Financial Performance - NetEase's net revenue for Q2 2024 was RMB 25.5 billion ($3.5 billion), representing a year-over-year increase of 6.1%[3] - Revenue from games and related value-added services reached RMB 20.1 billion ($2.8 billion), up 6.7% year-over-year[3] - Youdao's revenue was RMB 1.3 billion ($181.9 million), reflecting a 9.5% year-over-year increase[3] - Cloud Music generated RMB 2 billion ($280.8 million) in revenue, a 4.7% increase year-over-year[3] - Gross profit for Q2 2024 was RMB 16 billion ($2.2 billion), marking an 11.6% year-over-year increase[3] - Net profit attributable to shareholders was RMB 6.8 billion ($930 million), with a non-GAAP net profit of RMB 7.8 billion ($1.1 billion)[4] - Basic earnings per share were $0.29, with a non-GAAP basic earnings per share of $0.33[4] - In Q2 2024, net profit attributable to shareholders was RMB 6.8 billion (USD 930 million), down from RMB 7.6 billion in the previous quarter and RMB 8.2 billion year-over-year[14] - Non-GAAP net profit attributable to shareholders in Q2 2024 was RMB 7.8 billion (USD 1.1 billion), down from RMB 8.5 billion in the previous quarter and RMB 9.0 billion year-over-year[15] - The net profit attributable to shareholders was RMB 8,242,767 thousand, a decrease of 1.5% from RMB 8,350,000 thousand year-over-year[31] - The net profit for the six months ended June 30, 2024, was $14,630,956, compared to $14,528,964 in the previous year, indicating a slight increase[35] Operating Metrics - In Q2 2024, the gross margin for games and related value-added services was 70.0%, up from 69.5% in the previous quarter and 67.4% year-over-year[9] - In Q2 2024, Youdao's gross margin was 48.2%, down from 49.0% in the previous quarter but up from 47.0% year-over-year, primarily due to a decline in learning services revenue contribution[9] - In Q2 2024, gross margin for Cloud Music was 32.1%, down from 38.0% in the previous quarter and up from 27.0% year-over-year, affected by a one-time adjustment in copyright fees[9] - The total gross profit margin for the company was 59.9%, compared to 59.5% in the same period last year[27] - The gross profit for the cloud music segment was RMB 525,684 thousand, with a gross margin of 27.0%, compared to 24.7% in the same period last year[27] Expenses and Costs - Total operating expenses in Q2 2024 were RMB 9 billion (USD 1.2 billion), down from RMB 9.4 billion in the previous quarter but up from RMB 8.3 billion year-over-year[11] - The company reported a total operating cost of RMB 9,635,888 thousand, which is a slight increase from RMB 9,443,587 thousand year-over-year[27] - Research and development expenses for the six months ended June 30, 2023, totaled RMB 7,658,639, compared to RMB 8,630,475 for the same period in 2022, a decrease of about 11.3%[25] - R&D expenses increased to RMB 429,892 thousand for the three months ended June 30, 2024, reflecting a 52.3% increase from RMB 282,466 thousand in the same period last year[29] Cash Flow and Investments - As of June 30, 2024, the company had a net cash balance of RMB 116.1 billion (USD 16 billion), up from RMB 110.9 billion at the end of 2023[16] - The company reported a net cash inflow from investing activities of RMB 11,589,514 thousand for the three months ended June 30, 2024, compared to RMB 12,859,889 thousand in the same period of 2023, indicating a decrease of 9.9%[26] - The company’s net cash inflow from operating activities for the three months ended June 30, 2024, was RMB 7,678,405 thousand, compared to RMB 9,557,169 thousand in the same period of 2023, a decrease of 19.6%[26] Shareholder Returns - The company declared a quarterly dividend of USD 0.0870 per share, payable on September 17, 2024, to shareholders of record as of September 6, 2024[17] - The company has repurchased approximately 11.9 million ADS under its buyback plan, totaling about USD 1.1 billion as of June 30, 2024[18] Financial Position - As of June 30, 2024, total assets amounted to RMB 183.34 billion, a decrease from RMB 185.92 billion as of December 31, 2023[24] - Cash and cash equivalents were reported at RMB 18.98 billion, down from RMB 21.43 billion as of December 31, 2023[24] - Total liabilities decreased to RMB 48.99 billion from RMB 57.84 billion as of December 31, 2023, indicating improved financial health[24] - The company’s equity attributable to shareholders increased to RMB 130.91 billion from RMB 124.29 billion, reflecting