Investment Rating - The report maintains an "Outperform" rating for NetEase-S (09999 HK) [2][5][28] Core Views - NetEase's PC gaming revenue showed strong growth, while mobile gaming revenue declined due to a high base effect [3][19] - The company's gaming business is stabilizing, with key focus on the upcoming game "Yanyun Sixteen Sounds" [3][21] - NetEase's old games like "Fantasy Westward Journey" remain stable, while "Identity V" and "Naraka: Bladepoint" continue to perform well [3][21] - The company's game development capabilities and pipeline are strong, with multiple new games set to launch [5][21] Financial Performance - In Q3 2024, NetEase reported revenue of RMB 26 2 billion, down 4% YoY, with Non-GAAP net profit of RMB 7 5 billion, down 13% YoY [2][10] - The company's gaming revenue was RMB 20 2 billion, down 1% YoY, with PC gaming revenue up 29% YoY to RMB 5 9 billion [3][19] - NetEase's deferred revenue grew 10% YoY to RMB 15 5 billion [3][20] - Youdao's revenue increased 2% YoY to RMB 1 6 billion, with advertising revenue up 46% YoY [4][22] - NetEase Cloud Music's revenue grew 1% YoY to RMB 2 billion, with gross margin improving 5 6 percentage points to 32 8% [4][26] Business Segments Gaming - PC gaming revenue growth was driven by the return of "World of Warcraft" and the strong performance of "Naraka: Bladepoint" [3][19] - "World of Warcraft" saw a 50% increase in daily active users compared to pre-shutdown levels, while "Hearthstone" saw a 150% increase in active users [3][21] - New games like "Marvel Rivals" and "Yanyun Sixteen Sounds" are set to launch in December 2024 [3][21] Youdao - Youdao's learning services revenue declined 19% YoY to RMB 770 million due to business restructuring and optimization [4][22] - Smart device revenue grew 25% YoY to RMB 320 million, driven by new product launches [4][22] - Advertising revenue increased 46% YoY to RMB 490 million, supported by the application of AI technology [4][22] NetEase Cloud Music - NetEase Cloud Music's gross margin improved significantly, reaching 32 8% in Q3 2024, up 5 6 percentage points YoY [4][26] - The improvement was attributed to increased music subscription revenue and better cost control [4][26] Valuation and Forecast - The report revised down NetEase's profit forecasts for 2024-2026, with adjusted net profit estimates of RMB 32 billion, RMB 36 1 billion, and RMB 38 billion, respectively [5][28] - The target price was adjusted to HKD 157-181, representing a 22% reduction [5][28] - The valuation is based on a 13-15x PE ratio for 2025 [5][28]

Investment Rating - The investment rating for the company is "Buy" (maintained) [2] Core Views - The gaming business has exceeded expectations, with a focus on new game launches at the end of the year [2] - The company achieved revenue of 26.21 billion yuan in Q3 2024, a year-over-year decrease of 3.9% but a quarter-over-quarter increase of 2.8% [2] - The gaming and related value-added services outperformed expectations with 20.9 billion yuan compared to the 20.7 billion yuan consensus [2] - The company’s long-term games continue to perform well, with significant contributions from titles like "Identity V" and "Naraka: Bladepoint" [2] - New games expected to launch in December, including Marvel IP licensed titles, are anticipated to drive revenue growth [2] Financial Performance Summary - Q3 2024 gross profit was 16.48 billion yuan, with a gross margin of 62.9%, showing a year-over-year decrease of 2.9% [2] - Adjusted net profit for Q3 2024 was 7.5 billion yuan, a year-over-year decrease of 13.3% [2] - The company forecasts adjusted net profits for CY 2024/25/26 to be 31.82 billion, 34.94 billion, and 38.32 billion yuan respectively [2][4] - The company’s revenue growth rates are projected at 2.2% for 2024, 7.1% for 2025, and 6.0% for 2026 [4][8] Key Financial Indicators - The company’s operating income for 2023 is projected at 103.47 billion yuan, with a year-over-year growth of 7.2% [4] - The return on equity (ROE) is expected to decline from 25% in 2023 to 21% by 2026 [4] - The price-to-earnings (P/E) ratio is projected to decrease from 16.1 in 2023 to 10.5 by 2026 [4][8]

