NetEase Stock

NetEase, Inc. (NetEase), through its subsidiaries, provides online game services, tutoring services, sale of smart devices, online music services live streaming services, advertising services, e-commerce and other fee-based premium services in the People’s Republic of China (China or PRC).

The company conducts its business in China through its subsidiaries and the VIEs. Due to legal restrictions and prohibitions on foreign investment in Chinese companies providing, among other things, value-added telecommunications services, internet cultural services and internet publication services, the company operates its primary businesses, including the online games, music streaming, online intelligent learning services and internet content services businesses in China mainland, through contractual arrangements with the variable interest entities (VIEs) and their nominee shareholders. The VIEs hold ICP licenses and other regulated licenses in which foreign investment is restricted or prohibited and operate the company’s internet businesses and other businesses. Under the contractual arrangements, the company provides its computer software, mobile applications, technologies and relevant services to such VIEs, and they operate the NetEase game services in China, education platforms, websites, as well as its other online businesses.

Services

The company has a successful online game business, developing and operating a rich portfolio of highly popular titles. The company offers over 140 mobile and PC games across a wide range of genres, satisfying the ever growing and diversifying needs of the gamer community. Leveraging the company’s user insights and execution expertise, it has also incubated and developed in-house a pipeline of innovative and successful businesses, including intelligent learning and other businesses, ranging from music streaming and e-commerce to advertising services, e-mail, payment platform and other services.

Games and Related Value-added Services

Games

The company’s game products and services consist of in-house developed mobile and PC games (including certain games co-developed with its collaboration partners), as well as games licensed from renowned global developers. As a global early mover that anticipated and captured the trend toward mobile games, the company has significantly expanded its portfolio of mobile game offerings. The company’s flagship titles continue to provide solid support for its online games business with persistent longevity and user loyalty. In addition, while solidifying its leadership position in the Chinese domestic market, the company has also expanded globally with launches in Japan, Southeast Asia, the United States and other international markets.

Game Library

Mobile Games

The company is one of the largest mobile game providers globally in terms of game revenue, having commercially launched over 100 mobile games of various genres as of December 31, 2022, including in-house developed and licensed MMORPGs, collectible card games, or CCGs, first-person shooter games, battle arena games, and simulation games, or SLGs, as well as other casual games.

As of December 31, 2022, the majority of the company’s most popular mobile games are in-house developed games. The company has launched the mobile versions of its in-house developed flagship MMORPGs, including the Fantasy Westward Journey and Westward Journey Online mobile games. The company distributes its mobile games through partnerships with major Android- and iOS-based application stores in China, as well as its proprietary distribution channels. The company offers a variety of in-game virtual items that players can purchase, including avatars, skills, privileges and other in-game consumables, features and functionalities.

PC Games

The company launched its first PC based MMORPG, Westward Journey Online, in December 2001. Subsequently, the company launched Westward Journey Online II in August 2002 and its second original PC based MMORPG, Fantasy Westward Journey, in January 2004. Westward Journey Online II and Fantasy Westward Journey were upgraded to New Westward Journey Online II and Fantasy Westward Journey Online in 2013. Both game series remain popular with gamers today as a result of continued content updating and innovation in play modes over the past two decades. In July 2021, the company launched its action battle royale game, Naraka: Bladepoint, which was well received by players with great success and named a Top Seller on Steam’s Best of 2021 games list.

PC game players can purchase prepaid points to pay for game playing time, virtual items and other fee-based services that enhance their playing experience such as special powers, costumes, weapons and other accessories. The company regularly introduces new virtual items and other fee-based services, as well as change the features of virtual items based on player feedback, market trends and other factors.

Licensed Games

In addition to the company’s in-house developed mobile and PC games, it also offers games licensed from other international game developers, including Microsoft.

Global Presence

The company continues to advance its games and make inroads that expand its reach in overseas markets. The company has launched numerous mobile games in global markets since 2015. The company’s mobile game, Knives Out, has remained popular in Japan since its launch in 2017 and topped Japan’s iOS grossing chart multiple times in 2021 and in 2022. Identity V, which it launched in Japan in 2018, and LifeAfter, which the company launched in Japan in 2019, were also ranked in Japan’s iOS grossing chart multiple times in 2021 and in 2022 further evidencing its potential to operate a diverse range of games in overseas markets over the long term.

