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Operator
Good day and welcome to the NetEase 2024 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandy Piacente, President of Piacente Financial Communications. Please go ahead.
Brandy Piacente
Thank you, Operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liabilities. 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 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 in announcements and filings on the website of the Hong Kong Stock Exchange. The company does not undertake any obligation to update the score 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 2024 first quarter earnings news release issued earlier today. 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 the Netties corporate website at ir.netties.com. Joining us today on the call from Nettie's Senior Management Team are Mr. William Ding, Chief Executive Officer, and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on behalf of William.
Bill
Thank you, Brandi, 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. 2024 is off to a solid start as we continue growing our NetEase family of businesses. Our net revenue for the first quarter of 2024 rose to RMB 26.9 billion, accelerating year over year, led by our outstanding and increasingly diversified game portfolio, which we're actively extending to players around the world. Leveraging our longstanding advantage in MMORPGs, we continue to innovate new gameplay, foster creativity, and explore emerging technologies to persistently expand the boundary of this genre. Our numerous established long-term game franchises continue an overall high-level popularity with their loyal user base, demonstrating ongoing sustainability. We consistently infuse new innovative content and embrace appealing inherited culture into the games, crafting immersive worlds for players to engage in. Fantasy Westworld Journey Mobile recently celebrated its anniversary at the historic Daming Palace National Heritage Site Park in Xi'an, the former capital city of Tang Dynasty, the very setting of our game. As part of the celebration, we unveiled thrilling new content and further enhanced popular auto-chess gameplay, bringing players a rich variety of entertainment options. With a long-lasting affection from our gamer community, Fantasy Wars for Journey Mobile achieved another record high quarterly revenue, nine years after its launch. Meanwhile, we rolled out a new themed update for Wars for Journey Online to celebrate the Year of Dragon, featuring the traditional Tong Liang dragon dance as part of the New Year celebrations. Our ongoing commitment to refreshing these epic titles continues to captivate new players and retain our loyal following. In addition to our achievement in the traditional MMO landscape, We are continually breaking new ground with games we put out, innovating and elevating this genre. For example, Justice Mobile has become a nationwide sensation. The game has joined a wide spectrum of audiences, especially younger generation who are new to MMO genre. Our innovative seasonal mechanism and balanced gaming experiences that caters to different individual practices and interests are the pillar of our success. Beyond innovation in gameplay and mechanics, we are committed to refining and perfecting the game. In the first quarter, Chassis Mobile made a name for itself as the first MMO mobile game to implement both ray tracing and real-time global illumination on iPhone. The dedicated integration of this technology included in our game update has provided players a more immersive experience and taken the visuals to new heights. With its success in domestic market, we are preparing to introduce Justice Mobile to new regions and expand this high quality Eastern themed adventure games reach across even broader audiences. In addition to our achievements in MMO this quarter, we continue to make breakthroughs in an extensive area of game genres, such as SLG, asymmetric battle arenas, party games, and innovative martial art battle royale titles. We have consistently introduced new gameplay elements into Infinite Borders, one of China's most popular SLGs. Entering its ninth year, Infinite Borders continued to capture the interest of younger players and achieved a three-year revenue high in the first quarter. Meanwhile, Identity V, our iconic domestic asymmetric battle arena game, celebrated its sixth anniversary with record-breaking revenue in the first quarter and record-high DAU in May. This milestone highlights the game's thriving ecosystem, fueled by high-quality content, successful esports events, and well-designed IP collaborations. Naraka PlayPoint has also amassed a robust player community and has been thriving since we transitioned the game to a free-to-play model. With the latest seasonal update, the game broke its online record on Steam, attracting over 370,000 concurrent players. Following the success, of the initial test in April, Naraka PlayPoint Mobile was met with overwhelming players' enthusiasm. An additional 10 million players engaged in two weeks, bringing the accumulated pre-registration to