NetEase - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good day, and welcome to the NetEase Third 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.

Brandi Piacente (Head of Investor Relations)

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 20F 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 Third Quarter 2025 earnings 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 irr.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer, Mr. Zhaoxuan Yang, Executive Vice President, 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 Pang (VP of Corporate Development)

Thank you, Brandi, and welcome everyone to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. The third quarter marked continued momentum and strong execution across our NetEase family. By uniting creativity with exceptional operations, we created more meaningful connections with players. Driven by our diverse portfolio of games that expanded our global reach and reignited our player enthusiasm for key franchises, total revenues increased 8% year over year, reaching RMB 28.4 billion in the third quarter, and revenues from our games and related VAS grew 12% in the third quarter compared with the same period last year. Innovative creativity and long-term operation remain the defining force behind NetEase's ongoing player engagement and global expansion. Whether for new launches or established titles, our teams are dedicated to delivering unexpected gaming experiences and responsive live services that are winning over players worldwide.

This strategic creative approach continued to gain traction overseas, amplifying the influence and excitement of multiple games in the third quarter, including our new releases. Destiny Rising, our new free-to-play mobile sci-fi RPG shooter, quickly topped the iOS download chart in the United States and other major Western markets for its global launch on August 28. The game has received widespread acclaim, securing leading positions on the iOS download chart across nearly 100 markets worldwide. Featuring Destiny's iconic, powerful gunplay across diverse modes set in a new timeline, the game has earned positive feedback from longtime fans while gaining traction within the broader shooter game community. The excitement continued in China, where Destiny Rising debuted on October 16 and immediately topped the iOS downloading chart, drawing in players nationwide to experience the thrilling shooting action at their fingertips. Marvel Rivals continues to captivate the superhero shooter fanbase around the world.

Kicking off its fourth season on September 12, the game introduced a wealth of refreshing new content, features, special events, and team-ups. Following the update, it reached number three on Steam's global top seller chart. The new map, Kunlun: Heart of Heaven, transported players to the Asian East, while the debut of Angela, an eagerly anticipated vanguard, spurred excitement across the player community. Additionally, inspired by Marvel Animation's Marvel Zombies, a limited-time PvE zombie mode was released, featuring challenging bosses, Zombie Namor and Queen of the Dead, just in time for Halloween. Beyond the game, Marvel Rivals Ignite celebrated its grand finals at DreamHack Atlanta, held in collaboration with ESL FACEIT Group. Elite players from around the world showcased their exceptional skills and strategies, drawing massive engagements both onsite and online, and reflecting Marvel Rivals' growing appeal.

As we continue to enrich our global portfolio through diverse partnerships, our original titles are also gaining increasing momentum worldwide. Delivering a distinctive survival open-world experience to players globally, Once Human launched engaging updates in the third quarter, agonizing its growing global community. On October 30, the game introduced a major new scenario centered on the capture and customization of deviations, alongside a significant refresh of the PvP experience that provides more intense combat options. The highly anticipated collaboration event with the global hit game Palworld also went live on the same day, bringing popular pulse to a dedicated in-game island, which further invigorated the player community. We recently shared some of our upcoming international expansion plans at worldwide gaming events like Gamescom and the Tokyo Game Show 2025, generating even more excitement in the community with engaging player interactions.

We exhibited Where Winds Meet at Gamescom 2025, showcasing our creative ambition in cultural storytelling and next-generation wuxia worldbuilding. In China, Where Winds Meet continued to captivate wuxia fans with its narrative-rich setting, authentic Chinese martial arts themes, and innovative gameplay that combines single and multiplayer. Each newly unveiled district not only engages our existing fans but also attracts new players, driving continued growth in both revenue and monthly active users to new highs in the third quarter. On November 14, we brought Where Winds Meet's Eastern Sea and Open World, featuring dynamic combat, to the global market on both PC and PlayStation 5. Within just two days, we achieved a peak of 190,000 concurrent players, securing the number five spot among the most played games and number four position for top seller globally on Steam.

