NetEase: Dreamland achieves new high in August revenue, Egg Tart faces short-term pressure (3Q24 conference call summary)
The following is $NTES-S(09999.HK)$NetEase(NTES.US) Q3 2024 summary, for financial report interpretation refer to《 “Celebrating a Funeral” Style Violent Surge, Is NetEase Finally Going to Survive? 》
1. Key Financial Indicators
2. Management Report
1. Gaming Business
In this quarter, we further solidified the foundation for long-term sustainable growth, with total net revenue reaching RMB 26.2 billion. In the gaming sector, all popular games experienced greater development, while newly released games successfully expanded our player base.
Total net revenue from online games reached approximately RMB 20 billion. Among them, PC games showed strong growth, with net revenue increasing by about 29% year-on-year and 30% quarter-on-quarter. Several of our games celebrated anniversaries in the third quarter, with some beloved older games setting new records and reaching new milestones. These achievements highlight our advantages in long-term game operations and how we continue to drive the enduring popularity of our games.
"Fantasy Westward Journey" and "Fantasy Westward Journey Online" continue to bring lasting popularity to players. In the third quarter, we introduced a new chapter of "Fantasy Westward Journey Mobile Edition" for players. Here, new characters serve as summoned beasts, providing players with diverse practical options, while new BOSSes bring more combat challenges, injecting new vitality into the game. Additionally, "Fantasy Westward Journey 2" set a new quarterly revenue high thanks to the excitement brought by its anniversary expansion pack. Players eagerly explored new content, participated in the celebration in Xi'an, and immersed themselves in the grandeur of the ancient capital of the dynasty. This approach of combining fresh gaming experiences with real-world celebrations captured the imagination of our community, deepening their connection with the game and driving player engagement.
"Identity V" set a new revenue high for the third consecutive quarter. The game also achieved new highs in DAU and global concurrent players in the third quarter. This milestone reflects the success of our comprehensive operational strategy, maximizing player engagement and stickiness. Our diverse entertainment offerings blend trendsetting artistic design, captivating storylines, IP co-branding events, and dynamic esports competitions, creating a fully immersive brand experience This overall strategy not only enhances player engagement but also transforms "Identity V" into a first-class competitive platform, providing players from around the world with a stage to accept challenges and enjoy fresh content.
In the third quarter, "Naraka: Bladepoint" also celebrated its third anniversary, setting another milestone for this unique action-driven PVP game and continuing to lead innovation in the genre. With the recent introduction of new heroes, new maps, and new mechanics, the rich content of the anniversary update has sparked new excitement within the player community, reaching a new peak in simultaneous online players.
Following its success on PC and consoles, we launched "Naraka: Bladepoint Mobile" domestically in July, and shortly after its release, the mobile game ranked third on the iOS bestseller list. With the seasonal update in September, "Naraka: Bladepoint Mobile" returned to the fourth position on the iOS bestseller list and became a recommended game on the App Store during the summer. Similarly, we have stimulated player creativity in "Egg Party" through enhanced features, empowering creators to explore innovative ideas and earn rewards for their creations. We are thrilled to see a surge in community engagement, with many new creators becoming full-time map creators.
On the occasion of the first anniversary of "Peak Speed," we launched an exciting annual update that introduced legendary models including Lamborghini and Mazda RX7, providing players with a more focused and responsive driving experience. This update also introduced several highly acclaimed new maps, each offering players a unique rethinking experience, including the famous pivot track "Gold Rush" in the Colorado Plateau desert.
Through our dedicated operations, "Peak Speed" has maintained high popularity within the player community, solidifying its market position in the racing field. As we continue to enrich our diverse product portfolio, we have paved the way for the successful promotion of mature games to new regions. In August of this year, we brought "Peak Speed" to Japan, where the game quickly topped the App Store and Google Play free charts and ranked among the top 7 in iOS downloads, showcasing its appeal to local players. In addition to "Speeding Car," we are also preparing to expand the international coverage of several games. "Nishuihan Mobile" will launch in Hong Kong, Macau, and Taiwan markets in November, while "Slam Dunk" is set for a global release.
In addition to these game expansion plans, we are advancing our strong game pipeline, planning to launch several highly anticipated games in the coming months. While we eagerly await the open-world action-adventure RPG "Where Winds Meet," it will be released domestically in December. This game aims to meet the diverse needs of players, offering both single-player and multiplayer modes on PC and mobile platforms. As the release date approaches, the top-notch graphics of "Where Winds Meet," utilizing ray tracing technology, are garnering increasing attention in the gaming community The PvP shooting game "Marvel Rivals" will be globally released on December 6, as part of the global launch event for "Marvel Rivals." Marvel just announced on November 11 that it will collaborate with several popular games such as "Fortnite," "Future Fight," and "Marvel Snap" to launch special seasons, creating the Marvel Rival team for fans worldwide and promising exciting celebration events across various games.
