Investment Rating - Buy rating with a target price of $108.00 USD / HK$168.05, implying a 26.05% / 24.39% upside potential for the US and HK markets respectively [2] Core Views - Blizzard games' return drives PC gaming revenue growth, with new product cycle expected in 2025 [2] - Q3 2024 revenue of RMB 26.21 billion, down 3.9% YoY, below Bloomberg consensus of RMB 26.59 billion [2] - GAAP net profit of RMB 6.54 billion, down 16.6% YoY, while Non-GAAP net profit of RMB 7.50 billion, down 13.3% YoY [2] - Mobile gaming revenue under pressure due to lack of new titles, while PC gaming revenue grows 29.0% YoY [2] - Youdao achieves record operating profit in Q3, driven by smart hardware and advertising business growth [2] - Cloud Music enters Hong Kong Stock Connect, with Q3 revenue of RMB 2.0 billion, up 1.3% YoY [2] Financial Performance Revenue - Q3 2024 total revenue: RMB 26.21 billion, down 3.9% YoY [2] - Gaming and value-added services revenue: RMB 20.86 billion, down 4.2% YoY [2] - Mobile gaming revenue: RMB 14.3 billion, down 9.7% YoY [2] - PC gaming revenue: RMB 4.55 billion, up 29.0% YoY [2] - Youdao revenue: RMB 1.57 billion, up 2.2% YoY [2] - Cloud Music revenue: RMB 2.0 billion, up 1.3% YoY [2] Profitability - Operating profit margin: 27.3%, down 40bps YoY [2] - GAAP net profit: RMB 6.54 billion, down 16.6% YoY [2] - Non-GAAP net profit: RMB 7.50 billion, down 13.3% YoY [2] - Youdao operating profit: RMB 110 million, up 186% YoY [2] Future Projections - 2024-2026 revenue CAGR: 10.5% [2] - 2024-2026 Non-GAAP net profit CAGR: 8.5% [2] - 2025 PC gaming revenue expected to decline 12% to RMB 21.6 billion [2] - 2025 mobile gaming revenue expected to grow 5.4% to RMB 60.0 billion [2] Business Segments Gaming - Blizzard games' return drives PC gaming growth, with World of Warcraft and Hearthstone contributing to revenue increase [2] - New titles expected in 2025, including Marvel Rivals and Yan Yun Shi Liu Sheng [2] - Pipeline includes Code: Infinity, Marvel Rampage, and Destiny: Rise [2] Youdao - Smart hardware revenue grows 25.2% YoY to RMB 320 million, driven by X7Pro dictionary pen sales [2] - Online marketing revenue grows 45.6% YoY to RMB 490 million, supported by AI optimization [2] Cloud Music - DAU/MAU ratio remains above 30%, with 24.4% paying user ratio [2] - ARPU reaches RMB 6.2 per month, with 730,000 independent musicians on the platform [2] Valuation - Target price of $108.00 USD / HK$168.05, based on 14.9x 2025 PE [2] - Gaming business valued at 1.2x PEG, with 12x PE for Non-GAAP net profit [2] - Youdao and Cloud Music valued based on NetEase's shareholding, with 5% discount applied to group valuation [2]

