NetEase, Inc. American Depositary Shares
NTES · Nasdaq
Next quarter
Expected to report Nov 19, 2026 — estimated from last year’s reporting date.
Consensus is $2.24 EPS for Sep 2026 across 2 estimates, ranging $2.19 to $2.29.
NTES Jun 2026
- 27.27%
- $2.20
- $1.60
- —
- —
Highlights
- Earnings miss: Reported EPS was $1.60 per ADS versus the $2.20 consensus, a 27.27% shortfall; non-GAAP EPS was $1.78 per ADS.
- Revenue growth: Second-quarter revenue rose 7.9% year over year to RMB30.1 billion, but declined from RMB30.6 billion in the prior quarter.
- Games remained the engine: Games and related value-added services revenue increased 9.7% year over year to RMB25.0 billion, though it fell 2.7% sequentially as certain self-developed and licensed titles softened.
- Margin expansion: Gross profit rose 17.5% year over year to RMB21.2 billion, lifting gross margin to 70.5% from 64.7% a year earlier, helped by lower platform revenue-sharing costs.
- Profit pressure came below operations: GAAP net income attributable to shareholders fell to RMB7.0 billion from RMB8.6 billion a year earlier and RMB10.7 billion in the first quarter, principally reflecting investment losses and a higher tax rate.
- Global and live-game momentum: Where Winds Meet and Marvel Rivals expanded internationally, while Sword of Justice exceeded 10 million active players on its anniversary-update launch day and Eggy Party reached 700 million registered users with monthly active users above 100 million.
- Pipeline and AI: Sea of Remnants launched in China in July; Ananta and Blood Message remained on track, while Youdao launched Confucius 4 and said its translation model's inference speed improved approximately 80%.
- Capital returns and liquidity: Net cash reached RMB167.5 billion at June 30, up from RMB163.5 billion at year-end; the company repurchased approximately 2.8 million ADSs for $324.1 million during the first half and approved a $0.48-per-ADS dividend.
Analysis
NetEase's second quarter was an operationally solid but earnings-light print. Revenue of RMB30.1 billion increased 7.9% from a year earlier, supported by a 9.7% rise in games revenue to RMB25.0 billion, but was down from RMB30.6 billion in the prior quarter. Reported EPS of $1.60 per ADS missed the $2.20 consensus by 27.27%; non-GAAP EPS was $1.78. GAAP shareholder net income fell 18.8% year over year to RMB7.0 billion and 34.6% sequentially from RMB10.7 billion.
The central positive was improving game economics: gross profit rose 17.5% to RMB21.2 billion and gross margin expanded to 70.5% from 64.7%, as lower revenue-sharing and product costs more than offset modestly higher operating expenses of RMB9.1 billion. The main drag was below operating profit, with a RMB3.0 billion net investment loss, alongside a 25.5% effective tax rate versus 14.7% a year earlier. Management emphasized sustained live operations and global reach across Where Winds Meet and Marvel Rivals, while the forward pipeline includes Sea of Remnants, Ananta and Blood Message. Youdao grew 3.5% and Cloud Music was stable, leaving the business mix heavily dependent on games.
Games performance and margins
Games continued to determine the quarter's operating trajectory. Revenue was RMB25.0 billion, up 9.7% year over year but down from RMB25.7 billion in the first quarter, as certain self-developed and licensed games declined modestly sequentially. Self-developed titles including the Fantasy Westward Journey franchise and Where Winds Meet drove the annual increase.
- Profitability: Games gross margin reached 76.1%, up from 70.2% a year earlier, primarily because of lower platform revenue-sharing costs. Games gross profit was RMB19.0 billion versus RMB16.0 billion in the prior-year quarter.
- Live operations: Sword of Justice's June anniversary update generated more than 10 million active players on launch day and a two-year high in concurrent users. Eggy Party reached 700 million registered users, with monthly active users remaining above 100 million.
