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NetEase Reports Fourth Quarter and Fiscal Year 2014 Unaudited Financial Results

BEIJING, Feb. 9, 2015 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2014.

"In 2014 we made exciting strides across our three business lines. With considerable advancements among our traditional online and mobile games portfolios, and portal and e-commerce offerings, our total revenues for 2014 grew by 27.7% year-over-year," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "We completed the year with a 42.5% increase in fourth quarter revenues compared to the fourth quarter of 2013, led by a 35.7% increase in online game services, a 22.7% increase in advertising services and a 224.2% increase from our expanding e-mail, e-commerce and others business."

"Our fourth quarter online game services revenues grew by 16.4% compared to the preceding quarter, with standout performances from both our self-developed and licensed online games. Following the launch of a new item-based version in August, New Westward Journey Online II achieved record user statistics in the fourth quarter. Our newly-launched mobile games demonstrated strong traction with users as well, especially our self-developed mobile battle arena game, Battle to the West, and mobile 3-D action adventure, The World HD, which was adapted from our online game Tianxia III. Both of these games have become highly ranked in the China mobile game market. The November launch of the fifth expansion set to Blizzard Entertainment'sWorld of Warcraft®, Warlords of Draenor in mainland China was also met with great player enthusiasm. Moreover, we saw solid performances from the games for which we introduced new expansion packs in the fourth quarter, including Fantasy Westward Journey II, Tianxia III, Ghost II, and Heroes of Tang Dynasty Zero."

"At the beginning of 2015, we initiated the small-scale commercial launch of Revelation, our 3-D oriental fantasy MMORPG, and beta testing for Hegemon-King of Western Chu, our 3-D warfare MMORPG. We are pleased by the positive early feedback for these games. Additionally, in January, Blizzard's free-to-play, online team brawler, Heroes of the Storm, began closed beta testing in China, and we continue to work closely with Blizzard to bring this and other exciting game content to Chinese audiences."

"Mobile Internet is playing an increasing role in China's expanding Internet market. In 2014 we succeeded in releasing 12 self-developed and licensed mobile games, demonstrating our growing capabilities in mobile game developing and publishing. We plan to introduce more mobile games this year. Our YiChat user base also continues to grow, supported by the introduction of new functionalities and features in the fourth quarter. We are expanding our reach with this popular networking site by introducing an enterprise version of YiChat for small and medium-sized enterprises."

"Our advertising business remains strong. In 2014, the growth of our advertising services was driven by increased market demand, mainly from the automobile, communication services and foods and beverages sectors, and greater monetization of our Mobile News Application. The 2014 FIFA World Cup also boosted advertising revenues during the year. In the fourth quarter, the top-performing advertising verticals were automobile, financial services and Internet services. We are optimistic about the growth for this business in 2015 and plan to focus on mobile advertising where we see significant interest from our customers. Additionally, our e-commerce business expanded at a healthy pace in 2014."

"We plan to introduce more mobile games in 2015, including mobile games adapted from or inspired by our existing popular PC client games. We believe this will help to increase stickiness within our community by offering innovative games and services on both traditional and mobile platforms. We recently launched a self-operated cross-border e-commerce platform, Kaola, which we see as an opportunity to provide a new type of service offering to our users. We will continue to strive to attract new users to support healthy growth across our business lines in 2015 and beyond," Mr. Ding concluded.

Fourth Quarter 2014 Financial Results

Revenues

Total revenues for the fourth quarter of 2014 were RMB3,683.6 million (US$593.7 million), compared to RMB3,325.9 million and RMB2,585.1 million for the preceding quarter and the fourth quarter of 2013, respectively.

Revenues from online games were RMB2,863.3 million (US$461.5 million) for the fourth quarter of 2014, compared to RMB2,459.6 million and RMB2,109.5 million for the preceding quarter and the fourth quarter of 2013, respectively.

Revenues from advertising services were RMB439.5 million (US$70.8 million) for the fourth quarter of 2014, compared to RMB478.3 million and RMB358.2 million for the preceding quarter and the fourth quarter of 2013, respectively.

Revenues from e-mail, e-commerce and others were RMB380.8 million (US$61.4 million) for the fourth quarter of 2014, compared to RMB388.0 million and RMB117.5 million for the preceding quarter and the fourth quarter of 2013, respectively.

Sales Taxes

Total sales taxes for the fourth quarter of 2014 were RMB220.6 million (US$35.6 million), compared to RMB209.2 million and RMB162.7 million for the preceding quarter and the fourth quarter of 2013, respectively. The year-over-year and quarter-over-quarter increases in sales tax were mainly due to the increase in NetEase's total revenues.

