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 forelooking statements related 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 Security 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 those risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and in this discussion. A general discussion of the risk factors that could affect NetEase business and financial is included in certain findings of the company with the 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 forward-looking statements, except as required by the law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures, and a reconsolidation 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 to replay this conference call will be available on the NetEase corporate website at ir.netease.com. Join us on the call from NetEase Senior Management, Mr. William Dean, 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 10% 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 hits and longtime fan favorite drove our total revenue from gaming and 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 Revivals, 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, their engagement remained high, and the launch of Season 2 in April brought renewed excitement. Seemed around Hellfire Gala, a once-a-year celebration of mutant culture and identity, the seasonal update introduced a new map, a new hero, and fresh team-ups. welcoming both veteran players and newcomers to the living island. Following the update, Marvel Rivals reclaimed its number one position on Steam's global top-seller chart. To deepen our connection with the player community, we are moving to a two-month season cadence starting with Season 3, while keeping the momentum high by introducing a new hero each month. With continuous development and iteration, we are committed to delivering a distinctive and evolving gaming experience to players worldwide. Next is FragPunk, 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 peak 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 shark cards, along with updated heroes and maps. With the update, FragPunks 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 FragPunk one of our latest 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 PVE phenomenon is reaching more users. Where Wings Meet 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 Meet a game changer in the open world wuxia genre. We added more fresh content on March 28, 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 tailored 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 peak 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 World of Warcraft and Hearthstone, also which saw consistent popularity during Chinese New Year, with targeted in-game events and localized designs. Notably, World of Warcraft achieved a leading sales through live commerce on social media, providing fans with an entertaining experience in a fresh way. Hearthstone came up with culturally resonant content, such as alternative art cards or signature cards inspired by Chinese painting and World of Warcraft's Suzhou embroidery-inspired mounts. These creative designs rejuvenated the long-beloved IPs by infusing fresh elements that resonate with players, engaging both longtime fans and new players. In addition, Diablo 3 entered technical testing in April, paving the way for its re-entry 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 long-standing, 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 the 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 Playpoint, 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 for medieval villains side by side, adding another layer of play through strategy, skill building, and collaboration. Both Identity V, Asian Games version, and Naraka Big Point have also been named as the official esports events for the 2026 IHE 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 esports operations. Moving to Aggie Party. The game further solidified its leadership in the party game genre, with robust sequential growth in the first quarter. Excitement lit up Aggie Island on Chinese New Year's Eve, featuring vibrant line-ups 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, Calabash Brothers, added another layer of festivity, with Aggie Party attracting over 100 million players and new monthly players reaching a record high. As for groundbreaking MMO game, Justice Mobile, it continues to raise the bar for innovation. In March, we introduced Starry Dreamland, a virtual amusement park in the heart of the Wuxia-inspired world. Packed with familiar attractions and activities that resonate with the younger generation, this new setting quickly became a hit. Just as mobile, it's also pushing technology boundaries. We continue to elevate the gaming experience, adding enhanced interaction with AI-powered NPCs and improve the lighting effect through cutting-edge graphic technology. We have also made 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, Macau, 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 iOS 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 super-hero team-based tactical RPG is currently preparing for its official worldwide launch. The close 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. Annata, our highly anticipated metropolitical 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 your DAO, with a relentless focus on technology-driven innovation integrated into the user experience, and a disciplined effort to foster long-term sustainability. UDOT achieved record-high first quarter operating profit, maintaining the profitability momentum of previous quarters. Earnings services revenue declined in Q1 as we continued 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 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. Yudong's online marketing services remained focused on high-quality growth. In the first quarter, sales from overseas grew sharply, driven by strengthened collaboration with overseas partners and KOLs. We also boosted operational efficiency through advanced technologies. For example, we launched Yodam 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 maintains healthy year-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 U-DOT Space One, 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, U-DOT Space One 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 lifestyle and product with services that consistently impress our users with exceptional quality. Take Yanchuan as an example. A strong commitment to quality and innovation drove another quarter of healthy performance across our core product categories. In the first quarter, our pet products and household cleaning items remained top sellers within their category on major e-commerce platforms. Particularly, the signature products maintained strong momentum, while new releases such as our car scents cup and limited edition New Year bathroom fragrances 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 reflects 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 be $28.8 billion. or 4.0 billion U.S. dollars, representing a 7.4% increase year-over-year. Meanwhile, current contract liabilities will only be 17.7 billion, up 16% quarter-over-quarter. Total net revenue from our games and related VAS will only be 24.0 billion, up 12% year-over-year. Net revenues from online games were on 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, Will Wings Meet, 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. The adults' net revenue will only be $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 only be $1.9 billion, declining 8% from same period 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 only be $1.6 billion. decreasing by 17% year-over-year and 29% quarter-over-quarter. The decline was mainly due to decreased net revenue from Yanchuan, advertising services, and certain other businesses in this segment. Gross profit for the first quarter of 2025 was RMB 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 64.1%, compared with 63.4% for the same period in 2024. Specifically, in more detail, gross profit margin for games and related VAS was 68.8%, compared with 69.5% in the same period last year. The change was primarily due to fluctuations in product mix. The operating expense for the first quarter was RMB 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 9.4%, compared with 15.0% 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 15.2% in the first quarter, compared with 15.5% for the same period last year. We remain committed to investing in content creation and product development. The effective tax rate was 15.3% for the first quarter, As a reminder, the effective tax rate is presented on an accrual basis, depending on applicable policies and our operations. Our non-GAAP net income attributable to shareholders for the first quarter totaled RMB 11.2 billion, or 1.5 billion U.S. dollars, up 32% year-over-year. Non-GAAP basic earning per ADS for the quarter was $2.44 U.S. dollars, or 49 cents US dollar per share. Additionally, our cash position remains robust, with net cash of approximately RMB 137.0 billion as of March 31st, 2025, compared with RMB 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 U.S. dollars per share, or 67.5 cents U.S. dollar per ADS. Lastly, under our current 5 billion U.S. dollar share repurchase program, which started in mid-January of 2023, we had repurchased approximately 21.6 million ADS as of March 31, 2025, for a total cost of approximately 1.9 billion U.S. dollars. Thank you for your attention. We would now like to open the call to your classrooms. Operator, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Your first question comes from Miranda Zong with Bank of America. Please go ahead.

