NetEase, Inc. American Depositary Receipt

Company Overview

Business Model: NETEASE, INC. provides diverse online content and services, primarily generating revenue through online game services, intelligent learning services (Youdao, Inc.), online music streaming (NetEase Cloud Music), e-commerce (Yanxuan), advertising services, e-mail, and payment platforms. The company operates in China through subsidiaries and Variable Interest Entities (VIEs) due to PRC restrictions on foreign investment in value-added telecommunications, internet cultural, and internet publication services. VIEs generated 87.2% of total net revenues in 2024.

Market Position: Founded in June 1997 and incorporated in July 1999, NETEASE, INC. is a dual-listed company on The Nasdaq Stock Market LLC (June 2000) and The Stock Exchange of Hong Kong Limited (June 2020). Its majority-controlled subsidiaries, Youdao, Inc. and NetEase Cloud Music, are also publicly listed on the NYSE and HKEX, respectively. The company holds strong market positions in key segments, with Youdao Dictionary recognized as the top language app in China by monthly active users (MAUs). In the global gaming market, titles like Knives Out ranked No.1 (2023) and No.2 (2024) in Japan’s iOS grossing chart, while Naraka: Bladepoint and Once Human were named "Top Seller" and "Most Played" on Steam’s Best of 2024. The NetEase Music Audio Lab has also achieved recognition, breaking three world records at MIREX 2020 for audio melody extraction.

Recent Strategic Developments: Key strategic initiatives include the renewal of the Minecraft licensing agreement with Mojang AB (Microsoft) in the PRC in 2023 and a new licensing agreement with Blizzard in 2024 for the World of Warcraft, Hearthstone, Warcraft, Overwatch, Diablo, and StarCraft universes in mainland China. The company has expanded its global gaming footprint with mobile games launched in international markets since 2015, including Japan, Southeast Asia, and the United States, with Naraka: Bladepoint and Marvel Rivals launched globally. Youdao, Inc. strategically disposed of its Academic AST Business in 2021. NetEase Cloud Music entered into a new framework agreement for intragroup transactions, effective January 1, 2024.

Geographic Footprint: NETEASE, INC. is incorporated in the Cayman Islands, with its principal executive offices located in Hangzhou, People’s Republic of China. The company operates through wholly-owned and majority-owned subsidiaries in the People’s Republic of China, Hong Kong, Cayman Islands, British Virgin Islands, and other countries. Substantially all long-lived assets and revenue of its reportable segments are derived from China. Its mobile games have a global presence, with launches in markets such as Japan, Southeast Asia, and the United States.

Cross-Border Operations: The company's operations in China are structured through Variable Interest Entities (VIEs) to comply with PRC restrictions on foreign investment in value-added telecommunications, internet cultural, and internet publication services. NETEASE, INC. has expanded its international presence by launching or acquiring overseas game studios in North America, Japan, and Europe. Key international licensing agreements include those with Mojang AB (Microsoft), Blizzard, Marvel, thatgamecompany, Inc., and Codemasters. The company navigates complex multi-jurisdictional regulatory environments, including PRC regulations on cross-border data transfer (e.g., Measures for the Security Assessment of Data Cross-border Transfer, Provisions on Promoting and Regulating Cross-border Data Flows), as well as international data privacy laws such as the EU GDPR, UK GDPR, Digital Services Act (DSA), and various U.S. state/federal privacy laws. The U.S. Executive Order on "Preventing Access to Americans’ Bulk Sensitive Personal Data" also impacts its data transactions.

Financial Performance

Revenue Analysis

Profitability Metrics (2024):

• Gross Margin: 62.5%
• Operating Margin: 28.1%
• Net Margin: 28.2%

Investment in Growth:

• R&D Expenditure: RMB17,524,812 (US$2,400,889) in 2024, representing 16.6% of total revenue.
• Capital Expenditures: RMB1.3 billion in 2024, primarily for new office buildings and servers.
• Strategic Investments: Capital expenditure commitments for 2025 and thereafter amount to RMB632.3 million (US$86.6 million), mainly for new office buildings.

Currency Impact Analysis:

• The Renminbi depreciated approximately 2.7% against the U.S. dollar in 2024.
• The company reported net foreign exchange gains of RMB255.4 million (US$35.0 million) in 2024, a reversal from a net foreign exchange loss of RMB133.0 million in 2023.
• Cash and cash equivalents and time deposits held outside of China are predominantly denominated in U.S. dollars.
• The company has not entered into hedging transactions to manage foreign currency risk.

