NetEase's Q3 2025 Earnings Call: Contradictions Emerge in Overseas Expansion, Game Strategy, and Identity V Recovery

Date of Call: None provided

Financials Results

• Revenue: RMB 28.4 billion ($4.0B), up 8% YOY; games & related VAS RMB 23.3B, up 12% YOY; online games RMB 22.8B, up 13% YOY and up 3% QoQ; Youdao RMB 1.6B, +4% YOY (+15% QoQ); NetEase Cloud Music RMB 2.0B, -2% YOY, stable QoQ; innovative & others RMB 1.4B, -19% YOY and -15% QoQ
• EPS: Non-GAAP basic EPS $2.09 per ADS ($0.42 per share); non-GAAP net income RMB 9.5B, up 27% YOY
• Gross Margin: Total gross profit margin 64.1%; online games 69.3% vs 68.8% a year ago; Youdao 42.2% vs 50.2% a year ago; NetEase Cloud Music 35.4% vs 32.8% a year ago; innovative & others 43.0% vs 37.8% a year ago

Business Commentary:

* Revenue and Financial Performance: - NetEase reported revenue of RMB 28.4 billion for Q3 2025, up 8% year over year. - The growth was driven by strong execution across the NetEase family, particularly in the games sector, with revenues from games and VAS increasing by 12%.

• Game Development and Global Expansion:
• Revenues from online games were RMB 22.8 billion, up 13% year over year.

• This growth was attributed to the continued success of both self-developed games like Fantasy Westward Journey and new global releases such as Destiny Rising.

• AI and Innovation in Gaming:

• NetEase continues to leverage AI in game development and operations, evident in titles like Anki Party and Sword of Justice.

• The implementation of AI enhances game experiences and keeps the company at the forefront of technology integration in the gaming industry.

• Youdao and Smart Devices Segment:

• Youdao's net revenue reached RMB 1.6 billion, up 15% quarter over quarter.
• This growth resulted from the robust performance of online marketing services and the launch of new smart devices like the Youdao Space X.

Overall Tone: Positive

• Management stated 'continued momentum and strong execution.' Total net revenue rose 8% YOY to RMB 28.4B; games & VAS +12% YOY; non-GAAP net income up 27% YOY (RMB 9.5B); multiple new releases topped regional/global charts and user engagement metrics improved.

Q&A:

• Question from Yu Qingzeng (CICC): Please share the operational strategy for Fantasy Westward Journey PC, drivers of the unlimited (畅玩) server, user profile, returning vs new player mix, and whether this model can be replicated to other flagship titles.
  Response: The unlimited server removes upfront time fees and simplifies systems to lower the learning curve, attracting many returning and new players and also driving incremental additions to the classic (time) servers.

• Question from Thomas Chang (Jefferies): Can you comment on China and overseas gaming market trends and outline NetEase’s overseas expansion strategy?
  Response: NetEase leverages strong in‑house development to localize and export titles globally, citing multiple overseas successes (e.g., Marvel Rivals, Where Winds Meet) and plans to continue bringing authentic Chinese IP to global markets.

• Question from Richard Sun (HSBC): Identity V has seen volatility in revenue and DAU; causes and remediation? For WoW and Hearthstone returning to China, how do current metrics compare to a year ago and what are growth plans? How do you view Diablo IV’s monetization opportunity amid ARPG competition?
  Response: Identity V was impacted by summer competitors but recovered after back‑to‑school with September metrics at historical highs and content/marketing being prepared for peak seasons; WoW and Hearthstone show strong localized performance (e.g., Titan Reforged server) and deeper collaboration, and Diablo IV has tailored commercial plans expected to capture ARPG share.

• Question from Alicia Yap (Citi Group): What user feedback and market positioning/differentiation did Ananta receive at Tokyo Game Show, and any update on next test and 2026 launch timing?
  Response: Ananta received strong TGS feedback and a Japan Game Award 'most promising' recognition; development is on track, aiming for console‑quality content and innovative monetization, with testing and launch timing to be announced when ready.

• Question from Jia Yuang Xi (Nomura): Media suggests fewer new game releases vs prior years—is that correct and what is NetEase’s strategy for new titles and future game‑business growth?
  Response: NetEase is intentionally more focused: prioritize refining and investing in proven, successful titles while selectively developing new projects with high conviction rather than pursuing a high volume of lower‑confidence launches.

• Question from Felix Liu (UBS): Recent departures of gaming executives—will this affect short‑term game operations and should we expect further organizational changes under the current game strategy?
  Response: Personnel changes are normal, have not affected day‑to‑day operations, and are intended to increase focus and efficiency by reallocating resources to evergreen titles and high‑potential, innovative teams.