Good evening. Thank you for accepting my question. Congratulations on your very strong performance. 我的问题是关于第五人格这个游戏。 那我们看到这个游戏在过去的一整年里其实都保持了非常强劲的一个表现, 然后成为公司这个移动端产品里面这个排名前列的游戏之一。 那想请管理层再分享一下这款游戏我们再创加剂的一个原因。 那在有一个比较就是高的基数之后, 那讲完未来我们如何看待这个游戏的一个这个增长。 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 portfolios. Can management share the reasons behind and how to think about the game growth going forward after the comp base becomes higher? Any implication to the revival of your other games? Thank you.

Right. The Fifth Pillar is a PvP game that has been around for six years. In the past six years, our entire team has continuously invested in product optimization. Not only has it achieved success in the Chinese market, but it has also maintained a leading position in the Japanese market. Our company and other teams have also learned a lot from the success of the fifth personality. We also hope that this experience Thank you for your question. Yeah, you're right.

Identity V being a very unique asymmetric 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 learn a lot from the hands-on experience of Identity V teams. how to keep improving the operations, continuous operation improvement of our other games. Looking to the future, Identity V will keep investing 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. As I mentioned earlier, the new season of Marvel will be a bit slower than before, and the speed of hero updates will be increased. What kind of changes and adjustments will be made in the long-term operation and future transformation of the game? Thank you, for taking my question. So my question is about arrival. So we have seen some user number volatility in the recent months. How should we think about to ensure life cycle, 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 monetization strategy? Thank you.

In April of this year, we will launch the S2 season. Currently, the new content of this season is popular with players. The data on our various products has also been significantly increased. The data of the game will fluctuate with the pace of update in the season. This is a more normal phenomenon in the season update product. Users will also continue to change in this process. Our current plan is to start from the S3 season. We will adjust the season update cycle to three months and two months. At the same time, in May this year, we will start the MWZ series season to establish the season ecosystem. We believe that a more efficient content update rhythm with the establishment of a game season ecosystem will effectively stabilize and improve the various data of the game. Thank you.

Thank you for your question. As you mentioned, we introduced the Season 2 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 solidify the user base. 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 gradual improvement across all in-game metrics. Thank you.

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

Thank you, Manager, for accepting our question. Congratulations on your very strong performance, as well as your outstanding performance after being on the air with Warcraft and FarcPump. Since our self-propelled game is very strong overseas, at the same time, we are also concerned about the news that we are shut down our studio overseas. 所以我想请教一下管理层对当前的这个海外市场的战略有怎样的新的思考。 谢谢。 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 Frank Punk. Do you want to 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. 公司一贯以来非常重视 中国以外的海外游戏市场, 欧美,日韩。 我们过去一段时间 关停了部分的海外工作室, 完全是出于 China China China China China China China Thank you. Thank you for your questions.

