On Thursday, NetEase (NASDAQ:NTES) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

NetEase reported total revenue of RMB 30.1 billion for Q2 2026, with games and related services contributing RMB 25 billion, reflecting a strong global performance.

The company's innovation strategy focuses on original IP and genre innovation, exemplified by CM Relevance's launch in China and its upcoming global rollout.

Operational highlights include NARAKA: Bladepoint's ecosystem unification and Eggy Party's milestone of over 700 million registered users.

NetEase's non-GAAP net income for Q2 was RMB 7.7 billion, with a slight year-over-year decline due to investment losses.

The company continues to integrate AI capabilities to enhance game development and user experience, positioning itself for future growth.

The Board approved a dividend of USD 0.096 per share for Q2 and continued its USD 5 billion share repurchase program.

Management expressed confidence in the long-term potential of new games and emphasized the importance of player experience for commercial success.

Full Transcript

OPERATOR (Operator)

Good day and welcome to the NetEase second quarter 2026 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandy Piacente. Please go ahead.

Brandy Piacente, Investor Relations

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 20-F, and in announcements and filings on the Hong Kong Stock Exchange's website. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures, which should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the second quarter 2026 earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the 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 Zhipeng, Executive Vice President; Ms. Eileen Mo, Vice President of Finance; and Mr. Bill Peng, 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.

William Ding, CEO

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 RMB. In the first half of 2026, we delivered healthy growth across business segments. Total revenue reached RMB 30.1 billion in the second quarter, driven by the solid performance of our games business. Our games and related value-add services generated net revenues of RMB 25 billion, reflecting the broader appeal of our portfolio in both domestic and overseas markets.

The strength of our portfolio stems from our sustained focus on innovation across the full life cycle of our games, from original concept and development through long-term live operations. By combining our engineering capabilities, creative design expertise, and disciplined execution, we bring new ideas to life and deliver fresh experiences across genres, platforms, and markets. One recent example is CM Relevance. Released in China in July, it showcases our ongoing emphasis on original IP and genre innovation.

Built on our in-house game engine, Sea of Relevance combines a distinctive visual style with an open-world ocean fantasy setting. Players step into a vivid world to embark on dynamic voyages, explore diverse islands, and discover richly layered stories. By combining naval combat, extraction gameplay, and roguelike progression, the game creates varied adventures that unfold differently each time. Across themed islands, players encounter a wide cast of NPCs that bring each island to life through meaningful interactions and evolving storylines.

A variety of brand and content collaborations have also expanded the game's reach, extending its content ecosystem beyond the core gameplay experience. We are also preparing for the game's global rollout and look forward to introducing CR elements to players worldwide. Our innovation efforts are not only limited to new launches; they extend across our established titles where we keep evolving gameplay systems, introducing new content, and strengthening live operations to sustain player enthusiasm over time.

Sword of Justice launched its major adversary update New World in June. The comprehensive upgrade to the open-world experience improved visual quality, streamlined cultivation systems, and refined the in-game economy, creating a more enjoyable experience for both returning and new players. It also introduced Dahali, a highly immersive new region to expand exploration and add greater storytelling depth. The community response was strong, with active players exceeding 10 million on launch day and concurrent users reaching a two-year high, demonstrating the title's ongoing appeal.

Players continue to gravitate to Identity V with the steady cadence of live service updates, including anniversary content, crossover events, and new gameplay experiences. In June, the game introduced Cryptic Nodes, a new PvE mode that offers a lighter experience beyond its core PvP gameplay, opening up new ways for the community to play. This excitement carried into July with the launch of season 44, introducing new themed costumes and events alongside the latest Paper Bride crossover.

This update sparked active discussions across live streaming and social media platforms, helping keep the community engaged and reinforcing the game's long-term appeal. During the second quarter, the NARAKA: Bladepoint franchise unified its PC and mobile ecosystems. Players can now enjoy the game's signature melee combat seamlessly across devices while strengthening connections across its broader player community. Building on the increased connectivity, NARAKA: Bladepoint kicked off its anniversary celebration in July with a major content update that introduced all-new land and underwater battlefields as well as a new underwater combat system.