Additionally, it became one of the top 10 best sellers across the United States, Germany, France, and several other regions on PlayStation. This underscores the widespread appeal of our captivating wuxia universe to an even broader audience. To further enhance community engagement, the mobile version has commenced pre-registration and is set to launch soon. Our highly anticipated title, Ananta, also garnered significant attention at the Tokyo Game Show. Players showed enthusiasm for in-depth game trailers and engaging hands-on playtesting. They were drawn in by the game's imaginative action design, high-fidelity visuals, and modern urban storytelling. Set in a dynamic and immersive city environment, Ananta blends high-energy action with open-world freedom, offering players an experience that goes well beyond conventional gameplay.

We are pleased to see mounting excitement and anticipation among this title, including recognition from the Japan Game Award 2025 Future Division, where it was named as one of the most promising upcoming games. Our groundbreaking MMO, Sword of Justice, went global across mobile and PC platforms on November 7, topping the iOS download chart in multiple regions. The intentional release included AI-powered NPCs and an intelligent face creation system. We showcased this at the Tokyo Game Show in September, highlighting how emerging technologies are reshaping gameplay experiences. Sword of Justice also continued to engage domestic players in the third quarter with its ever-evolving gameplay and rich content. With the global version now live, Sword of Justice is bringing its immersive world and cutting-edge AI enhancements to a broader international audience.

On top of the new releases we have brought to the international stage, our established games are also gaining steam in multiple regions worldwide. Our realistic car simulation game, Racing Master, has continued to gain popularity overseas through localized content, making it highly resonate with players in Japan since it launched there last year. Player engagement spiked in August during its anniversary celebration with carefully designed in-game content, boosting the game's performance in Japan. Exciting esports events like the Racing Master 2025 Legend Cup Finals held in Bangkok in August brought passionate racers and fans from across Asia together, uniting Racing Master's distinctive global community. As firm believers in live operations, we stay closely attuned to players' evolving expectations across every title, and our domestic games continue to deliver strong performances. Each game update presents new opportunities to entertain, engage, and grow our communities.

This approach continues to resonate with players, driving steady growth across our domestic portfolio for both new titles and games that have been around for decades. Fantasy Westward Journey Online, one of our longest-running flagship titles at 22 years and counting, amplifies our dedication to sustain high-quality operations. The game is built around an inclusive ecosystem that allows players of all types to find enjoyment. We continue to inject fresh vitality through new features and mechanics. In July, we launched our innovative unlimited server, which offers classic gameplay under a popular modern model that eliminates the entry barrier of upfront time-based payments. This generated substantial enthusiasm from longtime fans and newcomers alike, significantly boosting player engagement. As a result, it has achieved four successive record-breaking concurrent player counts since the third quarter, reaching a height of 3.58 million in early November.

Fantasy Westward Journey Mobile also continues to evolve as we regularly introduce new features that players love. To meet player demands, we launched our new casual server, which is designed for fun and streamlined play. It offers Fantasy Westward Journey Mobile's signature gameplay in a lighter format, featuring simple progression, low thresholds, and intuitive controls. With the surge of new and returning players, monthly active users reached a two-year high in September. Another long-developed MMO, Tien Xiang, continues to engage its community with deeply resonant updates. In October, we concluded close beta testing for Tien Xiang 2 Classic. This version recreates the game's iconic art style and slower-paced gameplay, allowing players to experience its distinctive Chinese cultural essence. Meanwhile, the existing Tien Xiang client will undergo a complete upgrade, with player progression seamlessly shared with Tien Xiang Wanxiang, the brand-new cross-platform client powered by Messiah, our flagship in-house engine.

The upgrade will both enhance graphic quality and expand access for players across PC and mobile platforms, allowing them to experience the Tien Xiang universe everywhere. Identity V's fanbase maintained a high engagement level in the third quarter, supported by our steady cadence of seasonal updates and partnerships. New characters released along with each season update, including Hunter of Cues and the Survivor of Lunterness in the third quarter, infused new energy into Identity V's distinctive world, reinforcing Identity V as a top destination for asymmetric gameplay fans. In addition, the game's collaboration with the Palace Museum Classic on September 25 added majestic rooftops of the Forbidden City to Identity V's banner, adding a new layer of cultural depth. Anki Party also experienced robust growth with its third anniversary celebration in July, sparking renewed enthusiasm across the player community.

