NetEase Inc

NASDAQ:NTES

Q1-2025 Earnings Call

[Operator]

Good day, and welcome to the NetEase First Quarter 2025 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Helen Wu. Please go ahead.

[Unknown Executive]

Thank you, operator. Please note that today's discussion will contain forward-looking statements related 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 risk mentioned in today's press release and this discussion.

A general discussion of the risk factors that could affect NetEase 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. Any announcement and filings on the Hong Kong Stock Exchange website. The company does not take any obligation to update its forward-looking statements, except as required by the law.

During today's call, management will also discuss certain non-GAAP financial [indiscernible] purpose only. For a definition of non-GAAP financial measures and a reconsolidation of GAAP to non-GAAP financial results, please see the first quarter 2025 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 on the call from NetEase senior management are Mr. William Ding, Chief Executive Officer; and Mr. Bill Pang, Vice President of the Corporate Development.

I will now turn the call over to Bill, who will read the prepared remarks on William's behalf.

[Bill Pang, executive]

Thank you, Helen, 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. We started 2025 with strong momentum. Innovative content and exceptional operations continue to underpin our growth. As we further globalize and diversify our expanding game portfolio. Our total net revenue increased 7% year-over-year. Alongside the success of our new titles, our flagship titles continue to capture players throughout the first quarter, reaching new record highs after decades of operations. This combination of new heat and long-time fan free weight drove our total revenue from gaming and value add services, up by 12% year-over-year to RMB 24.0 billion. Several new titles have recently debuted globally and more players around the world are embracing our games than ever before. We now have reached and growing global portfolio of games that spans a range of diverse gamers, reinforcing our competitive edge in the dynamic gaming landscape with innovations that elevate our offerings and the industry as a whole.

Starting with Marvel Rivals, its successful launch last December marked a major milestone in our portfolio and a meaningful step forward in our globalization journey backed by critically claimed gaming experience and dedicated life operations, it has continued to build strong momentum among players worldwide.

In the first quarter, the engagement remained high and the launch of Season 2 in April brought renewed excitement. Seen around Hellfire Gala, a once a year celebration of mutant culture and identity, the seasonal update introduced a new map, new hero and fresh team ups, welcoming both veteran players and new commerce to the Living Island.

Following the update, Marvel Rivals reclaimed its #1 position on Steam's global top seller target. To deepen our connection with player community, we are moving to a 2-month season cadence starting with Season 3, while keeping the momentum high by introducing a new hero each month. With continued development and situation, we are committed to delivering a distinctive and evolving gaming experience to players worldwide.

Next is FragPunk, our fast pace 5 versus 5 tactical shooter game that has energized global fans with a sleek shooting experience, innovative share cars and bold or expression. Within just 3 days of its PC launch in March, the game achieved over 110,000 peak and current players and became #6 on Steam's global top seller chart. Building on this momentum, we launched Chapter 2 of Season 1 on April 29 with over 70 brand-new shut cars, along with updated heroes and Maps. With update, FragPunk also debuted on consoles making the game available to an even broader player base. As we continue pushing the boundaries of the shooting experience with sematic innovation and upgrades, we're also growing the games community and hope to make FragPunk [indiscernible] titles.

We also just launched the much anticipated Once Human mobile addition on April 24. It quickly gained global attention. claiming the top spot on IOS dollar chart in more than 160 regions. The optimized handheld experience is highly valued by mobile players as we retain the depth of PC version while featuring cross-platform play, progression and rewards. Meanwhile, the mobile launch generated even more community enthusiasm across platforms, driving the game to #5 spot on Steam's top seller charge. Across PC and mobile, our open world PVP and TV phenomenon is reaching more users.

