NetEase Inc (NTES) 2024 Q4 法說會逐字稿

Good day, and welcome to the NetEase fourth quarter and fiscal year 2024 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Brandi Piacente.

Thank you, operator. Please note that today's discussion 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.

Today's discussion, 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 fourth quarter and fiscal year 2024 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 senior management are Mr. William Ding, Chief Executive Officer; and Mr. Bill Pang, the Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf.

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.

At NetEase, we are dedicated to innovation and strive for continuous breakthroughs across our businesses. While 2023 was a year of expanding our portfolio across various game genres, 2024 was about pushing boundaries with bold innovation and accelerating our brand awareness in the global market. These strategic steps reinforce our foundation for sustainable, long-term growth. By the end of the year, our total net revenues reached RMB105.3 billion, with RMB83.6 billion from games and related value-added services, both marking new record highs. Notably, this marks the 22nd consecutive year of revenue growth from our online games operations.

The successful launch of new blockbuster titles in the fourth quarter, advanced each of our growth drivers - innovation, diversification and globalization. By redefining gameplay and setting new industry standards for premium quality, we have created tremendous player enthusiasm. Our games captured attention across genres, within and beyond the traditional gaming community and on both domestic and global scales. Let's start today by reviewing our new games’ performances. Then we'll take a look at our broader portfolio and pipeline.

Marvel Rivals, our fast-paced Super Hero shooting game, sparked massive excitement across global markets following its launch. It claimed the No.1 spot on Steam's top sellers chart within 4 hours of its release, attracting over 10 million players in its first 72 hours, and 20 million players in its first 12 days. With over 40 million players accumulated so far, Marvel Rivals is redefining the hero shooter experience through its unique art style, innovative combat system and ever-changing battlefields. Its key team-up abilities add a dynamic layer of immersive interactions among players, while recreating iconic Marvel moments with our fresh take that adds a new dimensions to the Marvel Universe. During the Season 1 update, Marvel Rivals once again topped Steam's top sellers and most-played charts. Our collaboration with Marvel Comics also brought Marvel Rivals to life for comic fans through an Infinity Comic series on Marvel Unlimited. The synergy not only amplified the game's momentum but also bridged the worlds of gaming and other media forms, captivating audience beyond the gaming community and solidifying Marvel Rivals as a cultrual phenomenon. With more Super Heroes and exciting events on the horizon, Marvel Rivals will continue to evolve. We are thrilled to bring even more new experiences to the game that keeps players engaged and inspired.

At the end of December, we launched our highly anticipated open-world action-adventure RPG, Where Winds Meet. Within 4 days of its PC launch in China, the game had amassed 3 million downloads and topped the iOS download chart for around two weeks following its mobile launch. The booming mobile version drove total players across PC and mobile to over 10 million within a week and over 15 million after two weeks. Rooted in a richly crafted world with a deep historical backdrop, Where Winds Meet innovatively introduces Chinese martial arts into an open-world exploration experience. On top of that, we pioneered a mode that caters to both single-player and multiplayer preferences, which reinterprets Wuxia stories in a brand-new way. Players can immerse themselves in the intertwined conflicts of ancient cities like Kaifeng, witnessing characters’ contrasting fates during historical changes, and develop social networks with other people along the journey. Building on the single-player experience, the game seamlessly integrates challenges that encourage social exchange. While continuously refining the experiences, we aim to create a compelling blend of solo and multiplayer elements, offering players diverse ways to experience the world. With the community’s high praise, we expect the audience for Where Winds Meet to continue expanding over time, with the game becoming another flagship evergreen title. Our plans to build on the game's initial success are underway. We are currently working to bring Where Winds Meet to console platforms and introduce the saga to players in more regions.

In addition to our newest game launches, the return of Blizzard’s games to China has been highly successful, with their strong momentum throughout the fourth quarter. The return of World of Warcraft has consistently sparked tremendous enthusiasm from the community, supported by our diverse localized events that are driving the franchise to new heights. Shortly after Hearthstone's return, we quickly reorganized the highly anticipated Hearthstone Gold Series in China. The event set new records, drawing in over 10,000 fans in person, and more than 10 million players gathered to watch online. Just yesterday, Overwatch 2 made its return to China, reigniting player excitement. As the Blizzard portfolio gradually returns to the Chinese market, we are further strengthening our partnership with Blizzard, exploring localization opportunities and bringing more exciting content to China's robust game community.

