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Good day, and welcome to the NetEase Q1 2026 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead.

Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F and in announcements and filings on the Hong Kong Stock Exchange's website.

The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures, which should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the Q1 2026 earnings news release issued earlier today.

As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer, Mr. Hu Zhipeng, Executive Vice President, Ms. Aileen Mo, Vice President of Finance, and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill, please go ahead.

Thank you, Brandi, and welcome everyone to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. 2026 is off to a solid start, with total revenue reaching RMB 30.6 billion in the Q1, driven by continued momentum in our games business. Our games and related value-add services generated net revenues of RMB 25.7 billion, reflecting our strength in long-term game operations and growing global appeal. Our performance of this quarter was underpinned by continued strength of our game portfolio, both internationally and domestically. Overseas, our titles demonstrated growing cross-market appeal across genres and platforms. At home, our established franchises sustained strong player activity through consistent content delivery and live service innovation. Together, these results reflect the breadth and resilience of what we have built across genres, platforms, and the player communities worldwide.

Now, let me walk through some of the highlights. Since its overseas launch in last November, Where Winds Meet have become a global phenomenon, resonating across cultures and maintaining momentum well beyond the initial launch window. In March, it launched its first major expansion, Hexi, bringing players to a desert environment with distinctive settings and uniquely designed in-game enemies. More recently, the game introduced a version 1.6 featuring a new region, Qingchuan, alongside a novel wind-based exploration system that further enhanced the immersion and player freedom in the open world experience. The update was well received by players, propelling the game to number two on Steam's global top seller chart. Strong momentum across both overseas and domestic markets, backed by sustained player engagement, translated into another record in quarterly revenue, a result that reflects the compounding value of high-quality content and reinforces our confidence in this title's long-term potential.

Marvel Rivals continue to expand its reach among global hero shooter audiences, supported by a steady cadence of seasonal updates and high-quality content. On April 10th, the game introduced the new themed cosmetic content, including made outfit for Deadpool and Jeff the Landshark, which generated strong community engagement, driving it to number two on Steam's top seller chart in the U.S. In addition to the content update, Marvel Rivals expanded its PVE experience with the Bloodhunt mode in season 7.5, featuring new boss battles and refreshed mechanics as players engage in intense fights against the Lord of Vampires. It also introduced its Path to Doomsday event, a year-long road map featuring new modes and in-game events inspired by The Infinity Saga. This initiative is deepening player engagement while creating natural links to broader Marvel storytelling, leading into the release of Marvel Studio's Avengers: Doomsday in December.

Together, these efforts reinforce Marvel Rivals' position as a dynamic, evolving place with strong cross-media resonance. In March, Knives Out launched a crossover with the iconic Tokyo Ghoul franchise, integrating its themes into the in-game world and allowing players to engage with its universe. The collaboration sparked strong responses on social media and generated high player engagement. Supported by the IP's reach and well-designed event execution, Knives Out reached number three on Japan's iOS top-grossing chart. In the same genre, Blood Strike celebrated the second anniversary of its global mobile launch in March, achieving record high daily active users, demonstrating the enduring strength of its player community. Alongside international expansion, our domestic performance remains solid. We sustained strong engagement and revenue in the Q1 across established titles, supported by ongoing content updates and gameplay innovation.

Multiple titles reached highs in player base and activity, demonstrating the enduring appeal of our esteemed franchises. Final Fantasy XIV Online, our flagship MMORPG, continues to evolve through new mechanics and content that keeps our players engaged. In the Q1, the unlimited server rolled out a series of updates that enriched gameplay and PVP events, including the family system, which allows players to build in-game social bonds, cultivate combat companions, and experience a refreshed progression arc. The features were well-received by the community, and the unlimited server continued to serve as an effective entry point for both returning and new players, broadening the active user base while retaining the loyalty of long-standing fans. Peak concurrent users reached a new high of 3.9 million, and the title recorded its highest-ever quarterly revenue, underscoring its continued vitality.

