NetEase (Minutes): Resources Focused on High-Confidence Products
The following is a summary compiled by Dolphin Research regarding$NetEase(NTES.US) 2025 Q3 Earnings Call Minutes. For earnings interpretation, please refer to "NetEase: The Last Bow Before the 'Pig Cycle'?"
I. Review of Core Financial Data
1. Revenue Overview:
Total Net Revenue: RMB 28.4 billion (approximately USD 4 billion), an 8% year-over-year increase.
Net Revenue from Games and Related Value-Added Services: RMB 23.3 billion, a 12% year-over-year increase.
Net Revenue from Online Games: RMB 22.8 billion, a 3% quarter-over-quarter increase and a 13% year-over-year increase.
Growth Drivers: The quarter-over-quarter growth was mainly due to increased revenue from the PC version of 'Fantasy Westward Journey', 'Justice', and some licensed games; the year-over-year growth was primarily driven by contributions from self-developed games like 'Seven Days World', 'All-Star Streetball Party', and some licensed games.
Youdao Net Revenue: RMB 1.6 billion, a 4% year-over-year increase, mainly contributed by online marketing services.
Cloud Music Net Revenue: RMB 2 billion, flat quarter-over-quarter, down 2% year-over-year, but membership subscription revenue maintained healthy growth.
Net Revenue from Innovative and Other Businesses: RMB 1.4 billion, a 19% year-over-year decrease, mainly affected by the high base of last year's "618" promotion in Yanxuan business and some internal transaction offsets.
2. Profit
Gross Profit: RMB 18.2 billion, a 10% year-over-year increase; comprehensive gross margin: 64.1%.
Gross Margin for Games and Related Services: 69.3% (68.8% in the same period last year), mainly driven by an increased proportion of high-margin PC games.
Youdao Gross Margin: 42.2% (50.2% in the same period last year), decreased mainly due to a decline in the gross margin of online marketing services.
Cloud Music Gross Margin: 35.4% (32.8% in the same period last year), benefiting from the growth of core music business and cost control.
3. Expenses
Operating Expenses: RMB 10 billion, accounting for 36% of total revenue.
Sales and Marketing Expenses: Increased from 14.5% of revenue in the same period last year to 15.7%, mainly due to increased spending on game promotion.
R&D Expenses: Maintained at 16% of revenue (16.9% in the same period last year), continuing investment in content and products.
4. Cash Flow and Shareholder Returns
Cash Reserves: As of September 30, 2025, net cash was approximately RMB 153.2 billion (RMB 142.1 billion at the end of the previous quarter).
Dividends: Approved a dividend of USD 0.114 per share (USD 0.57 per ADS).
Share Repurchase: The board approved extending the USD 5 billion repurchase program by 36 months to January 9, 2029. As of September 30, approximately 22.1 million ADS had been repurchased, costing about USD 2 billion.
II. Detailed Information from the Earnings Call
2.1 Key Information from Executive Statements
1. Global Expansion and New Game Performance
Destiny: Rising: Launched on August 28, achieving top rankings in nearly 100 markets and receiving widespread acclaim; debuted in China on October 16, topping the download charts.
Marvel Duel: Started its fourth season on September 12, ranking third on the Steam global bestseller list after the update. The esports events held received enthusiastic responses both online and offline.
Once Human: Continued updates in Q3, launched new scripts and PVP content focusing on capture and customization on October 30, and collaborated with its global ambassador.
Where Winds Meet: Launched on global PC and PS5 platforms on November 14, reaching a peak of 190,000 concurrent online users within two days, ranking high on bestseller lists globally and in several countries (US, Germany, France, etc.). Pre-registration for the mobile version has begun.
Infinity: Received high attention at the Tokyo Game Show (TGS), recognized as one of the most anticipated games by the Japan Game Awards 2025 Future Division.
Sword of Justice: Launched globally on mobile and PC on November 7, topping download charts in multiple regions, showcasing cutting-edge technologies like AI NPCs.
2. Long-term Operation of Classic Domestic Games
Fantasy Westward Journey PC: Operating for 22 years, launched the innovative "Penglai Island (Unlimited Server)" in July, removing the point card fee threshold, attracting a large number of new and returning players. Result: Set new records for concurrent online users four times since Q3, reaching 3.58 million in early November.
Fantasy Westward Journey Mobile: Launched a casual server, with September MAU reaching a two-year high.
Westward Journey Online II: Concluded the nostalgia server beta in October and plans to upgrade the existing client with a self-developed engine to enhance graphics and cross-platform experience.
Naraka: Bladepoint: DAU exceeded 30 million, with average game time reaching a historical high. The professional league (NBPL) has become a cornerstone, selected for the 2026 Aichi-Nagoya Asian Games.
