NetEase Reports First Quarter 2020 Unaudited Financial Results
BEIJING, May 19, 2020 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES) ("NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the first quarter ended March 31, 2020.
First Quarter 2020 Financial Highlights
-- Net revenues were RMB17.1 billion (US$2.4 billion), an increase of 18.3%
compared with the first quarter of 2019.
-- Online game services net revenues were RMB13.5 billion (US$1.9
billion), an increase of 14.1% compared with the first quarter of
2019.
-- Youdao net revenues were RMB541.4 million (US$76.5 million), an
increase of 139.8% compared with the first quarter of 2019.
-- Innovative businesses and others net revenues were RMB3.0 billion
(US$424.1 million), an increase of 28.0% compared with the first
quarter of 2019.
-- Gross profit was RMB9.4 billion (US$1.3 billion), an increase of 21.2%
compared with the first quarter of 2019.
-- Total operating expenses were RMB4.9 billion (US$690.8 million), an
increase of 22.8% compared with the first quarter of 2019.
-- Net income from continuing operations attributable to the Company's
shareholders was RMB3.6 billion (US$501.5 million). Non-GAAP net income
from continuing operations attributable to the Company's shareholders
was RMB4.2 billion (US$595.0 million). ([1])
-- Basic net income from continuing operations per ADS was US$3.88.
Non-GAAP basic net income from continuing operations per ADS was
US$4.60. ([1])
First Quarter 2020 and Recent Operational Highlights
-- Delivered strong performances from flagship titles such as the Fantasy
Westward Journey series and New Westward Journey Online II, and newer
hit titles including Life-After, Onmyoji and All About Jianghu also
maintained their popularity.
-- Extended international recognition for games in Japan with notable
increases in active user numbers for games such as Knives Out and
Identity V.
-- Progressed strong game pipeline with thrilling titles planned for launch
in the coming months including Fantasy Westward Journey H5, King of
Hunters, PES Club Manager, EVE Echoes and Onmyoji: Yokai Koya. Other
upcoming titles planned include: Harry Potter: Magic Awakened, Ghost
World Chronicle, Revelation mobile game, Diablo(®) Immortal(TM),
Pokémon Quest and MARVEL Duel.
-- Advanced intelligent online learning business: net revenues from
Youdao's learning services and products grew by over 226.4%
year-over-year to RMB442.1 million (US$62.4 million), and Youdao
achieved positive net operating cash flow of RMB49.7million (US$7.0
million).
-- Grew NetEase Cloud Music's net revenues considerably year-over-year, and
membership subscribers continued to increase.
"As with companies around the globe, we encountered an unexpected global health crisis and a great deal of uncertainty as 2020 has unfolded. The situation presents numerous evolving challenges, but our resolve to overcome any hurdles remains undiminished. Moreover, we have faith in the solidarity and capabilities of business communities, inside and outside of China, to overcome the pandemic," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Our Company had a good first quarter, with total net revenues growing 18% and net income from continuing operations attributable to the Company's shareholders increasing by approximately 30%, both on a year-over-year basis.
"Our online game services net revenues reached RMB13.5 billion during the quarter with both our flagship titles and many of our newer titles performing well. The strength of our games business is supported by our growing portfolio of games with impressive longevity across an increasingly broad variety of genres. Encouraged by our success in overseas markets such as Japan, we are more confident and committed than ever to extending our reach internationally.
"Our other core businesses are growing healthily. Both Youdao and NetEase Cloud Music are on track to reach their development goals for 2020. Moving forward, we remain committed to our mission to deliver innovative products and high-quality services that surprise and impress our users, and the larger community worldwide," Mr. Ding concluded.
First Quarter 2020 Financial Results
Net Revenues
Net revenues for the first quarter of 2020 were RMB17,062.4 million (US$2,409.7 million), compared to RMB15,734.8 million and RMB14,422.2 million for the preceding quarter and the first quarter of 2019, respectively.
Net revenues from online game services were RMB13,518.2 million (US$1,909.1 million) for the first quarter of 2020, compared to RMB11,604.3 million and RMB11,850.2 million for the preceding quarter and the first quarter of 2019, respectively. Net revenues from mobile games accounted for approximately 70.3% of net revenues from online games for the first quarter of 2020, compared to 70.4% and 72.1% for the preceding quarter and the first quarter of 2019, respectively.