Where Winds Meet has continued to draw players into its immersive world since its breakout domestic launch in December. Its ability to blend sort story telling rich layered historical setting and high-fidelity graphics has made wearing meet a game changer in the open world with [indiscernible]. We added more fresh content on March 28, introducing Hose, a brand-new district set against a stunning denser landscape and attracting a growth of new players by the end of March, more than 30 million players had joined the community and player engagement continues to be high, reinforcing the game's long-term potential. We are excited to build on this success and reach more players with plans to launch the game in more regions across PC, mobile and console platforms later this year. These titles also demonstrated robust performances driven by strategically tailored experiences for local communities. The return of each title in 2024, reignited player enthusiasm, driving engagement to historical highs. This was especially evident by Overwatch, which broke new records of key concurrent players upon its relaunch on February 19. A brand-new stadium mall was launched in China this April alongside its global release. In addition, momentum has been ongoing for a store, both of which saw consistent popularity during Chinese New Year with targeted in-game events and localized designs.

Notably, World of Warcraft achieved a leading sales through live commerce on social media, providing fans with an entertaining experience in a fresh way.

Hearthstone came up with quarterly resident content, such as alternative to card or signature car inspired by Chinese painting and watercraft pseudo in broadly inspired mounts. These creative designs rejuvenated the long beloved IPs by infusing fresh elements that resonate with players, engaging both long-time fans and new players.

In addition, Diablo III entered technical testing in April, paving the way for its reentry into the Chinese market. Together, these successes demonstrate the strength of our operating capabilities and the close collaboration with our partners.

Looking ahead, we are excited to bring players even more intriguing content, created and delivered with care by passionate teams and cooperators.

As we celebrate the success of our new and return titles, our established latest games continue to play a vital role in our portfolio. Our long-standing beloved titles serve as foundational pillars and steady source of revenue with lowering cotton updates and continuous gameplay enhancements that deliver time-based appeal. The Fantasy Westward Journey franchise is a prime example. After decades of operations, it continues to be 1 of China's most influential brand. In the first quarter, we celebrated Fantasy Westward Journey Mobile's tenth anniversary with the range of new content updates, including a crossover with renown animation IP DGMO. The update sparked player engagement signing a remarkable beginning for its next decade. Once we're turning online to another charge classic also maintained healthy traction in the first quarter with festive Chinese New Year event and each active live streaming that reignited player passion.

Another example is our iconic asymmetric battle arena game Identity V. First introduced to global market in 2018. The player base greatly expanded in the first quarter, achieving a new quarterly high on top of its record-breaking momentum in 2024. The excitement extended into April with registered players surpassing 400 million globally during Identity V's 7th anniversary celebration.

Similarly, our action-based better all game, Naraka: Bladepoint has built a strong global player base since 2021. The game saw new record revenue in the first quarter with our updated PV content. Players can now team up and have fun formidable balance side by side, adding another layer of play through strategy, skill building and collaboration. Both identify Asian games version and Naraka: Bladepoint have also been named as the official eSports event for the 2026 IHG Nagoya Asian Games. Each is the first title in this gene to be included in the Asian games, marking another breakthrough for domestically developed games on the international stage. Moreover, this veteran titles ability to reach new milestones highlight the strength of our long-term operations, premium content, crossover events and our increasing strength in esports operations.

Moving to Eggy Party. The game further solidified its leadership in the party game genre with robust sequential growth in the first quarter. excitement leads up Eggy Island on Chinese New Year's Eve, fetching vibrant lineup of performances. Players jump into the new year celebrations enjoying live entertainment drilling activities with friends and creating a nice to remember. The addition of the beloved Chinese animation IP Calabash Brothers, added another layer of festivity with Eggy Party attracting over 100 million players and new monthly players reaching a record high.

As for groundbreaking MMO game, Justice Mobile, it continues to raise the bar for innovation. In March, we introduced Star Dreamland a virtual amusement park in the heart of the Wuxia Inspire wall. Packed with familiar attractions and activities that resonate with younger generation. This new setting quickly became a hit. Justice Mobile is also pushing technology boundaries. We continue to elevate the gaming experience, adding enhanced interaction with AI-powered MPCs and improved the lighting effect through cutting-edge graphic technology. We have also made a lot easier and more fun for players to get creative. With our upgraded creation system, players can produce their own video clips using in-game animations complete with custom script capture motions and voiceovers. It's a powerful tool that opens the door to a whole new level of creation creative expression.

