NetEase, Inc. (NASDAQ:NTES) has announced a strong financial performance for the first quarter of 2024, with net revenues reaching RMB26.9 billion, a 7.2% increase compared to the same period last year. This growth has been fueled by the company's diverse gaming portfolio, including long-standing and new titles, as well as by its Youdao (NYSE:DAO) and Cloud Music segments. NetEase also highlighted its strategic partnerships and a commitment to capital returns, including share repurchases and dividends.
Key Takeaways
- NetEase's Q1 2024 net revenue reached RMB26.9 billion, a 7.2% year-over-year increase.
- The company's gaming division saw strong performance from both established franchises and new games, with innovations attracting new players.
- Youdao segment reported positive net income, driven by growth in digital content and online marketing services.
- Cloud Music's subscription-based memberships accelerated, and the company expanded its music library through licensing agreements.
- Strategic partnerships with Western game developers and renewed agreements with Blizzard Entertainment are set to bring popular titles to China.
- NetEase will continue its capital return program, including repurchases and dividends, at its own pace.
Company Outlook
- New titles War Wings Mod and Once Human are in the pipeline.
- The company is expanding its gaming portfolio with strategic partnerships, like those with Microsoft (NASDAQ:MSFT) Gaming.
- No specific details on the game pipeline beyond 2025, but information will be disclosed in due time.
Bearish Highlights
- The company did not provide specific release dates for upcoming games in development at overseas studios.
Bullish Highlights
- Record-high quarterly revenue from long-term game franchises.
- Successful launch and regional expansion of innovative games like Justice Mobile and Naraka: Bladepoint.
- Positive outlook on the overseas market potential for upcoming games.
Misses
- Adjustments to games like Fantasy Westward Journey and Condor Hero are needed to enhance long-term player enjoyment, with completion expected in the first half of the year.
Q&A Highlights
- Management has not observed significant changes in gamer spending patterns despite the "consumption downgrade" trend in China.
- The emotional value of NetEase's games is believed to maintain consumer spending levels.
- Confirmation of a new casual game in the Eggy Party ecosystem, with plans to create more fun experiences for players.
NetEase's diverse portfolio continues to drive its financial success, with both established franchises and innovative titles contributing to revenue growth. The company's strategic partnerships and focus on enriching its offerings across segments, including Youdao and Cloud Music, further bolster its market position. With a commitment to capital returns and an eye on future game releases, NetEase appears poised to maintain its momentum in the gaming industry.
InvestingPro Insights
NetEase, Inc.'s (NTES) first quarter of 2024 has shown an impressive financial performance, reflected in the company's solid fundamentals and strategic positioning within the gaming industry. According to real-time data from InvestingPro, NetEase holds a market capitalization of $63.39 billion USD, showcasing its significant presence in the market. The company's P/E ratio stands at a competitive 15.01, indicating that its stock may be trading at an attractive price relative to its earnings.
InvestingPro Tips reveal that NetEase is a prominent player in the Entertainment industry, which aligns with the company's reported success in its gaming division. The company's ability to maintain dividend payments for 12 consecutive years, coupled with a dividend yield of 2.6%, may be of particular interest to income-seeking investors. Moreover, NetEase's liquid assets exceed its short-term obligations, highlighting the company's financial stability.
For investors looking for deeper insights and additional tips on NetEase, InvestingPro offers a range of metrics and analysis. There are 10 more InvestingPro Tips available for NetEase, which can be accessed at https://www.investing.com/pro/NTES. These tips provide a comprehensive understanding of the company's financial health and future prospects.
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Full transcript - NetEase Inc (NTES) Q1 2024:
Operator: Good day, and welcome to the NetEase 2024 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente, President of Piacente Financial Communications. Please go ahead, ma'am.
Brandi Piacente: Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and in this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its Annual Report on Form 20-F and the announcements and filings on the website of the Hong Kong Stock Exchange. The company does not undertake any obligation to update its forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2024 first quarter earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase’s senior management team are Mr. William Ding, Chief Executive Officer; and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remark on behalf of William.
