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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 


 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the month of November 2015

 

Commission File Number: 000-30666

 


 

NETEASE, INC.

 


 

26/F, SP Tower D
Tsinghua Science Park Building 8
No. 1 Zhongguancun East Road, Haidian District
Beijing 100084, People’s Republic of China
(Address of principal executive offices)

 


 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x     Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

 

 



Table of Contents

 

NETEASE, INC.

 

Form 6-K

 

TABLE OF CONTENTS

 

 

 

Page

 

Signature

 

Page 3

 

 

 

 

 

Press Release Regarding Third Quarter 2015 Unaudited Financial Results, dated November 11, 2015

 

Exhibit 99.1

 

 

2



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

NETEASE, INC.

 

 

 

 

By:

/s/ Onward Choi

 

Name:

Onward Choi

 

Title:

Acting Chief Financial Officer

 

 

 

Date:

November 12, 2015

 

 

 

 

3


Exhibit 99.1

 

 

Contact for Media and Investors:

Juliet Yang

NetEase, Inc.

hzyangyy@corp.netease.com

Tel: (+86) 571-8985-2620

 

Brandi Piacente

Investor Relations

brandi@corp.netease.com

Tel: (+1) 212-481-2050

 

NetEase Reports Third Quarter 2015 Unaudited Financial Results

 

(Beijing — November 11, 2015) — NetEase, Inc. (NASDAQ: NTES), one of China’s leading Internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2015.

 

“We are honored to be a leading developer and operator of some of the country’s most popular games as China’s online game industry is on track to become the world’s largest gaming market,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Our third quarter financial results reflect our success at innovation with total net revenues increasing by 114.1% compared with the third quarter of last year. We grew our top-line net revenues across our three business segments both sequentially and year-over-year, with year-over-year increases of 124.5% in online games, 10.5% in advertising services and 162.2% in e-mail, e-commerce and others.”

 

“Our self-developed and licensed PC-client games maintain a healthy appeal to our users, while our mobile games are driving new growth. During the third quarter of this year, we launched our Westward Journey Online mobile game, which together with our Fantasy Westward Journey mobile game, are now the top two grossing games in the iOS China app store. Players’ appetite for our new self-developed PC-client game Revelation, a 3D oriental fantasy MMORPG, was also strong in the third quarter, and we saw continued interest in Blizzard Entertainment’s Diablo III®: Reaper of Souls and Hearthstone®: Heroes of Warcraft. A number of new expansion packs for our PC-client games were warmly received during the third quarter as well, including Fantasy Westward Journey II and a new version of Ghost II, named New Ghost. Additionally, we have entered into collaboration between New Ghost and an urban TV show, which is based on a renowned youth romance novel. This cooperation represents the initiation of our strategy to utilize innovative marketing models for our games that further extend our brand.”

 

“Today, our mobile portfolio stands strong with more than 50 titles, and we plan to grow this position with self-developed and licensed games that continue to delight our players. These include games that we have launched since July of this year that have gained immediate traction such as Fairy Tales: The World of the Brave, Kari-ri-sei Million Arthur, Lunar Flowers, The Beautiful Dream and Chrono Blade. In addition, we are

 

1



 

planning for the exciting introduction of our highly-anticipated Kung Fu Panda mobile game in late November, as well as The X-World, Fantasy Westward Journey: Warriors and Raven in the coming months. For our PC-client games, the new expansion pack for Kung Fu Master II, which we released in October, is being well received. We also look forward to bringing our PC-client players thrilling new experiences with expansion packs planned for Tianxia III, Heroes of Tang Dynasty Zero, and the new release of Hegemon-King of Western Chu.”

 

“Advertisers are continuing the transition from PC to mobile, a platform where our foothold is particularly strong. Supported by the popularity of our Mobile News App, we are seeing continued growth in our advertising revenues from mobile platforms. During the third quarter, our advertising services’ net revenues growth was led by the automobile, Internet services and food and beverage sectors. Our cross-border e-commerce platform Kaola.com also continued to grow rapidly during the third quarter and we are seeing sustained strong momentum from our e-commerce business.”

 

“Our portfolio of PC-client and mobile games is robust and growing. In addition to the domestic popularity of our mobile initiatives that span games, apps, advertising services and e-commerce, we have now launched several new games for overseas audiences to a positive reception. Along with our rapid mobile growth, our focus remains on superior quality and innovation, particularly where there is an opportunity to enhance our offerings with IP and data sharing between our PC-client and mobile games, and other product and service offerings across our business lines,” Mr. Ding concluded.

