Summary of the Gaming Industry Conference Call Industry Overview - The gaming industry has shown significant growth in the first half of 2025, with 17 core gaming companies experiencing an average revenue growth rate of 12%-18%, with a notable acceleration in Q2 [1][3][9]. - The domestic self-developed online game market reached a revenue of 140.5 billion yuan, marking a 19% year-on-year increase, the highest since 2021 [1][12]. Key Insights - **Revenue and Profit Growth**: Companies like ST Huatuo and Jiubite reported revenue growth rates of 80% and 100%, respectively, with profit growth exceeding 80% and 20% [1][10]. Overall, the gaming sector's profit performance has improved, driven by revenue increases, higher gross margins, and reduced expense ratios [1][10]. - **Gross Margin Improvement**: The gaming sector's gross margin increased from 65% in Q1 2023 to 69% in Q2 2025, attributed to improved operational efficiency, contributions from new games, and user migration to official channels [1][11]. - **User Spending**: The average spending per game user was 248 yuan, a 13% increase year-on-year, driven by increased playtime and willingness to spend [3][16]. Market Dynamics - **Supply and Demand**: The revival of the gaming industry is attributed to a significant increase in the number of domestic game approvals, with 166 new approvals in August 2025, doubling from 2023 [2][5][13]. The approval cycle has also shortened to about three months [2][5]. - **AI Integration**: AI technology has significantly impacted the gaming industry, reducing R&D costs from 48% in Q1 2023 to 29% in Q2 2025, enhancing productivity and profitability [1][7][26]. - **Marketing Strategies**: Companies are shifting towards content marketing and reducing reliance on traditional Android channels, which has alleviated sales costs and channel sharing pressures [6][22]. Competitive Landscape - **Head and Mid-Tier Companies**: The competitive pressure from leading companies on mid-tier firms has eased, allowing mid-tier companies to find opportunities for growth by focusing on their strengths [19][20]. - **Innovation and Performance**: Mid-tier companies are narrowing the innovation gap with leading firms, with notable performances in specific genres [21]. Future Outlook - **Sustained Growth**: The gaming sector is expected to maintain its growth momentum, with several new games set to launch during key holiday periods, which will likely reflect positively in Q3 financial reports [8][31]. - **Valuation Projections**: Current valuations are around 20 times earnings, with expectations to rise to 25 times in the next year, driven by improved fundamentals and potential breakthroughs in AI applications [32][33]. Notable Companies and Products - **Tencent**: Achieved over 20% revenue growth in Q2, with strong contributions from both domestic and overseas markets. Upcoming titles include "Honor of Kings World" and "One Person Under" [34]. - **Jiubite**: The core product "Zhang Jian Chuan Shuo" is expected to generate significant revenue, with a stable performance in the market [38]. - **ST Huatuo**: Currently in a profit release cycle with promising projects, expected to reach a market cap of 180-200 billion yuan [37]. - **Perfect World**: Set to launch "Yihuan," an innovative open-world game, by the end of 2025 [40]. Conclusion The gaming industry is experiencing a robust recovery with strong revenue and profit growth, driven by favorable market conditions, technological advancements, and strategic shifts in marketing and operations. The outlook remains positive, with significant opportunities for both established and emerging companies.

Group 1 - Zai Ding Pharmaceutical increased by over 11% [1] - GDS Holdings rose by over 7% [1] - Hesai Technology, Kingsoft Cloud, and Alibaba each saw an increase of over 4% [1] - NIO experienced a rise of over 3% [1] - Baidu, NetEase, and Manbang Group all increased by over 2% [1]

Group 1 - The core viewpoint of the article highlights a significant rise in popular Chinese concept stocks, indicating positive market sentiment [1] Group 2 - Zai Ding Medicine experienced an increase of over 11% [1] - GDS Holdings saw a rise of over 7% [1] - Kingsoft Cloud and Alibaba both rose by over 4% [1] - NIO increased by over 3% [1] - Baidu, NetEase, and Manbang all saw gains of over 2% [1]

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Core Viewpoint - NetEase (NTES.US) continues to rise, with a pre-market increase of 1.54% to $148, following a record high of $145.895 during the previous trading session, marking a year-to-date increase of approximately 67% [1] Company Performance - The stock closed up 1.29% at $145.75 after reaching an all-time high [1] - The significant rise in stock price reflects strong market performance and investor confidence [1] Product Launch - On August 28, NetEase launched its first official sci-fi shooting mobile game based on the "Destiny" IP, titled "Destiny: Rising" [1] - The game quickly gained traction in the global market, leveraging the popularity of the "Destiny" IP, exceptional art design, deep strategic gameplay, and immersive storytelling [1] Market Impact - "Destiny: Rising" has consistently topped the iOS mobile game download charts in the United States, indicating strong consumer interest and engagement [1] - Within just four days of its launch, the game ranked 10th on the August growth chart, highlighting its potential as a breakout hit for 2025 [1]

