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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 6-K

 

 

 

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

 

For the month of November 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 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

 

 

 

 

 

 

NETEASE, INC.

 

Form 6-K

 

TABLE OF CONTENTS

 

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

 

2

 

 

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: November 16, 2021    

 

3

 

 

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 Third Quarter 2021 Unaudited Financial Results

 

(Hangzhou- November 16, 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 third quarter ended September 30, 2021.

 

Third Quarter 2021 Financial Highlights

 

·Net revenues were RMB22.2 billion (US$3.4 billion), an increase of 18.9% compared with the third quarter of 2020.

 

·Online game services net revenues were RMB15.9 billion (US$2.5 billion), an increase of 14.7% compared with the third quarter of 2020.

 

·Youdao net revenues were RMB1.4 billion (US$215.3 million), an increase of 54.8% compared with the third quarter of 2020.

 

·Innovative businesses and others net revenues were RMB4.9 billion (US$761.1 million), an increase of 25.7% compared with the third quarter of 2020.

 

·Gross profit was RMB11.8 billion (US$1.8 billion), an increase of 19.5% compared with the third quarter of 2020.

 

·Total operating expenses were RMB8.0 billion (US$1.2 billion), an increase of 14.5% compared with the third quarter of 2020.

 

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·Net income attributable to the Company’s shareholders was RMB3.2 billion (US$493.8 million). Non-GAAP net income attributable to the Company’s shareholders was RMB3.9 billion (US$598.7 million). [1]

 

·Basic net income per share was US$0.15 (US$0.74 per ADS). Non-GAAP basic net income per share was US$0.18 (US$0.90 per ADS). [1]

 

Third Quarter 2021 and Recent Operational Highlights

 

·Broadened games portfolio and strengthened global appeal with new games in diverse genres including:

 

·Naraka: Bladepoint, which broke the sales record of buy-to-play games by Chinese developers and led the Steam top-sellers chart, remaining in the top 5 for weeks following its global launch in August.

 

·Harry Potter: Magic Awakened, which led China’s iOS top grossing chart and top download chart following its launch in September.

 

·Exciting new titles in China such as Ace Racer, Infinite Lagrange and Nightmare Breaker.

 

·Launched The Lord of the Rings: Rise to War in Europe, the Americas, Oceania and Southeast Asia.

 

·Extended solid popularity of franchise titles including the Fantasy Westward Journey and Westward Journey Online series.

 

·Enriched dynamic game development pipeline with exciting advancements to upcoming games including The Showbiz: Dream Chaser, the console version of Naraka: Bladepoint, Diablo® Immortal™, as well as Ghost World Chronicle, and Harry Potter: Magic Awakened in international markets.

 

·Progressed Youdao’s capabilities as an education technology provider, with steady advancements in STEAM courses, adult learning and smart learning hardware devices.

 

·Expanded NetEase Cloud Music’s content ecosystem and product innovation capabilities to strengthen its highly-engaged music-enteric community, delivering a solid financial performance.

 

 

[1] As used in this announcement, non-GAAP net income attributable to the Company’s shareholders and non-GAAP basic 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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“With strong and steady contributions from our online game services, our total net revenues for the third quarter reached RMB22.2 billion, an increase of 18.9% year-over-year,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “It was a very fruitful season of diversification for our online games. Our flagship titles remained strong, and we introduced several new successful hits for PC and mobile platforms. New games such as Naraka: Bladepoint and Harry Potter: Magic Awakened captured wide interest from passionate game players who appreciate high quality game design. We will continue to bring more masterpieces to both domestic and global players in upcoming quarters. In addition, Youdao, NetEase Cloud Music and Yanxuan maintain their diverse and differentiated offerings. As an innovation-driven content creator, we will continue to deliver thoughtful premium content and products to our users across each of our carefully cultivated disciplines,” Mr. Ding concluded.

 

Third Quarter 2021 Financial Results

 

Net Revenues

 

Net revenues for the third quarter of 2021 were RMB22,190.7 million (US$3,444.0 million), compared with RMB20,524.5 million and RMB18,658.2 million for the preceding quarter and the third quarter of 2020, respectively.

