NetEase, Inc.

Good day, and welcome to the NetEase second quarter 2025 earnings conference call. 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 NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission and including its annual report on Form 20F and in announcements and filings on the Hong Kong Stock Exchange's website. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2025 second quarter earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Netties corporate website at ir.netties.com. Joining us today on the call from Netties' senior management are Mr. William Ding, Chief Executive Officer, and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill?

Thank you, Brandy, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. During the second quarter, we advanced each of our businesses through the development of high quality and innovative offerings. Total revenues increased 9% year over year, driven by our diverse portfolio of gains. We saw strong player engagement in our established franchises and released new titles that expanded our reach across genres and geographies. Building on our first quarter year-on-year growth momentum, revenue from our games and related VAS rose 14% in the second quarter compared to the same year last year. As we expand our expertise across more genres, we now offer a diverse range of gaming experiences to players around the world, which we believe lays a solid foundation for our global expansion. In the second quarter, we launched several new global titles, while also extending the reach of our well-known domestic franchises. Looking first at our newest releases, our superhero team-based tactical RPG Marvel Mystic Mayhem launched on June 25. The game quickly garnered a passionate group of players eager to collect iconic superheroes and supervillains to battle the nightmare dimension. Its player base quickly surpassed 1 million, with the game topping the iOS download chart in multiple regions and ranking number two in the US. To further the community's excitement, we plan to introduce more playable characters and expand the storyline approximately every six weeks. The global release of our tactical shooter game Frank Punk on Xbox and PlayStation quickly gained traction after its April 29 debut. In May, it reached number two spot on PlayStation's North America free-to-play download chart. Originally launched on PC in March, Fragpunk has been winning over players with its groundbreaking shark car system. Now, with the signature blend of strategy and high-octone shooting experience available on console, it continues to build momentum. Our commitment to growing existing hits has also brought fresh energy to games already resonating with players. Once Human commemorated its annual version 2.0, Stream Veil, with a major content update and a series of exciting announcements. Players were introduced to Endless Dream, a new nightmare-themed PvE scenario that takes them through multiple layers of dreamscapes, offering a fresh take on the apocalyptic world. A new class system was also unveiled, featuring three classes, Chef, the Garner, and Beastmaster at the first play. each bringing unique abilities to support diverse play styles. This 2.0 update gained massive popularity, propelling the game to number four on Steam's global top-seller chart. We also rolled out a new PvP spin-off of Once Human on July 30th called Rayzone, which amplifies the thrill of the game's survival open-world experience. with unrestricted combat, allowing attacks anytime, anywhere. This innovation targets our broader PvP audience through more intense and liberated battles. In June, we began testing a new custom server, allowing private servers and the customizable seasonal settings that encourage creativity and diversity, giving players even more autonomy. For Marvel Rivals, We launched Season 3 on July 11th, introducing Fenix as a new playable hero, alongside a slate of exciting events and team-ups. Set in Klingon, where now Stargate spreads, players join forces and unleash unique skills to save the world. With fast-paced open combat and the fan-favorite Fenix joining the rooster, The game quickly climbed to number one on Steam's top-seller chart in the US, and subsequently reached number two globally following their Summer Party event. Beyond in-game updates, we're also deepening community engagement through more offline events. At San Diego Comic-Con, an exclusive behind-the-scenes look at the hero creation process generated tremendous excitement among fans. In May, We also kicked off our Marvel Rivals Ignite esports tournament, with mid-season finals successfully held at our Guangzhou campus recently. Passionate players from around the world have come to compete, and we look forward to crowning the first champion with our finals at the end of the year. With our domestic IP, we continue to extend our player communities and prepare for global expansion. Players of our Wuxiang-themed open-world RPG, Where Wings Meet, continue to be impressed by our steady stream of high-quality content. In the second quarter, we launched a new Hexi-themed update featuring the exotic desert landscape of Dunhuang. The storyline, centered on the unyielding spirit of both generals and ordinary citizens during the period of unrest, resonated deeply with players. By restoring Asian press codes in-game in collaboration with Zunhua Art Academy, we brought emotional stories to life with stunning visual effect, further fueling player enthusiasm. By the end of July, it has amassed over 40 million total players, while the release of the summer version propelled it to number five on China's iOS top-grossing chart. Furthermore, we are thrilled to have successfully concluded the latest round of oversea testing on PC and PlayStation 5 at the end of July, placing us firmly on track for its global launch. Sword of Justice, previously known as Justice Mobile, marked its second anniversary with a surge in players. We launched a massive update, introducing new gameplay features, expanded areas and a wide selection of new costumes, propelling the title to number three on China's iOS top-grossing chart. Global pre-registration opened in May, and we look forward to bringing this groundbreaking MMORPG experience to more players worldwide. Dung City Dynasty also met global players on May 22, where it reached number one on iOS download chart in multiple regions and number two in the US. As we enhance the global appeal of our games, our established franchises continue to keep players highly engaged, highlighting the strengths of our operations and content updates that stand the test of time. In May, Fantasy Westward Journey Online drew in strong interest from the player community with its How to Train Your Dragon collaboration, bringing the movie's iconic costumes and dragon mounts into the game. The momentum continued with the launch of the innovative Unlimited server in July. More notably, this evergreen title reached a new all-time high peak in concurrent players in August, surpassing 2.93 million, an impressive milestone after 22 years of operation. Our long-term commitment to innovation and maintaining a healthy