Final Fantasy XIV Mobile also maintains strong momentum, with its specialized server continuing to refine progression systems and steadily expanding active player base. The game's 11th-anniversary event in March was a particular highlight, driving daily active users to its highest level since 2017. In April, more updates to the in-game economic system continued to strengthen the long-term health and balance of the game's overall ecosystem. Tianxia, a long-running MMO franchise with over 18 years of operations, delivered a record commercial performance in the Q1, supported by its loyal community and stable live operations cadence. The game continues to evolve through player co-creation, with ongoing content updates sustaining engagement, while more new features are being explored to enhance personalization and deepen player connections. Ghost Story Mobile, one of NetEase's most enduring MMORPG franchises, recently celebrated its 10th anniversary, a milestone reflecting the strength of our long-term live service capabilities.

Since its 2016 launch, the title has attracted over 200 million registered users, with its longevity built on the consistent content updates, evolving gameplay experiences, and a deeply loyal community. As a pioneer of film and television crossovers in gaming, Ghost Story: Love Destiny once again partnered with hit TV drama, Love O2O, and actors for its 10th anniversary, reuniting players with beloved characters and classic experiences from the series, reaffirming the title's momentum as it enters into its second decade. Eggy Party continues to hold its position as China's leading party game destination. Spring Festival events have become a meaningful annual tradition, bringing players together with friends and family through themed content on Eggy Island, reinforcing the game's identity as a shared social space.

Building on the festive atmosphere, in February, the introduction of several beloved IPs, including My Little Pony, drove strong community participation and pushed the game to the top of China's iOS grossing chart. Identity V maintained steady engagement and momentum throughout the Q1 with enriched gameplay systems that reinforced its unique position in the asymmetric battle arena genre. During the Spring Festival event, it added more depth by introducing new characters and themed content alongside limited-time gameplay experiences within the classic When We Four mode. In March, its eighth anniversary brought new variations to the classic When We Four mode, where the sizes of survivors and hunters shift during matches based on player actions. It also added more dynamics to the fast-paced 2V8 mode with new card-based mechanics that influence real-time battle progression.

As an integral part of its broader content and operation strategy, esports remains a core pillar of the game's long-term engagement. Call of Duty: Mobile World Championship, the game's premier global tournament, reached its climax with the global finals held in Shanghai earlier this month. Elite teams from regions across the globe delivered highly competitive matches that ignited community excitement.

Infinite Borders, our signature SLG title, continues to push the genre's boundary with updates like the Blitz addition that streamline time-consuming actions and rebalance battle pacing, enhancing the overall strategic experience. Beyond the base addition, the game continued to enrich its seasonal updates with fresh landscape designs, themed character portraits, and crossovers with popular IPs, all of which were well-received by the players over the past months. These updates resonated strongly with the community, drove a meaningful improvement in daily active users, and continue to strengthen the game's foundation for long-term operations.

The Naraka: Bladepoint franchise continued to refine its melee-focused combat experience through new heroes, new maps, and updated battle mechanics that keep the fast-paced gameplay fresh. A two-week crossover event with Overwatch in China helped expand the game's reach, connecting two distinct player communities. Sword of Justice maintained a vibrant player community through rich content and a lively open world that continues to evolve. The title continued to enrich player interaction and creative gameplay experiences, introducing features such as text-to-item generation and in-game narrative creation. These innovations not only deepened the player engagement, but also fostered a thriving ecosystem of user-generated content, strengthening player connections. Innovation is a driving force for the content creation in our existing portfolio, as well as our games under development. New titles in our pipeline remain on track, with Sea of Elements and Ananta making steady progress towards launch.

Both titles are designed with a clear intent to deliver all-new player experiences and explore gameplay directions that have the potential to shape future trends. Feedback from Sea of Elements' latest round of testing was positive, and we're in the final stages of preparation ahead of launch. As for Blizzard titles, their popularity was reinforced through diversified live service operations and localized content in the Q1. World of Warcraft launched its Midnight expansion in China on March 3rd, alongside the global release, bringing players back to the Elwynn kingdom. With the continued deepening of our localized operations in China, we have implemented extensive optimizations and dedicated live ops events tailored to the China market. These efforts have successfully sustained a high level of player retention and engagement, leading to a solid year-on-year commercial performance in the Q1.