These additions refresh the game's core experience and drove strong player engagement across platforms. Eggy Party further solidified its position as China's leading party game destination. It reached a new milestone of more than 700 million registered users, and monthly active users remained steadily above 100 million. In June, the game celebrated its fourth anniversary, bringing another wave of player activity supported by diverse gameplay, a vibrant UGC ecosystem, and a rich slate of live operations.

This strong momentum continued into the summer, with Eggy Party remaining among the top-ranked titles on both China's iOS Top Download and Grossing charts and peaking at number three on the Top Grossing chart. Peak daily active users also reached a multi-year high for the summer period. UGC remains one of Eggy Party's defining strengths. Over the past year, the ecosystem has continued to thrive, supported by more powerful creation tools and a growing base of engaged creators.

Total creator rewards reached a new milestone of RMB 200 million to date, reflecting both the vitality of this creator community and strong player demand for diverse user-generated content. Recent upgrades to the editor, including integration with multiple AI models, have also made it easier for creators to learn, create, and program. Together, these efforts expand what players can create and support Eggy Party's evolution from a standalone party game into a broader content platform.

Our flagship MMORPG Fantasy Westward Journey Online continued to evolve across both its classic and unlimited servers during the summer. Its new expansion pack and Zhenhuang-themed content further engaged players, underscoring its timeless popularity and its healthy community. Meanwhile, Fantasy Westward Journey Mobile carried its record-setting momentum into the second quarter, supported by refinements to the in-game economy and ongoing gameplay iterations.

During the quarter, the game introduced a new equipment progression system and an extraction gameplay mode. These additions created fresh progression paths and greater strategic depth, gaining real traction with players. In July, the Summer Treasure Pavilion offered a wider selection of costumes and items tailored to players' preferences, driving robust commercial performance. The launch of the Oasis server helped Westward Journey Returns build strong momentum in the second quarter by preserving the iconic appeal of the Westward Journey franchise while introducing a portrait-mode interface and more relaxed gameplay.

The Origin server delivers a more accessible experience that players can enjoy anytime and anywhere, contributing to the title's strong performance in Q2. Infinite Borders further reinforced its leading position in the SLG genre through new innovative gameplay and initiatives designed to address community needs. New features such as Ify Border Queue, a social deduction game mode, were well received by players, while its collaboration with Minecraft China helped the game reach a broader and younger audience.

The launch of the highly anticipated special servers together with a series of pre-anniversary events ahead of its 11th anniversary generated renewed excitement across the community, demonstrating the title's enduring appeal and continued relevance in the strategy game market. Alongside our success in the domestic market, we made additional steady progress in broadening our global reach. Where Winds Meet has demonstrated a healthy growth trajectory since its successful global launch last year.

Its player base continued to grow in the second quarter, with positive reviews on Steam staying above 87%. In June, we brought this immersive open-world action RPG to even more players worldwide with its successful launch on Xbox. The game also repeatedly ranked among the top three titles on Steam's global top-seller chart following major content updates. This underscores the long-term potential of content-driven games and highlights our proven capabilities in delivering high-quality content and live operations in the domestic market.

Where Winds Meet also expanded its player community during the quarter with major new region additions, including Qingzhou and Hangzhou. The Hangzhou expansion proved particularly popular and pushed the game to the number three spot on China's iOS Top Grossing chart. This update brought distinctive local culture, fresh narrative, and immersive exploration, driving year-over-year growth in quarterly revenue and achieving record-high monthly active users.

Marvel Rivals continued to build on its global success through a steady stream of seasonal content, live service updates, and community initiatives. In June, the game introduced a refreshed 18 versus 18 mode set in the Kunlun Shen Long arena alongside new heroes, maps, and events that broaden gameplay variety. The Rivals Summer Festival added further momentum with a wide selection of themed costumes for fan-favorite characters, helping push the game to number two on Steam's global top-seller chart and number one in multiple regions, including the United States.

