Shulou(Shulou.com)11/24 Report--

According to the news on the evening of February 23, Beijing time, NetEase today released its financial results for the fourth quarter and the whole year of 2022 as of December 31. NetEase's net income in the fourth quarter was 25.3541 billion yuan ($3.676 billion), compared with 24.4268 billion yuan in the previous quarter and 24.3736 billion yuan in the same period last year, according to the financial report. The net profit attributed to NetEase's shareholders was 3.9527 billion yuan ($573.1 million), compared with 6.6994 billion yuan in the previous quarter and 5.6942 billion yuan in the same period last year. Based on non-Non-GAAP, the net profit attributable to shareholders of NetEase was 4.8114 billion yuan ($697.6 million), compared with 7.4696 billion yuan in the previous quarter and 6.5956 billion yuan in the same period last year.

NetEase's net income was 96.4958 billion yuan ($13.9906 billion) in 2022, compared with 87.606 billion yuan in 2021. The net profit attributed to shareholders of NetEase was 20.3376 billion yuan ($2.9487 billion), compared with 16.8568 billion yuan in 2021. Based on non-American general accounting standards (Non-GAAP), the continuing operating net profit attributable to NetEase's shareholders was 22.8084 billion yuan ($3.3069 billion), compared with 19.7619 billion yuan in 2021.

After the release of the results, NetEase CEO Ding Lei, CFO Yang Zhaoyi and other company executives attended the subsequent earnings call to interpret the main points of the results and answer analysts' questions.

The following is the main content of the analyst Q & A session in this conference call: Citibank analyst Alicia Yap: my question is about the domestic game pattern. After the normalization of the domestic game approval process, will NetEase reallocate more resources to the development of domestic games? Or will more resources be invested in new games and new online games specifically aimed at Chinese gamers? Or will more resources be continuously invested in overseas game development? Could you ask the management to quantify it for us?

Ding Lei: judging from the past few months, the distribution of domestic game version numbers has become more and more normal, which is a great good news for us. NetEase has always attached great importance to the domestic and overseas markets. in fact, we have spent a lot of time at home in the past, and we will pay attention to both at home and abroad in the future. Therefore, there is no such thing as "we should change our strategy after opening up". We have always attached importance to it at home and abroad.

CICC analyst Yang Bai: my question is about overseas games. Can the management analyze the current competitive situation in the global game market? Especially for NetEase, what opportunities and challenges do we see? Or what advantages and disadvantages does NetEase see compared with other competitors? In addition, can NetEase cooperate with domestic business in the process of international business? Finally, if the company has recently developed or is about to launch overseas games, can the management share it with us?

Ding Lei: in fact, in our opinion, the state of overseas games is quite different from that of Chinese games: European and American players attach great importance to PC games and console games, and their views on mobile games are more casual; Japanese and Korean players think that mobile games, console games and PC games are acceptable; many Chinese players prefer mobile games. Therefore, our positioning in the content of the game is also different, and the content positioning of PC games is certainly different from that of mobile games. This difference certainly exists, but I believe NetEase can find a solution. I am confident and confident that we will be able to develop games acceptable to both domestic and international players in the future.

Goldman Sachs analyst Lincoln Kong: my question is about mobile games "against the cold". I saw that NetEase got the version number. Could you ask the management to share the current development progress of the game with us? When is it expected to be online this year? In addition, can you tell us more about the mobile games of "against the cold"? What are the connections and changes between it (mobile game version) and PC version? We see that there seems to be some ChatGPT elements in it. Could you ask the management to introduce it to us in detail?

Executive: "against the cold" got its version number in January, and we are currently making final preparations before launching, and we are expected to meet with you in the first half of this year.

Compared with the "upstream cold" PC games, our mobile games will pay more attention to the game experience of players, taking into account all types of players, including single players, multi-player players and so on. In the whole process of content development, compared with tradition, we have many breakthrough innovations, including the application of the most advanced AI technology for content production. In addition, we also put more emphasis on the release of players' personality in the game.

In fact, we summed up NetEase's experience in large-scale MMORPG (massively multiplayer online role-playing games) games over the past 20 years, and put forward a lot of new ideas for the next generation of MMORPG games, and implemented them in practice. We believe that NetEase will bring a very different experience to all players. Please look forward to it.