In addition to its success in Japan, the company has expanded its footprint across more regions. In December 2019, the company launched MARVEL Super War in several Southeast Asian markets where it topped many of the iOS download charts. In 2020, the company also introduced EVE Echoes and MARVEL Duel to overseas markets. In 2021, the company launched The Lord of the Rings: Rise to War in Europe, the Americas, Oceania and Southeast Asia. In June 2022,the company launched Naraka: Bladepoint on Xbox Series X|S and with Xbox Game Pass for console and PC globally. In the first two weeks of the title being available on the Xbox console, an impressive one million new players have joined the game, which is known for its fast-paced and agile melee combat.

The company has also strengthened its global R&D capabilities by launching or acquiring overseas game studios December 31, 2022, and working with top international game developers. For example:

The company launched its first game studio in Montreal, Canada in 2019 and subsequently appointed industry veteran Emile Liang as its lead producer, bringing the studio more than two decades of rich industry expertise in triple-A game production. Subsequently, the company acquired SkyBox Labs, a full-service game studio founded in 2011 and based in Burnaby and Victoria, Canada.

In Japan, the company has launched several game studios in the past few years, such as Sakura Studio in 2020, and Nagoshi Studio Inc. in 2022, which is led by Toshihiro Nagoshi, the former producer of the Yakuza game series. In 2021, the company also acquired Grasshopper Manufacture Inc., an interactive entertainment software development company based in Tokyo which has more than 20 years of experience in console-focused game development and successfully developed more than 25 games.

The company established its first-ever first-party U.S. studio, Jackalope Games, in 2022 to create new and exciting PC and console games, which is led by industry veteran Jack Emmert who has worked on numerous well-known games. The company subsequently set up another U.S.-based first-party studio, Jar of Sparks, led by Jerry Hook, the former Head of Design on the game Halo Infinite.

In 2022, the company acquired Quantic Dream S.A., one of the premier independent game developers in the world based in Paris, France and Montreal, Canada. Quantic Dream is known for creating games with a strong narrative focus and nonlinear stories that reward players’ choices.

In early 2023, the company also announced the establishment of Spliced, a new global, remote-working game studio which brings together a talented group of passionate industry veterans from a variety of backgrounds, including participating in the development of a number of major gaming franchise.

The company also invests in other leading global studios across the world to strengthen its development capabilities and diversity, including investments in Bungie, a game studio in the United States which was later acquired by Sony Interactive Entertainment LLC, and Behaviour Interactive Inc., one of Canada’s leading independent game studios.

Content Quality and User Experience

The company focus on providing an innovative and superior user experience in game design and development and strive to make games of the highest quality. From the initial proposal to final launch, its games will typically go through a number of carefully designed steps including market research, proposal, demo, repeated prototype review and beta testing to ensure that the best quality and user experience can be delivered to its players.

In addition to creating a highly realistic and immersive gaming experience through the use of advanced technologies, the company also employ innovative gamification thinking that takes into consideration both the in-game and out-of-game user experience. The company has also launched offline gaming experience stores to allow for dynamic and spontaneous offline interactions among game players, as well as create an offline user feedback channel.

Game R&D and Technologies

The company’s consistent and significant investment in innovative game research and development is a key contributor to the success of its online game business and has been widely recognized in the games industry.

Proprietary Game R&D Capabilities

Proprietary R&D is the key focus of its game business. The company continually strengthen and upgrade its game R&D infrastructure through recruiting and cultivating top talent, optimizing its game production pipeline and fostering a culture of creativity and innovation. The company has founded a number of in-house research institutions to explore the application of various technologies in games.

The company strive to recruit and grow the best talent in the industry. The company’s NetEase Games Academy is widely recognized in China as a premier online games training institution, which offer a wide range of programs for creative minds. The company established its in-house game advanced technology research institutions to focus on researching, among other things, reinforcement learning, computer vision and graphics, natural language processing, speech synthesis and music generation. Having built a virtuous cycle among its talent, established development pipeline and dynamic culture of innovation and craftsmanship, its strong R&D capabilities continue to enable high-quality production and expansion of successful games.

