NetEase Inc

NASDAQ:NTES

Earnings Call Analysis

NetEase sees Q2 growth driven by mobile games and innovation

In the second quarter, NetEase reported revenues of RMB 25.5 billion, up 6% year-over-year, driven by strong performances in mobile games contributing 76.4% of their online game operations. Key titles like Identity V and Justice Mobile led this growth. NetEase's gross profit margin improved to 62.9%, reflecting efficient product mixes and cost optimizations. Cloud Music and Youdao also saw revenue increases, benefiting from membership subscriptions and online marketing services. The company emphasized its commitment to R&D for future growth, underlined by a net cash total of RMB 116.1 billion. Looking ahead, NetEase aims to expand its global presence and invest further in innovative products.

Strong Financial Performance

NetEase reported a strong financial performance for the second quarter of 2024, with total net revenues reaching RMB 25.5 billion ($3.5 billion), which marks a 6% increase year-over-year. A significant portion of this revenue came from their games and related value-added services, contributing RMB 20.1 billion, up 7% from the previous year. Noteworthy is that mobile games like Identity V and Justice Mobile were major drivers behind this growth, accounting for approximately 76.4% of the total net revenue from online game operations. Gross profit margin also improved to 62.9% from 59.9% in the same period last year, driven largely by changes in product mix and cost optimization strategies across various segments.

Innovative Game Developments

NetEase has been keen on pushing boundaries with its game development. 'Once Human,' a multiplayer open-world survival game set in a post-apocalyptic world, quickly succeeded on Steam with over 230,000 concurrent users shortly after its launch and amassed over 10 million downloads worldwide. Similarly, 'Naraka: Bladepoint Mobile,' launched in late July, showcased impressive performance, achieving third place on the iOS grossing chart upon release. Other key games like 'Fantasy Westward Journey Mobile' and 'Identity V' saw substantial updates and content enhancements, keeping the user base engaged and driving record revenues.

Expanding Global Reach

NetEase's efforts to expand its global reach are paying off. Their games are not only popular in China but have also gained substantial traction overseas. 'Once Human' ranked high in multiple countries soon after launch, and games like 'Marvel Rivals' have shown promising potential during their beta phases. This globalization strategy is coupled with enhanced cooperation with international KOL (Key Opinion Leaders) and growing export demand, boosting their overseas advertising services.

Strong Community Engagement

NetEase has prioritized community building within its game offerings, which has shown significant results. For instance, 'NetEase Cloud Music' saw improved gross profit margins from 27% to 32.1%, primarily due to increased revenue from membership subscriptions. Innovations in app features, such as personalized recommendations and enhanced user interaction through the comment section, have significantly contributed to this growth. Additionally, collaboration with key music labels and support for independent artists have strengthened the platform's unique music-centric community.

Diversified Portfolio and Future Prospects

NetEase's diversified portfolio spans various genres and platforms, adding resilience and growth potential. The Dictionary Pen, a smart device, maintained its leading market position in China for five consecutive years, showcasing product innovation outside gaming. In addition, the company has announced intentions to launch new and exciting titles such as 'Where Winds Meet,' an open-world action RPG, within the year, and Marvel-themed games, indicating a robust pipeline. Furthermore, the company's emphasis on R&D and innovation as key growth catalysts promises sustained long-term expansion.

Responsible Financial Management

NetEase demonstrated responsible financial management with a low effective tax rate of 16% and a strong non-GAAP net income attributable to shareholders of RMB 7.8 billion ($1.1 billion). The company's balance sheet remains robust with net cash totaling RMB 116.1 billion as of June 30, 2024. Additionally, NetEase has been efficient in returning value to shareholders through dividend payments and share repurchase programs, repurchasing approximately 12 million ADSs for $1.1 billion under the current $5 billion share repurchase program.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the NetEase 2024 Second Quarter 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.

[Brandi Piacente]

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 an announcement and filings on the website of the Hong Kong Stock Exchange. 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 for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2024 second quarter 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; and Mr. Bill Pang, the 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 Pang, executive]

Thank you, Brandi, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages we talk about here are based on RMB.

Established games, exceptional content, innovation and robust community ecosystems are central to our ongoing growth as we expand our reach domestically and abroad. In the second quarter, we pushed each of these drivers, growing our total revenue to RMB 25.5 billion. With our drive for innovation and leading R&D capabilities, we launched more hit titles in second quarter, enhancing our appeal to broader audience across diverse game genres.