Investment Rating - The report maintains an "Accumulate" rating for the company [1] Core Views - The company reported a revenue of 26.21 billion yuan for Q3 2024, showing a year-over-year decline of 3.9% but a quarter-over-quarter increase of 2.8%. The net profit attributable to shareholders was 6.538 billion yuan, down 16.6% year-over-year and down 3.3% quarter-over-quarter [1][3] - The gaming segment showed strong growth, with revenue from PC games increasing by 29% year-over-year, while mobile games experienced a decline of 10% due to base effects. The company is set to release several new titles, which are expected to drive future growth [3][7] - The company’s subsidiary, Youdao, achieved a revenue of 1.57 billion yuan in Q3 2024, marking a year-over-year growth of 2.2% and a quarter-over-quarter growth of 19.0%, with significant improvements in profitability [3][8] - NetEase Cloud Music reported a revenue of 2 billion yuan in Q3 2024, reflecting a year-over-year increase of 1.3% and a quarter-over-quarter decrease of 2.0%, with a notable improvement in gross margin [7] Financial Performance Summary - For Q3 2024, the company achieved a gross margin of 62.9%, with a slight year-over-year increase of 0.6 percentage points. The sales expense ratio was 14.5%, the R&D expense ratio was 16.9%, and the management expense ratio was 4.2% [3] - The total market capitalization is approximately 431.81 billion yuan, with a circulating market capitalization of the same amount [3] - The company’s revenue projections for FY2024-2026 are estimated at 104.3 billion, 108.3 billion, and 115.3 billion yuan, respectively, with adjusted net profits of 31.6 billion, 33 billion, and 36.1 billion yuan [8]

Investment Rating - The investment rating for the company is "Buy" (maintained) [3]. Core Views - The company demonstrated stable performance in Q3 2024, with a focus on upcoming new games such as "Yan Yun Shi Liu Sheng" [2][7]. - The company achieved a revenue of 78.5 billion yuan in the first three quarters of 2024, reflecting a year-on-year increase of 2.91%, while the net profit attributable to shareholders was 20.9 billion yuan, down 8.33% year-on-year [7]. - The Q3 2024 revenue was 26.2 billion yuan, a decrease of 3.89% year-on-year but an increase of 2.84% quarter-on-quarter, with a net profit of 6.5 billion yuan, down 16.57% year-on-year [7]. Financial Performance Summary - For Q3 2024, the revenue breakdown includes: - Game and related value-added services revenue: 20.9 billion yuan (down 4.2% year-on-year) - Youdao revenue: 1.6 billion yuan (up 2.2% year-on-year) - Cloud music revenue: 2.0 billion yuan (up 1.3% year-on-year) - Innovation and other business revenue: 1.8 billion yuan (down 10.3% year-on-year) [7]. - The decline in net profit was primarily due to a foreign exchange loss of 1.056 billion yuan, while revenue and profit showed stable performance quarter-on-quarter [7]. Future Outlook - The company has adjusted its profit forecast for 2024-2026, expecting net profits of 29.3 billion, 34.2 billion, and 39.0 billion yuan respectively, with corresponding EPS of 9.1, 10.7, and 12.1 yuan [7]. - The current stock price corresponds to P/E ratios of 13.7, 11.7, and 10.3 for the years 2024, 2025, and 2026 respectively, indicating potential for growth driven by new game product cycles [7]. - The return of Blizzard games has shown strong performance, with "World of Warcraft" and "Hearthstone" experiencing significant increases in daily active users [8]. - Upcoming new games such as "Marvel Showdown" and "Yan Yun Shi Liu Sheng" are expected to drive further growth in the company's gaming business [8]. Business Segment Performance - Cloud music continues to enhance its ecosystem, achieving a gross margin of 32.8% in Q3 2024, up 0.7 percentage points year-on-year and 5.6 percentage points quarter-on-quarter [9]. - Youdao has turned profitable for the first time in Q3, achieving record operating profit, indicating a positive trend in profitability for both Cloud Music and Youdao [9].

