NetEase, Inc.

Good day, and welcome to the NetEase third 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, 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 third quarter 2025 earnings 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 ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Deng, chief executive officer, Mr. Drew Peng Hu, executive vice president, and Mr. Bill Peng, vice president of corporate development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf.

Thank you, Brandi, and welcome everyone to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. The third quarter marked continued momentum and strong execution across our NetEase family. By uniting creativity with exceptional operations, we created more meaningful connections with players. driven by our diverse portfolio of games, that expanded our global reach and reignited our player enthusiasm for key franchises. Total revenues increased 8% year over year, reaching RMB $28.4 billion in the third quarter. And revenues from our games and related BS grew 12% in the third quarter, compared with the same here last year. Innovative creativity and long-term operation remain the defining force behind NetEase's ongoing player engagement and global expansion. Whether for new launches or established titles, our teams are dedicated to delivering unexpected gaming experiences and responsive live services that are winning over players worldwide. This strategic creative approach continues to gain traction overseas, amplifying the influence and excitement of multiple games in the third quarter. including our new releases. Destiny Rising, our new free-to-play mobile sci-fi RPG shooter, quickly topped iOS download charts in the United States and other major Western markets following its global launch on August 28. The game has received widespread acclaim, securing leading positions on iOS download charts across nearly 100 markets worldwide. Featuring Destiny's iconic, powerful gameplay across diverse modes set a new timeline. The game has earned positive feedback from long-time fans while gaining traction within the broader shooter game community. The excitement continued in China, where Destiny Rising debuted on October 16th and immediately topped the iOS downloading chart, drawing in players nationwide to experience the thrilling shooting action at their fingertips. Marvel Rivals continues to captivate superhero shooter fan base around the world. Kicking off its fourth season on September 12th, the game introduced a wealth of refreshing new content, features, special events, and team-ups. Following the update, it reached number three on Steam's global top-seller chart. The new map, Heart of Heaven, transferred players to the Asian East while the debut of Angela and eagerly anticipated Vanguard spurred excitement across the player community. Additionally, inspired by Marvel Animation's Marvel Zombies, a limited-time PvE zombie mode was released, featuring challenging bosses, zombie Namor, and Queen of Death, just in time for Halloween. Beyond the game, Marvel Rivals Ignite celebrated its grand finals at DreamHack Atlanta, held in collaboration with ESL FACEIT Group. Elite players from around the world showcase their exceptional skills and strategies, drawing massive engagement both on-site and online, and reflecting Marvel Rivals' growing appeal. As we continue to enrich our global portfolio through diverse partnerships, our original titles are also gaining increasing momentum worldwide. Delivering a distinctive survival open world experience to players globally, Once Human launched engaging updates in the third quarter, agonizing its growing global community. On October 30, the game introduced a major new scenario centered on the capture and customization of deviations, alongside a significant refresh of the PvP experience that provides more intense combat options. The highly anticipated collaboration event with a global heat game, Powerwall, also went live on the same day, bringing popular applause to a dedicated in-game island, which further evacuated the player community. We recently shared some of our upcoming international expansion plans at worldwide gaming events like Gamescom and the Tokyo Game Show 2025, generating even more excitement in the community with engaging player interactions. we exhibited Where Wings Meet Gamescom 2025, showcasing our creative ambition in cultural storytelling and next-generation Wuxia world building. In China, Where Wings Meet continues to captivate Wuxia fans with its narrative-rich setting, authentic Chinese martial arts themes, and innovative gameplay that combines single and multi-permanent. Each newly unveiled district not only engages our existing fans, but also attracts new players. Driving continued growth in both revenue and monthly active users to new highs in the third quarter. On November 14th, we brought Where Wings Meet's Eastern Sea and Open World featuring dynamic combat to the global market on both PC and PlayStation 5. Within just two days, we achieved a peak of 190,000 concurrent players, securing the number five spot among the most played games and number four position for top seller globally on Steam. Additionally, it became one of the top ten best sellers across the United States, Germany, France, and several other regions on PlayStation. This underscores the widespread appeal of our captivating Wuxia universe to an even broader audience. To further enhance community engagement, the mobile version has commenced preregistration and is set to launch soon. Our highly anticipated title, Ananta, also garnered significant attention at the talker game show. Players showed enthusiasm for in-depth game trailers and engaging hands-on play testing. They were drawn in by the game's imaginative action design, high fidelity visuals, and modern urban storytelling. Steady in a dynamic and immersive city environment, Ananta blends high-energy action with open-world freedom, offering players an experience that goes well beyond conventional gameplay. We are pleased to see mounting excitement and anticipation among this title, including recognition from the Japan Game Awards 2025 Future Division, where it was named as one of the most promising upcoming games. Our groundbreaking MMO Sword of Justice went global across mobile and PC platform on November 7, topping the iOS download chart in multiple regions. The intentional release included AI-powered NPCs and an intelligent face creation system. We showcased this at the Tokyo Game Show in September, highlighting how emerging technologies are reshaping gameplay experiences. Sword of Justice also continue to engage domestic players in the third quarter, which is ever-evolving gameplay and rich content. With the global version now live, Swords of Justice is bringing its immersive world and cutting-edge AI enhancement to a broader international audience. On top of the new releases we have brought to the international stage, our established games are also gaining steam in multiple regions worldwide. Our realistic car simulation game, Racing Master, has continued to gain popularity overseas through localized content, making it highly resonate with players in Japan since it launched there last year. Player engagement spiked in August during its anniversary celebration with carefully designed in-game content, boosting the game's performance in Japan. Exciting esports events, like the Racing Master 2025 Legend Cup Finals, held in Bangkok in August. It brought passionate racers and fans from across Asia together, uniting Racing Monster's distinctive global community. As firm believers in live operations, we stay closely attuned to players' involving expectations across every title, and our domestic games continue to deliver strong performances. Each game update presents new opportunities to entertain engage, and