 

Net revenues from online game services were RMB15,899.1 million (US$2,467.5 million) for the third quarter of 2021, compared with RMB14,528.1 million and RMB13,862.0 million for the preceding quarter and the third quarter of 2020, respectively. Net revenues from mobile games accounted for approximately 69.2% of net revenues from online game services for the third quarter of 2021, compared with 72.1% and 72.7% for the preceding quarter and the third quarter of 2020, respectively.

 

Net revenues from Youdao were RMB1,387.3 million (US$215.3 million) for the third quarter of 2021, compared with RMB1,293.4 million and RMB896.0 million for the preceding quarter and the third quarter of 2020, respectively.

 

Net revenues from innovative businesses and others were RMB4,904.4 million (US$761.1 million) for the third quarter of 2021, compared with RMB4,703.0 million and RMB3,900.1 million for the preceding quarter and the third quarter of 2020, respectively.

 

Gross Profit

 

Gross profit for the third quarter of 2021 was RMB11,810.8 million (US$1,833.0 million), compared with RMB11,189.6 million and RMB9,885.8 million for the preceding quarter and the third quarter of 2020, respectively.

 

The quarter-over-quarter and year-over-year increases in online game services gross profit were primarily due to increased net revenues resulting from the launch of new games such as Naraka: Bladepoint and Harry Potter: Magic Awakened, as well as from existing games such as Fantasy Westward Journey Online and Westward Journey Online II.

 

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The quarter-over-quarter and year-over-year increases in Youdao gross profit were 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 decrease in innovative businesses and others gross profit was primarily due to decreased gross profit from NetEase CC and other services. The year-over-year increase was primarily due to the increased net revenues from and improved cost control at NetEase Cloud Music.

 

Gross Profit Margin

 

Gross profit margin for online game services for the third quarter of 2021 was 64.5%, compared with 66.1% and 63.6% for the preceding quarter and the third quarter of 2020, respectively. Gross profit margin for online game services generally fluctuates 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 third quarter of 2021 was 56.6%, compared with 52.3% and 45.9% for the preceding quarter and the third quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were primarily attributable to the factors enumerated above.

 

Gross profit margin for innovative businesses and others for the third quarter of 2021 was 15.6%, compared with 19.3% and 16.8% for the preceding quarter and the third quarter of 2020, respectively. The fluctuation of gross profit margin is influenced by revenue contributions of different businesses and their respective gross profit margin.

 

Operating Expenses

 

Total operating expenses for the third quarter of 2021 were RMB8,035.6 million (US$1,247.1 million), compared with RMB7,431.5 million and RMB7,015.7 million for the preceding quarter and the third quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were mainly due to higher staff-related costs and research and development investments.

 

Other Income/ (Expenses)

 

Other income/ (expenses) comprised investment income/ (loss), interest income, exchange (losses)/ gains and others. The quarter-over-quarter and year-over-year changes were mainly due to investment income/ (loss) arising from fair value changes of equity investments with readily determinable fair value and unrealized net exchange (losses)/ gains 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.

 

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Income Taxes

 

The Company recorded a net income tax charge of RMB807.6 million (US$125.3 million) for the third quarter of 2021, compared with RMB1,113.2 million and RMB342.7 million for the preceding quarter and the third quarter of 2020, respectively. The effective tax rate for the third quarter of 2021 was 19.6%, compared with 24.3% and 10.9% for the preceding quarter and the third 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.

 

Net Income and Non-GAAP Net Income

 

Net income attributable to the Company’s shareholders totaled RMB3,181.8 million (US$493.8 million) for the third quarter of 2021, compared with RMB3,541.8 million and RMB2,998.2 million for the preceding quarter and the third quarter of 2020, respectively.

 

Non-GAAP net income attributable to the Company’s shareholders totaled RMB3,857.8 million (US$598.7 million) for the third quarter of 2021, compared with RMB4,227.9 million and RMB3,669.2 million for the preceding quarter and the third quarter of 2020, respectively.

