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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 2016

 

Commission File Number: 000-30666

 


 

NETEASE, INC.

 


 

Building No. 7, West Zone

Zhongguancun Software Park (Phase II)

No.10 Xibeiwang East Road, Haidian District,

Beijing 100193, 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

 

 

 

 

 

NetEase Reports Third Quarter 2016 Unaudited Financial Results

 

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 10, 2016

 

 

 

 

3


Exhibit 99.1

 

 

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 Reports Third Quarter 2016 Unaudited Financial Results

 

(Beijing - November 9, 2016) - 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 third quarter ended September 30, 2016.

 

“We maintained steady growth across each of our primary business lines in the third quarter with a continued focus on providing first-rate games and products to the expanding online market, both domestically and abroad,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Led by our online game services segment, our total net revenues increased 38.1% year-over-year with growth of 26.0% in online games services, 23.8% in advertising services, and 107.2% in our e-mail, e-commerce and others segment.”

 

“Ingenuity, quality and diversification have provided the cornerstones for our competitive edge. As the internet technology industry expands, we will keep pushing the boundaries with new and improved products. Our latest endeavors for our online game services include enhancing interactive communications among our mobile users, establishing virtual and augmented reality interfaces, as well as exploring other innovative gameplay options that offer exciting advances in how players experience and connect with our games.”

 

“There remains extensive opportunity in the thriving mobile game industry where we continue to introduce chart-topping games. During the third quarter we released a number of new games to add to our mobile portfolio that spans over 100 titles. Our latest mobile 3D game Onmyoji was an instant success, surpassing our expectations. Onmyoji quickly became one of the top-grossing games in China’s iOS app store for both the iPhone and iPad following its release in early September. Our Fantasy Westward Journey and Westward Journey Online mobile games and the mobile version of New Ghost also remained popular in the third quarter. Additionally, we launched mobile games such as Tianxia III mobile, OverOcean and Audition Mobile in the third quarter, followed by HIT, a stunning new ARPG, in October, and are planning to bring our mobile players exciting, original titles in the near-term with games such as Heroes of Tang Dynasty Mobile, Demon Seals Mobile and Land of Glory.”

 

1



 

“Our classic PC-client games also maintained a steady presence in the third quarter with the launch of new expansion packs for games including Fantasy Westward Journey Online (formerly named Fantasy Westward Journey II), New Westward Journey Online II, New Westward Journey Online III, Heroes of Tang Dynasty Zero, Revelation and New Ghost. New expansion packs for Kung Fu Master II and Demon Seals were released recently. In the coming months we plan to launch new expansion packs for games including Tianxia III and Heroes of Tang Dynasty Zero.”

 

“Blizzard Entertainment’s Overwatch® and Hearthstone®: Heroes of Warcraft with its new adventure: One Night in Karazhan, continued to gain favor among Chinese audiences in the third quarter, demonstrating the universal strength of these world renowned brands. Similarly, the latest expansion pack for Blizzard’s World of Warcraft®, Legion, has garnered considerable attention from players in China, surpassing our expectations since its September 1 release in mainland China.”

 

“Supported by our industry leading Mobile News App and diversified mobile products, and high profile events such as the 2016 Summer Olympics, we are creating attractive options for our advertising partners. In the third quarter, our advertising services revenues grew sequentially and year-over-year with the automobile, internet services and telecommunications sectors as our top performing verticals. Additionally, our Kaola.com e-commerce offering continues to grow at a healthy pace. While our primary focus is on direct merchandise sales, we also look forward to maximizing the value of complementary services that extend the reach of this platform.”

 

“We believe that there remain significant growth opportunities for NetEase. By utilizing the strength of our experience as industry veterans and our strong R&D capabilities, our products and services continue to evolve and help shape the market. With an eye toward innovation, we build this value across our businesses not only for our players, but for all of our customers, partners and investors,” Mr. Ding concluded.

