Prepared remarks
Good day, and welcome to the NetEase First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead.
Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F and in announcements and filings on the Hong Kong Stock Exchange's website. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures, which should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the first quarter 2026 earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer; Mr. Hu Zhipeng, Executive Vice President; Ms. Aileen Bin Mo, Vice President of Finance; and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill, please go ahead.
Thank you, Brandy, and welcome, everyone, to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. 2026 is off to a solid start, with total revenue reaching RMB 30.6 billion in the first quarter, driven by continued momentum in our games business. Our games and related value-add services generated net revenues of RMB 25.7 billion, reflecting our strength in long-term game operations and growing global appeal. Our performance of this quarter was underpinned by continued strength of our game portfolio, both internationally and domestically. Overseas, our titles demonstrated growing cross-market traction across genres and platforms. At home, our established franchises sustained strong player activity through consistent content delivery and live service innovation. Together, these results reflect the breadth and relevance of what we have built across genres, platforms and the player communities worldwide. Now let me walk through some of the highlights. Since its overseas launch last November, Where Winds Meet has become a global phenomenon, resonating across cultures and maintaining momentum well beyond the initial launch window. In March, we launched its first major expansion update, bringing players to a better environment with distinctive settings and uniquely designed in-game enemies. More recently, the game introduced version 1.6, featuring a new region, Intra, alongside a novel wind-based exploration system that further enhances movement and player freedom in the open world experience. The update was well received by players, propelling the game to #2 on Steam's global top seller chart. Strong momentum across both overseas and domestic markets, backed by sustained player engagement, translated into another record in quarterly revenue, a result that reflects the compounding value of high-quality content and reinforces our confidence in this title's long-term potential. Our title 'Rivals' continues to expand its reach among global hero shooter audiences, supported by a steady cadence of seasonal updates and high-quality content. On April 10, the game introduced new skins and cosmetic content, including characters inspired by popular franchises, which generated strong community engagement, driving it to #2 on Steam's top seller chart in the U.S. In addition to the content update, Marvel expanded its PVP experience with a major Season 7 update, featuring new maps and refreshed mechanics as players engage in intensified battles. It also introduced a year-long roadmap, featuring new modes and in-game events inspired by the Infinity Saga. This initiative is deepening player engagement while creating natural links to broader Marvel storylines, leading into the release of Marvel Studios' new film in December. Together, these efforts reinforce Marvel's position as a dynamic evolving IP with strong cross-media resonance. In March, we launched a crossover with the iconic Tokyo Ghoul franchise, integrating its characters into the in-game world and allowing players to engage with its universe. The collaboration sparked strong responses on social media and generated high player engagement supported by well-designed event execution, pushing the game to #3 on Japan's top crossing chart. In the same genre, BlackStripe celebrated the second anniversary of its global mobile launch in March, achieving a record high daily active users, demonstrating the enduring strength of its player community. Alongside international expansion, our domestic performance remains solid. We sustained strong engagement and revenue in the first quarter across our key titles supported by ongoing content updates and gameplay innovation. Multiple titles reached highs in player base and activity, demonstrating the enduring appeal of our core franchises. Our flagship continues to evolve through new mechanics and content that keep our players engaged. In the first quarter, the unlimited server rolled out a series of updates that enriched gameplay and PVP events, including the family system, which allows players to build in-game social bonds, cultivate companion relationships and experience a refreshed progression arc. The features were well received by the community and the unlimited server continues to serve as an effective entry point for both returning and new players, bringing in the active user base while retaining the loyalty of long-standing fans. PC client users reached a new high of 3.9 million, and the title recorded its highest ever quarterly revenue, underscoring its continued vitality. Another specialized server-based title also