NetEase's classic IPs drive revenue, while new games remain to be verified.

On February 20, NetEase announced its unaudited financial results for the fourth quarter of 2024 and the full year.

In the fourth quarter of 2024, NetEase's net revenue was 26.7 billion yuan, a year-on-year decrease of 1.4%, and the net revenue from games and related value-added services was 21.2 billion yuan, a year-on-year increase of 1.5%.

For the full year of 2024, NetEase's net revenue was 105.3 billion yuan, and the net revenue from games and related value-added services was 83.6 billion yuan, with year-on-year growth rates of 1.7% and 2.5%, respectively.

This is the lowest point in the growth rate of NetEase's total revenue and game revenue in the past five years. From 2019 to 2023, the annual growth rate of NetEase's game business revenue was mostly above 10%.

The reason for this situation is related to the current stock status of the domestic game industry, and also because NetEase has not been able to produce a game with a large DAU (daily active users) like "Eggy Party" at the end of 2023.

In fact, in the domestic game market, which has already been in a state of stock competition, it is increasingly difficult to produce new hit game products that can change the track pattern. Therefore, as a leading game manufacturer in China, NetEase's dynamics in going overseas have received particular attention.

The Difficulty of Replicating the Brilliance of "Eggy Party"

In 2023, NetEase attracted much attention by relying on the party game "Eggy Party" to break through in the large DAU games monopolized by Tencent Games. In 2024, in addition to reaching a new cooperation with Blizzard, what attracted much attention to NetEase was the frequent organizational structure adjustments and the internal corruption scandal.

In the fourth quarter of 2023, "Eggy Party" and Tencent's "Meta Dream Star" engaged in a fierce marketing battle, so that its sales and marketing expenses in the fourth quarter of 2023 reached 4.226 billion yuan, far exceeding the previous three quarters. During the Spring Festival in 2024, the marketing battle between the two continued, making it possible to see advertisements for NetEase's "Eggy Party" in Moments.

However, this game, which was repeatedly emphasized in NetEase's financial reports in 2023, is becoming increasingly less prominent in the 2024 financial reports. At the performance meeting in the second quarter of last year, NetEase's management stated that "Eggy Party" is the game with the largest number of users in NetEase, but the user and income ratio is relatively low.

This is related to the fact that "Eggy Party" has attracted too many underage players. In addition to the public opinion crisis, the paying ability of its users is also very limited. It is also related to the stock status of the domestic game industry. In the past two years, the market size of domestic games has only grown by a single-digit percentage, and this is after adding the tens of billions of income contributed by the emerging trend of mini-games. To some extent, this shows that the party game, a new market that has been verified to have the potential of a large DAU, is not as big as imagined.

According to the calculation of Diandian Data, the domestic water flow of "Eggy Party" on the IOS platform in November 2024 shrank significantly to 4.69 million, while in the same period of the previous year, it was 132 million yuan, with a year-on-year decline of more than 90%.

When the presence of "Eggy Party" gradually fades away, the new stories that NetEase hopes to tell well are new games and the newly reached cooperation with Blizzard.

In the past year, among the new games that NetEase focused on in the domestic market, many products performed poorly.

Among them, "Firefly Assault", which was highly expected and focuses on the survival and gold-grabbing gameplay, topped the IOS free list at the beginning of its launch in June last year, but even dropped out of the top 200 best-selling list half a year later; the IP masterpiece "The Eagle Shooting Heroes", which claims to have taken 6 years and invested nearly 1 billion, lost a large number of users due to optimization problems after the public beta, and the IOS best-selling list ranking dropped out of the list quickly from the 15th place.

What makes NetEase Games fall into a public opinion crisis even more is that its 5V5 hero shooting mobile game "Apocalypse Operation" was shut down just 45 days after its launch, becoming the shortest-lived game under NetEase.