 

NetEase reported basic net income of US$0.15 per share (US$0.74 per ADS) for the third quarter of 2021, compared with US$0.16 per share (US$0.82 per ADS) and US$0.14 per share (US$0.69 per ADS) for the preceding quarter and the third quarter of 2020, respectively.

 

NetEase reported non-GAAP basic net income of US$0.18 per share (US$0.90 per ADS) for the third quarter of 2021, compared with US$0.20 per share (US$0.98 per ADS) and US$0.17 per share (US$0.84 per ADS) for the preceding quarter and the third quarter of 2020, respectively.

 

Quarterly Dividend

 

The board of directors has approved a dividend of US$0.0450 per share (US$0.2250 per ADS) for the third quarter of 2021, to holders of ordinary shares and holders of ADSs as of the close of business on December 1, 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 December 1, 2021 (Beijing/ Hong Kong Time). The payment date is expected to be on December 13, 2021 for holders of ordinary shares and on or around December 16, 2021 for holders of ADSs.

 

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NetEase paid a dividend of US$0.0480 per share (US$0.2400 per ADS) for the second quarter of 2021 in September 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 September 30, 2021, the Company’s total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB98.3 billion (US$15.3 billion), compared with RMB100.1 billion as of December 31, 2020. Cash flow generated from operating activities was RMB6.3 billion (US$976.6 million) for the third quarter of 2021, compared with RMB4.7 billion and RMB5.4 billion for the preceding quarter and the third quarter of 2020, respectively.

 

Update on Youdao’s Disposition of Academic After-School Tutoring Business

 

As previously disclosed, in order to comply with applicable regulatory requirements, Youdao plans to dispose of its after-school tutoring business for academic subjects included in China’s compulsory education system. Youdao currently expects the transaction to be completed by the end of 2021, subject to execution of the definitive agreements and regulatory approval, although there can be no assurance as to if or when the proposed transaction will be completed.

 

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. On August 31, 2021, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of September 30, 2021, approximately 13.5 million ADSs had been repurchased under this program for a total cost of US$1.3 billion.

 

On August 31, 2021, the Company 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. As of September 30, 2021, approximately 0.1 million ADSs had been purchased under this program for a total cost of US$1.8 million.

 

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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$1.00 = RMB6.4434 on September 30, 2021 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 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 7:00 a.m. New York Time on Tuesday, November 16, 2021 (Beijing/ Hong Kong Time: 8:00 p.m., Tuesday, November 16, 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: 1483146, 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 1483146#. The replay will be available through November 29, 2021.

 

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/.

 

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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,   September 30,   September 30, 
   2020   2021   2021 
    RMB    RMB    USD (Note 1) 
Assets               
Current assets:               
Cash and cash equivalents   9,117,219    22,266,781    3,455,750 
Time deposits   71,079,327    59,412,400    9,220,660 
Restricted cash   3,051,386    3,461,021    537,142 
Accounts receivable, net   4,576,445    5,422,326    841,532 
Inventories, net   621,207    1,038,607    161,189 
Prepayments and other current assets, net   6,112,433    7,688,224    1,193,194 
Short-term investments   13,273,026    9,654,207    1,498,309 
Total current assets   107,831,043    108,943,566    16,907,776 
Non-current assets:               
Property, equipment and software, net   4,555,406    4,956,832    769,288 
Land use right, net   4,178,257    4,112,765    638,291 
Deferred tax assets   1,086,759    1,103,624    171,280 
Time deposits   6,630,000    6,953,000    1,079,089 
Restricted cash   -    1,409    219 
Other long-term assets, net   17,593,117    21,717,108    3,370,442 
Total non-current assets   34,043,539    38,844,738    6,028,609 
Total assets   141,874,582    147,788,304    22,936,385 
                