Daily active users exceeded 30 million, and average playtime hit a record high, driving historical engagement levels. Two new gameplay modes quickly followed in September. Spooky Treasure Squad presents an intense extraction experience, and Crazy Farm introduces a casual and social farming simulator. Both were highly praised and attracted a wave of returning users during the National Day holiday. Meanwhile, we continue to evolve Anki Party's AI-powered EGC2, making its map design faster, easier, and more enjoyable. We believe that, together, these innovations are keeping Anki Party fresh and its community inspired. Thanks to this ongoing effort, we saw Anki Party's performance recover to historical peak level in both daily active users and average playtime, which we expect will pave the way for smooth development in the coming years.

Another example of our player-first philosophy and commitment to innovative, high-quality content is Onmyoji, one of China's earliest and most iconic anime-style games. On September 10, we launched its ninth anniversary celebration, featuring rich new content and gameplay updates shaped by player feedback. A highlight was the new character, Yuki Gosen, whose beautifully crafted CG trailer gained widespread attention on social media from both longtime fans and the broader anime community. It was broadly heralded for its innovative use of stereoscopic screen and 2D animation text to create a naked-eye 3D visual effect. With strong community support, Onmyoji quickly entered China's top 10 iOS gaming chart, demonstrating the vitality of this enduring IP and the strength of our long-term operations. Our commitment to engaging players and continuous innovation is also evident in Naraka: Bladepoint.

In the third quarter, we rolled out new heroes and exciting collaborations, such as Armor Hero in September and a time-limited return of Nier in October. Naraka: Bladepoint esports presents is also growing. The 2025 Naraka: Bladepoint Pro League (NBPL) autumn season marked its first professional league since being selected for the 2026 Aichi Nagoya Asian Games, culminating its rolling finals in October. Now in its fourth year, NBPL has become the cornerstone of Naraka's esports ecosystem and China's top professional league for the title, driving increasing social media engagement across major platforms. We continue to expand our domestic portfolio with new, light-hearted experiences that appeal to a wider range of audiences. Shoutao Moshian, our MMO featuring magical, heartwarming creatures inspired by Chinese fairy tales, has built a dedicated fanbase since its launch in August.

Designed with a portrait interface for easy one-handed play, the game combines the joy of capturing and nurturing creatures with strategic turn-based combat and building a homeland for them to thrive in. Backed by our players and supported by world-class partners and global teams, we are building enduring collaborations that keep expanding what's possible in gaming. Blizzard titles continue to elevate the gaming experience for Chinese players. World of Warcraft rolled out updates across both classic and modern servers during the third quarter, sustaining strong engagement among longtime fans and newcomers alike. To further enhance the localized experience, the game just launched a highly anticipated China-exclusive Titan Reforged server this week. Blending the nostalgia of classic expansions with modern gameplay elements, the new server fulfills players' long-awaited expectations and has reignited excitement across the World of Warcraft community.

Overwatch 2 has also recently introduced a new Chinese hero, Wu Yang, further deepening the game's diverse roster of characters. Meanwhile, Hearthstone celebrated its 11th anniversary, amassing over 100 million registered players in China. A series of special anniversary events drove enthusiastic participation from both loyal fans and newcomers to the game. The Diablo franchise also continued to capture attention. Diablo II: Resurrected, the legendary remaster of the installment that helped define the franchise, returned to China on August 27. Newest season, released in October, pushed the game's daily active player base to a record high. In parallel, Diablo IV, the latest blockbuster bringing the series' signature dark aesthetic to a new height, will launch in China on December 12. Furthermore, the genre-defining real-time strategy game, StarCraft II, also returned on October 28, triggering excitement among fans.

Minecraft China Edition, the localized version of the globally popular sandbox game, reached 1.25 million concurrent players on August 17, an impressive milestone in its eighth year of operation. Committed to nurturing its EGC ecosystem, the game continues to enhance creation tools and expand exposure for community creators, now supporting over 300,000 creators. By delivering enriched, locally tailored experiences, Minecraft China Edition has fostered a highly engaged and loyal player community. Beyond the above titles, other globally renowned franchises in our portfolio also continue to thrive in China, engaging vast creative community and expanding local ecosystems. Along with our expanding global presence and evolving development capabilities, our domestic community continues to thrive. Regardless of geographies or genre, we'll continue to put players first and work closely with our partners to deliver memorable, high-quality experiences across our beloved franchises and existing new titles still yet to come.

