NetEase, Inc.

Today's conference is being recorded. At this time, I would like to turn the conference over to Brandy Piacenti. Please go ahead.

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 from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NEDES' 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. Today's discussion, management will also discuss certain non-GAAP financial measures for certain comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the fourth quarter 2024 and 2024 fiscal year 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 NEDES corporate website at .NEDES.com. Joining us today on the call from NEDES' senior management are Mr. William Ding, 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.

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 are based on RMB. At NEDES, we're dedicated to innovation and strive for continuous breakthroughs across our businesses. While 2023 was a year of expanding our portfolio across various game genres, 2024 was about pushing boundaries with bold innovation and accelerating our brand awareness in the global market. These strategic steps reinforce our foundation for sustainable long-term growth. By the end of the year, our total net revenue reached RMB 105.3 billion, with RMB 83.6 billion from games and related battle-edged services, both marking new record highs. Notably, this marks the 22nd consecutive year of revenue growth from our online games operations. This successful launch of new blocks of titles in the fourth quarter advanced each of our growth drivers, innovation, diversification, and globalization. By redefining gameplay and setting new industry standard for premium quality, we have created tremendous player enthusiasm. Our games captured attention across genres, within and beyond the traditional gaming community, and on both domestic and global. Let's start today by reviewing our new game's performance. Then we'll take a look at our broader portfolio and pipeline. Marvel Rivals, our fast-paced superhero shooting game, sparked massive excitement across global market following its launch. It claimed the number one spot on Steam's top seller chart within four hours of its release, attracting over 10 million players in its first 72 hours, and 20 million players in its first 12 days. With over 40 million players accumulated so far, Marvel Rivals is redefining the hero shooter experience through its unique art style, innovative combat system, and ever-changing battlefields. Its key team-up ability add a dynamic layer of immersive interactions among players while recreating iconic Marvel moments with our fresh take that adds a new dimension to the Marvel Universe. During the season one update, Marvel Rivals once again topped Steam's top seller and most played charts. Our collaboration with Marvel Comics also brought Marvel Rivals to life for comic fans through a Infinity comic series on Marvel Unlimited. The synergy not only amplified the game's momentum, but also bridged the world of gaming and other media forms, captivating audience beyond the gaming community and solidifying Marvel Rivals as a cultural phenomenon. With more superheroes and exciting events on the horizon, Marvel Rivals will continue to evolve. We are thrilled to bring even more new experiences to the game that keeps players engaged and inspired. At the end of December, we launched our highly anticipated open world action adventure RPG, Werewings Meet. Within four days of its PC launch in China, the game has amassed three million downloads and topped the iOS dollar chart for around two weeks following its mobile launch. The booming mobile version drove total players across PC and mobile to over 10 million within a week and over 15 million after two weeks. Rooted in the richly crafted world with deep historical backdrop, Werewings Meet innovatively introduced the Chinese martial arts into open world exploration experience. On top of that, we pioneered a mode that caters to both single player and multiplayer preferences, which reinterpreted Wuxia story in a brand new way. Players can immerse themselves in the intertwined conflict of Asian cities like Kaifeng, win his character's contrasting fate during historical changes, and develop social network with other people along the journey. Building on the single player experience, the game seamlessly integrates challenges that encourage social exchange. While continuously refining the experiences, we aim to create compelling blend of solo and multiplayer elements, offering players a diverse way to experience the world. With community high praise, we expect the audience of Werewings Meet to continue to expand over time, with the game becoming another flagship evergreen title. Our plans to build on the game's initial success are underway. We're currently working to bring Werewings Meet to console platforms and introduce the saga to players in more regions. In addition to our new game launches, the return of Blizzard games to China has been highly successful, with a strong momentum throughout the fourth quarter. The return of World of Warcraft has consistently sparked tremendous enthusiasm from the community, supported by our diverse localized events that are driving the franchise to new heights. Shortly after Hearthstone's return, we quickly reorganized the highly anticipated Hearthstone Gold Series in China. The event set new records, drawing in over 10,000 fans in person, and more than 10 million players gathered to watch online. Since yesterday, Overwatch 2 made its return to China, reigniting player excitement. As Blizzard portfolio gradually returns to Chinese market, we are further strengthening our partnership with Blizzard, exploring localization opportunities and bring more exciting contents for China's robust game community. Whether developing or operating a title, we're always committed to innovation and operational excellence. We apply this across