Core Financial Performance - Core game revenue grew 15% YoY in 1Q25, exceeding consensus by 5% and BOCIe by 2% [1] - Total revenue increased by 7% YoY to RMB28.8 billion, 1% above consensus [3] - Adjusted net profit rose 32% YoY to RMB11.2 billion, significantly beating consensus expectations [1] Game Segment Performance - PC game revenue surged 85% YoY, while mobile game revenue declined by 4% YoY, with PC games outperforming BOCIe by 0% and mobile games by 3% [1][3] - Marvel Rivals, Where Winds Meet, Blizzard games, and Naraka: Bladepoint were key contributors to the strong PC game revenue [3] Profitability and Operational Efficiency - Gross profit margin (GPM) expanded to 64.1%, above consensus, with disciplined operating expenses, particularly a 33% YoY reduction in sales and marketing costs [3] - Operating profit grew 37% YoY, achieving a 36.2% operating profit margin, significantly surpassing consensus of 29.2% [3] Future Outlook and Adjustments - The company raised FY2025 adjusted profit forecast by 14%, estimating a 21% YoY increase to RMB40.5 billion [1] - FY2025-27 core online game revenue forecasts were uplifted by 2-3%, reflecting a 0-2% rise in PC games and a 3% increase in mobile games [2] Shareholder Returns and Buyback - The company repurchased approximately 0.4 million shares this quarter and has a remaining buyback quota of US$3.1 billion until January 2026 [3] - Regular quarterly dividends of 30% were distributed [3] Valuation and Target Price - The target price was raised to US$140.0 / HK$220.0, based on a 13.0x FY2025E adjusted EPADS of US$8.8 [4]

Investment Rating - The report maintains a "Buy" rating for NetEase Inc. (NTES) with a 12-month price target of $140.00, indicating an upside potential of 30.7% from the current price of $107.11 [1]. Core Insights - NetEase reported a strong performance in 1Q25, with game revenue increasing by 15% year-over-year (yoy) and operating profit rising by 34% yoy, alleviating concerns regarding its legacy and mobile games [1][22]. - The growth is expected to continue due to the success of newly released titles, a recovery in legacy titles, and improved promotional strategies [1][18]. - The report anticipates low to mid-teens yoy game revenue growth and further margin expansion for the remainder of 2025 [1]. Summary by Sections Financial Performance - In 1Q25, PC games revenue surged by 84% yoy, driven by successful titles such as Marvel Rivals and Where Wind Meets, alongside contributions from Blizzard games [2][22]. - Historical profit margins are at a high due to disciplined expense management and sequential gross profit margin (GPM) expansion [3]. Revenue and Earnings Forecasts - Revenue forecasts for 2025E have been revised upwards by 1.3% to 114,803.9 million RMB, with net profit estimates increased by 10.4% to 38,685.9 million RMB [20][21]. - The report projects a total revenue growth of 9.0% for 2025, with EBITDA growth of 18.6% and EPS growth of 16.6% [12]. Game Pipeline and Strategy - NetEase is focusing on a globalization strategy, with plans to release more titles targeting international markets, particularly in the PVP genre [17][25]. - Key upcoming titles include Marvel Mystic Mayhem and Destiny: Rising, with a focus on competitive gameplay to leverage R&D expertise [25][38]. Market Position and Valuation - The stock is currently trading at a P/E ratio of 14X for 2025E, which is considered a discount compared to peers and historical averages [18]. - The report highlights that international games revenue is expected to grow to 12.6% of total revenue by 2025E, driven by new global titles [33].

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]

Core Viewpoint - NetEase, Inc. reported strong financial results for the first quarter of 2025, driven by robust performance in its gaming segment and ongoing innovation across its business lines [1][5][10]. Financial Highlights - Net revenues for Q1 2025 were RMB 28.8 billion (US$ 4.0 billion), a 7.4% increase year-over-year [7][10]. - Net revenues from games and related value-added services reached RMB 24.0 billion (US$ 3.3 billion), marking a 12.1% increase compared to the same quarter of 2024 [8][10]. - Gross profit for the quarter was RMB 18.5 billion (US$ 2.5 billion), an increase of 8.6% year-over-year [13][10]. - Net income attributable to shareholders was RMB 10.3 billion (US$ 1.4 billion), up from RMB 7.6 billion in Q1 2024 [17][10]. - Non-GAAP net income attributable to shareholders was RMB 11.2 billion (US$ 1.5 billion), reflecting a significant increase from RMB 8.5 billion in the same quarter of the previous year [18][10]. Operational Highlights - The company launched several successful titles, including "Marvel Rivals" and "Where Winds Meet," which contributed to increased engagement and revenue [10][8]. - Youdao's net revenues were RMB 1.3 billion (US$ 178.9 million), consistent with the previous quarter but down 6.7% year-over-year due to a focus on core services [9][10]. - NetEase Cloud Music reported revenues of RMB 1.9 billion (US$ 256.1 million), a decrease of 8.4% compared to the same quarter of 2024 [11][10]. - Innovative businesses and others generated RMB 1.6 billion (US$ 223.8 million), down 17.6% year-over-year, primarily due to reduced revenues from advertising services [12][10]. Cash Flow and Dividend - As of March 31, 2025, the company's net cash totaled RMB 137.0 billion (US$ 18.9 billion), an increase from RMB 131.5 billion at the end of 2024 [20][10]. - The board approved a dividend of US$ 0.1350 per share for Q1 2025, payable in June 2025 [21][10]. Share Repurchase Program - The company has repurchased approximately 21.6 million ADSs for a total cost of US$ 1.9 billion under its ongoing share repurchase program [24][10].