Core Insights - True value in investments is derived from growth rather than short-term gains, emphasizing a long-term perspective on evaluation [1] - Great businesses provide significant societal value and exhibit durability, deserving of substantial growth [1] - Key characteristics sought in investments include selection, convenience, value, and durability, with a preference for non-cyclical businesses [1] Business Characteristics - Businesses that can consistently outperform competitors through superior products and services are favored [1] - The ability to create multiple revenue streams and maintain complex operations is seen as advantageous [1] - A strong test of a business's resilience is its ability to recover from adversity, both macro and micro [1] Value Drivers - Uniqueness is identified as the primary driver of value [1] - Low costs associated with maintaining existing business operations provide leverage for reinvestment and growth [1] - Trust and network effects are important indicators of a business's durability [1] Management Importance - Effective management is crucial, with a preference for executives whose interests align with the business and who maintain a strong focus [1] - Companies led by seasoned CEOs, founders, or family businesses are particularly valued [1] - Good management fosters a culture that empowers employees and attracts talent, with continuous learning being a key trait [1] Investment Strategy - The success of companies like Amazon illustrates the benefits of a customer-centric approach, leading to extraordinary returns [1] - Favorable investment conditions arise when negative news is already priced in, revealing true value [1] - A strategy of buying back shares is recommended for businesses with durable prospects [1]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of USD 113.00, indicating a potential upside of 34.2% from the current closing price of USD 84.22 [1][4][7]. Core Insights - The company's strong performance in PC games is expected to drive revenue growth in 2025, with a projected 10% increase in game revenue. Mobile games are anticipated to stabilize, aided by the high base effect and the influence of "Hearthstone" [1]. - The third quarter saw a 4% year-over-year decline in total revenue, aligning with Bloomberg consensus expectations, while game revenue decreased by 1%. The adjusted net profit fell by 13% year-over-year due to foreign exchange losses [1][5]. - The company has a promising lineup of new game releases scheduled for late 2024 and 2025, including "Yanyun Sixteen Sounds" and "Marvel Showdown," which are expected to contribute positively to future revenue [2]. Financial Forecast Adjustments - Total revenue forecasts for 2024, 2025, and 2026 have been slightly adjusted downwards, with expected revenues of RMB 105,532 million, RMB 115,647 million, and RMB 127,046 million respectively, reflecting changes of -0.2%, -0.7%, and -1.0% [3]. - The adjusted operating profit margin is projected to be 30.9% for 2024, with a slight decrease from previous estimates [3][6]. - The adjusted net profit for 2024 is forecasted at RMB 31,509 million, with a net profit margin of 29.9% [3][6].

Investment Rating - The report maintains a "Buy" rating for the company [1][3]. Core Insights - The company reported a 4% year-over-year decline in total revenue for Q3 2024, amounting to RMB 26.2 billion, which aligns with Bloomberg consensus expectations [1]. - Operating profit decreased by 5% year-over-year to RMB 7.15 billion, also in line with expectations [1]. - The decline in revenue is attributed to a high base effect and underperformance of certain new games [1]. - Future growth is anticipated from the launch of new game products in December 2024, which are expected to drive revenue growth in FY2025 [1]. - Revenue forecasts for FY2024 to FY2026 have been revised downwards by 5-6% due to the underperformance of new games [1]. - The target price has been adjusted to $125.50 from $130.00, reflecting a 64.5% upside from the current price of $76.28 [4]. Revenue Breakdown - Game and related value-added services revenue decreased by 4% year-over-year to RMB 20.9 billion in Q3 2024, with mobile game revenue down 10% to RMB 14.3 billion [1]. - PC game revenue increased by 29% year-over-year to RMB 5.9 billion, driven by re-releases of popular titles [1]. - Non-gaming businesses showed steady growth, with NetEase Cloud Music revenue increasing by 1% year-over-year to RMB 2 billion [2]. - Youdao's revenue grew by 2% year-over-year to RMB 1.6 billion, primarily due to growth in smart devices and online marketing services [2]. Financial Metrics - The adjusted operating profit margin for Q3 2024 decreased by 0.4 percentage points to 27.3% due to increased sales and R&D expenditures [3]. - The expected P/E ratio for FY2025 is 10 times, which is 31% lower than the historical average over the past two years, indicating an attractive risk-reward profile [3]. - The company accelerated its share buyback program, repurchasing 6.3 million American Depositary Shares at a total cost of $543 million, representing about 1% of the market capitalization as of November 14 [3]. Earnings Summary - Revenue projections for FY2024 to FY2026 are as follows: - FY2024: RMB 106.0 billion - FY2025: RMB 113.2 billion - FY2026: RMB 119.6 billion - Adjusted net profit for FY2024 is projected at RMB 32.5 billion, with a slight decline expected in FY2025 [9][10].

