Good day, and welcome to the NetEase Second Quarter 2025 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 Hong Kong Stock Exchange's website. 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 2025 Second 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 the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer; and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill?

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. During the second quarter, we advanced each of our businesses through the development of high- quality and innovative offerings. Total revenues increased 9% year-over-year driven by our diverse portfolio of games. We saw strong player engagement in our established franchises and released new titles that expanded our reach across genres and geographies. Building on our first quarter year-on-year growth momentum, revenue from our games and related VAS rose 14% in the second quarter compared to the same period last year. As we expand our expertise across more genres, we now offer a diverse range of gaming experiences to players around the world, which we believe lays a solid foundation for our global expansion. In the second quarter, we launched several new global titles, while also extending the reach of our well-known domestic franchises. Looking first at our newest releases. Our Super Hero team-based technical RPG MARVEL Mystic Mayhem launched on June 25. Game quickly garnered a passionate group of players eager to collect iconic Super Heroes and Super Villains to battle the nightmare dimension. Its player base quickly surpassed 1 million with the game topping the iOS download chart in multiple regions and ranking #2 in the U.S. To further the community's excitement we plan to introduce more playable characters and expand the storyline approximately every 6 weeks. The global release of our tactical shooter game, FragPunk on Xbox and PlayStation quickly gained traction after its April 29 debut. In May, it reached #2 spot on PlayStation's North America free-to-play download chart. Originally launched on PC in March. FragPunk has been winning our players with this groundbreaking Shard Card System. Now with…

[Operator Instructions] Your first question comes from Yang Liu with Morgan Stanley.

[Foreign Language] [Interpreted] Let me translate my questions. My first question is regarding the Where Winds Meet in terms of the monetization in management view. Is it as early success? Or is it meeting expectations? Or it's already fully ramped up? And my second question is regarding Once Human. What drives the grossing rebound for this title? Does this have the good potential to become evergreen game? And what is user or revenue split in China and overseas?

[Foreign Language]

[Interpreted] Thank you for the answer, and I will do the translation. So first question is regarding Where Winds Meet. Where Winds Meet has delivered a solid performance as we have explained and exceeded our initial expectation before launch in both in terms of active players and monetization. And more notably, the long term -- we believe the long-term performance has been quite stable, demonstrating the promising potential for the sustainable success. Where Winds Meet uniquely adopt a business model that combines high-quality content and cosmetic only monetization strategy. With a well-planned cadence for releasing high-quality content, along with the cosmetic only approach that does not impact the character cultivation process. Where Winds Meet -- we believe Where Winds Meet has potential for healthy and lasting monetization cycle. And we are very confident in the future of the game. And in terms of the future continuous development for the content for this game, we'll make continuous, if not bigger investments in the future. And the second question is regarding Once Human. Behind the balance of performance of Once Human, we actually -- we launched a welcomed significant updates, which we call the annual 2.0 version in early July. The new scenario, Endless Dream and the new class system has been well both well received by players. The 2.0 version game massive popularity. That's why the game was pushed on to #4 position on Steam's global top seller chart following the amount of the update. Additionally, we also rolled out a new PVP Spin-Off called RaidZone by the end of July -- on July 30, offering players what we call that rule-free combat experience that enhance the intensity of the game's PVP game plays. Look back, the success of the new scenario demonstrate that the seasonal scenario mode has great potential, and we will continue to launch new scenarios to meet players' seasonal demand. In the meanwhile, we have also introduced a private server called Custom Server in China called Server [ VIE ] which allow players to customize their own setting. We're looking forward with ongoing updates of the scenario experiences and the health ecosystem built around the customer service, the product has potential for long-term sustainability. Regarding your question on the user distribution between China and international. The user distribution is about 50-50 between China and the rest of the world. And revenue distribution is about 2% to 3% compared with China versus rest of all. Hope that answers your question.

Your next question comes from Alicia Yap with Citigroup.

[Foreign Language] [Interpreted] Can management share -- so additional color on the overall Blizzard games performance on the sequential basis. Do you think you have targeted or the potential old and new gamers? Or do you think they are still untapped user for Blizzard's title? Will the future growth of Blizzard titles mainly to be driven by content update and promotional activities on the monetization upside? Or is it will also come from the new user growth?

