On November 15th, Science and Technology Innovation Board Daily reported (Reporter Chen Junqing) that on November 14th, NetEase released its third quarter 2024 performance and held a performance conference on the evening of the same day.
According to the financial report, NetEase's net revenue in the third quarter of this year was 26.2 billion yuan, a year-on-year decrease of 3.9%. In recent years, NetEase's revenue growth rate has continued to decline, with year-on-year growth rates of 24.5%, 18.9%, 10%, and 7.2% from 2020 to 2023, respectively.
In terms of profitability, NetEase also suffered a "Waterloo". In Q3 2024, NetEase's net profit attributable to its parent company was 6.5 billion yuan, compared to 7.8 billion yuan in the same period last year; Under non GAAP accounting standards, the net profit attributable to shareholders was 7.5 billion yuan, a decrease of 3.8% month on month and 12.8% year-on-year.
From a business perspective, as the "backbone" of NetEase, games and related value-added services, which account for 80% of revenue, have shown an improvement in performance this quarter compared to the previous quarter. The financial report shows that in the third quarter of this year, the company's net revenue from games and related value-added services was 20.9 billion yuan, a year-on-year decrease of 4% and a month on month increase of 4%. Among them, 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.
It is worth noting that NetEase Youdao achieved a third quarter profit for the first time in its history, with a net income of 1.6 billion yuan.
Long term IP growth is steady, and Blizzard's return brings incremental growth
At present, the focus of market attention is still on NetEase's gaming business.
Both new products launched by NetEase in the third quarter have achieved high popularity. Firstly, the mobile game "Eternal Tribulation" was launched in July, and its season update was released in September, ranking fourth on the iOS bestseller list.
Overseas, after its launch in Japan in August, "Peak Speed" quickly topped the free charts on the Apple and Google app stores. According to Sensor Tower data, the cumulative revenue of the game exceeded $100 million from June 2023 to September 2024. The management stated at the performance meeting that "Wilderness Action" and "Identity V" have also achieved good results overseas, and they believe that more products will be launched in overseas markets.
In terms of classic IPs, popular long-term IPs such as "Identity V" and "Eternal Love" have achieved record high revenue. According to its management disclosed in the performance meeting, the mobile game "Eternal Tribulation" has accumulated 50 million new users since its launch four months ago. In addition, the mobile game 'Reverse Water Cold' has attracted a large number of players through its price strategy, returning to the top three of the bestseller list.
The management of NetEase stated in a conference call that the company has many traditional games with over 10 years of experience and has accumulated a lot of operational experience from them. The gaming industry needs to constantly innovate and inject fun gameplay into traditional games.
JPMorgan Chase believes that long-term IPs such as Identity V have the potential to remain stable, and Blizzard's return has strong momentum. In addition, with multiple heavyweight games expected to be launched in 2025, it is expected that NetEase Games will have better performance in Q4, and revenue growth will accelerate in 2025. Open Source Securities also pointed out that based on the content and operational accumulation of the previous "Eternal Tribulation" mobile game, the "Eternal Tribulation" mobile game has rich content reserves and is expected to continue contributing considerable revenue to the company through long-term operation.
Apart from self-developed games, with the return of Blizzard, the daily active users of World of Warcraft have increased by over 50% compared to before its discontinuation, while the daily active users of Hearthstone have achieved a significant increase of 150%.
However, regarding the return of Overwatch, the management stated that "there is currently no relevant progress to disclose".
The management stated at the performance meeting that NetEase has made efforts in product and marketing in its cooperation with Blizzard. Leveraging the influence of World of Warcraft, collaborate with multiple brands to refresh the brand image of Warcraft. The Legend of Hearthstone officially announced its return at ChinaJoy, and its Golden League returned to the Asian Games venue in China in early July, further boosting its popularity.
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.
Egg Party falls into commercialization dilemma, multiple games will be suspended
While the above game products have achieved good results, NetEase's ace "Egg Boy Party" is facing difficulties in commercialization.
The 2Q24 research report of CICC Internet industry pointed out that the total game duration of Egg Boy Party in Q2 this year decreased by 56%, and the DAU also decreased significantly from 17.46 million in July last year to 9.39 million in July this year. According to DA2 Game Observation, Egg Party's summer OS revenue from June to August was 170 million yuan, with a year-on-year decrease of 45% in revenue compared to last year.
Regarding the double decline in user revenue of "Egg Boy Party", NetEase executives admitted in a conference call that the game is indeed facing challenges in commercialization, but will still invest a lot of effort in long-term operation of content and products in the future, and have high confidence in future commercialization.
The reporter from the Science and Technology Innovation Board Daily noticed that NetEase's Q3 gross profit was 16.5 billion yuan, a year-on-year decrease of 2.9%. NetEase may also suspend games with poor market performance in order to improve its gross profit margin.
On November 13th of this year, NetEase announced that the development of new content for "War Roar", "Taiya Epic", and "Mobile City Alpha" will cease from 15:00 on January 13th, 2025, and some servers will be shut down. On November 12th, NetEase announced the suspension of the "Pokemon Adventure" mobile game, which will cease operation at 15:00 on February 10th, 2025. In addition, the mobile game 'Apocalypse Action' will cease operation at 15:00 on December 12th this year.
Multiple heavyweight reserve games have made new progress, and 'Yanyun Sixteen Sounds' will be launched next month
At the performance meeting held yesterday evening (November 14th), NetEase executives disclosed the latest progress on multiple heavyweight reserve games. According to its financial report, "Marvel Arena" and "Yanyun Sixteen Voices" will be released in December.
The company's executives also further disclosed in the performance meeting that the PC version of "Smoke and Clouds Sixteen Sounds" will be launched at the end of December, and its mobile game will be released later than the PC version, but not for too long. Currently, the game has entered the final optimization and adaptation work.
The free superhero shooting competition battle game "Marvel Arena" will be launched on December 16th. It is reported that the product underwent large-scale overseas PC and console platform testing in August this year, and the final testing process data received nearly 95% positive feedback on the Steam platform, with positive feedback from players.
Regarding another innovative hero shooting game, FragPunk, its management has stated that it will undergo testing by the end of this year and determine the final release date based on the test results. In addition, its management said that the anime open game Code: Infinite will also be tested by players at the end of this year. The company has invested huge R&D resources in the game and has "very high expectations".
In addition, highly anticipated products under development such as Destiny: Rising and Marvel's Mystic Tide have made public appearances, and these new games will further enrich NetEase Games' product matrix or become its new growth points.