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Operator
Good day and welcome to the NetEase 2022 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Shee, IR Director of NetEase. Please go ahead.
Margaret Shee
Thank you, Operator. Please note the discussion today will contain forward-looking statements. relating to 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 in 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 20S and the announcements and filings on the website of the Hong Kong Stock Exchange. 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 2022 third quarter earnings news release issued earlier today. As a reminder, the 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 ir.netease.com. Joining us today on the call from NetEase's senior management team is Mr. William Ding, Chief Executive Officer, and Mr. Charles Yan, Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.
William Ding
Thank you, Margaret. And thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. We saw healthy growth across our businesses in the third quarter with solid gains in each of our core business segments. Our total net revenues for the period were RMB 24.4 billion, an increase of over 10% year over year despite high base effect in the third quarter of last year. This demonstrates the resilience and improving operational efficiency of NetEase through different macro cycles. Our online games continue to be our primary growth driver with net revenues from our games and related value added services coming in at RMB 18.7 billion for the third quarter of 9% year over year. Our flagship titles delivered another quarter of solid growth. In the third quarter, with new expansion packs launched for the summer holidays, our legacy PC titles, including Fantasy Westward Journey Online and New Westward Journey Online 2, continued to attract players. Even with two decades of operations, we are constantly exploring, creating, and introducing innovative new elements to our games. Keeping our content fresh boosts engagement levels and naturally spurs players' continuous willingness to spend. This further proves our long-term operational know-how on franchise titles a unique strength of NetEase Games that we are hoping to replicate to our other self-developed proprietary titles. For our new titles, Diablo Immortal was launched in China in July, topping China's iOS download chart shortly after its release. Following its launch, Diablo Immortal has enjoyed similar popularity in Western markets. Players are enjoying the exciting adventure in the authentic Diablo world and the thrilling MMORPG social experience. Diablo Immortal is of great strategic importance to us. It showcases our game development expertise on the international stage and further demonstrates that Nadiz has the right capabilities to produce AAA games for worldwide audiences. As with all of our other games, our team works very hard to regularly and rapidly introduce exciting new game content to invigorate our players and ensure the longevity of our games. In September, we issued our first major update, Forgotten Nightmares, after Diablo Immortal's official launch, introducing a new dungeon, an exploration system, and a battle pass and players loved it. Naraka Blade Point maintained strong popularity in the third quarter, amassing a community of fans that are extremely passionate about this title. With the game's one-year anniversary in August, we released our very first major new map, Holoross, with a wealth of new features such as weather systems, interactive objects, and new areas to explore, bringing in both new and returning players in a large scale. As a result, the number of active users for Naraka Playpoint hit a record high in this August. To keep this game fresh and engaging, we will follow a continuous rollout schedule, adding new content updates such as more heroes, weapons, and new gameplay to this exciting game. Naraka Bladepoint introduces a unique melee combat style gameplay, easy to learn but hard to master. To bring more players into the mix, we have been introducing more beginner-friendly mechanisms such as a new beginner's guide and shortcut keys for combat. By helping new players quickly learn the skills to fully enjoy the fun of combat, We have made the game more accessible to a wider range of players across the world. Simultaneously, we are in active development of Naraka BladePoint for mobile and are making very solid progress. We are going through vigorous testing rounds to make sure we can replicate the melee combat gameplay experience on mobile screens. On the console side, we released Naraka BladePoint on Xbox Series XS and joined Xbox Game Pass in June. Adapting from PC to console is not an easy process, involving a highly different user interface and controls. We are very pleased to have smoothly transitioned Naraka BladePoint into the console arena, bringing our users a satisfying game experience. Our next move will be to make the new game available on Xbox One, which will expand the fan base for this IP even further. In addition to Naraka BladePoint mobile game, we have a number of other exciting upcoming games in our pipeline. We conducted the first round of testing in October for Justice mobile game and saw very encouraging results with over 10 million players pre-registered. With lots of exciting new technological innovations and the state-of-the-art game design, we hope Justice mobile game can represent what a next generation game looks like and further boosts the user base of Justice franchise as a whole. Equally