By Sherry Qin

NetEase's profit tumbled for a second straight quarter and revenue missed market expectations as the Chinese videogame giant's main business delivered a soft performance amid a high base last year.

Net profit dropped 17% to 6.54 billion yuan, equivalent to $905.3 million, NetEase said Thursday, missing the 7.45 billion yuan estimate from a FactSet poll of analysts. Its adjusted net profit, a closely watched metric that excludes share-based compensation expenses, fell 13% to 7.5 billion yuan.

The Hangzhou-based company's revenue fell 3.9% to 26.21 billion yuan, slightly lower than analysts' expectations, as sales from games and value-added services declined 4.2% from a year earlier.

While PC games revenue was resilient, mobile games, accounting for three-quarters of total gaming revenue, had a soft showing. A high base following the strong debut of blockbuster title "Justice Mobile" a year ago weighed on its top line, analysts said ahead of the results. Its PC games performance was buoyed by the return of Blizzard's popular titles to China. "World of Warcraft" witnessed a 50% increase in daily active players, compared with before the shutdown, while "Hearthstone" achieved over 150% growth, NetEase said.

NetEase competes with Tencent, the world's largest gaming company by revenue. Tencent on Wednesday posted better-than-expected quarterly results, thanks to its gaming strength as both evergreen and recent titles booked robust sales.

In a sign of the companies' diverging fortunes, NetEase's Hong Kong-listed shares have fallen 15% this year, while Tencent's have risen nearly 40%. By comparison, the benchmark Hang Seng Index is up 14%.

Shares in NetEase slumped about 10% in a single day in August after the company reported a profit miss and softness in its computer-game segment in the second quarter. Some analysts called share-price move an overreaction, saying that NetEase's overall gaming performance remains intact, with rich titles in the pipeline.

NetEase is slated to launch two new titles "Where Winds Meet" and "Marvel Rivals" in December, which analysts reckon could strengthen its game portfolio. Meanwhile, the PC version of signature title "Fantasy Westward Journey" will likely become less of a drag on its revenue in 2025 after in-game changes implemented earlier this year, Nomura said in a recent note.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

November 14, 2024 06:03 ET (11:03 GMT)

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