maintained strong momentum, with its server continuing to refine progression systems and steadily expanding active player base. The game's 11th anniversary events in March were a particular highlight, driving daily active users to its highest level since 2017. In April, more updates to the in-game economic system continued to strengthen the long-term health and balance of the game's overall ecosystem. Another long-running MMO franchise with over 18 years of operations delivered a record commercial performance in the first quarter, supported by a small but active community and stable live operations cadence. The game continues to evolve through player co-creation with ongoing content updates, sustaining engagement, while new features are being explored to enhance personalization and deepen player connections. GoldStar Mobile, one of NetEase's most enduring MMORPG franchises, recently celebrated its tenth anniversary, a milestone reflecting the strength of our long-term live service capabilities. Since its 2016 launch, the title has attracted over 200 million registered users, which demonstrates longevity driven by consistent content updates, evolving gameplay experiences and a deeply loyal community. As a pioneer of film and television crossovers in gaming, GoldStar Mobile once again partnered with the hit TV drama Love O2O and relevant actors to celebrate the anniversary, reuniting players with beloved characters and classic experiences from the series, reaffirming the title's momentum as it enters into its second decade. Party game X continues to hold its position as China's leading party game destination. Seasonal festival events have become a meaningful annual tradition, bringing players together with friends and family through themed content on IP Island, reinforcing the game's identity as a social space. Building on the festive atmosphere, in February, the introduction of several IPs, including My Little One, drove strong community participation and pushed the game to the top of China's charts. Identity maintained steady engagement and momentum throughout the first quarter, with enriched gameplay systems that reinforced its unique position in the asymmetric-hunter genre. During the spring festival event, it added more depth by introducing new characters and themed content alongside limited-time gameplay experiences within the seasonal format. In March's anniversary, new variations to the classic modes adjusted player roles for survivors and hunters during matches based on player actions. It also added more dynamics to the fast-paced mode with new car-based mechanics that influence real-time battle progression. As an integral part of its broader live operations strategy, e-sports remains a core pillar of the game's long-term engagement. A co-op title's premier global tournament reached its climax with global finals held in Shanghai earlier this month. It led teams from regions across the globe to deliver highly competitive matches that ignited community excitement. Our flagship SLG title continues to push the genre's boundaries with updates like the PES addition that streamline time-consuming actions and rebalance pacing, enhancing the overall strategic experience. Beyond this addition, the game continued to enrich its seasonal update with fresh landscape designs, smarter portraits and crossovers with popular IPs, all of which were well received by players over the past months. These updates resonated strongly with the community, drove a meaningful improvement in daily active users and continue to strengthen the game's foundation for long-term operations. The NARAKA: BLADEPOINT franchise continued to refine its melee-focused combat experience through a new hero, new maps and updated battle mechanics that keep the fast-paced gameplay fresh. A crossover event with Overwatch in China helped expand the game’s reach, connecting to distinct player communities. Sword of Justice maintained a vibrant player community with rich content and an evolving open world that continues to develop. The title continues to enrich player interaction and creative gameplay experiences, introducing features such as item generation and in-game narrative creation. These innovations not only deepen player engagement but also foster a thriving ecosystem of user-generated content, strengthening player connections. Innovation is a driving force for content creation in our existing portfolio as well as our games under development. New titles in our pipeline remain on track. We see Radome and Ananta making steady progress towards launch. Both titles are designed with a clear intent to deliver all-new player experiences and explore gameplay directions that have the potential to shape future trends. Feedback from the latest rounds of testing was positive, and we're in the final stages of preparation ahead of launch. As for Blizzard titles, their popularity was reinforced through diversified live service operations and localized content in the first quarter. World of Warcraft launched its Midnight expansion in China on March 3 alongside the global release, bringing players back to the Albin Kingdom. With the continued deepening of our