NetEase, Inc.

Good day and welcome to the NetEase first quarter 2025 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Helen Wu. Please go ahead.

Thank you, operator. Please note that today's discussion will contain four looking statements related to the future performance of the company and are intended to qualify for the safe harbor from liability. As established by the US Private Security and the litigation reform act. Substatements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of those risks are beyond the company's control and could cause actual results to differ materially from what was mentioned in today's press release and in this discussion. A general discussion of the risk factors that could affect NetEase business and the financial results is included in certain findings of the company with a securities and exchange commission, including its annual report on form 20F and the announcement and findings on the Hong Kong Stock Exchange website. The company does not take any obligations to update its four looking statements except as required by the law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only for definition of non-GAAP financial measures and a re-consolidation of GAAP to non-GAAP financial results. Please see the first quarter 2025 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 NetEase corporate website at .netease.com. Join us on the call from NetEase senior management, Mr. William Ding, chief executive officer, and Mr. Bill Penn, vice president of the corporate development. I will now turn the call over to Bill who will read the prepared remarks on William's behalf.

Thank you Helen 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. We started 2025 with strong momentum. Innovative content and exceptional operations continue to underpin our growth. As we further globalize and diversify our expanding game portfolio, our total net revenue increased 7% year over year. Alongside the success of our new titles, our flagship titles continue to captivate players throughout the first quarter, reaching new record highs after decades of operations. This combination of new heat and long time fan favorite drove our total revenue from gaming and value add services up by 12% year over year to RMB 24.0 billion. Several new titles have recently debuted globally and more players around the world are embracing our games than ever before. We now have a rich and growing global portfolio of games that spans a range of diverse genres, reinforcing our competitive edge in the dynamic gaming landscape with innovations that elevate our offerings and the industry as a whole. Starting with Small Arrivals, its successful launch last December marked a major milestone in our portfolio and a meaningful step forward in our globalization journey. Backed by critically acclaimed gaming experience and dedicated live operations, it has continued to build strong momentum among players worldwide. In the first quarter, our engagement remained high and the launch of season two in April brought renewed excitement. Seemed around Hellfire Gala, once a year celebration of mutant culture and identity, the seasonal update introduced a new map, a new hero and fresh amounts, welcoming both veteran players and newcomers to the live living island. Following the update, Small Arrivals reclaimed its number one position on Steam's global top seller chart. To deepen our connection with player community, we're moving to a two month season cadence starting with season three, while keeping the momentum high by introducing a new hero each month. With continuous development and iteration, we're committed to delivering a distinctive and evolving gaming experience to players worldwide. Next is FractBunk, our fast-paced five versus five tactical shooter game that has energized global fans with a sleek shooting experience, innovative shot cards and bold art expression. Within just three days of its PC launch in March, the game achieved over 110,000 P concurrent players and became number six on Steam's global top seller chart. Building on this momentum, we launched chapter two of season one on April 29th with over 70 brand new shot cards along with updated heroes and maps. With the update, FractBunk also debuted on consoles, making the game available to an even broader player base. As we continue pushing the boundaries of the shooter experience with systematic innovation and upgrades, we're also growing the game's community and hope to make FractBunk one of our biggest titles. We also just launched the much anticipated once human mobile edition on April 24th. It quickly gained global attention, claiming the top spot on iOS download chart in more than 160 regions. The optimized handheld experience is highly valued by mobile players as we retain the depth of PC version while featuring cross-platform play, progression and rewards. Meanwhile, the mobile launch generated even more community enthusiasm across platforms, driving the game to number five spot on Steam's top seller chart. Across PC and mobile, our open world PVP and TV phenomena is reaching more users. Where Wings Meets has continued to draw players into its immersive world since its breakout domestic launch in December. Its ability to blend subtle storytelling, a richly layered historical setting and high fidelity graphics has made Where Wings Meets a game changer in the open world Wuxia genre. We added more fresh content on March 28th, introducing Hexi, a brand new district set against a stunning desert landscape and attracting a growth of new players. By the end of March, more than 30 million players had joined the community and player engagement continues to be high, reinforcing the game's long-term potential. We are excited to build on this success and reach more players, with plans to launch the game in more regions across PC, mobile and console platforms later this year. These titles also demonstrated robust performances, driven by strategically tailoring experiences for local communities. The return of each title in 2024 reignited player enthusiasm, driving engagement to historical highs. This was especially evident by Overwatch, which broke new records of P concurrent players upon its relaunch on February 19th. A brand new stadium mode was launched in China this April alongside its global release. In addition, momentum has been ongoing for Wuxia and Hexi, also which saw consistent popularity during Chinese New Year, with targeted in-game events and localized designs. Notably, World of Warcraft achieved the leading sales through live commerce on social media, providing fans with an entertaining experience in a fresh way. Hexi came up with culturally resonant content, such as alternative art cards or signature cards, inspired by Chinese painting and World of Warcraft pseudo embroidery inspired mounts. These creative designs rejuvenated the long beloved IPs by infusing fresh elements that resonate