our portfolio and continue to see the results of our dedication reflected in our new and legacy franchises. With operations across decades, our beloved legacy franchises continue to set new records and amass fans, shielding players with enduring popularity. Fantasy Westward Journey continues to bring players fresh experiences through well-timed events and new content in the fourth quarter. The Champion One-Hwa Expansion Pack, featuring the iconic transformation abilities of Monkey King Sun Wukong, introduced all new skills and summon based. Meanwhile, the Spring Festival event planned around the Year of Snake brought the community a vibrant New Year atmosphere. For Fantasy Westward Journey Mobile, we continue to infuse new content into the game, which gained heightened popularity throughout the year and led to the record high revenue for 2024, nearly a decade after its launch. Fantasy Westward Journey Online 2 also achieved record high annual revenue, driven by enriched gameplay and activities, as well as refreshed gaming experience powered by new servers. Players flocked to the in-game ceremony for Tang Dynasty Emperor Taizong and explored new maps and missions set in to thriving Asian cities of Luoyang. Stepping into 2025, we also introduced our major new annual server update for Fantasy Westward Journey Online Mobile. We accompanied the update with a dual-medium sharing system. It generated significant new community interest and further strengthened bonds among players while keeping long-term fans coming back for more. Identify is another testament to our long-term operational success with our established titles. After setting consecutive new quarterly records in the first three quarters, both in terms of player numbers and revenues, Identify achieved record high revenue in 2024. In the fourth quarter, we sustained intense player activity with our comprehensive operational strategy, which players love. For example, in November, we launched a cross-branding campaign with Persona 5 Royal, introducing the beloved Phantom Seas of Heart to our game. Fans appeared in droves for the crossover event. Driver identified to number two position on the iOS top browsing chart. Naraka PlayPoint franchise also continued to impress, to continue to impress with one with action-based comeback community. With the December update, Naraka PlayPoint partnered with CD Projekt Red for a special crossover on The Witcher 3 Wild Hunt, introducing four beloved characters through new costumes and in-game events. Most recently, our January collaboration with King of Fighters brought iconic KOF characters Asina and Mai Shiranui into the game, bringing high level of player interest. Naraka PlayPoint Mobile has also been growing its player base since its launch in the third quarter and surpassed 50 million players in December. For Agi Party, we continue to nurture its dynamic EGC ecosystem. The community is highly connected, feeling very great supply and demand for content creation. The platform consistently has diverse game modes to build on its rich content offerings. Allowing players to enjoy relaxing and heartwarming moments with their Agi buddies. So far, we have successfully introduced several popular game modes, including MOBA, asymmetric battle arena, werewolf, pet keeping and farm management. Each captivated a large audience within the Agi Party community. Our innovative MMO Justice Mobile, maintained its large and active player base in the fourth quarter. In late December, Justice Mobile hosted a groundbreaking virtual concert for its cross-year celebration, immersing players in festivities and inviting them to participate in an interactive feast. The event created a truly unforgettable audio visual experience by merging cutting edge technology with Asian art. Beyond conventional concert, all players would join as their in-game characters. Embarking on an exploratory journey through various immersive scenes. The concert ignited considerable buzz among players, attracting over three million concurrent viewers online. The robust community engagement and related scene content updates propelled Justice Mobile to number two on the iOS topic crossing chart shortly after the event. This is launching in July. OnceHuman has cultivated a dedicated survival player fan base around the world and we continue to build on this. The new PVP and PVE scenario we introduced in the fourth quarter sparked a player surge. The spike in total concurrent user drove OnceHuman to rank on Steam's top 10 most played chart and to number three on Steam's top seller chart. Anticipation on the much awaited mobile version is also mounting. We now have over 10 million pre-registrations as we finalize the game's mobile version for its global launch in this April. With the addition of a mobile version, we expect to attract even more fans worldwide. Adding to our ever expanding and increasing diverse portfolio, we have a great lineup of new titles in our pipeline. With several key games planned to hit key markets in the coming months. The global launch for Fragpunk, our fast paced five versus five tactical shooter game is set to begin on March 6th. We expect the game to become a dynamic force in the shooting experiences for fans worldwide. Featuring an innovative free car system with shifting combat dynamics and a colorful punk art style. Through meticulous game development, Fragpunk is set to disrupt the traditional shooting experience with all new rule breaking gameplay that we think players will love. Next up is Destiny Rising, which successfully concluded its first closed beta test in December. The community's broad enthusiasm won Destiny Rising Pocket Gamers annual most anticipated game award. Using the valuable insight we gained from early tests in target regions, we're currently working to make the game even better. Our goal is to bring this fresh shooting adventure set in an alternative Destiny timeline

