On August 24, NetEase released its 2023 Q2 financial report. In the second quarter, NetEase continued to focus on its main business and performed steadily; net income was 24 billion yuan, net profit from continuing operations attributable to the company's shareholders under non-GAAP accounting principles was 9 billion yuan, and R&D investment was 3.9 billion yuan, equivalent to nearly half of the total. Profits are invested in research and development. During the quarter, the company accelerated the implementation of key technologies such as AI large models, and frequently made new hits and breakthroughs in the field of digital content. At the same time, we will give full play to the social value of self-developed technology and innovate in areas such as minor protection, the real economy, and social welfare.
In the second quarter, revenue from games and related value-added services was 18.8 billion yuan, and self-developed new products performed outstandingly. NetEase Cloud Music has strengthened its music-centered product experience and commercialization capabilities, with single-quarter revenue of 1.9 billion yuan, and its gross profit margin doubled to 27.0% year-on-year. The platform's monthly active users have grown steadily, with a year-on-year increase of 14% in the first half of the year to over 200 million people. NetEase Youdao's revenue in the second quarter was 1.2 billion yuan, a year-on-year increase of 26%. In July, it released China's first self-developed large-scale education model and developed six innovative applications based on the large model.
NetEase’s Q2 net income from innovation and other businesses was 2.1 billion yuan. NetEase Media promotes the innovative integration of AI technology and news scenes. Eassy, the country's first hyper-realistic digital human technology blogger, has a conversation with "Musk", which has attracted widespread attention; NetEase News client ranks first in the industry in average daily usage time per person, and its video content Consumption accounted for 72%. At the same time, thanks to the improvement in gross profit margin of NetEase Yanxuan, the gross profit margin of innovative business in Q2 reached 29.5%, a double increase year-on-year. NetEase Yanxuan continues to promote category focus and drive hot products, and launched the origin traceability marketing IP "Strictly Selected Treasure Plan" to help popular products get out of the circle. During the 618 period, many core categories such as pets, home furnishings, and office furniture won the sales championship on major e-commerce platforms.
Accelerate the implementation of large AI models, and lead the industry in R&D investment intensity of 60 billion in five years
NetEase insists on building an "application-oriented" R&D system based on the global market, promoting the transformation of cutting-edge achievements such as large AI models into specific products and services, and truly using technological breakthroughs to promote business development and enhance user experience. In the past five years, NetEase has invested nearly 60 billion yuan in total, with an average R&D investment intensity of 15%. R&D intensity continues to lead the Internet industry. Up to now, NetEase has published more than 10,000 patent applications and authorized more than 4,000 patents, focusing on key technology fields in the digital industry such as artificial intelligence, blockchain, and audio and video.
NetEase Youdao is accelerating the implementation of AI technologies such as large models in multiple business scenarios, and its commercialization prospects are gradually emerging. NetEase Youdao released China's first vertical large-scale education model "Zi Yue" in July, and based on it developed six innovative applications including oral training, large-scale model translation, document question and answer, AI composition correction, and grammar intensive teaching. Recently, Youdao Dictionary Pen X6 Pro has taken the lead in being equipped with the first "virtual spoken language coach" function in China, supporting one-on-one, multi-scenario, 24-hour AI spoken dialogue services. The new AI ultra-high-speed review function launched by "Youdao Zongheng Chess Academy" has driven the renewal rate of advanced classes to nearly 70%. Thanks to the in-depth application of AI technology, Youdao’s net revenue from online marketing services increased by 99% year-on-year.
NetEase Games has promoted self-research on AI technologies such as large models, won five AI-related track championships at the top international conferences, and explored applications in content production to improve efficiency and stimulate content creativity. Since the second quarter, NetEase's technical team has won five championships in top international AI conference competitions such as CVPR, IJCAI, and ACM MM. The relevant results have been applied to the production of game art assets such as original painting, modeling, and animation synthesis, significantly shortening the research and development cycle and reducing production costs. cost. At the same time, based on AI technologies such as self-developed large models, NetEase has pioneered innovative gameplay methods such as intelligent NPC interaction, AI text face pinching, and AI dress-up in the game industry, which have been widely praised by users.
NetEase Cloud Music integrates AI technology into the entire creative process of musicians, continues to launch music creation tools, and explores a new generation of music created by humans and machines. In addition to BEATSOUL exciting beat trading platform, inspiration charging station, NetEase Tianyin and other music auxiliary creation tools, NetEase Cloud Music also established the first virtual singer label WOWAIDO with Xiaobing in June! , open the AI singer music creation tool "NetEase Cloud Music·X Studio". Users only need to input music scores and lyrics, and within 3 seconds, an AI singing voice comparable to that of a professional singer can be generated. The parameters can also be adjusted to present delicate singing effects such as portamento, transposition, and vibrato.
Several phenomenal hits performed beyond expectations, and the first AI application revolutionized the game industry
Faced with a new wave of AI technology, NetEase has taken the lead in the industry in exploring the application of technology, helping several self-developed new products become phenomenon-level masterpieces. At the end of June, based on its independent R&D and innovation capabilities, NetEase launched the country's first open-world martial arts game "Backwater Cold" mobile game and the first 3A-level realistic control racing mobile game "Peak Speed", which topped the domestic download list for many days in a row. The explosive power is strong and the performance far exceeds market expectations.
