NetEase, Inc.

Good day and welcome to the NetEase second quarter 2026 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandy Piacente. 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 in 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 our definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the second quarter 2026 earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Netties corporate website at ir.netties.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, chief executive officer, Mr. Hu Zhi Pang, executive vice president, Ms. Aileen Mo, vice president of finance, and Mr. Bill Pang, vice president of corporate development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill?

Thank you, Brandi. I welcome everyone to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. In the first half of 2016, we delivered healthy growth across business segments. Total revenue reached RMB $30.1 billion in the second quarter, driven by the solid performance of our games business. Our games and related value-add services generated net revenues of RMB $25 billion, reflecting the broader appeal of our portfolio in both domestic and overseas markets. The strength of our portfolio stems from our sustained focus on innovation across a full lifecycle of our games, from original concept and development to long-term life operations. By combining our engineering capabilities, creative design expertise, and disciplined execution, we bring new ideas to life and deliver fresh experiences across genres, platforms, and markets. One recent example is Sea of Remnants. Released in China in July, it showcases our ongoing emphasis on original IP and genre innovation. Built on our in-house game engine, Sea of Remnants combines a distinctive visual style with an open-world ocean fantasy setting. By combining naval combat, extraction gameplay, and roguelike progression, the game creates various adventures that unfold differently each time. Across themed islands, players encounter a wide cast of NPCs that bring each island to life through meaningful interactions and evolving storylines. A variety of brand and content collaborations have also expanded the game's reach, extending its content ecosystem beyond the core gameplay experience. We are also preparing for the game's global rollout and look forward to introducing serial elements to players worldwide. Our innovation efforts are not only limited to new launches. They extend across our established titles, where we keep evolving gameplay systems, introducing new content, and strengthening live operations to sustain player enthusiasm over time. Sword of Justice launched its major anniversary update, New Worlds in June. The comprehensive upgrade to the open world experience improved visual quality, streamlined cultivation systems, and refined the in-game economy, creating a more enjoyable experience for both returning and new players. It also introduced the Dali, a highly immersive new region to expand exploration and add greater storytelling depth. The community response was strong. with active players existing 10 million on launch day and concurrent users reaching a two-year high, demonstrating the title's ongoing appeal. Players continue to gravitate to Identity V with a steady cadence of live service updates, including anniversary content, crossover events, and new gameplay experiences. In June, the game introduced Cryptic Nodes, A new PvE mode that offers a lighter experience beyond its core PvP gameplay, opening up new ways for the community to play. This excitement carried into July with the launch of Season 44, introducing new themed costumes and events alongside the latest Paper Bride crossover. This update sparked active discussions across live streaming and social media platforms. helping keep the community engaged and reinforcing the game's long-term appeal. During the second quarter, the Naraka PlayPoint franchise unified its PC and mobile ecosystems. Players can now enjoy the game's signature melee combat seamlessly across devices while strengthening connections across its broader player community. Building on the increased connectivity, Naraka PlayPoint kicked off its fifth anniversary celebration in July. with a major content update that introduced all new land and underwater battlefields, as well as a new underwater combat system. These additions refreshed the game's core experience and drove strong player engagement across platforms. Antiparty further solidified its position as China's leading party game destination. It reached a new milestone of 700 million registered users. and monthly active users remained steadily above 100 million. In June, the game celebrated its fourth anniversary, bringing another wave of player activity, supported by diverse gameplay, a vibrant UGC ecosystem, and a rich slate of live operations. This strong momentum continued into the summer, with Aggie Party remaining among the top-ranked titles on both China's iOS top downloads and Gaussian charts. and Peking are number three on the top-grossing chart. Peking daily active users also reached a multi-year high for the summer period. UGC remains one of Agiparti's defining strengths. Over the past year, the ecosystem has continued to thrive, supported by more powerful creation tools and a growing base of engaged creators. Total creator rewards reached a new milestone of over RMB $200 million to date, reflecting both The vitality of this creator community and strong player demands for diverse user-generated content. Recent upgrades to the editor, including integration with multiple AI models, have also made it easier for creators to learn, create, and program. Together, these efforts expand what players can create and support Aggie Party's evolution from a standalone party game into a broader content platform. Our flagship MMORPG, Fantasy Westworld Journey