● In the early stage of domestic Internet development, NetEase was a company that was chasing the waves at the top.
After more than 20 years of ups and downs, NetEase is still at the forefront of the wave, known as the "Internet tumbler".
● NetEase (09999.HK; NTES.US) "can't wait" to take the lead in this quarter's financial report season for Chinese stocks .
● According to the financial report, NetEase's net income in 2021Q4 is 24.4 billion yuan, and the net income in 2021 is 87.6 billion yuan; under non-GAAP, the net profit attributable to the company's shareholders in 2021Q4 is 6.6 billion yuan, and the net profit attributable to the company's shareholders in 2021 is 19.8 billion yuan.
● Ding Lei directly used the word "fruitful" to describe NetEase's performance in 2021.
Netizens also joked that it turns out that the owner of the pig farm is making a fortune in silence.
● Red Star Capital Bureau will review the development of NetEase for more than 20 years, discuss how NetEase has built a moat, and what opportunities and challenges will each business face in the future.
Who can pull the second curve
In 2021, NetEase's main businesses are online game services, Youdao, NetEase Cloud, innovative business and other four sectors.
▶The ratio of various business income to total revenue is:
71.69%, 6.11%, 7.99%, 14.21%
▶The gross profit margin is
64.8%, 54.3%, 2.0%, 25.8%.
Except for gaming, it is difficult to pull the second curve.
However, it is difficult for the mobile game market to explode, and it is still necessary to rely on the original IP to continue to cultivate in the later stage, and the competition in the stock market has intensified.
The second is the issue of version number supervision. As of February 24, the list of version numbers has not been issued for 7 months.
Uncertainty at the regulatory level will also bring greater pressure to major domestic game manufacturers.
A Starts from the portal, thrives on games, and moves towards diversification
NetEase was established in 1997. From its infancy to its current maturity, NetEase's development process can be roughly summarized as follows: starting from the portal, developing into games, and moving towards diversification.
①From the portal
In 1998, NetEase established a portal website, and NetEase, which entered the business earlier, successfully seized the dividends of China's Internet.
With the huge traffic of the portal website, NetEase, Sina and Sohu are ranked as the "Big Three" of China's Internet portal sites, and the founders of the three companies are also known as the "Three Musketeers of the Internet".
In 2000, NetEase was successfully listed on Nasdaq.
It seems that the debut is the peak, but in fact, because the global Internet bubble burst at that time, NetEase was in a precarious situation as soon as it went public.
②Being interested in games
At that time, NetEase was eager to find a new breakthrough, and the acquisition of games became a turning point for NetEase.
In 2001, NetEase acquired Tianxia Technology, established an online game division, and began to enter the direction of game self-research.
In the same year, NetEase launched the first MMORPG (massively multiplayer online role-playing game) "Journey to the West". The market responded well and NetEase's game business began to go on the right track.
Relying on games, NetEase's stock price has also soared since October 2002.
Then in 2004, NetEase launched the self-developed game "Fantasy Westward Journey" series; in 2008, NetEase became the exclusive agent of Blizzard Games in China, operating "StarCraft II", "Warcraft III: Chaos Dynasty", "Warcraft III: Ice" Sealing the Throne, etc.
Since 2011, NetEase has announced its entry into the field of mobile games. "Fantasy Westward Journey 2 Pocket Edition", "The Shore of the Land", "Onmyoji", and "After Tomorrow" are all NetEase's classic mobile game products.
Relying on the game, NetEase gradually stabilized its basic market.
③ To diversify
In addition to the game business, NetEase has also begun to deploy other Internet fields, and its business has developed in a diversified direction.
In the field of entertainment, NetEase Cloud Music was launched in 2013, and it successfully survived in the market with innovative methods such as UGC (User Generated Content) community and personalized content recommendation; in the field of online education, Youdao officially launched Youdao boutique in 2014 The business scope gradually includes Internet learning tool products and online education and training services; in the field of e-commerce, NetEase Yanxuan and NetEase Koala (sold in 2019) were launched in 2015. NetEase’s e-commerce business focuses on differentiated competition routes. Avoid direct competition with Taobao and JD.com.
Starting from the portal, playing games, and moving towards diversification, NetEase's development path has become very clear in the past 20 years.
Judging from the revenue of various businesses, the financial report shows that the game business has always been NetEase's "cash cow".
As for the innovative business and others, due to the official spin-off of NetEase Koala in 2019, the revenue of this business fell sharply that year. However, due to the loss of NetEase Koala for consecutive years, the spin-off of NetEase Koala actually increased the company's net profit.
In addition, Youdao's business performance in various businesses is relatively weak as a whole.
According to the recently updated financial report, from the perspective of NetEase's revenue structure in 2021, NetEase's main businesses are online game services, Youdao, NetEase Cloud, innovative business and other four sectors. were 71.69%, 6.11%, 7.99%, and 14.21%.
It can be seen that among the four businesses, the game business is still the main source of revenue for NetEase.
At the same time, the game business has a high gross profit margin, so it also contributes the most to NetEase's net profit.
The financial report shows that for the whole year of 2021, the gross profit margins of the game business, Youdao, NetEase Cloud, Innovation and other businesses will be 64.8%, 54.3%, 2.0%, and 25.8%, respectively.
Among them, NetEase Cloud has the lowest gross profit margin.
B games are the deepest imprint
Unbalanced revenue structure
NetEase has realized the business map of "blooming everywhere" from portals to games to today's diversified businesses, but games are still the deepest imprint of NetEase.
NetEase is currently the second largest game manufacturer in China after Tencent. However, compared with Tencent (the game business accounts for about 30% of the total revenue), NetEase's revenue structure is not balanced.
