Summary of NetEase, Inc. Conference Call Company Overview - **Company**: NetEase, Inc (NTES.O) - **Industry**: China Internet and Other Services - **Market Capitalization**: US$64.68 billion - **Current Stock Price**: US$99.72 (as of February 28, 2025) - **Price Target**: US$117.00 - **52-Week Range**: US$113.77 - US$75.85 - **Shares Outstanding**: 649 million - **Average Daily Trading Value**: US$149 million Key Points Relaunch of Condor Heroes - **Event**: NetEase announced the relaunch of Condor Heroes 2.0 on March 13, 2025, after a 10-month suspension of the 1.0 version [1] - **Investment**: The original version incurred approximately Rmb1 billion in R&D costs [1] - **Improvements**: The new version includes: 1. Rebuilt character image models 2. Upgraded martial arts skills for heroes 3. Changes to PVP gameplay [1] Financial Implications - **Refund Policy**: NetEase will refund all grossing from the 1.0 version to gamers [2] - **User Engagement**: As of March 2, 2025, over 1.4 million gamers have made appointments to join the game [2] - **Previous Performance**: Condor Heroes was noted as the biggest failure among NetEase's new games in 2024, suspended two months post-launch due to poor feedback [2] - **Forecast Impact**: The relaunch is not included in the 2025 financial forecast, thus any revenue contribution is considered as option value [2] Analyst Ratings and Industry View - **Stock Rating**: Overweight [3] - **Industry View**: Attractive [3] - **Valuation Methodology**: Based on a sum of the parts approach [7] Risks and Opportunities - **Upside Risks**: - Better-than-expected performance of existing or new game titles - Faster-than-expected overseas expansion [9] - **Downside Risks**: - Weaker-than-expected margins, particularly from loss-making businesses [9] Market Context - **P/E Ratio**: NetEase's gaming segment is valued at 14x 2025 estimated P/E, compared to 15-30x for US/EU publishers, indicating slower growth and limited overseas exposure [9] Additional Insights - **User Base**: The significant number of appointments for the relaunch indicates potential for user engagement and revenue generation [2] - **Financial Strategy**: The decision to refund gamers reflects a commitment to customer satisfaction and may help rebuild brand loyalty after the previous failure [2] This summary encapsulates the critical aspects of NetEase's recent conference call, focusing on the relaunch of Condor Heroes, its financial implications, and the broader market context.

Group 1 - NetEase reported 4Q24 results with net revenue below consensus due to steady progress in the gaming business being offset by weakness in non-game segments [1] - Mobile games showed softness during the quarter, while PC gaming performance was not detailed [1] Group 2 - Astrada Advisors provides actionable recommendations to enhance portfolio performance and uncover alpha opportunities, leveraging a strong track record in investment research [1] - The firm specializes in technology, media, internet, and consumer sectors across North America and Asia, identifying high-potential investments and navigating complex industries [1] - Astrada Advisors integrates rigorous fundamental analysis with data-driven insights to offer a nuanced understanding of key trends, growth drivers, and competitive landscapes [1]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of $125.50, reflecting an expected return exceeding 15% over the next 12 months [2][26]. Core Insights - The company reported a stable performance in Q4 2024, with total revenue decreasing by 1.4% year-on-year to RMB 26.7 billion, aligning with market expectations. Operating profit increased by 13.9% year-on-year to RMB 7.8 billion, surpassing market expectations by 8% due to cautious control of sales and marketing expenses, which decreased by 33% year-on-year [1][2][3]. - For FY25, the company anticipates the launch of several new game titles to drive revenue growth, although total revenue forecasts for FY25-26 have been adjusted downwards by 2-3%. However, due to prudent operational expense control, the non-GAAP net income forecast for FY25-26 has been revised upwards by 2-3% [1][2][3]. Financial Summary - The company’s revenue is projected to grow from RMB 105.3 billion in FY24 to RMB 110.7 billion in FY25, representing a year-on-year growth of 7.5%. Adjusted net profit is expected to increase from RMB 33.5 billion in FY24 to RMB 36.0 billion in FY25, reflecting a growth rate of 7.5% [4][21]. - The operating profit margin is expected to improve, with a forecast of 30.4% for FY25, up from 29.1% in FY24, driven by effective control of sales and marketing expenses [3][11]. Segment Valuation - The report employs a Sum-of-the-Parts (SOTP) valuation method, estimating the online gaming business at $11.05 billion, accounting for 88% of the total valuation. Other segments include Youdao at $1 million, Cloud Music at $380 million, and innovation and other businesses at $1.8 million, with net cash valued at $8.5 million [14][15].