Investment Rating - The report maintains a "Buy" rating for the company, with a target price adjusted to HKD 160 / USD 103, reflecting a potential upside of 34% and 22% respectively from current prices [3][6][18]. Core Insights - The company's overall performance in Q3 2024 was slightly below expectations, with revenue of RMB 26.2 billion, a year-on-year decline of 3.9% but a quarter-on-quarter increase of 2.8%. This was 1.4% lower than market expectations. The adjusted net profit was RMB 7.5 billion, also below market expectations by 5.9% [1][3]. - The gaming segment showed mixed results, with total gaming revenue of RMB 20.2 billion, a year-on-year decline of 1% but a quarter-on-quarter increase of 5%. Mobile game revenue decreased by 10% due to high base effects from last year, while PC game revenue increased by 29% [2][3]. - The company is expected to see short-term growth driven by strong performance in PC games, particularly with upcoming titles and the return of Blizzard games to the Chinese market [2][3]. Financial Performance Summary - Q3 2024 revenue was RMB 26.2 billion, with a gross margin of 62.9%, up 0.7 percentage points year-on-year. The adjusted net profit margin was 28.6% [1][3]. - Revenue forecasts for FY24E and FY25E have been adjusted to RMB 105.6 billion and RMB 112.4 billion respectively, with adjusted net profit forecasts of RMB 31.9 billion and RMB 33.4 billion [3][4]. - The gaming segment's gross margin slightly decreased to 68.8%, while the overall gross margin improved [2][3]. Market Expectations - The target price reflects a P/E ratio of 14.3x for FY25E, indicating confidence in the company's long-term gaming operations and potential for new game releases [3][4]. - The stock is currently trading at HKD 119.5, with a 52-week range of HKD 116 to HKD 185.7, and a market capitalization of HKD 428.9 billion [5][6].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of USD 113.00, indicating a potential upside of 34.2% from the current closing price of USD 84.22 [1][4][7]. Core Insights - The company's strong performance in PC games is expected to drive revenue growth in 2025, with a projected 10% increase in game revenue. Mobile games are anticipated to stabilize, aided by the high base effect and the influence of "Hearthstone" [1]. - The third quarter saw a 4% year-over-year decline in total revenue, aligning with Bloomberg consensus expectations, while game revenue decreased by 1%. The adjusted net profit fell by 13% year-over-year due to foreign exchange losses [1][5]. - The company has a promising lineup of new game releases scheduled for late 2024 and 2025, including "Yanyun Sixteen Sounds" and "Marvel Showdown," which are expected to contribute positively to future revenue [2]. Financial Forecast Adjustments - Total revenue forecasts for 2024, 2025, and 2026 have been slightly adjusted downwards, with expected revenues of RMB 105,532 million, RMB 115,647 million, and RMB 127,046 million respectively, reflecting changes of -0.2%, -0.7%, and -1.0% [3]. - The adjusted operating profit margin is projected to be 30.9% for 2024, with a slight decrease from previous estimates [3][6]. - The adjusted net profit for 2024 is forecasted at RMB 31,509 million, with a net profit margin of 29.9% [3][6].