At the same time, we are extending our brand and international reach, unlocking more avenues for growth.

Now looking at some of our games performance in more detail. Once Human, [Foreign Language], a multiplayer open-world survival game set in the [ post-apocalyptic ] world, attained over 230,000 concurrent users on Steam shortly after its launch and ranked among the top 5 most played games in the world on Steam in July.

The innovative creator design plans supernatural transformations with everyday items, such as the highly popular Boss Monster, providing players with an incredibly fresh and bizarrely fine experiences. As a high-quality survival game, it combines multiple layers of objectives to pursue, including exciting open-world exploration, monster fight and house crafting.

Shortly after an update in August, Once Human ranked #1 on Steam's top seller chart in 12 countries and regions, amassing over 10 million worldwide downloads. We also launched our highly anticipated Battle Royale title, Naraka: Bladepoint mobile in late July, featuring a fast-paced and dynamically focused combat experience. Powered by NetEase [ Fuxi ] leading technologies, Naraka: Bladepoint mobile introduced a copilot AI system, which enable players to team up with AI analysts on [indiscernible] and immersive battle experiences.

Videos fetching copilot teammates has been really popular and have spread widely across social media. Upon its release, again, immediately climbed to the #3 position on the iOS grossing chart and maintained our #1 position on the iOS 3D chart for over week. The new mobile version boosted overall franchise excitement, pushing PC and console DAUs to new highs and setting a record of 380,000 concurrent users on Steam during the game's third anniversary.

While we bring players new hit titles with exciting experiences in the diversified genres, content enhancement and innovative game play continue to infuse vitality into our flagship portfolio. Our Fantasy Westward Journey and Westward Journey Online franchises are a testament to the longevity and popularity of our legacy titles.

In the second quarter, we launched a brand-new expansion pack for Fantasy Westward Journey Mobile, adding new content and fresh gameplay that once again drove a record high quarterly revenue. Westward Journey Online Mobile also attracted both long-term fans and new players by reintroducing classic gameplays that was widely placed on the PC version in early days.

We also brought innovation to Infinite Borders [Foreign Language], our flagship 3 Kingdom SLG title. In April, we launched a new update that infused the concept of 4 seasons to influence players' activity with unique enhancements or challenges. For example, spring is ideal for planting, summer focuses on training troops, autumn leverages harvest for strategic deployment and winter expects for recovery or surprise attacks.

By introducing seasonality into strategic planning, players can experience realistic Asian battles and develop more comprehensive tactics, along with rich reward offered during the summer campaign in May, Infinite Borders DAU hit a 3-year high in the second quarter. Identity V [Foreign Language] continue to propel collaborations with renowned IP around the world, winning in mass popularity.

In July, it is the #4 position on China's iOS top grossing chart. And in August, it was #2 on the iOS top grossing chart in Japan and #3 in China. The momentum resulted in record high DAUs in August and record revenue in the second quarter, surpassing last quarter's high.

Turning to Eggy Party [Foreign Language]. The heat game continues to deliver heartwarming experiences to our large player community. In June, we hosted [indiscernible] second anniversary event, presenting players with various stages to perform dances, fly or play rhythm games in the festive atmosphere.

Beyond gaming, Eggy Party is pioneering the development of the UGC ecosystem. Our self-developed editor continuously introduce new features like new skills and creature skins. We're also expanding the scope and impact of UGC system by partnering with leading Chinese universities to offer coding courses and college competitions based on our UGC editor.

Justice Mobile also achieved exciting success with rich updates that we launched for its first anniversary in late June, featuring brand-new content, fresh categories, skins and game players across PVE, PEP and PBX areas.

Treating to the demand of different type of players, Justice Mobile attracted enthusiastic new players and brought existing players back, driving it to the #3 position on the iOS top grossing chart in June. With our innovative seasonal update mechanism, Justice Mobile advanced the MMO genre, attracting a large user base and showcasing its robust potential to become an evergreen game.

With -- and concentration on innovation, we are growing our presence across different genres and platforms worldwide with a strong game pipeline. In June, we completed a new round testing for Where Winds Meet [Foreign Language], an open-world action adventure RPG title and received great feedback from a large group of players.

