NetEase Q2 Earnings: Revenue and Net Profit Growth in Line with Expectations, Deferred Revenue Surges

NetEase reported Q2 results in-line with expectations, with revenues and non-GAAP net profits growing 9% and 22% YoY, respectively. The company achieved a record high gross margin of 65.8%. Deferred revenue, excluding Youdao, grew 28% YoY, the fastest pace since Q4 2021. This suggests an improving trend across evergreen/legacy titles.

NetEase Inc. (NASDAQ: NTES) has reported its Q2 2025 financial results, which are in line with expectations. The company's revenues and non-GAAP net profits grew 9% and 22% year-over-year (YoY), respectively. Notably, NetEase achieved a record high gross margin of 65.8% during this period.

The gaming segment continued to be the primary driver of growth, with revenues increasing 13.7% to RMB22.8 billion. This growth is attributed to the success of new titles such as FragPunk, Dunk City Dynasty, and MARVEL Mystic Mayhem, as well as established franchises like Fantasy Westward Journey Online. Global expansion efforts, particularly in the United States and Japan, also contributed significantly to the segment's performance [1].

However, non-core segments such as NetEase Cloud Music and the Yanxuan e-commerce platform faced declines. Cloud Music's social entertainment revenue fell 3.5% YoY, while Yanxuan's revenues decreased 17.8%. These declines highlight the company's vulnerability to sector-specific pressures, such as market saturation and regulatory scrutiny [1].

Deferred revenue, excluding Youdao, grew 28% YoY, the fastest pace since Q4 2021. This suggests an improving trend across evergreen/legacy titles, indicating that NetEase's investment in these titles is paying off [1].

Despite the challenges in non-core segments, NetEase's strategic resilience and shareholder-friendly policies have helped mitigate risks. The company repurchased $2.0 billion worth of ADSs in Q2, indicating its commitment to shareholder value [1].

The company's shares have risen 50% this year, driven by its online gaming business, which remains largely insulated from macroeconomic weaknesses and geopolitical headwinds. Analysts remain optimistic about NetEase's prospects, with the average analyst rating on the shares being "buy" and the median 12-month price target being HK$226.10 [1].

In conclusion, NetEase's Q2 2025 financial results highlight the company's dual narrative: a resurgent gaming segment and persistent challenges in non-core businesses. While the gaming segment continues to drive growth, the company must navigate sector-specific pressures and macroeconomic uncertainties to maintain its momentum.

References:
[1] https://www.ainvest.com/news/netease-q2-earnings-critical-inflection-point-gaming-growth-strategic-resilience-2508/