Investment Rating - The report maintains a "BUY" rating for NetEase, with a target price of US$125.50, indicating a potential upside of 20.5% from the current price of US$104.17 [3][12]. Core Insights - NetEase's 4Q24 performance showed total revenue of RMB26.7 billion, down 1.4% YoY, but operating profit increased by 13.9% YoY to RMB7.8 billion, exceeding consensus estimates due to effective control of selling and marketing expenses [1][2]. - For FY25E, new game titles such as Marvel Rivals and Where Winds Meet are expected to drive revenue growth, despite a slight reduction in total revenue forecasts for FY25-26E by 2-3% [1][9]. - The company is focusing on prudent operational expense control, which is anticipated to support operating profit margin (OPM) improvement in FY25E [1][8]. Financial Summary - FY24 total revenue was RMB105.3 billion, with a gross margin of 62.5% and adjusted net profit of RMB33.5 billion, reflecting a YoY growth of 2.8% [2][19]. - Revenue projections for FY25E are set at RMB110.7 billion, with adjusted net profit expected to reach RMB36.0 billion, indicating a 7.5% growth [9][19]. - The company reported a significant improvement in OPM, which rose by 3.9 percentage points YoY to 29.2% in 4Q24 [1][8]. Business Segments - The online gaming segment remains the primary revenue driver, contributing 88% to the total valuation, with a projected valuation of US$110.5 billion based on a 15x EV/EBIT multiple [12][13]. - Non-gaming businesses, including Youdao and Cloud Music, are focusing on quality growth, although revenues in these segments have seen declines [1][8]. - The innovative businesses segment is valued at US$1.8 billion, reflecting a cautious approach to customer acquisition and prioritizing higher ROI engagements [12][13]. Market Position - NetEase's market capitalization stands at approximately US$66.7 billion, with a strong share performance over the past months, showing a 19% increase over the last three months [3][5]. - The company has a solid shareholder return strategy, having returned RMB20.0 billion to shareholders through dividends and share buybacks in FY24 [1][8].