Turning to Youdao, Youdao continues to solidly execute its AI-native strategy in the third quarter, with healthy development of both its education and advertising businesses. For learning services, Youdao Ling Shi grew gross billing by over 40% year over year in the third quarter, notably in partnership with the Yang Mathematical Science Center of Tsinghua University, providing technical support to a platform which is designed to identify and support mathematically gifted students. The platform is currently being piloted in top-tier schools, with the national rollout plan following further refinements. Youdao's online marketing services achieved a robust growth in the third quarter. As we advance the use of AI across multiple advertising processes, we further enhance our expertise in programmatic advertising and influencer marketing campaigns, elevating the efficiency and effectiveness of advertising. For smart devices, we continue to enrich our offerings with technology upgrades.

In the third quarter, we launched a new tutoring pen, Youdao Space X, which features a series of intelligent capabilities, such as precise scanning for long-form and multi-graphic problems, to help students learn more effectively. Turning to Yanxuan, the business continues to perform well across major e-commerce platforms, led by steady development in its core categories, such as pet food, home sense, and home goods. Propelling technology-driven innovations, Yanxuan's product launches have consistently stood out in the market. Its new pet food product uses a refined production process, making it smoother and easier for pets to digest, earning it widespread praise for addressing common digestive issues. Across the NetEase family of businesses, we continue to build on a foundation of creativity, quality, and disciplined execution.

Looking ahead, we are focused on advancing our development capabilities and global reach, scaling our original IP into lasting franchises, and elevating every experience we deliver. Guided by innovation and the trust of our communities, we are shaping a future defined by meaningful growth and enduring impact. That concludes William's comments. I will now provide a brief review of our 2025 third-quarter financial result. Given the limited time of 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 lines are in CNY, as otherwise stated. Total net revenue for the third quarter will CNY 28.4 billion, or $4 billion, representing an 8% increase year over year. Total net revenue from our games and related VAS will CNY 23.3 billion, up 12% year over year.

Specifically, net revenues from online games were RMB 22.8 billion, up 3% quarter over quarter and 13% year over year. The quarter over quarter increase in online games net revenue was due to higher net revenues from self-developed games such as Fantasy Westward Journey Online and Sword of Justice, as well as certain licensed games. The year-over-year increase was attributable to higher net revenue from self-developed games such as Fantasy Westward Journey Online, Anki Party, and newly launched Where Winds Meet and Marvel Rivals, as well as certain licensed games. Youdao's net revenue reached RMB 1.6 billion, representing a 15% increase quarter over quarter, driven by growth in smart devices and online marketing services. Year over year, revenue rose by 4%, attributed to a higher contribution from online marketing services. NetEase Cloud Music's net revenue was RMB 2 billion, stable quarter over quarter, but down 2% year over year.

Notably, revenue from membership subscriptions continued to show healthy growth both sequentially and year over year. Revenues from social entertainment services and others, though still lower compared with the same period last year, stabilized quarter over quarter. Net revenues for innovative business and others were RMB 1.4 billion, down 15% quarter over quarter and 19% year over year. The sequential decline was mainly driven by Yanxuan due to its high base during the 618 e-commerce festival. The year-over-year decrease reflected an increase in certain intersegment transaction elimination and, to a lesser extent, decreased net revenue from Yanxuan and certain other businesses. Gross profit for the third quarter of 2025 was RMB 18.2 billion, up 10% year over year, primarily driven by increased net revenue from online games. This quarter, our total gross profit margin was 64.1%.

Looking at our third-quarter margin in more detail, gross profit margin was 69.3% for online games and related VAS, compared with 68.8% in the same period of last year. The improvement was mainly driven by a higher mix of PC games in China, which typically have higher margins. Our gross profit margin for Youdao was 42.2%, compared with 50.2% in the same period last year. The decrease was mainly due to the declined gross profit margin of online marketing services. Gross profit margin for NetEase Cloud Music was 35.4% in the third quarter, versus 32.8% in the same period a year ago. The margin improvement was primarily driven by steady growth in our core online music business, with lower contributions from social entertainment and other lower-margin services. For our innovative business and others, gross profit margin was 43.0%, compared with 37.8% in the third quarter of 2024.

