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Operator
Good day and welcome to the NetEase 2022 fourth quarter and year-end earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Sher, IR Director of NetEase.
Margaret Sher
Please go ahead.
spk07
Thank you, Operator. Please note the discussion today will contain four looking statements. relating to future performance of the company and are intended to qualify for safe harbor from liability as established by 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 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 the business and the financial results is included in certain filings of the company with the Securities Exchange Commission, including its annual report on Form 20F, an announcement and the filings on the website of Hong Kong Stock Exchange. The company does not undertake any obligation to update its forward-looking information except as required by law. During today's call, management will also discuss certain non-gamma non-GAAP financial measures for comparison purposes only. For a definition of a non-GAAP financial measure and a reconciliation of the GAAP to non-GAAP financial results, please see the 2022 fourth quarter and the four-year earnings needs release issued earlier today. As a reminder, this conference is being recorded. In addition, an invested 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 Senior Management is Mr. William Ding, Chief Executive Officer, Mr. Charles Yan, Chief Financial Officer, as well as other members of the senior management team. I will now turn the call over to Charles, who will read the prepared remarks on behalf of WIT.
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 calculated based on RMB. 2022 marks another year of solid growth for NetEase. Healthy development in each of our core businesses paved the way for meaningful financial gains. We achieved another record high net revenues of RMB 96.5 billion for the full year, up 10% year over year. with gains and related value-added services coming in at RMB $74.6 billion for 2020, also up 10% year-over-year. This demonstrates NetEase's unique ability to deliver solid and sustainable growth throughout different macro cycles with time-proven track record. In the fourth quarter, Players continue to show their strong passion for our legacy titles, including Fantasy Westward Journey Online and the Westward Journey Online series. With our consistent rollout of content updates, these games have been staying at the forefront of the market for almost two decades, acclaimed for their robust ecosystem and depth in game design. Adding to their success, we will soon introduce Westward Journey Returns, a more casual and light version of the legacy IP. This game is designed to retain the essence of the franchise and has sparked a resurgence of interest amongst older fans, giving them an opportunity to relive cherished memories. With this new addition, we anticipate a further expansion of our user base of the Westward Journey Online franchise, Our new game, Aggie Party, took the game market in China by storm in the fourth quarter. The game was initially launched in May of last year, and the number of daily active users has been continuously growing after a few months of operation and fine-tuning. During the Chinese New Year, Aggie Party further grew its user base exponentially through World of Mouse, and scaled new heights to the number three position in China's IOS growth chart. Its daily active users have now exceeded 30 million, making it the largest gain in NetEase history in terms of user scale. Adding to the dynamic and interactive gaming experiences that we produced in-house, Aggie Party distinguishes itself from other party games through the unique contribution of user-generated content. Players of Aggie Party are encouraged to take advantage of a diverse toolset available in editor mode to design and publish new levels on the platform. As a result, player engagement with user-generated content has further enriched the content spectrum on top of our in-house PGC content. This setup creates a virtuous cycle that continually adds fresh content to the platform and enhances player engagement and loyalty. With a goal of cultivating a thriving and self-sustaining ecosystem with long-lasting potential, we will continue to provide these players with tools and incentives to inspire and empower them to generate even more content. While every party represents a huge breakthrough for us in terms of our efforts to expand into casual games, We have been steadily building up our capabilities through many great games over the past few years. For example, our award-winning adventure mobile game Sky, which was launched in 2019, also delivered a strong performance in the fourth quarter. Sky offers players a heartwarming gameplay experience and has established a dynamic and passionate fan community. With a cool Halloween update during the quarter, Sky also surged to the top position on China's iOS top growth charts. While experiencing significant progress in casual games, we have also maintained our strong presence in the hardcore genre. This is evidenced by the sustained popularity of our key titles, such as Invincible and the mobile version of New Ghost. Now let's move on to our pipeline. 