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NetEase Reports First Quarter 2013 Unaudited Financial Results

 

Company Also Announces Adoption of Annual Dividend Policy

BEIJING
, May 15, 2013 /PRNewswire-FirstCall/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the first quarter ended March 31, 2013.

"We have built a formidable and growing portfolio of self-developed games that continues to drive our growth," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Our total revenues for the first quarter increased by 12.7% year-over-year, with improvements across our business segments including an increase of 11.3% in revenues from our online games and 15.3% from our advertising services.

"For the first quarter, we saw healthy growth across our principal self-developed games, which was partially offset by decreased revenues from our licensed games. A price increase that we implemented in February 2013 for Fantasy Westward Journey and Westward Journey Online II, as well as strong reception to our newer games Heroes of Tang Dynasty II and Kung Fu Master, were the main contributors to our year-over-year increase in online game revenues. Tianxia III and Ghost also performed well during the first quarter, following recent promotional activities.

"We launched a new expansion pack for New Fly for Fun during the first quarter, and we also initiated large-scale marketing activities for Kung Fu Master to support the game's growth at the end of March. The second quarter will be marked by a robust release schedule of new games and expansion packs that diversify our portfolio and build on the success of our existing online games. We commercialized our 3D real-time strategy game, Heroes of Three Kingdoms, on April 10, and we introduced expansion packs for Westward Journey Online II and Westward Journey Online III, as well as released Ghost II, a new version of Ghost, at the end of April. Since these launches, user feedback has been positive, and we are pleased with these games' performances. In the coming months, we plan to introduce expansion packs for Warsong of Westward Journey and Tianxia III, as well as leverage the 10 years of Fantasy Westward Journey's success by introducing a comprehensive upgrade.

"Our dynamic pipeline for the second half of the year will further broaden the types of games we offer as we plan to introduce Dragon Sword, our next generation 3D MMORPG, and Legend of Tibet, a 2.5D MMORPG that follows a unique story based on Tibetan mythology, followed by a first person shooter game. Additionally, our current release schedule includes new expansion packs for Kung Fu Master, Soul of the Fighter and New Fly for Fun. In the near future, we may also carefully consider and explore the opportunity of introducing our popular online games such as Ghost II to overseas markets and intend to consider our existing business partners when selecting our licensees.

"Our advertising services continued to grow year-over-year. Automobile, fast-moving consumer goods and financial services were the top performing sectors in the first quarter. Our comprehensive web portal, mobile applications and e-mail services continue to attract new users and expand our reach within our loyal community. As of March 31, 2013, we had more than 550 million e-mail users and there were 75 million installations of our industry leading Mobile News application with 29 million daily active users. Youdao Dictionary continued to increase in popularity, reaching 300 million cumulative users at the end of the quarter, with over 50 million monthly active users. Youdao Cloudnote also had approximately 12 million installations. We also released NetEase Cloud Music, a music SNS application that gives musicians and music fans the ability to discover and share music. As we advance our traditional and mobile Internet offerings, add new features and optimize the user experience, we believe we can further cultivate this rapidly growing audience.

"Returning value to our shareholders remains a top priority. Our ability to drive high levels of operating cash flow provides us with ample financial flexibility, and I am pleased to announce that following our special cash dividend that was paid in January, our board of directors has approved the adoption of an annual dividend policy which is discussed in greater detail later in this announcement.

"In 2013, we plan to introduce additional new content and services that address the needs of our users across our business segments. In line with this strategy, we plan to leverage our deep expertise as an online innovator to introduce several mobile games that complement our online games platform. We see the development of mobile games as an opportunity to expand our game offerings as we continue to fuel the growth of our business," Mr. Ding concluded.

First Quarter 2013 Financial Results

Revenues

Total revenues for the first quarter of 2013 were RMB2.3 billion (US$363.6 million), compared to RMB2.3 billion and RMB2.0 billion for the preceding quarter and the first quarter of 2012, respectively.

Revenues from online games were RMB2.0 billion (US$326.4 million) for the first quarter of 2013, compared to RMB2.0 billion and RMB1.8 billion for the preceding quarter and the first quarter of 2012, respectively.

