NetEase, Inc.

Good day and welcome to the NetEase fourth quarter and full year 2025 earnings conference call. Today's conference is being recorded. At this time, I'd 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, which should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the fourth quarter and full year 2025 earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Netties corporate website at ir.netties.com. Joining us on the call today from Netties' senior management are Mr. William Ding, Chief Executive Officer, Mr. Hu Jiepeng, Executive Vice President, and Mr. Bill Pang, Vice President of Corporate Development. And I will now turn the call over to Bill, who will read the prepared remarks on William's behalf.

Thank you, Randy, 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. In 2025, our total annual net revenue reached RMB $112.6 billion, with RMB $92.1 billion from games and value-add services. These metrics represent another milestone for our company. reflecting 23 consecutive years of online games operation revenue growth since we started the business a quarter of a century ago. In our 25 years in the gaming business, our pursuit has always been trying to provide extraordinary player experiences. And we have never stopped investing in continuous exploration of creativity and pushing technical boundaries. In our early years, our proprietary 2D game engine made Fantasy Westworld Journey Online the benchmark of its time. When we moved to mobile in the early 2010s, our flagship in-house engines enabled us to deliver low-latency, high-performance experiences on smaller, pocket-sized screens. This new capability was instrumental in unleashing the full potential of iconic titles such as Knives Out and Diablo Immortal on mobile devices. as we continue refining these engines to support AAA-quality cross-platform experiences. They have laid the indispensable foundation for the success of our recent global sensations, like where wings meet. In conjunction with the evolution of our in-house proprietary game engines, we also build our full-stack toolchain that empowers our team to innovate at scale. Join our DNA as an internet company We continually scale new technologies that can improve the game development process. We study emerging technological trends, determining if they can be harnessed to enhance our game development and develop proprietary solutions to incorporate the most impactful ones into our production pipeline. This longstanding practice has enabled us to integrate companies' new technologies. substantially boosting productivity over the years. Back in 2017, we saw that artificial intelligence would have transformative impact on our industry. Because AI research is closer to academic science than traditional technology, we set up two dedicated research labs, NetEase Fuxi Lab and NetEase Game AI Lab, to study AI and explore its real-time real-world applications in gaming. These teams have made exceptional strides over the years in both research and practice, winning dozens of AI algorithm competitions, publishing hundreds of papers, and securing hundreds of patents. We're now far beyond the experimental phase, and the culmination of this work is the full integration of our AI technology into the game development process, with AI playing an important role across our portfolio. AIGC has accelerated quickly in recent years. We have been monitoring the progress closely and making substantial effort to embed it into our production pipelines. Importantly, we don't see AI as a replacement for human creativity. We see it as a force multiplier, one that can bring paradigm shifting to the game development process when used responsively. It can elevate creative work and introduce real change in how games are built. As a new technology with core attributes that are fundamentally different from traditional technologies, such as its probabilistic nature, AI presents unique challenges. Figuring out how to harness it, how to fit it into the sophisticated game software engineering process, and how to turn probabilistic AI output into reliable, high-quality components is far from easy. There are very few precedents in the industry of game making. Fortunately, With our many years of game making experiences, we have deep expertise in building production tool chains, along with data and asset library spanning hundreds of games. Most importantly, we have over 10,000 top tier developers, which put us in a strong position to approach these challenges programmatically. Over the past three years, our engineers have worked closely with our designers to explore how to unleash the power of AI. while building clear guards. At the same time, we focus on how to use AI to take on the tedious, repetitive, non-creative task without getting in the way of human creativity. After many iterations, we believe we have established robust human oversight and feedback loop in place, and AI has become a highly effective part of our game development process. We're pleased to report that we have comprehensively integrated AI across our internal workflows, encompassing design, programming, arch, and QA. This integration is not limited to a few lead teams. It is broadly accessible to developers and NIDs, driving meaningful efficiency across the board. In programming, our self-developed tool, CodeMaker, has evolved from a single AI-powered code completion tool providing agent-level services. Our internal data shows qualitatively shifted in developer habits. We have moved from using AI to complete a line of software code to leveraging AI to solve a complete development task. In art and animation, AI is easily accelerating the early stage exploration process with our in-house tools, DreamMaker and Benching, turning creative ideas into deliverable outputs in minutes. our AI animation technologies, including multi-camera motion capture, facial motion capture, and generative AI-driven animation tools, have significantly reduced the production cost and time required for character movement and expression animation workflows, while substantially expanding our animation asset