①Game business
Gaming is NetEase's most profitable business, so it is also the sector that the capital market pays the most attention to.
Judging from the latest financial report performance, NetEase's online game revenue in 2021Q4 was 17.4 billion yuan, a year-on-year increase of 29.8%, exceeding market expectations by 28%, mainly due to the global release in August 2021. Pulled by Harry Potter.
NetEase's mobile game's contribution to revenue is significantly greater than that of end-to-end games.
In addition, the gross profit margin of NetEase's game segment has also remained relatively stable, basically stable at around 64%. Therefore, in the short term, the game business is in good operating condition.
But in the long run, NetEase also faces two pressures and challenges in the game sector.
The first is that it is difficult for the mobile game market to explode.
Now that my country's mobile game market has passed the period of savage growth, the possibility of creating a new game that turned out and won a big victory is getting lower and lower. In the later stage, it still needs to rely on the original IP to continue to cultivate, and the competition in the stock market has intensified .
The second is the issue of version number supervision.
The version number is the pass for the official release of the game, but as of February 24, the list of version numbers has not been issued for 7 months.
Uncertainty at the regulatory level will also bring greater pressure to major domestic game manufacturers in the future.
In the 2021Q4 conference call, when asked about relevant questions, a NetEase executive said: "The version number has indeed been suspended for a long time. We have begun to develop global game development very early. For example, you can see our Japanese game development. The game development has been successful. We are very firm in the development and investment of overseas markets, and we hope that in 2-3 years, we can achieve great success in the development of overseas markets." Focusing on the layout of games overseas may become a major strategy for NetEase Adjustment, later development remains to be seen.
② There is a way
Youdao's main business includes the provision of learning products, learning services and online marketing services.
In 2021, affected by the national double reduction policy, NetEase announced at the end of September 2021 that it would gradually close the K9 premium course business by the end of 2021.
In 2021Q4, the overall revenue of Youdao business was 1.334 billion yuan, a year-on-year increase of 20.5%, and the revenue growth rate slowed down significantly.
NetEase's K9 business is mainly online course services, so the gross profit margin is relatively high.
After the closure of the K9 business, Youdao's revenue began to gradually rely on fast-growing smart hardware devices. However, in contrast, the gross profit margin of hardware devices was low, which also dragged down Youdao's gross profit margin to a certain extent (2021Q3 Youdao gross profit margin). The interest rate is 56.6%, which will fall to 50.7% in 2021Q4).
If Youdao focuses its business on hardware equipment in the later period, the company is also under the siege of many old-fashioned education companies and Internet giants.
For example, in October 2020, ByteDance launched the vigorous education brand and released a smart work light product. Similar to NetEase Youdao’s idea of making hardware products, ByteDance also emphasizes AI + hardware.
NetEase Youdao products include English learning, follow-up text recognition, translation and other related products of ByteDance. At the same time, ByteDance is also a competitor with its own traffic.
Nowadays, Youdao products have no technical advantages in the hardware field. Faced with traffic competition in the later stage, Youdao still faces great pressure.
③NetEase Cloud
2021Q4 is the first time NetEase disclosed the revenue of cloud music in its financial report. NetEase cloud revenue in this quarter was 1.889 billion, a year-on-year increase of 23%.
At present, NetEase Cloud's revenue sources are mainly divided into two major segments, one is online music service revenue, and the other is social entertainment service and other revenue.
But for now, online music is not a good business.
The main competitor of NetEase Cloud is Tencent Music, but there is a big gap between NetEase Cloud and Tencent Music at present.
According to the previous prospectus and the company's financial report, the number of monthly active users of NetEase Cloud Music in 2020 will be 181 million, and that of Tencent Music will be 644 million.
From the perspective of splitting revenue sources, due to the low payment rate of online music users in my country (previously, NetEase Cloud also reduced the payment amount per user through “promotions” to increase the payment rate), compared with my country’s long video payment rate ceiling is about 25%, so The paid conversion of online music is still relatively limited.
In addition, higher copyright costs make it difficult for online music businesses to make money.
So NetEase Cloud began to imitate Tencent Music (Tencent Music's main source of revenue is the national K song), taking the road of entertainment and social networking, and wanted to improve the platform's revenue capacity through virtual gifts, etc., but this also caused NetEase Cloud to fall into two dilemmas. among.
The first is the destruction of the platform community ecology.
Since NetEase Cloud has begun to move towards pan-entertainment, and the live broadcast and other pages are full of screens, many old users of the platform think that simply listening to music is disturbed, and the good reputation accumulated by NetEase Cloud has been questioned, and user retention in the later period will also face greater challenges.
Secondly, from the perspective of supervision, the show business is also an area subject to key supervision.
In the past, there have been negative news such as "pornography" in the national K song, which not only affects the corporate image, but may even lead to the risk of the platform being shut down.
The financial report shows that from 2020 to 2021, the number of monthly active users of cloud music will increase by only 1%, and the user ceiling will be prominent.
Chengdu Business Daily-Red Star News reporter Yu Yao and Liu Mi
summary
From portals to games to various businesses that are blooming with flowers, NetEase has indeed completed its transformation steadily and steadily for more than 20 years.
In this earnings season, NetEase couldn't wait to share its good results, and the capital market also actively voted in favor.
While the cheers are full of cheers, it cannot be ignored that today's NetEase is still caught in the fog of game version number supervision, education hardware competition, and online music trapped.
Perhaps NetEase, who has been "cultivating internal strength" for a long time, knows better that there is no tumbler on the Internet, and some are just prepared competitors.