Game education can not escape the regulatory "heavy hammer"! After handing over the third quarter answer sheet, It is still difficult for NetEase to sit back and relax? | Company Remittance

In the third quarter of this year, NetEase's game business revenue accounted for 71.6% of revenue, and gross profit accounted for nearly 90%, which can be seen that the company's overall performance is greatly affected by game revenue

Dong Lin, a researcher at Investment Times

On December 2, NetEase Cloud Music (9899.HK), a subsidiary of NetEase (hereinafter referred to as NetEase, NASDAQ: NTES, 09999.HK), was finally listed on the Hong Kong Stock Exchange. However, shortly after the opening of the listing, Cloud Music announced its break. On the first day of listing, the stock closed at HK$199.9 per share, down 2.49%.

For the break of cloud music, some market analysts believe that "its audio community imagination is not solid, and the prospect is not so good", and the break is not unexpected.

So, as the parent company of Cloud Music, what is the prospect of NetEase?

According to the financial report data, in the third quarter of this year, NetEase achieved net revenue of 22.2 billion yuan (RMB, the same below), an increase of 18.9% over the same period last year; net profit of 3.2 billion yuan, an increase of 6% year-on-year; based on non-US GAAP, net profit of 3.9 billion yuan, an increase of 5% year-on-year.

From the perspective of business structure, net revenue of NetEase online game services was 15.9 billion yuan, an increase of 14.7% year-on-year; NetEase Youdao's net revenue was 1.4 billion yuan, an increase of 54.8% year-on-year; and net revenue of innovation and other businesses was 4.9 billion yuan, an increase of 25.7% year-on-year.

"Investment Times" researchers noted that in the third quarter of this year, NetEase game business revenue accounted for 71.6% of revenue, gross profit accounted for nearly 90%, the company's overall performance was greatly affected by game revenue. At the same time, affected by the "double reduction" policy, NetEase Youdao (hereinafter referred to as Youdao, NYSE: DAO), which is independently listed on the U.S. stock market, announced that it will officially terminate the subject training business in the compulsory education stage at the end of this year, and its "All In K12" business pattern will face major adjustments. In addition, with the release of financial reports in the third quarter, Tencent, Station B and other companies have also released plans for the "meta-universe". In the face of the entry of industry competitors, how will NetEase complete the "rush run" in the future construction of the meta-universe?

In response to the above questions, the researchers of the Investment Times email communication outline asked the relevant departments of the company, and as of press time, they have not received a reply from the company.

Gaming revenue drove overall performance growth

"The main thrust of NetEase's performance growth in the quarter was the strong performance of the game business." In response to the performance of the three quarterly reports, NetEase CEO Ding Lei said.

In the third quarter, NetEase's game business achieved a net income of 15.9 billion yuan, an increase of 14.7% year-on-year, compared with the year-on-year growth rate of 5% in the previous quarter, the growth rate of the business returned to double-digit growth in the quarter, and the gross profit margin also increased by 0.9 percentage points year-on-year to 64.5%. As of the end of September 2021, the company's game business revenue was 45.4 billion yuan, an increase of 10.1% year-on-year; gross profit margin was 65.1%, an increase of 1.3 percentage points over the same period of the previous year.

"Investment Times" researchers found that the launch of NetEase's two new works "Forever" and "Harry Potter: Magical Awakening" contributed prominently to the game revenue in the third quarter. Among them, the terminal game "Forever Doom" was launched for four months, and the sales of more than 6 million sets broke the sales record of domestic buyout games; the mobile game "Harry Potter: Magic Awakening" launched in September ranked first in the Chinese IOS best-seller list for many consecutive days. According to gamma data, the first month of Harry Potter: Magical Awakening has a turnover of more than 1 billion yuan, helping NetEase create a new monthly flow in 16 months.

Although the performance of NetEase Games in the third quarter exceeded market expectations, it is still unknown whether the double-digit growth rate can be extended to the fourth quarter, drawing a complete end to the entire year.

Sensor Tower data shows that in the world's popular mobile game revenue ranking in October, Tencent's "Glory of the King" and "PUBGMobile" revenue is still in the top two, and "League of Legends Mobile Game" has also squeezed into the top five, but "Harry Potter: Magical Awakening" revenue has fallen to the ninth.

In addition, as of now, the announcement time of the latest batch of domestic online game version number approval lists of the State Press and Publication Administration is still fixed on July 22, and the domestic online game version number has not been issued for many months. The Notice of the State Press and Publication Administration on Further Strict Management and Effectively Preventing Minors from Addicting to Online Games was officially implemented in September, and the supervision of minors' games has become stricter. Although the third quarter results do not clearly reflect the degree of regulatory impact, it may put some pressure on the next game business revenue.

