Core Insights - The company reported a 9% YoY growth in total revenue to RMB27.9 billion, which was 2% below consensus expectations [3] - Operating profit increased by 30% YoY to RMB9.1 billion, also missing consensus by 1% [1] - Cash revenue reached RMB21.2 billion, reflecting a 20% YoY increase and beating forecasts by 3%, indicating successful summer campaigns [1] Financial Performance - Core online game revenue grew 15% YoY to RMB22.1 billion, slightly below consensus estimates [3] - Gross profit margin expanded to 64.7%, exceeding the consensus of 63.4% [3] - The company has a deferred revenue of RMB16.1 billion, which is a 28% YoY increase [3] Strategic Initiatives - The company is focusing on rejuvenating existing game portfolios and improving operational efficiency, prioritizing quality over quantity in game development [1] - Successful summer campaigns for key franchises such as Marvel Rivals and Where Winds Meet were highlighted, supported by strong operational capabilities [1] - Upcoming game launches include Destiny Rising and Diablo II, with a focus on cross-terminal global launches [1] Operational Adjustments - The company has streamlined its game development and marketing operations, leading to improved efficiency [1] - Significant increases in operating expenses (opex) by 6-8% were noted, particularly in sales and marketing (S&M) estimates, which were raised by 10-14% [2] Valuation and Outlook - The target price has been uplifted to US$153/HK$240 based on adjusted earnings per share and net cash [3] - The company has repurchased approximately 0.5 million shares and has a remaining buyback quota of US$3.0 billion until January 2026 [3]

Financial Performance - NetEase's market capitalization was $854 billion as of August 13, 2025[9] - Net revenues for 2Q25 reached $39 billion[9] - Net income attributable to the company's shareholders for 2Q25 was $12 billion[9] - Basic net income per ADS (GAAP) for 2Q25 was $188[9] - Net cash as of June 30, 2025, amounted to $198 billion[9] Revenue Breakdown (2Q25) - Games and related value-added services generated $3184 million in net revenues[12] - Youdao's net revenues were $198 million[20] - NetEase Cloud Music's net revenues reached $275 million[23] - Innovative businesses and others contributed $237 million in net revenues[26] Games Performance - Online games accounted for 97% of games and related value-added services revenue in 2Q25[12] - Fantasy Westward Journey Online reached over 293 million peak concurrent players in August[18] ESG Ratings - NetEase received an AA rating from MSCI[9, 40] - NetEase's Sustainalytics rating indicates a low-risk company[40]

Core Viewpoint - NetEase, Inc. reported its unaudited financial results for the second quarter of 2025, highlighting a slight decrease in net revenues compared to the previous quarter, but a year-over-year increase, driven primarily by growth in its gaming segment and new game launches [1][2]. Financial Highlights - Net revenues for Q2 2025 were RMB27.9 billion (US$3.9 billion), a decrease of 3.1% from RMB28.8 billion in Q1 2025 but an increase of 9.4% from RMB25.5 billion in Q2 2024 [7][14]. - Net revenues from games and related services were RMB22.8 billion (US$3.2 billion), down 5.0% from RMB24.0 billion in Q1 2025 but up 13.7% from RMB20.1 billion in Q2 2024 [8][14]. - Net income attributable to shareholders was RMB8.6 billion (US$1.2 billion), down from RMB10.3 billion in Q1 2025 but up from RMB6.8 billion in Q2 2024 [17][18]. - Non-GAAP net income attributable to shareholders was RMB9.5 billion (US$1.3 billion), compared to RMB11.2 billion in Q1 2025 and RMB7.8 billion in Q2 2024 [18][19]. Operational Highlights - The company emphasized its commitment to product innovation and community engagement, which are seen as key drivers for future growth [5][6]. - New game launches, including "FragPunk," "Dunk City Dynasty," and "MARVEL Mystic Mayhem," achieved significant rankings in download charts across various platforms [14]. - Established franchises like "Sword of Justice" and "Identity V" maintained strong player engagement, contributing to the overall performance [14]. Segment Performance - Youdao's net revenues were RMB1.4 billion (US$197.9 million), showing a slight increase from both the previous quarter and the same quarter last year [9]. - NetEase Cloud Music generated RMB2.0 billion (US$274.8 million), remaining stable compared to Q1 2025 but slightly down from Q2 2024 [10]. - Innovative businesses and others reported RMB1.7 billion (US$237.2 million), reflecting a quarter-over-quarter increase but a year-over-year decrease [11]. Cost and Profitability - Cost of revenues for Q2 2025 was RMB9.8 billion (US$1.4 billion), a decrease from RMB10.3 billion in Q1 2025 [12]. - Gross profit was RMB18.1 billion (US$2.5 billion), an increase of 12.5% compared to Q2 2024 [13]. - Total operating expenses were RMB9.0 billion (US$1.3 billion), showing a slight decrease from the same quarter last year [14]. Cash Flow and Financial Position - As of June 30, 2025, the company's net cash totaled RMB142.1 billion (US$19.8 billion), an increase from RMB131.5 billion at the end of 2024 [20]. - Net cash provided by operating activities was RMB10.9 billion (US$1.5 billion) for Q2 2025, down from RMB12.1 billion in Q1 2025 [20]. Dividend and Share Repurchase - The board approved a dividend of US$0.1140 per share for Q2 2025, payable in September 2025 [21]. - The company has repurchased approximately 22.1 million ADSs for a total cost of US$2.0 billion under its share repurchase program [23].

