NetEase - Earnings Call - Q2 2025

Transcript

Speaker 3

Good day and welcome to the NetEase second quarter 2025 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead.

Speaker 0

Thank you, Operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F and in announcements and filings on the Hong Kong Stock Exchange's website.

The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2025 second quarter earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer, and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill?

Speaker 2

Thank you, Brandi, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all % are based on R&D. During the second quarter, we advanced each of our businesses through the development of high-quality and innovative offerings. Total revenues increased 9% year over year, driven by our diverse portfolio of games. We saw strong player engagement in our established franchises and released new titles that expanded our reach across genres and geographies. Building on our first quarter year-on-year growth momentum, revenue from our games and related VF rose 14% in the second quarter compared to the same year last year. As we expand our expertise across more genres, we now offer a diverse range of gaming experiences to players around the world, which we believe lays a solid foundation for our global expansion.

In the second quarter, we launched several new global titles, while also extending the reach of our well-known domestic franchises. Looking first at our newest releases, our superhero team-based tactical RPG, Marvel: Mystery Mayhem, launched on June 25. The game quickly garnered a passionate group of players eager to collect iconic superheroes and supervillains to battle the nightmare dimension. Its player base quickly surpassed 1 million, with the game topping the iOS download chart in multiple regions and ranking number two in the U.S. To further the community's excitement, we plan to introduce more playable characters and expand the storyline approximately every six weeks. The global release of our tactical shooter game, FRANK PUNK, on Xbox and PlayStation quickly gained traction after its April 29 debut. In May, it reached the number two spot on PlayStation's North America free-to-play download chart.

Originally launched on PC in March, FRANK PUNK has been winning over players with its groundbreaking shotgun system. Now, with the signature blend of strategy and a high-octane shooting experience available on console, it continues to build momentum. Our commitment to growing existing hits has also brought fresh energy to games already resonating with players. Once Human commemorated its annual version 2.0, Fimbrial, with a major content update and a series of exciting announcements. Players were introduced to Endless Dream, a new nightmare scene in the PvE scenario that takes them through multiple layers of dreamscapes, offering a fresh take on the apocalyptic world. A new class system was also unveiled, featuring three classes: Chef, Garner, and Beastmaster as the first wave, each bringing unique abilities to support diverse play styles. This 2.0 update gained massive popularity, propelling the game to number four on Steam's global top seller chart.

We also rolled out a new PvP spin-off of Once Human on July 30, called RAZON, which amplifies the thrill of the game's survival open-world experience. With unrestricted combat allowing attacks anytime, anywhere, this innovation targets a broader PvP audience through more intense and liberated battles. In June, we began testing a new customer server, allowing private servers and customizable seasonal settings that encourage creativity and diversity, giving players even more autonomy. For Marvel: Rivals, we launched Season 3 on July 11, introducing Phoenix as a new playable hero alongside a slate of exciting events and team maps. Setting Klyntar, where now darkness spreads, players join forces and unleash unique skills to save the world. With fast-paced open combat and the fan-favorite Phoenix joining the roster, the game quickly climbed to number one on Steam's top seller chart in the U.S.

and subsequently reached number two globally, following their Summer Party event. Beyond in-game updates, we're also deepening community engagement through more offline events, as San Diego Comic Con, an exclusive behind-the-scenes look at the hero creation process, generated tremendous excitement among fans. In May, we also kicked off our Marvel Rivals Ignite eSports tournament, with mid-season finals successfully held at our Guangzhou campus recently. Passionate players from around the world have come to compete, and we look forward to crowning the first champion with our finals at the end of the year. With our domestic IP, we continue to extend our player communities and prepare for global expansion. Players of our Wuxia-themed open-world RPG, Where Winds Meet, continue to be impressed by our steady stream of high-quality content. In the second quarter, we launched a new Hexi-themed update, featuring the exotic desert landscape of Dunhuang.