Investment Rating - The report maintains a "BUY" rating for NetEase with a target price of US$125.5, down from the previous target of US$130.0, indicating a potential upside of 64.5% from the current price of US$76.28 [1][3]. Core Insights - NetEase reported a total revenue decline of 4% year-over-year (YoY) to RMB26.2 billion in 3Q24, which aligns with Bloomberg consensus estimates. The operating profit also decreased by 5% YoY to RMB7.15 billion, consistent with expectations [1]. - The decline in revenue is attributed to a high-base effect and underperformance of certain new game titles. The upcoming launches of "Marvel Rivals" and "Where Winds Meet" in December are anticipated to be key catalysts for revenue growth in FY25E [1]. - The report has adjusted the FY24-26E total revenue forecast down by 5-6% due to the softer-than-expected performance of new titles [1]. Revenue Breakdown - Games and related value-added services (VAS) revenue fell by 4% YoY to RMB20.9 billion in 3Q24, with mobile games revenue down by 10% YoY to RMB14.3 billion, primarily due to the high-base effect from the previous year's launch of "Justice Mobile" [1]. - PC games revenue, however, grew by 29% YoY to RMB5.9 billion, driven by the relaunch of "World of Warcraft" and "Hearthstone" in China, with daily active users (DAUs) increasing significantly [1]. - Non-gaming businesses showed steady development, with NetEase Cloud Music revenue up by 1% YoY to RMB2.0 billion and Youdao revenue increasing by 2% YoY to RMB1.6 billion, although innovative businesses revenue declined by 10% YoY [1]. Financial Metrics - The operating profit margin (OPM) slightly decreased by 0.4 percentage points YoY to 27.3% in 3Q24, mainly due to increased investments in sales and marketing (S&M) and research and development (R&D) [1]. - The report highlights that NetEase's current valuation of 10x FY25E price-to-earnings (PE) is at a 31% discount to its 2-year historical average PE, suggesting an attractive risk-reward profile [1]. Valuation Methodology - The report employs a sum-of-the-parts (SOTP) valuation methodology, attributing US$118.4 to the online game business, US$0.7 to Youdao, US$3.2 to NetEase Cloud Music, and US$1.5 to innovative businesses and others, with net cash valued at US$1.7 [8][9].

| --- | --- | --- | --- | |------------------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | N e t Ea se | | | | | | | | | | | | | | | 3Q24 Investor Presentation Investor Relations November 14, 2024 | | | | SAFE HARBOR STATEMENT This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identif ...

Financial Data and Key Metrics - Total net revenue for Q3 2024 was RMB 26.2 billion ($3.7 billion), a 3% increase quarter-over-quarter [40] - Online games net revenue reached RMB 20.2 billion, up 5% quarter-over-quarter, driven by PC games like World of Warcraft and Naraka: Bladepoint, as well as mobile games like Identity V [41] - PC games revenue accounted for 29.2% of total online game revenue, with a 30% quarter-over-quarter and 29% year-over-year increase [41] - Net revenue from games and VAS declined by 4% year-over-year, mainly due to adjustments in PC live streaming services [42] - Youdao's net revenue was RMB 1.6 billion, a 2% year-over-year increase, driven by online marketing services and smart device sales [43] - NetEase Cloud Music's net revenue was RMB 2 billion, a 1% year-over-year increase, primarily due to higher membership subscriptions [44] - Gross profit margin for Q3 2024 was 62.9%, compared to 62.2% in Q3 2023 [45] Business Line Performance - Gaming division achieved total online games net revenue of RMB 20 billion, with PC games growing 29% year-over-year and 30% quarter-over-quarter [8] - Identity V reached record high revenues for the third consecutive quarter, with unprecedented DAUs and global concurrent online players [11] - Naraka: Bladepoint Mobile launched in July, ranking 3 on the iOS top working chart and achieving record high revenue in Q3 [14] - Justice Mobile celebrated its first anniversary, with over 8 million intelligence entities and strong player engagement [15] - Racing Master expanded to Japan, topping the App Store and Google Play free charts [18] Market Performance - NetEase Cloud Music expanded its K-Pop library through partnerships with Kakao Entertainment and JYP Entertainment, enhancing its content ecosystem [34] - Yanxuan achieved double-digit year-over-year growth in pet products and household cleaning items, strengthening its position in the fast-growing fast food sector [37] Strategic Direction and Industry Competition - NetEase is diversifying its portfolio across various genres and expanding its games internationally, with plans to release several highly anticipated titles