a growth of approximately 5.3%[24] - Short-term investments rose significantly to RMB 10.42 billion from RMB 4.44 billion, indicating a strategic shift towards liquid assets[24] - The company reported a total current liabilities of RMB 45.93 billion, down from RMB 53.84 billion, showing effective management of short-term obligations[24] - The deferred tax liabilities decreased to RMB 1.45 billion from RMB 2.30 billion, suggesting a positive adjustment in tax planning[24] - The total non-current assets increased to RMB 45.19 billion from RMB 43.23 billion, indicating ongoing investment in long-term growth[24] Tax and Regulatory - The effective tax rate for Q2 2024 was 16.0%, consistent with the previous quarter and up from 8.0% year-over-year[13] - The income tax expense for the six months ended June 30, 2023, was $(2,340,649), slightly lower than $(2,325,360) in the previous year[34] Market Strategy - The launch of new games, such as "Firefly Assault" and "World of Survival," has significantly boosted user engagement and downloads[5] - Youdao continues to see growth in digital content services and AI subscription services, achieving record operating cash inflow[6] - Cloud Music is enhancing its music ecosystem, focusing on high-quality user experiences and community engagement[6] - The company plans to continue expanding its market presence and investing in new technologies and products to drive future growth[27] Accounting and Reporting - The company emphasized the importance of non-GAAP financial metrics for investors to better understand operational performance and future prospects[23] - The company has made significant adjustments in its financial reporting between US GAAP and IFRS, reflecting important differences in accounting policies[38]

Investment Rating - The investment rating for the company is "Outperform the Market" [3][24][13] Core Insights - In Q1 2024, the company achieved a revenue of 26.9 billion yuan, representing a year-on-year growth of 7%. The growth was primarily driven by mobile gaming and Youdao, partially offset by a decline in PC gaming revenue [22][29] - The company's overall gross margin improved to 63%, up by 4 percentage points year-on-year, with gaming and value-added services gross margin at 69.5%, an increase of 3 percentage points [22][27] - Non-GAAP net profit for Q1 2024 was 8.5 billion yuan, a 12% increase year-on-year, with a Non-GAAP net profit margin of 32%, up by 1 percentage point [22][29] Summary by Sections Gaming Business - Online gaming revenue reached 20.43 billion yuan, a 10% increase year-on-year, with mobile gaming revenue at 16.1 billion yuan, growing by 19% due to strong performances from titles like "Party of Eggs" and "Identity V" [22][30] - PC gaming revenue decreased by 15% to 4.4 billion yuan, mainly due to the suspension of Blizzard games. The company has renewed its distribution agreement with Blizzard to reintroduce their games to the Chinese market [22][30] - The company plans to complete adjustments to "Fantasy Westward Journey" in the first half of this year to enhance long-term player engagement [22][31] Youdao - Youdao's net revenue for Q1 2024 was 1.4 billion yuan, a 20% increase year-on-year, with advertising revenue doubling to 490 million yuan, marking a historical high [22][32] - The strategic focus on digital content services and AI-driven subscription services has led to profitability over two consecutive quarters [22][32] Cloud Music - Cloud Music reported a net revenue of 2 billion yuan in Q1 2024, a 4% increase year-on-year, with a gross margin of 37.97%, up by 15.5 percentage points due to improved cost control [23][33] Financial Forecast - The company maintains a robust product pipeline with expected releases such as "Eternal Return" and "Yanyun Sixteen Sounds" in the second half of the year. The adjusted net profit forecasts for 2024-2026 are 36 billion, 38.6 billion, and 41.2 billion yuan respectively [22][13][26]