Financial Data and Key Metrics - Total net revenue for Q3 2024 reached RMB 26.2 billion (USD 3.7 billion), a 3% increase quarter-over-quarter [9][10] - Online game net revenue was RMB 20.2 billion, up 5% quarter-over-quarter, driven by strong performance in PC and mobile games [10] - PC game revenue grew 29% year-over-year and 30% quarter-over-quarter, accounting for 29.2% of total online game revenue [10] - Gross profit margin for Q3 2024 was 62.9%, compared to 62.2% in Q3 2023 [11] - Non-GAAP net income attributable to shareholders was RMB 7.5 billion (USD 1.1 billion) [12] Business Line Performance - Gaming division achieved net revenue of RMB 20 billion, with PC games showing robust growth [2] - Identity V reached record high revenues for the third consecutive quarter, with unprecedented DAUs and global concurrent online players [2][3] - Naraka: Bladepoint celebrated its third anniversary, achieving record high revenue in Q3 2024 [3] - Justice Mobile celebrated its first anniversary, with over 8 million AI-driven NPCs created by players [3][4] - Racing Master launched in Japan, topping the App Store and Google Play Free charts [4][5] Market Performance - Racing Master expanded to Japan, quickly topping download charts and maintaining a strong position in the iOS top-grossing chart [4][5] - Justice Mobile is set to launch in Hong Kong, Macau, and Taiwan in November, with Dark City Dynasty preparing for global release [5] - NetEase is expanding its international footprint, with plans to release several highly anticipated titles globally, including Marvel Rivals and FragPunk [5][6] Strategic Direction and Industry Competition - The company is focusing on innovation and diversification across its gaming portfolio, with a strong emphasis on long-term game operations and player engagement [2][3] - NetEase is leveraging AI-driven NPCs and UGC (user-generated content) to enhance player experiences and drive engagement [3][4] - The company is expanding its global reach, with a dual strategy of developing games for both domestic and international markets [18][19] - Partnerships with Blizzard have been successful, with World of Warcraft and Hearthstone seeing significant player engagement post-relaunch in China [6][22] Management Commentary on Operating Environment and Future Outlook - Management highlighted the importance of innovation and quality in driving long-term growth, with a focus on delivering superior content across all business lines [2][9] - The company is optimistic about the future performance of its games, particularly in the international market, with several high-profile releases planned for 2024 and 2025 [5][6][19] - NetEase is committed to maintaining a healthy balance between commercialization and user experience, ensuring long-term sustainability [16][17] Other Important Information - NetEase Cloud Music continued to grow its subscriber base, with a focus on expanding its music offerings and enhancing user engagement through AI-powered tools [7][8] - Youdao achieved its first profitable Q3, with operating income exceeding RMB 100 million, driven by growth in digital content services and smart devices [7] - The company repurchased shares worth USD 543 million in Q3, marking a 98% increase from the previous quarter [12][13] Q&A Session Summary Question: Launch schedule for Whirlwinds Meets and updates on gameplay - Whirlwinds Meets PC version is slated for release by the end of December 2024, with the mobile version following shortly after [14][15] - The game will offer a combination of high-quality open-world exploration and casual social experiences, with a focus on both single-player and multiplayer modes [14][15] Question: Operational strategies for Justice Mobile and Aggie Party - Justice Mobile has shown strong player stickiness, with plans to enrich content and explore innovative commercialization models [16][17] - Aggie Party remains a high-DAU product, with ongoing investments in content creation and long-term content operation strategies [17] Question: Overseas game development strategy - NetEase is pursuing a dual strategy of developing games for both domestic and international markets, with several titles like Marvel Rivals and FragPunk set for global release [18][19] Question: Performance of flagship evergreen games like Fantasy Westward Journey - Fantasy Westward Journey PC has shown stable performance, with revenue growth in August and positive player feedback on recent updates [25][26] Question: Potential of Marvel Rivals and Blizzard's performance in China - Marvel Rivals has received positive feedback from closed beta tests, with a global launch planned for December 6, 2024 [20][21] - Blizzard's relaunch in China has exceeded expectations, with strong player engagement and a deep partnership between NetEase and Blizzard [22][23] Question: Pipeline updates and Project Mugen's status - FragPunk will undergo testing in December 2024, with a launch date to be determined based on results [24] - Project Mugen is set for its first offline test by the end of 2024, with high expectations for its innovative approach to open-world ACG games [24][25]

