Tencent's "First Line" author Fang Wei
NetEase (NASDAQ: NTES) released its unaudited financial report for the first quarter ended March 31, 2019. According to the financial report, Netease's net revenue in the first quarter was RMB 18.562 billion, up 29.5% year-on-year; net profit attributable to shareholders of the company was RMB 2.382 billion, an increase of 217% from RMB 519.19 million in the same period last year.
This is a mixed answer: revenue is below market expectations, and net profit is higher than market expectations. However, considering the problems of both revenue and net profit last year, there has been a positive signal in the NetEase earnings report in the first quarter.
The profit is particularly obvious. In addition to net profit exceeding market expectations, NetEase gross profit was RMB 8.901 billion in the first quarter, up 35.9% year-on-year; total operating expenses were RMB 4.681 billion, down 1.4% year-on-year.
One liter and one drop showed that Netease's profitability has improved.
In terms of gross profit, even in the hardest hit by e-commerce, its gross profit margin was 10.2% in the first quarter, compared with 4.5% in the previous quarter and 9.5% in the same period last year.
But the revenue is not very optimistic. In addition to the total revenue was less than market expectations, the e-commerce business revenue growth rate was 4.889 billion yuan, a year-on-year growth rate of only 28.3%, setting a new low in the history of the business. Even for the game business, which was previously considered to have experienced a sharp slowdown in growth, revenue growth reached 35.3% year-on-year.
This is also the first time in recent years that the growth rate of e-commerce business is lower than the growth rate of game business. Netease's revenue growth engine has finally been handed over to the game by e-commerce.
As Netease’s previous revenue engine, this result of the e-commerce business is obviously not ideal. Under the problems of layoffs and inventory, Netease e-commerce can regain its vitality, which is crucial in 2019.
E-commerce business growth rate is low
NetEase's revenue growth rate is still good this quarter.
From the quarterly perspective, NetEase's revenue growth rate is also around 30% in the past year or so, and the lowest is only 3.9%.
However, if we consider the year, NetEase's revenue growth rate will gradually slow down after reaching its peak in 2015, and it is now at a low level.
In 2015, thanks to the contribution of koala and the "Fantasy Westward Journey" mobile game version, "Yin Yang Shi" and other explosion games, Netease's total revenue growth rate reached 94.7%, the highest level since 2010. However, it is from this moment that the contribution of the game business began to decline, and the e-commerce business became the revenue engine of NetEase.
Since 2016, the e-commerce business has accounted for 11.9% of total revenue; by 2018, it has accounted for 28.64%.
However, this trend reversed this quarter, with e-commerce accounting for 26.1% of total revenue, not only lower than last year's total, but also lower than the previous quarter's 33.66% and 26.33% in the same period last year.
In the revenue growth rate of e-commerce, this quarter was only 28.3%, setting a new low in the history of the business.
As can be seen from the figure, the growth rate of e-commerce revenue has fallen sharply in the past year. From this, it can almost be judged that the NetEase e-commerce business represented by koala and strict selection officially ended its rapid growth in 2018, and continued this trend in 2019.
Game business into NetEase revenue growth engine
During the quarter, the net revenue of online game services was RMB 11.852 billion (US$1.7657 billion), a year-on-year increase of 35.3%. The growth rate was not only higher than 28.3% of the e-commerce business. It was also the growth champion of all Netease revenue projects. .
This means that the game business is re-emerging as Netease's revenue engine. In the past three years, the game business revenue has been experiencing a sharp decline in growth, from 61.6% in 2016 to 10.77% in 2018. This is also the development of e-commerce business by Ding Lei, hoping that it will become the background of the e-commerce engine.
However, since the third quarter of last year, with the problems in the e-commerce business, the game business has re-emerged in growth.
It can be seen that after the negative growth in the first quarter of last year, the growth rate of Netease games continued to increase in the second quarter, and even reached 37.7% in the previous quarter. With the slowdown and the slowdown in e-commerce business growth, the game business grew faster than e-commerce this quarter.
For the performance of the game business, NetEase gives several reasons:
The Westward Journey series of new expansions were released; "After tomorrow", "Yin Yang Shi" and "The Land of the Earth" have performed well in the games; "My World" has more than 200 million registered users in China; "Wild Action" is still in Japan. Being sought after, he re-launched the Japanese iOS bestseller list in March and May.
Profitability has rebounded
Net profitability of NetEase has rebounded significantly during the quarter. Among them, Netease's gross profit was 8.091 billion yuan, which was 7.657 billion yuan and 5.954 billion yuan in the previous quarter and the same period of last year, respectively.
The main hero is still the game business. The gross profit of the game for the quarter was 7.551 billion yuan, a year-on-year increase of 38.68%. Its gross profit margin was as high as 63.7%, which was an increase from 62.1% in the same period last year and 62.8% in the previous quarter.
The profitability of the e-commerce business has also rebounded. Its gross profit was 490 million yuan, a year-on-year increase of 37.6%. Netease explained that due to the increase in sales of koalas and strict selection and the improvement of procurement and operation efficiency.
In terms of gross profit margin, the e-commerce business's gross profit margin for the quarter was 10.2%, up from 9.5% in the same period last year and significantly higher than the 4.5% in the previous quarter.
In terms of net profit, Netease's promotion in this quarter is more obvious.
Net profit has been on the rise in recent quarters, making Netease's net profit for the full year last year down 42.5% year-on-year, which is expected to be curbed this year.