Net revenues from Youdao were RMB541.4 million (US$76.5 million) for the first quarter of 2020, compared to RMB410.4 million and RMB225.7 million for the preceding quarter and the first quarter of 2019, respectively.
Net revenues from innovative businesses and others were RMB3,002.7 million (US$424.1 million) for the first quarter of 2020, compared to RMB3,720.0 million and RMB2,346.3 million for the preceding quarter and the first quarter of 2019, respectively.
Gross Profit
Gross profit for the first quarter of 2020 was RMB9,377.6 million (US$1,324.4 million), compared to RMB8,210.4 million and RMB7,737.7 million for the preceding quarter and the first quarter of 2019, respectively.
The quarter-over-quarter and year-over-year increases in online game services gross profit were primarily due to increased net revenues from self-developed games including Fantasy Westward Journey 3D, Fantasy Westward Journey mobile game, Fantasy Westward Journey Online and New Westward Journey Online II, as well as certain licensed games.
The quarter-over-quarter and year-over-year increases in Youdao gross profit were primarily attributable to the significant increase in net revenues, improved economies of scale and faculty compensation structure optimization for its learning services and products.
The quarter-over-quarter decrease in innovative businesses and others gross profit was primarily due to seasonality of NetEase's advertising services. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.
Gross Profit Margin
Gross profit margin for online game services for the first quarter of 2020 was 64.1%, compared to 63.1% and 63.7% for the preceding quarter and the first quarter of 2019, respectively. The quarter-over-quarter and year-over-year increases were mainly due to the increase in net revenues while certain costs were relatively fixed.
Gross profit margin for Youdao for the first quarter of 2020 was 43.5%, compared to 29.8% and 23.4% for the preceding quarter and the first quarter of 2019, respectively. Such increases were primarily attributable to the factors enumerated above.
Gross profit margin for innovative businesses and others for the first quarter of 2020 was 15.8%, compared to 20.6% and 5.7% for the preceding quarter and the first quarter of 2019, respectively. The quarter-over-quarter and year-over-year changes were primarily attributable to the factors enumerated above.
Operating Expenses
Total operating expenses for the first quarter of 2020 were RMB4,891.2 million (US$690.8 million), compared to RMB5,234.0 million and RMB3,982.6 million for the preceding quarter and the first quarter of 2019, respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to online game services. The year-over-year increase was mainly due to increased marketing expenditures, higher research and development investments as well as higher staff-related costs.
Other Income
Other income consisted of investment income/ (loss), interest income, foreign exchange gains and losses and others. The quarter-over-quarter decrease was mainly due to the fair value changes of equity investments with readily determinable fair value, partially offset by unrealized exchange gains. The year-over-year increase was mainly due to unrealized exchange gains and higher interest income, partially offset by fair value changes of equity investments with readily determinable fair value.
Income Taxes
The Company recorded a net income tax charge of RMB1,082.0 million (US$152.8 million) for the first quarter of 2020, compared to RMB876.3 million and RMB1,266.7 million for the preceding quarter and the first quarter of 2019, respectively. The effective tax rate for the first quarter of 2020 was 21.5%, compared to 22.1% and 31.0% for the preceding quarter and the first quarter of 2019, 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 for the first quarter of 2020 totaled RMB3,551.0 million (US$501.5 million), compared to RMB3,053.7 million and RMB2,732.9 million for the preceding quarter and the first quarter of 2019, respectively.
Non-GAAP net income from continuing operations attributable to the Company's shareholders for the first quarter of 2020 totaled RMB4,212.9 million (US$595.0 million), compared to RMB3,662.3 million and RMB3,353.3 million for the preceding quarter and the first quarter of 2019, respectively.
NetEase reported basic and diluted net income from continuing operations per ADS of US$3.88 and US$3.83, respectively, for the first quarter of 2020. The Company reported basic and diluted net income from continuing operations per ADS of US$3.34 and US$3.30, respectively, for the preceding quarter, and basic and diluted net income from continuing operations per ADS of US$3.01 and US$2.99, respectively, for the first quarter of 2019.
Non-GAAP basic and diluted net income from continuing operations per ADS were US$4.60 and US$4.54, respectively, for the first quarter of 2020, compared to non-GAAP basic and diluted net income from continuing operations per ADS of US$4.01 and US$3.96, respectively, for the preceding quarter, and non-GAAP basic and diluted net income from continuing operations per ADS of US$3.69 and US$3.66, respectively, for the first quarter of 2019.