exciting is our planned global market launch of Harry Potter Magic Awakened, which has fascinated the Chinese market since its launch last September. we are putting great effort into the global version. Leveraging all the lessons we have learned along the way, from game development to a year-long operation, we are working intensely to optimize the game's mechanics. Simultaneously, we are preparing expansion packs ahead of the launch to enable timely, frequent new content updates after the game steps up. With great effort and dedication to its development, we hope to do justice to this great IP and impress fans on a global scale. Harry Potter Magic Awakened is now expected to be launched globally in 2023. We are confident that this highly anticipated game will stand the test of time with great longevity and stability. Turning to our licensed games, As previously disclosed, we have entered into certain licensing agreements covering the publication of several Blizzard titles in Chinese mainland. These licenses will expire in January of next year and will not be renewed. Net revenues and net income contribution from these licensed Blizzard games represented low single digits of our total net revenue and net income in 2021 and in the first nine months of 2022, the expiration of such licenses will have no material impact on our financial results. The co-development and publishing of Diablo Immortal mobile game is covered by a separate long-term agreement. In the third quarter, we continue to make great progress with our global operations. At the end of August, we announced our acquisition of Quantic Dream, which is now officially our first fully owned studio in Europe, based in Paris. Since our initial investment in the studio three years ago, we have been working very closely together, and we just realized how like-minded and complimentary we are to each other. Having Quantic Dream as a studio of our own exemplifies our vision of supporting innovation and game development around the globe. We will continue to fulfill our promise to support Quantic Dream to realize its full potential. Also during the quarter, we are very pleased to have announced that Jonathan Morin came on board as new creative director in Montreal. Here he will be working together with Emile Liang and the team to build up the next exciting game. With more than 24 years of experience making AAA games, Jonathan played a key role in shaping the critically acclaimed Watch Dogs franchise at Ubisoft and was one of the main contributors to the Far Cry series and many other AAA brands. In Japan, earlier this month, We announced GP Track 50, a new first party studio in Japan, led by Hiroyuki Kobayashi. The studio will primarily focus on producing high quality console and PC games with a goal of delivering original entertainment content from Japan to users worldwide. We've also announced our investment into startup studios such as Liquid Sword in Sweden and Something Wicked Games in the US. Both are being led by top industry veterans who are using their creativity to forge their best titles yet to come. After years of strategic planning, our self-owned overseas studios now span multiple regions, Japan, North America, Europe, and more to come. Through investments and partnerships, We've welcomed in a great number of best-in-class game developers worldwide who will be pivotal to attracting more talent in their local developers and gamers community. Our investment philosophy attaches a high value to top talent and their passion for games. We will continue to attract, invest in, and support these creative minds combining talent with our powerful resources and execution capabilities. Turning to our education business, total net revenues of Yodal continues to improve in the third quarter and reached a record high of RMB 1.4 billion, led by increased sales of new services and smart devices. Net revenues of Yodao's smart devices reached RMB 356 million in the third quarter, up 40% year-over-year, with robust contribution from its flagship products, Yodao Dictionary Pen and Yodao Listening Pod. Meanwhile, we continue to expand Yodao's portfolio with more AI-empowered educational tools. In August, we launched Yodao Dictionary Pen X5, featuring a self-developed operating system that accommodates a variety of external applications, such as NetEase Cloud Music and Shimalaya FM, to further enhance our user experience on these products. This new version has been very popular among users, and the initial batch of products quickly sold out. In addition, Youdao Smart Learning Pad X10, which is released in October, also showcases several user-oriented and customized AI functions to better serve the learning needs of different age groups. And we expect more growth opportunities for this product. We made additional headway with our learning services as well, maintaining a healthy trajectory with net revenues reaching RMB 888 million. Net revenues for our STEAM courses more than doubled in the third quarter, comparing to the same period of last year, and now accounts for over a quarter of the segment's total revenue. In addition to further content upgrades to your Dow Gold courses, We have also coordinated with local board game associations to hold open tournaments for students, which have been advocated by the General Administration of Sports of China for their positive contribution in expanding the popularity of board games amongst students. We are very proud of what Yodao has achieved in the last 12 months. which confirms that we are swift in transitioning