Revenues from advertising services were RMB165.5 million (US$26.6 million) for the first quarter of 2013, compared to RMB259.5 million and RMB143.5 million for the preceding quarter and the first quarter of 2012, respectively.

Revenues from e-mail, wireless value-added services and others ("E-mail, WVAS and others") were RMB65.4 million (US$10.5 million) for the first quarter of 2013, compared to RMB89.8 million and RMB39.6 million for the preceding quarter and the first quarter of 2012, respectively.

Sales Taxes

Total sales taxes for the first quarter of 2013 were RMB105.4 million (US$17.0 million), compared to RMB55.8 million and RMB38.5 million for the preceding quarter and the first quarter of 2012, respectively. The increase in sales taxes was mainly due to a change in the tax rules in China, which resulted in the Company's online game revenues becoming subject to value-added tax instead of business tax. As the increase in value-added tax was substantially offset by a reduction in business taxes on intra-group revenues which were previously recorded in cost of revenues, this change in the tax rules in China did not have a significant impact on gross profit of the Company's online game services business segment. As a result, the increase in gross profit margin was attributable to the lower net revenue due to the increased value-added tax in sales taxes.

Gross Profit

Gross profit for the first quarter of 2013 was RMB1.5 billion (US$248.9 million), compared to RMB1.6 billion and RMB1.3 billion for the preceding quarter and the first quarter of 2012, respectively.

The quarter-over-quarter decrease in gross profit was primarily attributable to a seasonal decline in advertising services revenue.

The year-over-year increase in gross profit was primarily attributable to increased revenues from the Company's self-developed games, Fantasy Westward Journey, Westward Journey Online II, Kung Fu Master, Heroes of Tang Dynasty II and Ghost, which were partially offset by a decline in revenue from Blizzard Entertainment's World of Warcraft®. The revenue increases from Fantasy Westward Journey and Westward Journey Online II were mainly due to the increasing appeal of these games to users resulting from enhanced game quality and the contribution from an increase in unit price for playing time for these games, which was implemented in February 2013. Heroes of Tang Dynasty II, the comprehensive upgrade of Heroes of Tang Dynasty, performed well since its launch in November 2012. Kung Fu Master, one of NetEase's newest games launched in 2012, performed steadily during the first quarter with encouraging feedback from users after several major market promotional activities that were initiated in March 2013. The decrease in revenue from World of Warcraft was mainly due to its reduced user consumption.

Gross Profit (Loss) Margin

Gross profit margin for the online game business for the first quarter of 2013 was 77.8%, compared to 75.3% and 73.0% for the preceding quarter and the first quarter of 2012, respectively.

Gross profit margin for the advertising business for the first quarter of 2013 was 29.0%, compared to 54.3% and 19.8% for the preceding quarter and the first quarter of 2012, respectively. The quarter-over-quarter decrease in gross profit margin was primarily due to a seasonal decline in advertising services revenue. The year-over-year increase in gross profit margin was primarily due to increased advertising revenues in the first quarter of 2013.

Gross loss margin for the E-mail, WVAS and others business for the first quarter of 2013 was 13.1%, compared to gross profit margin of 13.0% and gross loss margin of 18.0% for the preceding quarter and the first quarter of 2012, respectively. The quarter-over-quarter change was mainly due to decreased revenue from sales of game-related accessories in the first quarter of 2013.

Operating Expenses

Total operating expenses for the first quarter of 2013 were RMB455.6 million (US$73.4 million), compared to RMB580.4 million and RMB355.7 million for the preceding quarter and the first quarter of 2012, respectively. The quarter-over-quarter decrease in operating expenses was mainly due to reduced selling and marketing promotional activities in the first quarter of 2013, mainly resulting from reduced promotional activities for World of Warcraft, Heroes of Tang Dynasty II and Tianxia III. The year-over-year increase in operating expenses was primarily due to increased headcount-related costs in research and development expenses and increased promotional costs for NetEase's self-developed games.

Income Taxes

The Company recorded a net income tax charge of RMB142.9 million (US$23.0 million) for the first quarter of 2013, compared with RMB184.2 million and RMB163.1 million for the preceding quarter and the first quarter of 2012, respectively. The effective tax rate for the first quarter of 2013 was 11.8%, compared to 15.4% and 14.9% for the preceding quarter and the first quarter of 2012, respectively.

