NetEase Announces Third Quarter 2020 Unaudited Financial Results
BEIJING, Nov. 19, 2020 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2020.
Third Quarter 2020 Financial Highlights
-- Net revenues were RMB18.7 billion (US$2.7 billion), an increase of 27.5%
compared with the third quarter of 2019.
- Online game services net revenues were RMB13.9 billion (US$2.0 billion), an increase of 20.2% compared with the third quarter of 2019.
- Youdao net revenues were RMB896.0 million (US$132.0 million), an increase of 159.0% compared with the third quarter of 2019.
- Innovative businesses and others net revenues were RMB3.9 billion (US$574.4 million), an increase of 41.6% compared with the third quarter of 2019.
-- Gross profit was RMB9.9 billion (US$1.5 billion), an increase of 25.6%
compared with the third quarter of 2019.
-- Total operating expenses were RMB7.0 billion (US$1.0 billion), an
increase of 54.7% compared with the third quarter of 2019.
-- Net income from continuing operations attributable to the Company's
shareholders was RMB3.0 billion (US$441.6 million), which includes net
exchange losses of RMB1.6 billion (US$231.4 million). Non-GAAP net
income from continuing operations attributable to the Company's
shareholders was RMB3.7 billion (US$540.4 million).([1])
-- Basic net income from continuing operations was US$0.65 per ADS (US$0.13
per share). Non-GAAP basic net income from continuing operations was
US$0.80 per ADS (US$0.16 per share).([1] [2])
[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 ADS and per share are
defined to exclude share-based
compensation expenses. See "Unaudited
Reconciliation of GAAP and Non-GAAP
Results" at the end of this
announcement.
[2]
Effective October 1,
2020, the Company changed the ratio
of its American depositary shares
("ADSs"), representing ordinary
shares, from the previous one ADS for
every twenty-five ordinary shares to
one ADS for every five ordinary
shares. The data throughout this
announcement have been revised to
reflect the ratio change as if it had
occurred throughout the periods
presented herein.
Third Quarter 2020 and Recent Operational Highlights
-- Introduced new titles to the Chinese market including Onmyoji: Yokai
Koya, PES Club Manager, King of Hunters and For All Time, and EVE Echoes
and MARVEL Duel to overseas markets.
-- Extended the popularity of a number of mobile titles that climbed
China's iOS top grossing chart in the past months including Invincible,
Onmyoji and Sky.
-- Maintained steady performances of flagship PC titles such as Fantasy
Westward Journey Online, New Westward Journey Online II and Justice.
-- Strengthened NetEase Game's international presence with strong
performances from Knives Out, Life-After and Identity V in Japan.
-- Further developed a robust pipeline with titles including Unknown
Future, Akasha Book, Revelation mobile game, Infinite Lagrange, Harry
Potter: Magic Awakened, The Lord of the Rings: Rise to War, Nightmare
Breaker, Ghost World Chronicle, Diablo(® )Immortal(TM) and Pokémon
Quest. Several of these titles, including Revelation mobile game, will
be released before Chinese New Year.
-- Increased net revenues from Youdao's learning services and products by
over 200% year-over-year.
"With strong and steady contributions from our online game services, our total net revenues for the third quarter reached RMB18.7 billion, an increase of 27.5% year-over-year," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "The strength of our games business is bolstered by our diverse and growing game portfolio with impressive longevity. Additionally, our robust pipeline of games ready for launch is hugely exciting, and we cannot wait to unveil our game sensations across multiple genres to both domestic and global players in the coming quarters.
"Our other businesses including Youdao, NetEase Cloud Music and Yanxuan are also on track, with promising year-over-year topline growth. As we work to bring even more value to our community and shareholders, we will continue to focus on expanding our sustainable growth prospects for each of our businesses," Mr. Ding concluded.
Third Quarter 2020 Financial Results
Net Revenues
Net revenues for the third quarter of 2020 were RMB18,658.2 million (US$2,748.1 million), compared to RMB18,184.8 million and RMB14,635.7 million for the preceding quarter and the third quarter of 2019, respectively.
