NetEase, Inc. (9999) Earnings Call Transcript & Summary

Good day, and welcome to the NetEase 2024 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead.

Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F and in announcements and filings on the website of the Hong Kong Stock Exchange. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2024 third quarter earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on NetEase's corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer; Mr. Bill Pang, the Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on behalf of William.

Thank you, Brandi, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. At NetEase, we are constantly evolving to ensure the delivery of superior content through innovation across our NetEase family of businesses. During the quarter, we further strengthened our foundation for sustainable long-term growth and achieved total net revenue of RMB 26.2 billion. In our gaming division, our popular titles gained even more traction while newer releases successfully expanded our player community. Total online games net revenue reached around RMB 20 billion. PC games, in particular, registered robust growth with net revenue up around 29% year-over-year and 30% quarter-over-quarter. Several of our games celebrated anniversaries in the third quarter, prompting some of our beloved established titles to set brand new records and reach new milestones. These achievements highlight our strength in long-term game operations and how we continue to drive game longevity. With operations across decades, our legacy franchises, Fantasy Westward Journey and the Westward Journey Online continue to thrill players with enduring popularity. In the third quarter, we brought players a new chapter in Fantasy Westward Journey Mobile, set in the [indiscernible] kingdom. Here, new characters and summoned beasts offer diverse tactical choices while new boss brings more combat challenges, infusing the game with fresh vitality. Additionally, Westward Journey Online II achieved record high quarterly revenue with excitement generated from its anniversary expansion pack. Players eagerly explored new content and joined carnival events in Xi'an immersing themselves in the grandeur of the Tang Dynasty's Asian capital. This blend of fresh in-game experiences and real-world personalities captured our communities imagination, deepening their connection to the game and driving remarkable engagement. Identity V reached record high revenues for the third consecutive quarter. The game also saw unprecedented DAUs and record high global concurrent online players in Q3. This milestone achievements reflects the success of our comprehensive operational strategy to maximize engagement and player stickiness. Our multifaceted entertainment approach blended trend-setting art design, captivating storyline, dress and the IP co-branding events and dynamic eSports competitions for a wholly immersed brand experience. This holistic strategy not only enhanced player engagement, but also established Identity V as a premier competitive platform, offering players around the world an arena to embrace challenges and enjoy fresh content. Naraka: Bladepoint also celebrated its third anniversary in the third quarter, making another milestone for this unique action-driven PVP game. Designed to meet the robust and under-addressed demand for action-based competitive play, Naraka: Bladepoint continue to lead innovation in this genre. With recent introduction of new heroes, maps and mechanics, the anniversary update's rich content spark fresh excitement within the player community, driving concurrent players to a new peak. Following the success, co-branding events featuring popular IP like The Lost Tomb and The Tomb Raider further amplified enthusiasm. All these activities collectively contributed to record high revenue in Q3. Following its success on PC and console, we extended Naraka: Bladepoint's reach, launching Naraka: Bladepoint Mobile domestically in July to widespread market acclaim. The mobile game ranked #3 on the iOS top grossing chart shortly after its release. With its seasonal update in September, Naraka: Bladepoint Mobile returned to the fourth position on the iOS top grossing chart and was featured as an App Store Editors' Choice during the summer. In our newer releases, Justice Mobile celebrated its first anniversary at the end of June. As a title that pushed the boundaries of traditional MMOs and established a large user base, Justice Mobile continues to drive innovation in more areas. Building on the success of AI-driven NPCs, which created immense player interest with life-like interactions, players can now access tools to create their own AI companions to explore the vast Wuxia world. With overwhelming player enthusiasm, Justice Mobile now accommodates over 8 million intelligence entities, giving each player a unique and personalized journey and redefining what's possible in mobile MMOs. Similarly, we are forcing players creativity in Eggy Party through enhanced features that empower creators to explore innovative ideas and receive rewards for their creations. We were thrilled to see a surge in community engagement with many new creators dedicating themselves as full-time map creators. Beyond UGC content, we elevated Eggy Party with inspiring cultural material from external collaborators. In the third quarter, we strategically partnered with the People's Literature Publishing House, bringing their rich catalog of original works to Eggy Party and encouraging players to explore a world enriched by science and literature. For Racing Master's first anniversary, we launched an exciting annual update, introducing legendary car models, including the Lamborghini Reventn and the Mazda RX-7, bringing players even more dedicated and responsive driving experiences. The update also features several highly acclaimed new maps, each offering a unique racing experience from the renowned pivoting track by [indiscernible] to an exotic Goldrush journey set in the desert of Colorado plateau. Through our dedicated operational efforts, Racing Master sustained strong popularity with our player community, solidifying its market position in the racing genre. As we continue to diversify our portfolio across various genres, we paved the way to extend the success of our established titles into new regions. In August, we brought Racing Master to Japan, where it quickly topped the App Store and Google Play free chart and stayed in the top 7 of the iOS downloading chart, highlighting its appeal to local players. In addition to Racing Master, we are gearing up to expand several of our games international footprint. Justice Mobile will be hitting the Hong Kong, Macau and Taiwan market in November, while Dunk City Dynasty is preparing for global release. On top of our expansion plans for these titles, we are advancing our robust game pipeline with plans to release several highly anticipated titles in coming months. Our eagerly awaited open-world action adventure RPG Where Winds