NetEase (NASDAQ:NTES) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

NetEase reported total revenue of RMB 30.6 billion for Q1 2026, driven largely by gains in the games and related services segment, which generated RMB 25.7 billion.

The company highlighted the global success of its game titles, particularly the overseas expansion of games like Whirlwinds Meet and Marvel Rivals, which have gained significant traction in international markets.

Strategic initiatives include continued investment in game development with a focus on innovation, as well as the integration of AI technologies across various business segments.

NetEase's financial health remains strong with a gross profit margin of 59.4% and a robust cash position at RMB 157.5 billion as of March 31, 2026.

Management expressed confidence in future growth driven by a pipeline of new game titles, global expansion, and operational excellence, alongside strong community and player engagement.

Full Transcript

OPERATOR

Good day and welcome to the NetEase first quarter 2026 earnings conference call. Today's conference is being recorded at this time. I would like to turn the conference over to Brandi Piacenti. Please go ahead.

Brandi Piacenti (Moderator)

Thank you, Operator. Please note that today's discussion will contain forward looking statements relating to the future performance of the Company and are intended to qualify for the safe harbor from liability as established by the U.S. private securities litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the Company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the Company with the Securities and Exchange Commission, including its annual report on Form 20F and in announcements and filings on the Hong Kong Stock Exchange's website. The Company does not undertake any obligation to update this forward looking information except as required by law. During today's call, management will also discuss certain non GAAP financial measures which should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For a definition of non GAAP financial measures and a reconciliation of GAAP to non GAAP financial results, Please see the First 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 NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer, Mr. Hu Zhiopeng, Executive Vice President Ms. Eileen Mo, Vice President of Finance and Mr. Bill Tung, 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, please go ahead.

Bill Tung (Vice President of Corporate Development)

