o u T a " L C 10% L 21 l e F 0 # on 1 04 0 E 5 I 0 n t r t t 1 0 一生 t a a cle I 0 T 0 le H 0 1 I l l n 1 I n 0 0 E 1 E 0 1 l 0 日 0 e D 1 BirgitKorber I last covered NetEase (NASDAQ:NTES) in July; I put out a Buy rating at the time, and since then, the stock has lost 12% in price, particularly following its Q2 results, released on August 22nd. The results showed top-line strength but bottom-line weakness, which, while immediately concerning and caused a stock sell-off, is not likely to last into FY25 and bey ...

Investment Rating - The investment rating for the company is "Outperform the Market" [4][21]. Core Views - The company reported a revenue growth of 6% year-on-year in Q2 2024, with total revenue reaching 25.5 billion yuan. The growth was primarily driven by mobile gaming and Youdao [1][7]. - The company's Non-GAAP net profit for Q2 2024 was 7.8 billion yuan, a decrease of 13% year-on-year, with a Non-GAAP net profit margin of 31%, down 7 percentage points [1][7]. - The online gaming business generated revenue of 19.27 billion yuan, a 12% increase year-on-year, with mobile game revenue growing by 16% to 14.7 billion yuan [12][14]. - The company has a strong game pipeline, with several new titles expected to launch soon, including "Eternal Return Mobile" and "Yanyun Sixteen Sounds" [14][21]. Financial Summary - For 2024, the company is projected to achieve a revenue of 117.5 billion yuan, representing a 13.2% increase from 2023. The Non-GAAP net profit is expected to be 36.03 billion yuan, a 10.5% increase [3][23]. - The company's gross margin for Q2 2024 was 63%, an increase of 3 percentage points year-on-year, with the gaming and value-added services gross margin at 70% [1][8]. - The total operating expense ratio for Q2 2024 was 36%, up 1 percentage point year-on-year, with a sales expense ratio of 13.7% [1][8]. Business Segment Performance - Youdao's revenue for Q2 2024 was 1.3 billion yuan, a 10% increase year-on-year, with advertising service revenue doubling to 510 million yuan, a 68% increase [15][21]. - NetEase Cloud Music reported a revenue of 2 billion yuan in Q2 2024, a 5% increase year-on-year, with a gross margin of 32.1%, up 5.1 percentage points [18][21].

Group 1 - NetEase reported a second-quarter net income of 6.8 billion yuan (approximately $952 million), representing a 17% year-over-year decline and falling short of analysts' expectations [1][2] - The company's revenue for the quarter was 25.5 billion yuan (about $3.6 billion), which is a 6.1% increase year-over-year but still below expectations [1] - Following the earnings report, NetEase's stock experienced a decline of 11.17% [1] Group 2 - Revenue growth was primarily driven by games and related value-added services, which increased by 6.7% to 20.1 billion yuan (approximately $2.8 billion) [2] - Notable performances were seen in the games "Naraka: Bladepoint" and "Identity V," both achieving record daily active users (DAUs) [2] - CEO William Ding emphasized the company's commitment to innovation and expanding its gaming portfolio to reach more players globally [2]

Financial Performance - NetEase's total net revenues reached $3,507 million in Q2 2024, a 6.1% increase year-over-year, but a 5.1% decrease quarter-over-quarter[38] - Games and related value-added services contributed $2,760 million to the total net revenues in Q2 2024, showing a 6.7% increase year-over-year and a 6.5% decrease quarter-over-quarter[38] - Youdao's net revenues were $182 million in Q2 2024, reflecting a 9.5% increase year-over-year and a 5.0% decrease quarter-over-quarter[38] - Cloud Music's net revenues amounted to $281 million in Q2 2024, a 4.7% increase year-over-year and a 0.5% increase quarter-over-quarter[38] - Innovative businesses and others generated $284 million in net revenues in Q2 2024, a 0.5% increase year-over-year and a 4.9% increase quarter-over-quarter[38] - Net income attributable to the company's shareholders was $930 million in Q2 2024, an 18.0% decrease year-over-year and an 11.5% decrease quarter-over-quarter[38] Business Highlights - The company launched popular new titles, including Lost Light and Naraka: Bladepoint mobile games, and Once Human on Steam[17] - The company plans to bring Where Winds Meet and Marvel Rivals to consoles and announced FragPunk at the Xbox Games Showcase 2024[18] - World of Warcraft is returning to China[18] - Youdao achieved historic-high operating cash flow and significantly narrowed its operating loss, with AI-driven subscription services experiencing rapid sales expansion[21]