Justice Mobile's strong momentum has expanded to more regions since its launch in Hong Kong, Macau and Taiwan last November, as has our leading bachelor game, [indiscernible]. Currently, [indiscernible] is targeting expansion to more regions across Western market and Southeast Asia in May. Similarly, Racing Master has secured a solid position in Japan, Korea and Southeast Asia with a game talking the iOS download chart across multiple regions with each geographic launch. These solid operational metrics are a great indicator of what we can expect in other markets when we bring this title to more regions.

as we work to build on the success of our existing games and introducing them to more players around the world. We have a range of exciting upcoming titles on the way. New titles in our pipeline will continue to push the envelope of creativity and interaction, elevating our portfolio and the overall gaming experience we bring to our gaming communities. .

MARVEL Mystic Mayhem, our superhero team-based technical RPG is currently prepared for its official worldwide launch. The closed beta test 2.0 conducted in March sparked massive passion within the community. Will we gather valuable feedback from players to aid in the final touches. With more details to be announced shortly. We eagerly anticipate introducing players to this exciting confrontations on global scale. Some of our other titles under development include testy rising, our epic SciFi RPG shooter game featuring a new adventure set in the alternative destiny time line. This 1 is currently in active development and progressing as planned. another, our highly anticipated metropolitical RPG is also deep in development. The game draws on our years of experience in the gaming industry to deliver innovative game play shaped by deep player insights. As across our portfolio and pipeline, we're reaching more players through a wider range of genres and expanding our global footprint. We're launching new titles and building on the momentum of our existing heads with update players love, a while delivering new inspiring experiences that resonate with fans around the world. By continuing to reimagine was possible in gaming, we help advance the industry as a whole. Our commitment to quality and innovation shapes each area of our business.

Looking now at Youdao, with relentless focus on technology-driven innovation integrated into the user experience and a disciplined effort to foster long-term sustainability. Youdao achieved record high first quarter operating profit, maintaining the profitability momentum of previous quarters. Trading services revenue declined in Q1 as we continue to prioritize core services with strong long-term potential by focusing on high-demand subjects, we advance quality operations and further strengthen the profitability. As a part of this effort, our online intelligent learning platform, odontic upgraded its college entrance planning system to deliver more seamless and personalized guidance based on individual needs, driving exceptional user engagement and loyalty. By prioritizing AI technology in the development of our products and services. We have seen strong user reception and robust growth in AS subscription sales. Our existing applications continue to evolve with our dictionary and translation services now delivering industry-leading accuracy and a smooth user experience, powered by our proprietary large language model, confuses. This model innovatively integrates multiple models and leverage online direct preference optimization during training, which enhances its ability to generate responses that are aligned with users' processes. This elevated experience has driven increasing engagement in our AI translation services.

Youdao's online marketing services remain focused on high-quality growth. In the first quarter, sales from overseas grew sharply driven by strengthened collaboration with overseas partners and KOLs. We also boosted operational efficiency through advanced technologies. For example, we launched Youdao Magic Box, a video creation tool that simplifies the production of high-quality advertising videos through intuitive inputs, making ad content creation easier and more time efficient. Our Smart Devices segment maintained healthy year-over-year growth. The building on our leading position in China's Dictionary pen market, we continue to bring new innovations to the industry. In the first quarter, we launched Youdao Space 1, the next-generation device equipped with a larger screen than victory paths and the ability to answer students' open-ended questions in real time, much like a human tutor. Powered by advanced large language models, Youdao Space 1 can accurately interpret images, respond with natural waste interactions and deliver highly accurate answers across a wide range of school grade levels. As our online businesses continue to explore avenues for delivering meaningful experiences in entertainment and learning, the NetEase family remains committed to enriching people's lives and lifestyle and product with services that consistently impress our users with exceptional quality.