libraries and empowering artists to deliver richer and more expressive virtual characters and worlds. Furthermore, in quality assurance, We utilize AI to model more than 1 million diverse player behaviors to ensure stability in increasingly complex game worlds. This augments traditional time-consuming manual testing with data-driven validation, providing us with greater mathematical confidence in game balance and stability before public launch. Young efficiency, the ultimate goal is gameplay innovation. We have unlocked massive new interactive experiences for our players that were previously out of reach. And we still remain at relatively early stage in exploring all the possibilities. Our exploration of AI-driven interactive characters began early with Sword of Justice, which pioneered one of the industry's earliest commercial implementation of intelligent MPC systems powered by large language models. in live game environments. This laid important technological groundwork for expanding AI-driven capture ecosystem. In Where Wings Meet, we have deployed over 10,000 AI-powered NPCs that engage players with natural language, realistic voices, and potential for unexpected story outcomes, creating a level of vivid interaction that was previously impossible. Most importantly, These AI-powered NPCs are not static crest-givers. They reflect the shadow of real human existence. Some may be struggling with poverty and resorting to petty theft in a village. If a player has the patience to follow them, they could discover soft stories like the hardship of adult life. These NPCs may not always be brilliant or lucky, but they're living their lives within their own reality, mirroring our own world. This level of detail creates a world that was not just a sandbox, but a living society. This is the essence of the open world we're building, places where every interaction feels authentic, unpredictable, and deeply immersive. This not only provides players with more depth and in-game experiences, but it also helps to address the challenge that players consuming content much faster than developers can create it. We're also seeing AI act as a powerful personalized co-pilot and ecosystem multiplier. In the Ark of Bay Point mobile game, the voice AI teammate system represents a major inflection point. AI that doesn't just follow, it cooperates. As co-pilot teammates, AI provides customized interactive assistance to help players to learn the role of the game, making the complex high skill-based gameplay more accessible to much broader audience and significantly increase newcomer retention. Meanwhile, the crew mode in the Sword of Justice empowers players to direct their own short videos with simple AI workflows, attracting millions of players who have created tens of millions of UGC works. Meanwhile, integrating these tools into Aggie Party toolchain has empowered 15 million creators to transform a single game into a self-evolving platform driven by collective creativity of its players. Beyond enhancing our existing portfolio, we're also exploring new frontiers in AI-native gameplay. Moving beyond fixed preset logic, we're trying to utilize AI as a core engine to dynamically construct the in-game world and tailor real-time elements like missions, events, and other content to individual players' unique behaviors. unlocking infinite potential through deep customization. Underpinning this work is our experiment in AI-native production pipelines that leverage integrated toolchains to streamline workflow and significantly accelerate our innovation cycle. 2045 has been a year in which our long-term vision for AI has reached a critical point. We're no longer just talking about the potential for AI. We're seeing the results in the form of enhanced productivity, deeper player engagement, and expanded creative boundaries. We're on the threshold of a paradigm shift, and we believe we are well positioned to serve as the epicenter of industry-defining innovations. We have built a very solid technological foundation, the proprietary engine, the full-stack toolchains, which already internalized artificial intelligence capabilities, including AIGC capabilities. And we have seen early results from AI-powered gameplay. What we have achieved in the first 25 years of our game business was unimaginable when we started. We're at the dawn of a new time in our industry where productivity can be much more enhanced and creativity can be much more amplified. As we look ahead, We believe AI will fundamentally empower our creators to transcend the traditional development limits and reshape how interactive entertainment is created and experienced in the years to come. We think this is going to be the best time of industry. With that, I would like to walk through several recent operational highlights, starting with our global expansion achievement. Bill Winsmith. has gained strong global traction through a staged cross-platform launch, surpassing 80 million cumulative players and marking the meaningful milestone in our global expansion. Rooted in Eastern aesthetic and Wuxian storytelling, the game demonstrates how authentic cultural content can resonate with players worldwide. Following its global launch, it ranked number two on Steam's global topseller chart, won PlayStation's November Player's Choice Award, and top iOS download chart across more than 60 regions. Ongoing live service updates resulted in sustained strong engagement globally and domestically, with the title delivering its highest monthly revenue and daily active user on record in China in December, reinforcing its long-term momentum. Meanwhile, Sword of Justice successfully expanded internationally in November, introducing its next-generation MMO experience to more audience. Topping download charts in multiple key Asian regions. This title is another example that illustrates how AI integrated production pipeline now directly elevate gameplay in large-scale online worlds, delivering richer responsiveness, deeper interactivity, and more immersive player experiences globally. Domestically, player engagement remains strong. supported