Net revenues from online game services were RMB13,862.0 million (US$2,041.7 million) for the third quarter of 2020, compared to RMB13,828.3 million and RMB11,534.8 million for the preceding quarter and the third quarter of 2019, respectively. Net revenues from mobile games accounted for approximately 72.7% of net revenues from online games for the third quarter of 2020, compared to 72.3% and 71.0% for the preceding quarter and the third quarter of 2019, respectively.
Net revenues from Youdao were RMB896.0 million (US$132.0 million) for the third quarter of 2020, compared to RMB623.3 million and RMB345.9 million for the preceding quarter and the third quarter of 2019, respectively.
Net revenues from innovative businesses and others were RMB3,900.1 million (US$574.4 million) for the third quarter of 2020, compared to RMB3,733.3 million and RMB2,755.0 million for the preceding quarter and the third quarter of 2019, respectively.
Gross Profit
Gross profit for the third quarter of 2020 was RMB9,885.8 million (US$1,456.0 million), compared to RMB9,792.2 million and RMB7,870.4 million for the preceding quarter and the third quarter of 2019, respectively.
The quarter-over-quarter gross profit in online game services was generally stable. The year-over-year increase was primarily due to increased net revenues from self-developed games such as Fantasy Westward Journey H5, Life-After and Knives Out, 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 decreased gross profit from 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 third quarter of 2020 was 63.6%, compared to 63.8% each for the preceding quarter and the third quarter of 2019. Gross profit margin for online game services was generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC games, as well as self-developed and licensed games.
Gross profit margin for Youdao for the third quarter of 2020 was 45.9%, compared to 45.2% and 25.8% for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter gross profit margin was comparatively stable. The year-over-year increase was primarily attributable to the factors enumerated above.
Gross profit margin for innovative businesses and others for the third quarter of 2020 was 16.8%, compared to 18.5% and 15.2% for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter decrease was primarily due to decreased gross profit margin from advertising services. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.
Operating Expenses
Total operating expenses for the third quarter of 2020 were RMB7,015.7 million (US$1,033.3 million), compared to RMB5,622.3 million and RMB4,535.6 million for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to Youdao and online game services, as well as higher staff-related costs and research and development investments.
Other Income
Other income consisted of investment income, interest income, exchange gains/ (losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to net exchange losses of RMB1,571.3 million (US$231.4 million) recorded in the third quarter of 2020, which were mainly related to net unrealized exchange losses arising from the Company's U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods. Such unrealized exchange losses were partially offset by increased investment income arising from fair value changes of equity investments with readily determinable fair value.
Income Taxes
The Company recorded a net income tax charge of RMB342.7 million (US$50.5 million) for the third quarter of 2020, compared to RMB1,064.5 million and RMB88.0 million for the preceding quarter and the third quarter of 2019, respectively. The effective tax rate for the third quarter of 2020 was 10.9%, compared to 18.6% and 2.1% for the preceding quarter and the third 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, and the rate for the third quarter of 2020 was affected by certain tax credits received and recognized during the quarter.
Net Income and Non-GAAP Net Income
Net income from continuing operations attributable to the Company's shareholders for the third quarter of 2020 totaled RMB2,998.2 million (US$441.6 million), which includes net exchange losses of RMB1,571.3 million (US$231.4 million), compared to RMB4,537.8 million and RMB4,134.2 million for the preceding quarter and the third quarter of 2019, respectively.
Non-GAAP net income from continuing operations attributable to the Company's shareholders for the third quarter of 2020 totaled RMB3,669.2 million (US$540.4 million), compared to RMB5,226.0 million and RMB4,726.0 million for the preceding quarter and the third quarter of 2019, respectively.
NetEase reported basic and diluted net income from continuing operations per ADS of US$0.65 and US$0.64, respectively, for the third quarter of 2020, compared to US$1.03 and US$1.02, respectively, for the preceding quarter, and US$0.94 each for the third quarter of 2019. NetEase reported basic and diluted net income from continuing operations per share of US$0.13 each for the third quarter of 2020, compared to US$0.21 and US$0.20, respectively, for the preceding quarter, and US$0.19 each for the third quarter of 2019.
