NetEase (09999) invested over 12 billion yuan in research and development in the first three quarters. The first AI large model in the education and email fields has been approved.

On November 16th, NetEase (09999) released its Q3 2023 financial report. In the third quarter, NetEase's performance was steady, with net income of 27.3 billion yuan; based on non-GAAP, the net profit attributable to the company's shareholders from continuing operations was 8.6 billion yuan; R&D investment in the quarter was 4.3 billion yuan, and R&D investment in the first three quarters of this year has exceeded 12 billion yuan. During the quarter, NetEase's self-developed AI model was widely applied in core businesses and real-life scenarios, and it also contributed to the technology-driven smart Asian Games and protection of minors, demonstrating the social value of innovation through technology. In the third quarter, NetEase maintained innovation in various businesses, continuously creating value for users and the company. NetEase Games actively promoted business model and gameplay innovations, and multiple new products, such as the mobile game "Nishuihan," exceeded market expectations, achieving the first place in the segmented market, driving the net revenue of the gaming segment to 21.8 billion yuan. NetEase Cloud Music achieved a net revenue of 2 billion yuan in Q3 and continued to strengthen its monetization capabilities with music content at its core, with a further increase in gross profit margin to 27.2%. Thanks to AI technology landing products such as "Ziyue Education," multiple businesses of NetEase Youdao rapidly developed, achieving a record high net revenue of 1.5 billion yuan in a single quarter, with gross profit margin increasing to 55.9%, reaching a new high in the past two years. NetEase's innovation and other businesses achieved a net revenue of 2 billion yuan in Q3. NetEase Media used digital technology to innovate content production, and the proportion of video consumption on the NetEase News app reached 74.8%, ranking first in the industry in terms of average daily usage time per person. NetEase Yanxuan focused on brand strategy, and achieved sales exceeding 100 million yuan through multiple channels during the Double 11 shopping festival, with a 187% YoY growth in Pro members; "Chinese Goose Down Coat" became a dark horse for Yanxuan, with the new Yan series sold out online and the workwear series becoming a million-selling hot item for the first time during the promotion. R&D investment has exceeded 12 billion yuan in the first three quarters, and the first AI large-scale model in the education and email fields has been approved. Since the beginning of the year, NetEase has increased its investment in R&D and application of key technologies such as self-developed AI large-scale models. The accumulated R&D investment in the first three quarters has exceeded 12 billion yuan. In the third quarter alone, NetEase invested 4.3 billion yuan in R&D, and the first AI vertical large-scale model in the education and email fields has been approved, injecting momentum into digital business innovation and the digital transformation of physical industries. NetEase Youdao accelerated the application of the "Ziyue Education" large-scale model, driving multiple businesses to achieve high growth rates. As one of the first educational large-scale models to be approved, Ziyue has supported the development of six native applications, including the world's first virtual English tutor, Echo. Thanks to the productization of AI, the sales of digital content services exceeded 400 million yuan, and the gross profit margin reached a historical high. Youdao Dictionary and Youdao Translate saw a year-on-year increase of over 160% in membership fees in Q3, and online marketing services achieved a net revenue growth of 113.5% YoY. During this year's Double 11, Youdao's smart hardware performed outstandingly, with the Dictionary Pen ranking first in sales on JD.com and Tmall for four consecutive years. NetEase has accelerated the successful application of self-developed AI technology in entertainment scenarios, activating user creativity. The new AI collaborative content creation model has been successfully implemented in several NetEase products. In the gaming field, as the world's first large-scale AI gameplay to be adopted, the mobile game "Nishuihan" continues to innovate and introduce AI-based custom voice features, with over one billion AI companion play sessions. "Egg Party" has also introduced multiple AI functions on the basis of the existing UGC content creation ecosystem, allowing players to easily change map colors and generate video animations with just one click. Multiplayer map-building function has also been added, further lowering the barrier to content creation and improving its quality. By the end of August, the number of maps in "Egg Party" exceeded 100 million. NetEase's first vertical large-scale model application in the physical industry and email services has been rapidly implemented. The domestic's first unmanned loading Siasun Robot&Automation, developed based on NetEase's industrial large-scale model, has served the intelligent concrete mixing station of the Shanghai-Hangzhou Railway, with an efficiency close to that of humans, and has been selected as one of the "Ten Typical Cases of Innovative Development of Chinese Internet Companies" released at the World Internet Conference. Recently, the first vertical large-scale model application in the email service field, "NetEase Mail Smart Assistant," was approved, providing intelligent functions such as AI-written emails, email summarization, and editing. NetEase Smart