[Foreign Language]

[Interpreted] Thank you for your question. First of all, please products are extremely high-quality work, high-quality games. As we explained in this call and previous calls, after a year of returning the product operation in China market via various mechanics with the online and offline rich market activities. The game metrics has surpassed level -- surpassed the level previous prior to the shutting down of the servers. And thanks for our dedication of the local operation for both online and off-line. As we continue to deepen our collaboration with Blizzard developing team, our mutual trust and the coordination is increasing. Looking to the future. As long as we implement more improvements that align with the local tastes and habits of local Chinese players. We believe there is a good opportunity that we can attract even more new players as well as engaging those who haven't returned yet. Long story short, we believe there's big potential for Blizzard games in China market.

Your next question comes from Yang Bai with CICC.

[Foreign Language] [Interpreted] Thank you management. The company has a number of shooting games set to launch in the second half of 2025, including PC and mobile games as well as self-developed and licensed products. What is your perspective on the overall competitive landscape of your current shooting game sector?

[Foreign Language]

[Interpreted] Yes. Thank you for your question. Yes, the shooting game genre is a very big genres. And also a very big [indiscernible] as well. And the players have very high expectation on the quality of games. For example, you have to have very high-quality art production, and you have to have gameplay innovation. It's a high bar to entry. For NetEase, we will keep investing to this genre. And we believe in the future, we can continue to come up with competitive market in this big genre.

Your next question comes from Ritchie Sun with HSBC.

[Foreign Language] [Interpreted] Thank you, management. So first of all, regarding Marvel Rivals, after the launch of Season 3 received the Steam revenue ranking rebounded but then drop to below top 10 afterwards. So how would you evaluate the effectiveness of the new strategy so far? Have we already seen the peak? And what are the new gameplay games or characters in the backlog that we should watch out for to drive the game to regain its momentum? And secondly, regarding Sea of Remnants, can management share the feedback of the first testing in June? And what would be the monetization model? And how would you evaluate the addressable market and longevity of this genre of the games?

[Foreign Language]

[Interpreted] Okay. So first, regarding your question on Marvel Rivals. Marvel Rivals recently launched Season 3 and the Mid-Season Finals of Marvel Rivals IGNITE also concluded. We have observed upward and stabilized trend on both DAU and revenue, which make us believe that the new seasonal content update and strategy are effective. Looking forward, we'll continue to introduce more new gameplay mechanics, new heroes, new popular costumes based on our new cadence of seasonal update. For your questions regarding Sea of Remnants. Sea of Remnants is a very important product to us, and we have high confidence that will make this top-tier successful game and the game will be launched next year. So regarding the detail of this game, please stay tuned. Thank you.

Your next question comes from Felix Liu with UBS.

[Foreign Language] [Interpreted] I have 2 questions. Number one is on your evergreen titles. We noticed recovery in quite a few of your evergreen titles such as Eggy Party and Fantasy Westward Journey Online. Could management share more color on the status of the mentioned 2 titles? Any reasons for their recent recovery? And in the long run, how does management think about resourcing on existing titles and IPs versus developing new games from ground up? My second question is on another game in your pipeline, which is ANANTA. What is the R&D status of ANANTA? When do you expect this game to launch? And how should we think about the competition landscape for ANANTA considering there are a few new games from your competitors that also fall into this genre.

[Foreign Language]