In April, Diablo IV launched its Lord of Hatred expansion simultaneously across China and global markets. Meanwhile, Diablo II: Resurrected, a title with a 20-year legacy, reignited its player base with a new DLC. This update drove a strong increase in monthly active users in the Q1, further reflecting its enduring appeal. In February, Overwatch and Naraka: Bladepoint collaborated on two-week crossover events featuring character integration and themed skins. Combined with the Spring Festival themed content, the event generated strong cross-community engagement and elevated player activity. With strong user engagement in Q1, daily active users grew with key builds while showing improved stability. Through strong partnerships and sustained engagements across our growing portfolio, we are well-positioned heading into the rest of the year.

With continued investment in innovation, an unwavering commitment to quality, and deep-rooted operational expertise, we aim to create unique and unforgettable gaming experiences for players in China and around the world. Turning to our other businesses. Youdao further advanced its AI-native strategy in the Q1 by driving continued iterations on its Confucius large language model and more deeply embedding AI throughout its ecosystem. The learning services segment made steady progress, supported by strong growth in Youdao Lingxi and AI-driven subscription offerings. Youdao also enriched its AI agent matrix, adding two new AI-native applications, LobsterAI, an open source personal AI desktop assistant, and Youdao Baoku, an AI-native knowledge base designed for complex information synthesis. Online marketing services benefited from increased demand for performance-based advertising as AI-driven tools enhanced the targeting and streamlined content production, while the smart devices segment maintained its physical discipline, prioritizing SKU profitability over volume.

Yanxuan celebrated its 10th anniversary this year, marking a decade of dedication to high-quality products. As part of this effort, we continue to build out our pet category, strengthening capabilities across R&D, supply chain, quality control, and membership operations. Yanxuan maintained a consistent execution across key categories in the Q1, with pet food, home scents, and home goods continuing to introduce new products and securing leading positions in their segment across e-commerce platforms. Additionally, sustainable development remains a core focus for NetEase. We believe long-term success of a company is intertwined with the value it creates for users, for communities, and employees. Earlier today, we published our seventh annual ESG report, outlining our latest progress across sustainability, governance, and social impact.

As our business continues to grow and evolve, we stand steadfast among our employees, who share our values and the dedication to continuous innovation and a passion in service of our users. We provide resources and opportunities for them to develop, strive, and keep innovating. By focusing on these kind of initiatives, we have once again been included in the World's Best Employers list published by Forbes, marking nine consecutive years for our company. We're also mindful of social impact of our technology and strive to integrate corporate social responsibilities into product innovation and business practices, extending the accessibility and inclusiveness of technology. On the environmental side, while our online business by nature has relatively low carbon footprint, we nonetheless actively explore ways to make our operation even greener and cleaner.

For example, we have improved energy efficiencies across our data centers and campuses, helping reduce greenhouse gas emission by 12% year-over-year. On the governance side, we continue to improve our board and management oversight on material issues. External recognition continues to reflect this progress. MSCI upgraded us to a AAA ranking, positioning us as a leader among over 200 companies in the global media and entertainment industry. While Sustainalytics maintained our low risk rating with improved profile, placing us among the top companies in our industry. In closing, across our businesses, our operations, and our development pipeline, we're seeing results from our long-held commitment to creativity, innovation, and the evolving technologies that power it. We see this momentum building as established titles continue to set new record, new titles advance towards launch with clear ambition, and our international footprint continues to grow.

Woven through all of it is our ongoing effort to build an environment where our developers are free to push creative boundaries and deliver experiences that resonate with players' communities around the world. We believe we're still in the early stages of what this can deliver for our players, our communities, and shareholders alike. That concludes William's comments, and I will turn the call over to Aileen for more detailed discussion of our financial results. Thank you.

Financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Yeah. Hello. Thank you, Bill Pang. I will now provide a brief review of our 2026 Q1 results. Given the limited time of today's call, I will present some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Our total net revenue for the Q1 were RMB 30.6 billion or $4.4 billion, representing a 6% increase year-over-year. Total net revenue from our games and related value-added services were RMB 25.7 billion, up 7% year-over-year. Specifically, net revenue from online games were RMB 25.1 billion, up 18% quarter-over-quarter and 7% year-over-year.

