NetEase Q4 2025 Earnings Call - AI Integration Becomes Core Productivity and Gameplay Multiplier

Conference Operator: Good day and welcome to the NetEase fourth quarter and full year 2025 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Brandi Piacente. Please go ahead.

Brandi Piacente, Investor Relations, NetEase: 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 fourth quarter and full year 2025 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 on the call today from NetEase’s senior management are Mr. William Ding, Chief Executive Officer; Mr. Hu Zhaoxuan, Executive Vice President; 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.

William Ding, Chief Executive Officer, NetEase: 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 are based on CNY. In 2025, our total annual net revenue reached CNY 112.6 billion, with CNY 92.1 billion from games and value-added services. These metrics represent another milestone for our company, reflecting 23 consecutive years of online games operation revenue growth since we started the business a quarter of a century ago. In our 25 years in the gaming business, our pursuit has always been trying to provide extraordinary player experiences, and we have never stopped investing to continuous exploration of creativity and pushing technical boundaries. In our early years, our proprietary 2D game engine made the Fantasy Westward Journey Online the benchmark of its time.

When we moved to mobile in the early 2010s, our flagship in-house engines enabled us to deliver low-latency, high-performance experiences on smaller pocket-sized screens. This new capability was instrumental in unleashing the full potential of iconic titles such as Knives Out and Diablo Immortal on mobile devices. Today, as we continue refining these engines to support AAA quality cross-platform experiences, they have laid the indispensable foundation for the success of our recent global sensations like Where Winds Meet. In conjunction with the evolution of our in-house proprietary game engines, we also built our full-stack toolchain that empowers our teams to innovate at scale. Drawing on our DNA as an internet company, we continually scale new technologies that can improve the game development process.

We study emerging technological trends, determining if they can be harnessed to enhance our game development, and develop proprietary solutions to incorporate the most impactful ones into our production pipeline. This longstanding practice has enabled us to integrate complex new technologies, substantially boosting productivity over the years. Back in 2017, we saw that artificial intelligence would have a transformative impact on our industry. Because AI research is closer to academic science than traditional technology, we set up two dedicated research labs, NetEase Fuxi Lab and NetEase Game AI Lab, to study AI and explore its real-time real-world applications in gaming. These teams have made exceptional strides over the years in both research and practice, winning dozens of AI algorithm competitions, publishing hundreds of papers, and securing hundreds of patents.

We’re now far beyond the experimental phase, and the culmination of this work is the full integration of our AI technology into the game development process, with AI playing an important role across our portfolio. AIGC has accelerated quickly in recent years. We have been monitoring the progress closely and making substantial effort to embed it into our production pipelines. Importantly, we don’t see AI as a replacement for human creativity. We see it as a force multiplier, one that can bring paradigm shifting to the game development process when used responsively. It can elevate creative work and introduce real change in how games are built. As a new technology with core attributes that are fundamentally different from traditional technologies, such as its probabilistic nature, AI presents unique challenges.

Figuring out how to harness it, how to fit it into the sophisticated game software engineering process, and how to turn probabilistic AI output into reliable, high-quality components is far from easy. There are very few precedents in the industry of game making. Fortunately, with our many years of game making experiences, we have deep expertise in building production toolchains, along with data and asset libraries spanning hundreds of games. Most importantly, we have over 10,000 top-tier developers, which put us in a strong position to approach these challenges pragmatically. Over the past three years, our engineers have worked closely with our designers to explore how to unleash the power of AI while building clear gardens. At the same time, we focus on how to use AI to take on the tedious, repetitive, non-creative task without getting in the way of human creativity.

After many iterations, we believe we have established robust human oversight and feedback loops in place, and AI has become a highly effective part of our game development process. Today, we’re pleased to report that we have comprehensively integrated AI across our internal workflows, encompassing design, programming, art, and QA. This integration is not limited to a few elite teams. It is broadly accessible to developers at NetEase, driving meaningful efficiency across the board. In programming, our self-developed tool, CodeMaker, has evolved from a single AI-powered code completion tool to providing agent-level services. Our internal data shows qualitatively shifts in developer habits. They have moved from using AI to complete a line of software code to leveraging AI to solve a complete development task.

In art and animation, AI is easily accelerating the early-stage exploration process, with our in-house tools, DreamMaker and Danqing, turning creative ideas into deliverable outputs in minutes. Our AI animation technologies, including multi-camera motion capture, facial motion capture, and generative AI-driven animation tools, have significantly reduced the production cost and time required for character movement and expression animation workflows, while substantially expanding our animation asset libraries and empowering artists to deliver richer and more expressive virtual characters and worlds. Furthermore, in quality assurance, we utilize AI to model more than 1 million diverse player behaviors to ensure stability in increasingly complex game worlds. This augments traditional time-consuming manual testing with data-driven validation, providing us with greater mathematically confidence in game balance and stability before public launch. Beyond efficiency, the ultimate goal is gameplay innovation.

We have unlocked massive new interactive experiences for our players that were previously out of reach, and we still remain at a relatively early stage in exploring all the possibilities. Our exploration of AI-driven interactive characters began early with Justice, which pioneered one of the industry’s earliest commercial implementations of intelligent NPC systems powered by large language models in a live game environment. This laid important technological groundwork for expanding AI-driven character ecosystems. In Where Winds Meet, we have deployed over 10,000 AI-powered NPCs that engage players with natural language, realistic voices, and potential for unexpected story outcomes, creating a level of vivid interaction that was previously impossible. Most importantly, these AI-powered NPCs are not static quest givers. They reflect the shadow of real human existence. Some may be struggling with poverty and resorting to petty theft in a village.