Investment Rating - The report maintains a "Buy" rating for the company [4]. Core Views - The company reported Q1 2024 revenue of 26.852 billion RMB, a year-over-year increase of 7.21%. The gross profit for Q1 was 17 billion RMB, with a gross margin of 63.37% [2][8]. - Mobile gaming showed steady growth, while PC gaming experienced a decline. Q1 gaming and related value-added services revenue was 21.46 billion RMB, up 7% year-over-year, with mobile games accounting for 78.6% of online gaming revenue [2][19]. - The company has a strong pipeline of self-developed games, with several titles set to launch in the coming months, which is expected to bolster future performance [2][19]. Summary by Sections Financial Performance - Q1 2024 revenue was 26.852 billion RMB, with a gross profit of 17 billion RMB and a gross margin of 63.37%. Sales expenses were 4.022 billion RMB, while R&D expenses were 4.175 billion RMB, representing 15.55% of revenue [2][8][19]. - The company reported a GAAP net profit of 7.634 billion RMB and a Non-GAAP net profit of 8.511 billion RMB, with Non-GAAP net profit margin at 31.70% [2][19]. Gaming Business - The gaming segment generated 21.46 billion RMB in revenue, with online gaming revenue at 20.43 billion RMB, reflecting a 9.84% increase year-over-year. Mobile games contributed 16.058 billion RMB, up 19.41%, while PC games saw a 15.15% decline [2][19]. - New game launches such as "射雕" and "世界之外" had limited impact, but existing titles like "逆水寒" and "蛋仔派对" performed well during the Spring Festival [2][19]. Future Outlook - The company expects to gradually recover from the impact of PC gaming adjustments, with Blizzard's return to the Chinese market expected to support this segment [2][19]. - Revenue projections for 2024-2026 are set at 111.9 billion RMB, 126.7 billion RMB, and 138.9 billion RMB, respectively, with Non-GAAP net profits expected to be 34.5 billion RMB, 38.7 billion RMB, and 42.4 billion RMB [2][19][25].

Investment Rating - The report maintains a "Buy" rating for the company with a target price adjusted to HKD 173 / USD 111, reflecting a potential upside of 22% from the current price of HKD 141.5 / USD 94.74 [3][4][12] Core Insights - The company's Q1 2024 revenue reached RMB 26.9 billion, a year-on-year increase of 7.2%, slightly above market expectations. The adjusted net profit was RMB 8.5 billion, up 31.7% year-on-year, also exceeding market forecasts [3][6] - The gaming segment continues to show strong growth, with game revenue at RMB 20.4 billion, a 10% increase year-on-year, driven by popular titles such as "逆水寒" and "蛋仔派对" [3][6] - The company is set to launch several new games in Q3, which are expected to act as catalysts for growth despite recent adjustments to existing games [3][6] Financial Performance Summary - Revenue projections for FY24E have been slightly adjusted downwards by 1% to RMB 111.6 billion, with adjusted net profit forecasted at RMB 33.6 billion [3][6] - The company’s gross margin improved to 63.4%, up 3.9 percentage points year-on-year, while the adjusted net margin increased to 31.7%, up 1.5 percentage points [3][6] - The report outlines a steady growth trajectory with revenue expected to reach RMB 130.1 billion by FY26E, with a compound annual growth rate (CAGR) of 6.5% [6][10]

Investment Rating - The report maintains a "Buy" rating for the company [4] Core Insights - In Q1 2024, the company reported revenue of 26.85 billion (yoy +7.2%, qoq -1.1%), with a decline attributed to reduced income from Youdao, while year-on-year growth was driven by increased mobile game net revenue [1] - The gross margin for Q1 was 63.4% (yoy +3.9pp, qoq +1.4pp), primarily boosted by growth in cloud music [1] - Non-GAAP net profit attributable to the parent company was 8.51 billion (yoy +12.5%, qoq +15.3%), while GAAP net profit was 7.63 billion (yoy +13%, qoq +16%) [1] - The total revenue from games and related value-added services was 21.46 billion (yoy +6.9%, qoq +2.6%), with growth driven by new game releases and continuous content innovation [1] - The company has a rich product pipeline, with several new games expected to launch in 2024, which are anticipated to drive revenue growth [2] Financial Summary - The company forecasts net profit attributable to the parent company for 2024-2026 to be 33.6 billion, 38.5 billion, and 41.7 billion respectively [2] - The target price is set at 164.63 HKD / 148.82 CNY, based on a sum-of-the-parts (SOTP) valuation [2] - The company’s revenue is projected to grow from 117.6 billion in 2024 to 146.6 billion in 2026, with a compound annual growth rate (CAGR) of 7.63% [6][9]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Insights - The report highlights that the mobile game "Naraka: Bladepoint" is expected to drive future growth for the company [2] - In Q1 2024, the company's revenue was 26.852 billion yuan, a year-on-year increase of 