Gross Profit

Gross profit for the fourth quarter of 2014 was RMB2,485.4 million (US$400.6 million), compared to RMB2,258.4 million and RMB1,727.2 million for the preceding quarter and the fourth quarter of 2013, respectively.

The year-over-year increase in online games gross profit was primarily driven by increased revenues from certain self-developed games, such as Fantasy Westward Journey II and New Westward Journey Online II, and various mobile game products. The quarter-over-quarter increase in online games gross profit was primarily driven by increased revenue from certain self-developed online and mobile games, such as New Westward Journey Online II and Battle to the West, as well as Warlords of Draenor, the fifth expansion set to Blizzard's World of Warcraft.

The year-over-year increase in advertising services gross profit was primarily the result of strong demand from the financial services, communication services and real estate sectors, and NetEase's monetization efforts for its Mobile News Application and other mobile applications. The quarter-over-quarter decrease in advertising services gross profit was mainly due to higher revenue related to the 2014 FIFA World Cup in the preceding quarter.

The year-over-year increase in e-mail, e-commerce and others gross profit was primarily attributable to an increase in revenue from NetEase's e-commerce business. The quarter-over-quarter decrease in e-mail, e-commerce and others gross profit was primarily attributable to a decrease in revenue from the Company's e-commerce business in the fourth quarter.

Gross Profit (Loss) Margin

Gross profit margin for NetEase's online games business for the fourth quarter of 2014 was 76.0%, compared to a gross profit margin of 77.2% and 77.7% for the preceding quarter and the fourth quarter of 2013, respectively. The year-over-year and quarter-over-quarter changes in gross profit margin were mainly due to increased revenue contribution from mobile games and licensed games, which have relatively lower gross profit margins, as a percentage of NetEase's total online game revenues.

Gross profit margin for the advertising services business for the fourth quarter of 2014 was 66.8%, compared to a gross profit margin of 66.3% and 57.8% for the preceding quarter and the fourth quarter of 2013, respectively. The year-over-year increase in gross profit margin was mainly due to enhanced economies of scale driven by revenue growth.

Gross profit margin for the e-mail, e-commerce and others business for the fourth quarter of 2014 was 45.6%, compared to a gross profit margin of 49.6% for the preceding quarter and gross loss margin of 4.0% for the fourth quarter of 2013, respectively. The year-over-year increase in gross profit margin was mainly due to increased revenue from NetEase's e-commerce business, which has a relatively higher gross profit margin.

Operating Expenses

Total operating expenses for the fourth quarter of 2014 were RMB1,239.7 million (US$199.8 million), compared to RMB1,059.2 million and RMB648.3 million for the preceding quarter and the fourth quarter of 2013, respectively. The year-over-year increase in operating expenses was mainly due to increased selling and marketing expenses for the promotion of NetEase's online and mobile games and licensed Blizzard games, promotions for NetEase's e-commerce business and advertising services, as well as staff-related research and development costs resulting from an increase in the number of employees and average compensation. The quarter-over-quarter increase was mainly due to increased selling and marketing expenses for online games and the Company's e-commerce business.

Income Taxes

The Company recorded a net income tax charge of RMB187.9 million (US$30.3 million) for the fourth quarter of 2014, compared to net income tax charges of RMB197.3 million and RMB49.4 million for the preceding quarter and the fourth quarter of 2013, respectively. The effective tax rate for the fourth quarter of 2014 was 12.8%, compared to 14.4% and 3.8% for the preceding quarter and the fourth quarter of 2013, respectively. The year-over-year increase in the effective tax rate was mainly due to the fact that certain subsidiaries of the Company were approved as Key Software Enterprises in the fourth quarter of 2013. Accordingly, they became subject to a preferential tax rate of 10% for the 2013 and 2014 fiscal years, and the resulting 2013 tax credit was recorded in the fourth quarter of 2013.

Net Income After Tax

Net profit for the fourth quarter of 2014 totaled RMB1.3 billion (US$204.9 million), compared to RMB1.2 billion and RMB1.2 billion for the preceding quarter and the fourth quarter of 2013, respectively.

During the fourth quarter of 2014, the Company had a net foreign exchange loss of RMB7.1 million (US$1.1 million), compared to a net foreign exchange gain of RMB2.2 million and a net foreign exchange loss of RMB17.6 million for the preceding quarter and the fourth quarter of 2013, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains/(losses) were mainly due to exchange gains/(losses) arising from the Company's foreign currency-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.

