(Yicai) Aug. 21 -- Chinese internet giant NetEase has reported a 19 percent drop in second-quarter profit from a year earlier, mainly as a result of investment and foreign exchange losses.

Net profit was CNY7 billion (USD1 billion) in the three months ended June 30, down from CNY10.7 billion (USD1.6 billion) in the first quarter, the Hangzhou-based company announced yesterday. Revenue rose 7.9 percent to CNY30.1 billion.

NetEase had an almost CNY3 billion (USD446.2 million) investment loss from mark-to-market accounting adjustments on publicly traded equities it held, including shares in e-commerce platform PDD Holdings, and nearly CNY440 million (USD65.4 million) in forex losses, it said, noting that these weighed heavily on profit and contrasted with their year-earlier gains.

NetEase's holdings in Alibaba Group Holding and PDD fell by more than 20 percent in the quarter, resulting in a significant portfolio loss, according to a report by Dolphin Research. Excluding this, quarterly core operating profit surged 33 percent year on year.

Gross profit jumped 18 percent to CNY21.2 billion, beating market expectations of CNY19.8 billion, the company said.

“We delivered healthy growth across business segments,” Bill Pang, vice president of corporate investment, said on NetEase’s earnings conference call.

Income from gaming services rose 9.7 percent to CNY25 billion, remaining NetEase's most profitable division. That from NetEase Cloud Music remained flat at CNY2 billion.

NetEase highlighted the growing role of artificial intelligence. Driven by AI, Youdao’s learning service revenue jumped 21 percent to CNY800 million, with total income at the online education business rising 3.5 percent to CNY1.5 billion.

NetEase’s shares [HKG: 9999] closed 4.5 percent higher at HKD202 (USD25.60) each in Hong Kong today, amid gains in Chinese technology stocks. In pre-market trading in New York, its equity [NASDAQ: NTES] was up 7.1 percent at USD128.30 as of 5.23 a.m. local time, after shedding 5.9 percent yesterday.

Editors: Tang Shihua, Martin Kadiev