By Sherry Qin

Chinese videogame maker NetEase reported stronger-than-expected net profit and revenue despite a high base last year, starting 2026 on a solid footing amid anticipation for its next blockbuster launch.

The company behind popular games such as "Fantasy Westward Journey" said Thursday that net profit rose 3.6% from a year earlier to 10.67 billion yuan, equivalent to $1.57 billion. Analysts polled by Visible Alpha had expected a decline for the three months ended March. Adjusted net profit, a closely watched metric that excludes share-based compensation expenses, was roughly flat at 11.27 billion yuan.

Revenue came in above market expectations, with China's second-largest videogame company posting 6.1% growth for the first quarter. Revenue from games increased 7.1% to 25.06 billion yuan, according to a Wall Street Journal calculation, accelerating from the previous quarter amid a strong performance by self-developed titles such as "Fantasy Westward Journey" and "Where Winds Meet."

By comparison, NetEase's larger domestic peer, Tencent, last week reported weaker-than-expected gaming revenue growth due to the timing of the Lunar New Year this year.

The top-line and bottom-line beats came despite a high base of comparison last year, when NetEase launched blockbusters "Marvel Rivals" and "Where Winds Meet." The game developer also incurred unusually low sales and marketing expenses in the year-ago period.

Nomura said ahead of the results that NetEase could come in slightly ahead of low market expectations, given the company's more favorable revenue mix that is skewed toward higher-margin self-produced titles.

The quarter was a relatively quiet one for NetEase's gaming business, with only a few titles being released. Analysts expect growth to pick up later in 2026. The next highly anticipated title, "Sea of Remnants," which is likely to be released in the third quarter, could accelerate gaming business growth in the second half of the year, Nomura said in a recent note.

Concerns about earnings growth and uncertainty around the gaming pipeline have already weighed on its shares this year. NetEase's Hong Kong-listed stock lost about one-fifth of its value in the first three months and has largely traded sideways since then.

Meanwhile, NetEase has begun incorporating AI into game production, and management has called the technology a "transformative multiplier" rather than a disruptive force.

"By combining evolving technologies with our deep operating expertise, we aim to create exceptional content and experiences," Chief Executive William Ding said.

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

(END) Dow Jones Newswires

May 21, 2026 06:46 ET (10:46 GMT)

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