If a player has the patience to follow them, they could discover soft stories like the hardship of adult life. These NPCs may not always be brilliant or lucky, but they’re living their lives within their own reality, mirroring our own world. This level of detail creates a world that was not just a sandbox but a living society. This is the essence of the open world we’re building, places where every iteration, every interaction feels authentic, unpredictable, and deeply immersive. This not only provides players with more depth and in-game experiences, but it also helps to address the challenge that players consume content much faster than developers can create it. We’re also seeing AI act as a powerful, personalized co-pilot and ecosystem multiplier. In Naraka: Bladepoint Mobile, the Voice AI Teammate system represents a major inflection point: AI that doesn’t just follow. It collaborates.

With co-pilot teammates, AI provides customized, interactive assistance to help players to learn the role of the game, making the complex, high-skill-based gameplay more accessible to a much broader audience and significantly increasing newcomer retention. Meanwhile, the crew mode in Justice empowers players to direct their own short videos with simple AI workflows, attracting millions of players who have created tens of millions of UGC works. Meanwhile, integrating these tools into Eggy Party toolchain has empowered over 15 million creators to transform a single game into a self-evolving platform driven by collective creativity of its players. Beyond enhancing our existing portfolio, we’re also exploring new frontiers in AI-native gameplay.

Moving beyond fixed preset logic, we’re trying to utilize AI as a core engine to dynamically construct the in-game world and tailor real-time elements like missions, events, and other content to individual players’ unique behaviors, unlocking infinite potential through deep customization. Underpinning this work is our experiment in AI-native production pipelines that leverage integrated toolchains to streamline workflow and significantly accelerate our innovation cycle. 2025 has been a year in which our long-term vision for AI has reached a critical point. We’re no longer just talking about the potential of AI. We’re seeing the results in the form of enhanced productivity, deeper player engagement, and expanded creative boundaries. We’re on the threshold of a paradigm shift, and we believe we are well positioned to serve as the epicenter of industry-defining innovations.

We have built a very solid technological foundation: the proprietary engine, the full-stack toolchains, which already internalize artificial intelligence capabilities, including AIGC capabilities, and we have seen early results from AI-powered gameplay. What we have achieved in the first 25 years of our game business was unimaginable when we started. We’re at the dawn of a new time in our industry where productivity can be much more enhanced and creativity can be much more amplified. As we look ahead, we believe AI will fundamentally empower our creators to transcend the traditional development limits and reshape how interactive entertainment is created and experienced in the years to come. We think this is going to be the best time of the industry. With that, I would like to walk through several recent operational highlights, starting with our global expansion achievement.

Where Winds Meet has gained strong global traction through a staged cross-platform launch, surpassing 80 million accumulated players and marking a meaningful milestone in our global expansion. Rooted in Eastern aesthetics and Wuxia storytelling, the game demonstrates how authentic cultural content can resonate with players worldwide. Following its global launch, it ranked number 2 on Steam’s global top-seller chart, won PlayStation’s November Players’ Choice Award, and topped iOS download charts across more than 60 regions. Ongoing live service updates resulted in sustained strong engagement globally and domestically, with the title delivering its highest monthly revenue and daily active users on record in China in December, reinforcing its long-term momentum. Meanwhile, Justice successfully expanded internationally in November, introducing its next-generation MMO experience to more audiences.

Topping download charts in multiple key Asian regions, this title is another example that illustrates how AI-integrated production pipelines now directly elevate gameplay in large-scale online worlds, delivering richer responsiveness, deeper interactivity, and more immersive player experiences globally. Domestically, player engagement remains strong, supported by innovative live events and culturally grounded content that continues to deepen community resonance. Marvel Rivals, our superhero team-based PvP shooter, continues to build strong global momentum. The title earned broad industry recognition, including being named one of TIME’s Best Video Games of 2025, winning the Grand Award at PlayStation Partner Awards 2025, and ranking in Steam’s Platinum Tier of Best of 2025. Continuous seasonal updates and new character releases have sustained strong player engagement, with Season 6 featuring Deadpool, propelling the game to number 2 globally and number 1 in multiple markets, including the United States and Canada.

Rapidly expanding international player community is further reinforcing the long-term durability of this growing franchise. Looking ahead, we continue to strengthen our pipeline to support the next wave of global growth. Sea of Dawn began technical testing across China and selected global markets earlier this month, featuring a distinctive art style and richly imagined open world. This ambitious original title aims to deliver a deeply immersive exploration experience with extensive player freedom, where every naval journey feels unique. Development is also progressing steadily on Neverness to Everness, our highly anticipated urban open world title. Building on available insights from previous testing, the team is diligently refining core systems and contents to meet high expectations from our global community. Shifting to our domestic portfolio, our long-standing franchises continue to demonstrate strong vitality supported by continuous content innovation and deeply engaged player communities.