Investment Rating - The report maintains a "Buy" rating for the company [6][34]. Core Insights - The company reported Q3 2024 revenue of 26.21 billion yuan, a year-over-year decrease of 4% but a quarter-over-quarter increase of 3%. The gross margin for Q3 was 62.9%, down by 0.09 percentage points [2][13]. - Blizzard's return has driven growth in PC games, while mobile games have declined primarily due to a high base from the previous year. Q3 gaming and related services revenue was 20.864 billion yuan, down 4.2% year-over-year [3][21]. - The company has a strong pipeline of new games, including "Marvel: Contest of Champions" and "Yanyun Sixteen Sounds," expected to launch within the year, indicating robust game development capabilities [4][26]. Financial Summary - Q3 2024 GAAP net profit was 6.538 billion yuan, a decrease of 16.57% year-over-year, while Non-GAAP net profit was 7.499 billion yuan, down 13.26% year-over-year [2][13]. - The company forecasts total revenues of 107.2 billion yuan, 120.3 billion yuan, and 125.6 billion yuan for 2024, 2025, and 2026, respectively, with Non-GAAP net profits of 32.8 billion yuan, 35.6 billion yuan, and 37.4 billion yuan for the same years [4][26]. - The estimated fair value per share is 114.61 USD for ADS and 178.44 HKD for H-shares [6][30]. Business Segment Performance - The gaming and related services segment generated 20.864 billion yuan in Q3 2024, with online game revenue at 20.196 billion yuan, a slight decrease of 1.04% year-over-year. Mobile game revenue accounted for 70.8% of online game revenue, totaling 14.299 billion yuan, down 9.71% year-over-year [3][25]. - The education segment, Youdao, achieved revenue of 1.573 billion yuan in Q3 2024, reflecting a year-over-year growth of 2.19% [24]. - Cloud music revenue was 1.999 billion yuan in Q3 2024, with a gross margin of 33%, up 5.58 percentage points year-over-year [24][25]. Future Outlook - The company is expected to benefit from the return of Blizzard games, which has positively impacted PC game revenue. The mobile segment is anticipated to recover with new game launches [4][26]. - The report highlights the company's strong R&D capabilities and the potential for continued success in game development, with a focus on high-quality game output [4][26].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 149.00 / CNY 134.69 [4][3] Core Insights - The company reported Q3 revenue of CNY 26.2 billion, a year-over-year decrease of 3.9% but a quarter-over-quarter increase of 2.8%, primarily driven by increased mobile game net revenue [2] - Q3 gross margin was 62.9%, reflecting a year-over-year increase of 0.7 percentage points, mainly due to the growth in gross margin from cloud music [2] - The company anticipates a recovery in game revenue in Q4, driven by the return of Blizzard games, with expected revenue of CNY 21.7 billion, representing a year-over-year increase of 4% and a quarter-over-quarter increase of 4% [2][3] Financial Summary - Q3 net profit attributable to shareholders was CNY 6.54 billion, down 16.6% year-over-year and 3.3% quarter-over-quarter [2] - The company expects net profit for 2024 to be CNY 28.7 billion, with projections of CNY 32.5 billion and CNY 34.9 billion for 2025 and 2026, respectively [3] - The report highlights a total revenue forecast of CNY 106.3 billion for 2024, with a year-over-year growth of 2.77% [3] Revenue Breakdown - Total revenue from games and related value-added services in Q3 was CNY 20.86 billion, a year-over-year decrease of 4.2% but a quarter-over-quarter increase of 4.0% [2] - Mobile game revenue was CNY 14.3 billion, down 9.7% year-over-year and 2.9% quarter-over-quarter, while PC game revenue increased significantly by 29.0% year-over-year and 30.0% quarter-over-quarter to CNY 5.9 billion [2] - Cloud music revenue in Q3 was CNY 2.0 billion, reflecting a year-over-year increase of 1.3% [2] Future Growth Drivers - Upcoming mobile games such as "Seven Days World" and "Yanyun Sixteen Sounds" are expected to drive future growth [3] - The return of Blizzard's "Hearthstone" is anticipated to significantly boost mobile game revenue, with expected daily active users (DAU) increasing by 150% compared to before the game's closure [2]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 149.00 / CNY 134.69 [4][3] Core Views - The company's revenue for Q3 2024 was CNY 26.2 billion, showing a year-over-year decrease of 3.9% but a quarter-over-quarter increase of 2.8%, primarily driven by increased mobile game net income [2] - The gross margin for Q3 was 62.9%, reflecting a year-over-year increase of 0.7 percentage points, mainly due to the growth in gross margin from cloud music [2] - The company expects significant revenue growth in Q4 2024, driven by the return of Blizzard games, with projected revenue reaching CNY 21.7 billion, a year-over-year increase of 4% and a quarter-over-quarter increase of 4% [2][3] Financial Summary - Q3 2024 total revenue from games and related value-added services was CNY 20.86 billion, down 4.2% year-over-year but up 4.0% quarter-over-quarter [2] - Mobile game revenue was CNY 14.3 billion, down 9.7% year-over-year and down 2.9% quarter-over-quarter, while PC game revenue was CNY 5.9 billion, up 29.0% year-over-year and up 30.0% quarter-over-quarter [2] - The company forecasts net profit attributable to shareholders for 2024-2026 to be CNY 28.7 billion, CNY 32.5 billion, and CNY 34.9 billion respectively [3] Revenue Breakdown - Q3 2024 cloud music revenue was CNY 2.0 billion, up 1.3% year-over-year, primarily due to increased subscription revenue [2] - Q3 2024 Youdao revenue was CNY 1.57 billion, up 2.3% year-over-year and up 19.0% quarter-over-quarter, driven by growth in online marketing services and smart devices [2]

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].

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]