in-game ecosystem continues to pay off. Similarly, Fantasy Westward Journey Mobile launched a new faction, Pan Si Dong, which generated strong participation and introduced a vertical screen mode to expand accessibility across play scenarios. Delivering fresh content and elevating player experiences remains central to the game's enduring success. Its revenue posted another record high in the second quarter. The Once World Journey franchise struck an emotional chord with players by launching a series of activities themed around the beloved romantic legend Bai Shouzhuang, featuring themed gameplay, costumes, and crossovers with the theme song, all tied to the 2025 Year of Snake. Once World Journey Online 2 continues to fuel excitement through its annual PVP finals and content updates, while Once World Journey Mobile saw strong participation from both loyal and returning players through the launch of a new server. Knives Out continues to showcase our long-term operational capabilities, maintaining its status as a household game in Japan through dedicated content updates and culturally resonant collaborations. This quarter's crossover with Jujutsu Kaisen the hit Japanese manga that captivated global audiences, was met with strong player enthusiasm and propelled the game to number three on Japan's LS Top Crossing chart. Identity V once again broke its quarterly revenue record in the second quarter, supported by an enthusiastic fan base. On July 3rd, Identity V teamed up with Paper Bright a popular Chinese horror mystery puzzle game, to introduce a chilling wedding-themed world featuring immersive maps and new costumes. The crossover drove the game to number seven on China's iOS top-bossing chart. Momentum continued in August, when the crossover, with fragrance beyond Journey's End, generated significant enthusiasm and propelled it to number four on China's IOS top crossing chart. For Aggie Party's third anniversary on June 27, we introduced a festive in-game update that transformed Aggie Island with candies, cakes, and toys, adding new maps and equipment to deepen strategic gameplay. A wave of anniversary activities, along with the highlighted Highly anticipated crossover with Dongdong Shift sparked a strong player excitement and lifted Eggie Party to number five on China's iOS top grossing chart on July 11th. The Naraka Playpoint franchise also hit another milestone. Its PC game entered its fourth year with brand new extraction mode and iconic IP crossovers, including Bruce Lee and the degenerated drawing Jiang Hu. The mobile game also introduced enhancements to its extraction-based survival feature with dynamic weather and new mechanics. The update eagerly ignited the player base and pushed the title to number six on China's iOS top-crossing chart. After a year of close collaboration, Blizzard titles continue to captivate players in China. On July 15, World of Warcraft and its community celebrated the game's 20th anniversary of operation in China, unveiling plans to launch a China-exclusive Titan Reforged server in November. This announcement reignited enthusiasm among local players and attracted significant attention from broader global community. Meanwhile, Hearthstone launched its latest expansion, The Lost City of Angora on July 9th, featuring a brand new pet system. This new adventure invites players to embark on the quest set for The Lost City, with 145 collectible cards and a new keyword, Kindred, to empower their decks. Shorted after the update, the game climbed to number five on China's iOS top-bossing chart. In April, Overwatch launched its new Stadia mode, which has been very popular with players. And in June, they introduced its 17th season, featuring a series of updates to power up the game experiences. At Bilibili World 2035, its collaboration with Porsche sparked more fun excitement, featuring a special in-game skin of the iconic Porsche model. We are also thrilled to announce that Diablo II Resurrected will be returning to China on August 27, with plans for launch of Diablo IV underway. This will enhance the classic franchise for a dedicated fan base. Innovation remains at the core of how we build and operate games. We bring the same creative ambition and operational rigor to every new title and development. Several exciting new games are in the pipeline, each powered by creative gameplay, bold designs, and cutting edge technology. These titles reflect our commitment to pushing the boundaries of gaming experiences and will position us to expand our player community and further fuel our long-term growth. Sea of Venements, our upcoming cross-platform ocean adventure RPG, received encouraging feedback from its first testing at the end of June. The game invites players into an exciting open world exploration where they uncover the truth behind a forgotten identity through exhilarating naval combats and turn-based battles. Players recruit a crew of allies, build ships, and interact with characters, adding strategic depth as players shape the fate of the surrounding world based on each decision they make. Currently, we're actively refining the game for its release in 2026. In June, we're excited to unveil plans for Blood Message, our first triple-A single-player title. This cinematic, story-driven action-adventure will be available on PC and consoles, inviting players to step into the heart of Zuho's uprising as a nameless messenger and his young son. With immersive third-person gameplay and powered by cutting-edge technology, Black Message is designed to deliver an epic blockbuster experience for players worldwide. Planet Party Time, our cross-platform game blending social simulation and party gameplay, has undergone a series of tests to further refine the experiences ahead of its official launch. Players can express their creativity on a cosmic journey where they can design, build, and cultivate their own planets while enjoying over 120 exciting mini-games with friends. Destiny Rising, a new free-to-play mobile sci-fi RPG shooter that delivers players to a new alternative timeline of Destiny's universe, will launch on August 28 across mobile devices. In addition, we plan to launch several license titles in China. Most recently, on July 24, we launched Super Vibe, an innovative, competitive multiplayer game on PC that provides a unique blend of mobile, battle royale, and hero shooter elements. And we expect Wild Gate, a PVP multiplayer shooter game that blends tactical ship-to-ship combat with fast-paced first-person action to meet players in China later this year. The development for ANATA, our highly anticipated urban-themed open world title, is also well underway. Across our portfolio, we remain focused on building lasting success through continuous innovation and high-quality operations that keeps our games relevant and exciting for players. From evergreen franchises that keep breaking records to bold new titles shaping the next generation of gameplay, we are committed to delivering distinctive experiences that players love. As we continue rising the bar of the engagement and creativity, we are paving the way for long-term growth domestically and worldwide. Turning to our other