by innovative live events and culturally-grounded content that continues to deepen community resonance. Marvel Rivals, our superhero team-based PVP shooter, continues to build strong global momentum. The title earned broad industry recognition, including being named one of Time's Best Video Games of 2025, winning the Grand Award at PlayStation Partner Awards 2025, and ranking Steam's Platinum Tier of Best of 2025. Continuous seasonal updates and new character releases have sustained strong player engagement, with Season 6 featuring Deadpool propelling the game to number two globally and number one in multiple markets, including the United States and Canada. A rapidly expanding international player community is further reinforcing the long-term durability of this growing franchise. Looking ahead, we continue to strengthen our pipeline to support the next wave of global growth. Sea of Venements began technical testing across China and selected global market earlier this month, featuring a distinctive art style and richly imagined open world. This ambitious original title aims to deliver a deeply immersive exploration experience with extensive player freedom, where every naval journey feels unique. Development is also progressing steady on Atlanta. or highly anticipated urban open world title. Building our available insight from previous testing, the team is diligently refining core systems and contents to meet high expectations from our global community. Shifting to our domestic portfolio, our longstanding franchises continue to demonstrate strong vitality supported by continuous content innovation and deeply engaged player communities. These titles remain a testament of our ability to operate a large-scale live service ecosystem over decades. Now in this 23rd year of operation, Fantasy Westworld Journey Online delivered record high annual revenue in 2025, driven by historical peak revenue in the fourth quarter. Its ecosystem continues to evolve through innovative content design to meet diverse player needs while preserving the classic mechanics cherished by long-term fans. The unlimited server, which has streamlined accessible gameplay, has been particularly effective at reuniting player enthusiasm. Fantasy Westward Journey Mobile also maintains strong momentum, delivering record high annual revenue in 2025. Diversified server models and ongoing content initiatives reinforce its leadership position within the MMO category. Beyond these legacy franchises, several established titles continue to deliver stable engagement and underscore the breadth of our diversified portfolio. Identity V is strengthening its global esports ecosystem through major competitive events and ongoing content updates. Aggie Party maintains strong player engagement, supported by expanding gameplay modes and continuing investments in this fast-growing UGC ecosystem. Infinite borders continue to drive long-term retention through innovative gameplay updates and specialized server models that deepen strategic complexity. Naraka PlayPoint is expanding its global community and esports presence, highlighted by the successfully hosting the J-Cup World Championship and active content roadmap updates designed to sustain long-term player engagement. Beyond the games we develop in-house, we also continue to expand our ecosystem through strategy partnerships. Blizzard titles have proven to sustain engagement for the past year, achieving a record high revenue in China and reaffirming our long-term commitment to the market. The launch of World of Warcraft's China-exclusive Titan Reforged server on November 14th sparked strong excitement among domestic players and interest from international influencers. While StarCraft II once again saw enthusiastic support from Chinese players and set a new record in beta active users in China. Through close collaboration with our partners and a shared commitment to putting players first, we remain focused on delivering high quality experiences while strengthening our long-term global gaming ecosystem. We're also committed to delivering exceptional user experiences across our other business lines. Udall continued to advance its AI-native strategy in 2025, driving healthy business development and achieving its first-ever net cash inflow from operating activities. Its learning services segment delivered robust growth through ongoing iterations of its tutoring features, while online marketing services applied to improve advertisement effectiveness, and streamlines advertising production. Smart devices segment was supported by ongoing popularity of UDAO tutoring plan products. That is how music continued to advance the high-quality development of its ecosystem. Platform enriched its differentiated music catalog through both copyright collaborations and our in-house music production. While introducing new features and experience upgrades, that enhanced music discovery and listening. In 2025, the platform delivered steady year-over-year growth in both its active user base and overall engagement. Yuen Chuan continues to strengthen its position as a private label brand known for premium quality products across its key categories, supported by an expanded product lineup and enhancement to key hero products. In closing, The result and operational milestones we have discussed highlight a clear trajectory. That is, it's not merely adapting to the AI era. We're advancing it through industrial application of technologies we have been building for years. Our large-scale integration of AI is a natural extension of our long-standing strategy and leadership in technological innovation by embedding AI into the core of our production pipelines and product design. from the living, breathing world of our games to intelligent productivity tools of UDAO and the personalized discovery algorithm of NetEase Cloud Music. We are exploring and shaping what's possible to future user experiences across a range of scenarios. Looking ahead, we remain focused on advancing technology and creative innovation to drive sustained growth. We view AI not as a replacement but a powerful amplifier of human ingenuity, enabling us to deliver to our users worldwide what was previously out of reach. By staying at the epic center of this technical paradigm shift, we're uniquely positioned to unlock unprecedented long-term value for our users, creators, and all of our stakeholders. That concludes William's comments. I will now provide a brief review of our 2025 annual result with a focus on the fourth quarter. Given the limited time of today's call, I'll be presenting some financial highlights in a streamlined manner. 