Most recently, the franchise extended its reach beyond the screen through real-world touch points across major fan events. At San Diego Comic-Con in late July, Marvel Rivals generated even more excitement among players with new announcements and interactive fun activities. The mid-season finals was later held in Los Angeles, attracting top players and fans while reinforcing the title's competitive ecosystem and long-term live service foundation. As we continue to grow our existing portfolio, we're also advancing the development of new titles and exploring fresh ideas across diverse genres, gameplay experiences, and markets.

Senta is progressing steadily towards launch as a free-spirited urban open-world RPG. The game invites players to experience a vibrant modern city through a variety of characters, lifestyles, and activities, providing a high degree of freedom in exploration and interaction. With strong anticipation from the player community, we will continue to share more updates as development progresses. Blunt Message made a strong impression at the Summer Game Fest, where overseas audiences responded positively to the latest gameplay footage.

The trailer has since generated around 40 million views globally, with players praising its visual fidelity, distinctive storytelling, and cinematic combat. Our commitment to innovation and long-term operating capabilities also created value for our partner titles. Blizzard titles performed well in China during the quarter, supported by localized operations and a steady stream of updates. World of Warcraft and Hearthstone continued to engage their long-standing communities in China, backed by consistent updates and initiatives tailored to the local market.

Overwatch celebrated its 10th anniversary during the quarter with special content rewards and activities that revitalized players and drove a significant increase in active users. Diablo 4 further expanded its presence in China through exclusive localized content, offline events, and newly introduced Chinese mythology-themed schemes, driving solid growth in both active users and player retention during the second quarter. Together, these achievements reflect the breadth and strength of our portfolio from new releases to ET titles across China and global markets.

Through both our own IP and partner collaborations, we aim to keep our games relevant and engaging through new ideas, ongoing content updates, and disciplined live operations while responding to evolving player expectations. This innovative mindset will continue to guide us as we build stronger communities and create even more compelling experiences for players worldwide. Turning to our other businesses, Youdao further advanced its AI-native strategy, deepening AI-driven innovation across its ecosystem.

In the second quarter, Youdao launched its latest large language model, Confucius 4, with substantially enhanced capabilities. The new model delivers stronger performance in visual math and physics reasoning, particularly on complex diagrams, at lower inference cost. Youdao also upgraded its translation model with an efficient acceleration mechanism, increasing inference speed by approximately 80%. Beyond large language models, it further advanced its AI agent capabilities towards autonomous execution of complex real-world tasks, demonstrating stronger capabilities beyond simple Q&A interactions.

The learning services segment continued its healthy development, driven by the strong performance of Youdao Qing. Popular features including AI-powered English essay grading, AI quiz recommendations, and AI-based college admission advisors continue to enhance user satisfaction and drive higher user retention within the segment. AI-driven subscriptions also maintained strong momentum. The advertising efficiency in Youdao's online marketing services also continued to improve.

We recently launched the second-generation AI app placement optimizer, further enhancing the user experience and advertising efficiency with more streamlined and automated features while capturing emerging opportunities in areas such as AI applications and short-form dramas. Youdao also made steady progress in client acquisition and retention. The Smart Devices segment sustained its focus on product innovation, with the Youdao Dictionary Pen maintaining a strong market position.

In June, we launched the Youdao Dictionary Pen X8, featuring an expanded library of 80 million words and photo-based tutoring across a broad range of subjects. During the 618 Shopping Festival, Youdao Dictionary Pen ranked number one in sales on JD.com and Tmall within this category for the seventh consecutive year. Looking ahead, Youdao will continue to execute its AI-native strategy across learning and advertising scenarios. For NetEase Cloud Music, we further developed its music-centric ecosystem in the first half of 2026, prioritizing exceptional user experiences, distinctive content, and a vibrant music community to support healthy and steady growth. Enhancements to the user experience and strong brand perception continue to drive higher user engagement and an expanding daily active user base. Our DAU versus MAU ratio remained above 30% in the first half of 2026, increasing both year over year and sequentially. The average daily mobile music listening time also rose steadily, with penetration rates of community content consumption and interactions improving notably. In particular, retention and renewal rates across our expanded membership base increased both year over year and sequentially, reflecting stronger user loyalty and a deeper connection to the platform.