businesses, in Q2, You've now executed its AI-native strategy effectively across both its learning and advertising businesses, delivering its first, second quarter operating profit. For learning services, Youdao Linchi continues to drive product innovation with our proprietary LLM, Confucius, while we continue to iterate other AI applications, such as Mr. T, AI Tutor. gaining increasing user traction. In online marketing services, our newly launched AI Advertising Placement Optimizer, an end-to-end AI-driven agendic solution covering demand analysis, strategy formation, data analytics, and iteration optimization, achieving capabilities that previously relied on human expertise. Leveraging our LLM Confucius, we now offer comprehensive AI-empowered advertisement services, spanning creative ad production, placement, and post-campaign analysis. NetEase.com Music remains committed to driving quality development across its core music ecosystem. To build on our unique content offerings, we continue to expand our catalog of copyrighted content while strengthening our original music library. During the second quarter, we expanded collaborations with Korean music labels and renowned Chinese artists, while generating strong traction with several in-house tracks, such as . We also continue to innovate our product features and optimize our music-centric community to deliver even better music experiences for our users. For example, our innovative music playing feature, Magic Like Player, which is designed to recreate the immersed feel of a live concert enhanced with landscape orientation support, received widespread acclaim from music lovers. We're constantly advancing our music-centric motivation and further expanding our subscriber base, resulting in healthy growth in subscription-based membership revenues. Turning to Yanshuan, we continue to maintain our leading position in key categories. For example, Yanshuan homestand, such as bathroom frequency and car refreshers has been widely recognized by consumers, securing a solid market position with leading sales. Other iconic products, such as pet food, also maintain a stable market position. Across our NetEase family of businesses, we are focused on innovation and refining our product and content to deliver long-term value for users and stakeholders, looking ahead We will continue to push the boundaries of player experiences, scaling original IP to build lasting franchises, and growing alongside with collaborative global partners to reinforce our position as a creator of high-impact, genre-defining games. That concludes William's comments. I will now provide a brief review of our 2025 second quarter financial results, given the limited time on today's call. I'll be presenting abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Total net revenue for the second quarter will RMB 27.9 billion, or 3.9 billion US dollars, representing a 9.4% increase year-over-year. Total net revenue from our games and related VAS will only be $22.8 billion, up 14% year-over-year. Specifically, net revenues from online games will only be $22.1 billion, a quarter-over-quarter decrease of 6% and a year-over-year increase of 15%. The sequential decline was primarily attributable to decreased revenue following the Chinese New Year push. while the year-over-year growth was mainly driven by increased revenue contribution from newly launched titles, such as Will Wings Meet and Marvel Rivals, as well as established games like Identity V. The adult net revenue was on the $1.4 billion of 7% year-over-year and 9% quarter-over-quarter. This growth was primarily driven by the enhanced utilization of AI technology to boost our learning services and online marketing services. NetEase Club Music net revenue was only $2 billion, up 6% from previous quarter, while declining 4% from the same period last year. Notably, revenues from online music services maintained healthy development both quarter over quarter and year over year. Net revenue from Innovative businesses and others were RMB 1.7 billion, up 5% from previous quarter, while declining 18% year-over-year. The quarter-over-quarter growth was primarily driven by Yanshuan, while the year-over-year decline was mainly due to decreased net revenue from Yanshuan, advertising services, and certain other businesses in this segment. Gross profit for the second quarter of 2025 was RMB 18.1 billion, up 13% year-over-year. This was primarily driven by increased net revenue from online games, as previously mentioned. This quarter, our total gross profit margin was 64.7%, looking at our second quarter margin in more detail. Gross profit margin was 70.2% for our games and related BS. compared with 70% in the same period last year, and 68.8% in the last quarter. The quarter-over-quarter improvement was mainly from higher proportion of net revenues from our self-developed game, which carry a higher margin than licensed game. Our gross profit margin for Yudao was 43%, compared with 48.2% in the same period last year. The decrease was mainly due to the increased revenue contribution from online marketing services with relatively lower gross profit margin. Gross profit margin for 98 Cloud Music was 36.1% in the second quarter versus 32.1% in the same period a year ago. The margin improvement primarily resulted from strong monetization of our core online music business and ongoing cost of optimization. For innovative business and others, gross profit margin was 42.3%, compared with 34% in the second quarter of 2024. Total operating expenses for the second quarter were on the 9 billion, or 32% 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 12.8%, compared with 13.7% for the same period last year, mainly due to increased revenue contribution from games and VAS over the past year. Our R&D expenses as a percentage of total net revenue remained stable year-over-year at 15.6% in the second quarter, compared with 15.2% for the last quarter. We remain committed to invest into content creation and product development. The effective tax rate was 14.7% for the second quarter. As a reminder, the effective tax rate is presented on an accrual basis, depending on operable policies and our operations. Our non-GAAP net income attributable to shareholders for the second quarter totaled RMB $9.5 billion. for 1.3 billion U.S. dollars, up 22% year-over-year. Non-GAAP basic earnings per ADS for the quarter was $2.08 U.S. dollars, or $0.42 U.S. dollars per share. Additionally, our cash position remains robust, with net cash of approximately RMB 142.1 billion as of June 30, 2025, compared with RMB 137 billion at the end of last quarter. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of 11.4 cents U.S. dollar per share, or 57 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 22.1 million ADS as of June 30, 2025. for a total cost of approximately $2 billion. Thank you for your attention. We would now like to open the call to your questions. 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 are 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 follow up questions, please rejoin the queue. Your first question comes from Yang Liu with Morgan Stanley.

