Image source @ Visual China
Text | Photon Planet, author | Wu Xianzhi, Editor | Wang Pan
The Internet has entered a cold winter moment, and Internet giants need to learn to survive against the trend.
On February 24, Beijing time, NetEase released the financial data for the fourth quarter and the whole year of last year. According to the data, in the fourth quarter of 2021, NetEase achieved revenue of 24.4 billion yuan, an increase of 23.3% year-on-year, and under non-GAAP, achieved a net profit of 6.6 billion yuan, an increase of 29.8% year-on-year.
Considering that the game industry is facing a new form of regulation and online education is turned off, NetEase has handed over a fairly stable financial report. Even so, we cannot ignore the lagging nature of earnings reports.
At present, the game industry is subject to many restrictions, and in the absence of a new version number, several games of NetEase are entering a half-life. Online education has to face transformation pressure because of the impact of "double reduction". In terms of innovative business, the small and refined NetEase is strictly selected in the white-hot competition and seeks perfection. NetEase Cloud Music landed in Hong Kong stocks, and its long-term losses are difficult to alleviate in the short term.
At present, NetEase urgently needs to find new sources of profit to cope with the "cold winter".
Mobile game speed down, end game surprise
The main reason for NetEase's continued growth in the quarter is two points, the growth of terminal games and the reduction of mobile games.
According to the financial report, in the fourth quarter of 2021, online game revenue was 17.4 billion yuan, an increase of 29.8% year-on-year, and after Q3, the quarter continued to maintain a quarter-on-quarter growth of more than 9%. In the case of a delay in the absence of a new batch number, it is not a bad thing for NetEase, which is better at fine operation.
The success of "Forever Doom" can be expected. Since the advent of the Meteor Butterfly Sword, there has been a lack of "national style" and multi-person online action terminal games on the market. Positioned in the "survival competition", relying on the new three pieces of e-sports + IP + national weathering, it provides a guarantee for the continuous operation of this terminal game.
For example, with Wen Chenhua of the Lianjiao Hall (Tang and Song Dynasty armor restorer, designer of the armor of the Twelve Hours of Chang'an), zhang Yichao's costume was designed, which is likely to be a paving for the introduction of more paid skins later. "Look, how conscientious our skin is" However, some users said that although NetEase has done a lot of preparation for the horse head knife, the actual combo effect is similar to the meteor butterfly sword height.
"We all blame the Meteor Butterfly Sword for developing all the moves, so that NetEase can only spend its energy on modeling." It is no wonder that by selling clients alone, you can earn hundreds of millions of dollars in revenue.
However, NetEase seems to have been at the end of the crossbow in terms of terminal games, the "World of Warcraft" story line can no longer attract players, and "Fantasy Journey to the West" and "Journey to the West" can only rely on panning to the mobile end to survive after 2015, and these old games that have been time and money are difficult to return to their former glory.
Duanyou was slightly boosted by "Forever Doom", and the growth performance of NetEase mobile games was flat. Although the earnings report claimed that the fourth quarter was "Harry Potter: Magic Awakening", wonderful content updates made the game top of the Chinese iOS download list and best-seller list many times", this statement only said that the domestic iOS user retention was stable, and there was no mention of growth.
Neither involving overseas markets nor offering a larger Android user, a game is somewhat "embarrassing" by updating the "many times to the top of the list" rhetoric.
In fact, the growth rate of the mobile game business last year was indeed not satisfactory. As of the end of the fourth quarter, the share of net mobile game revenue in online game revenue continued to decline to 68.3%, the lowest in recent quarters. It was 72.4 percent in the year-ago quarter, compared to 69.2 percent in the previous quarter. Therefore, the driving force for the rapid growth rate of online game revenue mainly comes from the PC side.
According to the calculation of photon planet according to the financial report data, in the past three quarters, netease mobile game revenue was 10.5 billion, 11 billion and 11.8 billion yuan, while the terminal game revenue was 4 billion, 4.9 billion and 5.6 billion yuan, respectively, and the growth rate of terminal games was significantly higher than that of mobile games.
Unfortunately, the end game market is obviously inferior to mobile games, and NetEase mobile games are well-made and can never get rid of the impression of "both liver and krypton".
In terms of net profit, due to the adoption of targeted buying and advertising strategies, cost control has achieved remarkable results. The gross profit margin of the Q4 online game business was 64.1%, and the gross profit margin for the whole year remained above 64%, which was higher than last year overall.
According to Heat Cloud data, the new game launch in the mobile game purchase market in 2021 fell by 3.57%, and the launch time dropped to 60% compared with the previous year's 70%.
In 2020, NetEase was once a big financier of the game purchase market, and due to changes in the environment last year, certain adjustments were made, which was the main reason for the year-on-year recovery of NetEase game gross profit margin.
Who will take the baton from the game?
After the game was restricted, the online education sector represented by NetEase Youdao had to seek transformation because of the "double reduction", and it was not easy to record growth by looking at financial data alone.
According to the financial report, the revenue for the whole year of 2021 was 5.35 billion yuan, an increase of 69% year-on-year. However, after the double reduction landed at the beginning of last year, the growth rate of business revenue fell off a cliff. By the fourth quarter, Youdao's revenue was 1.33 billion yuan, an increase of 20.5% year-on-year, down 7.1% month-on-month, and the scale of revenue returned to the Q2 level.
