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NetEase Reports Fourth Quarter and Fiscal Year 2016 Unaudited Financial Results

BEIJING, Feb. 15, 2017 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES) ("NetEase" or the "Company"), 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, 2016.

"We achieved growth across our business in 2016 as we continued to introduce internet content to entertain and inspire our community, growing our total net revenues by 67.4% for the year and 53.1% for the fourth quarter, compared to the same quarter of 2015," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Led by mobile games, we saw year-over-year net revenue increases in the fourth quarter of 62.8% from online games, 9.2% from advertising services, and 38.2% from our e-mail, e-commerce and others segment."

"With more than 40 new mobile titles in 2016, we have introduced a number of chart toppers to China's thriving mobile market. In the fourth quarter, our self-developed mobile games Onmyoji, Tianxia III mobile and OverOcean, as well as HIT, a stunning new licensed ARPG, delivered outstanding performances. In particular, Onmyoji was named one of the top 10 outstanding games of 2016 in China's iOS app store. To leverage this game's early success, we began our international release of Onmyoji in Southeast Asia in December, with plans to roll out this game in Japan, Canada, Europe and the United States later this year. The Westward Journey Online and Fantasy Westward Journey mobile games and the mobile version of New Ghost also continued their popularity in the fourth quarter."

"There remains massive opportunity within the mobile market, and we will continue to build our formidable and diverse pipeline. Currently, our mobile portfolio stands strong with more than 100 games, and we plan to add more mobile versions of our legacy titles and new self-developed and licensed mobile games to further this momentum. Recently, we released new mobile games including Demon Seals mobile and Heroes of Tang Dynasty mobile, both of which were well received. Other new mobile titles planned for near-term introduction include Westward Journey: Rage, an exciting ARPG edition to celebrate the 15th anniversary of this title, and Treasure Hunter, an innovative RPG."

"Our PC-client games performed steadily in the fourth quarter with a strong showing from our flagship game Fantasy Westward Journey Online. We released several new expansion packs during the fourth quarter to satisfy our PC-client game players, including Kung Fu Master II, Demon Seals, Tianxia III, Heroes of Tang Dynasty Zero and New Ghost. New expansion packs for Fantasy Westward Journey Online and Revelation were also recently released, and we expect to introduce a new expansion pack for New Westward Journey Online II in the coming months."

"Blizzard Entertainment'sOverwatch®, World of Warcraft®, with its latest expansion pack Legion, and Hearthstone® with its latest expansion pack Mean Streets of Gadgetzan also remained popular among loyal players in China eager for new content, as well as brought in new players. Overwatch also established a new sales record in the category of buy-to-play PC-client games in mainland China, with more than 5 million copies sold by the end of December since its late May release. Furthermore, we are currently working to bring to Chinese players both PC and mobile versions of the highly anticipated, globally acclaimed game, Minecraft."

"As data consumption mediums evolve, the internet, especially the mobile internet, is becoming the primary advertising platform in China. This trend supports the steady growth of our advertising services business. Driven primarily by our Mobile News App, as well as high-profile events such as the 2016 NetEase Annual Economist Summit and the 2016 NetEase Annual Attitude Award Ceremony, our top performing advertising verticals in the fourth quarter were automobile, internet services and financial services. Additionally, our e-commerce business continues to thrive with both Kaola.com and Yanxuan maintaining healthy growth in the fourth quarter."

"Our focus on innovation and quality has served us well, enabling NetEase to create significant value for each of our major constituencies: our players, our partners and our shareholders. In 2016, we brought best-in-class products and services to our community and continued to grow our business. As we move through 2017 we will look toward the future, designing products and services that address fluid market dynamics, enabling continued growth and value creation," Mr. Ding concluded.

Fourth Quarter 2016 Financial Results

Net Revenues

Net revenues for the fourth quarter of 2016 were RMB12,099.0 million (US$1,742.6 million), compared to RMB9,211.6 million and RMB7,903.0 million for the preceding quarter and the fourth quarter of 2015, respectively.

Net revenues from online games were RMB8,959.1 million (US$1,290.4 million) for the fourth quarter of 2016, compared to RMB6,568.0 million and RMB5,502.9 million for the preceding quarter and the fourth quarter of 2015, respectively.

Net revenues from advertising services were RMB664.8 million (US$95.8 million) for the fourth quarter of 2016, compared to RMB563.3 million and RMB609.0 million for the preceding quarter and the fourth quarter of 2015, respectively.

Net revenues from e-mail, e-commerce and others were RMB2,475.1 million (US$356.5 million) for the fourth quarter of 2016, compared to RMB2,080.4 million and RMB1,791.1 million for the preceding quarter and the fourth quarter of 2015, respectively.

