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Operator
Good day and welcome to the NetEase 2023 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Margaret Chee, Senior IR Director of NetEase. Please go ahead, ma'am.
Margaret Chee
Thank you, Operator. Please note the discussion today will contain forward-looking statements relating to the future performance of 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 guaranteed for 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 20-F and the announcements and the 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 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 2023 second quarter earnings news release issued earlier today. Please note that certain financial information regarding Cloud Music we'll be discussing on this call has been prepared in accordance with IFRS. For additional information, please refer to Cloud Music's interim report for the first half of 2023. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase Senior Management is Mr. William Ding, Chief Executive Officer, and Mr. Charles Yan, Chief Financial Officer. We will now turn the call over to Charles, who will read the prepared remarks on behalf of William.
Cloud Music
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. Our total net revenues came in at RMB 24 billion, an increase of nearly 4% year over year, and our net income attributable to shareholders increased by 56% year over year to RMB 8.2 billion. Our long-standing franchises are still resonating well with our users. In the second quarter, revenues from our fantasy Westward Journey saga continues to grow year over year, further impressing the industry with this IP's longevity and sustainable popularity. Westward Journey franchise recently celebrated its 21st anniversary since its commercial launch. Games from our flagship series crafted on solid foundations and continual iterations every few months maintain their top-tier positions and alluring charm in today's market, even after nearly two decades of operation. In addition to these legacy titles, we are proactively cultivating an expanding array of long-lasting franchises. We believe our recent portfolio additions such as Agipati and Naraka BladePoint, are showing similar popularity with potential longevity. Continuing its successful streak after more than a year of operation, Agipati achieved another record high for active users this summer, surpassing the peak it reached during the Chinese New Year period this year. In the second quarter, It was the most downloaded game in China, which speaks to the game's strong reputation and user engagement. Additionally, we have our sights set on long-term success, and we are deeply committed to fostering a thriving UGC ecosystem. In June, we successfully hosted our very first Creators Conference and introduced a series of new incentives providing even better support and rewards for creators. Furthermore, we've diligently upgraded our game editor by introducing a series of advanced components and interactive functions, such as an NPC and plot editor. These additions not only offer increased flexibility, but also push the boundaries of creative possibilities. To build on the domestic popularity of Aggie Party, our plan to launch it in the global market is well underway. We went through our first round of testing outside of China in April, which has given us valuable insights. Our development team is working hard to optimize the game experience based on this feedback. We plan to test Aggie Party in a few more regions including the Europe, North America, and Japan markets, before we officially introduced Aggie Party to worldwide audiences. For Naraka BladePoint, we proudly announced that we added another 10 million new users in the past year, reaching a new milestone of 20 million users in total after two years of operation. To celebrate the game's two-year anniversary, we increased an area of captivating new content, featuring fresh weapons, heroes, and engaging gameplay features. Most notably, during its two-year celebration, Naraka BladePoint made some exciting moves, transitioning into a free-to-play model and debuting on the PlayStation 5 to expand its accessibility to a wider audience. resulting in a remarkable surge in active users and being voted as PlayStation's best new game in July. Furthermore, the development of Naraka Bladepoint's mobile version is making steady progress. We have a firm focus on preserving the game's hardcore essence on mobile devices to further its reach to a broader audience in China and potentially globally. The huge success we have seen with our June new releases, Justice Mobile Game and Racing Master, has been very exciting for us and demonstrates our ability to once again set the bar for the MMO industry and expand genres to brand new categories through first class content innovation. Justice Mobile Game is arguably the first game in the world to bring fresh real game experiences to users by leveraging machine learning technologies. The game has dominated both the iOS download and grossing charts upon its release in China. Within a month, Justice Mobile game attracted over 40 million players, which is unheard of for any MMO game. Notably, it has drawn in massive groups of Generation Z players who were previously unfamiliar with the MMO genre, revitalizing the spotlight on MMOs within the Chinese game industry. As a forerunner in the MMO world, we continuously explore new horizons of innovation that brings all new creative gameplay into the genre. Justice Mobile Game offers a more balanced game