Eggy Party: The third-anniversary celebration in July pushed DAU over 30 million, with average game time reaching a historical high. The new gameplay (PVE and farm simulation) launched in September effectively recalled users. AI UGC tools continue to be optimized. Management believes all indicators have returned to historical peak levels, paving the way for stable future development.
Onmyoji: Launched new characters for the 9th-anniversary celebration, returning to the top ten bestseller list.
Other New Games: "Gotcha Garden" launched in August, establishing a loyal fan base.
3. Blizzard Games Return and Cooperation
World of Warcraft: Launched China-exclusive servers to meet player expectations;
Overwatch 2: Introduced a new Chinese hero;
Hearthstone: Celebrated its 11th anniversary, with over 100 million registered players in China.
StarCraft II: Returned on August 27, with daily active players reaching a historical high; Warcraft III: Reforged: Returned on October 28.
4. Other Business Developments
Youdao: Continues to execute its AI-native strategy. Gross billing for learning services grew over 40% year-over-year; launched a platform for mathematically gifted students in collaboration with Tsinghua University. Online marketing services leveraged AI to enhance programmatic advertising efficiency, achieving strong growth.
Hardware: Launched the X3 Pro dictionary pen, featuring precise scanning capabilities.
Yanxuan: Core categories (pet food, home fragrances, etc.) are developing steadily, with the newly launched cat food product receiving market praise for its process innovation.
2.2 Q&A Session
Q: What is the operational strategy for the PC version of 'Fantasy Westward Journey'? What are the core drivers of the Unlimited Server? What is the ratio of returning players to new players in the user profile? Can this model be replicated to other flagship games?
A: The long-term operation of the PC version of 'Fantasy Westward Journey' is based on its highly stable economic system and uniquely rich gaming experience. In the Unlimited Server,we removed the time-based fee threshold, streamlined gameplay and systems, offering a lighter gaming form,while retaining the core design of the classic server's long-term evolution.
Compared to the comprehensive and diverse gaming experience of the classic server, the Unlimited Server offers a more straightforward and enjoyable experience, with a smooth learning curve attracting a large number of returning and new players. The user profile of the Unlimited Server actually benefits the classic server, introducing additional new and returning players. As a classic game operating for 22 years, 'Fantasy Westward Journey' is always committed to innovation and diverse experiences, continuously meeting community needs. Looking ahead, we will continue to focus on long-term development, providing diverse gaming options for the broad player community.
Q: Can you comment on the gaming trends in China and overseas, and the company's overseas expansion strategy?
A: In the process of operating in overseas markets, we have accumulated successful experiences, thanks to the company's strong internal development capabilities. For example, in Japan, 'Knives Out' and 'Identity V' are very popular national-level online games. Last December, we globally released 'Marvel Duel', which was very successful. On November 15 this year, we released 'Where Winds Meet' in the global market. All these products have achieved great success overseas, and we have heard a lot of positive feedback from the community.
We see that in overseas markets, NetEase is one of the most prominent game development forces in the industry, and we are the only company bringing pure, authentic Chinese online games to the global market. For example, we are very Chinese martial arts-style game settings, and we are the only large company successfully bringing this level of authentic experience to global online players and receiving very positive feedback.
This month we also launched 'Sword of Justice' to the global market. Of course, three years ago, we launched the PC version of 'Naraka: Bladepoint' in the global market. As you know, we have showcased the games 'Infinity' and 'Forgotten Sea' to the public. The market has high expectations for these. We showcased 'Infinity' at this year's Tokyo Game Show, and it was recognized as one of the most promising upcoming games by the Japan Game Awards 2025 Future Division.
Q: Regarding 'Identity V', we have seen fluctuations in grossing and DAU in recent months. Can management discuss the reasons and improvement strategies? Secondly, 'World of Warcraft' and 'Hearthstone' have been back in China for a year, facing a high base. Can management discuss the performance indicators now compared to a year ago and future sustainable growth plans? Also, 'Diablo IV' is about to return. Considering the fierce competition in the ARPG genre, can management discuss the monetization potential?
A: For 'Identity V', it was indeed affected by competing products ('Supernatural Action Group') during the summer vacation, especially among general users in lower-tier cities.But since the start of the school term, the impact has eased, and in September, 'Identity V' indicators reached historical highs.
Although Q4 is traditionally not the peak season for 'Identity V',the team is focusing on preparing new content and marketing activities for the Chinese New Year cycle.During this period, we observed a demand from the community for diverse gameplay, so we have been preparing more comprehensive and large-scale side game modes, while also developing the next chapter of the game.