The Company's various principal subsidiaries renewed their qualifications as High and New Technology Enterprises in 2011, and enjoy the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China. In addition, certain subsidiaries of the Company were recognized as Key Software Enterprises in March 2013 and enjoyed a further reduced preferential tax rate of 10% for 2011 and 2012, with the resulting tax benefits of RMB304.6 million recorded in the financial statements for the first quarter of 2013. The aforementioned tax benefits were partially offset by the recognition of withholding income tax accrual of RMB263.5 million in connection with the Company's plan to distribute a portion of the earnings of certain of its PRC subsidiaries to their offshore parent companies in order to fund its business operations and the annual dividend discussed below.

Net Income After Tax

Net income after tax for the first quarter of 2013 totaled RMB1.1 billion (US$171.2 million), compared to RMB1.0 billion and RMB941.7 million for the preceding quarter and the first quarter of 2012, respectively.

During the first quarter of 2013, the Company reported a net foreign exchange loss of RMB9.3 million (US$1.5 million), compared to a net foreign exchange loss of RMB5.8 million and a net foreign exchange gain of RMB17.6 million for the preceding quarter and the first quarter of 2012, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains and losses were mainly due to unrealized exchange gains and losses arising from the Company's foreign currency denominated bank deposit balances as of March 31, 2013 as the exchange rate of the Euro against the RMB fluctuated over the periods.

The Company reported basic and diluted earnings per ADS of US$1.32 each for the first quarter of 2013. The Company reported basic and diluted earnings per ADS of US$1.24 for the preceding quarter, and reported basic and diluted earnings per ADS of US$1.16 and US$1.15, respectively, for the first quarter of 2012.

Other Information

As of March 31, 2013, the Company's total cash and time deposits balance was RMB15.5 billion (US$2.5 billion), compared to RMB15.2 billion as of December 31, 2012. Cash flow generated from operating activities was RMB1.5 billion (US$249.2 million) for the first quarter of 2013, compared to RMB1.3 billion for the preceding quarter and the first quarter of 2012.

Special Cash Dividend

In November 2012, the Company announced that its board of directors declared a special cash dividend of US$0.04 per ordinary share, which is equivalent to US$1.00 per ADS (each ADS represents 25 ordinary shares). The special cash dividend amounting to approximately US$131 million was paid to shareholders of record as of January 15, 2013.

Annual Dividend Policy

As noted above, the Company's board of directors has approved an annual dividend policy. Under this policy, the Company intends to make annual cash dividend distributions commencing in 2013 in an amount between 20% and 25% of its anticipated annual net income after tax in the current fiscal year. The determination to make dividend distributions and the amount of such distributions in any particular year will be made at the discretion of the NetEase board of directors and will be based upon its operations and earnings, cash flow, financial condition, capital and other reserve requirements and surplus, any applicable contractual restrictions, the ability of the Company's PRC subsidiaries to make distributions to their offshore parent companies, and any other conditions or factors which the board deems relevant and having regard to the directors' fiduciary duties.

Share Repurchase Program

In November 2012, the Company announced that its board of directors approved a new share repurchase program of up to US$100 million. As of March 31, 2013, the Company had cumulatively purchased approximately 2.02 million ADSs in open market purchases under this program for a total consideration of approximately US$83.0 million. The share repurchase program will expire on November 20, 2013.

** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.2108 on the last trading day of March 2013 (March 29, 2013) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 29, 2013, or at any other certain date. The percentages stated are calculated based on RMB.

Conference Call

NetEase's management team will host a teleconference call with a simultaneous webcast at 9:00 p.m. Eastern Time on Wednesday, May 15, 2013 (Beijing/Hong Kong Time: 9:00 a.m. on Thursday, May 16, 2013). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-877-941-1427 (international: 1-480-629-9664), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-800-406-7325 (international 1-303-590-3030), and entering passcode 4615833#. The replay will be available through May 30, 2013.

This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com.

About NetEase, Inc.