grow our communities. This approach continues to resonate with players, driving steady growth across our domestic portfolio for both new titles and games that have been around for decades. Fantasy Westward Journey Online, one of our longest-running flagship titles at 22 years and counting, amplifies our dedication to sustain high-quality operations. The game is built around an inclusive ecosystem that allows players of all types to find enjoyment. We continue to inject fresh vitality through new features and mechanics. In July, we launched our innovative unlimited server, which offers classic gameplay under a popular modern model that eliminates the entry barrier of upfront time-based payments. This generated substantial enthusiasm from long-time fans and newcomers alike, significantly boosting player engagement. As a result, it has achieved four successive record-picking concurrent player counts since the third quarter, reaching a height of 3.58 million in early November. Fantasy Westworld Journey Mobile also continues to evolve as we regularly introduce new features that players love. To meet players' demands, we launched our new casual server which is designed for fun and streamlined play. It offers Fantasy Westworld Journey Mobile's signature gameplay in a lighter format, featuring simple progression, low threshold, and intuitive controls. With the surge of new and returning players, monthly active users reach a two-year high in September. Another long-beloved MMO, Tianxia, continues to engage its community with deeply resonating updates. In October, we concluded close beta testing for Tianxia 2 Classic. This version recreates the game's iconic art style and slower-paced gameplay, allowing players to experience its distinctive Chinese cultural essence. Meanwhile, the existing Tianxia client will undergo a complete upgrade, with player progression seamlessly shared with Tianxia Wanxiang, the brand-new cross-platform client powered by Messiah, our flagship in-house engine. The upgrade will both enhance graphic quality and expand access for players across PC and mobile platforms, allowing them to experience the Tianxia universe everywhere. Identity V's fan base maintained a high engagement level in the third quarter, supported by our steady cadence of seasonal updates and partnerships. New characters released along with each season update, including Hunter of Curious, and the survival of lanternists in the third quarter infused a new energy into Identity V's distinctive role, reinforcing Identity V as a top destination for asymmetric gameplay fans. In addition, the game's collaboration with the Palace Museum classic on September 25th added a majestic rooftop of the Forbidden City to Identity V's manner, adding a new layer of cultural depth. Aggie Party also experienced robust growth with a third anniversary celebration in July, sparking renewed enthusiasm across the player community. Daily active users exceeded 13 million, and average play time hit record high, driving historical engagement level. Two new gameplay modes quickly followed in September. Spooky Treasure Squad presents an intense extraction experience, and Crazy Farm introduces a casual and social farming simulator. Both were highly praised and practically a way of returning users during the National Day holiday. Meanwhile, we continue to evolve Aggie Party's AI-powered EGC tool to make mass design faster, easier, and more enjoyable. We believe that together, these innovations are keeping Aggie Party fresh and its community inspired. Thanks to this ongoing effort, we saw Aggie Party's performance recover to historical peak level in both daily active user and average play time, which we expect will pave the way for smooth development in the coming years. Another example of our player-first philosophy and commitment to innovative high-quality content is Onmyoji, one of China's earliest and most iconic anime-style games. On September 10, we launched its ninth anniversary celebration, featuring rich new content and gameplay updates shaped by player feedback. The highlight was a new character, Yuki Gozen, whose beautifully crafted CG trailer gained widespread attention on social media from both longtime fans and the broader anime community. It was broadly highlighted for its innovative use of stereoscopic screen and 2D animation text to create a naked-eye 3D visual effect. With strong community support, OMUIGI quickly entered China's top 10 iOS crossing chart, demonstrating the vitality of this enduring IP and the strength of our long-term operations. Our commitment to engaging players and continuous innovation is also evident in Aka PlayPoint. In the third quarter, we rolled out new heroes and exciting collaborations, such as Armor Hero in September, and a time-limited return of near in October. Naraka Bay Point Esports present is also growing. The 2025 Naraka Bay Point Pro League NBPL Autumn Season marked its first professional league since being selected for the 2026 IHINI Goya Asian Games, culminating its rolling finals in October. Now in its fourth year, NBPL has become the cornerstone of Naraka's esports ecosystem and China's top professional league for the title, driving increasing social media engagement across major platforms. We continue to expand our domestic portfolio with new, light-hearted experiences that appeal to a wider range of audiences. 零售大冒險, our MMO featuring magical, heartwarming creatures inspired by Chinese fairy tales, has built a dedicated fan base since its launch in August. Designed with a portrait interface for easy one-handed play, the game combines the joy of capturing and nurturing creatures with strategic turn-based combat and building a homeland for them to thrive in. Backed by our players and supported by world-class partners and global teams, we're building enduring collaborations that keep expanding what's possible in gaming. Blizzard titles continue to elevate the gaming experience for Chinese players. World of Warcraft rolled out updates across both classic and modern servers during the third quarter, sustaining strong engagement among longtime fans and newcomers alike. To further enhance localized experience, the game just launched a highly anticipated China-exclusive Python reforged server this week. Blending the nostalgia of classic expansions with modern gameplay elements, The new server fulfills players' long-awaited expectations and has reignited excitement across the World of Warcraft community. Overwatch 2 has also recently introduced a new Chinese hero, Wu Yang, further deepening the game's diverse roster of characters. Meanwhile, Hearthstone celebrated its 11th anniversary, amassing over 100 million registered players in China. A series of special anniversary events drove enthusiastic participation from both loyal fans and newcomers to the game. The Diablo franchise also continued to capture attention. Diablo II Resurrected, the legendary remaster of the installment that helped define the franchise, returned to China on August 27. The newest season, released in October, pushed the game's daily active player base to record high. In parallel, Diablo IV, the latest blockbuster bringing the series' signature dark aesthetic to a new height, will launch in China on December 12. Furthermore, the genre-defining real-time strategy game StarCraft II also returned on October 28, triggering excitement among fans. Minecraft China Edition, the localized version of the globally popular sandbox game, reached 1.25 million concurrent players on August 17, an impressive milestone in its eighth year of operation. Committed to nurturing its EGC ecosystem, the game continues to enhance creation tools and expand exposure for community creators, now supporting over 300,000 creators. By delivering enriched, locally tailored experiences, Minecraft China Edition has