By Sherry Qin

Videogame giant NetEase delivered solid first-quarter results as its core online business continued to recover, in another sign that China's gaming industry has turned a corner.

The Chinese company behind the hit games "Eggy Party" and "Marvel Rivals" said Thursday that its net profit rose 35% to 10.30 billion yuan, equivalent to $1.43 billion, in the first three months of the year. That beat the 8.28 billion yuan expected in a FactSet poll of analysts and marked a second consecutive quarter of profit gains as NetEase's gaming segment goes from strength to strength.

Adjusted net profit, a closely watched metric that excludes share-based compensation expenses, increased 32% from a year earlier to 11.24 billion yuan.

Revenue at the Hangzhou-based company, the sole distributor of Blizzard blockbusters like "World of Warcraft" in China, climbed 7.4% to 28.83 billion yuan, topping analysts' estimate of 28.11 billion yuan.

Its games revenue rose to 23.4 billion yuan, ahead of market expectations, fueled by the resumed distribution of popular Blizzard titles and the success of self-developed ones such as "Marvel Rivals" and "Where Winds Meet."

NetEase didn't provide a breakdown of revenue contribution by mobile and PC games in Thursday's release.

The better-than-expected results, which come after NetEase's bigger rival Tencent--the world's largest gaming company by revenue--posted a strong set of quarterly earnings, could brighten the outlook for China's gaming sector. The industry has emerged from several years of sluggishness sparked by a regulatory crackdown that halted game approvals. With that process having continued to normalize over the past year, analysts think the sector looks well-placed to sustain profits amid global uncertainties.

NetEase's diversified gaming portfolio and stable income from key flagship titles leaves it relatively better-positioned to navigate market volatility, Citi analysts said in a recent note.

NetEase's share price has risen 21% so far this year, compared with the Hang Seng Index's 17% gain.

In the first quarter, NetEase relaunched Blizzard-licensed "Overwatch" and debuted its hero-shooter title "FragPunk," among others.

The company is undergoing structural changes for its overseas studios and pulling back on international investment. It shut down Japan-based Ouka Studios and laid off "Marvel Rivals"' development team in North America over the past year. NetEase Chief Executive Ding Lei in February said its decision was driven by business evaluations and the company remained committed to supporting high-quality studios to generate creative games for overseas markets.

Investors are waiting for the company's next hit title, with Daiwa analysts saying that a major blockbuster launch will be essential for the stock to outperform in 2025.

NetEase has around 50-plus games in the pipeline, according Citi estimates, and is expected to reveal more updates on its launch schedule and new games at its annual conference next week.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

May 15, 2025 06:27 ET (10:27 GMT)

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