Take Yanxuan as an example. The strong commitment to quality and innovation drove another quarter of healthy performance across our core product categories. In the first quarter, our pet product and household cleaning items remain top sellers within their category on major e-commerce platforms, particularly the signature product maintained strong momentum while new releases such as our Carsen Cup and limited addition New Year bathroom fragrancy saw strong consumer demand. We were especially delighted that in March, 1 of our cat food products, especially formulated to support healthy firm, received the 2025 Pet Orange Cat Award, a notable recognition from the pet industry.

Additionally, ESG initiatives are ongoing priorities for net use. Earlier today, we published our sixth annual ESG report outlining our progress towards sustainable growth, transparency and social responsibility. We believe that technology can both empower and inspire through AI-driven innovations, we're redefining entertainment experiences while modernizing traditional industries for safer, more efficient production. Our business growth reflect the trust or user place in us, further motivating our efforts to serve our communities. While our business has limited environmental impact due to its predominantly online nature. We continue to enhance our carbon reduction efforts across data centers and office campuses to strengthen operational resilience.

In 2024, by prioritizing energy-saving measures within our operations. We successfully achieved a 16% reduction in greenhouse gas emissions compared to the previous year, leading ESG rating organizations have also recognized our progress in sustainability. Notably, MSCI upgraded us from A to AA in this latest assessment, designating NetEase as a leader among 237 companies in the global media and entertainment sector. S&P Global included us in this 2025 sustainability year book and seasonality has rated us as a low-risk company for the 6 consecutive years. Each of these honors speak to the dedication and ESG standard we uphold across our company.

As we look to the months ahead, we are encouraged by the global momentum we have established and the breadth of opportunities across our increasingly diversified game portfolio. and broader native family of businesses. With a robust pipeline of new releases, continued global expansion and ongoing enhancement to our most iconic franchises we are well positioned to sustain our growth and deepen our connection with players worldwide, creating more value for players, partners and shareholders.

That concludes William's comments.

I will now provide a brief review of our 2025 1st quarter financial results. Given the limited time on today's call, I will 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 RMB 28.8 billion or USD 4.0 billion representing a 7.4% increase year-over-year. Meanwhile, current contract liabilities were RMB 17.7 billion, up 16% quarter-over-quarter. Total net revenue from our games and related VS were RMB 24.0 billion, up 12% year-over-year. Specifically, Net revenues from online games were RMB 23.5 billion, up 14% quarter-over-quarter and 15% year-over-year. This growth was primarily driven by increased revenue contributions from key PC games, such as newly launched titles, Where Wind Meets and Marvel Rivals as well as established mobile games like 5. Identity V. Specifically, net revenues for our PC games accounted for approximately 34% of our total online games revenue. representing an increase of 13% quarter-over-quarter, an increase of 85% year-over-year. Youdao net revenue were RMB 1.3 billion, representing declines of 7% year-over-year and 3% quarter-over-quarter. This was primarily due to strategic structural improvement in the Learning Services segment, which is increasingly focused on high demand subjects. NetEase Cloud Music net revenue were 1.9 billion. declining 8% from the same period last year and 1% from previous quarter. This was primarily due to decreased revenue from social entertainment services. Net revenue for innovative businesses and others were RMB 1.6 billion, decreasing by 17% year-over-year and 29% quarter-over-quarter. The decline was mainly due to decreased net revenue from yen to end, advertising services and certain other businesses in this segment. Gross profit for the first quarter of 2025 was RMB 18.5 billion, up 9% year-over-year and 14% quarter-over-quarter. This was primarily driven by increased net revenues from online games as mentioned about. Our total gross profit margin was 64.1% in the first quarter compared with 63.4% for the same period in 2024. Specifically in more detail, gross profit margin for games and realty VS was 68.8% compared with 69.5% in the same period last year. The change was primarily due to fluctuations in product mix. The operating expense for the first quarter was RMB 8.0 billion or 28% of our net revenues.

