NetEase reports strong first-quarter profit growth as it jostles with miHoYo for No.2 spot in China's recovering games market

NetEase reported a 53.7 per cent surge in first quarter profit amid a recent market recovery, as the country's long-time No.2 Chinese video games company continues to fend off increased competition from Genshin Impact developer miHoYo in the world's largest video gaming market.

The Hangzhou-based company on Thursday reported net profit of 6.8 billion yuan (US$983.6 million) for the three months to end-March, beating the US$716.6 million consensus estimate of analysts surveyed by Bloomberg. That marked a significant turnaround from the previous quarter, when net profit dropped 30.6 per cent year on year.

Total revenue increased 6.3 per cent to 25 billion yuan during the quarter, better than the analysts' estimates of US$3.5 billion. The uplift came as the world's video gaming market continues to battle back from a long winter of intense regulatory scrutiny, and as Beijing keeps a steady pace of new game licence approvals this year.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

However, NetEase is facing intense competition for the No.2 spot in China behind Tencent Holdings from Shanghai-based miHoYo, which continues to disrupt the market.

Last November, privately-owned miHoYo saw its monthly mobile gaming revenue overtake NetEase's sales, making it the second most-grossing mobile games publisher in China for the first time in over a year, according to market data firm Sensor Tower.

Although NetEase regained the position in January and March, miHoYo got the second spot again last month, as the company released its latest blockbuster Honkai: Star Rail.

Honkai: Star Rail, a role-playing anime-style game launched by miHoYo in late April, saw its first-week mobile downloads and revenue figures surpass Genshin Impact, a game dubbed as one of the most successful Chinese video games of all time.

Competition in the Chinese video gaming market is expected to intensify, given that many analysts say the overall market has peaked.

In April, video game sales in China declined by 2.2 per cent year on year to 22.5 billion yuan, narrowing the decline of 15.1 per cent seen in the first quarter, according to a report published on Thursday by video gaming analytics firm CNG. This improvement was primarily driven by the mobile games sector, which saw new titles "perform better and bring considerable growth" over the month, according to the report.

NetEase is set to launch Justice Online in June, a mobile version of its flagship PC title with the same name.

NetEase has benefited from the extended popularity of the company's major franchise titles, including Fantasy Westward Journey, as well as boosted user growth from casual party game Eggy Party, a mobile game released last May that has attracted a surprisingly large user base in China, according to the company's financial report.

Eggy Party saw its revenue hit a record high in March, driving the company's mobile gaming revenue to an 11 per cent month-on-month increase, according to data from Sensor Tower. The game has topped the download list of iOS mobile games in China for four consecutive months since last December, the US analytics firm said in a report last month, calling the title "a new national-level mobile game".

"A lot of new games have emerged in the past four or five months, but consumers will only choose high-quality works," William Ding, founder and chief executive of NetEase, said in a conference call with analysts on Thursday.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.