Q4 2024 NetEase Inc Earnings Call

February 20, 2025

We recorded.

Speaker Change: At this time I would like to turn the conference over to Brandi Piacente. Please go ahead.

Speaker Change: 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.

Speaker Change: 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.

Bill Pang: In Q4, we sustained intense player activity with our comprehensive operational strategy, which players love. For example, in November, we launched a cross-branding campaign with Persona 5 Royal, introducing the beloved Phantom Thieves of Hearts to our game. Fans appeared in droves for the crossover event, driving Identity V to No. 2 position on the iOS Top Grossing chart. NARAKA: BLADEPOINT franchise also continued to impress with its continuous impressive run with action-based combat community. With the December update, NARAKA: BLADEPOINT partnered with CD PROJEKT RED for a special crossover on The Witcher 3: Wild Hunt, introducing four beloved characters through new cosplay costumes and in-game events. Most recently, our January collaboration with King of Fighters brought iconic KOF characters Athena and Mai Shiranui into the game, bringing a high level of player interest.

Speaker Change: A general discussion of the risk factors that could affect <unk> business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on form 20-F, and in announcements and filings on the website of the Hong Kong stock Exchange. The company does not undertake any obligation to update this forward looking information except.

Speaker Change: As required by law.

Speaker Change: Today's discussion management will also discuss certain non-GAAP financial measures for certain comparison purposes, only for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. Please see the fourth quarter 2024, and 2020 for fiscal year earnings news release issued earlier today.

Speaker Change: 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 <unk> corporate website at IR Dot <unk> dot com joining.

Bill Pang: NARAKA: BLADEPOINT Mobile has also been growing its player base since its launch in Q3 and surpassed 50 million players in December. For Eggy Party, we continue to nurture its dynamic UGC ecosystem. The community is highly connected to integrate supply and demand for content creation. The platform consistently adds diverse game modes to build on its rich content offerings, allowing players to enjoy relaxing and heartwarming moments with their Eggy buddies. So far, we have successfully introduced several popular game modes, including MOBA, Asymmetric Battle Arena, Werewolf, Pet Keeping, and Farm Management. Each captivated a large audience within the Eggy Party community. Our innovative MMO, Justice Mobile, maintained its large and active player base in Q4. In late December, Justice Mobile hosted a groundbreaking virtual concert for its cross-year celebration, immersing players in festivities and inviting them to participate in an interactive feast.

William Ding: Joining us today on the call for <unk> Senior management are Mr. William Ding, Chief Executive Officer, and Mr. Bill paying the vice President of corporate development.

William Ding: I'll now turn the call over to Bill who will read the prepared remarks on William's behalf.

Bill: Thank you Brandon and thank you everyone.

Bill: Dissipating in today's call before we begin.

Speaker Change: Good morning, everyone that all percentages are based on our own.

We're dedicated to the innovation, Australia for continuous breakthrough across our businesses. While also adding 23 with a year of expanding our portfolio across various schemes on us Tony is only four was about pushing boundaries with both innovation and accelerating our brand awareness in the global market.

Speaker Change: This strategic steps reinforce our foundation for sustainable long term growth.

Speaker Change: By the end of the year, our total net revenue reached RMB $105 3 billion.

Speaker Change: With RMB $83 6 million from case and related services, both margin new record highs, notably this marks the 22nd consecutive year of revenue growth from our online games operations.

Bill Pang: The event created a truly unforgettable audiovisual experience by merging cutting-edge technology with Asian art. Beyond conventional concert, all players who join as their in-game characters, embarking on an exploratory journey through various immersive scenes. The concert ignited considerable buzz among players, attracting over 3 million concurrent viewers online. The robust community engagement and related themed content updates propelled Justice Mobile to number 2 on the iOS Top Grossing chart shortly after the event. Since its launch in July, Once Human has cultivated a dedicated survival player fan base around the world, and we continue to build on this. The new PVP and PVE scenario we introduced in Q4 sparked a player surge. The spike in total concurrent user drove Once Human to rank on Steam's top 10 most-played chart and to number 3 on Steam's top seller chart.

Speaker Change: With the successful launch of new Bronco titles in the fourth quarter that advanced each of our growth drivers innovation diversification and globalization.

Speaker Change: By redefining gameplay and setting new industry standards for premium quality, we have accretive tremendous player enthusiasm.

Speaker Change: <unk> captured attention across it honors within and beyond the traditional gaming community.

Speaker Change: Both domestic and global scale.

Speaker Change: Let's start today by reviewing our new games performance, then we will take a look at our broader portfolio and pipeline.

Speaker Change: While we're rivals our fast paced superhero shooting them.

Speaker Change: Massive excitement across global market following its launch.

Speaker Change: The number one spot on steams top setter charge, which is four hours office release, attracting over 10 million players in this first 72 hours and 20 million players in the first trough base.

Bill Pang: Anticipation on the much-awaited mobile version is also mounting. We now have over 10 million pre-registrations as we finalize the game's mobile version for its global launch in this April. With the addition of a mobile version, we expect to attract even more fans worldwide. Adding to our ever-expanding and increasing diverse portfolio, we have a great lineup of new titles in our pipeline, with several key games planned to hit key markets in the coming months. The global launch for FragPunk, our fast-paced 5v5 tactical shooter game, is set to begin on 6 March. We expect the game to become a dynamic force in the shooting experiences for fans worldwide, featuring an innovative card system with shifting combat dynamics and a colorful punk art style.

Speaker Change: With over 40 million players accumulated so far lower rivals is redefining the hero shooter experience.

Speaker Change: Unique our style innovative combat system and ever changing battlefields.

Speaker Change: <unk> ability at a dynamic layer of immersive interactions among players while recreating iconic Marvel moments with a fresh take that as a new dimension to the Marvel universe.

During the season, one opex our rivals once again top steams top setter and most played charts.

Speaker Change: Our collaboration with Marvel Comics also broad malware rivals to life for comic fans.

Speaker Change: Yeah.

Speaker Change: Comic series from Marvel Unlimited, the synergy not only amplified the game's momentum, but also operational world of gaming and other media forms captivating audiences beyond the gaming community solidifying model arrivals as a cultural phenomenon.

Bill Pang: Through meticulous game de-development, FragPunk is set to disrupt the traditional shooting experience with all-new rule-breaking gameplay that we think players will love. Next up is Destiny: Rising, which successfully concluded its first closed beta test in December. The community's broad enthusiasm won Destiny: Rising Pocket Gamer's Annual Most Anticipated Game award. Using the valuable insight we gained from early tests in target regions, we are currently working to make the game even better. Our goal is to bring this fresh shooting adventure set in an alternative Destiny timeline to players around the globe. Lastly, I'd like to highlight our superhero team-based tactical RPG, Marvel Mystic Mayhem. It just finished closed beta cross-country testing in January with a unique art style, rich cast of characters, and varied and rewarding gameplay that thrilled the community.

Speaker Change: With more superheroes and exciting events on the horizon malware rivals who will continue to evolve we are thrilled to.

Speaker Change: Even more new experiences to the game that keeps players engaged and inspire.

Speaker Change: At the end of December we launched our highly anticipated open world action adventure RPG, where wings meet within four days of its PC launch in China. The game has come out 3 million downloads and topped the iOS download chart for round two weeks following its mobile launch.

Speaker Change: The booming mobile version drove total players across PC and mobile to over 10 million within a week and over $15 million after two weeks.

Speaker Change: Rooted in the reached a profitable with Steve historical backdrop, where wings made in the basically introduced with Chinese martial arts into <unk> exploration experience.

Speaker Change: On top of that we pioneered a mode that caters to both single player and multiplayer preferences.

Bill Pang: Sweeping positive feedback gives us confidence that players will love Marvel Mystic Mayhem experience as they fight with beloved Marvel characters across various bizarre dreamlands. As many of you know, we have been steadily expanding into new game categories over recent years. Diversifying our portfolio has allowed us to carve a path beyond the traditional MMO game that defined our early journey in the gaming industry. Along the way, we have achieved significant milestones and gained invaluable insights into genres that were once new to us. Each successful vertical we enter reinforces our ability to craft impactful games across diverse categories. Moreover, our diversified game portfolio has strengthened our global presence, enabling our games to reach and resonate with audiences worldwide.

Speaker Change: Which reinterpret shall story brand new way.

Speaker Change: Players can immerse themselves in the interline conflicts of Asian cities, low Kaifeng witnessed characters contrasting faith during historical changes and develop social network with other people along the journey.

Speaker Change: Building on the single player experience.

Speaker Change: Seamlessly integrated challenges that encourage social exchange.

Speaker Change: While continuously refining the experiences we aim to create.

Speaker Change: <unk>.

Speaker Change: Plant of solar and multiplayer elements offering players a diverse way to experience the world with community to high price, we expect audience on where we're at for me is to continue to expand over time with the game, becoming another flagship evergreen title.

Speaker Change: Our plans to build on the game to the initial success are underway. We are constantly working to bring where we can smedes to console platforms and introducing the startup to players in more regions.