Taking a closer look at our cost composition. Our selling and marketing expenses as a percentage of total net revenue were 9.4% compared with 15.6% for the same period last year. mainly due to decreased spending on gaming promotions during the quarter. Our R&D expenses as a percentage of total net revenues remained stable year-over-year and 15.2% in the first quarter compared with 15.5% for the same period last year. We remain committed to invest in content creation and product development. The effective tax rate was 15.3% for the first quarter. As a reminder, the effective tax rate is presented on an accrual basis, depending on appliable policies and our operations. Our non-GAAP net income attributable to shareholders for the first quarter totaled RMB 11.2 billion or USD 1.5 billion, up 32% year-over-year. Non-GAAP basic earnings per ADS for the quarter was $2.44 or USD 0.49 per share. Additionally, our cash position remains robust with net cash of approximately RMB 137.0 billion as of March 31, 2025, compared with RMB 131.5 billion at the end of 2024. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved the dividend of USD 0.135 per share or USD 0.675 per ADS.

Lastly, under our current USD 5 billion share repurchase program, which started in mid-January of 2023. We had repurchased approximately 21.6 million ADS as of March 31, 2025, for a total cost of approximately USD 1.9 billion. Thank you for your attention.

We would now like to open the call to your questions. Operator, please?

[Operator]

[Operator Instructions] Your first question comes from Miranda Zhang with Bank of America.

[Lei Zhang, analyst]

[Foreign Language] My question is about Identity V. So this game had a consistent and strong performance throughout last year and is now 1 of the top game among companies game portfolio. Can management share the reasons behind? And how to think about the game growth going forward after the company becomes higher. Any implication to the revival of your other games?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Thank you for your question. Yes, you're right. Identify V being a very unique AC metric, PVP game has been there for 6 years. And during the past 6 years, we ever stop keep investing, keep optimizing and keep improving the scheme. And as a result, the game is not only very successful in China, it's actually in a very leading position in Japan as well. You're right. Our other teams actually learned a lot from the hands-on experience of Identity V to -- how to keep improving the operations -- continuous operation and improvement of our other games. Looking to the future, identify we'll keep investing to more and more resources into the game Identity V and to bring the fun of asymmetric PVP to more players.

[Operator]

Your next question comes from Lincoln Kong with Goldman Sachs. .

[Lincoln Kong, analyst]

[Foreign Language] My question is about Marvel Rivals. So we have seen some user number of volatility in the recent months. How should we think about to ensure the life cycle, the longevity of this IP? I think the management is talking about we're going to shorten the season length season time going forward and also introduce more frequently out hero and the characters. So going forward, should we think about more adjustments in terms of the long-term operation and monetization strategy?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Thank you for your question. As you mentioned, we introduced the Season 2 update in April, which achieved wide popularity among players and resulted in the significant both our operating metrics. For season-based products, it's normal to observe fluctuations in operating metrics that align with the cadence of seasonal updates. And the process itself will actually also help to solidify the user base. So starting from season will reduce the season update internal from 3 months to 2 months. And additionally, we will initialize Marvel Rivals eSports event in May, to develop our eSports ecosystem. We believe that with more efficient content updates and our evolving eSports ecosystem, we will see gradual improvement across all in-game metrics. Thank you.

[Operator]

The next question comes from Felix Liu with UBS.

[Felix Liu, analyst]

[Foreign Language] Congratulations on the strong results and the strong performance of Marvel Rivals and FragPunk. The management share how you think about your latest strategy for overseas markets, given the backdrop of the strong performance of your domestically developed games and the news of shutdowns of some of your overseas cities.

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

Thank you for your question. Yes, for a long period of time, we are actually paying a lot of attention to the overseas market, including European market, North American market, Japan and the Korea market. In the past period of time, we did close some of our studio. But those decisions was purely made based on the positioning of the future product and consideration of product quality. Looking -- as you see since last December, our domestic made games, namely FragPunk and Marvel Rivals, they indeed achieved not bad result in overseas markets. And we believe this is in line with our judgment and our -- how we see the overseas market according to our plan. And we believe that in the future, NetEase will make more and more games suitable for global market.

