NetEase Inc (NTES) Q1 2025 Earnings Call Highlights: Strong Gaming Revenue Boosts Overall Growth

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Fri, May 16, 2025, 1:06 AM 4 min read

Total Net Revenue: RMB28.8 billion (USD4.0 billion), up 7.4% year over year.
Games and Related VAS Revenue: RMB24.0 billion, up 12% year over year.
Online Games Revenue: RMB23.5 billion, up 14% quarter over quarter and 15% year over year.
PC Games Revenue: 34% of total online games revenue, up 13% quarter over quarter and 85% year over year.
Youdao Revenue: RMB1.3 billion, down 7% year over year and 3% quarter over quarter.
NetEase Cloud Music Revenue: RMB1.9 billion, down 8% year over year and 1% quarter over quarter.
Innovative Businesses and Others Revenue: RMB1.6 billion, down 17% year over year and 29% quarter over quarter.
Gross Profit: RMB18.5 billion, up 9% year over year and 14% quarter over quarter.
Gross Profit Margin: 64.1% in Q1 2025, compared to 63.4% in Q1 2024.
Operating Expense: RMB8.0 billion, 28% of net revenues.
Non-GAAP Net Income: RMB11.2 billion (USD1.5 billion), up 32% year over year.
Non-GAAP Basic Earnings per ADS: USD2.44 or USD0.49 per share.
Cash Position: RMB137.0 billion as of March 31, 2025.
Dividend: USD0.135 per share or USD0.675 per ADS.
Share Repurchase Program: 21.6 million ADS repurchased for USD1.9 billion.

Warning! GuruFocus has detected 6 Warning Sign with WBO:MLP.

Release Date: May 15, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

NetEase Inc (NASDAQ:NTES) reported a 7% year-over-year increase in total net revenue, driven by strong performance in gaming and value-added services.
The company's flagship titles and new game releases, such as Marvel Rivals and FragPunk, have achieved significant success globally, contributing to a 12% year-over-year increase in gaming revenue.
NetEase Inc (NASDAQ:NTES) has successfully expanded its global gaming portfolio, with games like Once Human and Where Winds Meet gaining traction in multiple regions.
The company continues to innovate with AI-driven enhancements in gaming experiences and educational services, leading to strong user engagement and growth in AI subscription sales.
NetEase Inc (NASDAQ:NTES) maintains a robust cash position and has approved a dividend payout, reflecting strong financial health and shareholder value creation.

Negative Points

NetEase Inc (NASDAQ:NTES) faced a decline in Youdao's learning services revenue, with a 7% year-over-year decrease, as the company prioritizes core services with long-term potential.
NetEase Cloud Music experienced an 8% decline in net revenue from the same period last year, primarily due to decreased revenue from social entertainment services.
The company's innovative businesses and others segment saw a 17% year-over-year decrease in net revenue, impacted by declines in Yanxuan and advertising services.
Despite the successful launch of Once Human mobile, monetization remains conservative, with management focusing on enhancing commercialization strategies.
FragPunk's popularity declined rapidly after its initial launch, highlighting challenges in maintaining engagement in the competitive FPS game market.

Q & A Highlights

Q: Can management share the reasons behind Identity V's consistent strong performance and its growth prospects? A: Lei Ding, Chief Executive Officer, explained that Identity V's success is due to continuous investment and optimization over six years. The game is popular in China and Japan, and the team has learned valuable lessons that are applied to other games. The company plans to continue investing in Identity V to expand its player base.

Q: How does NetEase plan to ensure the longevity of Marvel Rivals given recent user number volatility? A: Lei Ding stated that fluctuations in user numbers are normal for season-based games. To enhance longevity, the company will shorten season updates from three months to two and introduce an esports event to strengthen the game's ecosystem and improve in-game metrics.

Q: What is NetEase's strategy for overseas markets, especially after closing some overseas studios? A: Lei Ding noted that the closure of some studios was based on product positioning and quality considerations. Despite this, domestically developed games like FragPunk and Marvel Rivals have performed well overseas. NetEase plans to continue developing games suitable for global markets.

Q: What are the next steps for Where Winds Meet following its successful launch? A: Lei Ding emphasized that Where Winds Meet is a significant title for NetEase, and the company will continue investing in its development. The focus will be on enhancing art and gameplay to ensure it remains a long-term success, with plans to learn from its success to benefit other products.

Q: How does NetEase plan to enhance the commercialization of Once Human, given its conservative monetization? A: Lei Ding highlighted that Once Human's mobile launch was successful, with significant user growth. The game supports cross-play between PC and mobile, which affects monetization metrics. Future plans include adding new gameplay features and exploring a private server ecosystem to meet player demands.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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