NetEase Lays Off U.S. Staff Ahead Of Announcing 2024 Financial Results

I heard that NetEase laid off an internal development studio working on its hit game Marvel Rivals based in Seattle, Washington. MassivelyOP used the phrase "major layoffs" in the title of that sites news article. So I decided to find out just what major means.

According to GeekWire, the answer is six.

According to NetEase, a total of six U.S. employees were dismissed, including level designer Garry McGee. Notably, this was not the entirety of the Rivals development team, the core of which is headquartered in Guangzhou, China.

“We recently made the difficult decision to adjust Marvel Rivals’ development team structure for organizational reasons and to optimize development efficiency for the game,” a NetEase spokesperson said in a statement to GeekWire. “This resulted in a reduction of a design team based in Seattle that is part of a larger global design function in support of Marvel Rivals. We appreciate the hard work and dedication of those affected and will be treating them confidentially and respectfully with recognition for their individual contributions.”

Apparently most of the work on the game is performed in China. In a statement to IGN, NetEase stated:

“We want to reassure our fanbase that the core development team for Marvel Rivals, which continues to be led by Lead Producer Weicong Wu and Game Creative Director Guangyun Chen in Guangzhou, China, remains fully committed to delivering an exceptional experience,” NetEase continued.

“We are investing more, not less, into the evolution and growth of this game. We’re excited to deliver new super hero characters, maps, features, and content to ensure an engaging live service experience for our worldwide player base.”

Wow, layoffs in the U.S. workforce of NetEase. The U.S. has more expensive labor costs than China, and those on the west coast of the U.S. are higher than average. Without doing any research, the news felt like a move to placate investors right before a company has to give out disappointing financial news. I know, I know, how cynical of me. Then I saw a press release from NetEase pop up this morning talking about the company's Q4 and overall 2024 financial results. Here are the highlights.

Fourth Quarter 2024 Financial Highlights

• Net revenues were RMB26.7 billion (US$3.7 billion), a decrease of 1.4% compared with the same quarter of 2023.
  
  
• Games and related value-added services net revenues were RMB21.2 billion (US$2.9 billion), an increase of 1.5% compared with the same quarter of 2023.
• Youdao net revenues were RMB1.3 billion (US$183.6 million), a decrease of 9.5% compared with the same quarter of 2023.
• NetEase Cloud Music net revenues were RMB1.9 billion (US$257.6 million), a decrease of 5.3% compared with the same quarter of 2023.
• Innovative businesses and others net revenues were RMB2.3 billion (US$313.1 million), a decrease of 17.0% compared with the same quarter of 2023.
  
  
• Gross profit was RMB16.3 billion (US$2.2 billion), a decrease of 3.3% compared with the same quarter of 2023.
  
  
• Total operating expenses were RMB8.5 billion (US$1.2 billion), a decrease of 15.1% compared with the same quarter of 2023.
  
  
• Net income attributable to the Company's shareholders was RMB8.8 billion (US$1.2 billion). Non-GAAP net income attributable to the Company's shareholders was RMB9.7 billion (US$1.3 billion).[1]
  
  
• Basic net income per share was US$0.38 (US$1.89 per ADS). Non-GAAP basic net income per share was US$0.42 (US$2.09 per ADS).[1]

[1] As used in this announcement, non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement.

Since I'm already looking at the press release, here are some highlights concerning the gaming parts of NetEase from 2024.

Net Revenues

Net revenues for fiscal year 2024 were RMB105.3 billion (US$14.4 billion), compared with RMB103.5 billion for fiscal year 2023.

Net revenues from games and related value-added services were RMB83.6 billion (US$11.5 billion) for fiscal year 2024, compared with RMB81.6 billion for fiscal year 2023. Net revenues from the operation of online games accounted for approximately 96.2% of the segment's total net revenues for fiscal year 2024, compared with 92.9% for fiscal year 2023. Net revenues from mobile games accounted for approximately 72.7% of net revenues from the operation of online games for fiscal year 2024, compared with 75.2% for fiscal year 2023. The change in revenue mix was mainly due to higher net revenues generated by PC games such as Naraka: Bladepoint and licensed titles.

Gross Profit

Gross profit for fiscal year 2024 was RMB65.8 billion (US$9.0 billion), compared with RMB63.1 billion for fiscal year 2023.

The year-over-year increase in games and related value-added services' gross profit was primarily due to increased net revenues from the operation of online games, such as Identity V and Naraka: Bladepoint PC and mobile games.

Operating Expenses

Total operating expenses for fiscal year 2024 were RMB36.2 billion (US$5.0 billion), compared with RMB35.4 billion for fiscal year 2023. The year-over-year increase was primarily due to higher research and development investments for games and related value-added services.

I want to make a couple of points to close out this post. The first is that the Chinese yuan fell 2.8% against the U.S. dollar in 2024, thus meaning when calculated in U.S. dollars NetEase's increases may have been due to the effect of foreign exchange valuations.

Next, while Marvel Rivals apparently is doing well, the game is not at the top of the mind of NetEase leadership who are more impressed with PC games like Naraka: Bladepoint and Identity V. If only the developers of top games are safe from layoffs, then the staff of Marvel Rivals didn't make the cut.

But even then, apparently only U.S.-based staff was affected by layoffs. Why? A very good possibility is the increasing strength of the U.S. dollar against the Chinese renminbi. If staff needs to be cut, then cut the staff with the highest labor cost. If U.S. workers are too expensive on average, then those on the West Coast are even more so.

One last thought. NetEase is a Chinese company. As such, they need to stay on the good side of the CCP (Chinese Communist Party). I don't know if people realize, by the economy in China is not doing so well. If job cuts are to occur, who will they cut, Chinese citizens or those overseas? Over the past year or so, the answer has been reducing staff outside China.