with players, engaging both long time fans and new players. In addition, Diablo 3 entered technical testing in April, paving the way for its reentry into the Chinese market. Together, these successes demonstrate the stress of our operating capabilities and the close collaboration with our partners. Looking ahead, we are excited to bring players even more intriguing content, created and delivered with care by passionate teams and collaborators. As we celebrate the success of our new and returned titles, our established 90s games continue to play a vital role in our portfolio. Our longstanding beloved titles serve as foundational pillars and steady source of revenue with alluring content updates and continuous gameplay enhancements that deliver timeless appeal. The Fantasy Westward Journey franchise is a prime example. After decades of operations, it continues to be one of China's most influential brands. In the first quarter, we celebrated Fantasy Westward Journey Mobile's 10th anniversary with a range of new content updates, including a crossover with renowned animation IP Digimon. The update sparked player engagement, signaling a remarkable beginning for its next decade. Westward Journey Online 2, another cherished classic, also maintained healthy traction in the first quarter with festive Chinese New Year events and the interactive live streaming that reignited player passion. Another example is our iconic asymmetric battle arena game, Identity V. First introduced to global market in 2018, the player base greatly expanded in the first quarter, achieving a new quarterly high on top of its record-breaking momentum in 2024. The excitement extended into April, with registered players surpassing 400 million globally during Identity V's seventh anniversary celebration. Similarly, our action-based battle royale game, Naraka Baypoint, has built a strong global player base since 2021. The game saw new record revenue in the first quarter with our updated PvE content. Players can now team up and have fun from medieval villains side by side, adding another layer of play through strategy, skill building, and collaboration. Both Identity V Asian Games version and Naraka Baypoint have also been named as the official e-sports event for the 2026 IHI Nagoya Asian Games. Each is the first title in this genre to be included in the Asian Games, marking another breakthrough for domestically-developed games on the international stage. Moreover, this veteran title's ability to reach new milestones highlight the strengths of our long-term operations, premium content, crossover events, and our increasing strengths in e-sports operations. Moving to AgiParty. The game further solidified its leadership in the party game genre with robust sequential growth in the first quarter. Excitement lit up Agi Island on Chinese New Year's Eve, featuring vibrant line-up of performances. Players jumped into the New Year celebrations, enjoying live entertainment, joining in activities with friends, and creating a night to remember. The addition of the beloved Chinese animation IP, Canabash Brothers, added another layer of festivity, with AgiParty attracting over 100 million players and new monthly players reaching a record high. As for our groundbreaking MMO game, Justice Mobile, it continues to raise the bar for innovation. In March, we introduced Starry Greenland, a virtual amusement park in the heart of the Wuxia-inspired world, packed with familiar attractions and activities that resonated with the younger generation. This new setting quickly became a hit. Justice Mobile is also pushing technology boundaries. We continue to elevate the gaming experience, adding enhanced interaction with AI-powered NPCs and improved lighting effect through cutting-edge graphic technology. We have also made it a lot easier and more fun for players to get creative. With our upgraded creation system, players can produce their own video clips using in-game animations, complete with custom script, character motions, and voiceovers. It's a powerful tool that opens the door to a whole new level of creative expression. Justice Mobile's strong momentum has expanded to more regions since its launch in Hong Kong and Taiwan last November, as has our leading basketball game, Dunk City Dynasty. Currently, Dunk City Dynasty is targeting expansion to more regions across Western Market and Southeast Asia in May. Similarly, Racing Master has secured a solid position in Japan, Korea, and Southeast Asia. It's a game topping the LOS download chart across multiple regions with each geographic launch. These solid operational metrics are a great indicator of what we can expect in other markets when we bring these titles to more regions. As we work to build on the success of our existing games and introducing them to more players around the world, we have a range of exciting upcoming titles on the way. The new titles in our pipeline will continue to push the envelope of creativity and interaction, elevating our portfolio and the overall gaming experience we bring to our gaming communities. Marvel Mystic Mayhem, our superhero team-based tactical RPG, is currently preparing for its official worldwide launch. The closed beta test 2.0 conducted in March sparked massive passion within the community where we gathered valuable feedback from players to aid in the final touches. With more details to be announced shortly, we eagerly anticipate introducing players to these exciting confrontations on a global scale. Some of our other titles under development include Destiny Rising, our epic sci-fi RPG shooter game featuring a new adventure set in the alternative Destiny timeline. This one is currently in active development and progressing as planned. Anata, our highly anticipated metropolitan RPG, is also deep in development. The game draws on our years of experience in the gaming industry to deliver innovative gameplay shaped by deep player insights. As across our portfolio and pipeline, we're reaching more players through a wider range of genres and expanding our global footprint. We're launching new titles and building on the momentum of our existing hits with updates players love, all while delivering new, inspiring experiences that resonate with fans around the world. By continuing to reimagine what's possible in gaming, we help advance the industry as a whole. Our commitment to quality and innovation shapes each area of our business. Looking now at Youdao. With the -a-list focus on technology-driven innovation integrated into the user experience and a disciplined effort to foster long-term sustainability, Youdao achieved record-high first quarter operating profit, maintaining the profitability momentum of previous quarters. Turning to the next title, our online learning services revenue declined in Q1 as we continue to prioritize core services with strong long-term potential. By focusing on high-demand subjects, we advanced