Thank you very much for the opportunity to ask a question. I have two questions to ask. The first one is from the management's point of view, how is the commercialization of Cloud16? Is it still in the early stage of success or has it already reached its expectations or reached its peak? The second question is about the seven-day world. What is it that has promoted the seven-day world? The revenue is obviously rebounded. Does this product have potential to become a long-term game? 那在中国和海外的用户还有收入分配情况是怎样的? Let me translate my questions. My first question is regarding where wins meet in terms of the monetization in management view. Is it an early success or is it meeting expectations or is it already fully ramped up? And my second question is regarding once human, what drives the grossing rebound for this title? Does it have the good potential to become an evergreen game? And what is the user and revenue split in China and overseas? Thank you.

The overall performance of Ye Ming 16SEN is very stable. Both in terms of active users and commercialization, it has exceeded the expectations before the launch. The long-term performance of the current product is also stable. We are very confident in its long-term development. The current business model of the application is a high-quality content plus a pure appearance business model. We will continue to release high-quality content and strengthen development in high-quality content. At the same time, the cost of pure appearance will not affect the growth of our game. This also makes the game can have a healthier long-term growth. In the future, we will continue to invest more in the development of the content of the game. The second question is about the revenue rebound of the seven-day world. The seven-day world in early July We did a 2.0 version update New script Endless Dream And the new professional system Received good reviews from players Our 2.0 update this time Has a higher energy Make this game on Steam World's Top 4 On July 30th, we launched the PVP script for the mode of entry and exit Unconditional restrictions for players It provides players with a free experience without any rules, and further improves the productivity of PvP games. The success of the new script means that the game script mode used in the 7-day world has a higher operating potential. After the product is released, we will continue to update the scripts of different experiences to meet the requirements of the player's game cycle. Thank you.

