Source title: Netease releases Q3 financial report: Investing 4 billion in R&D to explore the “blood-activating” digital cultural tourism inclusive model
On November 17, NetEase announced its financial report for the third quarter of 2022. In this quarter, NetEase focused on technology research and development, continued to stimulate digital productivity, achieved steady business development, and accelerated digital inclusive cross-industry empowerment.
In the third quarter, NetEase’s net income was 24.4 billion yuan, and the net profit attributable to the company’s shareholders was 6.7 billion yuan; the scale of R&D investment was 4 billion yuan, and the R&D investment intensity reached 16%, which increased for three consecutive quarters. Relying on its long-term investment and innovative applications in the underlying key technology fields such as artificial intelligence, technology engines, blockchain, and digital twins, NetEase was selected as one of the top ten “2022 Private Enterprises in R&D Investment” by the All-China Federation of Industry and Commerce this quarter.
During the quarter, revenue from games and related value-added services was 18.7 billion yuan, of which online game revenue was 17.4 billion yuan. The performance of NetEase Cloud Music continues to develop healthily, with revenue of 2.4 billion yuan, a year-on-year increase of 22%; gross profit margin has increased for four consecutive quarters, reaching 14%. Netease Youdao has accelerated the deployment of intelligent learning hardware, with a quarterly net income of 1.4 billion yuan. This year, it has launched 5 new intelligent hardware products, hitting a record high in the past.
Innovation and other business Q3 net income of 2 billion yuan. NetEase Yanxuan continues to focus on the branding strategy, the omni-channel sales and Pro membership scale continue to grow, and core categories such as pets, house cleaning, bedding, and office furniture are frequently released. In September, the Netease Media Technology Research Institute was established to create a scientific and cultural highland with high-quality content and promote industrial innovation.
NetEase disclosed in its third quarterly report that the national service agency authorization of NetEase and Blizzard will expire in January 2023 and will not be renewed. The game represented by Blizzard will contribute to NetEase’s net income and net profit in 2021 and the first nine months of 2022, both in low single digits. The expiration of the authorization will not have a material impact on NetEase’s financial performance. The joint development and distribution of Diablo® Immortal™ is covered by another long-term agreement. NetEase stated that it will continue to perform its duties, fully protect the rights and interests of players, and serve Chinese Blizzard players until the last moment.
Nearly 11 billion R&D investment in the first three quarters, stimulating digital productivity to serve culture and social production
In the third quarter, NetEase continued to strengthen R&D investment, and R&D expenses reached 4 billion yuan, and the proportion of R&D investment in revenue increased to 16%. In the first three quarters of this year, NetEase’s research and development expenses continued to grow, with a cumulative investment of nearly 11 billion yuan. The transformation of relevant research results into digital productivity not only supports the creation of cultural products with global influence, but also spills over to the field of social production, bringing “new solutions” to practical problems.
In order to break the cultural barriers, “Eternal Tribulation” takes the lead in applying many of the world’s top graphics engine technologies, allowing overseas users to experience the immersive experience of swords, swords, fists and flesh duels, and intuitively feel the charm of Chinese culture. With the help of technology, “Eternal Tribulation” is still popular one year after its global launch, becoming the only domestic game that regularly ranks in the top ten of Steam’s best-selling list.
Based on technology, NetEase’s space-themed mobile game “Endless Lagrange” has accumulated a lot of knowledge and “counterattacked” the domestic list this year. Based on industry-leading technologies such as HDR global illumination, environmental reflection, and high-surface models, players can watch the vast galaxy and spaceships with movie-level visual effects in 360 degrees. Also under the blessing of “hard technology”, the martial arts open world mobile game “Naishuihan”, as the industry’s first large-scale role-playing game with light pursuit on the mobile terminal, has achieved industry breakthroughs in terms of game quality, action system, and intelligent NPC. The total number of reservations on the whole platform has exceeded 10 million.
In July this year, relying on NetEase’s self-developed engine Messiah, the national server of “Diablo®: Immortal™” was launched. It topped the iOS free list on the day of its debut, becoming an annual phenomenal mobile game, and recently won the “Game Oscar” TGA Nominated for “2022 Best Mobile Game”. Another “Harry Potter: Magic Awakening” developed based on NeoX’s self-developed engine is expected to land in overseas markets next year.
NetEase also uses game technology, an underlying tool for digital and real integration, to accelerate its application to the field of social production. In September this year, Netease Fuxi mining robot debuted at the World Artificial Intelligence Conference. Based on many self-developed technologies such as artificial intelligence, gamification interaction, game simulation, and low-latency audio and video transmission, the mining robot can return “sensing” data in real time. Remotely realize “where to dig where”, and its work efficiency such as dumping and loading is comparable to that of an excavator with 10 years of experience. Currently, NetEase Fuxi is working with upstream and downstream industries to jointly build a new business model, allowing mining robots to enter more front-line projects.
Technology inclusiveness goes deep into physical manufacturing, and new categories increase by more than 10 times in 3 years
As the only country in the world with a complete industrial chain, China’s industrial environment provides an excellent opportunity for experimentation in the development of domestic digital-real integration. In the third quarter, NetEase accelerated the pace of technology inclusiveness, and went deep into physical fields such as smart manufacturing and consumer manufacturing.