We are also excited about the fast-paced 5v5 shooting game FragPunk. The closed beta test in October attracted over a million sign-ups, and its unique card mechanism and vibrant carnival art design ranked high among upcoming games in the free-to-play section on Steam. Building on this momentum, "FragPunk" will begin its first testing phase in China this December, aiming to attract more players' interest and further showcase its unique charm.
We also plan to launch a series of regional offline tactical tests for our long-awaited open-world adventure game (Project MUGEN codename: Infinite) soon. After another year of intense development and refinement, "Project MUGEN" will bring a new urban exploration experience to ACG fans. Next, we are very pleased to announce that our latest product "MARVEL Mystery Mayhem" will launch in the heart of the Marvel Universe. In this team-based tactical RPG, players will team up with superheroes to clash with evil superpowers and supervillain nightmares, witnessing the inner fears of iconic heroes and villains throughout the journey.
In November, we began the closed beta test for "Destiny Rising." This is the first mobile game in the "Destiny" series, set against an alternate timeline, bringing players a brand new adventure experience.
In addition to our self-developed games, Blizzard's return to China has received unprecedented enthusiasm from the gaming community. To ensure we meet expectations, we have always closely listened to the voices of Chinese players. This commitment has not only maintained the loyalty of veteran players eager to return to the game but also attracted new players looking to embark on epic adventures. We have seen strong player engagement. After relaunching, the daily active player count for "World of Warcraft" increased by 50% compared to before its closure. "Hearthstone" achieved over 150% growth. Our partnership with Blizzard, built on mutual trust and respect, along with the support of an enthusiastic fan community, has yielded results far beyond both parties' expectations. Whether self-developed or co-developed, we are always committed to bringing players new and exciting gaming experiences. We are executing this strategy at a high level, bringing more games and content to the domestic market while expanding our global influence.
2. Youdao Business
In the third quarter, our profitability significantly improved, with operating revenue exceeding 100 million RMB. This marks our first profitable quarter in the third quarter and sets a new record for quarterly operating profit, demonstrating our commitment to high-quality growth In terms of digital content services, we have been committed to enhancing product experience. The Youdao Intelligent Learning System has expanded knowledge categories to nearly 40,000 videos across four difficulty levels, comprehensively covering the fundamental themes in the experiential learning process.
Additionally, Youdao Literature has launched an AI writing enhancement feature to help students improve their writing skills, thereby increasing user engagement. Driven by AI tools, our AI subscription service has also maintained strong growth momentum, enhancing functionality and user appeal.
For Youdao Dictionary, we have introduced simultaneous interpretation powered by our large language model "ZiYue," with user numbers exceeding 4 million this quarter, demonstrating excellent accuracy and fluency. Hi Echo is also becoming increasingly popular, with China's leading AI application rankings showing that Hi Echo is one of the most popular applications domestically, highlighting its high user numbers and retention rates.
Youdao's online marketing services have also achieved rapid growth. Our expansion into new areas and advanced data applications have optimized our performance, driving a year-on-year doubling of real-time application programming interface (API) revenue. Furthermore, key opinion leader advertising has been the main driver of revenue growth in the third quarter, with a surge in overall advertising demand across multiple industries. The smart device sector has achieved robust year-on-year growth, showcasing our commitment to product innovation. We launched the X7 Pro, the latest version of our flagship digital dictionary pen. We introduced the industry's first learning device capable of offline large language model translation. Customer feedback on our new products and their innovative upgrades has been very positive. The products launched this year, primarily the X7 and X7 Pro, have been key in driving over 50% year-on-year growth in net revenue for our digital dictionary pen series in the third quarter.
3. Cloud Music
In the third quarter, we continued to promote the high-quality development of our music-centered ecosystem, expanding our user base and bringing healthy revenue growth momentum to online music. To further enrich our content ecosystem, we continuously expand our music products to meet the needs of different audiences, especially the interests of the younger generation.
In the third quarter, we reintroduced partnerships with multiple music companies—we strengthened our collaborations with several music companies and established early partnerships with Kakao Entertainment and JYP Entertainment, enhancing our K-Pop music library through popular original soundtracks in Korean dramas and performance shows. We also expanded the influence of in-house music, creating a unique and distinctive content ecosystem. Several in-house music pieces have spread within our community and beyond.