over 25 million. As for Aggie Party, after nearly two years of operations, Aggie Party has become a household name in the party game genre in China. The game has achieved over 40 million DAUs, and we continue to enrich our content offering and strengthen our UGC ecosystem. In the first quarter, Aggie Party expanded its thematic diversity by recreating the Forbidden City's grandeur within the Aggie Party world. With an area of captivating Asian Dynasty characters and elements to choose from, players eagerly embraced this update. Aggie Party will bring Disney's Zootopia into the game, which we announced through an in-game firework show during the Chinese New Year. To further support creation and enrich our UGC ecosystem, we launched an app called Learn Programming with Aggie Party, offering players engaging and practical coding tutorial within Aggie Party, making it easier and more enjoyable to create in the game. In addition to these key titles, this significant breakthrough we made last year in genres like racing and sports brought new attention to previously overlooked genres in China, turning our foray into these genres into blockbuster games. We owe this remarkable achievement to our team's incredible dedication and talent. Fueled by profound passion for their craft, unparalleled insights into their domains, and unwavering commitment to the long-term R&D process, they have been the driving force behind our success as we bring new games and genres to the forefront. The racing fan community in China has embraced Racing Master as we continue to provide players with engaging content, including brand new cars, racing tracks, and gameplay experiences. Our seasonal update in April brought players even more challenges to conquer, with the addition of the Red Bull Ring racing track, known for its technically demanding terrain and hosting of multiple historical world level events. Racing Master's strong performance on the iOS download and browsing chart further highlights its player popularity. In addition to domestic success, Racing Master also hit new records in other regions. Following the April seasonal update, Racing Master once again ranked number one on the iOS browsing chart in Taiwan and rose to number one in Macau and number two in Hong Kong. Dunk City Dynasty continued to dominate the basketball mobile market in China. Powered by its innovative design, the game craftily translated complex basketball maneuvers onto small screens. And its casual competition mechanism allowed flexibility and innovative gameplay. While introducing our renowned CBA players to the player rosters, we expanded player option to include prominent basketball players, superstars, like Kawhi Leonard and Jason Tatum. In addition to continually enriching its content, we creatively introduced a PvE game mode with the February Season Update and presented players with the chance to experience the journey of legendary players evolving into superstars, level by level. We also extended this thrilling, possible game to more communities. Upon its launch, Dunk City Dynasty topped the iOS download chart in Taiwan, Hong Kong, and Macau. It also ranked number one in Taiwan and number two in Hong Kong on the iOS crossing chart, following its local introduction in local market in April. Expanding on our cross-genre success, we continue to impress the market with new hit titles in 2024. Our female-oriented love simulation game, 世界之外, soared to the top of the download chart following its January release, and reached number three position on China's iOS crossing chart following the release of a highly anticipated new content update in March. With skillfully crafted narratives that evoke emotional resonance and engaging content that captivate and thrill the devoted and new players, Shi Jie Zhi Wan has emerged as one of the highly popular games among the growing female player community in China. Throughout our genre innovation journey, we have gathered invaluable insights and know-how, establishing a robust foundation to continue pushing boundaries and create games cherished by players from all walks of life, no matter what their backgrounds, preferences, or interests. In addition to the launch plan of Naraka PlayPoint Mobile we just mentioned, we are actively preparing for the July launch of our new open-world action RPG game. action-adventure RPG game, Where Wings Meet, starting in domestic market as the first step. Integrating Chinese martial art with the open-world genre, this game pioneers a mode catering to both single-player and multiplayer experiences. Aiming for AAA equality of quality, it is expected to illustrate top performance of Chinese martial art game to our audience, with a pending global launch This title is geared to entertain a broader audience with the game's rich ecosystem. Furthermore, we're currently working on several additional exciting titles for global markets. We're particularly excited about the domestic or overseas launch of Once Human in the third quarter. Once Human is a multiplayer open-world survival game set in the strange and post-apocalyptic future. players can unite with friends to