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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 2022

 

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): ¨

 

 

 

 

 

 

Exhibits

 

Exhibit 99.1 - NetEase Reports Second Quarter 2022 Unaudited Financial Results

 

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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 18, 2022      

 

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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 2022 Unaudited Financial Results

 

(Hangzhou- August 18, 2022)- 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, 2022.

 

Second Quarter 2022 Financial Highlights

 

·Net revenues were RMB23.2 billion (US$3.5 billion), an increase of 12.8% compared with the second quarter of 2021.

 

·Games and related value-added services net revenues were RMB18.1 billion (US$2.7 billion), an increase of 15.0% compared with the second quarter of 2021.[1]

 

·Youdao net revenues were RMB956.2 million (US$142.8 million), a decrease of 26.1% compared with the second quarter of 2021.

 

·Cloud Music net revenues were RMB2.2 billion (US$327.2 million), an increase of 29.5% compared with the second quarter of 2021.

 

·Innovative businesses and others net revenues were RMB1.9 billion (US$279.4 million), an increase of 6.1% compared with the second quarter of 2021.[1]

 

·Gross profit was RMB12.9 billion (US$1.9 billion), an increase of 15.7% compared with the second quarter of 2021.

 

·Total operating expenses were RMB8.0 billion (US$1.2 billion), an increase of 7.6% compared with the second quarter of 2021.

 

 

[1] Effective as of the second quarter of 2022, the Company renamed its “online game services” segment as “games and related value-added services,” and transferred certain business lines that are related or ancillary to its games from “innovative businesses and others” to “games and related value-added services.” The Company retrospectively recast prior periods’ segment information to conform to the current period presentation. See “Change in Segment Reporting” in this announcement.

 

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·Net income from continuing operations attributable to the Company’s shareholders was RMB4.7 billion (US$696.7 million). Non-GAAP net income from continuing operations attributable to the Company’s shareholders was RMB5.4 billion (US$807.7 million). [2]

 

·Basic net income from continuing operations per share was US$0.21 (US$1.07 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.25 (US$1.23 per ADS).[2]

 

Second Quarter 2022 and Recent Operational Highlights

 

·Delivered captivating content updates for popular title Naraka: Bladepoint and launched its Xbox version in June.

 

·Diablo® Immortal™, co-developed by NetEase and Blizzard Entertainment, made its debut in the global market, which topped iOS download charts in multiple regions.

 

·Extended the longevity of leading franchise titles including both the Fantasy Westward Journey and Westward Journey Online series and maintained the popularity of other hit titles including Identity V and Infinite Lagrange.

 

·Propelled pipeline by advancing new games under development including Naraka: Bladepoint mobile game, Justice mobile game and Ghost World Chronicle, as well as the roll-out of Harry Potter: Magic Awakened in international markets.

 

·Achieved positive operating cashflow from Youdao, maintained sound development of its STEAM courses and demonstrated the resilience of its smart devices.

 

·Enhanced content and product innovation at Cloud Music, driving solid growth in net revenues and continued margin improvement while securing multiple licensing agreements with major overseas and domestic music labels including SM Entertainment and TF Entertainment.

 

“In the second quarter, we generated solid results with total net revenues of RMB23.2 billion, an increase of 12.8% year-over-year,” said Mr. William Ding, CEO and Director of NetEase. “Players continued to gravitate to our longstanding games in the second quarter, highlighting our strength in game operations longevity. Moreover, the launch of Diablo® Immortal™ attracted the attention of gamers around the world, showcasing our exceptional mobile game development capabilities. With our strong in-house R&D team in China and our very own studios in Canada, Japan and the U.S., as well as plans for other regions in the future, we are spearheading the next generation of top-quality games for the global gaming community.

 

 

[2] As used in this announcement, non-GAAP net income from continuing operations attributable to the Company’s shareholders and non-GAAP basic and diluted net income from continuing operations per 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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“Youdao and Cloud Music are also making key advancements that bolster their operations. With exciting gains across our business lines, we hope to make the NetEase brand synonymous with impressive technology, outstanding service and entertainment in its finest form,” Mr. Ding concluded.