Whether developing or operating a title, we're always committed to innovation and operational excellence. We apply this across our portfolio and continue to see the results of our dedication reflected in our new and legacy franchises.

With operations across decades, our beloved legacy franchises continue to set new records and amass fans, thrilling players with enduring popularity.

Fantasy Westward Journey continued to bring players fresh experiences through well-timed events and new content in the fourth quarter. The Qianbianwanhua expansion pack, featuring the iconic transformation abilities of Monkey King Sun Wukong, introduced all new skills and summoned beasts to the game. Meanwhile, the Spring Festival events, planned around the Year of the Snake, brought the community a vibrant New Year atmosphere. For Fantasy Westward Journey mobile, we continued to infuse new content into the game, which gained heightened popularity throughout the year and led to record-high revenue for 2024, nearly a decade after its launch.

Westward Journey Online 2 also achieved record-high annual revenue, driven by enriched gameplay and activities, as well as a refreshed gaming experience powered by new servers. Players flocked to the in-game ceremony for Tang Dynasty Emperor Taizong and explored new maps and missions set in the thriving ancient citiy of Luoyang. Stepping into 2025, we also introduced our major new annual server update for Westward Journey Online mobile. We accompanied the update with a dual engagement sharing mechanism. It generated significant new community interest and further strengthened bonds among players while keeping long-time fans coming back for more.

Identity V is another testament to our long-term operational success with our established titles. After setting consecutive new quarterly records in the first three quarters, both in terms of player numbers and revenues, Identity V achieved record-high revenue in 2024. In the fourth quarter, we sustained intense player activity with our comprehensive operatiing strategies, which players love. For example, in November, we launched a cross-branding campaign with Persona 5 Royal, introducing the beloved Phantom Thieves of Hearts to our game. Fans appeared in droves for the crossover event, driving Identity V to No.2 on the iOS top-grossing chart.

The Naraka: Bladepoint franchise also continued its impressive run with the action-based comebat community. With the December update, Naraka: Bladepoint partnered with CD Projekt RED for a special crossover on The Witcher 3: Wild Hunt, introducing 4 beloved characters through new costumes and in-game events. Most recently, our January collaboration with the King of Fighters brought iconic KOF characters, Athena and Mai Shiranui into our game, fueling high levels of player interest. Naraka: Bladepoint mobile has also been growing its player base since its launch in the third quarter and surpassed 50 million players in December.

For Eggy Party, we continue to nurture its dynamic UGC ecosystem. The community is highly connected, fueling vigorous supply and demand for content creation. The platform consistently adds diverse game modes to build on its rich content offerings, allowing players to enjoy relaxing and heartwarming moments with their Eggy buddies. So far, we have successfully introduced several popular game modes, including MOBA, asymmetric battle arena, werewolf, pet-keeping and farm management. Each captiavted a large audience within the Eggy Party community.

Our innovative MMO Justice mobile, maintained its large and active player base in the fourth quarter. In late December, Justice mobile hosted a groundbreaking virtual concert for its cross-year celebration, immersing players in festivities and inviting them to participate in an interactive feast. The event created a truly unforgettable audiovisual experience by merging cutting-edge technology with ancient art. Beyond conventional concerts, all players could join as their in-game characters, embarking on an exploratory journey through various immersive scenes. The concert ignited considerable buzz among players, attracting over 3 million concurrent viewers online. The robust community engagement and related-themed content updates propelled Justice mobile to No.2 on the iOS top-grossing chart shortly after the event.

Since its launch in July, Once Human has cultivated a dedicated survival player fanbase around the world, and we continue to build on this. The new PvP and PvE scenarios we introduced in the fourth quarter sparked a player surge. The spike in total concurrent players drove Once Human to rank on Steam's top 10 most played chart and to No.3 on Steam's top sellers chart. Anticipation on the much-awaited mobile version is also mounting. We now have over 10 million preregistrations as we finalize the game's mobile version for its global launch this April. With the addition of a mobile version, we expect to attract even more fans worldwide.