The storyline, centered on the unyielding spirit of both generals and ordinary citizens during the period of unrest, resonated deeply with players. By restoring ancient frescoes in-game, in collaboration with Dunhuang Art Academy, we brought emotional stories to life with stunning visual effects, further fueling player enthusiasm. By the end of July, it had amassed over 40 million total players, while the release of the summer version propelled it to number five on China's iOS top watching chart. Furthermore, we are thrilled to have successfully concluded the latest round of overseas testing on PC and PlayStation 5 at the end of July, placing us firmly on track for its global launch. Sword of Justice, previously known as Justice Mobile, marked its second anniversary with a surge in players.

We launched a massive update, introducing new gameplay features, expanded areas, and a wide selection of new costumes, propelling the title to number three on China's iOS top watching chart. Global preregistration opened in May, and we look forward to bringing this groundbreaking MMORPG experience to more players worldwide. Dungeon City Dynasty also met global players on May 22, where it reached number one on the iOS download chart in multiple regions and number two in the U.S. As we enhance the global appeal of our games, our established franchises continue to keep players highly engaged, highlighting the strengths of our operations and content updates that stand the test of time. In May, Fantasy Westward Journey Online drew in strong interest from the player community with its "How to Train Your Dragon" collaboration, bringing the movie's iconic costumes and dragon mounts into the game.

The momentum continued with the launch of the innovative Unlimited server in July. More notably, this evergreen title reached a new all-time high peak in concurrent players in August, surpassing 2.93 million, an impressive milestone after 22 years of operations. Our long-term commitment to innovation and maintaining a healthy in-game ecosystem continues to pay off. Similarly, Fantasy Westward Journey Mobile launched a new faction, Pan Suzhong, which generated strong participation and introduced a vertical screen mode to expand accessibility across play scenarios. Delivering fresh content and elevating player experiences remains central to the game's enduring success. Its revenue posted another record high in the second quarter. The Westward Journey franchise struck an emotional chord with players by launching a series of activities themed around the beloved romantic legend Bai Xiaduan, featuring themed gameplay, costumes, and crossovers with the theme zone, all tied to the 2025 Year of Spin.

Westward Journey Online 2 continues to fuel excitement through its annual PvP finals and content updates, while Westward Journey Mobile saw strong participation from both loyal and returning players through the launch of a new server. Knives Out continues to showcase our long-term operational capabilities, maintaining its status as a household game in Japan through dedicated content updates and culturally resonant collaborations. This quarter's crossover with Jujutsu Kaisen, the hit Japanese manga that captivated global audiences, was met with strong player enthusiasm and propelled the game to number three on Japan's iOS top watching chart. Identity V once again broke its quarterly revenue record in the second quarter, supported by an enthusiastic fan base. On July 3rd, Identity V teamed up with Paper Bride, a popular Chinese horror mystery puzzle game, to introduce a chilling wedding-themed world featuring immersive maps and new costumes.

The crossover drove the game to number seven on China's iOS top watching chart. Momentum continued in August when the crossover with Frieren: Beyond Journey's End generated significant enthusiasm and propelled it to number four on China's iOS top watching chart. For Eggy Party's third anniversary on June 27th, we introduced a festive in-game update that transformed Eggy Island with candies, cakes, and toys, adding new maps and equipment to deepen strategic gameplay. A wave of anniversary activities, along with the highly anticipated crossover with Dung Dung Ship, sparked strong player excitement and lifted Eggy Party to number five on China's iOS top watching chart on July 11th. The Naraka Baypoint franchise also hit another milestone. Its PC game entered its fourth year with a brand new extraction mode and iconic IP crossovers, including Bruce Lee and the degenerative drawing Jiang Hu.

The mobile game also introduced enhancements to its extraction-based survival feature with dynamic weather and new mechanics. The update energized the player base and pushed the title to number six on China's iOS top watching chart. After a year of close collaboration, Blizzard Entertainment titles continue to captivate players in China. On July 15th, World of Warcraft and its community celebrated the game's 20th anniversary of operation in China, unveiling plans to launch a China-exclusive Titan Reforged server in November. This announcement reignited enthusiasm among local players and attracted significant attention from a broader global community. Meanwhile, Hearthstone launched its latest expansion, The Lost City of Angora, on July 9th, featuring a brand new quest system. This new adventure invites players to embark on the quest set for the Lost City, with 145 collectible cards and a new keyword Kindred to empower their decks.