Non-GAAP basic and diluted net income from continuing operations per ADS were US$0.80 and US$0.79, respectively, for the third quarter of 2020, compared to US$1.19 and US$1.17, respectively, for the preceding quarter and US$1.08 and US$1.07, respectively, for the third quarter of 2019. Non-GAAP basic and diluted net income from continuing operations per share were US$0.16 each for the third quarter of 2020, compared to US$0.24 and US$0.23, respectively, for the preceding quarter and US$0.22 and US$0.21, respectively, for the third quarter of 2019.
Quarterly Dividend
The board of directors has approved a dividend of US$0.1950 per ADS (US$0.0390 per share) for the third quarter of 2020, to holders of ADSs and holders of ordinary shares as of the close of business on December 4, 2020, New York Time and Hong Kong Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on December 4, 2020 (Hong Kong Time). The payment date is expected to be on December 15, 2020 for holders of ordinary shares and on or around December 18, 2020 for holders of ADSs (assuming the dividend payment is timely received by the ADS depositary).
NetEase paid a dividend of US$0.2320 per ADS (US$0.0464 per share) for the first quarter of 2020 in June 2020, and paid a dividend of US$0.2970 per ADS (US$0.0594 per share) for the second quarter of 2020 in September 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 September 30, 2020, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB102,650.0 million (US$15,118.7 million), compared to RMB74,406.0 million as of December 31, 2019. Cash flow generated from continuing operating activities was RMB5,401.0 million (US$795.5 million) for the third quarter of 2020, compared to RMB4,772.3 million and RMB3,846.3 million for the preceding quarter and the third 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 September 30, 2020, approximately 198,000 ADSs had been purchased under this program for a total cost of US$3.4 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. On May 19, 2020, the Company announced that its board of directors had 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. As of September 30, 2020, approximately 15.3 million ADSs had been repurchased under this program for a total cost of US$1.1 billion.
For both of the above-mentioned current programs, it is expected that the timing and dollar amount of purchase transactions will be in accordance with the Securities and Exchange Commission (SEC) Rule 10b-18 requirements and such purchases may be affected pursuant to a plan in conformity with SEC Rule 10b5-1. The extent to which NetEase repurchases its ADSs or purchases Youdao's ADSs will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.7896 on September 30, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2020, or at any other certain date. The percentages stated are calculated based on RMB.
Conference Call
NetEase's management team will host a teleconference call with simultaneous webcast at 7:00 a.m. New York Time on Thursday, November 19, 2020 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, November 19, 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 1-646-828-8143 and providing conference ID: 5158324, 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 5158324#. The replay will be available through December 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 and HKEX: 9999, "NetEase") 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 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 announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company's operations or financial results; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; 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.
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, 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 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.
Contact for Media and Investors:
Margaret Shi
Email: ir@service.netease.com
Tel: (+86) 571-8985-3378
Twitter: https://twitter.com/NetEase_Global
Brandi Piacente
Email: netease@thepiacentegroup.com