 

Third Quarter 2016 Financial Results

 

Net Revenues

 

Net revenues for the third quarter of 2016 were RMB9,211.6 million (US$1,381.4 million), compared to RMB8,952.8 million and RMB6,671.8 million for the preceding quarter and the third quarter of 2015, respectively.

 

Net revenues from online games were RMB6,568.0 million (US$984.9 million) for the third quarter of 2016, compared to RMB6,438.3 million and RMB5,212.9 million for the preceding quarter and the third quarter of 2015, respectively.

 

Net revenues from advertising services were RMB563.3 million (US$84.5 million) for the third quarter of 2016, compared to RMB531.1 million and RMB454.9 million for the preceding quarter and the third quarter of 2015, respectively.

 

Net revenues from e-mail, e-commerce and others were RMB2,080.4 million (US$312.0 million) for the third quarter of 2016, compared to RMB1,983.4 million and RMB1,004.0 million for the preceding quarter and the third quarter of 2015, respectively.

 

2



 

Gross Profit

 

Gross profit for the third quarter of 2016 was RMB5,333.6 million (US$799.8 million), compared to RMB5,280.4 million and RMB3,849.3 million for the preceding quarter and the third 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 the Westward Journey Online mobile game, the mobile version of New Ghost and Blizzard Entertainment’s Overwatch and World of Warcraft.

 

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

 

The year-over-year and quarter-over-quarter increases in e-mail, e-commerce and others gross profit was primarily due to increased revenue contribution from NetEase’s e-commerce business.

 

Gross Profit Margin

 

Gross profit margin for the online games business for the third quarter of 2016 was 65.0%, compared to 66.2% and 67.9% for the preceding quarter and the third 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 increased revenue contribution from licensed games.

 

Gross profit margin for the advertising services business for the third quarter of 2016 was 65.3%, compared to 65.5% and 67.6% for the preceding quarter and the third quarter of 2015, respectively. The year-over-year decrease in gross profit margin was mainly due to higher staff-related costs and content purchase costs.

 

Gross profit margin for the e-mail, e-commerce and others business for the third quarter of 2016 was 33.5%, compared to 33.8% and 0.1% for the preceding quarter and the third quarter of 2015, respectively. The year-over-year increase in gross profit margin was primarily attributable to the business development and the gross profit margin improvement of NetEase’s certain e-commerce businesses.

 

Operating Expenses

 

Total operating expenses for the third quarter of 2016 were RMB2,487.0 million (US$372.9 million), compared to RMB2,232.5 million and RMB1,761.2 million for the preceding quarter and the third quarter of 2015, respectively. The year-over-year and quarter-over-quarter increases in operating expenses were mainly due to higher staff-related costs resulting from an increase in headcount, average compensation, research and development investments and selling and marketing expenses.

 

3



 

Income Taxes

 

The Company recorded a net income tax charge of RMB427.2 million (US$64.1 million) for the third quarter of 2016, compared to RMB262.7 million and RMB399.2 million for the preceding quarter and the third quarter of 2015, respectively. The effective tax rate for the third quarter of 2016 was 13.3%, compared to 8.6% and 17.1% for the preceding quarter and the third quarter of 2015, respectively. The year-over-year and quarter-over-quarter changes 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 second quarter of 2016 and subject to a preferential tax rate of 10% for 2015. The Company recognized the related tax credits in the second and third quarters of 2016. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

 

Net Income After Tax

 

Net income attributable to the Company’s shareholders for the third quarter of 2016 totaled RMB2.7 billion (US$410.9 million), compared to RMB2.7 billion and RMB1.9 billion for the preceding quarter and the third quarter of 2015, respectively. Non-GAAP net income attributable to the Company’s shareholders[1] for the third quarter of 2016 totaled RMB3.0 billion (US$452.5 million), compared to RMB3.2 billion and RMB2.1 billion for the preceding quarter and the third quarter of 2015, respectively.