quality operations and further strengthened profitability. As a part of this effort, our online intelligent learning platform, Youdao Ling Shi, upgraded its college entrance planning system to deliver more seamless and personalized guidance based on individual needs, driving exceptional user engagement and loyalty. By prioritizing AI technology in the development of our products and services, we have seen strong user reception and robust growth in AI subscription sales. Our existing applications continue to evolve with our dictionary and translation services now delivering industry-leading accuracy and a smooth user experience. Powered by our proprietary large language model, Confucius. This model innovatively integrates multiple models and leverage online direct preference optimization during training, which enhances its ability to generate responses that are aligned with users' preferences. This elevated experience has driven increasing engagement in our AI translation services. Youdao's online marketing services remain focused on high-quality growth. In the first quarter, sales from Oversea grew sharply, driven by strengthened collaboration with Oversea partners and the KOLs. We also boosted operational efficiency through advanced technologies. For example, we launched Youdao Magic Box, a video creation tool that simplifies the production of high-quality advertising videos through intuitive inputs, making ad content creation easier and more time efficient. Our smart devices segment maintained healthy -over-year growth. Building our leading position in China's dictionary pen market, we continue to bring new innovations to the industry. In the first quarter, we launched Youdao SpaceOne, a next generation device equipped with a larger screen than dictionary pens and the ability to answer students' open-ended questions in real time, much like a human tutor. Powered by advanced large language models, Youdao SpaceOne can accurately interpret images, respond with natural voice interactions, and deliver highly accurate answers across a wide range of school grade levels. As our online businesses continue to explore avenues for delivering meaningful experiences in entertainment and learning, the NetEase family remains committed to enriching people's lives and product, lifestyle and product with services that consistently impress our users with exceptional quality. Take Yanxuan as an example. A strong commitment to quality and innovation grew for another quarter of healthy performance across our core product categories. In the first quarter, our pet product and household cleaning items remain top sellers within their category on major e-commerce platforms. Particularly, the signature product maintained strong momentum while new releases, such as our CarSense cup and limited edition New Year bathroom fragrance, saw strong consumer demand. We were especially delighted that in March, one of our cat food products, specially formulated to support healthy fur, received the 2025 Pet Orange Dot Award, a notable recognition from the pet industry. Additionally, ESG initiatives are ongoing priorities for NetEase. Earlier today, we published our sixth annual ESG report outlining our progress towards sustainable growth, transparency and social responsibility. We believe that technology can both empower and inspire. Through AI-driven innovations, we're redefining entertainment experiences while modernizing traditional industries for safer, more efficient production. Our business growth reflect the trust our users place in us, further motivating our efforts to serve our communities. While our business has limited environmental impact due to its predominantly online nature, we continue to enhance our carbon reduction efforts across data centers and office campuses to strengthen operational resilience. In 2024, by prioritizing energy saving measures within our operations, we successfully achieved a 16% reduction in greenhouse gas emissions compared to the previous year. Leading ESG rating organizations have also recognized our progress in sustainability. Notably, MSCI upgraded us from A to AA in this latest assessment, designating NetEase as a leader among 237 companies in the global media and entertainment sector. S&P Global included us in this 2025 sustainability yearbook, and sustainability has rated us as a low-risk company for the six consecutive years. Each of these honors speak to the dedication and ESG standard we uphold across our company. As we look to the months ahead, we are encouraged by the global momentum we have established and the breadth of opportunities across our increasingly diversified game portfolio and broader NetEase family of businesses. With a robust pipeline of new releases, continued global expansion and ongoing enhancement to our most iconic franchises, we are well positioned to sustain our growth and deepen our connection with players worldwide, creating more value for players, partners, and shareholders. That concludes William's comment. I will now provide a brief review of our 2025 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 will arm the $28.8 billion or $4.0 billion US dollars, representing a 7% increase year over year. Meanwhile, current contract liabilities will arm the $17.7 billion, up 16% quarter over quarter. Total net revenue from our games and related VES will arm the $24.0 billion, up 12% year over year. Specifically, net revenues from online games will arm the $23.5 billion, up 14% quarter over quarter, and 15% year over year. This growth was primarily driven by increased revenue contributions from key PC games, such as newly launched titles, We're Win Me's and Marvel Rivals, as well as established mobile games like Identity V. Specifically, net revenues for our PC games accounted for approximately 34% of our total online games revenue, representing an increase of 13% quarter over quarter and an increase of 85% year over year. Your total net revenue will arm the $1.3 billion, representing declines of 7% year over year and 3% quarter over quarter. This was primarily due to strategic structural improvement in the learning services segment, which is increasingly focused on high demand subjects. NetEase Cloud Music net revenue will arm the $1.9 billion, declining 8% from same peer last year and 1% from previous quarter. This was primarily due to decreased revenue from social entertainment services. Net revenue for innovative businesses and others will arm the $1.6 billion, decreasing by 17% year over year and 29% quarter over quarter. The decline was mainly due to decreased net revenue from Yanyuan, advertising services and certain other businesses in this segment. Gross profit for the first quarter of 2025 was arm the $18.5 billion, up 9% year over year and 14% quarter over quarter. This was primarily driven by increased net revenues from online games as mentioned above. Our total gross profit margin was .1%