localized operations in China, we have implemented extensive optimizations and a dedicated live events calendar tailored to the China market. These efforts have successfully sustained a high level of player retention and engagement, leading to a solid year-on-year commercial performance in the first quarter. In April, Diablo IV launched its latest expansion simultaneously across China and global markets. Meanwhile, Diablo II Resurrected, a title with a 20-year legacy, reignited its player base with a new DLC. This update drove a strong increase in monthly active users in the first quarter, further reflecting its enduring appeal. In February, Overwatch and MonsterBot collaborated on two crossover events featuring character integration and new skins. Combined with the spring festival themed content, the events generated strong community engagement and elevated player activity. With strong user engagement in Q1, our active users grew across key titles while showing improved stability. Through strong partnerships and sustained engagement across our growing portfolio, we are well positioned heading into the rest of the year, with continued investment in innovation and an unwavering commitment to quality and deep-rooted operational expertise. We aim to create unique and unforgettable gaming experiences for players in China and around the world. Turning to our other businesses. We continued to advance our AI-native strategy in the first quarter by driving continued iteration on our large language model and more deeply embedding AI throughout our ecosystem. The Learning Services segment made steady progress, supported by strong growth in online tuition and AI-enhanced subscription offerings. Youdao also enriched its AI agent metrics, adding two new AI-native applications: a tutor AI and an open-source personal AI desktop system and knowledge base designed for complex information search. Online marketing services benefited from increased demand for performance-based advertising as AI-driven tools enhanced targeting and streamlined content production. While the Smart Devices segment maintained its fiscal discipline, prioritizing execution and profitability over volume. Yanxuan celebrated its tenth anniversary this year, marking a decade of dedication to high-quality products. As part of this effort, we continue to build out our pet category, strengthening capabilities across R&D, supply chain, quality control and membership operations. Yanxuan maintained consistent execution across key categories in the first quarter with home goods continuing to introduce new products and securing leading positions in their segment across e-commerce platforms. Additionally, sustainable development remains a core focus for NetEase. We believe long-term success of a company is aligned with value creation for users, communities and employees. Earlier today, we published our seventh annual ESG report, outlining our latest progress across sustainability, governance and social impact. As our business continues to grow and evolve, we stand steadfast alongside our employees who share our values and the dedication to continuous innovation and passion in service of our users. We provide resources and opportunities for them to develop, strive and keep innovating. By focusing on these kinds of initiatives, we have once again been included in the World's Best Employer list published by Forbes, marking nine consecutive years for our company. We're also mindful of the social impact of our technology and strive to integrate corporate social responsibilities into product innovation and business practices, expanding the accessibility and inclusiveness of technology. On the environmental side, while our online business by nature has a relatively low carbon footprint, we nonetheless actively explore ways to make our operation even greener and cleaner. For example, we have improved energy efficiencies across our data centers and campuses, helping reduce greenhouse gas emissions by 12% year-over-year. On the governance side, we continue to improve our board and management oversight on material issues. External recognition continues to reflect this progress. MSCI upgraded us to an AAA ranking, positioning us as a leader among companies in the global media and entertainment industry. Meanwhile, Sustainalytics maintained our low risk rating with an improved profile, placing us among the top companies in our industry. In closing, across our operations and our development pipeline, we are seeing results from our long-held commitment to creativity, innovation and the evolving technologies that power our business. We see this momentum building as established titles continue to see record results, new titles advance towards launch with clear ambition, and our international footprint continues to grow. Working through all of it is our ongoing effort to build an environment where our developers are free to push creative boundaries and deliver experiences that are relevant to players and communities around the world. We believe we are still in the early stages of what this can deliver for our players, our communities and shareholders alike. That concludes my comments.
