Group 1 - The Zhejiang Service Trade Gamescom 2025 was hosted by the Department of Commerce of Zhejiang Province from August 20 to 22, showcasing the innovative achievements and cultural charm of Zhejiang's gaming industry [1][7] - The exhibition featured key participants including NetEase and other local companies, highlighting a diverse range of products such as home video game software, online games, mobile games, AR/VR devices, and digital cultural IP [3][4] - The event emphasized the theme of "Digital Empowerment, Cultural Globalization," promoting the brand appeal of "Zhejiang Services, Serving the World" and showcasing the strength of its digital trade capabilities [1][3] Group 2 - Notable gaming products showcased included NetEase's "WHERE WINDS MEET" and "Once Human" by Hangzhou Hehan Culture Communication Co., Ltd., which aims for a global release [4][6] - The exhibition provided opportunities for Zhejiang enterprises to engage with global players, senior users, and game media, fostering integration and development within the global gaming industry [7]

Financial Data and Key Metrics Changes - Total net revenue for the second quarter was RMB 27.9 billion or approximately USD 3.9 billion, representing a 9.4% year-over-year increase [34] - Gross profit for the second quarter was RMB 18.1 billion, up 13% year-over-year, with a total gross profit margin of 64.7% [36] - Non-GAAP net income attributable to shareholders for the second quarter totaled RMB 9.5 billion or USD 1.3 billion, up 22% year-over-year [39] Business Line Data and Key Metrics Changes - Revenue from games and related VAS rose 14% year-over-year, with net revenues from online games at RMB 22.1 billion, a year-over-year increase of 15% [34][36] - Net revenue from Youdao was RMB 1.4 billion, up 7% year-over-year, driven by enhanced utilization of AI technology [35] - Net revenue from NetEase Cloud Music was RMB 2 billion, up 6% from the previous quarter but down 4% year-over-year [35] Market Data and Key Metrics Changes - The player base for the game "Mystery and Mayhem" surpassed 1 million shortly after its launch, ranking number two in the US iOS download chart [9] - "Once Human" reached number four on Steam's global top seller chart following its major content update [11] - "Fantasy Westward Journey Online" achieved a new all-time high peak in concurrent players, surpassing 2.93 million [16] Company Strategy and Development Direction - The company is focused on expanding its global reach through innovative game offerings and high-quality content updates [6][27] - There is a commitment to continuous investment in content creation and product development to maintain a healthy gaming ecosystem [38] - The company aims to leverage AI technology across its operations and game development to enhance user experiences [78] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term performance of "Where Wings Meet," indicating a stable monetization cycle [45] - The company sees significant potential for Blizzard titles in the Chinese market, emphasizing the importance of aligning with local tastes [52] - Management highlighted the importance of ongoing updates and community engagement to sustain player interest in existing titles [67] Other Important Information - The company approved a dividend of USD 0.57 per ADS and repurchased approximately 22.1 million ADS for a total cost of about USD 2 billion [40] - The company is actively refining several upcoming titles, including "Sea of Venomance" and "Blood Message," with plans for release in 2026 [24][25] Q&A Session Summary Question: Monetization success of "Where Wings Meet" - Management indicated that "Where Wings Meet" has exceeded initial expectations in both active players and monetization, with a promising potential for sustainable success [44] Question: Performance of "Once Human" - Management noted that significant updates have driven a rebound in performance, with a balanced user distribution between China and international markets [47] Question: Blizzard titles performance - Management confirmed that Blizzard titles have surpassed previous metrics and see potential for attracting new players through localized improvements [52] Question: Competitive landscape for shooting games - Management acknowledged the high expectations for quality in the shooting game genre and committed to continued investment in this area [55] Question: Recovery of evergreen titles - Management reported stable improvements in "Eggy Party" and "Fantasy Westward Journey Online," attributing recovery to continuous innovation and marketing efforts [66] Question: AI integration in games - Management emphasized ongoing investments in AI technology to enhance game development and operations, with future potential for AI-designed games [78] Question: Performance of "Mystery and Mayhem" - Management shared that "Mystery and Mayhem" received positive feedback post-launch, but acknowledged long-term growth challenges [83]

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 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, Inc. Conference Call Company Overview - **Company**: NetEase, Inc (NTES.O) - **Industry**: Internet Entertainment - **Market Cap**: US$87.283 billion - **Current Share Price**: US$136.12 - **Price Target**: Raised from US$145.00 to US$151.00, indicating an 11% upside potential [5][21] Key Financial Metrics - **2Q25 Revenue Growth**: Expected to be 12% YoY for game revenue and 20% for non-GAAP profit [2][8] - **Adjusted Net Profit**: Projected to grow 20% YoY to RMB 9.4 billion [8] - **EPS Estimates**: Slight increases of 1-2% for 2025-2027 [3][20] - **Revenue Projections**: - 2025: RMB 114,060 million - 2026: RMB 118,798 million - 2027: RMB 123,673 million [5][24] Business Developments - **Game Titles Performance**: - **Marvel Rival S3**: Popularity rebound, ranked 2 on Steam in July [7] - **Once Human**: Strong PC gross ranking post mobile launch, estimated annual revenue contribution of RMB 800 million to 1 billion [7] - **New Titles**: Five new games scheduled for summer 2025, expected to contribute marginally in 3Q [7] Market Positioning - **Competitive Landscape**: NetEase is well-positioned amid fund inflows from the food delivery segment, with positive business developments justifying its outperformance [1] - **Marketing Strategy**: Focus on long-term marketing expense ratio rather than short-term savings [2] Valuation and Risk Assessment - **Valuation Method**: Sum of the parts (SOTP) with a target P/E of 15x for the games business [30] - **Risk Factors**: - Shorter-than-expected life cycle of games - Weaker-than-expected margins due to loss-making businesses [41] Investment Thesis - **Overweight Rating**: Reiterated with a focus on market share gains through development capabilities and global expansion [31] - **Margin Improvement**: Expected from a favorable revenue mix and better cost control, leading to operating profit margin expansion towards 34% [31] Additional Insights - **Revenue Growth Drivers**: Anticipated acceleration in game revenue driven by localized content and new titles [32] - **Consensus Rating Distribution**: 90% Overweight, 10% Equal-weight [34] Conclusion - **Outlook**: Positive growth trajectory with a focus on game revenue and margin expansion, supported by a strong pipeline of new titles and strategic market positioning [43]

