
  -40,750
  -45,199
  -49,866
  -54,749
  -59,848
  -65,164
  -70,698
  -76,456
  -82,443
  -88,665
  -95,131
  -101,850
Total debt, $m
  2,323
  4,117
  6,477
  9,503
  13,287
  17,918
  23,470
  30,005
  37,572
  46,203
  55,917
  66,720
  78,607
  91,566
  105,577
  120,617
  136,663
  153,689
  171,676
  190,605
  210,462
  231,240
  252,935
  275,553
  299,104
  323,604
  349,076
  375,550
  403,062
  431,651
Total liabilities, $m
  4,038
  5,832
  8,193
  11,218
  15,003
  19,633
  25,185
  31,720
  39,287
  47,918
  57,632
  68,435
  80,323
  93,281
  107,292
  122,333
  138,378
  155,405
  173,392
  192,320
  212,177
  232,955
  254,651
  277,269
  300,819
  325,319
  350,792
  377,266
  404,777
  433,367
Total equity, $m
  4,760
  6,874
  9,656
  13,222
  17,683
  23,141
  29,684
  37,387
  46,306
  56,479
  67,928
  80,661
  94,672
  109,946
  126,460
  144,187
  163,099
  183,168
  204,368
  226,678
  250,083
  274,572
  300,144
  326,803
  354,561
  383,437
  413,460
  444,664
  477,090
  510,787
Total liabilities and equity, $m
  8,798
  12,706
  17,849
  24,440
  32,686
  42,774
  54,869
  69,107
  85,593
  104,397
  125,560
  149,096
  174,995
  203,227
  233,752
  266,520
  301,477
  338,573
  377,760
  418,998
  462,260
  507,527
  554,795
  604,072
  655,380
  708,756
  764,252
  821,930
  881,867
  944,154
Debt-to-equity ratio
  0.490
  0.600
  0.670
  0.720
  0.750
  0.770
  0.790
  0.800
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.850
Adjusted equity ratio
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541
  0.541

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,904
  4,162
  5,816
  7,933
  10,578
  13,811
  17,684
  22,239
  27,509
  33,515
  40,277
  47,786
  56,043
  65,041
  74,764
  85,198
  96,326
  108,131
  120,599
  133,717
  147,476
  161,870
  176,899
  192,566
  208,877
  225,845
  243,486
  261,821
  280,873
  300,672
Depreciation, amort., depletion, $m
  157
  223
  310
  421
  560
  731
  935
  1,175
  1,453
  1,770
  2,119
  2,516
  2,953
  3,429
  3,944
  4,497
  5,087
  5,713
  6,374
  7,070
  7,800
  8,563
  9,361
  10,192
  11,058
  11,959
  12,895
  13,868
  14,879
  15,930
Funds from operations, $m
  3,061
  4,385
  6,126
  8,354
  11,138
  14,542
  18,619
  23,414
  28,962
  35,285
  42,396
  50,301
  58,996
  68,469
  78,708
  89,695
  101,413
  113,844
  126,973
  140,786
  155,275
  170,433
  186,260
  202,758
  219,935
  237,804
  256,381
  275,689
  295,752
  316,603
Change in working capital, $m
  -311
  -422
  -555
  -711
  -889
  -1,088
  -1,305
  -1,536
  -1,778
  -2,028
  -2,283
  -2,539
  -2,794
  -3,046
  -3,293
  -3,535
  -3,771
  -4,002
  -4,227
  -4,449
  -4,667
  -4,883
  -5,099
  -5,316
  -5,535
  -5,758
  -5,987
  -6,222
  -6,466
  -6,719
Cash from operations, $m
  3,372
  4,807
  6,681
  9,065
  12,028
  15,630
  19,924
  24,950
  30,740
  37,314
  44,679
  52,840
  61,790
  71,515
  82,001
  93,230
  105,184
  117,845
  131,200
  145,235
  159,942
  175,317
  191,359
  208,074
  225,470
  243,562
  262,368
  281,911
  302,218
  323,322
Maintenance CAPEX, $m
  -101
  -148
  -214
  -301
  -412
  -551
  -722
  -926
  -1,166
  -1,444
  -1,761
  -2,119
  -2,516
  -2,953
  -3,429
  -3,944
  -4,497
  -5,087
  -5,713
  -6,374
  -7,070
  -7,800
  -8,563
  -9,361
  -10,192
  -11,058
  -11,959
  -12,895
  -13,868
  -14,879
New CAPEX, $m
  -240
  -330
  -434
  -556
  -696
  -851
  -1,020
  -1,201
  -1,391
  -1,586
  -1,785
  -1,986
  -2,185
  -2,382
  -2,575
  -2,764
  -2,949
  -3,129
  -3,306
  -3,479
  -3,650
  -3,819
  -3,988
  -4,157
  -4,329
  -4,503
  -4,682
  -4,866
  -5,056
  -5,255
Cash from investing activities, $m
  -341
  -478
  -648
  -857
  -1,108
  -1,402
  -1,742
  -2,127
  -2,557
  -3,030
  -3,546
  -4,105
  -4,701
  -5,335
  -6,004
  -6,708
  -7,446
  -8,216
  -9,019
  -9,853
  -10,720
  -11,619
  -12,551
  -13,518
  -14,521
  -15,561
  -16,641
  -17,761
  -18,924
  -20,134
Free cash flow, $m
  3,032
  4,329
  6,032
  8,208
  10,920
  14,228
  18,181
  22,823
  28,183
  34,283
  41,132
  48,736
  57,089
  66,181
  75,997
  86,522
  97,738
  109,629
  122,181
  135,382
  149,223
  163,698
  178,808
  194,556
  210,949
  228,001
  245,727
  264,150
  283,294
  303,188
Issuance/(repayment) of debt, $m
  1,322
  1,794
  2,361
  3,026
  3,785
  4,630
  5,552
  6,535
  7,567
  8,631
  9,714
  10,803
  11,887
  12,959
  14,011
  15,040
  16,045
  17,027
  17,987
  18,929
  19,857
  20,778
  21,696
  22,618
  23,551
  24,500
  25,472
  26,474
  27,511
  28,590
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,322
  1,794
  2,361
  3,026
  3,785
  4,630
  5,552
  6,535
  7,567
  8,631
  9,714
  10,803
  11,887
  12,959
  14,011
  15,040
  16,045
  17,027
  17,987
  18,929
  19,857
  20,778
  21,696
  22,618
  23,551
  24,500
  25,472
  26,474
  27,511
  28,590
Total cash flow (excl. dividends), $m
  4,354
  6,123
  8,393
  11,233
  14,705
  18,858
  23,733
  29,358
  35,750
  42,914
  50,846
  59,539
  68,976
  79,139
  90,008
  101,562
  113,783
  126,656
  140,168
  154,311
  169,080
  184,476
  200,504
  217,174
  234,500
  252,501
  271,200
  290,624
  310,805
  331,777
Retained Cash Flow (-), $m
  -1,563
  -2,114
  -2,782
  -3,566
  -4,461
  -5,458
  -6,544
  -7,703
  -8,919
  -10,173
  -11,449
  -12,733
  -14,011
  -15,274
  -16,514
  -17,727
  -18,912
  -20,069
  -21,200
  -22,310
  -23,405
  -24,489
  -25,572
  -26,659
  -27,758
  -28,877
  -30,023
  -31,204
  -32,426
  -33,697
Prev. year cash balance distribution, $m
  3,822
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  6,613
  4,008
  5,611
  7,667
  10,244
  13,400
  17,190
  21,655
  26,832
  32,741
  39,396
  46,806
  54,965
  63,866
  73,494
  83,835
  94,871
  106,587
  118,968
  132,000
  145,675
  159,986
  174,932
  190,515
  206,742
  223,624
  241,177
  259,420
  278,379
  298,080
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  6,340
  3,669
  4,883
  6,313
  7,940
  9,725
  11,613
  13,535
  15,413
  17,165
  18,709
  19,974
  20,899
  21,441
  21,577
  21,304
  20,642
  19,629
  18,318
  16,773
  15,068
  13,275
  11,465
  9,703
  8,043
  6,524
  5,176
  4,014
  3,039
  2,244
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

