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Operator
Good day and welcome to the NetEase 2024 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandy Piacente. Please go ahead.
Brandy Piacente
Thank you, Operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor for liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and 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 20F. and in announcements and filings on the website of the Hong Kong Stock Exchange. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2024 second 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 Netties' senior management are Mr. William Dink, chief executive officer, and Mr. Bill Pang, the vice president of corporate development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf.
Bill
Thank you, Brandy, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages we talk about here are based on RMB. Established games, exceptional content, innovation, and robust community ecosystems are central to our ongoing growth as we expand our reach domestically and abroad. In the second quarter, we pushed each of these drivers, growing our total revenue to RMB 25.5 billion. With our drive for innovation and leading R&D capabilities, we launched a multi-title second quarter, enhancing our appeal to a broader audience across diverse game genres. At the same time, we are extending our brand and international reach, unlocking more avenues for growth. Now looking at some of our game's performance in more detail. Once human, ,, A multiplayer open-world survival game set in the post-apocalyptic world attained over 230,000 peak concurrent users on Steam shortly after its launch and ranked among the top five most played games in the world on Steam in July. The innovative creator design blends supernatural transformations with everyday items, such as the highly popular boss monster, providing players with incredibly fresh and bizarrely fun experiences. As a high-quality survival game, it combines multiple layers of objectives to pursue, including exciting open-world exploration, monster fights, and house crafting. Shortly after an update in August, Once Human ranked number one on Steam's top seller chart in 12 countries and regions, amassing over 10 million worldwide downloads. We also launched our highly anticipated Battle Royale title, Naraka PlayPoint Mobile in late July, featuring a fast-paced and dynamically focused combat experience. Powered by NetEase Fuxi leading technologies, Naraka PlayPoint Mobile introduced a co-pilot AI system, which enabled players to team up with AI allies on instant vocal interactions and immersive battle experiences. Videos featuring co-pilot teammates has been really popular and has spread widely across social media. Upon its release, the game immediately climbed to the number three position on the iOS boxing chart and maintained our number one position on the iOS free download chart for a week. The new mobile version boosted overall franchise excitement, pushing PC and console DAUs to new highs and setting a record of 380,000 concurrent users on Steam during the game's third anniversary. While we bring players new titles with exciting experiences in the diversified genres, content enhancement and innovative gameplay continue to infuse vitality into our flagship portfolio. Our Fantasy Westward Journey and Westward Journey Online franchises are testament to the longevity and the popularity of our legacy titles. In the second quarter, we launched a brand new expansion pack for Fantasy Westward Journey Mobile, adding new content and fresh gameplay that, once again, drove a record high quarterly revenue. Westward Journey Online Mobile also attracted both long-time fans and new players by reintroducing classic gameplays that was widely praised on the PC version in the early days. We also brought innovation to Infinite Borders, Shreds of Tribune, our flagship Three Kingdoms theme SLG title. In April, we launched a new update that infused the concept of four seasons to influence players' activity with unique enhancements or challenges. For example, spring is ideal for planting, summer focuses on training troops, autumn leverages harvest for strategic deployments, and winter is best for recovery or surprise attacks. By introducing seasonality into strategic planning, players can experience realistic Asian battles and develop more comprehensive tactics. Along with rich rewards offered during the summer campaign in May, Infinity Border's DAU hit a three-year high in the second quarter. Identity V, 第五人格, continued to propel collaborations with renowned IP around the world, winning immense popularity in July. It hits the number four position on China's IOS top-crossing chart. And in August, it ranked number two on the IOS top-crossing chart in Japan and number three in China. The momentum resulted in record-high DAUs in August and record revenue in the second quarter, surpassing last quarter's high. Turning to Aggie Party, Danzai Pi 3. The heat game continues to deliver heartwarming experiences to our large player community. In June, we hosted a ball-themed second anniversary