NetEase Inc (NTES) 2024 Q1 法說會逐字稿

Good day, and welcome to the NetEase 2024 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente, President of Piacente Financial Communications. Please go ahead.

Thank you, operator. Please note the discussion today will contain forward-looking statements relating 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 those mentioned in today's press release and this discussion.

A general discussion of the risk factors that could affect NetEase's 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 and in announcements and filings on the website of the Hong Kong Stock Exchange. The company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2024 First Quarter 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 today on the call from NetEase's senior management team are Mr. William Ding, Chief Executive Officer; and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on behalf of William.

Thank you, Brandi, 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.

2024 is off to a solid start as we continue growing our NetEase's family of businesses. Our net revenue for the first quarter of 2024 rose to RMB 26.9 billion, accelerating year-over-year, led by our outstanding and increasingly diversified game portfolio, which we're actively extending to players around the world.

Leveraging our long-standing advantage in MMORPGs, we continue to innovate new gameplay, foster creativity and explore emerging technologies to persistently expand the boundary of this genre.

Our numerous established, long-term game franchisees continued an overall high-level of popularity with their loyal user bases, demonstrating ongoing sustainability. We consistently infuse new innovative content and embrace appealing inherited culture into the games, crafting immersive world for players to engage in. Fantasy Westward Journey mobile recently celebrated its anniversary at the historic Daming Palace National Heritage Site Park in Xi'an, the former capital of the Tang Dynasty, the very setting of our game. As part of the celebration, we unveiled thrilling new content and further enhanced popular auto-chess gameplay, bringing players a rich variety of entertainment options. With a long-lasting affection from player community, Fantasy Westward Journey mobile achieved another record-high quarterly revenue, 9 years after its launch. Meanwhile, we rolled out a new themed update for Westward Journey Online to celebrate the year of Dragon, featuring the traditional Tongliang dragon dance as part of the New Year celebrations. Our ongoing commitment to refreshing these epic titles continues to captivate new players and retain our loyal following.

In addition to our achievement in the traditional MMO landscape, we are continually breaking new ground with the games we put out, innovating and elevating this genre. For example, Justice mobile has become a nationwide sensation. The game has drawn-in a wide spectrum of audience, especially younger generations who are new to MMO genre. Our innovative seasonal mechanism and balanced gaming experiences that cater to different individual preferences and interests are the pillar of our success. Beyond innovation in gameplay and mechanics, we are committed to refining and perfecting the game. In the first quarter, Justice mobile made a name for itself as the first MMO mobile game to implement both ray tracing and real-time global illumination on iPhone. The dedicated integration of this technology included in our game-update has provided players with a more immersive experience and taken the visuals to new highs. With its success in the domestic market, we are preparing to introduce Justice mobile to new regions and expand this high-quality eastern-themed adventure game's reach across even broader audiences.

In addition to our achievements in MMO this quarter, we continue to make breakthroughs in an extensive array of game genres, such as SLG, a-symmetrical battle arenas, party games and innovative martial arts battle royale titles.

We have consistently introduced new gameplay elements to Infinite Borders, one of China's most popular SLGs. Entering its 9th year, Infinite Borders continues to capture the interest of younger players and achieved a 3-year revenue high in the first quarter. Meanwhile, Identity V, our iconic domestic a-symmetrical battle arena game, celebrated its 6th anniversary with record-breaking revenue in the first quarter and record-high DAU in May. This milestone highlights the game's thriving ecosystem fueled by high-quality content, successful e-sports events and well-designed IP collaborations.

Naraka: Bladepoint has also amassed a robust player community and has been thriving since we transitioned the game to a free-to-play model. With the latest seasonal update, the game broke its online record on Stream, attracting over 370,000 concurrent players. Following the success of its initial test in April, Naraka: Bladepoint mobile was met with overwhelming player enthusiasm. An additional 10 million players engaged in 2 weeks, bringing accumulated pre-registration to over 25 million.

As for Eggy Party, after nearly 2 years of operation, Eggy Party has become a household name in the party game genre in China. The game has achieved over 40 million DAUs, and we continue to enrich our content offerings and strengthen our UGC ecosystem. In the first quarter, Eggy Party expanded its thematic diversity by recreating the Forbidden City's grandeur within the Eggy Party world. With an array of captivating ancient dynasty characters and elements to choose from, players eagerly embrace this update. Eggy Party will bring Disney's Zootopia into the game, which we announced through an in-game fireworks show during the Chinese New Year. To further support creation and enrich our UGC ecosystem, we launched an app called Learn Programming with Eggy Party, offering players engaging and practical coding tutorials within Eggy Party, making it easier and more enjoyable to create in the game.