 

During the third quarter of 2016, the Company had a net foreign exchange gain of RMB14.8 million (US$2.2 million), compared to net foreign exchange gains of RMB77.3 million and RMB66.5 million for the preceding quarter and the third 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$3.13 and US$3.11, respectively, for the third quarter of 2016. The Company reported basic and diluted earnings per ADS of US$3.11 and US$3.09, respectively, for the preceding quarter, and basic and diluted earnings per ADS of US$2.15 and US$2.13, respectively, for the third quarter of 2015. Non-GAAP basic and diluted earnings per ADS were US$3.45 and US$3.42, respectively, for the third quarter of 2016, compared to non-GAAP basic and diluted earnings per ADS of US$3.68 and US$3.66, respectively, in the preceding quarter, and non-GAAP basic and diluted earnings per ADS of US$2.34 and US$2.32, respectively, for the third 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 investment. See “Unaudited Reconciliation of GAAP and Non-GAAP Results” at the end of this press release.

 

4



 

Quarterly Dividend

 

The board of directors has approved a dividend of US$0.78 per ADS for the third quarter of 2016, which is expected to be paid on December 2, 2016 to shareholders of record as of the close of business on November 25, 2016.

 

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 the second quarter of 2016 on September 9, 2016.

 

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 September 30, 2016, the Company’s total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB32.1 billion (US$4.8 billion), compared to RMB26.8 billion as of December 31, 2015. Cash flow generated from operating activities was RMB3.7 billion (US$559.3 million) for the third quarter of 2016, compared to RMB3.3 billion and RMB2.2 billion for the preceding quarter and the third quarter of 2015, respectively.

 

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 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.

 

** 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$1.00 = RMB6.6685 on September 30, 2016 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2016, or at any other certain date. The percentages stated are calculated based on RMB.

 

5



 

Conference Call

 

NetEase’s management team will host a teleconference call with simultaneous webcast at 8:00 p.m. Eastern Time on Wednesday, November 9, 2016 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, November 10, 2016). 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 1-888-240-9267 (international: 1-913-312-0686), 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 8790682#. The replay will be available through November 23, 2016.

 

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®: 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; 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.

 

6



 

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 investment. 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 investment, 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 investment 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.

 

7



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

 

 

December 31,

 

September 30,

 

September 30,

 

 

 

2015

 

2016

 

2016

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

6,071,487

 

4,481,803

 

672,086

 

Time deposits

 

14,593,291

 

15,662,874

 

2,348,785

 

Restricted cash

 

2,192,634

 

1,559,899

 

233,920

 

Accounts receivable, net

 

2,614,149

 

2,661,949

 

399,183

 

Prepayments and other current assets

 

3,513,275

 

4,355,399

 

653,130

 

Short-term investments

 

5,013,499

 

10,715,276

 

1,606,850

 

Deferred tax assets

 

410,589

 

428,591

 

64,271

 

Total current assets

 

34,408,924

 

39,865,791

 

5,978,225

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

2,092,046

 

2,162,822

 

324,334

 

Land use right, net

 

238,878

 

591,960

 

88,770

 

Deferred tax assets

 

24,685

 

26,056

 

3,907

 

Time deposits

 

1,110,000

 

1,210,000

 

181,450

 

Restricted cash

 

1,200,000

 

3,260,000

 

488,866

 

Other long-term assets

 

2,082,897

 

2,538,794

 

380,714

 

Total non-current assets

 

6,748,506

 

9,789,632

 

1,468,041

 

Total assets

 

41,157,430

 

49,655,423

 

7,446,266

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

700,600

 

762,187

 

114,297

 

Salary and welfare payables

 

920,982

 

786,573

 

117,953

 

Taxes payable

 

736,214

 

1,055,490

 

158,280

 

Short-term loans

 

2,272,760

 

3,005,010

 

450,628

 