event, presenting players with various stages to perform dances, fly, or play rhythm games in the festive atmosphere. Beyond gaming, Aggie Party is pioneering the development of the UGC ecosystem. Our self-developed editor continuously introduces new features, like new skills and creature skins. We're also expanding the scope and impact of the UGC system by partnering with leading Chinese universities to offer coding courses and college competitions based on our UGC editor. Justice Mobile also achieved exciting success with rich updates that were launched for its first anniversary in late June, featuring brand new content, fresh categories, skins, and game plays across PVE, PVP, and PVX areas. Cating to the demands of different type of players, Justice Mobile attracted enthusiastic new players and brought existing players back, driving it to the number three position on the iOS top-grossing chart in June. With our innovative seasonal update mechanism, Justice Mobile advanced the MMO genre, attracting a large user base and showcasing its robots' potential to become an evergreen game. With a concentration on innovation, We are growing our presence across different genres and platforms worldwide with a strong game pipeline. In June, we completed a new round of testing for Where Wings Meet, ,, an open world action adventure RPG title, and received great feedback from a large group of players. During the testing period, the number of reservations increased significantly. We currently plan to launch the game on PC and mobile this year. And our first phase of cross-platform testing will start on August 28. Marvel Rivals, Man Wei Zhengfeng, the six versus six superhero team-based PVP shooter, announced its console plan during Sony's State of Play in May and showcased a new cinematic trailer at Marvel Games' panel at San Diego Comic-Con in late July. The panel revealed exclusive behind-the-scenes creation stories along with beloved characters Jeff and Thor joining the closed beta test. Widely praised during the testing on both PC and consoles, Marvel Rebels proceeded to have a stunning showcase at Gamescom in Cologne this week, where it is accessible at both Microsoft Xbox and NetEase Games booths, and announced its release date for December 6. In June, we announced FragPunk, a fast-paced 5 versus 5 hero shooter game. Xbox Game Showcase 2024. Featuring innovative card mechanics and unique carnival punk style, the game has already gained meaningful attention overseas. Its first closed beta test in North America on Steam ended in early July, cumulatively attracting over 2,000 influencers to stream and try out the game. With extensive acclaim, it became the third most trending game on Steam. FragPunk is scheduled to be released in 2025. To further enhance our strong portfolio, build on our robust, foundational R&D expertise, we also look forward to delivering more diverse content and games to players worldwide through global partnerships. Since World of Warcraft returned in June, player response has been overwhelming. People were immensely excited to return to Azeroth. praising the enduring charm of the game's classic scenes and crafts, and re-establishing their ties within the local community. We look forward to the August 27th launch of World of Warcraft, The World Within, with the simultaneous release of this upcoming version in China and all other regions worldwide. On top of this, Hearthstone announced its return on September 25th, and to celebrate, Old cards from 2023 will be available for free, and more engaging China-only events can be expected. Recently, Dunk City Dynasty officially partnered with NBA and secured an official NBA license in China. Legendary players like Dirk Nowoski and Brad Miller joined the game in July, sparking great excitement. and our first anniversary in August, beloved star players Tracy McGrady joined the game, further elevating players' enthusiasm. The game plans to introduce 30 NBA teams with unique basketball culture items, such as jerseys and courts, bringing historic basketball moments to life. Basketball transcends borders and cultures, uniting fans worldwide. We look forward to delivering more collaborative content in the future and will continue to promote and celebrate classical culture. Marvel Snap, developed by Second Data and featuring a revolutionary game experience within the Marvel universe, is slated for launch in Chinese market on August 29. Combining innovative deck building strategies and card battle tactics into each exciting game, The well-established title is highly accessible to beginners, yet quite challenging to masters. Following its close beta test in China in June, synergy with movie Deadpool and Wolverine in late July created another hype wave among local fans. With each of our games, we aim to bring innovative, lasting experiences to players that fuel our growth and invigorate players worldwide. By extending our reach across genres and platforms, more players are being introduced to the NetEase experience, both domestically and internationally. Going forward, we will continue to leverage our rich R&D capabilities, key