Why China’s gaming restriction didn’t hurt NetEase’s bottom line

NetEase, China’s second-largest publisher of online games after Tencent, posted robust income from gaming services for the fourth quarter in 2021, despite Beijing’s move to dramatically cut down the amount of time for children to play online games.

The Hangzhou-based, Nasdaq-listed Chinese tech company booked $2.7 billion in net revenues generated by online game services, a nearly 30% increase from the same quarter in 2021. About 68.3% of the revenues came from mobile games.

Profit for online game services increased, too. In the fourth quarter of 2021, the gaming giant said its game services generated $1.75 billion in net income, up 35% from $1.3 billion the same quarter in the previous year.

NetEase attributed the quarter-over-quarter in gross income from online game services to its launch of new games like Naraka: Bladepoint and Harry Potter: Magic Awakened. Popular existing games, such as the Fantasy Westward Journey series and Sky also did well in sales.

It may surprise many that Beijing’s move against online gaming last summer — limiting game time for children and freezing new game approvals — didn’t quite affect NetEase’s bottom line.

This is because the game time limits aim primarily at free-to-play mobile games whose monetization strategies are based mostly on in-game microtransactions. And in-game spending by players under 18 only includes a tiny fraction of gaming company revenue in China. NetEase sees less than 1% of its revenue from gamers under 18, CEO and founder William Ding revealed in the company’s quarterly earnings call last August.

However, both NetEase and Tencent are accelerating their overseas expansions in an increasingly harsher regulatory environment at home. NetEase’s product director, Li Tianyu, told analysts on Thursday’s earnings call that the company will focus on recruiting talent in global markets in 2022, instead of in China.

“We definitely have a very firm strategic plan to develop overseas markets and invest in overseas [game] producers,” CEO Ding echoed. “We hope that in two or three years we will have great success in developing overseas markets.”


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