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    NTES
    Earnings call· Jun 2025(Q2 FY25)

    NetEase, Inc. NTES

    Aug 14, 2025 Source

    Executive summary

    NetEase Q2 FY25 — Strong Game Portfolio Drives Revenue Growth and Record Engagement

    NetEase delivered a strong quarter driven by its diverse game portfolio, with significant contributions from both new global releases and established evergreen franchises. The company is actively pursuing global expansion and integrating AI across its businesses, while also navigating revenue declines in its Cloud Music and innovative business segments. Management expressed confidence in the long-term potential of its game pipeline and operational strategies.

    Highlights

    5

    • Total revenues increased 9.4% year-over-year to RMB 27.9 billion.

    • Games and related VAS revenue rose 14% year-over-year to RMB 22.8 billion.

    • Non-GAAP net income attributable to shareholders grew 22% year-over-year to RMB 9.5 billion.

    • Fantasy Westward Journey Online reached a new all-time high peak of 2.93 million concurrent players in August.

    • Net cash position remained robust at RMB 142.1 billion as of June 30, 2025.

    Concerns

    4

    • NetEase Cloud Music net revenue declined 4% year-over-year to RMB 2 billion.

    • Innovative businesses and others net revenue declined 18% year-over-year to RMB 1.7 billion.

    • Youdao's gross profit margin decreased to 43% from 48.2% in the prior year period.

    • MARVEL Mystic Mayhem faces long-term growth challenges in overseas markets despite initial success.

    Guidance & targets

    8
    CategoryTargetConfidence
    MARVEL Mystic Mayhem content updates
    new playable characters and expanded storyline approximately every 6 weeks
    low materiality
    High
    Sea of Remnants launch
    next year
    medium materiality
    High
    Destiny: Rising launch
    August 28
    medium materiality
    High
    Wildgate launch in China
    later this year
    medium materiality
    High
    Diablo 2 Resurrected return to China
    August 27
    medium materiality
    High
    Diablo 4 launch in China
    underway
    medium materiality
    Medium
    World of Warcraft China exclusive server launch
    November
    medium materiality
    High
    ANANTA product news
    reviewed around Tokyo Game Show Time late September
    low materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Games and related Value-Added Services (VAS)
    Revenue growth driven by diverse portfolio, including newly launched titles like Where Winds Meet and Marvel Rivals, and established games like Identity V. Margin improvement attributed to a higher proportion of self-developed games.
    Gross profit margin: 70.2% (vs 70% YoY, 68.8% QoQ)
    		RMB 22.8 billion14%—70.2%
    Online Games
    Sequential decline primarily due to decreased revenue following the Chinese New Year push. Year-over-year growth driven by new titles and established games.
    		RMB 22.1 billion15%-6%—
    Youdao
    Growth driven by enhanced utilization of AI technology in learning services and online marketing services. Decrease in gross profit margin due to increased revenue contribution from lower-margin online marketing services.
    Gross profit margin: 43% (vs 48.2% YoY)
    		RMB 1.4 billion7%9%43%
    NetEase Cloud Music
    Revenue from online music services maintained healthy development. Margin improvement resulted from strong monetization of core online music business and ongoing cost optimization.
    Gross profit margin: 36.1% (vs 32.1% YoY)
    		RMB 2 billion-4%6%36.1%
    Innovative businesses and others
    Quarter-over-quarter growth primarily driven by Yanxuan. Year-over-year decline mainly due to decreased net revenue from Yanxuan advertising services and certain other businesses in this segment.
    Gross profit margin: 42.3% (vs 34% YoY)
    		RMB 1.7 billion-18%5%42.3%

    Operational metrics

    13
    Total net revenue
    RMB 27.9 billion9.4% increase year-over-year
    Q2 FY25

    Overall company revenue performance.

    Non-GAAP net income attributable to shareholders
    RMB 9.5 billion22% up year-over-year
    Q2 FY25

    Key profitability metric.

    Non-GAAP basic earnings per ADS
    USD 2.8
    Q2 FY25

    Per share profitability.

    Non-GAAP basic earnings per share
    USD 0.42
    Q2 FY25

    Per share profitability.

    Total gross profit margin
    64.7%
    Q2 FY25

    Overall company gross profitability.

    Selling and marketing expenses as percentage of net revenue
    12.8%compared with 13.7% for the same period last year
    Q2 FY25

    Efficiency in marketing spend.

    R&D expenses as percentage of net revenue
    15.6%compared with 15.2% for the last quarter
    Q2 FY25

    Investment in content creation and product development.

    Effective tax rate
    14.7%
    Q2 FY25

    Tax rate on an accrual basis.

    Net cash position
    RMB 142.1 billioncompared with RMB 137 billion at the end of last quarter
    as of June 30, 2025

    Robust cash balance.

    MARVEL Mystic Mayhem player base
    surpassed 1 million
    quickly after launch

    Player base for the new Super Hero team-based technical RPG.

    Where Winds Meet total players
    over 40 million
    by the end of July

    Total player count for the Wuxia themed open-world RPG.

    Once Human user distribution
    50-50
    current

    Geographic distribution of users for Once Human.

    Once Human revenue distribution
    2% to 3%
    current

    Geographic distribution of revenue for Once Human.