In addition to these hit titles, the significant breakthroughs we made last year in genres like racing and sports brought new attention to previously overlooked genres in China, turning our foray into these genres into blockbuster games. We owe this remarkable achievement to our team's incredible dedication and talent. Fueled by profound passion for their craft, unparalleled insights into their domains, and an unwavering commitment to the long-term R&D process, they have been the driving force behind our success as we bring new games and genres to the forefront.

The racing fan community in China has embraced Racing Master, and we continue to provide players with engaging content, including brand-new cars, racing tracks and gameplay experiences. Our seasonal update in April brought players even more challenges to conquer, with the addition of the Red Bull Ring racing track, known for its technically demanding terrain and hosting of multiple historical world-level events. Racing Master's strong performance on the iOS download and grossing charts further highlights its player popularity. In addition to domestic success, Racing Master also hit new records in other regions. Following the April seasonal update, Racing Master once again ranked #1 on the iOS grossing chart in Taiwan and rose to #1 in Macau and #2 in Hong Kong.

Dunk City Dynasty continues to dominate the basketball mobile game market in China. Powered by its innovative design, the game craftily translates complex basketball maneuvers onto small screens, and its casual competition mechanism allow flexibility and innovative game play. While introducing our renowned CBA players to the player roster, we expanded player options to include prominent basketball superstars like Kawhi Leonard and Jayson Tatum. In addition to continually enriching its content, we creatively introduced a PvE gameplay mode with the February seasonal update and presented players with the chance to experience the journey of legendary players evolving into superstars, level by level. We also extended this thrilling basketball game to more communities. Upon its launch, Dunk City Dynasty in topped the iOS download charts in Taiwan, Hong Kong and Macau. It also ranked #1 in Taiwan and #2 in Hong Kong on the iOS grossing chart, following its local market introductions in April.

Expanding on our cross-genre success, we continue to impress the market with new hit titles in 2024. Our female-oriented love simulation game, Shi Jie Zhi Wai, soared to the top of the download charts following its January release and reached #3 position on China's iOS grossing chart following the release of a highly anticipated new content update in March. With skillfully crafted narrative that evokes emotional resonance and engaging content that captivates and thrills devoted and new players, Shi Jie Zhi Wai has emerged as one of the highly popular games among growing female player community in China.

Throughout our genre innovation journey, we have gathered invaluable insights and know-how, establishing a robust foundation to continue pushing boundaries and create games cherished by players from all walks of life, no matter what their backgrounds, preferences or interest. In addition to the launch plan of Naraka: Bladepoint mobile I just mentioned, we are actively preparing for a July launch of our new open-world action-adventure RPG title, Where Winds Meet, starting in domestic market as the first step. Integrating Chinese martial arts with the open-world genre, this game pioneers mode catering to both single-player and multiplayer experiences. Aiming for AAA equivalent quality, it is expected to illustrate top performance of Chinese martial arts games to our audience. With a pending global launch, this title is geared to entertain broader audiences with the game's rich ecosystem.

Furthermore, we are currently working on several additional exciting titles for global markets. We are particularly excited about the domestic overseas launch of Once Human in the third quarter. Once human is a multiplayer open-world survival game set in a strange as post-apocalyptic future. Player can unite with friends to fight monstrous enemies, uncover secret plots, compete for resources, and build their own territory. Additionally, we are gearing up to introduce Ashfall, a wasteland-themed shooting MMORPG, and Marvel Rivals, a Superhero team-based PvP shooting game, to our player community in the near future.

As we continue to strengthen our R&D capabilities, we also place high value on partnerships with developers worldwide. Our overarching goal is to bring more gaming experiences to a broader audience both domestically and internationally. During our annual May 20 event, we were thrilled to update our plan to publish in China Raid: Shadow Legends, a wildly popular western fantasy-themed card game and one of the best-selling RPG games in the U.S. In addition, we are thrilled to bring Marvel Snap to the Chinese market, a highly acclaimed CCG game that won the Best Mobile Game at The Game Awards and Best Strategy Game at IGN. Furthermore, we were pleased to announce a renewed agreement with Blizzard Entertainment in April to bring beloved titles back to China sequentially, beginning this summer, along with a deeper relationship and a strategic partnership with Microsoft Gaming based on a shared desire to bring new gaming experiences to players across platforms and markets.