Tel: (+1) 212-481-2050
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(RMB and USD in thousands)
December 31,
September 30,
September 30,
2019 2020 2020
RMB
RMB
USD (Note 1)
Assets
Current assets:
Cash and cash equivalents 3,246,373 6,466,250 952,376
Time deposits 53,487,075 79,639,453 11,729,624
Restricted cash 3,150,354 2,885,935 425,052
Accounts receivable, net 4,169,358 4,948,999 728,909
Inventories, net 650,557 524,360 77,230
Prepayments and other current assets 4,817,422 7,005,805 1,031,843
Short-term investments 15,312,595 12,294,335 1,810,760
Assets held for sale 271,278
Total current assets 85,105,012 113,765,137 16,755,794
Non-current assets:
Property, equipment and software, net 4,621,712 4,439,270 653,834
Land use right, net 3,707,179 4,200,099 618,608
Deferred tax assets 903,904 892,862 131,504
Time deposits 2,360,000 4,250,000 625,957
Other long-term assets 15,424,166 17,184,276 2,530,970
Assets held for sale 2,398
Total non-current assets 27,019,359 30,966,507 4,560,873
Total assets 112,124,371 144,731,644 21,316,667
Liabilities, Redeemable Noncontrolling Interests
and Shareholders' Equity
Current liabilities:
Accounts payable 1,212,303 997,099 146,857
Salary and welfare payables 2,957,360 2,130,624 313,807
Taxes payable 3,156,513 4,062,230 598,302
Short-term loans 16,828,226 22,247,523 3,276,706
Deferred revenue 8,602,227 10,376,439 1,528,284
Accrued liabilities and other payables 5,484,228 7,114,994 1,047,925
Liabilities held for sale 2,156
Total current liabilities 38,243,013 46,928,909 6,911,881
Non-current liabilities:
Deferred tax liabilities 382,030 533,208 78,533
Other long-term payable 456,912 514,763 75,816
Liabilities held for sale 961
Total non-current liabilities 839,903 1,047,971 154,349
Total liabilities 39,082,916 47,976,880 7,066,230
Redeemable noncontrolling interests 10,448,600 10,660,981 1,570,193
Total NetEase, Inc.'s equity 61,453,699 85,246,787 12,555,495
Noncontrolling interests 1,139,156 846,996 124,749
Total shareholders' equity 62,592,855 86,093,783 12,680,244
Total liabilities, redeemable noncontrolling 112,124,371 144,731,644 21,316,667
interests and shareholders' equity
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data or per ADS data)
Three Months Ended
Nine Months Ended
---
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues 14,635,690 18,184,806 18,658,222 2,748,059 43,506,341 53,905,395 7,939,406
Cost of revenues (6,765,340) (8,392,631) (8,772,379) (1,292,032) (20,161,469) (24,849,755) (3,659,973)
Gross profit 7,870,350 9,792,175 9,885,843 1,456,027 23,344,872 29,055,640 4,279,433
Selling and marketing expenses (1,619,531) (2,321,397) (3,442,821) (507,073) (4,067,384) (7,627,289) (1,123,378)
General and administrative expenses (753,794) (892,622) (783,815) (115,443) (2,317,544) (2,561,871) (377,323)
Research and development expenses (2,162,254) (2,408,306) (2,789,051) (410,783) (6,145,736) (7,340,006) (1,081,066)
Total operating expenses (4,535,579) (5,622,325) (7,015,687) (1,033,299) (12,530,664) (17,529,166) (2,581,767)
Operating profit 3,334,771 4,169,850 2,870,156 422,728 10,814,208 11,526,474 1,697,666
Other income:
Investment income, net 394,907 711,159 1,280,483 188,595 574,873 1,881,911 277,176
Interest income, net 184,795 396,519 446,914 65,823 542,228 1,188,617 175,064
Exchange gains/ (losses), net 120,562 17,008 (1,571,326) (231,431) 153,688 (1,310,261) (192,981)
Other, net 214,847 421,199 109,940 16,192 330,037 597,847 88,053
Income before tax 4,249,882 5,715,735 3,136,167 461,907 12,415,034 13,884,588 2,044,978
Income tax (87,957) (1,064,455) (342,700) (50,474) (2,038,397) (2,489,188) (366,618)
Net income from continuing operations 4,161,925 4,651,280 2,793,467 411,433 10,376,637 11,395,400 1,678,360
Net income from discontinued operations 8,596,089 7,962,519
Net income 12,758,014 4,651,280 2,793,467 411,433 18,339,156 11,395,400 1,678,360
Accretion and deemed dividends in connection with (70,124) (150,958) (118,448) (17,446) (211,955) (655,425) (96,534)
repurchase of redeemable noncontrolling interests