2023 is exciting. We are set to expand our reach even further with a host of new titles. We have already received license approvals in China for a number of exciting titles, such as Justice Mobile Game, Racing Master, and Badlanders. Starting with the Justice Mobile Game, it complements the success of the PC version and aimed to be rolled out later this year. The mobile version will recreate the vivid world of the Song Dynasty on mobile devices with cutting-edge game technologies such as real-time ray tracing for amazing graphics that bring in-game scenes to life. With the extensive support of a highly skilled and experienced development team, Justice Mobile Game boasts a wealth of exciting and engaging content that players can enjoy for a sustained life cycle. Equally importantly, as a next generation MMO, this game represents a major evolution beyond the conventional norms of player interaction within the MMO genre, offering a truly unique gaming experience. We think the captivating and immersive open world experiences we have created with Justice Mobile Game will continue to raise the bar for both MMOs and the broader mobile game industry. Second, the launch of Racing Master is also on track. As our second car racing game, Racing Master boasts a triple A quality racing stimulation. Players can expect an authentic racing experience with dynamic car handling and performance. With a range of over 100 licensed vehicles from renowned car brands globally, players can fully immerse themselves in the thrilling world of racing and experience it like never before. As for Badlanders, it is our next generation looter shooting mobile game featuring a brand new escape mechanism and exciting looting experience on the battlefield. We will go through rounds of testing and hope we can bring this game to life soon. On the international front, we are preparing the highly anticipated global launch of our Harry Potter Magic Awakens. Our team is making dedicated efforts to continue enhancing and refining its gameplay and user experience, ensuring that our global players will live the amazing wizardry life on both mobile and PC. At the same time, we are also working on a series of expansion packs that will be ready to go so that our global players will always have plenty of engaging content. Looking beyond these launches, we continue to enhance our robust pipeline and are actively working on a variety of exciting new game titles, including Naraka Blade Point mobile version, These pipeline games are making solid progress and show great potential. In the fourth quarter, we have also made further progress in our global expansion assets. For example, we are thrilled to welcome Canadian-based Skybox Labs to the NetEase game family. Skybox Labs has an impressive track record in game development. and has contributed to some of the industry's most renowned franchises, such as Halo Infinity, Minecraft, and Fallout 76. Earlier this month, we also announced the establishment of Spliced, a new global game studio. Spliced is driven by a talented group of passionate industry gurus from a variety of backgrounds, including participating in the development of major game franchises like GTA, Call of Duty, The Sims, Rocket League, and Red Dead Redemption. We value their dedication and innovative approach and look forward to supporting the development of their latest project, which seeks to redefine gaming and how we engage with it. We are excited to see what 3.0 Splice will bring to the industry and the impact they will have on the gaming landscape. After years of planning, we built up a robust portfolio of NetEase Global game studios spanning multiple continents and established strong connections with the best-in-class talent within the global developers community. As we further expand our global ambitions We are unwavering in our commitment to providing the support and resources needed to unleash the full potential of games and more broadly speaking, interactive entertainment. In 2023, we will remain dedicated to fostering an environment where our talented developers can harness their full ability and bring their innovative ideas to life. with the ultimate goal of creating uplifting experiences and next generation blockbuster game franchises for our global players. Moving on to Yeodao, during the fourth quarter, Yeodao achieved record-breaking net revenues of RMB 1.5 billion and for the first time ever, a positive income from operations, which totaled RMB 25 million. This impressive outcome is a testament to our constant efforts to provide cutting-edge updates for our smart devices and enhance our learning services. Net revenues from smart