The quarter-over-quarter and year-over-year increase in online game net revenue were attributable to higher net revenue from self-developed games such as Fantasy Westward Journey franchise and Where Winds Meet. Youdao's net revenue increased 4% year-over-year to RMB 1.3 billion, primarily driven by increased net revenue from Youdao's online marketing services. Its net revenue was down 14% quarter-over-quarter due to a decrease net revenue from Youdao's learning services and the smart devices. NetEase Cloud Music net revenue was RMB 2 billion, representing a 7% year-over-year increase and remaining broadly stable quarter-over-quarter. Net revenue from innovative business and others were RMB 1.5 billion, decreasing 5% year-over-year and 24% quarter-over-quarter. The quarter-over-quarter decrease was mainly driven by declines across e-commerce and the advertising services.

Our gross profit margin increased year-over-year to 69.4% from 64.1% in the prior year period. Looking at our Q1 margin in more detail. Gross profit margin was 74.8% for our games and related value-added services, compared with 68.8% in the same period of last year. The improvement was primarily driven by lower revenue sharing costs related to the platform. Our gross profit margin for Youdao was 44.7%, compared with 47.3% in the same period of last year. The decrease was mainly due to the decline in smart devices gross margin. Gross profit margin for NetEase Cloud Music was 37.1%, compared with 36.7% in the same period of last year, remaining generally stable year-over-year. For our innovative business and others, gross profit margin was 42%, compared with 38.8% in the Q1 of 2025.

The improvement was primarily driven by margin expansion in certain innovative business within the segment. Total operating expenses for the Q1 were RMB 8.6 billion, representing 28% of our net revenue. Taking a closer look at our cost composition. Our selling and marketing expenses accounted for 11.2% of total net revenues in the Q1, compared with 9.4% in the same period last year, primarily due to the increased marketing expenses related to games and related VAS. Our G&A expenses accounted for 2.1% of the total net revenue in the Q1, compared with 3.3% in the same period last year. Our R&D expense remained stable at 14.7% of total net revenue in the Q1, compared with 15.2% in the same period last year, reflecting our consistent investment in innovation and content development. The effective tax rate was 18.9% for the Q1.

As a reminder, the effective tax rate is presented on an accrual basis, and the tax practice vary across each of our entities at different time periods, depending on applicable policies and our operations. Our non-GAAP net income attributable to the shareholder for the Q1 totaled RMB 11.3 billion, or $1.6 billion, broadly stable year-over-year. Non-GAAP basic earnings per ADS for the quarter was $2.56 or $0.51 per share. Additionally, our cash position remains strong. As of March 31st, 2026, our net cash position was RMB 167.5 billion, compared with RMB 153.5 billion at the end of 2025. In accordance with our dividend policy, we are pleased to report that our board of directors has approved a dividend of $0.144 per share, or $720 per ADS for the Q1.

Lastly, under our current $5 billion share repurchase program, we have repurchased approximately 23.2 million ADS as of March 31st, 2026, for a total cost of approximately $3.1 billion. Thank you for your attention. We would now like to open the call to your questions.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Lincoln Kong with Goldman Sachs.

[Non-English content] Thank you for taking my question. Congrats on the very solid Q1 result. I have two questions related to the new games pipeline. First of all, it's on the Sea of Elements. Could management share us more detail updates in terms of the latest progress of the game, especially along with how is the product's monetization design, gameplay, and user feedback has been changed over the past few months? What is the latest rollout schedule for global and across platforms? My second question is about Ananta.

I wonder what's our competitive strategy in this sort of open-world type of genre. Specifically, we have seen a few of our peers has recently released some new titles a bit similar to Ananta, along with they're going to be a potential heavyweights blockbuster like GTA before the year-end. How does a company ensure our Ananta game can successfully break through the competition and capture incremental user growth? [Non-English content].

[Non-English content]

I will translate the answer of first question first. Thank you for question regarding Sea of Forgotten. Following the technical test in February, in the past months, we received valuable feedback from players. Our team is now actively preparing for the upcoming Dawnbreaker test. In this next round, we'll showcase a bigger picture of the in-game world and richer gameplay details as we work towards our targeted Q3 launch window. In terms of monetization, we're designing it as a natural extension of the overall gameplay with characters at the heart of the experience and cosmetics customization as the core of our monetization design, keeping the experience rich but without too much burden. Please stay tuned for more details in our upcoming test and future announcement. Thank you.

