The Zhitong Finance App learned that on May 23, NetEase -S (09999) released financial results for the first quarter of 2024. According to financial reports, NetEase's Q1 revenue was 26.9 billion yuan; under non-GAAP, net profit attributable to the company's shareholders was 8.5 billion yuan.

With NetEase's steady performance in the first quarter of '24, Citibank, Macquarie, BOCI, HSBC and many other institutions maintained their buying and increasing holdings ratings for NetEase. Macquarie published a report giving NetEase an “outperforming the market” rating, saying that NetEase continues to show strong game development capabilities, that the valuation gap with other gaming peers has widened significantly, and that a stable product line in the second half of the year is expected to accelerate growth momentum.

After the financial report was released, thanks to data performance that exceeded expectations, NetEase's stock price rose in a straight line before the market, and the decline narrowed to less than 4%.

Long-term operating boutique revenue reached a record high, and the stock price decline narrowed rapidly after the earnings report was released

Driven by the “content+AI” dual engine, NetEase not only achieved new breakthroughs in technological innovation in the first quarter, but also achieved a new high in revenue for long-term quality content operations.

According to financial data, NetEase achieved significant growth in premium content revenue in the first quarter, and various products formed a solid foundation. It is worth mentioning that the revenue of games and related value-added services reached 21.5 billion yuan, and the performance of various long-term flagship games reached new highs: “Journey to the West” mobile game recorded a record high in Q1; popular games such as “Against the Cold” mobile game and “Egg Boy Party” remained at the top of the bestseller list. On the 6th anniversary of “The Fifth Personality”, popularity soared, and Q1 revenue and DAU reached record highs in May. When “Tsuchigahama” went live for 9 years, Q1 revenue hit a record high in nearly three years.

In addition to the game business, NetEase is also actively creating quality content in other fields, showing a strong momentum of development. For example, NetEase Cloud Music promoted original support, homemade music and copyright procurement, and the influence of content continued to increase; the revenue of the innovation sector was 2 billion yuan, NetEase Media accelerated AI service media integration and UGC creation, and the share of UGC content on the NetEase News client increased 30.5% year over year.

After the financial report was released, NetEase's stock price skyrocketed before the market, and the decline narrowed to less than 4%. A number of investment institutions expressed optimism about NetEase and gave ratings to increase their holdings one after another. HSBC stated in the report that it “maintains NetEase's rating as a purchase,” and further stated that “the company currently provides more than 140 mobile games and mobile games, covering a wide range of game genres, which can meet the growing and diverse needs of the global player community. With the company's user insight and professional execution, the company has also incubated and developed a series of innovative and successful businesses internally, including intelligent learning and other businesses (such as music streaming platforms, private brand e-commerce, internet media, email services, etc.).”

In addition, NetEase will accelerate the pace of full-platform and global distribution of new flagship products, and help world-class boutique IPs penetrate the Chinese market. For example, the “16 Voices of Yan Yun” national service is scheduled to be the first public beta on July 26, the “Eternity” mobile game added 10 million new reservations in the first two weeks, and Blizzard's first return game is expected to launch this summer. In response, BOC International and Morgan Stanley released a report saying that operating games such as Blizzard Games will not only help increase users and revenue, but also unleash medium- to long-term potential.

R&D investment intensity exceeded 15% for 7 consecutive quarters, and many institutions rated “outperforming the market”

Technological innovation and investment in R&D are important factors in determining whether a company can prosper in the long term. As of Q1, NetEase maintained more than 15% R&D investment intensity for 7 consecutive quarters, leading the industry. At the same time, NetEase's AI model is deeply integrated into four major industries, including gaming, education, music, and industry, giving full play to the new productivity role of cutting-edge technology.

The implementation of technology has not only enhanced user experience and product competitiveness, but also brought more room for commercial monetization and growth for the company. In the field of games, NetEase's self-developed AI tools already support time-consuming aspects of traditional game development, such as scene modeling and motion capture animation, and have served more than 100 game products. In the field of education, advertising, and music-assisted creation, NetEase has focused on the development of three high-potential AI-driven businesses, with revenue of 1.4 billion yuan and significant profit improvement; NetEase Tianyin, a one-stop AI music creation tool, recently opened an entrance for all NetEase Cloud Music users, providing auxiliary functions for the entire AI music creation process, including lyrics, songs, editing, singing, and mixing. In the industrial sector, loading robots launched by NetEase using AI big model technology have already been used in scenarios such as Nanjing Port and Asia's largest prefabricated beam mixing plant. It is expected to help construction sites reduce safety risks by 50% and save 75% on construction costs.

A number of market agencies conducted an in-depth analysis of NetEase's Q1 earnings report, and NetEase's ratings also showed a positive trend. They believe that NetEase has excelled in technological innovation, content operation, and business models, and has the potential for continued growth and good investment prospects. They have given NetEase a rating of “outperforming the market”, and are full of confidence in its future development. “The valuation gap between NetEase and other gaming peers has widened significantly, and is expected to be affected by new game releases falling short of expectations and the weak performance of old games.” “NetEase continues to show strong game development capabilities; a stable product line in the second half of the year is expected to accelerate growth momentum.” Macquarie stated in the report.

As for the future, NetEase said it will continue to strengthen R&D capacity building in 2024, focus on product and content refining, expand the market through innovation and category expansion, and work with global talents and partners to create value.