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.

Blizzard Games To Return To The People's Republic This Summer

In a story I missed last week, Microsoft has made up to NetEase for the sins committed by the Bobby Kotick-led Activision-Blizzard-King and Blizzard games are returning to the People's Republic of China. Reading the coverage of the event, the effects of the agreements will definitely expand past the borders of the world's number two economy.

That's right, two agreements. The first returns many favorite games to China. According to the South China Morning Post:

Confirming an earlier South China Morning Post report, the two companies renewed a publishing agreement that will cover games under the previous arrangement, including World of Warcraft, Hearthstone, and other titles in the Warcraft, Overwatch, Diablo, and StarCraft universes, according to a joint statement on Wednesday. These titles are expected to start returning to mainland China this summer.

“After continuing discussions over the past year, both Blizzard Entertainment and NetEase are thrilled to align on a path forward to once again support players in mainland China and are proud to reaffirm their commitment to delivering exceptional gaming experiences,” according to the statement.

Last January, the two companies suspended services for all Blizzard titles in the mainland, except for Diablo Immortal, a mobile title co-developed by NetEase and Blizzard, as their 14-year partnership came to an end. Both sides blamed each other for treating Chinese players badly after failing to agree to new terms to extend the deal.

A Reuters report came closest to fingering former ABK CEO Bobby Kotick for the breakdown in relations.

A number of Blizzard's games were taken offline in China in January 2023 after the developer terminated the partnership with NetEase citing disagreement over intellectual property control. The pair subsequently sued each other.

Tension eased after Microsoft's October acquisition of Activision Blizzard, which was followed by management changes. Chinese media then reported that Microsoft and NetEase were seeking ways to re-launch Blizzard games in China.

But are Chinese players willing to forgive the pulling of their favorite games away from them for over a year? Not according to The New York Times.

The announcement of the new agreement was shared widely on Weibo, China’s version of X, and the reaction was mostly negative. Some people still seemed upset that the games had not been available for more than a year, while others accused Blizzard of disrespecting Chinese gamers. One person said that were not so “cheap” as to come running back immediately once the games had returned.

But Microsoft and NetEase also signed an agreement about the XBox platform. According to Investopedia:

Separately, NetEase and Microsoft entered into an agreement that would look into bringing new NetEase titles to Microsoft’s Xbox consoles and other platforms.

"NetEase games titles being explored to be brought under Xbox consoles and other platforms is incrementally positive" for the China-based developer and operator of online games, Jefferies added.

One might think the news was good for the stock price of NetEase, which trades on Nasdaq. But after opening at $101.66 on Wednesday, NetEase stock opened the week trading at $93.03 today, a decline of 8.5% in the stock price over 3 business days.

EVE Vegas Day 1 - CCP Presents

I can happily say the first day of EVE Vegas surprised me, and in a good way. I wasn't sure how much the purchase of CCP Games by Pearl Abyss would affect the Icelandic company. Seven days after the purchase became official, the answer is, not much. At least so far.

In the opening session, "Opening Ceremonies and CCP Presents", CCP CEO Hilmar Veigar Pétursson laid out the near future of CCP and its line of upcoming games. Hilmar stated that the "partnership" put CCP in "a super strong position" going forward. The punctuation in the previous sentence are not meant as scare quotes, just words we may want to review six months from now. Hilmar also stated that CCP is scrutinizing its development process and won't publish games until they are ready.

As for new games, the next 12 to 18 months should see CCP make the gaming news frequently. The beta for EVE China continues, which CCP expanded on in the EVE keynote. NetEase also is far enough along in the development of its New Eden-based mobile game that it dropped the code name Project Galaxy and announced the final name of EVE: Echoes. As expected, Echoes will not interact with either Tranquility or Serenity but will launch with an Android version. Up until now, we had only heard of an Apple product release. Also, from the presentation, I am not sure if NetEase has dropped the ARG component from the game. All the reporting prior to EVE Vegas suggests the answer is no.

In a bit of news that will probably fly under the radar, CCP has taken control of further development of EVE: War of Ascension from PlayRaven and will finish development of the title in CCP's London studio. Hilmar announced that Phase 1 of the beta is complete and that the game is expected to launch sometime in 2019.

Perhaps the biggest news from CCP Presents was the news that the invite-only alpha for Project Nova will launch in November, with an alpha build available for EVE Vegas attendees to play on Saturday and Sunday. The game has two modes. The first, Onslaught, mimics New Eden as players battle the forces of Sansha's Nation during incursions in an attempt to save the population from a fate worse than death. The other mode, Hijack, involved an attacker trying to install their own pilot in the cockpit of a ship and defenders trying to eliminate the breach. While no launch date was given, I expect a finished product sometime in 2020.

I originally planned to combine both presentations into one blog post, but the EVE Keynote presented by CCP Falcon, CCP Burger, and CCP Rise really needs a dedicated post. But I'll give you a hint of how I felt about the keynote.

It's officially Eve Vegas. #tweetfleet pic.twitter.com/AiM0PZRnwF

— Noizy (@noizygamer) October 20, 2018

When Test Worlds Collide

CCP Falcon put out a little article today that had some big news. The first little bomb EVE's community manager dropped is that CCP will run the Serenity server. I thought NetEase would have to either host the Chinese cluster themselves or find a third party company to provide the service. Apparently not.

Another change that will impact players more directly is that the Singularity test cluster will host both changes for the Serenity cluster as well as the Tranquility cluster on which the rest of the world plays. CCP Falcon explained the details of the move.

"One of the key aims of our partnership with NetEase is to ensure that Tranquility and Serenity stay as close to parity as possible in terms of content, and we aim to be in a position where Serenity is either running the same release as Tranquility or is one release behind.

"This means that as of today, with preparations for the re-launch of EVE China, Singularity will begin to host content destined for either, or both servers.

"This will include SKINs, localization and monetization features that are destined only for Serenity, along with changes to the client that are required to comply with Chinese law. Changes to the launcher and client that need to be made because of Chinese law will however only be active in the Serenity packaged version of EVE."

I'm not sure, but I think the Chinese government has to approve any software upgrades in video games to make sure they conform to approved standards. One standout example was the delay of the release of Wrath of the Lich King to the Chinese servers until Blizzard could remove all traces of skeletons. But maybe CCP has some connections.

I'm looking forward to my next trip to Singularity, if only to see some of the SKINs TianCity sold in lieu of implementing Alpha clones. The only thing I'm not looking forward to is the whining coming from r/eve. I think CCP Falcon ended his news article with a huge dose of sarcasm.

"As always, the EVE community is renowned for its level headedness when changes are ported to Singularity for testing, and we expect that our pilots will understand that Singularity is a test environment, and that not everything that is tested there makes it to our live game environment!"