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. Our total net revenue for 2025 will be RMB 112.6 billion. or $16.1 billion, representing a 7% increase year-over-year. For the fourth quarter, total revenues were RMB $27.5 billion, or $3.9 billion. In 2025, net revenues from games and related services reached RMB $92.1 billion, up 10% from 2024. In the fourth quarter, net revenues grew 3% year-over-year to RMB $22 billion, specifically Net revenues from online games for RMB 89.6 billion for the full year, up 11% from 2024. In the fourth quarter, online game net revenues increased 4% year-to-year to RMB 21.3 billion. The quarter-over-quarter decrease in online games net revenue reflected the fact that the prior quarter benefited from the seasonal trends of more events triggering the summer holidays. The year-over-year growth in the fourth quarter was attributable to higher net revenues from self-developed games, such as FNAF Journey Online and the newly launched games like Where Wings Meet and Marvel Rivals. Udon's net revenues from 2035 increased approximately 5% year-over-year to RMB $5.9 billion. In the fourth quarter, net revenues rose 17% year-over-year to RMB $1.6 billion, and were broadly stable quarter-over-quarter. The year-over-year increase in the fourth quarter was due to increased net revenues from UDOT's online marketing services and learning services. Netease College Music net revenue decreased 2% year-over-year to RMB 7.8 billion for the full year. In the fourth quarter, net revenues were RMB 2 billion, representing a 5% year-over-year increase and remaining broadly stable quarter-over-quarter. The year-over-year growth in the fourth quarter was driven by continued healthy growth in membership subscriptions. Revenue from social entertainment services and others, however, remained lower compared with the same period of last year. Net revenues from innovative business and others totaled around 6.8 billion for the full year. In the fourth quarter, net revenues were around 2 billion, representing a 10% decrease year-over-year, while increasing 42% quarter-over-quarter. The year-over-year decrease reflected an increase in certain inter-segment transaction eliminations. The quarter-over-quarter increase was led by increased net revenues from Yanshuan, advertising services, and several other businesses included within that segment. For the year, our total gross profit margin was 64.3%. In the fourth quarter, our gross profit margin increased year-over-year to 64.2% from 60.8% in the year before. Looking ahead at the fourth quarter margins in more detail, gross profit margin was $70.5 billion for our games at Reliquid VS, compared with 66.7% the same period of last year. The improvement reflects changes in product mix, including a lower proportion of net revenues from license gain, which generally have lower margins than our self-developed titles. Our gross profit margin for Youdao was 45.1%, compared with 47.8% in the same period of last year. The decrease was primarily driven by a higher net revenue contribution from online marketing services, which has lower gross profit margin. Gross profit margin for NetEase Calm Music or 34.7% in the fourth quarter versus 31.9% in the same year a year ago, primarily driven by steady growth in this core online music business. For innovative business and others, gross profit margin was 39.6% compared with 37.8% in the fourth quarter of 2024. The improvement was primarily driven by margin expansion in certain innovative business within the segment. along with the impact of certain inter-segment elimination. Our total operating expenses for the fourth quarter were RMB $9.4 billion, or 34% of our net revenues. Taking a closer look at our cost composition, our selling and marketing expenses accounted for 14.1% of the total net revenue in the fourth quarter. For the full year 2025, the ratio was 13%. remaining broadly in line with prior year. Our R&D expenses remain stable at 16.1% of total net revenues in the fourth quarter. For the full year 2025, the ratio was 15.7%, broadly in line with 2024, reflecting our continued and consistent investment into content creation and product developments. The effective tax rate was 14.8% for the full year and 16.4% for the fourth quarter. As a reminder, the effective tax rate is presented on an accrual basis, and the tax credit varies across each of our entities at different time periods, depending on our policies and our operations. Our non-GAAP net income attributable to shareholders for the fourth quarter totaled RMB 7.1 billion, or 1 billion U.S. dollars, down 27% year-over-year. Non-GAAP basic earnings per ADS for the quarter was $1.58 U.S. dollar, or 32 cents U.S. dollar per share. For the full year, non-GAAP net income attributable to shareholders was up 11% to RMB 37.3 billion, or 5.3 billion U.S. dollars, which is $8.38 U.S. dollar per ADS, or $1.68 per share. Additionally, our cash position remains strong. As of year end, our net cash position was about RMB 163.5 billion, compared with RMB 131.5 billion at the end of 2024. In accordance with our dividend policy, we are pleased to report that our board of directors has approved the dividends of 23.2 cents U.S. dollar per share, or $1.16 U.S. dollar per ADS. Lastly, our current 5 billion U.S. dollar share repurchase program. We had repurchased approximately 22.1 million ADS at the end of December 31, 2025, for a total cost of approximately 2 billion U.S. dollars. 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. Your first question comes from Jia Longxi with Numera. Please go ahead.