Core Insights - NetEase (NTES) is set to announce its second-quarter 2025 results on August 14, with revenue expectations of $3.86 billion, reflecting a 10.02% year-over-year growth [1] - The consensus estimate for earnings per share (EPS) is $2.04, an increase of 2 cents over the past month, compared to $1.66 in the same quarter last year [1][9] - NTES has exceeded earnings expectations in three of the last four quarters, with an average surprise of 9.17% [2] Revenue Drivers - The anticipated growth in Q2 2025 is attributed to strong gaming revenues and successful global launches, building on the momentum from Q1 [3] - Key titles such as Marvel Rivals, FragPunk, and Once Human are expected to contribute significantly to revenue, with Marvel Rivals maintaining high engagement after its Season 2 update [4][9] - Established titles like Where Winds Meet and Identity V are also projected to provide stable contributions, supported by ongoing content releases and regional expansions [5] Challenges - Despite the positive outlook, certain segments are expected to face challenges, particularly Youdao's learning services and NetEase Cloud Music, which may continue to struggle with revenue pressures [6] - The innovative businesses segment, including the Yanxuan e-commerce platform, is likely to experience intensified competition, impacting revenue growth [6] Earnings Expectations - The Zacks model indicates that NTES currently has an Earnings ESP of -0.25% and a Zacks Rank of 2 (Buy), suggesting a lower likelihood of an earnings beat compared to previous quarters [7]

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.

Investment Rating - The report maintains a "Buy" rating for NetEase, with a target price increase to USD 130 from USD 120, implying a 21.4% upside from the current share price of USD 107.11 [6][11][100] Core Insights - NetEase's recent earnings report showed a 25% beat in earnings, a 5% beat in game revenue, and an 11% beat in deferred revenue, leading to a revision of EPS growth to +18% year-on-year in 2025 [2][11] - The strong deferred revenue growth of 19% year-on-year indicates potential for accelerating game revenue growth in the upcoming quarters [2][97] - Upcoming game launches, including Marvel Mystic Mayhem and Destiny Rising, are anticipated to be key focus areas following the annual product launch event [2][11] Financial Performance - In Q1 2025, NetEase reported total revenue of RMB 28,829 million, reflecting a year-on-year growth of 7% [91] - Online game revenue grew by 15% year-on-year, driven by strong performances from titles such as Identity V, Where Winds Meet, and Marvel Rivals [94] - The gross profit margin (GPM) for games and related value-added services (VAS) was reported at 67%, with a non-GAAP operating profit of RMB 11,393 million, representing a 34% year-on-year increase [91][94] Game Highlights - Mobile game revenue only fell by 4% year-on-year, outperforming consensus expectations of a 6% decline, thanks to strong performances from Identity V and Where Winds Meet [3][94] - PC game revenue saw an impressive growth of 85% year-on-year, significantly above the consensus estimate of 67%, driven by contributions from WWM PC and Blizzard titles [3][94] - The launch of Once Human mobile resulted in 6 million new users in its first week, boosting the PC version's revenue by 500% [3][94] Margin Discussions - The report notes an increase in games and related VAS gross profit margin quarter-on-quarter, attributed to a reduced focus on non-game businesses and a shift towards profitability [4][94] - The report anticipates that it will take a few quarters for sales and marketing expenses as a percentage of revenue to normalize [4] Valuation Metrics - The report provides estimates for future financial performance, projecting revenue of RMB 116,721 million for 2025, with a year-on-year growth of 11% [98] - The estimated price-to-earnings (PE) ratio for 2025 is 12.6, indicating a favorable valuation compared to historical averages [7][14] Pipeline and Future Outlook - The report highlights key upcoming titles such as Ananta, expected to launch in 2026, which could significantly contribute to future revenue streams [2][90] - The successful return of Overwatch in China has set new records for peak concurrent users, indicating strong market demand for NetEase's offerings [94]