Key Game Technologies

The company’s game R&D is centered around using technologies to deliver a superior and differentiated user experience. The key areas of its proprietary game technologies include:

Proprietary Game Engines: In addition to game development, the company has continually invested in proprietary game engine R&D. Since the initial launch of its first game engine, NeoX, in 2005, the company has continually expanded and optimized its proprietary engines to systematically support enhanced game features and aesthetics. As part of its early strategy to focus on mobile games, the company successfully adapted NeoX to iOS and Android systems as well as developed Messiah, a 3D game engine specifically designed for mobile platforms. The company’s R&D in game engines and games reinforces each other and promotes a virtuous cycle of innovation. NeoX and Messiah enable the company to systematically develop mobile games with the highest quality in lighting, audio, special effects, physics and animation, and other key game features, while its drive for better games in turn motivates development of more powerful engines.

User Profile Analytics: The company performs an in-depth analysis of its users profile by analyzing activities and performances in games, in-game purchasing preferences and other data and information. The company leverages its user data on an aggregate basis to guide game development and upgrades, marketing and other activities.

Intelligent Non-Player Characters (NPCs): Enabled by deep learning technology, the company has created intelligent NPCs that can join players’ in-game activities, simulate real-life interactions, facial expressions and body language and enable a more engaging gaming experience. The company also deploys multiple reinforcement learning technologies to produce NPCs with diverse styles and difficulty levels, catering to a wide range of player preferences.

Natural Language Processing (NLP): The company applies NLP technology in its games to enable players to develop their own storyline by carrying out conversations with NPCs and explore hidden elements in the game, creating an immersive gaming experience for players.

Advanced Game Graphics: The company’s advanced game graphics enable game players to create unique characters with customized facial features. The company also offers automatic character customization based on real-life photographs uploaded by players. In addition, the company deploys high-quality 3D game graphics and automatic scene generation in its games.

Related Value-added Services

The related value-added services include the NetEase CC live streaming service, a platform offering various live streaming content with primary focus on game broadcasting, and other related or ancillary value-added services related to games, such as the sales of game-themed merchandise.

Intelligent Learning Services – Youdao, Inc. (Youdao)

Youdao’s Products and Services

The company’s majority owned subsidiary, Youdao is a leading technology-focused, intelligent learning company in China and operates in a number of overseas markets. The company founded Youdao in 2006 and launched the flagship Youdao Dictionary in 2007, which remains the top language app in China in terms of MAUs. Youdao has experienced rapid growth since its founding and completed its public listing on the New York Stock Exchange in October 2019.

Building on the early success of Youdao Dictionary, the company has attracted a massive user base, built a strong brand, and expanded into a broad range of products and services addressing people’s lifelong learning needs, including online knowledge tools, learning services, smart devices and education digitalization solutions. Youdao has historically offered a major portion of its services through its Academic AST Business, but it disposed of such business in 2021 in order to comply with applicable PRC regulatory requirements adopted by the PRC government. Leveraging its strong course and content development capabilities, accumulated from developing its Academic AST Business, Youdao continues to develop online learning services, which mainly include STEAM courses, digital content services, adult and vocational courses, and other courses, such as China University MOOC. Youdao’s smart devices seamlessly integrate advanced artificial intelligence, or AI, algorithms and data analytics which supplement its online learning services and further enhance the user experience and efficiency.

Youdao’s revenues consist of three parts: learning services, smart devices and online marketing services. The company generates the majority of the revenues of Youdao’s learning services from its tutoring services, which mainly include its online courses and digital content services. In addition, the company generates revenues from sales of smart devices and from Youdao’s online marketing services through the provision of different formats of advertisements.

Online Knowledge Tools

Youdao Dictionary: Launched in 2007, Youdao Dictionary is Youdao’s first major product and flagship online language tool. Today, it is China’s most popular and trusted online dictionary and translation tool with 47.1 million MAUs in 2022. As of December 31, 2022, Youdao Dictionary offered over 794 million entries across 109 languages.

