On November 14th, NetEase released its financial report for the third quarter of 2024. According to the financial report, NetEase's net revenue in Q3 was 26.2 billion yuan, compared to 25.5 billion yuan and 27.3 billion yuan in the previous quarter and the same period last year, respectively. The net profit attributable to the company's shareholders was RMB 6.5 billion, compared to RMB 6.8 billion and RMB 7.8 billion in the previous quarter and the same period last year, respectively. From January 10, 2023 to September 30, 2024, the company repurchased approximately $1.6 billion in American depositary shares, of which $500 million were repurchased in Q3 2024.
This quarter, NetEase's financial report showed multiple data points showing month on month growth, with a prominent increase in revenue from online gaming. At the NetEase Q3 earnings conference held on the evening of the same day, NetEase executives stated that "World of Warcraft" and "Hearthstone" have broken records for daily active users after returning to the Chinese market. After the release of the financial report, the market gave clear positive feedback. On the same day, NetEase's US stock opened up more than 6% and continued to rise to over 10%, with a closing increase of 10.41%.
After the release of the financial report, NetEase's US stock surged by over 10%.
The revenue from online gaming has increased significantly
Blizzard Games Returns to Daily Life, Breaking Records
According to the financial report, in the third quarter of 2024, NetEase Games and related value-added services had a net revenue of 20.9 billion yuan, an increase of 4% compared to the previous quarter and the same period last year, which were 20.1 billion yuan and 21.8 billion yuan respectively. 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.
In the third quarter, NetEase's classic game IPs such as Fantasy Westward Journey and Journey to the West series continued to attract revenue. With its anniversary edition and themed new server, "Journey to the West 2" achieved a new high in revenue. 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.
The return performance of Blizzard games has also received high attention from the market. According to the NetEase Q3 earnings conference held on the evening of that day, the restart of the Chinese version of "World of Warcraft" and "Hearthstone" has sparked enthusiastic participation from players, breaking records after returning to the Chinese market.
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%. Hearthstone broke the record for simultaneous online users, and also achieved the top spot on the App Store download chart and the top five bestsellers on the mobile platform.
NetEase executives stated that Blizzard's Chinese server attracts new users through multi platform cooperation. In the past few months, the number of clicks on related videos has exceeded 10 billion. At the product level, the new team has deepened cooperation with Blizzard, continuously launching products and services that are more suitable for Chinese players, and maintaining player activity through reasonable operational plans.
In terms of new games, NetEase executives stated during the financial conference call that "Yanyun Sixteen Sounds" is scheduled to be launched at the end of December, and the mobile game will be released slightly later than the PC, and is currently undergoing adaptation and optimization work. As a martial arts open world game, "Yan Yun Sixteen Sounds" adopts the world's top ray tracing technology and will provide single player and multiplayer game modes across PC and mobile platforms.
At the financial conference call, the progress of NetEase's open world game "Code: Infinity" was also disclosed. 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.
There is a way to turn losses into profits
NetEase invested 4.4 billion yuan in research and development in the third quarter
In terms of other sectors besides gaming, NetEase Youdao had a net revenue of 1.6 billion yuan in the quarter, and achieved a year-on-year turnaround in operating profit. It is reported that this is the first time in Youdao's history that it has achieved a third quarter profit, and the quarterly operating profit has also set a new historical high. NetEase Cloud Music has a net revenue of 2 billion yuan. The net revenue from innovation and other businesses was 1.8 billion yuan.
In the third quarter, NetEase invested 4.4 billion yuan in research and development, with a research and development intensity of 16.9%, ranking among the top in the industry. It is reported that NetEase is currently investing heavily in AI related technologies, and the "AI+" scenario applications continue 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.
In the field of "AI+Education", NetEase Youdao's AI subscription service sales in the third quarter were close to 70 million yuan, an increase of over 150% year-on-year. Hi Echo, based on the "Confucius" big model technology, has been recommended on the homepage of the App Store. 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 won the gold medal in the "2024 Global Digital Trade Innovation Competition" with its efficient and autonomous operation ability, precise control system, and excellent environmental adaptability.
After the release of the financial report, multiple institutions such as JPMorgan Chase and Nomura Securities released their medium - and long-term prospects for NetEase Games. According to a research report by JPMorgan Chase, long-term IPs such as "Identity V" have the potential to remain stable, and Blizzard has shown strong momentum after its return. 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.