For a long period of time, we have actually been a lot of attention to the overseas market, including European market, North American market, Japan, and Korea market. In the past period of time, we did close some of our overseas studio, but those decisions were purely made based on the positioning of the future product and consideration of product quality. Looking, as you see, you know, since last December, our domestic-made games, named in fact, Pong Animal Rivals, they indeed achieved not bad results in the overseas market. And we believe this is in line with our judgment and how we see the overseas market according to our plan. And we believe that in the future, NetEase will make more and more games suitable for global market.

Thank you.

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

感谢提问的机会。 首先恭喜公司非常出色的业绩。 我的问题是关于烟云十六升的。 这款游戏玩家的反馈和商业化的表现都持续有提升。 我想问一下公司采取了哪些有效的措施, 以及下一步的运营计划会是什么。 Let me do the translation. The well-winged meat saw improving feedback and monetization. What has NetEase done here? It's proven effective. And what is the next step for this title's operation? Thank you.

燕云十六声, This game is very important to the company. It is our natural open world. ah, 以古代题材为表现的这个适合中国用户的一个游戏。 我们在未来还会继续投入更多的资源, 把这个游戏的美术表现,玩法表现打造到一流。 而且我们也很欢迎各位玩家能用PC去体验这个游戏的 So I believe that in the next five to ten years, Thank you for your question.

Where Wings Meet is a game that we spent five years to develop an Asian-Chinese historical background open world game. 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. And in the future, we're going to keep investing to the game, namely to further polishing the art representations, keep polishing the gameplays. It will be a long-term game for us. When players play the game, we actually encourage players to play on PC because on PC it has much better graphical presentations. When we meet, the success so far has provided us a lot of hands-on experiences, and we're going to learn from the experiences and deploy them into other products to help our other products to be successful. We believe where we 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.

Good evening, Bill and Cathy. Congratulations to the company for its excellent performance. My question is about Q4. After the mobile phone was launched, the download volume was outstanding, but the transformation was still quite restrained. How would you evaluate the performance and potential of Q4? What are the core features and differences of the product? What are our plans to improve the ability to transform? 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.

新日世界上线后在166个国家地区拿下了iOS下载榜的第一, 首第一周全球带来了600万以上的新增用户。 Second, 7G is a dual-end communication game. Therefore, the core players will play on both ends and charge and pay on the PC side. After the 7G mobile game was launched, the PC side was steadily increased by 90%, and the payment increased by 500%. Currently, the charging rate of the product on the PC platform is more than 50%. At the same time, it has reached the top 5 on the Steam marketing website. The player's fee transfer on the PC side will definitely affect the performance of the mobile side on the box. The third is that the West World is a SOC game based on a huge game system. This is different from the advantages and characteristics of other SOC products at the time, and it completely solves the problem of hindering the player's role development. Therefore, we will go around this point later. . . . . . . Thank you for your question. Once Human Mobile launched, it's very successful.

It's 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, they can play on PC and on mobile, it's the same account. So a lot of top players, they 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 user, they increased by 90%, and payment actually drove by 500%. And the payment on PC actually increased. The payment ratio from PC actually is more than 15%. And that's why, you know, you see when we launched the mobile game, actually the Steam rates rank on one of the top set of charts. And so probably the players' pay on PC actually kind of impacted the top-scrolling chart ranking on mobile. For the specialty of this game, this is kind of a script-based, seasonal-based game. That's one difference compared to other SoC 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 gameplays, new script-based gameplays that can further satisfy the demand from users from PV kind of exploration or PVP kind of confrontation. And the other front that we're exploring is we're going to explore the prioritized ecosystem. Some of the SOC 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 Lu with Morgan Stanley. Please go ahead.

感谢额外的一个提问机会。 我想多请教一下界外狂潮这款游戏,FragPunk。 上线以后热度下滑得比较快。 那公司可以在它的接下来的运营中做些什么来帮助这款游戏 在海外FPS的竞争中更好的发挥差异化的优势呢? Let me do the translation. FragPunk's popularity declined fast after the launch stage. What can Netease do to help FragPunk to differentiate better in the overseas FPS game competition? Thank you.

Let me answer the following question. As a new development team, we are very satisfied with the development team of G2. Although its foundation is very good as a design game, the open system supports the production of new modes. So I encourage the team to continue to stay on the board of this FPS game. or create better opportunities. The company will continue to support this product. Our long-term goal is to operate this game for a long time, maintain the stability of the team, give time for the team to grow, and make the product better. In overseas, we will continue to promote overseas market through competition, collaboration, collaboration, and other ways to maintain the visibility of the game, stabilize the core players, and seek Thank you for your question.

