NetEase, Inc. (NTES) Q4 2021 Earnings Call Transcript

NetEase, Inc. (NASDAQ: NTES) Q4 2021 earnings call dated Feb. 24, 2022

Corporate Participants:

Margaret Shi — Investor Relations

Charles Zhaoxuan Yang — Chief Financial Officer

Analysts:

Jialong Shi — Nomura — Analyst

Alicia Yap — Citi — Analyst

Natalie Wu — Haitong International — Analyst

Thomas Chong — Jefferies — Analyst

Alex Poon — Morgan Stanley — Analyst

Unidentified Participant — — Analyst

Guanran Wang — CITIC — Analyst

Presentation:

Operator

Good day, and welcome to the NetEase 2021 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions].

At this time, I would like to turn the conference over to Margaret Shi, IR Director of NetEase. Please go ahead, ma’am.

Margaret Shi — Investor Relations

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to 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 in this discussion. A general discussion of the risk factors that could affect NetEase 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 the announcement and filings on the website of Hong Kong Stock Exchange. 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 a reconciliation of GAAP to non-GAAP financial results, please see the 2021 fourth quarter and full year 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 senior management is Mr. William Ding, Chief Executive Officer and Mr. Charles Yang, Chief Financial Officer.

I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.

Charles Zhaoxuan Yang — Chief Financial Officer

Thank you, Margaret, 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. 2021 was an eventful year for NetEase for online games, we introduced a number of prolific games breaking new record [Indecipherable]. For Youdao, we quickly and successfully restructured our business in light of the new regulation in the online education industries, and Youdao is now ready for its next phase of goal. And our Cloud Music business, we are extremely pleased to have completed its initial public offering on the Hong Kong Stock Exchange in December. We look forward to growing this business further with augmented content and [Indecipherable] to create and bring more quality music to our business. For online games, we finished the year with a strong quarter. Revenues came in at RMB 17.4 billion, representing 30% year-over-year growth.

Our flagship cycles continue to demonstrate strong year-over-year growth after two decades of operations. We continue to supply our loyal and sustainable base of users is continued content update. Revenues from our Fantasy Westward Journey and Westward Journey Online Saga continued to grow remarkably at double-digit rates year-over-year, further strengthening their position as China’s biggest MMO titles. In terms of our new game launch during the year, Naraka Bladepoint was a clear standout with international success. The game quickly broke the sales record for buy to play games made by Chinese developers and gained a claim as a top seller on STEAM’s best of 2021 games list. Some of the Naraka Bladepoint excitement in the fourth quarter followed our rollout of content update. For example, in our crossover with Bruce Lee, we brought a series of themed items based on the legendary martial arts figure into the Naraka World, letting players unleash the fury of the dragon against their opponents and invigorating the global player community. Keeping our games fresh with frequent updates, Naraka Bladepoint user base continuously hit new record — the strong engagement and retention we are seeing today brings us great confidence that Naraka Bladepoint will continue to attract users from all over the world. We are now working diligently to bring players console version and mobile version of the game, which we look forward to bringing to our players in the very near future.

The highly anticipated release of Harry Potter Magic Awakened also took the market by storm as one of the most successful games in China last year in chunking millions of players and dominating both top download and grossing chart in China following its launch in September. Harry Potter Magic Awakened uses the best-in-class development capabilities of NetEase games to bring players a cultivating game play experience with compelling features and in-depth collectible card system and beautifully crafted art style. After a strong debut in September, we continue to extend the game’s popularity by frequently rolling out captivating update that bring users fresh game play, cosmetic items and cards every month, rising to the Top three position multiple times on China’s iOS top grossing game chart during the fourth quarter. We share an equal excitement for the overseas versions of Harry Potter Magic Awakened and our localization for other geographies are progressing smoothly. two weeks ago, we kicked off the closed data testing for overseas players. Leveraging the talent of two gaming and online entertainment powerhouses, we will work very closely with one broader 7:01 games to co-publish this amazing game globally, including in the U.S., Europe and Japan later this year.