fostered a highly engaged and loyal player community. Beyond above titles, other globally renowned franchises in our portfolio also continue to thrive in China, engaging vast creative community and expanding local ecosystems. Along with our expanding global presence and evolving development capabilities, our domestic community continues to thrive. Regardless of geographies, We'll continue to put players first and work closely with our partners to deliver memorable, high-quality experiences across our beloved franchises and existing new titles still yet to come. Turning to Youdao. Youdao continued to solidly execute its AI-native strategy in the third quarter, with healthy development of both its education and advertising businesses. For learning services, Yu Dao Ling Shi grew gross billing by over 40% year over year in the third quarter. Notably, it partnered with the Yao Mathematical Science Center of the Tsinghua University, providing technical support to a platform which is designed to identify and support mathematically gifted students. The platform is currently being piloted in top tier schools with a national rollout plan following further refinements. Yu Dao's online marketing services achieved robot growth in the third quarter. As we advance the use of AI across multiple advertising processes, we further enhance our expertise in programmatic advertising and influencer marketing campaigns, elevating the efficiency and effectiveness of advertising. For smart devices, we continue to enrich our offerings with technology upgrades. In the third quarter, we launched a new tutoring plan, U.S. Space X, which features a series of intelligent capabilities, such as precise scanning for long-form and multi-graphic problems, to help students learn more effectively. Turning to Yanxuan, the business continues to perform well across major e-commerce platforms, led by steady development in its core categories, such as pet food, home scents, and home goods, propelling technology-driven innovations Yanshan's product launches have consistently stood out in the market. Its new pet food products use a refined production process, making it smoother and easier for pests to digest, earning it widespread praise for addressing common digestive issues. Across the NetEase family of businesses, we continue to build on a foundation of creativity, quality, and disciplined execution. Looking ahead, we're focused on advancing our development capabilities and global reach, scaling our original IP into lasting franchises, and elevating every experience we deliver. Guided by innovation and the trust of our communities, we're shaping a future defined by meaningful growth and enduring impact. That concludes William's comments. I will now provide a brief review of our 2025 third quarter financial results. Given the limited time of today's call, I will be presenting abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all items are as otherwise stated. Total net revenue for the third quarter will only be $28.4 billion, or $4 billion. representing an 8% increase year-over-year. Total net revenue for mobile games and related VAs will only be $23.3 billion, up 12% year-over-year. Specifically, net revenues from online games will only be $22.8 billion, up 3% quarter-over-quarter and 13% year-over-year. The quarter-over-quarter increase in online games net revenue was due to higher net revenues from self-developed games such as Fantasy Westworld Journey Online and Sword of Justice, as well as certain licensed games. The year-over-year increase was attributable to higher net revenue from self-developed games such as Fantasy Westworld Journey Online, Aggie Party, and newly launched Wild Wings Meet and Marvel Rivals, as well as certain licensed games. Yield of net revenue reached only $1.6 billion, representing a 15% increase quarter-over-quarter. driven by growth in smart devices and online marketing services. Year over year, revenue rose by 4%, attributed to a higher contribution from online marketing services. NetEase.com Music's net revenue will only be $2 billion, stable quarter over quarter, but down 2% year over year. Notably, revenue from membership subscriptions continue to show healthy growth, both sequentially and year over year. Revenue from social entertainment services and others though still lower compared with the same period last year, stabilized quarter-over-quarter. Net revenues for innovative business and others were RMB 1.4 billion, down 15% quarter-over-quarter and 19% year-over-year. The sequential decline was mainly driven by Yanshan due to its high base during the 618 e-commerce festival. The year-over-year decrease reflected an increase in certain inter-segment transaction elimination and, to a lesser extent, decreased net revenue from Yanshuan and certain other businesses. Gross profit for third quarter of 2025 was RMB 18.2 billion, up 10% year-over-year, primarily driven by increased net revenue from online games. This quarter, our total gross profit margin was 64.1%, looking at our third quarter margin in more detail. Cross-profit margin was 69.3% for games and related BS, compared with 68.8% in the same period of last year. The improvement was mainly driven by a higher mix of PC games in China, which typically have higher margins. Our cross-profit margin for Youdao was 42.2%, compared with 50.2% in the same period last year. The decrease was mainly due to the declined cross-profit margin of online marketing services. Gross profit margin for 90s calm music was 35.4% in the third quarter versus 32.8% in the same period a year ago. The margin improvement was primarily driven by steady growth in our core online music business with lower contributions from social entertainment and other lower margin services. For innovative business and others, gross profit margin was 43.0 percent, compared with 37.8 percent in the third quarter of 2024. Despite the impact of inter-segment elimination mentioned earlier, the improvement was mainly driven by better margins at Yanshuan and the higher revenue contribution from certain innovative business with relatively stronger margins. The total operating expenses for the third quarter was RMB 10 billion, or 36 percent of net revenues Taking a closer look at our cost composition, our sales and marketing expenses as a percentage of total net revenue, or 15.7%, compared with 14.5% for the same period last year, primarily due to increased market expenditure related to online games. Our R&D expenses maintained stable at 16% of total net revenues in the third quarter, compared with 16.9% for the same period last year. reflecting our consistent investment in content creation and product development. The effective tax rate was 13% for the third quarter. As a reminder, the effective tax rate is presented on a cruel basis in accordance with applicable policies and our operations. Our non-GAAP net income attributable to shareholders for the third quarter totaled RMB 9.5 billion, or 1.3 billion US dollars, up 27% year-over-year. Non-GAAP basic earning per ADS for the quarter was $2.09 US dollars, or $0.42 US dollars per share. Additionally, our cash position remains robust, with net cash of approximately RMB 153.2 billion as of September 30, 2025, compared with RMB 142.1 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 US dollars per share, or 57 cents US dollars per ADS. The company announced today that its previously approved share repurchase program of up to 5 billion US dollars for the company's ADS and other shares in open market or other transactions will be extended for an additional 36 months until January 9, 2029. As of September 30, 2025, approximately 22.1 million ADS has been repurchased under this program 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'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 Xuqing Zhang with CICC.

