Core Viewpoint - NetEase, Inc. is highlighted as a strong investment opportunity in emerging markets, despite mixed financial results for Q4 and fiscal 2025 [1][2]. Financial Performance - Q4 revenue reached $3.9 billion, marking a 3% year-over-year increase, while full-year revenues totaled $16.1 billion [1]. - Net income attributable to shareholders was $1 billion, or $0.32 per share, with full-year net income at $5.3 billion, translating to $1.68 per share [3]. Analyst Sentiment - Analysts at Benchmark maintained a Buy rating with a price target of $158, reflecting confidence in the company's future prospects [4]. - The firm noted a significant rise in deferred revenue to multi-year highs, indicating strong future earnings potential [4]. - Analysts are optimistic about NetEase's gaming outlook due to the resilience of legacy franchises and strong retention from newer titles [4]. Company Overview - NetEase is a leading Chinese internet technology company and the second-largest gaming developer in China, focusing on mobile, PC, and console games [5]. - The company also offers various online services, including intelligent learning, music streaming, and e-commerce [5].

Core Viewpoint - NetEase Cloud Music reported a slight decline in total revenue for FY25, but adjusted net profit showed significant growth, indicating a mixed financial performance with concerns over revenue growth in online music services and overall gross profit margin [1]. Financial Performance - Total revenue for FY25 decreased by 2% YoY to RMB7.76 billion, slightly below the Bloomberg consensus estimate of RMB7.91 billion [1]. - Adjusted net profit increased by 68% YoY to RMB2.86 billion, aligning with consensus estimates [1]. - Adjusted operating profit grew by 32% YoY to RMB1.73 billion, excluding the impact of deferred income tax credit [1]. Revenue Breakdown - Online music services revenue grew by 8% YoY to RMB3.0 billion in 2H25, a slowdown from 16% YoY growth in 1H25 [2]. - Membership subscription revenue rose by 12% YoY to RMB2.6 billion in 2H25, driven by subscriber base growth but offset by a decline in monthly ARPPU [2]. - Non-subscription music revenue fell by 7% YoY in 2H25, primarily due to decreased revenue from digital album sales [2]. - Revenue from social entertainment and others dropped by 17% YoY to RMB905 million in 2H25, although it stabilized with a 5% HoH growth [2]. Margin Analysis - Overall gross profit margin (GPM) increased by 2.7 percentage points YoY but declined by 1.4 percentage points HoH to 35.0% in 2H25, mainly due to reduced revenue from higher-margin non-subscription business [3]. - Adjusted operating margin improved by 4.6 percentage points YoY to 21.1% in 2H25, attributed to operating leverage and effective expense control [3]. Future Outlook - For FY26E, total revenue is forecasted to increase by 8% YoY to RMB8.4 billion, driven by solid growth in the online music business [4]. - Music subscription revenue is expected to rise by 13% YoY to RMB5.7 billion in FY26E, supported by growth in both subscriber base and ARPPU [4]. - Adjusted operating profit is projected to grow by 19% YoY in FY26E, with operating profit margin increasing by 2 percentage points YoY [4].