We believe worldwide audiences will be delighted to embark on Immersive Ventures 7:13, taking a fantastical journey into the visiting world of magic and infinite possibilities. In addition to these two blockbuster games, we are prone to have also launched a number of other titles in various brand new genres, growing our reach with new players and opening up new possibilities. We launched Ace Racer in July, our very first self-developed racing game, Ace Racer is a realistic art style and real-life racing tracks create an exciting and differentiated racing experience. Player can travel to Hangzhou, Chongqing, and other places to enjoy the unique and beautiful scenery. The strong debut of Ace Racer marks another lead in our genre expansion, giving us more confidence in our ability to create more successful titles outside of our comfort zone. Infinite Lagrange our space-themed SLG game launched in the third quarter is a great example showcasing how we expand SLG genres with its strong debut in China. As one of our next-generation SLG titles, Infinite Lagrange features an iconic based simulation experience, captivating hard-core Sci-fi players with its intense and exciting travel through time and space.

After six months of operation, Infinite Lagrange continues to show a healthy upward trend with gradually ramping revenue. With our strong R&D capabilities and relentless pursuit of innovation, we are constantly looking to break into new territories, capturing new users that reach beyond our traditional genres. Moving into 2022, we have an abundance of new pipeline projects planned for Naraka Bladepoint and Harry Potter Magic Awakened, as well as, a number of other strong titles ready for launch in China and globally. Diablo, Immortal has been long anticipated by players’ community worldwide. In our pursuit of top quality, the game has taken us great efforts to create and refine. We strive to bring our player the most authentic Diablo experience restored a popular combat style and immersive exploration features and create a new story and gameplay for the mobile platform. Luckily for players, the wait is almost over.

We have concluded the latest [Indecipherable] in January with highly positive feedback from players in both China and overseas markets. We are on track for its global launch this year. And in China alone, we have already over 10 million players preregistered for this exciting title. Additionally, Ghost World Chronicle, our self-developed Chinese-style Sci-fi RPG is also in the making. We creatively integrated Sci-fi style with elements from modern cities and traditional Chinese culture, creating an engaging Chinese style Sci-fi world with a distinct artistic style. We are working diligently on development and hoping to bring a fresh and differentiated RPG experience to player. In the overseas market, we will be launching Dead by Daylight Mobile in Asia, which is the mobile version of the famous asymmetrical [Indecipherable] arena PC game, we have worked jointly with Behavior Interactive to build this mobile version, and we are confident that players will find unrivaled asymmetrical competitive experiences following the games released in the coming months. As we create a larger presence on the international stage with our top-quality games, we are also attracting global top talent into NetEase.

In January, we announced that we have teamed up with master producer Toshihiri Nagoshi, former producer of Yakuza one of the most famous and best-selling game franchises in Japan. Together, we are building Nagoshi Studio in Tokyo for the development of high-quality games for global audiences. We share a commitment to unleash the potential of creative in an open and inclusive environment. The new studio will have full authority to manage and create the kind of games that they are passionate about, and we will be there to provide support throughout. Over the past few years, we have also attracted top producers, including Kazuya, Akasuka and [Indecipherable]. With these top talents joining us, we will gain new inspiration and global vision to reach passionate gamers around the globe with high-quality and engaging content. Now turning to Youdao. We have completed a smooth business transition in compliance with requirements from regulators and achieved steady growth throughout 2021. Total net revenues for Youdao were RMB 1.3 billion in the fourth quarter, representing 21% year-over-year growth. In addition, we achieved positive non-GAAP net income for the first time since our IPO and continuing operating cash flow inflow of RMB 142 million.

In the fourth quarter, we continued to upgrade our STEAM cost offerings. Gross billings from Youdao Go, Youdao Weiqi increased by around 130% year-over-year. Recently, we launched the Youdao [Indecipherable] Youdao Game Academy Act, which enables Go and Chess learning through AI or person-to-person matches. Complementary to our online offerings, we opened our first offline theme center in Beijing last November offering courses such as Youdao Go, Youdao Icon programming and the Youdao Drosophila Science to help improve children’s skills in logical thinking and explore the scientific goals. We expect to expand the learning center with more diversified content in the coming periods. Growth momentum from our leading smart devices also remain strong with new and improved content and features. Net revenues from the segment grew 34% year-over-year to RMB 317.7 million in the fourth quarter through a partnership with the commercial press, [Indecipherable], the oldest and most influential publishing agency in China, exclusive content, including those from Xinhua Dictionary were added to our Dictionary Pen.