 

Third Quarter 2015 Financial Results

 

Net Revenues

 

Net revenues for the third quarter of 2015 were RMB6,671.8 million (US$1,049.7 million), compared to RMB4,567.9 million and RMB3,116.7 million for the preceding quarter and the third quarter of 2014, respectively.

 

Net revenues from online games were RMB5,212.9 million (US$820.2 million) for the third quarter of 2015, compared to RMB3,657.1 million and RMB2,322.0 million for the preceding quarter and the third quarter of 2014, respectively.

 

Net revenues from advertising services were RMB454.9 million (US$71.6 million) for the third quarter of 2015, compared to RMB427.7 million and RMB411.7 million for the preceding quarter and the third quarter of 2014, respectively.

 

Net revenues from e-mail, e-commerce and others were RMB1,004.0 million (US$158.0 million) for the third quarter of 2015, compared to RMB483.0 million and RMB383.0 million for the preceding quarter and the third quarter of 2014, respectively.

 

2



 

Gross Profit

 

Gross profit for the third quarter of 2015 was RMB3,849.3 million (US$605.6 million), compared to RMB2,845.6 million and RMB2,258.4 million for the preceding quarter and the third quarter of 2014, respectively.

 

The year-over-year and quarter-over-quarter increases in online games gross profit were primarily driven by revenue contribution from mobile games such as the Fantasy Westward Journey mobile game and licensed games such as Blizzard Entertainment’s Diablo III®: Reaper of Souls and Hearthstone®: Heroes of Warcraft, as well as NetEase’s new self-developed PC-client games such as Revelation.

 

The year-over-year and quarter-over-quarter increases in advertising services gross profit were primarily attributable to strong demand from the automobile, Internet services and food and beverage sectors, and NetEase’s monetization efforts for its mobile applications, primarily its Mobile News App.

 

The year-over-year decrease in e-mail, e-commerce and others gross profit was primarily due to the temporary suspension of higher margin e-commerce services related to third-party lottery products since late February 2015, which was partially offset by increased revenue contribution from NetEase’s other e-commerce platforms, which have relatively lower gross profit margins. The quarter-over-quarter decrease was primarily due to the one-off recognition of expenses related to certain copyrights in the third quarter of 2015.

 

Gross Profit Margin

 

Gross profit margin for the online games business for the third quarter of 2015 was 67.9%, compared to 69.3% and 77.2% for the preceding quarter and the third quarter of 2014, respectively. The year-over-year and quarter-over-quarter decreases in gross profit margin were mainly due to increased revenue contribution from mobile games, which have relatively lower gross profit margins, as a percentage of NetEase’s total online games revenues.

 

Gross profit margin for the advertising services business for the third quarter of 2015 was 67.6%, compared to 68.2% and 65.3% for the preceding quarter and the third quarter of 2014, respectively.

 

Gross profit margin for the e-mail, e-commerce and others business for the third quarter of 2015 was 0.1%, compared to 4.2% and 51.6% for the preceding quarter and the third quarter of 2014, respectively. The year-over-year decrease in gross profit margin was primarily attributable to the temporary suspension of higher margin e-commerce services related to third-party lottery products discussed above, as well as increased revenue contribution from NetEase’s other e-commerce platforms, which have relatively lower gross profit margins. The quarter-over-quarter decrease was mainly due to the one-off recognition of expenses related to certain copyrights in the third quarter of 2015.

 

Operating Expenses

 

Total operating expenses for the third quarter of 2015 were RMB1,761.2 million (US$277.1 million), compared to RMB1,395.2 million and RMB1,059.2 million for the preceding quarter and the third quarter of

 

3



 

2014, respectively. The year-over-year and quarter-over-quarter increases in operating expenses were mainly due to increased selling and marketing expenses for mobile and PC-client games, advertising services and other mobile products, 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 RMB399.2 million (US$62.8 million) for the third quarter of 2015, compared to RMB145.9 million and RMB197.3 million for the preceding quarter and the third quarter of 2014, respectively. The effective tax rate for the third quarter of 2015 was 17.1%, compared to 9.2% and 14.4% for the preceding quarter and the third quarter of 2014, 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 and subject to a preferential tax rate of 10% for 2014. Those subsidiaries were subject to a tax rate of 15% in 2015. The quarter-over-quarter increase in the effective tax rate was mainly due to the fact that the Company recognized certain tax credits in the second quarter of 2015 related to annual tax filing benefits, most of which comprised extra tax deductions for research and development expenses approved by the tax authorities.