games in different genres, worldwide partnerships, and two decades of operating experience to advance our game portfolio and drive the next wave of gaming trends. Turning to Youdao, in the second quarter, Youdao continued to prioritize digital content services, online marketing services, and AI-driven subscription services. As a result, it achieved historical high operational cash flow and significantly narrowed its operational loss. Our digital content services achieved healthy revenue growth, fueled by our AI-powered products. The recent update to our intelligent learning platform, Youdao Lingshi, provide students with university admission consultation services, including recommendations on which college to apply to, application strategies, and personalized study plan tailored to each student's unique capabilities and personality. Cope with our highly regarded personalized learning program. This service's renewals continue to reach new highs in the second quarter. The robust growth of our AI-driven subscription services reflect our steadfast commitment to investing in technology. The recent update of High Echo, our digital human language coaching app, featuring a children's character that engages with students on a range of topics and kids' mini games, has generated great enthusiasm among young learners. As we continue to iterate our products and expand offerings, our AI-driven subscription services have experienced six consecutive quarters of rapid sales expansion, with approximately 200% year-over-year growth in the second quarter. Fueled by multiple drivers, online marketing services' strong growth momentum continued in the second quarter. While our real-time API services expanded our user base across more industries, our KNL-led advertising services continued to grow both in China and abroad. Notably, our oversea advertising services sales have accelerated with our enhanced international KRL database amid growing export demand. For smart devices, our dictionary pen maintained its leading market position and ranked number one in the sales category on major e-commerce platforms in China for five years in a row. Recently, we launched Udall Dictionary Pen X7, which featured Mr. P and capability, along with translation services powered by our large language model. This new product won broad recognition soon after release. Turning to NetEase Cloud Music. Cloud Music continues to propel quality development across its music-centric ecosystem, further cultivating its unique community and enhancing its music-centric manipulation. To further nurture our content ecosystem, we continually expand our music offerings to meet diverse audience demand. During the second quarter, we advanced our cooperation with various music labels and steadily extended partnerships with popular musicians, singers, and groups. In particular, we amplified our offering in signature music genres by adding content from well-known rappers, rock bands, and J-pop artists. We also remain deeply committed to supporting independent artists and continue to enhance our comprehensive support for these artists throughout their journey in the music industry. To further invigorate our unique community with high-quality music experiences, we recently upgraded our app, introducing more personalized recommendation functionality, overall framework enhancements, and an improved content distribution strategy. while also optimizing features like daily recommendations and private DJ. Alongside improving the music listening experience, we strive to foster connections and resonance with our music-inspired community. To enhance the value of our iconic comment section, we implemented several upgrades to make this section more intriguing for users to explore across more scenarios. For example, We display selected comments on the minor players while users listen to music, and invite users to explore comments on a wide array of music on our innovatively designed moment square section, all of which led to elevated user engagement. Turning to Yanxuan, during the second quarter, Yanxuan continued to launch new products and lead sales across various online categories. During the 6-18 festival, our past food secured top three positions in several vertical category sales chart on major e-commerce platforms. House cleaning products were also top ranked on several platforms following the launch of new series featuring an Asian Chinese tale. These product successes highlight our strong R&D capabilities and commitment to innovation. And that is, Innovation and forward momentum are at the heart of everything we do, across our games, music, education, and lifestyle brand businesses. We are committed to creating a rich ecosystem that brings users exceptional experiences and stakeholders increasing value as we continue to grow and expand our reach worldwide. That concludes William's comments. I will now provide a brief review of our 2024 second quarter financial result. 