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Table of Contents

 

 

 

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 February 2020

 

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

 

Signature

Page 3

 

 

NetEase Reports Fourth Quarter and Fiscal Year 2019 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/ Zhaoxuan Yang

 

Name:

Zhaoxuan Yang

 

Title:

Chief Financial Officer

 

 

 

Date:

February 27, 2020

 

 

 

3


Exhibit 99.1

 

 

Contact for Media and Investors:

 

Margaret Shi

NetEase, Inc.

ir@service.netease.com

Tel: (+86) 571-8985-3378

 

Brandi Piacente

Investor Relations

netease@thepiacentegroup.com

Tel: (+1) 212-481-2050

 

NetEase Reports Fourth Quarter and Fiscal Year 2019 Unaudited Financial Results

 

(Beijing - February 26, 2020) - 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, 2019.

 

Fourth Quarter 2019 Financial Highlights[1]

 

·                  Net revenues  were RMB15,734.8 million (US$2,260.2 million), an increase of 9.2% compared with the fourth quarter of 2018.

 

·                  Online game services net revenues were RMB11,604.3 million (US$1,666.9 million), an increase of 5.3% compared with the fourth quarter of 2018.

 

·                  Youdao net revenues were RMB410.4 million (US$59.0 million), an increase of 78.4% compared with the fourth quarter of 2018.

 

·                  Innovative businesses and others net revenues were RMB3,720.0 million (US$534.4 million), an increase of 17.9% compared with the fourth quarter of 2018.

 

·                  Gross profit was RMB8,210.4 million (US$1,179.4 million), an increase of 9.0% compared with the fourth quarter of 2018.

 

·                  Total operating expenses were RMB5,234.0 million (US$751.8 million), an increase of 17.5% compared with the fourth quarter of 2018.

 


[1] In September 2019, NetEase sold its Kaola e-commerce business, the principal terms of which were previously announced. As a result, Kaola has been deconsolidated from the Company and its historical financial results are reflected in the Company’s consolidated financial statements as discontinued operations accordingly. The financial information and non-GAAP financial information disclosed in this press release are presented on a continuing operations basis, unless otherwise specifically stated.

 

1


 

·                  Net income from continuing operations attributable to the Company’s shareholders was RMB3,053.7 million (US$438.6 million). Non-GAAP net income from continuing operations attributable to the Company’s shareholders was RMB3,662.3 million (US$526.1 million). [2]

 

·                  Basic net income per ADS from continuing operations was US$3.40. Non-GAAP basic net income per ADS from continuing operations was US$4.07. [2]

 

Fourth Quarter 2019 and Recent 2020 Operational Highlights

 

·                  Expanded user base and diversified portfolio with new games launched in China including:

 

·                  Fantasy Westward Journey 3D, released in December, topped China’s iOS download chart soon after its launch, capturing wide interest from game players.

 

·                  Introduced other thrilling new titles including Xuan Yuan Sword: Dragon Upon the Cloud, Bloom & Blade, Onmyoji: The Card Game, Champion of the Fields, The Ninth Institute and Astracraft.

 

·                  Deepened international brand recognition with popular games:

 

·                  Knives Out remained popular in Japan and topped the iOS grossing chart several times in the fourth quarter.

 

·                  Identity V ranked third on Japan’s top iOS grossing chart several times in November and December.

 

·                  Marvel Super War, released in December in several Southeast Asian markets, gained popularity and topped many iOS download charts.

 

·                  Continued popularity of Blizzard Entertainment’s World of Warcraft® in China, bolstered by the release of World of Warcraft Classic, achieving a record number of total monthly subscribers in the fourth quarter, with increased revenue quarter-over-quarter.

 

·                  Advanced exciting game pipeline, including: Onmyoji: Yokai Koya, Harry Potter: Magic Awakened, EVE Echoes, Ghost World Chronicle, Revelation mobile game, Diablo® Immortal and Pokémon Quest.

 

·                  Net revenues from Youdao’s learning services and products were RMB311.9 million (US$44.8 million) for the fourth quarter of 2019, a 128.6% increase from the same period in 2018.

 

·                  Advanced NetEase Cloud Music with strong revenue growth, expanding the Company’s community of independent musicians to more than 100,000 and over 270 billion playbacks of their songs in 2019.

 


[2] As used in this press release, non-GAAP net income from continuing operations attributable to the Company’s shareholders and non-GAAP basic and diluted net income from continuing operations per ADS are defined to exclude share-based compensation expenses. See “Unaudited Reconciliation of GAAP and Non-GAAP Results” at the end of this press release.

 

2


 

“We saw strong growth across our primary businesses, increasing our total annual net revenues and net income from continuing operations attributable to the Company’s shareholders year-over-year by 16% and 60%, respectively, due to strong performances in our online game services as well as other business segments,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Our online game services net revenues continued to grow, propelled by the sustained and growing popularity of our existing titles, again demonstrating the longevity of our game franchises. At the end of the year, we launched the long-anticipated Fantasy Westward Journey 3D, which gave us a wonderful start to the first quarter. We will continue to bring more masterpieces to both domestic and global players in 2020.

