Resilient Gaming Drive: NetEase Shines in Post-Pandemic Landscape Despite Q2 Hiccups

NetEase, Inc NTES reported second-quarter FY23 revenue growth of 3.7% year-on-year to $3.31 billion, missing the consensus of $3.46 billion.

Segments and margins: Games and related value-added services revenues grew 3.6% Y/Y to $2.59 billion. The corresponding gross margin increased by 250 bps to 67.4%, attributable to changes in the revenue mix.

Youdao, Inc DAO revenue climbed by 26.2% Y/Y to $166.4 million, and the corresponding gross margin climbed by 420 bps to 47% due to increased revenue contribution from its online marketing services and learning services.

Cloud Music's revenues were $268.7 million, down by 11.1% Y/Y, and its gross margin expanded by 1,400 bps to 27%.

Innovative businesses and other revenue rose 9.9% Y/Y to $283.7 million, and the gross margin increased by 370 bps to 29.5% due to margin improvement from Yanxuan.

Non-GAAP EPADS of $1.91 beat the consensus of $1.26.

NetEase held $13.7 billion in cash and equivalents and generated $1.1 billion in operating cash flow.

Dividend: The board approved a dividend of $0.5250 per ADS for Q2 versus $0.3220 per ADS for Q1.

William Ding, Chief Executive Officer and Director of NetEase said, "Players continue to revere our flagship Fantasy Westward Journey series, while embracing newer titles like Eggy Party that extend our reach in casual games. The June releases of widely acclaimed Justice mobile game and Racing Master further showcase our endless drive to bring players innovative, first-rate games in diversified genres."

Price Action: NTES shares traded lower by 3.55% at $99 premarket on the last check Thursday.