NetEase (NTES, Financial) recently announced its financial results for the third quarter of 2024. The company's net revenue reached 26.2 billion RMB, with a non-GAAP net profit attributable to shareholders amounting to 7.5 billion RMB. During this period, the company invested 4.4 billion RMB in research and development, featuring a robust R&D intensity of 16.9%, a leading figure in the industry. Deferred revenue increased by 14% sequentially to 15.5 billion RMB. Additionally, from January 2023 to September 2024, NetEase repurchased approximately $1.6 billion of its American Depository Shares, with $500 million repurchased in Q3 2024, marking a 98% increase from the previous quarter and signaling positive market sentiment.
In Q3, net revenue from gaming and related value-added services rose to 20.9 billion RMB, a 4% sequential increase. Game revenue alone was 20.2 billion RMB, up 5% from the previous quarter. Notably, PC games saw a 29% year-over-year and 30% sequential growth. Long-running IPs like "Fantasy Westward Journey 2," "Identity V," and "Naraka: Bladepoint" achieved record performance. "World of Warcraft" and "Hearthstone" returned to the Chinese market, setting new records and seeing daily active users increase by over 50% and 150% respectively compared to pre-suspension levels.
NetEase's Youdao division reported significant improvement, achieving profitability in Q3 for the first time, with revenue reaching 1.6 billion RMB. Operating profit also hit a record high. Meanwhile, NetEase Cloud Music generated 2 billion RMB in revenue, expanding its subscription base and fostering sustainable growth in online music income. In addition, collaborations with entertainment companies enhanced its K-POP music library.
Innovations and other business segments contributed 1.8 billion RMB in net revenue. NetEase Yanxuan focused on brand strategy, driving double-digit sales growth in core categories like pet care and home cleaning, with a 56% increase in pro-member scale. NetEase Media improved content quality using large language models, increasing interactive volumes by 27.49% year-over-year. NetEase Shufan partnered with the Guangzhou Public Transport Group, enhancing commuting for over 18 million residents using big data technology.
J.P. Morgan expressed optimism about NetEase's stock in the next 6 to 12 months, highlighting steady long-term IPs like "Identity V," the strong return of Blizzard games, and upcoming major game releases in 2025 as positive drivers. Nomura Securities noted that although Q3 faced high base effects from last year's mobile game revenue, the release of "Naraka: Bladepoint" mobile and the return of "World of Warcraft," along with continuous game R&D and strategic investment adjustments, will provide robust support for NetEase's revenue growth.
NetEase continued to innovate with its classic game IPs, witnessing substantial breakthroughs in Q3. "Fantasy Westward Journey" and its series maintained high popularity, with "Fantasy Westward Journey 2" achieving record revenues through anniversary versions and themed servers. "Identity V" reached new heights in both global concurrent players and daily active users for three consecutive quarters. "Naraka: Bladepoint" PC game flourished with new heroes, maps, and mechanisms, collaborating with popular IPs like "Tomb Raider," while "Justice" mobile game returned to the top three bestsellers through pricing strategies.
NetEase also launched popular new games in Q3, strengthening its overseas and niche market presence. "Naraka: Bladepoint" mobile rapidly ascended to third on the iOS bestseller list following its release, later returning to fourth place after a new season update and being highlighted on the App Store. "Racing Master" topped free charts in Japan on both Apple and Google app stores following its August launch. "All-Star Streetball Party," authorized by the NBA, ranked first in sales across Hong Kong, Macao, and Taiwan. Additionally, the romance mobile game "Beyond World" leveraged differentiated content to frequently enter top ten bestsellers.
A noteworthy game, "Egg Party," maintained the leading position in the party and amusement category, expanding into MOBA, chase, werewolf killing, pet cultivation, and farming gameplay, with all five categories reaching tens of millions of DAUs, becoming a hidden giant in these segments.
Beyond self-developed games, Blizzard's return yielded unexpected results. "World of Warcraft" saw a 50% growth in daily active users since its suspension, and "Hearthstone" enjoyed a 150% increase. "Hearthstone" set a new concurrent user record, with the mobile version topping the App Store download charts and ranking in the top five for sales.
Looking forward, major games like "Marvel Dueling" and "Sixteen Sounds of Yanyun" are set to launch in December, with anticipated titles like "Destiny: Rising" and "Marvel Arcane Frenzy" also unveiled, further enriching NetEase's game portfolio and potential growth areas.
In Q3, NetEase led the industry with a 16.9% R&D investment intensity, dedicating 4.4 billion RMB to research. The company advanced its AI technology across various sectors. In gaming, collaborative projects introduced the world's first UGC 3D interactive companion system in "Justice" mobile game, allowing players to personalize unique characters with "soul features." The "New Ghost" game explored cross-industry IP collaboration with intelligent NPC systems, achieving new player growth records.
The dual strategy of "AI + education" propelled NetEase Youdao's AI subscription services to nearly 70 million RMB in sales, over a 150% year-over-year increase. As the "ZiYue" model matured and AI products evolved, the "Hi Echo" app earned a prestigious spot on the App Store, while the "AI All-Subject Learning Assistant" engaged nearly 20 million users in Q3 alone. NetEase AI document translation has translated over 100 million documents to date.
In the "AI + music" domain, NetEase Cloud Music launched the "AI Singing" tool, allowing users to customize and create personalized music, catering to individualized needs through UGC content.
In the "AI + industrial" domain, NetEase's agile engineering robots excelled in performance, clinching the gold in the 2024 Global Digital Trade Innovation Competition for their autonomous operations, precise control, and adaptive capabilities.