in the first quarter,

compared with .4% for the same period in 2024. Specifically in more detail, gross profit margin for games and related VES was .8% compared with .5% in the same period last year. The change was primarily due to fluctuations in product mix. The operating expense for the first quarter was arm the 8.0 billion, or 28% of our net revenues. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total net revenue were .4% compared with .0% for the same period last year, mainly due to decreased spending on gaming promotions during the quarter. Our R&D expenses as a percentage of total net revenues remain stable year over year at .2% in the first quarter, compared with .5% for the same period last year. We remain committed to investing in concentration and product development. The effective tax rate was .3% for the first quarter. As a reminder, the effective tax rate is presented on a cruel basis. Depending on our actual policies and our operations. Our non-GAAP net income actually goes to shareholders for the first quarter totaled R&D 11.2 billion, or 1.5 billion US dollars, up 32% year over year. Non-GAAP basic earning per ADF for the quarter was $2.44 US dollars, or 49 cents US dollar per share. Additionally, our cash position remains robust, with net cash of approximately R&B 137.0 billion as of March 31st, 2025, compared with R&B 131.5 billion at the end of 2024. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of 13.5 cents US dollars per share, or 67.5 cents US dollar per ADS. Lastly, under our current 5 billion US dollar share repurchase program, which started in mid-January of 2023, we had repurchased approximately 21.6 million ADS as of March 31st, 2025, for a total cost of approximately 1.9 billion US dollars. Thank you for your attention. We will now like to 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 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 free join the queue. Your first question comes from Miranda Zong with Bank of America. Please go ahead.

