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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 February 2023

 

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 Fourth Quarter and Fiscal Year 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: February 23, 2023      
         

 

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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 Fourth Quarter and Fiscal Year 2022 Unaudited Financial Results

 

(Hangzhou- February 23, 2023)- 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 fourth quarter and fiscal year ended December 31, 2022.

 

Fourth Quarter 2022 Financial Highlights

 

·Net revenues were RMB25.4 billion (US$3.7 billion), an increase of 4.0% compared with the fourth quarter of 2021.

 

·Games and related value-added services net revenues were RMB19.1 billion (US$2.8 billion), an increase of 1.6% compared with the fourth quarter of 2021.

 

·Youdao net revenues were RMB1.5 billion (US$210.8 million), an increase of 9.0% compared with the fourth quarter of 2021.

 

·Cloud Music net revenues were RMB2.4 billion (US$344.5 million), an increase of 25.8% compared with the fourth quarter of 2021.

 

·Innovative businesses and others net revenues were RMB2.4 billion (US$353.5 million), an increase of 3.4% compared with the fourth quarter of 2021.

 

·Gross profit was RMB13.2 billion (US$1.9 billion), an increase of 2.5% compared with the fourth quarter of 2021.

 

·Total operating expenses were RMB8.8 billion (US$1.3 billion), an increase of 6.0% compared with the fourth quarter of 2021.

 

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·Net income attributable to the Company’s shareholders was RMB4.0 billion (US$573.1 million). Non-GAAP net income from continuing operations attributable to the Company’s shareholders was RMB4.8 billion (US$697.6 million ).[1]

 

·Basic net income per share was US$0.18 (US$0.88 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.22 (US$1.08 per ADS).[1]

 

Fourth Quarter 2022 and Early 2023 Operational Highlights

 

·Extended the popularity of leading franchise titles including both the Fantasy Westward Journey and Westward Journey Online series, as well as other hit titles such as Sky, Invincible and the mobile version of New Ghost.

 

·Drove strong revenue and user growth of Eggy Party, a casual party mobile game initially launched in the Chinese mainland, accumulating the highest daily active users of any game in the history of NetEase Games.

  

·Advanced the development of multiple games in the pipeline including Westward Journey Returns, Justice mobile game, Badlanders, Racing Master and Naraka: Bladepoint mobile game, as well as Harry Potter: Magic Awakened for the international markets.

 

·Continued to grow Cloud Music’s net revenues and improved margins. Broadened its music scope by signing multiple licensing agreements with major labels such as B’in Music and Pony Canyon, renewing its cooperation with Avex, and achieved impressive digital album sales by renowned artists such as Chenyu Hua and (G)I-DLE.

 

·Achieved first-ever quarterly income from operations for Youdao, supported by healthy sales expansion of new products and services along with an optimized cost structure, despite a challenging macro environment.

 

“We experienced solid growth in 2022. Primarily as a result of the ongoing popularity of our leading games and the expansion of our range of products and services, we ended the year with total net revenues reaching RMB25.4 billion in the fourth quarter,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Focusing on our flagship titles and new games alike, in 2022 we brought more players into the fold with our diverse and growing game content. For example, Eggy Party represents a significant breakthrough for us in the casual game arena. The new addition further enlarges and diversifies our user base, augmenting our robust portfolio of games. We are very excited to introduce more new games to broader demographics, which we believe will pave the way for our solid future growth.”

 

 

[1] 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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“Our other business lines, including Youdao and Cloud Music, are also on track. Leveraging our rich internal development capabilities, we will continue to elevate the value we bring to both customers and investors in 2023 by introducing even more creative, premium content to our growing global community,” Mr. Ding concluded.

 

Fourth Quarter 2022 Financial Results

 

Net Revenues

 

Net revenues for the fourth quarter of 2022 were RMB25,354.1 million (US$3,676.0 million), compared with RMB24,426.8 million and RMB24,373.6 million for the preceding quarter and the fourth 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 RMB19,085.7 million (US$2,767.2 million) for the fourth quarter of 2022, compared with RMB18,699.1 million and RMB18,792.0 million for the preceding quarter and the fourth quarter of 2021, respectively. Net revenues from the operation of online games accounted for approximately 91.8% of the segment’s total net revenues for the fourth quarter of 2022, compared with 92.9% and 92.6% for the preceding quarter and the fourth quarter of 2021, respectively. Net revenues from mobile games accounted for approximately 66.4% of net revenues from the operation of online games for the fourth quarter of 2022, compared with 68.6% and 68.3% for the preceding quarter and the fourth quarter of 2021, respectively.

