NetEase 3Q25 Investor Presentation Investor Relations November 20, 2025 SAFE HARBOR STATEMENT This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. In addition, statements that are not histo ...

Accessibility StatementSkip Navigation HANGZHOU, China, Nov. 20, 2025 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the third quarter ended September 30, 2025. Third Quarter  202 5  Financial Highlights [1] As used in this announcement, non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS ar ...

Summary of China Internet Sector Conference Call Industry Overview - The China Internet sector has shown strong performance in YTD 2025, with a return of +44.8%, outperforming other regions such as SEA (+24.7%), Japan (+21.9%), and the US (+19.2%) [1] - Despite some recovery in valuation multiples, many Internet companies still trade at a discount compared to global peers and other tech/consumer names in China [1] Key Companies and Performance - **Alibaba (BABA)** and **Tencent** are highlighted as core AI plays, demonstrating positive multiplier effects from AI-enhanced growth [1] - **Pinduoduo (PDD)** is noted as a high beta long opportunity, while **Trip.com (TCOM)** and **Full Truck Alliance (YMM)** are also mentioned as potential picks [1] - In the 2Q25 results, 22 out of 49 covered internet companies reported revenue beats, while 25 reported earnings beats [2][10] AI and Monetization - AI is expected to enhance monetization opportunities across advertising, gaming, and transaction conversion, leading to revenue and profit growth in upcoming quarters [3][38] - Initial signs of AI-enhanced ad targeting and game development were observed in 2Q25, boosting investor confidence in future monetization potential [3][38] Quick Commerce Insights - Incremental sales and marketing spending from major players like Alibaba, JD, and Meituan in 2Q25 reached RMB 40-50 billion, indicating a competitive landscape in quick commerce [4] - Quick commerce is projected to capture approximately 10% to low-teen percentages of the e-commerce market in the long run [4] Investment Sentiment and Risks - Investor focus is expected to shift back to companies with strong AI narratives in 2H25, with fund flows rotating from leisure/entertainment names to cloud infrastructure and advertising companies [5] - Risks include muted stimulus policies affecting consumption, persistent tariff uncertainties, and intense competition impacting platform profitability [6] Notable Earnings and Guidance - Meituan's significant profit miss was a notable surprise, while PDD and TCOM exceeded expectations [15] - The overall sentiment on AI-enhanced monetization from Tencent and growing demand from Alibaba positively influenced the investment outlook for large internet companies [15] Share Price Performance - Year-to-date, Alibaba leads with a 59% return, followed by Tencent at 45%, while Meituan underperformed with a -32% return [17] - The divergence in share price performance between Meituan and TCOM began in June, indicating a shift in investor sentiment [19] Valuation and Recommendations - Current P/E ratios for major companies indicate that Tencent (18.7x) and Alibaba (13.9x) are trading below average, suggesting potential for re-rating [30] - Top picks for 2H25 include Tencent and Alibaba as core AI plays, PDD as a high beta long, and Century Huatong as an A-share pick [31][34] Cloud and AI Updates - Alibaba Cloud reported revenues of RMB 33.4 billion in 2Q25, with AI-related revenue maintaining triple-digit growth for eight consecutive quarters [39] - Tencent Cloud's revenues grew significantly, driven by cloud services and improved efficiency [39] - Baidu AI Cloud also showed strong growth, with revenues increasing 27% year-over-year in 2Q25 [39] This summary encapsulates the key insights and developments from the conference call regarding the China Internet sector, highlighting performance, investment opportunities, and risks.

Summary of Key Points from the Conference Call Company and Industry - **Companies Involved**: NetEase, Bilibili, Kuaishou - **Industry**: China Digital Entertainment Core Insights and Arguments 1. **Stock Performance**: China digital entertainment stocks have seen significant YTD performance with Kuaishou, NetEase, and Bilibili rising by +75%, +57%, and +30% respectively, compared to HSI's +27% [1][11] 2. **Downgrade Ratings**: NetEase and Bilibili have been downgraded from Overweight (OW) to Neutral due to less attractive risk-reward profiles after recent stock rallies [1][11] 3. **NetEase Earnings Outlook**: Limited earnings upside for NetEase is anticipated due to rising game promotion expenses and a lack of blockbuster game launches in the second half of 2025. The estimated P/E ratio for 2025 is 16x, with a projected EPS CAGR of 6% for 2026-2027 [1][11][26] 4. **Bilibili Revenue Growth**: Bilibili's revenue growth is expected to decelerate from over 20% in the first half of 2025 to 5% in the second half, primarily due to a high comparison base from mobile games [1][11] 5. **Investment Recommendations**: The report suggests accumulating stocks with reasonable valuations (less than 20x P/E) and double-digit profit CAGR, favoring Kuaishou with a 14x P/E and 20% profit CAGR [1][11] Financial Forecasts and Changes 1. **NetEase Financials**: - Revenue forecast for 2025 is RMB 113.54 billion, with an adjusted net income of RMB 39.87 billion [22] - Expected net profit growth to slow to -1% in Q4 2025 and -9% in Q1 2026 [11][26] 2. **Bilibili Financial Revisions**: - Net revenue for 2025 revised down by 1% to RMB 30.20 billion, with mobile games revenue down by 6% [5] - Advertising revenue forecasted to decline by 3% [5] Other Important Insights 1. **Market Conditions**: The digital entertainment sector is influenced by themes such as AI and the experience economy, which are seen as safer investments compared to e-commerce and local services [1] 2. **Competition and Regulation**: Increased competition in the gaming market and potential regulatory changes in China pose risks to revenue growth for both NetEase and Bilibili [11][15] 3. **Valuation Metrics**: NetEase's valuation is at a 20% discount to its five-year average P/E, reflecting a cautious outlook on its future performance [14][17] Conclusion The conference call highlights a cautious outlook for NetEase and Bilibili amidst strong past performance, with concerns over rising costs and competition. The recommendation is to focus on companies with solid growth potential and reasonable valuations within the digital entertainment sector.