These titles remain a testament of our ability to operate a large-scale live service ecosystem over decades. Now, in this 23rd year of operation, Fantasy Westward Journey Online delivered record high annual revenue in 2025, driven by historical peak revenue in the fourth quarter. Its ecosystem continues to evolve through innovative content design to meet diverse player needs, while preserving the classic mechanics cherished by long-term fans. The Unlimited Server, which has streamlined, accessible gameplay, has been particularly effective at reigniting player enthusiasm. Fantasy Westward Journey Mobile also maintains strong momentum, delivering record high annual revenue in 2025. Diversified server models and ongoing content initiatives reinforce its leadership position within the MMO category. Beyond these legacy franchises, several established titles continue to deliver stable engagement and underscore the breadth of our diversified portfolio. Identity V is strengthening its global esports ecosystem through major competitive events and ongoing content updates.

Eggy Party maintains strong player engagement supported by expanding gameplay modes and continued investment in its fast-growing UGC ecosystem. Infinite Borders continues to drive long-term retention through innovative gameplay updates and specialized server models that deepen strategic complexity. Naraka: Bladepoint is expanding its global community and esports presence, highlighted by successfully hosting the J Cup World Championship and active content roadmap updates designed to sustain long-term player engagement. Beyond the games we develop in-house, we also continue to expand our ecosystem through strategic partnerships. Blizzard titles have sustained engagement for the past year, achieving a record high revenue in China and reaffirming our long-term commitment to the market. The launch of World of Warcraft’s China-exclusive Titan Reforged server on November 14th sparked strong excitement among domestic players and interest from international influencers.

Warcraft II once again saw enthusiastic support from Chinese players and set a new record in daily active users in China. Through close collaboration with our partners and a shared commitment to putting players first, we remain focused on delivering high-quality experiences while strengthening our long-term global gaming ecosystem. We’re also committed to delivering exceptional user experiences across our other business lines. Youdao continues to advance its AI-native strategy in 2025, driving healthy business development and achieving its first-ever net cash inflow from operating activities. Its learning services segment delivered robust growth through ongoing iterations of its tutoring features, while online marketing services applied to improve advertisement effectiveness and streamline advertising production. Smart devices segment was supported by ongoing popularity of Youdao Smart Learning Pad products. NetEase Cloud Music continues to advance the high-quality development of its ecosystem.

The platform enriched its differentiated music catalog through both copyright collaborations and our in-house music production, while introducing new features and experience upgrades that enhance music discovery and listening. In 2025, the platform delivered steady year-over-year growth in both its active user base and overall engagement. Yanxuan continued to strengthen its positioning as a private label brand known for premium quality products across its key categories, supported by an expanded product lineup and enhancement to key hero products. In closing, the results and operational milestones we have discussed highlight a clear trajectory. NetEase is not merely adapting to the AI era. We’re advancing it through industrial application of technologies we have been building for years.

Our large-scale integration of AI is a natural extension of our long-standing strategy and leadership in technological innovation, by embedding AI into the core of our production pipelines and product design, from the living, breathing world of our games to intelligent productivity tools of Youdao and the personalized discovery algorithm of NetEase Cloud Music. We are exploring and shaping what’s possible to future user experiences across a range of scenarios. Looking ahead, we remain focused on advancing technology and creative innovation to drive sustained growth. We view AI not as a replacement but a powerful amplifier of human ingenuity, enabling us to deliver to our users worldwide what was previously out of reach. By staying at the epic center of this technical paradigm shift, we’re uniquely positioned to unlock unprecedented long-term value for our users, creators, and all of our stakeholders. That concludes William’s comment.

I will now provide a brief review of our 2025 annual result with a focus on the fourth quarter. Given the limited time on today’s call, I’ll be presenting some financial highlights in a streamlined manner. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in CNY unless otherwise stated. Our total net revenue for 2025 will be CNY 112.6 billion or $16.1 billion, representing a 10% increase year-over-year. For the fourth quarter, total revenues were CNY 27.5 billion or $3.9 billion. In 2025, net revenues from games and related beta-ass services reached CNY 92.1 billion, up 10% from 2024. In the fourth quarter, net revenues grew 3% year-over-year to CNY 22 billion. Specifically, net revenues from online games were CNY 89.6 billion for the full year, up 11% from 2024.

In the fourth quarter, online game net revenues increased 4% year-over-year to CNY 21.3 billion. The quarter-over-quarter decrease in online games net revenue reflected the fact that the prior quarter benefited from the seasonal trends of more events triggering the summer holidays. The year-over-year growth in the fourth quarter was attributable to higher net revenues from self-developed games, such as Fantasy Westward Journey Online and the newly launched games like Where Winds Meet and Marvel Rivals. Youdao’s net revenues in 2023 increased approximately 5% year-over-year to CNY 5.9 billion. In the fourth quarter, net revenues rose 17% year-over-year to CNY 1.6 billion and were broadly stable quarter-over-quarter. The year-over-year increase in the fourth quarter was due to increased net revenues from Youdao’s online marketing services and learning services.

NetEase Cloud Music net revenue decreased 2% year-over-year to CNY 7.8 billion for the full year. In the fourth quarter, net revenues were CNY 2 billion, representing a 5% year-over-year increase and remaining broadly stable quarter-over-quarter. The year-over-year growth in the fourth quarter was driven by continued healthy growth in membership subscriptions. Revenue from social entertainment services and others, however, remained lower compared with the same period of last year. Net revenues from innovative business and others totaled CNY 6.8 billion for the full year. In the fourth quarter, net revenues were CNY 2 billion, representing a 10% year-over-year decrease, while increasing 42% quarter-over-quarter. The year-over-year decrease reflected an increase in certain intersegment transaction eliminations. The quarter-over-quarter increase was led by increased net revenues from Yanxuan Advertising Services and several other businesses included within that segment.