fight monster enemies, uncover secret plots, compete for resources, and build their own territory. Additionally, we are gearing up to introduce Ashfall, a wasteland-themed shooting MMORPG, and Marvel Rivals, a superhero team-based PVP shooting game, to our player communities in the near future. As we continue to strengthen our R&D capabilities, We also place high value on partnerships with developers worldwide. Our overarching goal is to bring more gaming experiences to a broader audience, both domestically and internationally. During our annual May 20 event, we are thrilled to update our plan to publish in China Shadow Legends, a widely popular Western fantasy sim card game and one of the best-selling RPG games in the US. In addition, we are thrilled to bring Marvel Snap to the Chinese market, a highly acclaimed CCG game that won the Best Mobile Game at the Game Award and Best Strategy Game at IGN. Furthermore, we are pleased to announce a renewed agreement with Blizzard Entertainment in April to bring beloved titles back to China sequentially beginning this summer, along with a deeper relationship and strategic partnership with Microsoft Gaming based on the shared desire to bring new gaming experiences to players across platforms and markets. From our MMORPG rules to our exploration of other genres, we continuously introduce new content for legacy titles and create new titles of existing culture trends. Through our constantly evolving R&D capabilities and expanding external partnerships, you can count on plenty of exciting new content from NetEase in the near future. Turning to Youdao, in the first quarter, Youdao achieved a healthy development and growth as we strategically prioritized our digital content services, online marketing services, and AI-driven subscription services, marking Youdao's first-ever consecutive quarter of positive net income. In our learning services segment, our digital content services experienced a strong year-over-year net revenue growth of 11%. We continue to enhance our learning system and advance the way we offer our content. Recent updates to our intelligent learning platform by Youdao Lingshi introduced a tiered learning program that tailors teaching approaches and schedules based on different learning processes. Our online marketing services continue on its robust growth track, with a record-breaking net revenue of over 120% growth year over year. reflecting a strong performance of real-time API and rapid expansion of comprehensive advertising services through domestic key opinion leader. Our investment and dedication to AI technology also brought rapid sales growth from our AI-driven subscription services across a range of applications. Notably, High Echo stands out as a representative example of AIGC technology applied in the domestic education sector. And it was highlighted in a report published by a third-party research firm for industry-wide recognition. Regarding the smart device segment, we remain confident in the long-term outlook. Underpinned by our commitment to product innovation, our Yudao dictionary pen S6 Pro launched this quarter, in the first quarter, garnered enthusiasm among consumers. Now let's move to Cloud Music. During the first quarter, Crown Music remained steadfast in prioritizing the core music business, including a recent comprehensive product upgrade to the NetEase Crown Music app aimed at cultivating a vibrant music-centric ecosystem and fostering a long-term thriving community. revenue growth from subscription-based membership accelerated in the first quarter compared to the annual grace rate of last year. This upward trend was largely attributed to an expanding subscriber base, marking a two-year high in quarterly net ads, along with a largely stable R pool. Growth in subscriptions reflect the strength of our continually enhanced music-centric offering, where we have added expensive content, innovative features, and broad membership privileges, as well as a strong program with external partners. To further our commitment to enriching our music libraries through both licensed music and original music, in the first quarter, we entered into agreement with several popular Chinese stars and expanded our music category in key genres like hip-hop and rock. Meanwhile, we are actively broadening our collection of foreign language music. Recently, we entered into licensing agreement with leading South Korean labels, including JYP Entertainment and Kakao Entertainment, and expanded our portfolio with premium K-pop content. Beyond music content licensing, many of our in-house produced and promoted music works have been highly successful. In the first quarter, our self and co-produced sounds were featured across the country at various high-profile TV performance shows and galas, including the CCTV Spring Festival Gala, Henan TV's Lantern Festival Gala, and Beijing TV's New Year Eve Gala. With an increasingly enriched content ecosystem, we are focused on exploring and advancing our music-oriented monetization initiatives. In addition to enhance the premium content offerings, innovations in product features, membership