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Table of Contents

 

 

 

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 May 2012

 

Commission File Number: 000-30666

 


 

NETEASE, INC.

 


 

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

 


 

Indicate by check mark whether the registrant files or will file annual reports under cover 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

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes o     No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N.A.

 

 

 



Table of Contents

 

NETEASE, INC.

 

Form 6-K

 

TABLE OF CONTENTS

 

 

 

Page

Signature

 

Page 3

 

 

 

Press Release Regarding Earnings Results for the First Quarter of 2012, dated May 16, 2012

 

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: May 17, 2012

 

 

3


 

Exhibit 99.1

 

 

Press Release

 

Contact for Media and Investors:

Brandi Piacente

Investor Relations

brandi@corp.netease.com

Tel: (+1) 212-481-2050

 

Cassia Curran

NetEase, Inc.

cassia@corp.netease.com

Tel: (+86) 571-8985-2076

 

NetEase Reports First Quarter 2012

Unaudited Financial Results

 

(Beijing— May 16, 2012) — NetEase, Inc. (NASDAQ: NTES), one of China’s leading Internet and online game services providers, today announced its unaudited financial results for the first quarter ended March 31, 2012.

 

William Ding, Chief Executive Officer and Director of NetEase, stated, “The growing popularity of our self-developed games continues to drive our revenues.  For the first quarter, our total online games revenue increased 31.4% year-over-year, with dynamic growth from our newer games Ghost and Tianxia III and increasing contribution from several of our flagship games, Fantasy Westward Journey, Westward Journey Online II and Heroes of Tang Dynasty.”

 

“Our online games revenue has been driven by the successful execution of our strategy to continuously improve user experience and has been further demonstrated by Ghost’s rapid growth since the launch of its full scale closed beta testing in September 2011. In the second quarter, we introduced a series of new features for Ghost in its open beta testing, which has been well received by users. Benefiting from the innovative game play mode, our newest game, Tianxia III, achieved record high revenue in the first quarter. We plan to continue developing new exciting content and launch open beta testing for Tianxia III in the second quarter.”

 

“Moreover, players continue to respond enthusiastically to expansion packs for our long running self-developed games, Fantasy Westward Journey and Westward Journey Online II.  We plan to launch new expansion packs combined with large-scale promotional activities for these games in the second and third quarters. Other expansion packs or new versions planned for the second quarter include Heroes of Tang Dynasty, Westward Journey Online III and Warsong of Westward Journey.”

 

“Diversification through the introduction of self-developed games is a key theme in 2012. We are on track to commercialize a number of new titles this year that showcase innovative content and leading technology. In the second and third quarters of 2012, we plan to initiate beta testing of several highly anticipated games in our pipeline, including 3D ARPG, Soul of Warrior, 2.5D MMORPG, Wu Hun, 3D action real-time strategy (or DotA) game, Heroes of Three Kingdoms, and a next generation 3D action MMORPG, Dragon Sword. With respect to our licensed games, we are pleased to have renewed our contract with Blizzard Entertainment to

 

1



 

continue our existing cooperation on Blizzard Entertainment’s World of Warcraft® in mainland China. We look forward to releasing Mists of Pandaria, the fourth expansion to World of Warcraft, in mainland China as soon as possible.”

 

“Our advertising revenue grew 13.1% year-over-year, with automobile, Internet services and food and beverage services as the top performing sectors. Advertising revenues declined 48.5% quarter-over-quarter, which reflects the typical industry seasonality. We expect the usual uptick in advertising revenues in the second quarter and through the second half of 2012. We remain committed to increasing our appeal to users by offering content innovation, synthesizing user feedback and providing service integration between different mobile device platforms. To leverage the opportunities offered by the upcoming 2012 London Olympics, we have secured a number of partnerships with content providers to offer comprehensive, accurate and in-depth reporting to our portal and mobile Internet users.”