 

Net revenues from Youdao were RMB1,454.0 million (US$210.8 million) for the fourth quarter of 2022, compared with RMB1,402.4 million and RMB1,333.8 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

Net revenues from Cloud Music were RMB2,376.3 million (US$344.5 million) for the fourth quarter of 2022, compared with RMB2,357.2 million and RMB1,889.3 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

Net revenues from innovative businesses and others were RMB2,438.2 million (US$353.5 million) for the fourth quarter of 2022, compared with RMB1,968.0 million and RMB2,358.5 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

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Gross Profit

 

Gross profit for the fourth quarter of 2022 was RMB13,244.4 million (US$1,920.3 million), compared with RMB13,743.9 million and RMB12,917.8 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

The quarter-over-quarter and year-over-year decreases in games and related value-added services’ gross profit were primarily due to the one-off recognition of royalty fees related to certain licensed games.

 

The quarter-over-quarter and year-over-year increases in Youdao’s gross profit were primarily attributable to increased revenue contribution from its smart devices and online marketing services.

 

The quarter-over-quarter and year-over-year increases in Cloud Music’s gross profit were primarily due to increased net revenues from its online music services and its social entertainment services, as well as continuously improved cost control measures.

 

The quarter-over-quarter and year-over-year increases in innovative businesses and others’ gross profit were primarily due to increased gross profit contribution from Yanxuan.

 

Gross Profit Margin

 

Gross profit margin for games and related value-added services for the fourth quarter of 2022 was 59.1%, compared with 65.0% and 60.9% for the preceding quarter and the fourth quarter of 2021, respectively. The quarter-over-quarter and year-over-year decreases were primarily attributable to the one-off recognition of royalty fees related to certain licensed games.

 

Gross profit margin for Youdao for the fourth quarter of 2022 was 53.3%, compared with 54.2% and 50.7% for the preceding quarter and the fourth quarter of 2021, respectively. The slight quarter-over-quarter decrease was mainly due to higher revenue contribution from sales of smart devices, which carry a lower gross profit margin than learning services. The year-over-year increase was mainly due to improved gross margin from the sale of smart devices.

 

Gross profit margin for Cloud Music was 17.8% for the fourth quarter of 2022, compared with 14.2% and 4.1% for the preceding quarter and the fourth 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 fourth quarter of 2022 was 31.5%, compared with 25.5% and 30.5% for the preceding quarter and the fourth quarter of 2021, respectively. The quarter-over-quarter increase was mainly due to margin improvement from Yanxuan and advertising services. The slight year-over-year increase was mainly due to margin improvement from Yanxuan, which was partially offset by decreased margin from advertising services.

 

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Operating Expenses

 

Total operating expenses for the fourth quarter of 2022 were RMB8,810.9 million (US$1,277.5 million), compared with RMB9,002.1 million and RMB8,309.6 million for the preceding quarter and the fourth quarter of 2021, respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to games and related value-added services and Youdao. The year-over-year increase was mainly due to higher staff-related costs and marketing expenditures.

 

Other Income/ (Expenses)

 

Other income/ (expenses) consisted of investment income/ (loss), interest income, exchange (losses)/ gains and others. The quarter-over-quarter and year-over-year decreases in other income were mainly due to lower investment income from equity investments and higher unrealized net exchange losses 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 during the periods.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB966.6 million (US$140.1 million) for the fourth quarter of 2022, compared with RMB1,586.7 million and RMB934.0 million for the preceding quarter and the fourth quarter of 2021, respectively. The effective tax rate for the fourth quarter of 2022 was 20.2%, compared with 19.3% and 14.2% for the preceding quarter and the fourth 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 attributable to the Company’s shareholders totaled RMB3,952.7 million (US$573.1 million) for the fourth quarter of 2022, compared with RMB6,699.4 million and RMB5,694.2 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

NetEase reported basic net income of US$0.18 per share (US$0.88 per ADS) for the fourth quarter of 2022, compared with US$0.30 per share (US$1.49 per ADS) and US$0.25 per share (US$1.26 per ADS) for the preceding quarter and the fourth quarter of 2021, respectively.