[Operator]

Your next question comes from Yang Liu with Morgan Stanley.

[Yang Liu, analyst]

[Foreign Language] Let me do the translation. The Where Winds Meet saw improving feedback and monetization, what has nation here, is proven effective -- and what is the next step for this title operation?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Thank you for your question. We wins meat is a game that we spent 5 years to develop, an Asian Chinese historical background open world game. 1 is released in late December last year. It got a lot of acclaimed reviews from users. We actually pay a lot of attention to this game. It's a very important game to us. And we are in the future, we're going to keep investing to the game, namely to further polishing the representations key polishing the gameplays. So it will be a long-term game for us. When players play the game, we actually -- we encourage players to play on PC because on the PC, it has a much better graphical presentations. When with me, the success so far has provided us a lot of hands-on experiences. And we're going to learn from the experiences and deploy them into other products to help our other products to be successful. We believe we win it in the coming 5 to 10 years. it's going to be 1 of our evergreen titles.

[Operator]

Your next question comes from Ritchie Sun with HSBC.

[Ritchie Sun, analyst]

[Foreign Language] My question is about Once Human. The mobile version has done well in the download rank but monetization remains quite conservative. So how management raised the performance of Once Human and its potential and what are the key competitive edge and differentiation of these products? And what are the plans to further enhance the commercialization going forward?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

Thank you for your question. Once Human Mobile launched is very successful, it's achieved top downloading spot 166 regions on iOS. In the first week, we got more than 6 million new users. Regarding the -- what do you observe on the top grossing chart. One of the nature of this game is that it's a cross-play game. Players they pay -- they can play [indiscernible] on PC and mobile, it's the same account. So a lot of top players they play on both clients and they choose to play more work pay on the PC side. Actually, after the mobile version launch, from the PC side, the concurrent user, they increased by 90%, and payment actually drove by 500%. And it's the payment on PC actually increased. The payment ratio from PC actually is more than 50%. And that's why this -- you see when we launched a mobile game actually the Steam run on to 1 of the top sidecar. And so probably the players play on PC actually kind of impacted the top grossing try ranking on mobile. For the specialty of the same, this is kind of a script-based seasonal-based game. That's 1 difference compared to other SoC type of game. In the future, we're going to further satisfy the gamers' demand from 2 angles. One is we're going to add new game class, new scripted based game place can further satisfy the demand from users from PV counter exploration or PVP kind of computation. And the other front that we're exploring is we're going to explore the prioritized ecosystem. Some of the SoC players, they have demands to, for example, open their private servers. So that's a different kind of game play experience and we're going to explore how to satisfy this kind of demand. Thank you.

[Operator]

Your next question comes from Yang Liu with Morgan Stanley.

[Yang Liu, analyst]

[Foreign Language] Let me do the translation. FragPunk's popularity declined fast after launch stage. What can NetEase do to help FragPunk to differentiate better to the overseas FPS game competition.

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Thank you for your question. First to was actually made by a new team. From a meting perspective, we are satisfied with the performance so far. The first -- the game actually has a solid foundation. It's innovative the cure mechanism allows for rapid updates and iterations regarding game play malls. We have been telling the team that it's important that we keep engaged in this market and keep refreshing and seeking for opportunities for game play expansions. We're committed to supporting this product in the long run to support the long-term operations. To achieve this, we encourage the team that to make sure that we have a very solid, stable team and give the team more room and more time to keep growing. From the market operation perspective, we'll continue to invest into overseas market, maintaining visibilities through all sorts of vehicles like including torments including collaboration with influencers and other IP crossovers. This will maintain our loyal player base. while we're seeking for breakthrough opportunities. Thank you.

[Operator]

The next question comes from Thomas Chong with Jefferies. .

[Thomas Chong, analyst]

[Foreign Language] Can management comment about the allocation of resources in domestic and overseas market over the next few years. Thank you.