Net loss attributable to noncontrolling interests 42,409 37,484 323,221 47,605 56,583 347,077 51,119
Net income attributable to the Company's shareholders 12,730,299 4,537,806 2,998,240 441,592 18,183,784 11,087,052 1,632,945
Including:
-Net income from continuing operations attributable to the 4,134,210 4,537,806 2,998,240 441,592 10,221,265 11,087,052 1,632,945
Company's shareholders
-Net income from discontinued operations attributable to the 8,596,089 7,962,519
Company's shareholders
Basic net income per share: 3.95 1.40 0.89 0.13 5.65 3.37 0.50
-Continuing operations 1.28 1.40 0.89 0.13 3.18 3.37 0.50
-Discontinued operations 2.67 2.47
Basic net income per ADS: 19.73 7.00 4.43 0.65 28.25 16.87 2.48
-Continuing operations 6.41 7.00 4.43 0.65 15.88 16.87 2.48
-Discontinued operations 13.32 12.37
Diluted net income per share: 3.91 1.38 0.87 0.13 5.60 3.33 0.49
-Continuing operations 1.27 1.38 0.87 0.13 3.15 3.33 0.49
-Discontinued operations 2.64 2.45
Diluted net income per ADS: 19.56 6.92 4.37 0.64 28.02 16.65 2.45
-Continuing operations 6.35 6.92 4.37 0.64 15.75 16.65 2.45
-Discontinued operations 13.21 12.27
Weighted average number of ordinary shares outstanding, 3,225,704 3,242,061 3,384,051 3,384,051 3,217,806 3,286,194 3,286,194
basic
Weighted average number of ADS outstanding, basic 645,141 648,412 676,810 676,810 643,561 657,239 657,239
Weighted average number of ordinary shares outstanding, 3,254,269 3,281,100 3,431,274 3,431,274 3,244,404 3,329,149 3,329,149
diluted
Weighted average number of ADS outstanding, diluted 650,854 656,220 686,255 686,255 648,881 665,830 665,830
Effective October 1, 2020, the Company changed the ratio of its American depositary shares ("ADSs"), representing ordinary shares, from the previous one ADS for every twenty-five
ordinary shares to one ADS for every five ordinary shares. The data throughout this announcement have been revised to reflect the ratio change as if it had occurred throughout the periods presented herein.
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RMB and USD in thousands)
Three Months Ended
Nine Months Ended
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from operating activities:
Net income 12,758,014 4,651,280 2,793,467 411,433 18,339,156 11,395,400 1,678,360
Net income from discontinued operations (8,596,089) (7,962,519)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 703,387 892,150 913,049 134,478 1,918,138 2,495,256 367,511
Fair value changes of equity security investments (144,547) (503,281) (1,103,428) (162,517) (187,425) (1,279,669) (188,475)
Impairment losses of investments and other intangible 12,585 177,567 6,600 972
assets
Fair value changes of short-term investments (198,390) (174,738) (133,943) (19,728) (497,354) (461,787) (68,014)
Share-based compensation cost 593,259 691,945 676,751 99,675 1,781,726 2,034,510 299,651
Allowance for/ (reversal of) provision for doubtful debts 4,725 (1,305) (2,146) (316) (10,740) 46,488 6,847
(Gains)/losses on disposal of property, equipment and (2,639) 1,070 2,645 390 1,551 3,752 553
software
Unrealized exchange (gains)/losses (111,807) (20,159) 1,568,627 231,034 (141,850) 1,305,960 192,347
(Gains)/losses on disposal of long-term investments, (83,678) (14,803) 2,995 441 (95,812) (27,241) (4,012)
business and subsidiaries
Deferred income taxes (114,434) 499,509 (550,137) (81,026) 654,942 162,220 23,892
Net equity share of (gains)/ losses from associated (8,595) (10,948) (28,915) (4,259) 7,947 (86,074) (12,677)
companies
Changes in operating assets and liabilities:
Accounts receivable (333,859) (498,550) 43,177 6,359 (556,921) (885,908) (130,480)
Inventories 83,150 3,329 34,429 5,071 378,866 126,198 18,587
Prepayments and other assets (746,434) 233,607 65,383 9,630 (1,179,256) (804,808) (118,535)
Accounts payable (105,131) (271,697) 147,811 21,770 (123,461) (222,565) (32,780)
Salary and welfare payables (447,025) 132,037 (447,645) (65,931) (888,267) (853,515) (125,709)
Taxes payable (408,348) (568,138) 240,464 35,416 (302,048) 906,404 133,499
Deferred revenue 816,599 (605,444) 1,000,530 147,362 477,582 1,774,212 261,313
