NetEase: Q2FY24 Financial Performance and Gaming Growth

NetEase, Inc., a leading internet and gaming service provider, was founded in 1997 by Ding Lei and is headquartered in Hangzhou, China. The company has a global presence with offices in Guangzhou, Shanghai, Beijing, the US, Canada, Japan, South Korea, the UK, France, and Singapore. NetEase’s offerings include gaming, education, music, and e-commerce services. Its subsidiaries include Youdao (NYSE: DAO), a learning company; Cloud Music (HKEX: 9899), an online music platform; and Yanxuan, a private-label consumer lifestyle brand.

NetEase’s American Depository Shares (ADS) have been listed on the NASDAQ Global Select Market since June 30, 2000, under the symbol “NTES,” while its ordinary shares trade on the Hong Kong Stock Exchange under the stock code “9999.HK.” As of June 30, 2024, the company had 643,539.8 total shares outstanding.

Stock and Dividend Information

During Q2FY24, NetEase shares traded within a range of 17.53 USD to 21.68 USD on the HKEX. The stock opened at 19.80 USD on April 2, 2024, and closed at 19.09 USD on June 28, 2024. The board of directors approved a dividend of 0.0870 USD per share (0.4350 USD per ADS) for Q2FY24, payable to shareholders as of September 6, 2024.

Financial Performance in Q2FY24

In Q2FY24, NetEase posted net revenues of 25,485.805 million RMB, representing a 5.09% decrease compared to Q1FY24’s revenue of 26,851.741 million RMB but a 6.14% increase compared to the same period in the previous year (Q2FY23), when revenue stood at 24,011.301 million RMB.

The company’s net revenue structure for Q2FY24 was as follows:

• Games and related value-added services accounted for 78.69% of total revenue, contributing 20,055.819 million RMB.
• Innovative businesses and others made up 8.11%, amounting to 2,067.313 million RMB.
• Cloud Music generated 8.01%, or 2,040.952 million RMB.
• Youdao, NetEase’s education segment, contributed 5.19%, amounting to 1,321.721 million RMB.

Profitability and Balance Sheet

NetEase reported an operating profit of 6,993.323 million RMB in Q2FY24, a decrease of 8.25% from Q1FY24 but an impressive 15.35% growth compared to Q2FY23. However, net income attributable to shareholders fell by 11.46% from Q1FY24, totaling 6,758.749 million RMB, and marked an 18.00% decline year-over-year compared to Q2FY23.

Total assets at the end of Q2FY24 stood at 183,342.621 million RMB, a 6.01% decline from 195,064.872 million RMB in Q1FY24. However, this still represents a 9.19% increase from the same period in 2023. Total liabilities decreased sharply by 23.95% to 48,997.216 million RMB from Q1FY24’s 64,426.380 million RMB, while total equity rose by 2.84% quarter-on-quarter to 134,345.405 million RMB.

Strategic Highlights and Game Developments

NetEase has demonstrated strength in its gaming segment, with the launch of several high-performing titles and continued success in existing games:

• The mobile tactical shooter Lost Light, launched in June, quickly topped iOS download charts in China.
• Once Human, a multiplayer survival game, attained over 230,000 peak concurrent users on Steam shortly after its launch, ranking among the top 5 most-played games globally.
• Naraka: Bladepoint, another standout game, hit the top 3 on iOS grossing charts in China and topped iOS download charts for over a week. Additionally, the game set a record-high number of daily active users (DAUs) on its three-year anniversary.
• Identity V also showed impressive performance, recording consecutive record-high DAUs in July and August 2024.

NetEase’s success in gaming is complemented by its robust R&D capabilities, as highlighted by CEO Ding Lei. He emphasized the company’s commitment to innovation and its growing portfolio of high-quality games that continue to captivate global audiences.

Looking ahead, NetEase is set to launch exciting new titles, including:

• Marvel Rivals (December 6, 2024)
• Where Winds Meet (2024)
• FragPunk (2025)

Expanding Services Beyond Gaming

In addition to its gaming ventures, NetEase’s other businesses, such as Cloud Music and Youdao, continue to demonstrate growth. Cloud Music remains a leading online music platform in China, while Youdao’s education services are evolving to meet increasing demand in the online learning sector.

CEO Ding Lei reaffirmed NetEase’s commitment to delivering innovative experiences across its broad portfolio, stating: “With a growing portfolio of games that feature higher quality and cover more genres, we are thrilled to bring exciting NetEase gaming experiences to more players around the globe. Alongside our games, Cloud Music and Youdao are also on track for continued growth this year.”

Conclusion

NetEase, Inc. has solidified its position as a leading player in the internet and gaming industry through strategic growth in its games portfolio, strong financial performance, and ongoing innovation. Despite a slight quarterly decline in revenue and profitability in Q2FY24, the company’s continued success in gaming and expanding services signal positive long-term growth. With upcoming game releases and a commitment to quality across all segments, NetEase is well-positioned to capitalize on future opportunities and deliver enhanced value to its shareholders and customers alike.