Deferred revenue

 

4,651,750

 

5,526,633

 

828,767

 

Accrued liabilities and other payables

 

2,218,330

 

2,957,789

 

443,546

 

Deferred tax liabilities

 

166,787

 

267,711

 

40,146

 

Total current liabilities

 

11,667,423

 

14,361,393

 

2,153,617

 

 

 

 

 

 

 

 

 

Long-term payable:

 

 

 

 

 

 

 

Deferred tax liabilities

 

81,434

 

47,287

 

7,091

 

Other long-term payable

 

84,974

 

200

 

30

 

Total liabilities

 

11,833,831

 

14,408,880

 

2,160,738

 

 

 

 

 

 

 

 

 

Total NetEase, Inc.’s equity

 

29,240,083

 

35,003,190

 

5,249,035

 

Noncontrolling interests

 

83,516

 

243,353

 

36,493

 

Total shareholders’ equity

 

29,323,599

 

35,246,543

 

5,285,528

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

41,157,430

 

49,655,423

 

7,446,266

 

 

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,

 

 

 

2015

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

5,212,912

 

6,438,279

 

6,568,016

 

984,932

 

Advertising services

 

454,883

 

531,116

 

563,271

 

84,467

 

E-mail, e-commerce and others

 

1,003,994

 

1,983,428

 

2,080,358

 

311,968

 

Total net revenues

 

6,671,789

 

8,952,823

 

9,211,645

 

1,381,367

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

(2,822,522

)

(3,672,473

)

(3,878,071

)

(581,551

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

3,849,267

 

5,280,350

 

5,333,574

 

799,816

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(817,940

)

(1,169,523

)

(1,275,073

)

(191,208

)

General and administrative expenses

 

(319,713

)

(336,675

)

(391,655

)

(58,732

)

Research and development expenses

 

(623,523

)

(726,253

)

(820,246

)

(123,003

)

Total operating expenses

 

(1,761,176

)

(2,232,451

)

(2,486,974

)

(372,943

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

2,088,091

 

3,047,899

 

2,846,600

 

426,873

 

Other income/(expenses):

 

 

 

 

 

 

 

 

 

Investment income/ (expenses), net

 

24,995

 

(231,627

)

99,679

 

14,948

 

Interest income, net

 

140,399

 

117,858

 

162,145

 

24,315

 

Exchange gains, net

 

66,483

 

77,270

 

14,807

 

2,220

 

Other, net

 

10,133

 

35,425

 

99,387

 

14,904

 

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

2,330,101

 

3,046,825

 

3,222,618

 

483,260

 

Income tax

 

(399,163

)

(262,651

)

(427,177

)

(64,059

)

 

 

 

 

 

 

 

 

 

 

Net income after tax

 

1,930,938

 

2,784,174

 

2,795,441

 

419,201

 

Net income attributable to noncontrolling interests and mezzanine classified noncontrolling interests

 

(49,035

)

(63,566

)

(55,423

)

(8,311

)

Net income attributable to the Company’s shareholders

 

1,881,903

 

2,720,608

 

2,740,018

 

410,890

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic

 

0.57

 

0.83

 

0.84

 

0.13

 

Earnings per ADS, basic

 

14.31

 

20.75

 

20.90

 

3.13

 

Earnings per share, diluted

 

0.57

 

0.82

 

0.83

 

0.12

 

Earnings per ADS, diluted

 

14.22

 

20.62

 

20.73

 

3.11

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,288,829

 

3,277,884

 

3,277,540

 

3,277,540

 

Weighted average number of ADS outstanding, basic

 

131,553

 

131,115

 

131,102

 

131,102

 

Weighted average number of ordinary shares outstanding, diluted

 

3,308,156

 

3,298,971

 

3,304,995

 

3,304,995

 

Weighted average number of ADS outstanding, diluted

 

132,326

 

131,959

 

132,200

 

132,200

 

 