[Interpreted] Okay. So yes, let me translate the answers in different parts. So first, regarding your question, the first part, Mr. William Ding answered about the Westward Journey PC version. So after a year of continuous experience optimization, various metrics of Fantasy Westward Journey Online has observed recovery and stable improvement. And also, as we mentioned, the newly launched unlimited server has been well received by players. And we're super excited to announce that the number of peak and current users set a new record on early August at the 2.93 million PC number. And we have been running this game for so many years, and we are confident that with continuous innovation Fantasy Westward Journey PC will be continuing growing in the future. In the future that we can foresee. And the next question is regarding Eggy Party. Eggy Party, as you know, is one of this kind UGC game -- UGC platform kind of game. And after 3 years of exploration, we have mastered the methodology of operating this type of game. And in the future, we're going to keep investing to the game, keep encouraging high-quality UGC content to prosper the ecosystem. And also, we're going to keep investing to the marketing to keep promoting the game to make it household game for everyone in China and have everyone in China understand that is the associated game with this whole family party game kind of concept. So that's for the Eggy Party. And for your question regarding ANANTA. ANANTA is now well underway in the mass production stage. And with ongoing efforts to strengthen the core experience and prepare for the long-term content pipeline as well. In the face of competitors, we are more focused on whether we are able to create superior gaming quality that differentiate us from existing market offerings. And also, we -- looking forward, we anticipate that new content and progress will be reviewed around Tokyo Game Show Time late September. Please stay tuned for product news. Thank you.

Your next question comes from Miranda Zhuang with Bank of America.

[Foreign Language] [Interpreted] Can management share your marketing and operational strategies for your old game and also new games? What are your key focuses? And if any changes that you would like to highlight this year? And what kind of results are you seeing? What is your expectation for the sales and marketing expenses?

[Foreign Language]

[Interpreted] Yes. So we have been doing this business for 20-something years. For new games or old games, how to operate, how to market, we have developed a mature methodology and standard operating procedures. We know how to invest into marketing and when to invest into marketing. And of course, this -- now we're embracing new method like the social media like the power of AI, everything. So we believe we know when to spend, where to spend precisely and when to -- when and where not to spend as well. So in the future, you will see our marketing is going to be more precise and more effective in the future.

Your next question comes from Lincoln Kong with Goldman Sachs.

[Foreign Language] [Interpreted] I have 2 questions. The first one is on AI. So in recent months, the rapid development of AI multi-model has been quite notable. So has company seen any acceleration in being empowered through AI. So what are the existing bottlenecks that still remain? And what are our plans to -- for AI adoption in our existing games? And when can we expect some truly AI-native games? My second question is on the overseas market. Company actually recent games has been globally published by ourselves. So what are the important directions or game genres, we are focused for future overseas expansion?

[Foreign Language]

[Interpreted] Yes. So regarding your first question about AI, there's a joke saying that every -- the life span of every big model is only 3 months. Basically, every new model comes out every couple of months. We have been investing a lot of resources to embrace AI to leverage AI in our development, in our operations, how to embrace AI in our tool chain, everything. So looking to the future. AI is going to play a more and more important roles. And we are looking into the future that some there might be games designed by AI, could be fun game, that's the future we're looking forward to. And regarding your next question for the overseas publishing, yes, this is a critically important capability of us to be able to publish game globally in different geos. The global market is kind of geo-based in North America, in South America, in Japan, every market has its own attribute. And we have learned through a bunch of global game operation from Marvel Rivals, Once Human and also in West market and Identity V and Knives Out in Japan market, we have learned a tremendous amount of firsthand hands-on experience as well from operation. And looking forward, in the next couple of years, you will see our global operation -- global operation will keep growing, fueled by our more important new games. And we do believe growing globally is going to be a very important task for us. Thank you for your question. And operator, let's go with one last question, please.

Your last question comes from Jialong Shi with Nomura.

[Foreign Language] [Interpreted] So I just have one question. Can management share the performance of MARVEL Mystic Mayhem in overseas markets so far. In addition, are there any updates on the expected launch time for the domestic version? What are the company's expectation or specific targets for this game going forward?

[Foreign Language]

[Interpreted] Okay. So as you know, MARVEL Mystic Mayhem was officially launched in overseas market on June 26, with this unique art style and innovative game design. The game has received multiple features from Google and App Store and also editor interview as well. And the update with fantastic full release at the end of July has been well received by players as well. In the meantime, we do face some long-term growth challenges for the game, and we're in the process of figuring out how should we grow the game and keep your game in the long run. Thank you.

And that concludes the question-and-answer session. I would like to hand the conference back to Brandi Piacente for any additional or closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly, and have a great day and good evening. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]