 

Mr. Ding concluded, “Portal traffic grew steadily in the first quarter as we continued to optimize our user experience and mobile access by introducing leading applications and cutting edge technology. Usage of our micro-blogging services is also expanding. In the first quarter, the number of micro-blogging users reached 121.0 million, up 24.0% from December 31, 2011. As the leading free email provider in China, our mailbox services also performed well as we continued to optimize services through mobile access and upgrades to enhance users’ experience. As of March 31, 2012, we had approximately 480 million registered email users, up 6.7% quarter-over-quarter. In addition, the number of users and paying subscribers for our corporate mailbox services have grown in their third year of operation. During the first quarter, we were named one of the top corporate mailbox service providers in China.”

 

“With continued execution on expanding and diversifying our game portfolio and user base, as well as driving innovation in content, technology and entertainment across all demographics in China, we look forward to another great year for NetEase in 2012,” Mr. Ding concluded.

 

First Quarter 2012 Financial Results

 

Revenues

Total revenues for the first quarter of 2012 were RMB2.0 billion (US$318.2 million), compared to RMB2.1 billion and RMB1.5 billion for the preceding quarter and the first quarter of 2011, respectively.

 

Revenues from online games were RMB1.8 billion (US$289.2 million) for the first quarter of 2012, compared to RMB1.8 billion and RMB1.4 billion for the preceding quarter and the first quarter of 2011, respectively.

 

Revenues from advertising services were RMB143.5 million (US$22.8 million) for the first quarter of 2012, compared to RMB278.5 million and RMB126.8 million for the preceding quarter and the first quarter of 2011, respectively.

 

Revenues from e-mail, wireless value-added services and others (“E-mail, WVAS and others”) were RMB39.6 million (US$6.3 million) for the first quarter of 2012, compared to RMB37.2 million and RMB25.7 million for the preceding quarter and the first quarter of 2011, respectively.

 

2



 

Gross Profit

Gross profit for the first quarter of 2012 was RMB1.3 billion (US$211.4 million), compared to RMB1.5 billion and RMB985.0 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in gross profit was primarily attributable to a seasonal decline in advertising revenue.

 

The year-over-year increase in gross profit was primarily attributable to increased revenues from the Company’s self-developed games, Ghost, Tianxia III and Fantasy Westward Journey, which were partially offset by a decline in revenue from Blizzard Entertainment’s World of Warcraft. Revenue from Ghost has grown rapidly since the launch of its full scale closed beta testing in September 2011, coupled with successful promotional activities. Tianxia III was released in late October of 2011, and its significant growth was leveraged from the strong Tianxia II user base as well as its attractive and innovative game play mode. The year-over-year increase in cost of revenues was primarily due to increased headcount-related costs and server custody costs.

 

Gross Profit (Loss) Margin

Gross profit margin for the online game business for the first quarter of 2012 was 73.0%, compared to 72.6% and 70.0% for the preceding quarter and the first quarter of 2011, respectively.

 

Gross profit margin for the advertising business for the first quarter of 2012 was 19.8%, compared to 54.5% and 33.4% for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in gross profit margin was primarily due to a decrease in advertising revenues as explained above. The year-over-year decrease in gross profit margin was primarily due to increased headcount-related costs and content purchase costs in the first quarter of 2012.

 

Gross loss margin for the E-mail, WVAS and others business for the first quarter of 2012 was 18.0%, compared to gross profit margin of 2.2% and gross loss margin of 21.6% for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter change was mainly due to increased customer services costs and technology support costs in the first quarter of 2012.

 

Operating Expenses

Total operating expenses for the first quarter of 2012 were RMB355.7 million (US$56.5 million), compared to RMB529.0 million and RMB292.0 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in operating expenses was mainly due to the fact that there were less selling and marketing promotional activities in the first quarter of 2012. In addition, an impairment provision of RMB50.3 million on the initial online game license fee for Blizzard Entertainment’s StarCraft® II was recorded in the fourth quarter of 2011. The year-over-year increase in operating expenses was primarily due to increased headcount-related costs and increased research and development costs related to product development.