to all players around

the globe. Lastly, I'd like to highlight our superhero team based tactical RPG Marvel Mystic Mayhem. It just finished closed beta cross country testing in January with a unique art style, rich cast of characters and varied and rewarding gameplay that's true of the community. Sweeping positive player feedback gives us confidence that players will love Mystic Mayhem experience as they fight with beloved Marvel characters across various bizarre dreamlands. As many of you know, we have been steadily expanding into new game categories over recent years. The versifying our portfolio has allowed us to carve a path beyond the traditional MMO game that defined our early journey in the gaming industry. Along the way, we have achieved six significant milestones and gained invaluable insights into genres that were once new to us. Each successful vertical we enter reinforces our ability to craft impactful games across diverse categories. Moreover, our diversified game portfolio has strengthened our global presence, enable our games to reach and resonate with audience worldwide. As we expand our game offerings, upholding superior quality and stay agile in our operational iterations, we're confident that we can continue captivating global audience with new innovative titles and grow our international reach. Now let's move to Youdao, which is a continued focus on technology-driven innovation and profitability enhancement. Youdao's operation profit increased by over 10% year over year in the fourth quarter, and it achieved its first ever annual operating profit in 2024. In the fourth quarter, learning services revenue declined as we further focus on long-term growth, balancing revenue and profitability. By prioritizing high demand courses, we achieved healthy development and reinforced profitability. Notably, Youdao's flagship course featuring tiered learning videos and AI power support continues to strive. With strong engagement and loyalty, it achieved a retention rate of over 70% in the fourth quarter. Recently, we launched Confucius 01, China's leading -by-step reasoning model for education. As a 14B lightweight model, it supports deployment on consumer-grade GPUs and delivers detailed problem-solving processes. With its high accuracy and robust reasoning capabilities, Confucius 01 has been seamlessly integrated into our AI learning assistant, Mr. P, AI tutor, earning excellent user feedback and surpassing 100 million users. Youdao's online marketing services has also continued to advance. Domestic performance-based advertising reached record-breaking revenue led by gaming and the AI tool sector. Internationally, we recently established an official partnership with Google, laying a solid foundation for further expansion. We have also sharpened our technology edge in oversee KLL marketing. By developing an evaluation model, we can precisely match KLL selection with specific demand, driving high conversion rates. Our smart devices segment maintain healthy growth. Our flagship Youdao Dictionary Pen solidified its leading position in the Double 11 Online Shopping Festival, dominating the top position in this category on JD and T-MOS sales chart for five consecutive years. Building on this success, we launched Youdao Dictionary Pen A7 Pro in January, reaching higher performance to further fuel growth ongoing. Turning to NetEaseCon music. NetEaseCon music continued to drive quality development across its music-centric ecosystem, nurturing its unique community and distinctive content offerings. We continued reinforcing our signature music consumption experiences while expanding consumption scenarios and brand awareness. We launched and iterated several innovative features to improve users' joy and interface with music and music-inspired content in Q4. For example, our new feature Lyric Book allows users to highlight their favorite lyrics, create a personalized lyric collection and share that unique lyric book with others. Additionally, Lyric Book enhanced users' music discovery journey, offering recommendations that flow naturally with each user's distinctive taste. These functions were highly popular with music fans and increased user engagements. Building our compelling consumption experiences, we continue diversifying music consumption scenarios. For example, co-branding activities in collaboration with our game division helped expand our existing audience while introducing and enhancing music-inspired social interaction features in games further extended our brand's presence. Expanding our music library also allows us to keep bringing users diverse range of licensed and original music. In Q4, we deepened our partnership with Kakao Entertainment and strengthened our Chinese music collection this January by collaborating with renowned artist Li Jian,