Thank you, Manager Chen, for accepting my question. Congratulations on the consistent performance of the files this quarter. My question is about Dreamweaver. The PC version of Dreamweaver has continued to create a new high number of online users this year. I would like to ask the company to share an operation idea for this long-term game. There are also a few small questions. First of all, what is the driving factor behind the creation of the game? Thanks management for taking my question and congratulations on the third quarter. My question about your Fantasia Westworld journey. Given that FWJPC has consistently set new record for online player count, since this summer. We would appreciate that the company sharing its operational strategy for this evergreen title. And we have several follow-up questions on it. Firstly, what's the co-driving factors behind the unlimited player server? And secondly, what's the user profile? What's the ratio of returning players to new players? And lastly, is this model replicable across other flagship titles? Thank you.

Okay. 梦幻虚有具有极其稳定的经济系统, 独特且非常丰富的游戏体验。 这是其他很多游戏所不能提供的。 而且我们的团队一直坚持为用户提供 the enjoyment of the game and the stable gaming environment, as well as innovative game content. At present, these insistences have also been recognized by users. After watching the service, we removed the time charge, simplified the system and gameplay. While preserving the optimized design accumulated over the years of time service, we have also further provided a simplified gameplay design. Compared to the perfect and comprehensive game content experience provided by the time service, The entertainment provided to users by the game console is more simple and direct. The game console has a lower learning threshold, which attracts a large number of long-term users and new players. This is the main structure of the game console. At the same time, because of the high quality experience of the game console, it also brings us additional excitement and feedback. Dream Game is a classic game that has been running for 22 years. Okay, I'll do the translation.