Good

evening.

Thank you for answering my question. The company has a very strong performance. My question is about the fifth personality game. We see that this game has been very strong in the past year. It has become one of the top games in the mobile game industry. I would like to ask the management team to share with us the reason why we are creating this game. After having a relatively high technical level, what do we think of the game's growth in the future? At the same time, I would like to ask about the feedback on other existing games such as the Chinese game. Thank you for taking my question. My question is about Identity V. So this game had a consistent and strong performance throughout last year, and it's now one of the top games among companies' game portfolio. Can management share the reasons behind and how to think about the game growth going forward after the campaign becomes higher? Any implication to the revival of your other games? Thank you.

Identity V is a PVP game that has been around for six years. Our team has continuously invested in the optimization of our games. It has not only achieved success in the Chinese market, but also has been a leading position Our other teams have also learned a lot from the success of Identity V. We hope that this experience can be reflected in the operation of other games. We will continue to invest more resources So that we can experience more fun from the game of Incompetent Games. Thank you.

Thank you for your question. Yeah, you're right. Identity V being a very unique

asymmetric game, PVP game has been there for six years. And during the past six years, we never stopped keep investing, keep optimizing, keep improving this game. And as a result, the game is not only very successful in China, it's actually in a very leading position in Japan as well. You're right, our other teams actually, they learned a lot from the hands-on experience of Identity V team to how to keep improving the operations, continuous operation improvement of our other games. Looking to the future, Identity V will keep investing to more and more resources into the game Identity V and to bring the fun of asymmetric

PVP to more players. Thank you.

Your next question comes from Lincoln Kong with Goldman Sachs, please go ahead.

Thank you, Mr. Ding. Thank you for answering my question. My question is about Manwei's peak. After it was launched, we've seen some changes in the number of users. I'm thinking about how to keep the IP hot all the time. You mentioned that Manwei's new season will be shorter than before, and the speed of the hero update will be increased. What are the changes and adjustments in the long-term operation of the game and the future development? I'll translate it myself. Thank you, management, for taking my question. My question is about Manwei's arrival. We have seen some user number volatility in the recent months. How should we think about to ensure the lifecycle, the longevity of this IP? I think the management talking about we're going to shorten the season length, season time going forward, and also introduce more frequently of the hero and the characters. So going forward, should we think about more adjustment in terms of the long-term operation and the multi-session strategy? Thank you.

Manwei's peak, in April this year, we will launch the S2 season. The new content of this season is popular with players. The data of our products is also significantly growing. The data of Manwei's peak game will fluctuate with the pace of the season update. This is a relatively normal phenomenon for the season update product. Users will also continue to load in this process. Our current plan is to start from the S3 season. We will adjust the season update period to three months, and two months. At the same time, in May this year, we will launch the Manwei's peak series of seasons, to build the season ecology. We believe that more efficient content update rhythm will be able to work with the game's season ecology to effectively stabilize and improve the game's data. Thank you.

Thank you for your question. As you mentioned, we introduced the season two update in April, which achieved wide popularity among players, and resulted in a significant boost over operating metrics. For season-based products, it's normal to observe fluctuations in operating metrics that align with the cadence of seasonal updates. And the process itself will actually also help to satisfy the user base. So starting from season three, we'll reduce the season update internal from three months to two months. And additionally, we will initialize Marvel Rivals eSports event in May, to develop our eSports ecosystem. We believe that with more efficient content updates and our evolving eSports ecosystem, we'll see greater improvement across all in-game metrics.

Thank

you.

Your next question comes from Felix Lu with UBS. Please go ahead.