Group 1: Game Revenue Rankings - Tencent's "Honor of Kings" regained the top position in global mobile game revenue in April 2025, rising four places from the previous month [1][3] - "Last War: Survival" climbed to second place, benefiting from seasonal events like Easter [3] - "Whiteout Survival," "MONOPOLY GO!," and "Royal Match" ranked third to fifth, showcasing their consistent revenue generation capabilities [3] Group 2: Mobile Game Market Overview - Global mobile game player spending on App Store and Google Play reached approximately $6.48 billion in April 2025, a 4.5% decrease month-over-month [4] - The United States remains the largest mobile game market with revenues around $2 billion, accounting for 31.5% of total spending [4] - China (iOS) and Japan ranked second and third with 18.8% and 13.2% market shares, respectively [4] Group 3: Game Downloads Rankings - "Block Blast!" topped the global mobile game download chart in April 2025, followed by "ROBLOX," "Free Fire," "Subway Surfers," and "Ludo King" [5][8] - Global mobile game downloads reached 3.93 billion in April, reflecting an 8.4% decrease from the previous month [8] - India led in downloads with 739 million, representing 18.8% of the total, while the U.S. and Indonesia followed closely [8] Group 4: Notable Game Performances - "Honkai: Star Rail" saw a significant rise of 24 places in the rankings, driven by new character releases and popular events [4] - "Delta Force" achieved the highest download growth in April, ranking sixth overall, thanks to strong performances in the U.S. and Brazil [9] - New titles like "Cookingdom" and "Once Human" also performed well, indicating the importance of established gameplay and cross-platform adaptations in driving downloads [9]

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 - 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 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 Data and Key Metrics Changes - Total net revenue for Q1 2025 was RMB28.8 billion (approximately USD4.0 billion), representing a 7.4% increase year over year [32] - Total net revenue from gaming and value-added services increased by 12% year over year to RMB24.0 billion [6][33] - Gross profit for Q1 2025 was RMB18.5 billion, up 9% year over year and 14% quarter over quarter [35] - Non-GAAP net income attributable to shareholders for Q1 totaled RMB11.2 billion (approximately USD1.5 billion), up 32% year over year [37] Business Line Data and Key Metrics Changes - Net revenues from online games were RMB22.0 billion, up 14% quarter over quarter and 15% year over year, driven by new titles and established games [33] - NetEase Cloud Music's revenue declined by 8% year over year to RMB1.9 billion, primarily due to decreased revenue from social entertainment services [34] - Innovative businesses and others saw a revenue decline of 17% year over year to RMB1.6 billion, mainly due to decreased revenue from advertising services [34] Market Data and Key Metrics Changes - The gaming segment's revenue growth was supported by key PC games, with PC games accounting for approximately 34% of total online games revenue, representing an increase of 85% year over year [33] - The mobile version of Once Human achieved the top spot on iOS download charts in over 160 regions shortly after its launch [9] 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] - Plans to deepen connections with player communities through more frequent content updates and the introduction of esports events [47] - The company aims to enhance its esports operations and has invested in esports stadiums in Hangzhou and Shanghai [78] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the global momentum and opportunities across the diversified game portfolio [31] - The company is committed to investing in long-term operations and enhancing player engagement through continuous updates and community involvement [56] - Management highlighted the importance of AI technology in game development and its role in improving operational efficiency [82] Other Important Information - The effective tax rate for Q1 was 15.3%, and the company has a robust cash position with net cash of approximately RMB131.5 billion as of March 31, 2025 [38] - The Board of Directors approved a dividend of USD0.135 per share [38] - The company has a share repurchase program with approximately USD1.9 billion spent as of March 31, 2025 [38] Q&A Session Summary Question: What are the reasons behind 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 investing in the game to maintain its leading position [42][43] Question: How will the company ensure the longevity of Marvel Rivals? - Management mentioned the introduction of a two-month seasonal update cycle and the initiation of esports events to enhance player engagement and retention [47] Question: What is the strategy for overseas markets following the closure of some studios? - Management clarified that the studio closures were based on product positioning and quality considerations, and they plan to develop more games suitable for global markets [51] Question: What are the next steps for the operation of Where Wings Meet? - Management plans to continue investing in the game, focusing on enhancing art representation and gameplay to ensure its long-term success [56] Question: How does the company plan to enhance monetization for Once Human? - Management highlighted the game's cross-play feature and plans to introduce new gameplay elements to satisfy user demand and enhance monetization [61] Question: What is the company's approach to resource allocation between domestic and overseas markets? - Management stated that they have sufficient resources to support both markets simultaneously and will continue to improve understanding of overseas gamer demands [70]