 

3



 

Net Profit

Net profit for the first quarter of 2012 totaled RMB941.7 million (US$149.5 million), compared to RMB898.6 million and RMB737.4 million for the preceding quarter and the first quarter of 2011, respectively.

 

During the first quarter of 2012, the Company reported a net foreign exchange gain of RMB17.6 million (US$2.8 million), compared to a net foreign exchange loss of RMB36.4 million and a net foreign exchange gain of RMB25.3 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains and losses were mainly due to the unrealized exchange gains and losses arising from the Company’s Euro-denominated bank deposit balances as of March 31, 2012 as the exchange rate of the Euro against the RMB fluctuated over the periods.

 

NetEase reported basic and diluted earnings per ADS of US$1.14 each for the first quarter of 2012. The Company reported basic and diluted earnings per ADS of US$1.09 for the preceding quarter, and reported basic and diluted earnings per ADS of US$0.90 and US$0.89, respectively, for the first quarter of 2011.

 

Income Taxes

The Company recorded a net income tax charge of RMB163.1 million (US$25.9 million) for the first quarter of 2012, compared with RMB122.6 million and RMB37.2 million for the preceding quarter and the first quarter of 2011, respectively. The effective tax rate for the first quarter of 2012 was 14.9%, compared to 11.8% and 4.8% for the preceding quarter and the first quarter of 2011, respectively.

 

The Company’s various principal subsidiaries have renewed their qualifications as High and New Technology Enterprises in 2011, and enjoy the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China.

 

The quarter-over-quarter increase in effective tax rate was mainly due to the expiration of the enterprise income tax exemption period for certain subsidiaries that were qualified as Software Enterprises, which resulted in an increase in their applicable tax rate from 0% to 12.5%. The year-over-year increase in effective tax rate was primarily due to the recognition of a tax benefit of RMB47.1 million upon receipt of the Key Software Enterprise status by certain subsidiaries during the first quarter of 2011.

 

Other Information

 

As of March 31, 2012, the Company’s total cash and time deposits balance was RMB13.1 billion (US$2.1 billion), compared to RMB11.9 billion as of December 31, 2011. Cash flow generated from operating activities was RMB1.3 billion (US$212.3 million) for the first quarter of 2012, compared to RMB1.2 billion and RMB969.3 million for the preceding quarter and the first quarter of 2011, respectively.

 

** 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$1.00 = RMB6.2975 on the last trading day of March 2012 (March 30, 2012) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 30, 2012, or at any other certain date. The percentages stated are calculated based on RMB.

 

4



 

Conference Call

 

NetEase’s management team will host a conference call at 9:00 p.m. Eastern Time on Wednesday, May 16, 2012 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, May 17, 2012). 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 1-877-941-2068 (international: 1-480-629-9712), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-800-406-7325 (international: 1-303-590-3030), and entering passcode 4533318#. The replay will be available through June 7, 2012.

 

This call is being 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. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. NetEase’s online communities and personalized premium services have established a large and stable user base for the NetEase websites, which are operated by its affiliates. In particular, NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia III, Heroes of Tang Dynasty, Datang and Ghost, as well as the licensed games, Blizzard Entertainment’s World of Warcraft® and StarCraft® II.

 

NetEase also offers online advertising on its websites, which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified advertising services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the web that are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.

 

Other community services that the NetEase websites offer include instant messaging, online personal advertisements, matchmaking, alumni clubs and community forums. The Company believes that it is also the largest provider of free e-mail services in China. Furthermore, the NetEase websites as well as its micro-blogging services provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and domestic content providers.