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. As a reminder, all amounts are in RMB unless otherwise stated. Total net revenue for the second quarter for RMB 25.5 billion, or 3.5 billion US dollars. representing a 6% increase year-over-year. Total net revenue from our games and related BAS were RMB 20.1 billion, up 7% year-over-year. The additional growth was primarily due to increased revenue contribution from mobile games, such as Identity V and Justice Mobile. Net revenues from our mobile games accounted for approximately 76.4% of our total net revenue from online game operations. Udall's net revenue will only be $1.3 billion, a year-over-year increase of 10%, primarily due to the increased revenue contribution from Udall's online marketing services. NetEase Pro Music net revenue will only be $2 billion, a 5% 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 was $2.1 billion, a slight increase compared with the same quarter of 2023, mainly due to increased revenue contribution from Yanshuan and some of our innovative businesses. Our total gross profit margin was 62.9% in the second quarter. compared with 59.9% for the same period in 2023. Looking at our second quarter margins in more detail, gross profit margin was 70% for games and related VAS, compared with 67.4% in the same period last year. The increase was primarily due to changes in product mix. Our gross profit margin for use-out was 48.2%. compared with 47% of same period last year. The increase was mainly due to improvement of gross profit margin from the online marketing services. Gross profit margin for Cloud Music reached 32.1% versus 27% in the same period last year. The margin improvement primarily resulted from increased net revenue from membership subscriptions and continued cost optimization measures. For innovative business and others, gross profit margin was 34%, compared with 29.5% in the second quarter of 2023. The increase was primarily due to the changes in product mix within the segments. The total operating expense for the second quarter will arm be $9 billion, or 35.5% of our net revenue. Taking a closer look at our cost composition, Our selling and marketing expenses as a percentage of total net revenue was 13.7%, which is relatively flat with the same period last year. Our R&D expenses as a percentage of total net revenue was 17.5% in the second quarter, compared with 16.3% for the same period last year. We remain committed to investing in content creation and product development that keep our product and content at the forefront of the industry. We believe that our investment in R&D will remain a key catalyst for future growth over a longer term. The effective tax rate was 16% for the second quarter. As a reminder, the effective tax rate is presented on an accrual basis, depending on our people's policies and our operations. Our non-GAAP net income attributable to shareholders for the second quarter totaled RMB 7.8 billion, or 1.1 billion U.S. dollars. Non-GAAP basic earnings per ADS for the second quarter were $1.67 U.S. dollars, or 33 cents U.S. dollars per share. Additionally, our net cash totaled RMB 116.1 billion as of June 30, 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 dividends of 8.7 cents U.S. dollars per share, or 43.5 cents U.S. dollar per ADS for the second quarter. Lastly, our current five $5 billion share repurchase program, which started in mid-January last year. Under this program, we have repurchased approximately 12 million ADSs as of June 30, 2024, for a total cost of approximately $1.1 billion. Thank you for your attention. We'd like now to open the call to your questions.
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 Alicia Yap with Citigroup. Please go ahead.
Alicia Yap
Hello, thank you. My question is related to Naraka PlayPoint Mobile. Bidding management should be satisfied with the performance so far since the launch. So can management share and elaborate the user breakdown and the profile? For example, the percentage of the user that have not played the PC version of the Naraka and also percentage of the user are brand new gamers to NetEase games. meaning that it has never played other NetEase game in the past. And then follow up on that is that, any comment on the timing of the overseas launch for Morocco in the different market? Thank you.
Yishui Han
Hello. As a brand new mobile platform, the current flow of mobile mobile games
Bill
So as a brand new action type of mobile game, we are very happy with the current retention rate. To answer your question, to give you more colors. not only we can see a very stable core user base has been already formed, which is very important and very successful. And there are other very satisfying indicators as well. For example, the female players percentage on mobile is much higher than on PC. And among all players played the mobile version, 70% of them have never played the PC version before. And close to half of them are actually new to NetEase. They're new NetEase games players. So all these are very satisfying. And for now, our focus is to keep optimizing the game, making sure the game is as perfect as possible, and focusing on domestic market first, and one opportunity services will consider launching the game in other markets. Operator, next question, please.
