Investment Rating - The report maintains an "Accumulate" rating for the company [1][9] Core Insights - The company demonstrates strong long-term operational capabilities in the gaming sector, with a significant increase in deferred revenue laying a solid foundation for future performance releases [2][6] - The Q3 2025 financial results show revenue of 28.359 billion yuan, a year-on-year increase of 8.2% and a quarter-on-quarter increase of 1.7%. The net profit attributable to shareholders is 8.616 billion yuan, reflecting a year-on-year increase of 31.8% and a quarter-on-quarter increase of 0.2% [5][6] Financial Performance Summary - **Revenue and Profitability**: In Q3 2025, the company achieved revenue of 28.359 billion yuan (YoY +8.2%, QoQ +1.7%) and a net profit of 8.616 billion yuan (YoY +31.8%, QoQ +0.2%). The non-GAAP net profit was 9.502 billion yuan (YoY +26.7%, QoQ -0.3%) [5][6] - **Gross Margin**: The gross margin improved to 64.1% (YoY +2.0 percentage points, QoQ -1.0 percentage points) [6] - **Expense Ratios**: The sales expense ratio was 15.7% (YoY +8.3 percentage points, QoQ +22.5 percentage points), R&D expense ratio was 16.0% (YoY -5.1 percentage points, QoQ +2.5 percentage points), and management expense ratio was 4.1% (YoY -2.2 percentage points, QoQ +8.4 percentage points) [6] Business Segment Performance - **Gaming Business**: The gaming and value-added services generated revenue of 22.3 billion yuan (YoY +11.8%, QoQ +2.3%). The gaming sector shows strong resilience and growth momentum, with classic IPs performing well [6] - **Youdao**: In Q3 2025, Youdao achieved revenue of 1.6 billion yuan, a year-on-year increase of 3.6% and a quarter-on-quarter increase of 14.9% [6] - **NetEase Cloud Music**: Revenue for Q3 2025 was 2 billion yuan (YoY -1.8%, QoQ flat). The introduction of AI features has enhanced user experience significantly [6] - **Innovative and Other Businesses**: Revenue decreased to 1.4 billion yuan (YoY -18.9%, QoQ -15.3%). The company is focusing on brand rejuvenation and leveraging AI technology [6] Earnings Forecast and Valuation - The company is projected to achieve revenues of 114.8 billion yuan, 126.5 billion yuan, and 136.2 billion yuan for 2025, 2026, and 2027 respectively. Adjusted net profits are expected to be 39.1 billion yuan, 44.1 billion yuan, and 49.1 billion yuan for the same years [8][9] - The target price for 2026 is set at 265 HKD, maintaining the "Accumulate" rating [6][9]

Investment Rating - The industry rating is "Recommended" [4] Core Insights & Investment Recommendations - Unity and Epic Games announced a strategic partnership to create an open and interoperable ecosystem for game engines, allowing developers to publish Unity games on the Fortnite platform with over 500 million registered accounts, enhancing user reach and commercialization efficiency [2][21] - NVIDIA's quarterly performance exceeded expectations, with data center revenue growing by 289% year-on-year, reflecting strong demand for AI infrastructure [3][22] - The report suggests focusing on investment opportunities in leading internet companies in Hong Kong, the gaming industry, and the film and cultural tourism sectors, driven by consumption policies and technological empowerment [3][22] Sub-industry Data Film Industry - The top three films by box office this week are "Demon Slayer: Infinity Castle" with 134.67 million yuan (42.9% market share), "Wild Era" with 75.67 million yuan (24.1%), and "Now You See Me 3" with 55.44 million yuan (17.7%) [23][24] Gaming Industry - The top three iOS games by revenue are "Teamfight Tactics," "Dungeon & Fighter: Origin," and "Honor of Kings," while the top three Android games are "Heart Town," "Sword and Magic Legend," and "My Leisure Time" [25] TV Series Industry - The top three TV series by broadcasting index are "Tang Dynasty Ghost Stories: Chang'an," "Four Happiness," and "Phoenix Platform," with indices of 85.5, 82.4, and 81.8 respectively [26][27] Variety Shows & Animation - The top variety show is "Now Departing Season 3" with a broadcasting index of 82.4, followed by "Wonderful Night Season 2" and "Flowers and Youth Together" [28][29] - The top three animated shows by viewership index are "Xian Ni" with 212.8, "Happy Hammer" with 191.6, and "Swallowing the Starry Sky" with 187.2 [30]