Thank you, Guanlin. Actually, we want to ask about the performance after the very strong game, and the performance after the game was released. Given that our self-pride game is very strong overseas, but at the same time, we have been paying attention to some of our overseas work-related news. So I want to ask Guanlin, what is your new thought on the current overseas market strategy? Thank you. Let me translate myself. First, thank you, Benjamin, for taking my question. Congratulations on the strong results and the strong performance of Marvel Rivals and Frankpunk. Do you, Benjamin, share how you think about your latest strategy for overseas markets? Given the backdrop of the strong performance of your domestically developed games and the news of shutdowns of some of your overseas studios. Thank you.

Yes, we have always been very focused on overseas game markets including Europe, America and Japan. In the past few months, we have shut down some of our overseas studios entirely because of the future positioning and quality of our products. At the same time, you can see that since December last year, Marvel Rivals and Frankpunk have achieved good results We believe that our overseas market positioning and our ability to predict are all in line with the current company's plans. We believe that in the future, we will have more games that will fit the overseas market and develop them online. Thank you.

Thank you. Thank you for your question. For a long period of time, we have actually paid a lot of attention to the overseas market including the European market, North American market, Japan and the Korean market. In the past period of time, we did close some of our overseas studios but those decisions were purely made based on the positioning of the future products and consideration of product quality. Looking at the scene since last December, our domestic made games named Frankpunk and Marvel Rivals indeed achieved not bad results in the overseas market. We believe this is in line with our judgement and how we see the overseas market. We believe that in the future, NetEase will make more and more games suitable for the global market.

Thank you.

Your next question comes from Yang Lu with Morgan Stanley. Please go ahead.

Thank you for the opportunity to ask. First of all, congratulations on your excellent performance. My question is about Yanyun 16. The feedback and commercialization of this game has been improving. I would like to ask what effective measures the company has taken and what the next operation plan will be. Let me do the translation. The whirlwind meet saw improving feedback and monetization. What has NetEase done here is proven effective. What is the next step for this title's operation? Thank you.

Thank you. Thank you.

Thank you for your question. Whirlwinds Meet is

a game that we spent five years to develop, an Asian-Chinese historical background open world game. We have been working on it for a long time. When it was released in late December last year, it got a lot of acclaimed reviews from users. We actually pay a lot of attention to this game. It's a very important game to us. In the future, we're going to keep investing to the game, namely, to further polish the art representations, keep polishing the game plays. So it will be a long-term game for us. When players play the game, we encourage players to play on PC because on PC it has much better graphical presentations. Whirlwinds Meet, the success so far has provided us a lot of hands-on experiences. We're going to learn from the experiences and deploy them into other products to help our other products to be successful. We believe Whirlwinds Meet in the coming five to ten years is going to be one of our evergreen titles. Thank you.

Your next question comes from Richie Sun with HSBC. Please go ahead.

Thank you, management, for taking my questions. Congrats on a very robust quarter of results. My question is about Once Human. The mobile version has done well in the download rank, but monetization remains quite conservative. So how would management rate the performance of Once Human and its potential, and what are the key competitive edge and differentiation of these products, and what are the plans to further enhance the commercialization going forward? Thank you.

Once Human was launched,

it won the first prize in the iOS download list It brought in over 6 million new users in the first week. The second, Once Human is a dual-channel game, so the first-channel players will play in a dual-channel game and charge their money on the PC side. After the first game was launched in the 7th World, the PC side has steadily increased by 90% and the payment has increased by 500%. Currently, the product's charge on the PC side is over 50%. At the same time, it reached the top five on the Steam sales list. The payment transfer on the PC side has affected the performance on the mobile side to a certain extent. The third, The 7th World is a game based on the SLC run by the Japanese and its competitive edge. This is different from the advantages and features of other SLC products and has thoroughly solved the problem of the player's role growth. So we will go around this later. We will continue to meet the needs and performance of the players in two directions. First, we will add new gameplay scripts. We will launch different gameplay rules and new scripts to meet the needs of players in the SLC run to build free world exploration and PVP confrontation. Second, we will give players the ability to open their own private servers and open them up freely to set up their own servers to meet the needs of players in the SLC world. Thank you.