Bill Pang: As we expand our game offerings, upholding superior quality and stay agile in our operational iterations, we're confident that we can continue captivating global audience with new innovative titles and grow our international reach. Now let's move to Youdao. With its continued focus on technology-driven innovation and profitability enhancement, Youdao's operating profit increased by over 10% year over year in Q4, and it achieved its first ever annual operating profit in 2024. In Q4, learning services revenue declined as we further focused on long-term growth, balancing revenue and profitability. By prioritizing high-demand courses, we achieved healthy development and reinforced profitability. Notably, Youdao Lingxi flagship course, featuring tiered learning videos and AI-powered support, continues to thrive. With strong engagement and loyalty, it achieved a retention rate of over 70% in Q4.

Speaker Change: In addition to our new game launches the return of Blizzard games, So China has been highly successful.

Speaker Change: With our strong momentum throughout the fourth quarter.

Speaker Change: The return of Woodward crop as consistently spark tremendous enthusiasm from the community supported by our diverse localized events that are driving the franchise to new highs.

Speaker Change: Shortly after hearthstone as return we can.

Speaker Change: We authorized the highly anticipated hearthstone go serious in China.

Speaker Change: <unk> set new records drawing in over 10000 defense in person and more than 10 million players gather to watch online.

Speaker Change: Since yesterday Overwatch, two latest returned to China reigniting player excitement.

Speaker Change: Please the portfolio gradually returns to Chinese market. We are further strengthening our partnership with blizzard exploring localization opportunities and bring more exciting content for China's robust game community.

Speaker Change: What does the developing we're operating a title we're always committed to innovation and operational excellence, we applied this across our portfolio and we continue to see the results of our dedication reflected in our new and legacy franchises.

Bill Pang: Recently, we launched Confucius-01, China's leading step-by-step reasoning model for education. As a 14B lightweight model, it supports deployment on consumer-grade GPUs and delivers detailed problem-solving processes. With its high accuracy and robust reasoning capabilities, Confucius-01 has been seamlessly integrated into our AI learning assistant, Mr. P AI Tutor, earning excellent user feedback and surpassing 100 million users. Youdao's online marketing services has also continued to advance. Domestic performance-based advertising reached record-breaking revenue led by gaming and the AI tool sector. Internationally, we recently established an official partnership with Google, laying a solid foundation for further expansion. We have also sharpened our technology edge in overseas KOL marketing. By developing an evaluation model, we can precisely match KOL selection with specific demands, driving high conversion rates. Our smart devices segments maintain healthy growth.

Speaker Change: With operations across decades, our beloved legacy franchises continue to set new records and the amount of pounds Sterling players with enduring popularity.

Speaker Change: Fantasy westward journey, continuing to bring players fresh experiences through well timed events and new content in the fourth quarter. The <unk> expansion pack featuring the iconic transformation abilities of Monkey King Socal introduced O'neill skills and some of them.

Speaker Change: Yeah.

Speaker Change: Meanwhile, the spring festival events planned around the year of snake broader community, a vibrant new year atmosphere.

Speaker Change: For fantasy westward journey mobile, we continue to introduce new content into the game, which gang heightened the popularity throughout the year led to record high revenue for 2020 for nearly a decade operates lock.

Speaker Change: Plus we're training online two also achieved record high annual revenue driven by enriched gameplay and activities as well as refresh that gave me experience powered by new servers.

Bill Pang: Our flagship Youdao Dictionary Pen solidified its leading position in the Double Eleven online shopping festival, dominating the top position in this category on JD and Tmall's sales chart for 5 consecutive years. Building on this success, we launched Youdao Dictionary Pen A7 Pro in January, featuring higher performance to further fuel growth ongoing. Turning to NetEase Cloud Music. NetEase Cloud Music continued to drive quality development across its music-centric ecosystem, nurturing its unique community and distinctive content offerings. We continue reinforcing our signature music consumption experiences while expanding consumption scenarios and brand awareness. We launched and iterated several innovative features to improve users' enjoyment and interaction with music and music-inspired content in Q4. For example, our new feature, Lyric Book, allow users to highlight their favorite lyrics, create a personalized lyric collection, and share that unique lyric book with others.

Speaker Change: Players flocked to the in game ceremony for Tom banner to empower Titan and explore new maps on missions sat in subscribing patient cities, Florida.

Speaker Change: Stepping into 2025, we also introduced our major major new annual sort of update for westward journey online mobile we're constantly update with a deal.

Speaker Change: Sharon system.

Speaker Change: It generated significant new community interest and further strengthen balanced among players while keeping long term fans coming back for more.

Speaker Change: Identify as another testament to our long term operational success with our established titles.

Speaker Change: After a second consecutive new quarterly records in the first three quarters, both in terms of player numbers and revenues.

Speaker Change: <unk> achieved record high revenue in 2024.

Speaker Change: In the fourth quarter, we sustained intense player activity with our comprehensive operational strategy, which players love for example in November we launched a cross branding campaign with persona five royal introducing belove funnel CFO heart target.

<unk> appear in growth for the crossover.

Bill Pang: Additionally, Light Bulb enhances users' music discovery journey, offering recommendations that flow naturally with each user's distinctive taste. These functions were highly popular with music fans and increased user engagement. Building our compelling content-consumption experiences, we continue diversifying music consumption scenarios. For example, co-branding activities in collaboration with our game division helped expand our existing audience, while introduced and enhanced music-inspired social interaction features in games further extended our brand's presence. Expanding our music library also allows us to keep bringing users diverse range of licensed and original music. In Q4, we deepened our partnership with Kakao Entertainment and strengthened our Chinese music collection this January by collaborating with renowned artist Li Jian, bringing his full discography back to our platform, including many beloved classics. On the in-house music side, we step up our effort as well. Several tracks gained widespread recognition in Q4, including the hit Follow.

Driver identified two number two position on the iOS top grossing chart.

Speaker Change: <unk> <unk> franchise also continues to impress between continuous impressive one with action based comeback community.

Speaker Change: With the December update and there are a couple of points.

Potter: Potter with CD product Rep for a special crossover on the witcher three while humps, introducing four beloved characters through new comps costumes and in game events most.

Potter: Most recently, our generate collaboration with King of fighters brought iconic characters Athena and.

Speaker Change: Should I go into the game.

Potter: Bringing a high level of player interest.

Potter: <unk> mobile has also been growing its player base since its launch in the third quarter and surpassed 50 million players in December.

Potter: Your party, we continue to nurture its dynamic UGC ecosystem. The community is highly connected feeding back rate supply and demands for concentration.

Potter: Platform consistently add diverse game modes to build out its reached content offerings, allowing.

Potter: Allowing players to enjoy relaxing and heartwarming moments with antibodies.

Bill Pang: We're also growing our copyright collaboration with popular artists. January, Hua Chenyu's digital album, Tipping Point, debuted on our platform, selling over 1 million copies within 24 hours. In Q4, we celebrated the 10th anniversary of our independent musician platform with special events highlighting our musicians' journeys, helping to deepen the connection between the artists and fans. As of December, our platform boasted over 770,000 registered artists, making it one of China's top platforms for independent musicians. As we continue to improve our music-focused monetization, subscription-based membership remained an important driver of online music revenue growth. To further optimize our premium offering, we enhanced our content appeal, introduced cutting-edge features, added membership privileges for subscribers, and refined our engaging pricing strategy. This effort boosted subscriber growth and deepened engagement, laying a solid foundation for more sustainable growth. Finally, let's look at Yanxuan.

Potter: So far we have successfully introduced several popular game modes.

Potter: Including mobile basically metric Battle arena.

Potter: Wolf kind of keeping on the farm management.

Potter: Each calculated a large audience within the AK Party community.

Potter: Our innovative MMO Justice mobile maintained a large and active player base in the fourth quarter.

Potter: In late December.

Potter: It's mobile hosted a groundbreaking virtual concert for its cross year celebration.

Potter: Immersing players in festivities and inviting them to participate in each active first lien events created a truly unforgettable audio visual experience by emerging cutting edge technology with <unk> off.

Potter: Beyond conventional concept old players, who joined <unk> in game characters in.

Potter: Embarking on exploratory journey sure various diversity of.

Potter: The concert ignited consider robust among players are tracking over 3 million concurrent viewers online.

Potter: The robust community engagement and related fee and constant updates propelled adjusted mobile to number two on the hour pumping.

Potter: Puffy crossing top grossing chart shortly after the event.

Bill Pang: Yanxuan continues to focus on key categories and drive growth through best-selling products. In 2024, core categories like pet products and home cleaning recorded solid growth, reinforcing their market leadership. Meanwhile, other key categories keep gaining popularity through its star products. Our Zhongguo Da'e down jackets, known for exceptional quality and strategic marketing, remained a standout performer in Q4, breaking into top 5 position for menswear on Tmall sales chart. Across our NetEase family of businesses, we pursue innovation that advances our company and the industries we serve. We are extending this to our global aspiration for our games as we further diversify our portfolio and bring beloved titles to fans worldwide in 2025 and beyond. We believe these initiatives will fuel lasting value creation across our business and for our players, partners, and shareholders alike. This concludes William's comments.