Although the "double reduction" has unloaded the growth engine of Youdao, it has been able to survive because its own business model is more abundant than ape coaching, good future, and new oriental. NetEase Youdao did not directly cut into the education hardware, but chose to maintain an asset-light model and cooperate with hardware manufacturers to develop.
At the end of July last year, Youdao and Huawei jointly released a smart dictionary pen, one view is that entering Huawei's IoT ecosystem and sharing Huawei's sales system will evoke a new life in Youdao.
The situation may not be as optimistic as expected. Also as a search tool involved in the hardware track, there is a certain degree of comparison between Youdao and Sogou. At that time, Sogou did browsers, search engines, and voice recorders without stirring up splashes, and it is difficult to believe that Huawei's smart dictionary pen can still surpass Sogou, which "recognizes the goose as the father". Moreover, in terms of business scale and technical capabilities, the two are not an order of magnitude.
The road of online education is blocked, and the strength and imagination of the IoT itself are limited in terms of asset-light model, so we can only focus on the innovative business sector - this mainly includes NetEase Yanxuan in the e-commerce sector and NetEase Cloud Music in online music.
The Innovation Business Segment achieved revenue of RMB19.45 billion in 2021, an increase of 22.4% year-on-year. Fourth-quarter revenue was $5.64 billion, up 8.5% year-over-year. It should be pointed out that since Q4 2020, the growth rate of this business segment has declined for 5 consecutive quarters. To be precise, both cloud music and yanxuan may be about to enter a low-growth cycle.
This is not good news for NetEase, because the two major businesses have always been the most expensive sectors for internal spending. Although NetEase did not disclose the specific data of the innovative business in the financial report, from the netease cloud music financial report, yanxuan even if there is a small profit, it cannot cover the loss scale of cloud music.
Once the NetEase e-commerce sector also had NetEase Koala and NetEase Yanxuan, "Hum Ha Second General" was once second only to the game business in terms of revenue volume, especially Koala once ranked first in the industry in terms of market share.
Later, unable to afford competitive consumption and heavy asset model (the bonded warehouse size was once the largest in the industry), it was sold to Ali for $2 billion when the industry was in the midst of fierce competition. This transaction has helped NetEase withdraw a lot of money and have more energy and capital to invest in online education, which now seems to be a good deal.
At least from the perspective of business, today's NetEase e-commerce sector only leaves the small-scale NetEase Yanxuan - people call it "boutique e-commerce", which is actually more like "mini e-commerce". Ding Lei's positioning of strict selection of high-quality products is actually contrary to the core of e-commerce scale.
E-commerce that connects supply and demand, as we all know, under reasonable circumstances, the two are positively correlated, but the quality of the two hinders the possibility of scale at both ends. In the stage of C2M and diversified e-commerce models, it is difficult to take the path of boutique selection stores to take over the game business.
end
When the Internet entered the cold winter, Tencent, Ali, Meituan and other giants were facing a decline in revenue and profit growth, and NetEase handed over a financial report that looked very good, which was quite difficult.
Ding Lei's relatively conservative and refined concept ensures that NetEase is likely to become a giant that will finally enter the cold winter. There is no efficiency and speed of the sinking account, there is no borderless expansion caused by the sunk cost, even if the sky falls, NetEase does not have a business is the first in the industry, so it will not be hit the most poisonously.
The reality is that in the game sector, the growth rate of mobile games that account for the majority of the game has declined, and the large sales of the terminal game "Forever Doom" have ensured the stability of the market. Next, if the relevant departments do not issue a new version number, it will test the operation and potential mining ability of NetEase Games.
Due to the general environment, the game may show low growth for a long time, at the same time, we have not seen a new growth unit within NetEase stand up, take over the game, and provide a new growth engine for it.
In addition to Youdao's disposal of online education assets, switching to the education hardware track in an asset-light manner can only be seen as another way out and cannot afford the development of the entire group.
In the innovative business sector, after NetEase Cloud Music went public in Hong Kong, it has brought external living water to the business, and it can also be seen that the gross profit margin is steadily rising.
From a gross margin of -7.1% in the fourth quarter of last year to a reversal of 4.1% in Q4 this year, perhaps a little more optimism can be achieved. However, in the case of the sluggish growth of the overall online music payment rate in China, cloud music is still a long way from self-financing. And in the anti-monopoly environment, even if NetEase wants to sell, TME does not dare to reach out and pick it up.
NetEase strict selection of revenue volume is acceptable, helpless to have more than enough and insufficient strength, take the road of boutique e-commerce, it is difficult to use good or bad characterization, the current task may still be to control cash flow, first to ensure that survival is the right way. After all, under the banner of serving the new middle class, when the social income structure becomes diamond-shaped, it may really be able to carry the banner of NetEase.
Through the above analysis, we believe that NetEase's new quarterly financial report proves that in the past ten years, the management is cautious and cautious, and does not blindly pursue speed and efficiency. However, with the transformation of the general environment and the winter of the industry, it is difficult for NetEase to find Plan B in addition to games.
No one knows how long the winter is. Fortunately, seeing that the financial report said 14.5 billion yuan in cash and cash equivalents, it should not be a big problem to spend the winter.