 

Second Quarter 2022 Financial Results

 

Net Revenues

 

Net revenues for the second quarter of 2022 were RMB23,159.1 million (US$3,457.6 million), compared with RMB23,555.8 million and RMB20,524.5 million for the preceding quarter and the second quarter of 2021, respectively.

 

Net revenues from games and related value-added services, which include both the operation of online games as well as other related or ancillary services to the games, were RMB18,139.8 million (US$2,708.2 million) for the second quarter of 2022, compared with RMB18,641.8 million and RMB15,774.8 million for the preceding quarter and the second quarter of 2021, respectively. Net revenues from the operation of online games, which is the primary component of this segment, accounted for approximately 92.8% of net revenues from games and related value-added services for the second quarter of 2022, compared with 92.7% and 92.1% for the preceding quarter and the second quarter of 2021, respectively. Net revenues from mobile games accounted for approximately 66.1% of net revenues from the operation of online games for the second quarter of 2022, compared with 66.9% and 72.1% for the preceding quarter and the second quarter of 2021, respectively.

 

Net revenues from Youdao were RMB956.2 million (US$142.8 million) for the second quarter of 2022, compared with RMB1,200.5 million and RMB1,293.4 million for the preceding quarter and the second quarter of 2021, respectively.

 

Net revenues from Cloud Music were RMB2,191.5 million (US$327.2 million) for the second quarter of 2022, compared with RMB2,067.2 million and RMB1,692.5 million for the preceding quarter and the second quarter of 2021, respectively.

 

Net revenues from innovative businesses and others were RMB1,871.5 million (US$279.4 million) for the second quarter of 2022, compared with RMB1,646.3 million and RMB1,763.8 million for the preceding quarter and the second quarter of 2021, respectively.

 

Gross Profit

 

Gross profit for the second quarter of 2022 was RMB12,941.5 million (US$1,932.1 million), compared with RMB12,836.4 million and RMB11,189.6 million for the preceding quarter and the second quarter of 2021, respectively.

 

The year-over-year increase in games and related value-added services gross profit was primarily due to increased net revenues from both mobile and PC games, including the newly launched Naraka: Bladepoint and Harry Potter: Magic Awakened which were released in the third quarter of 2021 and other existing games such as Fantasy Westward Journey Online.

 

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The quarter-over-quarter decrease in Youdao gross profit primarily resulted from a decline in economic scale due to decreased learning services revenues in the second quarter of 2022. The year-over-year decrease was mainly due to the conclusion of its after-school tutoring services for academic subjects under China’s compulsory education system.

 

The quarter-over-quarter and year-over-year increases in Cloud Music gross profit were primarily due to increased net revenues from its membership subscriptions and social entertainment services, as well as improved cost control.

 

The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to increased gross profit contribution from Yanxuan and advertising services.

 

Gross Profit Margin

 

Gross profit margin for games and related value-added services for the second quarter of 2022 was 64.9%, compared with 62.2% and 63.2% for the preceding quarter and the second quarter of 2021, respectively. Gross profit margin for games and related value-added services is generally stable, fluctuating within a narrow band based on the revenue mix of NetEase’s mobile and PC games, self-developed, co-developed and licensed games, as well as the relative revenue contribution from different distribution channels.

 

Gross profit margin for Youdao for the second quarter of 2022 was 42.8%, compared with 53.1% and 52.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year decreases were primarily attributable to the factors enumerated above.

 

Gross profit margin for Cloud Music was 13.0% for the second quarter of 2022, compared with 12.2% and 4.1% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the factors enumerated above.

 

Gross profit margin for innovative businesses and others for the second quarter of 2022 was 25.8%, compared with 21.7% and 27.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to changes in the gross profit margin from advertising services.

 

Operating Expenses

 

Total operating expenses for the second quarter of 2022 were RMB7,995.2 million (US$1,193.6 million), compared with RMB7,329.3 million and RMB7,431.5 million for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to games and related value-added services, as well as higher staff-related costs and research and development investments.