Gross Profit

Gross profit for the fourth quarter of 2016 was RMB6,463.3 million (US$930.9 million), compared to RMB5,333.6 million and RMB4,219.7 million for the preceding quarter and the fourth quarter of 2015, respectively.

The year-over-year increase in online games gross profit was primarily driven by increased revenue contribution from mobile games such as Onmyoji and the mobile version of New Ghost, as well as Blizzard Entertainment'sOverwatch and World of Warcraft. The quarter-over-quarter increase in online game gross profit was primarily driven by increased revenue contribution from mobile games such as Onmyoji and the mobile version of New Ghost.

The year-over-year and quarter-over-quarter increases in advertising services gross profit were primarily attributable to NetEase's monetization efforts for its mobile applications, primarily its Mobile NewsApp. The top performing advertising verticals in the fourth quarter were automobile, internet services and financial services.

The year-over-year increase in e-mail, e-commerce and others gross profit was primarily due to increased revenue contribution from NetEase's e-commerce business, such as Kaola.com. The quarter-over-quarter decrease in e-mail, e-commerce and others gross profit was primarily due to decreased revenue contribution from certain NetEase e-commerce businesses with relatively higher gross profit margins.

Gross Profit Margin

Gross profit margin for the online games business for the fourth quarter of 2016 was 60.7%, compared to 65.0% and 67.2% for the preceding quarter and the fourth quarter of 2015, respectively. The year-over-year decrease in gross profit margin was 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 games revenues. The quarter-over-quarter decrease in gross profit margin was mainly due to the one-off recognition of certain royalty expenses related to licensed games in the fourth quarter of 2016, as well as increased revenue contribution from mobile games.

Gross profit margin for the advertising services business for the fourth quarter of 2016 was 66.5%, compared to 65.3% and 68.1% for the preceding quarter and the fourth quarter of 2015, respectively. The year-over-year decrease in gross profit margin was mainly due to higher staff-related costs.

Gross profit margin for the e-mail, e-commerce and others business for the fourth quarter of 2016 was 23.4%, compared to 33.5% and 6.0% for the preceding quarter and the fourth quarter of 2015, respectively. The year-over-year and quarter-over-quarter changes in gross profit margin were primarily attributable to changes in NetEase's e-commerce business mix.

Operating Expenses

Total operating expenses for the fourth quarter of 2016 were RMB2,596.6 million (US$374.0 million), compared to RMB2,487.0 million and RMB1,801.7 million for the preceding quarter and the fourth quarter of 2015, respectively. The year-over-year increase in operating expenses was mainly due to higher staff-related costs resulting from an increase in headcount, average compensation, research and development investments and selling and marketing expenses. The quarter-over-quarter increase in operating expenses was mainly due to higher staff-related costs and research and development investments, which was partially offset by decreased selling and marketing expenses.

Income Taxes

The Company recorded a net income tax charge of RMB882.0 million (US$127.0 million) for the fourth quarter of 2016, compared to RMB427.2 million and RMB513.8 million for the preceding quarter and the fourth quarter of 2015, respectively. The effective tax rate for the fourth quarter of 2016 was 19.2%, compared to 13.3% and 19.2% for the preceding quarter and the fourth quarter of 2015, respectively. The quarter-over-quarter change in the effective tax rate was mainly due to the fact that certain subsidiaries of the Company were approved as Key Software Enterprises in 2016 and subject to a preferential tax rate of 10% for 2015. The Company recognized certain related tax credits in the third quarter of 2016.

Net Income After Tax

Net income attributable to the Company's shareholders for the fourth quarter of 2016 totaled RMB3.7 billion (US$530.5 million), compared to RMB2.7 billion and RMB2.2 billion for the preceding quarter and the fourth quarter of 2015, respectively. Non-GAAP net income attributable to the Company's shareholders[1] for the fourth quarter of 2016 totaled RMB4.0 billion (US$569.9 million), compared to RMB3.0 billion and RMB2.4 billion for the preceding quarter and the fourth quarter of 2015, respectively.

During the fourth quarter of 2016, the Company had a net foreign exchange gain of RMB90.5 million (US$13.0 million), compared to net foreign exchange gains of RMB14.8 million and RMB66.3 million for the preceding quarter and the fourth quarter of 2015, respectively. The net foreign exchange gains were mainly due to unrealized exchange gains and losses arising from the Company's U.S. dollar-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 and diluted earnings per ADS of US$4.04 and US$4.01, respectively, for the fourth quarter of 2016. The Company reported basic and diluted earnings per ADS of US$3.01 and US$2.99, respectively, for the preceding quarter, and basic and diluted earnings per ADS of US$2.37 and US$2.35, respectively, for the fourth quarter of 2015. Non-GAAP[1] basic and diluted earnings per ADS were US$4.34 and US$4.30, respectively, for the fourth quarter of 2016, compared to non-GAAP basic and diluted earnings per ADS of US$3.31 and US$3.29, respectively, for the preceding quarter, and non-GAAP basic and diluted earnings per ADS of US$2.58 and US$2.56, respectively, for the fourth quarter of 2015.