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity               
Current liabilities:               
Accounts payable   1,134,413    1,098,916    170,549 
Salary and welfare payables   3,538,732    2,584,787    401,153 
Taxes payable   4,282,835    4,009,110    622,204 
Short-term loans   19,504,696    19,614,143    3,044,067 
Deferred revenue   10,945,143    13,570,701    2,106,140 
Accrued liabilities and other payables   7,337,672    8,130,628    1,261,854 
Total current liabilities   46,743,491    49,008,285    7,605,967 
Non-current liabilities:               
Deferred tax liabilities   713,439    1,582,558    245,609 
Other long-term payable   623,728    747,260    115,973 
Total non-current liabilities   1,337,167    2,329,818    361,582 
Total liabilities   48,080,658    51,338,103    7,967,549 
Redeemable noncontrolling interests   10,796,120    11,345,638    1,760,815 
NetEase, Inc.’s shareholders’ equity   82,126,798    83,780,065    13,002,462 
Noncontrolling interests   871,006    1,324,498    205,559 
Total shareholders’ equity   82,997,804    85,104,563    13,208,021 
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   141,874,582    147,788,304    22,936,385 

  

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     Nine Months Ended  
    September 30,     June 30,     September 30,     September 30,     September 30,     September 30,     September 30,  
    2020     2021     2021     2021     2020     2021     2021  
    RMB     RMB     RMB     USD (Note 1)     RMB     RMB     USD (Note 1)  
Net revenues     18,658,222       20,524,501       22,190,749       3,443,950       53,905,395       63,232,461       9,813,524  
Cost of revenues     (8,772,379 )     (9,334,887 )     (10,379,981 )     (1,610,948 )     (24,849,755 )     (29,179,440 )     (4,528,578 )
Gross profit     9,885,843       11,189,614       11,810,768       1,833,002       29,055,640       34,053,021       5,284,946  
                                                         
Operating expenses:                                                        
Selling and marketing expenses     (3,442,821 )     (3,013,447 )     (3,134,030 )     (486,394 )     (7,627,289 )     (8,914,159 )     (1,383,456 )
General and administrative expenses     (783,815 )     (1,011,183 )     (1,140,296 )     (176,971 )     (2,561,871 )     (3,101,673 )     (481,372 )
Research and development expenses     (2,789,051 )     (3,406,859 )     (3,761,239 )     (583,735 )     (7,340,006 )     (10,228,287 )     (1,587,405 )
Total operating expenses     (7,015,687 )     (7,431,489 )     (8,035,565 )     (1,247,100 )     (17,529,166 )     (22,244,119 )     (3,452,233 )
Operating profit     2,870,156       3,758,125       3,775,203       585,902       11,526,474       11,808,902       1,832,713  
                                                         
Other income / (expenses):                                                        
Investment income/ (loss), net     1,280,483       889,392       (264,611 )     (41,067 )     1,881,911       1,320,079       204,873  
Interest income, net     446,914       386,207       349,550       54,249       1,188,617       1,124,685       174,548  
Exchange (losses) / gains, net     (1,571,326 )     (591,720 )     153,310       23,793       (1,310,261 )     (159,091 )     (24,691 )
Other, net     109,940       147,588       117,636       18,257       597,847       413,191       64,126  
Income before tax     3,136,167       4,589,592       4,131,088       641,134       13,884,588       14,507,766       2,251,569  
Income tax     (342,700 )     (1,113,228 )     (807,648 )     (125,345 )     (2,489,188 )     (3,194,284 )     (495,745 )
Net income     2,793,467       3,476,364       3,323,440       515,789       11,395,400       11,313,482       1,755,824  
Accretion and deemed dividends in
connection with repurchase of
redeemable noncontrolling interests		     (118,448 )     (145,415 )     (147,825 )     (22,942 )     (655,425 )     (437,067 )     (67,832 )
Net loss attributable to noncontrolling
interests		     323,221       210,805       6,167       957       347,077       286,273       44,429  
Net income attributable to the Company’s shareholders     2,998,240       3,541,754       3,181,782       493,804       11,087,052       11,162,688       1,732,421  
Net income per share *                                                        
Basic     0.89       1.06       0.96       0.15       3.37       3.34       0.52  
Diluted     0.87       1.05       0.95       0.15       3.33       3.30       0.51  
Net income per ADS *                                                        
Basic     4.43       5.29       4.78       0.74       16.87       16.71       2.59  
Diluted     4.37       5.23       4.73       0.73       16.65       16.50       2.56  
Weighted average number of ordinary shares used in calculating net income per share *                                                        
Basic     3,384,051       3,347,507       3,325,892       3,325,892       3,286,194       3,340,925       3,340,925  
Diluted     3,431,274       3,385,953       3,361,727       3,361,727       3,329,149       3,382,467       3,382,467  

