NetEase (NTES US) 4Q25 Results Summary
Core Content Overview
NetEase reported its fourth-quarter 2025 results, showing a total revenue increase of 3% YoY to RMB27.5bn, slightly below the Bloomberg consensus estimate. The company's operating income rose by 6% YoY to RMB8.3bn, also missing the consensus. Despite the revenue shortfall, the report remains constructive on the FY26E revenue growth outlook, driven by strong contract liabilities growth of 34% YoY to RMB20.5bn, indicating healthy user engagement and game performance.
Key Business Segments
Online Games
- Revenue: RMB22.0bn (3% YoY growth), representing 79.7% of total revenue.
- Performance:
- Where Winds Meet: Surpassed 80mn cumulative players post global launch.
- Fantasy Westward Journey franchise and Blizzard titles: Achieved record-high annual revenue in FY25.
- Legacy titles: Maintained strong user engagement through innovative content and events.
- Pipeline: Several highly anticipated games are set for launch in FY26E, including Sea of Remnants (3Q26E), YaoYaoQi (2026E), ANANTA (TBA), and Blood Message (TBA).
- AI Integration: Management believes AI tools like Genie 3 will enhance game development quality and efficiency, rather than pose direct threats.
Music and Youdao
- NetEase Cloud Music: Revenue increased by 5% YoY to RMB2.0bn, driven by online music growth.
- Youdao: Revenue grew by 17% YoY to RMB1.6bn, primarily due to strong online marketing services.
Innovative Businesses and Others
- Revenue decreased by 10% YoY to RMB2.0bn, mainly due to the elimination of inter-segment transactions.
Financial Performance
- Gross Margin: Increased by 3.4ppts YoY to 64.2%.
- Operating Margin: Expanded by 1.0ppt YoY to 30.2%.
- Shareholder Return: Maintained RMB14.5bn in 2025, equivalent to ~3% of market cap.
- Trading Volume: NetEase's trading volume in HK exceeded 55% of total HK & US trading volume, indicating a potential primary listing in HK and inclusion in Stock Connect, which could be a catalyst for 2026.
Financial Forecast and Valuation
| Metric |
FY24A |
FY25A |
FY26E |
FY27E |
FY28E |
| Revenue (RMB mn) |
105,295 |
112,626 |
120,763 |
129,077 |
137,432 |
| Gross Margin (%) |
62.5 |
64.3 |
64.8 |
65.0 |
65.2 |
| Adjusted Net Profit (RMB mn) |
33,510.6 |
37,343.7 |
41,448.6 |
44,707.9 |
47,509.7 |
| Adjusted EPS (RMB) |
52.35 |
58.83 |
64.40 |
69.46 |
73.81 |
| P/S (x) |
5.2 |
4.8 |
4.5 |
4.2 |
4.0 |
| P/E (x) |
18.4 |
16.1 |
14.7 |
13.6 |
12.8 |
Earnings Revision
| Metric |
Current (RMB bn) |
Previous (RMB bn) |
Change (%) |
| Revenue |
120.8 |
122.8 |
-1.6% |
| Gross Profit |
78.2 |
79.4 |
-1.5% |
| Operating Profit |
39.8 |
41.0 |
-2.9% |
| Adjusted Net Profit |
41.4 |
43.3 |
-4.3% |
| Adjusted EPS (RMB) |
64.4 |
67.3 |
-4.3% |
SOTP Valuation
- Target Price: US$161.50 (down from US$164.00).
- Valuation Breakdown:
- Online Games: US$142.1 (88.0% of total valuation), based on 17x 2026EV/EBIT.
- Youdao: US$0.7 (0.4%), based on 0.9x 2026E EV/revenue.
- NetEase Cloud Music: US$3.4 (2.1%), based on 3.0x 2026E EV/revenue.
- Innovative Businesses: US$1.5 (0.9%), based on 1.0x 2026E EV/revenue.
- Net Cash: US$13.8.
Peer Comparison
Online Games
| Company |
Ticker |
Price (LC) |
EBIT Growth (YoY) |
EV/EBIT (x) |
| Tencent |
700 HK |
551.0 |
16/13 |
16 |
| Electronic Arts |
EA US |
202.6 |
6/23 |
24 |
| Nexon |
3659 JP |
3,735.0 |
7/7 |
15 |
| Bandai Namco |
7832 JP |
4,171.0 |
(12)/7 |
13 |
| Perfect World |
002624 CH |
22.5 |
94/18 |
19 |
| Average |
|
|
|
17 |
Education, Online Music, E-commerce
| Company |
Ticker |
Price (LC) |
Revenue Growth (YoY) |
EV/Revenue (x) |
| New Oriental |
EDU US |
60.9 |
12/11 |
1.1 |
| TAL Education |
TAL US |
12.3 |
32/23 |
1.4 |
| Gaotu |
GOTU US |
2.2 |
15/15 |
0.3 |
| TME |
TME US |
16.9 |
13/12 |
4.1 |
| Spotify |
SPOT US |
476.0 |
15/14 |
3.8 |
| BiliBili |
BILI US |
31.0 |
9/9 |
2.3 |
| Kuaishou |
1024 HK |
70.4 |
9/8 |
1.6 |
| Average |
|
|
|
3.0 |
Analyst Ratings and Recommendations
- Ratings:
- BUY (Maintain)
- Target Price: US$161.50
- Current Price: US$123.52
- Up/Downside: 30.7%
Shareholding and Stock Data
| Metric |
Value (US$ mn) |
| Market Cap |
78,718.2 |
| Avg 3 mths t/o |
92.3 |
| 52w High/Low |
159.34/91.37 |
| Total Issued Shares (mn) |
637.3 |
Shareholding Structure
| Shareholder |
Ownership (%) |
| William Lei Ding |
45.8% |
Share Performance (12-mth)
| Period |
Absolute (%) |
Relative (%) |
| 1-mth |
-11.3 |
-9.1 |
| 3-mth |
-13.2 |
-11.8 |
| 6-mth |
-4.2 |
-11.3 |
Conclusion
Despite the revenue miss in 4Q25, NetEase's strong growth in contract liabilities and upcoming game launches suggest continued growth potential in FY26. The company is also expected to benefit from a potential primary listing in HK and inclusion in Stock Connect. The SOTP valuation approach supports a target price of US$161.50, and the analyst maintains a BUY rating with a 30.7% upside from the current price. The financial performance highlights increasing gross and operating margins, and the company's strategic focus on AI integration and core business growth positions it well for future performance.
