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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

 

FORM 6-K

 

 

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

 

For the month of August 2021

 

Commission File Number: 000-30666

 

 

NETEASE, INC.

 

 

NetEase Building, No. 599 Wangshang Road

Binjiang District, Hangzhou, 310052 

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 ¨

 

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): ¨

 

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): ¨

 

 

 

 

 

 

NETEASE, INC.

 

Form 6-K

 

TABLE OF CONTENTS

 

Signature Page 3
   
NetEase Reports Second Quarter 2021 Unaudited Financial Results Exhibit 99.1

 

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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/ Charles Zhaoxuan Yang
    Name: Charles Zhaoxuan Yang
    Title: Chief Financial Officer
       
Date:  August 31,  2021      

 

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Exhibit 99.1

 

 

 

Contact for Media and Investors: 

Margaret Shi 

Email: ir@service.netease.com 

Tel: (+86) 571-8985-3378 

Twitter: https://twitter.com/NetEase_Global

 

NetEase Announces Second Quarter 2021 Unaudited Financial Results

 

(Hangzhou- August 31, 2021)- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, “NetEase” or the “Company”), one of China’s leading internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2021.

 

Second Quarter 2021 Financial Highlights

 

·Net revenues were RMB20.5 billion (US$3.2 billion), an increase of 12.9% compared with the second quarter of 2020.

 

·Online game services net revenues were RMB14.5 billion (US$2.3 billion), an increase of 5.1% compared with the second quarter of 2020.

 

·Youdao net revenues were RMB1.3 billion (US$200.3 million), an increase of 107.5% compared with the second quarter of 2020.

 

·Innovative businesses and others net revenues were RMB4.7 billion (US$728.4 million), an increase of 26.0% compared with the second quarter of 2020.

 

·Gross profit was RMB11.2 billion (US$1.7 billion), an increase of 14.3% compared with the second quarter of 2020.

 

·Total operating expenses were RMB7.4 billion (US$1.2 billion), an increase of 32.2% compared with the second quarter of 2020.

 

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·Net income attributable to the Company’s shareholders was RMB3.5 billion (US$548.5 million). Non-GAAP net income attributable to the Company’s shareholders was RMB4.2 billion (US$654.8 million). [1]

 

·Basic net income per share was US$0.16 (US$0.82 per ADS). Non-GAAP basic net income per share was US$0.20 (US$0.98 per ADS). [1]

 

Second Quarter 2021 and Recent Operational Highlights

 

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

 

·Naraka: Bladepoint, which led the top-sellers chart on Steam following its global launch in August.

 

·Other exciting titles such as Infinite Lagrange, Pokémon Quest, MARVEL Super War and Ace Racer thrilled players.

 

·Invigorated players with longstanding flagship titles including the Fantasy Westward Journey and Westward Journey Online series, as well as popular hit games including Life-After, Onmyoji and Onmyoji Arena.

 

·Announced that the mobile game Harry Potter: Magic Awakened, co-developed by NetEase and Warner Bros. Interactive Entertainment under the Portkey Games label, will launch on September 9.

 

·Enriched strong game development pipeline with exciting titles including Nightmare Breaker, The Lord of the Rings: Rise to War, Diablo® Immortal™ and Ghost World Chronicle.

 

“Our businesses continued to thrive in the second quarter generating total net revenues of RMB20.5 billion, growing 12.9% year-over-year,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Our existing games grew steadily despite a high base last year, and we are excited about our robust pipeline of new titles that builds on our leading game roster. We kicked off our game-release schedule for the second half of the year with several gripping new hits such as Naraka: Bladepoint, capturing wide interest from passionate game players globally. With confirmed plans to release the game Harry Potter: Magic Awakened on September 9, we are eager to introduce more amazing titles later this year. In addition, we continue to boost our content ecosystem and bring innovative product additions to NetEase Cloud Music strengthening its highly engaged music-centric community,” Mr. Ding concluded.

 

 

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

 

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Second Quarter 2021 Financial Results

 

Net Revenues

 

Net revenues for the second quarter of 2021 were RMB20,524.5 million (US$3,178.8 million), compared with RMB20,517.2 million and RMB18,184.8 million for the preceding quarter and the second quarter of 2020, respectively.