Other Online Dictionary and Translation Tools: In addition to Youdao Dictionary, the company offers Youdao Translation, a tool specifically designed to support translation needs of business and leisure travelers across over 31 languages via camera and speech translation, U-Dictionary, an online dictionary and translation app the company offers in Indonesia and other overseas markets, and Youdao Kids’ Dictionary, a smart tool that offers translation services in Chinese and English.

Interactive Learning Apps: The company offers a wide range of interactive learning apps to nearly all age groups. The company is committed to delivering a fun and effective learning experience across these apps through an abundance of gamified features, as well as social functions allowing users and students to share their learning progress with friends through social networking platforms.

Learning Services: The company has developed a comprehensive offering of learning services catering to the diverse learning needs of different age groups. The company’s learning service offerings primarily consist of STEAM courses, digital content services, adult and vocational courses, and other courses, such as China University MOOC. In the past, its learning service offerings also included K-9 after-school tutoring courses as part of Youdao’s Academic AST Business, which cover the entire K-9 grades and a wide range of academic subject matters. In order to comply with applicable PRC regulatory requirements adopted by the PRC government in the second half of 2021, the company disposed the Academic AST Business in 2021.

STEAM Courses: In connection with its disposal of its Academic AST Business, the company has been strategically shifting its focus to offering STEAM courses under the brand of Youdao Premium Courses. The company’s STEAM courses primarily include Youdao Weiqi, computer coding courses and other STEAM courses.

Digital Content Services: Following the third quarter of 2021, the company launched digital content services, including pre-recorded video content that comes with interactive learning features. Through provision of digital content services, the company customizes learning tracks for students based on their diverse and ever-evolving learning needs, providing them with personalized exercise banks and quizzes to enhance their learning experience. In addition, its video tutorials offer fragmented knowledge and exercises to help students achieve superior learning outcomes.

Adult and Vocational Courses: The company offers adult and vocational courses primarily through its NetEase Cloud Classroom, a platform providing tutoring services mainly targeting adults in China. The company’s adult and vocational courses primarily include graduate school entrance exam courses, foreign language courses, professional certification and skill courses and digital training courses of Amazon Web Services.

Other Courses: The company’s other courses primarily include China University MOOC. MOOC stands for massive open online course, which is a course designed to offer free or low-cost access to learning resources to a wide audience. In collaboration with the Higher Education Press, a publishing house under the supervision of the Ministry of Education of the PRC, the company operates China University MOOC, a platform offering online courses primarily targeting college students and adults in China.

Smart Devices: The company develops and offers smart devices, including Youdao Dictionary Pen, Youdao Smart Learning Pad, Youdao Listening Pod, Youdao Smart Light, Youdao Pocket Translator and Youdao Super Dictionary, to make learning more productive and efficient for its users. The company’s smart devices are developed and designed by the company or in collaboration with third parties, while the manufacturing of such devices is outsourced to third-party manufacturers under original equipment manufacturer agreements.

Youdao Dictionary Pen: In July 2018, the company launched Youdao Dictionary Pen, a sleek, modern electronic translation pen with powerful Chinese/English translation capabilities. With its NMT and OCR technologies, users can simply scan the words and the screen will instantly display the translations and definitions of the words without connecting to the internet. The company continued upgrading Youdao Dictionary Pen and launched the People’s Education Version in September 2021. This product marks its first strategic partnership with the People Education Electronic & Audiovisual Press, whose parent company, People’s Education Press, mainly engages in the compilation, publication and distribution of school textbooks and other educational books in the PRC. The company launched Youdao Dictionary Pen X5 and Youdao Dictionary Pen P5 in August 2022 and October 2022, respectively, to further expand the vocabulary bank and upgrade other functions of the device.