Adding to our ever-expanding and increasingly diverse portfolio, we have a great lineup of new titles in our pipeline, with several new games planned to hit key markets in the coming months.

The global launch for FragPunk, our fast-paced 5v5 tactical shooter game, is set to begin on March 6. We expect the game to become a dynamic force in shooting experiences for fans worldwide, featuring an innovative free card system with shifting combat dynamics and a colorful punk art style. Through meticulous game development, FragPunk is set to disrupt the traditional shooting experience with all-new rule-breaking gameplay that we think players will love.

Next up is Destiny: Rising, which successfully concluded its first closed alpha test in December. The community's broad enthusiasm won Destiny: Rising the Pocket Gamer’s annual Most Anticipated Game Award. Using the valuable insights we gained from early testing in target regions, we are currently working to make the game even better. Our goal is to bring this fresh shooting adventure, set in an alternate Destiny timeline, to mobile players around the globe.

Lastly, I'd like to highlight our Super Hero team-based tactical RPG, MARVEL Mystic Mayhem. It just finished closed beta cross-country testing in January with a unique art style, rich cast of characters, and varied and rewarding gameplay that thrilled the community. Sweepingly positive player feedback gives us confidence that players will love the Mystic Mayhem experience as they fight with beloved Marvel characters across various bizarre dreamlands.

As many of you know, we have been steadily expanding into new game categories over recent years. Diversifying our portfolio has allowed us to carve a path beyond the traditional MMO games that defined our early journey in the gaming industry. Along the way, we have achieved significant milestones and gained invaluable insights into genres that were once new to us. Each successful vertical we enter reinforces our ability to craft impactful games across diverse categories. Moreover, our diversified game portfolio has strengthened our global presence, enabling our games to reach and resonate with audiences worldwide. As we expand our game offerings, uphold superior quality and stay agile in our operational iterations, we're confident that we can continue captivating global audiences with new innovative titles and grow our international reach.

Now, let's move to Youdao. With its continued focus on technology-driven innovation and profitability enhancement, Youdao's operating profit increased by over 10% year-over-year in the fourth quarter, and it achieved its first-ever annual operating profit in 2024.

In the fourth quarter, learning services revenue declined as we further focused on long-term growth, balancing revenue and profitability. By prioritizing high-demand courses, we achieved healthy development and reinforced profitability. Notably, Youdao Linnshi’s flagship course, featuring tiered learning videos and AI-powered support, continued to thrive. With strong engagement and loyalty, it achieved a retention rate of over 70% in the fourth quarter.

Recently, we launched Confucius-o1, China's leading step-by-step inference model for education. As a 14B lightweight model, it supports deployment on consumer-grade GPUs and delivers detailed problem-solving processes. With its high accuracy and robust reasoning capabilities, Confucius-o1 has been seamlessly integrated into our AI Learning Assistant, Mr. P AI Tutor, earning excellent user feedback and surpassing 100 million uses.

Youdao's online marketing services have also continued to advance. Domestic performance-based advertising reached record-breaking revenues led by the gaming and AI tools sectors. Internationally, we recently established an official partnership with Google, laying a solid foundation for further expansion. We have also sharpened our technological edge in overseas KOL marketing. By developing an evaluation model, we can precisely match KOL selection with specific demand, driving high conversion rates.

Our smart devices segment maintained healthy growth. Our flagship Youdao Dictionary Pen solidified its leading position in the Double 11 online shopping festival, dominating the top position in its category on JD and Tmall’s sales charts for five consecutive years. Building on this success, we launched Youdao Dictionary Pen A7 Pro in January, featuring higher performance to further fuel ongoing growth.

Turning to NetEase Cloud Music. NetEase Cloud Music continued to drive quality development across its music-centric ecosystem, nurturing its unique community and distinctive content offerings.