Business Segment Analysis

Games and Related Value-added Services

Financial Performance:

• Revenue: RMB83,622,643 (US$11,456,254), an increase of 2.5% year-over-year from RMB81,565,449 in 2023.
• Gross Margin: 68.7% in 2024, up from 68.2% in 2023.
• Key Growth Drivers: Strong performance of self-developed titles such as Identity V, Naraka: Bladepoint PC and mobile games, and certain licensed titles. Revenues from licensed games increased by 64.3% to RMB7.8 billion (US$1.1 billion) in 2024, representing 7.4% of total net revenues.

Product Portfolio:

• Operates a portfolio of over 100 mobile and PC games, including MMORPGs, casual, shooting, racing simulations, CCGs, battle arena, and SLGs.
• Major in-house developed mobile games include Fantasy Westward Journey mobile game, Westward Journey Online mobile game, Onmyoji, Knives Out, Identity V, LifeAfter, Eggy Party, Justice mobile game, Dunk City Dynasty, and Naraka: Bladepoint mobile game.
• Major in-house developed PC games include Westward Journey Online 2, Fantasy Westward Journey Online, Justice, Naraka: Bladepoint, Once Human (cross-platform), Marvel Rivals, and Where Winds Meet (cross-platform).
• Co-developed titles include Diablo® Immortal™ (with Blizzard) and Racing Master (with Codemasters).

Market Dynamics:

• Knives Out achieved significant success, ranking No.1 (2023) and No.2 (2024) in Japan’s iOS grossing chart.
• Naraka: Bladepoint and Once Human were recognized as "Top Seller" and "Most Played" on Steam’s Best of 2024.

Geographic Revenue Distribution:

• Mobile games have been launched in global markets since 2015, targeting regions such as Japan, Southeast Asia, and the United States. Naraka: Bladepoint and Marvel Rivals have seen global launches.

Youdao, Inc.

Financial Performance:

• Revenue: RMB5,625,919 (US$770,748), an increase of 4.4% year-over-year from RMB5,389,208 in 2023.
• Gross Margin: 48.9% in 2024, compared to 51.4% in 2023.
• Key Growth Drivers: Primarily driven by increased net revenues from online marketing services.

Product Portfolio:

• Offers a range of learning services, including digital content, STEAM courses, and adult courses (e.g., China University MOOC).
• Provides AI-driven subscription services such as Youdao Dictionary, Confucius large language model, Hi Echo, and Mr. P AI Tutor.
• Develops and sells smart devices, including the Youdao Dictionary Pen, Youdao Listening Pod, and Youdao Smart Learning Pad.
• Youdao, Inc. disposed of its Academic AST Business in 2021.

Market Dynamics:

• Youdao Dictionary, launched in 2007, maintains its position as the top language application in China by MAUs.

Geographic Revenue Distribution:

• Not explicitly detailed beyond its strong market position in China.

NetEase Cloud Music

Financial Performance:

• Revenue: RMB7,950,146 (US$1,089,166), an increase of 1.1% year-over-year from RMB7,866,992 in 2023.
• Gross Margin: 33.7% in 2024, significantly up from 26.7% in 2023.
• Key Growth Drivers: Attributed to increased net revenues from online music services, primarily due to growth in membership subscriptions.

Product Portfolio:

• Core offerings include online music services (membership subscriptions, digital albums/singles, advertising, copyright sublicensing) and social entertainment services (live streaming, social networking, virtual items).

Market Dynamics:

• The NetEase Music Audio Lab has demonstrated technological leadership, breaking three world records at MIREX 2020 for audio melody extraction.

Geographic Revenue Distribution:

• Not explicitly detailed.

Innovative Businesses and Others

Financial Performance:

• Revenue: RMB8,096,528 (US$1,109,220), a decrease of 6.4% year-over-year from RMB8,646,510 in 2023.
• Gross Margin: 35.8% in 2024, up from 29.7% in 2023.

Product Portfolio:

• Includes Yanxuan, a private label consumer lifestyle brand established in April 2016, offering products such as pet food, home cleaning items, and bedding.
• Other services comprise advertising services, premium e-mail, the www.163.com portal and mobile app Wangyi Xinwen, NetEase Pay, NetEase Mail, customized B-to-B technology services, and e-reading services.

Market Dynamics:

• Not explicitly detailed.

Geographic Revenue Distribution:

• Not explicitly detailed.

International Operations & Geographic Analysis

Revenue by Geography:

• Substantially all long-lived assets and revenue of reportable segments are derived from China. No further geographic disaggregation of revenue is provided in the filing.