Investment Rating - 12-month rating: Buy [5] - 12-month price target: US$152.00, up from US$133.00 [5][10] Core Insights - NetEase reported a strong Q1 2025 with significant bottom line beats, driven by mobile and PC game revenue growth [2][4] - PC game revenue grew 85% YoY, primarily due to the successful launch of Marvel Rivals and strong performance from existing titles [3] - Mobile game revenue decline narrowed to 4% YoY, with expectations for further improvement [3] - Management indicated a more prudent marketing strategy, resulting in lower selling and marketing expenses [3] - Despite a strong Q1, the company may enter a quieter period until the next major title launch [4] Financial Performance - Q1 2025 total revenues: Rmb28,829 million, a 7.4% YoY growth [11] - Net income (GAAP) for Q1 2025: Rmb10,301 million, a 35.6% increase YoY [11] - Gross margin improved to 64.1% in Q1 2025, up from 60.7% [11] - Expected revenues for FY 2025: Rmb113,876 million, with net earnings projected at Rmb40,226 million [8][11] Valuation Metrics - Current trading at 14x 2025E PE, below the 5-year mean of 15x [4] - DCF derived price target reflects a reasonable valuation compared to global gaming companies averaging 31x 2025 PE [4][10] - Forecast stock return of 27.6%, with a price appreciation of 25.1% and a dividend yield of 2.5% [13] Game Pipeline and Future Outlook - New game pipeline for 2025 includes MARVEL Mystic Mayhem and Destiny: Rising, with limited expectations [3] - Anticipated PC game growth of 46% in 2025, contingent on user engagement and updates for Marvel Rivals [3] - Management maintains a conservative outlook on sustaining current low marketing expenses in the near term [3]

Investment Rating - The report maintains a "BUY" rating for NetEase, indicating a potential return of over 15% over the next 12 months [19]. Core Insights - NetEase reported strong 1Q25 results with total revenue growing by 7% YoY to RMB28.8 billion, aligning with consensus estimates. Operating profit surged by 37% YoY to RMB10.4 billion, exceeding consensus by 25%, primarily due to disciplined operating expense control, which decreased by 14% YoY [1][2]. - The games business showed a reacceleration in revenue growth, increasing by 12% YoY in 1Q25, supported by a 19% YoY growth in contract liabilities, which is expected to bolster future revenue [1][7]. - The target price for NetEase has been raised to US$136.5 from the previous US$125.5, reflecting a 27.4% upside from the current price of US$107.11 [3][11]. Financial Performance Summary - **Revenue Forecasts**: The revenue for FY25 is estimated at RMB113.1 billion, with projections for FY26 and FY27 at RMB121.1 billion and RMB128.9 billion, respectively [2][8]. - **Profitability Metrics**: Adjusted net profit is expected to reach RMB40.1 billion in FY25, with a growth trajectory continuing into FY26 and FY27 [2][8]. - **Valuation Metrics**: NetEase is currently trading at a P/E ratio of 13.6x for FY25, which is in line with its two-year historical average [7][11]. Business Segment Analysis - **Online Games**: The online games segment is valued at US$121.8 billion, accounting for 89.2% of the total valuation, based on a multiple of 16x 2025E EV/EBIT, consistent with industry averages [11][12]. - **Youdao and Cloud Music**: Youdao is valued at US$0.7 billion, while the Cloud Music business is valued at US$3.8 billion, both based on industry-standard multiples [11][12]. - **Innovative Businesses**: The innovative businesses segment is valued at US$1.6 billion, reflecting a growing diversification strategy [11][12]. Market Position and Growth Drivers - The games business is expected to benefit from several highly anticipated global launches, including titles like MARVEL Mystic Mayhem and Destiny: Rising, which should further enhance revenue growth [7]. - Non-gaming segments are also improving efficiency, with a notable increase in gross profit margin for the Cloud Music segment despite a decline in revenue [7][8]. Share Performance - The market capitalization of NetEase stands at approximately US$67.99 billion, with a 52-week high of US$109.80 and a low of US$76.28 [3][4]. - Over the past month, the stock has seen an absolute increase of 9.3% [4].