Bill Pang: Thank you, Brandy, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. 2024 is off to a solid start as we continue growing our NetEase family of businesses. Our net revenue for the first quarter of 2024 rose to RMB26.9 billion accelerating year-over-year, led by our outstanding and increasingly diversified game portfolio, which we're actively extending to players around the world. Leveraging our longstanding advantage in MMORPGs, we continue to innovate new gameplay, foster creativity, and explore emerging technologies to persistently expand the boundary of this genre. Our numerous established long-term game franchises continued an overall high level popularity with their loyal user base, demonstrating ongoing sustainability. We consistently infuse new innovative content and embrace appealing inherited culture into the games, crafting immersive world for players to engage in. Fantasy Westward Journey Mobile recently celebrated its anniversary at the historic Daming Palace National Heritage Site Park in Xi'an, the former capital city of Tang Dynasty, the very setting of our game. As part of the celebration, we unveiled thrilling new content and further enhanced popular auto chess gameplay, bringing players a rich variety of entertainment options. With the long lasting affection from our gamer community, Fantasy Westward Journey Mobile achieved another record high quarterly revenue nine years after its launch. Meanwhile, we rolled out a new themed update for Westward Journey Online to celebrate The Year of Dragon, featuring the traditional Tongliang Dragon Dance as part of the New Year celebrations. Our ongoing commitment to refreshing these epic titles continues to captivate new players and retain our loyal following. In addition to our achievement in the traditional MMO landscape, we're continually breaking new ground with games we put out, innovating and elevating this genre. For example, Justice Mobile has become a nationwide sensation. The game has joined a wide spectrum of audiences, especially, younger generation who are new to MMO genre. Our innovative seasonal mechanism and balanced gaming experiences that caters to different individual preferences and interests are the pillar of our success. Beyond innovation in gameplay and mechanics, we are committed to refining and perfecting the game. In the first quarter, Justice Mobile made a name for itself as the first MMO mobile game to implement both ray tracing and real-time global illumination on iPhone. The dedicated integration of this technology, including our game update has provided players a more immersive experiences and taken the visuals to new highs. With its success in domestic market, we are preparing to introduce Justice Mobile to new regions and expand this high quality Eastern themed adventure games reach across even broader audiences. In addition to our achievements in MMO this quarter, we continue to make breakthroughs in an extensive array of game genres, such as SLG, Asymmetrical Battle Arena, party games and innovative martial art battle royale titles. We have consistently introduced new gameplay elements into Infinite Borders, one of China's most popular SLGs. Entry is nice year. If the borders continue to capture the interest of younger players and achieved a three year revenue high in the first quarter. Meanwhile, Identity V, our iconic domestic asymmetric battle arena game celebrated its sixth anniversary with record breaking revenue in the first quarter, a record high DAU in May. This milestone highlights the game's thriving ecosystem fueled by high quality content, successful esports event and well-designed IP collaborations. Naraka: Bladepoint has also amassed a robust player community and has been thriving since we transitioned game to a free to play model. With the latest seasonal update, the game broke its online record on Steam, attracting over 370,000 concurrent players. Following the success of the initial test in April, Naraka: Bladepoint mobile was now with overwhelming player enthusiasm. An additional 10 million players engaged in two weeks, bringing the accumulated pre-registration to over 25 million. As for Eggy Party, after nearly two years of operations, Eggy Party has become a household name in the party game genre in China. The game has achieved over 40 million DAUs and we continue to enrich our content offering and strengthen our UGC ecosystem. In the first quarter, Eggy Party expanded its thematic diversity by recreating the Forbidden City's grandeur (ph) within Eggy Party wall. With an area of captivating Asian dynasty characters and elements to choose from, players eagerly embrace this update. Eggy Party will bring Disney's Zootopia into the game, which we announced through an in game fireworks show during the Chinese New Year. To further support creation and