Since the beginning of this year, the popularity of AI large-scale models has risen repeatedly, and more and more companies have joined the field of AI large-scale models, and they have stepped down one after another. Among the many participants, the figure of Internet companies has emerged frequently, such as Baidu, Alibaba, Tencent and so on. It is worth mentioning that Netease has also joined this AI large-scale model competition. At the 2023 World Artificial Intelligence Conference (WAIC) not long ago, NetEase demonstrated a variety of AI large-scale model products.
Under the wave of AI large-scale models, as a participant, NetEase's every move has attracted the attention of all parties. Recently, NetEase announced the unaudited financial results for the second quarter of 2023. The financial report shows that NetEase’s revenue in the second quarter of 2023 will be 24 billion yuan, a year-on-year increase of 3.7%; non-GAAP net profit from continuing operations attributable to the company’s shareholders is 9 billion yuan, a year-on-year increase of 67%. From the perspective of data alone, NetEase’s performance in the second quarter can be described as stable.
The game is still solid
When it comes to NetEase, the first thing that comes to most users’ minds is games, and NetEase has also launched a number of popular games, which have won the favor of many users. As the core segment of NetEase, the game business has always made outstanding contributions to its revenue, and this time is no exception. The financial report shows that in the second quarter of 2023, NetEase’s game and related value-added service revenue was 18.8 billion yuan, a year-on-year increase of 3.6%. In the context of negative growth in the game market, NetEase's game business can maintain stable growth, which is a testament to its skill.
First, NetEase continues to innovate the games that have been launched to optimize the user's gaming experience. In order to bring users a better gaming experience, NetEase continues to update, optimize and upgrade the game. For example, in "Egg Boy Party", NetEase continued to iterate the UGC map editing function, and also added an AI-assisted map creation function to enhance the playability of the game and the user's sense of participation.
Not only that, "Egg Party" also held the first creator conference and launched an "incentive plan" to mobilize creators' enthusiasm for creation and continue to enrich the game ecology. It is reported that the number of creators of "Egg Party" has exceeded 26 million, and the number of new UGC maps has reached one million every week. Netease's various initiatives have also effectively enhanced the game's appeal to players and given the game more vitality.
Second, NetEase continues to launch new games, bringing freshness to users. In addition to classic games, players also have a high interest in new games. Based on this, NetEase continues to launch new games in addition to continuing to operate classic games. For example, in June, NetEase successively launched three new mobile games: "Pioneer", "Peak Speed" and "Naishuihan".
It is worth mentioning that these new NetEase games have achieved quite impressive results once they were launched. According to the data from Sensor Tower, Netease’s martial arts mobile game "Naishuihan" basically remained in the top 3 of the domestic iPhone mobile game best-selling list for 30 days after its launch, and ranked second in the global iOS mobile game best-selling list in July, becoming a subsidiary of NetEase Games in this issue. The highest-grossing mobile game product; the racing mobile game "Peak Speed" in July revenue increased by 141% month-on-month, ranking 9th on the best-selling iOS mobile game list in China.
The third is that NetEase's application of AI technology in the game scene has enhanced the attractiveness of the game to users. The application of AI technology has become the focus of exploration by many enterprises, and Netease is also actively trying. Netease tried to apply AI technology to many scenarios such as games to tap its value and speed up the implementation. It is understood that NetEase's new mobile game "Naishuihan" integrates more than 30 self-developed AI technology achievements including machine learning and engine learning, and introduces innovative gameplay such as intelligent NPC, AI face pinching, and AI lyrics creation. Therefore, the mobile game "Naishuihan" has attracted the attention of a large number of players, and the number of players exceeded 40 million in the first month of its launch.
Youdao is steady and positive
In addition to the game business, Netease Youdao's performance has also attracted special attention. The financial report shows that in the second quarter of 2023, NetEase Youdao’s revenue will be 1.2 billion yuan, an increase of 26.2% compared with the second quarter of 2022. NetEase Youdao's performance growth is also related to many factors.
First of all, the application of Youdao AI technology has improved the accuracy and production efficiency of advertisements, driving the growth of online marketing services. Youdao has always paid special attention to technology accumulation, and its self-developed AI technology has gradually been applied to business. It is reported that Youdao can use self-developed AI technology to judge the topics related to KOL, and the accuracy rate of intelligent marking is close to 90%, which can realize the precise delivery of advertisements.
In addition, Youdao has also applied AIGC technology to advertising production. It is understood that through the application of AIGC technology, Youdao has not only improved the efficiency of advertisement production, shortened the time for advertisement production, but also reduced the cost of advertisement production. The impact of AI technology on Youdao’s advertising business is also reflected in its performance. The financial report shows that in the second quarter of 2023, NetEase Youdao’s online marketing service net income was 304 million yuan, a year-on-year increase of 98.7%; the gross profit margin was 31.9%, a year-on-year increase of 4.2%.
