NetEase Inc - ADR

Strong 2Q revenue and gross margin expansion (games-led), but QoQ softness in online games - 2Q total revenue: RMB 30.1bn (~$4.4bn). - Games & related VAS net revenue: RMB 25.0bn (+10% YoY), driven by the broader portfolio performance. - Online games net revenue: RMB 24.5bn (+10% YoY but -2% QoQ). Management said the QoQ decline was mainly from slight weakness in certain self-developed and licensed titles, while YoY growth came from stronger self-developed franchises (notably *Fantasy Westward Journey* and *Where Winds Meet*). - Gross margin improvement: 2Q gross margin 70.5% vs 64.7% YoY; games gross margin 76.1% vs 70.2% YoY—improved mainly due to lower platform revenue-sharing costs. - What’s good: clear profitability improvement despite modest QoQ revenue softness.

Earnings quality: non-GAAP income down YoY due to investment losses - Non-GAAP net income attributable to shareholders (2Q): RMB 7.7bn (~$1.1bn), with YoY decline mainly from investment losses. - Non-GAAP EPS (2Q): $1.78 per ADS (~$0.36 per share). - Surprise/negative: even with strong gross margin and solid operating progress, non-GAAP profitability declined YoY due to investment impacts, which investors will watch going forward.

Capital returns and balance sheet strength (dividend + ongoing buybacks) - Net cash position: RMB 167.5bn as of June 30, 2026, up from RMB 163.5bn at end of 2025. - Dividend declared for the quarter: USD 0.096 per share / USD 0.48 per ADS. - Share repurchase: under USD 5bn program, company repurchased ~24.8m ADS for ~USD 2.3bn by June 30, 2026. - What’s good: shareholder-friendly posture supported by strong liquidity.