Shortly after the update, the game climbed to number five on China's iOS top watching chart. In April, Overwatch launched its new stadium mode, which has been very popular with players. In June, they introduced its 17th season, featuring a series of updates to power up the game experiences. At BBW 2025, its collaboration with Porsche sparked more fan excitement, featuring a special in-game skin on the iconic Porsche model. We are also thrilled to announce that Diablo II: Resurrected will be returning to China on August 27th, with plans for the launch of Diablo IV underway. This will enhance the classic franchise for a dedicated fan base. Innovation remains at the core of how we build and operate games. We bring the same creative ambition and operational rigor to every new title's and development.

Several exciting new games are in the pipeline, each powered by creative gameplay, bold designs, and cutting-edge technology. These titles reflect our commitment to pushing the boundaries of gaming experiences and will position us to expand our player community and further fuel our long-term growth. The Upraven, our upcoming cross-platform option adventure RPG, received encouraging feedback from its first testing at the end of June. The game invites players into an exciting open-world exploration, where they uncover the truths behind a forgotten identity through exhilarating naval combat and turn-based battles. Players recruit a crew of allies, build ships, and interact with characters, adding strategic depth as players shape the fate of the surrounding world based on each decision they make. Currently, we're actively refining the game for its release in 2026. In June, we're excited to unveil plans for Blood Message, our first AAA single-player title.

This cinematic, story-driven action adventure will be available on PC and consoles, inviting players to step into the heart of Dunhuang's uprising as the nameless messenger and his young son. With immersive third-person gameplay and powered by cutting-edge technology, Blood Message is designed to deliver an epic blockbuster experience for players worldwide. Planet Party Time, our cross-platform game blending social simulation and party gameplay, has undergone a series of tests to further refine the experiences ahead of its official launch. Players can experience their creativity on a cosmic journey where they can design, build, and cultivate their own planets while enjoying over 120 exciting mini-games with friends. Destiny Rising, a new free-to-play mobile sci-fi RPG shooter that delivers players to a new alternative timeline of the Destiny universe, will launch on August 28th across mobile devices. In addition, we plan to launch several licensed titles in China.

Most recently, on July 24th, we launched Super Vive, an innovative competitive multiplayer game on PC that provides a unique blend of MOBA, Battle Royale, and hero shooter elements. We expect Wild Gate, a PvP multiplayer shooter game that blends tactical ship-to-ship combat with fast-paced first-person action, to meet players in China later this year. The development for Annatta, our highly anticipated urban-themed open-world title, is also well underway. Across our portfolio, we remain focused on building lasting success through continuous innovation and high-quality operations that keep our games relevant and exciting for players. From evergreen franchises that keep breaking records to bold new titles shaping the next generation of gameplay, we are committed to delivering distinctive experiences that players love. As we continue raising the bar of engagement and creativity, we're paving the way for long-term growth domestically and worldwide.

Turning to our other businesses, in Q2, Youdao executed its AI-native strategy effectively across both its learning and advertising businesses, delivering its first second quarter operating profit. For learning services, Youdao Lingchi continued to drive product innovation with our proprietary LLM, Confucius, while we continue to iterate on other AI applications such as Mr. T AI Tutor, gaining increasing user traction. In online marketing services, our newly launched AI advertisement placement optimizer, an end-to-end AI-driven adaptive solution, covers demand analysis, strategy formation, data analytics, and iteration optimization, achieving capabilities that previously relied on human expertise. Leveraging our LLM, Confucius, we now offer comprehensive AI-empowered advertisement services, spanning creative ad production, placements, and post-campaign analysis. NetEase Cloud Music remains committed to driving quality development across its core music ecosystem. To build on our unique content offerings, we continue to expand our catalog of copyrighted content while strengthening our original music library.

During the second quarter, we expanded collaborations with Korean music labels and renowned Chinese artists, while generating strong traction with several in-house tracks such as Liao Nan. We also continue to innovate our product features and optimize our music-centric community to deliver even better music experiences for our users. For example, our innovative music playing feature, Magic: Live Player, which is designed to recreate the immersive feel of a live concert, enhanced with landscape orientation support, received widespread acclaim from music lovers. We're constantly advancing our music-centric motivation and further expanding our subscriber base, resulting in healthy growth in subscription-based membership revenues. Turning to Yanxuan, we continue to maintain our leading position in key categories. For example, Yanxuan Homescent, such as bathroom fragrances and car refreshers, has been widely recognized by consumers, securing a solid market position with leading sales.