 

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

 

11

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)                              

 

   Three Months Ended   Nine Months Ended 
   September 30,   June 30,   September 30,   September 30,   September 30,   September 30,   September 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   2,793,467    3,476,364    3,323,440    515,789    11,395,400    11,313,482    1,755,824 
Adjustments to reconcile net income to net cash provided by operating activities:                                   
Depreciation and amortization   913,049    814,370    805,485    125,009    2,495,256    2,439,685    378,633 
Fair value changes of equity security investments   (1,103,428)   (203,720)   1,194,338    185,358    (1,279,669)   513,021    79,620 
Impairment losses of investments and other long-term assets   -    4,797    26,055    4,044    6,600    30,852    4,788 
Fair value changes of short-term investments   (133,943)   (170,676)   (184,564)   (28,644)   (461,787)   (473,244)   (73,446)
Share-based compensation cost   676,751    700,114    688,226    106,811    2,034,510    2,038,593    316,385 
(Reversal of)/ allowance for expected credit losses   (2,146)   27,384    212,010    32,903    46,488    252,998    39,265 
Losses on disposal of property, equipment and software   2,645    1,424    4,008    622    3,752    5,273    818 
Unrealized exchange losses/ (gains)   1,568,627    572,708    (157,292)   (24,411)   1,305,960    141,369    21,940 
Losses/ (gains) on disposal of long-term investments, business and subsidiaries   2,995    (166,505)   (1)   -    (27,241)   (173,829)   (26,978)
Deferred income taxes   (550,137)   202,894    307,994    47,800    162,220    838,963    130,205 
Share of results on equity method investees and revaluation gains from previously held equity interest   (28,915)   (342,760)   (730,363)   (113,351)   (86,074)   (1,125,015)   (174,600)
Changes in operating assets and liabilities:                                   
Accounts receivable   43,177    573,111    (1,178,290)   (182,868)   (885,908)   (1,089,522)   (169,091)
Inventories   34,429    (9,608)   (154,072)   (23,911)   126,198    (417,175)   (64,745)
Prepayments and other assets   65,383    593,379    (38,490)   (5,974)   (804,808)   (230,335)   (35,747)
Accounts payable   147,811    (178,097)   172,696    26,802    (222,565)   (66,055)   (10,251)
Salary and welfare payables   (447,645)   856,775    (647,029)   (100,417)   (853,515)   (1,016,409)   (157,744)
Taxes payable   240,464    (1,397,390)   (434,893)   (67,494)   906,404    (273,665)   (42,472)
Deferred revenue   1,000,530    (381,446)   2,154,751    334,412    1,774,212    2,514,243    390,204 
Accrued liabilities and other payables   177,853    (250,312)   928,647    144,124    1,038,491    1,334,899    207,173 
Net cash provided by operating activities   5,400,967    4,722,806    6,292,656    976,604    16,673,924    16,558,129    2,569,781 
Cash flows from investing activities:                                   
Purchase of property, equipment and software   (350,866)   (421,872)   (407,688)   (63,272)   (752,225)   (1,159,306)   (179,921)
Proceeds from sale of property, equipment and software   4,903    2,458    11,030    1,712    9,645    15,007    2,329 
Purchase of intangible assets, content and licensed copyrights   (755,132)   (566,736)   (218,168)   (33,859)   (1,901,408)   (1,211,037)   (187,950)
Net change in short-term investments with terms of three months or less   298,667    1,668,673    167,978    26,070    601,474    5,169,261    802,257 
Purchase of short-term investments   (4,555,000)   (2,450,000)   (630,000)   (97,774)   (17,705,000)   (10,985,000)   (1,704,845)
Proceeds from maturities of short-term investments   11,295,357    813,211    6,251,750    970,256    20,528,551    9,922,302    1,539,917 
Investment in long-term investments and acquisition of subsidiaries   (647,533)   (3,376,973)   (586,124)   (90,965)   (1,373,300)   (4,521,538)   (701,732)
Proceeds from disposal of long-term investments, businesses and subsidiaries   397,342    266,284    33,731    5,235    628,150    498,915    77,431 
Placement/rollover of matured time deposits   (26,718,380)   (27,223,584)   (11,723,614)   (1,819,476)   (76,798,135)   (54,669,947)   (8,484,643)
Proceeds from maturities of time deposits   13,550,559    25,790,186    28,328,155    4,396,461    46,633,442    65,599,476    10,180,879 
Change in other long-term assets   (21,957)   (44,877)   (69,429)   (10,775)   (108,582)   (168,959)   (26,222)
Net cash (used in)/ provided by investing activities   (7,502,040)   (5,543,230)   21,157,621    3,283,613    (30,237,388)   8,489,174    1,317,500 