enrich our UGC ecosystem, we launched an app called Learn Programming with Eggy Party, offering players engaging and practical coding tutorial within Eggy Party, making it easier and more enjoyable to create in the game. In addition to these key titles, the significant breakthrough we made last year in genres like Weixin (ph) and sports brought new attention to previously overlooked genres in China, turning our foray into these genres into blockbuster games. We owe this remarkable achievement to our team's incredible dedication and talent, fueled by profound passion for their craft and parallel insights into their domains and unwavering commitment to the long term R&D process. They have been the driving force behind our success as we bring new games and genres to the forefront. The racing fan community in China has embraced Racing Master, as we continue to provide players with engaging content, including brand new cars, racing tracks and gameplay experiences. Our seasonal update in April brought players even more challenges to conquer, with the addition of the Red Bull Ring racing track, known for its technically demanding terrain and hosting of multiple historical world level events. Racing Master's strong performance on the iOS download and grossing chart further highlights its player popularity. In addition to domestic success, Racing Master also hit new record in other regions. Following the April seasonal update, Racing Master once again ranked number one on the IOS grossing chart in Taiwan and rose number one in Macau and number two in Hong Kong. Dunk City Dynasty continued to dominate the basketball mobile market in China, powered by its innovative design. The game confidently translates complex possible maneuvers onto small screens and its casual competition mechanism allow flexibility and innovative gameplay. While introducing our renowned CBA players to the player rosters, we expanded player options to include prominent basketball players superstars, like Ryan Leonard and Jayson Tatum. In addition to continually enriching its content, we creatively introduced a PvE game mode with the February seasonal update and presented players with the chance to experience the journey of legendary players evolving into superstars level by level. We also extended this thrilling possible game to more communities. Upon its launch, Dunk City Dynasty topped the iOS download chart in Taiwan, Hong Kong and Macau. It also ranked number one in Taiwan and number two in Hong Kong on the iOS grossing chart, following its local introduction in local markets in April. Expanding on our cross genre success, we continue to impress the market with new hit titles in 2024. Our female-oriented love simulation game, Shijiazhuang (ph), soared to the top of the download chart following its January release and reached number three position on China iOS grossing chart following the release of a highly anticipated new content update in March. We skillfully crafted narratives that evoke emotional resonance and engaging content that captivate and thrill the devoted and new players, [indiscernible] has emerged as one of the highly popular game among growing female player community in China. Throughout our genre innovation journey, we have gathered invaluable insights and know how, establishing a robust foundation to continue pushing boundaries and create games cherished by players from [indiscernible] alive, no matter what their backgrounds, preferences or interest. In addition to the launch plan of Naraka: Bladepoint mobile we just mentioned, we are actively preparing for the July launch of our new open world action RPG game, Action Adventure RPG game, War Wings Mod, (ph) starting in domestic market as the first half. Integrating Chinese martial art with open world genre, this game pioneers a mode catering to both single player and multiplayer experiences. Aiming for AAA equality of quality, it is expected to illustrate top performance of Chinese martial art game to our audience. With the pending global launch, this title is geared to entertain a broader audience with the game's rich ecosystem. Furthermore, we are currently working on several additional exciting titles for global markets. We're particularly excited about the domestic ROC launch of Once Human in the third quarter. Once Human is a multiplayer open world survival game set in the strange as post-apocalyptic future. Players can unite with friends to find monster enemies, uncover secret plots, compete for resources and build their own territory. Additionally, we are gearing up to introduce Ashfall, a wasteland themed shooting MMORPG and Marvel Rivals, a superhero team based PVP shooting game to our player communities in the near future. As we continue to strengthen our R&D capabilities, we also place high value on partnerships with developers