Core Insights - NetEase, Inc. (NTES) reported Q4 fiscal 2025 non-GAAP earnings of $1.57 per ADS, missing estimates by 22.66% and down 24.2% year over year [1][9] - Revenues reached $3.94 billion, a 7.5% year-over-year increase, but fell short of estimates by 3.82% [1] Segment Performance - Games and related value-added services revenues increased by 3.4% year over year to RMB22.0 billion ($3.1 billion), driven by self-developed games and new launches [2] - Youdao revenues grew 16.8% year over year to RMB1.6 billion ($223.7 million), supported by online marketing and learning services [3] - NetEase Cloud Music saw a 4.7% year-over-year rise in revenues to RMB2.0 billion ($281.5 million) [3] - Innovative businesses and others experienced a 10.4% year-over-year decline in revenues to RMB2.0 billion ($292.8 million) due to increased inter-segment transaction eliminations [4] Financial Highlights - Gross profit increased 8.7% year over year to RMB17.7 billion ($2.5 billion) [5] - Total operating expenses rose 10.9% year over year to RMB9.4 billion ($1.3 billion) [5] - Net income attributable to shareholders was RMB6.2 billion ($892.6 million), with non-GAAP net income at RMB7.1 billion ($1.0 billion) [5] - The effective tax rate increased to 16.4% from 13.4% year over year [5] Strategic Developments - The integration of artificial intelligence across the game ecosystem is enhancing production scalability and supporting AI-driven gameplay innovations [6] - Strong engagement in established franchises like Fantasy Westward Journey and new titles has maintained healthy player communities [7] - Global portfolio expansion is evident, with titles like Sword of Justice and Where Winds Meet achieving significant player engagement [8] Cash Flow and Balance Sheet - As of December 31, 2025, net cash increased to RMB163.5 billion ($23.4 billion) from RMB153.2 billion ($21.5 billion) as of September 30, 2025 [11] - Net cash provided by operating activities rose to RMB14.8 billion ($2.1 billion) from RMB12.9 billion ($1.8 billion) in the previous quarter [12] - A quarterly dividend of $0.232 per share ($1.16 per ADS) was declared for Q4 2025 [12]

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 a total revenue increase of 3% year-over-year to RMB 27.5 billion in 4Q25, which was 4% below Bloomberg consensus estimates due to slower-than-expected games revenue growth and a prolonged revenue recognition period [1]. - Operating income grew by 6% year-over-year to RMB 8.3 billion, also falling short of consensus estimates by 6% [1]. - Contract liabilities increased by 34% year-over-year in 4Q25, suggesting a positive outlook for revenue growth in FY26, supported by several highly anticipated game launches [1][8]. - The target price for NetEase has been slightly adjusted to US$161.5 from the previous US$164.0, reflecting a 30.7% upside from the current price of US$123.52 [3][12]. Financial Performance - For FY26E, total revenue is projected to reach RMB 120.8 billion, with adjusted net profit expected at RMB 41.4 billion, reflecting a growth of 10.5% year-over-year [2][9]. - Gross margin is expected to improve to 64.8% in FY26E, while operating margin is projected to be 33.0% [9][10]. - The company has maintained a decent shareholder return of RMB 14.5 billion in 2025, which is approximately 3% of its market capitalization [8]. Business Segments - The online games segment is valued at US$142.1 billion, accounting for 88% of the total valuation, based on a 17x EV/EBIT multiple for FY26E [12]. - Youdao and NetEase Cloud Music are valued at US$0.7 billion and US$3.4 billion, respectively, based on industry-average multiples [12]. - The innovative businesses segment is valued at US$1.5 billion, with net cash contributing an additional US$13.8 billion to the overall valuation [12]. Market Position - NetEase's market capitalization stands at approximately US$78.7 billion, with an average trading volume of US$92.3 million over the past three months [4]. - The stock has experienced a decline of 11.3% over the past month and 13.2% over the past three months, indicating some volatility in its performance [5]. Future Outlook - Several highly anticipated game launches are scheduled for FY26, including "Sea of Remnants" and "YaoYaoQi," which are expected to drive revenue growth [1][8]. - The integration of AI into various phases of game development is expected to enhance quality and efficiency, positioning the company favorably in the competitive landscape [8].

Adjusted earnings per share (non-GAAP) of $1.58, missing the estimated $2.03. Actual revenue was approximately $3.9 billion, below the expected $4.15 billion. NetEase Cloud Music Inc. reported a gross profit increase to about $390 million (RMB 2.77 billion) from $378 million (RMB 2.68 billion) in 2024.  NetEase, Inc. (NASDAQ: NTES), a leading internet and game services provider in China, recently reported its earnings for the fourth quarter and fiscal year 2025 on February 11, 2026. The company announced ad ...