The mobile game "Ni Shui Han" is the world's first large-scale open world game with self-developed AI gameplay. The number of players exceeded 40 million in the first month of its launch, achieving an epoch-making breakthrough in the MMO track. The mobile game "Ni Shui Han" focuses on the application of more than 30 self-researched AI technology achievements such as machine learning and engine learning, and introduces innovative gameplay methods such as intelligent NPC, AI face pinching, and AI lyrics writing. This kind of self-developed AI-driven innovative gameplay has attracted a large number of Generation Z players who have never been exposed to the MMO genre to the game, triggering a large amount of UGC short video content to push the game out of the circle.
Another self-developed masterpiece, "Peak Speed", through a large number of independent technological innovations, has achieved a breakthrough in achieving a racing game experience on the mobile phone that is comparable to that of consoles. "Apex" not only uses the industry's top technologies such as physical collision, visual rendering, and sound effect pinching, but also conducts a large number of customized developments based on the characteristics of the mobile game, which greatly lowers the threshold for 3A console-level racing games to run on the mobile game and helps "Apex" topped the iOS download list for 10 consecutive days, twice ranked third on the best-selling list, and continues to remain at the top of both lists.
The popular game "Egg Party" continues to explore the in-depth integration of UGC content ecology and AI technology to create a content co-creation ecology with a lower threshold. On the first anniversary of its launch, "Egg Boy Party" held its first creators conference and launched a generous incentive plan; at the same time, it continued to iterate the UGC map editing function and added an AI-assisted map creation function, with usage exceeding 3 million. Currently, the number of creators of "Egg Boy Party" has exceeded 26 million, and the number of UGC maps added every week reaches one million.
The industry's first AI patrol for minor protection reduces the risk of over 5 million minors' false real names
At the end of the second quarter, NetEase launched a special summer protection project for minors for the third consecutive year. It launched a number of innovative measures to protect minors for the first time in the industry and weaved a dense protective net. In response to the situation where some minors pretend to be adults to bypass anti-addiction supervision, we have launched a 24-hour AI patrol for the first time, using technical means to improve the accuracy of identifying minors' behavior, strengthen the filtering and interception efficiency of bad information, and effectively ensure Internet safety for minors during the summer. Since the summer, AI patrols have reduced the risk of false real names for more than 5 million minors. In order to recommend age-appropriate content, the "Baby Egg" mode was launched in the "Egg Party" game. For the first time, customized content for minors was explored in the game. Based on the educational needs of minors, an exclusive content pool was customized for minors.
This summer, NetEase stepped up its crackdown on black products and achieved initial results. In response to the illegal account rental and sale behavior, 1.21 million black production studio accounts have been blocked so far, effectively preventing such accounts from flowing into the market and flowing to minors. To date, more than 1 million anti-fraud reminders have been sent to illegal gangs that use games to commit fraud, and a total of more than 2,000 live broadcast rooms and chat groups outside of games have been banned.
Consolidating the network safety barrier for minors also requires strengthening collaborative governance from all sectors of society. Since the summer, NetEase has launched 88.07 million parent-coordinated pop-ups for accounts of minors suspected of using their parents’ identities to play games. The usage rate of the family-enterprise co-management function has increased by 480%, helping parents quickly bind unidentified accounts through the “NetEase Parent Care Platform”. Adult children's game accounts can query and manage game duration and consumption in real time, and can set one-click ban on play and consumption.
Accelerate the empowerment of technology across real industries and help create 100,000 new digital jobs
In the first half of this year, NetEase accelerated the pace of cross-industry empowerment of self-developed technologies, using practical application results to create new digital jobs and promote high-quality development of the real economy.
In the second quarter, NetEase technology accelerated its service to the real industry, and its implementation results covered social and livelihood fields such as construction machinery and telemedicine. NetEase Fuxi and China Construction Eighth Engineering Group Co., Ltd. jointly developed an unmanned loading robot. It has been used in the Hutong Railway’s intelligent concrete mixing station and will be delivered in batches within the year to help create a safe and efficient intelligent engineering environment. NetEase Intelligent Enterprise and New H3C Smart Terminal jointly developed an 8K video scene-based solution to achieve real-time, delay-free transmission and exchange of 8K ultra-high-definition pathological images, allowing high-quality doctors in developed areas to provide professional diagnostic opinions to hospitals in remote areas.
Based on its own technological advantages, NetEase has created an online crowdsourcing and low-code development platform to drive new digital employment. NetEase's Fuxi Youling crowdsourcing platform will provide 100,000 people with new human-machine collaboration positions including remote excavator drivers, AI painters, AI expression binders, etc. The number of employees on the platform in May has increased by more than 50% compared to the beginning of the year. NetEase Shufan recently launched the "Digital Intelligence Talent Development Plan", which will permanently open the CodeWave intelligent development platform to individual developers for free and launch a low-code engineer certification system to further promote the cultivation of low-code talents and industrial development.
Recently, NetEase will also open up its self-developed AI technology and apply it to social welfare fields such as voice restoration for the hearing-impaired to fulfill its social responsibility. NetEase Group, NetEase Philanthropy, and the Zhejiang Provincial Welfare Foundation for Disabled Persons launched the "First Sentence in Life" voice restoration charity project, using NetEase Interactive Entertainment AI Lab's iSpeech technology to create the first AI tool to restore the original voices of the hearing-impaired, and has provided it nationwide Free admission for the hearing impaired. By simply uploading a 2-minute voice clip without complete semantics, AI technology can "clone" your own voice and read out the input text in its original voice, helping hearing-impaired people who work in "strong communication" occupations such as baristas and bakers to become more incommunicado with the outside world. Communicate emotionally and emotionally.
In the future, NetEase will continue to focus on user and social needs, use technological power to promote continuous breakthroughs in business, and serve the long-term high-quality development of the real economy.