and we are on the right track for future sustainable growth. Looking ahead, we will continue to serve more learning needs of our users by leveraging our leading technological capabilities while diversifying our content and product offerings. On to Cloud Music. We completed the third quarter on a positive trajectory with our key operational trends and financial performance. During the quarter, we further improved our music-oriented community and content ecosystem, as well as continued to advance our monetization efforts and gain meaningful operating leverage. Our total MAU remained steady, while the DAU over MAU ratio stayed well above 30%. our paying user ratio was also stable quarter over quarter. Amid a challenging macro environment, total revenues of cloud music grew by 22% year over year as we continued to expand our paying user base and optimize our pricing strategy. We also witnessed the gradual recovery of our advertising business, aided by rapid performance-based ad growth. along with solid momentum in social entertainment services. Our strong top line growth and better operational efficiency drove solid margin gains, with gross margin expanding from the fourth quarter in a row, reaching 14.2% in the third quarter. Additionally, Cloud Music's net loss further narrowed in the third quarter, both year-over-year and quarter-over-quarter. Adding to our robust music content, we continue to augment and diversify our copyright library. Since the regulator's antitrust ruling last July, NetEase Cloud Music has been actively in discussion with label companies to secure best content for our music lovers. By now, we have managed to bring back most of the major label content, including those from Modern Sky, Emperor Entertainment Group, China Record Group, , Entertainment, , SM Entertainment, TF Entertainment, YG Entertainment, and . We are still working very hard to get more titles at reasonable cost. Additionally, we continue to nurture aspiring musicians serving more than 570,000 independent artists as of today. Our in-house music production capabilities are showcased by another hit song, Ruobani, which recorded over 200 million streams within a week and topped multiple music charts. Enhancing our music-inspired ecosystem and user connections with our innovative new products continues to attract users to our community. In the third quarter, we further boosted our community atmosphere through innovative offerings, including star-rated comment section to display high-quality user comments and fans space to strengthen bonding between artists and their fans while encouraging user interaction. We also added new offerings such as style recommendation that brings users more personalized options in the daily recommendation function to better reflect their taste, as well as Adobe Atmos feature allowing users more authentic and immersive ways to listen to music. Turning to our private label consumer brand, Yanshan, It continues to build its brand awareness by constantly creating highly popular products. For example, pork buns and goose down duvet were some of the new top-selling products this quarter. In Q3, we saw solid growth in sales from external e-commerce channels, particularly with short-form video platforms. Over the years, Yansha has gained increasing recognition for its excellent designs and creative style. Most recently, Shanxi Vinegar and Oriental Sand series won the prestigious Pent Awards for their unique and elegantly presented Chinese style packaging. In summary, we are confident in our ability to realize strategic growth across our business lines. The portfolio we have curated of diverse and long-lasting gains in China provides a sturdy base for us to build further upon. Coupled with our globalization strategy, our prospects are exciting, and we believe we are well positioned for continued growth. As we advance each of our businesses with innovative products and services, we will continue to use our strong cash position to buy back shares and pay dividends that directly reward our shareholders. This concludes William's comments. I will now provide a brief review of our 2022 third quarter financials. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Net revenue totaled for RMB 24.4 billion in the third quarter, or USD 3.4 billion, representing a 10% increase year over year. Total net revenues from our games and related VAS services were RMB 18.7 billion, up 9% year over year, The growth was primarily due to increased revenue contribution from both mobile and PC games, including our existing games, such as Fantasy Westward Journey Online Series and Infinite Lagrange, as well as newly launched Diablo Immortal. Net revenues from our mobile games accounted for approximately 69% of our total net revenues from online games operations. Yeodao's net revenues were RMB 1.4 billion, a moderate increase from last year. Last year's revenue contained a big portion generated from K-9 after-school tutoring services, which was later terminated in Q4 of last year. The decreased revenue related to K-9 termination is now offset by the increased revenue from Yeodao's new services and smart devices, as a result of a successful and smooth business transition. Net revenues from Cloud Music were RMB 2.4 billion, up nearly 22% year-over-year. The increase was mainly due to increased revenues from social entertainment services and membership subscription. Net revenues for innovative businesses and others were nearly RMB 2 billion, up 14% year-over-year, mainly due to increased contribution from Yanshan in the third