NetEase Q2 Revenue Rises 7.9% as Profit Falls on Investment Losses

NetEase reported higher second-quarter revenue and a lower bottom line for the three months ended June 30, 2026, with unaudited results published August 20, 2026 showing net revenues of RMB30.1 billion (US$4.4 billion), up 7.9% from the same quarter of 2025, and net income attributable to shareholders of RMB7.0 billion (US$1.0 billion), down from RMB8.6 billion a year earlier.

Games and related value-added services, the company’s core segment, generated RMB25.0 billion (US$3.7 billion) of the quarter’s revenue, up 9.7% year over year. NetEase attributed the annual increase to higher revenue from self-developed titles, naming the Fantasy Westward Journey franchise and Where Winds Meet, while noting a slight sequential decline from the preceding quarter’s RMB25.7 billion on lower contributions from certain self-developed and licensed games. Online game operations accounted for approximately 97.7% of the segment’s revenue in the quarter.

The profit decline sat below the operating line. Gross profit rose 17.5% year over year to RMB21.2 billion (US$3.1 billion) as cost of revenues fell to RMB8.9 billion from RMB9.8 billion, which the company attributed to lower revenue-sharing and product costs, and operating profit climbed to RMB12.1 billion from RMB9.1 billion in the same quarter of 2025. What reversed was the company’s investment book: the investment line swung to a net loss of RMB3.0 billion (US$435.3 million) from net income of RMB328.4 million a year earlier, a move NetEase attributed to a decline in the fair value of equity security investments and impairment provisions made during the quarter. Exchange results also flipped, to a net loss of RMB436.5 million from a net gain of RMB114.0 million, and the effective tax rate rose to 25.5% from 14.7%.

“Our robust performance in the first half of 2026 reflects players’ growing enthusiasm for both our newly launched and established games, underscoring our ability to create distinctive and refreshing experiences with lasting appeal,” said William Ding, Chief Executive Officer and Director of NetEase, in the announcement.

Beyond games, Youdao revenue rose 3.5% year over year to RMB1.5 billion (US$216.2 million), driven by its learning services, in a quarter when the subsidiary launched Confucius 4, a large language model the company says delivers stronger mathematical reasoning at lower inference costs than its previous version. NetEase Cloud Music revenue held stable at RMB2.0 billion (US$291.4 million), with growth in subscription-based memberships, while innovative businesses and others fell 3.5% to RMB1.6 billion (US$241.6 million) on a decline in the e-commerce business.

For the six months ended June 30, 2026, net revenues reached RMB60.7 billion (US$8.9 billion), up 7.0% from the same period of 2025, while net income attributable to shareholders came in at RMB17.7 billion (US$2.6 billion), down from RMB18.9 billion a year earlier.

NetEase’s Second Quarter by the Numbers

• Net revenues: RMB30.1 billion (US$4.4 billion), up 7.9% year over year
• Games and related value-added services revenue: RMB25.0 billion (US$3.7 billion), up 9.7%
• Gross profit: RMB21.2 billion (US$3.1 billion), up 17.5%
• Net income attributable to shareholders: RMB7.0 billion (US$1.0 billion); non-GAAP figure of RMB7.7 billion (US$1.1 billion), which excludes share-based compensation
• Net investment loss: RMB3.0 billion (US$435.3 million), against net investment income of RMB328.4 million in the same quarter of 2025
• Effective tax rate: 25.5%, up from 14.7% a year earlier
• Net cash position as of June 30, 2026: RMB167.5 billion (US$24.7 billion)

Why NetEase’s Profit Fell While Revenue Grew

The quarter’s core operations moved in the opposite direction from its headline profit. Operating expenses rose just 1.5% year over year to RMB9.1 billion, against 7.9% revenue growth, and the company’s cash-flow statement shows the non-cash charges behind the investment swing: RMB2.0 billion in fair-value changes on equity securities and other investments, plus RMB1.3 billion in impairment losses on investments booked during the quarter.

The tax line compounded the effect. NetEase recorded a net income tax charge of RMB2.5 billion (US$362.4 million) for the quarter, compared with RMB1.6 billion in the same quarter of 2025, and the company notes the effective rate reflects its own estimates of the tax obligations and benefits applicable in each quarter. Net cash provided by operating activities held at RMB10.0 billion (US$1.5 billion), against RMB10.9 billion a year earlier.

The Quarter Against NetEase’s First Half

The sequential comparison softens the profit picture. In the first quarter of 2026, reported on May 21, 2026, NetEase posted net revenues of RMB30.6 billion and net income attributable to shareholders of RMB10.7 billion, a quarter that carried a near-flat investment result and an 18.9% effective tax rate. The second quarter’s RMB7.0 billion bottom line therefore reflects a heavier investment and tax drag rather than a deterioration in game revenue, which has now grown year over year in both quarters of 2026.

The balance sheet continued to absorb significant capital returns. Net cash rose to RMB167.5 billion as of June 30, 2026, from RMB163.5 billion at December 31, 2025, even as the company paid RMB8.3 billion in dividends and spent RMB3.1 billion repurchasing its own ADSs and subsidiaries’ shares across the first half.

What Comes Next for NetEase

NetEase’s management team hosts a teleconference call with a simultaneous webcast at 8:00 a.m. Eastern Time on August 20, 2026, to discuss the results and answer questions, with a telephone replay available through August 27, 2026, and a webcast replay on the company’s investor relations site for 12 months.

On the product side, the pipeline has already produced one launch since the quarter closed: Sea of Remnants launched in China in July 2026. Development of Ananta and Blood Message remained on track, the company said, extending a slate that spans multiple genres and markets. Gaming.net’s coverage of the company’s wider release schedule includes Destiny: Rising and Marvel Mystic Mayhem.