Meet is on track for the domestic release in December. This game play is designed to meet diversified player demands offering both single player and a multiplayer mode across PC and mobile platforms. With top-notch graphic utilizing retreating technology, Where Winds Meet is gaining increasing attention from the gaming community as we get closer to the launch date. The Super Hero Team-based PVP shooter game, Marvel Rivals, is slated for global release on December 6. As part of the Marvel Rivals global launch campaign, Marvel just announced a special season on November 11 in collaboration with multiple popular titles, including Fortnite, Marvel Puzzle Quest, Marvel Future Fight and Marvel Snap, creating a Marvel Rivals sea in the season for fans worldwide and promising a fantastic celebration across games. We are also excited about FragPunk, a fast-paced five versus five hero shooter game. Closed beta testing in October attracted over 1 million applicants and with its distinctive card mechanics and vibrant carnival inspired art design, ranking as the top trending upcoming game in Steam's free-to-play section. Building on this momentum, FragPunk's first testing phase in China will begin this December, aiming to capture the interest of an even broader audience and further showcase its unique appeal. We are also planning to start around a regional off-line technical test soon for our eagerly anticipated open-world adventure title Project Mugen. After another year of intense development and refinement, Project Mugen is ready to captivate ACG fans with a fresh urban exploration experience. Next up, we are thrilled to announce our latest product, MARVEL Mystic Mayhem. Set in the heart of Marvel universe, in this team-based tactical RPG, players will join force with beloved superheros as they clash with the sinister force of super-villain Nightmare and bear witness to the inner fears of iconic heroes and villains throughout their journey. In November, we started closed beta testing for Destiny: Rising, the first mobile game in the Destiny franchise, rooted in the intriguing Destiny universe. Destiny: Rising will offer a brand new adventure set in the alternative timeline, featuring a wide array of characters and various game mode, Destiny: Rising introduce new ways to play Destiny. Beyond our in-house development games, the return of Blizzard games in China has been met with unprecedented enthusiasm from the gaming community. To ensure we meet expectations, we stay closely attuned to the voice of Chinese players. This commitment has rekindled the loyalty of long-time fans eager to return to Azeroth and also captivated new players eager to embark on epic adventures. We are seeing strong player engagement. Following the relaunch, World of Warcraft saw a 50% increase in big active players as compared to the level before the shutdown, while Hearthstone achieved over 150% growth. Our partnership with Blizzard, build on mutual trust and respect and supported by a dedicated fan community, has delivered results far exceeding expectations from both sides. Whether self-developed or in partnership, we always strive to bring players new exciting gaming experiences. We're executing the strategy at a very high level, bringing more games and content to the domestic market while expanding our global reach. Now let's move to Youdao. During the third quarter, we significantly improved our profitability with income from operations exceeding RMB 100 million. This marks our first profitable third quarter and set a new record for quarterly operating profit, a testament to our commitment to high-quality growth. For digital content services, we have remained committed to enhancing the product experience. The Youdao Lingshi Intelligent Learning System expanded its knowledge category to nearly 40,000 videos across four difficulty levels, providing comprehensive coverage of essential topics throughout students learning journey. Additionally, Youdao literature introduced AI powered writing enhancement to help students level up their written work, resulting in an increased user engagement. We also maintained strong growth momentum in AI-driven subscription services fueled by our AI powered tool, which enhanced functionality and user appeal. For Youdao Dictionary, we launched simultaneous interpretation powered by our large language model Zi Yue. It achieved over 4 million users in the debut quarter, boasting exceptional accuracy and fluency. Hi Echo has also gained increasing popularity. A leading AI applications ranking chart in China shows Hi Echo as one of the most popular domestic apps, highlighting its high user number and retention rate. Online marketing services saw rapid growth as well. Our expansions into new sectors and advanced data applications to optimize ad performance led to revenue from real-time API doubling year-over-year. Additionally, key opinion leader advertising was a key growth engine for revenue in Q3, with outbound advertising demand surging in several sectors. The Smart Devices segment saw solid year-over-year growth, showcasing our commitment to product innovation. With the launch of X7 Pro, the latest iteration of our flagship digital dictionary pen, we introduced the industry's first learning device capable of off-line Large Language Model translation. The X7 Pro also boast robust accuracy better than online AMT. Overall, customer feedback on our new products and their innovative upgrades has been excellent. This year's product launches, mainly the X7 and X7 Pro, were key in driving Q3's over 50% year-over-year net revenue growth for our digital dictionary pen series. Turning to NetEase Cloud Music. During the third quarter, we continued to propel our quality development across our music-centric ecosystem, broadening our subscriber base and leading to healthy revenue growth momentum for online music. To further enrich our content ecosystem, we continuously expand our music offerings to meet diverse audience demand, especially trending interest from younger generation. We reintroduced our partnership -- we reinforced our partnership with various music labels in the third quarter. Building on our earlier collaboration with Kakao Entertainment and JYP Entertainment, we reintroduced music from CJ ENM during the third quarter, enhancing our K-Pop library with popular original soundtracks from Korean dramas and performance show tracks. We are also amplifying the impact of our in-house music, fostering a unique and differentiated content ecosystem. Multiple in-house tracks have gone viral in our community and beyond. For example, our direct version of [indiscernible] which blends Cantonese and French with [indiscernible] inspired a large number of UGC content featuring on the track. Our other popular sounds, each with a unique style are also gaining significant popularity. We continue strengthening our music-focused monetization capabilities, providing distinctive features that unleash creativity and express individuality. The AI-powered tool that we recently launched