Investment Rating - The report maintains a "Buy" rating for the company [1][3]. Core Insights - The company reported a 4% year-over-year decline in total revenue for Q3 2024, amounting to RMB 26.2 billion, which aligns with Bloomberg consensus expectations [1]. - Operating profit decreased by 5% year-over-year to RMB 7.15 billion, also in line with expectations [1]. - The decline in revenue is attributed to a high base effect and underperformance of certain new games [1]. - Future growth is anticipated from the launch of new game products in December 2024, which are expected to drive revenue growth in FY2025 [1]. - Revenue forecasts for FY2024 to FY2026 have been revised downwards by 5-6% due to the underperformance of new games [1]. - The target price has been adjusted to $125.50 from $130.00, reflecting a 64.5% upside from the current price of $76.28 [4]. Revenue Breakdown - Game and related value-added services revenue decreased by 4% year-over-year to RMB 20.9 billion in Q3 2024, with mobile game revenue down 10% to RMB 14.3 billion [1]. - PC game revenue increased by 29% year-over-year to RMB 5.9 billion, driven by re-releases of popular titles [1]. - Non-gaming businesses showed steady growth, with NetEase Cloud Music revenue increasing by 1% year-over-year to RMB 2 billion [2]. - Youdao's revenue grew by 2% year-over-year to RMB 1.6 billion, primarily due to growth in smart devices and online marketing services [2]. Financial Metrics - The adjusted operating profit margin for Q3 2024 decreased by 0.4 percentage points to 27.3% due to increased sales and R&D expenditures [3]. - The expected P/E ratio for FY2025 is 10 times, which is 31% lower than the historical average over the past two years, indicating an attractive risk-reward profile [3]. - The company accelerated its share buyback program, repurchasing 6.3 million American Depositary Shares at a total cost of $543 million, representing about 1% of the market capitalization as of November 14 [3]. Earnings Summary - Revenue projections for FY2024 to FY2026 are as follows: - FY2024: RMB 106.0 billion - FY2025: RMB 113.2 billion - FY2026: RMB 119.6 billion - Adjusted net profit for FY2024 is projected at RMB 32.5 billion, with a slight decline expected in FY2025 [9][10].

Investment Rating - The report maintains a "BUY" rating for NetEase with a target price of US$125.5, down from the previous target of US$130.0, indicating a potential upside of 64.5% from the current price of US$76.28 [1][3]. Core Insights - NetEase reported a total revenue decline of 4% year-over-year (YoY) to RMB26.2 billion in 3Q24, which aligns with Bloomberg consensus estimates. The operating profit also decreased by 5% YoY to RMB7.15 billion, consistent with expectations [1]. - The decline in revenue is attributed to a high-base effect and underperformance of certain new game titles. The upcoming launches of "Marvel Rivals" and "Where Winds Meet" in December are anticipated to be key catalysts for revenue growth in FY25E [1]. - The report has adjusted the FY24-26E total revenue forecast down by 5-6% due to the softer-than-expected performance of new titles [1]. Revenue Breakdown - Games and related value-added services (VAS) revenue fell by 4% YoY to RMB20.9 billion in 3Q24, with mobile games revenue down by 10% YoY to RMB14.3 billion, primarily due to the high-base effect from the previous year's launch of "Justice Mobile" [1]. - PC games revenue, however, grew by 29% YoY to RMB5.9 billion, driven by the relaunch of "World of Warcraft" and "Hearthstone" in China, with daily active users (DAUs) increasing significantly [1]. - Non-gaming businesses showed steady development, with NetEase Cloud Music revenue up by 1% YoY to RMB2.0 billion and Youdao revenue increasing by 2% YoY to RMB1.6 billion, although innovative businesses revenue declined by 10% YoY [1]. Financial Metrics - The operating profit margin (OPM) slightly decreased by 0.4 percentage points YoY to 27.3% in 3Q24, mainly due to increased investments in sales and marketing (S&M) and research and development (R&D) [1]. - The report highlights that NetEase's current valuation of 10x FY25E price-to-earnings (PE) is at a 31% discount to its 2-year historical average PE, suggesting an attractive risk-reward profile [1]. Valuation Methodology - The report employs a sum-of-the-parts (SOTP) valuation methodology, attributing US$118.4 to the online game business, US$0.7 to Youdao, US$3.2 to NetEase Cloud Music, and US$1.5 to innovative businesses and others, with net cash valued at US$1.7 [8][9].

| --- | --- | --- | --- | |------------------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | N e t Ea se | | | | | | | | | | | | | | | 3Q24 Investor Presentation Investor Relations November 14, 2024 | | | | SAFE HARBOR STATEMENT This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identif ...