Operator
Thank you. Your next question comes from Jialong Shi with Nomura. Please go ahead.
spk10
Hey. I have a few questions about Dreamweaver. I'd like to ask, Dreamweaver has made a lot of adjustments this year. I'd like to know the reason for these adjustments. What kind of goals do you want to achieve? Do these adjustments have anything to do with the government's supervision? So far, have these adjustments reached our expected goals? Will there be any major changes in the remaining time this year regarding Dreamweaver? I'd also like to know more about the impact of these changes on the number of users of Dreamweaver. We've seen that the price of Dreamweaver coins has dropped to a certain extent in the first half of the year. Can you explain whether the drop in coin price has anything to do with the price of the game? So I will translate my question. I have a few questions about the legacy PC version of FWJ. For all these adjustments, NetEase has down to PC FWJ since this year. What is the purpose that you want to achieve through these adjustments? When do you expect to achieve this targeted purpose? Did these adjustments have anything to do with the instruction from the game regulators? Also, I would like to understand the financial impact from these adjustments on TCFWJ. We know that the price of the virtual currency for PCFWJ declined in the first half of this year. Just wonder whether this decline in prices of virtual currency has any correlation with the game's growth feelings. When do you expect the growth feeling for PCFWJ to fully recover? Thank you.
Naraka Playpoint
I would like to first emphasize that Wang Yi is a There are a variety of games in the Internet company. Our game is not just a dream game. We have a five-person dog. Our performance is very good. Dream is a game we played 20 years ago. In the process of handling every year, in the process of handling every period of time, I will do the translation. First of all, thank you for your interest in understanding more details of the financial journey.
Bill
But I would also like to emphasize that NetEase is now a much more grown-up, mature company. We have multiple games. We have a very healthy portfolio of games. We have Naraka Playpoint. At Identify, we have all sorts of large games. And Fenris World's Journey, as one of our flagship titles, has been in operation for more than 20 years. And in this past 20 years, from time to time, we'll do some upgrade in the gameplays and refresh the game system, tune in the game system. That's happening from time to time. It's kind of normal to us because certain gameplay is fun for a period of time, and maybe it's no longer that fun after many years. So we'll never change Brandon's fantasy of what's the journey. but the gameplay inside the game has been refreshed many, many times in the past 20 years. So the goal of the adjustment is to keep publishing the game, making sure the quality, the experience of the gameplay, everything is better and better, and the gamers enjoy more fun from playing the game. That's the purpose. So as of any adjustments to any community-based game, product not not only games you know any community-based product will be some short-term you know turbulence and maybe some short-term pain as well uh that's uh that's a common thing uh in in our experiences that's uh quite common and uh a short-term temporary thing and uh it will be behind us and uh uh again thank you for your interest in financial journey and uh we also encourage Again, we'll encourage you to broadly look at our blog portfolios as well. Thank you. Operator, next question, please.
Operator
Thank you. Your next question comes from Richie Sun with HSBC. Please go ahead.
spk02
Good evening, Manager. Thank you for accepting my question. Two questions. First, the fifth person saw that the revenue ranking of the game exceeded everyone's expectations. What kind of work did we do to successfully drive the growth of the game? How does the management evaluate the potential of the non-compatible competitive game market? Are there any competitors? The second question is about the game. The game has launched a new season. It was ranked first in July and reached the top ten. Thank you, management, for taking my questions. First of all, regarding Identity V, we have seen the grossing rank surprising the expectation of the market. What have we done to successfully drive the revenue growth of this game? And how does management assess the potential for the asymmetrical battle genre and whether there are competitions? Second of all, regarding Justice Mobile, the game has launched a new season. We see the grossing rank in July searching the top 10, but it has declined since in August. What are the key reasons behind it? Is it because the mixed response was a new season or more competition impacts from Naraka Playpoint or natural decay from MMO? And how does management plan to improve the longevity of the game? Thank you.