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,

 

 

 

2015

 

2016

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1,930,938

 

2,501,642

 

2,784,174

 

2,795,441

 

419,201

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

46,693

 

64,148

 

76,809

 

89,905

 

13,482

 

Impairment loss for investments

 

 

 

266,659

 

 

 

Share-based compensation cost

 

168,190

 

205,614

 

233,277

 

277,265

 

41,578

 

(Reversal of)/ allowance for provision for doubtful debts

 

(3,050

)

(624

)

2,645

 

10,329

 

1,549

 

(Gains)/ losses on disposal of property, equipment and software

 

(21

)

(4

)

1,638

 

(404

)

(61

)

Unrealized exchange (gains)/ losses

 

(61,483

)

28,906

 

(95,078

)

(22,477

)

(3,371

)

Deferred income taxes

 

16,261

 

(18,062

)

49,846

 

49,766

 

7,463

 

Net equity share of loss from associated companies

 

20,774

 

16,528

 

30,318

 

2,917

 

437

 

Fair value changes of short-term investments

 

(41,623

)

(53,437

)

(70,058

)

(85,413

)

(12,808

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(164,331

)

197,291

 

(76,623

)

(181,029

)

(27,147

)

Prepayments and other current assets

 

(364,226

)

(360,727

)

(566,484

)

71,458

 

10,716

 

Accounts payable

 

146,195

 

257,966

 

(184,894

)

13,156

 

1,973

 

Salary and welfare payables

 

(40,219

)

(128,371

)

133,655

 

(139,693

)

(20,948

)

Taxes payable

 

100,165

 

356,632

 

(157,372

)

120,128

 

18,014

 

Deferred revenue

 

302,082

 

(69,092

)

351,833

 

592,143

 

88,797

 

Accrued liabilities and other payables

 

145,587

 

94,348

 

506,469

 

136,456

 

20,462

 

Net cash provided by operating activities

 

2,201,932

 

3,092,758

 

3,286,814

 

3,729,948

 

559,337

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(193,595

)

(244,114

)

(262,090

)

(165,535

)

(24,823

)

Proceeds from sale of property, equipment and software

 

252

 

526

 

903

 

552

 

83

 

Purchase of other intangible assets

 

(256

)

 

 

(2,429

)

(364

)

Purchase of land use right

 

(37,654

)

 

(60

)

 

 

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

 

(715,849

)

(1,823,812

)

1,146,451

 

(365,269

)

(54,775

)

Purchase of short-term investments

 

(2,050,000

)

(1,604,000

)

(5,395,000

)

(3,440,000

)

(515,858

)

Proceeds from maturities of short-term investments

 

865,424

 

1,938,493

 

2,392,993

 

1,657,273

 

248,523

 

Investment in associated companies

 

(30,000

)

 

 

(363,586

)

(54,523

)

Transfer from/ (to) restricted cash

 

58,475

 

(217,885

)

(364,046

)

(845,328

)

(126,764

)

Placement/rollover of matured time deposits

 

(5,156,889

)

(3,160,893

)

(3,638,198

)

(6,750,017

)

(1,012,224

)

Proceeds from maturities of time deposits

 

6,384,015

 

3,562,570

 

2,936,840

 

5,966,100

 

894,669

 

Net change in other assets

 

(28,910

)

3,011

 

(135,589

)

(222,456

)

(33,359

)

Net cash used in investing activities

 

(904,987

)

(1,546,104

)

(3,317,796

)

(4,530,695

)

(679,415

)

 

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,

 

 

 

2015

 

2016

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds of short-term bank loans

 

1,468,128

 

2,272,760

 

2,261,420

 

3,005,008

 

450,627

 

Payment of short-term bank loans

 

(1,468,128

)

 (2,272,760

)

(2,261,420

)

(2,320,920

)

(348,042

)

Capital contribution from noncontrolling interests shareholders

 

 

4

 