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Yes. From NetEase's perspective, we believe we do have sufficient resources to do both domestic and overseas market at the same time. From the 20-year history, we have been doing this business. We have accumulated a lot of tools, 2 trains and talent. Of course, there are -- we have short comment as well, for example, like how to understand the demand from overseas gamers. On that part, we'll keep improving. But from a resource allocation perspective and execution perspective, we do have sufficient resources to do both markets.

[Operator]

Your next question comes from Xueqing Zhang with CICC International Corporation.

[Xueqing Zhang, analyst]

[Foreign Language] Congratulations on the solid quarter. I have 2 questions. My first 1 is about your new titles. We have noticed several new titles also achieved a great performance, which key evaluation metrics are prioritized during the product aggression and the approval basis in the company and how shall we expect the pipeline in 1 to 2 years?

My second question is a follow-up 1 on esports. Congratulations on Identity 5 and Naraka being selected for the 2026 Asia games for the first time. May I ask whether management plans to take this opportunity to develop international eSports operations? And what's the company's long-term strategy for the esport games?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Yes. So thank you for the questions. We'll answer the first question first. Over the past 25 years, we have accumulated a lot of experience tools and talents and our talent, our teams, they're really passionate about gaming. And talk about when we take a new project, we welcome all sorts of talent with thinking creative thinking about game ideas. When we consider a new product case, actually, the first attribute that we consider is whether we're not the core team members that are passionate about the passion about gaming, the touching about the specific game project they're proposing and including how to execute them out over years. And if they satisfy all this threshold, we'll actively evaluate and think about this product. Of course, we do have an internal evaluation system. And in the future, actually, we'll open this platform to more game lovers outside talent outside if they want to join us if they have creative ideas, we welcome them. Specific about the pipeline in the next couple of years. Rest assured, don't need to worry. We have other very good product that our pipeline has not been announced yet. Thank you.

[Foreign Language]

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Yes. So thank you for your question and interest about our product in the Asian Games. For a longer time, we have been actually paying a lot of attention to eSports. At this time, 2 of our products in selective, that's a testimony of not only the quality of the game, but also the gamer base of the games. And the -- we hope ourself [indiscernible] now stop as being part of Asian game. We hope them to be included in higher level on eSports on big games. Talking about esports operation, in Hongo, we have the largest e-sports stadium, and we continuous run e-sports tournaments here. And we also in Shanghai, we have our own private e-sports stadium would 1 of the biggest, and we have continuous eSports operation based there as well. In the long run, we're going to -- in the long term continues to invest into esports operations.

Thank you. And operator, for the sake of time, we have time for 1 more question.

[Operator]

Your final question comes from Alicia Yap with Citigroup.

[Alicis a Yap, analyst]

[Foreign Language] With the help of AI, it seems like the game studios are able to produce content update very quickly and then also shorten the overall development time for the expansion pack. Would that affect and change how NetEase plans to plan to expansion pack release timing and also the game promotion targeting as AI increasingly taking a more important part of the game development and game publishing?

[William Ding, executive]

[Foreign Language]

[Bill Pang, executive]

[Interpreted] Thank you for your question. We actually have been using AI in our game development and gamers experience for a long time, at least 5 years -- in the past 5 years, so we never stopped investing to technologies, including AI technologies. And a lot of this result actually has been deployed in -- applicated in our game development and content production. For AI in general, we believe it's not specifically attached to -- specific 1 companies. It should be a whole industry kind of thing in the whole industry, everyone are -- will be actively adopting AI technology. Just every company with the different contracts, maybe the brands or the deepness, how they apply AI technology might be different. I want to emphasize again, actually, AI is pretty important, not only to game industry and to many other businesses as well. It's been greatly important thing. Thank you.

[Operator]

And that concludes the question-and-answer session. I would like to turn the conference back over to Helen Wu for any additional or closing comments.

[Unknown Executive]

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a nice day. Goodbye.