 

Non-GAAP net income from continuing operations attributable to the Company’s shareholders totaled RMB4,811.4 million (US$697.6 million) for the fourth quarter of 2022, compared with RMB7,469.6 million and RMB6,595.6 million for the preceding quarter and the fourth quarter of 2021, respectively.

 

NetEase reported non-GAAP basic net income from continuing operations of US$0.22 per share (US$1.08 per ADS) for the fourth quarter of 2022, compared with US$0.33 per share (US$1.66 per ADS) and US$0.29 per share (US$1.46 per ADS) for the preceding quarter and the fourth quarter of 2021, respectively.

 

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Fiscal Year 2022 Financial Results

 

Net Revenues

 

Net revenues for fiscal year 2022 were RMB96,495.8 million (US$13,990.6 million), compared with RMB87,606.0 million for fiscal year 2021.

 

Net revenues from games and related value-added services were RMB74,566.5 million (US$10,811.1 million) for fiscal year 2022, compared with RMB67,819.3 million for fiscal year 2021. Net revenues from the operation of online games accounted for approximately 92.5% of the segment’s total net revenues for fiscal year 2022, compared with 92.6% for fiscal year 2021. Net revenues from mobile games accounted for approximately 67.0% of net revenues from the operation of online games for fiscal year 2022, compared with 70.4% for fiscal year 2021. The lower percentage contribution from mobile games was mainly due to a higher proportion of net revenues generated by PC games such as Fantasy Westward Journey Online and Naraka: Bladepoint, although the total amount of net revenues from mobile games also increased in 2022 compared to the prior year.

 

Net revenues from Youdao were RMB5,013.2 million (US$726.8 million) for fiscal year 2022, compared with RMB5,354.4 million for fiscal year 2021.

 

Net revenues from Cloud Music were RMB8,992.2 million (US$1,303.7 million) for fiscal year 2022, compared with RMB6,997.6 million for fiscal year 2021.

 

Net revenues from innovative businesses and others were RMB7,923.9 million (US$1,148.9 million) for fiscal year 2022, compared with RMB7,434.8 million for fiscal year 2021.

 

Gross Profit

 

Gross profit for fiscal year 2022 was RMB52,766.1 million (US$7,650.4 million), compared with RMB46,970.8 million for fiscal year 2021.

 

The year-over-year increase in games and related value-added services gross profit was primarily due to increased net revenues from the operation of online games, including PC games such as Fantasy Westward Journey Online and Naraka: Bladepoint and mobile games such as certain newly launched games and existing hit titles like Infinite Lagrange.

 

The year-over-year decrease in Youdao gross profit was mainly due to the conclusion of its after-school tutoring services for academic subjects under China’s compulsory education system, which was partially offset by increased revenue contribution from its new services and products.

 

The year-over-year increase in Cloud Music gross profit was primarily attributable to increased net revenues, mainly from its social entertainment services, as well as improved cost control.

 

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The slight year-over-year decrease in innovative businesses and others gross profit was primarily due to decreased gross profit from the Company’s advertising business, which was partially offset by increased gross profits from Yanxuan.

 

Operating Expenses

 

Total operating expenses for fiscal year 2022 were RMB33,137.5 million (US$4,804.5 million), compared with RMB30,553.7 million for fiscal year 2021. The year-over-year increase was primarily due to higher staff-related costs and marketing expenditures mainly for games and related value-added services, as well as Cloud Music and Yanxuan.

 

Other Income/ (Expenses)

 

The slight year-over-year decrease was mainly due to higher investment loss arising from fair value changes of equity investments with readily determinable fair value, which was partially offset by higher unrealized net exchange gains, interest income and others.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB5,031.8 million (US$729.5 million) for fiscal year 2022, compared with RMB4,128.3 million for fiscal year 2021. The effective tax rate was 20.7% for fiscal year 2022, compared with 19.6% for fiscal year 2021.