 

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Other Income/ (Expenses)

 

Other income/ (expenses) consisted of investment income/ (loss), interest income, exchange gains/ (losses) and others. The quarter-over-quarter increase was mainly due to net unrealized exchange gains arising from the Company’s U.S. dollar-denominated bank deposits and loans balances as the exchange rate of the U.S. dollar against the RMB fluctuated in the second quarter of 2022.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB1,259.3 million (US$188.0 million) for the second quarter of 2022, compared with RMB1,219.3 million and RMB1,113.2 million for the preceding quarter and the second quarter of 2021, respectively. The effective tax rate for the second quarter of 2022 was 22.0%, compared with 22.0% and 24.3% for the preceding quarter and the second quarter of 2021, 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 from continuing operations attributable to the Company’s shareholders totaled RMB4,666.6 million (US$696.7 million) for the second quarter of 2022, compared with RMB4,394.0 million and RMB3,541.8 million for the preceding quarter and the second quarter of 2021, respectively. Net income from discontinued operations attributable to the Company’s shareholders totaled RMB624.9 million (US$93.3 million), which was related to the disposal of the Kaola business.

 

Non-GAAP net income from continuing operations attributable to the Company’s shareholders totaled RMB5,409.8 million (US$807.7 million) for the second quarter of 2022, compared with RMB5,117.6 million and RMB4,227.9 million for the preceding quarter and the second quarter of 2021, respectively.

 

NetEase reported basic net income from continuing operations of US$0.21 per share (US$1.07 per ADS) for the second quarter of 2022, compared with US$0.20 per share (US$1.00 per ADS) and US$0.16 per share (US$0.79 per ADS) for the preceding quarter and the second quarter of 2021, respectively.

 

NetEase reported non-GAAP basic net income from continuing operations of US$0.25 per share (US$1.23 per ADS) for the second quarter of 2022, compared with US$0.23 per share (US$1.17 per ADS) and US$0.19 per share (US$0.94 per ADS) for the preceding quarter and the second quarter of 2021, respectively.

 

Quarterly Dividend

 

The board of directors has approved a dividend of US$0.0720 per share (US$0.3600 per ADS) for the second quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on September 1, 2022, 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 1, 2022 (Beijing/ Hong Kong Time). The payment date is expected to be on September 13, 2022 for holders of ordinary shares and on or around September 16, 2022 for holders of ADSs.

 

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NetEase paid a dividend of US$0.0644 per share (US$0.3220 per ADS) for the first quarter of 2022 in June 2022.

 

Under the Company’s current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its 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, 2022, the Company’s total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, minus short-term and long-term loans totaled RMB87.7 billion (US$13.1 billion), compared with RMB85.6 billion as of December 31, 2021. Cash flow generated from operating activities was RMB6.6 billion (US$990.0 million) for the second quarter of 2022, compared with RMB4.6 billion and RMB4.7 billion for the preceding quarter and the second quarter of 2021, respectively.

 

Change in Segment Reporting

 

Effective as of the second quarter of 2022, the Company implemented certain changes to align its segment financial reporting more closely with the manner in which the Company’s management currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company renamed its “online game services” segment as “games and related value-added services,” and transferred certain business lines that are related or ancillary to its games from “innovative businesses and others” to “games and related value-added services,” including the NetEase CC live streaming service (a platform offering various live streaming content with a primary focus on game broadcasting) and other value-added services. The Company retrospectively recast prior periods’ segment information to conform to current period presentation. These changes had no impact on NetEase’s previously reported consolidated net revenues, net income or net income per share.

 

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 June 30, 2022, approximately 23.6 million ADSs had been repurchased under this program for a total cost of US$2.3 billion.

 

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On August 31, 2021, the Company announced that its board of directors had 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 June 30, 2022, approximately 1.7 million ADSs had been purchased under this program for a total cost of US$17.7 million.

 

The Company also purchased approximately 0.8 million ordinary shares of Cloud Music in open market transactions on the Hong Kong Stock Exchange for a total cost of US$8.3 million during the second quarter of 2022.

