- Total Net Revenue: RMB25.5 billion (USD3.5 billion), a 6% increase year over year.
- Games and Related VAS Revenue: RMB20.1 billion, up 7% year over year.
- Mobile Games Revenue: 76.4% of total net revenue from online game operations.
- Youdao Net Revenue: RMB1.3 billion, a 10% increase year over year.
- NetEase Cloud Music Net Revenue: RMB2 billion, a 5% increase year over year.
- Innovative Business and Others Revenue: RMB2.1 billion, a slight increase year over year.
- Total Gross Profit Margin: 62.9%, up from 59.9% in the same period last year.
- Games and Related VAS Gross Profit Margin: 70%, up from 67.4% last year.
- Youdao Gross Profit Margin: 48.2%, up from 47% last year.
- Cloud Music Gross Profit Margin: 32.1%, up from 27% last year.
- Innovative Business and Others Gross Profit Margin: 34%, up from 29.5% last year.
- Total Operating Expense: RMB9 billion, 35.5% of net revenue.
- Selling and Marketing Expenses: 13.7% of total net revenue.
- R&D Expenses: 17.5% of total net revenue, up from 16.3% last year.
- Effective Tax Rate: 16% for the second quarter.
- Non-GAAP Net Income: RMB7.8 billion (USD1.1 billion).
- Non-GAAP Basic Earnings per ADS: USD1.67 (USD0.33 per share).
- Net Cash: RMB116.1 billion as of June 30, 2024.
- Dividend: USD0.087 per share (USD0.435 per ADS) for the second quarter.
- Share Repurchase Program: Approximately 12 million ADSes repurchased for USD1.1 billion as of June 30, 2024.
Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NetEase Inc (NTES, Financial) reported a 6% year-over-year increase in total net revenue, reaching RMB25.5 billion.
- The company's mobile games accounted for approximately 76.4% of total net revenue from online game operations.
- NetEase Inc (NTES) achieved a gross profit margin of 70% for its games and related VAS, up from 67.4% in the same period last year.
- The company saw significant success with new game launches, such as Once Human and Naraka: Bladepoint Mobile, which achieved high user engagement and downloads.
- NetEase Inc (NTES) continues to innovate and expand its game portfolio, with upcoming titles like Marvel Rivals and FragPunk generating positive early feedback.
Negative Points
- The company faces short-term turbulence and potential financial impact from adjustments to legacy games like Fantasy Westward Journey (FWJ).
- Despite high user engagement, Eggy Party has a relatively low revenue-to-user ratio, indicating potential monetization challenges.
- Justice Mobile experienced a decline in grossing rank in August, raising concerns about its long-term player retention and competition impact.
- The company’s R&D expenses increased to 17.5% of total net revenue, up from 16.3% in the same period last year, reflecting higher investment in content creation and product development.
- NetEase Inc (NTES) is still exploring how to balance user size and revenue for high DAU games, indicating ongoing challenges in optimizing monetization strategies.
Q & A Highlights
Q: Can management share and elaborate on the user breakdown and profile for Naraka: Bladepoint Mobile, including the percentage of users who have not played the PC version and new gamers to NetEase? Also, any comments on the timing of the overseas launch?
A: We are very happy with the current retention rate. Among all players who played the mobile version, 70% have never played the PC version before, and close to half are new to NetEase games. Our focus is on optimizing the game for the domestic market first, and we will consider launching it in other markets when the opportunity arises.
Q: What is the purpose of the adjustments made to the legacy PC version of Fantasy Westward Journey (FWJ), and what is the expected financial impact?
A: The adjustments aim to keep polishing the game and enhancing the gameplay experience. While there may be short-term turbulence, it is a common and temporary issue. The goal is to ensure long-term enjoyment for players. The financial impact is expected to be short-term, with recovery anticipated as players adapt to the changes.
Q: What has driven the revenue growth of Identity V, and how does management assess the potential for the asymmetrical battle genre?
A: Identity V's success is due to continuous efforts to improve the game's quality and experience over the past six years. The game's recent success reflects NetEase's capability to run games long-term and improve them daily. We are committed to maintaining this approach for all our games.
Q: How does NetEase plan to differentiate and outperform in the highly competitive high DAU game market, and what is the strategy for the overseas game business?
A: We focus on creating high-quality, fun-to-play games across various genres. High DAU is a result of this approach, not a specific design goal. For the overseas market, we are confident in our ability to develop games that resonate globally, as evidenced by the success of Once Human.
Q: Can management share insights on the upcoming pipeline for the remaining 2024 and 2025, including expectations for Marvel Rivals, Marvel Snap, and FragPunk?
A: We have high hopes for Marvel Snap, Marvel Rivals, and FragPunk, which are competitive games with high production quality. These games will start launching from late 2024 to 2025, and we are confident in their potential success.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