Financial Data and Key Metrics Changes - Total net revenue for Q2 2024 was RMB25.5 billion (approximately $3.5 billion), representing a 6% year-over-year increase [18] - Total net revenue from games and related VAS was RMB20.1 billion, up 7% year-over-year, primarily due to increased revenue from mobile games [18] - Gross profit margin for the second quarter was 62.9%, compared to 59.9% in the same period of 2023 [40] - Non-GAAP net income attributable to shareholders for Q2 totaled RMB7.8 billion (approximately $1.1 billion) [62] Business Line Data and Key Metrics Changes - Youdao's net revenue was RMB1.3 billion, a year-over-year increase of 10%, driven by online marketing services [60] - NetEase Cloud Music's net revenue was RMB2 billion, a 5% increase compared to the same period last year, mainly due to membership subscriptions [60] - Innovative business and others generated RMB2.1 billion, a slight increase compared to the same quarter of 2023 [60] Market Data and Key Metrics Changes - Mobile games accounted for approximately 76.4% of total net revenue from online game operations [18] - Identity V ranked number four on China's iOS top grossing chart in July and number two in August [30] - Justice Mobile reached the number three position on the iOS top grossing chart in June [10] Company Strategy and Development Direction - The company aims to expand its reach domestically and internationally through innovation and robust community ecosystems [4] - There is a focus on enhancing the game portfolio with diverse content and global partnerships [12][35] - The company is committed to investing in R&D to drive future growth [41] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with the performance of new titles like Naraka: Bladepoint Mobile, noting that 70% of players had never played the PC version before [44] - The company is optimistic about the long-term potential of its games and the ability to maintain player engagement [70] - Management highlighted the importance of continuous content updates and community engagement to sustain game longevity [71] Other Important Information - The current share repurchase program has repurchased approximately 12 million ADSs for a total cost of approximately $1.1 billion [20] - The effective tax rate for the second quarter was 16% [41] Q&A Session Summary Question: Performance of Naraka: Bladepoint Mobile - Management reported that 70% of players on the mobile version had never played the PC version, with nearly half being new to NetEase games [44] Question: Adjustments to Fantasy Westward Journey - Management stated that adjustments are aimed at refreshing gameplay and maintaining quality, which is common for long-standing titles [67] Question: Revenue Growth of Identity V - Management attributed the revenue growth to continuous efforts in game quality and experience over the past six years [70] Question: Justice Mobile's Performance - Management noted that the game has entered a stable operation phase and emphasized the importance of maintaining player activity and ecosystem diversity [71] Question: AI's Impact on Game Production - Management highlighted that AI has been integrated into various aspects of game development, significantly improving efficiency [82] Question: World of Warcraft's Player Metrics - Management indicated that the return of World of Warcraft has exceeded expectations, attracting both new and returning players [99]

Exhibit 99.1 Contact for Media and Investors: Email: ir@service.netease.com Tel: (+86) 571-8985-3378 NetEase Announces First Quarter 2024 Unaudited Financial Results Hangzhou, China, May 23, 2024 - NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the first quarter ended March 31, 2024. First Quarter 2024 Financial Highlights · Net revenues were RMB26.9 billion (US$3.7 billion), an incre ...