 

The extent to which NetEase repurchases its ADSs and its ordinary shares or purchases Youdao’s ADSs and Cloud Music’s ordinary shares 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. 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 Thursday, August 18, 2022 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, August 18, 2022). 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 1-323-701-0160 and providing conference ID: 1239376, 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 1239376#. The replay will be available through August 31, 2022.

 

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 content creation. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of China’s most popular and longest running mobile and PC games. Powered by industry-leading in-house R&D capabilities in China and globally, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.

 

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Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), China’s leading technology-focused intelligent learning company, and Cloud Music (HKEX: 9899), China’s leading online music content community, as well as Yanxuan, NetEase’s private label consumer lifestyle brand.

 

NetEase’s ESG initiatives are among the best in the global media and entertainment industry, earning it a distinction as one of the S&P Global Industry Movers and an “A” rating from MSCI. 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; 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; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates, including, among others, initiatives to enhance supervision of companies listed on an overseas stock exchange and tighten scrutiny over data privacy and data security, as well as the risk that NetEase’s ADSs could be barred from trading in the United States as a result of the Holding Foreign Companies Accountable Act and the rules promulgated thereunder; 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 from continuing operations attributable to the Company’s shareholders and non-GAAP basic and diluted net income from continuing operations 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 from continuing operations attributable to the Company’s shareholders as net income from continuing operations attributable to the Company’s shareholders excluding share-based compensation expenses. Non-GAAP net income from continuing operations attributable to the Company’s shareholders enables NetEase’s management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company’s current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors’ assessment of its operating performance.

 

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income from continuing operations attributable to the Company’s shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase’s business and are not reflected in the presentation of non-GAAP net income from continuing operations attributable to the Company’s shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.

 

NetEase compensates for these limitations by reconciling non-GAAP net income from continuing operations attributable to the Company’s shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company’s performance. See “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, 
   2021   2022   2022 
    RMB    RMB      USD (Note 1)  
Assets               
Current assets:               
   Cash and cash equivalents   14,498,157    16,461,908    2,457,698 
   Time deposits   70,754,846    84,916,751    12,677,737 
   Restricted cash   2,876,628    3,089,413    461,237 
   Accounts receivable, net   5,507,988    5,213,151    778,303 
   Inventories   964,733    843,767    125,971 
   Prepayments and other current assets, net   6,235,857    7,317,644    1,092,495 
   Short-term investments   12,281,548    10,166,531    1,517,823 
   Assets held for sale   497    -    - 
Total current assets   113,120,254    128,009,165    19,111,264 
                
Non-current assets:               
   Property, equipment and software, net   5,433,858    6,022,365    899,115 
   Land use right, net   4,108,090    4,156,674    620,575 
   Deferred tax assets   1,297,954    1,254,640    187,313 
   Time deposits   5,823,840    4,473,840    667,927 
   Restricted cash   1,330    1,129    169 
   Other long-term assets, net   23,857,510    24,261,773    3,622,187 
   Assets held for sale   1,088    -    - 
Total non-current assets   40,523,670    40,170,421    5,997,286 
Total assets   153,643,924    168,179,586    25,108,550 
                
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity               
Current liabilities:               
   Accounts payable   985,059    942,070    140,647 
   Salary and welfare payables   4,133,254    3,211,330    479,439 
   Taxes payable   4,537,050    3,260,873    486,835 
   Short-term loans   19,352,313    28,027,125    4,184,340 
   Contract liabilities   12,132,743    12,316,763    1,838,844 
   Accrued liabilities and other payables   9,360,907    9,686,526    1,446,160 
Total current liabilities   50,501,326    57,444,687    8,576,265 
                
Non-current liabilities:               
   Deferred tax liabilities   1,345,874    1,448,250    216,218 
   Long-term loans   1,275,140    3,355,700    500,993 
   Other long-term payable   1,097,708    1,023,880    152,861 
Total non-current liabilities   3,718,722    5,827,830    870,072 
Total liabilities   54,220,048    63,272,517    9,446,337 
                