experience, which resonates well with younger generation. prompting players to willingly spend on cosmetic items they love within the game. Also, by leveraging our advantage in machine learning technologies, Justice Mobile Games' development team will be significantly more efficient in producing new and frequent expansion packs that keep our game players super engaged. Turning on to Racing Master, since the game's June debut in China, it has swiftly risen to the top position on the iOS download chart and claimed the number three spot on the top grossing chart. This milestone launch marks the addition of our second racing car game to our portfolio, expanding our presence in this very popular genre. With Racing Master, we pioneered China's first proprietary AAA standard racing simulator mobile game, introducing an authentic racing experience into the mainstream of China's gaming sphere. Developing a simulation racing game is no small feat. It requires a deep pool of technical expertise, such as understanding dynamic crash physics, aerodynamics, and real-world tracks. These take years to build from the ground up. This kind of undertaking requires a lot of dedication and passion for games, as well as a strong commitment to bring it to life. We have ambitious plans for Racing Master in the global market. We are about to commence overseas testing with a name to bring Racing Master's authentic racing simulation experience to global mobile players around the world. Badlanders, our next generation looter shooting mobile game, has received positive reviews from players and achieved the number two position on the iOS download chart following its launch on June the 8th. We are dedicated to refining the game to fully unleash its long-term potential. At the end of June, we also rolled out Harry Potter Magic Awakened to the global market, including Japan, North America, and Europe, where it tops the download charts in more than 50 regions. The game was well received by Harry Potter fans across the world and has been acclaimed for its world-class design and authentic representation of the original IP. Our most recent addition is Dunk City Dynasty, which we launched just yesterday. The game tops the iOS download charts. Authorized by the NBA Players Association, Dunk City Dynasty marks our debut into the self-developed basketball game domain. Dunk City Dynasty lets basketball fans build their dream team with all-star NBA legends and dominate the court with real-time commands using strategic prowess and leadership skills. Transitioning to our pipeline, Alongside the exciting titles mentioned earlier, such as Naraka Blade Point mobile game, Aggie Party, and Racing Masters for the international market, Whale Wings Meet, our open-world adventure RPG, is counting down to its eagerly awaited 2024 launch. At Gamescom 2023 held this week, Whale Wings Meet unveiled a wealth of thrilling revelations which is now capturing significant attention from players worldwide. Set at the onset of the Song Dynasty, a time of warfare and turmoil, Where Wings Meet allows players to embark on a journey as a mysterious swordsman and immerse themselves in the heart-pounding allure of our interactive open world. Our dedication towards R&D underpins our ability to continue to scale through consistent proprietary game launches. Nevertheless, we remain committed to bringing top quality worldwide games to Chinese market. Since we introduced Minecraft to China in 2017, we have seen an incredible surge in its popularity within Chinese gamers community. where fans have embraced the opportunity to craft and explore their unique world as well as those of others, limited only by imagination. Recently, we are very pleased to have renewed the term of Minecraft license and are dedicated to continuously serving Chinese players in the long term. In the second quarter, we are pleased to announce the establishment of a new game studio named Pinku in Tokyo, which is being led by Ryotaro Ichimura, a 20-year game industry veteran and longtime producer of the Dragon Quest franchise. Pinku plans to leverage its diverse knowledge as an entertainment production company to deliver top-notch entertainment experiences to users worldwide. While it will mainly focus on developing titles for game consoles, Pingu will also venture into various forms of entertainment. Equally exciting, we've welcomed T-0 Entertainment to the NetEase family. The studio is located in Austin, Texas, headed by Rich Vogel, an experienced game developer who has led development on groundbreaking multiplayer and service-based games such as Meridian 59, Ultima Online, Star Wars Galaxies, and Star Wars The Old Republic. T-Zero Entertainment is developing an online multiplayer-focused third-person action game that takes place within a sci-fi universe. Now let's move on to Youdao. The company's net revenues resumed its robust growth trajectory following the pandemic's impact earlier this year, registering a 26% year-over-year increase to reach RMB 1.2 billion, led by strong performance in our learning services and online marketing services. Our differentiated theme courses continues to drive year-over-year increase in our learning services revenue, For our goal and coding courses, their renewal rates have reached close to 70%, demonstrating our users' satisfaction with our course content. Online marketing services for Youdao achieved record revenues in the second quarter, nearly doubling comparing to the same period of last year. This achievement can be attributed to the utilization of our proprietary algorithm which has