We encourage you to refer to our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Hello — thank you, Bill. I will now provide a brief review of our 2026 first quarter results. Given the limited time on today's call, I will present some key financial highlights. We encourage you to refer to our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Our total net revenue for the first quarter were RMB 30.6 billion, or USD 4.4 billion, representing a 6% increase year-over-year. Total net revenue from our games and related value-added services were RMB 25.7 billion, up 7% year-over-year. Specifically, net revenues from online games were RMB 25.1 billion, up 18% quarter-over-quarter and 7% year-over-year. The quarter-over-quarter and year-over-year increase in online game net revenues were attributable to higher net revenue from self-developed games such as Where Winds Meet and other titles. Youdao's net revenue increased 4% year-over-year to RMB 1.3 billion, primarily driven by increased net revenue from Youdao's online marketing services. Its net revenue was down 14% quarter-over-quarter due to decreased net revenue from Youdao's learning services and the Smart Devices segment. NetEase Cloud Music net revenue was RMB 2.0 billion, representing a 7% year-over-year decrease and remaining broadly stable quarter-over-quarter. Net revenue from innovative businesses and others were RMB 1.5 billion, decreasing 5% year-over-year and 24% quarter-over-quarter. The quarter-over-quarter decrease was mainly driven by declines across e-commerce and advertising services. Our gross profit margin increased year-over-year to 69.4% from 54.1% in the prior year period. Looking at our first quarter margin breakdown in more detail: Gross profit margin was 74.8% for our games and related value-added services, compared with 68.8% in the same period of last year. The improvement was primarily driven by lower revenue sharing costs related to platforms. Our gross profit margin for Youdao was 44.7%, compared with 47.3% in the same period of last year. The decrease was mainly due to the decline in Smart Devices gross margin. Gross profit margin for NetEase Cloud Music was 37.1% compared with 36.7% in the same period of last year, remaining generally stable year-over-year. For our innovative businesses and others, gross profit margin was 42.0%, compared with 38.8% in the first quarter of 2025. The improvement was primarily driven by margin expansion in certain innovative businesses within the segment. Total operating expenses for the first quarter were RMB 8.6 billion, representing 28% of our net revenue. Taking a closer look at our cost composition: Our selling and marketing expenses accounted for 11.2% of total net revenues in the quarter, compared with 9.4% in the same period last year, primarily due to the increased marketing expenses related to games and related VAS. Our G&A expenses accounted for 2.1% of total net revenue in the first quarter, compared with 3.3% in the same period last year. Our R&D expense remained stable at 14.7% of total net revenue in the first quarter compared with 15.2% in the same period last year, reflecting our consistent investment in innovation and content development. The effective tax rate was 18.9% for the first quarter. As a reminder, the effective tax rate is presented on an accrual basis and the tax credit varies across each of our entities at different time periods, depending on tax policies and our operations. Our non-GAAP net income attributable to the shareholders for the quarter totaled RMB 11.3 billion, or USD 1.6 billion, broadly stable year-over-year. Non-GAAP basic earnings per ADS for the quarter was USD 0.51 per ADS. Additionally, our cash position remains strong as of March 31, 2026. Our net cash position was RMB 167.2 billion compared with RMB 153.5 billion at the end of 2025. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of USD 0.44 per share or USD 0.44 per ADS for the first quarter. Lastly, under our current USD 5 billion share repurchase program, we had repurchased USD 23.2 million as of March 31, 2026 for a total cost of approximately USD 3.1 billion. Thank you for your attention. We would now like to open the call to your questions.
Questions and answers
Operator instructions. Your first question comes from Lincoln Kong with Goldman Sachs.
Congrats on the very solid first quarter results. I have two questions related to the new games pipeline. First of all, is on the 'Radome' — could management share a more detailed update in terms of the latest progress of the game, especially around how the product design, monetization design, game plan and user feedback have changed over the past few months? And what is the latest rollout schedule for global and across platforms? My second question is about Ananta. I wonder what's our competitive strategy in this sort of open-world type of game. Specifically, we have seen a few of our peers recently release some new titles a bit similar to Ananta and there could be a potential heavyweight blockbuster like GTA before year-end. How will the company ensure Ananta can successfully break through the competition and capture incremental user growth?