quarter. Our total gross profit margin rose to 56.3 in the third quarter, compared with 53.2 in the third quarter of last year. Looking at the composition, GP margin was 65% for our games and related VAS, compared with 61.3% in the same period of last year. The year-over-year increase in gross profit margin was mainly due to more revenue contribution from our organic channels. Our gross profit margin for Youdao was 54.2% compared with 56.6% in the same period of last year. The year-over-year decrease was mainly resulted from the decline in net revenues from its learning services due to the termination of K-9 course offerings. GP margin for Cloud Music continues to improve in the third quarter, climbing to 14.2% versus 2.2% one year ago. The significant margin improvement primarily resulted from strong top line growth as well as improved efficiency in content increasement. For our innovative businesses and others, GP margin was 25.5% compared with 27.2% last year. The year-over-year fluctuations were mainly due to changes in GP margin from advertising services. Total operating expenses for the third quarter were RMB 9 billion, or 37% of our total net revenues. If we look at our cost composition, our selling and marketing expenses as a percentage of total net revenues was 15.4% compared with 14.1% for the same period last year. The increase was mainly due to increased spending on certain new games promotion such as Diablo Immortal during the quarter. Our R&D expenses as a percentage of total net revenue remained relatively stable year over year at 16.2%. We remain committed to investing in content creation and product development. We are also seeing leverage in our R&D investment. Our other income was RMB 3.5 billion for the quarter, compared with RMB 785 million last year. The quarter-over-quarter increase was mainly due to investment income arising from the disposal of certain equity investments. Additionally, the exchange rate of the U.S. dollar against RMB fluctuating over the last couple of periods also contributed to the accounting gain in other income lines. Our effective tax rate for this quarter was 19.3%. As a general reminder, the effective tax rate is presented on an accrual basis and the tax credit deferred from each of our legal entities at different time periods depending on applicable policies and our operational results. Our non-GAAP net income from continuing operations attributable to shareholders for the third quarter totaled RMB 7.5 billion or USD 1.1 billion. Non-GAAP basic earnings per ADS from continuing operations for the quarter was U.S. dollar 1.61 or U.S. dollar 0.32 per share. Additionally, our cash position remains strong. As of the quarter end, our net cash position was about 95 billion RMB compared with 86 billion RMB as of the year end of last year. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of US dollar 0.087 per share, or US dollar 0.435 per ADS. Lastly, we continued to buy back shares during the volatile period. Under our current share repurchase program for up to US dollar 3 billion, which expires in March of next year, Approximately 27 million ADS has been already repurchased as of September 30th for a total cost of approximately 2.5 billion US dollars. And today, our board announced the approval of a new share repurchase program of additionally up to US dollar 5.0 billion of the company's ADS and ordinary shares in open market transactions for a period not to exceed 36 months. Meanwhile, on the NetEase YoDOS repurchase program for up to US$50 million, approximately 2.3 million ADS has been purchased for a total cost of about US$20.7 million as of September 30th. In addition, NetEase purchased 0.7 million ordinary shares of NetEase Cloud Music for a total cost of about US$6.9 million during the third quarter. Thank you for your attention. We would like now to open the call to your questions. Operator?
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star, then two. 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. Our first question today will come from Kenneth Fong of Credit Suisse. Please go ahead.
Kenneth Fong
Hey, Dean Jones, Charles Margaret. Thank you very much for taking my questions. On today's announcement about not renewing certain licenses replaced in China that is due to expire next year, can you please share with us the rationale behind and the subsequent arrangement that we should expect? Thank you.
Dean Jones
In the meantime, we have made a lot of efforts. But in the past, the whole negotiation process was far beyond our expectations. For some of the conceptual operations of these games, and the key cooperation rules of the Chinese market and the core interests of players, the demands raised by the dynamic explosion are unacceptable to us. Thank you. We had very much hoped to continue operating Activision Blizzard games in the Chinese mainland.
Margaret Shee
and we have put in a great deal of effort to achieve this. However, the negotiations have been much more challenging than we had originally expected, and we were unable to accept certain key terms requested by Activision Blizzard. We regret to see the early announcement from Activision Blizzard, and despite our best efforts to prevent the deal from falling through, we accept the decision. In the meantime, we will try our very best to fulfill our responsibility to serve our players until the last minute, ensuring the safety of their data and other assets. Thank you.
Dean Jones
Thank you.
Operator
Our next question today will come from Shuqing Zhang of CICC. Please go ahead.