NetEase, Inc. (NASDAQ: NTES) is a leading Internet technology company in China. Dedicated to providing online services centered around content, community, communication and commerce, NetEase develops and operates some of China's most popular online games, e-mail services, advertising services and web portals. In partnership with Blizzard Entertainment, NetEase also operates one of the most popular international online games in China, World of Warcraft®. For more information, please visit: http://ir.netease.com/

Forward Looking Statements

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games such as Heroes of Tang Dynasty II, Kung Fu Master, Dragon Sword and Legend of Tibet or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Fantasy Westward Journey, Westward Journey Online II and other games, do not become as popular as management anticipates; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that Shanghai EaseNet will not be able to continue operating World of Warcraft, StarCraft II or other games licensed by it for a period of time or permanently due to possible governmental actions or the risk that such games will not be popular with game players in China; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenues or cause revenues to decline; competition in the online advertising business and the risk that investments by NetEase in its content and services may not increase the appeal of the NetEase websites among Internet users or result in increased advertising revenues; the risk that NetEase may not be able to continuously develop new and creative online services, including its ability to maintain and enhance the popularity of its e-mail, mobile and micro-blogging services and develop attractive mobile games; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments and general competition and price pressures in the marketplace); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

Contact for Media and Investors:

Cassia Curran 
NetEase, Inc.
cassia@corp.netease.com 
Tel: (+86) 571-8985-2076

 

Brandi Piacente
Investor Relations
brandi@corp.netease.com 
Tel: (+1) 212-481-2050

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 
   

 December 31, 

 

 March 31, 

 

 March 31, 

   

2012

 

2013

 

2013

   

 RMB  

 

 RMB  

 

 USD (Note 1) 

Assets

           
             

Current assets:

           

   Cash and cash equivalents

 

1,590,769

 

1,805,016

 

290,625

   Time deposits

 

13,098,661

 

13,567,637

 

2,184,523

   Restricted cash

 

570,506

 

2,002,821

 

322,474

   Accounts receivable, net

 

269,485

 

197,257

 

31,760

   Prepayments and other current assets

 

1,121,784

 

1,229,315

 

197,932

   Short-term investments

 

1,073,539

 

926,819

 

149,227

   Deferred tax assets

 

143,929

 

144,614

 

23,285

Total current assets

 

17,868,673

 

19,873,479

 

3,199,826

             

Non-current assets:

           

   Property, equipment and software, net 

 

815,026

 

816,801

 

131,513

   Land use right, net

 

11,529

 

11,464

 

1,846

   Deferred tax assets 

 

2,215

 

3,442

 

554

   Time deposits

 

490,000

 

112,000

 

18,033

   Other long-term assets

 

90,513

 

87,548

 

14,096

Total non-current assets

 

1,409,283

 

1,031,255

 

166,042

Total assets 

 

19,277,956

 

20,904,734

 

3,365,868

             

Liabilities and Shareholders' Equity

           
             

Current liabilities:

           

   Accounts payable 

 

157,764

 

121,921

 

19,630

   Salary and welfare payables

 

289,848

 

229,151

 

36,896

   Dividend payable

 

814,934

 

-

 

-

   Taxes payable

 

389,465

 

384,921

 

61,976

   Short-term loan

 

-

 

1,003,024

 

161,497

   Deferred revenue

 

1,160,018

 

1,211,571

 

195,074

   Accrued liabilities and other payables

 

764,473

 

941,119

 

151,529

   Deferred tax liabilities

 

-

 

263,462

 

42,420

Total current liabilities

 

3,576,502

 

4,155,169

 

669,022

             

Long-term payable:

           

   Other long-term payable

 

99,968

 

66,114

 

10,645

Total liabilities

 

3,676,470

 

4,221,283

 

679,667

             

Total NetEase, Inc.'s equity

 

15,680,605

 

16,757,139

 

2,698,065

Noncontrolling interests

 

(79,119)

 

(73,688)

 

(11,864)

Total shareholders' equity

 

15,601,486

 

16,683,451

 

2,686,201

             

Total liabilities and shareholders' equity

 

19,277,956

 

20,904,734

 

3,365,868

 

The accompanying notes are an integral part of this press release.