Thank you, Guan Licheng, for accepting my question. And I want to understand, Guan Licheng mentioned the topic of AI in the opening speech. I want to know the impact of AI on the online game industry. We also noticed that Gini was the first to launch the Gini project. And then there are some media that say that Gini is the big big moment in the online game industry. Some AI tools like Google Geekly may reduce the threshold of game development and accelerate the entry of new game development companies. So I want to understand how the management level looks at the impact of AI on the competitive framework of the game industry. And with the rapid development of AI, we also see that many Chinese game companies have increased their investment in AI models and AI algorithms. Thanks for taking my call. Management has touched upon this AI topic in your opening remarks. I would like to explore a bit deeper into the impact of AI on the online gaming industry. We noticed Google recently announced Project Genie, which some media claim is the deep-seek moment. Some people believe AI tools like Google for game development and therefore accelerate the entry of new game developers. And it's not the impact of AI on the competitive landscape for the online industry. My follow-up question is, we saw many Chinese internet companies have decided to ramp up investments in both AI foundation models and computing power. Just wonder where the East primarily focuses its AI investments.

Thank you. Let me do it.

Regarding the potential impact of AI on industry competition, we believe that the market has largely misunderstood the impact of Google and Genie on the gaming industry. Speaking of lowering thresholds, from handphone cameras to mobile phones, the threshold for shooting videos has been decreasing, but the threshold for Hollywood works has been increasing. AI has indeed reduced the threshold for game production, but at the same time greatly raised the threshold for the success of the first product. The spread of AI tools will promote the outbreak of creative content, but for commercialization, the core barrier has been transformed from a simple output to a comprehensive ability. How can AI technology and complex digital systems The long-term economic system is already deeply integrated with social ecology. This requires a very deep game design base and operating experience. It is difficult for a novice who lacks experience to get used to it. In the age of AI, the cost of game production will be reduced, but the judgment of the top-level gameplay, the movement of user demand, and the aesthetic taste of the game, the scarcity of these soft skills, On the other hand, we believe that the greater meaning of the world model is to promote the difference between traditional games and new entertainment. And now the world model has a long way to go. Today's games are based on certainty, built on predefined rules, scripted events and logic. And the world model is a probability. Every step is pushed out. The advantage is that it can provide a high degree of freedom for creative performance. The disadvantage is that it has a high degree of uncertainty and control difficulty. It is not suitable for traditional games at the moment. Moreover, it is currently very serious and cost-effective. Of course, we can also see the high-speed delay and evolution of the model. This is just the beginning. For a relatively good team, it is a rare opportunity. The Internet will actively embrace these cutting-edge technologies to explore a brand-new, brand-new interaction experience. Regarding the investment of AI, we are not blindly pursuing the general model, but are determined to create the most important AI experts in the game to realize the comprehensive, deep integration of high-efficiency AI applications. In the vertical field, high-quality private data is more important than computing power. The application scene is more important than the size of the parameters. About the competitive advantage of AI innovation. First, the combination of data and the self-propelled model, based on the self-propelled model that we have been using for many years, can provide more accurate and improved internal industrialized production efficiency than the common tools. Second, focus on user experience and commercialization transformation. We pay attention to how AI lands on the player experience, At present, in many products, the original AI play method, intelligent NPCs, as well as the tools of organic support can be very effective in improving the user flow, which has proven that we have converted technology into a business value. Comprehensive talent array NetEase has an extremely scarce comprehensive team in the industry, which is both proficient in algorithm and innovation. More in-depth game design This kind of cross-border integration ability is to ensure that AI technology truly lands and produces game pleasure The key We believe that the outbreak of AI technology will accelerate the entire process of the industry's advantage and disadvantage NetEase will continue to maintain high-strength investment in the hammer-type model, AI native play, and the talent ladder using AI technology to further expand our leading advantage in high-quality research and long-term operations.

