NetEase posts Q2 growth in gaming, e-commerce but lower advertising revenue

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NetEase’s flagship game Nishuihan, developed by its Leihuo Game unit. (Image Credit: NetEase Games)

NetEase recorded steady growth in the second quarter of 2019 with gains of more than 10% in net revenue and gross profit, driven primarily by the company’s online gaming and e-commerce businesses.

Why it matters: Since China has eased up on restricting new game approvals, NetEase has pushed to diversify its portfolio of titles.

  • It has launched several mobile games and expedited the development of upcoming titles, including the country’s first official Pokémon mobile game.

Details: NetEase’s net revenue rose 15.3% year on year to $2.7 billion, of which more than 60% came from online game services, which itself grew 13.6%.

  • Income from mobile games accounted for nearly three-quarters of the company’s total gaming turnover for the period.
  • Net revenue from e-commerce grew by one-fifth to reach $764.3 million. The company attributed the growth to increased sales on e-commerce platforms Kaola and Yanxuan.
  • Net profit from innovative businesses expanded 23.2% in the second quarter, propelled mainly by the growth of products such as NetEaseCloud Music, NetEase CC, and Youdao Online Education.
  • The total number of NetEase Cloud Music users reached 800 million, the company said during the earnings call
  • The company posted a slight drop in advertising income of 8.3%, mainly due to a more competitive macro-environment and increased expenses.
  • Gross profit for the quarter rose 12.2% annually to $1.18 billion.

Context: NetEase has been expanding into overseas markets as gaming growth cools domestically, with a particular emphasis on Japan, where its mobile titles Knives Out and Identity V are among the top-grossing games.

  • The company has also been actively constructing an e-sports ecosystem named NeXT, which revolves around NetEase’s self-developed games and global titles that it runs in China.
  • NetEase announced on Saturday plans to invest more than RMB 5 billion in building an e-sports park in Shanghai, which it said will be “China’s first large professional e-sports stadium.”