7.2%, which was in line with market expectations [2][6] - The net profit (Non-GAAP) for Q1 2024 was 8.511 billion yuan, representing a year-on-year growth of 12.5%, exceeding market expectations [2][6] - The company has a strong pipeline of games, including "Naraka: Bladepoint" mobile version and "Yanyun Sixteen Sounds," which are anticipated to contribute to future revenue [3][4] Financial Performance Summary - For the fiscal year 2023, the company reported total revenue of 103.468 billion yuan, with a year-on-year growth of 7.2% [4] - The projected revenues for 2024, 2025, and 2026 are 116.792 billion yuan, 144.093 billion yuan, and 162.964 billion yuan, respectively, indicating a growth trajectory [4][7] - The company's net profit (Non-GAAP) for 2024 is projected to be 38.032 billion yuan, with a year-on-year growth of 16.6% [4][7] - The report indicates a consistent increase in gross profit, with a projected gross profit of 73.594 billion yuan for 2024, reflecting a year-on-year growth of 16.7% [4][7] Game and Service Revenue - Revenue from games and related value-added services for Q1 2024 was 21.460 billion yuan, a year-on-year increase of 7.0% [2][6] - The company continues to see strong performance from existing titles such as "Identity V" and "Onmyoji," which maintain a loyal user base [2][3] - The report notes that the company is expanding its game offerings in more regions, enhancing its market presence [2][3] Future Outlook - The company is expected to launch several highly anticipated games in the coming quarters, which are likely to boost revenue [2][3] - The report maintains a positive outlook on the company's long-term commercialization capabilities, driven by its strong game portfolio and user engagement [2][3]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Insights - The company's revenue for Q1 2024 was 26,852 million yuan, representing a year-on-year growth of 7.2%, which is in line with market expectations [4][7] - Non-GAAP net profit reached 8,511 million yuan, up 12.5% year-on-year, exceeding market expectations [4][7] - The gaming and related value-added services revenue was 21,460 million yuan, growing 7.0% year-on-year [4] - The company has a strong pipeline of products expected to drive future growth, including new game releases and updates to existing titles [4] Financial Performance Summary - Revenue for 2024E is projected at 103,468 million yuan, with a year-on-year growth of 12.9% [5] - Non-GAAP net profit for 2024E is estimated at 32,608 million yuan, reflecting a 16.6% increase year-on-year [5] - The company maintains a healthy ROE of 24% for 2024E [5] - The P/E ratio is projected to decrease from 16.1 in 2023 to 10.9 in 2024E, indicating potential undervaluation [5] Game and Service Performance - The company continues to see strong performance from existing games such as "Identity V" and "Onmyoji," which have maintained popularity among players [4] - New game releases, including "World Beyond," have quickly gained traction, reaching the top of the iOS download charts in China [4] - The company is expanding its gaming portfolio with anticipated releases like "Yanyun Sixteen Sounds" and updates to "Nirvana in Fire" mobile game [4] Future Outlook - The company expects to achieve Non-GAAP net profits of 38,032 million yuan in 2025E and 44,192 million yuan in 2026E, indicating a positive growth trajectory [4][5] - The gaming sector remains a key growth driver, supported by a loyal user base and continuous content updates [4]

Investment Rating - The investment rating for the company is "Buy" (maintained) [2][6] Core Views - The company has shown steady growth in performance, with a continuous improvement in profitability. The first quarter of 2024 saw a revenue of 26.9 billion yuan, a year-on-year increase of 7.2% and a quarter-on-quarter decrease of 1.1%. The net profit attributable to shareholders was 7.6 billion yuan, reflecting a year-on-year increase of 13.0% and a quarter-on-quarter increase of 16.0% [6] - The company is expected to benefit from the launch of several blockbuster games, which will drive revenue growth. The forecast for net profit from 2024 to 2026 is 33.9 billion yuan, 37.3 billion yuan, and 40.4 billion yuan respectively, with corresponding EPS of 10.5, 11.6, and 12.6 yuan [6][9] - The company maintains a high level of R&D investment, with a focus on integrating AI models into various sectors, which is expected