Core Viewpoint - NetEase's Q2 2025 earnings report showed overall performance that did not meet optimistic market expectations, leading to negative market feedback and a need to digest the expectation gap [1][12]. Game Revenue Performance - Q2 game and value-added services revenue grew by 13.7%, with core game revenue increasing by 15%, falling short of market expectations [2][19]. - The growth was primarily driven by new games such as "Yanyun Sixteen Sounds," "Marvel Showdown," and "Seven Days World," along with the evergreen game "Identity V" [2][19]. - Deferred revenue increased by 25% year-on-year, indicating that NetEase's true potential has not yet been fully realized, which could support growth in the next quarter [2][19]. - There are concerns about pressure in the second half of the year, particularly regarding the performance of evergreen games and the upcoming release of "Destiny: Stars" [2][3]. Marketing Expenses - Q2 sales expenses saw a significant increase, with nearly 1 billion CNY more spent compared to previous quarters, which may have contributed to market dissatisfaction [5][38]. - The increase in marketing expenses is viewed as a necessary investment for new game launches and promotional activities for existing games [7][40]. - Despite the rise in expenses, it is suggested that this should not be viewed negatively, as it reflects a strategy to enhance product visibility and market presence [7][40]. Financial Metrics - The core operating profit for Q2 was 9.1 billion CNY, a 30% year-on-year increase, but the profit margin decreased by over 3 percentage points compared to previous quarters [8][35]. - The company reported a GAAP profit margin of 32.5%, which is lower than seasonal averages, indicating some volatility in performance [8][35]. Shareholder Returns - In Q2, NetEase planned to distribute approximately 2.6 billion CNY in dividends, with a payout ratio of 27% [8][45]. - The company has been slow in share buybacks, spending less than 100 million USD to repurchase 500,000 shares, raising concerns about the effectiveness of its 3-year 5 billion USD buyback plan [9][43]. - If the buyback plan proceeds as scheduled, the implied total return rate could be around 5%, but if the current low buyback pace continues, the annualized return rate may drop to only 2% [9][45]. Business Focus - Beyond gaming, NetEase's Youdao education and Cloud Music segments are focusing on improving profitability through high-margin business expansion and cost reduction [30]. - Youdao's revenue grew by 7% in Q2, primarily driven by advertising income, while Cloud Music's revenue declined due to a significant drop in social entertainment income, although overall profit margins improved [30].