 

“Our online education and music businesses also performed remarkably well. Youdao is exploring new approaches to grow its business, replicating successful course experiences to produce premium learning content, products and scale with a positive impact to its margins. Our differentiation in music offerings is also becoming more evident. We are helping hundreds of thousands of independent musicians create and promote their work to Chinese music lovers with our platform’s specialized promotion and distribution capabilities in independent music. We believe that NetEase’s orientation as a forerunner in these evolving markets positions us well for growth and the ability to create additional value for our stakeholders. Finally, with respect to the COVID-19 outbreak, we currently expect to see some impact to our business lines in the near-term, however, the situation is evolving. NetEase is committed to providing support to affected communities and working together as we move through this challenging time,” Mr. Ding concluded.

 

Fourth Quarter 2019 Financial Results

 

Net Revenues

 

Net revenues for the fourth quarter of 2019 were RMB15,734.8 million (US$2,260.2 million), compared to RMB14,635.7 million and RMB14,405.3 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

Net revenues from online game services were RMB11,604.3 million (US$1,666.9 million) for the fourth quarter of 2019, compared to RMB11,534.8 million and RMB11,019.6 million for the preceding quarter and the fourth quarter of 2018, respectively. Net revenues from mobile games accounted for approximately 70.4% of net revenues from online games for the fourth quarter of 2019, compared to 71.0% and 69.7% for the preceding quarter and the fourth quarter of 2018, respectively.

 

Net revenues from Youdao were RMB410.4 million (US$59.0 million) for the fourth quarter of 2019, compared to RMB345.9 million and RMB230.1 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

Net revenues from innovative businesses and others were RMB3,720.0 million (US$534.4 million) for the fourth quarter of 2019, compared to RMB2,755.0 million and RMB3,155.6 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

3


 

Gross Profit

 

Gross profit for the fourth quarter of 2019 was RMB8,210.4 million (US$1,179.4 million), compared to RMB7,870.4 million and RMB7,530.5 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

Gross profit for online game services was stable quarter-over-quarter. The year-over-year increase in online game services gross profit was primarily due to increased revenue contribution from mobile games including Life-After, Invincible and Identity V.

 

The quarter-over-quarter and year-over-year increases in Youdao gross profit were primarily due to increased net revenues from its learning services and products.

 

The quarter-over-quarter increase in innovative businesses and others gross profit was primarily contributed from NetEase Cloud Music and NetEase’s advertising services. The year-over-year increase in innovative businesses and others gross profit was primarily due to increased net revenues from NetEase Cloud Music.

 

Gross Profit Margin

 

Gross profit margin for online game services for the fourth quarter of 2019 was 63.1%, compared to 63.8% and 62.8% for the preceding quarter and the fourth quarter of 2018, respectively. Gross profit margin for online game services was generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC-client, as well as self-developed and licensed games.

 

Gross profit margin for Youdao for the fourth quarter of 2019 was 29.8%, compared to 25.8% and 29.7% for the preceding quarter and the fourth quarter of 2018, respectively. The quarter-over-quarter increase in Youdao gross profit margin was mainly due to an improvement from its learning services and products and online marketing services. Gross profit margin for Youdao was stable year-over-year.

 

Gross profit margin for innovative businesses and others for the fourth quarter of 2019 was 20.6%, compared to 15.2% and 17.0% for the preceding quarter and the fourth quarter of 2018, respectively. The quarter-over-quarter increase in innovative businesses and others gross profit margin was primarily contributed from NetEase Cloud Music and NetEase’s advertising services. The year-over-year increase in innovative businesses and others gross profit margin was primarily due to increased net revenues from NetEase Cloud Music.

 

Operating Expenses

 

Total operating expenses for the fourth quarter of 2019 were RMB5,234.0 million (US$751.8 million), compared to RMB4,535.6 million and RMB4,455.4 million for the preceding quarter and the fourth quarter of 2018, respectively. The quarter-over-quarter and year-over-year increases in total operating expenses were mainly due to increased marketing expenditures related to online game services.

 

4


 

Other Income [3]

 

Other income consisted of investment income, interest income, foreign exchange gains and losses and others. The quarter-over-quarter and year-over-year increases in other income for the fourth quarter of 2019 were mainly due to the fair value changes of equity investments in publicly traded companies.

 

Income Taxes [3]

 

The Company recorded a net income tax charge of RMB876.3 million (US$125.9 million) for the fourth quarter of 2019, compared to RMB88.0 million and RMB917.7 million for the preceding quarter and the fourth quarter of 2018, respectively. The effective tax rate for the fourth quarter of 2019 was 22.1%, compared to 2.1% and 25.9% for the preceding quarter and the fourth quarter of 2018, respectively. The effective tax rate represents certain estimates by the Company regarding the tax obligations and benefits applicable to it in each quarter.

 

Net Income and Non-GAAP Net Income [3]

 

Net income from continuing operations attributable to the Company’s shareholders for the fourth quarter of 2019 totaled RMB3,053.7 million (US$438.6 million), compared to RMB4,134.2 million and RMB2,536.2 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

Non-GAAP net income from continuing operations attributable to the Company’s shareholders for the fourth quarter of 2019 totaled RMB3,662.3 million (US$526.1 million), compared to RMB4,726.0 million and RMB3,181.2 million for the preceding quarter and the fourth quarter of 2018, respectively.

 

NetEase reported basic and diluted net income from continuing operations per ADS of US$3.40 and US$3.36, respectively, for the fourth quarter of 2019. The Company reported basic and diluted net income from continuing operations per ADS of US$4.60 and US$4.56, respectively, for the preceding quarter, and basic and diluted net income from continuing operations per ADS of US$2.85 and US$2.83, respectively, for the fourth quarter of 2018.