[1] As used in this press release, non-GAAP net income attributable to the Company's shareholders is defined to exclude share-based compensation expenses and impairment on long-term investment of available-for-sale securities. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

Fiscal Year 2016 Financial Results

Net Revenues

Total net revenues for fiscal year 2016 were RMB38.2 billion (US$5.5 billion), compared to RMB22.8 billion for the preceding fiscal year. Net revenues from online games were RMB28.0 billion (US$4.0 billion) for fiscal year 2016, compared to RMB17.3 billion for the preceding fiscal year. Net revenues from advertising services were RMB2.2 billion (US$310.0 million) for fiscal year 2016, compared to RMB1.8 billion for the preceding fiscal year. Net revenues from e-mail, e-commerce and others were RMB8.0 billion (US$1.2 billion) for fiscal year 2016, compared to RMB3.7 billion for the preceding fiscal year.

Gross Profit

Gross profit for fiscal year 2016 was RMB21.7 billion (US$3.1 billion), compared to RMB13.4 billion for the preceding fiscal year.

The increase in online game services gross profit in 2016 was primarily attributable to increased revenue contribution from the Company's self-developed mobile games such as the Westward Journey Online and Fantasy Westward Journey mobile games, Onmyoji and the mobile version of New Ghost, as well as licensed games such as Blizzard Entertainment'sOverwatch.

The increase in advertising services gross profit in 2016 was due to NetEase's monetization efforts for its mobile applications, primarily its Mobile NewsApp. The top performing advertising verticals in fiscal year 2016 were automobile, internet services and telecommunication services.

The increase in e-mail, e-commerce and others gross profit in 2016 was primarily due to business development and gross profit margin improvement of certain NetEase e-commerce businesses.

Operating Expenses

Total operating expenses for fiscal year 2016 were RMB9.0 billion (US$1.3 billion), compared to RMB6.1 billion for the preceding fiscal year. The increase in operating expenses in 2016 was primarily due to increased selling and marketing expenses, higher research and development investments and higher staff-related costs resulting from an increase in headcount and average compensation.

Income Taxes

The Company recorded a net income tax charge of RMB2.1 billion (US$302.8 million) and RMB1.3 billion for fiscal years 2016 and 2015, respectively. The effective tax rate was 15.1% for fiscal year 2016, compared to 15.7% for fiscal year 2015.

Net Income After Tax

Net income attributable to the Company's shareholders for fiscal year 2016 totaled RMB11.6 billion (US$1.7 billion), compared to RMB6.7 billion for the preceding fiscal year. Non-GAAP net income attributable to the Company's shareholders[1] for fiscal year 2016 totaled RMB12.9 billion (US$1.9 billion), compared to RMB7.4 billion for fiscal year 2015.

For fiscal year 2016, the Company reported a net foreign exchange gain of RMB146.5 million (US$21.1 million), compared to a net foreign exchange gain of RMB133.8 million for the preceding fiscal year. The net foreign exchange gains were mainly due to unrealized exchange gains and 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 and diluted earnings per ADS of US$12.73 and US$12.63, respectively, for fiscal year 2016, and basic and diluted earnings per ADS of US$7.38 and US$7.34, respectively, for fiscal year 2015. Non-GAAP basic and diluted earnings per ADS were US$14.11 and US$14.00, respectively, for fiscal year 2016, compared to non-GAAP basic and diluted earnings per ADS of US$8.13 and US$8.08, respectively, for fiscal year 2015.

[1] As used in this press release, non-GAAP net income attributable to the Company's shareholders is defined to exclude share-based compensation expenses and impairment on long-term investment of available-for-sale securities. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

Quarterly Dividend

The board of directors has approved a dividend of US$1.01 per ADS for the fourth quarter of 2016, which is expected to be paid on March 10, 2017 to shareholders of record as of the close of business on March 3, 2017.

NetEase paid a dividend of US$0.73 per ADS for the first quarter of 2016 on June 3, 2016, and US$0.78 per ADS for each of the second and third quarters of 2016 on September 9, 2016 and December 2, 2016, respectively.