Financial Data and Key Metrics Changes - Total annual net revenue for 2025 reached RMB 112.6 billion, representing a 10% increase year-over-year [27] - Fourth quarter total revenues were RMB 27.5 billion, with net revenues from games and related value-added services at RMB 92.1 billion, up 10% from 2024 [27][28] - Gross profit margin for the full year was 64.3%, with the fourth quarter margin increasing to 64.2% from 60.8% year-over-year [30][31] - Non-GAAP net income attributable to shareholders for the fourth quarter totaled RMB 7.1 billion, down 27% year-over-year, while for the full year it was up 11% to RMB 37.3 billion [33][34] Business Line Data and Key Metrics Changes - Online games net revenues for the full year were RMB 89.6 billion, up 11% from 2024, with fourth quarter revenues increasing 4% year-over-year to RMB 21.3 billion [27][28] - Youdao's net revenues increased approximately 5% year-over-year to RMB 5.9 billion, with fourth quarter revenues rising 17% year-over-year to RMB 1.6 billion [28] - NetEase Cloud Music net revenue decreased 2% year-over-year to RMB 7.8 billion for the full year, but fourth quarter revenues increased 5% year-over-year to RMB 2 billion [29] Market Data and Key Metrics Changes - Where Winds Meet surpassed 80 million accumulated players and ranked number 2 on Steam's global top-seller chart, demonstrating strong global traction [17] - Justice expanded internationally, topping download charts in multiple key Asian regions, showcasing the effectiveness of AI-integrated production pipelines [18] - Marvel Rivals was recognized as one of TIME's Best Video Games of 2025 and ranked in Steam's Platinum Tier of Best of 2025, indicating strong global momentum [19] Company Strategy and Development Direction - The company is focused on integrating AI into game development processes, enhancing productivity and player engagement [15][26] - There is a commitment to exploring new frontiers in AI-native gameplay, aiming to dynamically construct in-game worlds tailored to individual player behaviors [15] - The strategy includes maintaining high-intensity investments in AI-native gameplay and nurturing talent to leverage AI technology for high-quality game development [42] Management's Comments on Operating Environment and Future Outlook - Management believes that AI will fundamentally empower creators and reshape interactive entertainment, marking a critical point in the industry's evolution [16][26] - The company is optimistic about the future, viewing the current period as the best time for the industry, with a strong focus on technological advancement and creative innovation [16] - Management acknowledges the challenges posed by AI in terms of integration and control but sees it as an opportunity for excellent teams to innovate [40] Other Important Information - The company has a strong cash position, with net cash of approximately RMB 163.5 billion at year-end, and a dividend of $0.232 per share was approved [34] - The share repurchase program has seen approximately 22.1 million ADS repurchased for a total cost of about $2 billion [34] Q&A Session Summary Question: Impact of AI on the online gaming industry - Management believes the market has misinterpreted AI's impact, stating that while AI lowers entry barriers, it raises the success threshold for top-tier games [37][38] Question: Retention rate and performance of Where Winds Meet - The game has received positive feedback and high retention rates due to its immersive gameplay and continuous updates [45] Question: Future of Marvel Rivals and AI in gameplay design - Marvel Rivals remains stable with ongoing innovative content, while AI is seen as a transformative asset for player experiences [66]