During the testing period, number of reservations increased significantly. We currently plan to launch the game on PC and mobile this year and our first phase of cross-platform testing will start on August 28. Marvel Rivals [Foreign Language], the 6 versus 6 Superhero team-based PVP shooter, announced its console plan during Sony's state of play in May and showcased the new cinematic trailer and Marvel games panel as the [ legal game ] [indiscernible] in late July.

The panel reviewed exclusive behind the scene creation stories along with beloved character Jeff and [indiscernible] joining the closed beta test. Widely pleased during the testing on both PC and consoles, Marvel Rivals proceeded to have a stunning showcase at Gamescom in Cologne this week, where it is accessible at both Microsoft Xbox and NetEase Games and announced its release date for December 6.

In June, we announced FragPunk, a fast pace 5 versus 5 hero shooter game, at Xbox Game Showcase 2024, featuring innovative card mechanics and unique [indiscernible] style. The game has already gained meaningful attention overseas. This first closed beta test in North America on Steam ended in early July, cumulatively attracting over 2,000 influencers to stream and trial the game. With extensive acclaim, it became the third most trending game of the year. FragPunk is scheduled to be released in 2025.

To further enhance our strong portfolio, due to our robust foundational R&D expertise, we also look forward to delivering more diverse content and games to players worldwide through global partnerships. Since World of Warcraft returned in June, player response has been overwhelming. People were immensely excited to return to [indiscernible] the enduring charm of the game's classic sense and quest and reestablishing their ties within the local community.

We look forward to [indiscernible] launch of World of Warcraft: The War Within, with simultaneous release of this upcoming version in China and all other regions worldwide. On top of this, Hearthstone announced its return on September 25, and to celebrate, all cards from 2023 will be available for free and more engaging China-only events can be expected.

Recently, Dunk City Dynasty [Foreign Language], officially partnered with NBA and secured an official NBA license in China. Legendary players like [indiscernible] joined the game in July, sparkling great excitement. And our first anniversary in August, [indiscernible] players, [indiscernible] joined the game, further elevating players' enthusiasm.

The game plans to introduce 30 NBA teams with unique possible culture items, such as jerseys and courts, bringing historic basketball moment to life. Basketball transcend borders and cultures, uniting fans worldwide. We look forward to delivering more collaborative content in the future, and we'll continue to promote and celebrate basketball culture.

Marvel Snap, [Foreign Language], developed by Second Dinner and featuring a revolutionary game experience within the Marvel Universe, is slated to launch in Chinese market on August 29, combining innovative deck building strategies and card battle tactics into each exciting game, the well-established title is highly accessible to beginners, yet quite challenging to masters.

Following its closed beta test in China in June, Synergy [indiscernible] Wolverine in late July created another hype wave among local fans. With each of our games, we aim to bring innovative lasting experience to players that fuel our growth and invite great players worldwide. By extending our reach across genres and platforms, more players are being introduced to the NetEase's experience, both domestically and internationally.

Going forward, we will continue to leverage our rich R&D capabilities, see game in different genres, worldwide partnerships and 2 decades of operating experience to advance our game portfolio and drive the next wave of gaming trends.

Turning to Youdao. In the second quarter, Youdao continued to prioritize digital content services, online marketing services and AI-driven subscription services. As a result, it achieved historic high operational cash flow and significantly narrowed its operating loss. Our digital content services achieved healthy revenue growth, fueled by our AI-powered products.

The recent update to our intelligent learning platform, Youdao, Inc., provides students with university and admission consultation services, including recommendations of which college to apply to, application strategies and personalized study plan tailored to each student's unique capabilities and personality. Coupled with our highly regarded personalized learning program, these services [indiscernible] continue to reach new highs in the second quarter.

The robust growth of our AI-driven subscription services reflects our steadfast commitment to investing in technology. The recent update of [indiscernible], our digital human language coding app, featuring a tutor's character that engages with students on [indiscernible] topics and kids mini games, has generated great enthusiasm among young learners. As we continue to iterate our products and expand offerings, our AI-driven subscription services have experienced 6 consecutive quarters of rapid sales expansion, with approximately 200% year-over-year growth in the second quarter.

Fueled by multiple drivers, online marketing services, strong growth momentum continued in the second quarter. While our real-time API services expanded our user base across more industries, our [indiscernible] advertising services continued to grow, both in China and abroad. Notably, our overseas advertising services sales have accelerated with our enhanced international KOL database and meet growing export demand.