We continued reinforcing our signature music consumption experiences while expanding consumption scenarios and brand awareness. We launched and iterated several innovative features to improve how users enjoy and interface with music and music-inspired content in Q4. For example, our new feature, Lyric Books, allows users to highlight their favorite lyrics, create a personalized lyrics collection, and share their unique Lyric Book with others. Additionally, Lightbulb enhances users' music discovery journey, offering recommendations that flow naturally with each user's distinctive taste. These functions were highly popular with music fans and increased user engagement. Building on our compelling consumption experiences, we continued diversifying music consumption scenarios. For example, co-branding activities in collaboration with our games division helped expand our existing audience, while introduced and enhanced music-inspired social interaction features in games further extended our brand’s presence.

Expanding our music library also allows us to keep bringing users a diverse range of licensed and original music. In Q4, we deepened our partnership with Kakao Entertainment and strengthened our Chinese music collection this January by collaborating with the renowned artist Li Jian, bringing his full discography back to our platform, including many beloved classics. On the in-house music side, we stepped up our efforts as well. Several tracks gained widespread recognition in Q4, including the hit Follow. We're also growing our copyright collaboration with popular artists. In January, Hua Chenyu's digital album TIPPING POINT debuted on our platform, selling over 1 million copies within 24 hours.

In Q4, we celebrated the 10th anniversary of our independent musician platform with special events highlighting our musicians’ journeys, helping to deepen connections between artists and fans. As of December, our platform boasted over 770,000 registered artists, making it one of China's top platforms for independent musicians.

As we continued to improve our music-focused monetization, subscription-based memberships remained an important driver of online music revenue growth. To further optimize our premium offerings, we enhanced our content appeal, introduced cutting-edge features, added membership privileges for subscribers and refined our comprehensive pricing strategy. These efforts boosted subscriber growth and deepened engagement, laying a solid foundation for more sustainable growth.

Finally, let's look at Yanxuan. Yanxuan continues to focus on key categories and drive growth through bestselling products. In 2024, core categories like pet products and home cleaning recorded solid growth, reinforcing their market leadership. Meanwhile, other key categories kept gaining popularity through star products. Our Zhongguo Da’e down jacket, known for exceptional quality and strategic marketing, remained a standout performer in the fourth quarter, breaking into the top 5 position for Men’s Wear on Tmall’s sales chart.

Across our NetEase family of businesses, we pursue innovation that advances our company and the industries we serve. We are extending this to our global aspirations for our games as we further diversify our portfolio and bring beloved titles to fans worldwide in 2025 and beyond. We believe these initiatives will fuel lasting value creation across our business and for our players, partners and shareholders alike.

This concludes William's comments.

I will now provide a brief review of our 2024 annual results with a focus on the fourth quarter. Given the limited time of today's call, I will present some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details.

As a reminder, all amounts are RMB unless otherwise stated.

Our total net revenues for 2024 were RMB105.3 billion, or USD14.4 billion, representing a 2% increase year-over-year. For the fourth quarter, total revenues were RMB26.7 billion, or USD3.7 billion.

For 2024, net revenues from games and related VAS were RMB83.6 billion, up 3% from 2023 and up 2% year-over-year in Q4 to RMB21.2 billion. Specifically, net revenues from online games were RMB80.4 billion, up 6% from 2023 and up 5% year-over-year in Q4 to RMB20.5 billion. Through 2024, our PC-client games delivered strong performances, achieving 17% year-over-year growth with an impressive 57% increase in Q4. The Q4 growth was primarily driven by titles such as Naraka: BladePoint, Westward Journey Online 2 and several licensed titles.

While the positive momentum in PC games has shifted our revenue mix, mobile games remain a significant part of our business. In the fourth quarter, they accounted for approximately 65% of our total net revenues from online games operations, and for the full year, they made up about 73%.

Youdao's net revenues for 2024 were up about 4% for the year to RMB5.6 billion, primarily due to revenue growth from online marketing services. They declined 9.5% year-over-year in the fourth quarter to RMB1.3 billion, primarily due to a decline in learning services revenue as we focus on business that serves our long-term growth objectives with better profitability.