Core Viewpoint - NetEase issued a statement addressing recent media and social media speculation regarding the former COO's new entrepreneurial ventures and related controversies, clarifying that these matters do not represent the company's position [1] Group 1: Company Background - The former COO, Zhan Zhonghui, joined NetEase in 1999, starting as a programmer and eventually becoming the COO before leaving the company in 2011 [1] - After leaving NetEase, Zhan founded JianYue, which was acquired by Alibaba in 2017, and later established Lingxi Interactive Entertainment in 2019, where he served as the head of game operations [1] Group 2: Recent Developments - In March 2024, Zhan announced via internal email that he would be stepping down from his position at Lingxi [1] - Following this, he indicated through social media that he would focus on developing content-driven single-player games [1] - On September 4, 2023, it was noted that Zhan was recruiting talent for his new single-player game project [1]

Core Viewpoint - NetEase issued a statement addressing recent media and social media rumors regarding the former COO's new venture and related disputes, clarifying that the individual left the company in 2011 and that any controversies are not representative of NetEase's position [1] Group 1 - The former COO, Zhan Zhonghui, joined NetEase in 1999 and held various positions, including Director of Online Gaming Division and COO, before leaving in 2011 to start his own company [1] - Zhan founded JianYue after leaving NetEase, which was acquired by Alibaba in 2017, and later established Lingxi Interactive Entertainment in 2019, where he has been a long-term head of gaming business [1] - In March 2024, Zhan announced via internal email that he would be stepping down from his position, and a year later, he expressed intentions to focus on content-driven single-player games [1] Group 2 - On September 4, a social media user discovered that Zhan was recruiting talent for his new single-player game project [1]

Economic Data - The U.S. Producer Price Index (PPI) for August increased by 2.6% year-on-year, marking the lowest level since June and significantly below the expected 3.3% [2] - The month-on-month PPI for August decreased by 0.1%, the first decline in four months, while the forecast was a 0.3% increase [2] - The core PPI for August rose by 2.8% year-on-year, below the expected 3.5%, and also saw a month-on-month decline of 0.1% against an expected increase of 0.3% [2] Stock Market Performance - Major U.S. stock indices showed mixed results, with the S&P 500 rising by 0.3% and the Dow Jones falling by 0.48% [3] - Notable movements included Oracle's stock surging nearly 36%, resulting in a market cap increase of approximately $250 billion [3][11] - Chinese concept stocks mostly declined, with the Nasdaq Golden Dragon China Index dropping by 0.95% [3] Commodity Prices - International oil prices rose for the third consecutive trading day, with WTI crude oil futures closing at $63.67 per barrel, up 1.66% [5] - Brent crude oil futures also increased by 1.66%, closing at $67.49 per barrel [5] Corporate Developments - Oracle signed a significant agreement with OpenAI to purchase $300 billion worth of computing power over approximately five years [12] - Multiple financial institutions raised Oracle's target price significantly following its quarterly report, with Wolfe Research increasing it from $300 to $400 [11] Market Trends - Global hedge funds recorded the highest net buying of Chinese stocks since September 2024, with a 76 basis point increase in positions [29] - The A-share market saw the Shanghai Composite Index rise by 0.13%, while the Shenzhen Component increased by 0.38% [32]

Group 1 - The Nasdaq Golden Dragon China Index declined by 0.95% on Wednesday [1] - Alibaba's stock fell by over 2% [1] - Pinduoduo and JD.com both experienced a drop of over 1% [1] Group 2 - NetEase's stock increased by over 1% [1] - Futu Holdings saw a decline of over 3% [1] - Li Auto's stock dropped by over 1% [1] - Xpeng's stock fell by over 3% [1] - NIO's stock experienced a significant decline of over 8% [1]

Investment Rating - The report indicates a positive investment outlook for the gaming sector, highlighting its strong performance compared to other sub-industries within the media and internet sectors [3][5]. Core Insights - The gaming industry is experiencing significant growth, with mobile game market size increasing by 16% year-on-year in the first half of 2025, while PC games show a 5% increase [3][14]. - The report emphasizes the high demand for entertainment consumption, particularly in gaming, music, and trendy toys, while long-form video content has reached a low point [3][8]. - Cloud computing and AI applications are accelerating, with notable revenue growth in cloud services, particularly from Alibaba Cloud and Kingsoft Cloud, which reported year-on-year growth of 26% and 24% respectively [3][8]. - The advertising sector shows resilience, particularly in short video platforms and elevator advertising, with initial signs of AI integration [3][8]. - The internet healthcare sector is witnessing an uplift in market conditions, indicating a positive trend [3][8]. Summary by Sections 1. Overview - The report summarizes the performance of the media and internet sectors, noting the standout performance of the gaming industry [3][4]. 2. Entertainment Consumption - The gaming, music, and trendy toy IPs are thriving, while long-form video content is struggling [3][4]. - The gaming sector's revenue growth is driven by regulatory easing, increased demand from younger users, and innovative overseas strategies [3][14]. 3. Cloud Computing and AI Applications - Cloud services are experiencing accelerated growth, with significant investments from major players like Alibaba and Tencent [3][8]. - AI applications are beginning to monetize effectively, particularly in emotional consumption and productivity tools [3][8]. 4. Advertising - The advertising sector remains robust, with short video platforms and elevator ads showing resilience [3][8]. 5. Internet Healthcare - The report notes an improvement in the internet healthcare sector's market conditions [3][8]. 6. Publishing - The publishing sector is experiencing flat revenue growth, but tax exemptions are helping to restore profit margins [3][8].