Online, continued to evolve across both its classic and unlimited servers. During the summer, its new expansion pack and Dunhuangxian content further engaged players, underscoring its timely popularity and its healthy community. Meanwhile, Fantasy Westworld Journey Mobile carried its record-setting momentum into the second quarter, supported by refinements to the in-game economy and ongoing gameplay iterations. During the quarter, the game introduced a new equivalent progression system and an extraction gameplay mode. These additions created a fresh progression path and greater strategic depth, gaining real traction with players. In July, the Summer Treasure Pavilion offered a wider selection of costumes and items tailored to players' preferences, driving robust commercial performance. The launch of the Origin server helped Westward Journey Returns build strong momentum in the second quarter. By preserving the iconic appeal of the Westward Journey franchise while introducing a portrait mode interface and more relaxed gameplay, the Origin server delivers a more accessible experience that players can enjoy anytime and anywhere, contributing to the title's strong performance in Q2. Infiborders further reinforced its leading position in the SLG genre through new innovative gameplay and initiatives designed to address community needs. New features such as Infiborder Queue, a social deduction game mode, were well received by players, while its collaboration with Minecraft China helped the game reach a broader and younger audience. The launch of the highly anticipated special servers, together with a series of pre-anniversary events ahead of its 11th anniversary, generated renewed excitement across the community, demonstrating the title's enduring appeal and continued relevance in the strategy game market. Alongside our success in the domestic market, we made additional steady progress in broadening our global reach. We're Wingsmith. has demonstrated a health growth trajectory since its successful global launch last year. Its player base continued to grow in the second quarter, with positive reviews on Steam staying above 87%. In June, we bought this immersive open-world action RPG to even more players worldwide with its successful launch on Xbox. The game also repeatedly ranked among the top three titles on Steam's global top-seller chart following major content updates. This underscores the long-term potential of content-driven games and highlights our proven capabilities in delivering high-quality content and live operations. In the domestic market, Whirlwind Smith also expanded its player community during the quarter with major new region additions, including Qingzhou and Hangzhou. The Hangzhou expansion proved particularly popular and pushed the game to the number three spot on China's LS top-grossing chart. This update brought distinctive local culture, fresh narrative, and immersive exploration, driving year-over-year growth in quarterly revenue and achieving record-high monthly active users. Marvel Rivals continued to build on its global success through a steady stream of seasonal content, Live Service Update, and Community Initiatives. In June, the game introduced a refreshed 18 versus 18 mode set in Kunlun Shenlong Arena, alongside new heroes, maps, and events that broaden gameplay variety. Arrival's Summer Festival added further momentum with a wide selection of themed costumes for fan-favorite characters, help pushing the game to number two on Steam's and many more. Most recently, the franchise extended its reach beyond the screen through real-world touchpoints across major fan events. At San Diego Comic-Con in late July, more arrivals generated even more excitement among players with new announcements and interactive fun activities. The mid-season finals was later held in Los Angeles. attracting top players and fans while reinforcing the title's competitive ecosystem and long-term live service foundation. As we continue to grow our existing portfolio, we're also advancing the development of new titles and exploring fresh ideas across diverse genres, gameplay experiences, and markets. Lenta is progressing steadily towards launch as a free-spirited urban open-world RPG The game invites players to experience a vibrant modern city through a variety of characters, lifestyles, and activities, providing a high degree of freedom in exploration and interaction. With strong anticipation from the player community, we will continue to share more updates as development progresses. Blood Message made a strong impression at the Summer Game Fest, where overseas audiences responded positively to the latest gameplay footage. The trailer has since generated around 40 million views globally, with players praising its visual fidelity, distinctive storytelling, and cinematic combat. Our commitment to innovation and long-term operating capabilities also created value for our partner titles. Blizzard titles performed well in China during the quarter, supported by localized operations and a steady stream of updates. World of Warcraft and Hearthstone continue to engage their long-standing communities in China backed by consistent updates and initiatives tailored to the local market. Overwatch celebrated its 10th anniversary during the quarter with special content, rewards and activities that revitalized players and drove a significant increase in active users. Diablo 4 further expanded its presence in China through exclusive localized events and newly introduced Chinese mythology-themed skins, driving solid growth in both active users and player retention during the second quarter. Together, these achievements reflect the breadth and strength of our portfolio. From new releases to established titles, across China and global markets, through both our own IP and partner collaborations. We aim to keep our games