in the coming months [19] - The company is focusing on high-quality growth and innovation, with a strong commitment to R&D and content creation [49] - NetEase is leveraging its partnership with Blizzard to rekindle loyalty among long-time fans and attract new players, with World of Warcraft and Hearthstone showing strong engagement post-relaunch [25] Management Commentary on Operating Environment and Future Outlook - Management emphasized the importance of innovation and long-term game operations, highlighting the success of established titles like Fantasy Westward Journey and Westward Journey Online [9][10] - The company is optimistic about the future of its gaming pipeline, with upcoming releases like Where Winds Meet and Marvel Rivals expected to drive growth [20][21] - NetEase is committed to expanding its global reach, with a focus on both domestic and international markets [25] Other Important Information - NetEase repurchased shares worth $543 million in Q3 2024, marking a 98% increase from the previous quarter [52] - The company declared a dividend of $0.87 per share or $0.435 per ADS for Q3 2024 [51] Q&A Session Summary Question: Launch schedule and monetization strategy for Where Winds Meet - Where Winds Meet PC is slated for launch by the end of December 2024, with the mobile version following shortly after [56] - The game will focus on tier-based cosmetic offerings and lighter monetization models to create a healthier social ecosystem [58] Question: Operational strategy for Justice Mobile and Eggy Party - Justice Mobile is focusing on balancing commercialization and user experience, with plans to enrich content and explore innovative monetization strategies [62] - Eggy Party is investing in long-term content creation, with confidence in its unique market position and future commercialization opportunities [64] Question: Globalization strategy and performance of Once Human - NetEase is leveraging both overseas first-party studios and domestic studios to produce games for global markets, with Once Human performing well since its release [67] - Upcoming global releases include Marvel Rivals and FragPunk, with high expectations for their performance [68] Question: Performance of Naraka: Bladepoint Mobile - Naraka: Bladepoint Mobile has accumulated 50 million new users since its launch in July 2024, with differentiated content for mobile and PC players [89] - The game is in a healthy and stable status, with long-term confidence in its performance [90]

Financial Performance - Net revenues for Q3 2024 were RMB26.2 billion (US$3.7 billion), a decrease of 3.9% year-over-year[3] - Net income attributable to shareholders was RMB6.5 billion (US$931.7 million), down from RMB6.8 billion in the previous quarter[25] - Non-GAAP net income attributable to shareholders was RMB7.5 billion (US$1.1 billion), a decrease of 13.5% year-over-year[27] - Games and related value-added services net revenues were RMB20.9 billion (US$3.0 billion), a decrease of 4.2% compared to Q3 2023[3] - Youdao achieved net revenues of RMB1.6 billion (US$224.1 million), an increase of 2.2% year-over-year[11] - NetEase Cloud Music generated net revenues of RMB2.0 billion (US$284.9 million), maintaining the same level as the previous quarter[11] - The company reported net revenues of RMB 27,270,406 for the three months ended September 30, 2023, representing an increase from RMB 25,485,805 in the previous quarter[48] - Net income attributable to the Company's shareholders for the three months ended September 30, 2023, was RMB 7,836,888, a decrease from RMB 6,758,749 in the previous quarter[48] - Total net revenues for the three months ended September 30, 2024, were RMB 26,209,879, representing a 3.4% increase from RMB 25,485,805 in the previous quarter[52] - Net income attributable to the Company's shareholders for the three months ended September 30, 2024, was RMB 6,538,435, a decrease of 3.3% from RMB 6,758,749 in the previous quarter[56] Profitability Metrics - Gross profit margin for games and related services was 68.8%, down from 70.0% in the previous quarter[17] - The gross profit for the same period was RMB 16,966,300, with a gross margin of approximately 62.2%[48] - Gross profit for the three months ended September 30, 2024, was RMB 16,476,605, with a gross profit margin of 62.8%[52] - Non-GAAP net income attributable to shareholders was RMB 7,836,888 for the three months ended September 30, 2023, which excludes share-based compensation expenses[44] - Non-GAAP net income attributable to the Company's shareholders for the three months ended September 30, 2024, was RMB 7,499,141, reflecting a 7.5% decrease from RMB 7,818,688 in the previous quarter[56] Cash Flow and Assets - As of September 30, 2024, net