 

Net Income and Non-GAAP Net Income

 

Net income attributable to the Company’s shareholders for fiscal year 2022 totaled RMB20,337.6 million (US$2,948.7 million), compared with RMB16,856.8 million for fiscal year 2021. Net income attributable to the Company’s shareholders for fiscal year 2022 included net income from discontinued operations of RMB624.9 million (US$90.6 million), which was related to the prior disposal of the Kaola business.

 

NetEase reported basic net income of US$0.90 per share (US$4.52 per ADS) for fiscal year 2022, compared with US$0.74 per share (US$3.67 per ADS) for fiscal year 2021.

 

Non-GAAP net income from continuing operations attributable to the Company’s shareholders for fiscal year 2022 totaled RMB22,808.4 million (US$3,306.9 million), compared with RMB19,761.9 million for fiscal year 2021.

 

NetEase reported non-GAAP basic net income from continuing operations of US$1.01 per share (US$5.07 per ADS) for fiscal year 2022, compared with US$0.86 per share (US$4.31 per ADS) for fiscal year 2021.

 

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Quarterly Dividend

 

The board of directors has approved a dividend of US$0.0540 per share (US$0.2700 per ADS) for the fourth quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on March 9, 2023, 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 March 9, 2023 (Beijing/ Hong Kong Time). The payment date is expected to be March 21, 2023 for holders of ordinary shares and on, or around, March 24, 2023 for holders of ADSs.

 

NetEase paid a dividend of US$0.0870 per share (US$0.4350 per ADS) for the third quarter of 2022 in December 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 December 31, 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 RMB95.6 billion (US$13.9 billion), compared with RMB85.6 billion as of December 31, 2021. Cash flow generated from operating activities was RMB27.7 billion (US$4.0 billion) for fiscal year 2022, compared with RMB24.9 billion for fiscal year 2021.

 

Share Repurchase/ Purchase Program

 

On February 25, 2021, the Company announced that its board of directors had approved a 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. This amount was subsequently increased to US$3.0 billion. This share repurchase program was completed on January 9, 2023 with the Company having purchased an aggregate of approximately 33.6 million ADSs for nearly US$3.0 billion.

 

On November 17, 2022, the Company announced that its board of directors had approved a new share repurchase program of up to US$5.0 billion of the Company’s ADSs and ordinary shares in open market transactions. This new share repurchase program commenced on January 10, 2023 following the completion of the prior program and will be in effect for a period not to exceed 36 months from such date.

 

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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 December 31, 2022, approximately 2.7 million ADSs had been purchased under this program for a total cost of US$22.0 million.

 

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. 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 Thursday, February 23, 2023 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, February 23, 2023). 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 1-914-202-3258 and providing conference ID: 10028543, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10028543. The replay will be available through March 2, 2023.

 

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 market-leading ESG initiatives are among the most recognized in the global media and entertainment industry, earning it inclusion in 2022 Dow Jones Sustainability World Index, 2022 Dow Jones Sustainability Emerging Markets Index, and 2023 Bloomberg Gender Equality Index, as well as receiving 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 games 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; 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,    December 31,   December 31, 
   2021    2022   2022 
    RMB     RMB    USD (Note 1) 
Assets                
Current assets:                
   Cash and cash equivalents   14,498,157     24,889,000    3,608,566 
   Time deposits   70,754,846     84,947,679    12,316,256 
   Restricted cash   2,876,628     2,699,055    391,326 
   Accounts receivable, net   5,507,988     5,002,872    725,348 
   Inventories, net   964,733     993,636    144,064 
   Prepayments and other current assets, net   6,235,857     5,448,284    789,927 
   Short-term investments   12,281,548     7,622,673    1,105,184 
   Assets held for sale   497     -    - 
Total current assets   113,120,254     131,603,199    19,080,671 
                 
Non-current assets:                
   Property, equipment and software, net   5,433,858     6,342,330    919,551 
   Land use rights, net   4,108,090     4,121,767    597,600 
   Deferred tax assets   1,297,954     1,480,789    214,694 
   Time deposits   5,823,840     2,973,840    431,166 
   Restricted cash   1,330     270    39 
   Other long-term assets, net   23,857,510     26,238,790    3,804,268 
   Assets held for sale   1,088     -    - 
Total non-current assets   40,523,670     41,157,786    5,967,318 
Total assets   153,643,924     172,760,985    25,047,989 
                 