to enhance efficiency and quality across its entertainment, education, and industrial segments [8] Summary by Sections Financial Performance - In Q1 2024, the company achieved a revenue of 26.9 billion yuan, with a gross margin of 63.37%, up 3.89 percentage points year-on-year. The net margin was 28.43%, an increase of 1.46 percentage points year-on-year [6] - The company’s total revenue for 2022 was 96.5 billion yuan, increasing to 103.5 billion yuan in 2023, with projections of 118.1 billion yuan for 2024, reflecting a year-on-year growth of 14.2% [9] Game Development and Releases - The company has several successful games, including "Dream of the Westward Journey" and "Identity V," which have reached record revenues. New games like "World Beyond" and "Seven Days World" are also gaining traction [7] - The company plans to accelerate the global release of new self-developed games, with significant titles set to launch in the second half of 2024 [7] R&D and Innovation - The company has maintained a R&D investment intensity exceeding 15% for seven consecutive quarters, focusing on AI integration to enhance productivity and reduce costs across its business segments [8]

Financial Performance - NetEase reported Q1 2024 net revenue of RMB 26.9 billion (USD 3.7 billion), a year-over-year increase of 7.2%[3] - Gross profit for Q1 2024 was RMB 17.0 billion (USD 2.4 billion), representing a 14.2% year-over-year increase[3] - Operating expenses totaled RMB 9.4 billion (USD 1.3 billion), an increase of 22.4% year-over-year[3] - Net profit attributable to shareholders was RMB 7.6 billion (USD 1.1 billion), with a non-GAAP net profit of RMB 8.5 billion (USD 1.2 billion)[4] - Basic earnings per share were USD 0.33, with a non-GAAP basic earnings per share of USD 0.37[4] - The company reported a net profit attributable to shareholders of RMB 7.6 billion ($1.1 billion) in Q1 2024, compared to RMB 6.6 billion in the previous quarter and RMB 6.8 billion year-over-year[12] - The net income for the three months ended March 31, 2024, was RMB 6,582,263 thousand, compared to RMB 6,754,634 thousand for the three months ended December 31, 2023, indicating a slight decrease of about 2.55%[23] - The company reported a net cash inflow from financing activities of RMB 5,139,264 for the three months ended March 31, 2024, compared to a net cash inflow of RMB 572,429 for the same period in 2023, showing a substantial increase[24] Revenue Breakdown - Revenue from games and related value-added services reached RMB 21.5 billion (USD 3.0 billion), up 7.0% year-over-year, with online games contributing approximately 95.2% of this segment's revenue[7] - Youdao's net revenue was RMB 1.4 billion (USD 192.8 million), reflecting a 19.7% year-over-year increase[3] - Cloud Music generated net revenue of RMB 2.0 billion (USD 281.1 million), a 3.6% increase year-over-year[3] - In Q1 2024, net revenue from innovation and other businesses was RMB 2 billion ($272.8 million), down from RMB 2.8 billion in the previous quarter and up from RMB 1.9 billion year-over-year[8] - Total net revenue from online games and related value-added services was RMB 20,921,355 for the three months ended March 31, 2024, compared to RMB 20,065,597 for the same period in 2023, representing an increase of 4.3%[25] - The total revenue from Youdao was RMB 1,480,521 for the three months ended March 31, 2024, compared to RMB 1,163,270 for the same period in 2023, marking an increase of 27.3%[25] - The total revenue from Cloud Music was RMB 1,985,548 for the three months ended March 31, 2024, compared to RMB 1,959,841 for the same period in 2023, reflecting a slight increase of 1.3%[25] Expenses and Costs - Operating expenses totaled RMB 9.4 billion ($1.3 billion) in Q1 2024, down from RMB 10 billion in the previous quarter and up from RMB 7.7 billion year-over-year[9] - Research and development expenses for the three months ended March 31, 2024, were RMB 4,479,219 thousand, compared to RMB 3,749,732 thousand for the three months ended December 31, 2023, marking an increase of about 19.5%[23] - The company's general and administrative expenses for the quarter ending March 31, 2024, were RMB 40,114 thousand, a decrease from RMB 289,636 thousand in the previous quarter[27] - The company’s sales and marketing expenses for the quarter ending March 31, 2024, were RMB 2,475 thousand, reflecting a decrease from RMB 17,869 thousand in the