NetEase, Inc. Q2 FY2025 earnings call

• Games: Advanced businesses with high-quality and innovative offerings. Launched new global titles like MARVEL Mystic Mayhem and FragPunk, and updated existing hits like Once Human and Marvel Rivals. Evergreen franchises like Fantasy Westward Journey, Identity V, etc. continued to perform strongly. - Youdao: Implemented AI native strategy across learning and advertising, achieving first Q2 operating profit. - NetEase Cloud Music: Expanded content catalog, innovated product features, and optimized music-centric community. - Yanxuan: Maintained leading position in key categories through consistent innovation.

Total revenues increased 9% year-over-year. Games and related VAS revenue rose 14% in Q2. Youdao executed its AI native strategy effectively, delivering its first second quarter operating profit. NetEase Cloud Music remained committed to driving quality development across its core music ecosystem. Yanxuan maintained its leading position in key categories. Specifically, games and related VAS: total revenues from this segment were up 14% YOY, with new titles like MARVEL Mystic Mayhem, FragPunk, Once Human showing strong performance. Youdao: learning services like Youdao Lingshi and AI Tutor gained traction, and online marketing services used AI-driven solutions. NetEase Cloud Music: expanded copyrighted content collaborations and innovated product features. Yanxuan: maintained leading position in categories like bathroom fixtures and cat food.

Total revenues are expected to continue growth. Games and related VAS revenue is likely to stay strong with new title launches. Youdao is expected to build on its operating profit. NetEase Cloud Music aims to further grow subscriptions. Upcoming games like Sea of Remnants, Blood Message, etc. are in development and expected to contribute to future growth.

• Intense competition in the gaming market. - Dependence on key franchises for revenue. - Challenges in AI development and adoption across businesses. - Regulatory risks in different regions affecting operations.

Q: Regarding Where Winds Meet's monetization, is it early success, meeting expectations, or fully ramped up?

A: Where Winds Meet has exceeded initial expectations in both active players and monetization, with stable long-term potential.

Q: What drives the grossing rebound for Once Human and its potential to be an evergreen game?

A: The annual 2.0 version with new scenario and class system was well-received, and the new PVP Spin-off RaidZone enhanced popularity. It has potential to be an evergreen game.

Q: Perspective on competitive landscape of shooting game sector?

A: Shooting game genre is highly competitive with high quality expectations; NetEase will continue investing to stay competitive.

Q: Evaluation of Marvel Rivals' new strategy effectiveness and Sea of Remnants feedback?

A: Marvel Rivals' new strategy is effective with stabilized DAU and revenue; Sea of Remnants had positive first testing feedback and is expected to be successful next year.

Q: Status of evergreen titles like Eggy Party and Fantasy Westward Journey and resourcing on existing vs new games?

A: Eggy Party and Fantasy Westward Journey have recovered with continuous innovation; resourcing balances existing and new games based on market needs.

Q: R&D status and competition for ANANTA?

A: ANANTA is in mass production stage; focus is on creating superior gaming quality to differentiate.

Q: AI adoption and overseas expansion plans?

A: AI is increasingly important in development and operations; overseas expansion focuses on leveraging global market insights from past operations.

Q: Performance of MARVEL Mystic Mayhem overseas and domestic version update?

A: MARVEL Mystic Mayhem had strong overseas performance; domestic version details to be awaited with long-term growth focus.