2026-02-13 02:50Summary of Conference Call on NetEase's 4Q Performance Company Overview - Company: NetEase - Industry: Gaming and Internet Services Key Points and Arguments 1. 4Q Revenue Performance: NetEase's 4Q revenue fell short of expectations primarily due to a prolonged game revenue deferral cycle. However, the combined revenue from games and deferred income exceeded expectations by 5% [1] 2. Valuation: The company's valuation has adjusted to a low range of 13x PE, indicating a potential buying opportunity as market concerns may be overblown [1][2] 3. Market Concerns: Two main concerns affecting the market perception of NetEase: - Fears regarding potential gaming tax increases, which are unlikely to materialize in the short to medium term [1] - Increased competition from overseas games, particularly from Genie, which is not expected to replace NetEase's complex game development path [1] 4. Product Focus: Recommendations to focus on high-certainty profit-generating products, including upcoming titles that are expected to perform well in both domestic and international markets [2] 5. Upcoming Catalysts: - Anticipated breakthroughs for the title "Find the Book" with expected overseas revenue of 2.5-3 billion yuan in 2026 and a significant update on February 6, coinciding with the Spring Festival [2] - Positive feedback from testing of "Find the Book" on February 5, with expectations of first-year revenue reaching 3 billion yuan [2] 6. Game Revenue Growth: Game revenue increased by 4% year-over-year, with deferred revenue rising by 1 billion yuan, exceeding expectations by 21%. Combined deferred and game revenue reached 41.8 billion yuan, surpassing expectations by 5% and showing a year-over-year growth of 17% [2] 7. Gross Margin Improvement: The gross margin for gaming and VAS (Value-Added Services) improved by 3.8 percentage points to 70.5% year-over-year [2] 8. Overall Financials: NetEase's total revenue was 27.55 billion yuan, 4.7% below expectations, with a year-over-year decline of 3%. Gross profit was 17.69 billion yuan, also below expectations by 3.5%, with an 8.7% year-over-year decline. Adjusted net profit attributable to shareholders was 7.07 billion yuan, falling short of expectations by 23% due to significant investment losses and high foreign exchange losses [2] 9. Game Development Pipeline: The company has a rich pipeline for 2026, including various titles across different genres, with positive feedback from recent tests [2] 10. AI Integration: NetEase is investing in AI development, with applications in game content creation, dynamic interactions, and enhancing programming efficiency. The company is also exploring the integration of AI in NPCs and user-generated content [3] Additional Important Content - AI Examples: The title "Find the Book" is noted for being one of the first to integrate NPCs with large language models, enhancing player interaction and content updates [3] - Development Resources: NetEase currently employs 10,000 R&D personnel and operates two AI labs, focusing on improving game experiences through advanced technology [2][3]