devices hit RMB 407 million, up 28% year-over-year in Q4, thanks to the successful launch of new products. Our new product, Yodao Dictionary 10P5, now has translation capabilities across more than 100 languages and expands our dictionary vocabulary in 16 professional fields such as economics, law, medicine, and computer science. Its user experience is further improved with even greater recognition, accuracy, leveraging our natural language processing technology. We also launched our Smart Learning Pack X10 with an improved learning dashboard supported by AI for better personalized learning experiences. These sharpened iterations of our smart devices have garnered robust demand from customers, translating directly to substantial growth in sales. Our STEAM courses delivered another quarter of strong growth. In Q4, we collaborated with Minecraft Education Edition and successfully launched enriched updates to Your Dao Literature. Your Dao Literature is an online learning app that provides an immersive learning experience aimed at developing a comprehensive range of skills. Using artificial intelligence technology, Your Dao Literature delivers a wealth of engaging learning materials that combine literature, traditional culture, and stories, as well as tours of iconic architectures globally. The highly positive reception from learners and parents is evidenced by the app's impressive subscription rate and renewal rate. In addition, we strengthened our Youdao Gold Course offerings by introducing the Champion Class led by Kejie a world champion in gold tournament. Our champion class is part of a comprehensive learning path that covers everything from entry level to advanced and culminates in the champion level classes. This new offering was met with great success, bolstering growth billions by more than 50% in Q4 year over year, along with a remarkable retention rate. Looking ahead, we will continue to focus on technological innovation and leverage our cutting-edge technology to ensure the long-term success of our smart devices and learning services amongst others. Now let's look at our cloud music business. In 2022, we achieved record financial results while enhancing our music-inspired offerings and differentiated music ecosystem. Total net revenues for Cloud Music in 2022 were RMB 9 billion, representing 29% growth year-over-year. Due to steady sales growth rate and an optimized cost structure, we continued to see strong growth margin expansion, which reached 14.4% for the year and 17.8% in Q4. up from just 2% and 4.1% respectively from the previous year. We've continued efforts to provide better user experiences and bring music lovers broader music listening scenarios. Our total MAUs for 2022 was 189.4 million, up 4% year-over-year, and our paying ratio rose to 20.2% in 2022, up from 15.8% in 2021, underpinned by our high-quality and young user community, ongoing content enhancement initiatives, and continual innovation to our unique features. Recently, we signed several licensing agreements with major labels such as Being Music, which produces music for nationally renowned stars, including Mayday, and pop Japanese music label Pony Canyon. Additionally, we renewed our cooperation with AVEX, one of Japan's largest music labels. Throughout 2022, we also established partnerships with other leading Asian labels, including SM Entertainment, YG Entertainment, Emperor Entertainment Group, China Record Group, ,, Modern Sky, and Entertainment. By continuously expanding our music library, we are working to provide an even broader selection of offerings to our community of music enthusiasts. Digital albums, particularly those from well-renowned artists such as and ,, witnessed impressive sales in Q4, demonstrating high-quality audience base, deep user engagement, and users' increasing willingness to pay for premium content on our cloud music platform. Meanwhile, the top 10 best-selling digital albums of 2022 on our platform span diverse music categories, including Chinese pop, K-pop, Western pop, Chinese folk song, and alternative rock, showcasing the personalized music taste of our young and diversified user base. With an unwavering commitment to fostering an inspiring environment in which musicians are encouraged and empowered to create, we introduced several new forums to support this effort. We launched Music Talk, an online column that allows musicians to exchange ideas on professional topics that help with creation. We also rolled out the original music zone and the local zone to help music lovers explore new music content and expand independent artists' exposure. By the end of 2022, the number of registered independent artists on our platform has surpassed 600,000. Our in-house music studios also made solid progress, popularizing a batch of hit songs including Goodbye Monica, Ruo Ba Ni, Ta Zai Hu, and demonstrating our ability to produce excellent music content organically, and is one of the many reasons that set our platform