Additionally, in our new upgraded pro version of the Dictionary Pen personalized writing assessment and improvement suggestions are available for students at various stages of learning based on vocabulary, grammar and composition. These features are again powered by our strong AI technology such as optical character recognition and natural language processing capability. As for education digitization solution, we have secured strategic partnerships with a number of local municipals, including [Indecipherable] to provide schools and teachers with our Youdao Smart Learning terminal and solutions, empowering them to effectively track student learning progress and optimize teaching guidelines. Turning to our Cloud Music business. Throughout the year, we continued to make progress on our financial, operational and corporate goals.

The various products and content enhancement we made strengthened our overall position amidst a healthier industry environment. MAU of online music services is stable in 2021. In the fourth quarter, net revenues increased 24% year-over-year to RMB 1.9 billion with continued increase in membership paying ratio. We have managed to improve profitability along with enhancements to our content library attributable to copyright cost optimization. In the fourth quarter, we enhanced our margins both year-over-year and quarter-over-quarter and achieved positive gross margin for the full year of 2021. To foster our growing music community, we continued our product innovation initiatives in the fourth quarter. Some of our upgrades included more individual personalization capabilities on homepage, users can now better showcase their personalities and music preferences. We also added a music notation function in November, providing music enthusiast with professional and accurate score and services across our music offering. In addition, we launched our brand new beats trading platform in mid-December accommodating transactions between beat makers and musician, as well as, Music Pen.

The beats platform has the potential to not only allow beat makers to realize commercial value, but also liberate individual musicians creative content enriching our content ecosystem and bonding our users together even more. On the content side, we secured more high-quality music from large IP owners and continues to merger independent artists. By the end of the fourth quarter, we were servicing more than 400,000 independent musicians. Meanwhile, we have been making progress on our initiatives to produce music in house, which further diversifies and differentiates our content offering. Going forward, we hope to bring more quality content to our platform to complement our music library while working together with other industry players to benefit all music lovers. On to Yanxuan, as one of the most lifestyle brands catering to the new middle class in China, NetEase Yanxuan is redefining the lifestyles of China’s younger generation, intensifying our focus on certain categories, we continue to launch a variety of popular product across core categories, including food, electrical appliances, household cleaning, pets and beauty and skin care.

Our useful design-led approach has enables the product on our platform to gain increasing appeal with younger consumers. As we grow each of our businesses, we are also very conscious of this effect on society and our emphasis on ESG initiatives has greatly increased over the past years. We are honored to have our efforts acknowledged by MSCI, who upgraded our ESG rating to A. In addition, we scored 39 points and the Dow Jones Sustainability Indices DJSI, more than doubling our score in the prior year. Sustainalytics ESG Risks Assessment Scale, NetEase received a score of 14.9 points indicating a low level of ESG risk. We are recognized by Sustainalytics as ESG industry top-rated company and also ESG regional top rated company. Along with our leading privacy and data security policies, the human capital development practices, we’ve made concerted efforts to reduce our carbon emissions, improve our corporate governance and make increased contributions to charitable causes. The global pandemic and environmental catastrophe have prompt many to find ways to do more for the society, and we are no exception. Adding to our recent disaster relief donations following the flood in Shanxi and Henan, we also donated an additional RMB 10 million to help local residency Henan in the wake of COVID-19. With our solid financial reserves and continued strong performance, improving shareholder return is always on our agenda.

During 2021, we repurchased around U.S., $2 billion worth of shares and paid U.S., $551 million in dividends. All in all, we are pleased with our growth in 2021. We gained steady ground across each of our verticals, positioning NetEase for continued growth in 2022. Our focus on content creation and elevating users’ experience with NetEase products and services remains at our core. Moving ahead, we will continue to innovate, diversify and expand our reach to generate further value for our users and investor communities as a whole. This concludes William’s comments. I will now provide a very brief review of our 2021 fourth quarter and full year financial results. Given the limited time on today’s call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for more details.