relevant and engaging through new ideas, ongoing content updates, and disciplined live operations while responding to evolving player expectations. This innovative mindset will continue to guide us as we build stronger communities and create even more compelling experiences for players worldwide. Turning to our other businesses, Yudong further advanced its AI-native strategy and deepened AI-driven innovation across its ecosystem. In the second quarter, Yudong launched its latest large-language model, Confucius 4, with substantially enhanced capabilities. The new model delivers stronger performance in visual math and physics reasoning, particularly on complex diagrams at lower inference costs. Yuta also upgraded its translation model with an efficient acceleration mechanism, increasing inference speed by approximately 80%. Beyond large language models, it further advanced its AI agent capabilities towards autonomous execution of complex real-world tasks, demonstrating stronger capabilities beyond simple Q&A interactions. The learning services segment continued its healthy development, driven by the strong performance of Yu Dao and Shi. Popular features, including AI-powered English essay grading, AI quiz recommendations, and AI-based college admission advisors, continue to enhance user satisfaction and drive higher user retention. Within the segment, AI-driven subscriptions also maintain strong momentum. The advertising efficiency in Yu Dao's online marketing services also continue to improve. We recently launched a second-generation AI app placement optimizer, further enhancing the user experience and advertising efficiency with more streamlined and automated features. While capturing emerging opportunities in areas such as AI applications and short-form dramas, Utah also made steady progress in client acquisition and retention. The smart devices segment sustained its focus on product innovation. with Yu Dao Dictionary Pen maintaining a strong market position. In June, we launched the Yu Dao Dictionary Pen X8, featuring an expanded library of 80 million words and photo-based tutoring across a broad range of subjects. During the 6-18 shopping festival, Yu Dao Dictionary Pen ranked number one in sales on JD.com and Tmall within this category for the seventh consecutive year. Looking ahead, will continue to execute its AI-native strategy across learning and advertising scenarios. For NativeCon Music, we further developed its music-centric ecosystem in the first half of 2026, prioritizing exceptional user experiences, distinctive content, and a vibrant music community to support healthy and steady growth. Enhancement to user experience and strong brand perception continued to drive higher user engagement and expanded the daily active user base. Our DAU versus MAU ratio remained above 30% in the first half of 2026, increasing both year-over-year and sequentially. The average daily mobile music listening time also rose steadily, with penetration rates of community content consumption and interactions improving notably. In particular, retention and renewal rates across our expanded membership base increased both year-over-year and sequentially, reflecting stronger user loyalty and deeper connection to the platform. We also enriched our comprehensive and distinctive content library by expanding copyrighted music and promoting original music. Earlier this year, we renewed partnerships with major labels, such as Universal Music Group, as well as adding new Chinese labels, OSTs, and variety show music while enhancing our signature genres. At the same time, we continue to promote original Chinese music with our recent in-house releases such as December 31st gaining widespread acclaim. From the products perspective, we remain focused on user needs. advancing innovation across music discovery and consumption experiences while equalizing our community by making music exploration more intuitive and engaging on the platform. We also launched innovative functions such as AI-inspired playlists to address users' diverse music discovery preferences. Subscription-based membership grew as well, improving our music-oriented monetization. The further refined membership benefits built around content, features, personalization privileges, and artist-related offerings, all of which enhance the performance overall value proposition and support ongoing membership growth. Turning to Yanxuan. Yanxuan once again secured leading positions on e-commerce platforms across its key categories in the second quarter. New products in pet food, home scents, and home goods categories performed well. generating healthy growth. Notably, the freshly steamed pet food series, which we launched last year with our differentiated steaming technology and fresh meat recipes, continue to deliver solid sales while earning recognition from leading industry organizations. In closing, across the NetEase family of businesses, we remain committed to innovation and staying at the forefront of technology. By integrating leading technologies into every stage of product development and operation, we create compelling user experiences that help shape industry trends. This approach continues to support sustainable growth across our business. In our games portfolio in particular, it enhances the appeal of both established titles and new releases, extending our success in China to broader global markets throughout the year. We will continue to foster an environment that empowers our developers to push creative boundaries. As we advance our products with cutting-edge technology, we believe we are well positioned to create even more engaging experiences and enduring value for players, communities, and shareholders alike. That concludes William's comments, and I will turn the call over to Aileen for more detailed discussion of our financial results. Thank you.