NetEase reported basic earnings per ADS of US$1.57 and diluted earnings per ADS of US$1.56 for the fourth quarter of 2014. The Company reported basic earnings per ADS of US$1.43 and diluted earnings per ADS of US$1.42 for the preceding quarter, and reported basic and diluted earnings per ADS of US$1.53 each for the fourth quarter of 2013.

Fiscal Year 2014 Financial Results

Revenues

Total revenues for fiscal year 2014 were RMB12.5 billion (US$2.0 billion), compared to RMB9.8 billion for the preceding fiscal year. Revenues from online games were RMB9.8 billion (US$1.6 billion) for fiscal year 2014, compared to RMB8.3 billion for the preceding fiscal year. Revenues from advertising services were RMB1.6 billion (US$250.1 million) for fiscal year 2014, compared to RMB1.1 billion for the preceding fiscal year. Revenues from e-mail, e-commerce and others were RMB1.1 billion (US$179.5 million) for fiscal year 2014, compared to RMB368.0 million for the preceding fiscal year.

Gross Profit (Loss)

Gross profit for fiscal year 2014 was RMB8.5 billion (US$1.4 billion), compared to RMB6.7 billion for the preceding fiscal year. The increase in gross profit for fiscal year 2014 was primarily driven by increased revenues from online game services, advertising services and e-commerce business.

The increase in online game services gross profit in 2014 was primarily attributable to increased revenues from the Company's self-developed games such as Fantasy Westward Journey II, New Westward Journey Online II and various mobile games, as well as from Blizzard's Hearthstone®: Heroes of Warcraft™.

The increase in advertising services gross profit in 2014 was due to a rise in demand, mainly from the automobile, communication services and foods and beverages sectors, as well as from the increased monetization of the NetEase Mobile News Application and the impact of the 2014 FIFA World Cup.

The improvement in e-mail, e-commerce and others gross profit in 2014 was primarily attributable to an increase in revenue from NetEase's e-commerce business.

Operating Expenses

Total operating expenses for fiscal year 2014 were RMB3.7 billion (US$594.1 million), compared to RMB2.4 billion for the preceding fiscal year. The increase in operating expenses in 2014 was primarily due to increased marketing expenses as a result of marketing and promotional activities for NetEase's online games, e-commerce and advertising services businesses, mainly due to the 2014 FIFA World Cup, and increased research and development expenses resulting from increased headcount and average compensation.

Net Income After Tax

Net profit for fiscal year 2014 totaled RMB4.8 billion (US$766.6 million), compared to RMB4.4 billion for the preceding fiscal year. For fiscal year 2014, the Company reported a net foreign exchange loss of RMB18.0 million (US$2.9 million), compared to a net foreign exchange loss of RMB15.3 million for the preceding fiscal year. The net foreign exchange loss for 2014 was mainly due to exchange losses arising from the Company's U.S. dollar-denominated bank deposit and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over these periods. NetEase reported basic earnings per ADS of US$5.87 and diluted earnings per ADS of US$5.85 for fiscal year 2014. The Company reported basic earnings per ADS of US$5.51 and diluted earnings per ADS of US$5.50 for the preceding fiscal year.

Income Taxes

The Company recorded a net income tax charge of RMB662.7 million (US$106.8 million) and RMB530.6 million for fiscal years 2014 and 2013, respectively. The effective tax rate was 12.1% for fiscal year 2014, compared to 10.7% for fiscal year 2013. The change in the effective tax rate was mainly due to a one-off tax benefit of RMB304.6 million that the Company recorded in 2013 due to the fact that certain subsidiaries of the Company were approved in 2013 as Key Software Enterprises with respect to fiscal years 2011 and 2012.

Quarterly Dividend

Under the Company's quarterly dividend policy announced on May 13, 2014, quarterly dividends will be set at an amount equivalent to approximately 25% of the Company's anticipated net income after tax in each fiscal quarter.

NetEase paid a dividend of US$0.34 per ADS for the first quarter of 2014 on June 3, 2014, US$0.37 per ADS for the second quarter of 2014 on September 5, 2014 and US$0.36 per ADS for the third quarter of 2014 on December 5, 2014.

The board of directors has approved a dividend of US$0.39 per ADS for the fourth quarter of 2014, which is expected to be paid on March 6, 2015 to shareholders of record as of the close of business on February 25, 2015.

The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.

