NTES(NTES) - 2025 Q2 - Quarterly Results

Company Information & Highlights This section provides an overview of NetEase's Q2 2025 financial and operational performance, including key announcements and CEO statements. Announcement Details NetEase, Inc. announced its unaudited second quarter 2025 financial results on August 14, 2025. - Company Name: NetEase, Inc. (NASDAQ: NTES and HKEX: 9999)[1] - Announcement Date: August 14, 2025[1] - Reporting Period: Second quarter ended June 30, 2025[1] Second Quarter 2025 Financial Highlights In Q2 2025, NetEase's total net revenues grew 9.4% year-over-year to RMB 27.9 billion, with gaming net revenues up 13.7% and non-GAAP net income at RMB 9.5 billion. 2025 Second Quarter Key Financial Data | Indicator | Amount (RMB) | Amount (US$) | Year-over-Year Growth (YoY) | | :----------------------------------- | :----------- | :----------- | :--------------- | | Net Revenues | 27.9 billion | 3.9 billion | 9.4% | | Net revenues from games and related value-added services | 22.8 billion | 3.2 billion | 13.7% | | Net revenues from Youdao | 1.4 billion | 197.9 million | 7.2% | | Net revenues from NetEase Cloud Music | 2.0 billion | 274.8 million | -3.5% | | Net revenues from innovative businesses and others | 1.7 billion | 237.2 million | -17.8% | | Gross Profit | 18.1 billion | 2.5 billion | 12.5% | | Total Operating Expenses | 9.0 billion | 1.3 billion | -0.6% | | Net Income Attributable to the Company's Shareholders | 8.6 billion | 1.2 billion | - | | Non-GAAP Net Income Attributable to the Company's Shareholders | 9.5 billion | 1.3 billion | - | | Basic Net Income per ADS | - | 1.88 | - | | Non-GAAP Basic Net Income per ADS | - | 2.09 | - | Second Quarter 2025 Operational Highlights This quarter, NetEase expanded its player base with successful global new game launches and maintained strong performance of existing popular titles, while enriching its future game pipeline. - Global new game launches achieved success: * FragPunk ranked second on PlayStation's North America free download chart in May after its global launch on Xbox Series X|S and PlayStation 5[5] * Dunk City Dynasty topped iOS download charts in multiple regions and ranked second in the U.S. after its global launch on May 22[5] * MARVEL Mystic Mayhem topped iOS download charts in multiple regions and ranked second in the U.S. after its launch on June 25[5] - Existing popular games maintained strong momentum: * Justice Mobile ranked third on China's iOS best-selling chart after its second-anniversary update on June 30[5] * Once Human ranked fourth on Steam's global best-selling chart after its anniversary update on July 3[5] * Identity V ranked sixth on China's iOS best-selling chart after its season update on July 10[5] * Naraka: Bladepoint Mobile ranked sixth on China's iOS best-selling chart after its first-anniversary new version release on July 10[5] * Eggy Party ranked fifth on China's iOS best-selling chart after its third-anniversary event series on July 11[5] * Marvel Rivals ranked second on Steam's global best-selling chart and first in the U.S. after its Summer Party event on July 17[5] * Fantasy Westward Journey Online reached a new historical high of 2.93 million peak concurrent players in August[5] - Blizzard games performed strongly in the China market: * Hearthstone ranked fifth on China's iOS best-selling chart after its new expansion pack release on July 9[5] * World of Warcraft announced a China-exclusive new server for its 20th-anniversary celebration in November, generating strong community response[5] - Rich future game pipeline: * Includes original ocean adventure RPG Sea of Remnants and story-driven action-adventure game Blood Message[5] * Plans to launch Justice Mobile and Where Winds Meet globally[5] CEO Statement CEO William Ding emphasized expanding the player community through innovative content, solidifying NetEase's leading position in gaming, and focusing on product innovation and community engagement. - Core growth strategies: product innovation, rigorous execution, and deep community engagement[6] - Future development direction: pushing player experience boundaries, expanding original IPs into lasting franchises, and growing with global partners[6] - Non-gaming business focus: continuous innovation, optimizing products and content to deliver long-term value for users, partners, and shareholders[7] Detailed Financial Results (Q2 2025) This section provides a detailed breakdown of NetEase's financial