substantially elevated advertising precision and efficiency. Notably, it operates at a nearly 90% accuracy rate in intelligently targeting tagging KOLs and reduce the time required to produce advertising materials by 80%, all the while enhancing user satisfaction. For smart learning devices, we continued to invest in innovative technology and rolled out new products. We were excited to launch Youdao Dictionary Pen X6 Pro model in August, our first dictionary pen powered by our proprietary Ziyue large language model, which is the first large language model designed specifically for the education sector in China. X6 Pro offers highly personalized tutoring functions for students of varying ages and levels of learning progress. For instance, the platform introduces a digital human language coach named Echo. Echo engages users in interactive English aural practice, which teaches students how to initiate a conversation, express themselves naturally in a native manner, and provides grammar analysis based on students' submitted taxes through scanning. Looking ahead, our focus on technological innovation remains our driving force while we compel long-term success across our business lines. Turning to NetEase Cloud Music. In the second quarter, Cloud Music continues to enrich its music-centric ecosystem and optimized the user experience, resulting in a thriving music community. Total online music MAUs steadily climbed to 207 million for the first half of 2023, marking a 14% year-over-year increase, despite an industry-wide slowdown. Total revenues were already 1.9 billion, remaining stable compared to last quarter, This can be attributed to a combination of strong growth in online music services driven by revenues from subscription-based memberships and declining social entertainment services as we shift towards more sustainable development. Regarding margins, we are making remarkable progress. Our gross margin continues to improve in the second quarter reaching 27% versus 13% for the same period of last year. Cloud Music also achieved positive operating profit for the first time under IFRS in the first half of 2023. We continuously enrich our music library to offer a comprehensive music selection for our diverse audience base. In addition to the partnerships we established earlier this year with Being Music and Comix Wave Films, we were happy to announce our collaboration with the country's top pop singer Chris Lee, leading brand Yu Ding Mi, and renowned Mandarin label Rise Entertainment, which represents a number of highly acclaimed international pop stars, including Jackson Wong. Furthermore, we have also extended our collaboration with popular Korean labels, including Dreamers, SLL, and JTBC. Our collaboration efforts with copyright holders have also proven to be successful in terms of digital album sales. Notably, the digital album, I Feel, by the leading Korean girl group, Giddle, achieved over RMB 10 million in gross sales and 430,000 copies sold after its release in May. We continue to empower and support independent artists. By the end of June, we were serving a growing community of more than 640,000 registered independent artists. In addition to our support programs for nurturing music talent, We actively harness cutting-edge technology to provide tools that aid in music creation. During the second quarter, we introduced Cloud Music X Studio, a voice synthesis software developed in collaboration with Xiaobin, a technology innovator in lifelike interactions. This innovative tool offers 12 natural singing voices covering a variety of singing styles and provides musicians with resources in music creation. Moving forward, we will continue to foster our music-centric ecosystem, further grow our community, and drive healthy long-term monetization and margin expansion for NetEase Cloud Music. Now moving on to Yanshan. In the second quarter, our private label brand continues to thrive by strengthening its portfolio with a focus on premium quality. This coincided with a steady increase in Yanshan's revenues and significantly enhanced its profitability. In particular, the June 18 promotion yielded exceptional results. Our products achieved strong rankings on best-selling charts in diverse categories, including pet food, household cleaning products, and office furnitures, across leading e-commerce platforms. In Q2, we also introduced a campaign that highlights the production journey of some of our popular products. Using short films, we showcased how much detailed attention goes into the making of some of these products, which was heavily validated by our user community, looking ahead we will persist in our dedication to explore and introduce to consumer great, well-crafted products under the Yanshan brand. In summary, innovation through content production continues to be the cornerstone of NetEase and will be what propels our future growth. Superior content, products and services come from fresh ideas. This concept forms the heart of our company where we will always strive for excellence, manifest through hard work and persistence to inspire the industries we serve, from games to music to education to retail. We work to reimagine what is possible, creating value for our global community, our employees, and our stakeholders. This concludes William's comments. I will now provide a brief review of our 2023 second quarter financial results. 