Potter: Since its launch in July once human has cultivated a dedicated survival player fan base around the world and we continue to build on this the new Pvp and PV scenario, we introduced in the fourth quarter Spark a player search.

Potter: The spike in total can kind of user drove bunch human too.

Potter: To rank <unk> top 10, most play chart and to number three our teams top seller chart.

Potter: Anticipation on the much awaited mobile version is also mounting.

Potter: Now have over 10 million pre registrations as we finalize the gains the mobile version for <unk> Global launch in this April.

Potter: With the addition of a mobile version, we expect to attract even more fans worldwide.

Potter: Adding to our ever expanding and increasing diverse portfolio, we have a great lineup of new titles pipeline.

Potter: With several key games fantasy of key markets in the coming months.

Potter: The global launch for Frac pump, our fast paced five versus five tactical shooter game is set to begin on March six we expect the game to become a dynamic force in the shooting experiences for fans worldwide.

Bill Pang: I will now provide a brief review of our 2024 results with a focus on the Q4. Given the limited time on today's call, I will present some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are RMB unless otherwise stated. Our total net revenue for 2024 was RMB 105.3 billion or $14.4 billion, representing a 2% increase year-over-year. For the Q4, total revenue was RMB 26.7 billion or $3.7 billion.

Potter: Featuring an innovative free car system with shifting comeback dynamics and conifer our style.

So we are meticulous game development Frac pump is set to disrupt the traditional student experience, which one you will break and game play that we think is players rollout.

Potter: Next up is definitely rising.

Potter: <unk> successfully concluded his first close beta test in December.

Potter: The community is broad enthusiasm one definitely rising pocket gamers annual most anticipated game of world.

Potter: Using the valuable insights we gained from already tapped in targeted regions. We are currently working to make the game even better or.

Bill Pang: For 2024, net revenue from games and related VAS was RMB 83.6 billion, up 3% from 2023 and up 2% year-over-year in Q4 to RMB 21.2 billion. Specifically, net revenues from online games were RMB 80.4 billion, up 6% from 2023 and up 5% year-over-year in Q4 to RMB 20.5 billion. Through 2024, our PC client games delivered strong performances, achieving 17% year-over-year growth with an impressive 57% increase in Q4. The Q4 growth was primarily driven by titles such as NARAKA: BLADEPOINT, Westward Journey Online II, and several licensed titles. While the positive momentum in PC games has shifted our revenue mix, mobile games remain a significant part of our business.

Potter: Goal is to bring this fresh shooting adventure sat in the alternative definitely a timeline.

Potter: Around the globe.

Potter: Costly.

Potter: I'd like to highlight our superhero chip based tactic RPG Marvel mistake My hand.

Potter: It just finished close beta cross country testing and generate with a unique our style.

Potter: Cost of characters and Barry and rewarding game player best deal with the community.

Potter: <unk> positive player feedback gives us confidence that players will love mistake, my hand experience as they fight with beloved Marvel characters across the various bizarre Dream labs.

Potter: As many of you know we have been steadily expanding into new game categories over recent years.

Potter: Diversifying our portfolio has allowed us to carve a path beyond the traditional MMO game that define our early journey in the gaming industry.

Potter: Along the way, we have achieved significant milestones and gained invaluable insights into genres that once new to us.

Bill Pang: In Q4, they accounted for approximately 65% of our total net revenue from online games and online game operations, and for the full year, it made up about 73%. Youdao Games net revenue for 2024 were up about 4% for the year to RMB 5.6 billion, primarily due to revenue growth from online marketing services. They declined 9.5% year-over-year in Q4 to RMB 1.3 billion, primarily due to the decline in learning services revenue as we focus on the business that serve our long-term growth objective with better profitability. NetEase Cloud Music's net revenue were up a little over 1% at RMB 8 billion for the full year and RMB 1.9 billion in Q4, a 5% decrease year-over-year.

Potter: Each successful vertical we entered reinforces our ability to crop impactful games across diverse categories.

Potter: Moreover, our diversified game portfolio strengthen our global presence enable our games to reach and resonate with audiences worldwide as.

Potter: As we expand our game offerings.

Potter: <unk> superior quality and stay agile operational iterations, we're confident that we can continue captivating global audience with new innovative titles and grow our international reach.

Potter: Now, let's move to Euro dollar.

Potter: We continue to focus on technology innovation and profitability enhancements.

Bill Pang: As discussed in previous quarters, the decline reflects lower revenue from social entertainment service, which aligns with our refined focus on sustainably improving profitability. Net revenue for innovative business and others was RMB 8.1 billion for the year and RMB 2.3 billion for the quarter, down 6% and 17% respectively year-over-year. The decline was mainly due to decreased revenue from Tencent, advertising services, and some other innovative businesses. For the year, our total gross profit margin was 62.5%. In Q4, our gross profit margin slightly decreased year-over-year to 60.8%. Looking at our Q4 margin in more detail, gross profit margin was 66.7% for games and related VAS, compared with 69.5% the same period last year.

Potter: Operating profit increased by over 10% year over year in the fourth quarter and as a cheap.

Potter: As ever.

Potter: Trading profit in 2024 and.

Potter: In the fourth quarter learning services revenue declined as we further focus on long term growth balancing revenue and profitability.

Potter: By prioritizing high demand process.

Potter: We achieved healthy development and reinforce profitability, notably Yodelling sure flagship ports, featuring tiered learning videos and AI power support.

Potter: He is a strike.

Potter: With strong engagement and loyalty it achieved a retention rate of over 70% in the fourth quarter.

Potter: Recently, we launched Confucius <unk>, China's leading step by step leasing model for education.

Potter: That's a 14 be lightweight model as support deployment deployments on consumer grade Gpus and delivers detailed problem solving processes.

Bill Pang: The decrease was primarily attributable to a higher proportion of net revenue from licensed game, which carry a lower margin than our self-developed titles. Our gross profit margin for Youdao was 47.8%, compared with 49.9% in the same period last year. The decrease was mainly due to reduced revenue contribution from learning services. Gross profit margin for NetEase Cloud Music was 31.9% in Q4 versus 30.3% in the same period a year ago. The margin improvements primarily resulted from increased revenue from membership subscriptions and continued cost management improvements. For our innovative business and others, gross profit was 37.8%, compared with 34.4% in Q4 of 2023. The increase was primary result of margin improvement in venture.

Potter: With its high accuracy and robust recently capabilities Confucius <unk> has been seamlessly integrated into our learning assistant Mr. Pete AI tutor.

Potter: Early accident user feedback and surpassing 100 million users.

Potter: Online marketing services has also continued to advance domestic performance based advertising reached record breaking revenue led by gaming and <unk> sector.

Potter: Internationally, we recently established our official partnership with Google laying a solid foundation for further expansion. We have also sharpen our technology at the OFC Kols marketing by developing our evaluation model, we can precisely matched KL selection with specific the amount driving high conversion rate.

Potter: <unk>.

Potter: Our smart devices segment maintain healthy growth.

Potter: Our flagship <unk> dictionary pen solidified its leading position in the double 11 online shopping festival.

Bill Pang: The operating expenses for the Q4 were RMB 8.5 billion, or 32% of our total net revenue. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total net revenue were 10.5% for the Q4, compared with 15.6% for the same period last year, mainly due to decreased spending on gaming promotions during the quarter. On a full year basis, selling and marketing expenses accounted for 13.4% of net revenue, relatively stable with 13.5% in 2023. Our R&D expenses as a percentage of total net revenue also remained stable year-over-year at 16.7% in the Q4, compared with 16.5% for the same period last year.

Potter: Maybe even top position in this category on JD on JD and Tmall sales chart for five consecutive years.

Potter: Building on this success, we launched without Dictionary Pen 87 pro in January featuring higher performance to further fuel growth.

Potter: Morning.

Potter: Turning to net is confusing.

Potter: Net is call music continued to drive quality development across its music centric ecosystem nurturing.

Potter: <unk> unique community and distinctive content offerings.

Potter: We continue.

Potter: Forcing our signature loosely consumption experiences, while expanding consumption scenarios and brand awareness we launched.

Potter: And it has several innovative features to improve users joy and interface with music and music inspired content in Q4 for example, our new feature Lira book allow user to highlight the February lyrics create a Polish personalized jewelry collection.

Bill Pang: On a full year basis, R&D expenses accounted for 16.6% of net revenue, up slightly from 15.9% in 2023. We remain committed to investing into content creation and product development. We're also seeing leverage in our R&D investment longer term. The effective tax rate was 15.3% for the full year and 13.4% for Q4. As a reminder, the effective tax rate is presented on accrual basis, and the tax credit deferred for each of our entities at different time periods, depending on applicable policies and our operations.

Potter: Sure that's unique Duke book with others.