Thank you. Okay. Okay, thank you, William. I will help on the translation. Yeah, so first, you asked about the, you know, regarding the potential impact of AI on the competitive landscape to our industry. First of all, we believe the market has largely misinterpreted genius impact on the gaming industry. Talking about lower barriers, we can look at what happened in the art industry. For example, from the handheld cameras to smartphones, the barrier of video shooting has been continually lowered. However, the threshold for producing Hollywood level of movie has continued to rise. AI does lower the barriers of entry of game development. However, it has also significantly raised the success threshold for top tier games. Surely, the widespread adoption of AI tools will help the explosion of creative content. However, the core barrier for commercial blockbuster hits has transited from pure production into integration capabilities, specifically how to seamlessly integrate AI technology with complex numeric system, long-term economies of the games, and engaging social ecosystems. This requires extensive design expertise and operational experiences, which create a deep mold that newcomers can hardly cross. In the year of AI, production cost is falling, but soft skills has become more scarce and more valuable than ever, including the sense of judgment on high-level gameplay designs, insights into players' demands, and refined aesthetic taste. On the other hand, we believe that greater value of the world model is to inspire brand new type of entertainment that differ from traditional games. Currently, world models are still far away from practical application. Today's games are built on certainty, predefined rules, script events, and logics. However, world models are probabilistic, where every step is based on inference. The advantage is that they provide extremely high degree of freedom for creativity while the disadvantage is their high uncertainty and difficult to control, making them unsuitable for traditional games. Furthermore, they currently face issues like severe latencies and high costs. Of course, we see the rapid iteration and evolution of these models, and it is just the beginning. We believe that it will be a real opportunity for excellent teams. will also actively embrace these cutting-edge technologies to explore brand new interactive experiences. Regarding the focus on investment, we don't blindly pursue general large language models. Instead, we aim at building AI expertise who understand the game best and achieve highly efficient AI applications through comprehensive and deep integration. In vertical areas, High quality private data is more important than computing power, with application scenarios more important than parameter scales. In terms of differentiated competitive advantages, data mode and proprietary vertical model is very important. Vertical models trained on our years of gaming data can improve our internal industrialization efficiency more accurately than general ones. We also focus on user experiences and commercialization. We focus on how AI translates into player experience. Currently, AI-native gameplay intelligence, such as intelligent NPCs and also UGC tools implemented in several titles, have effectively improved user retention, proving our capability to translate technology into commercial value. And we also have a group of versatile talents who are highly skilled in our industry. They're not only proficient in algorithms and graphic engines, but also they have deep understanding of game design. This cross-discipline capability is the key to ensure AI technology truly leads, truly lands and generates funds. We believe that the explosion of AI technology will accelerate the industry's integration process of the so-called survivor of the fittest process. We'll continue to maintain high-intensity investment vertical models on AI native gameplay and talent nurturing process, leveraging AI technology to further expand our advantages in high-quality game development and long-term operations. Thank you. Next question, please.

Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Thank you. 管理層晚上好,謝謝接受我的提問。 我有個問題是關於這個煙雲16升。 那個這遊戲其實最近在海外用戶 獲得蠻好的這個反向。 就管理層能否分享一下 海外用戶的這個流存率的情況。 然後這個遊戲在海外取得 交好的成績的主要因素是什麼? 我自己翻譯一下。 My question is related to where we meet. The games recently have been getting very positive feedback among the overseas users. Could management share the retention rate of these overseas users? And also, what are the key factors contributing to the games' strong performance abroad? And then furthermore, what unique gameplay mechanics or the content has particularly resonated with and attracted the international players?

Thank you. 烟影十六神海外版是去年11月15号在海外上市。 我们在国际各个市场都获得了超高的乐评和好评。 在持续运营过程中,多次登上全球各类榜单权利, Yanyun, with its extremely immersive high-quality martial arts open world experience, and the low-pressure free experience mode that is different for many people, as well as free遊玩, high-end updates, and skin-reducing operation mode, have gained global players' wide-ranging praise. At the same time, the characteristics of the product-based platform match the diverse遊玩 habits of modern players to meet the needs of different types of players. Yanyun's unique Chinese martial arts heritage in narrative, combat, exploration, and many other experiences have built a free and free world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the martial arts world of the The continuously updated map area, new book, new economic playstyle, and the continuous expansion of the hundred pages and leisure playstyle ensured the play of one player, many players, and combat leisure. Thank you.

Thank you, William. I will do the translation. When we meet, the Overseer version launched on November 15th. And after its global launch, it quickly gained overwhelming popularity and positive review rates across multiple markets. With continuous operation, it topped various global charts for multiple times, and it demonstrated outstanding performance in various operational metrics, including retention rates. WinWin Smith has received widespread acclaim from global players for its immersive, high-quality open-world experience, and with its low-pressure, high-freedom gameplay experience raised by separating single-player and multiplayer modes. and its operational focus of free-to-play, high-frequency updates, and custom-based monetization. At the same time, the cross-platform availability accommodates modern players' diverse habits and meets the varied needs from different types of players. When we meet features, Chinese Wu Xiangxin built a vivid and high-freedom Jianghu from multiple experience dimensions. including narrative, combat, exploration. The combination of Eastern Wuxiang-style martial arts, lightness skill system, and open-world experiences deliver a fresh, deeply immersive experience for players. The combination of single-player and multiplayer modes ensure that both those who enjoy immersed in plot exploration and players who enjoy social cooperation can find content they love at the same time. The continuous updates of new maps, new dungeons, and competitive gameplay, along with constantly expanding guilds and casual gameplay, it caters to a wide range of player preference, including single-player, multiplayer, combat, and casual experiences. Thank you. Operator, next question, please.

Your next question comes from Alex Liu with Bank of America. Please go ahead.

Thank you for giving me the opportunity to ask questions. I have a question for you. It's about the Dreamweaver. In the past, we have seen the success of the Dreamweaver. Can you tell us if this model will be promoted to more classic old games in the future? If so, how should we think about the top-line rhythm? I will also translate my question. Given the recent success of FWJPC Unlimited Server, can the management discuss whether this business model will be replicated across other legacy titles? And if that's the case, how should we think about the pace of rolling out of that gameplay? Thank you.

