After the Hong Kong stock market on November 16, NetEase released unaudited financial results for the third quarter ending September 30, 2023. Highlights of the results are as follows:

• Revenue was RMB 27.3 billion, in line with expectations, with a year-on-year increase of 11.6%.
• Total operating expenses were RMB 9.4 billion (US$1.3 billion), up 4.5% year on year.
• Gross profit was RMB 17 billion (US$2.3 billion), up 23.4% year on year.
• Net profit attributable to the company's shareholders was RMB 7.8 billion (US$1.1 billion). Net profit from continuing operations attributable to the company's shareholders under non-GAAP was RMB 8.6 billion (US$1.2 billion).
• Basic net profit per share was $0.33 (basic ADS net profit per share was $1.67). Basic continuing operating income under non-GAAP was $0.37 per share (basic ADS continuing operating net profit was $1.84 per share).

By business, during the reporting period:

• Net revenue from games and related value-added services was RMB 21.8 billion (US$3 billion), up 16.5% year on year.
• Youdao's net revenue was RMB 1.5 billion (US$210.9 million), up 9.7% year on year.
• Cloud Music's net revenue was RMB 2 billion (US$270.4 million), a year-on-year decrease of 16.3%.
• Net revenue from innovation and other businesses was RMB 2 billion (US$271.2 million), a slight increase over the previous year.

NetEase said that it invested 4.3 billion yuan in R&D in a single quarter, and the R&D investment intensity was 16% higher than that of the industry. In the first three quarters of this year, NetEase's total R&D investment has exceeded 12 billion yuan, continuing to accelerate the mass application of AI self-developed models and other technologies in education, entertainment, industry and other fields.

NetEase announced that the dividend for the third quarter of 2023 is $0.0990 per share ($0.4950 per American Depositary Share), which will be paid to registered holders of common shares and American Depositary Shares after the market closes on December 1, 2023.

NetEase CEO Ding Lei said in the earnings report:

Our strong and increasingly rich gaming product matrix brought excellent results to the third quarter. Overall net revenue reached RMB 27.3 billion, an increase of nearly 12% over the previous year.

Our flagship games, such as the “Journey to the West” series, are still popular among players. We recently launched a variety of high-quality new games, such as “Pinnacle Fast,” “Against the Cold,” and “All Star Street Ball Party”, and “All Star Street Ball Party,” which also quickly won wide acclaim. The popularity of these diverse and popular new titles has demonstrated our outstanding R&D capabilities, expanded our influence in the casual game market, and broadened the boundaries of traditional MMO games, bringing players an unprecedented new gaming experience.

In the vast NetEase family, Cloud Music and YouDao businesses have maintained good development, exporting innovative content in their respective fields. Looking forward to the future, we will pour love, continue to export products and content, inject vitality into the market, create quality experiences, and create value for our users and company.

Also, NetEase announced today that Chief Financial Officer Mr. Yang Zhaoxuan has submitted his resignation to the board of directors due to personal reasons and will no longer hold this position from November 30, 2023, to explore other career developments. Until June 30, 2024, Mr. Yang will continue to act as a corporate consultant to ensure a smooth transition in the company's search for a successor.

After the financial report was released, NetEase's pre-market US stocks fell 3.2% in the pre-market

Steady month-on-month increase in gross margin in the game business

According to financial reports, NetEase's net revenue for games and related value-added services in the third quarter was 21.8 billion yuan, up 16.5% year on year, up 15.9% month on year; gross profit was 15.03 billion yuan, up 23.7% year on year, and gross profit margin was 69.0%, up 4 percentage points year on year.

Among them, revenue from online games accounted for 93.7% of the segment's revenue, an increase over the previous year. Net revenue from mobile games accounted for about 77.6% of online game net revenue. The previous quarter and the same period last year accounted for 73.6% and 68.6%, respectively.

NetEase said that the month-on-month increase in gross profit from games and related value-added services was mainly due to the increase in revenue brought about by newly launched games, such as the “Against the Cold” mobile game and “Pinnacle Extreme”. The year-on-year increase was mainly due to an increase in online game revenue, such as “Egg Party” and some new games, as well as a reduction in copyright fees due to the discontinuation of several agency games.

The month-on-month increase in gross margin was mainly due to changes in the revenue mix of independent R&D, cooperative development, and agency games, and changes in the contribution of different revenue sources. The year-on-year increase was mainly due to the increase in the net revenue contribution of games developed independently by NetEase.

NetEase said that in the third quarter of this year, NetEase's “Against the Cold” mobile game achieved strong revenue and user growth, with more than 50 million registered players.

NetEase's first self-developed basketball game, “All Star Street Ball Party,” topped the Chinese iOS bestseller list at the end of October; classic flagship game products such as the “Journey to the West” series are still popular among players, and other popular games such as “Eggplant Party,” “Fifth Personality,” and “Never ?$#@$” have not declined in popularity. A range of highly anticipated new games are being developed in an orderly manner, and a number of impressive new products will be released in 2024.

Cloud Music's revenue declined, and gross profit increased significantly

During the reporting period, NetEase Cloud Music's revenue was 1,973 billion yuan, down 16% year on year, up 1.3% month on month; gross profit was 537 million yuan, up 60.8% year on year, up 2.1% month on month; gross profit margin was 27.2%, up 13 percentage points year on year, slightly up 0.2 percentage points month on month.

NetEase said in its financial report that the month-on-month and year-over-year increase in cloud music's gross profit was mainly due to the increase in membership subscription revenue and the continuous improvement in cost control, which is in line with what was stated in the previous quarter's report.

Furthermore, Cloud Music continues to strengthen the monetization capabilities of its membership business with music content as the core, and raise the level of profitability. Cloud Music focuses on music community building and quality service experience, and continues to launch rich content and innovative features.