Image source @ Visual China
Text | New Media Technology Review
As one of the few remaining first-line Internet tycoons, Ding Lei seems to have the intention of "retiring".
According to the enterprise investigation, on April 25, 2022, Beijing NetEase Media Co., Ltd. underwent industrial and commercial changes, Ding Lei stepped down as legal representative, general manager and director, and Li Li, CEO of NetEase Media, took over the relevant positions.
Unlike the decline in stock prices caused by the change in the leadership of China Merchants Bank, Ding Lei's change of position has allowed NetEase to attract more investors in the capital market. On April 26, NetEase's stock price (Hong Kong stock, the same below) turned its downward trend for more than a few days, rising 6.67%.
Although 2021 handed over a good "answer sheet", in the past six months, NetEase's stock price has not gotten rid of the main theme of "falling and falling". As of the close of trading on April 27, 2022, NetEase's stock price was only HK$139.7 per share, down 23.83% from the high point of HK$183.41 per share on November 2021.
In this context, the change in NetEase's leadership has led to an increase in stock prices, which may indicate an expectation of investors for a huge change in the direction of the company's development.
01 is an Internet company, but also a game company
According to the financial report, in 2021, NetEase's revenue was 87.61 billion yuan, an increase of 18.9% year-on-year; the net profit attributable to the company's shareholders was 16.857 billion yuan, an increase of 39.74% year-on-year. This achievement is indeed outstanding among many Internet companies.
However, if you look closer, you can find that NetEase's business is "lame" seriously. According to the financial report, in 2021, NetEase's game business revenue was 62.81 billion yuan, an increase of 15% year-on-year, accounting for 70.4% of the total revenue. From this point of view, NetEase is not so much an Internet company as it is a game company.
According to the "2021 National Tour Sales Annual List" released by Steam, NetEase's "Forever Doomed" launched in August 2021 has sold 7 million sales, with sales of 1.4 billion yuan, ranking first in the buyout sales list of national travel. Sensor Tower data also shows that in Q4 2021, Harry Potter's revenue will be about 2.1 billion. "Forever Doom" and "Harry Potter" can be called NetEase's "cash cow" in 2021.
Although there are many popular games, the heavy dependence on the game business also tests NetEase's ability to withstand pressure. Especially in the context of the contraction of market dividends, game supervision has become more and more stringent, which has put forward new challenges to the growth of NetEase games.
According to the "2021 China Game Industry Report" released by the Game Working Committee of the China Music and Digital Association, the actual sales revenue of China's game market in 2021 was 296.513 billion yuan, an increase of only 6.40% year-on-year. At the same time, the number of game users in China reached 666 million, an increase of only 0.22% year-on-year. This shows that China's game industry has entered an era of stock growth.
Although on April 11, 2022, the relevant departments reissued a new game version number, but on the one hand, NetEase, Tencent and other large companies did not get a new game version number, on the other hand, the number of game version numbers in the past two years has dropped significantly, for example, in 2021, it fell by 45.33% year-on-year. It is foreseeable that in the future, China's game industry will still have to carry the burden forward.
The impact of this on NetEase is that it can only make an article on existing games, and cannot win through the number of games. Due to the extreme reliance on IP cooperation of existing games, since last year, the gross profit of NetEase Games has continued to decline, falling from 66.1% in Q2 in 2021 to 64.1% in Q4.
In response to this business dilemma, at the earnings report meeting, Ding Lei said that he would gather the world's top game talents to accelerate the development of overseas markets. However, considering the local Tencent, ByteDance, overseas Blizzard, EA and other companies are eyeing the sea to fight, whether NetEase can reproduce the revenue myth of the Chinese market in overseas markets, it is still unknown.
02 Missed several mobile Internet bonuses
As a "living fossil" company in China's Internet industry, in addition to the game, NetEase could have harvested more pillar business. Because throughout the history of NetEase, we can find its strength in emerging business many times.
For example, in 2007, NetEase launched Youdao Search. In 2013, NetEase saw the outlet of mobile social networking and launched E-Trust. But most of these products of NetEase are folded and sunken.
The reason is largely because NetEase's layout in emerging businesses is too slow.