    Industry KPIs

    2
    MetricValueDetails
    Share buyback capital returnedUSD 2 billionUSD
    Content spend title performance2.93 millionconcurrent players

    Product announcements

    19
    ProductTypeDetails
    MARVEL Mystic Mayhemlaunch
    FragPunklaunch
    Once Human 2.0 Update (Dreamveil)update
    RaidZonelaunch
    Marvel Rivals Season 3update
    Dunk City Dynasticlaunch
    World of Warcraft China exclusive Titan Reforged Serverlaunch
    Hearthstone expansion: The Lost City of Un’Goroupdate
    Overwatch new stadium modeupdate
    Overwatch Season 17update
    Diablo 2 Resurrectedlaunch
    Diablo 4roadmap
    Sea of Remnantsroadmap
    Blood Messageroadmap
    Planet Party Timeroadmap
    Destiny: Risinglaunch
    SUPERVIVElaunch
    Wildgateroadmap
    ANANTAroadmap

    Risks & headwinds

    3
    Long-term growth challenges for MARVEL Mystic Mayhem in overseas marketslong-term

    unquantified

    Mitigation: Company is in the process of figuring out how to grow and retain players in the long run.

    Competitive landscape in the shooting game sector

    high bar to entry

    Mitigation: Company will keep investing in the genre and aims to come up with competitive market offerings.

    Competition for ANANTA from other new games in the genre

    unquantified

    Mitigation: Company is focused on creating superior gaming quality to differentiate itself from existing market offerings.

    What to watch in Q3 FY25

    4

    MARVEL Mystic Mayhem long-term growth strategy

    next quarter
    Currentfacing long-term growth challenges
    TargetClear strategy for growth and retention

    Why it matters

    Addresses acknowledged growth challenges for a new global title, impacting future revenue contribution.

    In the meantime, we do face some long-term growth challenges for the game, and we're in the process of figuring out how should we grow the game and keep your game in the long run.

    Q&A highlights

    6

    Inquired about the monetization success of Where Winds Meet and the drivers behind Once Human's grossing rebound, including its evergreen potential and user/revenue split.

    Management stated Where Winds Meet exceeded initial expectations with solid performance, attributing it to high-quality content and a cosmetic-only monetization strategy for sustainable success. For Once Human, the rebound was driven by the 2.0 update and RaidZone spin-off, with a 50-50 user split between China and international, but only 2-3% revenue from international.

    “[Interpreted] Where Winds Meet has delivered a solid performance as we have explained and exceeded our initial expectation before launch in both in terms of active players and monetization. And more notably, the long term -- we believe the long-term performance has been quite stable, demonstrating the promising potential for the sustainable success.”

    asked by Yang Liu · answered by William Ding

    2 min read6 chapters

    Detailed Narrative

    01

    Robust Game Portfolio Performance and Global Expansion

    NetEase's diverse game portfolio drove a 9.4% year-over-year increase in total revenues to RMB 27.9 billion, with games and related VAS revenue growing 14% year-over-year to RMB 22.8 billion. The company successfully launched several new global titles, including MARVEL Mystic Mayhem and FragPunk, which quickly gained traction and topped download charts in multiple regions. This global expansion strategy is supported by extending well-known domestic franchises like Where Winds Meet and Sword of Justice to international markets, with successful overseas testing and pre-registrations underway.

    02

    Evergreen Franchises Achieve Record Engagement

    Established franchises continued to demonstrate strong player engagement and set new records. Fantasy Westward Journey Online achieved a new all-time high peak of 2.93 million concurrent players in August, 22 years after its launch, attributed to continuous innovation and content updates. Identity V broke its quarterly revenue record in Q2, while Eggy Party and Naraka: Bladepoint also saw significant boosts from anniversary events and content updates, propelling them to top-grossing charts in China.

    03

    Blizzard Titles Return and Future Potential in China

    Blizzard titles, operated by NetEase in China, have seen their game metrics surpass pre-shutdown levels after a year of dedicated local operations and marketing activities. The 20th anniversary of World of Warcraft in China was celebrated with plans for a China-exclusive Titan Reforged Server in November. Diablo 2 Resurrected is set to return on August 27, with Diablo 4's launch also in the pipeline, indicating significant untapped potential for new user acquisition in the Chinese market.

    04

    Pipeline of Innovative New Games

    NetEase has a robust pipeline of exciting new games in development, reflecting its commitment to pushing gaming boundaries. Upcoming titles include Sea of Remnants, a cross-platform ocean adventure RPG slated for 2026; Blood Message, a AAA single-player action-adventure; Planet Party Time, a social simulation and party game; and Destiny: Rising, a mobile sci-fi RPG shooter launching on August 28. Other titles like SUPERVIVE, Wildgate, and ANANTA are also in various stages of development, promising future growth.

    05

    AI Integration and Strategic Focus

    The company is actively embracing AI across its businesses, with Youdao effectively executing an AI-native strategy in learning and advertising. This includes the proprietary LLM Confucius, Mr. P AI Tutor, and an AI advertising placement optimizer. In gaming, NetEase is investing heavily in AI for development, operations, and tool chains, with management envisioning a future where AI could even design games. This strategic focus aims to enhance efficiency and innovation.

    06

    Performance of Other Business Segments

    Youdao's net revenue grew 7% year-over-year to RMB 1.4 billion, achieving its first Q2 operating profit, driven by AI utilization in learning and marketing services, though its gross profit margin declined. NetEase Cloud Music saw healthy growth in online music services, but overall net revenue declined 4% year-over-year to RMB 2 billion. Innovative businesses and others experienced an 18% year-over-year decline in net revenue to RMB 1.7 billion, primarily due to Yanxuan advertising services, despite Yanxuan maintaining a leading market position in key product categories.

    AI-generated summary of the company’s earnings call. Not investment advice.