Shuqing Zhang of CICC
Thank you for accepting my question. Congratulations on winning the No. 1 prize. My first question is about the No. 1 prize of the three-month Lackalong Day. We know that Lackalong Day is also the No. 1 prize of the No. 1 prize. So I would like to ask how the company sees the future of the No. 1 prize game. And also, I would like to ask about the idea of game IP. Previously, the company had some IPs based on some large overseas games, including Harry Potter, King of the Rings, and EVE. In addition to Harry Potter, what is the progress of other overseas IP games? And how does the company locate these overseas IPs and our dream CEO, these local IPs? In the long run, how will they help the company's business? Thanks, management, for taking my question, and congratulations to the Baha approval tonight. In the third quarter, Infinity Lagrange obtained the Baha approval of multi-devices version. We also know that Naruka also supports multi-terminal. So could management discuss a train of multi-terminal games in the future? And my second question regards to game IP franchises. NetEase has created some open-source IP games, such as Harry Potter, Lord of the Rings, and EE. So, what's the progress of backhaul approval for their domestic version, except Harry Potter? How does NetEase relation with open-source IPs and local IPs, such as FWJ? How can they help the company's business in the longer term? Thank you.
Dean Jones
The first question is about multi-faceted games. Over the years, we've had a lot of mobile game players who want us to launch other multi-faceted games, such as the PC version. This will make it easier for them to experience the world of games in a larger screen via a PC computer. That's why we've added the PC version and the pure PC version to some of our mobile games to meet the needs of many players. In addition, we also noticed that in some regions and cities, we have a lot of users who have the habit of using PC computers and mobile phones to play games. They also particularly expect to be able to switch between game products at multiple ends. Therefore, some of our products will consider promoting games that support all platforms, including mobile phones. We have developed and operated all platform games. Currently, there are no technical obstacles in terms of technology. Let me just translate the answer to this question. So over the years of operation, we realized many of our mobile game players also want to be able to play our games in other formats, for example on PC.
Margaret Shee
They want to be able to experience a more immersive gaming world through a much larger screen. This is why you've seen us providing a PC simulator for many of our mobile games or creating a standalone PC version for them. This is to provide our users a much better gaming experience. At the same time, we noticed that in certain regions, many of our users actually own PC and mobile and console all at the same time, and they play games on all three platforms. So for these players, they would like to be able to switch seamlessly between these platforms, which is why we are also looking into developing cross-platform games. For us, there's no real technical barrier for developing and operating cross-platform games. Therefore, we will take into consideration of users' needs, product features, market feedback, and other factors before deciding whether we should do a multi-platform version for each of our games.
Dean Jones
Another question is about the overseas IPs. Currently, we have a large number of overseas IP products applying for version names. We have already submitted applications in accordance with the relevant procedures. In addition, overseas IPs and our own IP products, such as Dreamweaver, The biggest difference between them is that the virtual world presented to players by different game IPs is very different. We have developed a lot of very successful East Asian culture games in the past, such as Dream World, War World, and Cold Water. We have introduced overseas IPs such as Harry Potter, King of the Rings, King of the Rings, etc. These overseas IPs have greatly enriched our virtual world background equipment and satisfied players who want to experience more virtual world needs. Of course, because of the difference between game and world view, different cultural materials, different world view backgrounds, the specific types of games will be very different. For example, in the virtual world, if there is a difference between cold weapons and hot weapons, it will lead to a game experience that will be an MMO game experience or a PS game experience with greater differences. Therefore, from a normal point of view, some games with overseas IP will eventually further enrich our company's product line.
Margaret Shee
So we do not actually have that many foreign IP currently being submitted. But for those submitted, we are currently going through the relevant procedures as required. So for these foreign IPs and our self-developed IPs, the ultimate difference is that in a virtual world, the virtual world we can bring to gamers are different. In the past, we've built a lot of games based on our rental culture, such as FWJ, WJ, Justice, and Naraka. Introducing IPs like Harry Potter, Lord of the Rings, Star Wars, we can actually diversify and enrich the different worlds that we can create for our users, allowing them to experience different things. And of course, because of these IPs are different, the world views are different. So the types of games we can create on the different IPs are different. For example, in the Oriental world, you will have Cold Wars, such as swords and knives. And in the Western world, you will have firearms, So this will actually lead to a very different game experience, like MMO for rental-based theme versus FPS game in a Western setting. So therefore, the reason for having all those ITs is to further enrich our game pipeline and create different gaming experience for our gamers. Thank you.
Operator
Our next question today will come from Lincoln Kong of Goldman Sachs. Please go ahead.
spk08
Thank you, Ms. Lin. My question is about the overseas market. So the question is about the overseas expansion. So we've been finding that NetEast has been investing in the overseas market since the beginning of the year, especially including investing or acquiring a series of studios. So when we think about 2023, how should we expect our growth plan and the growth catalyst, particularly in the PC and mobile game market?