bringing his

full discography back to our platform, including many beloved classics. On the in-house music side, we step up our effort as well. Several tracks gained widespread recognition in Q4, including the hit, Follow. We're also growing our copyright collaboration with popular artists. January, Hua Chenyu's digital album, Tipping Point, debuted our platform, selling over one million copies within 24 hours. In Q4, we celebrated the 10th anniversary of our independent musician platform with special events highlighting our musicians' journeys, helping to deepen the connection between artists and fans. As of December, our platform boasted over 770,000 registered artists, making it one of China's top platforms for independent musicians. As we continue to improve our music-focused monetization, subscription-based membership remained an important driver of online music revenue growth. To further optimize our premium offering, we enhanced our content appeal, introduced cutting-edge features, added membership privileges for subscribers, and refined our comprehensive pricing strategy. This effort boosted subscriber growth and deepened engagement, laying solid foundation for more sustainable growth. Finally, let's look at Yanxuan. Yanxuan continues to focus on key categories and drive growth through best-selling products. In 2024, core categories like pet products and home cleaning recorded solid growth, reinforcing their market leadership. Meanwhile, other key categories keep gaining popularity through its star products. Our China's big-nose down jacket, known for exceptional quality and strategic marketing, remained a standout performer in the fourth quarter, breaking into the top five position for mass wear on the T-Mobile sales chart. Across our 90 family of businesses, we pursue innovation that advances our company and the industries we serve. We are extending this to our global aspiration for our games as we further diversify our portfolio and bring beloved titles to fans worldwide in 2025 and beyond. We believe these initiatives will fuel lasting value creation across our business and for our players, partners, and shareholders alike. This concludes William's comments. I will now provide a brief review of our 2024 with a focus on the fourth quarter. Given the limited time on today's call, I will present 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 ARMB, unless otherwise stated. Our total net revenue for 2024 will be 105.3 billion, or $14.4 billion US dollars, representing a 2% increase year over year. For the fourth quarter, total revenue will be 26.7 billion, or $3.7 billion US dollars. For 2024, net revenue from games and related VES will be 83.6 billion, up 3% from 2023, and up 2% year over year in Q4 to be 21.2 billion. Specifically, net revenues from online games will be 80.4 billion, up 6% from 2023, and up 5% year over year in Q4 to be 20.5 billion. Through 2024, our PC client games delivered strong performances, achieving 17% year over year growth, with an impressive 57% increase in Q4. The Q4 growth was primarily driven by titles, such as Naraka Baypoint, Westwood Journey Online 2, and several licensed titles. While the positive momentum in PC games has shifted our revenue mix, mobile games remain a significant part of our business. In the fourth quarter, they accounted for approximately 65% of our total net revenue from online games and operations, online game operations, and for the full year, it made up about 73%. Udall's net revenue for 2024 will up about 4% for the year, to around 5.6 billion, primarily due to revenue growth from online marketing services. They declined .5% year over year in the fourth quarter to R&B 1.3 billion, primarily due to the decline in learning services revenue as we focus on the business that serve our long-term goals objective with better profitability. NetEaseComm Music's net revenue will up a little over 1% at R&B 8 billion for the full year and R&B 1.9 billion in the fourth quarter, a 5% decrease year over year. As discussed in previous quarters, the decline reflect lower revenue from social entertainment service, which aligns with our refined focus on sustainably improving profitability. Net revenue for innovative business and others will R&B 8.1 billion for the year and R&B 2.3 billion for the quarter, down 6% and 17% respectively year over year. The decline was mainly due to decrease revenue from attention, advertising services, and some other innovative businesses. For the year, our total gross profit margin was 62.5%. In the fourth quarter, our gross profit margin slightly decreased year over year to 60.8%. Looking at our fourth quarter margin in more detail, gross profit margin was .7% for games and related BS compared with .5% in the same period last year. The decrease was primarily attributable to higher proportion of net revenue from licensed game, which carry a lower margin than our self-developed titles. Our gross profit margin for Youdao was .8% compared with .9% in the same period last year. The decrease was mainly due to reduced revenue contribution from learning services. Gross profit margin for NetEasecom Music was .9% in the fourth quarter versus .3% in the same period a year ago. The margin improvements primarily resulted from increased revenue from membership subscriptions and continued cost management improvements. For innovative business and others, gross profit was .8% compared with .4% in the fourth quarter of 2023. The increase was primary result of margin improvement invention. The operating expenses for the fourth quarter were RMB 8.5 billion, or 32% of our total net. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total net revenue were .5% for the fourth quarter compared with .6% for the same period last year, mainly due to decreased spending on gaming promotions during the quarter. On a full year basis, selling and marketing expenses accounted for .4% of net revenue, relatively stable with .5% in 2023. Our R&D expenses as a percentage of total net revenue also remained stable year over year at .7% in the fourth quarter compared with .5% for the same period last year. On a full year basis, R&D expenses accounted for .6% of net revenue, up slightly from .9% in 2023. We remain committed to investing into constant creation and product development. We're also seeing leverage in our R&D investment longer term. The effective tax rate was .3% for the full year and .4% for the fourth quarter. As a reminder, the effective tax rate is presented on a cruel basis, and the tax credit deferred for each of our entities at different time periods, depending on our approval policies and our operations. Our non-GAF net income attributable to shareholders for the fourth quarter total R&D 9.7 billion or 1.3 billion US dollars, up 31% year over year. Non-GAF basis earning per ADS for the quarter was $2.09 US dollars or $0.42 US dollars per share. For the full year, non-GAF net income attributable to shareholders was up 3% to R&D's 33.5 billion