 

Net revenues from online game services were RMB14,528.1 million (US$2,250.1 million) for the second quarter of 2021, compared with RMB14,981.8 million and RMB13,828.3 million for the preceding quarter and the second quarter of 2020, respectively. Net revenues from mobile games accounted for approximately 72.1% of net revenues from online game services for the second quarter of 2021, compared with 72.8% and 72.3% for the preceding quarter and the second quarter of 2020, respectively.

 

Net revenues from Youdao were RMB1,293.4 million (US$200.3 million) for the second quarter of 2021, compared with RMB1,339.9 million and RMB623.3 million for the preceding quarter and the second quarter of 2020, respectively.

 

Net revenues from innovative businesses and others were RMB4,703.0 million (US$728.4 million) for the second quarter of 2021, compared with RMB4,195.6 million and RMB3,733.3 million for the preceding quarter and the second quarter of 2020, respectively.

 

Gross Profit

 

Gross profit for the second quarter of 2021 was RMB11,189.6 million (US$1,733.1 million), compared with RMB11,052.6 million and RMB9,792.2 million for the preceding quarter and the second quarter of 2020, respectively.

 

The year-over-year increase in online game services gross profit was primarily due to increased net revenues from both mobile and PC games, including the newly launched Revelation mobile game and other existing games such as Fantasy Westward Journey Online.

 

The year-over-year increase in Youdao gross profit was primarily attributable to the significant increase in net revenues from, improved economies of scale and faculty compensation structure optimization for its learning services.

 

The quarter-over-quarter and year-over-year increases in innovative businesses and others gross profit were primarily due to the increased net revenues from, and improved cost control at, NetEase Cloud Music.

 

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Gross Profit Margin

 

Gross profit margin for online game services for the second quarter of 2021 was 66.1%, compared with 64.6% and 63.8% for the preceding quarter and the second quarter of 2020, respectively. Gross profit margin for online game services is generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC games, as well as NetEase’s self-developed and licensed games.

 

Gross profit margin for Youdao for the second quarter of 2021 was 52.3%, compared with 57.3% and 45.2% for the preceding quarter and the second quarter of 2020, respectively. The year-over-year increase was primarily attributable to the factors enumerated above.

 

Gross profit margin for innovative businesses and others for the second quarter of 2021 was 19.3%, compared with 14.4% and 18.5% for the preceding quarter and the second quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were primarily attributable to the factors enumerated above.

 

Operating Expenses

 

Total operating expenses for the second quarter of 2021 were RMB7,431.5 million (US$1,151.0 million), compared with RMB6,777.1 million and RMB5,622.3 million for the preceding quarter and the second quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to Youdao and other businesses, as well as higher staff-related costs and research and development investments.

 

Other Income/ (Expenses)

 

Other income/ (expenses) consisted of investment income, interest income, exchange gains/ (losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to unrealized exchange losses arising from the Company’s U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB1,113.2 million (US$172.4 million) for the second quarter of 2021, compared with RMB1,273.4 million and RMB1,064.5 million for the preceding quarter and the second quarter of 2020, respectively. The effective tax rate for the second quarter of 2021 was 24.3%, compared with 22.0% and 18.6% for the preceding quarter and the second quarter of 2020, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

 

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Net Income and Non-GAAP Net Income

 

Net income attributable to the Company’s shareholders totaled RMB3,541.8 million (US$548.5 million) for the second quarter of 2021, compared with RMB4,439.2 million and RMB4,537.8 million for the preceding quarter and the second quarter of 2020, respectively.

 

Non-GAAP net income attributable to the Company’s shareholders totaled RMB4,227.9 million (US$654.8 million) for the second quarter of 2021, compared with RMB5,080.7 million and RMB5,226.0 million for the preceding quarter and the second quarter of 2020, respectively.

 

NetEase reported basic net income of US$0.16 per share (US$0.82 per ADS) for the second quarter of 2021, compared with US$0.21 per share (US$1.03 per ADS) and US$0.22 per share (US$1.08 per ADS) for the preceding quarter and the second quarter of 2020, respectively.

 

NetEase reported non-GAAP basic net income of US$0.20 per share (US$0.98 per ADS) for the second quarter of 2021, compared with US$0.24 per share (US$1.17 per ADS) and US$0.25 per share (US$1.25 per ADS) for the preceding quarter and the second quarter of 2020, respectively.