Potter: Additionally, light bulb enhance users' music discovery journey offering recommendations that flow naturally with each user's distinctive taste.

Potter: These functions will highly popular with music fans and increased user engagement building our compelling consumption experiences.

Bill Pang: Our non-GAAP net income attributable to shareholders for Q4 totaled RMB 9.7 billion or $1.3 billion, up 31% year-over-year. Non-GAAP basic earnings per ADS for the quarter was $2.09 or $0.42 per share. For the full year, non-GAAP net income attributable to shareholders was up 3% to RMB 33.5 billion or $6 billion, which is $7.17 per ADS or $1.43 per share. Additionally, our cash position remains strong.

Potter: We continue with diversifying music consumption scenarios for example, co branding activities in correlation with our game Division helped expand our existing audience, while introduced an enhanced user inspire social interaction features in games further extended our brand presence.

Potter: Expanding our music Library also allows us to keep bringing users diverse range of licensed and original music in Q4, we deepened our partnership with Kochhar Entertainment and strengthened our Chinese music collections is generated by collecting by cooperating with <unk>.

Potter: We don't artist lead Gen.

Potter: His full discography back to our platform, including mini pillar conflicts.

Bill Pang: As of year-end, our net cash position was about RMB 131.5 billion, compared with RMB 110.9 billion at the end of 2023. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of $0.244 per share, or $1.22 per ADS for Q4. Lastly, under our current $5 billion share repurchase program starting in mid-January last year, we have repurchased approximately 21.2 million ADS as of 31 December 2024, for a total cost of approximately $1.9 billion. Thank you for your attention. We will right now open the call to your questions. Operator, please.

Potter: The in house music side, we step up our efforts as well several tracks gained widespread recognition in Q4, including the heat follow.

Potter: We're also growing our copyright collaboration was popular artists.

Potter: <unk>, what changes digital album tipping point that beauty to our platform selling over 1 million copies within 24 hours.

Potter: In Q4, we celebrated the 10th anniversary of our independent musician platform with specialty events, highlighting our musicians journeys.

Potter: To deepen the connection between the artists and fans.

Potter: As of December.

Potter: Platform boasted over 770, <unk> August making it one of China's top platforms for independent physicians.

Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. In addition to your standard, 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 Yang Bai with CICC.

Potter: As we continue to improve our music focused innovation.

Potter: <unk> based in membership remained an important driver of online music revenue growth to further optimize our premium offering.

Potter: Enhanced our constant appeal introduce cutting edge features added membership privileges for subscribers and refined our.

Potter: <unk> strategy.

This effort boosted subscriber growth and deepen engagement laying a solid foundation for more sustainable growth.

Potter: Okay.

Potter: Finally.

Potter: Let's look at denture.

Potter: <unk> continues to focus on key categories and drive growth through best selling products in 2024 core categories like pet products and hope home cleaning recorded solid growth.

Yang Bai: 谢谢管理层。我有一个问题是关于咱们去年底测试的五对五的英雄射击游戏，FragPunk，管理层能否分享一下游戏的测试结果，当前的上线准备情况以及上线后的运营重点，那么如何看待在这样的一个强敌林立的市场下，射击类游戏市场的竞争格局。Concerning FragPunk, could management share more color on its beta test achievements, current preparations for launching, and post-launch operational priorities?

Yang Bai: 谢谢管理层。我有一个问题是关于咱们去年底测试的五对五的英雄射击游戏，FragPunk，管理层能否分享一下游戏的测试结果，当前的上线准备情况以及上线后的运营重点，那么如何看待在这样的一个强敌林立的市场下，射击类游戏市场的竞争格局。

Yang Bai: Concerning FragPunk, could management share more color on its beta test achievements, current preparations for launching, and post-launch operational priorities? What's company's perspective on competition within the shooter game market segment? Thank you.

Potter: Reinforcing their market leadership means.

Potter: Meanwhile, other key categories keep gaining popularity start products, our tune growth outlook down jackets known for access to high quality and strategic marketing.

Potter: We remained a stent outperformer in the fourth quarter breaking into a top five position for mass were on chemo sales chart.

Potter: Okay.

Potter: Across our <unk> family of businesses with pursuit of innovation that advances our company and the industries. We serve we are.

Yang Bai: What's company's perspective on competition within the shooter game market segment? Thank you.

Potter: Extending this to a global aspiration for our games as we further diversify our portfolio and bringing beloved titles to fans worldwide in 2025 and beyond.

William Ding: 好，我来回答一下这个问题。那么FragPunk此前在海外都进行了大规模的测试，测试效果是符合我们的预期的。玩家社群对游戏性和系统方面的创新给予了比较高的评价，而且也提了非常多有价值的建议。经过这几个月的调整，我们已经做好了上线的准备。上线后我们会继续跟踪玩家的反馈，更新最佳关卡，提供新的探员，坚决打击外挂，建设积极、健康的游戏环境。目前射击市场上存在很多款优秀的作品，研发团队我们也都进行过深入的体验，这反而让我们更加相信游戏无论在操作手感、系统玩法、英雄叙事方面都有自己独特的地方，美术风格也有自己非常明显的特征，对于新老玩家都具有吸引力，所以我们对这次上线还是有非常强的信心。

Potter: We believe this initiative will fuel lasting value creation across our business and the fall players partners and shareholders alike.

Potter: This concludes William's comments.

Speaker Change: I will now provide a brief review of our 2024.

Speaker Change: With a focus on the fourth quarter given the limited time on today's call I will present, some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details as a reminder, all amounts are RMB unless otherwise stated.

Speaker Change: Our total net revenue for 2020 for RMB $105 three.

<unk> 3 billion or $14 4 billion in U S dollars, representing a 2% increase year over year for the fourth quarter total revenue were RMB $26 7 billion was three points $3 7 billion in U S dollars.

Bill Pang: Okay, I'll do the English translation. FragPunk has come to the large-scale testing both domestically and in overseas market, whose feedback met our expectations. Players gave high appraisal to our innovative gameplay and system design, and provided a lot of valuable advice as well. After months of iteration, we are now ready to launch. After launch, as always, we'll continue to monitor player feedback, updates, you know, battle levels, provide new characters and crack down on cheating behaviors, building a healthy gaming environment for the players. Currently, as I said, there are multiple well-performing shooting titles in the shooting genre. Shooting is a big genre which our R&D teams has thoroughly experienced. This actually reinforce our confidence in our game. No matter on the control feelings, the system design or the hero narratives, including its very unique art style, everything has its unique signature and will be appealing to existing and new players. We do have confidence that the game will be successful. Thank you.

Speaker Change: For 2024 net revenue from games and related Aes were RMB $83 6 billion up 3% from plenty of telemetry and up 2% year over year in Q4, two RMB $21 1.2 billion $21 2 billion, specifically net revenues from online games.

Speaker Change: Were RMB eight 4 billion up 6% from 2023 and up 5% year over year in Q <unk> Q4, two RMB 25 billion.

Speaker Change: <unk> 2024.

Speaker Change: Our PC client games delivered strong performances, achieving 17% year over year growth was an impressive 57% increase in Q4.

Bill Pang: This actually reinforce our confidence in our game. No matter on the control feelings, the system design or the hero narratives, including its very unique art style, everything has its unique signature and will be appealing to existing and new players. We do have confidence that the game will be successful. Thank you.

Speaker Change: With.

Speaker Change: The Q4 growth was primarily driven by titles such as Morocco, Paypoint westward journey online too and several licensed titles.

Speaker Change: While the positive momentum in PC games are shifting our revenue mix mobile games remain a significant part of our business in the fourth quarter. The accounting for approximately 65% of our total net revenue from online games and operations on our game operations and for the full year it made up about 73%.

Operator: Your next-

Operator: Your next

Bill Pang: Operator, next question.

Operator: Thank you. Comes from Yang Liu with Morgan Stanley.

You would also net revenue for 2024 were up about 4% for the year to RMB five 6 billion, primarily due to revenue growth from online marketing services.

Yang Liu: 感谢提问的机会。我的问题是关于《烟云十六生》的。首先恭喜这款游戏发布以后得到非常正面的玩家反馈，在变现、留存、这个人数方面都表现强劲。但是我们也听到、看到很多这个关于皮肤质量和多人玩法的改进建议，所以想问一下公司下阶段对这款游戏的变现策略是什么，会有哪些改进的计划。然后呢，刚才也提到《烟云十六生》会计划可能海外上市，能不能多介绍一下，比如说时间啊，或者说重点的市场。

Speaker Change: Declined nine 5% year over year in the fourth quarter to RMB, one 3 billion, primarily due to the decline in learning services revenue as we focus on the business that serve our long term growth objectives with better profitability.

Speaker Change: That is called music snack revenue were up a little over 1% at RMB 8 billion for the full year and the RMB.

Speaker Change: One 9 billion in the fourth quarter.

Speaker Change: A 5% decrease year over year.

Speaker Change: As discussed in previous quarters. The decline reflects lower revenue from social Entertainment service, which aligns with our refined focus on sustainably improving profitability.