NetEase Cloud Music's net revenues were up a little over 1% at RMB8 billion for the full year and were RMB1.9 billion in the fourth quarter, a 5% decline year-over-year. As discussed in previous quarters, the decline reflects lower revenue from social entertainment services, which aligns with our refined focus on sustainably improving profitability.

Net revenues for innovative businesses and others were RMB8.1 billion for the year and RMB2.3 billion for the quarter, down 6% and 17%, respectively, year-over-year. The decline was mainly due to decreased revenue contribution from Yanxuan, advertising services and some of our innovative businesses. For the year, our total gross profit margin was 62.5%. In the fourth quarter, our gross profit margin slightly decreased year-over-year to 60.8%. Looking at our fourth quarter margins in more detail:

Gross profit margin was 66.7% for our games and related VAS, compared with 69.5% in the same period of last year. The decrease was primarily attributable to a higher proportion of net revenues from licensed games, which carry lower margins than our self-developed titles.

Our gross profit margin for Youdao was 47.8%, compared with 49.9% in the same period of last year. The decrease was mainly due to reduced revenue contribution from learning services.

Gross profit margin for NetEase Cloud Music was 31.9% in the fourth quarter, versus 30.3% in the same period a year ago. The margin improvement primarily resulted from increased revenue from membership subscriptions and continued cost management improvement.

For our innovative businesses and others, gross profit margin was 37.8%, compared with 34.4% in the fourth quarter of 2023. The increase was primarily the result of margin improvement in Yanxuan.

The operating expenses for the fourth quarter were RMB8.5 billion, or 32% of our total net revenues. Taking a closer look at our cost composition.

Our selling and marketing expenses as a percentage of total net revenues were 10.5% for the fourth quarter, compared with 15.6% for the same period last year, mainly due to decreased spending on gaming promotions during the quarter. On a full-year basis, selling and marketing expenses accounted for 13.4% of net revenues, relatively stable with 13.5% in 2023.

Our R&D expenses as a percentage of total net revenues also remained stable year-over-year at 16.7% in the fourth quarter compared with 16.5% for the same period last year. On a full-year basis, R&D expenses accounted for 16.6% of net revenues, up slightly from 15.9% in 2023.

We remain committed to investing in content creation and product development. We are also seeing leverage in our R&D investments longer term.

The effective tax rate was 15.3% for the full year and 13.4% for the fourth quarter. As a reminder, the effective tax rate is presented on an accrual basis, and the tax credits difer for each of our entities at different time periods, depending on applicable policies and our operations.

Our non-GAAP net income attributable to shareholders for the fourth quarter totaled RMB9.7 billion, or USD1.3 billion, up 31% year-over-year. Non-GAAP basic earnings per ADS for the quarter was USD2.09 or USD0.42 per share. For the full year, non-GAAP net income attributable to shareholders was up 3% to RMB33.5 billion, or USD4.6 billion, which is USD7.17 per ADS or USD1.43 per share.

Additionally, our cash position remains strong. As of year-end, our net cash position was about RMB131.5 billion, compared with RMB110.9 billion at the end of 2023.

In accordance with our dividend policy, we're pleased to report that our Board of Directors has approved a dividend of USD0.244 per share, or USD1.22 per ADS, for the fourth quarter.

Lastly, under our current USD5 billion share repurchase program starting in mid-January last year, we had repurchased approximately 21.2 million ADSs as of December 31, 2024, for a total cost of approximately USD1.9 billion.

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

(Operator Instructions) Yang Bai, CICC.

(spoken in foreign language) I will translate myself. Concerning FragPunk, could management share more color on its data test achievements, current preparations for launching and post-launch operational priorities. What's the company's perspective on competition within the shooter game market segment. Thank you.

(spoken in foreign language)

Okay. I'll do the English translation. FragPunk has done the large-scale testing, in both domestic and overseas markets. The feedback met our expectations. Players gave high appraisal for our innovative gameplay and system design and provided a lot of valuable advisers as well. After months of iteration, we're now ready to launch. After launch. We will continue to monitor player feedback, update better levels, provide new characters and crackdown treating behaviors, building a healthy gaming environment for the players.