NetEase, Inc. (NetEase) is a technology company. The Company operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet media, e-mail, e-commerce and other businesses. The Company operates through three segments: Online Game Services; Advertising Services, and E-mail, E-commerce and Others. Its online games business primarily focuses on offering personal computer (PC)-client massively multi-player online role-playing games (PC-client MMORPGs), as well as mobile games to the Chinese market. The NetEase Websites provide Internet users with Chinese language online services centered over three core service categories, which include content, community and communication. Its online advertising offerings include banner advertising, direct e-mail, sponsored special events, games, contests and other activities. It offers free and fee-based premium e-mail services to its individual users and corporate users.

FINANCIAL RATIOS  of  NetEase, Inc. (NTES)

Valuation Ratios
P/E Ratio 506
Price to Sales 153.8
Price to Book 153.8
Price to Tangible Book
Price to Cash Flow 379.1
Price to Free Cash Flow 409.3
Growth Rates
Sales Growth Rate 67.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.7%
Cap. Spend. - 3 Yr. Gr. Rate 38.8%
Financial Strength
Quick Ratio 10
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 10%
Interest Coverage 0
Management Effectiveness
Return On Assets 23.4%
Ret/ On Assets - 3 Yr. Avg. 19.9%
Return On Total Capital 31.6%
Ret/ On T. Cap. - 3 Yr. Avg. 25.2%
Return On Equity 34.4%
Return On Equity - 3 Yr. Avg. 27.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 56.7%
Gross Margin - 3 Yr. Avg. 62.6%
EBITDA Margin 37.2%
EBITDA Margin - 3 Yr. Avg. 40.6%
Operating Margin 33.1%
Oper. Margin - 3 Yr. Avg. 35.2%
Pre-Tax Margin 36.4%
Pre-Tax Margin - 3 Yr. Avg. 39.5%
Net Profit Margin 30.4%
Net Profit Margin - 3 Yr. Avg. 33.5%
Effective Tax Rate 15.1%
Eff/ Tax Rate - 3 Yr. Avg. 14.3%
Payout Ratio 21.9%

NTES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTES stock intrinsic value calculation we used $8177 million for the last fiscal year's total revenue generated by NetEase, Inc.. The default revenue input number comes from 0001 income statement of NetEase, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NTES stock valuation model: a) initial revenue growth rate of 48.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NTES is calculated based on our internal credit rating of NetEase, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of NetEase, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NTES stock the variable cost ratio is equal to 66.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NTES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for NetEase, Inc..

Corporate tax rate of 27% is the nominal tax rate for NetEase, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NTES stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NTES are equal to 6.1%.

Life of production assets of 4.5 years is the average useful life of capital assets used in NetEase, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NTES is equal to -7.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $7018.61245466 million for NetEase, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 131.339 million for NetEase, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of NetEase, Inc. at the current share price and the inputted number of shares is $33.9 billion.

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