The longevity of Fantasy World's Journey online PC is based on highly stable economy system and unique, enriched gaming experiences, which are very rare in most other games. Our team has been dedicated to providing sustainable fun experience, stable ecosystem, and innovative content. This commitment has been recognized and appreciated by our players as well, as you can see from the box. In the unlimited server, we have removed the upfront time-based payments, streamlined the gameplay and systems, offered a lighter gameplay format while preserving the core designs that have evolved in our classic server over time. Compared with the comprehensive and diverse in-game experience on the content, Unlimited Server offers enjoyable experiences in a more simple and direct manner. With a smooth learning curve, Unlimited Server has attracted both many former players back to the game as well as new players. This user demographic of Unlimited Server actually also benefits the classic server by introducing additional new and returning players. Fantasy World Journey Online, as a legacy game, has been operated for 22 years. We remain committed to the innovation and diversified experience to continue to meet the demands from our community. Looking ahead, we will continue to focus on long-term development, providing our broad player community with various choices in one game.

Thank you. Your next question comes from Thomas Chong with Jefferies.

Hi, good evening. Thanks, management, for taking my questions. Management comments about the gaming trend in China as well as overseas. On the other hand, can management also talk about the overseas expansion strategy? Thank you.

我们在海外游戏经营过程中 有非常丰富的成功的经验 而且这些成功的经验都是来自于公司内部 These products have achieved very strong and successful results 我们已经看到在海外的市场中 网易作为一个世界上最重要的游戏开发公司 我们所具备的能力 我们是国内唯一一个把中国的题材 带到海外取得成功的大型游戏公司 What I'm referring to is the 16 sounds of the night cloud. This is a complete Chinese martial art. On the road to the future, I believe we will achieve more and more success overseas. We will also persist to use our strength to provide the world's game enthusiasts I will do the translation.

During our business operations process of doing business in the overseas market, we have accumulated successful experiences, which is powered by the strong development capability we have in-house here. For example, in Japan, We have, you know, Knives Out identified in, you know, very popular national level games. And last December, we released Marvel Rivals globally, super successful. And just November 15th, this month, we released Where Wings Meet in global market. And all this product, achieved a very good level of success overseas, and we hear a lot of positive feedback from the community as well. What we see is that in the overseas market, NetEase is one of the most prominent game-developing powerhouses in our industry. And we are the only company that brings the purely, truly Chinese authentic online games to global market, for example, where it's a very Chinese set up. And we're the only big successful companies that bring this level of authentic experience to the online gamers globally and receive very positive feedback. Looking ahead, we believe we have the capability to bring more and more success cases to all the markets and provide gamers from the globe with more and more high-quality cotton ad services. We have confidence in that. Thank you.