Dean Jones
I think the overseas market is mainly divided into two categories. The first category is and PC. Secondly, we have invested in a lot of game studios overseas, as you can see. We hope that these studios can work closely with us to develop some successful game works. So, we will be investing in
Margaret Shee
In short, there are basically two strategies for our overseas market. One is through self-development, and another is through investment. So in the past few years, we've actually seen a number of very successful titles that were self-developed in overseas regions, such as Identity V, NICE out in Japan. And also, we've seen some very successful PC titles in the global market as well, like an Arab Blade Point that we launched last year. I think in the overall, if we look at the overseas market, I think PC or console will probably be the mainstream format. And secondly, it's our investment overseas. As you've seen, more recently, we actually announced the number of studios that we have invested overseas. So over the long term, we would hope to work very closely together with this global studio to create global blockbusters for our worldwide game players. Thank you. Thank you. Next question.
Operator
Our next question today will come from Charlene Liu of HSBC. Please go ahead.
Charlene Liu
Thank you. I would like to ask about the gaming market outlook. We observed that both the domestic and overseas mobile game market revenues declined further year-on-year in the third quarter. Obviously, you know, there are some short-term headwinds such as weaker consumption, but we also see the latest batch of downhill came through. With that positive development, how should we think about the timing and magnitude of recovery of the market as well as the long-term outlook for the domestic market? Thank you.
Dean Jones
I think especially this industry is a market of content. So, The entire consumption of this industry is largely dependent on the quality of the content of the game itself. If you have an expensive game, the whole market will be affected. If your game content is not creative, then this market will gradually go down.
Margaret Shee
So our understanding is that the gaming market is driven by content. So whether in particular time, whether the market is thriving, it depends on the game quality themselves. In a certain time, we will have a number of high-quality games available for games to play that will be the market thriving. At the same time, if the gaming content available is not interesting, is mediocre, is a duplication of previous games, then the market is slow. So in our view, right now it's not about market saturation, but rather that's the lack of high-quality gains. Thank you.
Operator
Our next question today will come from Alex Poon of Morgan Stanley. Please go ahead.
Alex Poon
Hello, Charles. Thank you for your question. Congratulations on your good performance. I would like to ask, in the past year or two, we have released many new games overseas. I would like to ask about the feedback from the players, and how is the life cycle of the game? In the future, in order to suit the taste of the overseas players, will we develop more limited edition games? The second question is about the cost. My first question is related to overseas games. In the last one to two years, we have launched many new games overseas. Can management share the gamers' feedback and longevity of these new games? And secondly, about the Are we developing more casual genres to fit the taste of overseas gamers? About our core structure, can we talk about our headcount trend and other OPEX trend in future? Thank you very much. 我这里来讲一讲就是关于罗马卡就是运武舰在海外的一个舰。
Charles
SPEAKER 1
Margaret Shee
Since we launched Naraka last year and Xbox in June this year, we've been very closely monitoring the reactions and feedback from the gamers' community. So from what we've seen, we think the players overall are very satisfied with our game, with its very unique melee combat use experience. Some gamers say they will spend hundreds of hours in the game and still feel good. But one thing to notice is that there are a lot of gamers gamers who are on the lower spec platforms such as X1, they are also craving for this game. So we are now working on adapting this game onto different levels of devices, different levels of platforms. And at the same time also maximizing the beginner's guide. So if the game is harder to kind of get into, so we're looking, we're optimizing, finding ways for beginners to kind of get into the game more quickly. And this is a task that we are working on with our Montreal office. So every day we're having discussions on how to make our users happier within the game. So hopefully we'll be able to bring Naraka Playpoint to more game players on more platforms. Thank you.
William Ding
And, Alex, for your second question about the overall trend of headcount and operating expenses, over the last five, six quarters, our overall total headcount stays relatively steady at about 30,000 overall headcount. More specifically, in the last quarter, by the quarter end, we have a loss of 31,000 overall headcount representing a quarter over quarter about incremental 1,000 headcount which is consistent with our summer recruiting season of campus recruiting. I think in terms of the overall operating expenses, For many of you who have been tracking NetEase for long enough, we are very, very cost-conscious and effective in spending our investment, organic investment into ourselves in a very, I would say, ROI-oriented manner. Oftentimes, when you see an increase in R&D, in selling marketing, that is actually an indication that we are developing a strong pipeline or we are about to launch an exciting new game. And if we are patient enough, you will see the huge reward that we are planting the seeds today. So, for the future outlook, I think we are continuing to grow. We will continue to invest. Absolute dollars of operating expenses will continue to increase, but we will be hugely rewarded by operating leverage when we see the next cycle of product launches in both the domestic and international market.