Quarterly Dividend
The board of directors has approved a dividend of US$1.16 per ADS for the first quarter of 2020, which is expected to be paid on June 23, 2020 to shareholders of record as of the close of business on June 12, 2020.
NetEase paid a dividend of US$1.02 per ADS for the fourth quarter of 2019 on March 20, 2020.
Starting in the second quarter of 2019, the Company's policy has been to set quarterly dividends at an amount equivalent to approximately 20%-30% of the Company's anticipated net income after tax in each fiscal quarter. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.
Other Information
As of March 31, 2020, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB79,331.3 million (US$11,203.7 million), compared to RMB74,406.0 million as of December 31, 2019. Cash flow generated from continuing operating activities was RMB6,500.6 million (US$918.1 million) for the first quarter of 2020, compared to RMB5,510.7 million and RMB2,625.9 million for the preceding quarter and the first quarter of 2019, respectively.
Share Purchase / Repurchase Program
On November 20, 2019, the Company announced that its board of directors had approved a share purchase program of up to US$20.0 million of Youdao's outstanding ADSs for a period not to exceed 12 months beginning on November 25, 2019. Under the terms of this program, NetEase may purchase Youdao's ADSs in open-market transactions on the New York Stock Exchange. As of March 31, 2020, approximately 134,000 ADSs had been purchased under this program for a total cost of US$2.1 million.
On February 26, 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on March 2, 2020. As of March 31, 2020, approximately 1.1 million ADSs had been repurchased under this program for a total cost of US$341.9 million. The Company today announced that its board of directors has approved an amendment to such program to increase the total authorized repurchase amount to US$2.0 billion. Under the terms of this program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market.
For both of the above-mentioned current programs, it is expected that the timing and dollar amount of purchase transactions will be in accordance with the Securities and Exchange Commission (SEC) Rule 10b-18 requirements and such purchases may be affected pursuant to a plan in conformity with SEC Rule 10b5-1. The extent to which NetEase repurchases its ADSs or purchases Youdao's ADSs will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB7.0808 on March 31, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2020, or at any other certain date. The percentages stated are calculated based on RMB.
Change in Segment Reporting
Effective in the third quarter of 2019, the Company has reported the following segments: online game services, Youdao and innovative businesses and others, aligning with the manner in which the Company's chief operating decision maker ("CODM") currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company retrospectively revised prior period segment information to conform to current period presentation.
Impact of the Recently Adopted Major Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326)", which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company adopted the new standard effective January 1, 2020 on a modified retrospective basis and did not restate comparative periods. The impact of new standard was immaterial to the Company.
Conference Call
NetEase's management team will host a teleconference call with simultaneous webcast at 10:00 p.m. Eastern Time on Tuesday, May 19, 2020 (Beijing/Hong Kong Time: 10:00 a.m., Wednesday, May 20, 2020). 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 1-929-477-0324 and providing conference ID: 2981452, 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 2981452#. The replay will be available through June 2, 2020.
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) is dedicated to providing premium online services centered around innovative and diverse content, community, communication and commerce. NetEase develops and operates some of China's most popular mobile and PC-client games. In more recent years, NetEase has expanded into international markets including Japan and North America. In addition to its self-developed game content, NetEase partners with other leading game developers, such as Blizzard Entertainment and Mojang AB (a Microsoft subsidiary), to operate globally renowned games in China. NetEase's other innovative service offerings include the intelligent learning services of its majority-controlled subsidiary, Youdao (NYSE: DAO); music streaming through its leading NetEase Cloud Music business; and its private label e-commerce platform, Yanxuan. For more information, please visit: http://ir.netease.com/.
Forward Looking Statements
This press release 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. 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 leading position in that market within China or globally, which could occur if, for example, its new online games or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company's operations or financial results (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; the risk that steps taken by governments to address COVID-19 in the markets where we operate may impact our workforce and operations and our users and partners; and the risk that the impact of COVID-19 can also exacerbate other risks discussed in this section); the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that changes in Chinese government regulation of the market for online games, education products and services and e-commerce may limit future growth of NetEase's revenues or cause revenues to decline; 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; the risk that the e-commerce market or the internet advertising market in China will not grow and will remain subject to intense competition; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.
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, 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, which are non-cash charges. 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 our 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 "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.
[1] As used in this press release,
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 are defined to exclude
share-based compensation
expenses. See "Unaudited
Reconciliation of GAAP and Non-
GAAP Results" at the end of this
press release.
