We are Buy rated on NTES/9999.HK with 12-month SOTP-based target prices of US$160/HK$250. Lincoln Kong, CFA +852-2978-6603 | lincoln.kong@gs.com Goldman Sachs (Asia) L.L.C. Ronald Keung, CFA +852-2978-0856 | ronald.keung@gs.com Goldman Sachs (Asia) L.L.C. Luqing Zhou +852-3465-4207 | luqing.zhou@gs.com Goldman Sachs (Asia) L.L.C. Key highlights Recent trend by title and pipeline Management elaborated that NTES operates its games in a very long-lasting cycle manner with a community mindset, though each game ...

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 ...

ab 3 November 2025 Global Research China Online Entertainment Sector Q325 preview: will the YTD outperformance continue? We anticipate a mixed Q325 earnings season for online entertainment Online entertainment is a significant YTD outperformer within China internet, driven by: 1) solid fundamentals supported by Chinese consumers' robust spending on leisure; 2) favourable investor positioning in online entertainment amid macro uncertainties and competition in local commerce. We expect the favourable position ...

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 Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese online gaming industry**, highlighting three emerging trends: growth in PC gaming, the rise of shooting games, and the performance of major titles with high daily active users (DAU) [1][2][3]. Key Trends 1. **PC Gaming Growth** - The Chinese PC gaming market has shown solid growth, driven by successful cross-platform titles like **Delta Force** and **Wukong**. The growth rate for PC games was **5% year-over-year (YoY)** in the first half of 2025 [5]. - Payment top-up channels, particularly proprietary platforms like **QQ** and **Weixin**, have gained traction, accounting for **40%-50%** of total mobile game grossing [2][29]. 2. **Rise of Shooting Games** - Shooting games represent **30%** of global lifetime grossing on the PC platform **STEAM**, but only **15%** of China's mobile game grossing in the first half of 2025 [3][12]. - The genre is expected to grow due to new gameplay formats like **extraction shooters**, with **Tencent** positioned as a key beneficiary [3][21]. 3. **Performance of High DAU Titles** - Major titles such as **Honor of Kings** (HoK) and **Where Winds Meet** (WWM) are expected to outperform due to a light pipeline in the second half of 2025 [4]. - Smaller studios are also gaining traction with innovative titles like **Whiteout Survival** and **Supernatural Operations** [4]. Market Performance - The overall Chinese PC/mobile game market grew **5%** and **17% YoY** respectively in the first half of 2025, compared to **3%** and **5%** in 2024 [5]. - **Tencent** and **Bilibili** gained market share in the iOS mobile game market in 1H25, but faced challenges in July due to a high base effect [5][48]. Stock Recommendations - The report maintains a **Buy** rating on **Tencent**, **NetEase**, and **Bilibili**, citing their strong capabilities in developing new hits and rejuvenating existing titles [6][9]. - Key upcoming titles include **Tencent's Valorant Mobile** and **HoK World**, and **NetEase's Ananta** and **Sea of Remnants** [6][25]. Additional Insights - The report notes that traditional app stores still provide better reach to new users, and any reduction in fees by these stores could impact gaming companies' incentives to diversify their top-up channels [2]. - The rise of cross-platform games is highlighted, with successful examples including **Genshin Impact** and **Where Winds Meet**, which cater to a global audience [31]. Conclusion - The Chinese online gaming industry is poised for continued growth, particularly in the PC segment and shooting game genre, with major players like Tencent and NetEase expected to capitalize on these trends. The focus on innovative gameplay and cross-platform capabilities will be crucial for maintaining competitive advantages in this rapidly evolving market [1][2][3][4][5][6].

Core View - Company is expected to report 2Q25 results in late August 2025, forecasting an 11% YoY topline growth and a 16% YoY increase in pure online game revenue, which is slightly below consensus estimates [1][3] - Anticipated strong performance in PC games with a 67% YoY growth to RMB7.6 billion, while mobile game revenue is expected to remain flat YoY at RMB14.8 billion [1][3] - Adjusted net profit is projected to rise 28% YoY to RMB10.0 billion, exceeding consensus by 4%, with a forecasted 20% YoY growth in adjusted profit for 2025 to RMB40.3 billion [1][2] Revenue Forecast - Total revenue for 2Q25 is modeled to increase by 11% YoY to RMB28.2 billion, which is 1% below consensus [3] - Pure online game revenue is expected to jump 16% YoY to RMB22.4 billion, also 2% below consensus [3] - Cash revenue is forecasted to grow 17% YoY to RMB20.6 billion [1][3] Game Pipeline and Growth Drivers - The company is expected to experience a relatively light game pipeline in 2025, with key launches including "Marvel Mystic Mayhem" and "Supervive" [2] - Sustainable profitable growth is anticipated due to stable existing game franchises, channel optimizations, and a structural shift in game revenue mix [2] - The company is expected to achieve a gross profit margin (GPM) of 63.8% and an adjusted net profit margin (NPM) of 35.4%, both exceeding market expectations [3] Valuation and Target Price - The company maintains a BUY rating with an increased target price of US$150.0/HK$236.0, based on various valuation components including adjusted EPADS and stakes in Youdao and Cloud Music [4]