 

 

 

Repurchase of shares

 

(132,192

)

(466,972

)

(732,130

)

 

 

Dividends paid to shareholders

 

(369,845

)

(552,756

)

(617,059

)

(683,826

)

(102,546

)

Net cash (used in)/ provided by financing activities

 

(502,037

)

(1,019,724

)

(1,349,189

)

262

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash held in foreign currencies

 

85,302

 

(13,884

)

52,798

 

25,128

 

3,768

 

Net increase/ (decrease) in cash and cash equivalents

 

880,210

 

513,046

 

(1,327,373

)

(775,357

)

(116,271

)

Cash and cash equivalents, beginning of the period

 

5,389,872

 

6,071,487

 

6,584,533

 

5,257,160

 

788,357

 

Cash and cash equivalents, end of the period

 

6,270,082

 

6,584,533

 

5,257,160

 

4,481,803

 

672,086

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income tax, net

 

241,807

 

393,048

 

166,922

 

417,623

 

62,626

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable and accrued liabilities

 

95,365

 

133,160

 

172,059

 

179,662

 

26,942

 

 

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,

 

 

 

2015

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

5,212,912

 

6,438,279

 

6,568,016

 

984,932

 

Advertising services

 

454,883

 

531,116

 

563,271

 

84,467

 

E-mail, e-commerce and others

 

1,003,994

 

1,983,428

 

2,080,358

 

311,968

 

Total net revenues

 

6,671,789

 

8,952,823

 

9,211,645

 

1,381,367

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

(1,672,306

)

(2,176,988

)

(2,299,455

)

(344,824

)

Advertising services

 

(147,368

)

(183,305

)

(195,376

)

(29,298

)

E-mail, e-commerce and others

 

(1,002,848

)

(1,312,180

)

(1,383,240

)

(207,429

)

Total cost of revenues

 

(2,822,522

)

(3,672,473

)

(3,878,071

)

(581,551

)

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

Online game services

 

3,540,606

 

4,261,291

 

4,268,561

 

640,108

 

Advertising services

 

307,515

 

347,811

 

367,895

 

55,169

 

E-mail, e-commerce and others

 

1,146

 

671,248

 

697,118

 

104,539

 

Total gross profit

 

3,849,267

 

5,280,350

 

5,333,574

 

799,816

 

 

 

 

 

 

 

 

 

 

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

Online game services

 

67.9

%

66.2

%

65.0

%

65.0

%

Advertising services

 

67.6

%

65.5

%

65.3

%

65.3

%

E-mail, e-commerce and others

 

0.1

%

33.8

%

33.5

%

33.5

%

 

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 = RMB6.6685 on the last trading day of September 2016 (September 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

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2015

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

77,891

 

105,421

 

127,344

 

19,096

 

Operating expenses

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

9,041

 

13,229

 

13,743

 

2,061

 

- General and administrative expenses

 

29,858

 

54,645

 

67,613

 

10,139

 

- Research and development expenses

 

51,400

 

59,982

 

68,565

 

10,282

 

 

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,

 

 

 

2015

 

2016

 

2016

 

2016

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Net income attributable to the Company’s shareholders

 

1,881,903

 

2,720,608

 

2,740,018

 

410,890

 

Add: Share-based compensation

 

168,190

 

233,277

 

277,265

 

41,578

 

Impairment on investment

 

 

266,659

 

 

 

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

 

2,050,093

 

3,220,544

 

3,017,283

 

452,468

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings per share, basic

 

0.62

 

0.98

 

0.92

 

0.14

 

Non-GAAP earnings per ADS, basic

 

15.58

 

24.56

 

23.01

 

3.45

 

Non-GAAP earnings per share, diluted

 

0.62

 

0.98

 

0.91

 

0.14

 

Non-GAAP earnings per ADS, diluted

 

15.49

 

24.41

 

22.82

 

3.42

 

 

14