Core Viewpoint - NetEase is undergoing significant adjustments in its gaming business, led by founder Ding Lei, in response to the slowest revenue growth in nearly 20 years, with 80% of its net income historically derived from gaming and related services [1][14]. Financial Performance - In Q1, NetEase reported a net income of 28.8 billion RMB, reflecting a quarter-on-quarter increase of 7.87% and a year-on-year increase of 7.06% [5]. - The net income from gaming and related services was 24 billion RMB, up from 21.2 billion RMB in the previous quarter and 21.5 billion RMB in the same quarter last year [7]. - The net profit attributable to shareholders for the quarter was 10.3 billion RMB, showing a quarter-on-quarter increase of 17.05% and a year-on-year increase of 35.53% [11]. Revenue Structure - The gaming segment accounted for approximately 97.5% of the net income from the gaming division, with significant contributions from titles like "Identity V" and new releases [8]. - Non-gaming revenue saw a decline, with Youdao's net income dropping to 1.3 billion RMB from 1.4 billion RMB year-on-year, and NetEase Cloud Music's revenue decreasing by 5% to 1.9 billion RMB [9][10]. - The overall revenue structure remains heavily reliant on gaming, with projections indicating that gaming and related services will account for 79.42% of total net income by 2024 [12]. Management and Staffing - NetEase has reduced its workforce by 3,100 employees, marking a 10.64% decrease, while the proportion of R&D staff remains at 49% [16]. - Despite workforce reductions, cash compensation for senior management and directors increased by 8.47 times, from 49.2 million RMB in 2023 to 4.66 billion RMB in the previous year [17]. Legal Matters - NetEase faced a lawsuit from Krafton regarding copyright infringement related to two mobile games, resulting in a settlement where NetEase was ordered to pay 6 million USD in damages [21].

Core Insights - The company reported a significant decline in revenue for 2024, with total revenue at 5.57 billion yuan, a year-on-year decrease of 28.50% [1] - The net profit attributable to shareholders turned into a loss of 1.288 billion yuan, compared to a profit in the previous year [1] - In Q1 2025, the company achieved revenue of 2.023 billion yuan, a year-on-year increase of 52.22%, and a net profit of 302 million yuan, which includes a non-recurring gain from the sale of a studio [1] Financial Performance - 2024 total revenue: 5.57 billion yuan, down 28.50% year-on-year [1] - 2024 net profit: loss of 1.288 billion yuan, compared to profit in the previous year [1] - Q1 2025 revenue: 2.023 billion yuan, up 52.22% year-on-year [1] - Q1 2025 net profit: 302 million yuan, with a non-recurring gain of 120 million yuan [1] - Adjusted net profit (excluding non-recurring items): 163 million yuan, turning from loss to profit year-on-year [1] Business Developments - The company is seeing early results from business adjustments, with Q1 2025 performance showing improvement [1] - New games launched in 2024 did not meet expectations, contributing to losses, while older games were shut down [1] - The gaming and film sectors are both contributing positively in Q1 2025, with significant revenue from new titles and film projects [1] - The upcoming game "Zhu Xian World" is expected to drive performance, alongside the film sector's multiple revenue-generating projects [1] Strategic Initiatives - The company is actively preparing for future game launches, including "Zhu Xian 2" and "Persona: Nightfall" [1] - The company is enhancing its competitiveness in various sectors beyond gaming, including esports and film [2] - Plans for hosting a world-class esports event, CS Asia Invitational (CAC2025), are underway to boost brand influence [2] - The film sector is also expanding, with several custom dramas and a successful short drama contributing to viewership [2] Investment Outlook - The company is expected to stabilize and improve its performance, with a focus on high-profile game developments [2] - Adjusted net profit forecasts for 2025-2027 are set at 616 million, 1.266 billion, and 1.411 billion yuan, with corresponding PE ratios of 40x, 20x, and 18x [2]