allow users to recreate sound with their own voices. We also offer a tool for members to customize their music training interface with their chosen background and band of players, catering to users' personalized interest. The increasing accessibility to individual expression through customization and content creation continues to drive engagements on our platform. In broadening membership privileges for our subscriber, our collaboration with popular IPs provides exclusive skins and decorations to our member -- that our members love, prompting robust user engagement and boosting our commercialization potential. Taking a look at Yanxuan. We continue to strengthen its brand equity within private label consumer market. We achieved notable growth in GMV across key categories by consistently and successfully introducing products and expanding sales through our omnichannel strategy. In the third quarter, sales of pet products and household cleaning items grew by double digits year-over-year. Notably, to further strengthen our competitiveness in the pet food sector, we established a dedicated factory in partnership with a leading pet food manufacturer. This collaboration significantly improved our ability to deliver high-quality pet food on a larger scale, reinforcing Yanxuan's position in this fast-growing category. Innovation is the heart of our NetEase family of businesses and the core components of our competitive edge, along with deep gaming operating capabilities and a commitment to quality and user experience. We'll continue to bring our community impactful games, product and services that create value for a loyal community and meaningful returns to our shareholders. That concludes William's comment. I will now provide a brief review of our 2024 third quarter financial results. Given the limited time on today's call, I will present some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Total net revenue for the third quarter were RMB 26.2 billion or USD 3.7 billion, representing a 3% increase quarter-over-quarter. Meanwhile, current contract liabilities were RMB 15.5 billion, up 14% quarter-over-quarter. Total net revenues from our games and related VAS were RMB 20.9 billion, up 4% quarter-over-quarter. Specifically, net revenues from online games were RMB 20.2 billion, up 5% quarter-over-quarter. This growth was primarily driven by increased revenue contributions from key PC games, such as Word of Warcraft and the Naraka: Bladepoint as well as mobile games like Identity V and the recent launch of Naraka: Bladepoint Mobile. Notably, net revenue from our PC games accounted for approximately 29.2% of our total online games revenue, representing an increase of 30% quarter-over-quarter and an increase of 29% year-over-year. On a year-over-year basis, total net revenues from games and VAS declined by 4%, mainly due to adjustments in our PC live streaming service. These changes, in turn, enhance our margin profile and contributed to long-term business sustainability. Excluding the impact of this adjustment, our online games revenue remained relatively stable on a year-over-year basis, with 1% decrease. Youdao's net revenue were RMB 1.6 billion, a year-over-year increase of 2%, primarily due to the increased revenue contribution from Youdao's online marketing services and a 19% quarter-over-quarter increase driven mainly by higher net revenues from the sales of smart devices and learning services. NetEase Cloud Music's net revenue were RMB 2 billion, a 1% increase compared to the same period last year, primarily due to higher net revenue from membership subscriptions and a 2% quarter-over-quarter decline due to a decline in net revenues from NetEase Cloud Music's social entertainment services. Net revenue for innovative businesses and others were RMB 1.8 billion, a 10% decrease compared with the same quarter of 2023, mainly due to the decrease of advertising revenues of our news related products and several other businesses, including within the segment and the 14% quarter-over-quarter decrease due to the effect of seasonality on Yanxuan sales. The total gross profit margin was 62.9% in the third quarter compared with 62.2% for the same period in 2023. Looking at our third quarter margin in more detail. Gross profit margin was 68.8% for our games and related VAS compared with 69% in the same period last year. The year-over-year decrease was mainly attributable to changes in product mix. Gross profit margin for Youdao was 50.2% compared with 55.9% in the same period last year. The year-over-year decrease was primarily due to the decrease in net revenues from learning services. Gross profit margin for NetEase Cloud Music reached 32.8% versus 27.2% in the same period last year. The margin improvement primarily resulted from increased net revenue from membership subscriptions and continued cost optimization measures. For innovative businesses and others, gross profit margin was 37.8% compared with 27.3% in the third quarter of 2023. The year-over-year increase was mainly due to increased gross margin -- gross profit margin from several other businesses included within the segment. Total operating expenses for the third quarter were RMB 9.3 billion or 35.6% of our net revenues. Taking a closer look at our cost composition. Our selling and marketing expenses as a percentage of total net revenue were 14.5% compared with 13.1% in the same quarter last year. The increase was primarily due to higher marketing expenditures associated with online games services for new game launches. Our R&D expenses as a percentage of total net revenue was 16.9% in the third quarter compared with 15.9% for the same period last year. We remain committed to investing into content creation and product development to keep our product and content at the forefront of the industry. We believe that our investment in R&D will remain a key catalyst for future growth over the longer term. The effective tax rate was 16.1% for the third quarter. As a reminder, the effective tax rate is presented on an accrual basis, depending on the applicable policies and our operations. Our non-GAAP net income attributable to shareholders for third quarter totaled RMB 7.5 billion or USD 1.1 billion. Non-GAAP basic earnings per ADS for the third quarter were USD 1.67 or USD 0.33 per share. Additionally, our cash position remains robust with net cash of approximately RMB 120 billion as of September 30, 2024, compared with RMB 110.9 billion at the end of 2023. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of USD 0.087 per share or USD 0.435 per ADS for the third quarter. Lastly, we continue to conduct our share buyback during the third quarter. We repurchased shares in the amount of USD 543 million, marking a 98% increase from the previous quarter. Under our current USD 5 billion share repurchase program, which started in mid-January last year, we have repurchased approximately 18 million ADS as of September 30, 2024, for a total cost of approximately USD 1.6 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please?