Group 1 - The company's revenue increased by 8.2% year-on-year to 28.36 billion yuan, which was 3% lower than Bloomberg's expectations [1] - Gross margin was 64.1%, exceeding Bloomberg's expectations by 0.1 percentage points [1] - Adjusted net profit margin reached 33.5%, surpassing Bloomberg's expectations by 0.8 percentage points, with adjusted net profit growing by 26.7% year-on-year to 9.5 billion yuan, slightly below Bloomberg's expectations by 0.6% [1] Group 2 - Self-developed games performed well, generating revenue of 23.33 billion yuan, which was 2.3% lower than Bloomberg's expectations, with a year-on-year growth of 11.8% [1] - The revenue growth was driven by titles such as "Dream of the Red Chamber" PC version, "Egg Party," and new releases like "Yanyun Sixteen Sounds" and "Marvel Showdown" [1] - The gross margin for the gaming segment was 69.3%, exceeding Bloomberg's expectations by 0.6 percentage points, with a year-on-year increase of 0.5 percentage points [1] Group 3 - Cloud Music achieved revenue of 1.96 billion yuan, which was 3.0% lower than Bloomberg's expectations, with a year-on-year decline of 1.8% [2] - Gross margin for Cloud Music was 35.4%, falling short of Bloomberg's expectations by 0.6 percentage points, but showed a year-on-year increase of 2.6 percentage points [2] - Youdao reported revenue of 1.63 billion yuan, which was 1.7% lower than Bloomberg's expectations, with a year-on-year growth of 3.6% [2] Group 4 - The company expects adjusted net profit growth of 18.4%, 8.8%, and 8.6% for 2025-2027, reaching 39.7 billion, 43.2 billion, and 46.2 billion yuan respectively [2] - Corresponding PE ratios for 2025-2027 are projected to be 14.9, 13.7, and 12.6 [2]

Core Insights - The company's Q3 2025 revenue increased by 8% to 28.4 billion yuan, while Non-GAAP net profit rose by 27% to 9.5 billion yuan, slightly below expectations due to unrecognized revenue from some products and higher-than-expected marketing expenses [1] - The company declared a dividend of $0.114 per share and extended its share repurchase program of up to $5 billion until January 2029, having repurchased $2 billion by the end of Q3 2025 [1] Revenue and Profit Trends - Revenue from games and value-added services grew by 12%, driven by flagship products such as "Dream of Dreams" and "Egg Party," showcasing the company's long-term game operation capabilities [1] - Marketing expenses increased by 17% to 4.46 billion yuan, primarily due to seasonal promotional activities and new version marketing for flagship products, leading to a significant increase in deferred revenue [1] Investment and New Game Releases - The company achieved investment income of 1.38 billion yuan, which helped offset the impact of increased marketing expenses on profits [1] - New games "Destiny: Stars" and "Yanyun Sixteen Sounds" are set to launch in overseas and Chinese markets, with the former nominated for the 2025 TGA Best Mobile Game [1] - The company plans to focus on global capabilities and the progress of key new games, with several titles in the pipeline for 2026 [1] Profit Forecast and Valuation - The company maintains its profit forecast, with current valuations at 16/15x for Hong Kong stocks and 15/14x for U.S. stocks for 2025/2026 Non-GAAP P/E [2] - The company retains an outperform rating and a target price of 275 HKD / 177 USD, indicating an upside potential of 29% for Hong Kong stocks and 33% for U.S. stocks [2]

Investment Rating - The investment rating for the company is "Buy" (maintained) [2] Core Views - The company has shown a revenue growth of 8.2% year-on-year, reaching 28.36 billion yuan, which is slightly below Bloomberg's expectations by 3% [7] - The adjusted net profit margin reached 33.5%, exceeding Bloomberg's expectations by 0.8% [7] - The company is expected to see adjusted net profit growth of 18.4%, 8.8%, and 8.6% for the years 2025 to 2027, with corresponding PE ratios of 14.9, 13.7, and 12.6 [7] Financial Performance - Revenue projections for the company are as follows: - 2023A: 103.468 billion yuan - 2024A: 105.295 billion yuan - 2025E: 115.426 billion yuan - 2026E: 125.700 billion yuan - 2027E: 134.863 billion yuan - The net profit for the years is projected as: - 2023A: 29.417 billion yuan - 2024A: 29.698 billion yuan - 2025E: 36.339 billion yuan - 2026E: 39.555 billion yuan - 2027E: 43.252 billion yuan [6][7] Business Segments - The self-developed games segment generated revenue of 23.33 billion yuan, reflecting a year-on-year growth of 11.8% [7] - The cloud music segment reported revenue of 1.96 billion yuan, a decrease of 1.8% year-on-year [7] - The Youdao segment achieved revenue of 1.63 billion yuan, with a year-on-year increase of 3.6% [7] Valuation Metrics - The company’s EPS for the upcoming years is projected as follows: - 2023A: 9.05 yuan - 2024A: 9.28 yuan - 2025E: 11.47 yuan - 2026E: 12.49 yuan - 2027E: 13.65 yuan - The P/E ratios are projected to be: - 2023A: 15.54 - 2024A: 14.91 - 2025E: 18.53 - 2026E: 17.03 - 2027E: 15.57 [6][8]