Contact for Media and Investors:
Margaret Shi
NetEase, Inc.
ir@service.netease.com
Tel: (+86) 571-8985-3378
Brandi Piacente
Investor Relations
netease@thepiacentegroup.com
Tel: (+1) 212-481-2050
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(RMB and USD in thousands)
December 31, March 31,
March 31,
2019 2020 2020
RMB
RMB
USD (Note 1)
Assets
Current assets:
Cash and cash equivalents 3,246,373 5,592,847 789,861
Time deposits 53,487,075 50,515,092 7,134,094
Restricted cash 3,150,354 3,507,105 495,298
Accounts receivable, net 4,169,358 4,559,441 643,916
Inventories, net 650,557 562,117 79,386
Prepayments and other current assets 4,817,422 6,060,421 855,895
Short-term investments 15,312,595 19,373,366 2,736,042
Assets held for sale 271,278 50,751 7,167
Total current assets 85,105,012 90,221,140 12,741,659
Non-current assets:
Property, equipment and software, net 4,621,712 4,569,982 645,405
Land use right, net 3,707,179 3,687,971 520,841
Deferred tax assets 903,904 934,604 131,991
Time deposits 2,360,000 3,850,000 543,724
Other long-term assets 15,424,166 15,390,121 2,173,500
Assets held for sale 2,398
Total non-current assets 27,019,359 28,432,678 4,015,461
Total assets 112,124,371 118,653,818 16,757,120
Liabilities, Redeemable Noncontrolling Interests and
Shareholders' Equity
Current liabilities:
Accounts payable 1,212,303 1,197,007 169,050
Salary and welfare payables 2,957,360 2,429,147 343,061
Taxes payable 3,156,513 4,390,606 620,072
Short-term loans 16,828,226 19,624,535 2,771,514
Deferred revenue 8,602,227 9,981,353 1,409,636
Accrued liabilities and other payables 5,484,228 5,784,678 816,953
Liabilites held for sale 2,156 87 12
Total current liabilities 38,243,013 43,407,413 6,130,298
Non-current liabilities:
Deferred tax liabilities 382,030 625,578 88,348
Other long-term payable 456,912 427,276 60,343
Liabilites held for sale 961
Total non-current liabilities 839,903 1,052,854 148,691
Total liabilities 39,082,916 44,460,267 6,278,989
Redeemable noncontrolling interests 10,448,600 10,385,411 1,466,700
Total NetEase, Inc.'s equity 61,453,699 62,597,346 8,840,434
Noncontrolling interests 1,139,156 1,210,794 170,997
Total shareholders' equity 62,592,855 63,808,140 9,011,431
Total liabilities, redeemable noncontrolling interests and 112,124,371 118,653,818 16,757,120
shareholders' equity
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data or per ADS data)
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Net revenues 14,422,209 15,734,804 17,062,367 2,409,667
Cost of revenues (6,684,535) (7,524,376) (7,684,745) (1,085,293)
Gross profit 7,737,674 8,210,428 9,377,622 1,324,374
Selling and marketing expenses (1,158,090) (2,153,743) (1,863,071) (263,116)
General and administrative expenses (786,850) (812,754) (885,434) (125,047)
Research and development expenses (2,037,694) (2,267,488) (2,142,649) (302,600)
Total operating expenses (3,982,634) (5,233,985) (4,891,154) (690,763)
Operating profit 3,755,040 2,976,443 4,486,468 633,611
Other income:
Investment income/ (loss), net 155,824 731,447 (109,731) (15,497)
Interest income, net 172,206 279,546 345,184 48,749
Exchange (losses)/ gains, net (39,520) (128,522) 244,057 34,467
Other, net 37,164 109,385 66,708 9,421
Income before tax 4,080,714 3,968,299 5,032,686 710,751
Income tax (1,266,685) (876,329) (1,082,033) (152,812)
Net income from continuing operations 2,814,029 3,091,970 3,950,653 557,939
Net loss from discontinued operations (350,755)
Net income 2,463,274 3,091,970 3,950,653 557,939
Accretion and deemed dividends in connection with repurchase of (68,783) (59,588) (386,019) (54,516)
redeemable noncontrolling interests
Net (income)/ loss attributable to noncontrolling interests (12,373) 21,350 (13,628) (1,925)
Net income attributable to the Company's shareholders 2,382,118 3,053,732 3,551,006 501,498
Including:
-Net income from continuing operations attributable to the 2,732,873 3,053,732 3,551,006 501,498
Company's shareholders
-Net loss from discontined operations attributable to the (350,755)
Company's shareholders
Basic net income/ (loss) per share: 0.74 0.95 1.10 0.16
-Continuing operations 0.85 0.95 1.10 0.16
-Discontinued operations (0.11)
Basic net income/ (loss) per ADS: 18.57 23.65 27.47 3.88
-Continuing operations 21.31 23.65 27.47 3.88