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. 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, 2016, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB36.9 billion (US$5.3 billion), compared to RMB26.8 billion as of December 31, 2015. Cash flow generated from operating activities was RMB15.5 billion (US$2.2 billion) for fiscal year 2016, compared to RMB8.1 billion for the preceding fiscal year.

Share Repurchase Program

On September 1, 2015, the Company announced that its board of directors approved a share repurchase program of up to US$500 million of the Company's outstanding ADSs for a period not to exceed 12 months. NetEase funded repurchases made under this program from available working capital. As of August 31, 2016, the last day of such program, the Company had repurchased approximately 1.5 million ADSs for approximately US$205.3 million under this program.

On November 15, 2016, the Company announced that its board of directors approved a new share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months. As of December 31, 2016, no ADSs were 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$1.00 = RMB6.9430 on December 30, 2016 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 30, 2016, 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, 2016 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 2016.

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 Wednesday, February 15, 2017 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 16, 2017). 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 1-888-778-9058 (international: 1-913-312-1227), 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 7293293#. The replay will be available through March 1, 2017.

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 PC-client and mobile games, advertising services, e-mail services and e-commerce platforms. In partnership with Blizzard Entertainment, Mojang AB (a Microsoft subsidiary) and other global game developers, NetEase also operates some of the most popular international online games in China. 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 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®, StarCraft® II, Hearthstone®, Diablo III®: Reaper of SoulsHeroes of the Storm®, Overwatch® 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 and the market for NetEase's e-commerce services 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 e-commerce 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.

Non-GAAP Financial Measures

NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted earnings per ADS, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

NetEase defines non-GAAP net income attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses and impairment on long-term investment of available-for-sale securities. Non-GAAP net income attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses and impairment on long-term investment of available-for-sale securities, which are non-cash charges or non-recurring in nature. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income attributable to the Company's shareholders is that it does not reflect all items of expense that affect our operations. Share-based compensation expenses and impairment on long-term investment of available-for-sale securities have been and may continue to be incurred in our business and are not reflected in the presentation of non-GAAP net income attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.

NetEase compensates for these limitations by reconciling non-GAAP net income attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure. 

Contact for Media and Investors:

Juliet Yang 
NetEase, Inc.
hzyangyy@corp.netease.com
Tel: (+86) 571-8985-3378

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, 

 

 December 31, 

 

 December 31, 

   

2015

 

2016

 

2016

   

 RMB  

 

 RMB  

 

 USD (Note 1) 

Assets

           
             

Current assets:

           

   Cash and cash equivalents

 

6,071,487

 

5,439,499

 

783,451

   Time deposits

 

14,593,291

 

19,361,098

 

2,788,578

   Restricted cash

 

2,192,634

 

3,473,273

 

500,255

   Accounts receivable, net

 

2,614,149

 

4,251,297

 

612,314

   Prepayments and other current assets

 

3,513,275

 

5,276,082

 

759,914

   Short-term investments

 

5,013,499

 

11,582,116

 

1,668,172

   Deferred tax assets

 

410,589

 

536,339

 

77,249

Total current assets

 

34,408,924

 

49,919,704

 

7,189,933

             

Non-current assets:

           

   Property, equipment and software, net 

 

2,092,046

 

2,419,510

 

348,482

   Land use right, net

 

238,878

 

588,887

 

84,817

   Deferred tax assets 

 

24,685

 

23,984

 

3,455

   Time deposits

 

1,110,000

 

550,000

 

79,217

   Restricted cash

 

1,200,000

 

2,060,000

 

296,702

   Other long-term assets

 

2,082,897

 

2,469,775

 

355,722

Total non-current assets

 

6,748,506

 

8,112,156

 

1,168,395

Total assets 

 

41,157,430

 

58,031,860

 

8,358,328

             

Liabilities and Shareholders' Equity

           
             

Current liabilities:

           

   Accounts payable 

 

700,600

 

1,396,187

 

201,093

   Salary and welfare payables

 

920,982

 

1,491,448

 

214,813

   Taxes payable

 

736,214

 

1,722,501

 

248,092

   Short-term loans

 

2,272,760

 

3,815,691

 

549,574

   Deferred revenue

 

4,651,750

 

7,531,238

 

1,084,724

   Accrued liabilities and other payables

 

2,218,330

 

3,219,419

 

463,693

   Deferred tax liabilities

 

166,787

 

358,514

 

51,637

Total current liabilities

 

11,667,423

 

19,534,998

 

2,813,626

             

Long-term payable:

           

   Deferred tax liabilities

 

81,434

 

33,721

 

4,857

   Other long-term payable

 

84,974

 

200

 

29

Total liabilities

 

11,833,831

 

19,568,919

 

2,818,512

             