Investment Rating - The report maintains a "Buy" rating for the company [5] Core Insights - The company's Q3 2025 revenue reached 28.36 billion yuan, a year-on-year increase of 8.2%, which was below Bloomberg consensus expectations of 2.96%, primarily due to product launch timing and revenue recognition delays [1] - Deferred revenue surged to 19.47 billion yuan in Q3 2025, a year-on-year increase of 25.3%, significantly exceeding consensus expectations by 41%, indicating strong player willingness to pay during new game launches [1] - The company is focused on long-term investment strategies and shareholder value, with a strong cash flow performance and a cash reserve of 153.2 billion yuan [3] Revenue and Profit Forecast - The company forecasts revenues of 114.5 billion yuan, 123.6 billion yuan, and 132.2 billion yuan for 2025, 2026, and 2027 respectively, with Non-GAAP net profit estimates of 39 billion yuan, 41.4 billion yuan, and 44.5 billion yuan for the same years [4][9]

Core Viewpoint - The recent withdrawal of NetEase games from OPPO's app store highlights a growing tension between game developers and traditional Android distribution channels, primarily due to high revenue sharing models that limit profit margins for developers [1][4][15]. Group 1: Game Withdrawal from OPPO - NetEase games, including popular titles like "Onmyoji: Yokai House" and "Fantasy Westward Journey," will cease operations on OPPO channels starting from November 2024, with a complete withdrawal expected by October 2025 [1]. - This trend of withdrawing from OPPO channels began last year and reflects a broader industry shift away from traditional Android distribution methods [1][4]. Group 2: Revenue Sharing Issues - The high revenue sharing model, often referred to as "Android tax," has become a critical issue for game developers, with reports indicating that Android channels take up to 50% of revenue, significantly higher than the 30% typically charged by platforms like Apple's App Store [6][15]. - The "hardcore alliance" established by major Android manufacturers in 2014 set a standard revenue share of 50% for game developers, which has persisted in the industry [8]. Group 3: Alternative Distribution Models - Developers are increasingly exploring alternative distribution methods, such as using platforms like TapTap, which do not charge revenue shares, allowing for greater profitability [10][12]. - Successful titles like "Genshin Impact" and "Awakening of Nations" have demonstrated that it is possible to achieve significant revenue without relying on traditional Android channels [12][14]. Group 4: Industry Evolution - The gaming industry is transitioning from a "traffic-driven" model to a "content-driven" model, where the quality of the game itself becomes the primary factor in attracting users [14]. - Despite the shift, the costs associated with customer acquisition through alternative channels have increased, as seen in NetEase's substantial advertising expenditures [14][15].

Core Insights - NetEase reported Q3 2025 net revenue of 28.4 billion yuan, an 8.2% year-on-year increase, with net profit attributable to shareholders rising to 8.6 billion yuan from 6.5 billion yuan in the same period last year [2] - The company’s gaming and related value-added services generated net income of 23.3 billion yuan, up 11.8% year-on-year, while NetEase Youdao's net income was 1.6 billion yuan, a 3.6% increase [2] - Total operating expenses for Q3 were 10.2 billion yuan, up from 9 billion yuan in the previous quarter and 9.3 billion yuan year-on-year, primarily due to increased marketing expenses related to online games [2] Business Segmentation - Gaming and related services: 23.3 billion yuan, +11.8% YoY [2] - NetEase Youdao: 1.6 billion yuan, +3.6% YoY [2] - NetEase Cloud Music: 2 billion yuan, -1.8% YoY [2] - Innovation and other businesses: 1.4 billion yuan, -18.9% YoY [2] Operational Insights - Total operating expenses increased to 10.2 billion yuan, with sales and marketing expenses at 4.5 billion yuan and R&D expenses at 4.5 billion yuan, maintaining a research intensity of 16% [2] - CEO Ding Lei emphasized a focus on existing successful products and a cautious approach to new projects, ensuring competitive content before market launch [3] - The company is undergoing a normal organizational optimization process, with personnel changes aimed at enhancing team focus and efficiency [3] AI Strategy - NetEase is investing significantly in AI technology for game development and operations, with a focus on enhancing content innovation and operational efficiency [4] - The company has seen a nearly 150% year-on-year increase in operating profit for Youdao, with record high revenues in online marketing services and AI subscription sales [4]