performance for the second quarter of 2025, covering revenues, costs, profits, and expenses by segment. Net Revenues Total net revenues were RMB 27.9 billion in Q2 2025, down 3.2% quarter-over-quarter but up 9.4% year-over-year, primarily driven by games and related value-added services. Net Revenues Overview (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----------------------- | :------- | :------- | :------- | :------ | :------ | | Total Net Revenues | 25.5 | 28.8 | 27.9 | -3.2% | 9.4% | Games and Related Value-Added Services Net revenues from games and related value-added services were RMB 22.8 billion, down 5.0% quarter-over-quarter but up 13.7% year-over-year, with online games accounting for 97.1%. Games and Related Value-Added Services Net Revenues (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----------------------- | :------- | :------- | :------- | :------ | :------ | | Net Revenues | 20.1 | 24.0 | 22.8 | -5.0% | 13.7% | | Online Games Revenue Share | 96.1% | 97.5% | 97.1% | -0.4pp | +1.0pp | - Quarter-over-quarter decrease primarily due to certain self-developed and licensed games[9] - Year-over-year increase primarily driven by Identity V, newly launched Where Winds Meet and Marvel Rivals, and certain licensed games[9] Youdao Youdao's net revenues were RMB 1.4 billion, up 7.7% quarter-over-quarter and 7.7% year-over-year, with growth in online marketing and learning services. Youdao Net Revenues (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Net Revenues | 1.3 | 1.3 | 1.4 | 7.7% | 7.7% | - Net revenues from online marketing services and learning services increased both quarter-over-quarter and year-over-year[10] - Net revenues from smart devices decreased both quarter-over-quarter and year-over-year[10] NetEase Cloud Music NetEase Cloud Music's net revenues were RMB 2.0 billion, up 5.3% quarter-over-quarter but down 3.5% year-over-year, driven by online music services growth. NetEase Cloud Music Net Revenues (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Net Revenues | 2.0 | 1.9 | 2.0 | 5.3% | -3.5% | - Net revenues from online music services increased both quarter-over-quarter and year-over-year[11] - Net revenues from social entertainment services and others increased quarter-over-quarter but decreased year-over-year[11] Innovative Businesses and Others Net revenues from innovative businesses and others were RMB 1.7 billion, up 6.3% quarter-over-quarter but down 17.8% year-over-year, primarily due to Yanxuan business. Innovative Businesses and Others Net Revenues (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Net Revenues | 2.1 | 1.6 | 1.7 | 6.3% | -17.8% | - Quarter-over-quarter increase primarily driven by increased net revenues from Yanxuan business[12] - Year-over-year decrease primarily due to reduced net revenues from Yanxuan, advertising services, and other businesses in this segment[12] Cost of Revenues Cost of revenues was RMB 9.8 billion in Q2 2025, down 4.8% quarter-over-quarter but up 4.2% year-over-year, influenced by platform sharing and licensed game royalties. Cost of Revenues (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Cost of Revenues | 9.4 | 10.3 | 9.8 | -4.8% | 4.2% | - Quarter-over-quarter decrease primarily due to reduced platform sharing costs and licensed game royalties[13] - Year-over-year increase primarily due to increased licensed game royalties[13] Gross Profit Gross profit was RMB 18.1 billion in Q2 2025, down 2.4% quarter-over-quarter but up 12.5% year-over-year. Gross Profit (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Gross Profit | 16.0 | 18.5 | 18.1 | -2.4% | 12.5% | Operating Expenses Total operating expenses were RMB 9.0 billion in Q2 2025, up 12.5% quarter-over-quarter but down 0.6% year-over-year, mainly due to increased marketing for games. Operating Expenses (RMB billion) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----- | :------- | :------- | :------- | :------ | :------ | | Operating Expenses | 9.0 | 8.0 | 9.0 | 12.5% | -0.6% | - Quarter-over-quarter increase primarily due to increased marketing expenditures for games and related value-added services[15] Other Income/(Expenses) Other income/(expenses) decreased quarter-over-quarter due to fair value changes in equity securities investments but increased year-over-year due to net foreign exchange gains. - Quarter-over-quarter decrease primarily due to changes in the fair value of equity securities investments[16] - Year-over-year increase primarily