Company Reports

NetEase's second-quarter revenue rose 8%, with games up 10%. The gaming business' gross margin reached a record high, on a mix shift toward self-developed PC titles and lower channel fees. Operating income grew 33%, but net profit declined on investment losses from PDD and Alibaba stock holdings.

NetEase is China's second-largest gaming company, built on live-service games including Fantasy Westward Journey, Identity V, Eggy Party, and Where Winds Meet. These games generate most revenue from continuous online operations rather than packaged sales. This model rewards operators that can run the same title for a decade, and industry dynamics increasingly favor them. As China's gaming market saturates, engagement is consolidating around a shrinking set of proven titles, which protects NetEase's revenue base even in quarters with no major launch.

China's National Press and Publication Administration issued 483 game licenses in the second quarter, up 13% year on year. Approvals rose in each month of the quarter. Domestic titles drove the gain, up 17%, while imported licenses, already a tiny share of the total, kept falling.

Narrow-moat NetEase delivered a strong first quarter and comfortably beat consensus expectations. Operating profit grew 21% year on year on just 6% revenue growth, in a quarter without any major game launch.

Apple has cut the commission it charges game developers on its mainland China App Store to 25% from 30%, while reducing fees for mini app partner programs to 12% from 15%. The move follows Google's earlier settlement with Epic Games, which lowered the Google Play service fee to 20% from 30%.

NetEase is China's second-largest gaming company, boasting hit titles like Fantasy Westward Journey, Identity V, Eggy Party, and Where Winds Meet. Unlike traditional Western developers, which rely on one-off packaged game sales, NetEase generates the vast majority of its revenue from live-service online games. This model requires continuous investment in live operations and content updates to maintain user engagement and loyalty over the years.

NetEase reported 4% year-on-year growth in fourth-quarter game revenue, while total billings (including deferred revenue) rose 10%. Operating profit grew 6%. Management emphasized on the earnings call that NetEase stands to benefit from artificial intelligence rather than be challenged by it.

China’s National Press and Publication Administration issued 497 game licenses in the fourth quarter of 2025, representing a 30% year-over-year increase, closing out a strong year for China’s gaming approvals.

NetEase holds a prominent position in the Chinese gaming market, owning some of the best-known online game titles. More importantly, most of these titles continue to generate substantial popularity. We expect NetEase's frequent content updates for its core titles to drive consistent revenue generation. This, combined with the promising returns from recent investments in new game development, positions the company for continued free cash flow growth.

NetEase's expanding portfolio of games continues to demonstrate strong user stickiness and higher spending per user, even amid macroeconomic uncertainties.

China’s National Press and Publication Administration issued 463 game licenses in the third quarter of 2025, representing a 34% year-over-year increase. Notably, 173 game licenses were issued in August alone, the highest monthly total in four years.

NetEase holds a prominent position in the Chinese gaming market, owning some of the best-known online game titles. More importantly, most of these titles continue to generate substantial popularity. We expect NetEase's frequent content updates for its core titles to drive consistent revenue generation. This, combined with the promising returns from recent investments in new game development, positions the company for continued free cash flow growth.

NetEase reported 9% year-over-year overall revenue growth for the second quarter of 2025, driven by a 15% increase in game revenue. Operating profit rose 30% compared with the same period last year.

China’s National Press and Publication Administration issued 429 video game licenses in the second quarter of 2025, representing a 32% year-over-year increase. Notably, new game licenses reached 158 in June 2025, the highest monthly issuance in three years.

NetEase reported 15% year-over-year growth in game revenue for the first quarter. The company's operating profit grew by 34%, with its shares gaining 15% during US trading.

NetEase holds a prominent position in the Chinese gaming market, owning some of the best-known online game titles. More importantly, most of these titles continue to generate substantial popularity. We expect NetEase's frequent content updates for its core titles to drive consistent revenue generation. This, combined with the promising returns from recent investments in new game development, positions the company for continued free cash flow growth.

NetEase reported robust 2024 earnings, with operating profit growing 14% year over year, despite slightly lower-than-consensus revenue. The firm remains committed to shareholder returns, distributing 70% of its profit to shareholders in 2024.

NetEase holds a prominent position in the Chinese gaming market, owning some of the best-known online game titles. More importantly, most of these titles continue to generate substantial popularity. We expect NetEase's frequent content updates for its core titles to drive consistent revenue generation. This, combined with the promising returns from recent investments in new game development, positions the company for continued free cash flow growth.

China’s National Press and Publication Administration issued 136 game licenses in January, representing an 18% year-over-year increase to kick off the year. Notable approvals include Tencent's Honor of Kings: World and NetEase's Frostpunk: Beyond the Ice.

Narrow-moat NetEase’s third-quarter earnings were in line with our estimates. We maintain our long-term forecasts and fair value estimate of $158 (HKD 246). We continue to view the firm's shares as undervalued, trading at 11 times 2025 earnings and a 50% discount to our valuation.