privileges, and marketing activities are driving growth in subscriber and revenue. For instance, we entered into a co-branding initiative with a popular toy brand, Farmer Ball, offering fashionable IP-themed music players. The response from young users not only resulted in an increase in membership, subscription, and upgrade, but also opened up more monetization opportunities. We also introduced a new interpersonal feature called Besties Space, which has bolstered user interaction and social engagement, attracting new members and enhancing user activity levels and stickiness. Turning to Yanxuan, since first quarter, we have continued to introduce popular products to consumers. Various product categories, such as pet products, household cleaning products, and office furniture, achieved strong sales growth, securing leading positions in sales on several e-commerce platforms. Notably, a recent launch of an ergonomic chair achieved extensive popularity among younger generations, ranking number one on sales chart across major domestic e-commerce platforms. This success can be attributed to our dedication to Yansha's technology-driven product R&D since its inception. The AI technology we have incorporated into product iteration and function enhancement in recent years has improved our capabilities in consistently delivering multi-leading products. Moving forward, we remain committed to leveraging technology to offer consumer premium products. Lastly, we released our 2023 ESG report in late April, marking our fifth annual report. The report showcased our commitment, practice, and progress in key ESG areas. Our business longevity makes it all more crucial to operate responsively and sustainably. We believe it is a gift to be able to give to our communities, especially when it relates to important social issues, such as education inequality, desire to recovery, workplace equality, diversity, and green and low-carbon development. We are grateful to have a highly diverse and professional board that is increasingly engaged in these issues, including business ethics and cybersecurity. We're actively exploring ways to make our operation greener, including using more green energy and employing energy saving approaches. In 2023, our greenhouse gas emissions from operation decreased by 11% compared to 2022. We're committed to promoting diversity, equity, and inclusion, and have again been included in Bloomberg's Gender Equity Index in 2023. Our efforts are recognized by reputable ESG rating agencies globally, where we maintain an A rating from MSCI and remain a low-rate company according to Analytics' latest evaluation. Moreover, we are proud to have been recognized by Forbes as one of the world's best employers for the sixth consecutive year, and also by Time magazine as one of the world's best companies. Across our NetEase family of businesses, we remain committed to innovation and moving the industry we serve forward. Profiting products and high-quality content that create value for our users and stakeholders will continue to guide us as we extend our global reach. That concludes William's comments. I will now provide a brief review of our 2024 first quarter financial results. Given the limited time on today's call, I'll be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Total net revenue for the first quarter was RMB 26.9 billion, or 3.7 billion U.S. dollars, representing a 7.2% increase year-over-year. Total net revenue for our games and related VAs were RMB 21.5 billion, up 7% year-over-year. The additional growth was primarily due to increased revenue contribution from newly launched games, such as Justice Mobile, and the sustainably developed titles, like Eggie Party. Net revenue from our mobile games accounted for approximately 79% of our total net revenue from online game operations. Yudong's net revenue, or RMB, 1.4 billion, a year-over-year increase of 19.7%, primarily due to increased revenue contribution from UDOT's online marketing services. That is called music net revenue, or RMB 2 billion, a 3.6% increase compared to the same period last year, primarily due to the increased net revenue from membership subscriptions. Net revenue for innovative business and others, or RMB 2 billion, of 6.1% year-over-year, mainly due to increased revenue contribution from Yanshuan and some other of our innovative businesses. Our total gross profit margin was 63.4% in the first quarter, compared with 59.5% for the same period in 2023. Looking at our first quarter margin in more detail, gross profit margin was 69.5% for our games and related VAS. compared with 66.7% in the same period last year. The increase was primarily due to change of revenue contributions from different platforms and a higher proportion of net revenues contributed by 90 self-developed games. Our gross profit margin for Yudao was 49%, compared with 51.7% in the same period last year. The decrease was primarily due to the higher revenue portion from its online marketing services with a lower gross profit margin profile compared to its other products and services. Gross profit margin for called music reached 38% versus 22.4% in the same period last year. The margin improvement primarily resulted from the increased net revenue from membership subscriptions, continued cost optimization measures, and the one-off adjustments of certain copyright costs. The adjustment of certain copyright costs mentioned above increased the gross profit margin in the first quarter of 2024 by around 5 percentage points. For innovative business and others, gross profit margin was 33.4% compared with 25.4% in the first quarter of 2023. The increase was primarily due to margin improvement in Yanshan and several other businesses included in the segment. Total operating expenses for the first quarter were RMB 9.4 billion, or 35% of our net revenue. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total revenue were 15%, compared with 11.6% for the same period last year, mainly due to increased spending on gaming promotions during the quarter. Our R&D expenses as a percent of total net revenue remain stable year-over-year at 15.5% in the first quarter, compared with 15% for the same period last year. We remain committed to investing into content creation and product development. We also see leverage in our R&D investments long-term. The effective tax rate was 16% for the first quarter. As a reminder, the effective tax rate is presented on the accrual basis. depending on applicable policies and our operations. Our non-GAAP net income attribute to shareholders for the first quarter totaled RMB 8.5 billion, or 1.2 billion U.S. dollars, up 12.5 percent year-over-year. Non-GAAP basic earning per ADS from continuing operations for the quarter was $1.84 U.S. dollars, or 37 cents U.S. dollars per share. Additionally, our cash position remained robust with net cash of approximately RMB 113.4 billion as of March 31st, 2024, compared with RMB 110.9 billion at the end of 2023. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of 9.9 cents U.S. dollar per share or $0.495 per ADS. Lastly, under our current $5 billion share repurchase program, which started in mid-January last year, we have repurchased approximately 8.9 million ADSs as of March 31, 2024, for a total cost of approximately $811 million. Thank you for your attention. We would now like to open the call to your questions. Operator, please.
Operator
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're 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 Felix Liu with UBS. Please go ahead.
Felix Liu
Thank you management for taking my question and congratulations on the good first quarter results. My question is on your highly anticipated Naraka PlayPoint mobile version. We noticed this game finished testing in April. Can you share the key takeaways from your testing, and when do you expect this game to launch? Thank you.
spk06
Let me answer this question. After this test, first, we felt the player's high expectation for this game. Second, we verified the credibility of this new operation on mobile games. OK, I will help translate. First of all, the task actually
Bill
reflect the high anticipation from players' group. And we can feel the enthusiasm from players. And also during the testing process, it actually validated the feasibility of some of the information we put into the game. And we collect enough data for us to do next round continuous optimization for the game. In the overall, this time actually boosted the confidence level of the team and will keep the optimization until the game is launched. And regarding the launching time window, so far it's still the summer vacation time. Operator, next question, please.
Operator
Thank you. Your next question comes from Lei Zhong with Bank of America. Please go ahead.
Lei Zhong
Hi, good evening. Thank you for accepting my question. Excuse me, can you hear me? Yes, we can hear you.
spk04
Thank you.
Lei Zhong
I would like to ask about the situation of social media online in March. Because there are some third-party data and some preliminary performance. Thank you, Maxine, for taking my question. And congrats on the strong results. My question is regarding your newly launched game, Pond of Heroes. And is the trend still within management's expectation? And any new term upgrades we can expect? And how should we look at the game longevity? Thank you.
Pond of Heroes
We are not particularly satisfied with the results of the launch in March. We now have a new person in charge and core members. I believe that NetEase has a lot of experience in the development of MMORPG. We are still full of confidence in this game.
Bill
Thank you. The first stage one result of Sodeo was not very satisfied to our expectation. Now with the new person in charge and the core team, we are actively doing the modification work, focusing on a couple of aspects. like the fun factor, making the game fun to play. For example, the social factor, as well as some of the art style. We're doing all sorts of modifications as we speak, and we believe with our experience and expertise in MMORPG genre, we can make it fun to play. And the expected time for the updated game to be pushed out is during the summer vacation time. Thank you. Operator, next question, please.