 

*      *      *

 

5



 

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 such as Ghost, Tianxia III and Legend of Fairy or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Heroes of Tang Dynasty, Warsong of Westward Journey and Fairyland Village, do not become as popular as management anticipates; 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 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 may limit future growth of NetEase’s revenue or cause revenue 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 revenue; 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 micro-blogging services; 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 out lined 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



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

 

 

December 31,

 

March 31,

 

March 31,

 

 

 

2011

 

2012

 

2012

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,214,618

 

2,012,449

 

319,563

 

Time deposits

 

9,704,777

 

10,671,235

 

1,694,519

 

Restricted cash

 

318,684

 

239,338

 

38,005

 

Accounts receivable, net

 

230,047

 

201,016

 

31,920

 

Prepayments and other current assets

 

900,464

 

815,105

 

129,433

 

Short-term investments

 

993,606

 

1,214,989

 

192,933

 

Deferred tax assets

 

111,990

 

128,167

 

20,352

 

Total current assets

 

14,474,186

 

15,282,299

 

2,426,725

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

848,469

 

814,897

 

129,400

 

Land use right, net

 

11,788

 

11,723

 

1,862

 

License right, net

 

48,962

 

31,956

 

5,074

 

Deferred tax assets

 

2,586

 

2,579

 

410

 

Time deposits

 

 

428,000

 

67,963

 

Other long-term assets

 

58,940

 

69,199

 

10,988

 

Total non-current assets

 

970,745

 

1,358,354

 

215,697

 

Total assets

 

15,444,931

 

16,640,653

 

2,642,422

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

134,217

 

142,554

 

22,637

 

Salary and welfare payables

 

244,398

 

179,484

 

28,501

 

Taxes payable

 

391,769

 

412,508

 

65,503

 

Deferred revenue

 

1,014,073

 

1,085,450

 

172,362

 

Accrued liabilities and other payables

 

498,120

 

642,271

 

101,988

 

Total current liabilities

 

2,282,577

 

2,462,267

 

390,991

 

 

 

 

 

 

 

 

 

Long-term payable:

 

 

 

 

 

 

 

Other long-term payable

 

63,890

 

52,081

 

8,270

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,346,467

 

2,514,348

 

399,261

 

 

 

 

 

 

 

 

 

Total NetEase, Inc.’s equity

 

13,126,701

 

14,164,494

 

2,249,225

 

Noncontrolling interests

 

(28,237

)

(38,189

)

(6,064

)

Total shareholders’ equity

 

13,098,464

 

14,126,305

 

2,243,161

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

15,444,931

 

16,640,653

 

2,642,422

 

 

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

 

7



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

Quarter Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

March 31,

 

 

 

2011

 

2011

 

2012

 

2012

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,385,643

 

1,833,269

 

1,821,029

 

289,167

 

Advertising services

 

126,828

 

278,474

 

143,451

 

22,779

 

E-mail, wireless value-added services and others

 

25,680

 

37,249

 

39,630

 

6,293

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

1,538,151

 

2,148,992

 

2,004,110

 

318,239

 

Business taxes

 

(38,200

)

(49,809

)

(38,481

)

(6,111

)

 

 

 

 

 

 

 

 

 

 

Total net revenues

 

1,499,951

 

2,099,183

 

1,965,629

 

312,128

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

(514,990

)

(646,086

)

(634,407

)

(100,739

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

984,961

 

1,453,097

 

1,331,222

 

211,389

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(130,345

)

(280,680

)

(130,497

)

(20,722

)

General and administrative expenses

 

(63,332

)

(105,787

)

(70,284

)

(11,161

)

Research and development expenses

 

(98,306

)

(142,514

)

(154,961

)

(24,607

)

Total operating expenses

 

(291,983

)

(528,981

)

(355,742

)

(56,490

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

692,978

 

924,116

 

975,480

 

154,899

 

Other income:

 

 

 

 

 

 

 

 

 

Investment income

 

82

 

9,954

 

13,926

 

2,211

 

Interest income

 

51,363

 

78,624

 

86,490

 

13,734

 

Exchange gains (losses)

 

25,274

 

(36,394

)

17,597

 

2,794

 

Other, net

 

2,084

 

62,544

 

1,298

 

207

 

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

771,781

 

1,038,844

 

1,094,791

 

173,845

 

Income tax

 

(37,208

)

(122,621

)

(163,063

)

(25,893

)

 

 

 

 

 

 

 

 

 

 

Net income after tax

 

734,573

 

916,223

 