Accrued liabilities and other payables 175,544 336,444 177,853 26,195 (391,548) 1,038,491 152,953
Net cash provided by continuing operating activities 3,846,287 4,772,308 5,400,967 795,477 11,400,274 16,673,924 2,455,803
Net cash provided by discontinued operating activities 7,136 305,487
Net cash provided by operating activities 3,853,423 4,772,308 5,400,967 795,477 11,705,761 16,673,924 2,455,803
Cash flows from investing activities:
Purchase of property, equipment and software (329,722) (237,039) (350,866) (51,677) (973,760) (752,225) (110,791)
Proceeds from sale of property, equipment and software 5,190 3,970 4,903 722 10,908 9,645 1,421
Purchase of intangible assets, content and licensed (208,748) (839,441) (755,132) (111,219) (1,358,609) (1,901,408) (280,047)
copyrights
Net change in short-term investments with terms of three (683,304) 1,083,342 298,667 43,989 779,524 601,474 88,588
months or less
Purchase of short-term investments (4,997,000) (3,080,000) (4,555,000) (670,879) (18,997,000) (17,705,000) (2,607,665)
Proceeds from maturities of short-term investments 5,901,842 2,345,218 11,295,357 1,663,626 10,972,655 20,528,551 3,023,529
Investment in associated companies and other long-term (711,229) (520,762) (647,533) (95,371) (1,330,474) (1,373,300) (202,265)
investments
Proceeds from disposal of investment in equity 127,332 33,856 397,342 58,522 378,413 628,150 92,516
investments, businesses and subsidiaries
Placement/rollover of matured time deposits (19,339,634) (38,412,268) (26,718,380) (3,935,192) (52,170,926) (76,798,135) (11,311,143)
Proceeds from maturities of time deposits 11,869,243 19,442,266 13,550,559 1,995,782 46,417,255 46,633,442 6,868,364
Change in other long-term assets 63,196 (76,103) (21,957) (3,234) (25,116) (108,582) (15,993)
Amounts received from disposed businesses 1,488,349 1,938,835
Net cash used in continuing investing activities (6,814,485) (20,256,961) (7,502,040) (1,104,931) (14,358,295) (30,237,388) (4,453,486)
Net cash used in discontinued investing activities (264,897) (832,252)
Net cash used in investing activities (7,079,382) (20,256,961) (7,502,040) (1,104,931) (15,190,547) (30,237,388) (4,453,486)
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(RMB and USD in thousands)
Three Months Ended
Nine Months Ended
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from financing activities:
Proceeds of short-term bank loans 58,840 360,474 68,978 10,159 371,715 529,452 77,980
Payment of short-term bank loans (358,171) (456,566) (67,245)
Net changes in short-term loans with terms of three months 1,469,031 2,305,176 1,031,040 151,856 1,066,023 5,875,786 865,410
or less
Net proceeds received from/(paid for) issuance of shares in 22,083,467 (212) (31) 22,083,255 3,252,512
Hong Kong
Capital injection from/ (repurchase of) noncontrolling interests 128,192 163,865 4,815 709 412,716 (278,952) (41,085)
and redeemable noncontrolling interests shareholders, net
Cash (paid for)/received from repurchase of NetEase's/ (7) (3,260,996) (2,223,165) (327,437) 10,638 (8,045,058) (1,184,909)
purchase of Youdao's ADSs
Dividends paid to shareholders (923,444) (1,115,136) (1,377,570) (202,894) (1,950,150) (3,419,251) (503,601)
Net cash provided/(used in) by financing activities 732,612 20,178,679 (2,496,114) (367,638) (89,058) 16,288,666 2,399,062
Effect of exchange rate changes on cash, cash equivalents
and restricted cash held in foreign currencies 38,196 180,056 (25,033) (3,687) 55,926 229,123 33,746
Net (decrease)/ increase in cash, cash equivalents and restricted (2,455,151) 4,874,082 (4,622,220) (680,779) (3,517,918) 2,954,325 435,125
cash
Cash, cash equivalents and restricted cash, at the beginning 9,143,771 9,100,323 13,974,405 2,058,207 10,206,538 6,397,860 942,303
of the period
Cash, cash equivalents and restricted cash, at end of the 6,688,620 13,974,405 9,352,185 1,377,428 6,688,620 9,352,185 1,377,428
period
Less: Cash, cash equivalents and restricted cash of held for sale 14,693 14,693
at end of the period
Cash, cash equivalents and restricted cash of continuing 6,673,927 13,974,405 9,352,185 1,377,428 6,673,927 9,352,185 1,377,428