Haitong International analyst Natalie Wu: we see that the game "Egg Party" has achieved very eye-catching results. What does the management think of the success of this game? In fact, we have also noticed that NetEase has launched good games more and more frequently in recent years. Should we regard the success of the "egg party" as a so-called "unexpected joy", or is its success the result of a qualitative improvement in operation in recent years? If it is the latter, what other surprises can this year's "egg party" bring us?

In addition, in terms of the sustainability of the game flow, we can see that some games performed very well in the early stage, such as "Fantasy Journey to the West". The results of these games were very dazzling when they were released, but the flow declined slightly faster in the later period. I wonder if, from the management's point of view, is there any way to judge the sustainability of a game that is constantly producing water? Take the "egg party" as an example, how does the management view the late performance of the "egg party"?

Ding Lei: "Egg Party" is a very successful family fun type leisure game of NetEase. In the past few months, the overall performance of the Egg Party has been very eye-catching. As for what you are worried about, I believe it will not happen in the future. We won't make the same mistakes we made before. We very much hope that this game will bring users a pleasant family experience. In the future, we will invest more R & D and management to do a good job in the long-term service of the game. I think the "long term" here is at least 10 years. I believe we have this ability, such as "Fantasy Journey to the West". We have been doing it for 20 years. I have full confidence in the "egg party".

Morgan Stanley analyst Alex Poon: my first question is about the performance of Forever robbery on the Xbox platform and the future release progress of the game on PS4 and PS5 platforms? In addition, how is the current research and development of "forever robbing forever"? Can you share with us the timetable for the global launch of the game?

My second question is about NetEase's profit trend in 2023 and 2024. Considering that NetEase will increase its investment overseas, the profits of Youdao and NetEyun Music have also been improving. Considering these factors, how does the management view NetEase's profit change trend in 2023 and 2024?

Executive: let me first answer the first question about the performance of Forever on the mainframe platform and its follow-up plans. Eternity launched the Xbox platform in June last year, joining the platform's XGP (Xbox Game Pass) program. After the game was launched, we were pleased to see a large number of players trying our game, and we also collected a lot of feedback. Over the next few months we have been working on the novice phase optimization for new players, especially overseas players. We have worked closely with NetEase's user research team in Montreal, Canada to carry out various tests and adjustments. So far, we have seen more significant tuning in the data, which will be of great help to our release on the PS platform this year.

The development of mobile games is also in progress. We will optimize the game operation and performance according to the characteristics of mobile game operation, and we are also conducting related tests at present. We believe that the experience of "forever robbing forever" mobile games can restore users' core fun in melee combat.

Yang Zhaoyi: as for the profit trend in the next 2-3 years. NetEase's game profits will remain relatively stable. At present, NetEase's overseas game studio is still in the investment stage, and the games they develop may not enter the market until 2025. But our current game portfolio is very strong and rich in reserves, which can provide strong support for the company's cash flow, profits and profits.

In addition, NetEase cloud music, youdao business performance is good, has shown an obvious loss narrowing trend. We are very confident that the above two businesses will break even in the next 6-8 quarters.

All in all, I think NetEase's profit will show a steady trend in the next 2-3 years, and with the launch of overseas game studio products in 2025, the profit may have a different surprise.

Felix Liu, an analyst at UBS: management just mentioned the domestic version number. We are very pleased to see that the approval of the version number and the quality of the version number have returned to a better level. My question is about NetEase's next product line. In addition to the already numbered products just mentioned, what is the management's outlook for the domestic game product line in the second half of 2023 or even 2024? In addition to the products just mentioned, are there any good works or categories that the company plans to focus on?

Ding Lei: we certainly have a long-term plan for games this year and in the future, and we believe that innovation is the eternal theme of the work, so we will attach great importance to the innovation of the play mechanism and positioning of the work itself. We are confident of success. The year before last, we launched "Forever robbery". Last year, there was a "Egg Party". You can see that NetEase's works have been a great success in different categories, such as cold weapons MMORPG games on PC, family games on mobile, and so on. So I believe NetEase will also be successful in different game categories this year.

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