Operator, next question, please. I'd like to add something. I'd like to add something. Yes. I'd like to add something. This month, we also launched Nishihang's mobile game in the overseas market. The current response is also very good. In the past three years, we have also launched an infinite number of PC ports overseas, which has also achieved great success. At present, the entire market also has great expectations for our upcoming unlimited edition, Anata, which will be released next year. This time, at the Tokyo Game Festival on September 25, we have achieved the most successful and most anticipated Yeah, there are some further comments from William.

One is that actually, in this month also, rolled out our Sword of Justice into the global market. And of course, three years ago, we rolled out Naraka Breakpoint PC on the global market. And as you heard, we showed our games to the public for both Ananta and Sea of Remembrance. The market has very big expectations. We showed Ananta to the game show this year. and it's been named one of the most, you know, promising upcoming games by the Japan Games Award 2025 Future Division. NetEase, we are based in China, and we are also, you know, carving our territory in the global market. That is what we have been doing. We have some successes, and we're going to keep doing. Thank you.

Operator, next question comes from Richie Sun with HSBC.

管理层,谢谢你们接受我的提问。 想先问一下第五文革在近几个月在收入和DAU方面的波动比较大。 请问管理层能否说明一下背后的原因还有后续的一些改善的策略? In addition, in the magic world, the return to the Chinese market is already a year and a half. It is about to face a relatively high comparison. Can the management department share their current performance indicators and what changes have been made compared to a year ago? How will the future continue to grow? In addition, the black market is about to return. In the context of a more intense competition in the current ARPG market, Thank you, management, for taking my questions. Regarding Identity V, we have seen volatility in grossing and DAO in recent months. Can management discuss the reasons behind it and the strategy to improve the performance? Secondly, World Warcraft and Hearthstone have returned to China for one year already and about to face tough comps. Can management discuss the performance metrics now versus one year ago? and plans to drive sustainable growth in the future. And Diablo 4 is also coming back soon. Can management discuss the monetization potential, considering the more intense competition in the ARPG genre? Thank you.

Diablo 4 has received some positive effects, especially in some lower-end markets. But after opening, this effect has begun to return. The actual data is that after we started school, in September, the data of the fifth personality was higher than that of the same period in the past year. In addition, the fourth quarter has never been the peak of the fifth personality data. Whether it is content or publicity, we are preparing for our future Spring Festival. In the future, we will see players who like the fifth personality art style will have more needs at the gameplay level. Our products OK, I will translate this part first.

Indeed, it's true that there has been some influence from competing products during the summer holidays, particularly among general users in lower tier cities. However, we also have noticed that the impact has eased since the start of back to school time. And in fact, talking about September, you know, Identity V's metric has reached historical highs starting from the new semester compared to the same period in previous years. While Q4 historically has never been the peak season for Identity V, the team is focusing on preparing new content and marketing campaigns for the Chinese New Year cycle. During this period, we observed there are diversified demands on diversified gameplays from community. So we have been preparing more comprehensive and large-scale side game modes. Well, on the other hand, we're also working on the next chapter of the game.

I want to answer about This is the question of the adventure game. This adventure game has been around for more than a year. The world is currently in a difficult situation. The opening and closing of the game is more or less the same. Since the beginning of the legendary game, it has been maintaining a normal speed of uploading materials. As for the method of operation, the world of the monster and the legendary game are still far higher than before. In the future, more in-depth This is a very good example. This is a new version of the new version of the new version of the new version of the new version of the new version of the new version of the new version of Okay, thank you. Yeah.

As we approach the end of current expansion of World of Warcraft, it is indeed expected to see decline in performance compared to this launch period. Meanwhile, Hearthstone has a steady maintenance cadence of expansion updates over the past years. With different operation strategy from the past, the performance of both games actually maintained higher status than when the operation closed Moving forward, we'll continue to deepen our cooperation to sustain our unique competitive offerings in the China market. And one specific example I will give here is the Titan Reforged Server of World War Cloud. That, indeed, was initiated together by our Chinese team and the U.S. team. Together, we set the target and designed together and developed specifically for this demand. And the result is very good. So that is one example to see by working closer together, we can achieve better results compared to the past. Talking about Diablo, Diablo 4 has its own unique quality, and we have brand new business plans in place for it. We believe it will secure a deserved market share and commercial performance in the ARPG segment after launch. In addition, StarCraft II has achieved record high user engagement since its launch, infusing vitality into the RTS genre. Thank you. Operator, next question, please.

