[True Insight Institutional View] NetEase (09999.HK): Observations on Core Business Growth and AI Transformation Trends

Total revenue for the fourth quarter of 2025 reached RMB 27.5 billion, representing a year-on-year growth of 3%. Although online game revenue increased by only 3.5% to RMB 21.3 billion due to the high base effect from the previous year, deferred revenue rose significantly by 32% year-on-year, indicating strong growth momentum. Benefiting from the stable performance of self-developed games, the gross margin of this segment improved to 70.5%, driving the overall gross margin expansion to 64.2%.

Total revenue for the first quarter of 2026 is expected to reach RMB 31.2 billion, with the year-on-year growth rate rebounding to 8%. The key title "Where Winds Meet" has surpassed 80 million cumulative global players, demonstrating significant potential for international market expansion, while another major new game "Forgotten Sea" is also scheduled for release in the third quarter. Although the company expects to increase marketing expenses by 40% in the first quarter to enhance player engagement, a rich product pipeline and expansion updates will continue to optimize the medium- to long-term revenue structure.

$NTES-S(09999.HK) has fully integrated AI technology into its development pipeline, significantly enhancing player interaction depth in open-world titles through over 10,000 AI NPCs. The R&D team utilizes proprietary vertical models to optimize art production and programming efficiency, aiming to build a difficult-to-replicate technological moat by combining AI technology with complex in-game economic systems. This continuous technological investment will help the company maintain a differentiated advantage in market competition.

Source: KGI Securities