NTES (Trans): '遗忘之海' launch slips to Q3; '无限大' still being polished

Below is Dolphin Research's transcript of$NetEase(NTES.US) FY25 Q4 earnings call. For our take, see NetEase: The Hog Farm Still Has to Grind.

I. Key takeaways

1) Shareholder return: dividend of $1.16 per ADS. Share buybacks have reached approx. $2bn (within the $5bn program).

2) Guidance: continued investment in content R&D, with R&D ratio staying above 15%. Management highlighted longer-term efficiency gains from AI.

II. Call details

2.1 Management remarks

1) Games

a) '燕云十六声': over 80 mn players globally and No. 2 on Steam global top sellers. This validates the global appeal of the 'Eastern aesthetics + open world' formula.

b) '漫威争锋' (Marvel Rivals): won Time's Best of the Year and a PlayStation award. Season 6 (Deadpool) helped it top charts in multiple countries, becoming a new overseas growth pole for NetEase.

c) '梦幻西游' series: the PC title set a new annual revenue record in its 23rd year, with a strong Q4. The mobile title also hit a new annual high, underscoring strong resilience.

d) '逆水寒'手游: expanded successfully overseas. It showcased the appeal of AI-driven MMO experiences in Asian markets.

5) '遗忘之海' has started tech testing, and '代号：无限大' is progressing steadily in development.

2) AI stack

a) Programming: in-house CodeMaker has moved from code completion to agent-level task solving. This marks a step-change in developer productivity.

b) Art & animation: DreamMaker and Banching cut idea-to-output time to minutes. GenAI animation has meaningfully reduced motion-capture and facial-expression costs.

c) In '燕云十六声', over 10,000 AI NPCs enable natural-language interactions and emergent storylines. This addresses rapid content consumption by players.

d) In titles like '射雕', AI supports UGC creation to lift retention. The approach enhances player creativity and stickiness.

3) Youdao & Cloud Music

a) Youdao: expects its first year of positive operating cash flow in 2025. The AI-native strategy is delivering, with marketing services revenue up 17% YoY.

b) NetEase Cloud Music: membership subscriptions continued to grow healthily, with GPM up to 34.7%. Content-licensing costs are being optimized.

4) Strategy & outlook

a) AI-native shift: management sees 2025 as the tipping point for its AI vision. Rather than debating potential, AI is being embedded by 10,000 developers across design, programming, art and QA.

b) Industrialization: proprietary engines and a full-stack toolchain create an 'AI multiplier' effect. This underpins scalable high-quality production.

c) Global ecosystem: the renewed partnership with Blizzard drew a strong response, with record 'World of Warcraft' revenue in China. This reinforces NetEase's position as a connector of premium global content.

2.2 Q&A

Q: How will AI (e.g., Google's Genie) reshape competitive dynamics in gaming?

A: The market largely misreads the impact of models like Genie. While AI lowers the initial bar for content creation, it actually raises the bar for top-tier blockbusters.

The analogy is photography: smartphones democratized shooting, yet making Hollywood-grade films only got harder. In the AI era, the moat shifts from raw 'productivity' to 'integration capability'.

The real challenge is weaving AI into complex numerical systems, long-term economies and social graphs, which demands deep design expertise. As production costs fall, soft power such as advanced gameplay judgment, player insight and aesthetics becomes scarcer than ever.

On 'world models', practical deployment remains distant. Traditional games are deterministic, whereas world models are probabilistic, adding freedom but also unpredictability and latency.

It is early, yet top exploratory teams have a major opportunity to create new interactive experiences. We see upside for those able to tame complexity without sacrificing stability.

Q: Against big-tech spending on compute and LLMs, what differentiates NetEase's AI investment?

A: We will not join a generic LLM arms race. Our goal is to build the best game-savvy AI experts and deeply integrate AI with the biz.

In verticals, high-quality proprietary data matters more than sheer compute, and real use cases matter more than parameter count. Our focus is vertical models trained on years of game data, which sharpen industrial efficiency vs. general models.

AI is already driving commercial value, from smart NPCs to UGC tools improving retention across multiple titles. Our edge also lies in cross-disciplinary talent blending algorithms, graphics engines and deep game design.

The AI wave will accelerate industry shakeout. We will keep investing heavily in vertical models, AI-native mechanics and talent development to amplify our lead in premium R&D and live-ops.

Q: How is '燕云十六声' performing on overseas retention, and what underpins its strength and distinct mechanics?

