Chinese internet and gaming giant Netease said Thursday its revenue for the fourth quarter increased 9.2% year on year to $2.26 billion, beating analyst estimates.

Why it matters: Netease’s strategy of focusing on its gaming business by spinning off its other units has started to pay off.

  • The Hangzhou-based company’s robust performance in recent months has sent its market cap to a $44.7 billion high, outpacing search engine Baidu in August and e-commerce platform Pinduoduo, and making it the fifth-largest publicly traded Chinese technology firm.
  • CEO William Ding expressed optimism about the company’s gaming and online education businesses in the first quarter during the call with analysts. Ding said that the self-quarantine across much of China due to Covid-19 meant that more people were playing games, a addition boon during a normally favorable season due to the Spring Festival holiday.

Details: Net revenues for the fourth quarter increased 9.2% year on year to $2.26 billion, the company said in a statement on Thursday, beating analysts’ average estimate of $2.18 billion.

  • Revenue growth, however, was significantly lower than the 36% annual growth seen in the same quarter a year earlier. 
  • Gross profit in the quarter grew 9% year on year to $1.2 billion. The company said the increase is primarily driven by increased net revenues from its music-streaming service Netease Cloud Music.
  • Net revenues from online gaming services, its largest source of revenue, were $1.7 billion, an increase of 5.3% year on year. The growth was primarily driven by increased revenue contribution from mobile games including “Life-After,” “Invincible,” and “Identity V,” the company said.
  •  Mobile games accounted for 70.4% of net revenues from online games during the quarter, the company said.
  • The company recorded $8.5 billion in revenue in the fiscal year 2019, 15.6% more than that of 2018.

“Our online game services net revenues continued to grow, propelled by the sustained and growing popularity of our existing titles, again demonstrating the longevity of our game franchises… We will continue to bring more masterpieces to both domestic and global players in 2020.”

— Willian Ding, founder and CEO of Netease, in the statement

Context: Netease narrowed its focus on its gaming and entertainment businesses last year by spinning off its e-commerce and online education units.

  • Youdao, Netease’s online education unit, went public on the New York Stock Exchange in October, raising more than $100 million.
  • The company sold cross-border e-commerce unit Kaola to Chinese e-commerce behemoth Alibaba in September for approximately $2 billion.

Wei Sheng is a Beijing-based reporter covering hardware, smartphone, and telecommunications, along with regulations and policies related to the China tech scene. Before joining TechNode, he wrote about... More by Wei Sheng

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