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NetEase Games: Old Hits Fueling Steady Growth Despite Investment Woes
27 Aug
Summary
- Net revenue reached RMB 30.1 billion, a 7.9% year-over-year increase.
- Gross margin in games jumped to 76.1% due to lower revenue-sharing costs.
- Non-GAAP net income fell to RMB 7.7 billion due to investment losses.
NetEase's second-quarter results showed steady growth, with total net revenue reaching RMB 30.1 billion, up 7.9% year over year. The company's gaming division was the primary driver, with revenue climbing 9.7% to RMB 25 billion, primarily from established titles like Sword of Justice and Eggy Party. These older franchises continue to perform strongly, evidenced by high player engagement and user-generated content.
The gaming segment's gross margin improved significantly, rising to 76.1% from 70.2% in the prior year. This improvement was attributed to reduced revenue-sharing costs, leading to a 17.5% increase in gross profit. Internationally, games like Where Winds Meet and Marvel Rivals showed promise with new content updates and strong sales performance in key markets.
Despite revenue and gross profit increases, non-GAAP net income fell to RMB 7.7 billion. NetEase cited investment losses as the cause for this year-over-year decline. The company also acknowledged an execution issue with the recent launch of Sea of Remnants, noting a steep learning curve for new players. Furthermore, online game revenue saw a 2% quarter-over-quarter dip, impacting overall performance.
NetEase's innovative businesses, including Youdao and NetEase Cloud Music, contributed smaller amounts to the overall revenue, with Youdao's gross margin improving to 48.9%. However, the company's financial success remains overwhelmingly dependent on its gaming segment, with non-gaming ventures contributing significantly less revenue.