Thank you for your question. Once

Human Mobile launched, it's very successful. It achieved top downloading spot on 166 regions on iOS. In the first week, we got more than 6 million users. Regarding what you observe on the top crossing chart, one of the nature of this game is that it's a cross-play game. Players can choose to play on PC and mobile with the same account. So a lot of top players play on both clients, and they choose to play more on the PC side. Actually, after the mobile version launch, from the PC side, the concurrent users increased by 90% and the payment actually drove by 500%. The payment ratio from PC is actually more than 50%. That's why you see when we launched the mobile game, the Steam mates ranked on one of the top setter charts. So probably the players playing on PC actually impacted the top crossing chart ranking on mobile. For the specialty of this game, this is a script-based seasonal-based game. That's one difference compared to other SLC type of game. In the future, we're going to further satisfy the gamers' demand from two angles. One is we're going to add new game plays, new script-based game plays that can further satisfy the demand from users from PV kind of exploration or PVP kind of confrontation. The other front that we're exploring is we're going to explore the prioritized ecosystem. Some of the SLC players, they have demands to, for example, open their private servers. So that's a different kind of gameplay experience, and we're going to explore how to satisfy this kind of demand. Thank you.

Your next question comes from Yang Liu with Morgan Stanley. Please go ahead.

Let me do the translation. Fragpunk's popularity declined fast after the launch stage. What can netizens do to help Fragpunk to differentiate better in the overseas FPS game competition? Thank you.

I'm very satisfied with the current game. Fragpunk's base is actually very good as a design game. The card system supports the production of new models quickly. So I encourage the team to continue to stay on the table of FPS games, and wait for a better chance to create. The company will continue to support this product. Our long-term goal is to keep the team stable and keep the team growing and making the product better. In the overseas market, we will continue to work with the overseas market through the collaboration of the Chinese market, and maintain the game's visibility in the way of the year-end event, and strengthen the core price and seek greater opportunities to

break the circle. Thank you for your question. Fragpunk was actually made by a new team. From a new team perspective, we're satisfied with the performance so far. The game actually has a solid foundation. Its innovative card mechanism allows for rapid updates and iterations regarding gameplay modes. We have been telling the team that it's important that we keep engaging in this market, and keep refreshing and seeking for opportunities for gameplay expansions. We're committed to supporting this product in the long run, to support the long-term operations. To achieve this, we encourage the team to make sure that we have a very solid, stable team, and give the team more room and more time to keep growing. From the market operations perspective, we'll continue to invest in the overseas market, maintaining visibility through all sorts of vehicles, like including tournaments, including collaboration with influencers and other IP crossovers. This will maintain our loyal player base

while we're seeking for breakthrough opportunities. Thank you.

The next question comes from Thomas Chong with Deaf Reads. Please go ahead.

Thank you for taking my question. My question is about resource allocation. Can management comment about the allocation of resources in domestic and overseas markets over the next few years? Thank you.

I believe that NetEase has enough resources to focus on domestic and overseas markets at the same time. Our company has been developing games for the past 25 years, and has prepared a lot of tools and talents. Of course, we will also have some shortcomings, such as how to understand the needs of overseas users. But from an executive point of view, we have

no problems at all. Thank you.

Of course, we have shortcomings as well, for example, like how to understand the demands from overseas gamers. On that part, we'll keep improving. But from resource allocation perspective and execution perspective, we do have sufficient resources to

do both markets. Thank you.

The next question comes from Su Qing Chang with CICC International Corporation. Please go ahead.

What should we look at in the pipeline for the next one or two years? The second question is about following up on the e-sports. The fifth personality of the company is He Yongjie. He is the first to enter the 2022 Asian Games. Will management take this opportunity to develop an international e-sports campaign? What is the company's future e-sports strategy? Thank you. We have noticed that several new titles achieved great performance. Which key evaluation metrics are prioritized during the product ideation and approval basis in the company? And how shall we expect the pipeline in one to two years? My second question is a follow-up one on e-sports. Congratulations on identifying and in the record being selected for the 2026 Asian Games for the first time. May I ask whether management plans to take this opportunity to develop international e-sports operations? And what's the company's long-term strategy for the e-sports games? Thank you.