Redeemable noncontrolling interests   145,238    142,579    21,286 
                
NetEase, Inc.’s shareholders’ equity   95,328,080    100,830,817    15,053,645 
Noncontrolling interests   3,950,558    3,933,673    587,282 
Total shareholders’ equity   99,278,638    104,764,490    15,640,927 
                
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   153,643,924    168,179,586    25,108,550 

 

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, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues  20,524,501   23,555,842   23,159,078   3,457,559   41,041,712   46,714,920   6,974,354 
Cost of revenues  (9,334,887)  (10,719,463)  (10,217,587)  (1,525,446)  (18,799,459)  (20,937,050)  (3,125,819)
Gross profit  11,189,614   12,836,379   12,941,491   1,932,113   22,242,253   25,777,870   3,848,535 
                             
Operating expenses:                            
Selling and marketing expenses  (3,013,447)  (2,915,489)  (3,300,705)  (492,782)  (5,780,129)  (6,216,194)  (928,053)
General and administrative expenses  (1,011,183)  (1,015,769)  (1,112,755)  (166,130)  (1,961,377)  (2,128,524)  (317,780)
Research and development expenses  (3,406,859)  (3,398,082)  (3,581,700)  (534,734)  (6,467,048)  (6,979,782)  (1,042,054)
Total operating expenses  (7,431,489)  (7,329,340)  (7,995,160)  (1,193,646)  (14,208,554)  (15,324,500)  (2,287,887)
Operating profit  3,758,125   5,507,039   4,946,331   738,467   8,033,699   10,453,370   1,560,648 
                             
Other income/ (expenses):                            
Investment income/ (loss), net  889,392   (548,702)  (707,489)  (105,625)  1,584,690   (1,256,191)  (187,544)
Interest income, net  386,207   458,244   505,991   75,542   775,135   964,235   143,956 
Exchange  (losses)/gains, net  (591,720)  (97,880)  865,283   129,183   (312,401)  767,403   114,570 
Other, net  147,588   216,330   121,175   18,091   295,555   337,505   50,388 
Income before tax  4,589,592   5,535,031   5,731,291   855,658   10,376,678   11,266,322   1,682,018 
Income tax  (1,113,228)  (1,219,271)  (1,259,320)  (188,012)  (2,386,636)  (2,478,591)  (370,044)
                             
Net income from continuing operations  3,476,364   4,315,760   4,471,971   667,646   7,990,042   8,787,731   1,311,974 
Net income from discontinued operations  -   -   624,864   93,290   -   624,864   93,290 
Net income  3,476,364   4,315,760   5,096,835   760,936   7,990,042   9,412,595   1,405,264 
                             
Accretion of redeemable noncontrolling interests  (145,415)  (733)  (754)  (113)  (289,242)  (1,487)  (222)
Net loss attributable to noncontrolling interests  210,805   78,996   195,395   29,172   280,106   274,391   40,965 
Net income attributable to the Company’s shareholders  3,541,754   4,394,023   5,291,476   789,995   7,980,906   9,685,499   1,446,007 
Including:                            
-Net income from continuing operations attributable to the Company’s shareholders  3,541,754   4,394,023   4,666,612   696,705   7,980,906   9,060,635   1,352,717 
-Net income from discontinued operations attributable to the Company’s shareholders  -   -   624,864   93,290   -   624,864   93,290 
                             
Basic net income per share *  1.06   1.34   1.62   0.24   2.38   2.96   0.44 
-Continuing operations  1.06   1.34   1.43   0.21   2.38   2.77   0.41 
-Discontinued operations  -   -   0.19   0.03   -   0.19   0.03 
                             
Basic net income per ADS *  5.29   6.70   8.08   1.21   11.92   14.78   2.21 
-Continuing operations  5.29   6.70   7.13   1.07   11.92   13.83   2.07 
-Discontinued operations  -   -   0.95   0.14   -   0.95   0.14 
                             