Bill Pang: I will translate my question. First, I congratulate the positive feedback from the gamers on the Where Winds Meet, and we see quite positive metrics of retention, DAU etc. Also we hear a lot of feedback to expect the company to improve the cosmetics and also the multiplayer gameplay in the game. I would like to ask what is the next stage monetization strategy for this title? And where could we see improvement? Also I would like to ask about the overseas launch plan for this title, where and what market? Thank you.

Yang Liu: I will translate my question. First, I congratulate the positive feedback from the gamers on the Where Winds Meet, and we see quite positive metrics of retention, DAU etc. Also we hear a lot of feedback to expect the company to improve the cosmetics and also the multiplayer gameplay in the game. I would like to ask what is the next stage monetization strategy for this title? And where could we see improvement? Also I would like to ask about the overseas launch plan for this title, where and what market? Thank you.

Speaker Change: Net revenue for <unk>.

Speaker Change: <unk> business and others were RMB eight 1 billion for the year and on the $2 3 billion for the quarter down, 6% and 17% respectively year over year.

Speaker Change: The decline was mainly due to decreased revenues.

Speaker Change: Tension advertising services and some other innovative businesses.

For the year.

Speaker Change: Our total gross profit margin was 62, 5% in the fourth quarter, our gross profit margin slightly decreased year over year to 68% looking at our fourth quarter margin in more detail.

William Ding: 啊，我来回答这个问题。燕云十六声自上线以来，受到了玩家的广泛认可，目前各项数据优异，表现稳健。单人和多人区分的模式满足了各类玩家的需要，皮肤售卖为主的付费模式也广受好评，自由低压的内容生态为长线提供了良好的基础。未来我们还会积极地听取用户的建议和意见，我们还会继续专注于开放世界新地图内容的持续扩充，提供高质量且丰富多元的皮肤设计与制作。在具备乐趣性与创造性的各类单人、多人玩法的持续开发与优化，我们会不定期地积极地与各类玩家面对面地沟通，不停地优化和改善网易燕云十六声的体验。谢谢。

Speaker Change: Gross profit margin was 66, 7% for games and related as compared with 69, 5% the same period last year.

Speaker Change: The decrease was primarily attributable to higher proportion of net revenue from license game, which carry a lower margin than our self developed titles.

Speaker Change: Our gross profit margin for <unk> was 47, 8% compared with 49, 9% in the same period last year. The decrease was mainly due to reduced revenue contribution from learning services.

Speaker Change: Gross profit margin for Nat is called music was 31, 9% in the fourth quarter versus 33% in the same period a year ago. The margin improvement primarily resulted from increased revenue from membership subscriptions and continued cost management improvements.

Speaker Change: For innovative business and others gross profit was 37, 8% compared with $34.

Bill Pang: 老板说一下海外扩张计划的事情吧。

Speaker Change: 4% in the fourth quarter of 2023.

William Ding: 目前，燕云十六声以其独特且高质量的开放世界内容与武侠IP获得了用户的好评。我们也非常积极地关注海外用户的需求。海外的燕云版本我们已经启动了，未来在2025年，我们希望能够与海外的玩家见面。谢谢。

The increase was primarily result of margin improvement indenture.

Speaker Change: The operating expenses for the fourth quarter were RMB eight 5 billion was 32% of our total now.

Speaker Change: Taking a closer look at our cost competition.

Speaker Change: Our selling and marketing expenses as a percentage of total net revenue was 10, 5% for the fourth quarter compared with 15, 6% for the same period last year, mainly due to decreased spending on gaming promotions during the quarter on a full year basis, selling and marketing expenses accounted for 13, 4%.

Bill Pang: Thank you very much. I will do translation. Where Winds Meet, thank you for your question. Where Winds Meet is widely acclaimed since its launch, demonstrating a solid performance with robust metrics. The inclusion of both single player and multiplayer mode has created a diverse demand of players, and the monetization strategy centered around cosmetics was widely welcome. Furthermore, our content ecosystem featuring casual and low pressure gaming experience lays a healthy foundation for long term operation. In the future, we will continue to focus on infusing new content over maps to enrich our open world. Creating diversified quality costumes, crafting various interesting and innovative single player and multiplayer gameplays for gamers. From time to time, we will talk to players face to face, collect their feedback, to keep modify, keep polishing our game. Regarding your question on the overseas plan. We do notice that Where Winds Meet, wide appraisal of its unique open world style and the unique interpretation of wuxia content which actually gain us wide attention and anticipation from overseas audience as well. Currently we have started working on the overseas version, and we hope we could present that to overseas players within 2025. Thank you. Thank you for your question. Operator, next question please.

Speaker Change: That revenue relatively stable with 13, 5% in 2023.

Speaker Change: Our R&D expenses as a percentage of total net revenue also remained stable year over year at 16, 7% in the fourth quarter compared with 16, 5% for the same period last year on a full year basis R&D expenses accounted for 66, 6% of net revenue up slightly from <unk>.

Speaker Change: 15, 9% in 2023.

Speaker Change: We remain committed to investing into a concentration in product development.

Speaker Change: We're also seeing leverage R&D investments longer term.

Speaker Change: The effective tax rate was 15, 3% for the full year and 13, 4% for the fourth quarter. As a reminder, the effective tax rate is presented on accrual basis and the tax credit differ for each of our entities at different time periods, depending on people policies and our operations.

Our non-GAAP net income attributable to shareholders for the fourth quarter totaled RMB, nine 7 billion or $1 3 billion in U S dollars.

31% year over year non-GAAP basis earnings per ADR for the quarter was $2 and <unk> dollars were $42 per share for the full year non-GAAP net income attributable to shareholders was up 3% to RMB $33 5 billion.

Bill Pang: Currently we have started working on the overseas version, and we hope we could present that to overseas players within 2025. Thank you. Thank you for your question. Operator, next question please.

Speaker Change: 6 billion U S dollars, which is $7 17 U S. Dollar per avs were $1 43 <unk> per share.

Operator: Your next question comes from Ritchie Sun with HSBC.

Speaker Change: Additionally, our cash position remains strong as of year end, our net cash position was about RMB $131 5 billion compared with RMB $110 might be there at the end of 2023.

Ritchie Sun: Thank you, management, for taking my questions. I have two. The first one is about Marvel Rivals. Regarding the 40 million users, can you share more about the paying propensity, paying ratio? What is the next growth strategy that we're looking at? Will we expand the marketing or esports or even connectivity with the Marvel movies to further expand our user base? Thank you.

Speaker Change: In accordance with our dividend policy. We are pleased to report that our board of directors has approved a dividend.

Of $24 four.

Speaker Change: U S dollar per share were $1 22 U S dollars per avs for the fourth quarter.

Speaker Change: Lastly, under our current.

Speaker Change: 5 billion U S dollar share repurchase program starting in mid January last year, we have repurchased approximately $21 2 million.

Speaker Change: As of December 31, 2024 for a total cost of approximately $1 9 billion U S dollars.

Speaker Change: Thank you for your attention we are right now open the call to your questions operator. Please.

Speaker Change: Thank you. Thank you you may ask a question. Please press star one on your telephone.

William Ding: 目前，Marvel Rivals在国际市场上广受好评，网易会继续重点投入这个产品后续的内容和优化。我们对这个作品的观点是要经营至少十年以上的一颗长青树。我们继续会加大在海外市场营销方面的投入，包括通过开展进行广泛的电竞比赛，包括和漫威电影进行联动等一系列的合作，来稳固我们的用户群体和发展新的用户。谢谢。

Speaker Change: It gave us to cancel your request please press star team.

Speaker Change: Thank you you're on a speakerphone, please pick up the handset to ask a question.

Speaker Change: In addition to your forehead.

Participants on today's call. If you wish to ask a question to management in Chinese. Please immediately repeat your question in English. Please limit your questions to one at this time.

Speaker Change: You must to have follow up questions. Please rejoin the queue.

Speaker Change: Your first question comes from John <unk> with CIBC.

Speaker Change: Right.

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Bill Pang: Thank you for your question. Marvel Rivals, especially after season one, has gained wide acclaim from worldwide players. This is a product we're going to keep investing both on development and marketing. We do believe this product we're going to keep operating, keep enhancing, keep investing for 10 years and beyond. To your question, yes, the team does have plans for esports and we're going to announce our esports plans, hope to have this esports plans, you know, to further enhance the overall gaming ecosystem. To your question, yes, we're going to do a lot of crossover events and promotions with other media in the future. This is a key product we'll keep investing. Thank you for your attention. Operator, next question please.

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Operator: Your next question comes from Alicia Yap with Citigroup.

Speaker Change: Yes.

Speaker Change: Jen.

Speaker Change: We'll change that this is an assumption that book and no sugar.

Alicia Yap: Hi. Thank you. My question is related to Overwatch, given the game is relaunching in China yesterday. What are the company's current expectations for the game, and how will NetEase strike a balance between Marvel Rivals and Overwatch? Thank you.

Speaker Change: 101.