worldwide. Our overarching goal is to bring more gaming experiences to broader audience, both domestically and internationally. During our Annual May 20 event, we are thrilled to update our plan to publish in China, Raid: Shadow Legends, a widely popular western fantasy sim card (ph) game and one of the best-selling RPG games in the U.S. In addition, we are thrilled to bring Marvel Snap to the Chinese market, a highly acclaimed CCG game that won the best mobile game at the game of war and best strategy game at IGN. Furthermore, we are pleased to announce a renewed agreement with Blizzard Entertainment in April to bring beloved titles back to China sequentially beginning this summer, along with a deeper relationship and strategic partnership with Microsoft Gaming based on the shared desire to bring new gaming experiences to players across platforms and markets. From our MMORPG rules to our exploration of other genres, we continuously introduce new content for legacy titles and create new titles war of existing culture trends. Through our constantly evolving R&D capabilities and expanding external partnerships, you can count on plenty of exciting new content from NetEase in the near future. Turning to Youdao. In the first quarter, Youdao achieved a healthy development and growth as we strategically prioritized our digital content services, online marketing services, and AI-driven subscription services, marking Yudao's first ever consecutive quarter of positive net income. In our learning services segment, our digital content services experienced a strong year-over-year net revenue growth of 11%. We continue to enhance our learning system and advance the way we offer our content. Recent updates to our Intelligent Learning platform by Youdao [indiscernible] introduced a tiered learning program that tailors teaching approaches and schedules based on different learning processes. Our online marketing services continued on its robust growth track, with record breaking net revenue of over 120% growth year-over-year, reflecting a strong performance of real time API and rapid expansion of comprehensive advertising services through domestic key opinion leader. Our investment and dedication to AI technology also brought rapid sales growth in line from our AI driven subscription services across a range of applications. Notably, Hi Echo stand out as a representative example of AIGC technology applied in the domestic education sector, and it was highlighted in the report published by a third-party research firm for industry wide recognition. Regarding the smart device segment, we remain confident in mid to long-term outlook, underpinned by our commitment to product innovation. Our Youdao Dictionary Pen S6 Pro launched this quarter -- in the first quarter garnered enthusiasm among consumers. Now let's move to Cloud Music. During the first quarter, Cloud Music remained steady fast in prioritizing the Cloud Music business, including a recent comprehensive product upgrade to the NetEase Cloud Music APP aimed at cultivating a vibrant music centric ecosystem and forcing a long term thriving community. The revenue growth from subscription based membership accelerated in the first quarter compared to the annual growth rate of last year. This upward trend was largely attributed to an expanding subscriber base, marking a two year high in quarterly net adds, along with the largely stable ARPU. Growth in subscription reflects the strength of our continually enhanced music centric offering, where we have added expensive content, innovative features and broad membership privileges, as well as strong program with external partners. To further our commitment to enriching our music libraries through both licensed music and original music, in the first quarter, we entered into agreement with several popular Chinese stars and expanded our music category in key genres like hip hop and rock. Meanwhile, we are actively broadening our collection of foreign language music. Recently, we entered into licensing agreements with leading South Korean labels, including JYP Entertainment and Kakao Entertainment and expanded our portfolio with premium K-Pop content. Beyond music content licensing, many of our in-house produced and promoted music works have been highly successful. In the first quarter, our self and co-produced sounds were featured across the country at various high profile TV performance shows and galas, including the CCTV Spring Festival Gala, Henan TV's Lantern Festival Gala and Beijing TV's New Year Eve Gala. With an increasingly enriched content ecosystem, we are focused on exploring and advancing our music oriented monetization initiatives. In addition to enhance the premium content offerings, innovations in product features, membership privileges and marketing activities are driving growth in