Diluted net income per share *  1.05   1.33   1.60   0.24   2.35   2.93   0.44 
-Continuing operations  1.05   1.33   1.41   0.21   2.35   2.74   0.41 
-Discontinued operations  -   -   0.19   0.03   -   0.19   0.03 
                             
Diluted net income per ADS *  5.23   6.63   8.00   1.19   11.76   14.63   2.18 
-Continuing operations  5.23   6.63   7.05   1.05   11.76   13.69   2.04 
-Discontinued operations  -   -   0.95   0.14   -   0.94   0.14 
                             
Weighted average number of ordinary shares used in calculating net income per share *                            
Basic  3,347,507   3,277,280   3,274,695   3,274,695   3,348,567   3,275,980   3,275,980 
Diluted  3,385,953   3,316,129   3,305,504   3,305,504   3,392,961   3,310,809   3,310,809 

 

* 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   Six Months Ended 
   June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Cash flows from operating activities:                                   
Net income   3,476,364    4,315,760    5,096,835    760,936    7,990,042    9,412,595    1,405,264 
Net income from discontinued operations   -    -    (624,864)   (93,290)   -    (624,864)   (93,290)
Adjustments to reconcile net income to net cash provided by operating activities:                                   
Depreciation and amortization   814,370    766,180    609,036    90,927    1,634,200    1,375,216    205,314 
Fair value changes of equity security investments   (203,720)   1,541,002    735,159    109,756    (681,317)   2,276,161    339,822 
Impairment losses of investments and other long-term assets   4,797    5,000    243,085    36,292    4,797    248,085    37,038 
Fair value changes of short-term investments   (170,676)   (79,776)   (119,882)   (17,898)   (288,680)   (199,658)   (29,808)
Share-based compensation cost   700,114    746,154    764,447    114,129    1,350,367    1,510,601    225,527 
Allowance for/ (reversal of) expected credit losses   27,384    (313)   10,965    1,637    40,988    10,652    1,590 
Losses on disposal of property, equipment and software   1,424    1,445    481    72    1,265    1,926    288 
Unrealized exchange losses/(gains)   572,708    98,034    (890,066)   (132,883)   298,661    (792,032)   (118,247)
Gains on disposal of long-term investments, business and subsidiaries   (166,505)   (4,000)   -    -    (173,828)   (4,000)   (597)
Deferred income taxes   202,894    315,228    (169,539)   (25,312)   530,969    145,689    21,751 
Share of results on equity method investees and revaluation results from previously held equity interest   (342,760)   (911,498)   (134,569)   (20,091)   (394,652)   (1,046,067)   (156,174)
Changes in operating assets and liabilities:                                   
Accounts receivable   573,111    212,075    82,282    12,284    88,768    294,357    43,946 
Inventories   (9,608)   103,591    17,791    2,656    (263,103)   121,382    18,122 
Prepayments and other assets   593,379    (569,843)   (163,612)   (24,426)   (191,845)   (733,455)   (109,502)
Accounts payable   (178,097)   (92,373)   48,452    7,234    (238,751)   (43,921)   (6,557)
Salary and welfare payables   856,775    (1,756,224)   782,789    116,867    (369,380)   (973,435)   (145,330)
Taxes payable   (1,397,390)   73,446    (538,234)   (80,355)   161,228    (464,788)   (69,391)
Contract liabilities   (381,446)   (78,200)   279,669    41,754    359,492    201,469    30,078 
Accrued liabilities and other payables   (250,312)   (103,136)   600,934    89,717    406,252    497,798    74,319 
Net cash provided by operating activities   4,722,806    4,582,552    6,631,159    990,006    10,265,473    11,213,711    1,674,163 
                                    