Other iconic products such as plant food also maintain a stable market position. Across our NetEase family of businesses, we are focused on innovation and refining our product and content to deliver long-term value for users and stakeholders. Looking ahead, we will continue to push the boundaries of player experiences, scaling original IP to build lasting franchises, and growing alongside collaborative global partners to reinforce our position as a creator of high-impact, genre-defining games. That concludes William's comments. I will now provide a brief review of our 2025 second quarter financial results. Given the limited time on today's call, I'll be presenting abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Total net revenue for the second quarter was RMB 27.9 billion, or $3.9 billion U.S.

dollars, representing a 9.4% increase year over year. Total net revenue from our games and related VFs was RMB 22.8 billion, up 14% year over year. Specifically, net revenues from online games was RMB 22.1 billion, a quarter-over-quarter decrease of 6% and a year-over-year increase of 15%. The sequential decline was primarily attributable to decreased revenue following the Chinese New Year push, while the year-over-year growth was mainly driven by increased revenue contribution from newly launched titles such as Where Winds Meet and Marvel Rivals, as well as established games like Identity V. Youdao's net revenue was RMB 1.4 billion, up 7% year over year and 9% quarter-over-quarter. This growth was primarily driven by the enhanced utilization of AI technology to boost our learning services and online marketing services.

NetEase Cloud Music net revenue was RMB 2 billion, up 6% from the previous quarter, while declining 4% from the same period last year. Notably, revenues from online music services maintained healthy development both quarter-over-quarter and year-over-year. Net revenue from innovative businesses and others was RMB 1.7 billion, up 5% from the previous quarter, while declining 18% year over year. The quarter-over-quarter growth was primarily driven by Yanxuan, while the year-over-year decline was mainly due to decreased net revenue from Yanxuan Advertising Services and certain other businesses in this segment. Gross profit for the second quarter of 2025 was RMB 18.1 billion, up 13% year over year. This was primarily driven by increased net revenue from online games, as previously mentioned. This quarter, our total gross profit margin was 64.7%.

Looking at our second quarter margin in more detail, the gross profit margin was 70.2% for our games and related VFs, compared with 70% in the same period last year and 68.8% in the last quarter. The quarter-over-quarter improvement was mainly from a higher proportion of net revenues from our self-developed games, which carry a higher margin than licensed games. Our gross profit margin for Youdao was 43.2%, compared with 48.2% in the same period last year. The decrease was mainly due to the increased revenue contribution from online marketing services with relatively lower gross profit margins. Gross profit margin for NetEase Cloud Music was 36.1% in the second quarter, versus 32.1% in the same period a year ago. The margin improvement primarily resulted from the strong monetization of our core online music business and the ongoing cost optimization.

For our innovative business and others, the gross profit margin was 42.3%, compared with 34% in the second quarter of 2024. Total operating expenses for the second quarter were RMB 9 billion, or 32% of our net revenues. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total net revenue were 12.8%, compared with 13.7% for the same period last year, mainly due to increased revenue contribution from games and VAS over the past year. Our R&D expenses as a percentage of total net revenue remained stable year over year at 15.6% in the second quarter, compared with 15.2% for the last quarter. We remain committed to investing in content creation and product development. The effective tax rate was 14.7% for the second quarter.

As a reminder, the effective tax rate is presented on an accrual basis, depending on our policies and our operations. Our non-GAAP net income attributable to shareholders for the second quarter totaled RMB 9.5 billion, or $1.3 billion U.S. dollars, up 22% year over year. Non-GAAP basic earnings per ADS for the quarter were $2.08 U.S. dollars, or $0.42 U.S. dollars per share. Additionally, our cash position remains robust, with net cash of approximately RMB 142.1 billion as of June 30, 2025, compared with RMB 137 billion at the end of last quarter. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of $1.04 U.S. dollars per share, or $0.57 U.S. dollars per ADS. Lastly, under our current $5 billion U.S.

dollar share repurchase program, which started in mid-January of 2023, we had repurchased approximately 22.1 million ADS as of June 30, 2025, for a total cost of approximately $2 billion U.S. dollars. Thank you for your attention. We would now like to open the floor to your questions. Operator, please.

