NetEase's pre-market trading fell by over 5%, with a 16% decrease in net profit QoQ in Q4. The daily active users of "Egg Party" during the Spring Festival exceeded 40 million.

On Thursday, February 29th, after the Hong Kong stock market closed and before the US stock market opened, NetEase announced its fourth-quarter and full-year performance as of December 31.

According to the financial report, NetEase achieved a revenue of 27.14 billion yuan in the quarter, a 7% year-on-year increase, flat on a quarter-on-quarter basis, falling short of the market's expectation of 28.2 billion yuan. Among them, online game revenue reached 20.92 billion yuan, up by 9.6% year-on-year and 2% quarter-on-quarter, below the market expectation of 21.83 billion yuan.

In the quarter, NetEase's net profit attributable to the company was 6.58 billion yuan, a 67% year-on-year increase, a 16% quarter-on-quarter decrease, lower than the market expectation of 6.85 billion yuan. Under the Non-GAAP, net profit surged by 54% to 7.4 billion yuan, but still below the market expectation of 7.86 billion yuan. The EPS for the fourth quarter was 1.60 US dollars, a 49.53% increase from 1.07 US dollars in the same period last year, falling short of analysts' expectation of 1.73 US dollars.

For more details, please refer to the press release: NetEase Announces Fourth Quarter and Fiscal Year 2023 Unaudited

As of the time of publication, NetEase's US stock price fell by over 5% before the market opened.

"Egg Party" Spring Festival Daily Active Users Exceed 40 Million

NetEase's largest department and revenue pillar, the online gaming business, achieved a revenue of 20.9 billion yuan in the last quarter, a 9.6% year-on-year increase, but only a 2% quarter-on-quarter increase, still falling short of the market's expectation by 900 million yuan.

In the last quarter, NetEase achieved a gross profit of 16.8 billion yuan, a 27.0% year-on-year increase, almost flat compared to the third quarter. Among them, the gross profit from network game services was 14.54 billion yuan, a 29% year-on-year increase, a 3% decrease from the previous quarter's 15.03 billion yuan, lower than the market expectation of 14.37 billion yuan. The gross profit margin of network game services was 69.5%, higher than the market expectation of 68.6%, with both year-on-year and quarter-on-quarter increases, 69% in the third quarter and 59.1% in the same period last year.

NetEase explained in the financial report that the growth in company profits was mainly driven by the popularity of games such as "Justice" and "Egg Party".

Regarding the recent operation of its games, NetEase disclosed in the financial report:

With the regular release of new content, major games such as "Fantasy Westward Journey" and "Journey to the West" have maintained lasting user appeal. Since its launch in 2022, "Egg Party" has accumulated over 500 million registered players, with over 40 million daily active users during the Lunar New Year.

The mobile game "Swords of Legends" has reached 100 million active users, with rich content and in-game activities widely welcomed by players.

"Top Speed" has performed excellently in Hong Kong, Macau, and Taiwan, topping the iOS download and bestseller charts in Taiwan within the first week of its release.

Looking ahead, NetEase still has a lineup of heavyweight products, including "Endless of Time" mobile game, "The Legend of the Condor Heroes" trilogy IP (already licensed), "Sixteen Songs of the Swallows" (already licensed), "Code: World" (Onmyoji IP, open world), and "Code: ATLAS" (ocean theme, open world), focusing on open world and martial arts IP elements.

Outstanding performance in innovative businesses, YoY revenue decline of over 16% for Cloud Music

Apart from games, NetEase's other departments have shown outstanding performance in innovative businesses (Yanxuan, NetEase Live, advertising services, high-end email, and other value-added services). The revenue from innovative businesses and other sectors in the last quarter was 28 billion yuan, a 12.9% increase from the fourth quarter of 2022, exceeding market expectations of 25.6 billion yuan.

NetEase Youdao generated revenue of 15 billion yuan, a YoY growth of 1.8%, with the company stating that Youdao achieved record operating cash flow last quarter; Cloud Music revenue was 20 billion yuan, a YoY decrease of 16.4%.

In the fourth quarter, NetEase's total operating expenses were 100 billion yuan, a 13% increase from the same period last year.

Regarding the last quarter's performance, NetEase CEO Ding Lei stated:

For NetEase games, 2023 is another milestone year where we continue to innovate across categories, expanding and diversifying our strong game portfolio. The success of games like "Egg Party," as well as new games like "Top Speed" and "All-Star Streetball Party," highlights our ability to bring dynamic original products of various genres to players. At the same time, we maintain our strategic advantage in MMOs, driving the "Swords of Legends" mobile game beyond the boundaries of traditional MMO games.

As our business grows, we are taking on more social responsibilities. By integrating the "minor mode" in our domestic game lineup, we have strengthened existing anti-addiction systems and continue to guide the gaming ecosystem towards a healthier track through innovative products and technologies.

In addition to games, our various business departments, such as Cloud Music and Youdao, continue to operate normally, consistently providing high-quality content. Within the entire NetEase family, we prioritize creating innovative and high-quality products and services to increase our global appeal, enhance user experience, and drive innovation.