For smart devices, our Dictionary Pen maintained its leading market position and ranked #1 in the sales category on major e-commerce platform in China for 5 years in a row. Recently, we launched Youdao Dictionary Pen X7, which featured [Technical Difficulty] and capability, along with translation services powered by our large language model. This new product won broad recognition soon after release.

Turning to NetEase Cloud Music. Cloud Music continued to propel quality development across its music-centric ecosystem, further cultivating its unique community and enhancing its music-centric monetization. To further nurture our content ecosystem, we continually expand our music offerings to meet diverse audience demand. During the second quarter, we advanced our cooperation with various music labels and steadily extended partnerships with popular musicians, seniors and groups.

In particular, we amplified our offering in signature music genres by adding content from well-known rappers, [indiscernible] J-Pop artists. We also remain deeply committed to supporting independent audits and continue to enhance our comprehensive support for this artist throughout their journey in the music industry to further migrate our unique community with high-quality using experiences.

We recently upgraded our app, introducing more personalized recommendation functionality, overall framework enhancement and improved content distribution strategy while also optimizing features like daily recommendations and private DJ. Alongside improving the music listening experience, we strive to foster connections and [indiscernible] with our music inspired community. To enhance the value of our iconic comment section, we implemented several upgrades to make this section more intriguing for users to explore across more scenarios.

For example, we display selective [indiscernible] comments on the minor players while users listen to music and invite users to explore comments on wide areas of music, our innovatively designed Comment Square section, all of which led to elevated user engagement.

Turning to Yanxuan. During the second quarter, Yanxuan continued to launch new products and lead sales across various online categories.

During the 618 festival, our pets food secured top 3 positions in several vertical category sales chart on major e-commerce platforms. House cleaning products were also top ranked on several platforms, following the launch of new series featuring an Asian Chinese [indiscernible]. These product successes highlights our strong R&D capabilities and commitment to innovation and that is innovation and forward momentum are at the heart of everything we do across our games, music, education and lifestyle brand businesses.

We are committed to creating rich ecosystem that brings users exceptional experiences as stakeholder increasing value as we continue to grow and expand our reach worldwide. That concludes William's comments.

I will now provide a brief review of our 2024 second quarter financial results. Given the limited time of today's call, I'll be presenting some [indiscernible] financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all [indiscernible] are in RMB, unless otherwise stated. Total net revenue for the second quarter were RMB 25.5 billion or USD 3.5 billion, representing a 6% increase year-over-year.

Total net revenue from our games and related VAS were RMB 20.1 billion, up 7% year-over-year. The additional growth was primarily due to increased revenue contribution from mobile games, such as Identity V and Justice Mobile. Net revenues from our mobile games accounted for approximately 76.4% of our total net revenue from online game operations. Youdao's net revenue were RMB 1.3 billion, a year-over-year increase of 10%, primarily due to the increased revenue contribution from Youdao's online marketing services.

NetEase Cloud Music net revenue were RMB 2 billion, a 5% increase compared to the same period last year, primarily due to the increased net revenue from membership subscriptions. Net revenue for innovative business and others were RMB 2.1 billion, a slight increase compared with the same quarter of 2023, mainly due to increased revenue contribution from Yanxuan and some of our innovative businesses.

Our total gross profit margin was 62.9% in the second quarter compared with 59.9% for the same period in 2023.

Looking at our second quarter margins in more detail. Gross profit margin was 70% for games and related VAS compared with 67.4% in the same period last year. The increase was primarily due to changes in product mix. Our gross profit margin for Youdao was 48.2% compared with 47% of the same period last year. The increase was mainly due to improved -- improvement of gross profit margin from the online marketing services.

Gross profit margin for Cloud Music reached 32.1% versus 27% in the same period last year. The margin improvement primarily resulted from increased net revenue from membership subscriptions and continued cost optimization measures. For innovative business and others, gross profit margin was 34% compared with 29.5% in the second quarter of 2023. The increase was primarily due to the changes in product mix within the segment.

The total operating expense for the second quarter were RMB 9 billion or 35.5% of our net revenue.

Taking a closer look at our cost composition. Our selling and marketing expenses as a percentage of total net revenue was 13.7%, which is relatively flat with the same period last year. Our R&D expenses as a percentage of total net revenue was 17.5% in the second quarter compared with 16.3% for the same period last year.

We remain committed to investing in content creation and product development that keep our product and content at the forefront of the industry. We believe that our investment in R&D will remain a key catalyst for future growth over longer term. The effective tax rate was 16% for the second quarter.

