August 14, 2025 10:16 AM GMT NetEase, Inc | Asia Pacific 2Q25 Results: Fast recovery of marketing intensity Reaction to earnings Unchanged In-line Largely unchanged Impact to our thesis Financial results versus consensus Direction of next 12-month consensus EPS Source: Company data, Morgan Stanley Research Key Takeaways 2Q25 revenue up 9%YoY to Rmb27.9bn with online game revenue up 15%YoY to Rmb22.1bn (2% above MSe). Game grossing was up 20% YoY from a low base, the strong contract liabilities pave a good f ...

Summary of NetEase's Q1 2025 Earnings Call Company Overview - **Company**: NetEase - **Date**: Q1 2025 Earnings Call Key Industry Insights - **Gaming Industry Performance**: The gaming sector continues to thrive with innovative titles and global expansion strategies driving revenue growth. Financial Performance - **Revenue Growth**: NetEase reported a total net revenue of RMB 28.8 billion (USD 4.0 billion), a 7.4% increase year over year [28] - **Gaming Revenue**: Revenue from gaming and value-added services rose by 12% year over year to RMB 24.0 billion [28] - **Online Games Revenue**: Net revenues from online games reached RMB 23.5 billion, up 14% quarter over quarter and 15% year over year [28] - **Gross Profit**: Gross profit increased by 9% year over year to RMB 18.5 billion, with a gross profit margin of 64.1% [28] - **Learning Services Revenue**: Revenue from learning services declined by 7% year over year to RMB 1.3 billion [28] - **Cloud Music Revenue**: Revenue from Cloud Music decreased by about 8% year over year to RMB 1.9 billion [28] Game Performance Highlights - **Marvel Rivals**: Achieved strong global player engagement, reclaiming the top spot on Steam's Global Top Seller chart after the launch of Season 2 [2][5] - **FastPunk**: A new tactical shooter that reached over 110,000 peak concurrent players within three days of its launch, ranking sixth on Steam's global top-selling chart [2][6] - **Once Human Mobile Edition**: Topped iOS download charts in over 160 regions shortly after its launch, indicating successful mobile market penetration [2][7] - **XJA**: Introduced a new district, Hexi, leading to over 30 million players, with plans for further regional expansion [2][9] - **Identity V**: Surpassed 400 million registered players globally, showcasing its sustained popularity [2][15] - **Naraka Bladepoint**: Recorded revenue growth in Q1 2025, highlighting the importance of evergreen titles [3][16] Strategic Initiatives - **Global Expansion**: NetEase is focused on globalizing its game portfolio and diversifying offerings to enhance player engagement [4][27] - **Player Engagement**: Plans to maintain player interest through regular content updates and community outreach efforts [8][30] - **eSports Development**: Selected titles for the 2026 Asian Games, aiming to enhance global esports presence [39][42] Innovations and Future Plans - **New Game Releases**: Upcoming titles include Marvel Mystic Mayhem and Destiny Rising, with a focus on creativity and player insights [20][38] - **AI Integration**: Continued investment in AI technology to enhance game development and player experiences [43] Environmental and Social Governance (ESG) - **Sustainability Efforts**: Achieved a 16% reduction in greenhouse gas emissions, recognized by MSCI and S&P Global for sustainability initiatives [26] Conclusion - **Outlook**: NetEase is well-positioned for future growth through innovative game releases, strategic global expansion, and a commitment to sustainability and player engagement [27][36]

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]

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].