NetEase Inc. (NASDAQ:NTES) stock is trading lower Thursday after the company reported mixed second-quarter results, as revenue topped Wall Street expectations but adjusted earnings missed estimates.
NetEase Revenue Beats, Earnings Miss
NetEase reported second-quarter revenue of $4.44 billion, or 30.1 billion Chinese yuan, up 7.9% year over year. Revenue topped the analyst estimate of $4.30 billion.
Adjusted earnings came in at $1.77 per ADS, missing the $2.28 estimate. Despite solid revenue growth, NetEase saw profit come under pressure from investment losses.
Gaming Business Drives Growth
Revenue from games and related value-added services rose 9.7% to $3.7 billion. The segment’s gross margin expanded to 76.13% from 70.22% a year earlier.
Youdao revenue increased 3.5% to $216.2 million, while gross margin improved to 48.87% from 42.99%.
NetEase Cloud Music revenue was roughly flat at $291.4 million. Its gross margin rose to 37.43% from 36.06%.
Revenue from innovative businesses and other operations fell 3.5% to $241.6 million. However, gross margin improved to 43.39% from 42.32%.
NetEase held $24.7 billion in net cash as of June 30. The company generated $1.5 billion in operating cash flow during the quarter.
NetEase Bets On Games, Global Expansion
CEO William Ding attributed the gaming momentum to original titles, regular content updates and disciplined live operations in China and overseas.
Sword of Justice topped 10 million active players on the launch day of a major June update. Eggy Party surpassed 700 million registered users and maintained more than 100 million monthly active users.
NetEase also expanded Where Winds Meet through an Xbox launch. Content updates helped the game reach the top three on Steam’s global best-seller chart.
Meanwhile, Blizzard titles continued to perform well in China. Overwatch increased active users during its 10th anniversary, while Diablo 4 improved user activity and retention through localized content and events.
NetEase Cloud Music renewed its partnership with Universal Music Group and added more Korean and Chinese labels, soundtracks and variety-show music.
New Games And AI Fuel Growth Push
NetEase is developing new titles, including Senta and Blunt Message. Management said the Blunt Message trailer generated about 40 million views globally following Summer Game Fest. The company is also preparing a global rollout of Sea of Relevance.
NetEase is expanding its use of artificial intelligence beyond gaming. Youdao launched its Confucius 4 model and improved translation inference speed by about 80%. It also expanded AI-powered learning services and subscriptions.
Ding said NetEase plans to continue integrating advanced technology into product development and operations as it expands globally.
NTES Price Action
NTES Price Action: NetEase shares were down 4.63% at $121.36 at the time of publication on Thursday, according to Benzinga Pro data.
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