As a reminder, the effective tax rate is presented on an accrual basis, depending on [indiscernible] policies and our operations. Our non-GAAP net income attributable to shareholders for the second quarter totaled RMB 7.8 billion or USD 1.1 billion. Non-GAAP basic earnings per ADS for the second quarter were USD 1.67 or USD 0.33 per share.

Additionally, our net cash totaled RMB 116.1 billion as of June 30, 2024 compared with RMB 110.9 billion at the end of 2023. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved dividends of USD 0.087 per share or USD 0.435 per ADS for the second quarter.

Lastly, our current USD 5 billion share repurchase program, which started in mid-January last year. Under this program, we have repurchased approximately 12 million ADSs as of June 30, 2024, for a total cost of approximately USD 1.1 billion.

Thank you for your attention. We'd like now to open the call to your questions.

[Operator]

[Operator Instructions] Your first question comes from Alicia Yap with Citigroup.

[Alicis a Yap, analyst]

[Foreign Language] My question is related to Naraka: Bladepoint Mobile [indiscernible] management should be satisfied with the performance so far since the launch. So can management share and elaborate the user breakdown and the profile, for example, the percentage of the users that have not played the PC version of the Naraka and also percentage of the user are brand new gamers to NetEase game, meaning that it has never played other NetEase game in the past. And then follow-up on that is that any comment on the timing of the overseas launch for Naraka in the different market.

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. So as a brand-new action type of genre of mobile game, we are very happy with the current retention rate. To answer your question to give you more colors, now not only we can see a very stable core user base has been already formed, which is very important and very successful. And there are other very satisfying indicators as well.

For example, the female players percentage on mobile is much higher than on PC. And among all players who play the mobile version, 70% of them have never played the PC version before and close to half of them are actually new to NetEase. They are new NetEase game players. So all these are very satisfying.

And for now, our focus is to keep optimizing the game, making sure the game is as perfect as possible and focusing on domestic market first. And one opportunity surfaces will consider launching big game in other markets.

[Operator]

Your next question comes from Jialong Shi with Nomura.

[Jialong Shi, analyst]

[Foreign Language] So I will translate my questions. I have a few questions about the NetEase PC version of FWJ. So for all these adjustments, NetEase has [indiscernible] FWJ since this year, what is the purpose that you want to achieve through these adjustments? When do you expect to achieve this targeted purpose? Did these adjustments have anything to do with the instruction from the game regulators?

Also I would like to understand the financial impact from these adjustments on PC FWJ. We noted the price of the virtual currency for PC FWJ declined [indiscernible] this year. Just wonder whether this decline in prices of virtual currency has any correlation with against gross savings. When do you expect the gross saving for PC FWJ to accelerate further?

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. I will do the translation. First of all, thank you for your interest and understanding more details of financial [indiscernible]. But we also would like to emphasize that NetEase is now a much more grown-up, matured company. We have multiple games. We have a very healthy portfolio of games. We have Naraka: Bladepoint, we have Identity V. We have all sorts of -- and Eggy Party, all sorts of large games.

And Fantasy Westward Journey as one of our flagship titles has been in operation for more than 20 years. And from time -- in this past 20 years, from time to time, we will do some upgrade in the gameplays and refresh the game system, tune in the game system, that's happening from time to time. It's kind of normal to us because certain gameplay is fun for a period of time and maybe it's no longer that fun after many years.

So we'll keep -- we never changed the brand in Fantasy Westward Journey, but the gameplay inside of the game has been refreshed many, many times in the past 20 years. So the goal of the adjustment is to keep publishing a game, making sure the quality, the experience of the gameplay, everything is better and better and the gamers enjoy more fun from paying the game. That's the purpose.

So as of any adjustments to any community-based product, not only games, any community-based product, there will be some short-term turbulence and maybe some short-term pain as well. That's a common thing in our experiences, that's quite common and a short-term temporary thing, and it will be behind us. And again, thank you for your interest in Fantasy Westward Journey and we're also encouraged. Again, we also encourage you to broadly look at our broad portfolios as well. Thank you.

[Operator]

Your next question comes from Ritchie Sun with HSBC.

[Ritchie Sun, analyst]

[Foreign Language] First of all, regarding Identity V, we have seen the grossing rank surprising the expectation of the market. What have we done to successfully drive the revenue growth for this game? And how does management assess the potential for the [ mythical ] battle genre and whether there are competitions?

