By Sherry Qin

Chinese videogame giant NetEase's shares surged in Hong Kong after it reported better-than-expected first-quarter results, suppored by the continued recovery in its gaming business.

NetEase's shares jumped 13.5% to 190.80 Hong Kong dollars Friday, on track for their largest daily percentage gain in over three years. Its American Depositary Shares advanced 15% overnight.

The Hangzhou-based company 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 topped the estimate from a FactSet-compiled poll and marked a second consecutive quarter of increased profits.

Its online-gaming revenue grew 15% to 23.4 billion yuan, as both the sustained popularity of legacy flagship titles like "Identity V" and the recently launched ones like "Marvel Rivals" supported the sector.

Besides higher revenue, online game services' gross margin came in at 68.8%, beating market expectations. Analysts think the strength of high-margin legacy titles and new self-developed ones likely offset the margin dilution from Blizzard-licensed titles.

NetEase's cost discipline was another highlight of the latest quarter's report, with operating expenses down 14% sequentially. Nomura analysts noted that NetEase has revamped its marketing strategy to concentrate its capital resources on the most promising products.

The strong results prompted some banks to raise their target prices for NetEase's shares.

Citi raised NetEase's ADR target price to US$156.00 from US$118.00 while Barclays adjusted it to US$118.00 from US$104.00.

NetEase has been searching for its next blockbuster title. The recent successes of newly launched "Marvel Rivals" and "Where Winds Meet," could stoke hope for the videogame maker.

"The initial successes of these new game releases have set a positive tone for 2025, but we believe it is still too early to conclude they will remain popular." Barclays analysts said in a research note.

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

(END) Dow Jones Newswires

May 15, 2025 23:16 ET (03:16 GMT)

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