We will continue to strengthen our music-centered monetization capabilities, providing unique features that unleash creativity and showcase individuality. Our recently launched AI tools allow users to recreate sounds using their own voices. We also provide members with a tool to customize their music playback interface based on their chosen background and vinyl player, creating personalized interests for users Our collaboration with popular IPs provides our members with exclusive benefits and latecomer advantages that users love, stimulating their engagement and enhancing our commercialization potential.
4. Selected and Other Innovative Businesses
Looking at Selected, we continue to strengthen its brand assets in the private label consumer market. By continuously and successfully launching products and expanding sales through an omnichannel strategy, we have achieved significant growth in GMV across key categories. In the third quarter, sales of pet supplies and household cleaning products grew by double digits year-on-year. Notably, to further enhance our competitiveness in the pet food sector, we have partnered with a leading pet food manufacturer to establish a dedicated factory. This collaboration greatly improves our ability to provide high-quality pet food on a larger scale, solidifying YanXuan's position in this rapidly growing category.
Innovative businesses are at the core of NetEase's family of businesses and a key component of our competitive advantage. In addition to our deep gaming operation capabilities and commitment to quality and user experience, innovation is also our core competency. We will continue to bring impactful games, products, and services to our community, creating value for our loyal community and meaningful returns for our shareholders.
III. Analyst Q&A Section
Q1: My first question is about "Yan Yun Shi Liu Sheng." So, what are the latest launch plans for the PC and mobile versions of this game? According to our last statistical feedback, some users have commented on the positioning of this game, how to better integrate single-player and multiplayer modes, and how to design monetization. So, what is the latest progress on this game?
A1: The PC version is expected to launch at the end of December. The mobile version will be a bit later, but not too long after. We are currently in the final stages of optimization to ensure the game runs on as many devices as possible.
Regarding your question about game positioning, the best positioning for the core gameplay is to provide high-quality open-world exploration and casual social experiences in an open background world. Our goal is to attract players who seek high-fidelity, immersive experiences or open-world exploration, as well as those who enjoy casual, relaxed, social gaming. In terms of the comparison between single-player and multiplayer modes, we hope that in each expansion pack, players can start with single-player content and enjoy it first. Over time, they will seamlessly transition to multiplayer mode and enjoy social gaming between the two expansion packs.
In terms of monetization, we partially focus on skin products and partially on other more relaxed monetization models, such as the Battle Pass. We aim to ensure that our game alleviates the pressure of complex, traditional, and cumbersome cultivation and monetization, creating a healthier social ecosystem and relaxed social environment where players can immerse themselves, easily match with other players, and lower the threshold for returning players. Our goal is to achieve better long-term operational performance. That is our objective Q2: My second question is about "Nishuihan Mobile" and "Egg Party." According to some third-party data, the recent revenue trends for these two games seem to be under some pressure. Can management elaborate on how they view the operational strategies for these two games internally, especially in terms of the direction we can expect their lifecycles to extend? Thank you.
A2: First, let's talk about "Nishuihan Mobile." As everyone knows, in the third quarter, we completed the celebration of the game's first anniversary. Players have shown great engagement with the game, and the return rate of players has exceeded our expectations. In the long run, we are working to balance commercialization and user experience. We are very confident that we—what we have achieved is that while ensuring players have enough fun in our game, we can explore commercialization during this period to meet players' needs. Looking ahead, what we need to do is to provide players with multi-layered content and opportunities while expanding the game content. At the same time, we will explore innovative commercialization to ensure a long-term healthy environment for the game.
Regarding the question about "Egg Party." It is certain that we are still working hard and continuously investing to create more content for the game. We are very confident in the long-term development of Egg Party, which is one of the highest-selling products in history. As you may have noticed from other data sources, we have encountered some short-term challenges in terms of commercialization. However, we see this as a great opportunity to accumulate experience on how to develop and continue to grow. This is a very unique product in the market. Our focus is on long-term content operation. We believe that in the long run, while we are creating more content, we will also provide more opportunities for future commercialization. Thank you.
Q3: Regarding the overseas game strategy. What is the current situation of the overseas first-party game studios? We have seen good performance this year. Can management share more specific details? What are our plans for the globalization of games from domestic studios? Thank you.
A3: When we enter the global market, we have a two-pronged approach.
One leg is that we have first-party studios creating games for the Western market and the Japanese market.
The second leg is that we have domestic studios producing games for global release, not only in China but also in the European market, the American market, and the Japanese market. "Once Human" is a game we released in early summer this year, and it has performed very well.
Looking ahead, we will soon have two games, one is "Marvel Rivals" in December, and the other is "FragPunk" in early next year, both of which we will release for the global market.