International Business Structure:

• Subsidiaries: The company operates through wholly-owned and majority-owned subsidiaries in the People’s Republic of China, Hong Kong, Cayman Islands, British Virgin Islands, and other countries. Key subsidiaries include Guangzhou Boguan Telecommunication Technology Co., Ltd., NetEase (Hangzhou) Network Co., Ltd., and Hong Kong NetEase Interactive Entertainment Limited.
• Joint Ventures: While not explicitly structured as joint ventures, the company engages in co-development agreements, such as for Diablo® Immortal™ with Blizzard and Racing Master with Codemasters.
• Licensing Agreements: Strategic international licensing agreements include those with Mojang AB (Microsoft) for Minecraft in the PRC (renewed 2023), Blizzard for various game universes in mainland China (new license 2024), Marvel for mobile games (May 2019), and thatgamecompany, Inc. for Sky (2019).

Cross-Border Trade:

• Export Markets: The company's mobile games have been launched in global markets since 2015, with a focus on Japan, Southeast Asia, and the United States. Naraka: Bladepoint and Marvel Rivals have achieved global launches.
• Import Dependencies: Not explicitly detailed in the filing.
• Transfer Pricing: The company's transfer pricing arrangements with its Variable Interest Entities (VIEs) are subject to potential scrutiny by PRC tax authorities.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: In 2024, the company repurchased 13,939,834 ADSs for a total cost of RMB8.8 billion (US$1.2 billion).
• Dividend Payments: Total dividend payments amounted to RMB11.2 billion (US$1.5 billion) in 2024. Cash dividends declared for fiscal year 2024 totaled RMB11.8 billion (US$1.6 billion).
• Dividend Yield: Not explicitly disclosed.
• Future Capital Return Commitments: A share repurchase program, authorized on November 17, 2022, for up to US$5.0 billion, became effective on January 10, 2023, for a 36-month period. As of December 31, 2024, approximately US$3.1 billion remained available under this program.

Balance Sheet Position (as of December 31, 2024):

• Cash and Equivalents: RMB51.4 billion (US$7.0 billion).
• Total Debt: RMB12.2 billion (US$1.7 billion), comprising short-term loans of RMB11.8 billion (US$1.6 billion) and long-term loans of RMB428.0 million (US$58.6 million).
• Net Cash Position: RMB128.4 billion (US$17.6 billion) (calculated as Cash and cash equivalents + Time deposits + Short-term investments - Total Debt).
• Credit Rating: Not disclosed in the filing.
• Debt Maturity Profile: The debt portfolio includes significant short-term loans maturing within one year and a smaller portion of long-term loans. All short-term bank borrowings as of December 31, 2024, were at fixed rates.

Cash Flow Generation:

• Operating Cash Flow: RMB39.7 billion (US$5.4 billion) in 2024.
• Free Cash Flow: RMB38.4 billion (US$5.3 billion) in 2024 (Operating Cash Flow less Capital Expenditures).
• Cash Conversion Metrics: Not explicitly detailed in the filing.

Currency Management:

• Cash and cash equivalents and time deposits held outside of China are mainly denominated in U.S. dollars.
• Natural hedging through operational diversification: Not explicitly detailed, but implied by the company's global operations and multi-currency holdings.
• Financial hedging instruments and strategies: The company has not entered into hedging transactions to manage foreign currency risk.

Operational Excellence

Production & Service Model:

• Game Development: The company employs a structured game development process that includes market research, proposal generation, demo creation, prototype review, and extensive beta testing.
• Smart Devices Manufacturing: For Youdao, Inc.'s smart devices, manufacturing is outsourced to third-party manufacturers.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Server and Bandwidth Providers: The company relies on third-party providers such as China Telecom, China Unicom, China Mobile affiliates, and Google Cloud Platform for its network server infrastructure.
• Manufacturing Partners: Third-party manufacturers are utilized for the production of Youdao, Inc.'s smart devices.
• Technology Partners: Strategic collaborations exist with companies like Blizzard, Marvel, Microsoft, and Codemasters for game development and operational support.

Facility Network:

• Manufacturing: Manufacturing for smart devices is outsourced.
• Research & Development: The company owns office buildings and R&D centers in Shanghai, Hangzhou, Guangzhou (approximately 1.1 million sq. meters), and Beijing (approximately 0.1 million sq. meters). These centers house in-house research institutions focused on advanced technologies.
• Distribution: Operates network servers co-located in facilities of major Chinese telecommunication providers and its self-built Gui’an Data Center. Cloud-based servers from third parties like Google Cloud Platform are also utilized.