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 more details. Total net revenue for the second quarter were RMB 24 billion, or US dollars 3.3 billion, representing a nearly 4% increase year-over-year. Total net revenues from our games and related value-added services were RMB $18.8 billion, up nearly 4% year-over-year. The growth was primarily driven by increased revenue contribution from mobile games, including our strong legacy titles, such as Fantasy Westward Journey series, and our newer games, such as Aggie Party. Net revenues from our mobile games accounted for approximately 74% of our total net revenues from online games operation. Yeodao's net revenue were RMB 1.2 billion, a year-over-year increase of 26%, primarily due to increased revenue contribution from learning services and online marketing services. Net revenues from cloud music were RMB 1.9 billion, a 11% decline compared to the same period last year. As explained last quarter, these results reflected declining revenue of social entertainment services as we adjusted our focus to improve profitability in a sustainable manner. We introduced multiple measures to enhance the listening experience of more dedicated music fans, lowered the revenue sharing ratio to broadcasters and agencies, as well as reinforced risk controls and additional live streaming function optimization. Net revenues for innovative businesses and others were RMB 2.1 billion, up 10% year-over-year with a balanced approach to top-line growth and margin expansion. Our total gross profit margin continues to grow, reaching close to 60% in the second quarter compared with 56% in the second quarter of last year. Looking at our second quarter margin in more detail, gross profit margin was 67.4% for our games and related value-added services sector, compared with 64.9% in the same period of last year. The growth was primarily driven by the termination of certain licensed games with comparatively lower gross margins. Our gross profit margin for Youdao was 47%, compared with 42.8% in the same period of last year. The increase mainly resulted from increased revenue contribution from its learning services and online marketing services, which carry higher margins. GP margin for Cloud Music continues to improve in the second quarter, climbing to 27% versus 13% in the same period one year ago. The quarter-over-quarter and year-over-year increase in Cloud Music's gross profit primarily resulted from the growth of membership services and continuous cost optimization initiatives. For our innovative businesses and others, gross profit margin was 29.5% compared with 25.8% in the second quarter of 2022. The increase was primarily the result of margin improvement in Yanshan. Total operating expenses for the second quarter were RMB 8.3 billion, or 35% of our total net revenues. Taking a closer look at our expense component, our selling and marketing expenses as a percentage of total net revenues were 13.6% in the second quarter and remained relatively stable year over year. Our R&D expenses as a percentage of total net revenue also remain stable year-over-year at 16.3% in the second quarter. As an innovative content and technology-driven company, our commitment to investing in content creation and product development is ongoing. We are also seeing leverage in our R&D investments in the longer term. Our other income was RMB 2.8 billion for the second quarter. The increase was mainly due to the market value appreciation of certain publicly traded securities in our investment portfolio during the quarter, as well as higher unrealized net FX exchange gains. As per applicable accounting standards, we are required to reflect these fair value changes. Effective tax rate was 8% for the second quarter of 2023. The lower effective tax rate for the second quarter was mainly due to tax benefits recognized in this quarter. As a reminder, the effective tax rate is presented on an accrual basis, and the tax credits differ for each of our entities at different time periods, depending on applicable policies and our operations. Our non-GAAP net income attributable to our shareholders for the second quarter totaled RMB 9 billion or US dollar 1.2 billion. Non-GAAP basic earnings per ADS for the quarter was US dollar 1.93 or US dollar 0.39 per common share. Additionally, our cash position remains strong. with net cash of approximately RMB 99.6 billion as of June 30th, compared with RMB 95.6 billion as of the end of last year. In accordance with our dividend policy, we are pleased to report that our Board of Directors have approved a dividend of U.S. dollar 0.105 per share or U.S. dollar 0.525 per ADS. Lastly, on our current U.S. dollar 5 billion share repurchase program starting in mid-January this year, approximately 6.1 million ADS have been repurchased as of June the 30th for a total cost of approximately U.S. dollar 536 million. Thank you for your attention. We would like now to open the call to your questions. Operator, let's move on to the Q&A.
Operator
Thank you. If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speakerphone, please pick up the handset to ask your question. 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. Your first question comes from Alex Poon with Morgan Stanley. Please go ahead. 恭喜管理層和研發團隊爆款遊戲一個接著一個上線。
Alex Poon
我的问题是关于逆水寒手游的 请问管理层能否介绍一下 AI 是怎样帮助逆水寒提升收入和用户粘性 为什么逆水寒能成为中国首个成功把AI落地的一款游戏 难点在什么地方 Congratulations, management and development team. We have got Blockbuster Title I after another launching this year. Can management elaborate how the Justice Mobile leveraged AI to boost revenue and user engagement? And how did Justice Mobile become the first one of this kind in China to adopt AI? And can management also share some of the difficulties and expectations of this game into the future?