subscriber and revenue. For instance, we entered into a co-branding initiative with a popular toy brand, Farmer Ball (NYSE:BALL), offering fashionable IPC and (ph) music players. The response from young users not only resulted in an increase in membership, subscription and upgrade, but also opened up more monetization opportunities. We also introduced a new interpersonal feature called [indiscernible] which has bolstered user interaction and social engagement, attracting new members and enhancing user activity levels and stickiness. Turning to Yanxuan. Since first quarter, we have continued to introduce popular product to consumers. Various product categories, such as pet products, household cleaning products and office furniture, achieved strong sales growth, securing leading positions in sales on several e-commerce platforms. Notably, the recent launch of an ergonomic chair achieved extensive popularity among younger generations, ranking number one on sales chart across major domestic e-commerce platforms. This success can be attributed to our dedication to Yanxuan’s technology driven product R&D since its inception. The AI technology we have incorporated into product iteration and function enhancement in recent years has improved our capabilities in consistently delivering market leading products. Moving forward, we remain committed to leveraging technology to offer consumer premium products. Lastly, we released our 2023 ESG report in late April, marking our fifth annual report. The report showcased our commitment, practice and progress in key ESG areas. Our business longevity make it more, more crucial to operate responsibly and sustainably. We believe it is a gift to be able to give to our communities, especially when it relates to important social issues, such as education equality, disaster recovery, workplace equality, diversity and green and low carbon development. We are grateful to have a highly diverse and professional board that is increasingly engaged in these issues, including business ethics and cybersecurity. We're actively exploring ways to make our operation greener, including using more green energy and employing energy saving approaches. In 2023, our greenhouse gas emission from operation decreased by 11% compared to 2022. We're committed to promoting diversity, equity, and inclusion and have again, been included in Bloomberg's Gender-Equality Index in 2023. Our efforts are recognized by reputable ESG rating agencies globally, where we maintain an A rating from MSCI and remain a local company according to Analytics' latest evaluation. Moreover, we are proud to have been recognized by Forbes as one of the world's best employers for the sixth consecutive year and also by Time Magazine as one of the world's best companies. Across our NetEase family of businesses, we remain committed to innovation and moving the industry we serve forward, crafting products and high quality content that create value for our users and stakeholders will continue to guide us as we extend our global reach. That concludes William's comments. I will now provide a brief review of our 2024 first quarter financial results. Given the limited time on today's call, I'll be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Total net revenue for the first quarter were RMB26.9 billion or $3.7 billion, representing a 7.2% increase year-over-year. Total net revenue from our games and related VAS were RMB21.5 billion, up 7% year-over-year. The additional growth was primarily due to increased revenue contribution from newly launched games, such as Justice mobile and sustainably developed titles like Eggy Party. Net revenue from our mobile games accounted for approximately 79% of our total net revenue from online game operations. Youdao's net revenue were RMB1.4 billion, a year-over-year increase of 19.7%, primarily due to increased revenue contribution from Youdao's online marketing services. NetEase Cloud Music net revenue were RMB2 billion, a 3.6% increase compared to the same period last year, primarily due to the increased net revenue from membership subscriptions. Net revenue for innovative business and others were RMB2 billion, up 6.1% year-over-year, mainly due to increased revenue contribution from Yanxuan and some other of our innovative businesses. Our total gross profit margin was 63.4% in the first quarter compared with 59.5% for the same period in 2023. Looking at our first quarter margin in more detail. Gross profit margin was 69.5% for our games and related VAS, compared with 66.7% in the same period last year. The increase was primarily due to change of revenue contribution from different platforms and higher proportion of net revenues contributed by netting self-developed games. Our gross profit margin for Youdao was 49%, compared with 51.7% in the same period last year. The