 

Non-GAAP basic and diluted net income from continuing operations per ADS were US$4.07 and US$4.03, respectively, for the fourth quarter of 2019, compared to non-GAAP basic and diluted net income from continuing operations per ADS of US$5.26 and US$5.22, respectively, for the preceding quarter, and non-GAAP basic and diluted net income from continuing operations per ADS of US$3.57 and US$3.55, respectively, for the fourth quarter of 2018.

 


[3] The Company has adjusted the gain from the disposal of its Kaola e-commerce business in the third quarter of 2019 from continuing operations to discontinued operations. This resulted in, among other things, a decrease in “Other, net,” “Income tax” and “Net income from continuing operations attributable to the Company’s shareholders” for the third quarter of 2019. Please see the footnote to the consolidated statements of income in this press release for additional information.

 

5


 

Fiscal Year 2019 Financial Results

 

Net Revenues

 

Net revenues for fiscal year 2019 were RMB59,241.1 million (US$8,509.5 million), compared to RMB51,178.6 million for fiscal year 2018.

 

Net revenues from online game services were RMB46,422.6 million (US$6,668.2 million) for fiscal year 2019, compared to RMB40,190.1 million for fiscal year 2018. Mobile games accounted for approximately 71.4% of net revenues from online game services for fiscal year 2019, compared to 71.0% for fiscal year 2018.

 

Net revenues from Youdao were RMB1,304.9 million (US$187.4 million) for fiscal year 2019, compared to RMB731.6 million for fiscal year 2018.

 

Net revenues from innovative businesses and others were RMB11,513.6 million (US$1,653.8 million) for fiscal year 2019, compared to RMB10,256.9 million for fiscal year 2018.

 

Gross Profit

 

Gross profit for fiscal year 2019 was RMB31,555.3 million (US$4,532.6 million), compared to RMB27,346.1 million for fiscal year 2018.

 

The year-over-year increase in online game services gross profit for fiscal year 2019 was primarily attributable to increased revenue contribution from mobile games such as Life-After, Invincible and Identity V.

 

The year-over-year increase in Youdao gross profit for fiscal year 2019 was primarily attributable to the rapid development of its learning services and products.

 

The year-over-year increase in innovative businesses and others gross profit for fiscal year 2019 was primarily due to increased net revenues from NetEase Cloud Music, CC live-streaming and Yanxuan, as well as improved cost control.

 

Operating Expenses

 

Total operating expenses for fiscal year 2019 were RMB17,764.6 million (US$2,551.7 million), compared to RMB17,368.8 million for fiscal year 2018. The year-over-year increase in total operating expenses for fiscal year 2019 was primarily due to increased research and development investments and staff-related costs, partially offset by decreased selling and marketing expenditures.

 

Other Income

 

Other income consisted of investment income/ (loss), interest income, foreign exchange gains and losses and others. The year-over-year increase in other income for fiscal year 2019 was mainly due to fair value changes of equity investments in publicly traded companies.

 

6


 

Income Taxes

 

The Company recorded a net income tax charge of RMB2,914.7 million (US$418.7 million) and RMB2,460.7 million for fiscal years 2019 and 2018, respectively. The effective tax rate was 17.8% for fiscal year 2019, compared to 22.2% for fiscal year 2018. The lower effective tax rate for fiscal year 2019 was mainly due to reduced losses from certain subsidiaries of the Company.

 

Net Income and Non-GAAP Net Income

 

Net income from continuing operations attributable to the Company’s shareholders for fiscal year 2019 totaled RMB13,275.0 million (US$1,906.8 million), compared to RMB8,291.1 million for fiscal year 2018.

 

Non-GAAP net income from continuing operations attributable to the Company’s shareholders for fiscal year 2019 totaled RMB15,662.7 million (US$2,249.8 million), compared to RMB10,761.3 million for fiscal year 2018.

 

NetEase reported basic and diluted net income from continuing operations per ADS of US$14.80 and US$14.67, respectively, for fiscal year 2019, and basic and diluted net income from continuing operations per ADS of US$9.20 and US$9.15, respectively, for fiscal year 2018.

 

Non-GAAP basic and diluted net income from continuing operations per ADS were US$17.46 and US$17.31, respectively, for fiscal year 2019, compared to non-GAAP basic and diluted net income from continuing operations per ADS of US$11.94 and US$11.87, respectively, for fiscal year 2018.

 

Quarterly Dividend

 

The board of directors has approved a dividend of US$1.02 per ADS for the fourth quarter of 2019, which is expected to be paid on March 20, 2020 to shareholders of record as of the close of business on March 13, 2020.

 

NetEase paid a dividend of US$7.59 per ADS for the third quarter of 2019 on December 13, 2019.

 

Starting in the second quarter of 2019, the Company’s policy has been to set quarterly dividends at an amount equivalent to approximately 20%-30% 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, 2019, the Company’s total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB74,406.0 million (US$10,687.8 million), compared to RMB49,652.5 million as of December 31, 2018. Cash flow generated from continuing operating activities was RMB16,911.0 million (US$2,429.1 million) for fiscal year 2019, compared to RMB14,659.8 million for fiscal year 2018.

 

7


 

Share Repurchase/ Purchase Program

 

On November 14, 2018, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company’s outstanding ADSs for a period not to exceed 12 months beginning on November 16, 2018. As of November 15, 2019, the last day of such program, approximately 1,000 ADSs had been repurchased under this program.