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(RMB and USD in thousands, except per share data)

 
   

 Quarter Ended 

   

 March 31, 

 

 December 31, 

 

 March 31, 

 

 March 31, 

   

2012

 

2012

 

2013

 

2013

   

 RMB 

 

 RMB 

 

 RMB 

 

 USD (Note 1) 

Revenues:

               

Online game services

 

1,821,029

 

1,977,417

 

2,027,171

 

326,395

Advertising services

 

143,451

 

259,500

 

165,451

 

26,639

E-mail, WVAS and others

 

39,630

 

89,799

 

65,393

 

10,529

Total revenues

 

2,004,110

 

2,326,716

 

2,258,015

 

363,563

Sales taxes

 

(38,481)

 

(55,842)

 

(105,426)

 

(16,975)

Total net revenues

 

1,965,629

 

2,270,874

 

2,152,589

 

346,588

                 

Total cost of revenues

 

(634,407)

 

(662,600)

 

(606,506)

 

(97,653)

                 

Gross profit

 

1,331,222

 

1,608,274

 

1,546,083

 

248,935

                 

Selling and marketing expenses 

 

(130,497)

 

(321,584)

 

(167,673)

 

(26,997)

General and administrative expenses

 

(70,284)

 

(69,452)

 

(85,230)

 

(13,723)

Research and development expenses 

 

(154,961)

 

(189,345)

 

(202,729)

 

(32,641)

Total operating expenses

 

(355,742)

 

(580,381)

 

(455,632)

 

(73,361)

                 

Operating profit

 

975,480

 

1,027,893

 

1,090,451

 

175,574

Other income:

               

Investment income

 

13,926

 

7,523

 

12,518

 

2,015

Interest income

 

86,490

 

115,530

 

117,465

 

18,913

Exchange gains (losses) 

 

17,597

 

(5,782)

 

(9,310)

 

(1,499)

Other, net

 

1,298

 

52,139

 

667

 

107

                 

Net income before tax

 

1,094,791

 

1,197,303

 

1,211,791

 

195,110

Income tax

 

(163,063)

 

(184,238)

 

(142,871)

 

(23,004)

                 

Net income after tax

 

931,728

 

1,013,065

 

1,068,920

 

172,106

Net loss (income) attributable
   to noncontrolling interests

 

9,952

 

(4,530)

 

(5,431)

 

(874)

Net income attributable to
   the Company's shareholders

 

941,680

 

1,008,535

 

1,063,489

 

171,232

                 

Comprehensive income

 

931,728

 

1,013,065

 

1,068,920

 

172,106

Comprehensive loss (income)
   attributable to noncontrolling interests

 

9,952

 

(4,530)

 

(5,431)

 

(874)

Comprehensive income attributable 

   to the Company's shareholders

 

941,680

 

1,008,535

 

1,063,489

 

171,232

                 

Earnings per share, basic

 

0.29

 

0.31

 

0.33

 

0.05

Earnings per ADS, basic

 

7.18

 

7.69

 

8.20

 

1.32

Earnings per share, diluted

 

0.29

 

0.31

 

0.33

 

0.05

Earnings per ADS, diluted

 

7.17

 

7.68

 

8.19

 

1.32

                 

Weighted average number of
   ordinary shares outstanding, basic

 

3,278,157

 

3,278,877

 

3,241,939

 

3,241,939

Weighted average number of
   ADS outstanding, basic

 

131,126

 

131,155

 

129,678

 

129,678

Weighted average number of
   ordinary shares outstanding, diluted

 

3,284,428

 

3,283,903

 

3,246,871

 

3,246,871

Weighted average number of
   ADS outstanding, diluted

 

131,377

 

131,356

 

129,875

 

129,875

 

The accompanying notes are an integral part of this press release.