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity                
Current liabilities:                
   Accounts payable   985,059     1,507,141    218,515 
   Salary and welfare payables   4,133,254     4,732,941    686,212 
   Taxes payable   4,537,050     2,813,096    407,861 
   Short-term loans   19,352,313     23,875,704    3,461,652 
   Contract liabilities   12,132,743     12,518,890    1,815,068 
   Accrued liabilities and other payables   9,360,907     11,381,075    1,650,101 
Total current liabilities   50,501,326     56,828,847    8,239,409 
                 
Non-current liabilities:                
   Deferred tax liabilities   1,345,874     2,126,120    308,258 
   Long-term loans   1,275,140     3,654,964    529,920 
   Other long-term liabilities   1,097,708     1,277,574    185,231 
Total non-current liabilities   3,718,722     7,058,658    1,023,409 
Total liabilities   54,220,048     63,887,505    9,262,818 
                 
Redeemable noncontrolling interests   145,238     136,440    19,782 
                 
NetEase, Inc.’s shareholders’ equity   95,328,080     104,731,317    15,184,614 
Noncontrolling interests   3,950,558     4,005,723    580,775 
Total shareholders’ equity   99,278,638     108,737,040    15,765,389 
                 
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   153,643,924     172,760,985    25,047,989 

 

The accompanying notes are an integral part of this announcement.

 

12 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

   Three Months Ended   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   2021   2022   2022   2022   2021   2022   2022 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues   24,373,565    24,426,760    25,354,129    3,676,003    87,606,026    96,495,809    13,990,577 
Cost of revenues   (11,455,785)   (10,682,868)   (12,109,765)   (1,755,751)   (40,635,225)   (43,729,683)   (6,340,208)
Gross profit   12,917,780    13,743,892    13,244,364    1,920,252    46,970,801    52,766,126    7,650,369 
                                    
Operating expenses:                                   
Selling and marketing expenses   (3,300,032)   (3,768,618)   (3,417,909)   (495,550)   (12,214,191)   (13,402,721)   (1,943,212)
General and administrative expenses   (1,161,876)   (1,264,342)   (1,302,932)   (188,907)   (4,263,549)   (4,695,798)   (680,827)
Research and development expenses   (3,847,704)   (3,969,156)   (4,090,076)   (593,005)   (14,075,991)   (15,039,014)   (2,180,452)
Total operating expenses   (8,309,612)   (9,002,116)   (8,810,917)   (1,277,462)   (30,553,731)   (33,137,533)   (4,804,491)
Operating profit   4,608,168    4,741,776    4,433,447    642,790    16,417,070    19,628,593    2,845,878 
                                    
Other income/ (expenses):                                   
Investment income/ (loss), net   1,627,642    1,347,269    (37,102)   (5,379)   2,947,721    53,976    7,826 
Interest income, net   395,029    556,148    629,290    91,238    1,519,714    2,149,673    311,673 
Exchange (losses)/ gains, net   (331,390)   1,398,045    (594,241)   (86,157)   (490,481)   1,571,207    227,804 
Other, net   297,244    164,435    344,875    50,002    710,435    846,815    122,777 
Income before tax   6,596,693    8,207,673    4,776,269    692,494    21,104,459    24,250,264    3,515,958 
Income tax   (933,985)   (1,586,673)   (966,574)   (140,140)   (4,128,269)   (5,031,838)   (729,548)
                                    
Net income from continuing operations   5,662,708    6,621,000    3,809,695    552,354    16,976,190    19,218,426    2,786,410 
Net income from discontinued operations   -    -    -    -    -    624,864    90,597 
Net income   5,662,708    6,621,000    3,809,695    552,354    16,976,190    19,843,290    2,877,007 
                                    
Accretion of redeemable noncontrolling interests   (99,914)   (781)   (710)   (103)   (536,981)   (2,978)   (432)
Net loss attributable to noncontrolling interests   131,360    79,145    143,752    20,842    417,633    497,288    72,100 
Net income attributable to the Company’s shareholders   5,694,154    6,699,364    3,952,737    573,093    16,856,842    20,337,600    2,948,675 
Including:                                   
-Net income from continuing operations attributable to the Company’s shareholders   5,694,154    6,699,364    3,952,737    573,093    16,856,842    19,712,736    2,858,078 
-Net income from discontinued operations attributable to the Company’s shareholders   -    -    -    -    -    624,864    90,597 
                                    
