NetEase steady on the rise

According to recent filings, NetEase’s Games revenue reached $8.3B in 2020, an 18% increase from 2019. NetEase is famous the world around, mainly as Blizzard’s key partner in China and also as the constant #2 to Tencent (in terms of revenue). But what else do we know about the gaming giant?

For context, NetEase Games 2020 revenue of $8.3B is a tad higher than Activision Blizzard’s $8.1B and much higher than EA’s $5.54B. (Of course, no one is catching up to Tencent anytime soon) NetEase’s key games-related revenue generators are the two MMORPG titles Fantasy Westward Journey (PC released in 2001) and Westward Journey Online series. Both PC titles were transplanted to mobile and released in 2015, are anchors NetEase’s gaming revenue, and are Top 10 grossing in China’s iOS platform. This background gives NetEase a very different DNA when compared to Tencent, whose top games like Arena of Valor, Peacekeeper Elite, and Call of Duty Online are esports-focused (and also technically unoriginal titles — Arena of Valor is derived from League of Legends, Peacekeeper Elite from PUBG)

NetEase was founded in 1997 by Lei Ding, is headquartered in Hangzhou, a top tier city an hour away from Shanghai but not known for its gaming industry. Game companies in China are usually clustered in Beijing, Shenzhen, Guangzhou, Chengdu, and Shanghai. Just like its headquarters, NetEase’s strategy and products march to its own drum. While NetEase continues to build on its MMO successess with more MMO titles, the company also set out to diversify in new ways. One of those key success is Onmyoji, a 2016 turn-based strategy game that has grown into a $10B IP. LifeAfter, an open world doomsday survival game, and Identity V, a 1v4 multiplayer horror game, (both launched in 2018) also show NetEase’s versatility and capability in creating new gameplays and IPs that become commercial successes.

The games mentioned here are not an exhaustive list of NetEase’s successes in China by far, as NetEase usually accounts for 10-15 of the top 100 grossing games in China. Its strength in game development and the China market also allowed it to net deals with Blizzard, Mojang, Disney, Warner Bros, and more top tier western companies. However, NetEase’s strength in China has not yet translated well to the west, as their best titles in the US (LifeAfter & Identity V) are in-and-out of US Top 100 Grossing. That said, with co-developed games like Diablo Immortal, Pokemon Quest, Harry Potter: Magic Awakened, and Lord of the Rings: Rise to War in the works — plus leadership’s eye for potential M&A and investments — this could evolve. The company might also increasingly focus on the Japan market, where Knives Out topped the iOS charts on several occasion. Whatever the case, NetEase has strong talent, significant capital, and ambitious goals, so it will be fascinating to see where they go from here.