Operator
Thank you. Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.
spk08
I don't know how we should look at the future of this game, including whether we will do a release at the same time overseas or a release at the overseas market. What is the plan now? And what about the development of the mobile game in Yan Yun? And will there be any progress in future testing and online? Secondly, I'd like to ask about the year 2025 and the future of our game reserves. If the company looks ahead to next year, what are the reserves in the direction of the game development? I don't know if there are any similar games such as Daihou Wuxian Da or other games that can be shared with you now, and if there are any projects that the overseas market can look forward to this year or next year. I'll translate it. Thank you, Commissioner, for taking my question. My first question is about where we meet. We have seen the PC version has been doing the final testing, and it's set to launch in July. How should we think about the outlook for this thing? Will it be co-published versus market, and what's our plan there? And also related to that, what about where we meet the mobile version? How is the development stage? And what's the target launch timeline there? So second question is about our future game pipeline, especially beyond 2025. So when we think about next year or even after, what are the areas of a game genre we are currently preparing? So any updates, including such as Project Mugen or other type of game, any color from there? And what about overseas markets? Anything we should expect for this year or next year in terms of game titles? Thank you.
Pond of Heroes
Yes, we have fully prepared the PC version of Yanyun 16, including all the resources and content of the mobile game. We are now doing some performance optimization and testing work in terms of mobile games. The mobile game will be a little later than the PC version. uh uh Thank you.
Bill
Okay, I will help to do the translation. First of all, thank you for your question. As you know, for Where Wings Meet, the PC, we have announced the launching time and everything is ready. The team is busy preparing for the launch. And for mobile, the development, everything is actually already done. We're in the testing, doing some testing and optimization. As you can imagine, this game is a little bit heavy to run on mobile devices. A lot of optimization work needs to be done and we're busy doing that. Mobile version, the release time of mobile version will be slightly later than the PC version. Not too much, slightly. This is an open world game, and we believe it has potential in the overseas market as well. And we will do marketing and promote the game in the overseas market as well. For your next question regarding the product pipeline beyond 2025, we will disclose our pipeline via our normal ways like putting out news and via event when the time is right. Thank you for your attention. I'll put your next question, please.
Operator
Thank you. Your next question comes from Richie Sun with HSBC. Please go ahead.
Thomas Chong
Ding Zong, Bill, Connie, 晚上好。谢谢你们接受我的提问。 I would like to ask about Dreamer. It is a stable and powerful online game series. However, the recent adjustments in the game have seen the feedback of users being different. I also noticed that after 520, the game has new adjustments. Can you share with us how to deal with the user feedback strategy and when do you expect the game performance to stabilize? In addition, we have also seen that the company has made some adjustments to the long-range games in the past two days. Can you share the reasons behind this? Thank you, management, for taking my question. First of all, regarding FFAPC, it is a stable and strong game franchise for the EVE, but the tweaks made in the game recently received mixed user feedback. I'll just also notice there are adjustments up to 20th of May. Can management discuss the strategy to handle the pushback from users, and when do you expect the game performance to stabilize? In addition, I noticed there are more games having adjustments on the in-game item trading mechanisms recently. Can management explain the rationale behind this? Thank you.
Pond of Heroes
Our entire R&D team has been focusing on this product for a long time. We made some adjustments this year. The reason is also for this game. More long-term operation logic to make some adjustments. The content of these adjustments will probably be released before the first half of this year. We also hope that players who dream of端游 can give our development team more suggestions and opinions. We will keep a humble heart, listen carefully to the opinions of users, and put more creative and interesting content into this product. The company is very, very important. the future of this product.
Bill
Thank you. Yeah, I will do the translation for this one. Yeah, Finestable Journey, as you know, has been one of our classic MMORPG games for more than 20 years. And during the 20 years' time of operation, it's beloved by a massive user base. And one of the reasons that we love is that we always focus on the long term, making sure the game is long term, fun to play, and players enjoy staying in the game. Recently, we are doing some adjustment, but for the same reason, to adjust some of the systems with the logic, everything, with the goal of making it more fun to play in the long term, satisfying our users' demand. And this adjustment is still being done. we expect it will be done within the first half of this year. And one thing is that you don't need to worry too much about this short-term fluctuation brought by this short-term adjustment because the goals are totally aligned between us and our gamer base. It's for the longevity of the game. And we wish for the goal that the game will be in long-term continues to be loved by the players. And in the meantime, our development team are actually holding a very humble attitude, open to listen to all feedback from our community, gamer communities. So to make the game more creative and more fun to play, putting more creative and fun things in the game. One thing you don't need to worry that the whole company and the development team taking this very seriously is our focus And we expect to have a, you know, fun version to play when we finish this period of adjustment. I have a second question, which is the one about the treasure chest.