For the year, our total gross profit margin was 64.3%. In the fourth quarter, our gross profit margin increased year-over-year to 64.2% from 60.8% in the year before. Looking ahead at the fourth quarter margins in more detail, gross profit margin was 70.5% for our games and related VAS, compared with 66.7% in the same period of last year. The improvement reflects changes in product mix, including a lower proportion of net revenues from licensed games, which generally have lower margins than our self-developed titles. Our gross profit margin for Youdao was 45.1%, compared with 47.8% in the same period of last year. The decrease was primarily driven by a higher net revenue contribution from online marketing services, which has lower gross profit margin.

Gross profit margin for NetEase Cloud Music was 34.7% in the fourth quarter versus 31.9% in the same period a year ago, primarily driven by steady growth in its core online music business. For our innovative business and others, gross profit margin was 39.6%, compared with 37.8% in the fourth quarter of 2024. The improvement was primarily driven by margin expansion in certain innovative businesses within the segment, along with the impact of certain intersegment elimination. Our total operating expenses for the fourth quarter were CNY 9.4 billion, with 34% of our net revenues. Taking a closer look at our cost composition, our selling and marketing expenses accounted for 14.1% of the total net revenue in the fourth quarter. For the full year 2025, the ratio was 13%, remaining broadly in line with prior year. Our R&D expenses remained stable at 16.1% of total net revenues in the fourth quarter.

For the full year 2025, the ratio was 15.7%, broadly in line with 2024, reflecting our continued and consistent investment into content creation and product development. The effective tax rate was 14.8% for the full year and 16.4% for the fourth quarter. As a reminder, the effective tax rate is presented on a quarterly basis, and the tax credit varies across each of our entities at different time periods, depending on applicable policies and our operations. Our non-GAAP net income attributable to shareholders for the fourth quarter totaled CNY 7.1 billion or $1 billion, down 27% year-over-year. Non-GAAP basic earnings per ADS for the quarter was $1.58 or $0.32 per share.

For the full year, non-GAAP net income attributable to shareholders was up 11% to CNY 37.3 billion or $5.3 billion, which is $8.38 per ADS or $1.68 per share. Additionally, our cash position remained strong. As of year-end, our net cash position was about CNY 163.5 billion, compared with CNY 131.5 billion at the end of 2024. In accordance with our dividend policy, we’re pleased to report that our board of directors has approved a dividend of $0.232 per share or $1.16 per ADS. Lastly, our current $5 billion share repurchase program, we had repurchased approximately 22.1 million ADS as of December 31st, 2025, for a total cost of approximately $2 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please.

Conference Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you’re on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jialong Shi with Nomura. Please go ahead.

Brandi Piacente, Investor Relations, NetEase: 谢谢管理层接受我的提问。然后我想了解一下，就是管理层在开场白中提到了AI这个话题。我想深入讨论AI对于网络游戏行业的影响。我们也注意到最近推出了Genie项目，然后有一些媒体也称为Genie是网络游戏行业的Dixit moment。有些人想Google Genie这样的AI工具可能会降低游戏开发的门槛，然后从而加速新游戏开发公司的进入。所以想了解一下管理层是如何看待AI对于游戏行业竞争格局的影响。然后随着AI的快速发展，我们也看到很多中国互联网公司都加大了对于AI大模型和AI算力的投资。想了解一下网易在AI领域的投资重点是什么，然后有什么样差异化优势，这个差异化优势主要是体现在哪些方面。我自己翻译一下。 I will translate my question. Thanks for taking my call. Management has touched upon this AI topic in your opening remark. I would like to explore a bit deeper into the impacts of AI on the online gaming industry. We noticed Google recently launched Genie, which some media claimed is the Dixit moment in our industry. Some people believe AI tools like Google are a barrier for game development and therefore accelerate the entry of new game developers. Management. The impact of AI on the competitive landscape for the online industry. My follow-up question is, we saw many Chinese internet companies have decided to ramp up investments in both AI foundation models and computing power. Just wonder where NetEase primarily focuses its AI investments. Thank you.

