Summary of Key Points from the Conference Call Industry Overview - The global gaming market is projected to reach $187.7 billion in 2024, with PC and console games accounting for $37.3 billion and $42.8 billion respectively, together representing 43% of the market, indicating a preference for heavy PC and console gaming among overseas users [1][3] - The domestic gaming market in China is expected to total 325.8 billion yuan in 2024, with client and console games combined reaching 72.5 billion yuan, a year-on-year growth of 5%, but only accounting for 23% of the total market, significantly lower than the 43% overseas [1][5] Market Trends - The domestic client gaming platform has shown a recovery trend since 2021, projected to reach 68 billion yuan in 2024, a 2.6% increase, marking a historical high; console gaming is expected to grow by 55% to 4.5 billion yuan [1][6] - The number of PC client game licenses and console game licenses has increased by 19.5% and 35% respectively, indicating a positive trend in regulatory approvals [6] Supply and Demand Dynamics - The supply side has seen explosive growth in domestic end games since 2017, with titles like "Naraka: Bladepoint" selling over 7 million copies in its first year and "Black Myth: Wukong" exceeding 28 million copies sold, generating 9 billion yuan in revenue [1][11] - The demand side is characterized by a rapid increase in users on the Steam platform in China, with the number of users growing from 10 million in 2016 to 155 million in 2023, and the proportion of simplified Chinese users surpassing 50% for the first time [11] Future Potential - The domestic PC and console gaming market has significant growth potential, with a user penetration rate of only 26% compared to the global average of 65%. The annual ARPU (Average Revenue Per User) is approximately 400 yuan, compared to nearly 600 yuan globally, indicating a potential increase of 50% [12] - By improving domestic penetration rates and expanding overseas, the market could see an incremental growth of around 100 billion yuan, representing a substantial opportunity for gaming companies [12] Major Players and Strategies - Major domestic players like Tencent and NetEase are increasing their investments in PC and console gaming platforms. Tencent's recent titles have shown strong performance, with "Delta Action" achieving over 12 million daily active users [13][17] - NetEase is also expected to experience a surge in new releases, with several high-quality titles in the pipeline, indicating a robust supply side in the coming years [15] International Market Outlook - Although the penetration of domestic firms in overseas console and end-game markets is currently low, there is optimism for improvement as competitiveness increases. Companies like Tencent are enhancing their capabilities in competitive genres, suggesting a positive trend for future market performance [18]

Core Insights - The departure of Xu Dongyuan, head of NetEase's Japanese strategic investment, signals a significant retreat from overseas gaming operations, particularly in Japan and North America [1][3] - NetEase's ambitious goal of having overseas business account for 40%-50% of its revenue is becoming increasingly unattainable as the company faces operational challenges and market competition [1][3] - The strategic shift from expansion to contraction reflects a need for NetEase to reassess its overseas investment strategies and focus on core competencies [4][12] Summary by Sections Strategic Adjustments - In 2024, NetEase began restructuring its overseas operations, including the closure of multiple products in Japan and layoffs at its Sakura Studio, which was pivotal for its Japanese market expansion [2][3] - Concurrently, layoffs occurred in North America, affecting studios like Skybox Labs and Worlds Untold, which struggled to compete in the market [2][3] Market Dynamics - The global mobile gaming market is projected to reach 635.57 billion yuan in 2024, growing by 4.8% year-on-year, indicating increased competition and challenges for Chinese companies like NetEase [6][7] - Cultural differences and localization challenges have hindered the success of NetEase's products in Japan, with recent titles failing to maintain initial momentum [7][10] Competitive Landscape - The Japanese gaming market, historically a stronghold for NetEase, is becoming increasingly competitive, with local companies like Nintendo and Sony dominating the space [13][15] - The rise of domestic competitors, such as miHoYo with its game "Genshin Impact," has further eroded NetEase's market share in Japan [13][15] Future Outlook - Despite the strategic contraction, NetEase is not abandoning overseas markets but is likely to pursue a more pragmatic approach, focusing on quality over quantity [4][12] - The company aims to consolidate resources in core areas while maintaining essential products in key markets, indicating a shift towards refined operational strategies [12][15]

Group 1: Company Performance - Tencent's gaming business achieved a revenue of 59.5 billion yuan in Q1 2025, with domestic market revenue at 42.9 billion yuan, a year-on-year increase of 24%, and international market revenue at 16.6 billion yuan, a growth of 23% [1] - NetEase reported a net revenue of 28.8 billion yuan in Q1 2025, with gaming and related value-added services contributing 24 billion yuan, reflecting a year-on-year growth of 12.1% [1] - Both Tencent and NetEase's classic IPs have been crucial in driving stable growth in their gaming businesses, with Tencent's "Honor of Kings" and "Crossfire Mobile" achieving record-high revenue in Q1 2025 [1] Group 2: Industry Trends - The mobile gaming industry is entering a new growth phase, with industry leaders focusing on long-term value rather than short-term gains [2][3] - A report by Moloco indicates that while overall app installation volume decreased by 0.2% over the past year, the paid user conversion rate for top apps increased by 6% [2] - High-value users, representing only 0.02% of global installations on the iOS platform, contributed 20% of total revenue for global iOS and Android games [2]