On November 14th, NetEase released its third quarter 2024 financial report, which is also the first financial report released by NetEase after Blizzard's return.
In the third quarter, NetEase's net revenue was 26.2 billion yuan, and the net profit attributable to the company's shareholders under non GAAP accounting standards was 7.5 billion yuan. During the quarter, the R&D investment was 4.4 billion yuan, with a R&D investment intensity of 16.9%, leading the industry; Deferred income was 15.5 billion yuan, an increase of 14% compared to the previous period.
In terms of gaming business, which has attracted the most attention from the outside world, NetEase's long-term gaming IP has released vitality, while "World of Warcraft" and "Hearthstone" have returned to the Chinese market and broken records, continuing to drive NetEase's gaming business revenue and profits.
In the third quarter, the net revenue of games and related value-added services was 20.9 billion yuan, an increase of 4% compared to the previous quarter. Game revenue was 20.2 billion yuan, a month on month increase of 5%, while PC game revenue increased by 29% year-on-year and 30% month on month. Long term IPs such as "Journey to the West 2", "Identity V", and "Eternal Love" have reached new highs, while the daily active users of "World of Warcraft" and "Hearthstone" have increased by over 50% and 150% respectively compared to before the server was suspended.
JPMorgan Chase expressed a positive view on NetEase's stock price in the next 6 to 12 months, believing that long-term IPs such as "Identity V" have the potential to remain stable. After Blizzard's return, the momentum is strong, and with the release of multiple heavyweight games in 2025, it is expected that NetEase Games will have better performance in Q4, and revenue growth will accelerate in 2025. Nomura Securities pointed out in a research report that although the performance of this quarter was affected by the high base of mobile game revenue last year, the launch of the mobile game "Eternal War" and the return of "World of Warcraft", as well as continuous game research and investment strategy adjustments, will provide strong support for NetEase's revenue growth.
It is worth mentioning that from January 10, 2023 to September 30, 2024, NetEase repurchased approximately $1.6 billion in American depositary shares, including $500 million in shares repurchased in Q3 2024, an increase of 98% compared to the previous quarter, releasing a positive signal and further boosting market confidence. After the release of the third quarter performance report, NetEase's US stock price rose 10.4%, while the Nasdaq China Golden Dragon Index (HXC) closed down 1.81% on the same day.
The game's basic foundation is stable, and two heavyweight games will be launched in December
NetEase actively seeks innovation and changes in response to market demand, constantly innovating content to bring new vitality to its long-term boutique products.
In the third quarter, NetEase's classic gaming IP once again made a breakthrough: the Fantasy Westward Journey and Journey to the West series still maintained their popularity, while Journey to the West 2 achieved a new high in revenue with its anniversary version and themed new server. In addition to achieving record high revenue for three consecutive quarters, "Identity V" also achieved record high numbers of simultaneous online players and DAUs worldwide. The PC game 'Eternal Tribulation' has achieved a record high revenue thanks to the introduction of new heroes, maps, mechanisms, and linkage activities with popular IPs such as' Tomb Raider '. The mobile game 'Reverse Water Cold' attracted a large number of players through price strategy and returned to the top three of the best-selling list.
In the third quarter, NetEase launched popular new games and further strengthened its competitive advantage in going global and segmented markets. Shortly after its launch, the mobile game 'Eternal Tribulation' climbed to the third place on the iOS bestseller list. After the new season update, it returned to fourth place on the iOS bestseller list and was selected for the App Store Editor's Choice. After its release in Japan in August, "Peak Speed" quickly topped the free charts on the Apple and Google app stores. The All Star Street Ball Party has been authorized by the NBA and, with the strong boost of well-known basketball IPs, has topped the best-selling charts in Hong Kong, Macau, and Taiwan. The infinite flow romance mobile game "Beyond the World" further leverages its content differentiation advantage and has repeatedly topped the top ten of the game's bestseller list.
It is also worth noting that "Egg Boy Party" has horizontally developed five gameplay modes, including MOBA, chase and escape, werewolf killing, pet raising, and farm, on the basis of firmly occupying the first place in the party and amusement park categories. The DAUs of all five categories have reached the tens of millions, making it an invisible giant in these tracks.
In addition to self-developed games, Blizzard's return has also achieved unexpected results. According to the financial report, the daily active users of World of Warcraft have increased by over 50% compared to before the shutdown, while the daily active users of Hearthstone have achieved a significant increase of 150%. At the same time, "Hearthstone Legend" broke the record for the number of concurrent online users, and the mobile version also achieved first place on the App Store download chart and top five on the bestseller list.
Next, two heavyweight games, "Marvel Strife" and "Sixteen Sounds of Yanyun", will be launched in December. Several highly anticipated products under development, such as "Destiny: Rising" and "Marvel's Secret Law Mania", will also be unveiled. These new games will further enrich NetEase Games' product lineup and become new growth points.