- Global reach: Where Winds Meet expanded to Xbox and maintained positive Steam reviews above 87%, while Marvel Rivals' summer content helped it reach No. 2 on the global top-seller chart and No. 1 in several regions, including the United States.
- Execution issue: Management acknowledged that Sea of Remnants' bold visual style and roguelike gameplay created too steep an initial learning curve for some Chinese players, and said it was simplifying early-game content while continuing updates.
Pipeline and development strategy
NetEase is emphasizing fewer, higher-quality products and extending the life of established franchises rather than relying on a high volume of launches. Sea of Remnants launched in China in July and is being prepared for a global rollout. Ananta, a free-to-play urban open-world RPG, is progressing toward launch, with an update planned for Gamescom, while Blood Message generated approximately 40 million global trailer views after its Summer Game Fest showing.
- Investment priorities: Management said it would continue investing in premium products when the vision and quality bar are clear, despite a relatively leaner launch pipeline.
- AI as an accelerator: Management described AI tools as capable of speeding development and improving player experience, but did not quantify a financial benefit or provide a launch date for the pipeline titles.
- Partner content: Blizzard games performed well in China, with anniversary and localized content lifting engagement in Overwatch and supporting active-user and retention growth in Diablo IV.
Earnings and cost structure
The sharp year-over-year earnings decline did not reflect a deterioration in gross profit. Gross profit was RMB21.2 billion, essentially flat sequentially but up from RMB18.1 billion in the year-ago quarter. Operating expenses rose only 1.5% year over year to RMB9.1 billion, though they increased from RMB8.6 billion in the first quarter as marketing, staff-related and R&D costs rose.
- Operating discipline: Selling and marketing expense was 12.2% of revenue versus 12.8% a year earlier, while R&D was 15.4% versus 15.6%. General and administrative expense fell to 2.7% of revenue from 3.8%.
- Investment losses: Net investment loss was RMB3.0 billion in the quarter, compared with investment income of RMB328 million a year earlier, reflecting fair-value declines in equity securities and impairment provisions.
- Tax impact: The effective tax rate rose to 25.5% from 14.7% a year earlier and 18.9% in the prior quarter. The income-tax charge was RMB2.5 billion in both the current and prior quarters, but higher than RMB1.6 billion a year earlier.
- First-half context: First-half revenue increased 7.0% to RMB60.7 billion, while non-GAAP shareholder net income declined 8.4% to RMB19.0 billion and non-GAAP EPS fell to $4.38 per ADS from $4.81.
Youdao and Cloud Music
The non-gaming businesses provided incremental growth but did not materially change the quarter's overall shape. Youdao revenue increased 3.5% year over year to RMB1.5 billion and 9% sequentially, driven by learning services. Cloud Music revenue was RMB2.0 billion, broadly unchanged year over year and sequentially.
- Youdao AI: Youdao launched the Confucius 4 large language model with stronger visual math and physics reasoning at lower inference cost, and said its upgraded translation model increased inference speed by approximately 80%.
- Learning services: AI-powered essay grading, recommendations and college-admissions advising supported user retention and subscription momentum.
- Cloud Music monetization: Membership subscriptions continued to grow, with higher retention and renewal rates, while the platform reported a daily-active-user-to-monthly-active-user ratio above 30% in the first half.
Cash returns and balance sheet
NetEase retained substantial financial flexibility despite ongoing dividends and repurchases. Net cash was RMB167.5 billion at June 30, up from RMB163.5 billion at December 31, 2025, while second-quarter operating cash flow was RMB10.0 billion, down from RMB10.9 billion a year earlier and RMB13.7 billion in the first quarter.
- Share repurchases: The company repurchased approximately 2.8 million ADSs during the reporting period for $324.1 million; cumulative repurchases under the $5.0 billion program reached approximately 24.9 million ADSs and $2.3 billion.
- Dividend: The board approved a second-quarter dividend of $0.096 per ordinary share, or $0.48 per ADS, expected to be paid to ADS holders around September 18, 2026.