 

On November 20, 2019, the Company announced that its board of directors had approved a share purchase program of up to US$20.0 million of Youdao’s outstanding ADSs for a period not to exceed 12 months beginning on November 25, 2019. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange. As of December 31, 2019, approximately 50,000 ADSs had been purchased under this program.

 

On February 26, 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company’s outstanding ADSs for a period not to exceed 12 months beginning on March 2, 2020. Under the terms of this program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market.

 

For both of the above-mentioned current programs, it is expected that the timing and dollar amount of purchase transactions will be in accordance with the Securities and Exchange Commission (SEC) Rule 10b-18 requirements and such purchases may be affected pursuant to a plan in conformity with SEC Rule 10b5-1. The extent to which NetEase repurchases its ADSs or purchases Youdao’s ADSs will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.

 

** 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$1.00 = RMB 6.9618 on December 31, 2019 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2019, or at any other certain date. The percentages stated are calculated based on RMB.

 

Change in Segment Reporting

 

Effective in the third quarter of 2019, the Company changed its segment disclosure to add the financial results of its certain advertising services and Yanxuan into innovative businesses and others in light of the relatively small revenue contribution from those businesses to the Company’s total consolidated net revenues in 2019. The Company sold its Kaola e-commerce business in September 2019. In addition, the Company has commenced separately reporting the results of its majority-controlled subsidiary Youdao, Inc. which completed its initial public offering and listing on the New York Stock Exchange in October 2019. As a result, since the third quarter of 2019 the Company has reported the following segments: online game services, Youdao and innovative businesses and others. The Company retrospectively revised prior period segment information to conform to current period presentation. This change in segment reporting aligns with the manner in which the Company’s operating decision maker (“CODM”) currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments.

 

8


 

Impact of the Recently Adopted Major Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02 “Leases” as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new standard effective January 1, 2019 on a modified retrospective basis and did not restate comparative periods. The Company recognized approximately RMB577.0 million as total right-of-use assets as well as total lease liabilities for the operating leases on its consolidated balance sheet as of January 1, 2019, excluding the impact from held-for-sale businesses. The Company recognized RMB463.7 million and RMB471.4 million as total right-of-use assets and total lease liabilities, respectively, for the operating leases on its consolidated balance sheet as of December 31, 2019. Right-of-use assets are included in other long-term assets, and lease liabilities are included in accrual liabilities and other payables and other long-term payables, respectively based on payment terms on the consolidated balance sheet. Other than the foregoing, the Company does not expect the new standard to have a material impact on the net assets of the Company’s consolidated financial statements.

 

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, 2019 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 2019.

 

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 9:00 p.m. Eastern Time on Wednesday, February 26, 2020 (Beijing/Hong Kong Time: 10:00 a.m., Thursday, February 27, 2020). 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 1-929-477-0324 and providing conference ID: 3349954, 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 3349954#. The replay will be available through March 11, 2020. 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.

 

9


 

About NetEase, Inc.

 

NetEase, Inc. (NASDAQ: NTES) is a leading internet technology company based in China dedicated to providing premium online services centered around content, community, communication and commerce. NetEase develops and operates some of the most popular PC-client and mobile games in China and has been expanding rapidly into other international markets such as Japan and North America in more recent years. In addition to its self-developed game content, NetEase also operates some of the most popular international online games in China by partnering with Blizzard Entertainment, Mojang AB (a Microsoft subsidiary) and other global game developers. NetEase also offers other innovative services, including the intelligent learning services of its majority-controlled subsidiary, Youdao, music streaming and its private label e-commerce platform, Yanxuan. 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 within China or globally, 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 risk that Covid-19 or other health risks in China or globally could adversely affect the Company’s operations or financial results; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that changes in Chinese government regulation of the market for online games, education products and services and e-commerce may limit future growth of NetEase’s revenues or cause revenues to decline; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; the risk that the e-commerce market or the internet advertising market in China will not grow and will remain subject to intense competition; 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); 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.

 

10


 

Non-GAAP Financial Measures

 

NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income from continuing operations attributable to the Company’s shareholders and non-GAAP basic and diluted net income from continuing operations 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 from continuing operations attributable to the Company’s shareholders as net income from continuing operations attributable to the Company’s shareholders excluding share-based compensation expenses. Non-GAAP net income from continuing operations 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 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 from continuing operations attributable to the Company’s shareholders is that it does not reflect all items of expense/ income 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 from continuing operations 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 from continuing operations 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.

 

11


 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

 

 

December 31,

 

December 31,

 

December 31,

 

 

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

4,977,432

 

3,246,373

 

466,312

 

Time deposits

 

32,900,287

 

53,487,075

 

7,682,937

 

Restricted cash

 

4,692,050

 

3,150,354

 

452,520

 

Accounts receivable, net

 

4,002,487

 

4,169,358

 

598,891

 

Inventories, net

 

1,065,615

 

650,557

 

93,447

 

Prepayments and other current assets

 

3,925,205

 

4,817,422

 

691,979

 

Short-term investments

 

11,674,775

 

15,312,595

 

2,199,517

 

Assets held for sale

 

5,477,869

 

271,278

 

38,967

 

Total current assets

 

68,715,720

 

85,105,012

 

12,224,570

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

4,672,079

 

4,621,712

 

663,867

 

Land use right, net

 

3,271,512

 

3,707,179

 

532,503

 

Deferred tax assets

 