Cash flows from investing activities:                                   
Purchase of property, equipment and software   (421,872)   (749,361)   (445,054)   (66,445)   (751,618)   (1,194,415)   (178,321)
Proceeds from sale of property, equipment and software   2,458    12,565    23,338    3,484    3,977    35,903    5,360 
Purchase of intangible assets, content and licensed copyrights   (566,736)   (143,836)   (85,121)   (12,708)   (992,869)   (228,957)   (34,182)
Net change in short-term investments with terms of three months or less   1,668,673    1,710,845    (159,173)   (23,764)   5,001,283    1,551,672    231,659 
Purchase of short-term investments with terms over three months   (2,450,000)   (1,250,000)   -    -    (10,355,000)   (1,250,000)   (186,620)
Proceeds from maturities of short-term investments with terms over three months   813,211    553,831    1,459,172    217,849    3,670,552    2,013,003    300,533 
Investment in long-term investments and acquisition of subsidiaries   (3,376,973)   (1,690,271)   (899,968)   (134,362)   (3,935,414)   (2,590,239)   (386,713)
Proceeds from disposal of long-term investments, businesses and subsidiaries   266,284    34,237    6,413    957    465,184    40,650    6,069 
Placement/rollover of matured time deposits   (27,223,584)   (24,045,997)   (33,122,029)   (4,944,989)   (42,946,333)   (57,168,026)   (8,534,962)
Proceeds from maturities of time deposits   25,790,186    14,699,795    32,100,141    4,792,425    37,271,321    46,799,936    6,987,046 
Change in other long-term assets   (44,877)   (169,545)   (60,900)   (9,092)   (99,530)   (230,445)   (34,405)
Net cash used in investing activities   (5,543,230)   (11,037,737)   (1,183,181)   (176,645)   (12,668,447)   (12,220,918)   (1,824,536)

 

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   Six Months Ended 
   June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Cash flows from financing activities:                                   
Net changes in bank loans with terms of three months or less   4,978,642    3,403,195    2,721,487    406,307    7,100,683    6,124,682    914,391 
Proceed of bank loans with terms over three months   1,320,614    1,915,210    1,641,708    245,101    1,557,530    3,556,918    531,034 
Payment of bank loans with terms over three months   (582,328)   -    (32,273)   (4,818)   (750,028)   (32,273)   (4,818)
Amounts paid for NetEase’s issuance of shares in Hong Kong   -    -    -    -    (13,800)   -    - 
Net Amounts received/ (paid) related to capital contribution from or repurchase of noncontrolling interests and redeemable noncontrolling interests shareholders   8,176    (102,042)   33,200    4,957    1,515,225    (68,842)   (10,278)
Cash paid for repurchase of NetEase’s ADSs/ purchase of subsidiaries’ ADSs and shares   (2,468,969)   (1,243,917)   (2,119,613)   (316,450)   (4,487,436)   (3,363,530)   (502,162)
Dividends paid to NetEase’s shareholders   (1,278,879)   (1,683,472)   (1,403,637)   (209,557)   (1,539,721)   (3,087,109)   (460,893)
Net cash provided by financing activities   1,977,256    2,288,974    840,872    125,540    3,382,453    3,129,846    467,274 
                                    
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies   (25,112)   (21,202)   74,898    11,182    10,881    53,696    8,017 
Net increase/ (decrease) in cash, cash equivalents and restricted cash   1,131,720    (4,187,413)   6,363,748    950,083    990,360    2,176,335    324,918 
Cash, cash equivalents and restricted cash, at the beginning of the period   12,027,245    17,376,115    13,188,702    1,969,021    12,168,605    17,376,115    2,594,186 
Cash, cash equivalents and restricted cash, at end of the period   13,158,965    13,188,702    19,552,450    2,919,104    13,158,965    19,552,450    2,919,104 
                                    
Supplemental disclosures of cash flow information:                                   
Cash paid for income tax, net   1,240,692    1,515,330    1,055,096    157,522    1,790,883    2,570,426    383,754 
Cash paid for interest expense   48,082    37,741    93,079    13,896    91,984    130,820    19,531 

 

The accompanying notes are an integral part of this announcement.                                  