Total net revenues for the year were RMB 87.6 billion or U.S. $13.7 billion, representing a 19% increase year-over-year. We closed the year with fourth quarter revenue of RMB 24.4 billion or U.S. $3.8 billion, representing 23% increase year-over-year. For 2021, our net revenues from online game services were RMB 62.8 billion, up 15% from 2020. Revenues accelerated even faster in Q4 to RMB 17.4 billion, up 30% year-over-year. The additional growth was primarily due to increased revenue contribution from the launch of new games such as Naraka Bladepoint and Harry Potter Magic Awakened. Net revenues from our mobile games accounted for approximately 68.3% for the full year — for the fourth quarter and 70.4% for the full year. Youdao’s net revenues for 2021 reached RMB 5.4 billion, up 69% year-over-year. On a quarterly basis, net revenue increased by 21% to RMB 1.3 billion in Q4. Both increases were driven by fast growth of both Youdao learning services, as well as, increased sales of smart devices. Net revenues from NetEase Cloud Music were RMB seven billion for the full year, up 43% year-over-year. Q4 net revenue of Cloud Music increased 24% year-over-year to RMB 1.9 billion, both increases were primarily due to increased revenues from social entertainment services, particularly audio-based live streaming and paid user expansion. Total revenues for innovative businesses and others were RMB 12.4 billion for the current year, up 13% year-over-year.

For the fourth quarter, total revenues were flat year-over-year at RMB 3.8 billion. Our total gross profit was 53% in the fourth quarter compared with 50.2% in Q4 of last year. Looking at our fourth quarter margin in more details. Gross profit margin for our online game services remained stable at 64.1%, as a reminder, this number is generally stable with some narrow fluctuations based on the revenue mix of mobile and PC titles, as well as, revenue mix of self-developed and licensed games. Gross margin for Youdao in the fourth quarter was 50.7% compared with 47.5% in the same period of the prior year. The growth was primarily attributable to our improved learning services gross margin due to improved economies of scale and continuous optimization of our faculty compensation structure. The substantial sales growth of smart learning hardware, such as smart learning Youdao Dictionary Pen 3.0 also contributed to these gains as this line carries a higher gross margin than other product lines. GP margin for NetEase Cloud Music was positive at 4.1% versus a negative margin of 7.1% in the year ago period. This is our third consecutive quarter of positive gross margin. The significant increase was primarily due to the strong top line growth, as well as, improved cost control measures. Gross profit margin for innovative businesses and others was 26.8% compared with 28.2% in Q4 of 2020.

The decrease was mainly due to the decreased GP margin from advertising services. For the full year, total operating expenses were RMB 30.6 billion or 35% of our total net revenues. For the fourth quarter, total operating expenses were RMB 8.3 billion or 34% of net revenues. Looking at the fourth quarter, selling, marketing expenses as a percentage of net revenues were 13.5% compared with 14.1% in the prior quarter. The quarter-over-quarter decrease was mainly due to decreased marketing spending related to Youdao. R&D expenses were RMB 3.8 billion, largely stable from the previous quarter. We remain committed to investing in content creation and product development, which is core to our revenue growth into the sustainable future. The effective tax rate was 19.6% for the full year and 14.2% for the fourth quarter. As a reminder, the effective tax rate is presented on an accrual basis and the tax credit deferred from each of our entities at different time periods depending on applicable policy and our operation results.

Our non-GAAP net income attributable to our shareholders for the fourth quarter of 2021 totaled RMB 6.6 billion or U.S. $1.04 billion. Non-GAAP basic earnings per ADS for the quarter was U.S. $1.58 or U.S. $0.32 per share. Our cash position remains strong. As of the year-end, our total cash and cash equivalents, current and noncurrent time deposits and short-term investment balance totaled RMB 103.4 billion compared with RMB 100.1 billion as of December 31, 2020. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of U.S. $0.08 per share or U.S. $0.405 per ADS. Lastly, under our share repurchase program, approximately 18.5 million ADS have been repurchased as of December 31, 2021, for a total cost of approximately U.S. $1.8 billion. Meanwhile, under NetEase Youdao’s share purchase program, approximately 0.6 million ADS has been purchased for a total cost of U.S. $8.2 million as of the year-end. Thank you for your attention.

We would like now to open the call to your questions. Operator, please go to Q&A

Questions and Answers:

Operator

We’ll take our first question from Jialong Shi with Nomura.

