NetEase Corporation (NTES/9999 HK) stock research

China (PRC) | Internet Equity ResearchFebruary 11, 2026 NetEase Powerful Amplifier NTES reported 4Q results (link) with revenue inline with our forecasts and operating profit ahead of our estimates. Management highlights AI boostsproductivity as a growth multiplier and enhances user experience (e.g. AIpowered NPC). NTES is expected to benefit from new game play comingfrom AI. Data insights and vertical models drive industrialization. Sea of consensus while inline with our estimates. Revenue from games and related value-added services, including online game operations and other ancillary services, increased by 3.4%YoY to RMB22bn. Online game operations represented 96.8%/96.7% of segment revenue in4Q25/4Q24, implying about a 3.5% YoY increase (vs consensus and our estimate of 11.3%and 5% YoY increase). As for non-games business, Youdao net revenue reached RMB1.56bn.Gross profit increased by 8.7% YoY to RMB17.7bn (3.1% below consensus while 2.2%above our estimates). Sales and marketing as % of revenue reached 14.1%. GAAP operatingprofit increased 6.4% YoY to RMB8.3bn (vs consensus at RMB8.8bn and our estimates at native gameplay features in multiple flagship titles; (b) On Project Genie, it lowers entrybarrier on game production amid rising demand on quality. Successful games depend onintegration of AI with different systems such as game economy, social ecosystem, designexpertise and experience; (c) On World model, NTES views it is in early stage and provides newinteractive experience; (d) NTES focuses on gaming rather than foundation models. Good datais important vs computing power; (e) data insights and vertical models drive industrializationand efficiency. NTES has good R&D team and focuses on user experience / commercialization; experience. It surpassed 80m cumulative players and delivered strong engagement; (3)FWJ Thomas Chong * | Equity Analyst Equity ResearchFebruary 11, 2026 The Long View: NetEase Investment Thesis / Where We Differ •We are favorable on the outlook for NetEase, given its competitivestrengths in R&D and track record of releasing high-quality titles amid the longevity of existing games. •We view its online games business as a solid cash cow in the long run, longevity of its flagshipFWJseries, as well as consistent releases of newtitles covering a diversified genre, such asOnmyojiandKnives Out. •On new businesses, NetEase takes a prudent approach to spending Downside Scenario,$95, -23% Base Case,$158, +28% Upside Scenario,$190, +54% todrive sustainable growth is derived blockbuster mobile game. from existing games, with content updates,expansion packs and promotional campaignsdrivingquarterly revenue of more thanRMB10bn. •Faster-than-expected ramp-up in overseasrevenue.•Heavier-than-expected investments in newareas of development. •Stronger-than-expected performance fromnewareas of development including e-commerce, music and education.•Regulatory risk in game license approval.•PT of US$95 (HK$148) based on a SOTP domestic and overseas markets. •PT of US$158(HK$246)based on SOTP Sustainability Matters Catalysts Top Material Issue(s): 1)Effective management of Data Privacy & Freedom of Expression is important to reduce regulatory and reputational risks that could lead to decreased revenues, lower market share,and regulatory actions involving potential fines and other legal costs.2)High-quality employees arecrucial to delivering innovative products and services in Internet Media & Services Industry. Recruitingand managing a global, diverse, and skilled workforce is a key focus. that promotes diversity and inclusion in the workplace and strive to create a workplace whereemployees feel respected and equally treated. Qs to Mgmt: 1)What areas can be further improved to strengthen the protection of user privacy?2) Equity ResearchFebruary 11, 2026 (4)Sea of Remnants.It is on track to be released in 3Q. Promotional video has more than 10mviews; (5)Anata.Feedback met expectations with a solid retention rate. It will be released in multi-device in PC, mobile and console; (6)Marvel Rivals.The game is stable with innovative game playand social experience; (7)Auto chess games.It is a mature category with differentiated game play;(8)Overseas expansion.It enters to US/Europe since 2018 with Knives Out, Naraka Bladepoint andWhere Winds Meet. There will be more new games to be released in other markets. development; (3) regulatory risk in game license approval. Equity ResearchFebruary 11, 2026 We would like to thank Fiona Fan, employee of Evalueserve Inc., for providing research support services to our preparation of this report.We would like to thank Erica Qiu, employee of Evalueserve Inc., for providing research support services to our preparation of this report. Company Description NetEaseFounded in 1997, NetEase is a major online provider of Chinese content and services through online games, news portal, e-mail, e-Commerce andother services. The company generates