Other Information

As of December 31, 2014, the Company's total cash and time deposits balance was RMB21.2 billion (US$3.4 billion), compared to RMB18.6 billion as of December 31, 2013. Cash flow generated from operating activities was RMB5.9 billion (US$944.1 million) for fiscal year 2014, compared to RMB5.2 billion for the preceding fiscal year. In addition, as of December 31, 2014, the Company had a loan from an offshore bank in the principal amount of US$90.0 million that was secured by RMB deposits of the Company in an onshore branch of this bank in the amount of RMB614.2 million, which was recognized as a short-term investment.

Share Repurchase Program

In February 2014, the Company announced that its board of directors approved a new share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed 12 months.

As of December 31, 2014, no ADSs had been repurchased under this program.

** 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$1.00 = RMB6.2046 on December 31, 2014 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2014, or at any other certain date. The percentages stated are calculated based on RMB.

Notes to Unaudited Financial Information

The unaudited financial information disclosed in this press release is preliminary. The audit of the financial statements and related notes to be included in the Company's annual report on Form 20-F for the year ended December 31, 2014 is still in progress. In addition, because an audit of the Company's internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, the Company makes no representation as to the effectiveness of those internal controls as of the end of fiscal year 2014.

Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between the Company's audited financial statements and this preliminary unaudited financial information.

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 8:00 p.m. Eastern Time on Monday, February 9, 2015 (Beijing/Hong Kong Time: 9:00 a.m., Tuesday, February 10, 2015). 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 1-888-466-4462 (international: 1-719-457-2085), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-888-203-1112 (international: 1-719-457-0820), and entering passcode 6702328#. The replay will be available through February 23, 2015.

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, mobile applications and games, and web portals. In partnership with Blizzard Entertainment, NetEase also operates some of the most popular international online games in China, including World of Warcraft®, Hearthstone®: Heroes of Warcraft™, StarCraft® II, Heroes of the Storm™ and Diablo® III. 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 or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the ability of NetEase to successfully expand its mobile Internet and e-commerce offerings; 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®, Hearthstone®: Heroes of Warcraft™, StarCraft® II, Heroes of the Storm™, Diablo® III 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 or e-commerce markets 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, e-commerce, 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.

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

   


December 31,

 


December 31,

 


December 31,

   

2013

 

2014

 

2014

   

RMB

 

RMB

 

USD (Note 1)

Assets

           
             

Current assets:

           

    Cash and cash equivalents

 

1,458,298

 

2,021,453

 

325,799

    Time deposits

 

16,625,468

 

18,496,574

 

2,981,107

    Restricted cash

 

2,136,749

 

2,628,847

 

423,693

    Accounts receivable, net

 

402,511

 

873,137

 

140,724

    Prepayments and other current assets

 

1,144,272

 

1,451,919

 

234,007

    Short-term investments

 

901,183

 

2,058,552

 

331,778

    Deferred tax assets

 

129,282

 

202,040

 

32,563

Total current assets

 

22,797,763

 

27,732,522

 

4,469,671

             

Non-current assets:

           

    Property, equipment and software, net

 

872,113

 

1,281,225

 

206,496

    Land use right, net

 

11,271

 

77,648

 

12,515

    Deferred tax assets

 

23,085

 

21,160

 

3,410

    Time deposits

 

500,000

 

673,000

 

108,468

    Other long-term assets

 

342,098

 

569,116

 

91,725

Total non-current assets

 

1,748,567

 

2,622,149

 

422,614

Total assets

 

24,546,330

 

30,354,671

 

4,892,285

             

Liabilities, Mezzanine Classified Noncontrolling
    Interests and Shareholders' Equity

           
             

Current liabilities:

           

    Accounts payable

 

219,259

 

410,722

 

66,196

    Salary and welfare payables

 

377,117

 

534,565

 

86,156

    Taxes payable

 

74,463

 

334,290

 

53,878

    Short-term loan

 

975,504

 

2,049,865

 

330,378

    Deferred revenue

 

1,481,036

 

1,967,780

 

317,149

    Accrued liabilities and other payables

 

957,299

 

1,357,228

 

218,746

    Deferred tax liabilities

 

148,506

 

101,997

 

16,439

Total current liabilities

 

4,233,184

 

6,756,447

 

1,088,942

             

Long-term payable:

           

    Other long-term payable

 

144,883

 

106,430

 

17,153

Total liabilities

 

4,378,067

 

6,862,877

 

1,106,095

             

Total mezzanine classified noncontrolling interests
    and shareholders' equity

 

20,168,263

 