 

Net Income After Tax

 

Net income attributable to the Company’s shareholders for the third quarter of 2015 totaled RMB1.9 billion (US$296.1 million), compared to RMB1.4 billion and RMB1.2 billion for the preceding quarter and the third quarter of 2014, respectively. Non-GAAP net income attributable to the Company’s shareholders [1] for the third quarter of 2015 totaled RMB2.1 billion (US$322.6 million), compared to RMB1.6 billion and RMB1.3 billion for the preceding quarter and the third quarter of 2014, respectively.

 

During the third quarter of 2015, the Company had a net foreign exchange gain of RMB66.5 million (US$10.5 million), compared to a net foreign exchange loss of RMB21.7 million and a net foreign exchange gain of RMB2.2 million for the preceding quarter and the third quarter of 2014, respectively. The year-over-year and quarter-over-quarter changes in foreign exchange gains/(losses) were mainly due to unrealized 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 and diluted earnings per ADS of US$2.25 and US$2.24, respectively, for the third quarter of 2015. The Company reported basic and diluted earnings per ADS of US$1.70 and US$1.69, respectively, for the preceding quarter, and basic and diluted earnings per ADS of US$1.40 and US$1.39, respectively, for the third quarter of 2014. Non-GAAP basic and diluted earnings per ADS were US$2.45 and US$2.44, respectively, for the third quarter of 2015, compared to non-GAAP basic and diluted earnings per ADS of US$1.90 and US$1.89, respectively, in the preceding quarter, and US$1.51 each for the third quarter of 2014.

 


[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. See “Unaudited Reconciliation of GAAP and Non-GAAP Results” at the end of this press release.

 

4



 

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$0.39 per ADS for the first quarter of 2015 on June 5, 2015, and US$0.44 per ADS for the second quarter of 2015 on September 4, 2015.

 

The board of directors has approved a dividend of US$0.56 per ADS for the third quarter of 2015, which is expected to be paid on December 4, 2015 to shareholders of record as of the close of business on November 27, 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 September 30, 2015, the Company’s total cash and current and non-current time deposits balance was RMB20.4 billion (US$3.2 billion), compared to RMB21.2 billion as of December 31, 2014. Cash flow generated from operating activities was RMB2.2 billion (US$346.5 million) for the third quarter of 2015, compared to RMB835.9 million and RMB1.2 billion for the preceding quarter and the third quarter of 2014, respectively.

 

Beginning in the first quarter of 2015, NetEase made a reclassification of certain revenue and cost of revenue items from its advertising services segment to its e-mail, e-commerce and others segment. The segments reclassification reflects changes in the way the Company evaluates its business performance and manages its operations. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Share Repurchase Program

 

On September 1, 2015, the Company announced that its board of directors approved a new share repurchase program of up to US$500 million of the Company’s outstanding ADSs for a period not to exceed 12 months. NetEase plans to fund repurchases made under this program from available working capital. Under the terms of the approved program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. The timing and dollar amount of repurchase transactions will be subject to Securities and Exchange Commission (“SEC”) Rule 10b-18 requirements. It is also expected that such repurchases will be effected pursuant to a plan in conformity with SEC Rule 10b5-1. As of September 30, 2015, the Company has repurchased approximately 0.19 million ADSs for about US$20.7 million 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 = RMB6.3556 on September 30, 2015 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB

 

5



 

amounts could have been, or could be, converted into US$ at that rate on September 30, 2015, 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 simultaneous webcast at 8:00 p.m. Eastern Time on Wednesday, November 11, 2015 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, November 12, 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 1-888-438-5525 (international: 1-719-325-2144), 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 447860#. The replay will be available through November 25, 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 PC-client and mobile games, advertising services, e-mail services and e-commerce platforms. In partnership with Blizzard Entertainment, 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®:Heroes of Warcraft, Diablo III®: Reaper of Souls, Heroes 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;

 

6



 

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. 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, which are non-cash charges. 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 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 we use 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.

