Game contribution Netease's net income last year, 75.9% of Q4 game revenue came from mobile games

For the whole of last year, online game services contributed 75.9% of Netease's net revenue. Netease's main businesses include games, advertising, email, e-commerce and other services. Separately, in the fourth quarter of last year, Netease's net revenue from advertising services increased by 33.8% year-on-year to 609 million yuan, and the game business increasingly demonstrated its revenue-generating capabilities and importance.

"Have attitude" is a distinctive slogan played by Netease, as a portal website in the era of PC Internet. In the era of mobile Internet, Netease seems to want to explore another way to generate revenue in the e-commerce field while becoming a profitable game company.

On February 25, Beijing time, Netease announced its unaudited financial results for the fourth quarter ended December 31, 2015 and the 2015 financial year. The financial report shows that in the fourth quarter, Netease's net income was 7.903 billion yuan, a year-on-year increase of 128.2%; net profit was 2.164 billion yuan, a year-on-year increase of 70.3%. Last year, its net income was 22.803 billion yuan, a year-on-year increase of 94.7%; net profit was 6.735 billion yuan, a year-on-year increase of 41.6%.

The reporter learned that last year, online game services contributed 75.9% of Netease's net revenue. At the same time, thanks to the rapid development of Netease Kola Haigou (hereinafter referred to as Kola Haigou), Netease's net income from mailbox, e-commerce and other businesses increased by 355.7% year-on-year in the fourth quarter of last year.

More than half of Q4's game revenue comes from mobile games

Netease's main businesses include games, advertising, email, e-commerce and other businesses. Separately, in the fourth quarter of last year, Netease's net revenue from advertising services increased by 33.8% year-on-year to 609 million yuan, and the game business increasingly demonstrated its revenue-generating capabilities and importance.

It is understood that Netease's net income from online game services was 5.503 billion yuan and 17.314 billion yuan respectively in the fourth quarter and the whole year of last year, a year-on-year increase of 84% and 87%.

In terms of full-year results, the financial report shows that Netease's gross profit increased to 13.404 billion yuan in 2015, mainly due to revenue contribution from mobile games and end-games including self-research and agency; the growth in gross profit of advertising services was mainly due to the growth in demand for advertising services in transportation, network services and real estate, as well as the commercialization of mobile applications such as Netease's news client; The decline in gross profit of mailbox, e-commerce and other businesses was mainly due to the decrease in revenue caused by the suspension of third-party lottery business starting in February 2015.

"In China's game industry, mobile games still maintain strong vitality, and mobile games are becoming a new rapid growth point. In 2016, we will continue to pursue a high-quality strategy and launch high-quality end games, mobile games and other Internet products." Netease CEO Ding Lei mentioned that the company's mobile game product line now includes more than 80 products.

After the financial report was released, Netease CEO Ding Lei and CFO Cai Anhuo attended the subsequent financial report conference call to interpret the key points of the financial report and answer questions from analysts.

The following is the analysis and the main content of the Q & A session:

Analyst: The first question is about mobile games. Are the company's "Fantasy Westward Journey" and "Westward Journey" mobile games facing more challenging market competition? What is the user engagement and revenue conversion of these two games? The second question is, among the games the company is developing and has already released, which game may become the next hit in the next year?

Andrew Tsai: Competition in the mobile game market is becoming increasingly fierce, but the company still firmly believes that developing high-quality products and focusing on user experience is the most meaningful thing. These two mobile game products have performed very well since their release, with very good user engagement, and also contributed a lot to revenue in the fourth quarter. We are also confident in the future performance of these two games.

In addition, the company maintained the momentum of increasing the number of new games released, especially mobile games, in the fourth quarter. As of the fourth quarter of last year, the company had released more than 80 mobile games, while in the third quarter, there were only 50 mobile games. There will be more mobile games available this year, including mobile versions of "Raven: Predator","Fantasy Journey to the West Unparalleled Edition" and "New Ghost Story". The company is also paying attention to this year's market. We believe that the shooting game "Overwatch" developed by Blizzard will have good market potential.

Analyst: What proportion of revenue was mobile games contributed in the fourth quarter of last year? In addition, the company's cross-border e-commerce contributed a lot to revenue growth last quarter. Will Netease independently disclose Kola's performance? I noticed that the gross profit margin of the company's e-commerce, email and several other businesses increased by 6 percentage points month-on-month in the fourth quarter. What changes will there be in the future?

Cai Anhuo: Mobile games contributed 57% of revenue in the fourth quarter. In the past few quarters, the e-commerce business has performed well and revenue conversion has been very high. The company will continue to pay attention to the growth of this business to determine whether to disclose it. One of the reasons for the increase in gross profit margin was operating leverage. In addition, the one-time confirmation of copyright fees in the third quarter of last year caused a decline in gross profit margin in the third quarter, so it rebounded in the fourth quarter.

Analyst: The company's advertising business accelerated growth in the fourth quarter. What are the reasons? How will the performance be in the next few quarters? Will the first quarter still be a low season?