unique. Going forward, we will continue to prioritize product innovation and content creation to further grow our community. Moving on to Yanshan, in the fourth quarter, our private label consumer brand launched more popular products through diversified channels, adding to our concentrated categories like pet supplies, home cleaning products, and home furniture We released popular items such as detergents, bathroom fragrances, and Chinese New Year gift boxes. We will continue to focus on original design, facilitating pleasant lifestyle options for consumers. Looking at our business as a whole, we are honored to have been recognized for our contributions to society in terms of our environmental, social, and governance practices. We are recently added to the 2022 Dow Jones Sustainability Indexes and continue to obtain outstanding ESG scores on MSCI and Sustainalytics. Furthermore, our dedication to diversity and equality has led to our second year of inclusion in the Bloomberg Gender Equality Index. We remain committed to continuing the work of advancing equality, diversity, and inclusion, and building a company where people are treated with the respect and dignity they deserve. We believe a truly inclusive workplace will be filled with creativity, innovation, and development, and this motivates us to push forward. During 2022, we continued strong performance in each of our business lines and made new progress in each major vertical we operate in. Our extensive portfolio of products and services are reaching audience on a broader scale as we move forward to our global aspirations. And with the solid ground we gained across our businesses, We believe that we are well-positioned to achieve even more in 2023 and beyond. Looking forward, we will continue to innovate, diversify, and expand our reach to generate value to our users and the broader stakeholder community. This concludes William's comments. I will now provide a very brief review of 2022 annual results with a focus on the fourth quarter. 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. Our total net revenues for 2022 were RMB 96.5 billion, or U.S. dollar 14 billion, representing a 10% increase year over year. For the fourth quarter, total revenues were RMB 25.4 billion, or USD 3.7 billion, up 4% year over year. For 2022, our net revenues from gains and related value added services were RMB 74.6 billion, up 10% from 2021. Despite a high base in 2021, total net revenues from our games and related VAS continued year-over-year growth in the fourth quarter, reaching RMB 19.1 billion, an increase of 2% year-over-year. The growth was primarily due to increased revenue contributions from both our existing games, such as Fantasy Westward Journey Online, and sensitive westward journey mobile game, and our new blockbuster hit, Diablo Immortal, which we introduced mid of the year last year. Revenues from mobile games continue to make up a lion's share of our games businesses, accounting for 66% of our total net revenues in the fourth quarter and 67% for the full year. Yodal's net revenues for 2022 reached RMB 5 billion, and in the fourth quarter were up 9% year over year to reach 1.5 billion RMB, primarily due to increased sales of our new services and smart devices. NetEase Cloud Music's net revenues were RMB 9 billion for the full year, up 29% year over year, and up 26% year-over-year in the fourth quarter to reach RMB 2.4 billion. The increase was mainly due to the contribution from membership subscriptions and digital album sales. Total revenues for innovative businesses and others were RMB 7.9 billion for the year, up 7% year-over-year, and in Q4, This segment recorded RMB 2.4 billion net revenues, up 3% year over year, mainly due to increased revenue contribution from Yanshan. Our total gross profit margin was relatively flat in the fourth quarter at 52.2%, compared with 53% for the same period in 2021. Looking at our fourth quarter margins in more details, GP margin was 59.1% for our games and related VAS, compared with 60.9% in the same period of last year. The slight decrease was mainly due to the one-off recognition of royalty fees related to certain licensed games. Improved margins in our smart devices segment drove Youdao's GP margin expansion to 53.3% in the fourth quarter, compared with 50.7% in the same period of last year. The year-over-year increase was mainly due to the robust sales of new smart devices which carry higher GP margins. Growth profit margin for cloud music continues to improve in the fourth quarter, climbing to 17.8% versus 4.1% in the same period a year ago. The significant margin improvement primarily resulted from strong pipeline growth as well as improved efficiency in content investment. For our innovative businesses and others, GP margin was 31.5% in the fourth quarter, slightly improved from 30.5% in the same period of previous year. Total operating expenses for the fourth quarter was RMB $8.8 billion, or 35% of our total net