931,728

 

147,952

 

Net loss (gain) attributable to noncontrolling interests

 

2,814

 

(17,598

)

9,952

 

1,580

 

Net income attributable to the Company’s shareholders

 

737,387

 

898,625

 

941,680

 

149,532

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

734,573

 

916,223

 

931,728

 

147,952

 

Comprehensive loss (income) attributable to noncontrolling interests

 

2,814

 

(17,598

)

9,952

 

1,580

 

Comprehensive income attributable to the Company’s shareholders

 

737,387

 

898,625

 

941,680

 

149,532

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic

 

0.23

 

0.27

 

0.29

 

0.05

 

Earnings per ADS, basic

 

5.66

 

6.86

 

7.18

 

1.14

 

Earnings per share, diluted

 

0.23

 

0.27

 

0.29

 

0.05

 

Earnings per ADS, diluted

 

5.63

 

6.85

 

7.17

 

1.14

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,255,764

 

3,272,617

 

3,278,157

 

3,278,157

 

Weighted average number of ADS outstanding, basic

 

130,231

 

130,905

 

131,126

 

131,126

 

Weighted average number of ordinary shares outstanding, diluted

 

3,273,909

 

3,279,404

 

3,284,428

 

3,284,428

 

Weighted average number of ADS outstanding, diluted

 

130,956

 

131,176

 

131,377

 

131,377

 

 

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

 

8



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

March 31,

 

 

 

2011

 

2011

 

2012

 

2012

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

734,573

 

916,223

 

931,728

 

147,952

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

65,706

 

76,323

 

71,677

 

11,382

 

Impairment loss for license right

 

 

50,316

 

 

 

Share-based compensation cost

 

38,238

 

45,143

 

68,273

 

10,842

 

Allowance for (reversal of) provision for doubtful debts

 

(1,366

)

(6,212

)

921

 

146

 

Loss (gain) on disposal of property, equipment and software

 

4

 

(35

)

(122

)

(19

)

Unrealized exchange (gains) losses

 

(31,077

)

41,263

 

(18,719

)

(2,972

)

Deferred income taxes

 

(8,401

)

22,054

 

(16,170

)

(2,568

)

Net equity share of loss from associated companies

 

330

 

1,010

 

256

 

41

 

Others

 

(162

)

(9,272

)

2,894

 

460

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

75,613

 

6,603

 

20,720

 

3,290

 

Prepayments and other current assets

 

54,987

 

79,852

 

180,825

 

28,714

 

Accounts payable

 

(18,560

)

14,477

 

14,857

 

2,359

 

Salary and welfare payables

 

(64,934

)

48,575

 

(64,930

)

(10,310

)

Taxes payable

 

(30,719

)

(2,706

)

(19,620

)

(3,116

)

Deferred revenue

 

91,107

 

(3,777

)

71,378

 

11,334

 

Accrued liabilities and other payables

 

63,976

 

(36,144

)

92,897

 

14,751

 

Net cash provided by operating activities

 

969,315

 

1,243,693

 

1,336,865

 

212,286

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(141,157

)

(171,422

)

(23,280

)

(3,697

)

Proceeds from sale of property, equipment and software

 

1

 

43

 

182

 

29

 

Purchase of other intangible assets

 

 

(1,042

)

 

 

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

 

 

 

(500,000

)

(79,397

)

Purchase of short-term investments

 

 

(407,863

)

(154,277

)

(24,498

)

Proceeds from maturities of short-term investments

 

 

20,000

 

430,000

 

68,281

 

Transfer (to) from restricted cash

 

 

(44,885

)

79,346

 

12,600

 

Net change in time deposits with terms of three months

 

231,682

 

(125,205

)

117,997

 

18,737

 

Placement/rollover of matured time deposits

 

(2,863,899

)

(3,743,262

)

(4,429,917

)

(703,441

)

Proceeds from maturities of time deposits

 

2,157,008

 

3,497,811

 

2,933,775

 

465,863

 

Net change in other assets

 

(5,844

)

