On August 24, Chinese Internet and gaming service provider NetEase announced its financial results for the second quarter of 2023.。

According to the data, NetEase achieved net income of 24 billion yuan (RMB, the same below) in the second quarter, an increase of 3.7%, down 4% month-on-month。Gross profit was $14.4 billion, up 11.1%。Net profit was 8.2 billion yuan, up 56% year-on-year and 22% month-on-month.。Basic net profit per share is 0.35美元。The Company's Board of Directors approved a second quarter 2023 dividend of 0 per share..105 USD。

Specific to the business,

● Games and related value-added services

In the second quarter, NetEase's net income from games and related value-added services was $18.8 billion, up 3.6%, down 6.5%。Net income from online games as a percentage of total net income for the segment in the second quarter was 91.7, down one percentage point from the previous quarter。In online games, mobile games accounted for 73% of net income..6%, up one percentage point month-on-month。

In the second quarter, gross profit from games and related value-added services was $12.7 billion, compared to $13.4 billion in the previous quarter, with online game revenue falling as a result of seasonal factors.。The year-on-year increase was $11.8 billion, mainly due to increased revenue from online games such as Egg Party and lower copyright fees due to the termination of several agency games.。

Gross margin, 67 in the second quarter.4%, 66 in the previous quarter and the same period last year..7% and 64.9%。The increase in gross margin was mainly due to changes in the revenue mix of independent research and development, cooperative development and agency games.。

● NetEase Cloud

In the second quarter, NetEase Cloud Music's net income was $1.9 billion, down 11.1%, down slightly 1% month-on-month。Gross profit increased year-on-year to 5, thanks to increased member subscription revenue and continued improvement in cost control..300 million yuan, gross margin is 27..0%, doubling year-on-year。In the second quarter, the monthly activity of NetEase's cloud platform grew steadily, increasing 14% year-on-year to over 200 million people in the first half of the year.。There was also a significant increase in the number of subscription members, driving further profit margins.。

● 有道

Youdao's learning services and online marketing services outperformed in the second quarter, with strong year-over-year revenue growth。In the second quarter, Youdao's net income was $1.2 billion, up 26.2%, up 3.7%。

Both gross profit and gross margin achieved year-on-year increases.。Gross profit for the second quarter was 5.700 million yuan, gross margin of 47.0%。The year-over-year increase was mainly due to an increase in revenue contribution from online marketing services and learning services.。Compared to other products and services, Youdao's gross margin level is higher。

● Innovation and other business

In the second quarter, NetEase's innovation and other businesses achieved net income of $2.1 billion, up 9.9%, an increase of 10.8%。Gross profit was $600 million, compared with $400 million in the previous quarter..700 million yuan, compared with 4 in the same period last year..800 million yuan。Gross margin of 29.5 per cent, compared with 25 in the previous quarter and the same period last year..4% and 25.8%。Gross profit and gross margin both showed ring, year-on-year growth mainly due to NetEase's strict selection of e-commerce net income and gross margin growth.。

Among them, NetEase news client per capita one-day use time ranked first in the industry, video content consumption accounted for 72%。In addition, NetEase strictly selected the above pets, home cleaning, office furniture and other core categories in 618 during the major e-commerce platform sales champion.。

In addition, it is worth noting that in its earnings report, NetEase disclosed that its R & D investment reached 3.8 billion yuan in the second quarter, nearly half of its net profit.。Netease took out so much money to research and development, where is the money invested？

                  

A number of games launched in June will preserve second-half margins, with R & D focus still on self-developed games

                   

The money developed by Netease was first invested in the game.。NetEase launched a number of new games in June, and achieved good results。"Against the Cold" has topped China's iOS bestseller list and download list after its hand tour was launched.。"Peak Speed" soon after the launch of China's iOS bestseller list third, has also been the top of the iOS download list for 10 days。"Exceptional Pioneer" entered the second place in China's iOS download list shortly after its launch.。Harry Potter: The Magical Awakening is available globally in Japan, North America and Europe。These new games will help broaden the company's game category and enhance its international influence.。

Classic games are solid, such as the classic flagship game "Fantasy Westward Journey" series。Other popular games such as "Egg Party," "Fifth Personality," "Cold Against the Water" and so on are also hot.。

The company said that it will continue to enrich the product line of game development, and will launch a variety of new and highly anticipated game products.。

Chief Financial Officer Yang Zhaoxuan said that NetEase prioritizes research and development resources and focus on self-developed games, which are far more profitable than licensed games.。He said that since June, NetEase has released a number of self-developed games, the performance is good, I believe that the second half of the profit margin will remain stable。