1,064,295

 

903,904

 

129,838

 

Time deposits

 

100,000

 

2,360,000

 

338,993

 

Other long-term assets

 

8,175,177

 

15,424,166

 

2,215,543

 

Assets held for sale

 

969,145

 

2,398

 

344

 

Total non-current assets

 

18,252,208

 

27,019,359

 

3,881,088

 

Total assets

 

86,967,928

 

112,124,371

 

16,105,658

 

 

 

 

 

 

 

 

 

Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

1,201,210

 

1,212,303

 

174,136

 

Salary and welfare payables

 

2,799,212

 

2,957,360

 

424,798

 

Taxes payable

 

2,260,646

 

3,156,513

 

453,405

 

Short-term loans

 

13,658,554

 

16,828,226

 

2,417,223

 

Deferred revenue

 

7,718,485

 

8,602,227

 

1,235,633

 

Accrued liabilities and other payables

 

5,005,190

 

5,484,228

 

787,760

 

Liabilites held for sale

 

2,465,713

 

2,156

 

310

 

Total current liabilities

 

35,109,010

 

38,243,013

 

5,493,265

 

 

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

Deferred tax liabilities

 

392,598

 

382,030

 

54,875

 

Other long-term payable

 

48,921

 

456,912

 

65,631

 

Liabilites held for sale

 

5,818

 

961

 

138

 

Total non-current liabilities

 

447,337

 

839,903

 

120,644

 

Total liabilities

 

35,556,347

 

39,082,916

 

5,613,909

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

5,385,736

 

10,448,600

 

1,500,847

 

 

 

 

 

 

 

 

 

Total NetEase, Inc.’s equity

 

45,231,636

 

61,453,699

 

8,827,272

 

Noncontrolling interests

 

794,209

 

1,139,156

 

163,630

 

Total shareholders’ equity

 

46,025,845

 

62,592,855

 

8,990,902

 

 

 

 

 

 

 

 

 

Total liabilities, redeemable noncontrolling interests and shareholders’ equity

 

86,967,928

 

112,124,371

 

16,105,658

 

 

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

 

12


 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data or per ADS data)

 

 

 

Quarter Ended

 

Year Ended

 

 

 

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

14,405,268

 

14,635,690

 

15,734,804

 

2,260,163

 

51,178,575

 

59,241,145

 

8,509,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

(6,874,738

)

(6,765,340

)

(7,524,376

)

(1,080,809

)

(23,832,426

)

(27,685,845

)

(3,976,823

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

7,530,530

 

7,870,350

 

8,210,428

 

1,179,354

 

27,346,149

 

31,555,300

 

4,532,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(1,603,137

)

(1,619,531

)

(2,153,743

)

(309,366

)

(6,911,710

)

(6,221,127

)

(893,609

)

General and administrative expenses

 

(821,925

)

(753,794

)

(812,754

)

(116,745

)

(3,078,635

)

(3,130,298

)

(449,639

)

Research and development expenses

 

(2,030,323

)

(2,162,254

)

(2,267,488

)

(325,704

)

(7,378,460

)

(8,413,224

)

(1,208,484

)

Total operating expenses

 

(4,455,385

)

(4,535,579

)

(5,233,985

)

(751,815

)

(17,368,805

)

(17,764,649

)

(2,551,732

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

3,075,145

 

3,334,771

 

2,976,443

 

427,539

 

9,977,344

 

13,790,651

 

1,980,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income/ (loss), net

 

46,366

 

394,907

 

731,447

 

105,066

 

(22,383

)

1,306,320

 

187,641

 

Interest income, net

 

166,291

 

184,795

 

279,546

 

40,154

 

586,671

 

821,774

 

118,040

 

Exchange (losses)/ gains, net

 

(15,906

)

120,562

 

(128,522

)

(18,461

)

(51,799

)

25,166

 

3,615

 

Other, net

 

272,948

 

214,847

 

109,385

 

15,712

 

586,916

 

439,422

 

63,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before tax

 

3,544,844

 

4,249,882

 

3,968,299

 

570,010

 

11,076,749

 

16,383,333

 

2,353,318

 

Income tax

 

(917,654

)

(87,957

)

(876,329

)

(125,877

)

(2,460,650

)

(2,914,726

)

(418,674

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

2,627,190

 

4,161,925

 

3,091,970

 

444,133

 

8,616,099

 

13,468,607

 

1,934,644

 

Net (loss)/ income from discontinued operations

 

(838,492

)

8,596,089

 

 

 

(2,138,682

)

7,962,519

 

1,143,744

 

Net income

 

1,788,698

 

12,758,014

 

3,091,970

 

444,133

 

6,477,417

 

21,431,126

 

3,078,388

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividends attributable to redeemable noncontrolling interests

 

(54,604

)

(70,124

)

(59,588

)

(8,559

)

(248,098

)

(271,543

)

(39,005

)

Net (income)/ loss attributable to noncontrolling interests

 

(36,395

)

42,409

 

21,350

 

3,067

 

(76,912

)

77,933

 

11,194

 

Net income attributable to the Company’s shareholders

 

1,697,699

 

12,730,299

 

3,053,732

 

438,641

 

6,152,407

 

21,237,516

 

3,050,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Net income from continuing operations attributable to the Company’s shareholders

 

2,536,191

 

4,134,210

 

3,053,732

 

438,641

 

8,291,089

 

13,274,997

 

1,906,833

 

