We expect NTES to report 1Q25 results in late May 2025. We model 8% YoY total revenue and 12% YoY pure online game revenue, 1% and 3% ahead of consensus respectively. We estimate continuously strong 84% YoY PC game sales while weak -7% YoY mobile game sales. 60.8%/ 29.8% forecasted GPM/ adj. NPM missed streets’ expectations.
　　We expect relatively tepid pipelines in remaining 2025 and estimate solid 41% YoY PC sales while flattish YoY mobile sales in 2025. We deem ongoing near-term streamlined adjustments will improve efficiencies and profit without dampening Co.’s core game competencies and globalisation vision. Maintain BUY and TP of US$124/ HK$195.0 unchanged.
　　Key Factors for Rating
　　Eye on existing franchise operations with light pipelines in remaining 2025; Solid core game competencies with ongoing S-T adjustments.
　　According to our latest channel check, we forecast relatively light pipelines ahead especially mobile titles in remaining 2025 and estimate strong 41% YoY PC game revenue of RMB31bn while flattish YoY mobile game sales of RMB58bn in 2025.
　　Therefore, we see operations of key game franchises (expansion packs, new content updates, cross-IP collaborations, offline activities, etc.) will be determinant factor in 2025. We deem Co.’s near-term streamlined adjustments such as new projects under development, in-house studios including 1P global ones and S&M may benefit profitability to some extent without dampening Co.’s core game competencies and globalisation vision. Thus, we cut our 2025E PC game sales by 2% mainly due to trimmed ‘Fragpunk’ estimates while raising our 2026E and 2027E PC estimates considering contributions from new PC/ console titles such as ‘Ananta’, ‘Floatopia’, ‘万民长歌’ and ‘Wildgate’. We largely keep our 2025-27E mobile game estimates unchanged. We raise our cloud music revenue estimates mainly due to solid online music subs growth contributed by strong paying user momentum on diversified music content and privileges. Our raised bottom line forecast mainly reflects our decreased opex assumptions.
　　1Q25 preview: Core game beat with continuously outperformed PC while weak mobile; GPM miss on game revenue mix. We model total revenue will deliver 8% YoY to RMB29.0bn, 1% above consensus. We forecast pure online game revenue will deliver 12% YoY to RMB22.9bn, with continuously outperformed PC while weak mobile game. We model PC game revenue will accelerate at 84% YoY to RMB8.0bn mainly due to outperformed Marvel Rivals overseas, domestic Blizzard games and newly launched Where Winds Meet PC domestically. Meanwhile, mobile game revenue will drop by -7% YoY to RMB14.9bn mainly affected by Justice Mobile and Eggy Party, partially offset by increased grossing from Identity V, Naraka mobile, Where Winds Meet mobile.
　　Forecasted GPM/ adj. NPM are 60.8%/ 29.8%, both missing streets’ expectation.
　　Key Risks for Rating
　　Downside risks: i) weak pipelines; ii) weak macro and online discretionary spending recovery; iii) game regulations; iv) competition; v) destructive investments; vi) dampened partnerships; and vii) ADR delisting.
　　Valuation
　　Maintain BUY and our TP of US$124.0/ HK$195.0 on: i) US$99.0 on unchanged 13.0x FY2025E adj. EPADS of US$7.6 (vs. US$7.5 previously); 2) US$5.0 from stake in Youdao and Cloud Music; and 3) US$20.0 from net cash.