 

Quarterly Dividend

 

The board of directors has approved a dividend of US$0.0480 per share (US$0.2400 per ADS) for the second quarter of 2021, to holders of ordinary shares and holders of ADSs as of the close of business on September 14, 2021, Beijing/ Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on September 14, 2021 (Beijing/ Hong Kong Time). The payment date is expected to be on September 27, 2021 for holders of ordinary shares and on or around September 30, 2021 for holders of ADSs.

 

NetEase paid a dividend of US$0.0600 per share (US$0.3000 per ADS) for the first quarter of 2021 in June 2021.

 

The Company’s policy is 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 June 30, 2021, the Company’s total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB108.0 billion (US$16.7 billion), compared with RMB100.1 billion as of December 31, 2020. Cash flow generated from operating activities was RMB4.7 billion (US$731.5 million) for the second quarter of 2021, compared with RMB5.5 billion and RMB4.8 billion for the preceding quarter and the second quarter of 2020, respectively.

 

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Update on PRC Regulatory Policy Related to Youdao

 

As previously announced by Youdao, its business, financial condition and corporate structure are expected to be materially affected in future periods by the changing regulatory environment primarily in China’s K-12 education industry, although the magnitude of the impact remains uncertain at this time.

 

Share Repurchase / Purchase Program

 

On February 25, 2021, the Company announced that its board of directors had approved a new share repurchase program of up to US$2.0 billion of the Company’s outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2, 2021. As of June 30, 2021, approximately 4.6 million ADSs had been repurchased under this program for a total cost of US$0.5 billion. The Company today announced that its board of directors has approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion.

 

The Company today also announced that its board of directors has approved a share purchase program of up to US$50.0 million of Youdao’s outstanding ADSs for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange.

 

The extent to which NetEase repurchases its ADSs and its ordinary shares 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 announcement 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$1.00 = RMB6.4566 on June 30, 2021 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2021, or at any other certain date. The percentages stated are calculated based on RMB.

 

Conference Call

 

NetEase’s management team will host a teleconference call with simultaneous webcast at 8:00 a.m. New York Time on Tuesday, August 31, 2021 (Beijing/ Hong Kong Time: 8:00 p.m., Tuesday, August 31, 2021). 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 1-646-828-8193 and providing conference ID: 7055363, 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 7055363#. The replay will be available through September 13, 2021.

 

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This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase’s Investor Relations website at http://ir.netease.com/.

 

About NetEase, Inc.

 

As a leading internet technology company based in China, NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, “NetEase”) provides premium online services centered around innovative and diverse content, community, communication and commerce. NetEase develops and operates some of China’s most popular mobile and PC games. In more recent years, NetEase has expanded into international markets including Japan and North America. In addition to its self-developed game content, NetEase partners with other leading game developers, such as Blizzard Entertainment and Mojang AB (a Microsoft subsidiary), to operate globally renowned games in China. NetEase’s other innovative service offerings include the intelligent learning services of its majority-controlled subsidiary, Youdao (NYSE: DAO); music streaming through its leading NetEase Cloud Music business; and its private label e-commerce platform, Yanxuan. For more information, please visit: http://ir.netease.com/.

 

Forward Looking Statements

 

This announcement 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. In addition, statements that are not historical facts, including statements about NetEase’s strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. 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 position in that market in China or globally; potential changes in government regulations, or changes in the interpretation and implementation of government regulations, that could adversely affect the industries and geographical markets in which NetEase and its subsidiaries operate, including, among others, recently announced government initiatives to enhance supervision of overseas-listed, China-based companies and increase scrutiny of data security and cross-border data flow, as well as recent guidelines restricting certain activities in China’s education market; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company’s operations or financial results; risks associated with NetEase’s business and operating strategies and its ability to implement such strategies; NetEase’s ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; 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; competition in NetEase’s existing and potential markets; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase’s business and financial results. Further information regarding these and other risks is included in NetEase’s filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

 

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Non-GAAP Financial Measures

 

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

 

NetEase defines non-GAAP net income attributable to the Company’s shareholders as net income attributable to the Company’s shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company’s shareholders enables NetEase’s management to assess its operating results without considering the impact of share-based compensation expenses. 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 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 NetEase’s business and are not reflected in the presentation of non-GAAP net income attributable to the Company’s shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.