Jialong Shi — Nomura — Analyst

Good evening management and thank you for taking my questions. Congratulations on a solid quarter. My question is about game pipeline. Just wonder if management can provide an update on the latest game pipeline for this year? And how many of the new games have already received license and will be released this year. For one of the new games, Diablo, Aboimodel, which has already received the license in China, can management provide an update on its launch time line? Thank you. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

Sure. We’re aiming to launch Diablo in the first half of this year. And obviously, for Diablo, we already have the license approval, we are going to launch in China, as well as, globally. Additionally, we’re also going to really issue — introduce the overseas version of Harry Potter.

Jialong Shi — Nomura — Analyst

Thank you that all.

Operator

We’ll take our next question from Kenneth Fong with Credit Suisse. [Foreign Speech] Thank you management for taking my question and Congrats for another solid quarter. Harry Potter uses a surge of Harry Potter Magic Awakened in China, what’s our view on the longevity of the game, and the time line strategy and region for the oversea launches. Thank you very much. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

As you know, NetEase, we have lots of experience in running our games for a long period of time. And some of the examples are FWJ, JJ and Onmyoji. For Harry Potter, this is a type of game that’s about consuming content. And so the longevity is very much linked to how much content is available to the game players. So we’ll continue to deliver those exciting content to keep our users engaged. In terms of overseas version, we are aiming to issue it in the middle of this year. Thank you [Foreign Speech]

Operator

We’ll take our next question from Alicia Yap with Citi.

Alicia Yap — Citi — Analyst

Hi, thank you. [Foreign Speech] So I have two questions. One is regarding the metaverse. So can management share with us what you think about metaverse, would you consider adding some metaverse elements into existing games or launching another versions of some of the existing game in the metaverse setting. The second question is related to Cloud Music. Can you comment on the pricing trend for the subscription and also overall subscription growth target and the margin trend for the business? Thank you. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

For metaverse, our understanding is that metaverse is that integration between the virtual world and the reality. And for NetEase SG&A, we have many, many years of operating MMORPG games. And for MMORPG games, there’s very heavy social elements and there’s a very sophisticated economic system. And in certain ways, you can regard it as a model of prototype for metaverse. And so, we’ll continue in that way. And secondly, based on our existing technology, we will also be exploring possible new games for metaverse.[Foreign Speech] Okay. Firstly, Cloud Music will continue to grow through comprehensive content offering. And one of that is to is for us to continue to produce high-quality and exclusive content and a much of it will be self-produced by ourselves in-house. And I believe — and we believe that everything will be able to deliver to the Chinese consumers, a lot of the high-quality Chinese Cloud Music for them. And this is — the content strategy is our — one of the main focus for our growth and expansion.

Alicia Yap — Citi — Analyst

Thank you

Operator

We’ll take our next question from Natalie Wu with Haitong International.

Natalie Wu — Haitong International — Analyst

[Foreign Speech] So thanks for taking my question and congratulations on a very solid quarter. Just like the upcoming 2022 will be a through full year considering all those quality names in your pipeline. So my question is regarding the headcount plan for this year. Just wondering which business line has the most talent incremental plan. And regarding the global expansion, what — which certain regions are the most — are the major target markets that you’re going to put the most assets on? Thank you. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

In terms of headcount plan, I think our focus this year will be on global talent. As you can — as we mentioned in our prepared remarks, last year, we managed to attract many of the top talents globally, and we’ll continue to invest in this area. And so very soon, probably we see more of the global talent joining NetEase. In terms of the hiring plans in China, there should be no change from previous years. Thank you.

Operator

We’ll go next to Thomas Chong with Jefferies.

Thomas Chong — Jefferies — Analyst

[Foreign Speech] Thanks management for taking my question. Can we discuss about the upcoming new games to be developed in multiple devices like console, PC and mobile in order to target the global audience in different regions? And my second question is about our core competence in developing a high-quality titles on a consistent basis like Harry Potter and Naraka? Thank you. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

So Thomas, the first question in terms of new types of games. So in addition to mobile games, PC console will also be an important area for us. And so any media you think you can imagine, play games on is an area that we want to explore is where we want to create game content for. In terms of regional focus, both China and international markets are very important to us. Overseas is going to be the next new focus. And in terms of your second question on our core competence, and I think over the last two decades, you can see that NetEase is a company that’s very focused and very dedicated in content creation. And secondly is that we value our talent. And thirdly, is that we are very much high quality driven. So we are now — when we think about creating games, we’re not thinking about just in China but also looking at — but we’re also taking a global vision. We want to be able to serve the global markets as well. And all in all, we think that talent is perhaps the most important thing for our sustainable growth. We want to continue to attract and retain talents that share our passion in game creation. Thank you Thank you

Operator

We’ll take our next question from Alex Poon with Morgan Stanley.

