NetEase sees growth in e-commerce and gaming businesses

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Internet and online games giant NetEase on Thursday released its unaudited financial results for the fourth quarter and the fiscal year ended Dec. 31, 2018, reporting substantial year-on-year growth in e-commerce and gaming revenue.

NetEase recorded net revenues of close to RMB 20 billion (around $3 billion) in the fourth quarter of 2018, increasing by almost 36% year-on-year. Within that RMB 20 billion, close to RMB 7 billion was from e-commerce, and around RMB 11 billion was from online game services, a 43.5% and 37.7% increase respectively compared to the same period a year earlier. The total net revenues of the company in 2018 increased 24% year-on-year to more than RMB 67 billion.

The growth in NetEase’s e-commerce revenue came from its e-commerce site Kaola and Yanxuan, both of which saw rapid growth in the past year. Kaola, the largest cross-border retail e-commerce platform in China, is reportedly in talks to merge with the cross-border retail business of Amazon to further expand.

However, its e-commerce revenue growth came at a cost. According to its earnings report, the gross profit margin for the fourth quarter of 2018 was 4.5%, falling from 10% for the same period in 2017. The internet giant attributed the low-profit margin to large-scale promotions and sales discounts during shopping festivals including Double11, held on Nov. 11 every year.

Online games have long been NetEase’s cash cow, and their performance remained steady in 2018, bringing in over RMB 40 billion. A considerable portion came from the self-developed mobile games the company released during the year, such as Knives Out, China’s top grossing mobile game in overseas markets for five consecutive months since August 2018. Other games including flagship titles such as Fantasy Westward Journey and New Westward Journey Online also contributed.

During the earnings call, Netease CEO Ding Lei said that the company has about 40 games in the pipeline awaiting approval from China’s State Administration of Radio, Film, and Television, media outlet Jiemian reported. Ding added that a lot of NetEase’s game are distributed and tested overseas and are not affected by video game licenses in China.