revenues. Taking a closer look, our selling and marketing expenses as a percentage of total net revenues were largely stable year over year, both for the fourth quarter and for the whole year at 13.5% and 13.9% respectively. Our R&D expenses as a percentage of total net revenues also remain stable year over year at 16.1% in the fourth quarter compared with 15.8% for the same period last year. On a full year basis, R&D expenses as a percentage of full year net revenues slightly improved to 15.6% compared with 16.1% in 2021. We remain committed to investing in content creation and product development. We are also seeing leverage in our R&D investments in the longer term. Our other income was R&D $343 million for the fourth quarter compared with $3 billion last quarter. The high base from last quarter was mainly due to one-off gain resulting from the disposal of the investments. as well as financial gains resulting from fluctuation in exchange rates. The effective tax rate was 20.7 for the full year and 20.2 for the fourth quarter. As a general reminder, our effective tax rate is presented on an accrual basis and the tax credit is deferred from each of our legal entities at different time periods depending to depending on applicable policies and our operations. Our non-GAAP net income from continuing operations attributable to shareholders for the fourth quarter totaled RMB 4.8 billion or US dollars 698 million. Non-GAAP basic earnings per ADS from continuing operations for the fourth quarter was USD 1.08 or USD 0.22 per common share. Additionally, our cash position remains strong. As of year end, our net cash position was about RMB 95.6 billion, compared with 85.6 billion at the end of 2021. In accordance with our dividend policy, we are very pleased to report that our board of directors has approved a dividend of U.S. dollar 0.054 per common share or U.S. dollar 0.27 per ADS. Lastly, we continue to buy back shares during the period. Under our prior share repurchase program for up to U.S. dollar 3 billion, which was completed on January the 9th, 2023, approximately 34 million ADS has been repurchased under this program. And our board has announced a new share repurchase program of up to US dollar 5 billion of the company's ADS and ordinary shares in open market transactions for a period not to exceed 36 months, commencing on January the 10th, 2023. Meanwhile, on the NetEase purchase program for up to U.S. $50 million of Yodels ADS, NetEase purchased approximately $2.7 million of Yodels ADS for a total cost of about $22 million as of December 31, 2022. Thank you for your attention. We would like now to open the call to your questions. Operator, let's go to the Q&A.
Operator
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your question to the 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.
Margaret Sher
Your first question comes from Alicia Yap with Citigroup. Please go ahead.
Alicia Yap
Good evening. Thank you for accepting my question. Can management comment on the domestic gaming landscape? So with domestic games approval process normalizing, will NetEase reallocate more resources to domestic game development or will put more resource in content that is targeted specifically towards Chinese gamers, or will you actually still retain your strategy of putting more resources into the overseas games development? Thank you.
Guan
Yes, in the past few months, domestic game board games have become more commonplace. This is very good news for us. China has always paid attention to the domestic and overseas markets. In the past, we spent a lot of time in China. In the future, we will pay attention to both domestic and overseas markets at the same time. Therefore, we will not change our strategy after opening. We have always paid attention to both domestic and international markets.
spk07
Over the last few months, the process of life of the human has started to normalize, which is very good news for us. So I think in the past, we've always had the same focus on both China market and the global market. So there's no real changing direction. We'll continue to play with the equal emphasis on both the China market and the global market. Thank you.
Operator
Thank you. Your next question comes from Yang Bai.
Margaret Sher
from CICC. Please go ahead.
spk00
Good evening, Mr. Guan. I would like to ask a question about overseas games. Mr. Guan, can you analyze the competitive pattern of the global game market, especially the opportunities and challenges we see for our company, or the advantages we see compared to other competitors? Can you comment on the competitive landscape in the overseas gaming market? What are the current advantages and the gaps between NetEase, ORC Games, and other ORC leading game companies. Also, NetEase has continued to make much progress in the ORC market over the years. What kind of synergies can be created between domestic and ORC? Are there any products under development to share with us? Thank you.