previous quarter[27] Cash and Assets - As of March 31, 2024, the company's net cash balance was RMB 113.4 billion ($15.7 billion), up from RMB 110.9 billion at the end of 2023[14] - The company's cash and cash equivalents decreased to RMB 21,428,902 thousand as of March 31, 2024, down from RMB 43,026,904 thousand as of December 31, 2023, reflecting a decline of approximately 50.19%[22] - Cash and cash equivalents at the end of March 31, 2024, were RMB 24,206,658, up from RMB 18,158,066 at the beginning of the period, indicating a net increase of RMB 6,048,592[24] - The total assets of the company amounted to RMB 195,064,872 thousand, an increase from RMB 185,924,978 thousand as of December 31, 2023, representing a growth of approximately 6.15%[22] Strategic Initiatives - The company plans to release several anticipated new games, including "Yanyun Shiliu Sheng" and "Marvel: Contest of Champions," in the upcoming quarters[5] - NetEase has updated its distribution agreement with Blizzard Entertainment to reintroduce popular games to the Chinese market and is expanding collaboration with Microsoft Gaming[5] - NetEase's self-developed R&D team focuses on mobile, PC, and console game development, positioning itself among the industry's leaders[19] - The company integrates cultural and educational elements into games, enhancing user engagement and community value[19] - NetEase's strategic focus includes developing innovative online services and expanding its global operations[20] Non-GAAP Metrics - Non-GAAP financial metrics are used to assess operational performance, excluding stock-based compensation expenses from net profit attributable to shareholders[21] - The non-GAAP net profit attributable to shareholders is defined as net profit excluding stock-based compensation, providing a clearer view of operational performance[21] - The company emphasizes that non-GAAP metrics should not be viewed in isolation and have limitations compared to GAAP metrics[21] - The net profit attributable to shareholders under non-GAAP for the quarter ending March 31, 2024, was RMB 876,898 thousand, up from RMB 797,194 thousand for the previous quarter, reflecting a growth of approximately 10%[29] - Basic non-GAAP earnings per share for the quarter ending March 31, 2024, was RMB 2.65, compared to RMB 2.35 for the same quarter in 2023, marking an increase of about 12.8%[29] - The diluted non-GAAP earnings per American Depositary Share (ADS) for the quarter ending March 31, 2024, was $1.84, compared to $1.81 for the previous quarter, showing a slight increase of approximately 1.7%[29] Risks and Challenges - Forward-looking statements indicate potential risks, including the online gaming market's growth sustainability and NetEase's ability to maintain its market position[20] - Risks related to government regulation changes and cybersecurity threats may adversely affect NetEase's operations and financial performance[20] - The company encourages a comprehensive review of its financial information rather than relying on any single financial metric[21] Upcoming Events - The company will hold a conference call on May 23, 2024, to discuss quarterly performance and answer questions[17]

Investment Rating - The investment rating for the company is "Buy" (maintained) [2][5] Core Views - The company is expected to accelerate growth with the launch of multiple new games, with over 10 new titles announced, including "Firefly Assault" and "Yanyun Sixteen Sounds," which have already received approval for release [5] - The company maintains its profit forecasts for 2024-2026, projecting net profits of 33.9 billion, 37.3 billion, and 40.4 billion CNY respectively, with corresponding EPS of 10.5, 11.6, and 12.6 CNY [5] - The company has a diverse product matrix that continues to yield successful products, driving long-term growth [6] - The company is expanding its global product cycle, which may further open up growth opportunities in overseas markets [7] Financial Summary - The company's total revenue for 2022 was 96.5 billion CNY, with a projected increase to 118.1 billion CNY in 2024, reflecting a year-on-year growth of 14.2% [8] - The net profit for 2022 was 20.3 billion CNY, expected to rise to 33.9 billion CNY in 2024, indicating a year-on-year growth of 15.1% [8] - The gross margin is projected to improve from 54.7% in 2022 to 61.7% in 2024, while the net margin is expected to remain stable around 28% [8]