Secondly, NetEase Youdao continues to enrich learning products and content, which has played a positive role in the growth of learning service business. Due to differences in stages and personalities, students have different learning needs and preferences. In order to meet the diverse learning needs of more students, Youdao is constantly enriching learning products and services while maintaining high-quality teaching.
For example, in the second quarter, Youdao launched an AI voluntary reporting system, which can comprehensively weigh candidates’ grades, career interests and other multidimensional factors, and provide students with suggestions and guidance for voluntary reporting through big data analysis and admission probability calculations. In terms of quality education, Youdao has made a new upgrade to the "Youdao Zonghengqiyuan" APP. On the basis of Go and chess, Chinese chess has been added, and the category of chess projects has been expanded. Not only that, Youdao also relies on AI capabilities to launch new functions such as AI ultra-high-speed replay and voice replay, which optimizes the user experience. The financial report shows that in the second quarter of 2023, NetEase Youdao’s learning service net income was 681 million, a year-on-year increase of 20.8%.
Unlike the growth of online marketing service business and learning service business, NetEase Youdao's smart hardware business has declined slightly. The financial report shows that Youdao’s smart hardware revenue in the second quarter was 220 million yuan, compared with 240 million yuan in the same period last year. It is worth mentioning that Youdao has already installed AI large-scale models in a variety of educational smart hardware products. By then, Youdao's smart hardware business may usher in new growth.
Cloud music is a bit of a twist
Compared with the stability of the game business and Youdao business, the cloud music business appears to have some twists and turns. The financial report shows that in the second quarter of 2023, cloud music revenue will be 1.9 billion yuan, a decrease of 11.1% compared with the second quarter of 2022. However, although Cloud Music has experienced a decline in revenue, the user data is also particularly eye-catching. According to the financial report, the monthly active users of Cloud Music in the first half of the year increased by 14% year-on-year to over 200 million.
Firstly, NetEase Cloud Music continues to enrich the content of the platform and broaden the options for users. Whether the music library is complete is the key to whether the music platform can attract new users and retain old users, and users have a significant impact on the membership business of the music platform, so the importance can be imagined. Therefore, in order to enhance user stickiness and its own attractiveness, NetEase Cloud Music continues to focus on content. According to Cloud Music, in the first half of this year, NetEase Cloud Music has successively established cooperative relationships with many well-known labels and leading artists. Among them, there are not only Chinese labels including Believe Music, Yuding Shi, etc., but also well-known Korean labels represented by JTBC.
Secondly, Netease Cloud Music continues to carry out original music support plans to strengthen the differences of the platform. In addition to copyright content, original music is also the focus of NetEase Cloud Music, and NetEase Cloud Music also contributes to original music through a series of original music support projects such as "Stone Project" and "Ladder Project". Thanks to this, the original music of Netease Cloud Music has also had a deep precipitation. Data shows that by June 2023, the number of original musicians on the NetEase Cloud Music platform will exceed 646,000; a total of about 2.8 million music tracks have been created.
Thirdly, NetEase Cloud Music has also launched many creative tools to empower creators. In order to better help creators create music, NetEase Cloud Music has launched a series of auxiliary tools, such as Inspiration Charging Station, BEATSOUL Jiling, NetEase Cloud Music X Studio and so on. The launch of these creation aids will help to improve the creative efficiency of creators, so as to create excellent music works. Take NetEase Cloud Music X Studio as an example. It is understood that this software can provide music creators with virtual singers of different styles and timbres. Users only need to input the score and lyrics, and the singer can sing in a short time. Creators provide assistance in creating musical compositions.
Worry still exists
Whether it is the stability of the game business, the growth of Youdao business, or the increase in cloud music users, all of them confirm the possibility of NetEase. However, it must be said that even though NetEase's various businesses are developing in a positive direction, it still faces many tests.
First, although the game business has performed steadily, it has also experienced a slowdown in revenue growth. Netease's game business has always accounted for a high proportion of total revenue, bearing the burden of supporting the family, but the growth rate of the game business has slowed down. Data show that in the first quarter of 2023, NetEase’s net revenue from games and related value-added services was 20.1 billion yuan, a year-on-year increase of 7.6%. In the second quarter, the year-on-year growth rate of NetEase’s game revenue came to 3.6%. At the same time, new games from other game manufacturers are emerging one after another, and they also have strong competitiveness. Although Netease Games has cultivated the minds of users, the pressure is still not small.
Second, Youdao business, cloud music business and innovative business still account for a relatively small proportion. Although NetEase's businesses other than games have shown good development potential and achieved a number of data growth, the proportion of these businesses in the total revenue structure is still relatively small, and their growth still takes time.
However, it is worth mentioning that NetEase's long-term investment in technology research and development has gradually shown results. AI technology is becoming a new variable in many of NetEase's businesses, and is expected to help NetEase achieve new breakthroughs. Despite the many challenges it faces, NetEase can always overcome the problems one by one. All in all, the future of NetEase is still worth looking forward to.