Financial Data and Key Metrics Changes - Total annual net revenue for 2025 reached CNY 112.6 billion, representing a 10% increase year-over-year [27] - Fourth quarter total revenues were CNY 27.5 billion, with net revenues from games and related services at CNY 92.1 billion, up 10% from 2024 [27][28] - Gross profit margin for the full year was 64.3%, with a fourth quarter gross profit margin of 64.2%, up from 60.8% year-over-year [30][31] Business Line Data and Key Metrics Changes - Net revenues from online games for the full year were CNY 89.6 billion, up 11% from 2024, with fourth quarter revenues increasing 4% year-over-year to CNY 21.3 billion [28] - Youdao's net revenues increased approximately 5% year-over-year to CNY 5.9 billion, with fourth quarter revenues rising 17% year-over-year to CNY 1.6 billion [28] - NetEase Cloud Music's full year revenue decreased 2% to CNY 7.8 billion, but fourth quarter revenues increased 5% year-over-year to CNY 2 billion [29] Market Data and Key Metrics Changes - Where Winds Meet surpassed 80 million accumulated players and ranked number 2 on Steam's global top-seller chart [17] - Justice expanded internationally, topping download charts in multiple key Asian regions [18] - Marvel Rivals was recognized as one of TIME's Best Video Games of 2025 and ranked in Steam's Platinum Tier of Best of 2025 [19] Company Strategy and Development Direction - The company is focused on integrating AI into game development processes, enhancing productivity and player engagement [15][26] - There is a strong emphasis on global expansion and cultural resonance in game content, as seen with Where Winds Meet [17] - The company aims to leverage AI to create new interactive experiences and improve game development efficiency [15][26] Management's Comments on Operating Environment and Future Outlook - Management believes AI will fundamentally empower creators and reshape interactive entertainment [16] - The company is optimistic about the future, viewing 2025 as a critical year for AI integration and innovation [15][16] - Management acknowledges the challenges posed by AI but sees opportunities for enhanced creativity and player experiences [40][41] Other Important Information - The company has a strong cash position with net cash of approximately CNY 163.5 billion at year-end [34] - A dividend of $0.232 per share has been approved, and a $5 billion share repurchase program is ongoing [34] Q&A Session Summary Question: Impact of AI on the online gaming industry - Management believes the market has misinterpreted AI's impact, stating that while AI lowers entry barriers, it raises the success threshold for top-tier games [36][37] Question: Retention rate of overseas users for Where Winds Meet - The game has received positive feedback and high retention rates due to its immersive gameplay and continuous updates [44][45] Question: Plans for the Unlimited Server model in other titles - The company plans to replicate the Unlimited Server model across more titles, focusing on restoring classic gameplay while optimizing the gaming process [48][49] Question: Development status of Sea of Dawn - Development is on track for a Q3 launch, with positive feedback from recent testing [51][53] Question: Strategy for entering the auto chess market - The company aims to differentiate its auto chess titles by incorporating unique cultural elements and strong narrative [55][57]

Financial Data and Key Metrics Changes - Total annual net revenue for 2025 reached CNY 112.6 billion, representing a 10% increase year-over-year [28] - For Q4 2025, total revenues were CNY 27.5 billion, with net revenues from games and related services at CNY 92.1 billion, up 10% from 2024 [29] - Gross profit margin for the full year was 64.3%, with Q4 margin increasing to 64.2% from 60.8% year-over-year [32] Business Line Data and Key Metrics Changes - Net revenues from online games for 2025 were CNY 89.6 billion, up 11% from 2024, with Q4 revenues increasing 4% year-over-year to CNY 21.3 billion [29] - Youdao's net revenues increased approximately 5% year-over-year to CNY 5.9 billion, with Q4 revenues rising 17% year-over-year to CNY 1.6 billion [30] - NetEase Cloud Music's full-year revenue decreased 2% to CNY 7.8 billion, but Q4 revenues increased 5% year-over-year to CNY 2 billion [31] Market Data and Key Metrics Changes - "Where Winds Meet" surpassed 80 million accumulated players and ranked number 2 on Steam's global top-seller chart [19] - "Justice" expanded internationally, topping download charts in multiple key Asian regions [20] - "Marvel Rivals" was recognized as one of TIME's Best Video Games of 2025 and ranked in Steam's Platinum Tier of Best of 2025 [20] Company Strategy and Development Direction - The company is focused on integrating AI into game development processes, enhancing productivity and player engagement [27] - Plans to explore new frontiers in AI-native gameplay, aiming to dynamically construct in-game worlds tailored to individual player behaviors [17] - The company aims to maintain high-intensity investments in AI-native gameplay and talent nurturing to expand advantages in game development [44] Management Comments on Operating Environment and Future Outlook - Management believes AI will fundamentally empower creators and reshape interactive entertainment, marking a paradigm shift in the industry [18] - The company is optimistic about the future, viewing 2025 as a critical year for AI integration and innovation [17] - Management acknowledges the challenges posed by AI but emphasizes the importance of integrating AI technology with complex game systems [40] Other Important Information - The effective tax rate was 14.8% for the full year and 16.4% for Q4 [34] - The company approved a dividend of $0.232 per share or $1.16 per ADS [35] - The current share repurchase program has seen approximately 22.1 million ADS repurchased for a total cost of about $2 billion [36] Q&A Session Summary Question: Impact of AI on the online gaming industry - Management believes the market has misinterpreted AI's impact, stating that while AI lowers entry barriers, it raises the success threshold for top-tier games [39] Question: Retention rate of overseas users for "Where Winds Meet" - The game has received widespread acclaim for its immersive experience and operational focus on free-to-play and high-frequency updates [47] Question: Replication of the Unlimited Server model across other titles - Management confirmed plans to introduce updates across more titles, maintaining close interaction with the player community [51] Question: Current development status of "Sea of Dawn" - Development is on track for a Q3 launch, with positive feedback from recent testing [55] Question: Strategy for entering the auto chess market - The company aims to differentiate its auto chess titles by incorporating unique cultural elements and strong narrative potential [59] Question: Global expansion strategies and talent development - Management emphasized the importance of cultivating top-tier creative minds in China to deliver premium games for global markets [63]