A: The overseas version launched on Nov 15 and quickly gained strong traction across markets. It topped multiple global charts over time, and core operating metrics, including retention, are robust.

This affirms strong global demand for a high-quality, immersive open-world experience. The key drivers are high freedom with low pressure.

By separating solo and multiplayer logic, we balanced different player needs. The game uses a F2P model with frequent updates and cosmetic-driven monetization, plus cross-platform support to match modern habits.

It builds a vivid, free 'jianghu' around Chinese wuxia across narrative, combat and exploration. Signature wuxia moves and qinggong systems offer fresh, deep immersion to global players.

Blending solo narrative immersion with multiplayer social co-op attracts both lone-wolf story-seekers and social players. With new maps, dungeons, and both competitive and casual modes iterating, the title shows long-tail live-ops potential across player segments.

Q: What innovations drove '梦幻西游' PC '畅玩服', its user growth impact, and will the model expand to other legacy titles?

A: Three pillars drove success. First, we restored classic gameplay while adding differentiated new content.

Second, while preserving the core free-trade mechanic, we rebuilt the entire economy. Third, we deeply optimized the overall game flow for the unlimited-server setup.

These moves lowered entry barriers for both new and returning users and expanded the base via differentiated experiences. The path has proven commercially viable.

We keep a high-frequency, tight feedback loop with the community and listen closely. Preserving the classic feel while delivering richer, smoother freshness is key to legacy IP vitality.

We plan to roll out the unlimited-server learnings and update mechanics to more titles. Through continual logic refinement and UX upgrades, we aim to serve a broader audience with products that blend nostalgia and innovation.

Q: Status of '遗忘之海' (Sea of Remnants), latest test feedback, monetization, and launch timing?

A: Development is fully on track. We plan to launch in Q3 2026, so the window is the back half rather than the earlier rumored summer.

The latest tech test began on Feb 5 with strong player engagement. The second teaser topped 10 mn views on Bilibili, signaling high anticipation and breakout potential.

Early test data and sentiment on quality are encouraging. We are collecting feedback and will run targeted fixes and polish to prepare for the public test later this year.

Q: Feedback from the Jan test of '代号：无限大', global launch plan, and NetEase's approach to the auto-chess track amid strong rivals?

A: The closed test metrics and player feedback met expectations. Retention and content evaluations confirm enough innovation and appeal.

The product remains in refinement to ship with higher completeness and richer content. Our goal is a simultaneous global, cross-platform launch across PC, mobile and console.

Auto chess is mature, but we aim for a quality leap and differentiation. We chose Chinese supernatural folklore as the core visual and narrative angle to stand out aesthetically and narratively.

Leveraging NetEase's long-built premium R&D capability, we target a top industrial-grade auto-chess title for domestic players. By digging into traditional culture and iterating on mechanics, we believe we can deliver a distinct experience vs. peers.

Q: Has NetEase formed a repeatable playbook for globalization (e.g., '永劫无间', 'Marvel Rivals')? What are the pipelines for the West and global talent strategy?

A: Overseas expansion began in 2018, starting with success in Japan. We have since achieved notable results in mature Western markets with '永劫无间' (Naraka), 'Marvel Rivals', and '燕云十六声'.

These wins stem from years of R&D depth rather than luck. Through iterative projects, we have grasped the critical success factors in Japan and the West.

This global sensitivity and technical fit give us confidence to keep producing globally competitive top-tier titles. On talent, China has the deepest, most competitive game-dev talent pool.

Our strategy is not blind overseas hiring, but building on a top domestic R&D base while cultivating world-class creative talent with a global view. By combining China's talent dividend with global product thinking, we aim to create premium games that resonate worldwide.

Q: How do you view 'Marvel Rivals' lifecycle and UA strategy after year one? Beyond R&D and NPC interaction, where else can AI add value in design, content generation and live services, and is NetEase building AI-first titles?

A: 'Marvel Rivals' remains very stable after year one. Only sustained delivery of quality content and innovative experiences can retain players over the long run.

Season 6 introduced the first 'three-roles-in-one' hero Deadpool, which was warmly received. Alongside regular cadence, we will keep innovating with new heroes, modes and social mechanics to sustain heat and engagement.

AI is now fully embedded across production and is indispensable in art, programming and QA. But we believe AI's true value is to deliver transformative player experiences, and that shift will happen.

NetEase is an early mover and among the best positioned globally to pursue this opportunity. We are advancing a next-gen pipeline with AI as the core gameplay driver to build a new growth engine.

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