NetEase Stock Drops on Q2 Profit Miss Despite Growing Video Game Revenue

Key Takeaways

• NetEase posted second-quarter net income that fell 17% year-over-year and missed expectations.
• Games and related revenue rose, driven by solid performances from its Naraka: Bladepoint and Identity V titles.
• The company’s stock fell 11.17% after the earnings were released.

NetEase (NTES) American depository receipts (ADRs) tumbled as the company’s second-quarter profit failed to meet expectations despite growing video game revenue.

The Chinese internet and games company posted a net income of 6.8 billion yuan (about $952 million), down 17% year-over-year and short of analysts’ expectations, per Visible Alpha. Revenue was 25.5 billion yuan (about $3.6 billion), up 6.1% year-over-year and just short of expectations.

Despite Disappointing Profit, Games Drive Revenue Growth

Games and related value-added services drove revenue growth, which improved 6.7% to 20.1 billion yuan (2.8 billion). The company’s Naraka: Bladepoint title saw record daily active users (DAUs) on its third anniversary and Identity V also hit record DAUs in July and August.

“With a growing portfolio of games that feature higher quality and cover more genres, we are thrilled to bring exciting NetEase gaming experiences to more players around the globe,” CEO William Ding said. “As we expand our reach to players in China and worldwide, innovation remains our priority.”

NetEase, the rival of technology and media giant Tencent (TME) in China, saw its ADRs fall more than 11% Thursday.

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NetEase’s Q2 Profit Falls Short of Expectations

NetEase, a Chinese internet and games company, reported a second-quarter net income of 6.8 billion yuan, which is approximately $952 million. This figure represents a 17% decline compared to the previous year and fell short of analysts’ expectations. Despite this disappointing profit, the company’s revenue increased by 6.1% year-over-year to 25.5 billion yuan, just slightly below expectations.

Games Drive Revenue Growth

One of the key drivers of NetEase’s revenue growth was its games and related value-added services. This segment saw a 6.7% improvement, reaching 20.1 billion yuan. The success of NetEase’s Naraka: Bladepoint and Identity V titles contributed significantly to this growth. Naraka: Bladepoint achieved record daily active users (DAUs) on its third anniversary, while Identity V also experienced record DAUs in July and August.

NetEase’s CEO, William Ding, expressed his excitement about the company’s expanding portfolio of games that offer higher quality and cover a wider range of genres. He emphasized the company’s commitment to bringing innovative gaming experiences to players worldwide.

Stock Performance

Following the release of NetEase’s earnings report, the company’s stock experienced a significant decline. NetEase’s American depository receipts (ADRs) fell by 11.17%. This drop in stock value reflects investor disappointment with the company’s lower-than-expected profit.

NetEase vs. Tencent

NetEase is a major competitor of Tencent, a technology and media giant in China. Both companies operate in the internet and gaming sectors, and their performance often impacts each other’s stock prices. While NetEase faced challenges in meeting profit expectations, Tencent has been a dominant force in the industry. The rivalry between these two companies adds an interesting dynamic to the Chinese gaming market.

Conclusion

NetEase’s second-quarter earnings report revealed a decline in net income and revenue that fell short of expectations. However, the company’s games and related services segment experienced growth, driven by the success of Naraka: Bladepoint and Identity V. Despite the disappointing profit, NetEase remains committed to expanding its reach and delivering innovative gaming experiences to players worldwide. The decline in NetEase’s stock value highlights the importance of meeting investor expectations in the highly competitive gaming industry.