• Question from Linking Kong (Goldman Sachs): How will NetEase apply AI across existing and new games, and what are the prioritized game genres (e.g., shooters) and differentiation plans?
  Response: NetEase is heavily investing in AI for development and live operations, leveraging significant in‑house experience to improve development efficiency and user experience, while pursuing a focused, high‑quality product roadmap across targeted genres including shooters.

• Question from Felix Liu (Morgan Stanley): Can you update on Sea of Remnant (遗忘之海) R&D progress, expected launch timing, commercialization strategy, competitors, and differentiation?
  Response: Sea of Remnant is a priority multi‑platform title built on NetEase's in‑house engine, positioned as a fresh open‑world, multi‑character cultivation experience emphasizing naval exploration and diverse combat; development is progressing (no launch date disclosed).

Contradiction Point 1

Overseas Expansion Strategy and Game Performance

It reflects differing perspectives on the company's overseas expansion strategy and the performance of its games in international markets, which are crucial for diversifying revenue streams and long-term growth.

What are current gaming market trends in China and internationally? How is NetEase implementing its overseas expansion strategy? - Thomas Chang(Jefferies)

2025Q3: NetEase is the only company bringing purely authentic Chinese online games like 'Where Winds Meet' to global markets, receiving positive feedback. The focus is on delivering high-quality content and services to global gamers. - Bill Pang(CPO)

How effective is the new strategy for Marvel Rivals, and what gameplay updates are planned? What feedback and monetization model exist for Sea of Remnants? - Ritchie Sun(HSBC)

2025Q2: Sea of Remnants is a top-tier game in development, with more details to be shared later. - Bill Pang(CPO)

Contradiction Point 2

Game Development and Launch Strategy

It highlights disparities in the company's approach to game development and launch strategy, which can impact the success and timing of new game releases.

Has the number of new annual game releases changed, and what is the strategy for new game launches? - Jia Yuang Xi(Nomura)

2025Q3: The company focuses on refining existing successful products to ensure high quality. New projects are approached carefully, ensuring they have a competitive edge. - Bill Pang(CPO)

What is the effectiveness of the new strategy for Marvel Rivals, and what gameplay updates are planned? What feedback has been received on Sea of Remnants, and what is its monetization model? - Ritchie Sun(HSBC)

2025Q2: Sea of Remnants is a top-tier game in development, with more details to be shared later. - Bill Pang(CPO)

Contradiction Point 3

Resource Allocation and Game Launch Strategy

It involves the company's strategic approach to resource allocation and game launch strategy, which are crucial for market expansion and competitive positioning.

Has the number of annual new game releases changed, and what is the strategy for new game launches? - Felix Liu (UBS)

2025Q3: The company focuses on refining existing successful products to ensure high quality. New projects are approached carefully, ensuring they have a competitive edge. The focus is on being more concentrated and efficient, leveraging resources for projects with strong potential. - Bill Pang(CPO)

Can management outline your current overseas market strategy considering the strong performance of domestically developed games and closure of overseas studios? - Felix Liu (UBS)

2025Q1: Future games will be made with a global market focus. - William Ding(CEO)

Contradiction Point 4

Identity V's Performance and Recovery

It involves differing perspectives on the performance and recovery of Identity V, which is a critical game for NetEase's revenue and user engagement.

What caused the volatility in Identity V's growth and DAU? How are Marvel World of Warcraft and Hearthstone performing a year after their return to China, and how is Diablo IV positioned in the ARPG market? - Richard Sun (HSBC)

2025Q3: Identity V has started to recover with September metrics reaching historical highs. - Bill Pang(VP, Corporate Development)

Can management provide details on data test achievements, pre-launch preparations, and post-launch operational priorities for upcoming shooter games? What is the company's view on competition in the shooter game market segment? - Yang Bai (CICC)

2024Q4: We expect the R&D intensity for the first half of the year to be higher than the second half of the year. - William Ding(CEO)

Contradiction Point 5

Overseas Market Expansion Strategy

It highlights a shift in the company's strategy for overseas market expansion, which impacts international growth and competitive positioning.

What are the trends in the gaming market in China and overseas? How is NetEase executing its overseas expansion strategy? - Thomas Chang (Jefferies)

2025Q3: NetEase is the only company bringing purely authentic Chinese online games like 'Where Winds Meet' to global markets, receiving positive feedback. The focus is on delivering high-quality content and services to global gamers. - Bill Pang(CPO)

Could management share your latest strategy for overseas markets, considering the strong performance of domestically developed games and the closure of some overseas studios? - Felix Liu (UBS)

2025Q1: For years, NetEase has focused on overseas markets. Some studios were closed based on product quality considerations. - William Ding(CEO)