Financial Data and Key Metrics Changes - Total net revenue for Q1 2025 was RMB 28.8 billion (approximately USD 4.0 billion), representing a 7.4% year-over-year increase [34] - Total net revenue from games and related value-added services was RMB 24.0 billion, up 12% year-over-year [34] - Gross profit for Q1 2025 was RMB 18.5 billion, up 9% year-over-year and 14% quarter-over-quarter [36] - Non-GAAP net income attributable to shareholders for Q1 totaled RMB 11.2 billion (approximately USD 1.5 billion), up 32% year-over-year [38] Business Line Data and Key Metrics Changes - Net revenues from online games were RMB 22.5 billion, up 14% quarter-over-quarter and 15% year-over-year, driven by key PC games and established mobile games [34][35] - NetEase Cloud Music's revenue was RMB 1.9 billion, declining 8% year-over-year and 1% quarter-over-quarter, primarily due to decreased revenue from social entertainment services [36] - Innovative businesses and others saw a revenue decline of 17% year-over-year and 29% quarter-over-quarter, mainly due to decreased revenue from advertising services [36] Market Data and Key Metrics Changes - The gaming segment continues to show strong performance, with flagship titles achieving record highs in player engagement and revenue [5][6] - The mobile version of Once Human quickly gained global attention, reaching the top spot on iOS download charts in over 160 regions [10] - The game Identity V surpassed 400 million registered players globally during its seventh anniversary celebration [17] Company Strategy and Development Direction - The company is focused on globalizing and diversifying its game portfolio, with a commitment to innovative content and exceptional operations [5][6] - Plans to deepen connections with player communities through more frequent content updates and esports events [48][49] - The company aims to enhance its esports operations and leverage its successful titles in international competitions [80][81] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the global momentum established and the breadth of opportunities across the diversified game portfolio [33] - The company is committed to investing in long-term sustainability and innovation, particularly through AI technologies [30][85] - Management highlighted the importance of continuous improvement and adaptation in response to market demands and player feedback [44][59] Other Important Information - The effective tax rate for Q1 was 15.3%, and the company reported a robust cash position with net cash of approximately RMB 131.5 billion as of March 31, 2025 [39] - The Board of Directors approved a dividend of USD 0.135 per share [39] - The company has a share repurchase program with approximately USD 1.9 billion spent as of March 31, 2025 [39] Q&A Session Summary Question: About Identity V's strong performance and future growth - Management attributed Identity V's success to continuous investment and optimization over six years, with plans to keep enhancing the game [42][44] Question: On mobile title Marvel Rivals and its lifecycle - Management acknowledged user number volatility but emphasized the introduction of shorter seasonal updates and esports events to maintain engagement [46][48] Question: Strategy for overseas markets amid studio closures - Management clarified that studio closures were based on product positioning and quality, with a focus on creating games suitable for global markets [52][53] Question: Performance and monetization of Once Human - Management reported significant user growth and increased monetization on PC following the mobile launch, with plans for new gameplay features [61][63] Question: Differentiation strategy for Fragpunk in the FPS market - Management expressed satisfaction with Fragpunk's foundation and emphasized ongoing support and market engagement strategies [67][70] Question: Resource allocation between domestic and overseas markets - Management confirmed sufficient resources to support both domestic and overseas markets simultaneously [72][73] Question: Evaluation metrics for new titles and esports strategy - Management highlighted the importance of team passion and experience in evaluating new projects, with ongoing investment in esports operations [76][78][80]

Financial Performance - NetEase's total net revenues for 1Q25 were $3.973 billion, a 7.4% increase year-over-year[39] - Games and related value-added services contributed $3.314 billion in net revenues for 1Q25, up 12.1% year-over-year[39] - Net income attributable to the company's shareholders for 1Q25 was $1.42 billion, a 34.9% increase year-over-year[39] - Basic net income per ADS (GAAP) for 1Q25 was $2.24[9] - The company's net cash position as of March 31, 2025, was $18.9 billion[9] Business Segments - Youdao's net revenues for 1Q25 were $179 million, a 6.8% decrease year-over-year[39] - NetEase Cloud Music's net revenues for 1Q25 were $256 million, reflecting an 8.5% decrease year-over-year[39] - Innovative businesses and others generated $224 million in net revenues for 1Q25, a 17.5% decrease year-over-year[39] Games Highlights - Online games accounted for 98% of games and related value-added services net revenues in 1Q25[12] - Where Winds Meet surpassed 30 million registered players as of March 2025[18] - Once Human mobile game quickly claimed the No1 position on the iOS download charts in more than 160 regions upon its April 2025 launch[18]