Enterprise has launched the customer service large-scale model "Shanghe," which can accurately understand and handle complex tasks and information, improving customer service efficiency and customer satisfaction. NetEase's technology has also contributed to the Hangzhou Asian Games with its scientific and technological strength. NetEase Smart Enterprise provided intelligent real-time translation services to athletes and guests from various countries, and received recognition from the Hangzhou Asian Games Organizing Committee for its high standard of zero accidents throughout the event. As the official online brand promotion service provider of the Hangzhou Asian Games, NetEase Media was deeply involved in the coverage of top-level international sports events and used AI technology to create creative programs such as "Hot AI Asian Games," resonating with millions of netizens. High-quality and low-payment models have achieved initial success, and multiple new products have won first place in segmented markets. NetEase Games actively explored innovative models and broke through segmented markets with high-quality content and low average payment strategies based on user and market demands, achieving success in various areas and providing new support for sustainable development. The mobile game "Nishuihan" broke the traditional MMO model's limitation of high average payment and low user base. As the industry's first MMORPG mobile game driven entirely by content gameplay, it set a new record with a user scale exceeding 50 million during the public beta phase of 45 days. To meet the demand for small payments from players, "Nishuihan" initiated the "game circle price war" for the first time, and the sales of "6 yuan game skins" exceeded one billion pieces. While receiving good reviews, it also built a large-scale ecosystem of small payment users in the MMO field, contributing leading experience to the transformation of the traditional MMO game payment model. NetEase's self-developed new products have also achieved first place in their respective market segments through differentiated innovation in content and channels. "Peak Speed" deeply refined the realistic physics effects of racing cars, using top-notch physics engine technology to simulate real racing experiences and frequently topping the free game charts. "All-Star Streetball Party" broke the constraints of traditional basketball gameplays and became popular with its innovative variety of battle modes. As the first NetEase game not to be released on the Android platform, "All-Star Streetball Party" shared 1.5 billion yuan of channel revenue with players, achieving great success. Rank first in the Overall Ranking, Free Ranking, and Bestseller Ranking, and become the first basketball game to be featured as "Editor's Choice" on the App Store.In July, "Endless Journey" transformed its core business model and opened up to all users for free, further expanding into the international market. After becoming a free game, the global number of players for "Endless Journey" continued to rise to over 40 million and it has received awards from the four major international game platforms - Steam, Xbox, Epic, and PS5, achieving a "Grand Slam" for Chinese games going global. Over 100 million yuan is invested annually in the protection of minors, and all games fully support a one-click ban on recharging for minors. Safeguarding the healthy growth of minors in all aspects is an important responsibility that internet companies must shoulder for long-term development. As one of the earliest internet companies in China to establish and invest in a system for the protection of minors, NetEase has made the protection of minors a key performance indicator and part of its long-term development strategy. Currently, all of NetEase's core content products have launched "Youth Mode" or related features for the protection of minors. NetEase Games attaches great importance to the construction of a system for the protection of minors and continues to upgrade its measures for the protection of minors. NetEase Games invests over 100 million yuan annually in the protection of minors and has launched features such as "One-Click Ban on Playing" and "Ban on Recharging" for minors. Parents only need to bind their child's NetEase game account to the "NetEase Parental Care Platform" public account to be able to one-click check and manage their child's game consumption, and can also set account permissions to prohibit playing games and prohibit recharging. To promote the resolution of the industry's challenge of "false real-name" for minors, NetEase Games upgraded its AI facial recognition technology during the summer, enhancing the accuracy of the AI facial recognition algorithm through dual verification of SDK glare protection and server-side 3D spatio-temporal liveliness, addressing the issue of minors bypassing the verification mechanism through the use of photos and synthesized videos. During this summer, facial recognition was triggered 10.76 million times during the game login process, with over 83% of accounts being rejected or not passing the verification, being included in anti-addiction supervision. NetEase will continue to strengthen its investment in the protection of minors, promote collaboration and governance from all parties, and create a clear and positive online space. NetEase always adheres to the long-term development concept and will continue to start from the overall social situation, leverage its technological and content advantages, promote innovative development in the digital economy, drive digital transformation in physical industries, and fulfill corporate social responsibilities.