Reporter Yu Yujin from Huaxia Times reports from Beijing
Although Q3 mobile games did not perform well, NetEase's overall performance was better than expected, driven by strong growth in domestic games such as World of Warcraft and Eternal War.
On November 14th, NetEase released its Q3 2024 financial report, which showed that its net revenue for the third quarter was 26.2 billion yuan, a year-on-year decrease of 3.9%. This performance was better than previously predicted, and the net profit attributable to the company's shareholders was 6.5 billion yuan, a year-on-year decrease of 16.67%. The previous quarter and the same period last year were 6.8 billion yuan and 7.8 billion yuan, respectively.
The better than expected performance and the previously delayed release of NetEase's masterpiece "Yanyun Sixteen Voices" have finally been scheduled for December. These positive news have led to a significant rise in NetEase's secondary market, with the US stock closing up 10.41% on November 14th and the Hong Kong stock closing up 12.13% on November 15th.
Hot selling mobile games face pressure in terms of revenue flow
NetEase's latest financial report shows that its net income decreased by 3.9% year-on-year to 26.2 billion yuan in the third quarter. The core revenue from gaming and related value-added services was 20.9 billion yuan, a year-on-year decrease of 4.2% and a month on month increase of 4%.
In the past quarter, the revenue of NetEase mobile games such as "Reverse Water Cold" and "Egg Boy Party" has declined, and these two popular games once supported NetEase's significant growth in 2023.
NetEase executives stated at the earnings conference on the evening of the 14th, "The user stickiness of 'Reverse Water Cold' is very high, and the player return rate has exceeded expectations. In the long run, we pursue a balance between commercial monetization and user experience. We have ensured that players can have enough fun in this game, and at the same time, we can also explore commercialization to meet the needs of players. In the future, we will continue to release more and richer content to meet the multi-level needs of players
Egg Boy Party "attracted a large number of young players by the end of 2022 with its unique UGC content, which further attracted attention to NetEase in 2023. According to public data, starting from December 23, 2022, "Egg Boy Party" not only topped the iOS game download chart, but also dominated the App Store game free chart for two months. During the 2023 Spring Festival, "Egg Boy Party"'s revenue skyrocketed, second only to "King of Glory" and "Peace Elite".
In the face of the pressure of "Egg Boy Party" to generate revenue, NetEase CEO Ding Lei stated that "Egg Boy Party" will still invest a lot of effort in creating some content and has great confidence in the long-term operation of this product.
Egg Party "is currently one of the products with the highest daily active users on NetEase DAU. Although it has encountered some challenges in commercialization, it is a process of accumulating experience that will be faced in the operation and development process. This type of game is unique in the market. We believe that with the release of long-term content, this product will still achieve long-term development and play its commercial value," said Ding Lei.
Although mobile games did not perform well in Q3, NetEase PC games performed relatively well. The adjustment of "Fantasy Westward Journey" has ended, which still has a certain impact on the growth of PC game revenue. However, it was offset by the return of the Chinese version of "World of Warcraft" and the launch of new games, achieving a year-on-year increase in total PC game revenue.
NetEase mentioned in its financial report that "World of Warcraft" and "Hearthstone" have returned to the Chinese market, and players' enthusiasm has never been higher. With the return of players, 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%.
NetEase executives stated that Blizzard (Games) China has attracted new users through multi platform cooperation, and in the past few months, the related video clicks have exceeded 10 billion times. At the product level, the new team from NetEase and Blizzard have deepened their cooperation, continuously launching products and services that are more suitable for Chinese players, and maintaining player activity and willingness to pay through reasonable operational plans.
In addition to gaming, NetEase Youdao's performance in the third quarter was impressive, with a year-on-year increase of 2.2% in net revenue to 1.6 billion yuan and a year-on-year turnaround in operating profit. 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.
Despite a year-on-year decline in revenue, NetEase's net profit in the third quarter was 6.5 billion yuan, which also decreased compared to the same period last year and month on month.
The Sixteen Sounds of Yanyun will be released in December
Under better than expected performance, the highly anticipated NetEase games "Yanyun Sixteen Sounds" and "Marvel Strife" will also be launched in December.
According to the reporter's understanding, "The Sixteen Sounds of Yanyun" is set against the backdrop of the ancient Yanyun Sixteen Prefectures in China, integrating various elements such as history, martial arts, and suspense to construct a vast and variable world of rivers and lakes. The game was originally scheduled to be launched in July this year, but it was announced to be postponed with only over 20 days left until its launch.
NetEase executives stated at the financial report conference that the company is currently working on the final optimization and adaptation of "Smoke and Clouds Sixteen Sounds", hoping to reach a wider user base.
The core gameplay of 'Smoke and Clouds Sixteen Sounds' has always been defined as the integration of high-quality open worlds and light social interactions.' The aforementioned NetEase executive also stated that in terms of payment model, 'Smoke and Clouds Sixteen Sounds' is mainly based on layered and multi gradient appearance payment, supplemented by small functional payment fees, hoping to ensure that the game can alleviate the pressure of heavy cultivation and payment for a longer period of time, form a healthier social ecology, and create a more calm and relaxed social atmosphere that is easier to catch up with and return to, in order to win better long-term performance.
However, a senior PC game player told our reporter that he does not plan to play "Yanyun Sixteen Sounds". The player bluntly stated, "When this game was scheduled for release in July, a few game partners and I sold the 'Fantasy Westward Journey' account, planning to go to Yanyun to 'explore' together. However, because 'Yanyun Sixteen Sounds' was' delayed' and no specific launch information was given later, we all lost hope for this game. Although we are not satisfied with the redesign of 'Fantasy Westward Journey', there have been no good PC games in recent years, and a few of our friends have repurchased the 'Fantasy Westward Journey' account to play
Entertainment industry analyst Zhang Shule analyzed to reporters from Huaxia Times that NetEase still adopts a vertical trial and error approach, but currently there are no true martial arts online games in China. In fact, they are all immortal martial arts games. It is difficult to predict whether "Yanyun Sixteen Sounds" can break through barriers unless there is a major change in gameplay.
In addition, NetEase's "Code: Infinity" will undergo offline player testing by the end of this year. NetEase executives have high expectations for the game and have invested significant research and development resources. The executive also said that Code: Unlimited is not only a continuation of the traditional anime game and the open world game, but also has a lot of innovation and NetEase's thinking about the future anime game world.
It is also worth noting that in early this month, NetEase announced an internal crackdown on corruption, involving multiple executives in the marketing line. The company has since responded to the public that "NetEase's anti-corruption efforts have never stopped. As the case is still under investigation, specific information cannot be disclosed and will be reported at an appropriate time
Zhang Shule believes that "as the entire digital media industry chain, the gaming industry may encounter various management loopholes in every aspect of digital media, from research and development, operation to marketing. As one of the longest running gaming companies in China, NetEase is indeed more prone to such hidden dangers, which are difficult to detect." However, he also believes that NetEase's heroic actions and pursuit of higher goals for "antivirus" will have more benefits than drawbacks in the long run.