Taking social networking as an example, Enfodesk data shows that by Q4 2011, the scale of mobile Internet users in China had reached 430 million, an increase of 50% month-on-month. It is precisely because he saw through the general trend of the mobile Internet early on, Zhang Xiaolong led the team to create a WeChat known to women and children at the beginning of that year.
The mobile Internet has always paid attention to the speed of soldiers, until September 2013, NetEase and China Telecom launched the mobile Internet communication tool EasyXin. At this time, the number of Users of WeChat has already exceeded 300 million. In fact, as early as May 2012, when WeChat users exceeded 100 million, Lei Jun had publicly admitted that Mi Chat had lost. It can be seen that NetEase has hindsight in mobile Internet products.
NetEase's slow action on cutting-edge technologies and products has in turn affected its own other products with first-mover advantages.
As early as March 2011, NetEase moved its own fist product NetEase News to the mobile Internet. According to official information, as of 2013, the total number of users of NetEase news clients reached 120 million, with 40 million daily active users, ranking first in the echelon of China's information apps.
But then, NetEase News was overtaken by today's headlines. The "2018 Q1 China Mobile Internet Industry Development Analysis Report" released by Trustdata shows that Tencent and today's headlines have divided Up China's online news and information market, accounting for more than 90% of the monthly activities of the two, while netease news has accounted for less than 10% of the monthly activities.
This is largely because in the era of mobile Internet, NetEase News still follows the content strategy driven by the operation of the PC era, emphasizing editing and light algorithms, and it is difficult to meet the different content needs of different users to the greatest extent.
In contrast, at the beginning of today's headline launch, the focus of work was on algorithm recommendation, and the output of content was delegated to different users, and the customization of content was realized through thousands of people's recommendations.
03 Blurred second growth curve
It is true that through continuous trial and error, NetEase has indeed gained good results in businesses such as education and music. According to the financial report, in 2021, netease youdao and music business revenue were 5.35 billion yuan and 7 billion yuan, respectively, an increase of 68.8% and 42.9% year-on-year.
However, the revenue of these businesses accounts for only 14.1%, and there is also a visible ceiling in the relevant tracks.
Taking education as an example, immedia statistics show that the size of China's online education market is expected to reach about 559.6 billion yuan in 2021. This could have become NetEase's second track.
However, a paper "double reduction" ban in July 2021 completely disrupted the rhythm of NetEase Youdao's business. According to the financial report, in Q3-Q4 of 2021, the revenue of NetEase Youdao learning service business fell from 1.00 billion yuan to 580 million yuan, accounting for 43.6% from 71.9%.
In fact, not only the way, after the release of the "double reduction" ban, the giants of the once education track, New Oriental, Xueersi, etc. have also ushered in their darkest moments. For example, Xueersi's stock price has fallen from a high of $56.69 per share a year ago to the most recent $2.67 per share, a drop of 95.29%.
In this context, NetEase has also begun to explore new tracks. For example, at the NetEase Innovation Enterprise Conference held in December 2021, NetEase demonstrated for the first time the next-generation Internet technology architecture for the "meta-universe".
Since Facebook changed its name to "Meta" in October 2021, metaverse has become a major outlet in the Internet industry. According to the data released by the China Commercial Industry Research Institute, it is expected that in 2027, the size of China's meta-universe market will reach 126.35 billion yuan, with an average annual compound growth rate of 32.98% from 2022 to 2027.
From this point of view, NetEase has finally achieved an advanced layout. However, because the metaverse involves complex AR, AI, VR and other technologies, this also poses new challenges for NetEase, which operates light assets.
Combined with the industry, in the past year, ByteDance and Tencent, which aim at the meta-universe track, have invariably increased their hardware business. For example, in August 2021, ByteDance spent about 9 billion yuan to acquire Pico, setting a record for the largest acquisition in China's VR industry at that time.
In contrast, at present, NetEase's exploration of hardware is limited to products such as Youdao learning hardware, and it has not been deeply cultivated on AR and other devices needed for the future metacosm. This also shows that the second curve of NetEase has great uncertainty.
All in all, for NetEase at this stage, the game business is certainly stable, but whether it is to enhance the company's anti-risk ability or to give investors confidence, it is necessary to step out of the comfort zone and explore the second growth curve.
I don't know how NetEase, which aims at the meta-universe, will tell this new story next.