William Ding, Chief Executive Officer, NetEase: 那个我来吧。关于AI对行业竞争格局的潜在影响，我们认为市场很大程度上误解了Google Genie对游戏行业的影响。说到降低门槛，从手持摄像机到手机，拍视频的门槛一直在降低，但是好莱坞作品的门槛一直在提升。AI目前确实降低了游戏制作的准入门槛，但也同时极大地拔高了头部产品的成功门槛。AI工具的普及虽然会促进创意型内容的爆发，但对于商业化大作而言，核心地位已经从单纯的产能转化为整合能力。如何将AI技术与复杂的数字体系、长线的经济系统以及深度的社交生态完美融合，这需要非常深厚的游戏设计底蕴和运营经验，是对一个缺乏经验的新入者来说是很难逾越的护城河。在AI时代，游戏生产的成本会降低，但对顶层玩法的判断力、对用户需求的洞察，以及对游戏的审美品味，这些软实力的稀缺性反而是恶意凸显。另一方面，我们认为世界模型更大的意义在于催生区别与传统游戏的全新的娱乐类型，而且现在的世界模型离实际应用还有很远的路要走。当今的游戏是基于确定性的，构建在预定义的规则、脚本化的世界和逻辑上，而世界模型是概率性的，每一步都推断出来。优势是可以为创意发挥提供极高的自由度，劣势是具有高度的不确定性和控制难度，目前并不适合与传统游戏。况且目前延迟严重，成本高。当然，我们也能看到模型的高速迭代和进化，这只是一个开始。我们相对于优秀的团队来说，是一个难得的机会。网易会积极拥抱这些最前沿的技术，探索全新的交互体验。关于AI的投资，我们不盲目追求通用大模型，而是致力于打造最懂游戏的AI专家，实现全方位深度整合的高效AI应用。在垂直领域，高质量的私有数据比算力更重要，应用场景比参数规模更加关键。关于AI差异化的竞争优势：一、数据护城河与自研垂类模型。基于我们多年的游戏数据渲染出来的垂类模型，能比通用工具更精准地提高内部工业化生产效率。第二、聚焦用户体验和商业化转换。我们关注AI如何落地为玩家体验。目前在多款产品中，时装的AI原生玩法、智能NPC以及游戏辅助等工具均能非常有效地提高了用户流程，验证了我们将技术转化为商业价值的能力。复合型人才地位，网易拥有行业极其稀缺的复合型团队，既精通算法与图形引擎，更深谙游戏设计。这种跨界融合能力是确保AI技术真正落地并产生游戏乐趣的关键。我们相信AI技术的爆发将加速行业优胜劣汰的整合进程。网易将继续在垂类模型、AI原生玩法以及人才梯队上保持高强度的投入，利用AI技术进一步扩大我们在高品质研发和长线运营上的领先优势。谢谢。Okay. Okay, thank you, William. I will help on the translation. Yeah. So first, you asked about the Genie. Regarding the potential impact of AI on the competitive landscape to our industry, first of all, we believe the market has largely misinterpreted Genie’s impact on the gaming industry. Talking about lower barriers, we can look at what happened in our industry. For example, from the handheld cameras to smartphones, the barrier of video shooting has been continually lowered. However, the threshold for producing Hollywood-level movies has continued to rise. AI does lower the barriers on entry of game development. However, it has also significantly raised the success threshold for top-tier games. Surely, the widespread adoption of AI tools will help the explosion of creative content. However, the core barrier for commercial blockbuster hits has transited from pure production into integration capabilities.

Specifically, how to seamlessly integrate AI technology with complex numeric systems, long-term economies of the games, and engaging social ecosystems. This requires extensive design expertise and operational experiences, which create a deep moat that newcomers can hardly cross. In the era of AI, production costs are falling, but soft skills are becoming more scarce and more valuable than ever, including the sense of judgment on high-level gameplay designs, insights into players’ demands, and refined artistic taste. On the other hand, we believe that the greater value of the world model is to inspire brand new types of entertainment that differ from traditional games. Currently, world models are still far away from practical application. Today’s games are built on certainty, predefined rules, scripted events, and logics. However, world models are probabilistic, where every step is based on inference.

The advantage is that they provide an extremely high degree of freedom for creativity, while the disadvantage is their high uncertainty and difficulty to control, making them unsuitable for traditional games. Furthermore, they currently face issues like severe latencies and high costs. Of course, we see the rapid iteration and evolution of these models, and it is just the beginning. We believe that it will be a real opportunity for excellent teams. NetEase will also actively embrace these cutting-edge technologies to explore brand new interactive experiences. Regarding the focus on investment, we don’t blindly pursue general large language models. Instead, we aim at building AI expertise who understand the game best and achieve highly efficient AI applications through comprehensive and deep integration. In vertical areas, high-quality private data is more important than computing power, with application scenarios more important than parameter scales.

In terms of differentiated competitive advantages, data mode and proprietary vertical model are very important. Vertical models trained on our years of gaming data can improve our internal industrialization efficiency more accurately than general ones, and also focus on user experiences and commercialization. We focus on how AI translates into player experience. Currently, AI-native gameplay intelligence, such as intelligent NPCs and also UGC tools implemented in several titles, has effectively improved user retention, proving our capability to translate technology into commercial value. We also have a group of versatile talents who are highly scarce in our industry. They’re not only proficient in algorithms and graphic engines, but also they have a deep understanding of game design. This cross-discipline capability is the key to ensure AI technology truly lands and generates funds.

We believe that the explosion of AI technology will accelerate the industry’s integration process of the so-called survivor of the fittest process. We’ll continue to maintain high-intensity investments, vertical models on AI-native gameplay, and talent nurturing process, leveraging AI technology to further expand our advantages in high-quality game development and long-term operations. Thank you. Next question, please.

Conference Operator: Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap, Analyst, Citigroup: 谢谢。谢谢接受我的提问。我有个问题是关于这个烟云16生，这游戏其实最近在海外用户获得蛮好的反向。管理层能否分享一下海外用户的留存率的情况，这个游戏在海外取得较好的成绩的主要因素是什么？哪些独特的玩法或者是内容吸引了海外玩家？我自己翻译一下。 My question is related to Robin Smith. The games recently gained very positive feedback among the overseas users. Could management share the retention rate of these overseas users? Also, what are the key factors contributing to the game’s strong performance abroad? Furthermore, what unique gameplay mechanics or the content have particularly resonated with and attracted the international players? Thank you.