Financial Data and Key Metrics Changes - Total net revenue for 2024 reached RMB 105.3 billion, representing a 2% increase year-over-year [52] - For Q4 2024, total revenue was RMB 26.7 billion, with net revenue from games and related services at RMB 21.2 billion, up 2% year-over-year [52] - Gross profit margin for the full year was 62.5%, while Q4 margin slightly decreased to 60.8% [56][57] Business Line Data and Key Metrics Changes - Net revenue from online games was RMB 80.4 billion for 2024, up 6% from 2023, with Q4 revenue at RMB 20.5 billion, up 5% year-over-year [52] - Youdao's net revenue for 2024 was RMB 5.6 billion, up 4% year-over-year, but declined 9.5% in Q4 due to a focus on long-term growth [54] - NetEase Cloud Music's revenue was RMB 8 billion for the full year, with a 5% decrease in Q4 [55] Market Data and Key Metrics Changes - PC client games achieved 17% year-over-year growth, with a 57% increase in Q4, driven by titles like NARAKA: BLADEPOINT [53] - Mobile games accounted for approximately 65% of total net revenue from online games in Q4 [53] Company Strategy and Development Direction - The company is focused on innovation and expanding its game portfolio, with plans to launch several new titles in 2025 and beyond [50][31] - There is a commitment to enhancing the gaming experience through continuous updates and player feedback [68][75] - The strategy includes leveraging AI to improve R&D efficiency and user engagement [98] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the gaming market's capacity to accommodate multiple successful titles, such as Marvel Rivals and Overwatch [85] - The company aims to revitalize existing franchises and maintain player engagement through new content and community interaction [90] Other Important Information - The effective tax rate was 15.3% for the full year, with a strong cash position of RMB 131.5 billion at year-end [63][61] - The Board of Directors approved a dividend of US$0.2424 per share for Q4 [64] Q&A Session Summary Question: Insights on data test achievements and competition in the shooter game market - Management reported positive feedback from large-scale testing and expressed confidence in their unique game design [67][69] Question: Monetization strategy for Where Winds Meet - The monetization strategy will focus on cosmetics and new content to enhance player experience, with plans for an overseas launch in 2025 [75][76] Question: Growth strategy for Marvel Rivals - The company plans to invest in eSports and cross-promotions with other media to expand the user base [80] Question: Expectations for Overwatch and balancing with Marvel Rivals - Expectations for Overwatch are to revitalize the product and reach new highs, with both games expected to coexist successfully in the market [85] Question: User growth trends for World of Warcraft and Hearthstone - Both titles are performing well post-launch, with plans for new content to maintain player engagement [90] Question: Future expansion strategy in overseas markets - The company is committed to supporting overseas studios to create content that meets local demands [97] Question: Impact of AI on game development - AI is expected to significantly enhance R&D efficiency and user engagement in gaming [98]

NetEase 4Q24 Investor Presentation Investor Relations February 20, 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 identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. In addition, statements that are not histo ...

Core Viewpoint - NetEase Cloud Music Inc. reported a modest revenue growth of 1.1% for fiscal year 2024, driven by a significant increase in online music services and subscription memberships, while also focusing on enhancing user engagement and community building [1][7][11]. Financial Performance - Revenue for 2024 reached RMB 7,950.1 million, up from RMB 7,867.0 million in 2023, marking a 1.1% increase [2][7]. - Gross profit increased by 27.5% to RMB 2,681.5 million from RMB 2,102.7 million in 2023, with gross margin improving to 33.7% from 26.7% [2][11]. - Net profit surged by 113.2% to RMB 1,565.4 million compared to RMB 734.2 million in 2023, while adjusted net profit reached RMB 1,700.1 million, more than doubling from RMB 818.5 million in 2023 [2][11]. Business Overview - The company focused on strengthening its core music business and enhancing user engagement through expanded content offerings, personalized recommendations, and innovative features [5][10]. - Monthly active users (MAUs) increased, with a DAU/MAU ratio maintained above 30%, indicating strong user engagement [6][8]. Revenue Breakdown - Revenue from online music services grew by 23.1% to RMB 5,400.1 million, driven by increased subscription memberships, which rose to RMB 4,500.0 million from RMB 3,600.0 million in 2023 [7][10]. - Revenue from social entertainment services declined to RMB 2,600.0 million from RMB 3,500.0 million in 2023, reflecting a strategic shift towards the core music business [7][11]. Community and Content Development - The company expanded its music content library, focusing on popular genres among younger audiences and enhancing partnerships with major music labels [9][12]. - The platform celebrated the 10th anniversary of its independent musician platform, supporting over 773,500 registered independent artists [16][18]. Future Initiatives - The company plans to enhance its content ecosystem, strengthen partnerships with copyright holders, and improve user engagement through innovative features and community-building initiatives [12][14]. - Continued focus on optimizing profitability through disciplined operations and cost management is a key strategic priority [14][11].