Second of all, regarding Justice Mobile, the game has launched a new season. We see the grossing rank in July surging to top 10, but it has declined since in August. What are the key reasons behind? Is it because the mixed response was a new season or more competition impacts from Naraka: Bladepoint or [indiscernible] from MMO? And how does management plan to improve the longevity of the game?

[Unknown Executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. I will translate this to the answer of these 2 questions. First, regarding your question to Identity V. Identity V is a game that's been there in operation for more than 6 years. And during these 6 years, we have been keep exploring and polishing the game, making sure the game is -- the quality and experience playing the game is better and better every day. That's a continuous effort the team has put into developing and operating a game for the past 6 years. That's a nonstop effort.

And of course, we are happy to see that in Q2, we saw some great results, and we want to say that, that result is a reflection of the continuous effort and also a reflection of NetEase's capability of running the game in the long-term manner, keeping the longevity of the game. And in the meantime, making the game better day by day. And actually not only Identity V, we're keeping doing this for all our games, and we hope some day you can see similar great success of our other games as well.

And to your second question regarding Justice Mobile. First of all, the new season of Justice Mobile features immense new content, reengage a large group of players back to the game, which is very helpful. Currently, the game has stepped into a stable operation phase. Compared to other real-time MMO titles, the game has demonstrated very strong stability on overall players' activeness.

From the -- our priority now is to maintain the players' activeness as well as the diversity of the ecosystem. We remain committed to provide a fair gaming experiences, enable [indiscernible] environment without too much burden on players and continuously value their opinions, aiming to build an ever growing MMO on the mobile platform that people have never seen before.

[Operator]

Your next question comes from Yan Bai with CICC.

[Yang Bai, analyst]

[Foreign Language] I have 2 questions related to our game business. First, we observe that the company has a diverse portfolio of products, achieving high DAU such as Naraka and Eggy Party. How should we think about our strategy to differentiate and outperform in this highly competitive [indiscernible] market?

My second question is about our overseas game business. How should we expect the development trend of our overseas game business in the future? And could management share more color about the release timeline of new titles in overseas markets?

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Yes. So first, regarding your question on the high DAU product matrix, as a matter of fact, we don't -- internally, we don't specifically define this game is a high DAU game, that game is not. We actually don't look at game product from this lens because our fundamental belief is that as far as we can make a high-quality, fine enough game, players will come. So high DAU is not a spectrum of per design as a result, reflection of your high-quality fun to play game.

As you know that over the years, we have been keep trying, keep exploring different type of games, different genres. We started from MMO, but now we extend into sports, we extend into PVP game, we extend into shooting games. We're trying with our expertise to develop, to explore a multiple genre multiple front what kind of fun and high-quality game we can provide to the players that will guide us, and that's our focus.

And regarding the global market, as you can see, we are perfectly happy with the result of Once Human, which is a reflection of our capability to design and develop game not only Chinese players like, but the game does have [indiscernible] among the global gamers community, that's a very good sign. And echo to the previous point, we are still keep exploring multiple genres, and it will take more time for us to explore our [indiscernible] games suitable be for the global market. It will take me some time, but the -- from the early results, we do have confidence to do that.

[Operator]

Your next question comes from Lei Zhang with Bank of America.

[Lei Zhang, analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. I will do the translation. First of all, the team is very busy adding more content -- fun to play content to the game as we speak. As a matter of fact, to your question, whether or not the PC version and mobile version will be launched at the same time. Actually, in our advice that is not the most important question, either at the same time or apart from each other, about a month or so, it doesn't really matter.

What really matters is can we provide a game that is fun to play in the long term to our players. We want to emphasize that Where Winds Meet is not a single-player game. It's an open world game that we plan to run for multiple years. And the content size is -- the size of content is much more than a traditional expectation on the single-player game.

And one other point I want to point out is that there will be differences between the PC version and the mobile version because the platform differences and to make it fun to play both on PC and mobile, a lot of changes and observation work needs to be done. Please be more patient, give us some time to polish the game. The plan on record now is to release the game within this year.

[Operator]

Your next question comes from Lincoln Kong with Goldman Sachs.

[Lincoln Kong, analyst]

[Foreign Language] My question is about Eggy Party. From some third-party data, we see some grossing pressure in the past few months for this game. So can management share the reason behind it? And how should we ensure the longer-term operation of this game? And regarding to the broader leisure category, no matter party games, idle games, what's our company's R&D strategy and direction here, we can share?