In the second quarter, NetEase's share of overseas gaming revenue fell to single-digit percentages from around 10% in the past。As for the reason for the decline in revenue, Yang believes that the main reason is the strong performance of some of the company's new games listed in China.。He believes that due to the good performance of some domestic games, the revenue growth rate of domestic games, especially mobile games, is expected to surpass that of the international game business in the second half of the year.。

Asked on the phone about NetEase's overseas game-related plans, NetEase CEO Ding Lei said the company now believes that the most valuable markets for overseas games are Europe, America, Japan and South Korea.。However, these markets are different from China, which is still dominated by mobile games, while overseas are mainly console and PC games, and some of China's themes may not be suitable for overseas market demand.。At present, when the company is expanding its overseas business, the first choice is Europe, America, Japan and South Korea, the second is console and PC-side games, and the third is to consider the subject matter.。He said: "NetEase has made a lot of efforts and attempts in this area, and I believe there will be a harvest day soon."。"

        

AI investment leads the Internet industry and empowers multiple businesses

         

In addition to games, NetEase spends a lot of money going into AI-related areas.。

According to NetEase, in the past five years, the company has invested nearly 60 billion yuan, with an average R & D investment intensity of 15%, and R & D intensity continues to lead the Internet industry.。Up to now, NetEase has published more than 10,000 patent applications and granted more than 4,000 patents, focusing on key technologies in the digital industry such as artificial intelligence, blockchain, audio and video.。

In July, Netease Youdao brought its self-developed education model "Ziyue" to the 2023 World Artificial Intelligence Conference Intelligent Education Theme Forum, which is also China's first self-developed education model.。Netease Youdao has developed six innovative applications based on the big model "Ziyue," including oral training, big model translation, document question and answer, AI composition correction, and grammar refinement.。One of the most eye-catching is the "virtual human spoken language coach," which supports one-to-one, multi-scene, 24-hour AI spoken dialogue services.。It is understood that there is a virtual human speaking coach named Echo, has a real-life image, not only in the dialogue pronunciation authentic, but also can quickly understand the scene and context to give feedback。

In addition, "Youdao Vertical and Horizontal Chess Institute" launched a new feature of AI ultra-high-speed replay, driving the advanced class renewal rate close to 70%.。Thanks to the in-depth application of AI technology, Youdao's net revenue from online marketing services increased by 99% year-on-year.。

In terms of NetEase Cloud, the company integrates AI technology into the whole process of musician creation and continues to launch music creation tools.。In June, NetEase Cloud Music and Ice set up the first virtual singer label, WOWAIDO!, and opened the AI singer music creation tool "NetEase Cloud Music · X Studio."。Users only need to enter the score and lyrics, within 3 seconds can generate comparable to the professional singer's AI singing dry voice, but also adjust the parameters, showing the glide, transfer, vibrato and other delicate singing effects。

In the game business, since the second quarter, NetEase technical team won CVPR, IJCAI, ACM MM and other international AI top competition five championships, the relevant results have been applied to the original painting, modeling, animation synthesis and other game art assets production links, greatly shorten the research and development cycle, reduce production costs。At the same time, based on AI technologies such as self-developed large models, NetEase's gaming industry pioneered innovative gameplay such as intelligent NPC interaction, AI text pinching, and AI dressing, attracting many players.。

Among them, "Against the Cold" mobile game focused on the application of machine learning, engine learning and more than 30 self-developed AI technology achievements, the introduction of intelligent NPC, AI pinch face, AI lyrics and other innovative gameplay, the first month of the online players exceeded 40 million.。"Against the cold" has also become China's first artificial intelligence technology successfully landed in the game。

Hu Zhipeng, vice president of NetEase, said on the phone that the company's research and development ideas have changed, from "games plus artificial intelligence" to "artificial intelligence plus games."。He said: "That is to say, from the very beginning, it was assumed that the whole world was built on a large artificial intelligence model to enhance the player's user experience in all aspects, from the initial customization of the player's character to the interaction with the whole world after the player enters the world.。"

He also revealed that the company has observed that players show strong stickiness to the game in such a novel experience, with good, spontaneous dissemination, which has played a very important role in attracting end-game and non-online game users, and the company is continuing to iterate on this AI-driven content experience.。

In addition, in response to some minors using adult identity to bypass anti-addiction supervision, NetEase launched the first 24-hour cruise AI patrolman in the industry to improve the accuracy of juvenile behavior identification and strengthen the filtering and interception efficiency of bad information.。Since the summer, AI patrolmen have reduced the risk of false real names of more than 5 million minors.。

In other businesses, NetEase is also actively promoting AI landing to application scenarios。Such as NetEase Media to promote AI technology and news scene innovation integration, its first ultra-realistic digital human technology blogger Eassy dialogue "Musk," has attracted widespread attention.。