 

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

 

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NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)            

 

   December 31,   June 30,   June 30, 
   2020   2021   2021 
   RMB   RMB   USD (Note 1) 
Assets               
Current assets:               
Cash and cash equivalents   9,117,219    9,935,805    1,538,860 
Time deposits   71,079,327    75,702,252    11,724,786 
Restricted cash   3,051,386    3,222,560    499,111 
Accounts receivable, net   4,576,445    4,452,504    689,605 
Inventories, net   621,207    884,311    136,962 
Prepayments and other current assets, net   6,112,433    6,516,881    1,009,337 
Short-term investments   13,273,026    15,244,872    2,361,130 
Total current assets   107,831,043    115,959,185    17,959,791 
                
Non-current assets:               
Property, equipment and software, net   4,555,406    4,694,354    727,063 
Land use right, net   4,178,257    4,134,607    640,369 
Deferred tax assets   1,086,759    1,104,852    171,120 
Time deposits   6,630,000    7,100,000    1,099,650 
Restricted cash   -    600    93 
Other long-term assets, net   17,593,117    21,863,425    3,386,213 
Total non-current assets   34,043,539    38,897,838    6,024,508 
Total assets   141,874,582    154,857,023    23,984,299 
                
Liabilities,Redeemable Noncontrolling Interests and Shareholders’ Equity               
Current liabilities:               
Accounts payable   1,134,413    889,722    137,800 
Salary and welfare payables   3,538,732    3,203,904    496,222 
Taxes payable   4,282,835    4,443,565    688,221 
Short-term loans   19,504,696    27,188,198    4,210,916 
Deferred revenue   10,945,143    11,364,656    1,760,161 
Accrued liabilities and other payables   7,337,672    7,251,678    1,123,142 
Total current liabilities   46,743,491    54,341,723    8,416,462 
                
Non-current liabilities:               
Deferred tax liabilities   713,439    1,266,791    196,201 
Other long-term payable   623,728    733,665    113,630 
Total non-current liabilities   1,337,167    2,000,456    309,831 
Total liabilities   48,080,658    56,342,179    8,726,293 
                
Redeemable noncontrolling interests   10,796,120    11,091,541    1,717,861 
                
NetEase, Inc.’s shareholders’ equity   82,126,798    86,136,044    13,340,774 
Noncontrolling interests   871,006    1,287,259    199,371 
Total shareholders’ equity   82,997,804    87,423,303    13,540,145 
                
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   141,874,582    154,857,023    23,984,299 

 

The accompanying notes are an integral part of this announcement.        

 

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NETEASE, INC.                              

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME  

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

 

    Three Months Ended   Six Months Ended  
    June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30,  
    2020   2021   2021   2021   2020   2021   2021  
    RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1)  
Net revenues     18,184,806     20,517,211     20,524,501     3,178,840     35,247,173     41,041,712     6,356,552  
Cost of revenues     (8,392,631 )   (9,464,572 )   (9,334,887 )   (1,445,790 )   (16,077,376 )   (18,799,459 )   (2,911,665 )
Gross profit     9,792,175     11,052,639     11,189,614     1,733,050     19,169,797     22,242,253     3,444,887  
                                             
Operating expenses:                                            
Selling and marketing expenses     (2,321,397 )   (2,766,682 )   (3,013,447 )   (466,724 )   (4,184,468 )   (5,780,129 )   (895,228 )
General and administrative expenses     (892,622 )   (950,194 )   (1,011,183 )   (156,612 )   (1,778,056 )   (1,961,377 )   (303,779 )
Research and development expenses     (2,408,306 )   (3,060,189 )   (3,406,859 )   (527,655 )   (4,550,955 )   (6,467,048 )   (1,001,618 )
Total operating expenses     (5,622,325 )   (6,777,065 )   (7,431,489 )   (1,150,991 )   (10,513,479 )   (14,208,554 )   (2,200,625 )
Operating profit     4,169,850     4,275,574     3,758,125     582,059     8,656,318     8,033,699     1,244,262  
                                             
Other income/(expenses):                                            
Investment income, net     711,159     695,298     889,392     137,749     601,428     1,584,690     245,437  
Interest income, net     396,519     388,928     386,207     59,816     741,703     775,135     120,053  
Exchange gains/(losses), net     17,008     279,319     (591,720 )   (91,646 )   261,065     (312,401 )   (48,385 )
Other, net     421,199     147,967     147,588     22,858     487,907     295,555     45,776  
Income before tax     5,715,735     5,787,086     4,589,592     710,836     10,748,421     10,376,678     1,607,143  
Income tax     (1,064,455 )   (1,273,408 )   (1,113,228 )   (172,417 )   (2,146,488 )   (2,386,636 )   (369,643 )
Net income     4,651,280     4,513,678     3,476,364     538,419     8,601,933     7,990,042     1,237,500  
                                             
Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests     (150,958 )   (143,827 )   (145,415 )   (22,522 )   (536,977 )   (289,242 )   (44,798 )
Net loss attributable to noncontrolling interests     37,484     69,301     210,805     32,650     23,856     280,106     43,383  
Net income attributable to the Company’s shareholders     4,537,806     4,439,152     3,541,754     548,547     8,088,812     7,980,906     1,236,085  
                                             
Net income per share *                                            
Basic     1.40     1.33     1.06     0.16     2.50     2.38     0.37  
Diluted     1.38     1.31     1.05     0.16     2.47     2.35     0.36  
                                             
Net income per ADS *                                            
Basic     7.00     6.63     5.29     0.82     12.50     11.92     1.85  
Diluted     6.92     6.53     5.23     0.81     12.34     11.76     1.82  
                                             
Weighted average number of ordinary shares used in calculating net income per share *                                            
Basic     3,242,061     3,349,638     3,347,507     3,347,507     3,236,728     3,348,567     3,348,567  
Diluted     3,281,100     3,399,981     3,385,953     3,385,953     3,277,550     3,392,961     3,392,961  

 

*  Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.      

 

10 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)                            

 

   Three Months Ended  Six Months Ended 
   June 30,  March 31,  June 30,  June 30,  June 30,  June 30,  June 30, 
   2020  2021  2021  2021  2020  2021  2021 
   RMB  RMB  RMB  USD (Note 1)  RMB  RMB  USD (Note 1) 
Cash flows from operating activities:                             
Net income   4,651,280   4,513,678   3,476,364   538,419   8,601,933   7,990,042   1,237,500 
Adjustments to reconcile net income to net cash provided by operating activities:                             
Depreciation and amortization   892,150   819,830   814,370   126,130   1,582,207   1,634,200   253,105 
Fair value changes of equity security investments   (503,281)  (477,597)  (203,720)  (31,552)  (176,241)  (681,317)  (105,523)
Impairment losses of investments and other intangible assets   -   -   4,797   743   6,600   4,797   743 
Fair value changes of short-term investments   (174,738)  (118,004)  (170,676)  (26,434)  (327,844)  (288,680)  (44,711)
Share-based compensation cost   691,945   650,253   700,114   108,434   1,357,759   1,350,367   209,145 
(Reversal of)/ allowance for expected credit losses   (1,305)  13,604   27,384   4,241   48,634   40,988   6,348 
Losses/ (gains) on disposal of property, equipment and software   1,070   (159)  1,424   221   1,107   1,265   196 
Unrealized exchange (gains)/ losses   (20,159)  (274,047)  572,708   88,701   (262,667)  298,661   46,257 
Gains on disposal of long-term investments, business and subsidiaries   (14,803)  (7,323)  (166,505)  (25,788)  (30,236)  (173,828)  (26,923)
Deferred income taxes   499,509   328,075   202,894   31,424   712,357   530,969   82,237 
Share of results on equity method investees and revaluation gains from previously held equity interest   (10,948)  (51,892)  (342,760)  (53,087)  (57,159)  (394,652)  (61,124)
Changes in operating assets and liabilities:                             
Accounts receivable   (498,550)  (484,343)  573,111   88,764   (929,085)  88,768   13,748 
Inventories   3,329   (253,495)  (9,608)  (1,488)  91,769   (263,103)  (40,749)
Prepayments and other assets   233,607   (785,224)  593,379   91,903   (870,191)  (191,845)  (29,713)
Accounts payable   (271,697)  (60,654)  (178,097)  (27,584)  (370,376)  (238,751)  (36,978)
Salary and welfare payables   132,037   (1,226,155)  856,775   132,698   (405,870)  (369,380)  (57,210)
Taxes payable   (568,138)  1,558,618   (1,397,390)  (216,428)  665,940   161,228   24,971 
Deferred revenue   (605,444)  740,938   (381,446)  (59,078)  773,682   359,492   55,678 
Accrued liabilities and other payables   336,444   656,564   (250,312)  (38,768)  860,638   406,252   62,921 
Net cash provided by operating activities   4,772,308   5,542,667   4,722,806   731,471   11,272,957   10,265,473   1,589,918 
                              