We also enriched our comprehensive and distinctive content library by expanding copyrighted music and promoting original music. Earlier this year we renewed partnerships with major labels such as Universal Music Group, as well as adding new Korean and Chinese labels, OSTs, and variety show music while enhancing our signature genres. At the same time, we continue to promote original Chinese music, with our recent in-house releases such as December 31st gaining widespread acclaim.

From a product perspective, we remain focused on user needs, advancing innovation across music discovery and consumption experiences while organizing our community by making music exploration more intuitive and engaging on the platform. We also launched innovative functions such as AI-Inspired Playlist to address users' diverse music discovery preferences. Subscription-based membership grew as well, improving our music-oriented monetization. We further refined membership benefits built around content features, personalization privileges, and artist-related offerings, all of which enhance the overall value proposition and support ongoing membership growth. Turning to Yanxuan, Yanxuan once again secured leading positions on e-commerce platforms across its key categories. In the second quarter, new products in pet food, home scents, and home goods performed well, generating healthy growth, notably the Freshly Steamed Pet Food series, which we launched last year with our differentiated steaming technology and fresh meat recipes. It continued to deliver solid sales while earning recognition from leading industry organizations.

In closing, across the NetEase family of businesses, we remain committed to innovation and staying at the forefront of technology. By integrating leading technologies into every stage of product development and operations, we create compelling user experiences that help shape industry trends. This approach continues to support sustainable growth across our business. In our games portfolio in particular, it enhances the appeal of both established titles and new releases, extending our success in China to broader global markets.

Throughout the year, we will continue to foster an environment that empowers our developers to push creative boundaries. As we advance our products with cutting-edge technology, we believe we are well positioned to create even more engaging experiences and enduring value for players, communities, and shareholders alike.

Brandy Piacente, Investor Relations

That concludes William's comments, and I will turn the call over to Eileen for a more detailed discussion of our financial results. Thank you.

OPERATOR (Operator)

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. The first question comes from Alicia Yap with Citigroup. Please go ahead. Ms. Yap, please go ahead with your question. Your line is open. Is your phone muted accidentally? Thank you.

Alicia Yap, Analyst at Citigroup

Hello, can you hear me now? So can management share the latest performance of Sea of Redmond and also the expected closing for the next quarter? What aspects are currently doing well and then what adjustments are planned in the future to further improve the game's performance? Thank you.

OPERATOR (Operator)

Thank you. The next question comes from Sui Xing Zhang with CICC. Please go ahead.

Sui Xing Zhang, Analyst at CICC

Thank you, management, for taking my question. Could management update us on the development progress of Atlanta? With several competing titles targeting the urban open-world genre, how does the company plan to differentiate the game and stand out from the competition? Thank you.

OPERATOR (Operator)

Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.

Lincoln Kong, Analyst at Goldman Sachs

Thank you for taking my question. Congrats on a very solid second quarter. Over the past one or two years, the company proactively reduced the number of new game launches to focus resources on key titles. Meanwhile, new releases like Mobile Arrival have diverse traffic and strong performance. Looking ahead, with a relatively lean pipeline of new games and a higher baseline for our existing portfolio, how does the company plan to drive further business growth?

What would be the primary growth driver and operating strategy moving forward? Thank you.

OPERATOR (Operator)

Yes, your next question comes from Richie Sun with HSBC. Please go ahead.

Richie Sun, Analyst at HSBC

Thank you, management, for taking my questions. Recently, there are two games undergoing testing, Beneath the Mist and also Tama's Shadow View. How does management view the monetization potential of these two games, and when can these games be launched? Thank you.

OPERATOR (Operator)

And that concludes the question and answer session. I would like to turn the conference back over to Brandy Piacente for any additional or closing comments. Brandy, please go ahead with your closing comments.

Brandy Piacente, Investor Relations

Thank you. Sorry for that. Thank you once again for joining us today. And if you have any further questions, please feel free to contact us. Thank you again.

OPERATOR (Operator)

This concludes the conference. You may disconnect your line. 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.