 

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NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

 

 

December 31,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,021,453

 

6,270,082

 

986,544

 

Time deposits

 

18,496,574

 

13,646,100

 

2,147,099

 

Restricted cash

 

2,628,847

 

3,161,510

 

497,437

 

Accounts receivable, net

 

873,137

 

1,942,200

 

305,589

 

Prepayments and other current assets

 

1,451,919

 

3,478,137

 

547,256

 

Short-term investments

 

2,058,552

 

4,392,847

 

691,177

 

Deferred tax assets

 

202,040

 

328,307

 

51,656

 

Total current assets

 

27,732,522

 

33,219,183

 

5,226,758

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

1,281,225

 

1,817,592

 

285,983

 

Land use right, net

 

77,648

 

116,613

 

18,348

 

Deferred tax assets

 

21,160

 

24,912

 

3,920

 

Time deposits

 

673,000

 

530,000

 

83,391

 

Other long-term assets

 

569,116

 

1,498,285

 

235,743

 

Total non-current assets

 

2,622,149

 

3,987,402

 

627,385

 

Total assets

 

30,354,671

 

37,206,585

 

5,854,143

 

 

 

 

 

 

 

 

 

Liabilities, Mezzanine Classified Noncontrolling Interests and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

410,722

 

514,962

 

81,025

 

Salary and welfare payables

 

534,565

 

522,754

 

82,251

 

Taxes payable

 

334,290

 

591,452

 

93,060

 

Short-term loan

 

2,049,865

 

2,226,455

 

350,314

 

Deferred revenue

 

1,967,780

 

4,110,738

 

646,790

 

Accrued liabilities and other payables

 

1,357,228

 

1,823,686

 

286,942

 

Deferred tax liabilities

 

101,997

 

104,455

 

16,435

 

Total current liabilities

 

6,756,447

 

9,894,502

 

1,556,817

 

 

 

 

 

 

 

 

 

Long-term payable:

 

 

 

 

 

 

 

Other long-term payable

 

106,430

 

68,952

 

10,849

 

Total liabilities

 

6,862,877

 

9,963,454

 

1,567,666

 

 

 

 

 

 

 

 

 

Mezzanine classified noncontrolling interests

 

133,634

 

133,118

 

20,945

 

 

 

 

 

 

 

 

 

Total NetEase, Inc.’s equity

 

23,390,345

 

27,034,098

 

4,253,587

 

Noncontrolling interests

 

(32,185

)

75,915

 

11,945

 

Total shareholders’ equity

 

23,358,160

 

27,110,013

 

4,265,532

 

 

 

 

 

 

 

 

 

Total liabilities, mezzanine classified noncontrolling interests and shareholders’ equity

 

30,354,671

 

37,206,585

 

5,854,143

 

 

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

 

8



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

2,322,014

 

3,657,136

 

5,212,912

 

820,207

 

Advertising services

 

411,749

 

427,736

 

454,883

 

71,572

 

E-mail, e-commerce and others

 

382,976

 

483,033

 

1,003,994

 

157,970

 

Total net revenues

 

3,116,739

 

4,567,905

 

6,671,789

 

1,049,749

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

(858,298

)

(1,722,331

)

(2,822,522

)

(444,100

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

2,258,441

 

2,845,574

 

3,849,267

 

605,649

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(533,838

)

(696,188

)

(817,940

)

(128,696

)

General and administrative expenses

 

(128,928

)

(202,228

)

(319,713

)

(50,304

)

Research and development expenses

 

(396,442

)

(496,782

)

(623,523

)

(98,106

)

Total operating expenses

 

(1,059,208

)

(1,395,198

)

(1,761,176

)

(277,106

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

1,199,233

 

1,450,376

 

2,088,091

 

328,543

 

Other income/(expenses):

 

 

 

 

 

 

 

 

 

Investment income, net

 

8,693

 

1,901

 

24,995

 

3,933

 

Interest income

 

156,084

 

156,653

 

140,399

 

22,091

 

Exchange gains/ (losses)

 

2,184

 

(21,682

)

66,483

 

10,461

 

Other, net

 

1,872

 

562

 

10,133

 

1,594

 

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

1,368,066

 

1,587,810

 

2,330,101

 

366,622

 

Income tax

 

(197,340

)

(145,933

)

(399,163

)

(62,805

)

 

 

 

 

 

 

 

 

 

 

Net income after tax

 

1,170,726

 