 

The accompanying notes are an integral part of this announcement.

 

12

 

 

 

 

 

NETEASE, INC. 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)

 

   Three Months Ended   Nine Months Ended 
   September 30,   June 30,   September 30,   September 30,   September 30,   September 30,   September 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   68,978    1,320,614    612,885    95,118    529,452    2,170,415    336,843 
Payment of short-term loans   -    (582,328)   (235,284)   (36,516)   (456,566)   (985,312)   (152,918)
Net changes in short-term loans with terms of three months or less   1,031,040    4,978,642    (7,967,910)   (1,236,600)   5,875,786    (867,227)   (134,592)
Net amounts (paid for)/ received from issuance of shares in Hong Kong   (212)   -    -    -    22,083,255    (13,800)   (2,142)
Capital contribution from/ (repurchase of) noncontrolling interests and redeemable noncontrolling interests shareholders, net   4,815    8,176    34,800    5,401    (278,952)   1,550,025    240,560 
Cash paid for repurchase of NetEase's/purchase of Youdao's ADSs   (2,223,165)   (2,468,969)   (6,310,841)   (979,427)   (8,045,058)   (10,798,277)   (1,675,866)
Dividends paid to shareholders   (1,377,570)   (1,278,879)   (1,028,116)   (159,561)   (3,419,251)   (2,567,837)   (398,522)
Net cash (used in)/ provided by financing activities   (2,496,114)   1,977,256    (14,894,466)   (2,311,585)   16,288,666    (11,512,013)   (1,786,637)
Effect of exchange rate changes on cash, cash equivalents                                   
and restricted cash held in foreign currencies   (25,033)   (25,112)   14,435    2,240    229,123    25,316    3,929 
Net (decrease)/ increase in cash, cash equivalents and restricted cash   (4,622,220)   1,131,720    12,570,246    1,950,872    2,954,325    13,560,606    2,104,573 
Cash, cash equivalents and restricted cash, at the beginning of the period   13,974,405    12,027,245    13,158,965    2,042,239    6,397,860    12,168,605    1,888,538 
Cash, cash equivalents and restricted cash, at end of the period   9,352,185    13,158,965    25,729,211    3,993,111    9,352,185    25,729,211    3,993,111 
Supplemental disclosures of cash flow information:                                   
Cash paid for income tax, net   948,130    1,240,692    898,112    139,385    1,698,730    2,688,995    417,325 
Cash paid for interest expense   47,862    48,082    52,765    8,189    199,874    144,749    22,465 

 

The accompanying notes are an integral part of this announcement.

 

13

 

 

NETEASE, INC. 