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]

Financial Performance - Net revenues for Q2 2024 were RMB25.5 billion (US$3.5 billion), a 6.1% increase compared to Q2 2023[1]. - Net revenues from games and related value-added services were RMB20.1 billion (US$2.8 billion), a 6.7% increase year-over-year[26]. - Net income attributable to shareholders was RMB6.8 billion (US$930.0 million), down from RMB7.6 billion in the previous quarter[46]. - Non-GAAP net income attributable to shareholders was RMB7.8 billion (US$1.1 billion), compared to RMB8.5 billion in the previous quarter[47]. - NetEase's total net revenues for the three months ended June 30, 2024, were RMB 25,485,805, representing a decrease of 2.0% compared to RMB 24,011,301 for the same period in 2023[94]. - Net income attributable to the Company's shareholders for the three months ended June 30, 2024, was RMB 6,758,749, down 11.5% from RMB 7,633,946 in the previous quarter[111]. - The company reported a net income of RMB 14,630,956 for the six months ended June 30, 2024, compared to RMB 14,870,009 for the same period last year, indicating a decrease of 1.6%[103]. Revenue Breakdown - Cloud Music net revenues were RMB2.0 billion (US$280.8 million), a 4.7% increase compared to the same quarter of 2023[27]. - Youdao's net revenues were RMB1.3 billion (US$181.9 million), a 9.5% increase year-over-year[2]. - The gaming segment generated RMB 20,055,819 in revenues for the three months ended June 30, 2024, compared to RMB 18,798,646 for the same period in 2023, indicating a growth of 6.7%[94]. - Youdao's revenues for the three months ended June 30, 2024, were RMB 1,321,721, a decrease from RMB 1,206,634 in June 2023[94]. - Cloud Music's revenues increased to RMB 2,040,952 for the three months ended June 30, 2024, compared to RMB 1,948,539 for the same period in 2023, reflecting a growth of 4.7%[94]. Profitability Metrics - Gross profit for Q2 2024 was RMB16.0 billion (US$2.2 billion), an 11.6% increase year-over-year[28]. - The gross profit margin for games and related services was 70.0%, up from 67.4% in Q2 2023[42]. - The gross profit for the same period was RMB 16,042,218, with a gross profit margin of 70.0%, up from 67.4% in June 2023[94]. - Operating profit for the three months ended June 30, 2024, was RMB 6,993,323, reflecting a decrease of 8.2% from RMB 7,622,483 in the previous quarter[103]. - Non-GAAP net income attributable to the Company's shareholders for the three months ended June 30, 2024, was RMB 7,818,638, a decrease of 8.1% compared to RMB 8,510,844 in the previous quarter[111]. Cash Flow and Dividends - The company’s cash flows from operating activities for the six months ended June 30, 2024, were RMB 14,870,009 thousand, compared to RMB 14,630,956 thousand for the same period in 2023, indicating a slight increase[64]. - As of June 30, 2024, approximately 11.9 million ADSs had been repurchased under the share repurchase program, costing a total of US$1.1 billion[78]. - The company paid a dividend of US$0.0990 per share (US$0.4950 per ADS) for Q1 2024 in June 2024[76]. - The board approved a dividend of US$0.0870 per share for Q2 2024, payable on September 17, 2024[49]. Assets and Liabilities - Total assets as of June 30, 2024, were RMB 183,342,621, a slight decrease from RMB 185,924,978 as of December 31, 2023[89]. - Current liabilities decreased to RMB 45,927,895 as of June 30, 2024, compared to RMB 53,842,484 as of December 31, 2023, reflecting a reduction of approximately 14.7%[89]. - NetEase's shareholders' equity increased to RMB 130,909,906 as of June 30, 2024, up from RMB 124,285,776 as of December 31, 2023[89]. - Cash and cash equivalents decreased to RMB 18,982,239 as of June 30, 2024, down from RMB 21,428,902 as of December 31, 2023[89]. - Net cash provided by operating activities for the six months ended June 30, 2024, was RMB 16,089,000 thousand, compared to RMB 13,679,076 thousand for the same period in 2023, showing an increase[64]. Research and Development - Research and development expenses for the three months ended June 30, 2024, were RMB 4,455,717, an increase of 6.4% from RMB 4,174,758 in the previous quarter[103]. - Total operating expenses for the three months ended June 30, 2024, were RMB 9,048,895, an increase of 7% compared to RMB 9,393,437 in the previous quarter[103]. Market Outlook - The company anticipates continued growth in its gaming ecosystem and plans to expand its international operations despite potential market risks[83].