Naraka Playpoint
This is a game that we have been running for six years. In the past six years, we have been exploring and polishing the quality of this product. In the second quarter of this year, there was a good performance. I think this is also a result of hard work. This shows that NetEase actually has the ability to operate the game for a long time. I hope that in the future, our other games can also become more and more outstanding like D5. Every quarter is improving. I'll let Hu Zipeng answer the question about the Yishui Han mobile game. Hu Zipeng, please answer it. I'll answer the Yishui Han mobile game question.
Yishui Han
In the Yishui Han mobile game, we have a large number of players in the new season. Currently, the Yishui Han mobile game has entered a very stable period. Compared to other in-game MMORPGs, we see that the game has a very strong OK, I will translate this to the answer of these two questions. First, regarding your question to identify
Bill
Identify as a game has been their operation for more than six years. And during these six years, we have been keep exploring and polishing the game, making sure the game is the quality and experience playing the game is better and better every day. That's a continuous effort the team has put into developing and operating the game for the past six years. That's a nonstop effort. And of course, we are happy to see that in Q2, we saw some great results. And we want to say that that result is the reflection of the continuous effort, and also a reflection of NetEase's capability of running the game in the long-term manner, keeping the longevity of the game. And in the meantime, making the game day by day. And actually not only Identify, we're keeping doing this for all our games, and we hope someday you can see similar great success of our other games as well. And to your second question regarding Justice Mobile, first of all, the new season of Justice Mobile features an immense amount of new content. re-engage a large group of players back to the game, which is very helpful. Currently, the game has stepped into a stable operation phase. Compared to other real-time MMO titles, the game has demonstrated very strong stability on overall players' activities. Our priority now is to maintain the players' activities. as well as the diversity of the ecosystem. We remain committed to provide fair gaming experiences, enable a casual environment without too much burden on players, and continuously value their opinions, aiming to build an evergreen MMO on a mobile platform that people have never seen before. Operator, next question, please.
Operator
Thank you. Your next question comes from Yang Bai with CICC. Please go ahead.
Yishui Han
谢谢管理层,有两个问题。 第一个,我们看到公司在大DAU方向上的产品矩阵越来越丰富了, 包括永捷、弹材等。 管理层如何思考在大DAU方向上的破局思路? Hi, management. Thank you for taking my question. I have two questions related to our game business. First, we observed that the company has a diverse portfolio of products achieving high DAU, such as Naraka and Aggie Party. How should we think about our strategy to differentiate and outperform in this highly competitive high DEO game market? My second question is about our overseas game business. How should we attack the development trend of our overseas game business in the future? And could management share more color about the release timeline of new titles in overseas market? Thank you.
Naraka Playpoint
Yes, in fact, I think the game itself, as long as the fun is strong enough, the quality is good enough, this high DAU is a very natural thing. We didn't say to define that this game is a big DAU or a small DAU. We have been doing games across different categories of games with MMOs. There are also competitive games, sports games, and design games. The second point is that the overseas market has always been a market that NetEase has been very seriously exploring. So when we see a product like Once Human succeed overseas, we are also very happy. It shows that we have the ability to yeah so uh first uh
Bill
Regarding your question on the high DEO product matrix, as a matter of fact, internally we don't specifically define this game as a high DEO game. That game is not. We actually don't look at the game product from this lens. Because our fundamental belief is that as far as you can make a high quality, fun enough game, players will come. So high DAU is not a spectrum of, you know, per design. It's a result, reflection of your high-quality fun-to-play game. As you know that over the years, we have been keep trying, keep exploring different type of game, different genres. You know, we started from MMO, but now, you know, we extend into sports, we extend into PVP game, we extend into shooting games. We're trying with our expertise to develop, to explore a multiple genre, multiple front, what kind of fun and high-quality game we can provide to the players. That will guide us, and that's our focus. And regarding the global market, as you can see, we are perfectly happy with the result of Once Human, which is a reflection of our capability to design and develop games not only Chinese players like. The game does have a resonance among the global gamers community. That's a very good sign. And, you know, echo to the previous point, we are still capable of exploring multiple genres and it will take more time for us to explore, you know, our style of games suitable for the global market. It will take some time, but from the early result, we do have confidence to do that. Thank you. Operator, next question, please.