We believe our domestic studios have the capability to produce more and more products suitable for the global market. In fact, this is not our first wave of success in the global market. It is worth noting that outside of the Chinese market, you may remember that our "Identity V" also performed quite well in the Japanese market and received a lot of acclaim. Looking ahead, we are confident that our domestic studios and overseas studios will be able to produce more suitable content Thank you, everyone.
Q4: Regarding "Marvel Duel," can management compare the potential of this game with other PvP shooting games on the market? How long will it take for this game to fully realize its potential? What metrics should we monitor to track its progress?
A4: This is a next-generation team-based shooting game themed around superheroes. It actually offers a very unique gaming experience, and we hope it can pave new paths in this large genre of games. In fact, this product has undergone large-scale closed testing on PC and consoles in the market. The performance data is outstanding. You know, the possible positive review rate on Steam is close to 95%, and player feedback has been very positive.
At the same time, it ranks seventh on the "Stream Wishlist." Are we confident? You know, what we are doing—during this period before the release. We will continuously optimize the product and refine it. When the product is released globally on PC and consoles on December 6, we hope it can bring a unique experience to players worldwide. Thank you.
Q5: The response to "World of Warcraft" and "Hearthstone" after their relaunch in China has been much better than expected. So, what different measures have we taken to achieve such results? Does this mean that Blizzard's annual revenue contribution will be higher than in 2022? When will "Overwatch" return to China? Thank you.
A5: Regarding "Hearthstone," you may have heard that we announced its return at ChinaJoy, which became one of the most exciting things during ChinaJoy. Additionally, the return of esports, the economy, and the impact on consoles have all helped us. At the same time, we are continuously innovating in how we spread brand information and interact with major players, for example, social media is something we are already doing, and currently, the video views on social media have exceeded 10 billion. None of this would have been possible without deep cooperation, trust, and collaboration with Blizzard.
Now, whether in product or marketing, you know, we have a very in-depth cooperative relationship, and we believe that through the innovations we are making in China, focusing on how to present products and services that are more favored by local players to Chinese gamers, we can maintain this cooperative relationship, and the media has also shown us their level of engagement and willingness to pay. We are very confident that, in the long run, this will bring very good results for "World of Warcraft" and "Hearthstone." As for "Overwatch," we currently do not have any specific information about the launch date, but it will be the next product we launch from Blizzard. Thank you.
Q6: Can you provide more detailed information about the game types and the expected launch time for major games in 2025? Additionally, I would like to ask about the "MUGEN Project," what is the latest status of this game and its expected launch time? A6: Let's talk about the FragPunk and MUGEN projects (codenamed: Infinity). As we mentioned earlier, we will conduct a test for FragPunk this December. Based on the test results, we will decide whether to officially launch the game.
As for the "MUGEN project," as we mentioned before, we will conduct the first offline test within this year. We have high expectations for the MUGEN project, not only because we have invested a lot of R&D resources into this product, but also because we hope that this game will not just be another open-world ACG game. It will embody NetEase's thoughts on the future of ACG games. Based on our 20 years of understanding of Chinese games and players, we have deeply considered what the future of such games should look like and reflected that in the game. We have high expectations for the game.
Q7: What are the latest trends regarding the PC version of "Fantasy Westward Journey," and what feedback have users given us about the changes made in the first half of the year? Thank you.
A7: Regarding your question about the PC version of "Fantasy Westward Journey." In fact, the PC version of "Fantasy Westward Journey" is currently, or rather, all performance indicators are very stable. In fact, August was the highest revenue month for this game this year. And now, I believe that after adjustments, the DAU is stable, not only stable but also continuously improving.
From August to October, we released a series of adjusted content, and players have welcomed this new content very positively. Meanwhile, we will also release a new expansion pack by the end of this year, along with more optimizations and updates to maintain the ultimate gameplay and stabilize the game's operation. Thank you all.
Q8: What is your assessment of "Naraka: Bladepoint" since its launch in July? Has it met your expectations? What content and promotional updates are planned for this game? Are there any significant differences between mobile and PC players? Thank you.
A8: We have accumulated 50 million new users in the four months of operation. And, you know, one thing we have learned is that even though both PC and mobile are action-based competitive games, the needs and demands of PC players and mobile gamers are somewhat different. Mobile gamers have more diverse needs; they are hardcore competitive players, social players, and also players who enjoy collecting cosmetics.
Therefore, what we do is, we accept, understand, and embrace the differences in player needs and provide different, differentiated content for the PC and mobile versions. For example, we may offer new content that is not available on PC, but only provide new gameplay and content for mobile players. In fact, the status of "Naraka: Bladepoint" is very healthy and stable, and we have long-term confidence in this product. Thank you all.
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