-Net (loss)/ income from discontined operations attributable to the Company’s shareholders

 

(838,492

)

8,596,089

 

 

 

(2,138,682

)

7,962,519

 

1,143,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income/ (loss) per share:

 

0.53

 

3.95

 

0.95

 

0.14

 

1.90

 

6.59

 

0.95

 

-Continuing operations

 

0.79

 

1.28

 

0.95

 

0.14

 

2.56

 

4.12

 

0.59

 

-Discontinued operations

 

(0.26

)

2.67

 

 

 

(0.66

)

2.47

 

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income/ (loss) per ADS :

 

13.27

 

98.66

 

23.65

 

3.40

 

47.54

 

164.86

 

23.68

 

-Continuing operations

 

19.82

 

32.04

 

23.65

 

3.40

 

64.07

 

103.05

 

14.80

 

-Discontinued operations

 

(6.55

)

66.62

 

 

 

(16.53

)

61.81

 

8.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income/ (loss) per share:

 

0.53

 

3.91

 

0.93

 

0.13

 

1.89

 

6.53

 

0.94

 

-Continuing operations

 

0.79

 

1.27

 

0.93

 

0.13

 

2.55

 

4.08

 

0.59

 

-Discontinued operations

 

(0.26

)

2.64

 

 

 

(0.66

)

2.45

 

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income/ (loss) per ADS :

 

13.18

 

97.80

 

23.37

 

3.36

 

47.26

 

163.37

 

23.47

 

-Continuing operations

 

19.69

 

31.76

 

23.37

 

3.36

 

63.69

 

102.12

 

14.67

 

-Discontinued operations

 

(6.51

)

66.04

 

 

 

(16.43

)

61.25

 

8.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,199,277

 

3,225,704

 

3,228,387

 

3,228,387

 

3,235,324

 

3,220,473

 

3,220,473

 

Weighted average number of ADS outstanding, basic

 

127,971

 

129,028

 

129,135

 

129,135

 

129,413

 

128,819

 

128,819

 

Weighted average number of ordinary shares outstanding, diluted

 

3,220,724

 

3,254,269

 

3,266,587

 

3,266,587

 

3,254,689

 

3,249,972

 

3,249,972

 

Weighted average number of ADS outstanding, diluted

 

128,829

 

130,171

 

130,663

 

130,663

 

130,188

 

129,999

 

129,999

 

 

Note: The Company has adjusted the related gain from disposal of Kaola e-commerce business in the third quarter of 2019 from continuing operations to discontinued operations. This resulted in a decrease in “Other, net” and “Income tax”, and an increase in “Net (loss)/income from discontinued operations”, in the Company’s consolidated statements of income, amounting to RMB8,751.2 million for the third quarter of 2019. Accordingly, basic and diluted net income per ADS from continuing operations decreased by RMB67.82 and RMB67.23, respectively, and basic and diluted net income per ADS from discontinued operations increased by the same amounts for the third quarter of 2019. There is no impact on “Net income attributable to the Company’s shareholders”.

 

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

 

13


 

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,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1,788,698

 

12,758,014

 

3,091,970

 

444,133

 

6,477,417

 

21,431,126

 

3,078,388

 

Net loss/ (income) from discontinued operations

 

838,492

 

(8,596,089

)

 

 

2,138,682

 

(7,962,519

)

(1,143,744

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

666,790

 

703,387

 

695,644

 

99,923

 

2,060,135

 

2,613,782

 

375,446

 

Fair value changes and impairment losses of short-term investments, investments in associated companies, other long-term investments and other intangible assets, net

 

(87,895

)

(330,352

)

(724,520

)

(104,071

)

(55,611

)

(1,231,732

)

(176,927

)

Share-based compensation cost

 

645,458

 

593,259

 

622,363

 

89,397

 

2,471,731

 

2,404,089

 

345,326

 

(Reversal of)/ allowance for provision for doubtful debts

 

(2,090

)

4,725

 

(17,843

)

(2,563

)

50,954

 

(28,583

)

(4,106

)

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

 

(640

)

(2,639

)

3,571

 

513

 

(1,385

)

5,122

 

736

 

Unrealized exchange losses/ (gains)

 

2,348

 

(111,807

)

131,869

 

18,942

 

31,998

 

(9,981

)

(1,434

)

Gains on disposal of long-term investments and businesses

 

(175,957

)

(83,678

)

(2,677

)

(385

)

(213,339

)

(98,489

)

(14,147

)

Deferred income taxes

 

(133,514

)

(114,434

)

(504,313

)

(72,440

)

(70,621

)

150,629

 

21,637

 

Net equity share of losses/ (gains) from associated companies

 

17,643

 

(8,595

)

(12,269

)

(1,762

)

98,301

 

(4,322

)

(621

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

340,955

 

(333,859

)

545,607

 

78,372

 

(612,656

)

(11,314

)

(1,625

)

Inventories

 

(129,588

)

83,150

 

36,191

 

5,199

 

(81,440

)

415,057

 

59,619

 

Land use right/ prepayments of land use right

 

 

(418,876

)

(45,295

)

(6,506

)

 

(464,171

)

(66,674

)

Other prepayments and current assets

 

105,360

 

(327,558

)

(264,013

)

(37,923

)

(719,035

)

(1,024,393

)

(147,145

)

Accounts payable

 

12,090

 

(105,131

)

136,690

 

19,634

 

112,435

 

13,229

 

1,900

 