梦幻西游PC创网所带货下来做了三件最重要的事情, The first one is to restore the most classic gameplay experience in the dream world. At the same time, it provides a different gameplay experience. Restore the economic system, but keep the most important free trade. Fully optimize the experience process for the special features of the sing-along. The classic experience allows players to play with lower thresholds, and the different experience can expand the entire IP platform. This design idea can be successfully verified in the sing-along. Second, Thank you, William. I will do the translation.

In quick summary, Finance World Journey Online, the unlimited server, has done three things. First is restore the most classic gameplay experience. while providing a differentiated gameplay experience at the same time. The second is restructure the economy system while keeping the most important free trading. The third one is to comprehensively optimize the gaming process specifically for the unlimited servers. And the classic experience lowers the entry barrier for players and differentiated experience that allow the overall player base to expand. The feasibility of this approach has been validated in this unlimited server. Our product team always maintain close interaction with the player community and listen to players' voice. We believe we'll continue to introduce updates across more titles, provide richer and smoother, fresh experiences while restoring the classics. Thank you. Operator, next question, please.

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

感谢提问的机会。 我的问题是关于一望之海的。 管理层能否更新一下现在这款游戏的开发进展和测试的反馈? 在商业化模式和上线的节奏方面, 是否有机会看到今年在夏天推出? Let me translate my question. My question is about Sea of Remnants, this new game. Could management update us in terms of the current development status and the feedback in the recent testing? And what will be the commercialization method? and what is the expected timing to launch the game, whether it's possible to launch that in summer this year, and whether it will be a cross-platform global launch. Thank you.

目前一望四海的開發一切順利, 預期在今年Q3正式上線。 2月5號我們開始了這個遊戲本輪技術測試, 我們很高興看到玩家的積極參與, Thank you.

Currently, the development is fully on track, and our plan is to launch that officially in Q3. In the current round of technical tests started on February 5th, we're pleased to see active participation from players. Our second promotional video for warm-up quickly amassed more than 10 million views on Buildability. Based on the initial feedback, we're glad to see positive feedback regarding product quality. and reputations from various parties. We're still observing and collecting player feedback and we'll carry out targeted improvements and optimizations to further enhance the gaming experience and prepare for the official launch later this year. Thank you. Operator, next question please.

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

Hello, Mr. Wang. Thank you for giving me a chance to ask a question. The first question I would like to ask is a big one. We just conducted a closed test in January. I would like to ask how the test feedback is. And how long will it take to officially launch? And will it be planned to launch in different markets or different platforms at the same time? The second question is about self-driving cars. Recently, we have seen two self-driving cars being tested. We have already got the license plate for one of them. In this category, we have already seen some top players in it. What is NetEase's strategic consideration when entering the market? What is NetEase's strategic consideration when entering the market? What is NetEase's strategic consideration when entering the market? What is NetEase's strategic consideration when entering the market? NetEase's strategic consideration when entering the market? First of all, in January, so how is the testing feedback and how far away in terms of number of months before the launch? And do we have any plans to launch it in the different market as well as different time? Secondly, regarding our plans to launch auto test titles, There are two test titles under testing, in-game license. Given that there has been a very top competitor in this genre, so what is the rationale and strategy thinking behind entering this market, and how does NetEase products differentiate against the experienced competitor? Thank you.

Let me answer the question about ULTRA.

In January, we conducted a closed test. The test data and players' feedback got the expected results. The data of the product, the players' feedback on the content will prove that the current product direction is innovative and attractive. At present, the product is still in the process of development. We will strive to have higher completeness and richer content in the face-to-face market, and follow the planned plans. The data and feedback from the close test in January both met our expectations, first of all.

The retention rate and player feedback on the content have both proved that the current product direction is sufficiently innovative and attractive. Currently, our product is still undergoing continuous refinement, aiming to deliver a higher degree of completion and richer content when it meets the market and launch as scheduled. We're targeting a simultaneous global launch across all platforms, including PC, mobile, and console. Thank you.

And William will answer the next, the Autochess question.

Yes, the Autochess is very mature. 我们的观点是说 在成熟的玩法机制上 做一些题材化的差异 以及做一些玩法上的提升 具有较大的市场潜力 我们选择中式妖鬼这个文化 在同类的产品中是独树一帜的 背后有非常强的叙事张力和美学空间 我们致力于通过网易 一贯的高标准审美和品味 重塑民族文化经典

Yeah, so yeah, the auto chess category is a matured category, and we are doing an elevation and differentiation within this proven category. We select the Chinese demon and ghost culture, making it unique in this genre. It inherently contains strong narrative tension and aesthetic potential. We aim to build a high-quality auto chess game that belongs to the domestic players and also building on the traditional classic of our historically proven high-quality development capabilities. Thank you. Operator, next question.