decrease was primarily due to the higher revenue portion from its online marketing services with lower gross profit margin profile compared to its other product and services. Gross profit margin for Cloud Music raised 38% versus 22.4% in the same period last year. The margin improvement primarily resulted from the increased net revenue from membership subscriptions, continued cost optimization measures and the one off adjustments of certain copyright costs. The adjustment of certain copyright costs mentioned above increased the gross profit margin in the first quarter of 2024 by around 5 percentage points. For innovative business and others, gross profit margin was 33.4% compared with 25.4% in the first quarter of 2023. The increase was primarily due to margin improvement in Yanxuan and several other businesses included in the segment. Total operating expenses for the first quarter were RMB9.4 billion or 35% of our net revenue. Taking a closer look at our cost composition, our selling and marketing expenses as a percentage of total revenue were 15% compared with 11.6% for the same period last year, mainly due to increased spending on gaming promotions during the quarter. Our R&D expenses as a percent of total net revenue remained stable year-over-year at 15.5% in the first quarter, compared with 15% for the same period last year. We remain committed to investing into content creation and product development. We also see leverage in our R&D investments long-term. The effective tax rate was 16% for the first quarter. As a reminder, the effective tax rate is presented on the accrual basis depending on applicable policies and our operations. Our non-GAAP net income attributable to shareholders for the first quarter totaled RMB8.5 billion or $1.2 billion, up 12.5% year-over-year. Non-GAAP basic earnings per ADS from continuing operations for the quarter was $1.84 or $0.37 per share. Additionally, our cash position remained robust, with net cash of approximately RMB113.4 billion, as of March 31, 2024, compared with RMB110.9 billion at the end of 2023. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of $0.099 per share or $0.4950 per ADS. Lastly, under our current $5 billion share repurchase program, which started in mid-January last year, we have repurchased approximately 8.9 million ADSs at March 31, 2024, for a total cost of approximately $811 million. Thank you for your attention. We would now like to open the call to your questions. Operator, please.
Operator: Thank you. [Operator Instructions] Your first question comes from Felix Liu with UBS. Please go ahead.
Felix Liu: [Foreign Language] [Interpreted] Thank you management for taking my question and congratulations on the good first quarter results. My question is on your highly anticipated Naraka: Bladepoint mobile version. We noticed this game finished testing in April. [indiscernible] share the key takeaways from your testing and when do you expect this game to launch? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Okay. I'll help translate. First of all, the test actually reflect the high anticipation from players group and we can feel the enthusiasm from players. And also during the testing process it's actually validated the feasibility of some of the innovations we put into the game. And we collect enough data for us to do next round continuous operation for the game. Overall, this time actually boosted the confidence level of the team and for keeping the optimization until the game is launched. And regarding the launching time window, so far it's still the summer vacation time. Operator, next question please.
Operator: Thank you. Your next question comes from Lei Zhang with Bank of America. Please go ahead.
Lei Zhang: [Foreign Language] [Interpreted] Thanks, management for taking my question and congrats on your strong results. My question is regarding your newly launched game, Condor Hero (ph). And is the trend still within management's expectation and any near term upgrade we can expect and how should we look at the game longevity? Thank you.
Bill Pang: [Foreign Language] [Interpreted] I can translate. The first -- Stage 1 result of offshore deal was not very satisfied to our expectation. Now with the new person in charge and the core team, we are doing actively doing the modification work, focusing on a couple of aspects, like the fun factor, making the game fun to play, as the -- for example, the social factor as well as some of the art style. We're doing all sort of modifications as we speak. And we believe with our experience and expertise in MMORPG genre, we can make it fun to play. And the expected time for the game, updated game to be pushed out is during the summer vacation time. Thank you. Operator, next question please.
Operator: Thank you. Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.