After the release of the financial report, Ding Lei, CEO of NetEase, and the company's management attended the earnings conference and responded to investors' concerns about the return of the Chinese version of World of Warcraft, Hearthstone, the performance of the mobile game "Eternal Tribulation", and the reserve of new games such as "Yanyun Sixteen Sounds", "Marvel Arena", and "Code: Infinity".
Regarding the performance of the mobile game "Eternal Tribulation", NetEase executives stated that the game has accumulated 50 million users since its launch. In the process of operation, there are differentiated characteristics between mobile game users and end game users, such as differentiated needs for competition, socialization, and appearance collection. NetEase executives stated that in future versions, "Eternal Tribulation" will start from the differences among end game players, meet the needs of different end players, and provide differentiated content services.
Regarding the latest progress of the open world masterpiece "Code: Infinity", NetEase executives stated that after a year of development and polishing, the urban open world RPG game "Code: Infinity" will launch a round of regional offline technical testing by the end of this year. "Code: Infinite is not only a traditional anime open world game, but also a lot of our thinking about the future of anime games." NetEase executives said that Code: Infinite has made many attempts, innovations and investments based on NetEase's understanding and observation of the game market and players, and the company has great expectations for this game. At present, the global reservation volume of this game has exceeded 5 million.
R&D investment intensity of 16.9%, AI deep application in thousands of industries
In addition to its gaming business, NetEase's other business segments also have many highlights.
Among them, NetEase Youdao achieved a net income of 1.6 billion yuan in the third quarter, significantly improving its profitability and turning losses into profits year-on-year. This is the first time in Youdao's history that it has achieved a third quarter profit, and the quarterly operating profit has also reached a historical high.
NetEase Cloud Music has a net revenue of 2 billion yuan, further expanding its subscription membership scale and driving sustained and healthy growth in online music revenue. At the same time, in addition to collaborating with Kakao Entertainment and JYP Entertainment, we have also reached a copyright partnership with CJ ENM to enrich the K-POP music library.
In addition, the net revenue from innovation and other businesses was 1.8 billion yuan. NetEase Yanxuan focuses on branding strategy, continues to implement the policy of category focus, explosive product drive, and point to area promotion, and strives for omnichannel sales. The membership scale of Yanxuan Pro has increased by 56% year-on-year, and the sales of core categories such as pets and home cleaning have achieved double-digit growth year-on-year; NetEase Media improves content quality through a big language model, insisting on integrating AI technology into major events and multidimensional projects. The output rate of phenomenon level popular and high-quality products exceeds the same period by 30%, with a year-on-year increase of 34% in new creators and a year-on-year increase of 27.49% in post interaction volume; NetEase Shufan has officially reached a cooperation agreement with Guangzhou Public Transport Group Co., Ltd. to enhance the public transportation experience of over 18 million citizens in Guangzhou through big data technology.
NetEase has been investing heavily in research and development. In the third quarter, NetEase invested 4.4 billion yuan in research and development, with a research and development intensity of 16.9%. NetEase's AI technology continues to be deeply applied across industries.
In the gaming field, the mobile game "Reverse Water Cold" has partnered with NetEase Fuxi to create the world's first UGC 3D interactive companion system - the Door Guest System. Players can transform into "N ü wa" according to their preferences, tailoring a unique appearance and voice for their friends in the martial arts world, endowing them with "soul characteristics" such as intelligence, emotional intelligence, personality, and experiences. The game has added 8 million new cyber "newcomers" who can "breathe". New Qiannu Ghost "is linked to the top IP of the reading article" Dao Guai Xian ", launching a full perspective ink style big world gameplay, equipped with an intelligent NPC system based on NetEase Fuxi Yisheng's various models, and has received over 100 million level exposure and player praise. On the first day of the launch of Lianhe World, the number of new players reached a five-year high.
Driven by the dual wheel drive strategy of "AI+Education", the sales of NetEase Youdao AI subscription service in the third quarter have approached 70 million yuan, an increase of over 150% year-on-year. With the further maturity of the "Confucius" big model technology and the continuous upgrading of AI products, Hi Echo has received a strong recommendation on the homepage of the App Store and is also the only educational technology AI application recommended; The "AI General Learning Assistant" Youdao XiaoP had nearly 20 million users in the third quarter, with a monthly compound growth rate of over 100%; Youdao AI Document Translation has currently translated a total of 100 million documents.
In the field of "AI+music", NetEase Cloud Music recently launched the "AI assisted singing" tool, which allows users to input sound to customize their own unique tone, sing their own melody, and create customized UGC content to meet their personalized needs.
In the field of "AI+Industry", NetEase Lingdong Engineering Robot stands out among more than 100 participating companies with its outstanding performance, including efficient and autonomous operation ability, precise control system, and excellent environmental adaptability, and won the gold medal in the 2024 Global Digital Trade Innovation Competition.