Yeah, thank you for the answer and I will do the translation. So first question is regarding where Wings meet. Where Wings meet has delivered a solid performance as we have explained and exceeded our initial expectation before launch in both in terms of active players and monetization. And more notably, the long-term, we believe the long-term performance has been quite stable. demonstrating a promising potential for the sustainable success. When we meet, you need to adopt a business model that combines high-quality content and a cosmetic-only monetization strategy with a well-planned cadence for releasing high-quality content along with the cosmetic-only approach that does not impact the character cultivation process. where Wings meet, we believe where Wings meet has potential for healthy and lasting monetization cycle. And we are very confident in the future of the game, and in terms of the future continuous development for the content of this game, we will make continuous, if not bigger, investments in the future. And the second question is regarding Once Human. Behind the bounce of performance of Once Human, we actually launched a welcomed significant update, which we call the annual 2.0 version in early July. The new scenario and the new class system has been both well received by players. The 2.0 version gained massive popularity. That's why the game was pushed down to number four position on Steam's global top seller chart following the launch of the update. Additionally, we also rolled out a new PVP spin-off called ReZone by the end of July, on July 30th, offering players what we call a rule-free combat experience that enhanced the intensity of the game's PVP gameplays. Look back, the success of the new scenario demonstrate that the seasonal scenario mode has great potential and will continue to launch new scenarios to meet players' seasonal demands. In the meanwhile, we have also introduced a private server called Custom Server, which allows players to customize their own setting. We're looking forward with ongoing updates of the scenario experiences and a healthy ecosystem built around the customer service, the product has potential for long-term sustainability. Regarding the question of the user distribution between China and international, the user distribution is about 50-50 between China and the rest of the world. And the revenue distribution is about two to three compared with China versus the rest of the world. I hope that answers your question. Thank you.

Your next question comes from Alicia Yap of Citigroup.

Hi, thank you. 关于这个暴雪游戏,这几个季度,其实最近整体表现得非常好。 我们在暴雪的所有游戏里面已经覆盖了所有潜在的老玩家和新玩家呢,还是说我们觉得还有未开发的这些用户群体呢? Can management share additional color on the overall Blizzard Games performance on the sequential basis? Do you think you have targeted or the potential old and new gamers, or do you think they are still untapped user for Blizzard's title? Will the future growth of Blizzard titles may need to be driven by content updates and promotional activities on the monetization upside, or is it will also come from the new user growth?