Cash flows from investing activities:                             
Purchase of property, equipment and software   (237,039)  (329,746)  (421,872)  (65,340)  (401,359)  (751,618)  (116,411)
Proceeds from sale of property, equipment and software   3,970   1,519   2,458   381   4,742   3,977   616 
Purchase of intangible assets, content and licensed copyrights   (839,441)  (426,133)  (566,736)  (87,776)  (1,146,276)  (992,869)  (153,776)
Net change in short-term investments with terms of three months or less   1,083,342   3,332,610   1,668,673   258,445   302,807   5,001,283   774,600 
Purchase of short-term investments   (3,080,000)  (7,905,000)  (2,450,000)  (379,457)  (13,150,000)  (10,355,000)  (1,603,785)
Proceeds from maturities of short-term investments   2,345,218   2,857,341   813,211   125,950   9,233,194   3,670,552   568,496 
Investment in long-term investments and acquisition of subsidiaries   (520,762)  (558,441)  (3,376,973)  (523,027)  (725,767)  (3,935,414)  (609,518)
Proceeds from disposal of long-term investments, businesses and subsidiaries   33,856   198,900   266,284   41,242   230,808   465,184   72,048 
Placement/rollover of matured time deposits   (38,412,268)  (15,722,749)  (27,223,584)  (4,216,396)  (50,079,755)  (42,946,333)  (6,651,540)
Proceeds from maturities of time deposits   19,442,266   11,481,135   25,790,186   3,994,391   33,082,883   37,271,321   5,772,593 
Change in other long-term assets   (76,103)  (54,653)  (44,877)  (6,951)  (86,625)  (99,530)  (15,415)
Net cash used in investing activities   (20,256,961)  (7,125,217)  (5,543,230)  (858,538)  (22,735,348)  (12,668,447)  (1,962,092)

 

The accompanying notes are an integral part of this announcement.                

 

11 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)                            

 

   Three Months Ended  Six Months Ended 
   June 30,  March 31,  June 30,  June 30,  June 30,  June 30,  June 30, 
   2020  2021  2021  2021  2020  2021  2021 
   RMB  RMB  RMB  USD (Note 1)  RMB  RMB  USD (Note 1) 
Cash flows from financing activities:                             
Proceeds of short-term loans   360,474   236,916   1,320,614   204,537   460,474   1,557,530   241,231 
Payment of short-term loans   (358,171)  (167,700)  (582,328)  (90,191)  (456,566)  (750,028)  (116,165)
Net changes in short-term loans with terms of three months or less   2,305,176   2,122,041   4,978,642   771,093   4,844,746   7,100,683   1,099,756 
Net amounts received from/ (paid for) issuance of shares in Hong Kong   22,083,467   (13,800)  -   -   22,083,467   (13,800)  (2,137)
Capital contribution from/ (repurchase of) noncontrolling interests and redeemable noncontrolling interests shareholders, net   163,865   1,507,049   8,176   1,266   (283,767)  1,515,225   234,678 
Cash paid for repurchase of NetEase's/purchase of Youdao's ADSs   (3,260,996)  (2,018,467)  (2,468,969)  (382,395)  (5,821,893)  (4,487,436)  (695,015)
Dividends paid to shareholders   (1,115,136)  (260,842)  (1,278,879)  (198,073)  (2,041,681)  (1,539,721)  (238,472)
Net cash provided by financing activities   20,178,679   1,405,197   1,977,256   306,237   18,784,780   3,382,453   523,876 
                              
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies   180,056   35,993   (25,112)  (3,889)  254,156   10,881   1,685 
Net increase/ (decrease) in cash, cash equivalents and restricted cash   4,874,082   (141,360)  1,131,720   175,281   7,576,545   990,360   153,387 
Cash, cash equivalents and restricted cash, at the beginning of the period   9,100,323   12,168,605   12,027,245   1,862,783   6,397,860   12,168,605   1,884,677 
Cash, cash equivalents and restricted cash, at end of the period   13,974,405   12,027,245   13,158,965   2,038,064   13,974,405   13,158,965   2,038,064 
                              
Supplemental disclosures of cash flow information:                             
Cash paid for income tax, net   548,556   550,191   1,240,692   192,159   750,600   1,790,883   277,372 
Cash paid for interest expense   55,301   43,902   48,082   7,447   152,012   91,984   14,247 

 

The accompanying notes are an integral part of this announcement.                          