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

 

   Three Months Ended   Nine Months Ended 
   September 30,   June 30,   September 30,   September 30,   September 30,   September 30,   September 30, 
   2020   2021   2021   2021   2020   2021   2021 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues:                                   
Online game services   13,862,035    14,528,082    15,899,070    2,467,497    41,208,535    45,408,936    7,047,356 
Youdao   896,041    1,293,407    1,387,292    215,304    2,060,719    4,020,566    623,982 
Innovative businesses and others   3,900,146    4,703,012    4,904,387    761,149    10,636,141    13,802,959    2,142,186 
Total net revenues   18,658,222    20,524,501    22,190,749    3,443,950    53,905,395    63,232,461    9,813,524 
                                    
Cost of revenues:                                   
Online game services   (5,044,177)   (4,921,966)   (5,637,027)   (874,853)   (14,905,362)   (15,861,706)   (2,461,698)
Youdao   (484,488)   (616,661)   (601,741)   (93,389)   (1,131,902)   (1,790,817)   (277,930)
Innovative businesses and others   (3,243,714)   (3,796,260)   (4,141,213)   (642,706)   (8,812,491)   (11,526,917)   (1,788,950)
Total cost of revenues   (8,772,379)   (9,334,887)   (10,379,981)   (1,610,948)   (24,849,755)   (29,179,440)   (4,528,578)
                                    
Gross profit:                                   
Online game services   8,817,858    9,606,116    10,262,043    1,592,644    26,303,173    29,547,230    4,585,658 
Youdao   411,553    676,746    785,551    121,915    928,817    2,229,749    346,052 
Innovative businesses and others   656,432    906,752    763,174    118,443    1,823,650    2,276,042    353,236 
Total gross profit   9,885,843    11,189,614    11,810,768    1,833,002    29,055,640    34,053,021    5,284,946 
                                    
Gross profit margin:                                   
Online game services   63.6%   66.1%   64.5%   64.5%   63.8%   65.1%   65.1%
Youdao   45.9%   52.3%   56.6%   56.6%   45.1%   55.5%   55.5%
Innovative businesses and others   16.8%   19.3%   15.6%   15.6%   17.1%   16.5%   16.5%

 

The accompanying notes are an integral part of this announcement.

 

14

 

 

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 = RMB6.4434 on the last trading day of September 2021 (September 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   Nine Months Ended 
   September 30,   June 30,   September 30,   September 30,   September 30,   September 30,   September 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   200,116    197,370    180,669    28,039    612,984    565,965    87,836 
Operating expenses                                   
- Selling and marketing expenses   25,563    26,434    29,289    4,546    77,408    79,954    12,409 
- General and administrative expenses   236,323    258,544    258,805    40,166    714,283    746,952    115,925 
- Research and development expenses   214,749    217,766    219,463    34,060    629,835    645,722    100,215 

 

The accompanying notes are an integral part of this announcement.

 

15

 

 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

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

 

   Three Months Ended   Nine Months Ended 
   September 30,   June 30,   September 30,   September 30,   September 30,   September 30,   September 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   2,998,240    3,541,754    3,181,782    493,804    11,087,052    11,162,688    1,732,421 
Add: Share-based compensation   671,004    686,111    675,999    104,913    2,021,102    2,003,644    310,961 
Non-GAAP net income attributable to the Company’s shareholders   3,669,244    4,227,865    3,857,781    598,717    13,108,154    13,166,332    2,043,382 
                                    
Non-GAAP net income per share *                                   
Basic   1.08    1.26    1.16    0.18    3.99    3.94    0.61 
Diluted   1.07    1.25    1.15    0.18    3.94    3.89    0.60 
                                    
Non-GAAP net income per ADS *                                   
Basic   5.42    6.31    5.80    0.90    19.94    19.70    3.06 
Diluted   5.35    6.24    5.74    0.89    19.69    19.46    3.02 

 

* Each ADS represents five ordinary shares.

 

The accompanying notes are an integral part of this announcement.

 

16