William Ding, Chief Executive Officer, NetEase: 烟云16生海外版是去年11月15号在海外上市。我们在国际各个市场都获得了超高的热度和好评。在持续运营过程中，多次登上全球各类搒单前列。烟云凭借其极具沉浸感的高质量武侠开放世界体验、单人和多人区分的低压自由的体验模式，以及免费游玩、高频更新、皮肤复玩的运营模式，收获了全球玩家的广泛好评。同时，产品跨平台的特性匹配了现代玩家多样化的游玩习惯，满足不同类型玩家的游玩需要。烟云以独具魅力的中式武侠题材，在叙事、战斗、探索等多个体验维度构建了一个生动自由的江湖世界。极具东方武侠特色的武学奇术和轻功系统与开放世界的结合，为玩家带来了全新的沉浸式体验。单人模式和多人模式的结合，使得喜欢沉浸剧情探索的独行侠和喜欢社交协作的玩家都能找到自己喜爱的内容。持续更新的地图区域、新副本、新竞技玩法，以及不断扩充的百页和休闲玩法，兼顾了单人、多人、战斗、休闲等不同玩家的需求。谢谢。 Thank you, William. I will do the translation. Where Winds Meet, the overseas version, launched on November 15th, and after its global launch, it quickly gained overwhelming popularity and positive review rates across multiple markets. With continuous operation, it topped various global charts multiple times, and it demonstrated outstanding performance in various operational metrics, including retention rate. Where Winds Meet has received widespread acclaim from global players for its immersive, high-quality Wuxia open-world experience, and with its low-pressure, high-freedom gameplay experience raised by separating single-player and multiplayer modes. Its operational focus of free-to-play, high-frequency updates, and custom-based monetization. At the same time, the cross-platform availability accommodates modern players’ diverse habits and meets the varied needs from different types of players. Where Winds Meet features Chinese Wuxia, building a vivid and high-freedom Jianghu from multiple experience dimensions, including narrative, combat, exploration.

The combination of Eastern Wu Xiao style martial arts, lightness skill system, and open-world experiences deliver a fresh, deeply immersive experience for players. The combination of single-player and multiplayer modes ensures that both those who enjoy immersed plot exploration and players who enjoy social cooperation can find content they love at the same time. The continuous update of new maps, new dungeons, and competitive gameplay, along with constantly expanding guilds and casual gameplay. It caters to a wide range of player preferences, including single-player, multiplayer, combat, and casual experiences. Thank you. Operator, next question, please.

Conference Operator: Your next question comes from Alex Lu with Bank of America. Please go ahead.

Various Analysts, Analysts, Morgan Stanley, Bank of America, CICC, Goldman Sachs: 好的，谢谢管理层给我这个提问的机会。我这边有一个问题是关于梦幻西游的畅玩服的。鉴于其实我们过去一段时间看到梦幻西游畅玩服的成功的程度，想请教一下管理层能否分享一下是不是这个模式会未来推广到更多的经典的老游戏上？如果是的话，我们应该怎么去想大概的上线的节奏？我也翻译一下自己这个问题。 Given the recent success of FWJPC Unlimited Server, can the management discuss whether this model will be replicated across other legacy titles? And if that’s the case, how should we think about the pace of rolling out of that gameplay? Thank you.

William Ding, Chief Executive Officer, NetEase: 梦幻西游PC畅玩服概括下来做了三件最重要的事情。第一个，还原梦幻西游最经典的玩法体验，同时提供差异化的，也同时提供差异化的玩法体验。重构经济系统，但是保留最重要的自由交易。针对畅玩服特色全面优化过程体验，经典体验使得玩家上手门槛更低，差异化体验可以让整个IP大盘得到拓展。这个设计思路可行性在畅玩服中被成功验证。第二，我们的产品团队始终与玩家社区保持密切互动，倾听用户的声音，相信后续会有更多的产品不断地推崇推陈出新。在还原经典的同时，为玩家不断提供丰富更流畅的新鲜体验。谢谢。 Thank you, William. I will do the translation. In quick summary, Fantasy Westward Journey Online, the Unlimited Server, has done three things. First is restore the most classic gameplay experience while providing a differentiated gameplay experience at the same time. The second is restructure the economy system while keeping the most important free trading. The third one is comprehensively optimize the gaming process, specifically for the Unlimited Servers. The classic experience lowers the entry barrier for players and differentiated experience that allow the overall player base to expand. The feasibility of this approach has been validated in this Unlimited Server. Our product team always maintains close interaction with the player community and listens to players’ voice. We believe we’ll continue to introduce updates across more titles, provide richer and smoother fresh experiences while restoring the classics. Thank you. Operator, next question, please.

Conference Operator: Your next question comes from Yang Lu with Morgan Stanley. Please go ahead.

Various Analysts, Analysts, Morgan Stanley, Bank of America, CICC, Goldman Sachs: 感谢提问的机会。我的问题是关于遗忘之海的。管理层能否更新一下现在这款游戏的开发进展和测试的反馈？在商业化模式和上线的节奏方面，是否有机会看到今年在暑假天推出？然后以及是否会有多平台和全球同步发行？这个是否已经有了现在的初步的规划？ Let me translate my question. My question is about the Sea of Dawn, this new game. Could management update us in terms of the current development status and the feedback in the recent testing? And what will be the commercialization method? And what is the expected timing to launch the game? Whether it’s possible to launch that in summer this year and whether it will be a cross-platform global launch? Thank you.

