NetEase Investment Losses Weigh on Profit; Q2 Revenue Beats Estimates but Adjusted EPS Misses

NetEase shares fell on Thursday after the company reported mixed second-quarter results, with revenue beating Wall Street expectations but adjusted earnings per share missing estimates.

NetEase Revenue Beats, EPS Misses

NetEase reported second-quarter revenue of $4.44 billion, or RMB 30.1 billion, up 7.9% year-over-year. Revenue exceeded analyst expectations of $4.3 billion.

Adjusted earnings per share came in at $1.77, missing the $2.28 estimate. Despite solid revenue growth, NetEase's profit was pressured by investment losses.

Gaming Business Drives Growth

Revenue from gaming and related value-added services rose 9.7% to $3.7 billion. The segment's gross margin expanded to 76.13% from 70.22% in the same period last year.

Youdao revenue grew 3.5% to $216.2 million, with gross margin improving to 48.87% from 42.99%.

CloudMusic revenue was roughly flat at $291.4 million. Gross margin rose to 37.43% from 36.06%.

Innovative businesses and other operations revenue fell 3.5% to $241.6 million. However, gross margin improved to 43.39% from 42.32%.

As of June 30, NetEase held $24.7 billion in net cash. The company generated $1.5 billion in operating cash flow during the quarter.

NetEase Bets on Games and Global Expansion

Chief Executive Officer Ding Lei attributed gaming momentum to original titles, regular content updates, and disciplined operations in China and overseas.

"Justice Blade" surpassed 10 million active players on the launch day of its major June update. "Egg Party" exceeded 700 million registered users and maintained over 100 million monthly active users.

NetEase also expanded "Windborne" through an Xbox release. Content updates helped the game rank among the top three on Steam's global bestseller list.

Meanwhile, Blizzard games continued to perform well in China. "Overwatch" added active users on its 10th anniversary, while "Diablo 4" improved user engagement and retention through localized content and events.

CloudMusic renewed its cooperation agreement with Universal Music Group and added more Korean and Chinese record labels, soundtracks, and variety show music.

New Games and AI Drive Growth

NetEase is developing new games, including "Senta" and "Blunt Blade Info." Management said the "Blunt Blade Info" trailer garnered approximately 40 million global views following Summer Game Fest. The company is also preparing for the global launch of "Related Sea."

NetEase is expanding AI applications beyond gaming. Youdao launched its Confucius 4 model and improved translation inference speed by approximately 80%. It also expanded AI-driven learning services and subscriptions.

Ding Lei said NetEase plans to continue integrating advanced technology into product development and operations while pursuing global expansion.

NTES Stock Performance

NTES stock performance: As of Thursday's release, NetEase shares were down 4.63% at $121.36.