Guan
In fact, overseas games and Chinese games users are more inclined to use mobile games. Our positioning in terms of content is also different. PC games' positioning in terms of content and mobile games' positioning in terms of content is also different. So here you can't say that the difference exists. But I believe you can find a solution here. I also believe you are very confident that we will definitely be able to develop some games in the future that are accepted by both domestic and international people. Thank you.
spk07
From what we are observing currently is that overseas games are actually very different. For the Western game players, they prefer PC games and console games. For them, the mobile games are more of that casual type. For the Japanese market, we think the players will accept both, both PC games and the mobile games. For China market, obviously, they are more inclined to play mobile games. So in terms of content creation, PC games and mobile games are very different in design and in developing. So it is a challenge, but I'm very confident that we'll find a solution to create games that appeal to both the China market and the international audience. Thank you.
Operator
Thank you. Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.
Margaret Sher
Hello, thank you for your question. This is Charles from Dingzhong.
William Ding
My question is actually about the oil of the oil industry. So my question is about Justice Mobile. So we have seen this game having gotten the BANHO approval. So can management provide an update in terms of the development progress and the launching time for Justice Mobile? And how does this game sort of compare with the PC version? And we also have seen this game sort of in practice with some GPT-PAP buffer elements.
Mobile
Thank you.
spk07
I don't know if I can answer that.
William Ding
You can answer it. We, Yishui Han, are about to get our license plate number. We are currently preparing for our last live stream. We expect to see you in a few years. Compared to Yishui Han, our mobile games will pay more attention to the players' gaming experience. uh, uh, uh,
Guan
I think it will bring a very different experience to all players.
William Ding
Please look forward to it.
spk07
Thank you. So, yes, we got the license approval in January, and we're going through the final phase of testing now, and hopefully we'll be able to introduce the game to you in the first half of this year. In terms of our mobile game version, I think we are more focused on the game experience in terms that we're trying to create a game that appeals to different types of gamers, whether it's an RPG gamer, an MMORPG gamer. And I think we've achieved lots of breakthroughs on top of traditional MMORPG use experience through advanced technologies such as AI. The aim is to create more personalized experience for our gaming users. And I think that this is a game that is built on our 20 years of experience in MMO. And on top of that, we have deliver the more innovative experience. So I think it's a very exciting game for our gamers. Thank you.
Operator
Thank you.
spk07
Next question, please.
Operator
The next question is from Natalie Wu with Haitong International.
Margaret Sher
Please go ahead.
Alicia Yap
Hello. Thank you for your question. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. We can see that the product has achieved very good results. In the future, will there be any games that will be available in the future? In addition, in terms of the flow of games and life, we have seen that some games have performed very well, such as Monster Hunter, but some games have been released with very good results, but in the future, the flow of life will be I will translate myself. Good evening. My Twitter is for my question. So I noticed that Aggie Party recorded quite a success recently. Just wondering how should we think about the success As a matter of fact, we noticed that many have been giving us positive surprises with successful launch of new things more frequently in the past several years, or should I say the ratio of hit-or-miss becomes higher these years for our company. That makes us wondering if it is more suitable to view the ex-party as a randomly single title success, or it is as a result of our refined development and operation skills. Just wondering, any kind of new games in your pipeline that compel with every party this year that we can expect? Another question for the games, longevity. Actually, some of your games enjoy quite great longevity, like FWJ, but some key titles may fade in several months. So just curious, from a management point of view, if there is a good way for us to have a better judgment on the game longevity going forward? Let's say, how should we think about that longevity thing at this party? Thank you. 站在派对是网易非常成功的一类和家欢的休息游戏。
Guan
In the past few months, the overall performance has been very good. I believe that the problems you are worried about will not happen in the future. Because we will not do the things we did wrong before. We hope that this game can bring users We will invest more and more research and development power and experience to make this game a long-term success. I know it will take at least 10 years. I believe we have this kind of ability, just like a dream business.
spk07
Yeah, so any part is one of the very successful games we recently launched. And it is a type of game that you have fun with, with your friends and family. So we think, you know, what you worry about probably will not happen because we learn from our mistakes. So we hope this is a game that will continue to bring joy to our gamers. we will dedicate more resources onto the game to ensure a longevity of that game. When we talk about longevity, we mean at least 10 years. Games like FWJ have been running for more than two decades. So we hope to replicate the similar type of longevity in all of our games. Thank you.