Lincoln Kong: [Foreign Language] [Interpreted] So my -- thank you, management for taking my questions. So my first question is about where we meet. So we have seen on the PC version has been doing the final testing and it's set to launch in July. So how should we think about the outlook for this game? Will it be co-published overseas market and what's the plan there? And also related to that, what about the Where Winds Meet, the mobile version? How is the development stage and what sort of target launch time line there? So second question is about our future game pipeline, especially beyond 2025. So when we think about next year or even after, what are the areas of game genre are we currently preparing? So any updates including such [indiscernible] or other type of game? Any color from there? And what about the overseas market, anything we should expect for this or next year in terms of game titles? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Okay. I will help to do the translation. First of all, thank you for your question. As you know, for Where Winds Meet, the PC we have announced the launching time and everything is ready. The team is busy preparing for the launch. And for mobile, the development everything is actually already done. We're in the testing -- doing some testing and optimization. As you can imagine this game is a little bit heavy to run on mobile devices, a lot of optimization work needs to be done and we're busy doing that. Mobile version, the release time of mobile version will be slightly later than the PC version, not too much, slightly. This is an open world game and we believe it has potential in the overseas market as well and we will do marketing and promote the game in the overseas market as well. For your next question, regarding the product pipeline beyond 2025, we will disclose our pipeline via our normal ways like putting out news and via events when the time is right. Thank you for your attention. Yeah. Operator, next question please.
Operator: Thank you. Your next question comes from Ritchie Sun with HSBC. Please go ahead.
Ritchie Sun: [Foreign Language] [Interpreted] Thank you, management for taking my question. First of all, regarding [indiscernible] PC. It is a stable and strong game franchise for the East, but the tweaks made in the game recently received mixed user feedback. I would just also note that there are adjustments after 20th of May. Could management discuss the strategy to handle the pushback from users? And when do you expect the game performance to stabilize? In addition, I noticed there are more games having adjustments on the in-game item trading mechanisms recently. Could management explain the rationale behind this? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Yeah. I will do the translation for this one. Yeah. Fantasy Westward Journey, as you know, has been one of our classic MMORPG games for more than 20 years. And during the 20 years’ time of operation is beloved by massive user base. And one of the reasons that it was beloved is that we always focus on the long term, making sure the game is long term fun to play and players enjoy stay in the game. Recently, we are doing some adjustment, but for the same reason to adjust some of the systems with the logic everything, with the goal of making it more fun to play in the long term, satisfying our users' demand. And this adjustment is still being done and we expect it will be done within the first half of this year. And one thing is that you don't need to worry too much about this short term fluctuation brought by this short-term adjustment because the goal are totally aligned between us and our gamer base. It's for the longevity of the game. And we wish -- for the goal that the game will be in long term beloved continues to be loved by the players. And in the meantime, our development team are actually holding a very humble attitude, open to listen to all feedback from our community, gamer communities, so to make the game more creative and more fun to play, putting more creative and fun things in the game. One thing you don't need to worry that the whole company and the development team taking this very seriously. It's our focus and we expect to have a fun version to play when we finish this period of adjustment. Okay. Yeah. So as William said, the recent adjustment for the [indiscernible] short term as well. It's also served for the same goal, because a long time, we wanted the players to have more fun in playing our games. Thank you. Operator, next question please.
Operator: Thank you. Your next question comes from Xueqing Zhang with CICC. Please go ahead.
Xueqing Zhang: [Foreign Language] [Interpreted] Thanks management for taking my question. My first one is about your shooting games. We have noticed that the company has been focusing on the shooting game genre in most core (ph) games such as Lost Light, Marvel Rivals/Once Human and many others in development. How do you think about the completion landscape of this genre and what's your strategy? My second question is about your overseas studios. Could management share with us the latest developments on the overseas game studios and when do you expect the overseas studios to start launching games? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Okay. Thanks, William for the answer. I will do this translation. First of all, regarding your question about shooting game genre, you're right, shooting is actually a big genre in the whole game industry, both domestically and globally. In our past, shooting was not our strong genre, but we focus very much on how to conquer this genre. That's why starting from several years ago, we started to deploy product development into this genre. And that's why you see we start to have product coming out starting from this year. We hope we can achieve certain level of success in this big genre. And also, in the meantime, shooting is a very welcoming genre, very popular genre in overseas gaming market as well. And we hope we can achieve certain level of achievement there as well. Hoping by pushing out a batch of high quality shooting games, we can feel our determination into broadening our genre base and getting to more genres and global market as well. About your second question about overseas studios, the fact is that there are many product is being busily developed as we speak. But developing a new game take many years, two years, three years even longer. At this moment, we don't have a plan and release date that we can share with you regarding the product out of our overseas studios. But as we see -- as we said, we are actively developing products there. In the meantime, one further comment on the global market is that for our China domestic studios, we are also actively working on titles towards global market as well. As you have seen that Racing Master has achieved certain level of success in Greater China region. And Identify V has been successful in Japan, 96 Hours has been successful in Japan. We hope you can feel our -- you can feel that we have enough resources, determination and attitude to achieve in overseas market. Thank you for your attention. Operator, next question, please.