Will Smith
Thank you very much.
spk12
The application of AI in video games mainly includes the improvement of our development efficiency and the improvement of user experience. In terms of improving the development efficiency, we used AI to improve our efficiency in the production of art and in the development of programs. More importantly, in the entire game development process, The idea of game plus AI becomes the idea of AI plus game. That is to say, from the beginning, we assumed that the whole world was built on the basis of an AI big model. In this way, we can improve the player's user experience in all aspects. From the very beginning, the player sets up the character, to the player entering the world, to the interaction with the whole world. In each aspect, we use AI as a high-performance production content and its flexibility. to enhance the player's rich experience of the open world. We also see that players, under such a new experience, have shown a strong connection to the game and a very good self-transparency. This has played a very important role in attracting users who used to play online games. We are also continuing to treat our users AI deepening experience. What I want to say is that our work is not completed in one day. After AlphaGo became a reality in 2017, we noticed that AI will have a huge impact on the content industry in the future. Since then, we have been preparing for it. So in the whole process, we have overcome a lot of difficulties. So today's success is also Thank you.
Margaret Chee
I will do a quick translation. The AI has an effect on us in two ways. Firstly, it has greatly enhanced our R&D efficiency, and secondly, it has enhanced our user experience. From the R&D efficiency perspective, we adopted AI technology in programming, in graphic designing. I think most importantly, we changed the way we think about designing games from just games plus AI to AI plus games, which means that at the very beginning of designing a game, we start thinking AI. We build a whole world view based on AI world, which gives our users a very immersive, strong open world experience. So from what we've seen, our users have been highly attracted to this game, and we saw very strong stickiness and engagement of users to the game. And I think the enjoyment the users have gained from the game has caused voluntary spread or promotion of our game. within the gaming community and it would be able to attract many gamers who were traditionally non-MMO game players. Another thing I would want to add on here is that applying AI technology into our game development is not something that can be achieved overnight. we start thinking about AI as far as back in 2016, 2017 when we saw AlphaGo and that's when we realized AI will have a profound impact on gaming. So I think what the results in today is the accumulation of all the investments and dedication we have put into AI research and AI development in games. Thank you. Next question, please.
Operator
Your next question comes from Yang Bai with CICC. Please go ahead.
Yang Bai
Okay. OK, I will translate by myself. After the success of Aggie Party, reaching Master Justice Mobile, we noticed that the company has recently launched Dunk City Dynasty, which ranked number eight on China's iOS top grossing chart soon after its launch. Could management share more color on the operation strategy of this game? And how should we think of the opportunity of esports games? Besides, we can also see that the company released the PV of Urban Open World Game Project Mugen, which seems to be another big title. Could the management tell us more about this game? Thank you.
Kenneth
Okay, let me answer this question.
spk12
The first question is about the full-fledged team. This game was tested in sports games, especially basketball games. In the past, we observed that in the world of basketball, players' sense of participation and the trend of the trend can be broken. So we want to try this aspect. When we built this team, we asked all the members of the team They are all members of the basketball team, so they have always been very enthusiastic about making this game. We have also experienced several years of development and constantly adjusting and testing. In the end, the whole game is adjusted to a very good extent from the style of the game to the feel of the hand. The second question is about
Margaret Chee
So this game is actually our first attempt in sports game genres, particularly basketball. After researching this market, we think there's potential innovation we can do in this particular genre. So when we started to put together the team of developers and game designers, we asked all the team members. We chose all the team members who are hardcore basketball players personally. So all of them have a passion about basketball and they want to create the best basketball game ever in the market. So it has actually taken us a few years of development and dedication, optimization. So we feel like we only launched the game when we feel like we've mastered a great graphics, art, and the maneuver and the style in that game. So going forward, we hope to continue to expand the user base for this game, and hopefully become the dominant player in this category. Thank you.
spk12
The second question is from Daihua Wuxiandao. This game is a combination of the open-world world of E3, related to game development technology, including world-wide production, artificial intelligence, etc., to conduct a comprehensive and upgraded game development attempt. We hope that this product will further consolidate our experience in AI game development, and at the same time, bring a new open-world game experience to everyone, especially for second-generation players. So the second question is on CodeInfinite.