Thank you. are all very good works. We have shared in the last press conference that since the return of the game a year ago, through the localization of the product and the abundant marketing activities online and offline, the data of the relevant products has surpassed the level of the official service. With the in-depth cooperation of NetEase and the Blizzard R&D team, The credibility and compatibility between each other is also getting higher and higher. In the future, as long as we can make more content that fits the taste of Chinese players, I believe there is a chance to get more new players and users. It will also attract more old users who have not returned. So we believe that the game potential in China is huge. Thank you.

Thank you for your question. First of all, these products are extremely high-quality works, high-quality games. As we explained in this call and previous calls, after a year of returning the product operation in China market via various mechanics with the online and offline rich market activities, The game metrics have surpassed the level prior to the shutting down of the servers. And thanks for our dedication of the local operations for both online and offline. As we continue to deepen our cooperation with Blizzard's developing team, our mutual trust and coordination is increasing. Looking to the future. As long as we implement more improvements that align with the local taste and habits of local Chinese players, we believe there's a good opportunity that we can attract even more new players, as well as engaging those who haven't returned yet. Long story short, we believe there's big potential for Blizzard games in China market. Thank you.

Your next question comes from Yang Bei with CICC. The company has a number of shooting games set to launch in the second half of 2025. including PC and mobile games, as well as self-developed and licensed products. What is your perspective on the overall competitive landscape of your current shooting game sector?

The design of games is a huge challenge, and it is also a battleground. Currently, users have a relatively high demand for design-based products. Yeah, thank you for your question.

Yeah, the shooting game genre is a very big genre. and also a very big red ocean type of marketplace as well. And the players have very high expectations on the quality of the games. For example, you have to have very high quality art production and you have to have gameplay innovation. It's a high bar to entry. For NetEase, we will keep investing to this genre and we believe in the future we can continue to about this competitive market in this big genre. Thank you. Thank you.

Your next question comes from Richie Sun with HSBC.

Thank you for the opportunity to ask questions.

I have two questions. The first question is about the mid-season. After the launch of the third season, I saw that the ranking of Steam went up, but then it fell to the top 10. How do you evaluate the effectiveness of this new strategy? Have we already seen that the game has reached its peak? What are some of the gameplay, protection, and characters in the game development? Do you think there will be a chance to push the game back? The second question is about the Sea of Traces. Can you share some feedback on the first test in June? What is the commercial model of this product? how to evaluate the target market of this type of game, and the potential for long-term development. Thank you, management, for taking my questions. So first of all, regarding Marvel Rivals, after the launch of Season 3, we see the Steam revenue ranking rebounded, but then dropped to below top 10 afterwards. So how would you evaluate the effectiveness of the new strategy so far? Have we already seen a peak? And what are the new gameplay skins or characters in the backlog that we should watch out for to drive the game to regain its momentum? And secondly, regarding Sea of Remnants, can management share the feedback of the first testing in June, and what would be the monetization model, and how would you evaluate the addressable market and longevity of this genre of games?

Thank you.

漫威争锋在近期推出了S3赛季以及蓝赛四的中期决赛。 我们看到无论在收入和DAU都有提升且稳定下来。 So we believe that the new season update content and strategy are all effective. Next, we will continue to launch more new games, new games, and more more popular skins based on the season update rhythm. The second question is about the Sea of ​​Forgetfulness. We pay great attention to the Sea of ​​Forgetfulness product. We are also very confident in building it into a successful top game. This game will be released next year, so please look forward to it.

Okay, so first regarding your question on Marvel Rivals, Marvel Rivals recently launched Season 3, and the mid-season finals of Marvel Rivals Ignite also concluded. We have observed an upward and stabilized trend both at DAU and revenue, which make us believe that the new seasonal content updates and strategy are effective. Looking forward, we'll continue to introduce more new gameplay mechanics, new heroes, new popular costumes based on our new cadence of seasonal updates. For your questions regarding Sea of Redemence, Sea of Redemence is a very important product to us. And we have high confidence that we'll make this a top-tier successful game. And the game will be launched next year. So regarding the detail of this game, please stay tuned. Thank you.

Your next question comes from Felix Liu with UBS.

