Every investor in NetEase, Inc. (NASDAQ:NTES) should be aware of the most powerful shareholder groups. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.
NetEase has a market capitalization of US$86b, so it's too big to fly under the radar. We'd expect to see both institutions and retail investors owning a portion of the company. In the chart below, we can see that institutional investors have bought into the company. We can zoom in on the different ownership groups, to learn more about NetEase.
What Does The Institutional Ownership Tell Us About NetEase?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
We can see that NetEase does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of NetEase, (below). Of course, keep in mind that there are other factors to consider, too.
We note that hedge funds don't have a meaningful investment in NetEase. With a 42% stake, CEO Lei Ding is the largest shareholder. For context, the second largest shareholder holds about 3.6% of the shares outstanding, followed by an ownership of 3.2% by the third-largest shareholder.
On looking further, we found that 52% of the shares are owned by the top 4 shareholders. In other words, these shareholders have a meaningful say in the decisions of the company.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of NetEase
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our most recent data indicates that insiders own a reasonable proportion of NetEase, Inc.. It has a market capitalization of just US$86b, and insiders have US$36b worth of shares in their own names. That's quite significant. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.
General Public Ownership
The general public holds a 17% stake in NetEase. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.