Total NetEase, Inc.'s equity

 

29,240,083

 

38,191,081

 

5,500,660

Noncontrolling interests

 

83,516

 

271,860

 

39,156

Total shareholders' equity

 

29,323,599

 

38,462,941

 

5,539,816

             

Total liabilities and shareholders' equity    

 

41,157,430

 

58,031,860

 

8,358,328

             

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

       

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF 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, 

   

2015

 

2016

 

2016

 

2016

   

2015

 

2016

 

2016

   

 RMB 

 

 RMB 

 

 RMB 

 

 USD (Note 1) 

   

 RMB 

 

 RMB 

 

 USD (Note 1) 

Net revenues:

                             

Online game services

 

5,502,867

 

6,568,016

 

8,959,140

 

1,290,384

   

17,314,148

 

27,980,491

 

4,030,029

Advertising services

 

608,967

 

563,271

 

664,815

 

95,753

   

1,789,377

 

2,152,379

 

310,007

E-mail, e-commerce and others

 

1,791,120

 

2,080,358

 

2,475,065

 

356,484

   

3,699,370

 

8,045,974

 

1,158,862

Total net revenues

 

7,902,954

 

9,211,645

 

12,099,020

 

1,742,621

   

22,802,895

 

38,178,844

 

5,498,898

                               

Total cost of revenues

 

(3,683,268)

 

(3,878,071)

 

(5,635,741)

 

(811,716)

   

(9,399,260)

 

(16,515,032)

 

(2,378,660)

                               

Gross profit

 

4,219,686

 

5,333,574

 

6,463,279

 

930,905

   

13,403,635

 

21,663,812

 

3,120,238

                               

Selling and marketing expenses 

 

(893,055)

 

(1,275,073)

 

(1,255,331)

 

(180,806)

   

(2,958,229)

 

(4,481,815)

 

(645,516)

General and administrative expenses

 

(321,855)

 

(391,655)

 

(464,149)

 

(66,851)

   

(1,014,395)

 

(1,506,154)

 

(216,931)

Research and development expenses 

 

(586,759)

 

(820,246)

 

(877,119)

 

(126,331)

   

(2,158,888)

 

(3,046,979)

 

(438,856)

Total operating expenses

 

(1,801,669)

 

(2,486,974)

 

(2,596,599)

 

(373,988)

   

(6,131,512)

 

(9,034,948)

 

(1,301,303)

                               

Operating profit

 

2,418,017

 

2,846,600

 

3,866,680

 

556,917

   

7,272,123

 

12,628,864

 

1,818,935

Other income:

                             

Investment income, net

 

32,120

 

99,679

 

291,960

 

42,051

   

62,341

 

200,333

 

28,854

Interest income, net

 

132,832

 

162,145

 

125,335

 

18,052

   

596,930

 

541,969

 

78,060

Exchange gains, net

 

66,285

 

14,807

 

90,461

 

13,029

   

133,776

 

146,510

 

21,102

Other, net

 

23,196

 

99,387

 

219,188

 

31,570

   

45,138

 

377,685

 

54,398

                               

Net income before tax

 

2,672,450

 

3,222,618

 

4,593,624

 

661,619

   

8,110,308

 

13,895,361

 

2,001,349

Income tax

 

(513,770)

 

(427,177)

 

(882,018)

 

(127,037)

   

(1,273,408)

 

(2,102,498)

 

(302,823)

                               

Net income after tax

 

2,158,680

 

2,795,441

 

3,711,606

 

534,582

   

6,836,900

 

11,792,863

 

1,698,526

Net income attributable to noncontrolling interests
    and mezzanine classified noncontrolling interests

 

5,781

 

(55,423)

 

(28,506)

 

(4,106)

   

(101,792)

 

(188,343)

 

(27,127)

Net income attributable to
   the Company's shareholders

 

2,164,461

 

2,740,018

 

3,683,100

 

530,476

   

6,735,108

 

11,604,520

 

1,671,399

                               
                               

Earnings per share, basic

 

0.66

 

0.84

 

1.12

 

0.16

   

2.05

 

3.54

 

0.51

Earnings per ADS, basic

 

16.46

 

20.90

 

28.06

 

4.04

   

51.27

 

88.40

 

12.73

Earnings per share, diluted

 

0.65

 

0.83

 

1.11

 

0.16

   

2.04

 

3.51

 

0.51

Earnings per ADS, diluted

 

16.34

 

20.73

 

27.82

 

4.01

   

50.94

 

87.72

 

12.63

                               

Weighted average number of
   ordinary shares outstanding, basic

 

3,286,917

 

3,277,540

 

3,281,411

 

3,281,411

   

