Why NetEase Deserves Your Attention: A Quality Business With High Margins and Resilience
When it comes to gaming in China, Tencent is the category leader and the name that most will recall. NetEase, the second-largest player in China, is often overshadowed by Tencent’s success. However, beneath this overshadowing lies a solid and highly profitable company that investors should not overlook.
On the global stage, NetEase is the fourth-largest gaming publisher in the world by revenue, according to Statista. The company currently offers over 140 live games in China and overseas.
Gaming represents nearly 80% of NetEase’s total revenue, with the remaining revenue coming from its other three segments.
Mobile gaming constitutes a significant portion of NetEase’s revenue, accounting for about 75% of its total earnings in 2023, up from 67% the previous year. This growth is attributed to the success of games like Justice and Eggy Party, the latter of which has amassed over 500 million players in less than two years.
NetEase's prominent games, such as Knives Out and Identity V, may be less well-known compared to their competitors, but this doesn't imply that NetEase is less competitive. On the contrary, this competition drives NetEase to innovate continuously. The company's commitment to building a formidable portfolio of games has yielded impressive results and is ongoing.
This effort is evident in the reestablishment of its partnership with Microsoft’s Activision Blizzard, which will reintroduce many popular overseas games to China. While reactions have been mixed, there remains a level of enthusiasm and excitement among Chinese gamers, offering exposure to Western-style games.
Moreover, NetEase is incorporating aspects of Chinese culture into its games to differentiate itself from foreign competitors. At the 2023 Cologne Gamescom, NetEase released two games as part of its overseas strategy: Naraka: Bladepoint and Where Winds Meet, both new martial arts-themed works. Since its global release in August 2021, Naraka: Bladepoint has surpassed 20 million users, setting a new sales record for Chinese freemium games. Where Winds Meet, having undergone its first test in China in June, is expected to be released soon.
NetEase also plans to launch Marvel Rivals in partnership with Marvel Games, a new multiplayer title poised for global success due to Marvel's international appeal. Additionally, NetEase has announced the establishment of Worlds Untold, a new fully remote game studio based in Vancouver, Canada, led by Mac Walters, project director and lead writer of the Mass Effect series. This initiative will help NetEase create high-quality games with a Western perspective to attract a broader player base.
NetEase Cloud Music
Keep reading with a 7-day free trial
Subscribe to Growth Dragons to keep reading this post and get 7 days of free access to the full post archives.