From our MMORPG roots to our exploration of other genres, we continuously introduce new content for our legacy titles and create new titles borne of existing culture trends. Through our constantly evolving R&D capabilities and expanding external partnerships, you can count on plenty of exciting new content from NetEase in the near future.

Turning to Youdao. In the first quarter, Youdao achieved healthy development and growth as we strategically prioritized our digital content services, online marketing services and AI-driven subscription services, marking Youdao's first-ever consecutive quarter of positive net income.

In our learning services segment, our digital content services experienced strong year-over-year net revenue growth of 11%. We continue to enhance our learning system and advance the way we offer our content. Recent updates to our intelligent learning platform by Youdao Lingshi introduced a tiered learning program that tailors teaching approaches and schedules based on different learning processes.

Our online marketing services continued on its robust growth track, with record-breaking net revenues of over 120% growth year-over-year, reflecting the strong performance of Real-time API(RTA) and the rapid expansion of comprehensive advertising services through domestic Key Opinion Leader(KOL).

Our investment and dedication to AI technology also brought rapid sales growth derived from our AI-driven subscription services across a range of applications. Notably, Hi Echo stands out as a representative example of AITC technology applied in the domestic education sector, and it was highlighted in a report published by third-party research firm for its industry-wide recognition.

Regarding the smart devices segment, we remain confident in medium-to long-term outlook. Underpinned by our commitment to product innovation, our Youdao Dictionary Pen S6 Pro, launched in the first quarter, garnered enthusiasm among consumers.

Now, let's move to Cloud Music. During the first quarter, Cloud Music remained steadfast in prioritizing the core music business, including a recent comprehensive product upgrade to the NetEase Cloud Music App, aimed at cultivating a vibrant music-centric ecosystem and fostering a long-term thriving community. Revenue growth from subscription-based memberships accelerated in the first quarter compared to the annual growth of last year. This upward trend was largely attributed to an expanding subscriber base, marking a 2-year high in quarterly net ads, along with a largely stable ARPPU. Growth in subscription reflects the strength of our continually enhanced music-centric offering, where we have added expensive content, innovative features and broader membership privileges as well as joint programs with external partners.

To further our commitment to enriching our music library through both licensed music and original music, in the first quarter, we entered into agreements with several popular Chinese stars and expanded our music catalog in key genres like hip-hop and rock. Meanwhile, we are actively broadening our collection of foreign-language music. Recently, we entered into licensing agreements with leading South Korean labels, including JYP Entertainment and Kakao Entertainment, and expanded our portfolio with premium K-pop content. Beyond music content licensing, many of our in-house produced and promoted music works have been highly successful. In the first quarter, our self- and co-produced songs were featured across the country at various high-profile TV performance shows and galas, including the CCTV Spring Festival Gala, Henan TV's Lantern Festival Gala and Beijing TV's New Year's Eve Gala.

With an increasingly enriched content ecosystem, we are focused on exploring and advancing our music-oriented monetization initiatives. In addition to enhanced premium content offerings, innovations in product features, membership privileges and marketing activities are driving growth in subscriber and revenue. For instance, we entered into co-branding initiatives with the popular toy brand Farmer Bob, offering fashionable IP-themed music players. The response from young users not only resulted in an increase in membership subscriptions and upgrades but also opened up more monetization opportunities. We also introduced a new interpersonal feature called Bestie Space, which has bolstered user interaction and social engagement, attracting new members and enhancing user activity levels and stickiness.

Turning to Yanxuan. Since first quarter, we have continued to introduce popular products to consumers. Various product categories, such as pet products, household cleaning products and office furniture, achieved strong sales growth, securing leading positions in sales on several e-commerce platforms. Notably, the recent launch of an ergonomic chair achieved extensive popularity among younger generations, ranking #1 on sales charts across major domestic e-commerce platforms. This success can be attributed to our dedication to Yanxuan's technology-driven product R&D since its inception. The AI technology we have incorporated into product iteration and function enhancements in recent years has improved our capabilities in consistently delivering market-leading products. Moving forward, we remain committed to leveraging technology to offer consumer premium products.