Thank you for accepting my question. I have two questions. The first one is about our company's long-term digital games. We noticed that there are some long-term digital games in China that have been resumed, such as Danzai Party, Dream Hero, and so on. Can the management team share the operation status of these two products? What are the reasons for their recent resumption? In the long term, how will the management team look at in developing new products, new IPs, and resource configuration strategies between new games and new IPs. My second question is about our other new work, Unlimited. How is the development status of this game under management? When do you expect it to be released? Especially considering that there are several similar products for competitors, how should we view Unlimited's competitive structure? Thank you, management, for taking my question. I have two questions. Number one is on your evergreen titles. We noticed recovery in quite a few of your evergreen titles, such as Egg Party and Fantasy Westwood Journey Online. Can management share more color on the status of the mentioned two titles? Any reasons for their recent recovery? And in the long run, how does management think about resourcing on existing titles and IPs? versus developing new games from ground up. My second question is on another game in your pipeline, which is Anata. What is the R&D status of Anata? When do you expect this game to launch? And how should we think about the competition landscape for Anata, considering there are a few new games from your competitors that also fall into this genre?

Thank you. This question is for me to answer.

I am the vice president of NetEase. After a year of continuous experience optimization, the computer version of Dreamweaver has recovered from the previous situation and continues to improve. At the same time, we also launched a new server in July. Welcome, players from all over the world. We are very happy to announce that Dreamweaver's computer version has created a record of 2.93 million colleagues online on August 3rd. We believe that Dreamweaver's computer version will continue to grow through constant innovation.

Danganronpa is a game content form created by Wang Yi's first UGC. After the past three years of operation, we have already explored a successful game operation method. So in the future, in the development process of D&D Party, we will continue to pay attention to the development of high-quality content and increase the investment in marketing and promotion. We are very confident to build D&D Party into a He Jiahuan game that everyone loves. Thank you.

Okay, so yeah, let me translate these answers in different parts. So first, regarding your question, the first part, Mr. Yinfeng Ting answered about the Fenice World Journey PC version. So after a year of continuous experience optimization, various metrics of Fenice World Journey online has observed recovery and stable improvement. And also, as we mentioned, The newly launched unlimited server has been well received by players and we're super excited to announce that the number of pre-concurrent users set a new record on early August at the 2.93 million PCU number. And we have been running this game for so many years and we are confident that with continuous innovation, Fantasy Westward Journey PC will be continuing growing in the future that we can foresee. And the next question is regarding Aggie Party. Aggie Party, as you know, is one of this kind UGC game, UGC platform kind of game. And after three years of exploration, we have mastered the methodology of operating this type of game. And in the future, we're going to keep investing to the game, keep encouraging high-quality UGC content to prosper the ecosystem, and also we're going to keep investing to the marketing to keep promoting the game to make it a household game for everyone in China and have everyone in China understand that it's the associated game with this whole family party game kind of concept. So that's for the eggie party. And for your question regarding Anatta, Anatta is now well underway in the mass production stage and with ongoing effort to strengthen the core experience and prepare for the long-term content pipeline as well. In the face of competitors, we're more focused on whether we are able to create superior gaming quality that differentiates us from existing market offerings. And also, looking forward, we anticipate that new content and progress will be revealed around the Toko Game Show time, late September. Please stay tuned for product news. Thank you.

Your next question comes from Miranda Zong with Bank of America.

Good evening, thank you for accepting my question. My question is about the marketing and business strategy of this game. I would like to ask how the company's marketing and business strategy for old games and new games is going? What are the focus points and changes this year? And what kind of effects have you seen? What is our expectation for the marketing and sales cost? Thank you. Let me ask you a question. Can management share your marketing and operational strategies for your old game and also new game? What are your key focuses and if any changes that you would like to highlight this year? What kind of results are you seeing? What is your expectation for the sales and marketing expenses? Thank you.

Wang Yi, in the operation of Xinlao Game, we are . . . . . . . . . . . . . . . . . . . . . . . So we have been doing this business for 20-something years.

For new games and old games, how to operate, how to market, we have developed a... mature methodology and standard operation procedures. We know how to invest into marketing and when to invest into marketing. And of course, now we're embracing new methods like the social media, like the power of AI, everything. So we believe we know when to spend, where to spend precisely, and where not to spend as well. So in the future, you will see our marketing is going to be more precise and more effective in the future. Thank you.

Your next question comes from Lincoln Kong with Goldman Sachs.