Speaker 3

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to follow up questions, please rejoin the queue. Your first question comes from Yang Liu with Morgan Stanley.

Speaker 2

user and revenue split between China and overseas? Let me translate my questions. My first question is regarding Where Winds Meet in terms of the monetization in management's view. Is it an early success or is it meeting expectation or it's already fully ramped up? My second question is regarding Once Human. What's driving the growth in rebound for this title? Does it have the good potential to become an evergreen game? What is the user and or revenue split in China and overseas? Thank you.

Speaker 1

夜灵16声目前我们整体的数据表现很稳健，无论是在活跃用户以及商业化表现，已经超过上线前的预期。目前产品长线表现也稳定，我们对他的长线发展呈现出非常积极的信心。应用目前采用的商业模式是优质的内容加纯外观的商业模式。我们持续稳定地会释放优质的内容，加强在优质内容方面的开发。同时，纯外观的付费不会影响我们游戏的成长，这也使得燕云可以更有，可以更健康的长线的增长。我们在未来的燕云的内容开发方面，NetEase还是会持续更加大的投入。 第二个问题是关于七日世界的收入反弹。七日世界在7月初，我们做了一个2.0的版本更新，新的剧本无尽长梦和全新的职业系统，受到了玩家的好评。我们这一次2.0的更新有较高的人气，使得此游戏在Steam上全球畅销榜排名第四。同时，我们在7月30号推出了禁区模式的PVP剧本，给玩家无规则限制的自由式对抗体验，进一步提高了游戏PVP体验的持续性。新的剧本成功意味着七日世界所采用的赛季剧本模式具有较高的运营潜力。产品在以后，我们还会持续更新不同的体验的剧本来满足玩家赛季循环的要求。同时，我们已经上线了玩家自定义的私人服务器V服，围绕持续更新的剧本体验和V服带来的玩家生态。产品有潜力长青，目前中国和海外的用户比例是1:1，收入比例是1:1.5。谢谢。

Speaker 2

谢谢。 Yeah, thank you for the answer, and I will do the translation. First question is regarding Where Winds Meet. Where Winds Meet has delivered a solid performance, as we have explained, and it exceeded our initial expectation before launch, in both in terms of active players and monetization. More notably, the long term, we believe the long-term performance has been quite stable, demonstrating a promising potential for the sustainable success. Where Winds Meet uniquely adopts a business model that combines high-quality content and a cosmetic-only monetization strategy, with a well-planned cadence for releasing high-quality content, along with the cosmetic-only approach that does not impact the character cultivation process. Where Winds Meet, we believe Where Winds Meet has the potential for a healthy and lasting monetization cycle. We are extremely, you know, we are very confident in the future of the game.

In terms of the future continuous development for the content for this game, we'll make continuous, if not bigger, investments in the future. The second question is regarding Once Human. Behind the bounce of performance on Once Human, we actually, we launched a welcomed significant update, which we call the annual 2.0 version in early July. The new scenario, Endless Stream, and the new class system have been both well received by players. The 2.0 version gained massive popularity. That's why the game was pushed onto number four position on Steam's global top seller chart, following the launch of the update. Additionally, we also rolled out a new PvP spin-off called RAZON by the end of July, on July 30, offering players a, what we call that, rule-free combat experience that enhanced the intensity of the game's PvP gameplays.

Look back, the success of the new scenario demonstrates that the seasonal scenario mode has great potential, and we will continue to launch new scenarios to meet players' seasonal demands. In the meanwhile, we have also introduced a private server called Custom Server in China, we call that Server V, you know, which allows players to customize their own setting. Looking forward with ongoing updates of the scenario experiences and the healthy ecosystem built around the custom servers, the product has potential for long-term sustainability. Regarding the question on the user distribution between China and international, the user distribution is about 50/50 between China and the rest of the world. The revenue distribution is about 2 to 3 compared to China versus the rest of the world. I hope that answers your question. Thank you.