Operator
Thank you. Your next question comes from Lei Jiang with Bank of America. Please go ahead.
Lei Jiang
Hi. Good evening, Director Guan. Thank you for accepting my question. My question is mainly about Yan Yun 16. Then I would like to see if there is a latest schedule for this project. Also, can we expect that mobile games and mobile games will be available at the same time? And then I saw that today may announce a dual-end latest test on August 28th. So I also want to ask the management to share that according to the feedback of the test in the last round, how is the latest progress of this game? Thank you.
Naraka Playpoint
It's an open world online game that has been planned and run for many years. So the content and experience here are far more than you can imagine. There's also the experience on the mobile game and the experience on the PC. There will be differences. This kind of difference also needs to go through the design and gameplay of the game. Okay, I will do the translation. First of all, the team is very busy adding more content, fun-to-play content to the game as we speak.
Bill
As a matter of fact, to your question, whether or not the PC version and mobile version will be launched at the same time, actually, in our eyes, that is not the most important question. It's either the same time or apart from each other, about a month or so. It doesn't really matter. What really matters is to, you know, can we provide a game that is fun to play in the long term to our players? We also emphasize that World Wind Maze is not a single player game. It's an open world game that we plan to run for multiple years. And the content size is much more than a traditional expectation on the single player game. And one other point I want to point out is that There will be differences between the PC version and the mobile version because of the platform differences. And to make it fun to play both on PC and mobile, a lot of changes and optimization work needs to be done. Please be more patient. Give us some time to polish the game. The plan on record now is to release the game within this year. Thank you. Operator, next question please.
Operator
Thank you. Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.
spk09
Thank you, Mr. Ding. Thank you, Mr. Guan. That's my question. My question is about Densai Party. Maybe some third-party data has seen the flow of the game. There's been some pressure lately. I'd like to ask what the specific reasons are here. How do we think about the operation of this game? Thank you, Benjamin, for taking my question. My question is about Agipati. From some third-party data, we see some grossing pressure in the past few months for this game. So can management share the reason behind it and how should we ensure the longer-term operation of this game? And regarding to the broader leisure category, no matter it's party games, idle games, what's our company's R&D strategy and direction here we can share? Thank you.
Naraka Playpoint
Okay, I'll do the translation.
Bill
So, yes, you're right. Anki Party is one of the biggest game of NetEase in terms of the user base. And from our end, we do see that The ratio between revenue versus user numbers is relatively low compared to other games. But we want you to be rest assured that no need to worry about this one. We are actively exploring how to change this. Because again, we want to emphasize again, the most important fact is, is the game fun to play? Are our users like the game or not? So far from what we see, the users like the game very much. They actively participate in the game every day. And that gives us the ground that we can, over time, to explore a way to balance the size of users and the level of revenue, to be rest assured. We're exploring that. And we will figure that out. Thank you. And operator, next question.
Operator
Thank you. Your next question comes from Felix Liu with UBS. Please go ahead.
Felix Liu
谢谢管理层接受我的提问。 请问管理层能否分享一下我们2024-2025年剩余时间的这个产品线的更新, 以及接下来我们有哪些重点的产品应该关注。 另外我们也注意到就是近期公司有两款漫威的游戏拿到了榜号, Thank you, management, for taking my question. My question is on your upcoming pipeline. So can management share for the remaining 2024 and looking into 2025, what are the key pipeline that we should watch out for? And more specifically, I noticed that you recently got banners for two Marvel series, Marvel Rivals and Marvel Snap. What are your expectations on their domestic launch? And also, you showcased a new game called Frag Punk in Xbox Showcase. Any comments on that one? Thank you.