Salary and welfare payables

 

283,346

 

(447,025

)

1,034,413

 

148,584

 

725,515

 

146,146

 

20,993

 

Taxes payable

 

429,145

 

(408,348

)

168,247

 

24,167

 

685,024

 

(133,801

)

(19,219

)

Deferred revenue

 

542,501

 

816,599

 

406,160

 

58,341

 

1,757,874

 

883,742

 

126,942

 

Accrued liabilities and other payables

 

135,999

 

175,544

 

208,902

 

30,007

 

(196,136

)

(182,646

)

(26,235

)

Net cash provided by continuing operating activities

 

5,279,141

 

3,846,287

 

5,510,697

 

791,562

 

14,659,843

 

16,910,971

 

2,429,110

 

Net cash provided by/ (used in) discontinued operating activities

 

656,301

 

7,136

 

 

 

(1,243,966

)

305,487

 

43,880

 

Net cash provided by operating activities

 

5,935,442

 

3,853,423

 

5,510,697

 

791,562

 

13,415,877

 

17,216,458

 

2,472,990

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(304,900

)

(329,722

)

(235,717

)

(33,859

)

(2,169,404

)

(1,209,477

)

(173,731

)

Proceeds from sale of property, equipment and software

 

922

 

5,190

 

49,693

 

7,138

 

6,688

 

60,601

 

8,705

 

Purchase of intangible assets, content and licensed copyrights

 

(635,495

)

(208,748

)

(760,698

)

(109,267

)

(1,741,225

)

(2,119,307

)

(304,419

)

Purchase of land use right

 

(31,759

)

 

 

 

(2,926,795

)

 

 

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

 

(2,619,634

)

(683,304

)

(1,802,689

)

(258,940

)

(1,172,326

)

(1,023,165

)

(146,969

)

Purchase of short-term investments with terms over three months

 

(2,940,000

)

(4,997,000

)

(3,373,000

)

(484,501

)

(13,393,000

)

(22,370,000

)

(3,213,249

)

Proceeds from maturities of short-term investments with terms over three months

 

5,302,899

 

5,901,842

 

9,252,687

 

1,329,065

 

13,071,359

 

20,225,342

 

2,905,189

 

Investment in associated companies and other long-term investments

 

(393,801

)

(711,229

)

(231,714

)

(33,284

)

(3,023,491

)

(1,562,188

)

(224,394

)

Proceeds from disposal of long-term investments

 

 

127,332

 

28,289

 

4,064

 

 

406,702

 

58,419

 

Placement/rollover of matured time deposits

 

(19,933,370

)

(19,339,634

)

(24,912,424

)

(3,578,446

)

(41,553,428

)

(77,083,350

)

(11,072,330

)

Proceeds from maturities of time deposits

 

13,349,755

 

11,869,243

 

7,964,392

 

1,144,013

 

39,924,525

 

54,381,647

 

7,811,435

 

Net change in other assets

 

46,513

 

63,196

 

(17,229

)

(2,475

)

(133,039

)

(42,345

)

(6,082

)

Amounts received from/(paid to) disposed businesses

 

436,593

 

1,488,349

 

7,092,216

 

1,018,733

 

(1,889,560

)

9,031,051

 

1,297,229

 

Net cash used in continuing investing activities

 

(7,722,277

)

(6,814,485

)

(6,946,194

)

(997,759

)

(14,999,696

)

(21,304,489

)

(3,060,197

)

Net cash (used in)/ provided by discontinued investing activities

 

(509,944

)

(264,897

)

 

 

1,430,181

 

(832,252

)

(119,546

)

Net cash used in investing activities

 

(8,232,221

)

(7,079,382

)

(6,946,194

)

(997,759

)

(13,569,515

)

(22,136,741

)

(3,179,743

)

 

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

 

14


 

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,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds of short-term bank loans with terms over three months

 

25,000

 

58,840

 

358,372

 

51,477

 

34,256

 

730,087

 

104,870

 

Payment of short-term bank loans with terms over three months

 

 

 

(296,823

)

(42,636

)

(18,761

)

(296,823

)

(42,636

)

Net changes in short-term loans with terms of three months or less

 

16,163

 

1,469,031

 

1,472,244

 

211,475

 

6,194,113

 

2,538,267

 

364,599

 

Capital contribution from noncontrolling interests and redeemable noncontrolling interests shareholders, net

 

3,216,112

 

128,192

 

6,528,274

 

937,728

 

4,334,684

 

6,940,990

 

997,011

 

Cash (paid)/ refund received for share repurchase

 

(61,574

)

(7

)

 

 

(7,516,679

)

10,638

 

1,528

 

Dividends paid to shareholders

 

(399,374

)

(923,444

)

(6,890,484

)

(989,756

)

(1,440,194

)

(8,840,634

)

(1,269,878

)

Net cash provided by financing activities

 

2,796,327

 

732,612

 

1,171,583

 

168,288

 

1,587,419

 

1,082,525

 

155,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies

 

(14,517

)

38,196

 

(26,846

)

(3,856

)

81,511

 

29,080

 

4,177

 

Net increase/ (decrease) in cash, cash equivalents and restricted cash

 

485,031

 

(2,455,151

)

(290,760

)

(41,765

)

1,515,292

 

(3,808,678

)

(547,082

)

Cash, cash equivalents and restricted cash, at the beginning of the period

 

9,721,507

 

9,143,771

 

6,688,620

 

960,760

 