3,284,382

 

3,281,729

 

3,281,729

Weighted average number of
   ADS outstanding, basic

 

131,477

 

131,102

 

131,256

 

131,256

   

131,375

 

131,269

 

131,269

Weighted average number of
   ordinary shares outstanding, diluted

 

3,312,135

 

3,304,995

 

3,310,275

 

3,310,275

   

3,305,213

 

3,307,109

 

3,307,109

Weighted average number of
   ADS outstanding, diluted

 

132,485

 

132,200

 

132,411

 

132,411

   

132,209

 

132,284

 

132,284

                               

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, 

   

2015

 

2016

 

2016

 

2016

 

2015

 

2016

 

2016

   

 RMB  

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

Cash flows from operating activities:

                           

     Net income  

 

2,158,680

 

2,795,441

 

3,711,606

 

534,582

 

6,836,900

 

11,792,863

 

1,698,526

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

                           

     Depreciation and amortization 

 

54,554

 

89,905

 

96,653

 

13,921

 

182,450

 

327,515

 

47,172

     Impairment loss for investments 

 

12,037

 

-

 

12,247

 

1,764

 

12,037

 

278,906

 

40,171

     Share-based compensation cost 

 

190,483

 

277,265

 

273,975

 

39,461

 

684,467

 

990,131

 

142,609

    Allowance for/ (reversal of) provision for doubtful debts 

 

836

 

10,329

 

(2,398)

 

(345)

 

4,041

 

9,952

 

1,433

     Losses/(gains) on disposal of property,
         equipment and software 

 

6,017

 

(404)

 

46

 

7

 

5,903

 

1,276

 

184

     Unrealized exchange gains 

 

(65,963)

 

(22,477)

 

(77,989)

 

(11,233)

 

(116,772)

 

(166,638)

 

(24,001)

     Gain on disposal of long-term investments 

 

-

 

-

 

(234,050)

 

(33,710)

 

-

 

(234,050)

 

(33,710)

     Deferred income taxes 

 

(19,724)

 

49,766

 

(14,874)

 

(2,142)

 

(147,285)

 

66,676

 

9,603

     Net equity share of loss from associated companies 

 

9,083

 

2,917

 

36,050

 

5,192

 

76,134

 

85,813

 

12,360

     Fair value changes of short-term investments 

 

(51,160)

 

(85,413)

 

(95,697)

 

(13,783)

 

(140,104)

 

(304,605)

 

(43,872)

     Changes in operating assets and liabilities: 

                           

         Accounts receivable 

 

(672,343)

 

(181,029)

 

(1,586,524)

 

(228,507)

 

(1,744,059)

 

(1,646,885)

 

(237,201)

         Prepayments and other current assets 

 

(19,228)

 

71,458

 

(968,609)

 

(139,509)

 

(2,039,087)

 

(1,824,362)

 

(262,763)

         Accounts payable 

 

140,671

 

13,156

 

517,861

 

74,587

 

243,140

 

604,089

 

87,007

         Salary and welfare payables 

 

398,228

 

(139,693)

 

704,875

 

101,523

 

386,417

 

570,466

 

82,164

         Taxes payable 

 

144,782

 

120,128

 

667,002

 

96,068

 

401,924

 

986,390

 

142,070

         Deferred revenue 

 

541,012

 

592,143

 

2,004,605

 

288,723

 

2,683,970

 

2,879,489

 

414,733

         Accrued liabilities and other payables 

 

285,928

 

136,456

 

333,967

 

48,102

 

746,844

 

1,071,240

 

154,291

             Net cash provided by operating activities 

 

3,113,893

 

3,729,948

 

5,378,746

 

774,701

 

8,076,920

 

15,488,266

 

2,230,776

                             

Cash flows from investing activities:

                           

     Purchase of property, equipment and software 

 

(220,268)

 

(165,535)

 

(463,794)

 

(66,800)

 

(866,314)

 

(1,135,533)

 

(163,551)

     Proceeds from sale of property, equipment and software 

 

691

 

552

 

83

 

12

 

1,292

 

2,064

 

297

     Purchase of other intangible assets 

 

-

 

(2,429)

 

(2,005)

 

(289)

 

(347)

 

(4,434)

 

(639)

     Purchase of land use right 

 

(123,787)

 

-

 

-

 

-

 

(163,998)

 

(60)

 

(9)

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

 

136,256

 

(365,269)

 

(2,661,702)

 

(383,365)

 

(231,306)

 

(3,704,332)

 

(533,535)

     Purchase of short-term investments 

 

(1,370,000)

 

(3,440,000)

 

(2,000,000)

 

(288,060)

 

(5,687,000)