Lastly, we released our 2023 ESG report in late April, marking our fifth annual report. The report showcases our commitment, practices and progress in key ESC areas. Our business's longevity makes it all the more crucial to operate responsively and sustainably. We believe it is a gift to be able to give to our communities, especially when it relates to important social issues, such as education inequity, disaster recovery, workplace equality, diversity and green and low-carbon development. We are grateful to have a highly diverse and professional Board that is increasingly engaged in these issues, including business ethics and cybersecurity. We're actively exploring ways to make our operation greener, including using more green energy and employing energy-saving approaches. In 2023, our greenhouse gas emissions from operations decreased by 11% compared to 2022. We are committed to promoting diversity, equity and inclusion and have again been included in Bloomberg's Gender Equality Index in 2023. Our efforts are recognized by reputable ESG rating agencies globally, where we maintain an A rating from MSCI and remain a low-risk company according to Sustainalytics' latest evaluation. Moreover, we are proud to have been recognized by Forbes as one of the World's Best Employers for the sixth consecutive year, and also by TIME Magazine as one of the World's Best Companies.

Across our NetEase family of businesses, we remain committed to innovation and moving the industries we serve forward. Crafting products and high-quality content that creates value for our users and stakeholders will continue to guide us as we extend our global reach.

That concludes William's comments.

I will now provide a brief review of our 2024 first quarter financial results. Given the limited time on today's call, I'll 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 26.9 billion or USD 3.7 billion, representing a 7.2% increase year-over-year.

Total net revenues from our games and related VAS were RMB 21.5 billion, up 7% year-over-year. The additional growth was primarily due to increased revenue contribution from newly launched games such as Justice Mobile game and sustainably developed titles like Eggy Party. Net revenue from our mobile games accounted for approximately 79% of our total net revenues from online games operations.

Youdao's net revenues were RMB 1.4 billion, a year-over-year increase of 19.7%, primarily due to increased revenue contribution from Youdao's online marketing services.

NetEase Cloud Music's net revenues were RMB 2 billion, a 3.6% increase compared to the same period last year, primarily due to the increased net revenues from membership subscriptions.

Net revenues for innovative businesses and others were RMB 2 billion, up 6.1% year-over-year, mainly due to increased revenue contribution from Yanxuan and some of our innovative businesses.

Our total gross profit margin was 63.4% in the first quarter, compared with 59.5% for the same period in 2023. Looking at our first quarter margins in more detail.

Gross profit margin was 69.5% for our games and related VAS, compared with 66.7% in the same period last year. The increase was primarily due to changes in revenue contribution from different platforms and a higher proportion of net revenues contributed by NetEase's self-developed games.

Our gross profit margin for Youdao was 49% compared with 51.7% in the same period last year. The decrease was primarily due to the higher revenue portion from its online marketing services with a lower gross profit margin profile compared to its other products and services.

Gross profit margin for Cloud Music reached 38% versus 22.4% in the same period last year. The margin improvement primarily resulted from increased net revenue from membership subscriptions, continued cost optimization measures, and the one-off adjustment of certain copyright costs. The adjustment of certain copyright costs mentioned above, increased the gross profit margin in the first quarter of 2024 by around 5 percentage points.

For our innovative business and others, gross profit margin was 33.4% compared with 25.4% in the first quarter of 2023. The increase was primarily due to margin improvement in Yanxuan and several other businesses included in the segment.

Total operating expenses for the first quarter were RMB 9.4 billion or 35% of our net revenue.

Taking a closer look at our cost composition. Our selling and marketing expenses as a percentage of total revenues were 15% compared with 11.6% for the same period last year, mainly due to increased spending on gaming promotions during the quarter.

Our R&D expenses as a percentage of total net revenues remained stable year-over-year at 15.5% in the first quarter compared with 15% for the same period last year. We remain committed to investing into content creation and product development. We also see leverage in our R&D investments longer term.

The effective tax rate was 16% for the first quarter. As a reminder, the effective tax rate is presented on an accrual basis depending on applicable policies and our operations.

Our non-GAAP net income attributable to shareholders for the first quarter totaled RMB 8.5 billion or USD 1.2 billion, up 12.5% year-over-year.

Non-GAAP basic earnings per ADS from continuing operations for the quarter was USD 1.84 or USD 0.37 per share.

Additionally, our cash position remained robust with net cash of approximately RMB 113.4 billion as of March 31, 2024, compared with RMB 110.9 billion at the end of 2023.

In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of $0.099 per share or $0.495 per ADS.

Lastly, under our current USD 5 billion share repurchase program, which started in mid-January last year, we have repurchased approximately 8.9 million ADSs at March 31, 2024, for a total cost of approximately USD 811 million.

