BEIJING, Nov. 7 /Xinhua-PRNewswire/ -- NetEase.com, Inc.
(Nasdaq: NTES), one of China's leading Internet and online game services
providers, today announced its unaudited financial results for the third
quarter ended September 30, 2006.
Third Quarter 2006 Performance
* Total revenues for the quarter decreased 0.6% quarter-over-quarter
and increased 23.6% year-over-year to RMB571.9 million (US$72.4
million);
* U.S. GAAP net profit for the quarter increased 0.2% quarter-over-
quarter and 21.7% year-over-year to RMB314.8 million (US$39.8
million), equivalent to US$0.29 (diluted) earnings per American
Depositary Share (ADS);
* Non-GAAP net profit for the quarter, which is exclusive of non-
cash, share-based compensation costs, increased 0.1% quarter-over-
quarter and 31.8% year-over-year to RMB340.8 million (US$43.1
million), equivalent to US$0.31 (diluted) earnings per ADS;
* The internal beta testing schedule for the Company's next
generation online 3D game, Tianxia II, remains on track, and open
beta testing is expected to commence by the end of 2006;
* Internal closed beta testing of the upgraded version of Westward
Journey II (Westward Journey III) is on schedule to commence in
the
second quarter of 2007; and
* As of September 30, 2006, approximately 1.0 million of the
Company's issued and outstanding ADSs had been repurchased for an
aggregate purchase consideration of US$17.1 million (including
transaction costs) pursuant to the share repurchase program
announced on August 29, 2006.
William Ding, Chief Executive Officer and Director of NetEase
stated, "Our online game revenues, which decreased 3.7% quarter-over-quarter,
were impacted in part by expected seasonality in the last month of the
quarter. In addition, our revenues from online games were affected by
increased competition, particularly from free-to-play games offered by some
of our competitors, and in-game protests by certain users of our Fantasy
Westward Journey game who mistakenly identified an image in this game as
being a Japanese flag. Our 21.2% quarter-over-quarter increase in advertising
revenue for the third quarter reflected the improved content and optimization
of new products and services. We are continuing to improve and expand our
online user experience and drive traffic volume within our online communities
by introducing new products such as our blog services and a new home page,
both launched in October this year."
Mr. Ding added, "We continued to make significant progress in the
development of our online game pipeline during the quarter, and remain on
track to initiate internal closed beta testing of Westward Journey III, which
incorporates a new game engine and new features and content, in early to mid-
2007. Tianxia II development is also progressing according to plan, and we
expect to commence open beta testing by the end of this year. Datang
contributed modestly in its first full quarter since commercialization, but
we believe its popularity will grow as we add new content and playing
features and increase our marketing of this game."
Total revenues for the third quarter ended September 30, 2006 were
RMB571.9 million (US$72.4 million) compared with RMB575.3 million (US$72.0
million) for the second quarter of 2006. Total revenues increased 23.6% from
RMB462.6 million (US$57.2 million) for the third quarter of 2005.
Online game revenues were RMB467.9 million (US$59.2 million) for the
third quarter of 2006, representing a decrease of 3.7% from RMB486.0 million
(US$60.8 million) for the second quarter of 2006 and an increase of 25.6%
over RMB372.7 million (US$46.1 million) for the third quarter of 2005.
Revenues from advertising services increased 21.2% to RMB83.4 million
(US$10.5 million) for the third quarter of 2006, from RMB68.8 million (US$8.6
million) for the second quarter of 2006. Advertising services revenues
increased 13.6% over RMB73.4 million (US$9.1 million) for the third quarter
of 2005.
Revenues from the Company's wireless value-added services and others were
RMB20.6 million (US$2.6 million) for the third quarter of 2006, representing
an increase of 0.6% from RMB20.5 million (US$2.6 million) for the second
quarter of 2006 and an increase of 24.9% from RMB16.5 million (US$2.0
million) for the third quarter of 2005.
GAAP gross profit for the third quarter of 2006 was RMB448.1 million
(US$56.7 million). The Company's non-GAAP gross profit in the third quarter
was RMB452.3 million (US$57.2 million), representing a decrease of 2.0% over
the previous quarter's non-GAAP gross profit of RMB461.7 million (US$57.8
million), and an increase of 21.9% over non-GAAP gross profit of RMB370.9
million (US$45.8 million) for the corresponding period a year ago. The non-
GAAP financial measures included in this release exclude the effect of
certain non-cash, share based compensation expenses. The reconciliation of
GAAP measures with non-GAAP measures for gross profit, operating expenses,
net profit and net profit per ADS is set forth in the Company's unaudited
financial information below.
