NetEase Q3 revenue increased by 8.2% year-on-year, net profit increased by more than 30% year-on-year, and gaming business grew by 11.8% | Earnings report insights

NetEase's third-quarter revenue reached 28.4 billion yuan, a year-on-year increase of 8.4%, with a net profit of 8.6 billion yuan, compared to 6.538 billion yuan in the same period last year. The gaming business remains NetEase's cash cow, contributing 23.3 billion yuan in revenue in Q3, accounting for 82% of total revenue. Online gaming revenue accounted for 97.6% of this segment, an increase from 96.8% in the same period last year.

Key Financial Indicators

Q3 total revenue of 28.4 billion yuan, a year-on-year increase of 8.2%;

Gross profit of 18.2 billion yuan, a year-on-year increase of 10.3%;

Net profit of 8.6 billion yuan, flat compared to the previous quarter, a year-on-year increase of 32.3%;

Non-GAAP net profit of 9.5 billion yuan, a year-on-year increase of 26.7%; earnings per ADS of $2.09;

Operating expenses of 10.2 billion yuan, a year-on-year increase of 9.7%, a quarter-on-quarter surge of 13.3%, mainly due to increased gaming marketing expenses;

Gross margin of 64.1%, improved year-on-year but flat quarter-on-quarter;

Net cash of 153.2 billion yuan, an increase of 21.67 billion yuan since the beginning of the year; operating cash flow of 12.9 billion yuan, significantly improved year-on-year and quarter-on-quarter.

Core Business

The gaming business accounted for 82% of total revenue, reaching 23.3 billion yuan, a year-on-year increase of 11.8%; new and old games such as "Fantasy Westward Journey," "Party Animals," "Yanyun Sixteen Sounds," and "Marvel Duel" contributed to the growth.

Youdao's revenue was 1.6 billion yuan, with year-on-year growth slowing to 3.6%;

Cloud Music revenue was 2 billion yuan, a year-on-year decline of 1.8%;

Innovative business revenue was 1.4 billion yuan, a year-on-year decline of 18.9%, affected by strict selection and internal offsets.

On November 20, NetEase's financial report showed a gross profit of 18.2 billion yuan, a year-on-year increase of 10.3%, outpacing the revenue growth of 8.2%. The gross margin improved from 62.8% in the same period last year to 64.1%. Operating expenses were 10.2 billion yuan, a year-on-year increase of 8.9%, slightly higher than the revenue growth rate, but overall controllable. Non-GAAP net profit was 9.5 billion yuan, with a net profit margin of approximately 33%.

Gaming Business: Old Trees Bearing New Flowers and Advancing Globalization

The financial report shows that games and value-added services contributed 23.3 billion yuan in revenue, accounting for 82% of total revenue.

The most noteworthy data comes from "Fantasy Westward Journey" PC game—continuously breaking the peak of simultaneous online users for four consecutive quarters since Q3, reaching a maximum of 3.58 million users. A game that has been operating for nearly 20 years can still create historical highs, reflecting NetEase's expertise in long-term IP operations and the ongoing demand for classic content in the Chinese gaming market.

Globalization is another key term for this quarter. "Destiny: New Light," released globally in August, topped the iOS download charts in multiple Western markets and also achieved the top spot upon its launch in China in October. This mobile game, adapted from Activision Blizzard's IP, is both a result of the restoration of NetEase's relationship with Blizzard and a test of its global distribution capabilities.

The "World of Warcraft" Titan Reforged server went live on November 18, igniting "strong enthusiasm" among local players; "Diablo II: Resurrected" returned in August, "StarCraft II" launched in October, and "Diablo IV" is set to be released on December 12

Non-gaming Business Struggles to Take the Lead

Youdao's revenue reached 1.6 billion yuan, a year-on-year increase of only 3.6%, with growth significantly slowing compared to previous quarters, which is related to the overall regulatory environment and increasing market saturation in the education and training industry.

Cloud Music's revenue was 2 billion yuan, down 1.8%. The landscape of the online music sector has been established, with Tencent Music holding an absolute advantage. The differentiated breakout path for Cloud Music remains unclear, and the revenue scale of 2 billion yuan still struggles to achieve profitability.

The most concerning aspect is the innovative business and other income of 1.4 billion yuan, which plummeted by 18.9%.

The company attributes this to "increased internal transaction offsets" and a decline in revenue from Yanxuan and other businesses. As a representative of NetEase's e-commerce, the weakness of Yanxuan reflects NetEase's increasingly marginalized position in the e-commerce field, with the gap between it and mainstream e-commerce platforms continuing to widen