23,491,794

 

3,786,190

             

Total liabilities, mezzanine classified noncontrolling
    interests and shareholders' equity

 

24,546,330

 

30,354,671

 

4,892,285

             

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

 

Year Ended

   

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

   

2013

 

2014

 

2014

 

2014

 

2013

 

2014

 

2014

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Revenues:

                           

Online game services

 

2,109,456

 

2,459,596

 

2,863,299

 

461,480

 

8,308,618

 

9,815,019

 

1,581,894

Advertising services

 

358,153

 

478,330

 

439,507

 

70,836

 

1,094,623

 

1,551,652

 

250,081

E-mail, e-commerce and others

 

117,473

 

387,987

 

380,800

 

61,374

 

368,014

 

1,113,773

 

179,507

Total revenues

 

2,585,082

 

3,325,913

 

3,683,606

 

593,690

 

9,771,255

 

12,480,444

 

2,011,482

Sales taxes

 

(162,660)

 

(209,174)

 

(220,613)

 

(35,556)

 

(575,080)

 

(767,610)

 

(123,716)

Total net revenues

 

2,422,422

 

3,116,739

 

3,462,993

 

558,134

 

9,196,175

 

11,712,834

 

1,887,766

                             

Total cost of revenues

 

(695,214)

 

(858,298)

 

(977,565)

 

(157,556)

 

(2,478,516)

 

(3,261,544)

 

(525,665)

                             

Gross profit

 

1,727,208

 

2,258,441

 

2,485,428

 

400,578

 

6,717,659

 

8,451,290

 

1,362,101

                             

Selling and marketing expenses

 

(328,152)

 

(533,838)

 

(704,211)

 

(113,498)

 

(1,093,612)

 

(1,894,998)

 

(305,418)

General and administrative expenses

 

(82,168)

 

(128,928)

 

(143,850)

 

(23,185)

 

(349,832)

 

(467,669)

 

(75,375)

Research and development expenses

 

(237,960)

 

(396,442)

 

(391,591)

 

(63,113)

 

(921,618)

 

(1,323,498)

 

(213,309)

Total operating expenses

 

(648,280)

 

(1,059,208)

 

(1,239,652)

 

(199,796)

 

(2,365,062)

 

(3,686,165)

 

(594,102)

                             

Operating profit

 

1,078,928

 

1,199,233

 

1,245,776

 

200,782

 

4,352,597

 

4,765,125

 

767,999

Other income:

                           

Investment income/(loss)

 

4,890

 

8,693

 

(2,492)

 

(402)

 

37,255

 

27,373

 

4,412

Interest income

 

139,082

 

156,084

 

156,747

 

25,263

 

506,181

 

601,502

 

96,944

Exchange (losses)/gains

 

(17,568)

 

2,184

 

(7,124)

 

(1,148)

 

(15,348)

 

(17,998)

 

(2,901)

Other, net

 

90,341

 

1,872

 

72,282

 

11,651

 

95,136

 

82,438

 

13,287

                             

Net income before tax

 

1,295,673

 

1,368,066

 

1,465,189

 

236,146

 

4,975,821

 

5,458,440

 

879,741

Income tax

 

(49,421)

 

(197,340)

 

(187,893)

 

(30,283)

 

(530,603)

 

(662,735)

 

(106,814)

                             

Net income after tax

 

1,246,252

 

1,170,726

 

1,277,296

 

205,863

 

4,445,218

 

4,795,705

 

772,927

Net income attributable to noncontrolling interests
    and mezzanine classified noncontrolling interests

 

(9,227)

 

(11,581)

 

(6,027)

 

(971)

 

(1,308)

 

(39,082)

 

(6,299)

Net income attributable to
    the Company's shareholders

 

1,237,025

 

1,159,145

 

1,271,269

 

204,892

 

4,443,910

 

4,756,623

 

766,628

                             

Comprehensive income

 

1,246,252

 

1,170,726

 

1,277,296

 

205,863

 

4,445,218

 

4,795,705

 

772,927

Net income attributable to noncontrolling interests
    and mezzanine classified noncontrolling interests

 

(9,227)

 

(11,581)

 

(6,027)

 

(971)

 

(1,308)

 

(39,082)

 

(6,299)

Comprehensive income attributable
    to the Company's shareholders

 

1,237,025

 

1,159,145

 

1,271,269

 

204,892

 

4,443,910

 

4,756,623

 

766,628

                             

Earnings per share, basic

 

0.38

 

0.35

 

0.39

 

0.06

 