In contrast, some of NetEase Games' older games, such as the "Fantasy Westward Journey" series, "Identity V", and the "Justice Online" PC and mobile games, have performed quite well. For example, the collaboration between "Identity V" and "Detective Conan" and "Persona 5" has pushed its annual revenue to a new high, and the IOS best-selling list has reached the top 2 at its highest.

After officially announcing the re-partnership with Blizzard in the first half of last year, the return of classic PC games such as "World of Warcraft" and "Hearthstone" has driven NetEase Games' PC game revenue to increase by 57% year-on-year in the fourth quarter.

However, the lack of hit games and the poor performance of new games inevitably make NetEase Games fall into the discussion of poor innovation ability.

Multi-platform Development and Going Overseas

In the Q4 financial report released by NetEase, there are two sets of data worthy of attention.

One is that the proportion of NetEase's game business income in the total income has further increased, reaching 79.4%.

The other is that among the 21.2 billion yuan of NetEase's game income, the net income from mobile games accounts for approximately 65.3% of the net income from online games. In the previous quarter and the same period last year, the proportions were 70.8% and 76.7%, respectively.

This means that NetEase's income structure is more single, and games have become more important. It also means that compared to mobile games, PC games are playing an increasingly important role.

This is related to its re-cooperation with Blizzard and its distribution strategy. Just as stated in NetEase's financial report, the change in the income composition is mainly due to the increase in the net income of PC games including certain agency games.

Among the new games released by NetEase last year, "Yan Yun Shi Liu Sheng" is one of the top performers and was specifically mentioned and praised in the financial report - after its PC version was launched in China, the download volume exceeded 3 million within four days, and after its mobile version was launched, it consecutively ranked first on the iOS download list for about two weeks.

Multi-platform development is already a necessary means in the current stock competition in the game industry, and PC games, due to their stronger user stickiness and paying ability, have also become an option in the current environment where game quality is constantly improving and competition is becoming more intense.

A practitioner with experience in many major game companies told 36Kr that "Yan Yun Shi Liu Sheng" launched by NetEase in the fourth quarter has some differentiated settings compared to the "Justice Online" mobile game of the previous year: including a greater focus on single-player gameplay and open-world exploration. The practitioner said, "Some manufacturers with relatively high game quality and confidence in their own technology will be more inclined to convert users to the PC side, just like 'Mingchao' and 'Zerquero'."

In addition to multi-platform development, going overseas is also a necessary option in the current competitive environment. At NetEase's Q4 performance meeting, the question that investors asked the most was also about the overseas situation of NetEase Games.

NetEase, which opened up the situation in Japan with "Knives Out", has not had a smooth overseas expansion process in the European and American markets.

Not long ago, the Jar of Sparks studio, which NetEase established in the United States three years ago, reported the news of suspending the development of new game projects and laying off employees. Last year, NetEase's two game studios in Canada, Skybox Labs and Worlds Untold, also announced layoffs and suspension of operations.

At the end of 2024, NetEase made a major adjustment to its organizational structure, making the Eggy Studio (also the development team of "Eggy Party") and the Wilderness Studio (the development team of "Knives Out"), which were originally under the Tianxia Division and responsible for going overseas, independent as divisions and reporting directly to the group, aiming to enhance the flexibility and resource investment of overseas businesses.

In fact, most of the games released by NetEase sooner or later will put globalization on the agenda, but its overseas expansion process is still lagging behind that of competitors such as Tencent and miHoYo. In addition, the proportion of NetEase Games' overseas income, according to the currently disclosed data, is still far lower than the 40%-50% target proposed by Ding Lei.

At the end of 2024, its IP masterpiece "Marvel Contest of Champions" topped the Steam global best-selling list shortly after its launch on December 6 and attracted over 10 million registered users within 72 hours. Currently, the number of registered users has exceeded 40 million.

Whether this rare piece of good news can support NetEase's ambition to go overseas remains to be verified by time. Before that, the NetEase management stated at the performance meeting that this will be a "evergreen tree" that NetEase will focus on investing in and operating for more than ten years.

And the previous game that was given the same high expectations was "Eggy Party".