Thank you for your attention. We would like now to open the call for your questions. Operator, please.

(Operator Instructions) Your first question comes from Felix Liu with UBS.

Congratulations on the good first quarter results. My question is on your highly anticipated NARAKA: BLADEPOINT mobile version. We noticed this game finished testing in April, can management share the key takeaways from your testing? And when do you expect this game to launch?

(foreign language)

[Interpreted] Okay. First of all, the test actually reflect the high anticipation from players group, and we can feel the enthusiasm from players. And also during the testing process is actually validated for the feasibility for of some of the missions we put into the game. And we collect enough data for us to do next round continuous operation for the game. Overall, this time actually boosted the confidence level of the team and for continuous operation until the game is launched. And regarding the launching time window so far as to the summer vacation time.

Your next question comes from Lei Zhang with Bank of America.

Congrats on the strong results. My question is regarding your newly launched game Condor Heroes(SheDiao). If the trend is still within management expectation? And any near-term upgrades we can expect? And how should we look at the game longevity?

(foreign language)

[Interpreted] The stage 1 result of SheDiao was not very satisfying to our big expectation. Now, with the new person in charge and the core team, we are actively doing the modification work, focusing on a couple of aspects like making the game fun to play, for example, the social factor as well as some the art styles.

We're doing all sorts of modifications as we speak. And we believe with our experience and expertise in MMORPG genre, we can make it fun to play. And the expected time for the updated game to be pushed out is during the summer vacation time.

Your next question comes from Lincoln Kong with Goldman Sachs.

My first question is about Where Winds Meet. So we have seen on the PC version has been doing the final testing and is set to launch in July. So, how should we think about the outlook for this testing? Will it be co-published in the overseas market? And what's your plan there? And also related to that, what about Where Winds Meet the mobile version? How is the development stage and what is the target launch timeline there?

So, second question is about our future game pipeline, especially beyond 2025. So, when we think about next year or even after, what are the areas and genres we are currently preparing? So, any updates including such like Project Mugen and other types of games? Any color from there? And what about the overseas market? Anything we should expect for this year or next year in terms of the plans and titles?

(foreign language)

[Interpreted] Okay. First of all, thank you for your question. As you know, for Where Winds Meet, the PC, we have announced the launching time and everything is ready. The team is busy preparing for the launch. And for mobile, the development, everything actually already done, we're doing some testing and optimization.

As you can imagine, this game is a little bit heavy to run on mobile devices, a lot of optimization work needs to be done, and we're busy in doing that. Mobile version release time of mobile version will be slightly later than the PC version. Now too much, slightly. This is an open-world game, and we believe it has potential in the overseas market as well, and we will do marketing and promote the game in overseas market as well.

For your next question, regarding the product pipeline beyond 2025, we will disclose our pipeline via our normal ways like putting out news and via event when the time is right. Thank you for your attention.

Your next question comes from Ritchie Sun with HSBC.

First of all, regarding Fantasy Westward Journey on the PC, it is a stable and strong game franchise for NetEase, but the twist paid in the game recently received mixed user feedback. I would just also notice there are adjustments after 20th of May, could management discuss the strategy to handle the pushback from users? And when do you expect the game performance to stabilize? In addition, I noticed there are more games having adjustments on the in-game trading mechanisms recently, could management explain the rationale behind this?

(foreign language)

[Interpreted] Yes, Fantasy Westward Journey, as you know, has been one of our classic MMORPG games for more than 20 years. And, during the 20 years' time of operation is beloved by massive user base. And one of the reasons that is always beloved is that we always focus on the long term, making sure the game is long-term, fun to play and players enjoy staying in the game.

Recently, we are doing some adjustments, but for the same reason to adjust some of the systems with the logic, everything with the goal of making it more fun to play in the long term, satisfying our users' demand. And that adjustment is still being done, and we expect it will be done within the first half of this year.

And one thing is that you don't need to worry too much about this short-term fluctuation brought by this short-term adjustment because the goal are totally aligned between us and our gamer base.

It's for the longevity of the game. And we do wish for the goal that the game will be in long-term, continuously beloved by the players. And in the meantime, our development team are actually holding a very humble attitude, open to listen to all feedback from our gamer communities.

So, to make the game more creative and more fun to play, putting more creative on fun things in the game. One thing you don't need to worry that the whole company and the development team taking this very seriously is our focus, and we expect to have a fun version to play when we finish this period of adjustment.