1.37

 

1.46

 

0.24

Earnings per ADS, basic

 

9.51

 

8.87

 

9.73

 

1.57

 

34.21

 

36.43

 

5.87

Earnings per share, diluted

 

0.38

 

0.35

 

0.39

 

0.06

 

1.36

 

1.45

 

0.23

Earnings per ADS, diluted

 

9.48

 

8.83

 

9.67

 

1.56

 

34.12

 

36.29

 

5.85

                             

Weighted average number of
    ordinary shares outstanding, basic

 

3,250,284

 

3,267,786

 

3,268,019

 

3,268,019

 

3,247,874

 

3,264,450

 

3,264,450

Weighted average number of
    ADS outstanding, basic

 

130,011

 

130,711

 

130,721

 

130,721

 

129,915

 

130,578

 

130,578

Weighted average number of
    ordinary shares outstanding, diluted

 

3,262,605

 

3,280,435

 

3,286,120

 

3,286,120

 

3,256,297

 

3,277,049

 

3,277,049

Weighted average number of
    ADS outstanding, diluted

 

130,504

 

131,217

 

131,445

 

131,445

 

130,252

 

131,082

 

131,082

                             

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

 

Year Ended

 

December 31,

 

September 30,

 

December 31,

 

December 31 ,

 

December 31 ,

 

December 31 ,

 

December 31 ,

 

2013

 

2014

 

2014

 

2014

 

2013

 

2014

 

2014

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Cash flows from operating activities:

                         

    Net income

1,246,252

 

1,170,726

 

1,277,296

 

205,863

 

4,445,218

 

4,795,705

 

772,927

    Adjustments to reconcile net income to net

                         

        cash provided by operating activities:

    Depreciation and amortization

40,378

 

36,921

 

64,965

 

10,471

 

158,363

 

174,462

 

28,118

    Investment impairment

-

 

-

 

24,040

 

3,875

 

-

 

24,040

 

3,875

    Share-based compensation cost

84,994

 

96,619

 

124,267

 

20,028

 

306,308

 

349,277

 

56,293

    (Reversal of)/allowance for provision

(5,380)

 

3,086

 

(282)

 

(45)

 

(2,007)

 

3,765

 

607

        for doubtful debts

    (Gain)/loss on disposal of property,

(22)

 

(67)

 

1,619

 

261

 

(509)

 

1,507

 

243

        equipment and software

    Unrealized exchange loss

17,770

 

1,686

 

10,070

 

1,623

 

12,266

 

18,764

 

3,024

    Deferred income taxes

60,220

 

32,882

 

(100,860)

 

(16,256)

 

142,283

 

(117,328)

 

(18,910)

    Net equity share of loss from

3,474

 

12,858

 

1,987

 

320

 

5,321

 

33,634

 

5,421

        associated companies

    Fair value changes of short-term investments

17,419

 

(16,516)

 

(17,885)

 

(2,883)

 

12,355

 

(64,249)

 

(10,355)

    Changes in operating assets and liabilities:

                         

        Accounts receivable

2,580

 

(203,257)

 

(104,705)

 

(16,875)

 

(131,030)

 

(474,381)

 

(76,456)

        Prepayments and other current assets

(32,949)

 

(140,636)

 

(61,818)

 

(9,963)

 

(21,933)

 

(292,416)

 

(47,129)

        Accounts payable

55,567

 

22,539

 

138,360

 

22,300

 

70,959

 

190,453

 

30,695

        Salary and welfare payables

154,401

 

(44,225)

 

226,233

 

36,462

 

87,269

 

157,448

 

25,376

        Taxes payable

(262,248)

 

31,742

 

60,923

 

9,819

 

(315,001)

 

259,828

 

41,877

        Deferred revenue

161,152

 

58,072

 

217,560

 

35,064

 

321,018

 

486,744

 

78,449

        Accrued liabilities and other payables

79,185

 

84,683

 

41,228

 

6,645

 

145,010

 

310,449

 

50,035

            Net cash provided by operating activities

1,622,793

 

1,147,113

 

1,902,998

 

306,709

 

5,235,890

 

5,857,702

 

944,090

                           

Cash flows from investing activities:

                         

    Purchase of property, equipment and software

(109,038)

 

(116,172)

 

(301,156)

 

(48,538)

 

(218,936)

 

(537,376)

 

(86,609)

    Proceeds from sale of property,

3,544

 

404

 

896

 

144

 

4,516

 

1,463

 

236

        equipment and software

    Purchase of other intangible assets

-

 