 

(12,439,000)

 

(1,791,589)

     Proceeds from maturities of short-term investments 

 

664,251

 

1,657,273

 

3,890,560

 

560,357

 

3,103,463

 

9,879,319

 

1,422,918

     Investment in associated companies 

 

-

 

(363,586)

 

(900)

 

(130)

 

(187,532)

 

(364,486)

 

(52,497)

     Proceeds from disposal of long-term investments 

 

-

 

-

 

249,569

 

35,945

 

-

 

249,569

 

35,945

     Transfer to restricted cash 

 

(231,015)

 

(845,328)

 

(713,162)

 

(102,717)

 

(763,493)

 

(2,140,421)

 

(308,285)

     Placement/rollover of matured time deposits 

 

(4,615,772)

 

(6,750,017)

 

(6,818,322)

 

(982,043)

 

(19,017,824)

 

(20,367,430)

 

(2,933,520)

     Proceeds from maturities of time deposits 

 

3,125,866

 

5,966,100

 

3,911,939

 

563,437

 

22,582,480

 

16,377,449

 

2,358,844

     Net change in other assets 

 

(156,401)

 

(222,456)

 

515

 

74

 

(1,305,945)

 

(354,519)

 

(51,061)

             Net cash used in investing activities 

 

(2,790,179)

 

(4,530,695)

 

(4,607,219)

 

(663,579)

 

(2,536,524)

 

(14,001,814)

 

(2,016,682)

                             

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

           

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)

   

Quarter Ended

 

Year Ended

     

 December 31, 

 

 September 30, 

 

 December 31, 

 

 December 31, 

 

 December 31, 

 

 December 31, 

 

 December 31, 

     

2015

 

2016

 

2016

 

2016

 

2015

 

2016

 

2016

     

 RMB  

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

 

 RMB  

 

 RMB  

 

 USD (Note 1) 

                               

Cash flows from financing activities:

                             

     Proceeds of short-term bank loans 

   

2,223,623

 

3,005,008

 

3,815,678

 

549,572

 

5,828,758

 

11,354,866

 

1,635,441

     Payment of short-term bank loans 

   

(2,223,623)

 

(2,320,920)

 

(3,005,010)

 

(432,811)

 

(5,741,616)

 

(9,860,110)

 

(1,420,151)

     Capital contribution from noncontrolling interests shareholders 

   

15,000

 

-

 

-

 

-

 

15,015

 

4

 

1

     Repurchase of mezzanine classified noncontrolling interests  

   

(134,736)

 

-

 

-

 

-

 

(134,736)

 

-

 

-

     Repurchase of shares 

   

-

 

-

 

-

 

-

 

(132,192)

 

(1,199,102)

 

(172,707)

     Dividends paid to shareholders 

   

(470,935)

 

(683,826)

 

(692,524)

 

(99,744)

 

(1,467,965)

 

(2,546,165)

 

(366,724)

             Net cash (used in)/ provided by financing activities      

   

(590,671)

 

262

 

118,144

 

17,017

 

(1,632,736)

 

(2,250,507)

 

(324,140)

                               

             Effect of exchange rate changes on cash      

                             

                 held in foreign currencies 

   

68,362

 

25,128

 

68,025

 

9,798

 

142,374

 

132,067

 

19,021

              Net (decrease)/ increase in cash and cash equivalents 

   

(198,595)

 

(775,357)

 

957,696

 

137,937

 

4,050,034

 

(631,988)

 

(91,025)

Cash and cash equivalents, beginning of the period

   

6,270,082

 

5,257,160

 

4,481,803

 

645,514

 

2,021,453

 

6,071,487

 

874,476

Cash and cash equivalents, end of the period

   

6,071,487

 

4,481,803

 

5,439,499

 

783,451

 

6,071,487

 

5,439,499

 

783,451

                               

Supplemental disclosures of cash flow information:

                             

     Cash paid for income tax, net 

   

353,663

 

417,623

 

119,585

 

17,224

 

1,124,339

 

1,097,178

 

158,027

Supplemental schedule of non-cash investing 

                             

     and financing activities:

                             

     Fixed asset purchases financed by
         accounts payable and accrued liabilities 

   

216,328

 

179,662

 

260,277

 

37,488

 

216,328

 

260,277

 

37,488

                               

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

 

Year Ended

   

December 31,

 

September 30, 

 

 December 31, 

 

 December 31, 

 

December 31,

 

 December 31, 

 

 December 31, 

   

2015

 

2016

 

2016

 

2016

 

2015

 

2016

 

2016

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Net revenues:

                           

Online game services

 

5,502,867

 

6,568,016

 

8,959,140

 