or $4.6

billion US dollars, which is $7.17 US dollar per ADS or $1.43 US dollar per share. Additionally, our cash position remains strong. As of year end, our net cash position was about R&D 131.5 billion compared with R&D 110.9 billion at the end of 2023. In accordance with our dividend policy, we're pleased to report that our board of directors has approved a dividend of 24.4 cents US dollar per share or $1.22 US dollars per ADS for the fourth quarter. Lastly, under our current 5 billion US dollar share repurchase program starting in mid-January last year, we had repurchased approximately 21.2 million ADS as of December 31st, 2024 for a total cost of approximately 1.9 billion US dollars. Thank you for your attention. We will right now open the call to your questions. Operator, please.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. In addition to your standard, 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 Yang Bei with CICC. Thank

you, Guan Yicheng. I have a question about the hero design game Guan Yicheng, can you share with us the test results of the game, the current online preparation, and the key operations after the launch? How do you see the game market in such a strong and powerful market? I will translate by myself. Concerning ThragPunk, could management share more color on its beta test achievements, current preparations for launching, and the post-launch operational priorities? What's the company's perspective on computations within the shooter game market segment? Thank you.

Okay, I will answer this question. ThragPunk

has been conducting large-scale tests in the US. The test results are in line with our expectations. The players community has given a high evaluation on the game and system innovation, and has given a lot of valuable suggestions. After these months of adjustments, we have already prepared for the launch. After the launch, we will continue to follow up on the players' feedback, update the highest level, provide new sources, and firmly fight against external attacks, and build a healthy gaming environment. Currently, there are many excellent works on the market. We have also had a deep experience with the development team. This makes us believe that the game, whether it's in the operation of the hands, the system, the gameplay, and the hero's style, all have their own unique features. The game style also has its own distinct characteristics. It's very attractive to new players. So we have a strong feeling about the launch.

Okay, I will do the English translation. ThragPunk has come to large-scale testing, both domestically and in the overseas market, with feedback met our expectations. Players gave high-up results to our innovative gameplay and system design, and provided a lot of valuable advices as well. After months of iteration, we're now ready to launch. After launch, I so wish we'll continue to monitor player feedback, update better levels, provide new characters, and crack down cheating behaviors, building a healthy gaming environment for the players. Currently, as I said, there are multiple well-performing shooting titles in the shooting genre. Shooting is a big genre, which our R&D teams have truly experienced. This actually reinforces our confidence in our game, no matter the control feelings, the system design, or the hero narratives, including its very unique art style. Everything has its unique signature, and we'll be appealing to existing and new players with the confidence that the game will be

successful. Thank you. Your

next question. Thank you. Comes from Yang Liu with Morgan Stanley.

