NetEase Inc (NTES) (Q2 2026) Earnings Call Highlights: Strong Game Revenue Growth and Margin ...

Negative Points

• Non-GAAP net income attributable to shareholders declined year-over-year in Q2 2026, primarily due to investment losses.

• Online games net revenue decreased 2% quarter-over-quarter, attributed to a slight decline in revenue from certain self-developed and licensed games.

• The new game Sea of Remnants received criticism for not sufficiently lowering the learning curve for players in early stages, affecting initial player experience.

• NetEase Inc ( NASDAQ:NTES ) has a relatively lean pipeline of new game launches, which may limit near-term growth opportunities.

• Revenue from the innovative business and others segment decreased 4% year-over-year, mainly due to a modest decline in e-commerce business revenue.

Q & A Highlights

Q: Can management share the latest performance of Sea of Remnants and the expected outlook for the next quarter? What aspects are currently doing well, and what adjustments are planned to further improve the game's performance? A: CEO Lei Ding acknowledged receiving significant user feedback, including criticism, regarding the game's bold video style and roguelike gameplay. He admitted the team did not sufficiently lower the learning curve for players in the early stages, which affected the initial experience. However, the team has prepared a substantial amount of high-quality content, providing a foundation for long-term operations. After initial feedback and content updates, player recognition of the core gameplay is growing, and sentiment is improving. Looking ahead, the company will continue to serve core players, optimize experience issues, and streamline early-stage content to make the innovative gameplay more accessible. Management expressed confidence in the game's long-term potential.

Q: Can management update us on the development progress of Ananta? With several competing titles targeting the urban open-world genre, how does the company plan to differentiate the game and stand out from competition? A: CEO Lei Ding stated that Ananta is on track with development, and the team is polishing the gaming experience. The latest progress will be unveiled at Gamescom the following week. Regarding competition, Ding believes Ananta has distinctive strengths as an urban open-world experience, stemming from its unique identity, theme, and gameplay design. He emphasized that high-quality content, a distinctive narrative identity, innovative gameplay, and thoughtful monetization design will be key to the product's success.

Q: Over the past one or two years, the company proactively reduced the number of new game launches to focus resources on key titles. Looking ahead with a leaner pipeline and a higher baseline for existing portfolios, how does the company plan to drive further business growth? What will be the primary growth drivers and operating strategy? A: CEO Lei Ding responded that the company will not hesitate to continue investing in high-quality, premium products, ensuring clear vision and top-notch quality for new releases. He highlighted AI capabilities as an "amplifier" that can accelerate development speed and improve user experience. Ding expressed confidence that with AI tools, NetEase can build more high-quality products than most peers, providing superior experiences to players.

Q: Regarding the two games undergoing testing, Beneath the Mist and Tamas: Shadowveil, how does management view their monetization potential, and when can these games be launched? A: CEO Lei Ding stated that both products are still undergoing intensive refinement. He emphasized that the company will release them only when the refinement reaches a stage that satisfies user demands. Ding reiterated that player experience is key to everything, and delivering an excellent experience is the foundation for achieving commercial success.

Q: What were the key drivers behind the strong second-quarter financial results, particularly the significant year-over-year improvement in gross profit margin for the Games segment? A: CFO Mo Bin reported that total Q2 revenue reached RMB30.1 billion, with Games and related VAS generating RMB25 billion, up 10% year over year. The Games segment's gross profit margin improved to 76.1% from 70.2% in the prior year period, primarily driven by lower revenue-sharing costs related to platforms. The year-over-year revenue increase was attributable to higher net revenue from self-developed games such as the Fantasy Westward Journey franchise and Where Winds Meet.

Q: Can you provide more details on the performance of the company's established titles, particularly Sword of Justice and Eggy Party, during the quarter? A: Management highlighted that Sword of Justice launched its major anniversary update "New World" in June, which improved visual quality, streamlined cultivation systems, and refined the in-game economy. The update drove active players to exceed 10 million on launch day, with concurrent users reaching a two-year high. Eggy Party reached a new milestone of 700 million registered users, with monthly active users remaining steadily above 100 million. The game peaked at number three on China's iOS top-grossing chart, and peak daily active users reached a multi-year high for the summer period.

Q: How is the company's global expansion progressing, particularly for titles like Where Winds Meet and Marvel Rivals? A: Management noted that Where Winds Meet has demonstrated healthy growth since its global launch, with positive Steam reviews staying around 87%. The game launched on Xbox in June and repeatedly ranked among the top three titles on Steam's global top-seller chart following major content updates. In the domestic market, the Hangzhou expansion pushed the game to number three on China's iOS top-grossing chart, achieving record-high monthly active users. Marvel Rivals continued its global success with seasonal content updates, and the Summer Festival pushed the game to number two on Steam's global top-seller chart and number one in multiple regions, including the United States.

Q: What is the company's capital allocation strategy, and can you provide an update on the share repurchase program and dividend policy? A: CFO Mo Bin reported that the company's total net cash position was RMB167.5 billion as of June 30, 2026. The Board approved a dividend of USD0.48 per ADS for the second quarter. Under the current USD5 billion share repurchase program, the company had repurchased approximately 24.8 million ADS as of June 30, 2026, for a total cost of approximately USD2.3 billion.

Q: Can you provide more details on the performance of the company's other businesses, particularly Youdao and NetEase Cloud Music? A: Management highlighted that Youdao launched its latest large language model, Confucius 4, with enhanced capabilities in visual math and physics reasoning. The company also upgraded its translation model, increasing inference speed by approximately 80%. Youdao's net revenue increased 4% to RMB2.8 billion for the first half of 2026. NetEase Cloud Music's DAU versus MAU ratio remained above 30% in the first half, increasing both year over year and sequentially. The company renewed partnerships with major labels, including Universal Music Group, and continued to promote original Chinese music.

Q: What is the company's outlook for the second half of 2026, and how does management view the competitive landscape in the gaming industry? A: Management expressed confidence in the company's position, emphasizing its commitment to innovation and long-term operating capabilities. The company plans to continue investing in high-quality content and leveraging AI technologies to enhance development efficiency and user experiences. Management believes the company is well-positioned to create

For the complete transcript of the earnings call, please refer to the full earnings call transcript .