Core Insights - NetEase's revenue growth in Q3 2025 was primarily driven by its game "Evergreen Games," achieving a net income of 28.4 billion yuan, a year-on-year increase of 8.2% [2] - The company reported a net profit of 9.5 billion yuan under non-GAAP standards, reflecting a significant year-on-year growth of 33.3% [2] Financial Performance - In Q3 2025, NetEase's net income reached 28.4 billion yuan, compared to 27.9 billion yuan in the previous quarter and 26.2 billion yuan in the same quarter last year [3] - Revenue from games and related services was 23.3 billion yuan, with a 2.2% increase from the previous quarter and a 11.5% increase year-on-year [3] - Online games accounted for approximately 97.6% of the revenue in this segment, up from 97.1% in the previous quarter and 96.8% year-on-year [3] Game Performance - The increase in online game revenue was attributed to self-developed games like "Dream of the Westward Journey" and "Reverse Water Cold," as well as several agency games [3] - "Dream of the Westward Journey" achieved a record high of 3.58 million concurrent players, marking a strong performance in long-term game operation [3][4] - The launch of the "Dream of the Westward Journey" free play server aimed to attract long-lost users and new players by simplifying gameplay and removing time-based charges [4][5] New Game Development - NetEase introduced several new games in Q3, including "Fate: Stars" and "Reverse Water Cold," which performed well in both domestic and international markets [6] - The company is focusing on the upcoming game "Forgotten Sea," which is being developed with a self-built engine and will be available on multiple platforms [7] Industry Context - Tencent's gaming revenue in Q3 was 63.6 billion yuan, with significant growth in both domestic and international markets, highlighting the competitive landscape [7] - Analysts noted that while NetEase's older games are evolving into IP extensions, Tencent's established titles continue to perform strongly, indicating differing strategies in a saturated market [8] Internal Adjustments - Following the return of CEO Ding Lei, NetEase has undergone organizational adjustments, including staff changes aimed at enhancing focus and efficiency [9][10] - The company is prioritizing long-term projects and optimizing resources towards successful teams while being decisive about underperforming ones [10]

Market Performance - US stock indices reversed their downward trend, with all three major indices closing up by approximately 1% on November 21 [4][3] - The Dow Jones Industrial Average rose by 1.08% to 46,245.41 points, the S&P 500 increased by 0.98% to 6,602.99 points, while the Nasdaq Composite fell by 0.88% to 22,273.08 points [4] - Weekly performance showed all three indices had declined, with the Nasdaq down 2.74%, the Dow down 1.91%, and the S&P 500 down 1.95% [4] Technology Sector - The decline in technology stocks narrowed, with the US Technology Seven Giants Index rising by 0.71% [5] - Nvidia's stock fluctuated, initially dropping over 4% before recovering to a gain of 1.9%, while Google surged by 3.35% [5] - Year-to-date performance for major tech stocks showed Nvidia down 0.94%, Apple up 1.97%, and Google up 3.35% [6] Chinese Stocks - The Nasdaq Golden Dragon China Index rose by 1.23%, with notable gains in NIO (over 3%), Beike, Li Auto, and Tencent Music (over 2%) [5] - Year-to-date performance for key Chinese stocks included Alibaba down 0.20%, Netease down 0.28%, and JD.com up 1.94% [7] Gold Market - Spot gold prices rebounded above $4,100 per ounce, closing at $4,064.279 per ounce [2][9] - The gold market experienced volatility, with a weekly decline of 0.44% [9] Federal Reserve Signals - Federal Reserve officials indicated a potential interest rate cut in December, with the probability of a 25 basis point cut rising from 39.1% to approximately 70% [2][14] - Comments from Fed officials, including Williams, suggested a dovish stance, supporting the notion of a rate cut due to current economic conditions [13][16] - The upcoming Federal Reserve meeting in December is expected to be contentious, with differing opinions among officials regarding the necessity of a rate cut [17][18]