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Speaker Change: English translation.

<unk> com.

Speaker Change: The large scale testing <unk>.

Speaker Change: Both domestically and overseas market with feedback met our expectations.

Bill Pang: Thank you for your question. Regarding our expectations for Overwatch, it's similar to those for World of Warcraft and Hearthstone. You know, we aim not only to just restore the operation as is, we aim to really revitalizing the product and reaching new heights. We're encouraged to see that, you know, from the day one we launched yesterday, from the data, from the user feedback, we're happy to see that we are on that trend. Both Marvel Rivals and Overwatch are excellent, you know, superhero shooters, you know, in this category, and both well designed and supported by outstanding development teams. We'll each strive to meet diversified demands of our respective player community.

Speaker Change: Players gave higher <unk>, so our innovative gameplay and system design and provided a lot of available advisors as well.

Speaker Change: After months of integration, we're now ready to launch after launch.

Speaker Change: <unk> will continue to monitor clear feedback updates better levels provide new characters and cracked out shooting behaviors building a healthy gaming environments for the players.

Speaker Change: Currently there.

Speaker Change: There are multiple well performing shooting titles in the shooting dollar shooting it'll be Ghana, which our R&D teams.

Speaker Change: Through the experience.

This actually reinforce our confidence.

Speaker Change: Yeah.

Speaker Change: No matter.

Speaker Change: The control feedings assistant desire with a few of their tiers.

Speaker Change: Including its very unique our style.

Speaker Change: Everything is.

Speaker Change: <unk> unique signature and we will be appealing to existing and new players. We do have confidence that the game will be successful. Thank you.

Speaker Change: Operator next question.

Speaker Change: Thank you Thompson Yang Li with Morgan Stanley.

Speaker Change: Okay.

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Speaker Change: Sure Julien.

Speaker Change: Sure.

Speaker Change: I will translate my question first.

Speaker Change: First I congratulate though positive feedbacks from the camera on the web.

Speaker Change: And we see quite positive.

Bill Pang: We believe the market is large enough to accommodate two excellent games in the market. Thank you. Operator, next question please.

Speaker Change: Metrics.

Speaker Change: Retention of <unk> Central opened and also we hear a lot of feedback to to expect the company to improve the cosmetics and also the multiplayer game play.

Operator: Next question is from Ritchie Sun with HSBC.

Ritchie Sun: Thank you, Management, for taking my question again. Can you discuss how does the user and grossing trend look like for World of Warcraft and Hearthstone after a strong initial boost from the pent-up demand? After this normalization, what is the next step to improve the longevity of these titles? Thank you.

Speaker Change: So I would like to ask what is the next stage monetization strategy for this title on the Wii.

Speaker Change: Could we see improvement and also I would like to ask about the overseas launch plan for this title.

Speaker Change: And then what's market. Thank you.

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Bill Pang: Well, thank you for your question. Yeah, you know, six months after its return, World of Warcraft and Hearthstone are still performing far better than any other time in history. Of course, as you mentioned that, during the launch time, it's not uncommon that things will normalize and, you know, compared to the release time. We have closely collaborated with our partners at Blizzard to plan upcoming content plan. We believe we will reignite players' engagement. In the long term, we have established a strong trust with business development team and are committed to addressing the feedback from Chinese players, to improve their gaming experience in the local way. Thank you for your question. Operator, next question please.

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Inclusion of both single player and multiplayer mode is created at the amount of players.

Speaker Change: The monetization strategy centered around cosmetics was widely welcomed.

Operator: Next question is from Lincoln Kong with Goldman Sachs.

More of our content ecosystem, featuring cashflow and low pressure gaming experience laser healthy foundation for long term operation.

Lincoln Kong: 谢谢管理层接受我的提问。我这边可能两个问题，第一个是关于我们海外市场的拓展的。我们看到随着这个漫威的成功，然后也看到一些新闻关于我们这个海外工作室的一些调整了。所以就之后我们对于海外市场未来的一些扩张策略是怎么计划的？像类似漫威啊、FragPunk这样的可能更偏我们自研的模式，未来是不是我们的一个方向？我们海外市场的这个优势这边，应该怎么样去思考？那第二个这边可能想问一下关于AI和游戏的，这也是因为也看到这个DeepSeek的成功，那现在这个推理费用也是大幅度下降了。那网易对这个AI如何跟我们现在的这个游戏以及未来的这个游戏的结合这边的思路可不可以也跟我们分享一下？无论是玩法创新啊、玩家互动啊，这个游戏开发的效率、成本这边。那我自己翻译一下。So thank you management for taking my question.

Lincoln Kong: So thank you management for taking my question. My first question is about the overseas market. After the Marvel Rivals success and also some of the adjustment of our overseas studios, how should we think about our future expansion strategy in the overseas market? We follow more direction as Marvel Rivals, FragPunk. Those are self-developed games. How should we think about our advantage in the overseas market? The second question about AI and the game. After the success of DeepSeek and the huge inference cost dropping, how would NetEase integrate our AI versus our current game portfolio as well as our future pipeline? Could management share with us more around the gameplay innovation, our users interaction, our production efficiency, or cost discipline, or any aspects related to AI? Thank you.

Speaker Change: In the future.

Speaker Change: We will continue to focus on introducing new content, our mask free reach our open world, creating diversified quality costumes.

Speaker Change: Very interesting.

Speaker Change: Innovative single player and multi player.

Speaker Change: Experience for.

Speaker Change: Single player multiplayer game plays.

Gamers at Franco.

From time to time, we will talk to players face to face crack their feedback to keep modify key potash and <unk>.

Regarding your question on the overseas plants.

Speaker Change: Is that what it was made.

Speaker Change: Why.

Speaker Change: <unk> office unique open work style and the unique interpretation, we shall content, which actually gained us wide attention and anticipation from OFC audience as well currently we have started working on the overseas version, we hope we could present doubts to OSB players within 2025.

Lincoln Kong: My first question is about the overseas market. After the Marvel Rivals success and also some of the adjustment of our overseas studios, how should we think about our future expansion strategy in the overseas market? We follow more direction as Marvel Rivals, FragPunk. Those are self-developed games. How should we think about our advantage in the overseas market? The second question about AI and the game. After the success of DeepSeek and the huge inference cost dropping, how would NetEase integrate our AI versus our current game portfolio as well as our future pipeline? Could management share with us more around the gameplay innovation, our users interaction, our production efficiency, or cost discipline, or any aspects related to AI? Thank you.

Speaker Change: Thank you. Thank you for your question operation.

Speaker Change: Operator next question please.

Chi Tsang: Your next question comes from the Chi Tsang with HSBC.

Speaker Change: Okay.

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Speaker Change: Thank you management for taking my questions.

Speaker Change: But the first one is about Marvell rifles.

Speaker Change: Regarding the 40 million users can you share more about the paying propensity paying ratio and what is the next <unk>.

William Ding: 对海外市场用户的需求和中国市场用户的需求是有一些差异之处的。网易非常重视海外的一些工作室，他们能够通过自己的创意和创新来满足海外用户的需求。网易非常愿意积极地去支持和帮扶那些真正能够做出优质产品的工作室和有创意的制作人在海外市场取得成功。这是我们未来在海外游戏拓展方面的一些策略。第二个，随着DeepSeek等AI的成功，AI能够非常积极、有效和高效地帮助我们在游戏研发管线方面的提效和降低成本，以及在游戏里帮助用户，帮扶用户更容易地理解作品的内容，和帮扶用户更容易上手。AI对游戏的研发创新的玩法的设计都有巨大的积极的贡献。谢谢。

Speaker Change: The strategy that we're looking at we expand the marketing or esports, all Ethan connectivity with the Marvel movies to further expand our user base. Thank you.

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Speaker Change: Thank you for your question.

Speaker Change: Moreover, rivals, especially after season one.

Speaker Change: Wide appraisal from worldwide players and this is a product we're going to keep investing keep investing.

Speaker Change: Both on development and marketing.

We do believe this product, we're going to keep operating keeping enhancing keep investing for 10 years and beyond.

Speaker Change: To your question, yes, the team does have plans for esports and.

Speaker Change: We're going to announce our esports plans and hope to have this at first glance to further enhance the overall gaming ecosystem and to your question, Yes, we're going to do a lot of crossover.

Bill Pang: Okay. I will do the translation. To your question, you know, the user demand, their preference, in overseas market, are not the same as the user demand and preference in China market.

Bill Pang: Okay. I will do the translation. To your question, you know, the user demand, their preference, in overseas market, are not the same as the user demand and preference in China market. We realize that. We actually pay a lot of attention to support our overseas studios. You know, we to support the creators in the overseas market to be creative, to create content to meet the local demands in the overseas market. So, you know, our commitment to support the really high quality studios and really, you know, master creators to create the very creative games for overseas market, that is our strategy. There's no change on that.

Speaker Change: Events and promotions with other medias.

Speaker Change: In the future and this is a key product won't keep investing thank you for your attention.

