NetEase Q2 profit falls 18.7% as investment losses offset revenue beat

NetEase Q2 2026 revenue rose 7.9% to RMB 30.1 billion, beating consensus by 2.2%, while non-GAAP net profit fell 18.7% on investment losses.

"We have confidence that with the help of AI tools, we can build more high quality products than most of our peers in the industry," Hu Zhipeng, executive vice president at NetEase, said on the earnings call.

Games and related value-added services revenue rose 9.7% year over year to RMB 25 billion, with online gaming up about 10.4%, beating both market expectations and Jefferies' forecasts. Non-GAAP earnings per ADS came in at $12.02, missing the $15.54 consensus by 22.65%.

Metric	Actual	Consensus	Beat/Miss
Revenue	RMB 30.1B	RMB 29.48B	+2.1%
Non-GAAP EPS (per ADS)	$12.02	$15.54	-22.65%

Gross margin widened to 70.5% from 64.7% a year earlier, helped by lower platform revenue-sharing costs. Total operating expenses reached RMB 9.1 billion, or 30 percent of revenue, with selling and marketing costs easing to 12.2 percent of sales from 12.8 percent.

Shares fell more than 6% in US premarket trading after the results. Jefferies maintained its Buy rating on NetEase, with an H-share target of HKD246 and a US-share target of USD158, citing confidence in the long-term operation of Naraka: Bladepoint. The mobile version launched in July 2026 drew initial criticism for a steep learning curve, but frequent content updates have improved player satisfaction, the broker said.

Outside gaming, Youdao revenue rose 3% year over year to RMB 1.5 billion, while NetEase Cloud Music held steady at RMB 2 billion. Innovative businesses and others slipped 4% to RMB 1.6 billion, with e-commerce revenue declining. The company is preparing a global rollout for Sea of Remnants after its China launch in July and will unveil more on the urban open-world title Ananta at Gamescom next week.

The board approved a quarterly dividend of $0.096 per share, or $0.48 per ADS. NetEase held net cash of RMB 157.5 billion as of June 30 and has repurchased about 24.8 million ADS for roughly $2.3 billion under its $5 billion buyback program. The effective tax rate rose to 25.5 percent in the quarter from 21.7 percent in the first half, adding to the profit pressure.

The profit miss stems from investment losses rather than operating deterioration, with gaming revenue momentum intact. Investors will watch the global rollout of Sea of Remnants and the Gamescom unveiling of Ananta next week for signs that new titles can sustain growth.

This article is for informational purposes only and does not constitute investment advice.