William Ding, Chief Executive Officer, NetEase: 目前遗忘之海的开发一切顺利，预期在今年Q3正式上线。2月5号我们开始了这个游戏本轮技术测试，我们很高兴看到玩家的积极参与。前期预热的二次曝光视频在B站播放也突破了1,000万。从初期反馈来看，我们乐于看到各方对产品品质和口碑的肯定，也在持续的观察和收集玩家的各类反馈。后续还会针对性的进行改进和优化，全面提升游戏体验。筹备今年的正式上线，谢谢。 Yeah, currently the development is fully on track, and our plan is to launch that officially in Q3. In the current round of technical tests started on February 5th, we are pleased to see active participation from players. Our second promotional video for warmup quickly amassed more than 10 million views on Bilibili. Based on the initial feedback, we’re glad to see positive feedback regarding product quality and reputations from various parties. We’re still observing and collecting player feedbacks, and we’ll carry out targeted improvements and optimizations to further enhance the gaming experience and prepare for the official launch later this year. Thank you. Operator, next question, please.

Conference Operator: Your next question comes from Ritchie Sun with HSBC. Please go ahead.

Ritchie Sun, Analyst, HSBC: 管理层晚上好，谢谢给我提问的机会。第一个问题我想问一下无限大的。刚刚1月份进行了一个封闭的测试，我想问一下测试反馈如何？然后距离正式上线大概还有多少个月的时间？然后会否计划在不同市场或者是不同的平台同步上线？第二个问题就是关于自走棋的。然后最近看到有两款的自走棋在测试，然后其中一款我们已经拿到版号了。在这个品类当中，其实我们已经看到一些头部的玩家在里面。然后网易在进入这个市场的战略考量是什么？我公司的厂商和经验比较丰富的竞争对手去实现一个差异化。 Back to management, taking first of all recording. Recently we noticed testing in January, so how is the testing feedback and how far away in terms of number of months before the launch? Do we have any plans to launch it in the different market as well as different time? Secondly, regarding our plans to launch auto chess titles, since there are two auto chess titles under testing, we are paying game license. Given that there has been some very top competitor in this genre, what is the rationale and strategic thinking behind entering this market? How does NetEase products differentiate against the experienced competitor? Thank you.

Bill Pang, Vice President of Corporate Development, NetEase: 我要回答一下关于无限大的问题。1月份我们进行了封闭测试，测试的数据和玩家的反馈都取得了符合预期的结果。产品的流程数据、玩家对于内容的反馈都证明当前产品的方向是足够创新的，有吸引力的。目前产品还在不断的打磨中，会争取在面向市场时有更高的完成度和更丰富的内容，并且按照预定的计划上线。产品上线的目标是全球同步发行，会在PC、手机、主机等全平台上线。

William Ding, Chief Executive Officer, NetEase: Yeah, the data and feedback from the close test in January both met our expectations. First of all, the retention rate and player feedback on the content have both proved that the current product direction is sufficiently innovative and attractive. Currently, our product is still undergoing continuous refinement, aiming to deliver a higher degree of completion and richer content when it meets the market and launches as scheduled. We’re targeting simultaneous global launch across all platforms, including PC, mobile, and console. Thank you. William will answer the auto chess question. 对自走棋它这个玩法机制是很成熟的。我们的观点是说在成熟的玩法机制上做一些题材化的差异，以及做一些玩法上的提升，具有较大的市场潜力。我们选择中式妖鬼文化，在同类的产品中是独树一帜的，背后有非常强的叙事张力和美学空间。我们致力于通过网易一贯的高标准审美和品味，重塑民族文化经典，打造一款真正属于中国人的神魔妖鬼共斗的精品自走棋游戏。谢谢。 Yeah, so yeah, the auto chess category is a mature category, and we are doing an elevation and differentiation within this proven category. We select the Chinese demon and ghost culture, making it unique in this genre. It inherently contains strong narrative tension and aesthetic potential.

We aim to build a high-quality auto chess game that belongs to the domestic players and also building on the traditional classic of our historically proven high-quality development capabilities. Thank you. Operator, next question.

Conference Operator: Your next question comes from Yang Liu with CICC. Please go ahead.

Various Analysts, Analysts, Morgan Stanley, Bank of America, CICC, Goldman Sachs: 感谢管理层。我是有一个出海的问题，就是公司近年来在游戏出海方面取得了非常显著的进展。前面有永劫无间、漫威争锋的成功，之后烟云石榴声也取得了更惊艳的成绩。想请教管理层，在海外的打法上，能否说网易已经摸索出了一条相对可复制的成功的路径？在游戏的品类的拓展上，公司是如何规划面向欧美等高潜力市场的这样的一个产品线？以及关于人员方面，公司全球化团队的架构和未来人才的战略大概是怎样的？ I will translate by myself. The company has made remarkable progress in game globalization in recent years, with early successes such as Naraka: Bladepoint and Marvel Rivals, followed by titles like Where Winds Meet. I would like to ask the management, in terms of overseas expansion strategies, can we say that the company has developed a replicable path to success? Regarding game genre expansion, how does the company plan its product pipeline for high-potential markets such as the US and Europe? About talent, what is the company’s global team structure and future talent strategy? Thank you.