-

 

(1,725)

 

(278)

 

(900)

 

(14,011)

 

(2,258)

    Purchase of land use right

-

 

(29,387)

 

(37,570)

 

(6,055)

 

-

 

(66,957)

 

(10,792)

    Net change in short-term investments

(180,000)

 

335,803

 

(262,558)

 

(42,317)

 

(480,000)

 

247,406

 

39,875

        with terms of three months or less

    Purchase of short-term investments

(300,000)

 

(593,805)

 

(300,000)

 

(48,351)

 

(400,000)

 

(2,358,122)

 

(380,060)

    Proceeds from maturities of short-term investments

520,000

 

203,589

 

203,271

 

32,761

 

1,040,000

 

1,017,596

 

164,007

    Investment in an associated company

-

 

(20,000)

 

-

 

-

 

(200,000)

 

(20,000)

 

(3,223)

    Dividend from an associated company

-

 

15,321

 

-

 

-

 

-

 

15,321

 

2,469

    Transfer to restricted cash

(152,871)

 

(98,517)

 

(173,252)

 

(27,923)

 

(1,566,244)

 

(492,149)

 

(79,320)

    Placement/rollover of matured time deposits

(4,426,928)

 

(4,934,854)

 

(5,068,797)

 

(816,942)

 

(21,807,617)

 

(21,955,012)

 

(3,538,506)

    Proceeds from maturities of time deposits

3,583,767

 

5,020,322

 

4,064,596

 

655,094

 

18,231,797

 

19,905,004

 

3,208,104

    Net change in other assets

(16,326)

 

(105,195)

 

(43,634)

 

(7,033)

 

(55,895)

 

(248,008)

 

(39,972)

        Net cash used in investing activities

(1,077,852)

 

(322,491)

 

(1,919,929)

 

(309,438)

 

(5,453,279)

 

(4,504,845)

 

(726,049)

                           

Cash flows from financing activities:

                         

    Proceeds of short-term bank loan

-

 

-

 

-

 

-

 

1,005,680

 

2,046,669

 

329,863

    Payment of short-term bank loan

-

 

-

 

-

 

-

 

-

 

(975,504)

 

(157,223)

    Proceeds from employees exercising stock options

-

 

870

 

-

 

-

 

2,474

 

2,917

 

470

    Capital contribution from noncontrolling interests and

-

 

-

 

130,376

 

21,013

 

916

 

130,486

 

21,031

        mezzanine classified noncontrolling interests

    Repurchase of shares

-

 

-

 

-

 

-

 

(106,809)

 

-

 

-

    Dividends paid to shareholders

-

 

(298,142)

 

(288,686)

 

(46,528)

 

(815,413)

 

(1,983,010)

 

(319,603)

            Net cash (used in)/provided by financing activities

-

 

(297,272)

 

(158,310)

 

(25,515)

 

86,848

 

(778,442)

 

(125,462)

                           

    Effect of exchange rate changes on cash

                         

        held in foreign currencies

(3,945)

 

(1,397)

 

1,760

 

284

 

(1,930)

 

(11,260)

 

(1,815)

            Net increase/(decrease) in cash and cash equivalents

540,996

 

525,953

 

(173,481)

 

(27,960)

 

(132,471)

 

563,155

 

90,764

Cash and cash equivalents, beginning of the period

917,302

 

1,668,981

 

2,194,934

 

353,759

 

1,590,769

 

1,458,298

 

235,035

Cash and cash equivalents, end of the period

1,458,298

 

2,194,934

 

2,021,453

 

325,799

 

1,458,298

 

2,021,453

 

325,799

                           

Supplemental disclosures of cash flow information:

                         

    Cash paid for income tax, net

238,424

 

153,567

 

186,347

 

30,034

 

687,454

 

551,303

 

88,854

Supplemental schedule of non-cash investing

                         

    and financing activities:

                         

    Fixed asset purchases financed by

10,071

 

49,891

 

80,575

 

12,986

 

10,071

 

80,575

 

12,986

        accounts payable and accrued liabilities

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)

                             
 

Quarter Ended

 

Year Ended

   

December 31,

 

September 30,

 

 December 31, 

 

 December 31, 

 

December 31,

 

 December 31, 

 

 December 31, 

   

2013

 

2014

 

2014

 

2014

 

2013

 

2014

 

2014

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Revenues:

                           

Online game services

 

2,109,456

 

2,459,596

 

2,863,299

 

461,480

 

8,308,618

 

9,815,019

 