Naraka Playpoint
Next, we have two games that have already received banners, and one of them is about to be released. This is a very anticipated PC game. We are Yeah, you're right. Not only we received approval for Marvel Staff, which is a card game, Marvel Rivals, which is the
Bill
hero shooter game, but also we're working on other new generation titles, like you mentioned, which is the PC shooter game, which we just started testing in market, as well as we mentioned in script that we're going to have a Hearthstone launch in next month as well. One thing we want to point out is all these battle scans They're not our traditional type of game. They're competitive games. And every single one of them are actually from high production quality competitive games. We have high hope and confidence about this special game. And as we said, the game started... This batch of games will start to launch from late this month to next year, and we hope they can be successful batch of games. Thank you. And operator, next question, please.
Operator
Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
Good evening. Thank you for introducing my question. My first question is about AI. Can you share with us how AI can improve our game production and work efficiency? The second question is about future operating costs. Can you share with us the investment in development costs and whether they will continue to increase? And then we look at the future planning of the production and sales costs. What do you think? Thanks, management, for taking my question. My first question is about AI. Can management share about how AI can enhance our field production and work efficiencies? And my second question is about the trend in operating expenses. How should we think about the trend in R&D expense? And should we expect it to step up because of AI? For marketing expenses, how should we think about the spending over the next few quarters? Thank you.
Naraka Playpoint
Hu Zimeng, can you answer this question?
Yishui Han
As you all know, we, NetEase, have always embraced AI technology in various fields with a very positive attitude. AI technology is now widely used in various professional fields such as game development, including the production of art and programming. And we have also increased the number of new students It's just to ensure that we provide more time to explore and provide more interesting products. So in summary, we will continue to maintain a reasonable range of development costs. Through the cost reduction brought by AI promotion, Okay, let me do the translation.
Bill
First of all, you know, NetEase has actually been actively embracing AI for a long time. And AI technology has been widely applied throughout our game development process and works from all disciplines, like design or programming, you know, discipline. And, for example, in some of the the boring work, you know, used to be, you know, labor intensive, boring works, you know, some in some of the areas, AI replacement rate has already 90% or so. And that actually will free up people, development people, so they can be focused on to explore more fun gameplay, really creative part of game development instead of the labor intensive part. And regarding the R&D impact on the R&D cost, AI will free some of the human resources from the labor work, but we'll reinvest into this development resources on exploration of gameplay and the creative part. So the R&D spending should stay in the reasonable range for long term. Thank you. And operator, we probably have time for one more question, please.
Operator
Thank you. Your final question comes from Lei Zheng with Bank of America. Please go ahead.
Lei Jiang
Hi, Wellington. Thank you for answering my follow-up question. My question is mainly about the magic world. I want to see the feedback of the players after the return. We can see that it's pretty good. Can you share some relevant data, like the number of new players and old players? Thank you for the follow-up opportunity. My questions regarding World of Warcraft and the feedback regarding the new users and the old users. and how to say the revenue contribution. And can you share with us the timeline for the other game to come back and any future cooperation with Blizzar down the road? Thank you.
Yishui Han
Thank you. I will do the translation.
Bill
Thank you for your question. Since the return of World of Warcraft, actually the players have been very actively returning to the game as old metrics are actually exceeding our expectations. The split actually between the new players and existing players before server shutdown is about four to six, which demonstrate that the game not only attracting old players back, but has the capability of capturing new players as well. And regarding the impact on the financial side, for sure it will increase the PC revenue. And talking about other games, we'll unfold the plans on this unfolding return of other Blizzard games. We're happy to see we have built up close relationship and reach consensus with each Blizzard product team because we strongly believe the return is not only just rebooting the service. It should be far beyond that. We get fully prepared to ensure even better experiences to other players than before. And upon this returning of Blizzard games, the development teams from Blizzard side and NetEase Thunderfire has directly built up very deep cooperation and trust on the point-to-point teamwork base, which lay the foundation of deep mutual trust and future possibilities for deep cooperation in the future. Thank you.
Operator
Thank you. That concludes the question and answer session. I would now 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 any further questions, please feel free to contact us directly, and we hope you have a great day. Thank you so much.
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