FrankPod 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. It's innovative. The 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 operation perspective, we'll continue to invest into the overseas market, maintaining visibility through all sorts of vehicles, 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 Jefferies. Please go ahead.

晚上好,謝謝管理長接受我的提問。 我的問題是關於我們在未來幾年的話, 在國內還有海外市場的資源分配程度如何? Thanks management for taking my question. My question is about resource allocation. Can management comment about the allocation of resources in domestic and overseas market over the next few years. Thank you.

我相信网易有足够的资源去同时重视国内和国外的市场。 我们公司做游戏经过这25年的发展,准备了许多的工具和人才。 Of course, we will also have some shortcomings, such as how to understand the needs of overseas users, etc. But from the implementation point of view, we have no problem at all.

Thank you. From NetEase's perspective, we believe we do have sufficient resources to do both domestic and overseas markets at the same time. From the 20-year history, we have been doing this business, we have accumulated a lot of tools, tool chains, and talents. 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 King Chang with CICC International Corporation. Please go ahead.

感谢管理层给我提供的机会。 恭喜这次度稳健的业绩表现。 那我有两个问题。 第一个是关于新品立项的。 我们注意到公司最近发布的几个产品表现都很不错。 那公司内部对于产品的新立项有怎么样的标准会主要考量哪些指标? And then how is the product image this year? What should we look at in the next one to two years? And then the second question wants to follow up with e-sports. Congratulations to the fifth personality of the company and Yong Jie Wu Jian for the first time to enter the 2020-2026 Asian Games. Thank you for taking my questions, and congratulations on the solid culture. I have two questions. My first one is about your new titles. We have noticed that several new titles achieved great performance. Which key evaluation metrics are prioritized during the product ideatages? 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 esports. Congratulations on Identify and Naraka being selected for the 2026 Asia Games for the first time. May I ask whether management plans to take this opportunity to develop international esports operations And what's the company's long-term strategy for the esports games? Thank you.

Yes, Wang Yi makes games. We are a company with nearly 25 years of experience. In the past 25 years, we have accumulated a lot of experience and excellent tools. Our team is particularly fond of games. . . . . . . . . . . We will actively evaluate and think about this product. So in the future, we will open up our platform to join our team of people who love games. Of course, we also have a certain rating mechanism. In the next two to three years, I think the pipeline of products You don't have to worry. We have a lot of excellent projects in place.

Thank you. Thank you for your question. We'll answer the first question first. Over the past 25 years, we have accumulated a lot of experience, tools, and talents. And our talents, our teams, they're 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 project case, actually the first attribute we consider is whether or not the core team members are passionate about gaming, are they passionate about the specific game project they are proposing, including how to execute them out over years. And if they satisfy all this threshold, we'll actively evaluate and think about this product. Of course, we do have an internal evaluation system. And in the future, actually, we'll open this platform to more game lovers outside, talent outside if they want to join us, if they have creative ideas. we welcome them. Specifically about the pipeline in the next couple of years, you know, rest assured, you know, don't need to worry. We have other, you know, very good product that, you know, pipeline has not been announced yet. Thank you. Okay.

我们很注视这个电竞 所以这次有两款游戏作品 获得了亚运会的录选 也是我相信第一个是 我们的团队这个产品的质量 非常的过硬 第二个我们有广泛的群众基础 第三我们希望 网易的其他这些这个 We have the largest e-sports venue in China in Hangzhou. We have a long-term e-sports event. At the same time, we have another e-sports event Yeah, so thank you for your question and interest about our product in the Asian Games.

For a long period of time, we have been actually paying a lot of attention to esports. And 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-developed games will not stop at being part of Asian games. We hope them to be included in higher level esports Olympic games. Talking about esports operation, in Hangzhou we have the largest esports stadium and we continuously run esports tournaments here. And also in Shanghai we have our own private esports stadium, one of the biggest, and we have continuous esports operation based there as well. in the long run, we're going to, in the long term, continue to invest into esports operations. Thank you. And 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.

Thank you for answering my question. My question is about AI. Is it possible to quickly launch content updates and shorten the development cycle of new content using the AI technology game studio? And as AI plays an important role in development and publishing, will this change NetEase's plans for new versions, new materials, 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 to our game development and user experience. We have been continuously investing in AI for the past five years. And these results are commonly applied to game development and game content itself. I don't think this is a company's specialty. It should be the whole industry. 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 into technologies, including AI technologies. And a lot of this result actually has been deployed in our game development and content production. For AI in general, we believe it's not, you know, specifically attached to specific, you know, 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 every company with their different contacts, maybe the breadth or the deepness, how they apply AI technology might be different. I want to emphasize again, actually, AI is critically important, not only to 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.