Thank you for the opportunity to ask. My question is about Yan Yu 16. First of all, congratulations on the game's release. It has received positive feedback from players. The number of players who have been left behind has been very impressive. We've also heard and seen many suggestions regarding skin quality and multiplayer gameplay. I'd like to ask what the company's next stage is going to be with this game's development strategy. Will there be any plans to improve? You mentioned Yan Yu 16 earlier. Will you be able to introduce more about the game's release and the market? I will translate my question. First, I congratulate the positive feedback from the gamers on the where we meet. And we see quite positive metrics on rotation, DAO, et cetera. But also, we hear a lot of feedback to expect the company to improve the cosmetics and also the multiplayer gameplay in the game. So I would like to ask what is the next stage monetization strategy for this title and where could we see improvement? And also, I would like to ask about the overseas launch plan for this title, where and what market? Thank you.

Let me answer this question. Yan Yu 16 has been widely recognized by gamers since its launch. The data is good and the performance is stable. The multiplayer mode is perfect for gamers. The skin-based monetization mode is also well-received. The -to-downgrade content is a good foundation for the long-term. In the future, we will actively listen to the user's suggestions and opinions. We will continue to focus on the continuous expansion of the open world new map content, provide high quality and diverse skin design and production. In the continuous development and optimization of multiplayer gameplay with fun and creative individuals, we will actively communicate with various players face to face and continue to optimize and improve the experience of the online game Yan Yu 16. Thank

you. Boss, please tell us about the overseas expansion plan.

Yan Yu 16 has achieved good reviews from users with its unique and high-quality open world content and five-star IP. We are also very active in following the needs of overseas users. We have already launched the overseas Yan Yu version. In 2025, we hope to meet with overseas players. Thank you. Okay,

thank you, William. I will do translation. Where Will Weensmith is why they claim since its launch, demonstrating a solid performance with robust metrics. The inclusion of both single-player and multiplayer modes has created a diverse demand of players. And the monetization strategy centered around cosmetics was widely welcomed. Furthermore, our content ecosystem featuring casual and low-pressure gaming experience lays a healthy foundation for long-term operation. In the future, we will continue to focus on infusing new content or maps to enrich our open world, creating diversified quality costumes, crafting various interesting and innovative single-player and multiplayer experience for single-player and multiplayer gameplays for gamers. And from time to time, we will talk to players -to-face, collect their feedback to keep modifying, keep polishing our game. Regarding your question on the overseas plan, we do notice that Where Will Weensmith's wide appraisal of its unique open world style and the unique interpretation of Wuxia content, which actually gained us wide attention and anticipation from the overseas audience as well. Currently, we have started working on the overseas version, and we hope we could present that to overseas players within 2025. Thank you. Thank you for your question. Operator, next question please.

Your next question comes from Richie Sun with HSBC.

Thank you, management, for taking my question. I have two, but the first one is about Marvel Rivals. Regarding the 40 million users, can you share more about the paying propensity, paying ratio, and what is the next growth strategy that we're looking at? Will we expand the -per-pensity ratio? Will we be able to use the marketing or e-sports or even connectivity with the Marvel movies to further expand our user base? Thank you.

Thank you.

Thank you for your question. Marvel Rivals, especially after season one, has gained wide appraisal from worldwide players. And this is a product we're going to keep investing both on development and marketing. And we do believe this product we're going to keep operating, keep enhancing, keep investing for 10 years and beyond. To your question, yes, the team does have plans for e-sports, and we're going to announce our e-sports plans, hope to have these e-sports plans to further enhance our gaming ecosystem. And to your question, yes, we're going to do a lot of crossover events and promotions with other media in the future. And this is a key product we'll keep investing. Thank you for your attention. Operator, next question, please.

Your next question comes from Alicia Yap with Citigroup.

Hi, thank you. Thank you, Guan Yichen for answering my question. My question is about the company returning to the sky of hope yesterday. I don't know what the company has in store for this game, and how to balance the sky of hope and the sky of hope. So my question is related to Overwatch, given the games relaunched in China yesterday. So what are the company's current expectations for the game, and how will NetEase strike a balance between Marvel, Rival, and Overwatch? Thank you.