 

13

 

 

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, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues:                                   
Games and related value-added services   15,774,818    18,641,814    18,139,843    2,708,207    31,881,629    36,781,657    5,491,357 
Youdao   1,293,407    1,200,541    956,225    142,761    2,633,274    2,156,766    321,997 
Cloud Music   1,692,507    2,067,206    2,191,510    327,184    3,183,674    4,258,716    635,810 
Innovative businesses and others   1,763,769    1,646,281    1,871,500    279,407    3,343,135    3,517,781    525,190 
Total net revenues   20,524,501    23,555,842    23,159,078    3,457,559    41,041,712    46,714,920    6,974,354 
                                    
Cost of revenues:                                   
Games and related value-added services   (5,813,002)   (7,052,050)   (6,375,598)   (951,852)   (12,026,054)   (13,427,648)   (2,004,695)
Youdao   (616,661)   (562,691)   (546,498)   (81,590)   (1,189,076)   (1,109,189)   (165,598)
Cloud Music   (1,623,327)   (1,815,649)   (1,905,954)   (284,551)   (3,161,053)   (3,721,603)   (555,621)
Innovative businesses and others   (1,281,897)   (1,289,073)   (1,389,537)   (207,453)   (2,423,276)   (2,678,610)   (399,905)
Total cost of revenues   (9,334,887)   (10,719,463)   (10,217,587)   (1,525,446)   (18,799,459)   (20,937,050)   (3,125,819)
                                    
Gross profit:                                   
Games and related value-added services   9,961,816    11,589,764    11,764,245    1,756,355    19,855,575    23,354,009    3,486,662 
Youdao   676,746    637,850    409,727    61,171    1,444,198    1,047,577    156,399 
Cloud Music   69,180    251,557    285,556    42,633    22,621    537,113    80,189 
Innovative businesses and others   481,872    357,208    481,963    71,954    919,859    839,171    125,285 
Total gross profit   11,189,614    12,836,379    12,941,491    1,932,113    22,242,253    25,777,870    3,848,535 
                                    
Gross profit margin:                                   
Games and related value-added services   63.2%   62.2%   64.9%   64.9%   62.3%   63.5%   63.5%
Youdao   52.3%   53.1%   42.8%   42.8%   54.8%   48.6%   48.6%
Cloud Music   4.1%   12.2%   13.0%   13.0%   0.7%   12.6%   12.6%
Innovative businesses and others   27.3%   21.7%   25.8%   25.8%   27.5%   23.9%   23.9%

 

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 = RMB6.6981 on the last trading day of June 2022 (June 30, 2022) 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, 2022, or at any other certain date.

 

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, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Share-based compensation cost included in:                                   
Cost of revenues   197,370    198,135    173,840    25,954    385,296    371,975    55,534 
Operating expenses                                   
Selling and marketing expenses   26,434    30,373    31,817    4,750    50,665    62,190    9,285 
General and administrative expenses   258,544    279,062    297,891    44,474    488,147    576,953    86,137 
Research and development expenses   217,766    238,584    260,899    38,951    426,259    499,483    74,571 

 

The accompanying notes are an integral part of this announcement.                      

 

Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase’s listed subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirement.

 

Note 4: The unaudited reconciliation on GAAP and non-GAAP results is set out as follows in RMB and USD (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, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net income from continuing operations attributable to the Company’s shareholders   3,541,754    4,394,023    4,666,612    696,705    7,980,906    9,060,635    1,352,717 
Add: Share-based compensation   686,111    723,603    743,198    110,957    1,327,645    1,466,801    218,988 
Non-GAAP net income from continuing operations attributable to the Company’s shareholders   4,227,865    5,117,626    5,409,810    807,662    9,308,551    10,527,436    1,571,705 
                                    
Non-GAAP basic net income from continuing operations per share *   1.26    1.56    1.65    0.25    2.78    3.21    0.48 
Non-GAAP basic net income from continuing operations per ADS *   6.31    7.81    8.26    1.23    13.90    16.07    2.40 
Non-GAAP diluted net income from continuing operations per share *   1.25    1.54    1.64    0.24    2.74    3.18    0.47 
Non-GAAP diluted net income from continuing operations per ADS *   6.24    7.72    8.18    1.22    13.72    15.90    2.37 

 

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.                          

 

15