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. I'll do the translation. So yes, you are right. Eggy Party is one of the biggest game of NetEase in terms of the user base. And from our end, we do see that the ratio between the revenue versus user numbers is relatively low compared to other games. But we want you to be rest assured that no need to be too worried about this one. We are actively exploring how to change this because, again, we want to emphasize again the most important fact is the game fun to play. It's our users like the game or not.

So from what do we see, the users are like the -- they like the game very much. They're actively participating in game every day. And that gives us a ground that we can, over time, explore a new way to balance the size of users and the level of revenue. Please to be rest assured. We're exploring that. And we will figure that out.

[Operator]

Your next question comes from Felix Liu with UBS.

[Felix Liu, analyst]

[Foreign Language] My question is on your upcoming pipeline. So could management share for the remaining 2024 and looking into 2025, what are the key pipelines that we should watch out for? And more specifically, I noticed that you recently got [indiscernible] to Marvel Series, Marvel Rivals and Marvel Snap? What are your expectations on their domestic launch? And also, you showcased a new game called FragPunk in Xbox showcase, any comment on that one?

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Yes, you you're right. Not only we received approval for Marvel Snap, which is car game; Marvel Rivals, which is the hero-shooter game, but also we are working on other new generation titles like you mentioned FragPunk, which is the PC shooter game, we just started testing in overseas markets as well as the -- as we mentioned in the script that we're going to have Hearthstone launch in the next months as well.

One thing we want to point out is all these special games, they are not our traditional type of game, their competitive games. And every single one of them are actually from high production quality competitive games, we have hope and confidence about the special game. And as we said, the game start -- the special game will start to launch from late this month to next year. And we hope they can be successful special games.

[Operator]

Your next question comes from Thomas Chong with Jefferies.

[Thomas Chong, analyst]

[Foreign Language] My first question is about AI. Can management share about how AI enhance our game production and market efficiencies? And my second question is about the trend in operating expenses. How should we think about the trend in R&D expense? And should we expect it to step up because of AI? For marketing expenses, how should we think about the spending over the next few quarters?

[Unknown Executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. Let me do the translation. First of all, NetEase has actually been actively embracing AI for a long time. And AI technology has been widely applied throughout our game development process and it works from all disciplines like design or programming, every discipline. And for example, in some of the boring work, usually labor intensity boring works in some of the areas, AI replacement rate has already 90% or so. And that actually will free up people -- development people, so they can be focused on to explore more fun gameplay really creative part of game development instead of the labor-intensive part.

And regarding the R&D -- impact on the R&D cost, AI will free some of the human resources from the labor work, but we'll reinvest into this development resources, our exploration of gameplay and the credit part. So the R&D spending should stay in the reasonable range for the long term. Thank you. And operator, we probably have time for one more question, please.

[Operator]

Your final question comes from Lei Zhang with Bank of America.

[Lei Zhang, analyst]

[Foreign Language] My question is regarding World of Warcraft, any feedback regarding the new user and old users and how to say the revenue contribution? And can you share with us the time line for the other games to come back? And any future cooperation with [indiscernible] down the road?

[Unknown Executive]

[Foreign Language]

[Bill Pang, executive]

Okay. Thank you. I will do the translation. Thank you for your question. Since the return of World of Warcraft, actually, the players has been very actively returning to the game as all metrics are actually exceeding our expectations. The split actually between the new players and existing players before server shutdown is about [ 4:6, ] which demonstrate that the game not only attracting old players back but has the capability of capturing new players as well. And regarding the impact on the financial side, for sure, it will increase the PC revenue.

And talking about other games, we'll unfold the plans and on this unfolding return of other Blizzard games, we're happy to see we have built up close relationship and -- which consensus with each Blizzard product team because we strongly believe the return is not only just reporting the service, it should be far beyond that. It should be -- we get fully prepared to ensure even better experiences to other players than before.

And upon this returning of Blizzard games, the development teams from Blizzard side and [indiscernible] Fire has directly built up very deep cooperation and trust on the point-to-point teamwork base, which laying the foundation of deep mutual trust and future possibilities for deep cooperations in the future. Thank you.

[Operator]

That concludes the question-and-answer session. I would now like to turn the conference back over to Brandi Piacente for any additional or closing comments.

[Brandi Piacente]

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly, and we hope you have a great day. Thank you so much.