Summary of NetEase, Inc. Conference Call Company Overview - **Company**: NetEase, Inc (NTES.O, NTES US) - **Industry**: China Internet and Other Services - **Market Cap**: US$78,716 million - **Stock Rating**: Overweight - **Industry View**: Attractive - **Price Target**: US$138.00, with a 12% upside from the current price of US$122.76 as of May 15, 2025 [8][8][8] Key Points Overseas Expansion Strategy - NetEase has clarified its overseas expansion strategy, focusing on online games while de-emphasizing single-player games, which are seen as culturally specific and a barrier to global expansion [2][4][4] - The preview of the new game "Sea of Remnants" is viewed positively as a strong addition to its game pipeline [2][3] Upcoming Game Releases - Upcoming titles include "Destiny: Rising" and "Marvel Mystic Mayhem," both utilizing existing intellectual properties (IPs), which may result in lower gross profit margins (GPM) due to revenue-sharing agreements [3][3] - The company plans to launch "Where Winds Meet" globally and introduce e-sports for "Marvel Rivals" to boost its popularity [3][3] Financial Outlook - Management expects sales and marketing expenses to stabilize at 13-14% of revenue, recovering from previous volatility linked to "Eggy Party" [6][6] - The industry standard for marketing expenses is 20-25% of new games' annual revenue and 8-10% for existing titles [6][6] Gross Profit Margin (GPM) Concerns - The GPM is a focal point, with discussions around potential declines in revenue-sharing ratios with platforms like iOS and Android being more of an industry-wide issue rather than specific to NetEase [5][5] - NetEase is actively negotiating with platforms to lower costs, maintaining a track record of success in this area [5][5] Impact of AI on Game Development - NetEase has been a pioneer in integrating AI into game development but acknowledges that current AI technology is not yet ready for critical tasks like 3D asset modeling [7][7] - The company plans to reinvest manpower saved through AI into enhancing game quality [7][7] Management Insights - Management provided more visibility on operational expenditure (opex) outlook, indicating a strategic shift towards online gaming development [2][2] Additional Insights - The shift in strategy has led to the shutdown of certain studios, reflecting the company's commitment to its new direction [4][4] - The overall sentiment towards NetEase's future performance remains positive, with analysts expecting attractive growth in the gaming sector [8][8][8]

Summary of NetEase Q1 2025 Earnings Call Company Overview - **Company**: NetEase - **Industry**: Internet Services, specifically online gaming and related services in China - **Market Cap**: US$68.7 billion as of 14 May 2025 - **12-month Rating**: Buy with a price target of US$133.00 Key Financial Highlights - **Q1 2025 Revenue**: - Total revenues reached Rmb 28,829 million, a 7.4% year-over-year (YoY) growth, exceeding UBS estimates by 1.8% and consensus by 1.1% [2][10] - Core game revenue grew 15% YoY, significantly up from 5% YoY in Q4 2024, beating estimates by 5% [2][10] - **Gross Profit Margin (GPM)**: - GPM was 64.1%, surpassing estimates by 340 basis points (bps) [10] - Game-related services GPM was 68.8%, indicating strong performance in this segment [10] - **Operating Income**: - GAAP operating income was Rmb 10,441 million, a 35% increase YoY, with an operating margin of 36.2% [10] - Non-GAAP operating income was Rmb 11,377 million, a 30% increase YoY, with a margin of 39.5% [10] - **Net Income**: - GAAP net income was Rmb 10,301 million, a 35.6% increase YoY, with a net margin of 35.7% [10] - Non-GAAP net income was Rmb 11,237 million, a 30.4% increase YoY, with a net margin of 39.0% [10] Strategic Insights - **Deferred Revenue**: - Deferred revenue grew 19% YoY, indicating potential for further growth in game revenue [3] - **Upcoming Titles**: - New game pipeline includes MARVEL Mystic Mayhem, Destiny: Rising, and Ananta, with Ananta expected to have the highest commercial potential [3] - **Shareholder Returns**: - The company maintained a dividend payout ratio of approximately 30% of GAAP net profit, but no buybacks were executed in Q1, which may disappoint some investors [3] Market Outlook - **Guidance**: - Strong Q1 results are expected to lead to upward revisions in consensus estimates [4] - **Investor Sentiment**: - Initial positive reactions are anticipated from investors following the strong Q1 performance [5] Risks and Challenges - **Industry Risks**: - Regulatory and product risks, particularly the unpredictable nature of new game launches [13] - **Company-Specific Risks**: - Maturity of key game titles and limited diversification in revenue sources, particularly from MMORPGs [14] Valuation Metrics - **Forecast Stock Return**: - Expected price appreciation of 24.2% and a dividend yield of 2.4%, leading to a total forecast stock return of 26.6% [11] Conclusion NetEase's Q1 2025 results demonstrate strong growth in gaming revenue and profitability, supported by a solid pipeline of upcoming titles. However, the company faces industry-specific risks and challenges related to regulatory environments and product performance. The outlook remains positive, with expectations for upward revisions in earnings estimates.