BOC International released a research report stating that it maintains the NetEase S (09999) “Buy” rating and expects the launch of the blockbuster mobile games “Eternity Mobile Game” and “16 Voices of Yan Yun” this year to boost game revenue growth. Blizzard China and the company jointly announced an updated agreement to return to the Chinese market one after another from this summer. The bank believes that Blizzard's resumption of cooperation will have limited impact on short-term performance, and that the agreement with Microsoft will help enhance the space for long-term overseas cooperation between the two sides.
The report points out that the agreement between the two sides to promote the launch of new NetEase games on platforms such as XBOX will benefit NetEase's multi-terminal layout for overseas games. Previously, the agency service agreement between the two parties in the mainland was terminated in January 2023. Affected by this, NetEase's mobile game revenue in 2023 fell 17% year on year. Assuming that old games performed steadily, it is estimated that in 2022, the revenue volume from Blizzard proxy games was about 3.9 billion yuan, accounting for less than 5% of NetEase's total revenue. Considering that the profit margin of proxy games is lower than that of self-developed games, the contribution to profits is expected to be more limited.
Assuming Blizzard's return in the second half of the year, the bank expects mobile game revenue to increase by 11% and 19% respectively in 2024 and 2025, respectively. Mobile games will resume a growth rate of more than 20% in the second half of the year, increasing the company's total revenue by 2% to 3%, and the impact on profits is limited.