[Non-English content]

Okay, let me translate this answer. First of all, thank you for your question. We address your question from several angles. First, regarding the competitive landscape, we do not shy away from competition, but our focus is more on differentiation. Yes, open world category is crowded in 2026, and players have more choices than ever. From another angle, it also means that the genre has a high ceiling and strong user demand. Competition in our industry is not a zero-sum game. Great products expand the overall market rather than just fighting over fixed market share. Secondly, what makes Ananta different? Ananta is built around an urban open world concept, which is fundamentally different from traditional open world RPGs or anime style action games. Whether you look at the IP building, the narrative structure, or gameplay design, we're not following existing formulas.

What we're building is an open world set in modern city driven by immersive daily living experiences. The competitive edge here is not about map size or flashy combat, it's about whether players can truly feel like they are living in the world. For example, shopping, social interactions, exploration, running businesses. These activities with their strong sense of urban life are where our differentiation really lies. Right now the team is focused on refining the game's content quality. We believe players always have strong appetite for innovative and polished experiences. What decides whether a product succeeds is not the launch window or how many competitors are out there. It is whether or not the experience is distinctive enough and good enough to the players. We'd rather take the time to get it right than ship something average in a rush.

Lastly, but importantly, we do not think Ananta is a traditional anime style game. Our goal is to achieve a genre breakthrough within the urban open world space, reaching players who are interested in the idea of freely living in the virtual city. This means that our art direction, our narrative tone, our gameplay design are all being shaped to appeal to a broader audience rather than putting ourselves in a fixed box. In summary, distinctive urban open world positioning, a relentless pursuit for content quality, and a broad, unconstrained vision for who this game is for. That's how Ananta stands out. The competition is real, but we are confident in the direction that we have chosen. Thank you. Next question, please.

Your next question comes from Xueqing Zhang with CICC.

[Non-English content] Thanks, management, for taking my question and congratulations on the strong quarter. My question about globalization. How does management view the progress in global expansion, and in particular, how to assess the overseas growth potential of Where Winds Meet, as well as the opportunities for the MMO genre in international markets. Thank you.

[Non-English content]

Where Winds Meet has demonstrated very strong and sustained momentum in this global expansion. Within six months of launch, it has held very high scores, like 78% positive rating on Steam and has repetitively ranked among top two on Steam's global top seller chart when we have major updates, including west market that have traditionally been difficult for Chinese wuxia game to penetrate. This has set a new benchmark for this genre overseas. This clearly shows that overseas players not only appreciate the game's high immersive wuxia world, but also highly receptive to the free-to-play, high quality, and no pay-to-win model.

Once again, it reinforces that the unique experiences delivered by Where Winds Meet is something that resonates globally. Going forward, we'll continue to unlock the game's overseas growth potential by enhancing cross-device compatibilities, strengthening global publishing capabilities, expanding onto more platform, and deepening localization effort. More updates on this will be shared soon. In short, we'll continue to invest resources into Where Winds Meet, making it another flagship title in our global portfolio, with the goal of achieving long-term sustainable success worldwide. Thank you. Next question, please.

Your next question comes from Ritchie Sun with HSBC.

[Non-English content] Thank you, management, for taking my question. Congrats on a very good set of results. I want to ask about FWJ PC. The PC version has launched unlimited server close to one year now. Can management share the latest update on this game? How do you plan to further sustain or even expand the successful response from this game going forward?

[Non-English content]

Yeah. Fantasy Westward Journey Online hit another record of peak concurrent user as 3.9 million in Q1, which clearly shows that the unlimited server has successfully expanded the player base. Beyond the strong performance of the unlimited server, the time-based classic server has also been growing steadily. With the development team's years of experience in long-term life operations, the overall game ecosystem is in good shape. With all key metrics trending in the right direction, we remain committed to the long-term operation strategy and keep exploring new opportunities along the way. Thank you.

That concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any closing additional comments.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a wonderful day. Thank you.