Core Viewpoint - NetEase, Inc. reported its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2024, highlighting a strong performance in gaming and related services, despite some declines in specific segments [1]. Financial Highlights - Net revenues for Q4 2024 were RMB 26.7 billion (US$ 3.7 billion), a slight decrease of 1.4% compared to Q4 2023 [7]. - Net revenues from games and related services were RMB 21.2 billion (US$ 2.9 billion), an increase of 1.5% year-over-year [8]. - Gross profit for Q4 2024 was RMB 16.3 billion (US$ 2.2 billion), down 3.3% from the same quarter in 2023 [11]. - Net income attributable to shareholders for Q4 2024 was RMB 8.8 billion (US$ 1.2 billion), compared to RMB 6.6 billion in Q4 2023 [21]. Operational Highlights - The company launched several successful new titles, including "Marvel Rivals," which quickly became a top seller on Steam, and "Where Winds Meet," which achieved over 3 million downloads shortly after launch [13]. - Youdao and NetEase Cloud Music showed healthy development, with Youdao achieving a 10.3% year-over-year increase in operating profit [6][13]. Fiscal Year 2024 Results - Total net revenues for fiscal year 2024 were RMB 105.3 billion (US$ 14.4 billion), up from RMB 103.5 billion in 2023 [23]. - Net revenues from games and related services for the fiscal year were RMB 83.6 billion (US$ 11.5 billion), an increase from RMB 81.6 billion in 2023 [24]. - Net income attributable to shareholders for fiscal year 2024 was RMB 29.7 billion (US$ 4.1 billion), slightly up from RMB 29.4 billion in 2023 [32]. Gross Profit and Margins - Gross profit margin for games and related services in Q4 2024 was 66.7%, down from 69.5% in Q4 2023 [14]. - Gross profit margin for Youdao was 47.8%, a decrease from 49.9% in the same quarter of 2023 [15]. - NetEase Cloud Music's gross profit margin improved to 31.9% year-over-year, attributed to better cost control and increased subscription revenues [16]. Operating Expenses - Total operating expenses for Q4 2024 were RMB 8.5 billion (US$ 1.2 billion), a decrease of 15.1% compared to Q4 2023 [18]. - The reduction in operating expenses was primarily due to lower marketing expenditures related to games [18]. Cash Flow and Dividends - Net cash provided by operating activities for fiscal year 2024 was RMB 39.7 billion (US$ 5.4 billion), an increase from RMB 35.3 billion in 2023 [34]. - The board approved a dividend of US$ 0.24405 per share for Q4 2024, payable in March 2025 [35].

Core Viewpoint - NetEase Cloud Music Inc. will report its financial results for the fiscal year 2024 on February 20, 2025, after the Hong Kong market closes [1] Group 1: Financial Reporting - The earnings conference call is scheduled for 7:00 p.m. Beijing/Hong Kong Time on February 20, 2025 [2] - Participants must register online to receive dial-in numbers, an event passcode, and a personal access PIN for the conference call [2] Group 2: Replay and Webcast Information - A replay of the earnings call will be available until February 27, 2025, with specific phone numbers provided for different regions [3] - A live and archived webcast of the conference call will be accessible on the Company's investor relations website [3] Group 3: Company Overview - NetEase Cloud Music Inc. was launched in 2013 and is recognized as a leading online music platform in China, focusing on user experience and community engagement [4] - The platform is popular among Generation Z in China and emphasizes discovering and promoting emerging musicians [4]

Core Viewpoint - NetEase, Inc. will report its financial results for the fourth quarter and fiscal year 2024 on February 20, 2025, before the U.S. markets open [1] Group 1: Financial Reporting - The earnings teleconference call will occur at 7:00 a.m. Eastern Time on February 20, 2025, with management discussing quarterly results and answering questions [2] - Interested parties can participate in the conference call by dialing 1-914-202-3258 and providing conference ID: 10044895, 15 minutes prior to the call [3] - A replay of the call will be available until February 27, 2025, and will also be webcast live for 12 months on NetEase's Investor Relations website [3] Group 2: Company Overview - NetEase, Inc. is a leading internet and game services provider focused on premium content, with a strong presence in both mobile and PC gaming [4] - The company boasts one of the largest in-house game R&D teams, creating superior gaming experiences and delivering value to its global community [5] - Beyond gaming, NetEase's offerings include Youdao, an intelligent learning company, NetEase Cloud Music, an online music platform, and Yanxuan, a private label consumer lifestyle brand [6]