Total GAAP gross margin for the Company for the third quarter of 2006 was
81.7%. Total non-GAAP gross margin for the third quarter was 82.5% compared
with non-GAAP gross margin of 83.5% for the preceding quarter and 83.6% for
the same period last year. The decrease was primarily attributable to the
decrease in the gross margin for online games for the reason explained below.
GAAP gross margin for the online game business for the third quarter of
2006 was 89.4%. Non-GAAP gross margin for the online game business for the
third quarter of 2006 was 89.7% compared with non-GAAP gross margin of 91.0%
for the preceding quarter and 89.7% for the third quarter of 2005. The
decrease was primarily due to the increased costs associated with the open
beta testing and initial commercial launch of Datang during the third quarter
of 2006.
GAAP gross margin for the advertising business for the third quarter of
2006 was 56.1%. Non-GAAP gross margin for the online advertising business
for the third quarter of 2006 was 58.9% compared to non-GAAP gross margin of
53.3% for the preceding quarter and 68.1% for the third quarter of 2005. The
quarter-over-quarter increase was primarily due to the fact that advertising
costs were relatively stable while advertising revenue grew.
GAAP gross margin for the wireless value-added services and others
business for the third quarter of 2006 was 3.4%. Non-GAAP gross margin for
the wireless value-added services and others business for the third quarter
of 2006 was 7.6% compared with non-GAAP gross margin of 1.9% for the
preceding quarter and 11.3% for the third quarter of 2005.
Total GAAP operating expenses for the third quarter of 2006 were RMB131.5
million (US$16.6 million). Total non-GAAP operating expenses for the third
quarter of 2006 were RMB109.7 million (US$13.9 million), compared with
RMB112.4 million (US$14.1 million) for the preceding quarter and RMB94.7
million (US$11.7 million) for the same period last year. The decrease in non-
GAAP operating expenses in comparison to the preceding quarter was primarily
due to a one-time write-off of RMB11.6 million (US$1.4 million) in software
cost for the Company's licensed online 3D game, Fly for Fun, in the second
quarter. The decrease was partially off-set by a higher provision for
doubtful debts and increased research and development expense associated with
increased staffing for enhancement of existing products and for development
of new products in the third quarter.
As a result of foreign currency translation from currencies other than
the Renminbi into Renminbi in accordance with applicable accounting
standards, the Company reported a RMB219,000 (US$28,000) foreign exchange
gain in the third quarter of 2006, compared to a foreign exchange loss of
RMB45,000 (US$6,000) in the preceding quarter. The Company reported a RMB6.4
million (US$0.8 million) exchange loss in the third quarter of 2005.
GAAP net profit for the third quarter totaled RMB314.8 million (US$39.8
million). Non-GAAP net profit for the third quarter totaled RMB340.8 million
(US$43.1 million), a 0.1% increase over the previous quarter's non-GAAP net
profit of RMB340.4 million (US$42.6 million) and a 31.8% increase over non-
GAAP net profit of RMB258.6 million (US$32.0 million) for the third quarter
of 2005. NetEase reported GAAP basic and diluted earnings per ADS of US$0.31
and US$0.29 for the third quarter of 2006, respectively, which includes the
impact of approximately US$3.3 million, or US$0.02 per ADS, in non-cash,
share-based compensation costs. The Company reported GAAP basic and diluted
earnings per ADS of US$0.30 and US$0.28 for the second quarter of 2006, and
US$0.25 and US$0.22 for the third quarter of 2005, respectively.
As of September 30, 2006, the Company's total cash and time deposit
balance was RMB3.8 billion (US$478.7 million), an increase of 4.8% from
RMB3.6 billion (US$451.8 million) at June 30, 2006. Cash flow generated from
operating activities was approximately RMB344.5 million (US$43.6 million), an
increase of 16.2% from the previous quarter's RMB296.5 million (US$37.1
million) and an 18.9% decrease from RMB424.9 million (US$52.5 million) for
the third quarter of 2005.
On August 29, 2006, NetEase announced that its board of directors had
approved a share repurchase program of up to US$100 million of the Company's
outstanding ADSs. As of September 30, 2006, the Company had effected
transactions in the open market purchasing approximately one million ADSs for
an aggregate purchase amount of approximately US$17.1 million (including
transaction costs), representing 17.1% of the total authorized share
repurchase amount.