Thank you Brandy and welcome everyone to today's call. Before we begin, I would like to remind everyone that all percentages are based on 2026 is off to a solid start with total revenue reaching RMB 30.6 billion in the first quarter driven by continued momentum in our games business. Our games and related value add services generated net revenues of RMB 25.7 billion, reflecting our strength in long term game operations and growing global appeal. Our performance of this quarter was underpinned by continued strength of our game portfolio both internationally and domestically. Overseas, Our titles demonstrated growing cross market appeal across genres and platforms. At home, our established franchises sustained strong player activity through consistent content delivery and live service innovation. Together, these results reflect the breadth and resilience of what we have been built across genres, platforms and the player communities worldwide. Now let me walk through some of the highlights. Genshin's overseas launch in last November Whirlwinds Meet have become a global phenomenon, resonating across cultures and maintaining momentum well beyond the initial launch window. In March it launched its first major expansion Heshi, bringing players to a desert environment with distinctive settings and uniquely designed in game enemies. More recently, the game introduced version 1.6 featuring a new region alongside a novel wind-based exploration system that further enhanced immersion and player freedom in the open world experience. The update was well received by players, propelling the game to number two on Steam's global top seller chart. Strong momentum across both overseas and domestic market backed by sustained player engagement translated into another record in quarterly revenue, a result that reflects the compounding value of high quality content and reinforces our confidence in this title's long term potential. Marvel Rivals continue to expand its reach among global hero shooter audiences supported by a steady cadence of seasonal updates and high quality content. On April 10, the game introduced the new themed cosmetic content including Mate Outfit for Deadpool and Jeff the Landshark which generated strong community engagement driving it to number two on Steam's top seller chart in the US in addition to the content update, Marvel rivals expanded its PvE experience with the Bloodhound mode in season 7.5 featuring new boss battles and refresh mechanics as players engage in intense fights against the Lord of Vampires. It also introduced its Path to Doomsday event, a year long roadmap featuring new modes and in game events inspired by the Infinity Saga. This initiative is deepening player engagement while creating natural links to broader Marvel storytelling leading into the release of Marvel Studios Doomsday in December. Together these efforts reinforce Marvel Rival's position as a dynamic, evolving place with strong cross media resonance. In March, Knives out launched a crossover with the iconic Tokyo Ghoul franchise, integrating its themes into the in game world and allowing players to engage with its universe. The collaboration sparked strong responses among on social media and generated high player engagement supported by the IP's reach and well designed event. Execution. Knives Out reached number three on Japan's LS Top Crossing chart. In the same genre, Brown Strike celebrated the second anniversary of its global mobile launch in March, achieving a record high daily active users, demonstrating the enduring strength of its player community alongside international expansion. Our domestic performance remains solid. We sustained strong engagement and revenue in the first quarter across established titles supported by ongoing content updates and gameplay innovation. Multiple titles reached highs in player base and activity, demonstrating the enduring appeal of of our esteemed franchises. Fantasy Westward Journey Online, our flagship mmorpg, continues to evolve through new mechanics and content that keeps our players engaged. In the first quarter, the Unlimited Server rolled out a series of updates that enrich gameplay and PvP events, including the Family System which allows players to build in game social bounds, cultivate combat companions and experience a refreshed progression arc. The features were well received by the community and the Unlimited Server continued to serve as an effective entry point for both returning and new players, broadening the active user base while retaining the loyalty of long standing fans. Peak and current users reached a new high of 3.9 million and the title recorded its highest ever quarterly revenue. Underscoring its continued vitality, Journey Mobile also maintained strong momentum with its specialized server continuing to refine progression systems and steadily expanding active player base. The game's 11th anniversary event in March was a particular highlight, driving daily active users to its highest level since 2017. In April, more updates to the in game economic system continued to strengthen the long term health and balance of the game's overall ecosystem. Jianxia, a long running MMO franchise with over 18 years of operations, delivered a record commercial performance in the first quarter. Supported by its low community and stable live operations cadence, the game continues to evolve through player co creation with ongoing content updates sustaining engagement well. More new features are being explored to enhance personalization and deepen player connections. Gold Story Mobile, one of Nete's most enduring MMORPG franchises, recently celebrated its 10th anniversary, a milestone reflecting the strength of our long term live service capabilities. Since its 2016 launch, the title has attracted over 200 million registered users. With its longevity built on the consistent content updates, evolving gameplay experiences and a deeply loyal community. As a pioneer of film and television crossovers in gaming, Ghost Story Mobile once again partnered with hit TV drama Love020 and Actors for its 10th anniversary, reuniting players with beloved characters and classic experiences from the series, reaffirming the title's momentum as it enters into its second decade. Eggy Party continues to hold its position as China's leading party game destination. Spring festival events have become a meaningful annual tradition, bringing players together with friends and family through themed content on Eggy Island, reinforcing the game's identity as a shared social space. Building on the festive atmosphere in February, the introduction of several beloved IPs including my little Pony drove strong community participation and pushed the game to the top of China's LS squatting chart. Identity V maintained steady engagement and momentum throughout the first quarter with enriched gameplay systems that reinforce its unique position in the asymmetric battle arena genre. During the Spring Festival event, it added more depth by introducing new characters and themed content alongside limited time gameplay experiences within the classic 1v4 mode. In March, its 8th anniversary brought new variations to the classic 1v4 mode where the sizes of survivors and hunters shift during matches based on player actions. It also added more dynamics to the fast paced 2 VA mode with new car based mechanics that influence real time battle progression. As an integral part of its broader content and operations strategy, Esports remains a core pillar of the game's long term engagement. Core of the Beast 9 the game's premier global tournaments reached its climax with the global Finals held in Shanghai earlier this