due to net foreign exchange gains recorded in Q2 2025, compared to net foreign exchange losses in the same period of 2024[16] Income Tax Income tax expense was RMB 1.6 billion in Q2 2025, with an effective tax rate of 14.7%, lower than the previous quarter and the prior year period. Income Tax Expense and Effective Tax Rate | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :------- | :------- | :------- | :------- | | Income Tax Expense (RMB billion) | 1.3 | 1.9 | 1.6 | | Effective Tax Rate | 16.0% | 15.3% | 14.7% | Net Income and Non-GAAP Net Income Net income attributable to the company's shareholders was RMB 8.6 billion, and non-GAAP net income was RMB 9.5 billion in Q2 2025, with both GAAP and non-GAAP basic EPS decreasing QoQ but increasing YoY. Net Income and Net Income per ADS | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----------------------------------- | :------- | :------- | :------- | :------ | :------ | | Net Income Attributable to the Company's Shareholders (RMB billion) | 6.8 | 10.3 | 8.6 | -16.5% | 26.5% | | Non-GAAP Net Income Attributable to the Company's Shareholders (RMB billion) | 7.8 | 11.2 | 9.5 | -15.0% | 21.8% | | Basic Net Income per ADS | 1.47 | 2.27 | 1.88 | -17.2% | 28.0% | | Non-GAAP Basic Net Income per ADS | 1.70 | 2.47 | 2.09 | -15.4% | 22.9% | Capital Management & Shareholder Returns This section details NetEase's capital structure, including net cash position, operating cash flow, quarterly dividends, and ongoing share repurchase program. Net Cash and Operating Cash Flow As of June 30, 2025, the company's total net cash was RMB 142.1 billion, an increase from year-end 2024, with Q2 operating cash flow at RMB 10.9 billion, a significant YoY growth. Net Cash and Net Cash Generated from Operating Activities (RMB billion) | Indicator | December 31, 2024 | June 30, 2025 | Change | | :----------------------- | :------------- | :------------- | :--- | | Net Cash | 131.5 | 142.1 | +10.6 | | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | QoQ Change | YoY Change | | :----------------------- | :------- | :------- | :------- | :------ | :------ | | Net Cash Generated from Operating Activities | 6.5 | 12.1 | 10.9 | -9.9% | 67.7% | Quarterly Dividend The board approved a Q2 2025 dividend of US$0.1140 per share (US$0.5700 per ADS), payable in September, based on the company's dividend policy. Quarterly Dividend (per share/per ADS) | Quarter | Dividend per Share (US$) | Dividend per ADS (US$) | | :----- | :------------- | :-------------- | | 2025 Q2 | 0.1140 | 0.5700 | | 2025 Q1 | 0.1350 | 0.6750 | - The payment date for the Q2 2025 dividend is expected to be around September 8 for ordinary shareholders and September 11 for ADS holders[22] - The company's dividend policy and amounts are at the discretion of the board, considering operations, profitability, cash flow, financial condition, and other relevant factors[24] Share Repurchase Program The company is executing a US$5 billion share repurchase program, having repurchased approximately 22.1 million ADSs for US$2 billion as of June 30, 2025. - The repurchase program commenced on January 10, 2023, with a validity period not exceeding 36 months[25] - As of June 30, 2025, approximately 22.1 million ADSs have been repurchased at a total cost of US$2 billion[25] - The extent of repurchases depends on market conditions, and the program may be suspended or terminated at any time[26] Corporate Information & Disclosures This section provides details on NetEase's conference call, company overview, forward-looking statements, and explanations of non-GAAP financial measures. Conference Call Details NetEase management will host a conference call and webcast on August 14, 2025, to discuss quarterly results and answer questions. - Conference call time: Thursday, August 14, 2025, at 8:00 AM Eastern Time (8:00 PM Beijing/Hong Kong Time)[27] - Dial-in information: Dial 1-914-202-3258 and provide conference ID: 10049137[28] - Webcast and replay: Available on NetEase's investor relations website at **http://ir.netease.com/**[28](index=28&type=chunk) About NetEase, Inc. NetEase is a leading internet and game service provider, focused on quality content, with a broad gaming ecosystem and a commitment to meaningful entertainment and education experiences. - Core business: A leading internet and game service provider, focused on premium content[29] - Gaming business: Possesses a large in-house game development team, developing and operating some of China's