For 'World of Warcraft' and 'Hearthstone', as the current expansion pack of 'World of Warcraft' is nearing its end, a performance decline compared to the release period is expected. Meanwhile, 'Hearthstone' has steadily maintained the pace of expansion pack updates over the past few years. Unlike previous operational strategies, the performance of both games is actually higher than before they were shut down.
In the future, we will continue to deepen cooperation to maintain a unique competitive advantage in the Chinese market. A specific example is the Titan Reforged server of 'World of Warcraft', which was initiated, targeted, and designed jointly by the Chinese and American teams, developed specifically for this demand, with very good results.
For 'Diablo IV', it has its unique qualities, and we have developed a brand-new business plan for it. We believe that after its release, it will gain its deserved market share and commercial performance in the ARPG segment.
Additionally, 'StarCraft II' has set records for user engagement since its release, injecting vitality into the RTS genre.
Q: Can you share details about user feedback on Ananta at the Tokyo Game Show, its market positioning, and differentiation features? The game seems to contain rich content and innovative gameplay, what are your comments on this? Can you share updates on the next test time and official launch time in 2026?
A: We showcased the latest updates and demos of Ananta at the Tokyo Game Show, which attracted significant attention on global social media and won the award for one of the most promising upcoming games by the Japan Game Awards 2025 Future Division.
We believe that with console game quality, content, innovative commercialization strategies, and our focus on long-term operation, we expect the game to gain a new position in the industry ecosystem.
We are currently planning to further optimize the development process, and the development is proceeding as planned. We will conduct tests and releases as scheduled, and we will share more updates then.
Q: It seems that the number of new games released each year is less than in previous years. What is the current market strategy for launching new games? If not many new games are released each year, what will drive the growth of the online gaming business?
A: The entire company will be very focused on our successful products, continuously optimizing and focusing on those that have already succeeded.We do not want to spread too much attention on many new projects that we are not confident in.For new products, we will look at them more cautiously and focused, ensuring that any new product we build has confidence and strength in the content market. We actually believe this is not contradictory, and we believe that focus is one of the core competencies the company needs to have.
Q: Will the recent organizational adjustments in the gaming department affect the short-term operation of related games? How does management view the organizational structure under the current gaming strategy, and will there be more adjustments?
A: The recent adjustments are part of the company's normal personnel changes and have not affected game operations. The adjustments aim to make the organization more focused and efficient, allowing us to continuously focus on creating lasting high-quality products.
For example, for existing evergreen games, we require teams to stay focused and continuously optimize the games; for new games showing evergreen potential, we allocate sufficient resources to develop them into long-term successful games;
For teams that cannot keep up with market trends or user needs, we will make decisive adjustments to ensure the healthy development of core plans.NetEase has been established for 28 years, and the commitment to creating high-quality products remains unchanged. We will allocate more resources to evergreen games and provide more opportunities for creative and willing-to-innovate teams.
Q: Regarding AI, games like 'Eggy Party' and 'Sword of Justice Mobile' have integrated AI applications. What additional opportunities can AI bring to the existing game portfolio and new games in the future? Regarding future new games, the company focuses more on quality, how does it view potential important game types, such as in the rapidly growing global shooting game market, how will NetEase achieve differentiation?
A: Regarding AI, we have been using AI in development, and AI is very important in game development and operation. We have accumulated a lot of practical experience in this field, especially compared to many overseas peer companies, we have more practical experience. We have invested a lot of resources in AI research and how to use AI in game development, innovation, and operation processes. In fact, user experience is the best answer to guide how we deploy technology, but we believe there is no time today for a detailed, specific user experience explanation.
Regarding your second question about the future direction of products, as we explained, we will focus on concentrating resources to create truly high-quality flagship products, those we are confident in their success.We will not aggressively and blindly engage in unlimited product expansion.This is not our direction. We will take a focused, targeted approach to developing new products. In the coming years, we believe NetEase, compared to many other companies in the global industry, is one of the companies with a clear vision for future innovation and future products and will achieve significant breakthroughs.
Q: Regarding the new game 'Forgotten Sea', can you share its development progress and expected launch time? What is the commercial strategy? Are there direct peers or competitors, and how will NetEase achieve differentiation?
A: 'Forgotten Sea' is a very important product for us, and we are very focused on it. The team has very rich development and operation experience within the company. The game is built on our self-developed game engine, supporting PC, mobile, and console platforms. In terms of specific gameplay and content, we believe we have clear decisions on this. We think it will bring a fresh experience to the market. It will be a multi-character development type, but not in the traditional way. The sailing experience on the ocean and the rich combination of characters and professions, we believe, will bring players an unprecedented ocean experience.
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