Core Viewpoint - NetEase, Inc. reported its unaudited financial results for the second quarter of 2024, showing a year-over-year increase in net revenues and net income, driven by growth in gaming and related services, as well as digital content services [1][2][4]. Financial Highlights - Net revenues for Q2 2024 were RMB25.5 billion (US$3.5 billion), a 6.1% increase from Q2 2023 [2][5]. - Net revenues from games and related value-added services were RMB20.1 billion (US$2.8 billion), up 6.7% year-over-year [2][5]. - Gross profit reached RMB16.0 billion (US$2.2 billion), reflecting an 11.6% increase compared to the same quarter last year [2][6]. - Net income attributable to shareholders was RMB6.8 billion (US$930.0 million), with a non-GAAP net income of RMB7.8 billion (US$1.1 billion) [2][7]. Operational Highlights - The company launched several successful new titles, including "Lost Light" and "Once Human," which achieved significant user engagement shortly after their release [3]. - Continued popularity of existing games was noted, with "Naraka: Bladepoint" reaching record-high daily active users (DAUs) [3]. - Youdao and Cloud Music segments showed growth, with Youdao recording historic-high operating cash flow [3][4]. Segment Performance - Net revenues from Youdao were RMB1.3 billion (US$181.9 million), a 9.5% increase year-over-year [2][5]. - Cloud Music generated RMB2.0 billion (US$280.8 million) in revenues, marking a 4.7% increase compared to the same quarter last year [2][5]. - Innovative businesses and others reported stable revenues of RMB2.1 billion (US$284.5 million) [2][5]. Profitability Metrics - Gross profit margin for games and related services was 70.0%, up from 67.4% year-over-year [6][8]. - Operating expenses totaled RMB9.0 billion (US$1.2 billion), reflecting an increase due to higher R&D investments [6][8]. - The effective tax rate for Q2 2024 was 16.0%, consistent with the previous quarter [8]. Cash Position and Dividends - As of June 30, 2024, the company's net cash totaled RMB116.1 billion (US$16.0 billion), an increase from RMB110.9 billion at the end of 2023 [7]. - A quarterly dividend of US$0.0870 per share has been approved, payable on September 17, 2024 [9]. Share Repurchase Program - The company has repurchased approximately 11.9 million ADSs for a total cost of US$1.1 billion under its ongoing share repurchase program [9].

Core Viewpoint - Cloud Music Inc. reported strong financial results for the first half of 2024, showcasing significant growth in revenue and profitability, driven by its core online music services and enhanced user engagement strategies [1][3]. Financial Performance - Revenue for the first half of 2024 was RMB 4.07 billion, a 4.1% increase from RMB 3.91 billion in the same period of 2023 [2][3]. - Gross profit rose to RMB 1.43 billion, reflecting a 47.7% increase compared to RMB 965.1 million in the prior year [2][3]. - Profit before income tax reached RMB 813.6 million, up from RMB 311.9 million year-over-year [2]. - Net profit for the period was RMB 809.9 million, compared to RMB 293.8 million in the same period of 2023 [2][3]. - Adjusted net profit was RMB 880.7 million, significantly higher than RMB 331.9 million in the previous year [2][3]. Business Overview - The company focused on enhancing its core music business and fostering a vibrant community, leading to improved profitability and user engagement [5][6]. - Revenue from online music services increased by 26.6% to RMB 2.6 billion, driven by a rise in monthly paying users [3][8]. - Social entertainment services revenue decreased to RMB 1.5 billion from RMB 1.9 billion in the previous year [3]. User Engagement and Community - The daily active user to monthly active user ratio remained above 30%, indicating stable user engagement [6]. - The company implemented a comprehensive app upgrade to enhance personalized recommendations and user interaction [26][28]. - The iconic Comments section was revitalized, leading to increased user-generated content and interactions [28][29]. Content Strategy - The company expanded its content library by partnering with major Korean music labels and supporting independent artists [7][13]. - Focus on signature music genres, particularly hip-hop, was emphasized through collaborations and in-house productions [15][22]. - The introduction of innovative features and premium offerings contributed to a 25.5% year-over-year growth in subscription-based memberships [8][9]. Future Outlook - The company plans to diversify and enhance its content offerings while nurturing its music-oriented community [10][11]. - Strategies include improving user experience, deepening engagement, and enhancing membership privileges [10][11]. - Continued focus on profitability through economies of scale and operational efficiency is a priority [11].