Your next question comes from Alicia Yap with Citigroup.

Hi, thank you for accepting my question. Good evening, Manager Chen. I would like to follow up on what we just talked about. The Wuxian University recently exhibited at the Tokyo Internet Expo. Of course, Manager Chen also said that the entire feedback was very good. And then I want to talk about some specific feedback from users. If I can talk more specifically. And then the other thing is how to think about the positioning and differentiation of this game on the market. And then we see that the game actually includes a lot of content and creative gameplay. So just wanted to follow up. I think management earlier mentioned ANATA was recently showcased at the Tokyo Game Show and has a pretty good feedback. So just wanted to know more details about the user feedback. And then how should we think about the market positioning and also the differentiations of this game? And then it also seems that the game included pretty decent rich content and also the innovative gameplay. So any comments on that? And then are there any updates regarding the next testing timing and also the official launch timing in 2026 that you can share? Thank you.

I'd like to answer the following questions. As I mentioned earlier, at the Tokyo Internet Expo, we have released the latest progress and demo content. We have received huge feedback from social media around the world. During the exhibition, we also won the Japan Game Awards and the Future Expectation Award. We hope to use the main content quality, innovative business and long-term operation modes to create a new product ecosystem. We showcase the latest update and play testing of Ananda at the Talker Game Show, which attracted significant attention on social media across the world.

winning one of the most promising upcoming titles by the Japan Game Awards 2025 Future Division. We believe with a blend of console quality, content, innovative monetization strategy, as well as our focus on long-term operations, we anticipate the game will secure a new position within the industry ecosystem. We're currently planning to further enhance our development process The development process is on track now, and we'll proceed with testing and launches as scheduled. And when time comes, we'll have further update to share. Thank you. Operator, next question, please.

Your next question comes from Jianlong Shi with Nomura.

Good evening, William and Bill. Thank you for accepting my question. We observed from some media channels that the number of new games released by our company every year seems to have decreased a lot compared to the previous years. I'm not sure if our observation is correct. If it is correct, I would like to ask NetEase what is the idea of the new game core layout? What is the overall strategy of NetEase in promoting game business growth in the coming years? I will translate it myself. We noticed from media it seems to us the number of new games in your pipeline every year is smaller than in the past few years. If our observation is correct, just wonder what is your current strategy towards launching new games into the market? And if that does not launch as many new games each year, what will be the growth driver for your online gaming business? Thank you.

I will answer this question. The first is that the whole company will be very focused on those successful products that have already been available. In these successful products, we need to be more focused. We don't want to spend our energy on some new projects that we are not very sure of. Secondly, for new projects, we will be very cautious and important. We must make our own product, new game, with competitive content to the market. So these two are not contradictory. I think focus is the core advantage of this company. Thank you.

Okay, I will do the translation. You know, the whole company will be very focused on our success products, and among the already success products, you know, we'll keep refining and keep focusing. We don't want to distract too much, you know, focus on to charter many, many new products which we don't have super confidence. For new products, we'll look at more prudently and more focused, making sure that whatever new product we're building, it has its competence power in the constant market. We actually don't see this to contradict with each other. We believe being focused is one of the core competence a company needs to have. That's our view. Thank you. Your next question, please.

It comes from Felix Liu with UBS.

Thank you, Director, for accepting my question. My question is about some changes in the company's personnel. We noticed that some of the recent game business executives have resigned. I would like to ask if such changes will affect the short-term operation of relevant games. In addition, in the current game strategy background, Thank you, management, for taking my question. My question is on the recent news of organizational changes in your game department. Will these changes impact the near-term operations of the related games? And how does management think about the current organizational structure under the context of your game strategy? And should we expect more changes to come? Thank you.

I think the flow of these personnel is quite normal. It does not affect the premise of our daily game operation. The purpose is to make our entire organization more focused and efficient, to be able to maximize the power to create long-term and high-quality games. For our current long-term projects, we require the team to continue to optimize. For new projects with long-term quality, we will put a lot of effort into it, constantly optimizing products. For the team that does not keep up with the market pace and needs of users, we must decisively cut down and ensure the growth of the host company. The principle of building a good product has not changed since the establishment of Wang Yi in 2018. Okay, I will do the translation.