Youdao Smart Learning Pad: In August 2022, the company launched Youdao Smart Learning Pad Y10, its first intelligent learning pad product. In October 2022, the company further introduced Youdao Smart Learning Pad X10, an upgraded version with improved AI-driven precision education, a larger screen and more storage. Backed by its proprietary technology infrastructure, Youdao Smart Learning Pad X10 showcases a unique AI-supported Learning Dashboard, which can track and present users’ learning performances and provide personalized suggestions focused on their academic weaknesses. Users can start from either uploading photos of their homework assignments and test papers to the plugged-in system, or conducting quizzes or exercises directly on the device. Leveraging its comprehensive quiz bank with over 200,000 sets of mock exams, Youdao Smart Learning Pad X10 is able to quickly process and generate users’ performance reports encompassing accurate rates, areas of improvements and levels of expertise.

Youdao Listening Pod: Building on its AI-adaptive learning technology, the company launched Youdao Listening Pod in September 2021, a portable learning device that is designed to deliver an immersive English learning experience to users, and offer them with differentiated, interactive listening and speaking practices. With Youdao Listening Pod handy, users can study natural pronunciation by listening and reading over 4500 recording clips of training content, interact and communicate live with AI-powered chat bots and practice on mock questions to score their English listening and speaking capabilities.

Youdao Smart Light: In April 2022, the company launched Youdao Smart Light, an eye-protection desk lamp with interactive, AI-enabled features. Powered by the industry-first desktop-centric learning analysis engine, its Youdao Smart Light can analyze users’ hand or body movements on the desktop to enable a variety of functionalities, such as fingertip word search, sentence intensive reading, and other AI-driven functions. Youdao Smart Light is also able to adaptively adjust the brightness and the color temperature of the light for different learning environments, which is designed to better protect users’ vision and health.

Youdao Pocket Translator: In November 2017, the company launched Youdao Pocket Translator, a pocket-size smart gadget supporting the instant translation of multiple languages to mainly address translation needs while traveling. Leveraging its ASR, OCR and NMT technologies, Youdao Pocket Translator helps to translate speech and texts in images in real time. The latest version of Youdao Pocket Translator supports translation of 107 languages and offers a variety of new functions, such as word memory and pronunciation correction.

Youdao Super Dictionary: Youdao Super Dictionary is an end-to-end translation tool with polysemy recognition and translation capability. It provides smart, real-time voice translation between any two of the 42 supported languages used in over 200 different countries and regions. Youdao Super Dictionary includes professional vocabulary coverage in diversified subjects such as healthcare, IT, finance, legal, sports and energy. It also offers offline translation between English and Chinese.

Education Digitalization Solutions: The company’s education digitalization solutions business include technologies and solutions licensed to schools or enterprise customers, such as Youdao Smart Learning Terminal, Youdao Smart Cloud and Youdao Sports. Youdao Smart Learning Terminal is a device that automates paper-based homework processing and provides learning diagnosis through AI technology at schools. Youdao Smart Cloud is a cloud-based platform that allows third-party app developers, smart device brands and manufacturers to access its advanced OCR capabilities and NMT engine and incorporate them into their apps, devices and services through application programming interfaces. Youdao Sports is a sports-centric educational system that collects, processes and analyzes students’ on-campus exercise data points, leveraging its proprietary visual recognition technology.

Technology-Driven Learning Experience

The company integrates technologies into every major aspect of the learning and teaching process to ensure a superb learning experience across Youdao’s products and services. Over the years, the company has built proprietary OCR, NMT, language data mining and voice recognition technologies and data analytics that serve as the foundation to its products and services. Such technologies are iteratively refined based on the vast data generated by its users.

For example, the company offers a set of advanced AI-based technologies to make learning more personalized and efficient while maintaining a high level of human touch. The company has also built massive knowledge graphs depicting different knowledge points, concepts and learning objectives, supported by a large quiz bank curated by its course development professionals to help students understand the subject matter. In addition, the company has adopted an adaptive learning approach which tracks each student’s learning progress and dynamically adapts teaching to the student’s unique learning needs. The company collects student learning and behavior data throughout their learning cycles to help it understands their learning progress and predict through its adaptive learning model how they will perform to achieve future learning objectives.

