NetEase Might Be in the Path of the Fallout from America's Clean Network Program
NetEase (NTES:NASDAQ) investors need to weigh in potential tensions between China and the US aroused from the US government's move to ban Chinese firms, as the firm is highly exposed among its peers in the Internet sector.
On August 6, the United States announced a measure called 'Clean Network' aimed at curbing potential national security risks from China. This program includes cleaning carrier, store, apps, cloud and cable. Seven technology companies, including Alibaba, Tencent, and Huawei, appeared on the list.
An array of Chinese firms will be exposed to further risks arising from the issue. According to Morgan Stanley, one of the largest Internet conglomerates in China, NetEase has 2% of its business exposure to the US. It ranks third among other Chinese internet and software stocks.
As a Chinese internet giant known as the second-largest gaming player in China behind Tencent, NetEase generates around 80% revenue from online games. It is trying to penetrate other fields like education and music streaming, where it owns Youdao and NetEase Music. It sold NetEase Kaola, an ex-subsidiary doing cross-border e-commerce to Alibaba (BABA:NYSE) last September.
In June, NetEase applied for a secondary listing in Hong Kong with USD 2.6 billion in fundraising to accelerate its international expansion, suggesting the firm's willingness to 'return home' when facing rising tensions between China and the US. "NetEase will focus on the following three directions in the next step: build an organization with self-evolution capabilities, continue to implement the boutique strategy, and firmly advance the globalization strategy," said Ding Lei, the CEO of NetEase.