cash totaled RMB120.0 billion (US$17.1 billion), an increase from RMB110.9 billion at the end of 2023[29] - The total current assets as of September 30, 2024, were RMB 142,692,585, slightly up from RMB 140,578,661 in the previous quarter[47] - Cash and cash equivalents stood at RMB 21,428,902 as of September 30, 2024, compared to RMB 20,184,013 in the previous quarter[47] - The company generated net cash provided by operating activities of RMB 9,843,920 thousand for the three months ended September 30, 2023, compared to RMB 6,531,832 thousand in the previous quarter[51] - Cash and cash equivalents at the end of the period stood at RMB 18,158,066 thousand, up from RMB 15,679,412 thousand at the beginning of the period[51] Expenses and Liabilities - Total liabilities increased to RMB 57,840,897 as of September 30, 2024, compared to RMB 49,167,949 in the previous quarter, reflecting a rise of approximately 17%[47] - Research and development expenses for the three months ended September 30, 2023, were RMB 4,347,052, showing a slight increase from RMB 4,455,717 in the previous quarter[48] - Depreciation and amortization expenses were RMB 651,856 thousand for the three months ended September 30, 2023, an increase from RMB 520,567 thousand in the same period last year[51] - The company reported cash paid for income taxes of RMB 1,165,196 thousand for the three months ended September 30, 2023[51] Business Segments - The Games and related value-added services segment generated net revenues of RMB 20,864,036 for the three months ended September 30, 2024, accounting for 79.7% of total net revenues[52] - Youdao's net revenues for the three months ended September 30, 2024, were RMB 1,572,541, showing a 19.0% increase compared to RMB 1,321,721 in the previous quarter[52] - NetEase Cloud Music reported net revenues of RMB 1,999,163 for the three months ended September 30, 2024, with a gross profit margin of 32.8%[52] - Innovative businesses and others segment achieved net revenues of RMB 1,774,139 for the three months ended September 30, 2024, with a gross profit margin of 37.8%[52] Future Outlook - The company expects continued growth in its online services and gaming segments, despite potential market risks and uncertainties[41] - The Company expects continued growth in net revenues and profitability driven by new product launches and market expansion initiatives[56] - The company launched new titles like Naraka: Bladepoint and Racing Master, expanding its market presence[6]

Financial Performance - Net revenues for Q3 2024 were RMB26.2 billion (US$3.7 billion), a decrease of 3.9% year-over-year[2] - Net income attributable to shareholders was RMB6.5 billion (US$931.7 million), down from RMB7.8 billion in Q3 2023[25] - Youdao achieved net revenues of RMB1.6 billion (US$224.1 million), an increase of 2.2% compared to Q3 2023[2] - Gross profit for Q3 2024 was RMB16.5 billion (US$2.3 billion), a decrease of 2.9% year-over-year[3] - Net revenues for the three months ended September 30, 2023, were RMB 27,270,406, representing an increase from RMB 25,485,805 in the previous quarter[47] - Gross profit for the three months ended September 30, 2023, was RMB 16,966,300, compared to RMB 16,042,218 for the previous quarter, indicating a growth of 5.8%[47] - Operating profit for the three months ended September 30, 2023, was RMB 7,557,909, up from RMB 6,993,323 in the previous quarter, reflecting an increase of 8.1%[47] - Net income attributable to the Company's shareholders for the three months ended September 30, 2023, was RMB 7,836,888, compared to RMB 6,758,749 in the previous quarter, marking a rise of 15.9%[47] - Total operating expenses for the three months ended September 30, 2023, were RMB 9,408,391, compared to RMB 9,048,895 in the previous quarter, reflecting a rise of 4.0%[47] - Non-GAAP net income attributable to the company's shareholders for the nine months ended September 30, 2024, was RMB 20,931,130 thousand, up from RMB 22,834,289 thousand in the previous year[53] Cash and Assets - As of September 30, 2024, net cash totaled RMB120.0 billion (US$17.1 billion), an increase from RMB110.9 billion at the end of 2023[29] - The company's cash and cash equivalents were RMB 20.2 billion, down from RMB 21.4 billion at the end of 2023, indicating a decrease of approximately 5.6%[46] - NetEase's total assets as of September 30, 2024, amounted to RMB 184.9 billion, a slight decrease from RMB 185.9 billion as of December 31, 2023[46] - Total current liabilities decreased to RMB 45.7 billion from RMB 53.8 billion, reflecting a reduction of about 15%[46] - NetEase's total liabilities decreased to RMB 49.2 billion from RMB 57.8 billion, a reduction of around 15%[46] - NetEase's shareholders' equity