Speaker 3

Your next question comes from Alicia Yap of Citigroup.

upside, or will new user growth also bring revenue growth? Let me translate myself. Can management share some additional color on the overall Blizzard games performance on the sequential basis? Do you think you have targeted all the potential old and new gamers, or do you think there are still untapped users for Blizzard's titles? Will the future growth of Blizzard titles mainly be driven by content updates and promotional activities on the monetization upside, or will it also come from new user growth? Thank you.

Speaker 1

China, Blizzard Entertainment's games have huge potential. Thank you.

Speaker 2

Thank you for your question. First of all, Blizzard products are extremely high quality works, high quality games. As we explained in this call and previous calls, after a year of returning the product operation in China market via various metrics, with the online and offline reach market activities, the game metrics has surpassed the level previous prior to the shutting down of the servers. Thanks to our dedication of the local operation for both online and offline. As we continue to deepen our collaboration with Blizzard's developing team, our mutual trust and coordination is increasing. Looking to the future, as long as we implement more improvements that align with the local taste and habits of local Chinese players, we believe there's a good opportunity that we can attract even more new players, as well as engaging those who haven't returned yet.

Long story short, we believe there's big potential for Blizzard games in the China market. Thank you.

Speaker 3

Your next question comes from Zhaoxuan Yang with CICC.

感谢, 感谢关注。我的问题有关这个射击品类, 公司下半年将上线的射击类产品有不少, 包括端游手游资源和代理的产品。那么我们如何看待当前射击赛道整体的竞争格局? Central management, the company has a number of shooting games set to launch in the second half of 2025, including PC and mobile games, as well as self-developed and licensed products. What is your perspective on the overall competitive landscape of the current shooting game sector?

Speaker 1

射击类游戏是个巨大的赛道，也是一个红海战场。目前用户对射击类产品的要求普遍比较高，第一要求美术的质量非常的高，第二要求玩法有创新。NetEase会持续在射击类游戏方面有所投入，我们也希望在这个赛道里面能有自己领先的产品。谢谢。

Speaker 2

Thank you for your question. The shooting game genre is a very big genre, and also a very big red ocean kind of market as well. The players have very high expectations on the quality of the games. For example, you have to have very high quality art production, and you have to have gameplay innovation. It's a high bar to entry. For NetEase, we will keep investing in this genre, and we believe in the future we can continue to come up with a competitive market in this big genre. Thank you.

Thank you.

Speaker 3

Your next question comes from Ritchie Sun with HSBC.

Thank you management for taking my questions. First of all, regarding Marvel Rivals, after the launch of season three, we see the Steam revenue ranking rebounded, but then dropped to below top 10 afterwards. How would you evaluate the effectiveness of the new strategy so far? Have we already seen the peak, and what are the new gameplay, skins, or characters in the backlog that we should watch out for to drive the game to regain its momentum? Secondly, regarding Sea of Remnants, can management share the feedback of the first testing in June, and what would be the monetization model, and how would you evaluate the addressable market and longevity of this genre of games? Thank you.

Speaker 1

next year, so please stay tuned.

Speaker 2

Okay, so first regarding your question on Marvel Rivals, Marvel Rivals recently launched season three, and the mid-season finals of Marvel Rivals Ignite also concluded. We have observed an upward and stabilized trend on both its DAU and revenue, which makes us believe that the new seasonal content updates and strategies are effective. Looking forward, we'll continue to introduce more new gameplay mechanics, new heroes, new popular costumes based on our new cadence of seasonal updates. For your questions regarding Sea of Remnants, Sea of Remnants is a very important product to us, and we have high confidence that we'll make this a top-tier successful game, and the game will be launched next year. Regarding the detail of this game, please stay tuned. Thank you.

Speaker 3

Your next question comes from Felix Liu with UBS.