Despite the impact of intersegment elimination mentioned earlier, the improvement was mainly driven by better margins at Yanxuan and the higher revenue contribution from certain innovative business with relatively stronger margins. The total operating expenses for the third quarter was RMB 10 billion, or 36% of our net revenues. Taking a closer look at our cost composition, our sales and marketing expenses as a percentage of total net revenue were 15.7%, compared with 14.5% for the same period last year, primarily due to increased marketing expenditure related to online games. Our R&D expenses maintained stable at 16% of total net revenues in the third quarter, compared with 16.9% for the same period last year, reflecting our consistent investment in content creation and product development. The effective tax rate was 13% for the third quarter.

As a reminder, the effective tax rate is presented on an accrual basis in accordance with operable policies and our operations. Our non-GAAP net income attributable to shareholders for the third quarter totaled RMB 9.5 billion, or $1.3 billion, up 27% year over year. Non-GAAP basic earnings per ADS for the quarter was $2.09, or $0.42 per share. Additionally, our cash position remains robust, with net cash of approximately RMB 153.2 billion as of September 30, 2025, compared with RMB 142.1 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 $0.114 per share, or $0.57 per ADS.

The company announced today that its previously approved share repurchase program of up to $5 billion for the company's ADS and ordinary shares in open market or other transactions will be extended for an additional 36 months until January 9, 2029. As of September 30, 2025, approximately 22.1 million ADS has been repurchased under this program for a total cost of approximately $2 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please.

Operator (participant)

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 have follow-up questions, please rejoin the queue. Your first question concerns Yu Qingzeng [guess] with CICC.

Yu Qingzeng (Analyst)

[Foreign language]

thanks management for taking my question and the congratulations on the third quarter. my question about your Fantasy Westward Journey. given that Fantasy Westward Journey PC has consistently set new records for online player count, since this summer, we would appreciate that the company sharing its operational strategy for this evergreen title. We have several follow-up questions on it. firstly, what's the core driving factors behind the unlimited player server? secondly, what's the user profile? what's the ratio of returning players to new players? lastly, is this model replaceable across other flagship titles?

Thank you.

William Ding (CEO)

Okay, [Foreign language]

Okay, I'll do the translation. The longevity of Fantasy Westward Journey Online PC is based on its highly stable economy system and unique, enriched gaming experiences, which are very rare in most other games. Our team has been dedicated to providing a sustainable fun experience, stable ecosystem, and innovative content. This commitment has been recognized and appreciated by our players as well, as you can see from the market. In the unlimited server, we have removed the upfront time-based payment, streamlined the gameplay and systems, offered a lighter gameplay format, while preserving the core designs that have evolved in our classic server over time. Compared with the comprehensive and diverse in-game experience on the content, unlimited server offers enjoyable experiences in the more simple and direct manner.

With a smooth learning curve, unlimited server has attracted both many former players back to the game as well as new players. This user demographic of unlimited server actually also benefits the classic server by introducing additional new and returning players. Fantasy Westward Journey Online as a legacy game has been operated for 22 years. You know, we remain committed to the innovation and the diversified experience to continuously meet the demands from our community. Looking ahead, we will continue to focus on long-term development, providing our broad player community with various choices in one game. Thank you.

Operator (participant)

Your next question.

Bill Pang (VP of Corporate Development)

Operator, next question, please.

Operator (participant)

Comes from Thomas Chang with Jefferies.

Thomas Chong (Managing Director)

[Foreign language]

Hi, good evening. Thanks management for taking my question. Can management comment about the gaming trend in China as well as overseas? On the other hand, can management also talk about the overseas expansion strategy? Thank you.

William Ding (CEO)

[Foreign language]

Okay, I will do the translation. During our business operations process of doing business in overseas markets, we have accumulated successful experiences, which is powered by the strong development capability we have in-house here. For example, in Japan, we have Knives Out and Identity V, been very popular national level games. Last December, we released Marvel Rivals globally, super successful. Just November 15th this month, we released Where Winds Meet in global markets. All this product achieved a very good level of success overseas, and we hear a lot of positive feedback from the community as well. What we see is that in the overseas market, NetEase is one of the most prominent game developing powerhouses in our industry. We are the only company that brings the purely, truly Chinese authentic online games to global market.

For example, Where Winds Meet is a very Chinese Wuxia setup, and we're the only big successful companies that bring this level of authentic experience to the online gamers globally and receive very positive feedback. Looking ahead, we believe we have the capability to bring more and more success cases to overseas markets and provide gamers from the globe with more and more high-quality content and services. We have confidence in that. Thank you. Operator, next question

[Foreign language]

Yeah, there are some further comments from William. One is that actually still in this month, we also rolled out our Sword of Justice into global market. Of course, three years ago, we rolled out Naraka: Bladepoint PC on global markets. As you heard, we showed our games to the public for both Ananta and Sea of Remnant. The market has very big expectations.