month. Elite teams from regions across the globe delivered highly competitive matches that ignited community excitement. Infinity Borders, our signature SLG title, continues to push the genre's boundary with updates like the 5th edition that streamline time consuming actions and and rebalance battle pacing, enhancing the overall strategic experience. Beyond this addition, the game continued to enrich its seasonal updates with fresh landscape designs, themed character portraits and crossovers with popular IPs, all of which were well received by the players over the past months. These updates resonated strongly with the community, drove a meaningful improvement in daily active users and continued to strengthen the game's foundation for long term operations. The Naraka Baypoint franchise continued to refine its melee focused combat experience through new heroes, new maps and updated battle mechanics that keep the fast paced gameplay fresh. A two way crossover event with Overwatch in China helped expand the game's reach, connecting two distinct player communities. Sword of justice maintained a vibrant player community through rich content and a lively open world that continues to evolve. The title continues to enrich player interaction and creative gameplay experiences, introducing features such as text to item generation and in game narrative creation. These innovations not only deepened player engagement, but also fostered a thriving ecosystem of user generated content, strengthening player connections. Innovation is the driving force for the content creation in our existing portfolio as well as our games under development. New titles in our pipeline remain on track with Sea of Venements and Ananta making steady progress towards launch. Both titles are designed with a clear intent to deliver all new player experiences and explore gameplay directions that have the potential to shape future trends. Feedback from Sea of Reneman's latest round of testing was positive and we're in the final stages of preparation ahead of launch. As for Blizzard titles, their popularity was reinforced through diversified live service operations and localized content in the first quarter. World cup launched its midnight expansion in China on March 3rd alongside the global release, bringing players back to the Alban Kingdom. With the continued deepening of our localized operations in China, we have implemented extensive optimizations and dedicated LiveOps events tailored to the China market. These efforts have successfully sustained a high level of player retention and engagement, leading to a solid year on year commercial performance in the first quarter. In April, Diablo IV launched its Lord of Hatred expansion simultaneously across China and global markets. Meanwhile, Diablo 2 resurrected a title with a 20 year legacy, reignited its player base with a new DLC. This update drove a strong increase in monthly active users in the first quarter, further reflecting its enduring appeal. In February, Overwatch and Naraka Bladepoint collaborated on two week crossover events featuring character integration and themed skins. Combined with the Spring festival themed content, the event changed, generated strong cross community engagement and elevated player activity. With strong user engagement in Q1 daily, active users grew with KeyBID while showing improved stability through strong partnerships and sustained engagements across our growing portfolio, we are well positioned heading into the rest of the year. With continued investment in innovation, an unwavering commitment to quality and deep rooted operational expertise, we aim to create unique and unforgettable gaming experiences for players in China and around the world. Turning to our other businesses, Youdao further advanced its AI native strategy in the first quarter by driving continued iteration on its Confucius Large language model and more deeply embedding AI throughout its ecosystem. The learning services segment made steady progress supported by strong growth in you DAO Link Shi and AI driven subscription offerings. Youdao also enriched its AI agent matrix, adding two new AI native applications, LobsterAI and Open Source PersonalAI, Desktop Assistant and AI Native knowledge base designed for complex information synthesis. Online marketing services benefited from increased demand for performance based advertising as AI driven tools enhanced the targeting and streamlined content production while the Smart Devices segment maintained its physical discipline, prioritizing sq profitability over volume. Yanxuan celebrated its 10th anniversary this year marking a decade of dedication to high quality products. As part of this effort we continue to build out our pet category, strengthening capabilities across R and D, supply chain, quality control and membership operations. Yanxuan maintained consistent execution across key categories in in the first quarter with Pet Food, Home Sense and Home Goods continuing to introduce new products and securing leading positions in their segment across E commerce platforms. Additionally, sustainable development remains a core focus for NetEase. We believe long term success of a company is intertwined with the value it creates for users, for communities and employees. Earlier today we published our seventh annual ESG Report outlining our latest progress across sustainability, governance and social impact. As our business continues to grow and evolve, we stand steadfast among our employees who share our values and the dedication to continuous innovation and passion in service of our users. We provide resources and opportunities for them to develop, strive and keep innovating. By focusing on these kind of initiatives, we have once again been included in the World's Best Employer List published by Forbes, marking nine consecutive years for our company. We're also mindful of social impact of our technology and strive to integrate corporate social responsibilities into product innovation and business practices, extending the accessibility and inclusiveness of technology on the environmental side, While our online business by nature has relatively low carbon footprint, we nonetheless actively explore ways to make our operation even greener and cleaner. For example, we have improved energy efficiencies across our data centers and campuses, helping reduce greenhouse gas emissions by 12% year over year. On the governance side, we continue to improve our board and management oversight on material issues. External recognition continues to reflect this progress. MSCN upgraded us to a Triple A ranking, positioning us as a leader among over 200 companies in the global media and entertainment industry. Roster analytics maintained our Low risk rating with improved profile, placing us among the top companies in our industry. In closing, across our businesses, our operations and our development pipeline, we are seeing results from our long held commitment to creativity, innovation and the evolving technologies that power it. We see this momentum building as established titles continue to set new record, new titles advance towards launch with clear ambition and our international footprint continues to grow. Woven through all of it is our ongoing effort to build an environment where our developers are free to push creative boundaries and deliver experiences that players communities around the world. We believe we're still in the early stages of what this can deliver for our players, our communities and shareholders alike. That concludes William's comments and I will turn the call over to Eileen for more detailed discussion of our financial results. Thank you.