Operational Metrics:

• The games division was recognized with the 2023-2024 ATD Excellence in Practice Award.
• The NetEase Music Audio Lab achieved three world records at MIREX 2020, highlighting its audio technology capabilities.
• Specific capacity utilization, efficiency measures, or quality indicators are not explicitly disclosed in the filing.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Advertising services are primarily conducted through a dedicated sales force.
• Channel Partners: The company leverages online advertising sales networks and agencies for broader market reach.
• Digital Platforms: Mobile games are distributed through major platforms such as the Apple iOS app store, various third-party Android app stores, and the company's proprietary platforms.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: Not explicitly detailed in the filing.
• Strategic Partnerships: The company maintains strategic partnerships with key entities like Blizzard, Marvel, Microsoft, and Codemasters for game development and operation, indicating significant B2B relationships.
• Customer Concentration: Specific customer concentration risk metrics are not disclosed, but the diversified product portfolio and global market penetration suggest a broad customer base.

Regional Market Penetration:

• Japan: Knives Out demonstrated strong market penetration, ranking No.1 (2023) and No.2 (2024) in Japan’s iOS grossing chart.
• Growth Markets: The company has actively pursued market penetration in emerging regions, with mobile games launched in global markets since 2015, including Japan, Southeast Asia, and the United States. Naraka: Bladepoint and Marvel Rivals have achieved global launches, indicating a strategy for broad international reach.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics:

• The online game market is characterized by intense competition and rapid technological evolution.
• The industry faces ongoing risks from new technologies and the potential for AI technologies (e.g., model decay) to disrupt existing business models.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Tencent: A major global online game developer and operator, representing a significant competitive overlap.
• Established online and offline education service and/or product providers in China: For its Youdao, Inc. segment.
• Leading digital content and entertainment providers: For its NetEase Cloud Music and other innovative businesses segments.

Regional Competitive Dynamics:

• The competitive landscape varies by geographic market, with specific titles demonstrating strong performance in regions like Japan (Knives Out) and on global platforms like Steam (Naraka: Bladepoint, Once Human). The company's strategy involves both in-house development and strategic licensing to compete effectively across diverse regional markets.

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics:

• Online Game Market: The online game market is highly competitive and subject to rapid changes in consumer preferences and technological advancements.
• Technology Disruption: The company faces risks from the emergence of new technologies and the potential for AI technologies, such as model decay, to disrupt its products and services across various markets.
• Customer Concentration: While not explicitly detailed, the company's global diversification of game launches and services helps mitigate regional market-specific customer concentration risks.

Operational & Execution Risks

Global Supply Chain Vulnerabilities:

• Supplier Dependency: The company relies on third-party server and bandwidth providers, including China Telecom, China Unicom, China Mobile affiliates, and Google Cloud Platform, which introduces dependency risks.
• Regional Disruptions: Operations are vulnerable to natural disasters, public health outbreaks, and system failures, which can have varying regional impacts.
• Trade Restrictions: The business is impacted by U.S. export controls on advanced semiconductor chips (effective October 7, 2022, October 17, 2023, and December 2, 2024) and PRC export restrictions on certain technologies (December 2023 MOFCOM/MST Announcement). Trade sanctions from various jurisdictions also apply, potentially affecting global operations.

Financial & Regulatory Risks

Currency & Financial Risks:

• Foreign Exchange: Fluctuations in the Renminbi exchange rate against other major currencies, particularly the U.S. dollar, significantly impact financial results due to multi-currency exposure. The company holds substantial U.S. dollar-denominated cash and debt. No hedging transactions have been entered into.
• Interest Rate Risk: All short-term bank borrowings as of December 31, 2024, were at fixed rates. A hypothetical 10% change in interest rates would result in an increase or decrease of RMB492.1 million (US$67.4 million) in net interest income and RMB48.7 million (US$6.7 million) in investment income from short-term investments in 2024.
• Credit & Liquidity: PRC regulations on currency exchange limit the ability to utilize revenues effectively. The company's dual listing and subsidiary IPOs indicate access to global capital markets.

