Company Coverage
NetEase (9999 HK): 2Q26: Resilient Game Growth And Strong Margin Expansion; Pipeline Outlook Remains Cautious
BUY (Maintained)
Current price:
Target price:
Upside:
HK$193.40
HK$252.00
+30.3%
Analyst
Highlights
- NetEase’s 2Q26 earnings came in within expectations. Revenue grew 7.9%
yoy to Rmb30.1b. Gross profit grew 17.5% yoy to Rmb21.2b, with gross
margin rising 5.8ppt yoy to 70.5%. Non-GAAP operating profit grew 28.7%
yoy to Rmb12.9b, well above our estimate by 23%. Non-GAAP net profit
slumped 18.7% yoy to Rmb7.7b, below our and consensus estimates. Net
margin shrank 8.4ppt yoy to 26% in 2Q26.
Maintain BUY with an unchanged target price of HK$252.00 (US$160.00).
Analysis
- Solid online game growth; deferred revenue acceleration supports
visibility. NetEase’s online game revenue grew 10% yoy (2Q25: +14%,
1Q26: +7%) to Rmb25.7b, driven by Fantasy Westward Journey and Where
Winds Meet. Gross margin for online games expanded 5.9ppt yoy to 76.1%,
benefitting from a higher mix of PC/high-margin titles. Deferred revenue grew
14% yoy in 2Q26 (1Q26: 23%), supporting better revenue visibility and solid
growth momentum in the coming quarters.
- New-game pipeline outlook remains cautious; existing titles remain
solid. Ananta (无限大) remains under active development, with management
set to disclose its latest progress at Gamescom, although no official launch
date has been announced. Sea of Remnants had a softer-than-expected
initial launch, with management acknowledging weaknesses in the early
player experience. The team is responding by refining onboarding,
incorporating player feedback, adding content and preparing for longer-term
operations; an overseas rollout is unlikely in the near term as management
prioritises improvements to the domestic version first. Meanwhile, existing
titles remain resilient, with Eggy Party delivering a strong summer
performance and Sword of Justice reaching a two-year high of concurrent
users following its anniversary update.
Highlights
- NetEase’s 2Q26 earnings came in within expectations. Revenue grew 7.9%
yoy to Rmb30.1b. Gross profit grew 17.5% yoy to Rmb21.2b, with gross
margin rising 5.8ppt yoy to 70.5%. Non-GAAP operating profit grew 28.7%
yoy to Rmb12.9b, well above our estimate by 23%. Non-GAAP net profit
slumped 18.7% yoy to Rmb7.7b, below our and consensus estimates. Net
margin shrank 8.4ppt yoy to 26% in 2Q26.
Maintain BUY with an unchanged target price of HK$252.00 (US$160.00).
Analysis
- Solid online game growth; deferred revenue acceleration supports
visibility. NetEase’s online game revenue grew 10% yoy (2Q25: +14%,
1Q26: +7%) to Rmb25.7b, driven by Fantasy Westward Journey and Where
Winds Meet. Gross margin for online games expanded 5.9ppt yoy to 76.1%,
benefitting from a higher mix of PC/high-margin titles. Deferred revenue grew
14% yoy in 2Q26 (1Q26: 23%), supporting better revenue visibility and solid
growth momentum in the coming quarters.
- New-game pipeline outlook remains cautious; existing titles remain
solid. Ananta (无限大) remains under active development, with management
set to disclose its latest progress at Gamescom, although no official launch
date has been announced. Sea of Remnants had a softer-than-expected
initial launch, with management acknowledging weaknesses in the early
player experience. The team is responding by refining onboarding,
incorporating player feedback, adding content and preparing for longer-term
operations; an overseas rollout is unlikely in the near term as management
prioritises improvements to the domestic version first. Meanwhile, existing
titles remain resilient, with Eggy Party delivering a strong summer
performance and Sword of Justice reaching a two-year high of concurrent
users following its anniversary update.
BUY (Maintained)
Current price:
Target price:
Upside:
HK$193.40
HK$252.00
+30.3%
Analyst
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This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at this link, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
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