Currently, there are multiple well-performing shooting titles in the big shooting genre, which our R&D teams have also experienced in-depth. This actually reinforces our confidence in our game, no matter in the control feelings, the system design, or the hero narratives, and also its unique art style. Everything has its unique signature and will be appealing to existing and new players. We do have confidence that the game will be successful. Thank you.

Yang Liu, Morgan Stanley.

(spoken in foreign language) I will translate my question. First, congratulate on the positive feedback from the gamers on Where Winds Meet and we see quite positive metrics on retention, DAU, et cetera, but also, we hear a lot of feedback that expects the company to improve the cosmetics and also the multiplayer gameplay in the game.

So I would like to ask what is the next stage monetization strategy for this title? And where could we see improvements? And also, I would like to ask about the overseas launch plan for this title, when and what market. Thank you.

(spoken in foreign language)

Okay. Thank you for your question. I will do translation. Where Winds Meet is widely acclaimed since its launch, demonstrating a solid performance with robust metrics. The inclusion of both single player and multiple modes has catered diverse player demands. And the monetization strategy centered around cosmetics was widely welcomed. Furthermore, our content ecosystem featuring casual and low-pressure gaming experience lays a healthy foundation for long-term operations.

In the future, we will continue to focus on infusing new content, new maps to enrich our open-world experiences, creating diversified quality costumes and crafting various interesting and innovative single-play and multipart gameplay for gamers. And from time to time, we will talk to players face-to-face, collect their feedback to keep modifying and polishing our game.

Regarding your question on the overseas plan, we notice that Where Winds Meet has received wide appraisal for its unique open-world style and unique interpretation of Wuxia content, which actually gained us widespread attention and anticipation from overseas audiences as well. Currently, we have started working on the overseas version, and we hope we could present that to overseas players within 2025. Thank you for your question.

Ritchie Sun, HSBC.

(spoken in foreign language) I have two, but the first one is about Marvel Rivals. Regarding the 40 million users, can you share more about the paying propensity paying ratio? And what is the next growth strategy that we're looking at? Will we expand the marketing or eSports or even connectivity with the Marvel movies to further expand our user base? Thank you.

(spoken in foreign language)

Thank you for your question. Marvel Rivals, especially after Season 1, has gained wide appraisal from worldwide players. And this is a product we're going to keep investing both on development and marketing. And we do believe this is a product that we're going to keep operating, keep enhancing, keep investing for 10 years and beyond.

And yes, we do have plans for eSports, And we're going to announce our eSports plans. Hope this eSportst plan can further enhance the overall gaming ecosystem. And to your question, yes, we're going to do a lot of crossover events and promotions with other media in the future. This is a key product we'll keep investing. Thank you for your attention.

Alicia, Citigroup.

(spoken in foreign language) So my question is related to Overwatch, given the games relaunch in China yesterday. So what are the company's current expectations for the game? And how will NetEase strike a balance between Marvel Rivalsl and Overwatch? Thank you.

(spoken in foreign language)

Thank you for your question. Regarding our expectations for Overwatch, it's similar to those for World of Warcraft and Hearthstone. We aim not only to just restore the operation as is, we aim to really revitalize the product and reach new highs. We are are encouraged to see that from day one of its launched, which is yesterday, from the data and the user feedback, that we are on that track.

Both Marvel Rivals and Overwatch are excellent superhero shooting games in this category. Both well designed and supported by outstanding development teams. We will strive to meet the diverse demands of each respective player community. We believe the market is large enough to accommodate two excellent games.

Ritchie Sun, HSBC.

(spoken in foreign language) Can you discuss how do the user and grossing trends look like for World of Warcraft and Hearthstone after a strong initial boost from the pent-up demand? And after this normalization, what is the next step to improve the longevity of these titles? Thank you.

(spoken in foreign language)

Thank you for your question. 6 months after their returns, World of Warcraft and Hearthstone are still performing far better than any other time in the history. Of course, as you mentioned, that during the launch time, it's not uncommon that things will normalize, compared to the release time. We have closely collaborated with our partners at Blizzard on the upcoming content plan and we believe we will reignite players' engagement.