We showed Ananta at Tokyo Game Show this year, and it's been named one of the most promising upcoming games by the Japan Games Award 2025 Future Division. NetEase, we are based in China, and we are also carving our territory in the global market. That is what we have been doing. We have some successes, and we're going to keep doing. Thank you. Operator, next question.

Operator (participant)

Comes from Ritchie Sun with HSBC.

Ritchie Sun (Equity Research Analyst)

[Foreign language]

Thank you management for taking my questions. Regarding Identity V, we have seen the volatility in growth and DAU in recent months. Can management discuss the reasons behind it and the strategy to improve the performance? Secondly, World of Warcraft and Hearthstone have returned to China for one year already and are about to face tough comms.

Can management discuss the performance metrics now versus one year ago and plans to drive sustainable growth in the future? Diablo IV is also coming back soon. Can management discuss the monetization potential considering the more intense competition in the ARPG genre? Thank you

William Ding (CEO)

[Foreign language]

Okay, I will translate this part first. Indeed, it is true that there has been some influence from competing products during the summer holidays, particularly among general users in lower-tier cities. However, we also have noticed that the impact has eased since the start of back-to-school time. In fact, talking about September, Identity V's metric has reached historical highs starting from the new semester compared to the same period in previous years. While Q4 historically has never been the peak season for Identity V, the team is focusing on preparing new content and marketing campaigns for the Chinese New Year cycle.

During this period, we observed there are diversified demands on diversified gameplays from community. So we have been preparing more comprehensive and large-scale side game modes. While on the other hand, we're also working on the next chapters of the game. Yeah

[Foreign language]

Okay, thank you. As we approach the end of current expansion of World of Warcraft, it is indeed expected to see a decline in performance compared to its launch period. Meanwhile, Hearthstone has steadily maintained its cadence of expansion pack updates over the past years. With different operation strategies from the past, the performance of both games actually maintained higher status than when the operation closed previously. Moving forward, we'll continue to deepen our collaboration to sustain our unique competitive offerings in the China market. One specific example I want to give here is the Titan Reforged server of World of Warcraft.

That indeed was initiated together by our Chinese team and the US team together. We set the target and design together and developed specific for this demand. The result is very good. That is one example to see by working closer together, we can achieve better results compared to the past. Talking about Diablo, Diablo IV has its own unique quality, and we have brand new business plans in place for it. We believe it will secure its deserved market share and commercial performance in the ARPG segment after launch. In addition, StarCraft II has achieved record-high user engagement since its launch, infusing vitality into the RTS genre. Thank you. Operator, next question, please.

Operator (participant)

Your next question comes from Alicia Yap with Citi Group.

Alicia Yap (Equity Research Analyst)

[Foreign language]

Just wanted to follow up.

I think management earlier mentioned Ananta was recently showcased at the Tokyo Game Show and has a pretty good feedback. I just wanted to know more details about the user feedback. How should we think about the market positioning and also the differentiations of this game? It also seems that the game included pretty decent rich content and also the innovative gameplay. Any comments on that? Are there any updates regarding the next testing timing and also the official launch timing in 2026 that you can share? Thank you.

[Foreign language]

We showcased the latest update and play testing of Ananta at the Tokyo Game Show, which attracted significant attention on social media across the world, winning one of the most promising upcoming titles by the Japan Game Award 2025 Future Division.

We believe with a blend of console quality, content, innovative monetization strategy, as well as our focus on long-term operations, we anticipate the game will secure a new position within the industry ecosystem. We are currently planning to further enhance our development process. The development process is on track now, and we will proceed with testing and launches as scheduled. When the time comes, we have further updates to share. Yeah. Thank you. Operator, next question, please.

Your next question comes from Jialong Shi with Nomura.

Jialong Shi (Managing Director)

[Foreign language]

We noticed from media it seems to us the number of new games in your pipeline every year is smaller than in the past few years. If our observation is correct, just wonder what is your current strategy towards launching new games into the market?