1,581,894

Advertising services

 

358,153

 

478,330

 

439,507

 

70,836

 

1,094,623

 

1,551,652

 

250,081

E-mail, e-commerce and others

 

117,473

 

387,987

 

380,800

 

61,374

 

368,014

 

1,113,773

 

179,507

Total revenues

 

2,585,082

 

3,325,913

 

3,683,606

 

593,690

 

9,771,255

 

12,480,444

 

2,011,482

                             

Sales taxes:  

                           

Online game services

 

(120,543)

 

(137,582)

 

(155,764)

 

(25,105)

 

(444,154)

 

(548,861)

 

(88,460)

Advertising services

 

(34,594)

 

(47,328)

 

(44,278)

 

(7,136)

 

(107,156)

 

(154,583)

 

(24,914)

E-mail, e-commerce and others

 

(7,523)

 

(24,264)

 

(20,571)

 

(3,315)

 

(23,770)

 

(64,166)

 

(10,342)

Total sales taxes

 

(162,660)

 

(209,174)

 

(220,613)

 

(35,556)

 

(575,080)

 

(767,610)

 

(123,716)

                             

Net revenues:

                           

Online game services

 

1,988,913

 

2,322,014

 

2,707,535

 

436,375

 

7,864,464

 

9,266,158

 

1,493,434

Advertising services

 

323,559

 

431,002

 

395,229

 

63,700

 

987,467

 

1,397,069

 

225,167

E-mail, e-commerce and others

 

109,950

 

363,723

 

360,229

 

58,059

 

344,244

 

1,049,607

 

169,165

Total net revenues

 

2,422,422

 

3,116,739

 

3,462,993

 

558,134

 

9,196,175

 

11,712,834

 

1,887,766

                             

Cost of revenues:

                           

Online game services

 

(444,180)

 

(529,871)

 

(650,323)

 

(104,813)

 

(1,649,803)

 

(2,111,701)

 

(340,344)

Advertising services

 

(136,698)

 

(145,119)

 

(131,388)

 

(21,176)

 

(461,286)

 

(528,665)

 

(85,205)

E-mail, e-commerce and others

 

(114,336)

 

(183,308)

 

(195,854)

 

(31,567)

 

(367,427)

 

(621,178)

 

(100,116)

Total cost of revenues

 

(695,214)

 

(858,298)

 

(977,565)

 

(157,556)

 

(2,478,516)

 

(3,261,544)

 

(525,665)

                             

Gross profit/(loss) :

                           

Online game services

 

1,544,733

 

1,792,143

 

2,057,212

 

331,562

 

6,214,661

 

7,154,457

 

1,153,090

Advertising services

 

186,861

 

285,883

 

263,841

 

42,524

 

526,181

 

868,404

 

139,962

E-mail, e-commerce and others

 

(4,386)

 

180,415

 

164,375

 

26,492

 

(23,183)

 

428,429

 

69,049

Total gross profit

 

1,727,208

 

2,258,441

 

2,485,428

 

400,578

 

6,717,659

 

8,451,290

 

1,362,101

                             

Gross profit/(loss)  margin:

                           

Online game services

 

77.7%

 

77.2%

 

76.0%

 

76.0%

 

79.0%

 

77.2%

 

77.2%

Advertising services

 

57.8%

 

66.3%

 

66.8%

 

66.8%

 

53.3%

 

62.2%

 

62.2%

E-mail, e-commerce and others

 

(4.0%)

 

49.6%

 

45.6%

 

45.6%

 

(6.7%)

 

40.8%

 

40.8%

                             

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 = RMB6.2046 on the last trading day of December 2014 (December 31, 2014)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

 

Year Ended

   

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

   

2013

 

2014

 

2014

 

2014

 

2013

 

2014

 

2014

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Share-based compensation cost included in:

                           

Cost of revenue

 

48,654

 

43,336

 

58,826

 

9,481

 

165,708

 

169,621

 

27,338

Operating expenses

                           

- Selling and marketing expenses

 

4,820

 

6,720

 

7,910

 

1,275

 

17,967

 

23,253

 

3,748

- General and administrative expenses

 

13,380

 

15,347

 

18,130

 

2,922

 

48,350

 

51,475

 

8,296

- Research and development expenses

 

18,140

 

31,216

 

39,401

 

6,350

 

74,283

 

104,928

 

16,911

                             

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

                   

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 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/netease-reports-fourth-quarter-and-fiscal-year-2014-unaudited-financial-results-300033092.html

SOURCE NetEase, Inc.