Thank you management for taking my question. I have two questions. Number one is on your evergreen titles. We noticed recovery in quite a few of your evergreen titles such as Eggy Party and Fantasy Westward Journey Online. Can management share more color on the status of these two titles? Any reasons for their recent recovery? In the long run, how does management think about resourcing on existing titles and IPs versus developing new games from ground up? My second question is on another game in your pipeline, which is Infinite Borders. What is the R&D status of Infinite Borders, when do you expect this game to launch, and how should we think about the competition landscape for Infinite Borders, considering there are a few new games from your competitors that also fall into this genre? Thank you.

Speaker 1

好的, 这个问题我来回答。我是, 我是这个 NetEase 的副总裁丁一峰。经过一年的持续的体验优化, 梦幻西游的电脑版更新数据呢, 已经恢复到之前的情况, 并且持续在提升。同时我们在7月份呢, 也推出了畅玩服新的一种新的服务器, 广受玩家的欢迎。我们很高兴的宣布, 梦幻西游电脑版在8月3号, 创造了293万的同时在线的一个最高的记录, 新高的一个记录。我们相信梦幻西游的电脑版会持续的通过不断的创新持续增长。蛋仔派对是 NetEase 首创的 UGC 的一种游戏内容形式。经过过去三年的运营, 我们已经探索出成功的游戏运营的方法。在未来的蛋仔派对发展过程当中, 我们还会持续重视高质量内容的开发和加大营销推广的投入。我很有信心把蛋仔派对打造成全民热爱的一款合家欢游戏。无限大是吧? 对, 还有, 无限大目前正处于顺利的量产阶段, 产品正在持续强化游戏的核心体验以及储备未来上线以后的长线内容。我们会在东京电玩展前后曝光无限大新的内容, 请大家关注。谢谢。

Speaker 2

Okay, let me translate these answers in different parts. First, regarding your question, the first part is Mr. Yingfeng's answer about the Fantasy Westward Journey PC version. After a year of continuous experience optimization, various metrics of Fantasy Westward Journey Online have observed recovery and stable improvements. As we mentioned, the newly launched unlimited server has been well received by players, and we're super excited to announce that the number of peak concurrent users set a new record in early August at the 2.93 million PCU number. We have been running this game for so many years, and we are confident that with continuous innovation, Fantasy Westward Journey PC will continue growing in the future that we can foresee. The next question is regarding A-G Party. A-G Party, as you know, is a one-of-its-kind UGC game, UGC platform kind of game.

After three years of exploration, we have mastered the methodology of operating this type of game. In the future, we're going to keep investing into the game, keep encouraging high-quality UGC content to prosper the ecosystem. We're also going to keep investing into the marketing to keep promoting the game to make it the household game for everyone in China and have everyone in China understand that it's the associated game with this whole family party game kind of concept. That's for the A-G Party. For your question regarding Annata, Annata is now well underway in the mass production stage with ongoing effort to strengthen the core experience and prepare for the long-term content pipeline as well. In the face of competitors, we're more focused on whether we are able to create superior gaming quality that differentiates us from existing market offerings.

We are looking forward and anticipate that new content and progress will be revealed around the Tokyo Game Show time, late September. Please stay tuned for product news. Thank you.

Speaker 3

Your next question comes from Aaron Aswang with Bank of America.

晚上好, 感谢管理层接受我的提问。我的问题是关于这个游戏的营销和运营策略。想请教一下公司对于老游戏和新游戏的营销和运营的策略是怎么样的? 今年有哪些侧重点和变化吗? 有看到什么样的一些效果? 接下来对于营销销售费用有什么样的预期? 谢谢。那我翻一下我的问题。 Can management share your marketing and operational strategies for your old game and also new game? What are your key focuses and if any changes that you would like to highlight this year? What kind of results are you seeing? What's your expectation for the sales and marketing expenses? Thank you.

Speaker 1

next few quarters, you will see our marketing spending is precise and effective. Thank you.

Speaker 2

Yeah, we have been doing this business for 20-something years. For new games and old games, how to operate, how to market, we have developed a mature methodology and standard operation procedures. We know how to invest into marketing and when to invest into marketing. Of course, now we're embracing new methods like social media, the power of AI, everything. We believe we know when to spend, where to spend precisely, and when and where not to spend as well. In the future, you will see our marketing is going to be more precise and more effective. Thank you.

Speaker 3

Your next question comes from Lincoln Kung with Goldman Sachs.