Bill Pang: We realize that. We actually pay a lot of attention to support our overseas studios. You know, we to support the creators in the overseas market to be creative, to create content to meet the local demands in the overseas market. So, you know, our commitment to support the really high quality studios and really, you know, master creators to create the very creative games for overseas market, that is our strategy. There's no change on that. Yeah. That's the answer to the first question. The second question regarding AI. AI is and will, you know, significantly increase the efficiency in the R&D process, in the development pipeline. There's no doubt about that. We have been doing that, and we're going to do that in the future. And also there are many other applications of AI in gaming. You know, for example, in games, it could help the users to better engage with the content, better understand the content, better our onboarding on the content for the new gamers, and we're exploring that in massive way as well. We believe AI for the R&D process, the creative process of gaming industry is going to make huge positive contributions.

Speaker Change: Operator next question please.

Speaker Change: Your next question comes from Alicia Yap with Citigroup.

Alicia Yap: Hi, Thank you Giovanni.

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Speaker Change: So my question is related to Overwatch, given the games that will be launching China yesterday. So what are the company's current expectations for the game and how we're striking a balance between Manuel rival Overwatch. Thank you.

Bill Pang: Yeah. That's the answer to the first question. The second question regarding AI. AI is and will, you know, significantly increase the efficiency in the R&D process, in the development pipeline. There's no doubt about that. We have been doing that, and we're going to do that in the future. And also there are many other applications of AI in gaming. You know, for example, in games, it could help the users to better engage with the content, better understand the content, better our onboarding on the content for the new gamers, and we're exploring that in massive way as well. We believe AI for the R&D process, the creative process of gaming industry is going to make huge positive contributions.

Yes.

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Bill Pang: We're very positive about that. Thank you. Thank you for your question. Operator, next question please.

Speaker Change: Okay.

Speaker Change: Pay down too early yet.

Speaker Change: Yeah.

Operator: Next question is from Lei Zhang with Bank of America.

Speaker Change: Thank you Sean.

Speaker Change: Got it from people switching.

Speaker Change: On to the system.

Lei Zhang: 管理层晚上好，谢谢接受我的提问，我有两个小问题。第一个问题是想请教一下代号无限大这个游戏，因为之前也拿到了版号，想看一下现在的一个研发进度是怎么样，然后我们有没有希望在2025年能看到它上线。然后鉴于中国的这个二次元游戏还是相对比较竞争激烈的，然后我们这款游戏的这个定位跟差异化应该怎么看？这是第一个问题。然后第二个问题是想问一下营销费用的，有看到Q4的这个announcement里面，环比的营销费用还是有一个非常明显的一个下降，不知道是不是我们在这个市场营销的策略方面发生了变化，还有我们应该怎么看我们2025年整体营销费用的一个趋势。我自己翻译一下。Uh, thanks management for taking my question.

Lei Zhang: Thanks management for taking my question. My first question is regarding the game, NATA, which got game approval previously. Should we expect it to be launched in 2025? Given the competitiveness of ACG game, how do we think about its positioning and the differentiation here? Secondly, want to follow up on the sales and marketing expense, which has a meaningful reduction in Q4. Want to know the driver and whether we change the sales and marketing strategy and going forward, how should we look at sales and marketing trend in 2025? Thank you.

Speaker Change: Sounds.

Speaker Change: James.

Speaker Change: Shannon.

Speaker Change: Understood.

Speaker Change: Thank you for your question.

Speaker Change: Regarding our expectations for Overwatch is similar to those so for water Warcraft Hearthstone, we aim not only to just restored the operation as is.

Speaker Change: And two to really <unk>, the product and reaching new highs.

Speaker Change: We are encouraged to see that from the.

Speaker Change: The big one we launched yesterday.

Speaker Change: From the data from the user feedback we are happy to see that we are on that track.

Speaker Change: Both of our rivals and Overwatch are excellent.

Speaker Change: Superhero shooters.

Speaker Change: In this category in both well designed and supported by outstanding development teams.

Alicia Yap: My first question is regarding the game, NATA, which got game approval previously. Should we expect it to be launched in 2025? Given the competitiveness of ACG game, how do we think about its positioning and the differentiation here? Secondly, want to follow up on the sales and marketing expense, which has a meaningful reduction in Q4. Want to know the driver and whether we change the sales and marketing strategy and going forward, how should we look at sales and marketing trend in 2025? Thank you.

Speaker Change: We will each strive to meet diversified demands of our respective player community.

Speaker Change: I believe the market is large enough to accommodate two excellent games in the market.

Speaker Change: <unk>.

Speaker Change: Operator next question please.

Speaker Change: Next question is from Betsy <unk> with HSBC.

Tom Cowen: Hi, Thanks, Good morning, Tom Cowen <unk>.

Tom Cowen: Question about Shadow win T. Josef say turnkey woman Johan thought visual Quake Wayne Hall.

Bill Pang: We have completed an offline test for NATA this January. The feedback is honestly quite positive. The development is undergoing in the very smooth way on track, and the team is growing in the orderly manner as well. For competition, we believe competition is a good thing, and it actually reflect that the markets, there's an interest in the market in this genre of game, and there's unmet demand there. As long as we meet the player expectations, we're confident that we can deliver outstanding products. Currently we're focusing on refining our content, to keep developing the product. We plan to invite more players for testing, when we're ready. Thank you.

Tom Cowen: Emotional should the high resolution now.

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Tom Cowen: Sure, Tom Quigley Telecom, Washington Hall, <unk> Dot Com TD <unk> Mark. Thank you management for taking my question again and can you discuss how does the user growth trend look like for web overall coffin hostile appetite strong initial boost from the pent up demand and after this normalization and what is the next.

Tom Cowen: To improve the longevity of these titles. Thank you.

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Speaker Change: Thank you for your question.

Tom Cowen: Sure.

Tom Cowen: Six months offer to return or oil cover hearthstone are still performing far better than any other time in the history.

Tom Cowen: Of course, as you mentioned that during the last time.

William Ding: 对，我来回答一下，就是关于四季度营销费用下降的事情。其实，这个一些更加高效的营销推广的工具，所以费用效果变好了，费用就降低了，我想这是一个最重要的事情。

Tom Cowen: It's not uncommon that things will normalize.

Compared to the two release time, we have closely collaborated with our partners at laser to plan upcoming content.

Tom Cowen: And we believe we.

Tom Cowen: We will reignite players engagement and in the long term, we have established a strong trust.

Bill Pang: Regarding the market spending decrease in Q4, as you know, we are keep innovating our market engine and exploring higher efficient ways and tools and system to do the marketing operating. This actually is a reflect of our improved efficiency in terms of marketing operation. Thank you, operator, next question please. For the time being, we probably have time for one more question. Please.

Speaker Change: Development team and are committed to addressing the feedback from Chinese players.

Tom Cowen: To provide to improve their gaming experience in the local way.

Speaker Change: Thank you for your question.

Tom Cowen: Later next question please.

Tom Cowen: Next question is from Lincoln, Hong with Goldman Sachs.

Lincoln Hong: Thank you Jessa.

Lincoln Hong: <unk>, which came from the <unk>.

Lincoln Hong: <unk> disclaims highlights just how auto in China.

Lincoln Hong: Maui to timken.

Speaker Change: Jason what's going on with your <unk>.

Lincoln Hong: I mean do you highlighted as home without Asia quick answer this.

Operator: Thank you. The next question comes from Felix Liu with UBS.

Lincoln Hong: Hi, there.

Speaker Change: John lease amount, we offer a penchant deck kind of components.

Felix Liu: 谢谢管理层接受我的提问。我的问题是关于我们公司最近的一些组织架构调整，注意到公司近期，国内和海外的游戏工作室均有一些调整，所以请管理层能否分享一下这些调整背后的原因，以及我们应该如何理解公司在中长期的新游戏投资的策略。Let me translate myself. Thank you management for taking my question. My question is on the news of recent organizational changes. We noted there have been quite a few changes within both your domestic and overseas studios. Could management share the reason and consideration behind these changes?

Felix Liu: 谢谢管理层接受我的提问。我的问题是关于我们公司最近的一些组织架构调整，注意到公司近期，国内和海外的游戏工作室均有一些调整，所以请管理层能否分享一下这些调整背后的原因，以及我们应该如何理解公司在中长期的新游戏投资的策略。

Felix Liu: Let me translate myself. Thank you management for taking my question. My question is on the news of recent organizational changes. We noted there have been quite a few changes within both your domestic and overseas studios. Could management share the reason and consideration behind these changes? How should we think about your mid and long term investment plan for new games? Thank you.

Lincoln Hong: No more shouldn't rely subsuming Eagle Fone, Sean.

Lincoln Hong: Highlights just how much of a U shaped in you guys amount just the comp.

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Lincoln Hong: Do you want to touch on the <unk>, we don't want to.

Lincoln Hong: You will see kind of out of Xiaomi jump in GBM.

Lincoln Hong: Thank you management for taking my question. So my first question is about our overseas market.