-Discontinued operations (2.74)
Diluted net income/ (loss) per share: 0.74 0.93 1.08 0.15
-Continuing operations 0.85 0.93 1.08 0.15
-Discontinued operations (0.11)
Diluted net income/ (loss) per ADS: 18.43 23.37 27.12 3.83
-Continuing operations 21.14 23.37 27.12 3.83
-Discontinued operations (2.71)
Weighted average number of ordinary shares outstanding, 3,206,194 3,228,387 3,231,395 3,231,395
basic
Weighted average number of ADS outstanding, basic 128,248 129,135 129,256 129,256
Weighted average number of ordinary shares outstanding, 3,231,321 3,266,587 3,273,999 3,273,999
diluted
Weighted average number of ADS outstanding, diluted 129,253 130,663 130,960 130,960
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RMB and USD in thousands)
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Cash flows from operating activities:
Net income 2,463,274 3,091,970 3,950,653 557,939
Net loss from discontinued operations 350,755
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 581,177 695,644 690,057 97,455
Fair value changes and impairment losses of short-term (158,461) (724,520) 180,534 25,496
investments, investments in associated companies,
other long-term investments and other intangible assets, net
Share-based compensation cost 620,799 622,363 665,814 94,031
(Reversal of)/ allowance for provision for doubtful debts (18,319) (17,843) 49,939 7,053
Losses on disposal of property, equipment and software 2,738 3,571 37 5
Unrealized exchange losses/ (gains) 41,806 131,869 (242,508) (34,249)
Gains on disposal of long-term investments and businesses (11,978) (2,677) (15,433) (2,180)
Deferred income taxes 303,052 (504,313) 212,848 30,060
Net equity share of losses/ (gains) from associated companies 17,454 (12,269) (46,211) (6,526)
Changes in operating assets and liabilities:
Accounts receivable (609,092) 545,607 (430,535) (60,803)
Inventories 163,004 36,191 88,440 12,490
Prepayments and other assets (979,373) (309,308) (1,103,798) (155,886)
Accounts payable 94,147 136,690 (98,679) (13,936)
Salary and welfare payables (484,045) 1,034,413 (537,907) (75,967)
Taxes payable 939,359 168,247 1,234,078 174,285
Deferred revenue 151,641 406,160 1,379,126 194,770
Accrued liabilities and other payables (842,077) 208,902 524,194 74,030
Net cash provided by continuing operating activities 2,625,861 5,510,697 6,500,649 918,067
Net cash provided by discontinued operating activities 760,713
Net cash provided by operating activities 3,386,574 5,510,697 6,500,649 918,067
Cash flows from investing activities:
Purchase of property, equipment and software (369,590) (235,717) (164,320) (23,206)
Proceeds from sale of property, equipment and software 3,820 49,693 772 109
Purchase of intangible assets, content and licensed copyrights (851,560) (760,698) (306,835) (43,333)
Net change in short-term investments with terms of three (40,255) (1,802,689) (780,535) (110,233)
months or less
Purchase of short-term investments with terms over three months (4,890,000) (3,373,000) (10,070,000) (1,422,156)
Proceeds from maturities of short-term investments with terms 2,311,322 9,252,687 6,887,976 972,768
over three months
Investment in associated companies and other long-term investments (392,016) (231,714) (205,005) (28,952)
Proceeds from disposal of long-term investments and businesses 208,682 28,289 196,952 27,815
Placement/rollover of matured time deposits (16,596,540) (24,912,424) (11,667,487) (1,647,764)
Proceeds from maturities of time deposits 15,959,459 7,964,392 13,640,617 1,926,423
Net change in other assets (31,759) (17,229) (10,522) (1,486)
Amounts received from disposed businesses 651,176 7,092,216
Net cash used in continuing investing activities (4,037,261) (6,946,194) (2,478,387) (350,015)
Net cash used in discontinued investing activities (704,004)
Net cash used in investing activities (4,741,265) (6,946,194) (2,478,387) (350,015)
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(RMB and USD in thousands)
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Cash flows from financing activities:
Proceeds of short-term bank loans with terms over three months 15,000 358,372 100,000 14,123
Payment of short-term bank loans with terms over three months (296,823) (98,395) (13,896)
Net changes in short-term loans with terms of three months or less 741,113 1,472,244 2,539,570 358,656