Operator: Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong: [Foreign Language] [Interpreted] Thanks management for taking my question. My question is about the operating expenses. Can management comment about how we should think about OpEx trend, in particular for S&M, given that we have a weak pipeline coming up? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Yeah. You won't see a big increase in our sales and marketing expenses. We're actually already very sophisticated and experienced in marketing operations and we're actually getting more and more experience in that field. Actually, our customer acquisition cost is going down now. So in short, you won't see an increase in sales and marketing expenses in the future. Thank you. Operator, next question please.
Operator: Thank you. Your next question comes from Jialong Shi with Nomura. Please go ahead.
Jialong Shi: [Foreign Language] [Interpreted] So, thanks for the opportunity to ask the question. So my question is about the gamer spending in NetEase games. There are a lot of charters nowadays about so called consumption downgrade in China. So again, such a macro context, just wonder if management noticed any change in the in game spending pattern of your gamers. What is the trend for the output of your top MMO titles? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Yeah. To answer your question, we haven't observed any meaningful downgrade in consumer in gamer expanding in our game because the games the value we're providing to our consumers via game is more like an emotional value. Players spend certain money to have some fun, enjoy some time, relax here. It is still very different from the day-to-day shopping for data use of those or other consumer products or physical products. We believe the consumers see they acknowledge the emotional value we provide and again, we haven't seen any downgrade there. Thank you. Operator, next question. Probably we have time for one or maybe two questions.
Operator: Thank you. Your next question comes from Alex Poon with Morgan Stanley. Please go ahead.
Alex Poon: [Foreign Language] [Interpreted] Thanks management for taking my question. My question is related to our capital returns. Last year, we paid roughly $2.3 billion in 2023. How should we think about the pace in 2024 and future? Thank you very much.
Bill Pang: [Foreign Language] [Interpreted] Okay. To answer your question for the repurchase and dividends, we're actually carrying out the activity based on our own pace. You noticed that -- probably noticed that in the last quarter -- in the past quarter, we're doing repurchase with our own reason and we're going to continue doing that with our own reason and paying our dividends as we used -- we have been used to do in the past. Thank you. Next question. Operator, that's going to be our last question.
Operator: Thank you. Your next question comes from Daniel Chen with JPMorgan. Please go ahead.
Daniel Chen: [Foreign Language] [Interpreted] So first of all, congrats on really strong first quarter gaming revenue. And my question is on, we recently got a new license for Eggy Party's new game. It's a match three game. So any information, any update to share on this game? Also how should we think about the long term strategic outlook for the whole Eggy Party ecosystem? Thank you.
Bill Pang: [Foreign Language] [Interpreted] Thank you for your questions. You're right that the [indiscernible], actually it's a casual game based on the Eggy Party IP and it took us some time to develop this and we're going to roll that out soon. And regarding your question about Eggy Party as an ecosystem, yes, Eggy Party is a very lovely adorable IP and players feel relaxed and feel casual when engaging with IP. We truly wish we can do more creative things with IP and building more fun experience and having everyone enjoying this party game genre. And we have a lot of work to do and we're very much looking forward to that. Thank you. Thank you for your question.
Operator: And that concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any additional or closing comments.
Brandi Piacente: Thank you once again for joining us today. If you have further questions, please feel free to contact us at Piacente Financial Communications or the company. Have a great day.
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