谢谢管理层接受我的提问。我有两个问题。第一个是关于AI的，因为这几个月其实也看到了AI的多模态模型，有一些飞速的进展。那公司现在能不能看到AI对于游戏赋能这边的一个加速，还有哪些可能存在的瓶颈呢？那网易就专门在AI的应用上对现有的游戏有没有一些已经有的应用和规划？那什么时候我们可以看到一些这种AI-native的游戏？第二个问题是关于咱们海外市场，其实公司最近几款游戏都是我们自己全球去做发行，那往后看，我们的海外扩张的策略是怎么想的？尤其是说哪些游戏类型是我们可能后面重点要去发力的方向。我自己翻译一下，thank you management for taking my questions. I have two questions. The first one is on AI, so in recent months, the rapid development of AI multi-model has been quite notable. Has the company seen any acceleration in gaining power through AI? What are the existing bottlenecks that still remain, and what are our plans for AI adoption in our existing games, and when can we expect some truly AI-native games? My second question is about the overseas market. The company actually, recent games has been globally published by ourselves. What are the important directions or game genres we are focused on for future overseas expansion? Thank you.

Speaker 1

games overseas will continue to strive and there will be even more successful products to meet the needs of overseas users. Thank you.

Speaker 2

Yeah, regarding your first question about AI, there's a joke saying that the lifespan of every big model is only three months. Basically, every new model comes out every couple of months. We have invested a lot of resources to embrace AI, to leverage AI in our development, in our operations, how to embrace AI in order to change everything. In looking to the future, AI is going to play more and more important roles, and we are looking into the future that someday there might be games designed by AI, could be a fun game. That's the future we're looking forward to. Regarding your next question for the overseas publishing, yes, this is a critically important capability of us to be able to publish games globally in different geos.

The global market is kind of geo-based, in North America, in South America, in Japan, every market has its own attribute. We have learned through a bunch of global game operation from Marvel Rivals, Once Human, and also in the West market and Knives Out in the Japan market, we have learned a tremendous amount of firsthand hands-on experiences from the operation. Looking forward in the next couple of years, you will see our global operation will keep growing, fueled by our more important new games. We do believe growing globally is going to be a very important task for us. Thank you for your question. Operator, let's go with one last question, please.

Speaker 3

Thank you. Your last question comes from Jia Longshi with Nomura.

Speaker 1

好的, 管理层晚上好, 非常感谢接受我的提问。我就问一个很快的问题, 我想请问一下管理层能不能分享一下Marvel: Mystery Mayhem在海外市场的表现? 另外, 对于这款游戏国内版本, 它的预计发布时间有没有更新? 公司对这款游戏未来的期望, 还有具体的目标是什么? 我自己翻译一下。 I just have one question: can management share the performance of Marvel: Mystery Mayhem in the overseas market so far? In addition, are there any updates on the expected launch time for the domestic version? What are the company's expectations or specific targets for this game going forward? Thank you.

好的，Marvel: Mystery Mayhem呢，是由6月26日啊，在正式在上线海外的游戏呢，凭借其独特的美术风格和创新的玩法设计呢，分别获得了苹果、谷歌等商店的多次的推荐和BD的采访。在7月底发布的新版本呢，神奇视角得到用户的肯定啊。未来呢，我们会加快新玩法和新的文字更新迭代，提供优质的游戏体验啊。当然我们也面临这个，也遇到这个长线长线耐玩性的挑战啊，我们应该解决这个问题。同时呢，在国内版本方面呢，我们也准备在Q4的时候呢，推出这个国内的版本。哈喽，

Speaker 3

this, thank you.

Speaker 0

Okay, as you know, Marvel: Mystery Mayhem was officially launched in the overseas market on June 26th. With its unique art style and innovative game design, the game has received multiple features from Google and App Store, and also editor interview as well. The update was fantastic for release at the end of July. It's been well received by players as well. In the meantime, we do face some long-term growth challenges for the game, and we're in the process of figuring out how should we grow the game and keep the game in the long run. Thank you.

Speaker 2

That concludes the question and answer session. I would like to hand the conference back to Brandi Piacente for any additional or closing remarks.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a great day and good evening.