Charles
Thank you, Alex.
Operator
We'll come from Felix Liu of UBS. Please go ahead.
Felix Liu
晚上好,管理层。 恭喜我们今天的版号获批。 也谢谢各位的时间接受我的提问。 我想再追问一下我们关于海外的布局。 首先我们看到公布了更新或者更新了 哈利波特在海外的上线时间。 所以想可以管理层能否 remind我们一下具体的这个 Thank you, management, for taking my question. My question is on the overseas market. We noticed that we had an update publishing time for Harry Potter, so could you share more color on the overseas market to focus on for Harry Potter and any pipeline to share after Harry Potter's launch? And more on the longer-term question is on the overseas positioning in terms of genre and market position. What are these genres and markets you'll be focusing on with your extensive investments right now? Thank you.
Dean Jones
In terms of overseas game development, Talibot's overseas products will be on the market. In addition, we have many more overseas products that will be on the market. There are many types of products. Within a few months, we will have about three products on the market in the Japanese market. including card, speed, MMO. In addition, we will be in the North America, European and American markets. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America, Europe and America. We will be in the North America,
Margaret Shee
Firstly, Harry Potter will hopefully be launched very soon. As we mentioned in the call earlier, we're scheduled for launching in 2023. Currently, we actually have a plentiful of games to be launched over this market. We have about three games in Japan market that include genres like CCG, racing, MMO, And we have about four games in Europe and North American market, including PPS, PCG, and combat, competitive games. So our focus now is basically the Asia Pacific region and European and North American market. Thank you.
Operator
Our next question today will come from Natalie Wu of Haitong International. Please go ahead.
Natalie Wu
Good evening, thank you for listening to my question. Congratulations on the performance and sales of our Qiaoyu Company. My question is about darkening. We see that the performance has been very good since Buxiu came on the line. However, the recent performance, the data collected by various flood relief institutions, is also controversial. So I would like to ask if Guan Licheng can share with us the recent situation. including the situation of the game and the players' response, to see how we can better and more accurately understand the vitality of this game and stabilize the volume of the game. Then we also mentioned that Busho and Snowstorm are long-term cooperation. I don't know how many years this long-term refers to. Will the future contract and operations in the international market be affected by this Snowstorm event? Let me translate myself. And my question is regarding the Diablo Immortal. It would be great if you can talk about the latest cash revenue and user-activeness of Diablo Immortal so that we can better understand the game longevity and contribution. Also, you've mentioned before that Diablo Immortal is covered by a separate long-term agreement with Blizzard. It would be great to know exactly how many years does the long term mean and will there be uncertainties regarding the future collaboration especially in overseas market for that title under the backdrop of the latest change with Blizzard. Thank you.
Dean Jones
Let me first talk about Anfei's performance in the market. Anfei has been in the market for more than half a year. Yes, it has been almost half a year. The data is very stable at present. The domestic version is one month late. At present, in terms of flow rate, domestic and overseas versions are basically equivalent. We will later use the version update and development of new materials to balance the needs of mainland Chinese users and European and American users. We also see that this product is in mainland China. Its user group is older. Hi.
Margaret Shee
So Diablo Immortal has actually done a really good job across the world since launch. It's been online, it's been launched for almost six months now in overseas market and the China version came about a month later. So right now if we look at the revenue contribution, the China part and the overseas part is pretty much on par with each other and going forward we are going to launch more expansion packs and more content to keep the users engaged. And I think we're going to continue to balance the need of both the Chinese users and overseas users. And I've noticed that, you know, the Chinese users, a lot of them are, you know, people in their 30th, 40th, 40th, mostly facing two, three, third and fourth year cities. for the North American users, a lot of them come from the original PC game background. So going forward, we're going to explore and discover more game users and promote this game to a greater range of audience. Thank you.
William Ding
And Natalie, for you. Natalie, for your second question, we can follow up off the line. Okay, operator, thank you.
Operator
Thank you. This concludes the question and answer session. At this time, I would like to turn the conference back over to management for any closing remarks.
Margaret Shee
Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or TPG Investor Relations. Have a great day. Thank you.
spk04
Thank you, everyone. Thank you.
Operator
The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
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