Capital contribution from/ (repurchase of) noncontrolling interests and 68,611 6,528,274 (447,632) (63,218)
redeemable noncontrolling interests shareholders, net
Cash paid for repurchase of NetEase's/ purchase of Youdao's ADSs (2,560,897) (361,668)
Dividends paid to shareholders (413,589) (6,890,484) (926,545) (130,853)
Net cash provided by/ (used in) financing activities 411,135 1,171,583 (1,393,899) (196,856)
Effect of exchange rate changes on cash, cash equivalents
and restricted cash held in foreign currencies (17,894) (26,846) 74,100 10,465
Net (decrease)/ increase in cash, cash equivalents and restricted cash (961,450) (290,760) 2,702,463 381,661
Cash, cash equivalents and restricted cash, 10,206,538 6,688,620 6,397,860 903,550
at the beginning of the period
Cash, cash equivalents and restricted cash, at end of the period 9,245,088 6,397,860 9,100,323 1,285,211
Less: Cash, cash equivalents and restricted cash of held for sale 580,979 1,133 371 52
Cash, cash equivalents and restricted cash of continuing operations 8,664,109 6,396,727 9,099,952 1,285,159
at end of the period
Supplemental disclosures of cash flow information of continuing
operations:
Cash paid for income tax, net 535,723 1,189,622 202,044 28,534
Cash paid for interest expense 108,664 133,748 96,711 13,658
Supplemental schedule of non-cash investing and financing activities
of continuing opearations:
Fixed asset purchases financed by accounts payable and accrued 253,232 304,944 377,564 53,322
liabilities
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED SEGMENT INFORMATION
(RMB and USD in thousands, except percentages)
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Net revenues:
Online game services 11,850,184 11,604,332 13,518,244 1,909,141
Youdao 225,731 410,432 541,388 76,459
Innovative businesses and others 2,346,294 3,720,040 3,002,735 424,067
Total net revenues 14,422,209 15,734,804 17,062,367 2,409,667
Cost of revenues:
Online game services (4,299,345) (4,281,559) (4,851,831) (685,209)
Youdao (172,836) (288,002) (305,663) (43,168)
Innovative businesses and others (2,212,354) (2,954,815) (2,527,251) (356,916)
Total cost of revenues (6,684,535) (7,524,376) (7,684,745) (1,085,293)
Gross profit:
Online game services 7,550,839 7,322,773 8,666,413 1,223,932
Youdao 52,895 122,430 235,725 33,291
Innovative businesses and others 133,940 765,225 475,484 67,151
Total gross profit 7,737,674 8,210,428 9,377,622 1,324,374
Gross profit margin:
Online game services 63.7% 63.1% 64.1% 64.1%
Youdao 23.4% 29.8% 43.5% 43.5%
Innovative businesses and others 5.7% 20.6% 15.8% 15.8%
The accompanying notes are an integral part of this press release.
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 = RMB7.0808 on the last trading day of March 2020 (March 31, 2020) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.
Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands):
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Share-based compensation cost included in:
Cost of revenue 199,209 191,470 207,915 29,363
Operating expenses
- Selling and marketing expenses 25,247 17,353 24,811 3,504
- General and administrative expenses 197,858 211,506 230,371 32,535
- Research and development expenses 198,485 202,034 202,717 28,629
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(in thousands, except per share data or per ADS data)
Quarter Ended
March 31,
December 31, March 31,
March 31,
2019 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
Net income from continuing operations attributable to 2,732,873 3,053,732 3,551,006 501,498
the Company's shareholders
Add: Share-based compensation 620,439 608,598 661,871 93,474
Non-GAAP net income from continuing operations 3,353,312 3,662,330 4,212,877 594,972
attributable to the Company's shareholders
Non-GAAP basic net income from continuing 1.05 1.13 1.30 0.18
operations per share
Non-GAAP basic net income from continuing 26.15 28.36 32.59 4.60
operations per ADS
Non-GAAP diluted net income from continuing 1.04 1.12 1.29 0.18
operations per share
Non-GAAP diluted net income from continuing 25.94 28.03 32.17 4.54
operations per ADS
The accompanying notes are an integral part of this press release.
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SOURCE NetEase, Inc.