operations at end of the period
Supplemental disclosures of cash flow information of
continuing operations:
Cash paid for income tax, net 906,425 548,556 948,130 139,644 2,004,180 1,698,730 250,196
Cash paid for interest expense 73,573 55,301 47,862 7,049 297,647 199,874 29,438
Supplemental schedule of non-cash investing and financing
activities of continuing opearations:
Fixed asset purchases financed by accounts payable and accrued 292,528 277,314 238,309 35,099 292,528 238,309 35,099
liabilities
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED SEGMENT INFORMATION
(RMB and USD in thousands, except percentages)
Three Months Ended
Nine Months Ended
---
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues:
Online game services 11,534,763 13,828,256 13,862,035 2,041,657 34,818,308 41,208,535 6,069,361
Youdao 345,908 623,290 896,041 131,973 894,451 2,060,719 303,511
Innovative businesses and others 2,755,019 3,733,260 3,900,146 574,429 7,793,582 10,636,141 1,566,534
Total net revenues 14,635,690 18,184,806 18,658,222 2,748,059 43,506,341 53,905,395 7,939,406
Cost of revenues:
Online game services (4,172,678) (5,009,354) (5,044,177) (742,927) (12,692,675) (14,905,362) (2,195,323)
Youdao (256,674) (341,751) (484,488) (71,357) (646,259) (1,131,902) (166,711)
Innovative businesses and others (2,335,988) (3,041,526) (3,243,714) (477,748) (6,822,535) (8,812,491) (1,297,939)
Total cost of revenues (6,765,340) (8,392,631) (8,772,379) (1,292,032) (20,161,469) (24,849,755) (3,659,973)
Gross profit:
Online game services 7,362,085 8,818,902 8,817,858 1,298,730 22,125,633 26,303,173 3,874,038
Youdao 89,234 281,539 411,553 60,616 248,192 928,817 136,800
Innovative businesses and others 419,031 691,734 656,432 96,681 971,047 1,823,650 268,595
Total gross profit 7,870,350 9,792,175 9,885,843 1,456,027 23,344,872 29,055,640 4,279,433
Gross profit margin:
Online game services 63.8% 63.8% 63.6% 63.6% 63.5% 63.8% 63.8%
Youdao 25.8% 45.2% 45.9% 45.9% 27.7% 45.1% 45.1%
Innovative businesses and others 15.2% 18.5% 16.8% 16.8% 12.5% 17.1% 17.1%
The accompanying notes are an integral part of this announcement.
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 = RMB6.7896 on the last trading day of September 2020 (September 30, 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):
Three Months Ended
Nine Months Ended
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Share-based compensation cost included in:
Cost of revenues 180,990 204,953 200,116 29,474 567,340 612,984 90,283
Operating expenses
- Selling and marketing expenses 21,176 27,034 25,563 3,765 67,567 77,408 11,401
- General and administrative expenses 200,394 247,589 236,323 34,807 585,614 714,283 105,203
- Research and development expenses 190,699 212,369 214,749 31,629 561,205 629,835 92,765
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(in thousands, except per share data or per ADS data)
Three Months Ended
Nine Months Ended
September 30, June 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2019 2020 2020 2020 2019 2020 2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net income from continuing operations attributable to 4,134,210 4,537,806 2,998,240 441,592 10,221,265 11,087,052 1,632,945
the Company's shareholders
Add: Share-based compensation 591,769 688,227 671,004 98,828 1,779,077 2,021,102 297,676
Non-GAAP net income from continuing operations 4,725,979 5,226,033 3,669,244 540,420 12,000,342 13,108,154 1,930,621
attributable to the Company's shareholders
Non-GAAP basic net income from continuing 1.47 1.61 1.08 0.16 3.73 3.99 0.59
operations per share
Non-GAAP basic net income from continuing 7.33 8.06 5.42 0.80 18.65 19.94 2.94
operations per ADS
Non-GAAP diluted net income from continuing 1.45 1.59 1.07 0.16 3.70 3.94 0.58
operations per share
Non-GAAP diluted net income from continuing 7.26 7.96 5.35 0.79 18.49 19.69 2.90
operations per ADS
The accompanying notes are an integral part of this announcement.
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SOURCE NetEase, Inc.
