NetEase (Nasdaq: NTES; HKEX: 9999) today released its financial report for the first quarter of 2024 ending March 31: net revenue of 26.9 billion yuan, an increase of 7.2% over the previous year. Net profit was 7.6 billion yuan, compared to 6.6 billion yuan and 6.8 billion yuan for the previous quarter and the same period last year, respectively. Net profit was 8.5 billion yuan without US GAAP, compared to 7.4 billion yuan and 7.6 billion yuan for the previous quarter and the same period last year, respectively.

After the financial report was released, NetEase CEO Ding Lei, vice president of company development, Pang Dazhi, and Vice President Hu Zhipeng, and other company executives attended the subsequent earnings conference call to interpret the key points of the financial report and answer questions from analysts.

The following is the main content of the analysis question and answer session:

UBS analyst Felix Liu: My question is about the mobile version of the company's next high-profile mobile game, “Eternity”. We noticed that the “Endless” mobile game ended its testing in April. Would you like to ask management to share the testing situation? What are some of the most important summaries? When is this mobile game expected to be released?

Hu Zhipeng: After this test, first, we felt that players had high expectations for this game; second, we verified the viability of mobile game mission innovation in terms of operation, and collected enough data, which is of reference significance for the next stage of game operation; third, the confidence of our entire R&D team has been further strengthened, and we will make every effort to make final optimizations before launch to provide players with the most satisfactory products. Currently, the expected launch time is still summer vacation.

Bank of America Merrill Lynch analyst Lei Zhang: I have a question about the status of the “Eagle” mobile game that the company launched at the end of March. Because there is some data from third parties and some initial performance, it may not be as popular as everyone expected before. I would like to ask the management how this game performed after the initial launch, and will there be any major updates in the future? Also, what does management think about the game's lifecycle?

Ding Lei: We are not particularly satisfied with the performance of “Conjuring”, which was launched in March. Now there are new leaders and core members who are sprinting to the next version. We'll be launching the new version during the summer vacation, and we'll make changes to the game's fun, multiplayer networking, and art style. I believe NetEase still has very rich experience in MMORPG (PC game) development, and we are still full of confidence in the “Conjuring” game.

Goldman Sachs Analyst Lincoln Kong: I have two questions. One is about the game “16 Sounds of Yan Yun”. I saw that we are doing the final tests on the PC side and will go live in July. How should we look forward to the future of this game now? Including will it be distributed simultaneously in overseas markets? What are the relevant plans? What information can you share with us about the current development progress of the “16 Sounds of Yan Yun” mobile game, as well as future testing and launch progress? The second question is about the company's game reserves for next year and beyond. In which direction is R&D mainly focused? Are there any games like “Codename: Infinity” or any other category? For overseas markets, does the company have any products to launch this year or next, or are there any plans you can look forward to?

Ding Lei: We have made thorough preparations for the PC version of the game “The Sixteen Sounds of Yan Yun”, including the mobile version. Currently, all resources and content have been prepared. In terms of the mobile game version, we are doing some performance optimization and testing work. The mobile game will be released a little later than the PC version, but it will definitely be released. The game itself is also an open world product, and we will also invest in overseas markets. Regarding game content reserves for next year and beyond, we have sufficient content reserves for future games. At that time, we will announce our game reserves to everyone through the news.

HSBC analyst Ritchie Sun: I have a question about the “Dream” mobile game. This game is a game series with stable and strong performance from NetEase, but with the recent adjustments made to this game, we have seen mixed feedback from users. And I also noticed that after 520, there were new adjustments to this game. How did the management company deal with this kind of user backlash? When does management expect the game's performance to stabilize? Also, in the last day or two, the company has also made adjustments to the treasure house in a series of games. Can you share the reason behind the adjustments?