I think the same as the other games, we're not just restoring the sky of hope in China. We're hoping to expand the market space and make the game more attractive, and reach new heights. I'm happy to see the trend we saw on the players' feedback and game data on the first day. We think that Marvel, Rival, and Overwatch are all excellent products for the fast-moving and hero-oriented market. We have a very good team of developers who will work hard to meet the players' demands. This market is a very large market, and we believe that we can fully accommodate the two excellent products

below. Thank you for your question. Regarding our expectations for Overwatch, it's similar to those for World of Warcraft and Hearthstone. We aim not only to just restore the operation as is, we aim to really revitalizing the product and reaching new highs. We're encouraged to see that from the day one relaunch yesterday, from the data, from the user feedback, we're happy to see that we are on that trend. Both Marvel, Rival, and Overwatch are excellent superhero shooters in this category, and both well-designed and supported by outstanding development teams. We will each strive to meet diversified demands of our respective player community. We believe the market is large enough to accommodate two excellent games in the market. Thank you. Operator, next question please.

Next question is from Richie Sun with HSBC.

Thank you, Guanli. I want to ask about the snowstorm. A lot of fans returned to the game earlier this year, and they received the Magic World and the Rune Stone. Now that we see the two games, how are the users and the revenue trends? After returning to normal in this market, what is the company's long-term operation plan? Thank you, management, for taking my question again. Can you discuss how does the user and growth trend look like for World of Warcraft and Hearthstone after strong initial boost from depend-up demand? And after this normalization, what is the next step to improve the longevity of these titles? Thank you.

Thank you for your question. Six months after its return, what are all the questions? The games that are still performing far better than any other time in history. Of course, as you mentioned, during the launch time, it's not uncommon that things will normalize compared to the release time. We have closely collaborated with our partners at Blizzard to plan upcoming content plans. We believe we will reignite players' engagement. In the long term, we have established a strong trust with the Blizzard development team and are committed to addressing the feedback from Chinese players to improve their gaming experience in the local way. Thank you for your question. Operator, next question, please.

Next question is from Lincoln Kong with Goldman Sachs.

What are the advantages of the overseas market? The second question is about AI and gaming. With the success of DeepSea, the How do you think about AI and the combination of games and the future? Whether it's the innovation of gaming, the interaction of players, the efficiency of game development, and the cost of the game. I will translate it for myself. Thank you, management, for taking my question. My first question is about the overseas market. After the Marvel Rivals' success and also some of the adjustments of our overseas studios, how should we think about our future expansion strategy in the overseas market? We follow more direction as Marvel Rivals or FracPunk. Those are self-developed games. How should we think about our advantage in the overseas market? The second question is about AI and the game. After the success of DeepSea and the huge influence cost dropping, how would East integrate our AI versus our current game portfolio as well as our future pipeline? Could management share with us more around the gameplay innovation, user interaction, production efficiency, or cost discipline, or any aspects related to AI? Thank you.

The demand of overseas market users and the demand of Chinese market users are different. Wang Yi values overseas studios very much. They can satisfy the needs of overseas users through their creativity and innovation. Wang Yi is very willing to actively support and help those studios and creators who can produce high-quality products to succeed in the overseas market.

These

are some of our future expansion strategies in the overseas game.

The second question is about the success of DeepSea and other AI.

AI can be very effective and effective in helping us reduce the cost of game development and pipeline, and help users understand the content of the game more easily and help users get started more easily. AI has made a huge contribution to game development and innovation.

Thank you. I will do the translation.

To your question, the user demand and their preference in the overseas market are not the same as the user demand and preference in the Chinese market. We really like that. We actually pay a lot of attention to support our overseas studios. We support the creators in the overseas market to create content to meet the local demand in the overseas market. Our commitment to support the really high-quality studios and master creators to create very creative games for the overseas market is our strategy. There is no change on that. That is the answer to the first question. The second question is regarding AI. AI is and will significantly increase the efficiency in the R&D process, in the development pipeline. There is no doubt about that. We have been doing that and we are going to do that in the future. Also, there are many, many other applications of AI in gaming. For example, in games, it could help the users to better engage with the content, better understand the content, better onboarding on the content for the new gamers. And we are exploring that in a massive way as well. We believe AI for the R&D process, the creative process of the gaming industry is going to make huge, positive contributions. We are very positive about that. Thank you. Thank you for your question. Operator, next question, please.

Next question is from Lei Zhang with Bank of America.