Your next question comes from Yang Hai with CICC. Please go ahead.

感谢管理层。 我是有一个出海的问题。 这是公司近年来在游戏出海方面取得了非常浅出的进展。 前面有勇杰物件、漫威争锋的成功, 之后燕云石榴生也取得了更惊艳的成绩。 想请教管理层,在海外的打法上, 能否说网易已经摸索出了一条相对可复制的成功的路径? I will translate by myself. The company has made remarkable progress in game globalization in recent years, with early successes such as Naraka and Marvel Rivals followed by titles like Where Wins Meet. I would like to ask the management, in terms of overseas expansion strategies, can we say that the company has developed a replicable path to success? Regarding game genre expansion, how does the company plan its product pipeline for high-potential markets such as the U.S. and Europe? About talent, what is the company's global team structure and future talent strategy? Thank you.

This European and American game market, we started in 2018. After the success of the Wildland Action in Japan, there have been no changes in the past two years. The MWG branch and the Yanyun Group have succeeded overseas. It's not easy to walk this road. Behind this road is a home with the most research and development capabilities. We are starting to touch the core elements of the success of the game in the overseas market. We believe that there will be more games in the future. In Europe, the United States and Japan, we will find the way to success. The second is in terms of talent. I believe that China is the world's largest game developer. Yeah, sure.

Our development market expansion started from 2018, starting from lifestyle success in Japan. And now, as you mentioned, we have Naraka, and we have Mount Rivals, and we're willing to meet all of them are very successful in Western markets. And we have to say this success is not easily got. We spent a lot of efforts to make that happen. That reflects, you know, NetEase as the company with the most R&D capabilities. we have started to grasp a sense of the core success element in the market in Japan and the Western market. And we believe we'll be able to produce more titles to be successful in this market in the future. And also regarding the question on talent, we believe China possesses the world's deepest talent pool. in game development. And we are fully committed to cultivating top-tier creative minds to deliver premium games that resonate on a global scale. Thank you. Operator, next question, please.

The next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.

Thank you for answering my question. I have two questions. The first one is about the pandemic. It has been online for a year, so how should we think about its future life cycle and how to maintain the continued popularity and product innovation? The second question is about AI. In fact, we can see that AI is more focused on developing and interacting with NPCs in the gaming industry. As the capability improves, how should the management team look at the improvement of AI in game design, content generation, and long-term operation? Is it possible that we can promote a new game experience with AI driving as the core, and become the next stage of this important growth engine? Thank you, Manjun, for taking my question. So the first question is about Marvel Arrival. So now that it has been live for a year, how is the team evaluating its future lifecycle? So what strategies are in place to sustain its momentum and continue product innovation here? My second question is a follow-up on AI. Basically, the AI application in the gaming industry is primarily focused on R&D assistance and MPC interaction at the moment. So as the capability continues to evolve, how does management view the potential for AI in gameplay design, content generation, and long-term live service. So do we see any opportunity for AI-driven as a core gameplay to become the next major growth engine for the industry? So is planning any product where all those, you know, AI as a core-driven gameplay is in place? And additionally, how should we think about those personalized or service-oriented monetization model based on AI? Thank you.

Yes, let me answer your question first. The year since the release of MWZ, it has been stable so far. Our team has continued to introduce innovative gameplay content. In recent years, S6, the new hero released in the new season, S4, the first three professional settings, has been widely welcomed by players. We believe that excellent and innovative content can continue to attract players. So, in the current update situation, we will continue to explore new heroes, new gameplay modes, and new experiences of social interaction. This is about slow production. The second question is about AI. AI as a tool has been fully integrated into our production, service, and other areas. It has greatly improved our production efficiency by supporting our art production, programming, customer service, and QA. The second question is whether AI can bring a new Yes, so first we answer the Maru Rivals question.

First of all, Maru Rivals remained stable after one year of its launch. and our team continues to deliver innovative content and gameplay. The recently launched Season 6 with Deadpool, the first triple hero, has been widely welcomed by players. We believe that only excellent content with innovative experiences can sustain player engagement. Therefore, while maintaining our regular updates, we will continue to explore innovative experiences driven by new heroes, new gameplay modes, and social interactions. So that's the question for our rivals. And regarding the question on AI, yes, AI has been comprehensively integrated into our production workflow, becoming an indispensable asset that significantly enhanced our programming and QA. Regarding AI's potential to deliver transformative player experiences, we are certain of this impact. It will happen. We believe NetEase is a pioneer in this field and is one of the companies most well positioned to explore this opportunity and we will aggressively explore this opportunity. we have built a robust pipeline of R&D reserves for this next generation of AI-driven gameplay. 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 comments.

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 for those listening from China, we wish you a happy new year. Thank you, everyone. Goodbye.