Ding Lei: The company has invested a lot of resources in mobile products such as news clients, Cloud Music and Youdao Dictionary to develop new versions and promote them. The quality of these products has always been very good and stable. Our advertisers have always recognized these high-quality user platforms, which is one reason for increasing advertising revenue. In addition, the entire team of the company has made great efforts in advertising retail.

The company will continue to develop its mobile business and non-game mobile apps. This year we have made plans and hope that these products can reach a higher level. News clients and cloud music are both growing very rapidly. There are many innovations in product functions. Users are very satisfied and we are full of confidence.

Analyst: The company announced its strategy of combining movie and video games in December last year. How is the current progress? In addition, will this part of the business see a relatively obvious contribution in terms of revenue and profits this year?

Ding Lei: The company's game development has achieved great success in the past 15 years. These IPs are a very important asset of the company. Many users also hope that these IPs can be turned into movies or TV series. The company will invest in these aspects this year and next. I hope that the expansion of this form and content will play a positive and positive role in our game business. The company's more successful case this year is the interaction between the movie "Kung Fu Panda" and the official game of Netease's "Kung Fu Panda". Many consumers agree with Netease's production and promotion methods.

Analyst: My question is about Netease's monetization plan. How does the company view competition in this field, because Today's Headline and Tencent's news client are also doing a good job. For news client products, will there be a significant increase in revenue conversion rate this year?

Ding Lei: Netease is not the only company in this market that has news apps. As you said, there are also Tencent and Today's Headline, but each product has its own differences. For example, Netease News is positioned to have attitude and inspire users to think independently. Many users can see content with more independent opinions in Netease News; in addition, we have the unique advantage of following posts, and we cannot see more interesting or more enlightening news post-posts on other platforms. We are far ahead of our competitors in this regard. Netease attaches great importance to live broadcasts on news clients this year, including live text broadcasts and live video broadcasts. This innovation has also achieved very good results. In terms of marketing, companies will also spend large sums of money to promote news apps. In terms of technology, our personalized reading service is also very good.

I believe that this year and in the future, we will continue to maintain a distinctive and unique product positioning and leading position in the market. This year is an important year for sports in China, and we have invested a lot of resources in purchasing exclusive sports content. Today's Headline has little investment in this area. We are confident that Netease's news client will maintain growth and popularity in the future.

Analyst of the classic game "Fantasy Westward Journey"

: What proportion did the company's mobile advertising revenue contribute to overall advertising revenue in the fourth quarter? In addition, how does the company look forward to the future discoveries of PC games? What is the potential of the end-game game of "Dream Westward Journey"?

Ding Lei: The end game of "Fantasy Westward Journey" still maintains a very good growth momentum. Its growth will be affected by mobile games, but it is not particularly obvious and there is no need to worry too much. The company will launch other games for PC at the end of the first quarter of this year. Our research and development of games on the PC side has not stopped or given up, and there will still be relatively innovative products released.

Andrew Tsai: The contribution of mobile advertising revenue to overall advertising revenue is still in double digits. The same has been true in the past few quarters. The appeal of mobile advertising to advertisers is increasing.

Analyst: The company's accounts receivable increased significantly in the second and fourth quarters of last year. What are the reasons? In addition, what kind of games will become the company's biggest hit this year? Will the company make new strategic moves this year? For example, will there be any progress in virtual reality technology?

Ding Lei: In the company's process of operating game products, the most important thing is to meet the needs of users through innovation. Of course, such successes as "Fantasy Westward Journey" and "Westward Journey" are entirely due to consumers 'recognition of our products. It is also inseparable from the hard work of our team, innovation and careful work. Among the products the company plans to release in the future, Netease will adhere to this quality and innovate to meet the needs of consumers. We treat every launch as the two games mentioned above, take consumers 'opinions seriously, and believe that more users will agree with our products and brands.

Cai Anhuo: Since the second quarter of last year, the company's accounts receivable balance has been showing an increasing trend. The main reason is the increase in the balance of accounts receivable for mobile games, which is also related to the growth of the company's mobile game revenue.

Analyst: Generally speaking, Internet advertising revenue growth in the third quarter is the largest, while Netease's growth rate in the second quarter is similar to that in the third quarter, while there is a very large growth rate in the fourth quarter. Is this a special growth pattern for the company in the off-peak season? Is this the norm for the company's advertising revenue growth trend? In addition, what is the fastest-growing industry for the company's advertising revenue? Also, E-mail's downloads are growing rapidly. How can the company use E-mail's growth to improve performance?

Ding Lei: The most important thing is that the media is not just PC, but also mobile. Our mailbox and dictionary products are far ahead in the market, and Cloud Music also has many high-end users. These media resources and values have been recognized by advertisers. In addition, our sales team has also played a big role. According to past experience, advertising revenue in the fourth quarter should be similar to that in the third quarter, but the rapid growth in the fourth quarter of last year was due to the fact that after years of operation, the value of the company's media is gradually being explored and recognized. This is the most critical reason.

(This article is integrated from the Daily Economic News, Sina Technology and other related reports)

Editor: kong