Margaret Chee
So this is actually our attempt on innovating the anime-style game roundup. So of ACG games. This is our attempt to bring the open world experience, the AI technology into the ACG realm. So this is our attempt to further solidify our development abilities in AI and also give our ACG game lovers a true experience of open world city life style game experience. And hopefully we'll be able to introduce the game to our gamers in the not too far future. Thank you. Thank you. Next, please.
Operator
Your next question comes from Richie Sun with HSBC. Please go ahead.
spk14
Thank you for taking my question. What's the rationale behind the change of Naraka Playpoint to a free-to-play game? And how's the reception in terms of in-game item sales and user base? And how would this change the game performance trajectory going forward? Thank you.
Margaret Chee
Okay. So after we turned this game to free, we were able to bring in more users. So after this transition, we actually saw a great improvement in terms of both active users and also our revenue. So we think that was the right decision to make. Thank you. Thank you. Question, please.
Operator
Your next question comes from Felix Liu with UBS. Please go ahead.
Felix Liu
Thank you, Mr. Ding. Thank you, Charles. Thank you, Mr. Mark. Thank you for your question. I'd like to ask you about another game that everyone is looking forward to. The game is called Clouds and Clouds. First of all, congratulations to our board. We're also looking forward to more colors in Gamescom. Can you tell us about the development of this game? When will it be released on the market? And also, Let me translate myself. On the domestic pipeline, congratulations on the ban. We look forward to more color on the game in Gamescom. Can management share more color on the status, R&D status of the game? What are the potential, you know, launch time that we're looking at? And what is the game's differentiated marketing positioning compared with Justice Mobile, given both seems to be open-world and martial art-based RPG game? Thank you.
Ding
Um... um um I believe that Wang Yi has a lot of experience in MMORPG games in the open world. We also look forward to this game to bring users different experiences.
Margaret Chee
Thank you. So where Will Smith is actually very important for us. He actually has a very different world view to Justice. So when we're actually learning from different things with open world experience, and hopefully we'll be able to launch it by the second half next year.
Will Smith
Second quarter.
Margaret Chee
Second quarter next year. So for NetEase, we believe we have a lot of experience in open world experiences. games. So every game we launch, we try to bring our users a different user experience.
Kenneth
Thank you.
Operator
The next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.
spk07
Thank you, Vincent, for accepting my question. I also congratulate you on this very solid performance and the success of a series of new games. I would like to ask about some of the experiences of NetEase in the new game genre. In fact, in the past 12 months, we have also seen that whether it is a single-player game, or a new game that has just been released, it is a very successful game. But it is also possible that NetEase There are relatively fewer design-related game types. If we look back, how should we understand or summarize our success experience in these types of games? After these games have made breakthroughs, whether it's related to leisure parties, racing, or other areas such as shooting, will our future research and operation strategies have different weights or changes? So, thank you, management, for taking my question. So my question is about the new game type or game genre of our NetEase game. So in the past 12 months, we have seen a very successful launch of Aggie Party, Raising Master, and also recently the Dunk City Dynasty. Those are relatively, you know, less exposed game from NetEase in the past. So how should we conclude and understand the success, you know, learning from these games? And after the breakthrough of all these different types, would companies' R&D development or operational strategy have any new change or priority in the future, especially for those leisure party, car racing, or even like a shooting type of games?
Ding
Yes, I would like to talk about an Internet company. The most important thing is to maintain a creative attitude and spirit. At the same time, we have to invest a lot in the research and development. When you see these successful works, it is our past few years, in these few categories, silently giving out. Maybe you didn't see our failed project when you saw the success. So NetEase is a company that always invests in the research and development and keeps innovating. In the future, As an Internet company, as a content provider, we keep our innovation spirit at heart and we continue to invest very heavily in R&D.
Margaret Chee
So the success you've seen in the past 12 months are some positive results from the past effort we're putting in R&D and in developing games. But these are successes, but they have been failures too. But we will continue to work hard, never give up, and we want to bring our game users continued great game content through our innovation and dedication in R&D. Thank you.