Online Music Platform – Cloud Music

Cloud Music’s Products and Services

The company’s majority owned subsidiary, Cloud Village, Inc. (Cloud Music) launched the iconic cornerstone product, NetEase Cloud Music, in the 2013. Cloud Music has built a large-scale, robust and rapidly growing business to provide community-centric online music services and social entertainment services to users. Leveraging NetEase Cloud Music, and ancillary, social entertainment products, it empowers music enthusiasts with a wide variety of technology-driven tools to discover, enjoy, share and create diverse music and music-inspired content and to interact with each other.

Cloud Music generates the majority of the revenue from its music platform through the sales of membership subscriptions for its online music services and sales of virtual items for its social entertainment services. To diversify its revenue streams, Cloud Music has also been actively developing other monetization channels, such as the provisioning of advertising services, sales of digital albums and songs, copyright sublicensing and music-inspired services.

Online Music Services

Cloud Music provides a number of membership subscription packages for users to enjoy high-quality streaming access to its catalogue of music tracks and provide users with services that allow them to purchase access to certain new digital music albums and singles. In addition, Cloud Music offers advertising services for both brand advertisers and performance-based advertisers and sublicense certain of its licensed music content to other parties, including other online music platforms. The MAUs of NetEase Cloud Music was 189.4 million in 2022.

Social Entertainment Services and Others

As the size and engagement level of its online music services’ user base continues to grow, Cloud Music strives to provide more music-inspired social entertainment services to them, which primarily include its live streaming app Look launched in the second half of 2018. Cloud Music generates revenue from live streaming services primarily from sales of virtual items. Users purchase virtual items to gift to live streaming performers as a way for them to show support and appreciation for their performance. Cloud Music also generates revenue from providing membership and value-added services on its social networking platforms. Other revenue sources primarily include movie soundtrack production and ticketing services for offline music events.

Technological-Driven Music Experience

Cloud Music needs to ensure that it can deliver a satisfying music experience consistently at scale by continuously innovating and improving its platform and investing in research and development. The company’s advanced data analytics and other capabilities lay the foundation for the platform’s personalized content recommendations, assisted content creation, interactive social functions and other powerful features that optimize the user experience and realize the unique value of its diverse content. For example, its NetEase Music Audio Lab developed an audio melody extraction solution that broke three world records at the Music Information Retrieval Evaluation eXchange (MIREX) in 2020. In addition, with its strong music recognition ability, the lab’s robust fingerprinting algorithm achieved the second-best performance in the task of audio fingerprinting since MIREX launched this competition in 2014, representing a significant improvement in recognition rate.

Other Innovative Business and Services

The company derives its innovative businesses and others revenues primarily from Yanxuan, advertising services, premium e-mail and other value-added services.

Yanxuan

Yanxuan is the company’s private label consumer lifestyle brand. Starting with the development of a well-designed towel, Yanxuan has always focused on optimizing the user experience of its products and improving the lives of consumers in China through simple, practical, comfortable and elegant designs. Over the past seven years, Yanxuan has gradually developed from a shopping platform favored by the new generation of middle-class families in China to a lifestyle brand favored by younger generations from all walks of life.

Yanxuan offers products in a wide range of categories, including home life, clothing, shoes, bags, gourmet food, drinks, pet food and supplies, personal care and cleaning products, among others. Yanxuan pursues the brand concept of thoughtfully curated products for mindful moments, which is an extension of NetEase’s overall user-first attitude towards its services and products. Yanxuan continuously evaluates the needs and wants of its users and searches around the world to identify and cooperate with the best suppliers available.

Other Innovative Services

The company also offers a wide range of other innovative services, including its www.163.com portal and related mobile app, Wangyi Xinwen, which deliver quality information, such as news, sports events, technology, fashion trends and online entertainment to its users and generate revenues mainly from online advertising services; NetEase Pay, an online payment platform; NetEase Mail, China’s leading email service provider, through which the company provide free and fee-based email services; and certain other services, such as customized B-to-B technology services and e-reading services.

Sales and Marketing

The company employs a variety of online and traditional sales and marketing programs and promotional activities to build its brand as part of its overall marketing strategy. The company focuses on building brand awareness through online marketing campaigns, proactive public relations and other offline advertising. The company invests in a series of marketing activities to further strengthen its brand image and continue to grow its user base, including collaborating with leading social networking, video and live streaming platforms, TV, movie and stage production companies, as well as book and comic publishers to extend its brand to a broader potential user group.