Thank you, Mr. Wang.

I have two questions. The first one is about AI. In the past few months, we have seen some rapid progress in the multi-modal models of AI. Can the company now see the acceleration of AI in terms of game performance and the possible bottlenecks? Is there any existing application and planning for existing games on the application of AI? When can we see some of these AI-native games? The second question is about our overseas market. In fact, a few of the games in the company have been released globally. How do we think about our overseas expansion strategy in the future? Especially, which game types are our main focus in the future? Thank you, Benjamin, for taking my questions. I have two questions. The first one is on AI. So in recent months, the rapid development of AI multi-model has been quite notable. So has companies seen any acceleration in getting empowered through AI? So are there existing bottlenecks that still remain? And what are our plans for AI adoption in our existing games? And when can we expect some truly AI-native games? My second question is on the overseas market. The company actually, Reason Games, has been globally published by ourselves. So what are the important directions or game genres we are focused on for future overseas expansion? Thank you.

AI is indeed getting better day by day. There is a saying that any big model has only three months to be effective. It's not even three months. Every three months or two months, a new model will come out. NetEase is actively investing a lot of resources in adapting and using AI tools. Currently, AI is in our product development and product operation. I believe that in the near future, we will be able to make a more dynamic and interesting game using AI. Thank you. The second question is that NetEase games are released overseas. I think this is a very important aspect of NetEase. The overseas market is very attractive to us in Europe, the United States, Japan, Southeast Asia, South America, and so on. We have achieved good results in overseas games through products such as Marvel Storm and Once Human, as well as in Japan, The Fifth Man and Wildlands. I believe that in the next two to three years, overseas games will continue to struggle and more successful products to meet the needs of overseas users.

Thank you. Regarding your first question about AI, there's a joke saying that the lifespan of every big model is only three months. Basically, every new model comes out every couple of months. We have invested a lot of resources you know, to embrace AIs, to leverage AI in our developments, in our operations, you know, how to embrace AI in our toolchain, everything. So, looking to the future, you know, AI is going to play more and more important roles, and we are looking to the future the future that someday there might be games designed by AI, you know, could be a fun game. That's a future we're looking forward to. And regarding your next question for the OOC publishing, yes, this is a critically important capability of us to be able to publish games globally in different geos. You know, the global market is kind of geo-based. You know, in North America, in South America, in Japan, every market has its own attribute. And we have learned through a bunch of global game operation from Marvel Rivals, Once Human, and also in West Market and Identify and Knives Out in Japan market, we have learned tremendous amount of first-hand, hands-on experiences from the operation. And looking forward, in the next couple of years, you will see our global operation will keep growing, fueled by our more important new games. And we do believe growing globally is going to be a very important task for us. Thank you for your question, Operator. Let's go with one last question, please.

Thank you. Your last question comes from Jialong Shi with Nomura.

Good evening, Mr. Manager. Thank you very much for accepting my question. I have a quick question. I would like to ask Mr. Manager if he can share the performance of Huawei's law enforcement in the overseas market. I just have one question. Can management share the performance of Mobile Mystic Mayhem in overseas markets so far? In addition, are there any updates on the expected launch time for the domestic version? What are the company's expectations or specific targets for this game going forward?

Thank you. Okay.

The Maze of the Maze is officially released overseas on June 26. The game, with its unique artistic style and innovative gameplay design, has received many recommendations from Apple, Google, and other stores, as well as interviews from other countries. At the end of July, the new version will be released, and it will be approved by the users. In the future, we will speed up the update of the new version, and provide a good gaming experience. Of course, we are also facing the challenge of long-term durability. We are also trying to solve this problem. At the same time, in the domestic version, we are also preparing to launch the domestic version in Q4.

Okay, so as you know, Moral of Myths and Mayhem was officially launched in the overseas market on June 26th. With its unique art style and innovative game design, the game has received multiple features from Google and App Store and also editor interview as well. And the update with Fantastic Four released at the end of July has been well received by players as well. In the meantime, we do face some long-term growth challenges for the game, and we're in the process of figuring out how should we grow the game and keep developing the game in the long run. Thank you.

And that concludes the question and answer session. I would like to hand the conference back to Brandy Piacenti for any additional or closing remarks.

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