Expect weaker 2Q26F profits on investment losses: New game performing in line; maintain Buy rating

Research evidence excerpt

Expect weaker 2Q26F profits on investment losses: New game performing in line; maintain Buy rating

Global Markets Research

NetEase NTES.OQ NTES US 27 July 2026

EQUITY: INTERNET & NEW MEDIA

RatingExpect weaker 2Q26F profits on investment losses Remains Buy

price USD 155.00 RemainsNew game performing in line; maintain Buy rating Target

Closing price USD 119.55 24 July 20262Q26F: investment losses likely to derail an otherwise decent quarter; maintain Buy

We anticipate NetEase (NTES) to report in-line revenue and better operating profit (OP), Implied upside +29.7%but net profit likely came in lower due to the bigger investment losses stemming from its

holdings of Alibaba (BABA US, Buy) and Pinduoduo (PDD US, Neutral) shares. Market Cap (USD mn) 76,541.9

We have modeled for 5% y-y revenue growth to CNY29.3bn, which is largely in line with ADT (USD mn) 124.6

the Bloomberg consensus estimate of CNY29.4bn. 2Q was a quiet quarter for NTES’

online gaming business due to a lack of new titles, but we estimate NTES’ online game

Relative performance chartand VAS segment likely posted impressive growth of 6% y-y, despite a still-high base

effect, driven by the resilient performance of evergreen titles such as PC FWJ, Eggy Party

and WWM.

The gross margin (GM) of NTES’ online gaming business likely expanded 2.8pp y-y to

73% backed by an increased share of revenue from higher-margin self-developed PC

games. As a result, the blended GM likely improved 2.5pp to 67.2%, better than the Street

consensus of 66.9%.

We project GAAP operating profit (OP) likely increased a robust 20% y-y to CNY10.8bn,

which is 2% above the consensus estimate of CNY10.6bn due to higher margins. Our

projected GAAP operating profit margin (OPM) improved 4.5pp y-y to 37% on the back of