Eileen Mo (Vice President of Finance)

Financial Highlights we encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Hello. Thank you Bill. I will now provide a brief review of our 2026 first quarter results. Given the limited time of today's call, I will present some abbreviated financial highlights. We encourage you to refill our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Our total net revenue for the first quarter were RMB 30.6 billion or USD 4.4 billion, representing a 6% increase. Total net revenue from our games and related value asset services were RMB 25.7 billion, up 7% year over year. Specifically, net revenue from online games were RMB 25.1 billion, up 18% quarter over quarter and 7% year over year. The quarter over quarter and year over year increase in online gains net revenue were attributable to higher net revenue from self developed gains such as Sentencee, Retro Journal, Franchise and Rare Read. Youdao's net revenue increased 4% year over year to RMB 1.3 billion, primarily driven by increased net revenue from Youdao's online marketing services. Its net revenue was down 14% quarter over quarter due to decreased net revenue from Youdao's learning services and the Smart devices Netease Cloud Music. Net revenue will RMB $2 billion representing a 7% year over year increase and remaining broadly stable quarter over quarter. Net revenue from Innovative Business and others were RMB 1.5 billion, decreasing 5% year over year and 24% quarter over quarter. The quarter over quarter decrease was mainly driven by declines across E commerce and the advertising services. Our gross profit margin increased year over year to 59.4% from 64.1% in the prior year period. Looking at our first quarter margin in more detail, gross profit margin was 74.8% for our gains and related value added services compared with 68.8% in the same period of last year. The improvement was primarily driven by lower revenue sharing costs related to the platform. Our gross profit margin for you dao was 44.7% compared with 47.3% in the same period of last year. The decrease was mainly due to the decline in smart devices gross margin. Gross Profit margin for Net8 Cloud Matrix was 37.1% compared with 36% in the same period of last year, remaining generally stable year over year for our innovative business and others. Gross Profit margin was 42% compared with 38.8% in the first quarter of 2025. The improvement was primarily driven by margin expansion in certain innovative business within the segment. Total operating expenses for the first quarter were RMB 8.6 billion representing 28% of our net revenue. Taking a closer look at our cost composition, our selling and marketing expenses accounted for 11.2% of total net revenues in the fourth quarter compared with 9.4% in the same period last year, primarily due to the increased marketing expenses related to gain and the related value-added services. Our G&A expenses accounted for 2.1% of the total net revenue in the first quarter compared with the 3.3% in the same period last year. Our IMD expense remained stable at 14.7% of total net revenue in the first quarter compared with 15.2% in the same period last year. Reflecting our consistent investment in innovation and content development, the effective tax rate was 18.9% for the first quarter. As a reminder, the effective tax rate is presented on an accrual basis and the tax credit vary across each our entities at different time period depending on ethical policies and our operations. Our non GAAP net income attributable to the shareholder for the first quarter totaled RMB 11.3 billion or 1.6 billion. Broadly stable year over year. Non GAAP Basic earning per ADNs for the quarter was USD 2.56 or USD $0.51 per share. Additionally, our cash position remains Strong. As of March 31, 2026, our net cash position was RMB1.57.5 billion compared with RMB 153.5 billion at the end of 2025. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of USD 14.4 cents per share or USD 0.72 per ADS for the first quarter. Lastly, under our current USD 5 billion share repurchase program, we had repurchased approximately 23.2 million ADS as of March 31, 2026 for a total cost of opportunity USD 2.1 billion. Thank you for your attention. We would now like to open the call to your questions.

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're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Lincoln Kong with Goldman Sachs.

Lincoln Kong (Equity Analyst)

Jason. So thank you management for taking my question. Congrats on the very solid first quarter result. I have two questions related to the new games pipeline. First was on the Sea of Remnants. Could management share more detailed updates in terms of the latest progress of the game, especially along with how is the product's multi vision design, gameplay and user feedback has been changed over the past few months and what is the latest rollout schedule for global and across platforms? My second question is about Ananta. So I wonder what's our competitive strategy in this sort of open world type of genre? Specifically we have seen a few of our peers has recently released some new titles a bit similar to Ananta along with they're going to be a potential heavyweight blockbuster like Grand Theft Auto before the year end. How does a company would ensure our Ananta game can successfully break through the competition and capture incremental user growth.

Xiu King Zhang (Equity Analyst)

Your next question comes from Xiu King Zhang with cicc.

Richie sun

Your next question comes from Richie sun with hsbc.

OPERATOR

And that concludes the question and answer session. I would like to turn the conference back over to Brandi Piacenti for any closing additional comments.

Brandi Piacenti (Moderator)

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a wonderful day. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.