Regulatory & Compliance Risks:

• Multi-Jurisdictional Compliance: The company operates under a complex and evolving regulatory framework in the PRC (e.g., Foreign Investment Law, Telecom Regulations, ICP Measures, Online Publishing Service Rules, Anti-Monopoly Law, E-Commerce Law, Payment Institutions Regulation). Internationally, it is subject to the EU GDPR, UK GDPR, Digital Services Act (DSA), and various U.S. state and federal privacy laws.
• Trade Regulations: Compliance with export controls, sanctions, and cross-border data transfer restrictions (e.g., PRC Measures for the Security Assessment of Data Cross-border Transfer, U.S. Executive Order on "Preventing Access to Americans’ Bulk Sensitive Personal Data") adds complexity and potential costs.
• Tax Regulations: PRC tax authorities may scrutinize transfer pricing arrangements with VIEs. There is a risk that the company could be treated as a resident enterprise for PRC tax purposes, potentially subjecting its global income to a 25% Enterprise Income Tax and dividends/gains to foreign investors to a 10% withholding tax. STA Circular 9 may also affect reduced withholding tax rates.

Geopolitical & External Risks

Country-Specific Risks:

• Political Risk: Geopolitical tensions and political relationships between China and other countries (e.g., India's ban of Chinese mobile apps in September 2020, U.S. actions on Chinese applications, "America First Investment Policy" issued February 21, 2025) may significantly impact business operations and market access.
• Economic Risk: Economic instability, including currency devaluation and market downturns in key operational regions, poses a risk to financial performance.
• Regulatory Changes: Changes in local laws and regulations across various jurisdictions could affect the company's operations, compliance costs, and business strategies.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network:

• R&D Centers: The company maintains owned office buildings and R&D centers in Shanghai, Hangzhou, Guangzhou, and Beijing.
• Innovation Pipeline: Significant investment is directed towards game R&D, with a strategic focus on expanding technologies, products, services, and user base through internal development. In-house research institutions concentrate on advanced areas such as reinforcement learning, computer vision and graphics, natural language processing, speech synthesis, and music generation. Youdao, Inc. specifically develops proprietary OCR, NMT, language data mining, voice recognition technologies, data analytics, and large language models (LLM).

Intellectual Property Portfolio:

• Patent Strategy: The company relies on a comprehensive IP strategy encompassing copyright, trademark, patent, and trade secrecy laws. It has filed numerous patent applications with the National Intellectual Property Administration of China, U.S. Patent and Trademark Office, European Patent Office, and Japan Patent Office, securing various patent certificates.
• Licensing Programs: The company engages in cross-border licensing programs, including agreements for game content with Mojang AB (Microsoft), Blizzard, Marvel, and thatgamecompany, Inc.
• IP Litigation: In May 2023, a court found NETEASE, INC. in breach of a settlement agreement with Krafton, Inc. and Krafton Americas, Inc., resulting in a US$6 million award, though the parties subsequently settled to avoid further litigation with no material financial impact.

Technology Partnerships:

• Strategic Alliances: The company has established strategic alliances with key technology and content providers such as Blizzard, Marvel, Microsoft, and Codemasters for collaborative game development and operational support, extending its technological capabilities and market reach.
• Research Collaborations: While not explicitly detailed beyond internal R&D, these partnerships contribute to the company's innovation ecosystem.

Leadership & Governance

Executive Leadership Team

International Management Structure:

• The General Counsel, Paul W. Boltz, Jr., brings 25 years of law practice experience in Asia, indicating a strong focus on international legal and compliance matters.
• Regional leadership and reporting relationships are not explicitly detailed in the filing.

Board Composition:

• The Board of Directors comprises five members: William Lei Ding (CEO) and four independent non-executive directors: Alice Yu-Fen Cheng, Grace Hui Tang, Joseph Tze Kay Tong, and Michael Man Kit Leung.
• Independence: Four out of five directors are independent, ensuring robust oversight.
• International Expertise: Board members possess diverse international experience, including CPA qualifications in Taiwan, PRC, and the U.S., extensive audit experience with PricewaterhouseCoopers, and roles as independent non-executive directors for Hong Kong Stock Exchange-listed companies.
• Regulatory Compliance: Joseph Tze Kay Tong is designated as an "audit committee financial expert" and is independent.
• Committee Structure: The board has established audit, compensation, nominating, and ESG committees. Grace Hui Tang chairs the audit, compensation, and nominating committees, while Alice Yu-Fen Cheng chairs the ESG committee.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments:

• People’s Republic of China: The company operates under a comprehensive and evolving set of PRC laws and regulations, including the 2019 PRC Foreign Investment Law, Telecom Regulations of the PRC, ICP Measures (last revised December 6, 2024), Rules for the Administration of Online Publishing Service, Administrative Provisions on Internet Live Streaming Services, Notice on Further Preventing Minors from Indulging in Online Games, E-Commerce Law of the PRC, PRC Anti-Monopoly Law (last amended June 24, 2022), and the Regulation on Supervision and Administration of Non-bank Payment Institutions.
• Major Market 1 (European Union/United Kingdom): For its international operations, the company is subject to the EU General Data Protection Regulation (GDPR), UK GDPR, and the Digital Services Act (DSA, effective August 2024).
• Major Market 2 (United States): The company must comply with various U.S. state and federal privacy laws, including the California Consumer Privacy Act (CCPA) and the California Privacy Rights Act of 2020.