[Operator Instructions] Your first question comes from Lincoln Kong with Goldman Sachs.

[Foreign Language] So my first question is about Where Winds Meet. So what's the latest launch schedule for this gaming PC and the mobile version? Based on last obtained feedback, there are some user fee pay around the positioning of this game, how to better integrate the single player model versus the multiplayer one and how to design the monetization here. So any of the update on progress of this game lately?

[Foreign Language]

Okay. Yes, I will do the translation. First of all, Where Winds Meet, PC is slated to launch by the end of December and the mobile will be slightly later than that, but the gap won't be too long. And now we're doing a final stage optimization to make sure that, again, could be played on as many devices as possible. That's our goal now. And regarding your question about the positioning of the game, the core game play is positioned to provide high-quality open-world exploration and also cash or social experiences in the open Wuxia background kind of world. We're aiming at engaging players who are looking for high fidelity immersive Wuxia experience, open-world exploration as well as relaxing casual social game play. About the single player versus multiplayer mode, we hope in every single each of our expansions, players could start with single-player content to enjoy that content first and over time, smoothly translate into multiplayer mode and enjoy social gaming with a period between expansion path. That's the plan. In terms of monetization, we'll focus on a tier-based cosmetic offerings, alongside with other lighter monetization models like battle pass. We want to make sure that our game could alleviate the pressures from complicated -- traditional complicated cultivation and monetization, forcing a healthier social ecosystem and relaxed social environment where players can immerse themselves with light effort to match up with other players and lower barriers for the old players to return to the game. We aim to achieve a better operational performance in the long term. That's our goal. Thank you for your question.