 

12 

 

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

 

   Three Months Ended   Six Months Ended 
   June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30, 
   2020   2021   2021   2021   2020   2021   2021 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues:                                 
Online game services   13,828,256   14,981,784   14,528,082    2,250,113    27,346,500    29,509,866    4,570,496 
Youdao   623,290   1,339,867   1,293,407    200,323    1,164,678    2,633,274    407,842 
Innovative businesses and others   3,733,260   4,195,560   4,703,012    728,404    6,735,995    8,898,572    1,378,214 
Total net revenues   18,184,806   20,517,211   20,524,501    3,178,840    35,247,173    41,041,712    6,356,552 
                                  
Cost of revenues:                                 
Online game services   (5,009,354)  (5,302,713)  (4,921,966)   (762,315)   (9,861,185)   (10,224,679)   (1,583,601)
Youdao   (341,751)  (572,415)  (616,661)   (95,509)   (647,414)   (1,189,076)   (184,164)
Innovative businesses and others   (3,041,526)  (3,589,444)  (3,796,260)   (587,966)   (5,568,777)   (7,385,704)   (1,143,900)
Total cost of revenues   (8,392,631)  (9,464,572)  (9,334,887)   (1,445,790)   (16,077,376)   (18,799,459)   (2,911,665)
                                  
Gross profit:                                 
Online game services   8,818,902   9,679,071   9,606,116    1,487,798    17,485,315    19,285,187    2,986,895 
Youdao   281,539   767,452   676,746    104,814    517,264    1,444,198    223,678 
Innovative businesses and others   691,734   606,116   906,752    140,438    1,167,218    1,512,868    234,314 
Total gross profit   9,792,175   11,052,639   11,189,614    1,733,050    19,169,797    22,242,253    3,444,887 
                                  
Gross profit margin:                                 
Online game services   63.8%  64.6%  66.1%   66.1%   63.9%   65.4%   65.4%
Youdao   45.2%  57.3%  52.3%   52.3%   44.4%   54.8%   54.8%
Innovative businesses and others   18.5%  14.4%  19.3%   19.3%   17.3%   17.0%   17.0%

 

The accompanying notes are an integral part of this announcement.      

 

13 

 

 

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 = RMB6.4566 on the last trading day of June 2021 (June 30, 2021) 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):

 

   Three Months Ended  Six Months Ended 
   June 30,  March 31,  June 30,  June 30,  June 30,  June 30,  June 30, 
   2020  2021  2021  2021  2020  2021  2021 
   RMB  RMB  RMB  USD (Note 1)  RMB  RMB  USD (Note 1) 
Share-based compensation cost included in:                      
Cost of revenues  204,953  187,926  197,370  30,569  412,868  385,296  59,675 
Operating expenses                      
- Selling and marketing expenses  27,034  24,231  26,434  4,094  51,845  50,665  7,847 
- General and administrative expenses  247,589  229,603  258,544  40,043  477,960  488,147  75,604 
- Research and development expenses  212,369  208,493  217,766  33,728  415,086  426,259  66,019 

 

The accompanying notes are an integral part of this announcement.                  

 

14 

 

 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

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

                               

 

   Three Months Ended  Six Months Ended
   June 30,  March 31,  June 30,  June 30,  June 30,  June 30,  June 30,
   2020  2021  2021  2021  2020  2021  2021
   RMB  RMB  RMB  USD (Note 1)  RMB  RMB  USD (Note 1)
Net income attributable to the Company’s shareholders  4,537,806  4,439,152  3,541,754  548,547  8,088,812  7,980,906  1,236,085
Add: Share-based compensation  688,227  641,534  686,111  106,265  1,350,098  1,327,645  205,626
Non-GAAP net income attributable to the Company’s shareholders  5,226,033  5,080,686  4,227,865  654,812  9,438,910  9,308,551  1,441,711
                      
Non-GAAP net income per share *                     
Basic  1.61  1.52  1.26  0.20  2.92  2.78  0.43
Diluted  1.59  1.49  1.25  0.19  2.88  2.74  0.42
                      
Non-GAAP net income per ADS *                     
Basic  8.06  7.58  6.31  0.98  14.58  13.90  2.15
Diluted  7.96  7.47  6.24  0.97  14.40  13.72  2.12

 

*  Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.                    

 

15