Operator
Your next question comes from Kenneth Fong with Credit Suisse. Please go ahead.
Kenneth Fong
Hi, Mr. Ding, Charles, Margaret. Hello, thank you for accepting my question. Congratulations on a very strong performance. I have a question about the interest rate. I see that since the performance of the game is strong and the trend is easing, what should we do in the second half of the year Thank you for taking my questions and congrats for the very strong set of results. I have a question about the gross profit margin. What's the game business and overall business gross profit margin outlook for second half and 2024 as we see strong performance of self-developed titles and continuous channel optimization? Thank you.
Cloud Music
Thank you, Kenneth. It's Charles. In the interest of time, let me answer this question directly in English. As you have rightly put, NetEase prioritizes our R&D resources and attention to self-developed proprietary games, which would yield, relatively speaking, much higher margin vis-à-vis licensed games. In the first half, of this year, we continue to enhance our game services-related GP margins, largely because the termination of certain licensed games, as well as very strong performance of our self-developed legacy games such as FWJWWJ, as well as new games such as Agitati. In the second half, as you can already tell, we launched multiple new, exciting, very, very strong performing games in June. So the trajectory of more self-developed games contributing to higher margins is somewhat sustainable.
Kenneth
Thank you, Kenneth. Next question, please.
Operator
Thank you. Next question comes from Natalie Wu with Haitong International.
Will Smith
Please go ahead.
Kenneth
Good evening. Thank you. This is my question.
Natalie
My question is mainly about the expansion of our overseas game. I would like to know more about the short-term and long-term In terms of latitude, we are now looking at which market and region is the key to this strategy, as well as the strategy of the Group's expansion in the overseas market, as well as the corresponding operating goals. I don't know what will happen in the long term in terms of latitude. Charles, you also mentioned before the transformation of the United States of America and the expansion of the overseas market. If we are to talk about what we have gained from these attempts, Thanks for taking my question. My question is related with the game overseas expansion plan. I just want to get an update of both in the short term and the long term, which market and regions will be the focus for your game expansion. And I'm wondering if you can give us an update of the overseas expansion plan and target, both in short-term and long-term. Charles just mentioned that the transition and ex-parties trials are propelled with marks. So I'm just wondering if... if Natty get any inspiration or lessons or learned from these kind of recent initiatives. And lastly, just for housekeeping, what overseas revenue contribution for game in last quarter? Thank you.
Ding
那它的游戏的终端也跟中国的竞争一样,中国主要目前还是以移动端游戏为主。 那海外主要是Console和PC。 那同样,中国一些题材也不一定适合海外的市场需求。 所以我们在拓展海外的业务的时候,我刚刚讲到的第一个是欧美日韩,第二个是PC Console。 So in terms of geographical focus for us, it's North America and Europe, Japan and Korea.
Margaret Chee
So in terms of, and the markets are very different in the sense that in the China market, mobile games is a mainstream kind of game that can play, whereas in overseas markets, console and PC games are still the mainstream. And thirdly, in terms of runways, a lot of the runways that are popular in China probably do not apply for overseas markets. So what are the runways that will attract overseas audiences is a topic that we are studying. We've spent a lot of time evaluating, and I'm sure that very soon we'll be able to introduce to the world the right answer. Thank you.
Cloud Music
And Natalie, for your second part of the question, overseas games revenue, well, since the strong performance of Aggie Party from Q4 at the end of last year, the overseas revenue percentage has slightly declined to a single digit from previously around 10-ish. But again, the primary reason of that percentage mixture change is mainly due to the strong performance of certain of our new games launched mostly in domestic market. Now with Justice Mobile and Racing Masters strong debut launch in June, we would expect my domestic games, particularly domestic mobile games in the second half to continue to grow, outgrow at a faster rate than my overseas game revenue.
Natalie
Thank you. Thank you.
Margaret Chee
Your next question comes from... No, I think that's all the time we've got for today. I think that's all the time we've got for today. So maybe this concludes the question and answer session. So thank you once again for joining us today. If you have any further questions, please feel free to contact us directly at Peer Center Financial Communications. Thank you. Have a good day.
Operator
Thank you. The conference has ended. You may now disconnect your line. Thank you.
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