[Foreign Language] My second question is about Justice Mobile and Eggy Party. So based on some third-party data, it seems these two games have some pressure in terms of the grossing trend recently. Could management elaborate how they are seeing internally for these two games in terms of their operational strategy, especially in what direction could we expect to extend the life cycle of these two games?

[Foreign Language]

Yes. So allow us to track the Justice Mobile part first. As you know, during Q3, we finished the celebration of the first anniversary of the game. And players show very good stickiness to the game and players coming back, actually, the rate of player coming back exceeded our expectations. What we are trying to do here is to balance the commercialization and user experience as well in the long run. We're pretty sure that what we have achieved is that while making sure the players have enough IVR game, and we can do the commercialization exploration in the meantime to satisfy the players. Looking at the future, what we're going to keep doing is keep enriching the content of the game, provide multi-tier of content and present it for the players and in the meantime, explore innovative commercializations to make sure the game has a long-term healthy environment. That's the part of the Justice Mobile.

[Foreign Language]

Okay. So for the question about Eggy Party. Now one thing you can be sure that we are still doing a big effort in keep investing into building more content for the game. So again, we have -- we are very confident for the Eggy Party in the long-term run. It's actually one of the highest DAU products of NetEase in the history. And as you noted from other sources of data, commercialization we ran into some short-term challenges. However, we take that as a great opportunity to accumulate experiences in how to develop and keep developing a good franchise. We strongly believe this franchise is a very unique offering in the market. And our focus is to long-term content operation. We believe in the long term, while we're doing more content, will provide more opportunities for commercialization in the future. Thank you.

Your next question comes from Xueqing Zhang with CICC.

[Foreign Language] I have two questions, and I will address one by one. My first question about your overseas games strategy. How is your current situation with the overseas first-party game studios? We have seen that Once Human has performed well [indiscernible] year. Could management share more specific details and what's your plan for globalizations of [indiscernible] studio game?

[Foreign Language]

So thank you for your question. As you can tell that we are having two legs in our -- when we go after the global market. One leg is we have overseas first-party, making games in Western market in Japan for the Western and Japan market. In the meantime, the second leg is that we have our studios -- domestic studios making game for global to release not only in China but in Europe market, North American market and Japanese market as well. You're right that Once Human was, again, we released early summer this year and performance really well. And looking forward, immediately, we have two titles. One is Marvel Rivals in December and the other one is FragPunk in early next year that we're going to release towards the global market. Both of these are shooter based PVP game on PC and console. We believe our domestic studios will be capable of producing more and more products suitable for global market. Actually, this is not our first wave of success in global market outside of China market. You probably recall that our [indiscernible] actually work fairly well in Japan market and gain a lot of acclaim there. And looking forward, we have confidence that our domestic studios and our overseas studios will be able to produce more and more worldwide suitable content. Thank you.

[Foreign Language] My second question is about the flagship evergreen games. How do the flagship games such as Fantasy Westward Journey Mobile remains strong? How are the gross billings in recent months?

[Foreign Language]

So actually, and that is, we have quite a selection of franchises that has more than 10 years old. Fantasy Westward Journey, Westward Journey Online, the [ World, ] even our license title World of Warcraft. We keep going. What we'll keep doing is continuously add new game play, try new things, new fun staff and content into the game. We believe the core of game business is for innovation to keep providing fun innovative new content to the players. And in every single [indiscernible] game, we'll keep doing that, and that's something you can be sure of. Thank you.

Your next question comes from Ritchie Sun with HSBC.

[Foreign Language] I have two. First of all, for Marvel Rivals, can management contrast the potential of this title against other PVP shooting titles in the market? And how long would it take for the game to ramp up to its full potential? And what metrics should we monitor to track its progress?

[Foreign Language]

So for your question about Marvel Rivals. Marvel Rivals is a new generation superhero based team-based competitive shooting game. It actually has very unique game experiences, and we hope it could open new track in this big genre. And the product actually facilitated large-scale PC and console post-beta tests [indiscernible] overseas market. The performance data was excellent. The Steam positive review rate was close to 95%. The players feedback are very positive. And in the meantime, it also ranked #7 on a Steam wishlist now. We do have confidence that we're doing the time we have before launch. We'll keep optimizing the product, keep polishing the product. When the product is released on December 6 globally on PC and console, it could offer [indiscernible] experience to the users. We hope this one could provide a unique experience to the players worldwide.