William Ding, Chief Executive Officer, NetEase: 欧美游戏市场，我们从18年开始荒野行动在日本取得成功以后，这两年陆续有永劫无间、漫威争锋和烟雨江湖在海外取得成功。这条路走得是非常不容易的。在这条路的背后就是网易作为最有研发能力的一家游戏公司，我们开始摸到了海外市场成功游戏的核心要素。我们在未来相信还会有更多的游戏在欧美、日本找到成功之路。第二个关于人才方面，我相信中国是全世界拥有游戏开发人才最多的国家。我们非常有信心通过培养优秀的创意人员来做出可以走向世界的精品游戏。谢谢。 Yeah, sure. Our development market expansion started from 2018, starting from Knives Out success in Japan. And now, as you mentioned, we have Naraka: Bladepoint, we have Marvel Rivals, and Where Winds Meet all of them are very successful in Western markets. And we have to say this success is not easily got. We spent a lot of efforts to make that happen. That reflects NetEase as the company with the most R&D capabilities. We have started to grasp a sense of the core success element in overseas markets, in Japan, and Western markets. And we believe we’ll be able to produce more titles to be successful in this market in the future. And also, regarding the question on talent, we believe China possesses the world’s deepest talent pool in game development.

We are fully committed to cultivating top-tier creative minds to deliver premium games that resonate on a global scale. Thank you. Operator, next question, please.

Conference Operator: Your next question comes from Lincoln Kong with Goldman Sachs. Please go ahead.

Various Analysts, Analysts, Morgan Stanley, Bank of America, CICC, Goldman Sachs: 谢谢先生我的提问。那我是两个问题。第一个就关于漫威争锋，它其实上线也一年了，所以我们应该怎么去思考它未来的生命周期，如何保持后续的热度和产品创新。那第二个的话我想跟进一下就是AI这边的一个问题。其实我们现在也看到就是AI在游戏行业的应用可能更多还是集中在辅助的开发和NPC互动的层面。那随着后面能力提升，管理层应该怎么样去看待就是AI在这种玩法设计、内容生成和长期运营上的一些进步的空间？那有没有可能我们可以催生更多这种以AI驱动为核心的这种全新玩法的体验，成为下一个阶段的这种重要的增长引擎？那么在这种面对这种探索的时候，网易自己我们有没有在规划这种超越辅助工具，以这种核心玩法为产品方向，或者我们基于AI的一些更个性化的服务的一些变现的一些探索？不好意思比较长，那我就自己翻译一下。Thank you for taking my question. So the first question is about Marvel Rivals. So now that it has been live for a year, how is the team evaluating its future lifecycle? So what strategy are in place to sustain its momentum and continue product innovation here? My second question is a follow-up on AI. Basically, the AI application in the gaming industry is primarily focused on R&D assistance and NPC interaction at the moment. So as the capability continues to evolve, how does management view the potential for AI in gameplay design, content generation, and long-term live service? So do we see any opportunity for AI driven as a core gameplay to become the next major growth engine for the industry? So is planning any product where all those AI as a core driven gameplay is in place?

Additionally, how should we think about those personalized or service-oriented monetization model based on AI? Thank you.

Bill Pang, Vice President of Corporate Development, NetEase: 对，我先回答你一个问题。漫威争锋上线后一年到现在依然是稳定的。我们的团队持续推出了创新的玩法内容。近期S6新赛季推出的新英雄史诗首创三职业设定受到广大玩家的欢迎。我们认为优秀且具有创新体验的内容才能持续吸引玩家。所以在维持当前基础更新的情况下，我们会持续探索新的英雄玩法模式和社交互动的创新体验。这是关于漫威争锋的。第二个关于AI的问题，AI作为一个工具，今天已经全方位地渗透到了我们的生产服务等环节。它对我们的美术生产的辅助、编程的辅助以及客服的辅助、QA的辅助等这些是必不可少的，而且大大提高了我们的生产效率。第二个就是你提到的AI能不能带来一个新的游戏体验的屏幕或者玩法，我们相信一定是存在的。而且我们还相信这一方面网易会比任何一个游戏公司都走在前面，很远很远。所以我们已经有充分的储备对AI游戏的考量。谢谢。

William Ding, Chief Executive Officer, NetEase: Yeah, so first we answered the Marvel Rivals question. First of all, Marvel Rivals remained stable after one year of its launch, and our team continued to deliver innovative content and gameplay. Our recently launched season six with Deadpool, the first triple-role hero, has been widely welcomed by players. We believe that only excellent content with innovative experiences can sustain player engagement. Therefore, while maintaining our regular updates, we will continue to explore innovative experiences driven by new heroes, new gameplay modes, and social interactions. So that’s the question for Marvel Rivals. And regarding the question on AI, yes, AI has been comprehensively integrated into our production workflow, becoming an indispensable asset that significantly enhanced art, programming, and QA. Regarding AI’s potential to deliver transformative player experiences, we are certain of this impact. It will happen.

We believe NetEase is a pioneer in this field and is one of the companies that are most well-positioned to explore this opportunity, and we will aggressively explore this opportunity. We have built a robust pipeline of R&D reserves for this next generation of AI-driven gameplay. Thank you.

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

Brandi Piacente, Investor Relations, NetEase: Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a great day. For those listening from China, we wish you a happy New Year. Thank you, everyone. Goodbye.