And for the long term, we have established a strong trust with Blizzard development team and are committed to addressing feedback from Chinese players to improve their gaming experience in the localized way. Thank you for your question.

Lincoln Kong, Goldman Sachs.

(spoken in foreign language) So my first question is about our overseas markets. After the Marvel Rivals success and also some of the adjustments of our overseas studios, how should we think about our future expansion strategy in the overseas markets? So we follow Marvel Rivals and Fragpunk more, those are self-developed games. How should we think about our advantage in the overseas markets?

The second question is about the AI in the game. So after the success of DeepSeek and its huge influence on dropping costs. How would NetEase integrate our AI into our current game portfolio as well as our future pipeline? Could management share with us more around gameplay innovations, user interactions, production efficiency or cost discipline, any aspects related to AI.

(spoken in foreign language)

Okay. I will do the translation. So to your question, we realize that the user demands and their preferences in overseas markets are not the same as those in China. And we actually pay a lot of attention to support our overseas studios, to support the creators in the overseas markets to create content that meets the local demands in the overseas markets. So there's no change on our commitment and our strategy to support the really high-quality studios and master creators to create very creative games for overseas markets. That's the answer to the first question.

And the second question, regarding AI. AI is and will significantly increase the efficiency in the R&D process throughout the development pipeline. There's no doubt about that. We have been doing that and we're going to do that in the future. And also, there are many, many other applications of AI in gaming. For example, in games, it could help users to better engage with the content and for new gamers to get onboard more easily, and we're exploring that in a massive way as well. And we believe AI is going to make huge positive contributions in the R&D process and the creative process for the gaming industry. We are very positive about that. Thank you for your question.

Lei Zhang, Bank of America.

(spoken in foreign language) My first question is regarding the game of Ananta that got game approval recently. Should we expect it to be launched in 2025? And given the competitive landscape of ACG games, how should do we think about its positioning and the differentiation strategy here?

Secondly, just want to follow-up on the sales and marketing expenses, which had a meaningful reduction in Q4, so I want to know the driver and whether we have changed the sales and marketing strategy? And going forward, how should we look at the sales and marketing trend in 2025? Thank you.

(spoken in foreign language)

So I will translate the first question first. Yes. So we have completed an offline test for Ananta this January. And the feedback is honestly quite positive. The development is progressing smoothly and on track and the team is growing in an orderly manner as well. For competition, we believe competition is a good thing. And it actually reflects that there's interests in the market in this genre of games, and there are unmet demands there.

As long as we meet the players’ expectations, we're confident that we can deliver outstanding products. Currently, we are focusing on refining our content and keep developing the product. And we plan to invite more players for testing when we are ready.

(spoken in foreign language)

So regarding the marketing spending decrease in Q4. As you know, we keep innovating our marketing engine and exploring more efficient ways, tools and mechanism for our marketing operations. And this actually is a reflection of our improved efficiency in terms of marketing operations. Thank you.

Felix Liu, UBS.

(spoken in foreign language) Let me translate myself. My question is on the news of recent organizational changes. We noted there have been quite a few changes within both of our domestic and overseas studios. Could management share the reasons and consideration behind these changes? And how should we think about your mid- and long-term investment plan for new games?

(spoken in foreign language)

Okay. I will do the do the translation. When we allocate resources among different products across different studios, no matter for our domestic or our overseas studios, we pay a lot of attention on a lot of key attributes. for example, the quality of the work, and whether the work is going to meet the demands of players when the work is released to the market in the future, as well as the production efficiency of the work and everything. So if we can foresee that when the product faces market years later, it's likely not welcomed by players, we will very firmly hit the brakes.

And if some products are of really high quality and meet the future market demands, actually, we're going to double down. So it's all about the product itself, the quality, the development efficiency, and whether it’s going to meet the ever-growing user expectations, because game development is a long cycle, a three-year, four-year, five-year cycle. When we initiate a project, we have some assumptions. And during that development process, we'll keep monitoring to see if the product is going to be able to meet the future demands, and make resource allocation adjustments accrodingly. That's a normal part during the course of game development. We have been doing in that way for a long time. Thank you for your question.

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

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly, and we hope you have a great day. Thank you.