1,290,384

 

17,314,148

 

27,980,491

 

4,030,029

Advertising services

 

608,967

 

563,271

 

664,815

 

95,753

 

1,789,377

 

2,152,379

 

310,007

E-mail, e-commerce and others

 

1,791,120

 

2,080,358

 

2,475,065

 

356,484

 

3,699,370

 

8,045,974

 

1,158,862

Total net revenues

 

7,902,954

 

9,211,645

 

12,099,020

 

1,742,621

 

22,802,895

 

38,178,844

 

5,498,898

                             

Cost of revenues:

                           

Online game services

 

(1,805,489)

 

(2,299,455)

 

(3,516,965)

 

(506,549)

 

(5,393,555)

 

(9,974,146)

 

(1,436,577)

Advertising services

 

(194,179)

 

(195,376)

 

(223,018)

 

(32,121)

 

(599,032)

 

(749,652)

 

(107,972)

E-mail, e-commerce and others

 

(1,683,600)

 

(1,383,240)

 

(1,895,758)

 

(273,046)

 

(3,406,673)

 

(5,791,234)

 

(834,111)

Total cost of revenues

 

(3,683,268)

 

(3,878,071)

 

(5,635,741)

 

(811,716)

 

(9,399,260)

 

(16,515,032)

 

(2,378,660)

                             

Gross profit:

                           

Online game services

 

3,697,378

 

4,268,561

 

5,442,175

 

783,835

 

11,920,593

 

18,006,345

 

2,593,452

Advertising services

 

414,788

 

367,895

 

441,797

 

63,632

 

1,190,345

 

1,402,727

 

202,035

E-mail, e-commerce and others

 

107,520

 

697,118

 

579,307

 

83,438

 

292,697

 

2,254,740

 

324,751

Total gross profit

 

4,219,686

 

5,333,574

 

6,463,279

 

930,905

 

13,403,635

 

21,663,812

 

3,120,238

                             

Gross profit margin:

                           

Online game services

 

67.2%

 

65.0%

 

60.7%

 

60.7%

 

68.8%

 

64.4%

 

64.4%

Advertising services

 

68.1%

 

65.3%

 

66.5%

 

66.5%

 

66.5%

 

65.2%

 

65.2%

E-mail, e-commerce and others

 

6.0%

 

33.5%

 

23.4%

 

23.4%

 

7.9%

 

28.0%

 

28.0%

                             

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 = RMB6.9430 on the last trading day of December 2016 (December 30, 2016) 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,

   

2015

 

2016

 

2016

 

2016

 

2015

 

2016

 

2016

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Share-based compensation cost included in:

                           

Cost of revenue

 

93,689

 

127,344

 

114,539

 

16,497

 

328,480

 

444,187

 

63,976

Operating expenses

                           

- Selling and marketing expenses

 

9,071

 

13,743

 

14,724

 

2,121

 

36,023

 

52,689

 

7,589

- General and administrative expenses

 

39,742

 

67,613

 

71,201

 

10,255

 

120,925

 

238,750

 

34,387

- Research and development expenses

 

47,981

 

68,565

 

73,511

 

10,588

 

199,039

 

254,505

 

36,657

                             

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

                   

 

 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(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, 

   

2015

 

2016

 

2016

 

2016

 

2015

 

2016

 

2016

   

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

Net income attributable to the Company's shareholders

 

2,164,461

 

2,740,018

 

3,683,100

 

530,476

 

6,735,108

 

11,604,520

 

1,671,399

Add: Share-based compensation

 

190,483

 

277,265

 

273,976

 

39,461

 

684,467

 

990,132

 

142,608

         Impairment on investment 

 

-

 

-

 

-

 

-

 

-

 

266,659

 

38,407

Non-GAAP net income attributable to the Company's shareholders

 

2,354,944

 

3,017,283

 

3,957,076

 

569,937

 

7,419,575

 

12,861,311

 

1,852,414

                             

Non-GAAP earnings per share, basic

 

0.72

 

0.92

 

1.21

 

0.17

 

2.26

 

3.92

 

0.56

Non-GAAP earnings per ADS, basic

 

17.91

 

23.01

 

30.15

 

4.34

 

56.48

 

97.98

 

14.11

Non-GAAP earnings per share, diluted

 

0.71

 

0.91

 

1.20

 

0.17

 

2.24

 

3.89

 

0.56

Non-GAAP earnings per ADS, diluted

 

17.78

 

22.82

 

29.88

 

4.30

 

56.12

 

97.22

 

14.00

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/netease-reports-fourth-quarter-and-fiscal-year-2016-unaudited-financial-results-300408059.html

SOURCE NetEase, Inc.