increased to RMB 132.2 billion, up from RMB 124.3 billion, representing a growth of approximately 6.9%[46] Dividends and Shareholder Returns - The board approved a dividend of US$0.0870 per share for Q3 2024, payable on December 10, 2024[30] - The company paid dividends totaling RMB 2,423,355 for the three months ended September 30, 2024, compared to RMB 2,264,799 for the same period last year, indicating a year-over-year increase of approximately 7.0%[49] Gaming and Services Performance - The gross profit margin for games and related services was 68.8%, down from 70.0% in the previous quarter[19] - Naraka: Bladepoint mobile game reached No. 4 on the iOS grossing chart following its September update, indicating strong player demand[6] - World of Warcraft saw a 50% increase in daily active players post-relaunch, while Hearthstone achieved over 150% growth[7] - NetEase Cloud Music's net revenues were RMB2.0 billion (US$284.9 million), maintaining the same level as the previous quarter[14] - Youdao's net revenues for the three months ended September 30, 2024, were RMB 1,572,541 thousand, showing a slight increase from RMB 1,321,721 thousand in the previous quarter[50] - NetEase Cloud Music generated net revenues of RMB 1,999,163 thousand for the three months ended September 30, 2024, compared to RMB 2,040,952 thousand in the previous quarter[50] - The company has a significant focus on expanding its gaming and online services, leveraging its in-house R&D capabilities[37] - NetEase's subsidiaries, including Youdao and NetEase Cloud Music, contribute to its diversified service offerings beyond gaming[38] Operational Insights - The company reported non-GAAP net income attributable to shareholders, which excludes share-based compensation expenses, to provide a clearer view of operational performance[41][42] - NetEase emphasizes the importance of non-GAAP financial measures to provide investors with a better understanding of its operational performance[41][42] - The company is actively monitoring market trends and potential risks, including competition and regulatory changes, to maintain its market position[40] Investment and Cash Flow - Operating cash flow for the nine months ended September 30, 2024, was RMB 26,664,613, compared to RMB 23,522,996 for the same period last year, reflecting a growth of approximately 9.1%[49] - The company reported a net cash used in investing activities of RMB 720,861 for the three months ended September 30, 2024, compared to RMB 6,318,756 for the same period last year, indicating a significant reduction in investment outflows[49] - Cash and cash equivalents at the end of the period increased to RMB 23,183,386 from RMB 21,855,316 at the beginning of the period, representing a growth of approximately 6.0%[49] - The company experienced unrealized exchange gains of RMB 1,050,644 for the three months ended September 30, 2024, compared to unrealized exchange losses of RMB 718,121 for the same period last year[49] Depreciation and Amortization - Total depreciation and amortization for the nine months ended September 30, 2024, was RMB 2,395,488, up from RMB 1,720,447 for the same period last year, reflecting an increase of approximately 39.2%[49] Other Financial Metrics - The company recorded a loss on disposal of property, equipment, and software of RMB 2,920 for the three months ended September 30, 2024, compared to a gain of RMB 2,291 for the same period last year[49] - The company’s cash paid for income taxes for the three months ended September 30, 2024, was RMB 1,165,196, compared to RMB 3,864,820 for the same period last year, showing a decrease of approximately 69.8%[49] - The company reported a significant increase in contract liabilities, reaching RMB 1,928,060 for the three months ended September 30, 2024, compared to RMB 2,009,423 for the same period last year[49]

HANGZHOU, China, Nov. 14, 2024 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the third quarter ended September 30, 2024. Third Quarter 2024 Financial Highlights Net revenues were RMB26.2 billion (US$3.7 billion), a decrease of 3.9% compared with the same quarter of 2023. Games and related value-added services net revenues were RMB20.9 billion (US$3.0 billion), a decre ...

When I began looking at NetEase (NASDAQ: NTES ) as a possible investment opportunity I was surprised with what I found. NetEase is a company that developed and launched one of the most-played and highestgrossing franchises of the past I had no formal training or education about the stock market or investing as a kid. Like everyone around me, I spent lavishly on a modest income, carried robust credit card balances, and failed to add money to the stock market. I was miserable, and my lack of investment knowle ...