Regarding the recent adjustment and changes, it's part of the company's normal personnel turnover process, and it's been carried out without impacting the operations of our game. That's for sure. The adjustment is aiming to make the organization more focused and efficient, allowing us to keep concentrating on creating enduring high-quality products. For example, for existing evergreen titles, we ask our teams to stay focused, continuously refining and optimizing the games. For new titles that show evergreen potentials, we'll allocate sufficient resources to develop them into evergreen, long-lasting, successful games. However, for teams that are not keeping pace with the market trends or user demands, we also must train decisively to make sure a healthy development of our core initiatives. NetEase has been, especially for 28 years, and our commitment to creating high-quality products has remained unchanged. We'll allocate more resources to evergreen titles and provide more opportunities to teams who are creative and willing to innovate. Thank you. Operator, next question, please.

Your next question comes from Lincoln Kong with Goldman Sachs.

Thank you for accepting my question. My first question is about AI and games. In fact, we also see that there are a lot of AI-related attempts in the game industry, but in fact, there are a lot of AI-related attempts in the game industry. I don't know if there are any new ideas and thoughts now. I would like to ask some questions about the direction of the development of future games. As I said, we are now taking more advanced development strategies. What kind of products will we pay more attention to in the direction of innovation? In terms of design, the products of the world, including our gold team, are all very strong. I don't know what kind of ideas we will have about the subsequent layout and differentiation of this kind of product. Thank you, Benjamin, for taking my question. So my first question is about AI. So we have actually seen some of the games like Aggie Party or Justice Mobile has already integrated with AI applications. So going forward for our existing portfolio and the new games, how should we think about AI can bring additional opportunities to our gamers and the second question is in terms of the future new games given that company now focus more on quality of those new games so how should we think about the potential important game genre going forward Specifically, like for the shooting game genre, globally, I think we have seen rapid growth. So, how would NEIST sort of differentiate ourselves in this shooting genre?

Thank you.

Yes, about some of our views on AI applications, including how to apply it to existing games and future games, and I just asked about the direction of future content, including the idea of design products.

Yes, AI is very important to the development and operation of our games. We have more than overseas teams We have deployed a large amount of resources to study how AI can be used in game development, innovation, and operation. I think the user experience is very important to us. This is the best way to answer it. How to use it specifically I won't answer it here. The second is that In the future game development The company will take a premium and confident direction We will not blindly go Thank you.

Okay, I'll do the translation. First of all, regarding the question on AI, we have been using AI in development, and AI is very important in game development and operation, and we have accumulated tons of time in this area, especially compared to Many of our peer companies from overseas, we have more hands-on experience in this area. We have deployed massive resources in the research of AI and how to use AI in the process of game development, innovation, and operation. Actually, the user experience is the best answer to guide us on how we should deploy technologies. But we don't think we have time here today for the detailed specific user experience explanations. Regarding your next question on the future direction of product, as we explained, we'll focus on the concentrating resources on building really high quality flagship products. The product that we have conviction on the success. We won't do, you know, aggressively, blindly open many projects. That's not our direction. We'll do focused, targeted approach to do new projects. And in the future coming years, we believe NetEase, compared to many other companies in our industry globally, we're one of the... companies that have clear vision on the future innovations, future products, and we will make grand breakthroughs. Thank you. Operator, next question, please.

Your next question from Shenyang Liu with Morgan Stanley.

Let me translate my question. My question is about the Sea of Remnants, this new game. Could management share about the R&D development and expected launch timing? And what will be the commercial strategy for this title? And is there any direct peers or competitors for this game? And what NetEase can do to differentiate? Thank you.

We value this game very much. As a team, we have a lot of development and operation experience in the company. This game uses Wang Yi's own engine development. At the same time, we will go to the PC section, mobile section, and main section. As for the specific gameplay and content of this game, I believe we have a very clear decision. I believe this is a game that makes people's eyes open to a new world of multi-character development. It's not the traditional two-dimensional style. And the maritime experience and Okay, I will do the translation.

First of all, the Sea of Rendements is a very important product to us. We focus on that very much. a very rich development and operation experience in the company. And the game is built on our self-developed game engine. We'll support both PC, mobile, and console as well. On the detailed gameplay and content, we believe we have clear decisions on how to do that. We believe it's going to be a fresh experience in the market. It's going to be a multi-character cultivation kind of type but not the traditional way. The sailing experience on the ocean, as well as the rich combination between characters and classes, we believe will bring a fresh, unexperienced ocean experience to the gamers. Thank you.

And that concludes the question and answer session. I would like to turn the conference back over 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. Thank you.