Games and Related Value-Added Services

The company’s mobile games are available on the Apple app store for iOS and third-party Android app stores. In addition, to leverage its existing user bases, the company also publish its mobile games through its own internet properties. The company conducts in-game marketing campaigns in connection with special holiday editions or launches of new games or expansion packs throughout the year. The company has also promoted its games and related value-added services in collaboration with online and offline third-party promoters.

Youdao

Youdao generates user traffic and leads primarily from online channels. As a key sales and marketing strategy, Youdao cross-sells its comprehensive portfolio of products and services, which allows it to effectively scale its business with modest traffic acquisition and marketing spending. In addition, Youdao also employs mobile marketing, such as brand advertisements and marketing campaigns on app stores, leading mobile news apps and social networking platforms, as well as through optimization techniques designed to improve its ranking in popular search engines’ results. Youdao also engages in offline marketing and branding to supplement its overall sales and marketing strategies.

Cloud Music

Cloud Music primarily relies on word-of-mouth referrals and benefits from its high-quality music content, social networking functions and strong brands to attract users to its platforms. Besides word-of-mouth, Cloud Music engages in various marketing and promotional initiatives to promote its brand and increase its user base, including, for example, by partnering with key opinion leaders, holding various marketing campaigns and implementing new technologies and introduce new features to improve user experience.

Innovative Businesses and Others

For its innovative businesses and other online services, content and services are generally provided through mobile applications or their respective websites. Users purchase its services either at a pre-determined package rate or on an item-based basis, and payments are made using third-party online payment platforms or its NetEase Pay. The company attracts users through a variety of channels, such as its sponsored searches, social and online advertising, internet video and television advertising and other advertising channels. The company also offers its customers special pricing discounts in connection with promotion activities and strive to expand its products selection to attract more visitors. Advertising services are conducted through its dedicated advertising services sales force, or through online advertising sales networks and advertising agencies.

Intellectual Property

The company has registered a number of domain names. The company has also successfully registered numerous trademarks with China’s Trademark Office, including marks incorporating the words NetEase and Yeah! in English and for marks for NetEase as written in Chinese in traditional and simplified Chinese characters. In addition, the company has registered trademarks involving Chinese characters and phrases that have meanings relating to its web pages, products and services, including its online games, intelligent learning services, online music services, chat services, e-commerce and certain other online services. In addition, the company has registered a number of trademarks involving the NetEase name, as well as the names and logos of its products and services in the United States, the European Union, the Republic of Korea, Japan, the U.K., Thailand and other jurisdictions.

In addition, the company has registered its various in-house developed games and other online products with the National Copyright Protection Center of China. Moreover, the company has filed certain patent applications with the National Intellectual Property Administration of China, U.S. Patent and Trademark Office, European Patent Office and Japan Patent Office, and has obtained Certificates of Design Patent, Utility Model Patent and/or Invention Patent for technologies related to its games, live video, news, educational products, e-commerce and finance, music platform, hardware products, cloud technology, augmented reality technology, audio/video technology, computer technology and e-mail from the National Intellectual Property Administration of China, as well as Certificates of Utility Patent and Certificates of Design Patent in the United States, Europe and Japan.

Moreover, Youdao owns the intellectual property relating to in-house developed content used on its platform and the registrations of the core trademarks Youdao. Cloud Music owns the intellectual properties relating to NetEase Cloud Music and the registrations of the core trademarks Cloud Music. The company also owns the intellectual property (other than the content) relating to the NetEase websites and other online and mobile platforms, and the technology that enables online community, personalization, online games, news sharing, instant messaging, video streaming, e-commerce and other services on those platforms. The company licenses content from various freelance providers and other content providers.

Research and Development

The company’s research and development expenses were RMB15,039.0 million (US$2,180.5 million) in 2022.

Competition

The company’s competition primarily comes from global online game developers and operators, such as Tencent Holdings Limited.

History

The company was founded in 1997. It was incorporated in the Cayman Islands in 1999. The company was formerly known as NetEase.com, Inc. and changed its name to NetEase, Inc. in 2012