Operator
Thank you. The next question comes from Alex Spoon with Morgan Stanley.
Margaret Sher
Please go ahead. Hello, thank you for introducing my question.
William Ding
First of all, I would like to ask about the interoperability. After the performance of Xbox and PS4 and PS5, what are the progress of PS5 and PS4, as well as the progress of our mobile development, and the time table that will appear on the global market? Can you share it with us? Thank management for taking my question. My first question is related to Naraka Playpoint, the console performance on Xbox, and our future plans with PS4, PS5, and mobile version, and international launch. My second question is related to our overall margin trend in the next one to two years. Considering we have Yodala Music, they are improving their margins, and gaming business, we are investing more R&D and G&A in overseas markets.
Margaret Sher
Thank you very much.
William Ding
After that, we saw that a lot of players started to try out our game, and we also collected a lot of feedback from them. In the next few months, we have been working on the optimization of new players, especially overseas players,
Guan
So the, so
spk07
Our Nerica BladePoint was launched last June on Xbox and we are pleased to have joined the XBT program. At the same time, we have seen a huge number of gamers trying our game and we have been optimizing user experience based on their feedback. And we've been working tirelessly with our Montreal office to ensure we can deliver the best experience for our users. And based on those efforts, we have an even more improved version with our PS5 version. So we are going through testing for the PS5 version. And in terms of mobile games, also we're going through testing stages for that game. And we're pretty confident that the mobile game will kind of replicate the same level of user experience as one would on the original PC version. Thank you.
William Ding
Right. Alex, and to your second question on the margin outlook, in the next two to three years, our game margin will remain relatively stable. You are right that for our overseas studios, they are in an investment phase, and likely the games developed by our overseas studios These game studios will only come into the market in 2025 and beyond. However, we do have a very strong and sizable existing portfolio of games that provide a very, very strong support to cash flow, to profitability, to the margins. And for our subsidiaries like Cloud Music, Youdao, they have already demonstrated a clear trend of narrowing down the losses. We are very confident, give them another six to eight quarters. Both businesses are very, very optimistic to be self-sustainable and breaking even. So all in all, I think in the next two to three years, our margins will be steady and slightly improving with positive surprises coming in in 2025 beyond, which will then primarily be fueled by the commercial launch of our overseas games that's currently in the development phase.
Margaret Sher
thank you next question please thank you very much thank you your next question comes from felix liu with ubs please go ahead uh
spk05
Thank you. Let me translate myself. Thank you very much for taking my question. You mentioned the improved regulation outlook in China about getting licensed. We're definitely happy to see that. Outside of the license gains that you already mentioned, if we look into the second half of this year and maybe 2024, Could you give us some spoilers on the big titles or big genres that you have a good pipeline for? Thank you.
Guan
In this year and in the future, we will definitely talk about the game for a long time. And we believe that So we will pay great attention to the creativity of the creative work itself. We have this confidence for a long time. OK.
spk07
I'm sure this year and next year and many years ahead, we will continue to see more games be launched, exciting new games be launched from NetEase. The subject innovation is perpetual. And we will continue to focus on innovating our game play and our game quality. And you've seen, and we're confident we'll continue to be able to deliver strong blockbuster games to the market year after year. Last year, we had amazing blockbuster Naraka Playpoint. This year, we have Aggie Party. So those are breakthroughs that have been equally successful in the cold weapon type of MRPG games. And we are equally successful in the casual games that you play with family and friends. So I'm very confident you'll continue to see new, exciting, innovative games coming from different realms out of NetEase. Thank you.
Operator
Thank you. And that concludes the question and answer session. I would like to turn the conference back over to the management for any additional or closing comments.
spk07
Thank you again for joining us today. If you have any further questions, please feel free to contact us directly or peer-centred financial communications. Have a great day. Thank you.
Operator
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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