Cross-Border Compliance:

• Export Controls: The company is subject to U.S. export controls on advanced semiconductor chips (effective October 7, 2022, October 17, 2023, and December 2, 2024) and PRC export restrictions on certain technologies (December 2023 MOFCOM/MST Announcement).
• Sanctions Compliance: Compliance with trade sanctions imposed by various jurisdictions is a critical aspect of its international operations.
• Anti-Corruption: While not explicitly detailed, the company's global operations necessitate adherence to international anti-corruption laws, including the FCPA and local anti-bribery statutes.
• Data Security & Privacy: Compliance with the PRC Cybersecurity Law, PRC Data Security Law, and PRC Personal Information Protection Law (PIPL) is paramount for its China operations. Additionally, the U.S. Executive Order on "Preventing Access to Americans’ Bulk Sensitive Personal Data" (February 28, 2024, final rule December 27, 2024) impacts its data transactions.

International Tax Strategy:

• Transfer Pricing: The company's inter-company transactions and transfer pricing policies with its VIEs are subject to potential scrutiny by PRC tax authorities.
• Tax Treaties: A reduced 5% withholding tax rate may apply to dividends paid to Hong Kong enterprises directly holding at least 25% equity in a PRC enterprise for 12 months.
• BEPS Compliance: While not explicitly detailed, the company's international tax planning likely considers Base Erosion and Profit Shifting (BEPS) regulations.
• PRC Resident Enterprise Status: There is a risk that NETEASE, INC. could be treated as a resident enterprise for PRC tax purposes, which would subject its global income to a 25% Enterprise Income Tax and dividends/gains to foreign investors to a 10% withholding tax.

Environmental & Social Impact

Global Sustainability Strategy: Environmental Commitments:

• Climate Strategy: The company has deployed carbon mitigation measures, including energy monitoring at its Gui’an Data Center and the implementation of energy-saving solutions across its operations.
• Carbon Neutrality: An Environmental Day focused on Carbon Neutrality was organized at the Beijing campus in 2024, indicating a commitment to addressing climate impact.
• Renewable Energy: Specific details on renewable energy adoption across operations are not explicitly provided.

Regional Sustainability Initiatives:

• Supply Chain: The filing does not explicitly detail global supplier ESG requirements or sustainability standards.

Social Impact by Region:

• Community Investment: The "One Screen" program, launched in 2018, has supported over 300 schools across nine provinces and regions in China, benefiting nearly 200,000 teachers and students by the end of 2024. In 2024, the university admission rate for students supported by this project was nearly 80%. In January 2025, the company donated RMB8 million in emergency supplies for an earthquake in the Xizang Autonomous Region. The Eggy Party charity project in 2024 provided over 28,000 free lunches to rural children.
• Labor Standards: The games division received the 2023-2024 ATD Excellence in Practice Award. The company was listed in Forbes World’s Best Employers for 2024 and TIME World’s Best Companies 2024, and was a member of the 2023 Bloomberg Gender-Equality Index, reflecting strong labor practices and social recognition.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

• U.S. Dollar: The company has significant U.S. dollar exposure, with US$1.0 billion in US$-denominated debt outstanding and US$12.2 billion in US$-denominated cash and cash equivalents and time deposits held as of December 31, 2024.
• Renminbi: The Renminbi is the primary functional currency for the majority of the company's operations in China, with substantial revenue and cost exposure. The Renminbi depreciated approximately 2.7% against the U.S. dollar in 2024.

Hedging Strategies:

• Transaction Hedging: The company explicitly states that no hedging transactions have been entered into to manage short-term foreign exchange risk.
• Translation Hedging: No specific strategies for balance sheet currency exposure are detailed, as no hedging transactions are utilized.
• Economic Hedging: While not explicitly detailed, the company's diversified global operations and multi-currency holdings may provide some natural economic hedging against long-term competitive currency exposures.