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)

 
   

Quarter Ended

   

 March 31, 

 

 December 31, 

 

 March 31, 

 

 March 31, 

   

2012

 

2012

 

2013

 

2013

   

 RMB  

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

Cash flows from operating activities:

               

     Net income  

 

931,728

 

1,013,065

 

1,068,920

 

172,106

     Adjustments to reconcile net profit to net cash
         provided by operating activities: 

               

     Depreciation and amortization 

 

71,677

 

37,647

 

38,289

 

6,165

     Share-based compensation cost 

 

68,273

 

28,869

 

58,706

 

9,452

     Allowance for (reversal of) provision
         for doubtful debts 

 

921

 

(1,063)

 

(190)

 

(31)

     Gain on disposal of property,
         equipment and software 

 

(122)

 

(11)

 

(220)

 

(35)

     Unrealized exchange (gains) losses 

 

(18,719)

 

4,491

 

7,763

 

1,250

     Deferred income taxes 

 

(16,170)

 

(6,668)

 

261,550

 

42,112

     Net equity share of loss (gain) from
         associated companies 

 

256

 

(87)

 

339

 

55

     Amortization of discount and premium of 
         short-term investments 

 

2,894

 

(5,407)

 

(3,280)

 

(528)

     Changes in operating assets and liabilities: 

               

         Accounts receivable 

 

20,720

 

19,806

 

72,418

 

11,660

         Prepayments and other current assets 

 

180,825

 

12,034

 

(105,062)

 

(16,916)

         Accounts payable 

 

14,857

 

42,197

 

(26,612)

 

(4,285)

         Salary and welfare payables 

 

(64,930)

 

111,449

 

(60,697)

 

(9,773)

         Taxes payable 

 

(19,620)

 

16,904

 

(4,545)

 

(732)

         Deferred revenue 

 

71,378

 

3,465

 

51,554

 

8,301

         Accrued liabilities and other payables 

 

92,897

 

59,729

 

188,959

 

30,425

            Net cash provided by operating activities 

 

1,336,865

 

1,336,420

 

1,547,892

 

249,226

                 

Cash flows from investing activities:

               

     Purchase of property, equipment and software 

 

(23,280)

 

(41,029)

 

(35,578)

 

(5,728)

     Proceeds from sale of property,
         equipment and software 

 

182

 

43

 

696

 

112

     Purchase of other intangible assets 

 

-

 

(32)

 

-

 

-

     Net change in short-term investments
         with terms of three months or less 

 

(500,000)

 

430,000

 

20,000

 

3,220

     Purchase of short-term investments 

 

(154,277)

 

(876,569)

 

(20,000)

 

(3,220)

     Proceeds from maturities of short-term investments 

 

430,000

 

-

 

150,000

 

24,151

     Transfer from (to) restricted cash 

 

79,346

 

(101,322)

 

(1,432,315)

 

(230,617)

     Placement/rollover of matured time deposits 

 

(5,116,326)

 

(5,302,980)

 

(4,908,848)

 

(790,374)

     Proceeds from maturities of time deposits 

 

3,738,181

 

5,382,478

 

4,817,487

 

775,663

     Net change in other assets 

 

(14,158)

 

(6,186)

 

2,613

 

423

             Net cash used in investing activities 

 

(1,560,332)

 

(515,597)

 

(1,405,945)

 

(226,370)

 
 
 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)

                 
   

Quarter Ended

   

 March 31, 

 

 December 31, 

 

 March 31, 

 

 March 31, 

   

2012

 

2012

 

2013

 

2013

   

 RMB  

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

                 

Cash flows from financing activities:

               

     Proceeds of short-term bank loan 

 

-

 

-

 

1,005,680

 

161,924

     Proceeds from employees exercising stock options 

 

21,033

 

-

 

-

 

-

     Purchase of shares 

 

-

 

(414,942)

 

(106,809)

 

(17,197)

     Dividends paid to shareholders 

 

-

 

-

 

(815,413)

 

(131,290)

             Net cash provided by (used in) financing activities      

 

21,033

 

(414,942)

 

83,458

 

13,437

                 

     Effect of exchange rate changes on cash 

               

         held in foreign currencies 

 

265

 

342

 

(11,158)

 

(1,797)

             Net (decrease) increase in cash and cash equivalents 

 

(202,169)

 

406,223

 

214,247

 

34,496

Cash and cash equivalents, beginning of the period

 

2,214,618

 

1,184,546

 

1,590,769

 

256,129

Cash and cash equivalents, end of the period

 

2,012,449

 

1,590,769

 

1,805,016

 