4,681

 

(14,158

)

(2,248

)

Net cash used in investing activities

 

(622,209

)

(971,144

)

(1,560,332

)

(247,771

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from employees exercising stock options

 

30,252

 

9,877

 

21,033

 

3,340

 

Payment of other long-term payable

 

(10

)

(10

)

 

 

Net cash provided by financing activities

 

30,242

 

9,867

 

21,033

 

3,340

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash held in foreign currencies

 

7,112

 

(11,327

)

265

 

42

 

Net increase (decrease) in cash and cash equivalents

 

384,460

 

271,089

 

(202,169

)

(32,103

)

Cash and cash equivalents, beginning of the period

 

1,285,137

 

1,943,529

 

2,214,618

 

351,666

 

Cash and cash equivalents, end of the period

 

1,669,597

 

2,214,618

 

2,012,449

 

319,563

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid for income tax, net of tax refund

 

91,682

 

129,437

 

145,625

 

23,124

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable and accrued liabilities

 

64,347

 

37,614

 

35,393

 

5,620

 

 

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

 

9



 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

March 31,

 

 

 

2011

 

2011

 

2012

 

2012

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,385,643

 

1,833,269

 

1,821,029

 

289,167

 

Advertising services

 

126,828

 

278,474

 

143,451

 

22,779

 

E-mail, wireless value-added services and others

 

25,680

 

37,249

 

39,630

 

6,293

 

Total revenues

 

1,538,151

 

2,148,992

 

2,004,110

 

318,239

 

 

 

 

 

 

 

 

 

 

 

Business taxes:

 

 

 

 

 

 

 

 

 

Online game services

 

(25,392

)

(23,161

)

(23,566

)

(3,742

)

Advertising services

 

(12,198

)

(25,850

)

(14,009

)

(2,225

)

E-mail, wireless value-added services and others

 

(610

)

(798

)

(906

)

(144

)

Total business taxes

 

(38,200

)

(49,809

)

(38,481

)

(6,111

)

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,360,251

 

1,810,108

 

1,797,463

 

285,425

 

Advertising services

 

114,630

 

252,624

 

129,442

 

20,554

 

E-mail, wireless value-added services and others

 

25,070

 

36,451

 

38,724

 

6,149

 

Total net revenues

 

1,499,951

 

2,099,183

 

1,965,629

 

312,128

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

(408,201

)

(495,506

)

(484,894

)

(76,998

)

Advertising services

 

(76,316

)

(114,949

)

(103,827

)

(16,487

)

E-mail, wireless value-added services and others

 

(30,473

)

(35,631

)

(45,686

)

(7,254

)

Total cost of revenues

 

(514,990

)

(646,086

)

(634,407

)

(100,739

)

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

Online game services

 

952,050

 

1,314,602

 

1,312,569

 

208,427

 

Advertising services

 

38,314

 

137,675

 

25,615

 

4,067

 

E-mail, wireless value-added services and others

 

(5,403

)

820

 

(6,962

)

(1,105

)

Total gross profit

 

984,961

 

1,453,097

 

1,331,222

 

211,389

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss) margin:

 

 

 

 

 

 

 

 

 

Online game services

 

70.0

%

72.6

%

73.0

%

73.0

%

Advertising services

 

33.4

%

54.5

%

19.8

%

19.8

%

E-mail, wireless value-added services and others

 

(21.6

)%

2.2

%

(18.0

)%

(18.0

)%

 

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

 

10



 

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 = RMB6.2975 on the last trading day of March 2012 (March 30, 2012) 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

 

 

 

March 31,

 

December 31,

 

March 31,

 

March 31,

 

 

 

2011

 

2011

 

2012

 

2012

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

13,602

 

21,030

 

33,215

 

5,274

 

Operating expenses

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

3,255

 

3,897

 

4,680

 

743

 

- General and administrative expenses

 

11,237

 

7,661

 

11,926

 

1,894

 

- Research and development expenses

 

10,144

 

12,555

 

18,452

 

2,931

 

 

11