Ding Lei: “Dream” is a classic NetEase game that has been in operation for over 20 years. Over the past 20 years, it has been well received by users, and our entire R&D team has also been focusing on the product for a long time. We've made some adjustments this year, and they are also based on the game's longer-term operating logic. The details of these adjustments will probably all be presented to everyone before the first half of this year. The goal of these adjustments is the same; they are all aimed at making the game more popular and users like it more. Therefore, I don't think investors need to worry too much about some of the noise that has arisen in a short period of time due to our adjustments. We also hope that “Dream” mobile game players can give our development team more suggestions and opinions. We will maintain a humble heart, listen carefully to users' opinions, and put more innovative and interesting content into the product. The company attaches great importance to the future of the product. Also, the adjustments to the Treasure House are also short-term, so there is no need to worry too much about this.

Zhang Xueqing, analyst at CICC: The first question is about the company's layout on shooting tracks. We have noticed that the company has recently been developing various games such as “Firefly Assault”, “Marvel Rivals (Marvel Rivals)”, “Shattered Land”, and “World of Adventure”. We would like to ask the management company how to understand the shooting track and what kind of strategic layout it will adopt? Second question, I'd like to ask management to share the latest news from overseas game studios. When do you expect overseas studios to launch games?

Ding Lei: Shooter games have always been the most important category in the entire game industry. NetEase has already deployed shooter products one after another before, and this year they will be launched one after another. This shows that we really hope to achieve good results on this track. Similarly, shooter games are also particularly popular with overseas game users. When our products are officially launched, everyone will see our determination in this regard.

Second, we have quite a few overseas studios working intensively on development work, but everyone knows that it takes about 2 years to make a product, or even slightly longer, so we can't share with you the time it takes to launch a product. Our domestic studio is also intensively developing products to serve overseas markets. For example, our “Peak Speed” racing game has achieved good results in Hong Kong, Taiwan and other countries; our “Fifth Personality” has achieved good results in the Japanese market; and our “Operation Wilderness” has also achieved excellent results in Japan. I believe we have the resources, determination and attitude to achieve certain results in overseas markets.

Jeffrey Analyst Thomas Chong: My question is about the company's operating expenses. Can you ask management to share the changing trend of future operating expenses, especially considering that we have good game reserves. How does the company view future trends in marketing expenses?

Ding Lei: There will be no significant increase in marketing expenses. We now have more and more mature ways of operating the market, and customer acquisition costs are also being reduced, so don't worry, we won't incur huge marketing expenses.

Nomura Securities analyst JiaLongshi: I have a question about game consumption. We now see that many industries, especially the e-commerce industry, are losing prices. I would like to ask if management has observed that players' consumption in games has become more careful? What is the changing trend of the average revenue per user contributing to the company's top mobile games?

Ding Lei: Currently, we have not observed a significant decline in game users' consumption. We believe that as an entertainment product that provides emotional value and makes everyone relax, users can still bear part of the cost and spend a certain amount of money on games every month. I believe that compared to other shopping behaviors, gaming consumption is more of an intangible experience, a spiritual experience, and we haven't seen a decline.

Morgan Stanley Analyst Alex ?$#@$: My question is about the company's buyback plan. Last year, the amount of NetEase repurchases plus dividends was about 2.3 billion US dollars. What is the pace this year?

Ding Lei: In terms of repurchases and dividends, we still carry out repurchases and dividends according to the established rhythm, so everyone will also see that in the past quarter, we have carried out rhythmic repurchases. We will also maintain this rhythm to buy back stocks in the future, and then pay dividends according to the past dividend rate.

Daniel Chen, analyst at J.P. Morgan Chase: We recently got a new version, “Eggboy Skating,” a spin-off of “Eggboy Party”. We'd like to ask management to share more details about this game. Then I also want to know what the company's long-term ecological layout is for the entire Egg Boy IP?

Ding Lei: “Egg Skating” is a casual work we are about to launch using the Egg Boy IP. We've also been developing it for a long time, so it will be released soon. Egg Boy is a very successful casual and cute IP in NetEase's history. We will continue to innovate based on this IP to provide users with more, cuter, and happier party games. I believe NetEase is capable of this, and can turn Egg Boy into an IP that every user likes. (end)