Okay. I will translate the answer to the first question first. So thank you for your question regarding Radome. Following the technical test in February, over the past month we received valuable feedback from players. Our team is now actively preparing for the upcoming full-scale breaker test — in this next round we will showcase a bigger picture of the in-game world and richer gameplay details as we work towards our targeted Q3 launch window. In terms of monetization, we're designing it as a natural extension of the overall game plan with characters at the heart of the experience and cosmetics customization at the core of our monetization design, keeping the experience enriched but without excessive pay-to-win elements. Please stay tuned for more details in our upcoming test and future announcements. Okay. Let me translate the answer to the second question. First of all, thank you for your question. We addressed your question from several angles. First, regarding the competitive landscape, we do not shy away from competition, but our focus is more on differentiation. Yes, the open-world category is crowded in 2026, and players have more choices than ever. But from another angle, it also means that the genre has high scale and strong user demand. Competition in our industry is not a zero-sum game. Great products expand the overall market rather than just fight over a fixed market share. Secondly, what makes Ananta different? Ananta is built around an urban open-world concept, which is fundamentally different from traditional open-world RPGs or action games. Whether you look at the IP building, general structure or gameplay design, we are not following existing formulas. What we are building is an open-world setting centered on city life, driven by immersive daily living experiences. The competitive edge here is not about flashy combat. It's about where players can truly feel like they are living in the world — shopping, social interactions, exploration, running businesses. These activities with their strong sense of urban life are where our differentiation really lies. Right now, the team is focused on refining the game's content quality. We believe players always have a strong appetite for innovative and polished experiences. What decides whether a product succeeds is not how many competitors are out there. It is whether the experience is distinctive enough and good enough for players. We'd rather take the time to get it right than ship something average in a rush. Lastly, but importantly, we do not think Ananta is a traditional action-only game. Our goal is to achieve a genre breakthrough within the urban open-world space, reaching players who are interested in the idea of 3D living in a virtual city. This means that our direction, our narrative tone, and our gameplay design are all being shaped to appeal to a broader audience, rather than putting ourselves in a fixed box. In summary: distinctive urban open-world positioning, a relentless pursuit of content quality and broad unconstrained vision for who this game is for. That's how Ananta stands out. The competition is real, but we are confident in the direction that we have chosen. Next question please.
Your next question comes from Xueqing Zhang with CICC.
My question is about globalization. What does management feel about the progress in global expansion? In particular, how do you assess the overseas growth potential of Where Winds Meet as well as the opportunities for the MMO genre in international markets?
Okay. Let me translate this answer. Where Winds Meet has demonstrated very strong and sustained momentum in its global expansion. Within six months of launch, it has held very high scores, such as a 78% positive rating on Steam, and has repeatedly ranked among the top two on the global top seller chart when we have major updates, including in Western markets that have traditionally been difficult for Chinese-developed games to penetrate. This has set a new benchmark for this genre overseas. This clearly shows that overseas players not only appreciate the game's high immersive design, but are also highly receptive to a free-to-play, high-quality and fair monetization model. Once again, it reinforces that the unique experiences delivered by Where Winds Meet resonate globally. Going forward, we'll continue to unlock the game's overseas potential by enhancing cross-device compatibilities, strengthening global publishing capabilities, expanding onto more platforms and deepening localization efforts. More updates on this will be shared. In short, we'll continue to invest resources in Where Winds Meet, making it another flagship title in our global portfolio with the goal of achieving long-term sustainable success worldwide.
Your next question comes from Ritchie Sun with HSBC.
Congrats on a very good set of results. I want to ask about the PC version of the unlimited server. The PC version has launched a limited server close to one year now. Can management share the latest update on this game? And how do you plan to further sustain or even expand the successful response from this game going forward?
Yes. The title has hit another record of PC client users at 3.9 million in Q1, which clearly shows that the unlimited server has successfully expanded the player base. Beyond the strong performance of the unlimited server, the time-based classic server has also been growing steadily. With the development team's years of experience in long-term live operations, the overall game ecosystem is in good shape with all key metrics trending in the right direction. We remain committed to the long-term operation strategy and keep exploiting the opportunities along the way. Thank you.
And that concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any closing additional comments.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a wonderful day. Thank you.