Youdao's business layout is facing adjustments

In terms of education, in the third quarter, NetEase Youdao's revenue increased by 54.8% year-on-year to 1.4 billion yuan; net loss was 129 million yuan, narrowing 85.3% from the same period last year. Among them, Youdao's revenue from learning services increased by 65.9% year-on-year to 996 million yuan; learning product revenue increased by 56% year-on-year to 255 million yuan; and online marketing service revenue increased by 3.4% year-on-year to 137 million yuan.

Boosted by performance growth, Youdao's stock price rose more than 17% after the earnings report. However, the outside world is more concerned about whether youdao's income will shrink significantly next year after the "double reduction" measures are implemented.

"Investment Times" researchers noted that in the third quarter of 2021, the sales of Youdao's learning services business based on online courses fell by 33.9% year-on-year to 632 million yuan. Among them, the sales and number of paid persons in the discipline training business in the compulsory education stage fell by nearly 70% year-on-year. In addition, the number of paid students enrolled in Youdao Boutique Course was 368,700, down 40.9% from the same period last year.

In 2018, Youdao proposed the "All In K12" strategy, focusing on K12 online education. In the second quarter of this year, the K12 business accounted for 41% of Youdao's total revenue; more than 160,000 people paid, almost double the number of adult paying students. The implementation of the "double reduction" policy is undoubtedly a major blow to youdao K12 business, with sales of Youdao K12 business reaching 570 million yuan in the same period, a sharp drop of 35% year-on-year; the number of paid student registrations was 370,000, a year-on-year decrease of 41%.

It is foreseeable that Youdao's revenue data in the next few quarters may be negatively affected, and the "All In K12" business structure will also face major adjustments. At present, youdao's official website has removed K9 subject courses. Youdao said that in the future, it will tilt towards non-training courses such as learning products, STEAM courses, adult education and education digital solutions.

But the transformation is difficult, at present, other players in the online education industry are all changing the focus of development, the adult education track has been "overcrowded", and there is a way to do more. According to the enterprise investigation, on November 22, Youdao newly established a tourism service company, Youdao Research (Hangzhou) Tourism Service Co., Ltd., with a registered capital of 5 million yuan, and the legal representative, executive director and general manager is Zhou Feng, CEO of NetEase Youdao. This may mean that Youdao will develop tourism service consulting related business.

Want to be a "meta-universe" runner

Entering the second half of the year, the "meta-universe" has become a hot issue discussed in almost all technology companies' earnings meetings. In the third quarter earnings conference call, for the topic of "meta-universe", Ding Lei responded: "At all levels of technology and rules, NetEase is ready, so don't worry about the day when the meta-universe world comes, we are not prepared, maybe a gun, we run faster than anyone." ”

"Investment Times" researchers noted that recently, NetEase has been constantly moving on the "meta-universe" plan.

According to the Tianyancha App, on November 18, NetEase Cloud Music applied for the registration of the "Music Meta universe" trademark, which is internationally classified as education and entertainment, and the current trademark status is in the application. Previously, NetEase has applied for the registration of trademarks such as "Fuxi Yuan Universe", "Thunder Fire Yuan Universe" and "Yaotai Yuan Universe", and the current trademark status is awaiting substantive examination. At the same time, NetEase also opened the recruitment of virtual scene construction engineers, virtual characters of the face of the face of the face and other positions.

In terms of investment, there are 5 investments in virtual people related to NetEase this year. These include "Virtual Person" ecological company Nishi Culture, avatar technology company Genies, virtual social platform Imvu, American live broadcasting company Maestro, which creates virtual interactive concerts, and Beijing Red Cotton Xiaoice Technology Co., Ltd., the parent company of "Microsoft Xiaoice". At the same time, in vr, another important technology field in the metaverse, NetEase also laid out its layout early, and has invested in a number of companies related to VR technology, such as VR streaming live broadcasting company NextVR, VR equipment manufacturer AxonVR and so on.

What is certain is that the giants have entered the game.

The day after the NetEase financial report, Bilibili CEO Chen Rui said on the third quarter earnings conference call that "Station B is one of the most suitable companies in China to realize the concept of meta-universe"; Tencent Holdings also said at its third-quarter results meeting that "Tencent has a lot of technology and capabilities to explore and develop meta-universes"; Cai Haoyu, president of Mihayou, bluntly said that it wants to create a "virtual world where one billion people live"; Perfect World announced the promotion of meta-universe-related layout and exploration; ByteDance is also high-profile to achieve its strategic layout in the meta-universe field It not only acquired the VR all-in-one Pico at a premium in the form of a combination of cash plus byte shares, but also invested nearly 100 million yuan to invest in the platform code of the game UGC.

However, from a practical point of view, at this stage, the conditions for the construction of a mature meta-universe in China are not yet available, and the big factories are only taking precautions. There is still a long way to go before the meta-universe products can truly achieve commercialization, and how NetEase will complete the rush of the meta-universe in the future still needs the rational attention of the market.