We are a company with nearly 25 years of experience in e-sports. In the past 25 years, we have accumulated a lot of experience and excellent tools. Our team is particularly fond of the e-sports business. Similarly, when we set up a new project, we welcome people who have ideas for various games to join our team. So we set up a new project to consider whether people themselves are fond of games. Whether they are fond of the implementation and implementation of the project itself. As long as we meet the requirements, we will actively evaluate and consider the product. So in the future, we will develop our platform to include people who are fond of games in our team. Of course, we also have certain criteria for the quality of the product. I think everyone should not worry about the pipeline of the products in the next two to three years. We still have a lot of excellent projects in store. Thank you.

Thank you for your question. I will answer the first

question first.

Over

the past 25 years, we have accumulated a lot of experience, tools, and talents. Our teams are really passionate about gaming. When we talk about a new project, we welcome all sorts of talents with creative thinking about game ideas. When we consider a new product case, the first attribute we consider is whether or not the core team members are passionate about gaming, or they are passionate about the specific game project they are proposing, including how to execute them out over the years. If they satisfy all these thresholds, we will actively evaluate and think about this product. Of course, we do have an internal evaluation system. In the future, we will open this platform to more game lovers outside, talents outside if they want to join us if they have creative ideas. We welcome them. We are specific about the pipeline in the next couple of years. Rest assured, you don't need to worry. We have other very good products that the pipeline

has not been announced yet. Thank you. William, the second question is about the press conference and e-sports.

We are very interested in e-sports. We have two games that have been selected for the press conference. I believe the first is that our team's product quality is very good. The second is that we have a wide audience base. The third is that we hope that the online games that we have developed ourselves will not only be included in the Asian Games, but will also be included in the e-sports Olympic Games in the future. We have the largest e-sports venue in China in Hangzhou. We have been organizing e-sports games for a long time. At the same time, we have our own e-sports venue in Shanghai. It is also the largest in Shanghai. The e-sports market is also low. So, the online game will be in the e-sports field for a long time. Thank you.

Thank you for your question and interest about our

product in the Asian Games. For a long time, we have been paying a lot of attention to e-sports. This time, two of our products have been selected. That's a testimony of not only the quality of the game, but also the gamer base of the games. We hope our self-development game will not stop being part of the Asian Games. We hope that it will be included in the higher level e-sports Olympic Games. Talking about e-sports operations, in Hangzhou we have the largest e-sports stadium. We continue to run e-sports tournaments here. Also in Shanghai, we have our own private e-sports stadium, which is one of the biggest. We have continuous e-sports operations based there as well. In the long run, we're going to continue to invest into e-sports operations. Thank you. Operator, for the sake of time, we have time for one more question.

Thank you. Your final question comes from Alicia Yap with Citigroup. Please go ahead.

Good evening, Guanlin Chen. Thank you for answering my question. My question is about AI. With the help of AI technology, can the gaming studio launch content updates faster and shorten the development cycle of new content? With the importance of AI in development and release, will this change NetEase's plans for new versions, new information films, online structure, and promotion strategies? I'll translate it myself. Thanks, management, for taking my questions. With the help of AI, it seems like the game studios are able to produce content updates very quickly and then also shorten the overall development time for the expansion pack. Will that affect and change how NetEase plans to expansion pack release timing and also the game promotion targeting as AI increasingly taking a more important part of the game development and game publishing? Thank you.

In fact, AI has fully applied these latest technologies We have been continuously investing in AI since the past five years. And these results are generally useful for game development and the taste of game content itself. I don't think this is a company's specialty. It should be that the entire industry will actively adopt AI technology. It's just that each company has different depth and breadth of application. I would like to emphasize again that AI is not only important to games, but also to other businesses. Thank you.

Thank you for your question. We actually have been using AI in our game development and gamers' experience for a long time, at least five years. In the past five years, we never stopped investing in technologies, including AI technologies. And a lot of this result actually has been deployed, it's been applied in our game development and content production. For AI in general, we believe it's not specifically attached to one company. It should be a whole industry kind of thing. In the whole industry, everyone will be actively adopting AI technology. It's just that every company with their different context, maybe the breadth or the deepness of how they apply AI technology might be different. I want to emphasize again, actually, AI is critically important, not only to the game industry and to many other businesses as well. It's been a critically important thing. Thank you.

And that concludes the question and answer session. I would like to turn the conference back over to Helen Wu for any additional or closing comments.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a nice day. Goodbye.