NetEase Youdao has deeply cultivated intelligent manufacturing, driving the transformation and upgrading of the industrial chain. Through continuous accumulation and reuse of industry-leading core self-developed technologies including neural network translation, optical character recognition, speech recognition and speech synthesis, and adaptive learning data analysis, the replacement cycle of intelligent learning hardware has been greatly shortened. In the first three quarters of this year, Youdao launched five self-developed new products, including smart eye protection lamp, AI learning machine Y10, Youdao dictionary pen X5, Youdao dictionary pen P5, and AI learning machine X10, and the number hit a record high in the past years.
In 2018, NetEase Youdao’s first dictionary pen was launched, which led to the birth of a new category of smart dictionary pens and drove a group of traditional electronic hardware manufacturers to transform into smart manufacturing. In the past three years, Youdao Dictionary Pen has continuously upgraded and innovated in terms of technology, hardware and content. Manufacturers accelerate their digital transformation and benefit from the development of new business formats brought about by the popularization of smart learning.
Netease Yanxuan promotes the upgrading of consumer manufacturing to meet the needs of consumer quality improvement. Netease Yanxuan has established a full-process digital smart supply chain system, laying a solid foundation for the creation of core categories such as pets, house cleaners, bedding products, and office furniture. Take Netease Yanxuan’s pet food factory in Shanghai as an example. Based on the prediction of the smart supply chain system, it shipped at a high production capacity of 15 tons per hour on the eve of Double 11, helping Yanxuan win the multi-platform Double 11 Cat from the consumer and production side. The sales champion of the staple food category.
Explore the “blood-activating” digital cultural tourism inclusive model, driving revenue generation of 2.2 billion
Using digital technology to narrow regional disparities is one of NetEase’s long-term concerns. After years of practice and combining its own technological advantages, Netease has explored a new model of common prosperity centered on digital cultural tourism and inclusiveness. It first “brings in” tourists, then “sells” good products, and finally allows talents to “retain come down”.
In order to “bring in” tourists, NetEase mobilized its digital cultural resources to help digitize cultural tourism resources in many places. In Longquan, Zhejiang, Netease will integrate the first batch of Longquan sword forging skills and Longquan celadon firing skills included in the national intangible cultural heritage into the boutique game “Shendu Night Travel Record”, so that young people can learn about Longquan celadon swords in the game long history and profound culture.
After attracting tourists, NetEase carefully selected the brand “Shushang Xingnong” to dig out popular products in county areas, transforming one-time tourism into long-term purchases, and driving good products out of the mountain. Previously, NetEase Yanxuan has successively cooperated with Yunhe County, Xianju County, and Taishun County in Zhejiang Province to create local hot products such as wooden toys, red bayberry, and gardenia products, driving local SMEs to increase their income by one million yuan.
At present, Netease has cooperated with 12 districts and counties in Zhejiang Province, driving tourism revenue of 153 million yuan across the country, cultivating and incubating more than 800 enterprises, empowering more than 18,000 enterprises, driving sales of 2.2 billion yuan, and the cumulative total output value of enterprises exceeds 80 100 million yuan, directly stimulating the employment of more than 10,000 people, and cultivating more than 37,000 industrial talents online and offline. In the future, this model will also be copied to more regions to accelerate the digital transformation of the local cultural tourism industry.
Solidly promoting the inclusiveness of digital education, NetEase was selected as the 2022 Best Responsible Corporate Brand Award
As one of the earliest companies in China to invest in Internet education, NetEase has been exploring a new model of inclusive digital education for many years, using new technologies and new products to narrow the educational gap between urban and rural areas.
Beginning with the launch of NetEase Open Classes in 2010, NetEase has successively launched a variety of educational inclusive projects focusing on public welfare online classes, education informatization, education for the disabled, and rural reading, and promoted the flow of high-quality software and hardware educational resources to underdeveloped areas. Recently, NetEase Group and NetEase Youdao both won the “2022 Best Responsible Corporate Brand” award from the CSR China Education List.
Three years ago, NetEase’s “One Screen” public welfare online course entered many schools in remote areas of Sichuan, allowing teachers and students in mountainous areas to share high-quality educational resources and teaching and research results in the city with the help of the online class model in different places. In the third quarter, the first batch of “one screen” project students refreshed their school’s college entrance examination scores and marched towards the university campus. The completion rate of one copy of the “One Screen” public welfare class of Linyang Middle School in Gulin County reached nearly 96%; the completion rate of one copy of the “One Screen” public welfare class of Majie Middle School in Hejiang County exceeded 160%, both hitting record highs. At present, “One Screen” has covered more than 100 remote schools in Sichuan, Gansu, Hunan and other places, benefiting tens of thousands of students.
In addition to the “one screen” project, Netease Youdao also moved the country’s first “one classroom” into Hebei Qinglong Manchu Autonomous County. Students can use tablets and smart big screens in the “space”-themed educational space to learn programming, Go and other quality courses. “One Classroom” creates an immersive and information-based learning scene by providing software and hardware intelligent teaching equipment, so that high-quality education resources can quickly enter rural schools.
Ding Lei, CEO of NetEase, said that NetEase will continue to promote digital technology and digital resource inclusiveness, and deeply integrate the technological achievements accumulated over 20 years with various fields such as manufacturing, agriculture, cultural tourism, education, etc. of individuals enjoy the benefits of digital inclusion.