8,691,246

 

10,206,538

 

1,466,077

 

Cash, cash equivalents and restricted cash, at end of the period

 

10,206,538

 

6,688,620

 

6,397,860

 

918,995

 

10,206,538

 

6,397,860

 

918,995

 

Less: Cash, cash equivalents and restricted cash of held for sale

 

537,056

 

14,693

 

1,133

 

163

 

537,056

 

1,133

 

163

 

Cash, cash equivalents and restricted cash of continuing operations at end of the period

 

9,669,482

 

6,673,927

 

6,396,727

 

918,832

 

9,669,482

 

6,396,727

 

918,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information of continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income tax, net

 

418,783

 

906,425

 

1,189,622

 

170,879

 

2,003,158

 

3,193,802

 

458,761

 

Cash paid for interest expense

 

98,528

 

73,573

 

133,748

 

19,212

 

301,761

 

431,395

 

61,966

 

Supplemental schedule of non-cash investing and financing activities of continuing opearations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable and accrued liabilities

 

351,610

 

292,528

 

304,944

 

43,802

 

351,610

 

304,944

 

43,802

 

 

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

 

15


 

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,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game services

 

11,019,553

 

11,534,763

 

11,604,332

 

1,666,858

 

40,190,057

 

46,422,640

 

6,668,195

 

Youdao

 

230,091

 

345,908

 

410,432

 

58,955

 

731,598

 

1,304,883

 

187,435

 

Innovative businesses and others

 

3,155,624

 

2,755,019

 

3,720,040

 

534,350

 

10,256,920

 

11,513,622

 

1,653,828

 

Total net revenues

 

14,405,268

 

14,635,690

 

15,734,804

 

2,260,163

 

51,178,575

 

59,241,145

 

8,509,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game services

 

(4,094,688

)

(4,172,678

)

(4,281,559

)

(615,007

)

(14,617,656

)

(16,974,234

)

(2,438,196

)

Youdao

 

(161,810

)

(256,674

)

(288,002

)

(41,369

)

(515,133

)

(934,261

)

(134,198

)

Innovative businesses and others

 

(2,618,240

)

(2,335,988

)

(2,954,815

)

(424,433

)

(8,699,637

)

(9,777,350

)

(1,404,429

)

Total cost of revenues

 

(6,874,738

)

(6,765,340

)

(7,524,376

)

(1,080,809

)

(23,832,426

)

(27,685,845

)

(3,976,823

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game services

 

6,924,865

 

7,362,085

 

7,322,773

 

1,051,851

 

25,572,401

 

29,448,406

 

4,229,999

 

Youdao

 

68,281

 

89,234

 

122,430

 

17,586

 

216,465

 

370,622

 

53,237

 

Innovative businesses and others

 

537,384

 

419,031

 

765,225

 

109,917

 

1,557,283

 

1,736,272

 

249,399

 

Total gross profit

 

7,530,530

 

7,870,350

 

8,210,428

 

1,179,354

 

27,346,149

 

31,555,300

 

4,532,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online game services

 

62.8

%

63.8

%

63.1

%

63.1

%

63.6

%

63.4

%

63.4

%

Youdao

 

29.7

%

25.8

%

29.8

%

29.8

%

29.6

%

28.4

%

28.4

%

Innovative businesses and others

 

17.0

%

15.2

%

20.6

%

20.6

%

15.2

%

15.1

%

15.1

%

 

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

 

16


 

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 = RMB 6.9618 on the last trading day of December 2019 (December 31, 2019) 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,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

204,776

 

180,990

 

191,470

 

27,503

 

757,341

 

758,810

 

108,996

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

27,267

 

21,176

 

17,353

 

2,493

 

102,638

 

84,920

 

12,198

 

- General and administrative expenses

 

196,703

 

200,394

 

211,506

 

30,381

 

787,200

 

797,120

 

114,499

 

- Research and development expenses

 

216,712

 

190,699

 

202,034

 

29,020

 

824,552

 

763,239

 

109,633

 

 

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

 

17


 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(in thousands, except per share data or per ADS data)

 

 

 

Quarter Ended

 

Year Ended

 

 

 

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

 

2018

 

2019

 

2019

 

2019

 

2018

 

2019

 

2019

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

RMB

 

RMB

 

USD (Note 1)

 

Net income from continuing operations attributable to the Company’s shareholders

 

2,536,191

 

4,134,210

 

3,053,732

 

438,641

 

8,291,089

 

13,274,997

 

1,906,833

 

Add: Share-based compensation

 

645,038

 

591,769

 

608,598

 

87,420

 

2,470,179

 

2,387,675

 

342,968

 

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

 

3,181,229

 

4,725,979

 

3,662,330

 

526,061

 

10,761,268

 

15,662,672

 

2,249,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP basic net income from continuing operations per share

 

0.99

 

1.47

 

1.13

 

0.16

 

3.33

 

4.86

 

0.70

 

Non-GAAP basic net income from continuing operations per ADS

 

24.86

 

36.63

 

28.36

 

4.07

 

83.15

 

121.59

 

17.46

 

Non-GAAP diluted net income from continuing operations per share

 

0.99

 

1.45

 

1.12

 

0.16

 

3.31

 

4.82

 

0.69

 

Non-GAAP diluted net income from continuing operations per ADS

 

24.69

 

36.31

 

28.03

 

4.03

 

82.66

 

120.48

 

17.31

 

 

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

 

18