Pond of Heroes
The adjustment of the treasure chest is also short-term. They don't have to worry too much about it, okay?
Bill
Okay, yeah, so as William said, the recent adjustment for the time of the system is short-term as well. It's also served for the same goal, because a long time, we wanted the players to have more fun in playing our games. Thank you. Operator, next question, please.
Operator
Thank you. Your next question comes from Shexin Zhong with CICC. Please go ahead.
Shexin Zhong
Thank you, Manager Chen, for accepting my question. My first question is about the layout of the design track. We noticed that the company has been working on a number of games, such as Fire Emblem, Maloross, Earthshatter, and Seven Worlds. I would like to ask how the company understands the design track and the strategic layout. The second question is about our overseas studio. Thank you, management, for taking my question. My first one is about your shutting game. We have noticed that the company has been focusing on the shutting game genre with multiple games such as Lost Alive, Marvel Rebels, Ashfall, and many others in development. How do you think about the completion landscape of this genre and what's your strategy? My second question is about your OpenSafe Studios. Could management share with us the latest developments on the OpenSafe Game Studios and when do you expect the OpenSafe Studios to start launching games? Thank you. 对,射击类型的品类的游戏一直是
Pond of Heroes
The most important category in the entire game industry NetEase has had this kind of work before Not very much But we value it very much So we were a few years ago Involved in the design of products We will be on the market this year This shows us uh, uh, uh, uh, uh, uh, uh, We are also developing some products and services in the overseas market. We have achieved good results in other countries such as Hong Kong, Taiwan and other countries. Our fifth personality has also achieved very good results in Japan. Our wilderness operation has also achieved very good results in Japan. I believe we have the resources, determination, and attitude to achieve certain results in the overseas market. Thank you.
Bill
Okay, thanks William for the answer. I will do this translation. First of all, regarding your question about shooting game genre, You're right. Shooting is actually a big genre in the whole game industry, both domestically and globally. In our past, shooting was not our strong genre. But we focused very much on how to conquer this genre. That's why, starting from several years ago, we started to deploy product development into this genre. And that's why you see we started to have product coming out starting from this year. We hope we can achieve a certain level of success in this big genre. And also, in the meantime, shooting is a very welcoming genre, a very popular genre in the overseas gaming market as well. And we hope we can achieve a certain level of achievement there as well. Hoping by pushing out a batch of high-quality shooting games, we can feel our determination into broadening our genre base and get into more genres and the global market as well. About your second question about overseas studios, the fact is that there are many products that have been basically developed as we speak. But you know, developing a new game takes many years, two years, three years, even longer. At this moment, we don't have a plan and release date that we can share with you regarding the product out of our overseas studios. As we said, we are actively developing products there. In the meantime, one further comment on the global market is that for our China domestic studios, we are also actively working on titles towards global market as well. As you have seen that Racing Master has achieved certain level of success in Greater China region and identified as having been successful in Japan, 9,000 has been successful in Japan. We hope, you know, you can feel our, you know, you can feel that we have enough resources, determination, and attitude to achieve EORC market. Thank you for your attention. Peter, next question, please.
Operator
Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
晚上好,謝謝管理層介紹我的提問。 我的問題是關於OPEX那邊的。 管理層可以分享一下我們怎麼看未來費用的趨勢, 尤其是我們沒有很好的遊戲的儲備, 就是應該怎麼看未來市場推廣費用的一個趨勢呢? 謝謝。 Thanks, management, for taking my question. My question is about the operating expenses. Can management comment about how we should think about tax trends, in particular for S&M, given that we have a rich pipeline coming up? Thank you.
