Multiple investment banks are optimistic! NetEase-S 2.05 billion deferred revenue forms a bottom, with significant safety margins

Recently, NetEase-S (09999) released its Q4 2025 and full-year financial reports. With solid business layout, strong product reserves, and stable financial performance, it has become a “safe haven” in the capital market. Research reports from China International Capital Corporation, Huatai Securities, and J.P. Morgan Chase have all given positive ratings, stating that multiple core positive factors highlight the company’s resilience. Currently, its valuation is at a historic low, emphasizing its investment value.

“The Twelve Sounds of Yan Yun” Achieves Global Breakthroughs; Evergreen Strategy Shows Remarkable Results

Huatai Securities pointed out in their report that “The Twelve Sounds of Yan Yun” maintains NetEase’s consistent quality in product and subsequent operations, demonstrating continuous renewal ability. It is expected to gradually become an important revenue driver for the company.

As a key part of NetEase’s globalization strategy, “The Twelve Sounds of Yan Yun” has surpassed 80 million users worldwide. On its first day of overseas launch on mobile, it topped the iOS free charts in over 60 regions. Sensor Tower data shows that by January 2026, overseas revenue accounted for 17% of domestic revenue, with the proportion continuing to rise. The game also performs strongly domestically, with the launch of the “Not Seeing Mountains” version and the first anniversary version in Q4, setting new records for daily active users and revenue, and achieving multiple new highs that exceeded expectations. It topped the iOS charts and remained at the top of the best-sellers list. Recent Spring Festival activities also exceeded expectations, with user activity and income reaching new highs for similar events. Huatai Securities estimates that by 2026, overseas total revenue for “The Twelve Sounds of Yan Yun” could reach 2.5 to 3 billion yuan, growing into a new overseas revenue engine for NetEase.

In addition to the impressive performance of its overseas games, NetEase’s long-standing evergreen games are also noteworthy. The 23-year-old “Fantasy Westward Journey” PC version achieved a new annual revenue high. The online version of “Tian Xia” has online peak concurrent users in nearly ten years. “Egg Party” refreshed its average online time record. Many evergreen products not only show no signs of fatigue but also continue to generate incremental growth through long-term operation.

Driven by the dual engines of evergreen strategy and globalization, NetEase’s gaming business has returned to double-digit growth. The financial report shows that in 2025, NetEase’s gaming and related value-added services revenue reached 92.1 billion yuan, with online game net revenue of 89.6 billion yuan, an 11% year-over-year increase.

Promising New Game Pipeline Becomes Clear; Growth Potential in 2026 Is Significant

Market concerns about “succession gaps” in gaming companies are common, but NetEase’s product pipeline demonstrates strong continuous output and high-quality development capabilities.

All three research reports highlight progress on key new games: “Sea of Oblivion,” one of NetEase’s most anticipated new titles in 2026, has recently entered testing and received positive market feedback. During the earnings call, NetEase management indicated that the game is expected to launch in Q3 2026. Huatai Securities estimates that its 12-month revenue post-launch could reach 2.5 to 5 billion yuan. Its unique combination of “navigation + roguelike + turn-based” gameplay and high-level art is considered by Huatai as an “original track,” demonstrating strong differentiation and competitive advantage. “Infinite” closed beta testing met expectations and is progressing steadily. J.P. Morgan reports that “Infinite” has the potential to become one of NetEase’s top revenue-generating games. Additionally, the Chinese-style AAA single-player game “Return to Tang” and the newly licensed Chinese-style auto chess “Yao Yao Chess” form a diversified, high-quality product matrix, effectively ensuring NetEase’s growth relay in 2026 and beyond.

Deepening Self-Developed AI Barriers and Record-High Deferred Revenue

In response to recent market concerns that AI tools like Google Genie3 might disrupt game development models, J.P. Morgan and Huatai Securities both provided rational analyses.

J.P. Morgan quoted NetEase management: AI indeed increases creative supply, but the moat of top gaming companies is actually deepening—integrating AI-generated content with gameplay, economic systems, and social ecology requires twenty years of R&D and operational experience. Huatai also emphasized that core skills such as game design, balancing, and long-term operation cannot be easily replaced by AI.

In fact, NetEase is transforming AI into a core capability to improve game efficiency and innovate gameplay. According to Huatai’s report, NetEase has deployed around 10,000 AI R&D personnel. AI is already applied in programming assistance, art asset generation, automated testing, and intelligent NPC interactions, accelerating development cycles and reducing content costs. This allows teams to focus more on core creativity and experience refinement, strengthening its leading position.

J.P. Morgan’s report states that NetEase will be one of the key developers capable of participating in the global AI gaming race, reaffirming it as the top pick in China’s digital entertainment sector over the next 6-12 months.

Additionally, it is worth noting that NetEase’s deferred revenue has shown strong growth. China International Capital Corporation reported that in Q4 2025, deferred revenue increased by 10.4 billion yuan quarter-over-quarter, significantly exceeding market expectations. Huatai Securities data further shows that Q4 deferred revenue reached 20.5 billion yuan, surpassing market estimates (17 billion yuan) by 21%, and “game revenue + deferred revenue” grew 5% year-over-year, outperforming pure revenue growth. Bernstein’s research also indicates that deferred revenue will gradually become recognized as income, maintaining a “market-beating” rating.

In terms of valuation, J.P. Morgan notes that NetEase’s current P/E ratio is about 13, roughly 25% below its five-year average. The company’s projected compound annual growth rate for game revenue in 2026-2027 is approximately 11%, with operating profit growth of about 17%. The current valuation is highly attractive. China International Capital Corporation and Huatai Securities have set target prices implying 36% to 51% upside potential.

Short-term market volatility has amplified sentiment but cannot change the fundamentals. NetEase is “storing” current performance in deferred revenue, providing a buffer for near-term growth; it has a clear pipeline of new titles outlining a medium-term blueprint; and it is reinforcing its moat through deep AI applications. For investors, NetEase in 2026 is likely to be a “pause and then jump” recovery story, with performance gradually materializing quarter by quarter.