Basic net income per share *   1.74    2.05    1.22    0.18    5.07    6.23    0.90 
-Continuing operations   1.74    2.05    1.22    0.18    5.07    6.04    0.87 
-Discontinued operations   -    -    -    -    -    0.19    0.03 
                                    
Basic net income per ADS *   8.68    10.27    6.10    0.88    25.34    31.16    4.52 
-Continuing operations   8.68    10.27    6.10    0.88    25.34    30.20    4.38 
-Discontinued operations   -    -    -    -    -    0.96    0.14 
                                    
Diluted net income per share *   1.71    2.03    1.21    0.18    5.01    6.17    0.89 
-Continuing operations   1.71    2.03    1.21    0.18    5.01    5.98    0.86 
-Discontinued operations   -    -    -    -    -    0.19    0.03 
                                    
Diluted net income per ADS *   8.57    10.17    6.05    0.88    25.03    30.85    4.47 
-Continuing operations   8.57    10.17    6.05    0.88    25.03    29.90    4.33 
-Discontinued operations   -    -    -    -    -    0.95    0.14 
                                    
Weighted average number of ordinary shares used in calculating net income per share*                                   
Basic   3,281,172    3,262,989    3,239,282    3,239,282    3,325,864    3,263,455    3,263,455 
Diluted   3,323,004    3,293,766    3,269,082    3,269,082    3,367,478    3,296,014    3,296,014 

 

* Each ADS represents five ordinary shares.                              

The accompanying notes are an integral part of this announcement.

 

13 

 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Three Months Ended   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   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   5,662,708    6,621,000    3,809,695    552,354    16,976,190    19,843,290    2,877,007 
Net income from discontinued operations   -    -    -    -    -    (624,864)   (90,597)
Adjustments to reconcile net income to net cash provided by operating activities:                                   
Depreciation and amortization   836,042    713,852    769,141    111,515    3,275,727    2,858,209    414,401 
Fair value changes of equity security investments   (984,901)   680,019    148,156    21,481    (471,880)   3,104,336    450,086 
Impairment losses of investments and other long-term assets   69,572    6,763    45,401    6,583    100,424    300,249    43,532 
Fair value changes of short-term investments   (166,513)   (119,620)   (23,364)   (3,388)   (639,757)   (342,642)   (49,678)
Share-based compensation cost   1,002,899    786,999    876,560    127,089    3,041,492    3,174,160    460,211 
Allowance for expected credit losses   12,932    44,126    6,615    959    265,930    61,393    8,901 
Losses on disposal of property, equipment and software   48,779    528    1,166    169    54,052    3,620    525 
Unrealized exchange losses/(gains)   347,235    (1,401,893)   589,665    85,493    488,604    (1,604,260)   (232,596)
Gains on disposal of long-term investments, business and subsidiaries   (13,091)   (1,724,433)   (62,922)   (9,123)   (186,920)   (1,791,355)   (259,722)
Deferred income taxes   (431,015)   (234,336)   578,317    83,848    407,948    489,670    70,995 
Share of results on equity method investees and revaluation results from previously held equity interest   (448,053)   (159,128)   (54,746)   (7,937)   (1,573,068)   (1,259,941)   (182,674)
Changes in operating assets and liabilities:                                   
Accounts receivable   (97,064)   35,786    224,197    32,506    (1,186,586)   554,340    80,372 
Inventories   73,588    (88,300)   (60,695)   (8,800)   (343,587)   (27,613)   (4,004)
Prepayments and other assets   870,684    368,673    1,095,882    158,888    640,349    731,100    106,000 
Accounts payable   (89,207)   (84,434)   576,021    83,515    (155,262)   447,666    64,905 
Salary and welfare payables   1,521,743    (567,676)   1,965,624    284,989    505,334    424,513    61,549 
Taxes payable   528,725    475,245    (928,071)   (134,558)   255,060    (917,614)   (133,042)
Contract liabilities   (1,162,982)   1,580,450    (1,396,523)   (202,477)   1,351,261    385,396    55,877 
Accrued liabilities and other payables   786,517    552,688    849,094    123,106    2,121,416    1,899,580    275,413 
Net cash provided by operating activities   8,368,598    7,486,309    9,009,213    1,306,212    24,926,727    27,709,233    4,017,461 
                                    