1,441,877

 

1,930,938

 

303,817

 

Net income attributable to noncontrolling interests and mezzanine classified noncontrolling interests

 

(11,581

)

(17,557

)

(49,035

)

(7,715

)

Net income attributable to the Company’s shareholders

 

1,159,145

 

1,424,320

 

1,881,903

 

296,102

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic

 

0.35

 

0.43

 

0.57

 

0.09

 

Earnings per ADS, basic

 

8.87

 

10.83

 

14.31

 

2.25

 

Earnings per share, diluted

 

0.35

 

0.43

 

0.57

 

0.09

 

Earnings per ADS, diluted

 

8.83

 

10.77

 

14.22

 

2.24

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,267,786

 

3,287,495

 

3,288,829

 

3,288,829

 

Weighted average number of ADS outstanding, basic

 

130,711

 

131,500

 

131,553

 

131,553

 

Weighted average number of ordinary shares outstanding, diluted

 

3,280,435

 

3,306,039

 

3,308,156

 

3,308,156

 

Weighted average number of ADS outstanding, diluted

 

131,217

 

132,242

 

132,326

 

132,326

 

 

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

 

9



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

September 30,

 

March 31,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1,170,726

 

1,305,403

 

1,441,877

 

1,930,938

 

303,817

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

36,921

 

38,675

 

42,529

 

46,693

 

7,347

 

Share-based compensation cost

 

96,619

 

160,459

 

165,335

 

168,190

 

26,463

 

Allowance for (reversal of) provision for doubtful debts

 

3,086

 

5,974

 

280

 

(3,050

)

(480

)

Gain on disposal of property, equipment and software

 

(67

)

(88

)

(4

)

(21

)

(3

)

Unrealized exchange losses (gains)

 

1,686

 

(7,141

)

17,816

 

(61,483

)

(9,674

)

Deferred income taxes

 

32,882

 

41,137

 

(184,958

)

16,261

 

2,559

 

Net equity share of loss from associated companies

 

28,179

 

21,530

 

24,748

 

20,774

 

3,268

 

Fair value changes of short-term investments

 

(16,516

)

(21,787

)

(25,534

)

(41,623

)

(6,549

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(203,257

)

(23,999

)

(883,386

)

(164,331

)

(25,856

)

Prepayments and other current assets

 

(140,636

)

(310,698

)

(1,344,935

)

(364,226

)

(57,308

)

Accounts payable

 

22,539

 

(46,234

)

2,509

 

146,195

 

23,002

 

Salary and welfare payables

 

(44,225

)

(72,485

)

100,892

 

(40,219

)

(6,328

)

Taxes payable

 

31,742

 

178,991

 

(22,015

)

100,165

 

15,760

 

Deferred revenue

 

58,072

 

224,742

 

1,616,133

 

302,082

 

47,530

 

Accrued liabilities and other payables

 

84,683

 

430,669

 

(115,341

)

145,587

 

22,907

 

Net cash provided by operating activities

 

1,162,434

 

1,925,148

 

835,946

 

2,201,932

 

346,455

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(116,172

)

(120,352

)

(332,099

)

(193,595

)

(30,461

)

Proceeds from sale of property, equipment and software

 

404

 

136

 

214

 

252

 

40

 

Purchase of other intangible assets

 

 

 

(91

)

(256

)

(40

)

Purchase of land use right

 

(29,387

)

 

(2,557

)

(37,654

)

(5,925

)

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

 

335,803

 

386,479

 

(38,192

)

(715,849

)

(112,633

)

Purchase of short-term investments

 

(593,805

)

(830,000

)

(1,437,000

)

(2,050,000

)

(322,550

)

Proceeds from maturities of short-term investments

 

203,589

 

507,648

 

1,066,140

 

865,424

 

136,166

 

Investment in associated companies

 

(20,000

)

 

(157,532

)

(30,000

)

(4,720

)

Transfer (to)/from restricted cash

 

(98,517

)

252,526

 

(843,479

)

58,475

 

9,201

 

Placement/rollover of matured time deposits

 

(4,934,854

)

(5,337,795

)

(3,907,368

)

(5,156,889

)

(811,393

)

Proceeds from maturities of time deposits

 

5,020,322

 

6,156,953

 

6,915,647

 

6,384,015

 

1,004,471

 

Net change in other assets

 

(105,195

)

(79,609

)