Core Viewpoint - NetEase reported its unaudited financial results for the fourth quarter and fiscal year 2025, showing a slight increase in net revenues but a decline in net income compared to the previous year, highlighting the impact of various business segments and the integration of AI in operations [1]. Financial Highlights - Fourth quarter net revenues reached RMB27.5 billion (US$3.9 billion), a 3.0% increase from the same quarter in 2024 [1]. - Net revenues from games and related value-added services were RMB22.0 billion (US$3.1 billion), up 3.4% year-over-year [1]. - Youdao's net revenues increased by 16.8% year-over-year to RMB1.6 billion (US$223.7 million) [1]. - Net income attributable to shareholders for the fourth quarter was RMB6.2 billion (US$892.6 million), down from RMB8.8 billion in the same quarter of 2024 [1]. Operational Highlights - Blizzard titles maintained strong engagement in China, achieving record-high annual revenue [1]. - The game portfolio was strengthened with successful launches like Sword of Justice and Where Winds Meet, which surpassed 80 million cumulative players [1]. - AI integration across game development processes has improved production efficiency and enabled new gameplay experiences [1]. Fiscal Year 2025 Results - Total net revenues for fiscal year 2025 were RMB112.6 billion (US$16.1 billion), an increase from RMB105.3 billion in 2024 [1]. - Net revenues from games and related services for the fiscal year were RMB92.1 billion (US$13.2 billion), compared to RMB83.6 billion in 2024 [1]. - Net income attributable to shareholders for the fiscal year totaled RMB33.8 billion (US$4.8 billion), up from RMB29.7 billion in 2024 [1]. Cost and Profit Analysis - Cost of revenues for the fourth quarter was RMB9.9 billion (US$1.4 billion), a decrease from RMB10.5 billion in the same quarter of 2024 [1]. - Gross profit for the fourth quarter was RMB17.7 billion (US$2.5 billion), compared to RMB16.3 billion in the same quarter of 2024 [1]. - Total operating expenses for the fourth quarter were RMB9.4 billion (US$1.3 billion), up from RMB8.5 billion in the same quarter of 2024 [1]. Cash and Dividend Information - As of December 31, 2025, the company's net cash totaled RMB163.5 billion (US$23.4 billion), an increase from RMB131.5 billion in 2024 [1]. - A quarterly dividend of US$0.232 per share (US$1.16 per ADS) was approved for the fourth quarter of 2025 [2]. Share Repurchase Program - The company extended its share repurchase program of up to US$5.0 billion for an additional 36 months until January 9, 2029, with approximately 22.1 million ADSs repurchased for a total cost of US$2.0 billion as of December 31, 2025 [2].

NetEase, Inc. (NASDAQ:NTES) is one of the Top 15 Chinese Companies on US Exchanges. On January 20, NetEase, Inc.’s (NASDAQ:NTES) music arm, NetEase Cloud Music, and Universal Music Group (UMG) announced a strategic partnership for UMG’s world-leading music catalog of recordings and artists. NetEase Becomes a Distributor for Universal Music Group in China, Set to Support Local Talent Photo by Caught In Joy on Unsplash The partnership is a multi-year licensing agreement under which UMG’s music will be av ...