NetEase's Q1 Earnings: Gaming Giant Shows Resilience with Growth in Cash Flow and Cloud Music

NetEase, Inc NTES reported fiscal first-quarter 2024 revenue growth of 7.2% year-on-year to $3.72 billion (26.9 billion Chinese yuan), missing the analyst consensus estimate of $3.79 billion.

The Chinese gaming player's adjusted EPADS of $1.81 beat the analyst consensus estimate of $1.79.

Segments and margins: Games and related value-added services revenues grew 7.0% year over year to $3.0 billion. The corresponding gross margin increased by 280 bps to 69.5%, attributable to changes in revenue contribution from different platforms and revenues from NetEase's self-developed games.

Youdao, Inc.'s DAO revenue climbed by 19.7% year over year to $192.8 million, but the corresponding gross margin declined by 270 bps to 49.0%, mainly due to increased revenue contribution from its online marketing services.

Cloud Music's revenues were $281.1 million, up 3.6% year over year, and its gross margin expanded by 1,560 bps to 38.0%.

Innovative businesses and other revenue grew by 6.1% year over year to $272.8 million, and the gross margin increased by 800 bps to 33.4% due to improved gross profit margins from Yanxuan and several other businesses included within the segment.

As of March 31, 2024, NetEase held $15.7 billion in cash and equivalents and generated $1.3 billion in operating cash flow.

Dividend: The board of directors has approved a dividend of $0.4950 per ADS for the first quarter of 2024.

"With a portfolio featuring premium-quality games and more diversification across genres, we are well-positioned to extend our exciting gaming experiences to audiences around the globe," said Mr. William Ding, Chief Executive Officer and Director of NetEase.

NetEase stock gained over 17% in the last 12 months. Investors can gain exposure to the stock via VanEck Video Gaming And ESports ETF ESPO and Global X Video Games & Esports ETF HERO.

Price Action: NTES shares traded lower by 3.62% at $94.80 premarket at the last check Thursday.