(1,041,025

)

(28,910

)

(4,549

)

Net cash (used in)/ provided by investing activities

 

(337,812

)

935,986

 

222,658

 

(904,987

)

(142,393

)

 

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

 

10



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

September 30,

 

March 31,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds of short-term bank loans

 

 

1,219,853

 

917,154

 

1,468,128

 

230,998

 

Payment of short-term bank loans

 

 

(2,049,865

)

 

(1,468,128

)

(230,998

)

Proceeds from employees exercising stock options

 

870

 

 

 

 

 

Capital injection from noncontrolling interests shareholders

 

 

15

 

 

 

 

Repurchase of shares

 

 

 

 

(132,192

)

(20,799

)

Dividends paid to shareholders

 

(298,142

)

(313,406

)

(313,780

)

(369,845

)

(58,192

)

Net cash (used in)/ provided by financing activities

 

(297,272

)

(1,143,403

)

603,374

 

(502,037

)

(78,991

)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash held in foreign currencies

 

(1,397

)

717

 

(12,007

)

85,302

 

13,422

 

Net increase in cash and cash equivalents

 

525,953

 

1,718,448

 

1,649,971

 

880,210

 

138,493

 

Cash and cash equivalents, beginning of the period

 

1,668,981

 

2,021,453

 

3,739,901

 

5,389,872

 

848,051

 

Cash and cash equivalents, end of the period

 

2,194,934

 

3,739,901

 

5,389,872

 

6,270,082

 

986,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income tax, net

 

153,567

 

141,893

 

386,977

 

241,807

 

38,046

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable and accrued liabilities

 

49,891

 

42,198

 

57,936

 

95,365

 

15,005

 

 

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

 

11



 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

2,322,014

 

3,657,136

 

5,212,912

 

820,207

 

Advertising services

 

411,749

 

427,736

 

454,883

 

71,572

 

E-mail, e-commerce and others

 

382,976

 

483,033

 

1,003,994

 

157,970

 

Total net revenues

 

3,116,739

 

4,567,905

 

6,671,789

 

1,049,749

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

(529,871

)

(1,123,290

)

(1,672,306

)

(263,123

)

Advertising services

 

(143,013

)

(136,093

)

(147,368

)

(23,187

)

E-mail, e-commerce and others

 

(185,414

)

(462,948

)

(1,002,848

)

(157,790

)

Total cost of revenues

 

(858,298

)

(1,722,331

)

(2,822,522

)

(444,100

)

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

Online game services

 

1,792,143

 

2,533,846

 

3,540,606

 

557,084

 

Advertising services

 

268,736

 

291,643

 

307,515

 

48,385

 

E-mail, e-commerce and others

 

197,562

 

20,085

 

1,146

 

180

 

Total gross profit

 

2,258,441

 

2,845,574

 

3,849,267

 

605,649

 

 

 

 

 

 

 

 

 

 

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

Online game services

 

77.2

%

69.3

%

67.9

%

67.9

%

Advertising services

 

65.3

%

68.2

%

67.6

%

67.6

%

E-mail, e-commerce and others

 

51.6

%

4.2

%

0.1

%

0.1

%

 

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

 

12



 

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 = RMB6.3556 on the last trading day of September 2015 (September 30, 2015) 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

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

43,336

 

81,339

 

77,891

 

12,255

 

Operating expenses

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

6,720

 

8,943

 

9,041

 

1,423

 

- General and administrative expenses

 

15,347

 

25,914

 

29,858

 

4,698

 

- Research and development expenses

 

31,216

 

49,139

 

51,400

 

8,087

 

 

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

 

13



 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

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

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2015

 

2015

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net income attributable to the Company’s shareholders

 

1,159,145

 

1,424,320

 

1,881,903

 

296,102

 

Add: Share-based compensation

 

96,619

 

165,335

 

168,190

 

26,463

 

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

 

1,255,764

 

1,589,655

 

2,050,093

 

322,565

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings per share, basic

 

0.38

 

0.48

 

0.62

 

0.10

 

Non-GAAP earnings per ADS, basic

 

9.61

 

12.09

 

15.58

 

2.45

 

Non-GAAP earnings per share, diluted

 

0.38

 

0.48

 

0.62

 

0.10

 

Non-GAAP earnings per ADS, diluted

 

9.57

 

12.02

 

15.49

 

2.44

 

 

14