NetEase (NTES US) 1Q26 Financial Summary and Outlook
Core Content Overview
NetEase (NTES US) reported strong financial results for the first quarter of 2026, with total revenue rising 6% YoY to RMB30.6bn, surpassing the Bloomberg consensus and the analyst's estimate by 4% and 2%, respectively. Non-GAAP net income remained flat YoY at RMB11.3bn but beat expectations by 13% and 4%, driven by a 5.3ppt increase in gross profit margin (GPM) and prudent operating expenses (opex) control.
The company's game business was a key driver of performance, with games and related VAS revenue up 7% YoY to RMB25.7bn. Notable successes included the overseas launch of Where Winds Meet, which achieved record-high quarterly revenue and ranked second on Steam's global top-selling chart, and Fantasy Westward Journey Online, which reached a new peak of 3.9 million concurrent users. Identity V also maintained steady user engagement through continuous gameplay system upgrades.
Several highly anticipated titles are expected to launch in the second half of 2026 and into FY27, including Sea of Remnants (launching in 3Q26E), ANANTA, Floatopia, Infinite Borders: Three Kingdoms, and Blood Message. These are anticipated to accelerate revenue growth from 2H26E onwards.
In addition to the game business, NetEase's Music and Youdao segments showed steady performance, with Cloud Music revenue increasing 7% YoY to RMB1.98bn and Youdao revenue rising 4% YoY to RMB1.35bn. However, the innovative businesses and others segment declined by 5% YoY to RMB1.55bn due to headwinds in e-commerce and advertising.
Key Financial Highlights
- Revenue: RMB30.6bn (1Q26)
- Non-GAAP Net Income: RMB11.3bn (1Q26)
- Games Revenue: RMB25.7bn (1Q26), up 7% YoY
- GPM: 69.4% (1Q26), up 5.3ppt YoY
- Overall OPM: 41.4% (1Q26), up 5.2ppt YoY
- G&A Expenses: Down 33% YoY (1Q26)
- Earnings Forecast: Raised by 3-4% for FY26-28E
- Target Price: US$155.0 (down from US$161.5)
Earnings Summary (YE 31 Dec)
| Year |
Revenue (RMB mn) |
Gross Margin (%) |
Adjusted Net Profit (RMB mn) |
EPS (Adjusted) (RMB) |
Consensus EPS (RMB) |
P/S (x) |
P/E (x) |
| FY24A |
105,295 |
62.5 |
33,510.6 |
52.35 |
52.35 |
4.7 |
16.8 |
| FY25A |
112,626 |
64.3 |
37,343.7 |
58.83 |
58.83 |
4.4 |
14.6 |
| FY26E |
120,522 |
67.0 |
42,567.5 |
66.14 |
62.49 |
4.1 |
12.8 |
| FY27E |
129,042 |
67.2 |
46,321.6 |
71.76 |
69.52 |
3.9 |
11.6 |
| FY28E |
137,396 |
67.4 |
49,133.5 |
76.12 |
75.47 |
3.6 |
10.9 |
Analyst Recommendation
- Rating: BUY (Maintain)
- Target Price: US$155.00
- Previous Target Price: US$161.50
- Up/Downside: 35.6%
- Current Price: US$114.34
Shareholding and Stock Data
- Market Cap (US$ mn): 73,134.7
- Avg 3 mths t/o (US$ mn): 48.0
- 52w High/Low (US$): 159.34 / 109.26
- Total Issued Shares (mn): 639.6
Share Performance
| Period |
Absolute |
Relative |
| 1-mth |
0.9% |
-5.3% |
| 3-mth |
-3.4% |
-15.9% |
| 6-mth |
-14.4% |
-27.5% |
SOTP Valuation Breakdown
- Online Games: US$137.2 (88.5% of total valuation), based on 15x 2026E EV/EBIT
- Youdao: US$0.6 (0.4%), based on 0.7x 2026E EV/revenue
- Cloud Music: US$2.2 (1.4%), based on 1.9x 2026E EV/revenue
- Innovative Businesses: US$1.2 (0.8%), based on 0.8x 2026E EV/revenue
- Net Cash: US$13.9
Peer Comparison
Online Games
| Company |
Ticker |
Price (Local) |
EBIT Growth (FY26E) |
EV/EBIT (x) |
| Tencent |
700 HK |
455.2 |
13% |
13 |
| Electronic Arts |
EA US |
201.6 |
24% |
20 |
| Nintendo |
7974 JP |
7,240.0 |
24% |
18 |
| Bandai Namco |
7832 JP |
3,721.0 |
(12)% |
11 |
| Perfect World |
002624 CH |
14.8 |
97% |
13 |
| Average |
- |
- |
- |
14 |
Education, Online Music, E-commerce
- Education: New Oriental, TAL Education, Gaotu
- Online Music: TME, Spotify, Bilibili
- E-commerce: Alibaba, JD, Pinduoduo, Vipshop
Financial Summary (Income Statement)
| Item |
2023A (RMB mn) |
2024A (RMB mn) |
2025A (RMB mn) |
2026E (RMB mn) |
| Revenue |
103,468 |
105,295 |
112,626 |
120,522 |
| Gross Profit |
63,063 |
65,807 |
72,402 |
80,751 |
| Operating Profit |
27,709 |
29,584 |
35,835 |
43,871 |
| Adjusted Net Profit |
32,608 |
33,511 |
37,344 |
42,567 |
Financial Summary (Balance Sheet)
| Item |
2023A (RMB mn) |
2024A (RMB mn) |
2025A (RMB mn) |
2026E (RMB mn) |
| Total Assets |
185,925 |
195,992 |
221,415 |
251,603 |
| Total Liabilities |
57,841 |
53,497 |
56,311 |
60,095 |
| Total Shareholders Equity |
124,286 |
138,686 |
160,296 |
186,017 |
Cash Flow Summary
| Item |
2023A (RMB mn) |
2024A (RMB mn) |
2025A (RMB mn) |
2026E (RMB mn) |
| Net Cash from Operations |
35,331 |
39,677 |
50,740 |
44,488 |
| Net Cash from Investing |
(17,043) |
17,916 |
(33,181) |
(11,616) |
| Net Cash from Financing |
(21,467) |
(27,336) |
(20,160) |
(10,883) |
Valuation Metrics
| Metric |
2023A |
2024A |
2025A |
2026E |
2027E |
2028E |
| P/E (x) |
17.0 |
16.8 |
14.6 |
12.8 |
11.6 |
10.9 |
| P/B (x) |
4.0 |
3.6 |
3.1 |
2.7 |
2.3 |
2.0 |
Analyst Certifications and Disclosures
- The analyst certifies that the views expressed in the report reflect personal views and that compensation is not tied to specific views.
- No trading in the covered stocks within 30 days prior to the report's release.
- No trading for 3 business days after the report's release.
- No financial interests in the covered companies.
CMBIGM Ratings
| Rating |
Description |
| BUY |
Potential return of over 15% over next 12 months |
| HOLD |
Potential return of +15% to -10% over next 12 months |
| SELL |
Potential loss of over 10% over next 12 months |
| NOT RATED |
Stock is not rated by CMBIGM |
| OUTPERFORM |
Industry expected to outperform the relevant broad market benchmark |
| MARKET-PERFORM |
Industry expected to perform in-line with the relevant broad market benchmark |
| UNDERPERFORM |
Industry expected to underperform the relevant broad market benchmark |