Pond of Heroes
Okay. There won't be a big increase. We are now becoming more and more mature in the way we use the market. The cost of goods is also decreasing. So there won't be a huge market cost in terms of marketing. Don't worry. Thank you.
Bill
Yeah, you won't see a big increase in our sales and marketing expenses. We're actually already very sophisticated, very experienced in marketing operations, and we're actually getting more and more experience in that field. Actually, our customer acquisition cost is going down now. So in short, you won't see an increase in sales and marketing expenses in the future. Thank you. Operator, next question, please.
Operator
Thank you. Your next question comes from Zhai Long Shi with Nomura. Please go ahead.
Thomas Chong
Good evening, Ms. Chen. Thank you for accepting my question. It's also about the relatively strong performance. I have a question about games. We are now seeing a lot of industries, especially the e-commerce industry, are also rolling the low price. And I just want to ask, in this game, do you observe that players are more cautious when it comes to spending? And how does the company observe the trend of our head MMO's output? So thanks for the opportunity to ask the question. So my question is about the gamer spending in these games. There are a lot of charters nowadays about so-called consumption downgrade in China. So again, such a macro context. Just wonder if management noticed any change in the in-game spending pattern of your gamers. What is the trend for the output of your MMO titles? Thank you.
Pond of Heroes
To answer your question, we haven't
Bill
observe any meaningful downgrade in the consumer in gamer expanding in our game. Because the games, the value we're providing to our consumers via game is more like an emotional value. Players spend certain money to have some fun, enjoy some time, relax here. It is still very different from the day-to-day shopping for daily use of goods or other consumer products or physical products. We believe the consumers acknowledge the emotional value we provide, and again, we haven't seen any downgrade there. Thank you. Operator, next question. Probably we have time for one or maybe two questions.
Operator
Thank you. Your next question comes from Alex Poon with Morgan Stanley. Please go ahead.
Alex Poon
Thanks management for taking my question. My question is related to our capital returns. Last year, we paid roughly US$2.3 billion in 2023. How should we think about the pace in 2024 and future? Thank you very much.
Pond of Heroes
In terms of rebates and deductions, we are still following our own pace in rebates and deductions. So you will also see that in the past, we have done this, this, this, this, this, this, this, this, this, this, this, this, this,
Bill
Okay, to answer your question, for the repurchase and dividends, we're actually carrying out the activity based on our own pace. You probably noticed that in the past quarter, we're doing repurchase with our own rhythm, and we're going to continue doing that with our own rhythm and paying out dividends as we have been used to do in the past. Thank you. Next question, and operator, that's going to be our last question.
Operator
Thank you. Your next question comes from Daniel Chen with JP Morgan. Please go ahead.
Daniel Chen
So first of all, congrats on really strong first quarter gaming revenue. And my question is on, we recently got a new license for Eggie Party's new game. It's a match-free game. So any information, any update to share on this game? Also, how should we think about the long-term strategic outlook for the whole Aggie Party ecosystem? Thank you. 蛋仔滑滑也是一個我們即將推出的跟蛋仔一樣的IP的, 用這個蛋仔IP的一個休閒,
Pond of Heroes
This is a relatively casual work. We have also been developing it for a long time, so it will be released soon. The second is a casual and cute IP that has been very successful in the history of NetEase. We will continue to innovate on this IP technology to provide users with more and more cute Thank you.
Bill
Thank you for your question. You're right that the Danzai Huahua is a casual game based on the Aggie Party IP and it took us some time to develop this and we're going to roll it out soon. And regarding your question about Aggie Party as an ecosystem, yes, Aggie Party is a very lovely, adorable IP and players feel relaxed and feel casual. when engaging with IP. We truly wish we can do more creative things with IP and building more fun experience and having everyone enjoy this party game genre. And we have a lot of work to do and we're very much looking forward to that. Thank you. Thank you for your question.
Operator
And that concludes the question and answer session. I would like to turn the conference back over to Brandy Piacente for any additional or closing comments.
Brandy Piacente
Thank you once again for joining us today. If you have further questions, please feel free to contact us at Piacente Financial Communications or the company. Have a great day.
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