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July 2, 2025
Sarah Ying Li
Head of Financial Reporting
NetEase, Inc.
NetEase Building, No. 599 Wangshang Road
Binjiang District, Hangzhou, 310052
People s Republic of China
Re: NetEase, Inc.
Form 20-F for the Fiscal Year Ended December 31, 2024
File No. 000-30666
Dear Sarah Ying Li:
We have limited our review of your filing to the financial statements
and related
disclosures and have the following comments.
Please respond to this letter within ten business days by providing the
requested
information or advise us as soon as possible when you will respond. If you do
not believe a
comment applies to your facts and circumstances, please tell us why in your
response.
After reviewing your response to this letter, we may have additional
comments.
Form 20-F for the fiscal year ended December 31, 2024
Introduction, page 1
1. Your definition of China or the PRC appears to exclude Hong Kong and
Macau for
purposes of describing the PRC rules, laws, regulation and regulatory
authority or
other legal, tax or finance matters. Please revise to remove the
exclusion of Hong
Kong and Macau from such definition. Clarify that all the legal and
operational risks
associated with having operations in the People s Republic of China
(PRC) also apply
to operations in Hong Kong and Macau. In this regard, ensure that your
disclosure
does not narrow risks related to operating in the PRC to mainland China
only. Where
appropriate, you may describe PRC law and then explain how law in Hong
Kong and
Macau differs from PRC law and describe any risks and consequences to
the company
associated with those laws.
July 2, 2025
Page 2
Item 3. Key Information, page 5
2. We note changes you made to your disclosure on pages 7 and 55 relating
to legal and
operational risks associated with operating in China and PRC
regulations. The
Samples Letters to China-Based Companies sought specific disclosure
relating to the
risk that the PRC government may intervene or influence your operations
at any time,
or may exert more control over operations of your business, which could
result in a
material change in your operations and/or the value of your securities.
It is unclear to
us that there have been changes in the regulatory environment in the PRC
since the
filing of your December 31, 2022 Form 20-F that would warrant revised
disclosure to
mitigate the challenges you face and related disclosures. For additional
guidance, refer
to the Division of Corporation Finance s Sample Letter to China-Based
Companies,
issued December 2021 and July 2023. In future filings, please restore
your disclosure.
Item 5. Operating and Financial Review and Prospects
Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023, page 117
3. You state the increase in net revenue from online games was attributable
to strong
performance of certain self-developed titles and mobile titles and
certain licensed
titles, which were partially offset by decreased net revenues from live
streaming
services. Similarly, you attribute the increase in cost of revenues from
your games and
related value-added services to an increase in royalty fees for certain
licensed games
and staff costs, which was partially offset by a decrease in revenue
sharing costs.
Where a material change in a line item is attributed to two or more
factors, including
any offsetting factors, please revise throughout your results of
operations disclosure to
include a quantified discussion of each identified factor. In addition,
avoid using terms
such as "principally" or "mainly." Refer to Item 5.A.1 of Form 20-F.
4. We note that in your earnings release furnished on February 20, 2025 and
in several
investor presentations, you separately discuss the percentage of net
revenue generated
from online games and mobile games such that it appears discrete
financial
information may be available. In addition, we note from your risk factor
disclosures
that profits from mobile games, even if the games are successful, are
generally lower
than profits generated from PC games. Please tell us your consideration
to separately
quantify revenue from mobile games and PC games for each period
presented in an
effort to add context to the revenue mix and its impact on your gross
profit margins
for your games and related value-added services segment.
E. Critical Accounting Estimates
Estimate of Average Playing Period of Paying Players, page 137
5. We note you generate revenue from the sale of in-game virtual items for
both your
mobile and PC games, some of which are recognized over the estimated
average
playing period of the paying players. Please tell us your consideration
to disclose the
estimated average playing period or range of such period separately for
mobile and
PC games. To the extent changes in such estimates, if any, significantly
impacted your
revenue or results of operations, tell us how you considered including a
discussion of
such change. In your response, provide us with the estimated average
playing period
for your PC and mobile games for each period presented.
July 2, 2025
Page 3
Notes to Consolidated Financial Statements
Note 28. Segment Information, page F-44
6. Please revise to discuss how the CODM uses gross profit, which appears
to be the
segment measure of profit or loss, in assessing segment performance and
deciding
how to allocate resources. Refer to ASC 280-10-50-29(f) and the example
in 280-10-
55-54(c).
In closing, we remind you that the company and its management are
responsible for
the accuracy and adequacy of their disclosures, notwithstanding any review,
comments,
action or absence of action by the staff.
Please contact Chen Chen at 202-551-7351 or Kathleen Collins at
202-551-3499 with
any questions.
Sincerely,
Division of
Corporation Finance
Office of Technology
cc: Paul W. Boltz, Jr.