Cash flows from investing activities:                                   
Purchase of property, equipment and software   (442,524)   (557,028)   (348,821)   (50,574)   (1,601,830)   (2,100,264)   (304,510)
Proceeds from sale of property, equipment and software   56,517    3,307    2,257    327    71,524    41,467    6,012 
Purchase of intangible assets, content and licensed copyrights   (297,142)   (152,276)   (161,987)   (23,486)   (1,508,179)   (543,220)   (78,759)
Net change in short-term investments with terms of three months or less   (1,474,371)   156,475    (931,790)   (135,097)   3,694,890    776,357    112,561 
Purchase of short-term investments with terms over three months   (4,300,000)   -    (4,700,000)   (681,436)   (15,285,000)   (5,950,000)   (862,669)
Proceeds from maturities of short-term investments with terms over three months   3,313,543    1,195,475    6,966,682    1,010,074    13,235,845    10,175,160    1,475,260 
Investment in long-term investments and acquisition of subsidiaries   (2,020,029)   (844,513)   (1,694,928)   (245,741)   (6,541,567)   (5,129,680)   (743,734)
Proceeds from disposal of long-term investments, businesses and subsidiaries   616,542    2,277,625    92,795    13,454    1,115,457    2,411,070    349,572 
Placement/ rollover of matured time deposits   (26,628,133)   (18,830,844)   (22,975,014)   (3,331,064)   (81,298,080)   (98,973,884)   (14,349,864)
Proceeds from maturities of time deposits   15,707,821    17,770,581    27,676,529    4,012,719    81,307,297    92,247,046    13,374,564 
Change in other long-term assets   (99,692)   (31,782)   (61,552)   (8,924)   (268,651)   (323,779)   (46,944)
Net cash (used in)/ provided by investing activities   (15,567,468)   987,020    3,864,171    560,252    (7,078,294)   (7,369,727)   (1,068,511)

 

The accompanying notes are an integral part of this announcement.

 

14 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)  

(in thousands)

 

   Three Months Ended   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   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 from loans with terms of three months or less   425,020    (3,645,232)   (3,753,493)   (544,205)   (442,207)   (1,274,043)   (184,719)
Proceed of loans with terms over three months   2,277,171    70,691    2,765,086    400,900    4,447,586    6,392,695    926,854 
Payment of loans with terms over three months   (1,311,823)   (50,208)   (191,158)   (27,715)   (2,297,135)   (273,639)   (39,674)
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   1,320,122    14,305    23,616    3,424    2,870,147    (30,921)   (4,483)
Cash paid for repurchase of NetEase’s ADSs/ purchase of subsidiaries’ ADSs and shares   (2,112,256)   (1,956,829)   (3,007,765)   (436,085)   (12,910,533)   (8,328,124)   (1,207,464)
Dividends paid to noncontrolling interest shareholders   (731,250)   -    -    -    (731,250)   -    - 
Dividends paid to NetEase’s shareholders   (940,540)   (1,617,574)   (2,018,984)   (292,725)   (3,508,377)   (6,723,667)   (974,840)
Net cash used in by financing activities   (1,073,556)   (7,184,847)   (6,182,698)   (896,406)   (12,585,569)   (10,237,699)   (1,484,326)
                                    
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies   (80,670)   3,470    53,237    7,719    (55,354)   110,403    16,007 
Net increase in cash, cash equivalents and restricted cash   (8,353,096)   1,291,952    6,743,923    977,777    5,207,510    10,212,210    1,480,631 
Cash, cash equivalents and restricted cash, at the beginning of the period   25,729,211    19,552,450    20,844,402    3,022,154    12,168,605    17,376,115    2,519,300 
Cash, cash equivalents and restricted cash, at end of the period   17,376,115    20,844,402    27,588,325    3,999,931    17,376,115    27,588,325    3,999,931 
                                    
Supplemental disclosures of cash flow information:                                   
Cash paid for income tax, net   858,304    1,550,748    971,217    140,813    3,547,299    5,092,391    738,327 
Cash paid for interest expense   42,879    193,329    264,232    38,310    187,628    588,381    85,307 

 

The accompanying notes are an integral part of this announcement.