and the world's most popular and long-running mobile and PC games[30] - Other services: Include Youdao (smart learning and advertising solutions), NetEase Cloud Music (online music platform), and Yanxuan (private label consumer lifestyle brand)[31] Forward-Looking Statements This announcement contains forward-looking statements protected by the U.S. Private Securities Litigation Reform Act of 1995, subject to various business risks and uncertainties. - Statement nature: Contains forward-looking information, protected by the safe harbor provisions of the U.S. Private Securities Litigation Reform Act[33] - Identification: Identified by words such as "will, expects, anticipates, future, intends, plans, believes, estimates," and similar expressions[33] - Major risks: Include online game market growth, company market position, business strategy implementation, competition, regulatory changes, new service development capabilities, economic cycles and geopolitical tensions, international business expansion, cybersecurity threats, and exchange rate fluctuations[33] Non-GAAP Financial Measures Explanation NetEase uses non-GAAP financial measures, excluding share-based compensation, to assess operating performance and provide investors with a clearer view of the company's results. - Definition: Non-GAAP net income attributable to the company's shareholders excludes share-based compensation expenses[35] - Purpose: To assist management in evaluating operating performance and provide useful information to investors for understanding the company's current performance and prospects[35] - Limitations: Non-GAAP measures are not defined by GAAP and cannot substitute GAAP financial information; they do not reflect all expense/income items affecting operations (e.g., share-based compensation); and they may differ from non-GAAP measures used by other companies, limiting comparability[36] Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of income, cash flows, and segment information. Balance Sheets As of June 30, 2025, total assets were RMB 208.5 billion, total liabilities were RMB 54.4 billion, and shareholders' equity was RMB 149.6 billion. Condensed Consolidated Balance Sheets Summary (RMB thousands) | Indicator | December 31, 2024 | June 30, 2025 | | :----------------------------------- | :------------- | :------------- | | Assets | | | | Total Current Assets | 153,324,656 | 162,950,112 | | Total Non-Current Assets | 42,666,894 | 45,548,541 | | Total Assets | 195,991,550 | 208,498,653 | | Liabilities | | | | Total Current Liabilities | 49,667,657 | 50,451,907 | | Total Non-Current Liabilities | 3,829,755 | 3,942,594 | | Total Liabilities | 53,497,412 | 54,394,501 | | Shareholders' Equity | | | | Equity Attributable to the Company's Shareholders | 138,685,606 | 149,587,316 | | Non-Controlling Interests | 3,724,260 | 4,429,095 | | Total Equity | 142,409,866 | 154,016,411 | Statements of Income In Q2 2025, net revenues were RMB 27.9 billion, gross profit was RMB 18.1 billion, operating profit was RMB 9.1 billion, and net income attributable to shareholders was RMB 8.6 billion. Condensed Consolidated Statements of Income Summary (RMB thousands) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------------------- | :------- | :------- | :------- | | Net Revenues | 25,485,805 | 28,828,545 | 27,891,664 | | Cost of Revenues | (9,443,587) | (10,349,139) | (9,839,182) | | Gross Profit | 16,042,218 | 18,479,406 | 18,052,482 | | Total Operating Expenses | (9,048,895) | (8,038,247) | (8,991,398) | | Operating Profit | 6,993,323 | 10,441,159 | 9,061,084 | | Income Before Income Tax | 8,129,535 | 12,451,914 | 10,649,222 | | Income Tax | (1,300,939) | (1,905,143) | (1,560,757) | | Net Income | 6,828,596 | 10,546,771 | 9,088,465 | | Net Income Attributable to the Company's Shareholders | 6,758,749 | 10,301,157 | 8,601,010 | | Basic Net Income per Share (RMB) | 2.10 | 3.25 | 2.70 | | Basic Net Income per ADS (RMB) | 10.50 | 16.23 | 13.49 | Statements of Cash Flows In Q2 2025, net cash from operating activities was RMB 10.9 billion, from investing activities was RMB 3.9 billion, and used in financing activities was RMB 2.0 billion. Condensed Consolidated Statements of Cash Flows Summary (RMB thousands) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------------------- | :------- | :------- | :------- | | Net Cash Generated from Operating Activities | 6,531,832 | 12,106,652 | 10,861,863 | | Net Cash (Used in)/Generated from Investing Activities | (14,851,153) | (12,841,002) | 3,892,942 | | Net Cash Used in Financing Activities | (15,919,117) | (8,288,158) | (1,951,445) | | Cash, Cash Equivalents and Restricted Cash at End of Period | 21,855,316 | 45,395,483 | 58,167,094 | Segment Information In Q2 2025, games and related value-added services were the largest source of revenue and gross profit, followed by NetEase Cloud Music, Youdao, and innovative businesses. Segment Net Revenues (RMB thousands) | Segment | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------- | :------- | :------- | :------- | | Games and Related Value-Added Services | 20,055,819 | 24,048,007 | 22,806,459 | | Youdao | 1,321,721 | 1,298,262 | 1,417,541 | | NetEase Cloud Music | 2,040,952 | 1,858,388 | 1,968,729 | | Innovative Businesses and Others | 2,067,313 | 1,623,888 | 1,698,935 | | Total Net Revenues | 25,485,805 | 28,828,545 | 27,891,664 | Segment Gross Profit (RMB thousands) | Segment | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------- | :------- | :------- | :------- | | Games and Related Value-Added Services | 14,047,215 | 16,552,745 | 16,014,219 | | Youdao | 636,779 | 614,227 | 609,360 | | NetEase Cloud Music | 655,196 | 682,611 | 709,874 | | Innovative Businesses and Others | 703,028 | 629,823 | 719,029 | | Total Gross Profit | 16,042,218 | 18,479,406 | 18,052,482 | Notes to Unaudited Financial Information This section provides supplementary information to the unaudited financial statements, including USD conversion rates, share-based compensation details, and GAAP to non-GAAP reconciliations. USD Conversion Rate The RMB to USD exchange rate used in this announcement is 1.00 USD = 7.1636 RMB, based on the Federal Reserve H.10 statistical release as of June 30, 2025. - Conversion rate: 1.00 US dollar = 7.1636 RMB[43] - Exchange rate date: June 30, 2025[43] Share-Based Compensation Cost Total share-based compensation cost was RMB 931 million in Q2 2025, primarily allocated across R&D expenses, cost of revenues, and general and administrative expenses. Share-Based Compensation Cost (RMB thousands) | Expense Category | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------- | :------- | :------- | :------- | | Cost of Revenues | 319,949 | 233,711 | 291,326 | | Sales and Marketing Expenses | 42,865 | 32,578 | 37,300 | | General and Administrative Expenses | 286,350 | 261,259 | 207,202 | | Research and Development Expenses | 429,892 | 424,324 | 410,567 | Reconciliation of GAAP and Non-GAAP Results This section provides a reconciliation of GAAP to non-GAAP net income and EPS, with the primary difference being the exclusion of share-based compensation expenses. GAAP to Non-GAAP Reconciliation (RMB thousands) | Indicator | 2024 Q2 | 2025 Q1 | 2025 Q2 | | :----------------------------------- | :------- | :------- | :------- | | Net Income Attributable to the Company's Shareholders (GAAP) | 6,758,749 | 10,301,157 | 8,601,010 | | Add: Share-based compensation expenses | 1,059,939 | 935,570 | 930,921 | | Non-GAAP Net Income Attributable to the Company's Shareholders | 7,818,688 | 11,236,727 | 9,531,931 | | Non-GAAP Basic Net Income per Share (RMB) | 2.43 | 3.54 | 2.99 | | Non-GAAP Basic Net Income per ADS (RMB) | 12.15 | 17.70 | 14.95 | Reconciliation between U.S. GAAP and IFRS Accounting Standards This section reconciles financial information differences between U.S. GAAP and IFRS, mainly concerning fair value measurement of investments and classification of redeemable non-controlling interests. - Preparation basis: The reconciliation is prepared in accordance with Hong Kong Listing Rules and HKEX-GL111-22, reflecting significant accounting policy differences between U.S. GAAP and IFRS[50] - Investment fair value measurement differences: * U.S. GAAP: Equity securities investments without readily determinable fair values are measured at cost less impairment, adjusted for observable price changes[51][52] * IFRS: These investments are classified as financial assets measured at fair value through profit or loss[51][52] - Redeemable non-controlling interests differences: * U.S. GAAP: Certain redeemable preferred shares issued by subsidiaries are classified as redeemable non-controlling interests (mezzanine equity) on the balance sheet and accreted to their redemption value[52][53] * IFRS: There is no concept of mezzanine or temporary equity classification, and redeemable preferred shares are designated as financial liabilities measured at fair value through profit or loss[52][53]