Alex Poon — Morgan Stanley — Analyst

[Foreign Speech] Thanks management for taking my question. I have two question. First question is related to our legacy titles. Recently, macro environment has not been very good and consumption advertising has not been doing well. And does this weaker macro environment affects our legacy titles, especially those high-paying users. And also, there have been some daily limits on the loots box of some games. Does this change affect our growth of our legacy titles? The second question is related to the status of a Lord of Rings and the Roblox like platform that we discussed before in December. Is there any chance that these two games will come out in Asia in the first half. Thank you very much [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

So Alex, for your first question, is that from what we are seeing, our legacy titles are actually growing very well throughout last year. And I think you — would mention about the price joy, it actually has very little impact on us because we’ve been very conservative in terms of how we monetize. And for games like FWJ, if you remember, it’s actually a time-based type of game. To your second question, Lord of Rings, we are going to release that game in Hong Kong, Macau and Taiwan. And for your third question, we are going to have — we are actually developing some of the UGC-oriented game. And then some of them will be introduced to the players.

Operator

We will go next to [Indecipherable].

Unidentified Participant — — Analyst

[Foreign Speech] Thanks management for taking my question and Congrats on your great performance. The question is, how should we expect the impact of activation acquired by Microsoft on their cooperation with NetEase, especially for the past arrangement of licensed games and your cooperation on Diablo and for the more the potential IP license? Thank you. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

So both Microsoft and Activision/Blizzard’s have been very close partnership with NetEase over the past years. And we’ve been — we’ve been operating Minecraft in conjunction with Microsoft, and we’ve delivered a very good strong results. And we congratulate Microsoft Activision/Blizzard’s for coming together. Microsoft is one of the largest gaming platform in the world with Activision. Blizzard is one of the best game creators in the world, and we believe that their partnership will create great synergy and it will create positive impact on the gaming industry. And in China, NetEase we will have a close relationship with both of them, and we believe that the partnership between Microsoft and Activision/Blizzard will also yield a strong cost impact for us in China, too. And from our perspective, would also love to explore more possibilities of working with Microsoft. Thank you.

Unidentified Participant — — Analyst

Thank you

Operator

We’ll take our next question from Guanran Wang with CITIC.

Guanran Wang — CITIC — Analyst

Hello.[Foreign Speech] Under the current situation of the market game industry, we have observed that many game companies have also tap their pipelines or optimize the resource allocation. I would like to ask under the calendar domestic and overseas market environment. How NetEase will develop all these structure or key game categories strategy of resource allocation and the future pipeline. [Foreign Speech]

Charles Zhaoxuan Yang — Chief Financial Officer

So you have been a while since we saw new license approval. For NetEase we are a game content creator, and we’ve been preparing for the overseas market for a long time. For the past couple of years, you’ve seen some highly successful games in Japan and you’ve seen us being able to attract some of the biggest global talent to NetEase. We are committed in investing in the global market. Hopefully, in the next two to three years, you will see some huge blockbuster titles being produced by NetEase in the global — on the global stage, whether it’s self-developed by us or it’s in a partnership with some of our pardon friends. Over the last 20 years, we have accumulated tons of experience in games development in terms of marketing operations, in terms of R&D engines and all of those years that will give us that strong edge in creating a globally successful game. Thank you.

Operator

That will conclude our question-and-answer session. At this time, I’d like to turn the call back over to management for additional — any additional or closing remarks.

Margaret Shi — Investor Relations

Thank you again for joining us today. If you have any further questions, please feel free to contact us directly or TPG Investor Relations. Thank you. Have a great day.

Charles Zhaoxuan Yang — Chief Financial Officer

Thank you, everyone.

Operator

[Operator Closing Remarks]