Hi, I have two questions. The first question is about the game called Infinite. We have got the version number and we want to see how the development is going. Do we hope to see it online in 2025? The game of 2.7 is relatively competitive. What do you think about the game's positioning and differentiation? This is the first question. The second question is about the sales costs. We have seen that the sales costs in the Q4 announcement have dropped significantly. I don't know if there has been a change in the strategy of the marketing market. And what do we think about the overall sales costs in 2025? I will translate it myself. Thank you, Manager, for taking my question. My first question is regarding the game, Wuxian Da, which got game approval previously. Should we expect it to be launched in 2025? And it gave the competitive of 880 games. So how do we think about its positioning and the depreciation here? Secondly, I want to follow up on the sales marketing expense, which has a meaningful reduction in Q4. I also want to know the driver and whether we change the sales marketing strategy. And going forward, how should we look at the sales marketing trend in 2025? Thank you.

Let me answer the first question. Regarding Wuxian Da, we have completed an online test in January this year. It was an invitation test and received positive feedback. The current development is going smoothly and the team is expanding. Regarding competition, we think that competition itself is a good thing. It shows that the players have not been satisfied with the market for this game. As long as we satisfy the players' expectations, excellent products will appear. So we will pay more attention to the accumulation and grinding of the game content. Once the time is ripe, we will invite more players to take the test.

I will translate the first question first. We have completed an offline test for Nata this January, and the feedback is honestly quite positive. The development is undergoing in a very smooth way on track, and the team is growing in an alternate manner as well. For competition, we believe competition is a good thing. It actually reflects that there is an interest in the market in this genre of game, and there is an unmet demand there. As long as we meet the players' expectations, we are confident that we can deliver outstanding products. Currently, we are focusing on refining our content to keep developing the product, and we plan to invite more players for testing when we are ready. Thank you.

Let me answer. Regarding the reduction in the sales cost of the 4G, we have some more efficient marketing tools. So the effect of the cost has improved and the cost has decreased. I think this is the most important thing.

As you know, we are keep innovating our market engine and exploring higher efficient ways and tools and systems to do the marketing operation. This actually reflects our improved efficiency in terms of marketing operation. Thank you. Operator, next question please. For the time being, we probably have time for one more question.

Thank you. The next question comes from Felix Liu with UBS.

Thank you, Mr. Director. This is my question. My question is about some of the recent organization adjustments in our company. We noticed that the company has made some adjustments in both domestic and overseas gaming studios. So, can you share with us the reasons behind these adjustments and how we should understand the strategy of the company's investment in mid-term gaming? Let me translate myself. Thank you, management, for taking my question. My question is on the news of recent organizational changes. We noticed there have been quite a few changes within both your domestic and overseas studios. Could management share the reason and consideration behind these changes? And how should we think about your mid- and long-term investment plan for new games? Thank you.

When we distribute resources in different studios, we focus on the quality of the model and production efficiency of the work. We also make appropriate adjustments. Some projects may not meet the market needs when they are released in the future. We will actively and decisively step on the brakes. But some projects have very good quality and efficiency. We will also increase the amount of resources to invest. So, all of these depend on the quality of the product itself, and whether it can meet the expectations of future users. Because developing a game takes a long time, it usually takes three years or even longer. So, when we make the investment, after the investment, we will continue to adapt to the future market needs in the middle of the development process. We will continue to increase the amount of resources to invest. This is our principle.

Thank

you. Okay, I will do the translation. When we allocate resources among different products across different studios, no matter domestically or including our overseas studios, we pay a lot of attention to a lot of key attributes. For example, the quality of the work. And if the work is going to meet the future demand of players when the work is released in the market years later, as well as the production efficiency of the work, everything. So, if some project, we can foresee that when the product faces markets years later, it's likely not going to meet the demand of players. We will very firmly, with the use of words, press the break. And if some project, if they're really high quality, meeting the future market demands, actually we're going to double down. So, it's all about the product itself, the quality, the development efficiency. Is it going to meet the ever-growing user expectations? Because game development is a long cycle. It's a three-year, four-year, five-year cycle. When we charge a project, we have some assumptions. And during that development process, we'll keep monitoring to see if the product is going to be able to meet the future demands and to do resource allocation adjustments. That's a normal course of game development management. We have been doing that for a long time. And we're not doing that that way. Thank you for your question.

And that concludes the question and answer session. I would like to turn the conference back over to Brandy Piacenti for any closing comments.

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.