Okay. So, as William said, the recent adjustment for the Cangbaoge system is short term as well. It's also served for the same goal because a long time, we want the players to have more fun in playing our games.

Your next question comes from Xueqing Zhang with CICC.

My first one is about Yanxuan shooting games. We have noted that the company has been focusing on Yaxuan shooting game general in multiple games such as Lost Light, Marvel Rivals, Ashfall, Once Human and many others in development. How do you think about the competition landscape of this genre and what's our strategy?

My second question is about your overseas studios. Could the management share with us the latest development on the overseas game studios and when do you expect the overseas studios to start launching games?

(foreign language)

[Interpreted] First of all, regarding your question about shooting game genre, you're right, shooting is actually a big genre in the whole game industry, both domestically and globally. In our past, shooting was not our strong genre, but we focus very much on how to conquer this genre. That's why starting from several years ago, we started to deploy product development into this genre. And that's why you see we start to have product coming out starting from this year.

We hope you know we can achieve a certain level of success in this big genre. And also, in the meantime, shooting is a very welcoming, very popular genre in overseas gaming market as well. And we hope we can achieve a certain level of achievement there as well.

Hoping by pushing out a bunch of high-quality shooting games, we can fulfill our determination into broadening our genre base and get into more genres and the global market as well.

About your second question about overseas studios. The fact is that there are many products been busily developed as we speak. But you know developing a new game takes many years, 2 years, 3 years, even longer. At this moment, we don't have a plan and release date that we can share with you regarding the product out of our overseas studios. But, as we said, we are actively developing products there.

In the meantime, one further comment on the global market is that for our China domestic studios, we are also actively working on titles towards global market as well. As you have seen that Racing Master has achieved a certain level of success in Greater China region and Identity V has been successful in Japan. Knives Out has been successful in Japan. We hope you can feel that we have enough resources, determination and attitude to achieve in the overseas market.

Your next question comes from Thomas Chong with Jefferies.

My question is about the operating expenses. Can management comment about how we should think about the OpEx trend in particular for S&M, given that we have a rich pipeline coming up?

(foreign language)

[Interpreted] You won't see a big increase in our sales and marketing expenses, we're actually already very sophisticated, very experienced in marketing operations, and we're actually getting more and more experienced in that field. Actually, our customer acquisition cost is going down now. So, in short, you won't see big increase in sales and marketing expenses in the future.

Your next question comes from Jialong Shi with Nomura.

So my question is about the gamer spending in NetEase's game. There are a lot of chatters nowadays about so-called consumption downgrade in China. So, again, such a macro context, just wondering if management noticed any change in the in-game spending pattern of your gamers. What is the trend for some of your top MMO titles?

(foreign language)

[Interpreted] To answer your question, we haven't observed any meaningful downgrade in gamer expanding in our game, because the value we're providing to our consumers via game is more like emotional value. Players spend certain money to have some fun, enjoy some time, relax here. It is still very different from the day-to-day shopping for daily-use goods or other consumer products, or physical product. We believe, the consumers, they acknowledge the emotional value we provide. And again, we haven't seen any downgrade there.

Your next question comes from Alex Poon with Morgan Stanley.

My question is related to our capital returns. Last year, we paid roughly USD 2.3 billion in 2023. How should we think about the pace in 2024 in future?

(foreign language)

[Interpreted] To answer your question, for the repurchase and dividends, we're actually carrying out the activity based on our own pace. You probably noticed that in the past quarter, we're doing repurchase with our own rhythm, and we're going to continue doing that with our own rhythm and paying out dividends as we have been used to doing in the past.

Your next question comes from Daniel Chen with JPMorgan.

First of all, congrats on a really strong first quarter gaming revenue. And my question is on we recently got a new license for Eggy Party's new game. It's a matching-themed game. So, any information, any update to share on this game? Also, how should we think about the long-term strategic outlook for the whole Eggy Party ecosystem?

(foreign language)

[Interpreted] Thank you for your question. You're right that the Danzai Huahua, a causal game based on the Eggy Party IP, and it took us some time to develop it. We are going to roll that out soon. And regarding your question about Eggy Party as an ecosystem, yes, Eggy Party is a very lovely, adorable IP and players feel relaxed and feel casual when engaging with IP.

We truly wish we can do more creative things with the IP and building more fun experience and having everyone enjoy this party game genre. And we have a lot of work to do, and we're very much looking forward to that.

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

Thank you once again for joining us today. If you have further questions, please feel free to contact us at Piacente Financial Communications or the company. Have a great day.