290,625

                 

Supplemental disclosures of cash flow information:

               

     Cash paid for income tax, net of tax refund 

 

145,625

 

160,146

 

192,134

 

30,935

     Withholding income tax paid associated with  

               

         the repatriation of cash for a special dividend 

 

-

 

35,000

 

5,000

 

805

Supplemental schedule of non-cash investing 

               

     and financing activities:

               

     Share repurchase financed by accounts payable 

 

-

 

7,547

 

-

 

-

     Dividend payable 

 

-

 

814,934

 

-

 

-

     Fixed asset purchases financed by
         accounts payable and accrued liabilities 

 

35,393

 

7,228

 

13,894

 

2,237

 

The accompanying notes are an integral part of this press release.

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)

   

Quarter Ended

   

March 31,

 

December 31,

 

March 31,

 

March 31,

   

2012

 

2012

 

2013

 

2013

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

Revenues:

               

Online game services

 

1,821,029

 

1,977,417

 

2,027,171

 

326,395

Advertising services

 

143,451

 

259,500

 

165,451

 

26,639

E-mail, WVAS and others

 

39,630

 

89,799

 

65,393

 

10,529

Total revenues

 

2,004,110

 

2,326,716

 

2,258,015

 

363,563

                 

Sales taxes:  

               

Online game services

 

(23,566)

 

(25,170)

 

(86,138)

 

(13,869)

Advertising services

 

(14,009)

 

(24,240)

 

(15,736)

 

(2,534)

E-mail, WVAS and others

 

(906)

 

(6,432)

 

(3,552)

 

(572)

Total sales taxes

 

(38,481)

 

(55,842)

 

(105,426)

 

(16,975)

                 

Net revenues:

               

Online game services

 

1,797,463

 

1,952,247

 

1,941,033

 

312,526

Advertising services

 

129,442

 

235,260

 

149,715

 

24,105

E-mail, WVAS and others

 

38,724

 

83,367

 

61,841

 

9,957

Total net revenues

 

1,965,629

 

2,270,874

 

2,152,589

 

346,588

                 

Cost of revenues:

               

Online game services

 

(484,894)

 

(482,513)

 

(430,347)

 

(69,290)

Advertising services

 

(103,827)

 

(107,555)

 

(106,231)

 

(17,104)

E-mail, WVAS and others

 

(45,686)

 

(72,532)

 

(69,928)

 

(11,259)

Total cost of revenues

 

(634,407)

 

(662,600)

 

(606,506)

 

(97,653)

                 

Gross profit (loss):

               

Online game services

 

1,312,569

 

1,469,734

 

1,510,686

 

243,236

Advertising services

 

25,615

 

127,705

 

43,484

 

7,001

E-mail, WVAS and others

 

(6,962)

 

10,835

 

(8,087)

 

(1,302)

Total gross profit

 

1,331,222

 

1,608,274

 

1,546,083

 

248,935

                 

Gross profit (loss) margin:

               

Online game services

 

73.0%

 

75.3%

 

77.8%

 

77.8%

Advertising services

 

19.8%

 

54.3%

 

29.0%

 

29.0%

E-mail, WVAS and others

 

(18.0%)

 

13.0%

 

(13.1%)

 

(13.1%)

 

The accompanying notes are an integral part of this press release.

 

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

 

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate

             of USD1.00 = RMB6.2108 on the last trading day of March 2013 (March 29, 2013)as set forth in the

             H.10 statistical release of the U.S. Federal Reserve Board.

 

Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated

             statements of comprehensive income is set out as follows in RMB and USD (in thousands):

 
   

Quarter Ended

   

March 31,

 

December 31,

 

March 31,

 

March 31,

   

2012

 

2012

 

2013

 

2013

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

Share-based compensation cost included in:

               

Cost of revenue

 

33,215

 

12,957

 

28,936

 

4,659

Operating expenses

               

- Selling and marketing expenses

 

4,680

 

2,397

 

3,956

 

637

- General and administrative expenses

 

11,926

 

4,260

 

9,468

 

1,524

- Research and development expenses

 

18,452

 

9,255

 

16,346

 

2,632

SOURCE NetEase, Inc.