If that does not launch as many new games each year, what will be the growth driver for your online gaming business? Thank you

William Ding (CEO)

[Foreign language]

Okay, I will do the translation. The whole company will be very focused on our success products. Among the already success products, we'll keep refining and keep focusing. We don't want to distract too much focus onto charter many, many new products which we don't have super confidence. For new projects, we'll look at new products more prudently and more focused, making sure that whatever new product we're building, it has confidence power in the content market. We actually don't see this to contradict with each other. We believe being focused is one of the core competence a company needs to have. That's our view. Thank you.

Operator (participant)

Your next question, please. Comes from Felix Liu with UBS.

Felix Liu (Lead Analyst and Executive Director)

[Foreign language]

Thank you, management, for taking my question. My question is on the recent news of organizational changes in your game department. Will these changes impact the near-term operations of the related games? How does management think about the current organizational structure under the context of your game strategy? Should we expect more changes to come? Thank you.

William Ding (CEO)

[Foreign language]

Okay, I will do the translation. Regarding the recent adjustment and changes, it's part of the company's normal personnel turnover process, and that's been carried out without impacting daily operations of our game. That's the short. The adjustment is aiming to make the organization more focused and efficient, allowing us to keep concentrating on creating enduring high-quality products. For example, for existing evergreen titles, we ask our teams to stay focused, continuously refining and optimizing the games.

For new titles that show evergreen potentials, we'll allocate sufficient resources to develop them into evergreen, long-lasting, successful games. However, for teams that are not keeping pace with the market trends or user demands, we also must train decisively to make sure a healthy development of our core initiatives. NetEase has been especially for 28 years, and our commitment to creating high-quality products has remained unchanged. We'll allocate more resources to evergreen titles and provide more opportunities to teams who are creative and willing to innovate. Thank you. Operator, next question, please.

Operator (participant)

Your next question comes from Linking Kong with Goldman Sachs

Lincoln Kong (Equity Research Analyst)

[Foreign language] Thank you, management, for taking my question. My first question is about AI. We have actually seen some of the games like Egg Party, Justice Mobile, has already integrated with AI applications.

Going forward, for our existing portfolio and the new games, how should we think about AI can bring additional opportunities to our gamers? The second question is in terms of the future new games, given that the company now focuses more on quality of those new games, how should we think about the potential important game genre going forward? Specifically, for the shooting game genre, globally, I think we have seen rapid growth. How would NetEase sort of differentiate ourselves in this shooting genre? Thank you.

William Ding (CEO)

[Foreign language]

Okay, I will do the translation. First of all, regarding the question on AI, we have been using AI in development, and AI is very important in game development and operation. We have accumulated tons of hands-on experience in this area.

Especially compared to many of our peer companies from overseas, we have more hands-on experience in this area. We have deployed massive resources in the research of AI and how to use AI in the process of game development, innovation, and operation. Actually, the user experience is the best answer to guide us on how we should deploy technologies. We do not think we have time here today for detailed specific user experience explanations. Regarding your next question on the future direction of product, as we explained, we will focus on concentrating resources on building really high-quality flagship products, the product that we have conviction on the success. We will not do aggressively, blindly open many products. That is not our direction. We will do focused, targeted approach to do new products.

In the future coming years, we believe NetEase, compared to most many other companies in our industry globally, we are one of the companies that has a clear vision on the future innovations, future products, and we will make grand breakthroughs. Thank you. Operator, next question, please.

Your next question, Felix Liu[audio distortion], with Morgan Stanley.

[Foreign language] Let me translate my question. My question is about the Sea of Remnant, this new game. Could management share about the R&D development and expected launch timing? And what will be the commercial strategy for this title? And is there any direct peers or competitors for this game? And what NetEase can do to differentiate? Thank you.

[Foreign language]

Okay, I will do the translation. First of all, the Sea of Remnant is a very important product to us. We focus on that very much.

The team has very rich development and operation experience in the company. The game is built on our self-developed game engine to support both PC, mobile, and console as well. On the detailed gameplay and content, we believe we have clear decisions on how to do that. We believe it's going to be a fresh experience in the market. It's going to be a multi-character cultivation kind of type, but not the traditional way. The sailing experience on the ocean as well as the rich combination between characters and classes, we believe will bring a fresh, unexperienced ocean experience to the gamers. Thank you.

Operator (participant)

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

Brandi Piacente (Head of Investor Relations)

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. Thank you.