Felix Liu: How should we think about your mid and long term investment plan for new games? Thank you.

Lincoln Hong: After the Marvell arrivals success and also some of the adjustment offer obviously studios how should we think about what our future expansion strategy in overseas market.

William Ding: 我们在不同的工作室分配资源的时候，研发资源和投入的时候，我们非常重视这个作品未来的模式、质量以及生产效率，进行适当的调整。那有些项目如果发现可能在未来推出的时候会不适合市场用户的需求的，我们会积极地果断地踩刹车。但有些项目我们发现它这个质量效率都非常好，我们也会加大更多的资源去。所以这一切都是取决于产品本身的质量，就能否满足未来用户的期许。因为开发一个游戏的时间很长，往往需要三年甚至更长的时间。所以在立项的时候，在立完项以后，在中间的开发过程中，需要不停地去适应未来市场需求，该加大的加大，该停止的就停止，这是我们的一个原则。谢谢。

Lincoln Hong: We follow more.

Lincoln Hong: Directionless <unk> offering pumps those are self developed games, how should we think about our advantage in the overseas market.

Lincoln Hong: The second question about AI in the game. So after the success of deep sea can have huge interest cost dropping.

Lincoln Hong: <unk>.

Lincoln Hong: East.

Lincoln Hong: East integrate our AI versus our current portfolio as well as our future pipeline.

Okay management share with us more around.

Lincoln Hong: Gameplay innovation user interaction.

Lincoln Hong: Production efficiency or a cost discipline, alright antibody asset related to AI.

Lincoln Hong: Okay.

Lincoln Hong: Okay Highway.

Lincoln Hong: Sure.

Lincoln Hong: Hello, John cause for the show.

Lincoln Hong: Hi.

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Lincoln Hong: How long do you think homeless Thomas.

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Lincoln Hong: Thank you Cheng Cheng sheet add.

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Lincoln Hong: Nicole.

Lincoln Hong: Fuel consumption.

Lincoln Hong: So you tell me that he joined us.

Bill Pang: Okay, I will do the translation. Yeah, okay, I will do the translation. When we allocate resources among different products across different studios, no matter domestically or including our overseas studios, it's all we pay a lot of attention, a lot of key attributes, for example, the quality of the work and if the work is going to meet the future demands of players when the work is released in market years later, as well as the production efficiency of the work, everything. If some project, you know, we can foresee that when the product, you know, faces markets years later, it's likely not enough players, we will, you know, very firmly, you know, wouldn't use the word, you know, press the brake. If some project, you know, if they're really high quality, meeting the future market demands, actually we're going to double down. It's all about, it's all about the product itself, the quality, the development efficiency. Is it going to meet the ever-growing user expectation? Because game development is a long cycle, it's three year, four year, five year cycle. It's, you know, when we charge a project, we have some assumptions. During that development process, we'll keep monitoring and to see if the product is going to be able to meet the future demands, and to do resource allocation adjustment. That's a normal course of game development management. We have been doing that for a long time and doing that that way. Thank you for your question.

Lincoln Hong: Sure.

Lincoln Hong: Okay.

Just.

Lincoln Hong: Okay.

Lincoln Hong: You will see it project funding.

Lincoln Hong: Issue fully.

Lincoln Hong: Yes.

Lincoln Hong: Can you talk a deep sea type them either.

Lincoln Hong: Yes.

Lincoln Hong: Single Phase Hong <unk> Shah co Sheldon.

Lincoln Hong: Two.

Lincoln Hong: And then.

Speaker Change: You will see young topline shame on me and Im sure.

Lincoln Hong: Chunky timber.

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Lincoln Hong: Meaningful.

Lincoln Hong: E D G Phillips.

Lincoln Hong: So option that need.

Lincoln Hong: So.

And we social.

Lincoln Hong: Yeah.

Lincoln Hong: You will see that.

Bill Pang: If some project, you know, if they're really high quality, meeting the future market demands, actually we're going to double down. It's all about, it's all about the product itself, the quality, the development efficiency. Is it going to meet the ever-growing user expectation? Because game development is a long cycle, it's three year, four year, five year cycle. It's, you know, when we charge a project, we have some assumptions. During that development process, we'll keep monitoring and to see if the product is going to be able to meet the future demands, and to do resource allocation adjustment. That's a normal course of game development management. We have been doing that for a long time and doing that that way. Thank you for your question.

Lincoln Hong: Yes.

Lincoln Hong: Yeah.

Lincoln Hong: Polishing the wildfires.

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Lincoln Hong: Sure.

Lincoln Hong: Okay.

Lincoln Hong: Due to the translation.

Lincoln Hong: So.

Lincoln Hong: To your question.

Lincoln Hong: The user DRAM their preference.

OSB market are notwithstanding user demand province in China market.

Lincoln Hong: We really like that and so we actually pay a lot of attention to support our overseas studios.

We try to support the creators in the OSV market to be creative to create content to meet the local demands in oversea markets. So.

Lincoln Hong: Sure.

Our commitment to support.

Lincoln Hong: With really high quality studios, and really master creators to create.

Operator: That concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any closing comments.

Lincoln Hong: The very creative games 40 markets.

Brandi Piacente: Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly, and we hope you have a great day. Thank you.

Lincoln Hong: That's.

Lincoln Hong: Our strategy there is no no change on that.

Lincoln Hong: Yes so.

Lincoln Hong: The answer to the first question second question regarding AI.

Lincoln Hong: AI.

Lincoln Hong: Is that a wheel.

Lincoln Hong: Significantly increase the efficiency.

Lincoln Hong: In the R&D process in the pipeline.

Theres no doubt about that we've been doing that and we're going to do that in the future.

Lincoln Hong: And also there are many many other applications of AI Jamie.

Lincoln Hong: For example in games it could help the users to better engage with the content better understand the constant.

Speaker Change: Holding them accountable for the new gamers.

Speaker Change: And we're exploring that in massive way as well and so we believe AI for it.

Speaker Change: The R&D process, the accretive process of gaming industry is going to be.

Speaker Change: Make huge positive contributions were very positive about that.

Speaker Change: Thank you.

Speaker Change: Thank you for your question Operator next question. Please.

Speaker Change: Next question is from <unk>, Zhang with Bank of America.

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Speaker Change: Hi, Thanks management for taking my question. My first question is regarding the game.

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Speaker Change: And I want follow up on the sales and marketing expense.

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Speaker Change: Development is undergoing and diverse in this way on track and the team is growing and the alternative manner as well.

Speaker Change: For competition, we believe competition is goofing.

Speaker Change: Is actually reflect the markets. There is an interest in the market in this genre of games and there is unmet demand there as long as we meet the clear expectations and we're confident that we can deliver outstanding products. Currently we are focusing on refining our content.

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Speaker Change: As to operating to do the marketing operated.

Speaker Change: This actually.

Speaker Change: It reflects our improved efficiency in terms of marketing operation.

Speaker Change: Thank you operator next question please.

Speaker Change: The time being we probably have time for one more question.

Speaker Change: Yes.

Eric: Thank you. The next question comes from Eric <unk> with UBS.

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Speaker Change: Let me translate myself. Thank you mentioned all for taking my question.

Speaker Change: My question is on the news of recent organizational changes. We noted there have been quite a few changes we've seen in both our domestic and overseas Cdos could management share. The reason in consideration behind these changes and how should we think about your mid and long term.

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Speaker Change: When we allocate resources.

Speaker Change: Among different product across different studios, no matter domestically or or including our overseas studios.

Speaker Change: We pay a lot of attentions.

Speaker Change: Keith.

Speaker Change: Attributes for example to.

Speaker Change: The quality of the work.

Speaker Change: It's a working to meet the future demands are players when the work is releasing market years later.

Speaker Change: Well it's the.

Speaker Change: Production efficiency of the work everything.

Speaker Change: So.

Speaker Change: Some project.

Speaker Change: We can foresee that product faced market years later.

Speaker Change: Likely not.

Speaker Change: And our players.

Speaker Change: We will.

Speaker Change: Very firmly.

Speaker Change: What gives award.

Speaker Change: Press the brake and.

Speaker Change: If some product.

Speaker Change: If there are really.

Speaker Change: High quality, reaching the future market demands actually we're going to double down.

Speaker Change: Yes.

Speaker Change: It's all about the product itself the quality the development efficiency is going to meet the ever growing user expectation.

Speaker Change: Because game development is a long cycle of three year four year five year cycle.

Speaker Change: <unk>.

Speaker Change: We chartered project, we have some assumptions and doing the development process, we will keep monitoring to see if the product's going to be able to meet the future demands.

Speaker Change: Two resource allocation adjustments.

Speaker Change: The normal course of game development elements that we have been doing that for a long time.

Speaker Change: We know that way. Thank you for your press release.

Speaker Change: And that concludes our question and answer session I would like to turn the conference back over to Brandi Piacente for any closing comments.

Brandi Piacente: Thank you once again for joining us today, if you have any further questions. Please feel free to contact us directly and we hope you have a great day. Thank you.

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