NetEase's Revenue Meets Expectations but Profit Declines — Update

By Sherry Qin

NetEase reported in-line revenue for the second quarter, but PC game growth was stagnant as the segment faced some headwinds amid changes to its signature title.

The Chinese videogame giant's net profit dropped 18% in the second quarter from a year earlier to 6.76 billion yuan, equivalent to $947.7 million, missing expectations of 7.24 billion yuan in a FactSet poll of analysts. Its bottom line was mainly weighed by net exchange losses and higher income tax in the quarter.

Adjusted net profit, a closely watched metric that excludes share-based compensation expenses, fell 13% to 7.82 billion yuan.

The Hangzhou-based company's revenue rose 6.1% to 25.485 billion yuan, roughly in line with market expectations, as sales from games and related value-added services climbed 6.7%.

NetEase's hit games "Naraka: Bladepoint" and "Identity V" continued to generate popularity, it said Thursday.

However, its PC game segment struggled in the first half of the year following in-game adjustments to signature title "Fantasy Westward Journey." The company implemented changes to FWJ's trading platform for virtual items in May to ensure the stability of the in-game economic system.

Yet the roughly flat PC game revenue from last year could "help mitigate investors' concern" about the impact of the adjustment, Citi analysts said in a note.

NetEase competes with Tencent, the world's largest gaming company by revenue. Their rivalry has grown as the companies accelerated title releases after China's gaming regulator eased its grip on the sector earlier this year.

Tencent released its blockbuster title "Dungeon & Fighter Mobile" in late May. Last week, it reported an 82% net profit gain in the second quarter after domestic game sales resumed growth, thanks to DnF Mobile's strong debut.

NetEase, meanwhile, launched its highly anticipated game "Naraka: Bladepoint Mobile" on July 25 and continues to have a strong pipeline of games that will launch this year, including "Where Winds Meet" and "Tian Qi Xing Dong."

Analysts expect the new titles to support NetEase's overall gaming revenue growth and modestly offset the PC game weakness.

Shares in the company have gained 1.7% this year, underperforming the 3.5% rise in the broader Hong Kong market.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

August 22, 2024 07:52 ET (11:52 GMT)

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