 

15 

 

 

 

NETEASE, INC. 

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

 

   Three Months Ended   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   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   18,791,991    18,699,106    19,085,708    2,767,168    67,819,288    74,566,471    10,811,122 
Youdao   1,333,791    1,402,434    1,453,982    210,808    5,354,357    5,013,182    726,843 
Cloud Music   1,889,265    2,357,248    2,376,257    344,525    6,997,622    8,992,221    1,303,749 
Innovative businesses and others   2,358,518    1,967,972    2,438,182    353,502    7,434,759    7,923,935    1,148,863 
Total net revenues   24,373,565    24,426,760    25,354,129    3,676,003    87,606,026    96,495,809    13,990,577 
                                    
Cost of revenues:                                   
Games and related value-added services   (7,347,120)   (6,551,193)   (7,805,578)   (1,131,702)   (26,007,412)   (27,784,419)   (4,028,362)
Youdao   (657,329)   (642,254)   (679,295)   (98,489)   (2,448,146)   (2,430,738)   (352,424)
Cloud Music   (1,812,036)   (2,023,600)   (1,953,900)   (283,289)   (6,854,948)   (7,699,103)   (1,116,265)
Innovative businesses and others   (1,639,300)   (1,465,821)   (1,670,992)   (242,271)   (5,324,719)   (5,815,423)   (843,157)
Total cost of revenues   (11,455,785)   (10,682,868)   (12,109,765)   (1,755,751)   (40,635,225)   (43,729,683)   (6,340,208)
                                    
Gross profit:                                   
Games and related value-added services   11,444,871    12,147,913    11,280,130    1,635,466    41,811,876    46,782,052    6,782,760 
Youdao   676,462    760,180    774,687    112,319    2,906,211    2,582,444    374,419 
Cloud Music   77,229    333,648    422,357    61,236    142,674    1,293,118    187,484 
Innovative businesses and others   719,218    502,151    767,190    111,231    2,110,040    2,108,512    305,706 
Total gross profit   12,917,780    13,743,892    13,244,364    1,920,252    46,970,801    52,766,126    7,650,369 
                                    
Gross profit margin:                                   
Games and related value-added services   60.9%   65.0%   59.1%   59.1%   61.7%   62.7%   62.7%
Youdao   50.7%   54.2%   53.3%   53.3%   54.3%   51.5%   51.5%
Cloud Music   4.1%   14.2%   17.8%   17.8%   2.0%   14.4%   14.4%
Innovative businesses and others   30.5%   25.5%   31.5%   31.5%   28.4%   26.6%   26.6%

 

The accompanying notes are an integral part of this announcement.

 

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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 = RMB6.8972 on the last trading day of December 2022 (December 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 December 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   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   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   267,424    190,645    195,793    28,387    833,389    758,413    109,960 
Operating expenses                                   
Selling and marketing expenses   38,657    24,980    33,001    4,785    118,611    120,171    17,423 
General and administrative expenses   358,595    288,598    349,444    50,664    1,105,547    1,214,995    176,158 
Research and development expenses   338,223    282,776    298,322    43,253    983,945    1,080,581    156,670 

 

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   Year Ended 
   December 31,   September 30,   December 31,   December 31,   December 31,   December 31,   December 31, 
   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   5,694,154    6,699,364    3,952,737    573,093    16,856,842    19,712,736    2,858,078 
Add: Share-based compensation   901,421    770,255    858,637    124,491    2,905,065    3,095,693    448,833 
Non-GAAP net income from continuing operations attributable to the Company’s shareholders   6,595,575    7,469,619    4,811,374    697,584    19,761,907    22,808,429    3,306,911 
Non-GAAP basic net income from continuing operations per share *   2.01    2.29    1.49    0.22    5.94    6.99    1.01 
Non-GAAP basic net income from continuing operations per ADS *   10.05    11.45    7.43    1.08    29.71    34.95    5.07 
Non-GAAP diluted net income from continuing operations per share *   1.98    2.27    1.47    0.21    5.87    6.92    1.00 
Non-GAAP diluted net income from continuing operations per ADS *   9.92    11.34    7.36    1.07    29.34    34.60    5.02 

 

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

 

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