[Foreign Language] I have second question about Blizzard. The reception of the relaunch of World of Warcraft and Hearthstone in China is much better than expected. So what have we done differently than the past to drive such results? And would this mean the annual revenue contribution from Blizzard in the future will be higher than in 2022? And when will Overwatch return to China?

[Foreign Language]

So the -- we have done quite many things on both marketing as well as product. It's a modified effort approach to operate with the product. World of Warcraft is [indiscernible] power. However, a multiple, multiple cross-branding collaborations with other brands, we brought that into an even bigger impact in the society, and that helped us to attract a lot of new players to the game as well. For Hearthstone, you probably heard that we announced the returning of Hearthstone at ChinaJoy, and that became one of the most exciting things during ChinaJoy time. And also the return on the eSports side, the golden league and the impact on the [indiscernible] involvement that's all helped. And also we will be innovative in how to spread out the brand message and how to interact with the players. For example, social media is something we have done more innovatively compared to the past. The videos on social media has been -- the click of the video -- social media video has more than 10 billion times now. And also, none of this could be realized without a deep collaboration, deep trust and deep collaboration with Blizzard. Now both on the product and marketing side, we have very deep working relationship now. And we believe with the innovations we're doing here in China, focusing on how to present more locally appreciated product and service to the Chinese players, we can maintain and the players also showed us the level of activeness and level of payment intention is really high. And we are very confident that it will have a very good result in the long run. That's for World of Warcraft and Hearthstone. For Overwatch, we don't have anything specific to disclose now regarding the launch date. But Overwatch is going to be the next product -- next bigger product we launch in China. Thank you.

Your next question comes from Felix Liu with UBS.

[Foreign Language] My question is on your pipeline. You mentioned some titles earlier in the call, but could you provide more details on the game genre and the expected launch time for the key titles in 2025. Additionally, I would like to ask a question on Project Mugen, what is the latest status of the game and expected launch time?

[Foreign Language]

So let's talk about the Frostpunk and Project Mugen. Frostpunk, as we mentioned that we're going to have a test within this year in December. And based on the test result, we'll decide when to launch this game officially. That's for Frostpunk. And for Project Mugen, as we mentioned that we're going to have the first offline test within this year. And we do have high expectations for Project Mugen, not only because we invested a tremendous amount of R&D resources into this product, but also our expectation is this game is now going to be only another open world ACG game. It will carry NetEase's thinking about future ACG game. And based on our 20 years experience of knowledge of the Chinese game -- of the gamers and observational gamers, we put a lot of thinking into what the future of this type of game should be and that will be reflected in the game. We do have high expectations there.

[Foreign Language] My follow-up question is on the latest trends on Fantasy Westward Journey PC. Its operational trends as well as cash growth in trend? And what are the user feedback to our changes made in the first half?

[Foreign Language]

Fantasy Westward Journey PC, actually now all the performance metrics are very stable. As a matter of fact, August was the highest revenue months in this year for this game. And now after the adjustment the DAU is not only stabilized but keep improving now. And we released a series of adjusted content from August to October time. And the player feedback regarding this new content is a very welcoming attitude. And in the meantime, we're going to release new expansion pack by the end of this year and more optimization and refresh content to maintain the fun of playing the game and maintain the stableness of the game operation. Thank you. Operator, given the time limit, we probably have time for one more question.

Your next question comes from Alicia Yap with Citigroup.

[Foreign Language] Could management share with us your thoughts on the performance of Naraka: Bladepoint Mobile since the launch in July? Has that met your expectations? What are some of the upcoming content and promotional events update plans for this game? Any meaningful difference in terms of the gamer profile for the mobile version versus the PC version?

[Foreign Language]

To answer your question, we actually have accumulated 50 million new users across the four months of operation. And one thing we learned is that even both the PC and mobile are competitive -- action-based competitive games. The PC gamers and the mobile gamers their needs and demands are, to some extent, different. The mobile gamers, their demand are more diversified. They are hardcore competitive players. They are social type players. There are also players enjoy collecting the cosmetic stuff. So what we do is that we embrace -- we understand and we embrace the difference in the gamers' needs, and we provide different content, differentiated content to both PC and global version. And for example, the -- we might provide more new content that are not available on PC, but for mobile players only to provide new game play, new content, everything. And the game actually is very -- in a very healthy status and very stabilized, very stable, very healthy status, and we have long-term confidence in this product. Thank you.

That concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any closing comments.

Thank you again for joining us today. If you have any further questions, please feel free to contact the IR team at NetEase. Have a great day. Thank you.