Denny Lee, NetEase's Chief Financial Officer, added, ¡°Our new share
repurchase program is double the size of our previous program completed in
May 2006, which signals the confidence of our board and management in our
long-term growth prospects and vision for the future. Our strong balance
sheet and healthy cash flow enables us to strategically reinvest in the
current business while continuing to repurchase our ADSs, both with the
objective of enhancing shareholder value.¡±
Other Announcements
The Company separately announced today that it is currently negotiating
the purchase of an office building in Guangzhou, PRC with total floor space
of approximately 20,000 square meters. The Company has been occupying this
building on a rent-free basis since its completion in July 2006, pending the
completion of negotiations for such purchase. It is expected that the
previously disclosed option held by William Ding to purchase the building
from its developer will be terminated.
In addition, in July 2006 the Chinese Ministry of Information Industry
(MII) issued a "Notice on Strengthening Management of Foreign Investment in
and Operation of Value-added Telecommunication Services Business." The
Notice states that domestic telecommunication companies shall not by any
means lease, lend, transfer or sell their telecommunication service operation
license to any foreign investor and shall not in any manner provide
resources, premises, facilities, equipment or other features to any foreign
investor that operates a telecommunication service business illegally in
China. The Notice requires that, among other things, an operator of value-
added telecommunication services must itself own the domain names and
trademarks used by such operator. The Notice further requires that domestic
companies which have already obtained value-added telecommunication services
licenses evaluate their compliance with these requirements and take
corrective action in accordance with these requirements. Local
telecommunications authorities are required to monitor the process and
inspect the results of such examination and self-correction and submit their
inspection report to the MII before November 1, 2006. Companies which do not
comply with these requirements must rectify their non-compliance within a
specified time period or may have their value-added telecommunication service
operation licenses revoked. NetEase conducts all of its Internet information
services, advertising and wireless value-added services in China via
Guangzhou NetEase and other domestic variable interest entities, or VIEs.
Guangzhou NetEase submitted its compliance examination report to the
Telecommunications Administration of Guangdong Province, or GDTA, and
discussed with GDTA officials on its compliance with these requirements in
October 2006 and is currently waiting for the feedback of GDTA. NetEase will
continue to evaluate, on an on-going basis, its compliance (including the
compliance of its VIEs) with these requirements, and it may take such actions
as may be required to satisfy these requirements, including but not limited
to modifying the current ownership structure in relation to its trademarks
and domain names.
Non-GAAP Disclosure
To supplement the unaudited consolidated financial statements presented
in accordance with United States Generally Accepted Accounting Principles
("GAAP"), NetEase's management uses non-GAAP measures of gross margin, gross
profit, operating expenses, net profit and net profit per American Depositary
Share, which are adjusted from results based on GAAP to exclude the
compensation cost of share-based awards granted to employees under Statement
of Financial Accounting Standard 123R, effective from January 1, 2006. The
non-GAAP financial measures, by excluding the non-cash, stock-based
compensation costs, are provided to enhance the investors' overall
understanding of NetEase's current financial performance and prospects for
the future. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a substitute
for, or superior to, GAAP results.
Reconciliations of NetEase's non-GAAP financial measures to unaudited
Consolidated Statements of Operations are set forth at the end of this
release.
NetEase's management believes that excluding the share-based compensation
expense from its GAAP financial measures of gross margin, gross profit,
operating expenses, net profit and net profit per American Depositary Share
are useful for itself and investors, because it makes a more meaningful
comparison of NetEase's current operating results to those periods prior to
the adoption of Statement of Financial Accounting Standard 123R and improves
readers' understanding of NetEase's performance.
**Note: The conversion of Renminbi (RMB) into U.S. dollars in this
release is based on the exchange rate of US$1=RMB7.9040. The percentages
stated are calculated based on RMB.**
Conference Call
NetEase's management team will host a conference call at 8:00 pm Eastern
Time on November 6, 2006 (Beijing/Hong Kong Time: 9:00 am, November 7, 2006).
Chief Executive Officer William Ding, Chief Financial Officer Denny Lee, and
Co-Chief Operating Officer Michael Tong will be on the call to discuss the
quarterly results and answer questions.
Interested parties may participate in the conference call by dialing 800-
967-7184 (international: 719-457-2633), 10-15 minutes prior to the initiation
of the call. A replay of the call will be available by dialing 888-203-1112
(international 719-457-0820), and entering passcode 4412175. The replay will
be available through December 6, 2006 Eastern Time.
This call is being webcast live and archived, and will be available for
12 months on NetEase's corporate web site at http://corp.netease.com,
Investor Info: Earnings Call.
About NetEase
NetEase.com, Inc. is a leading China-based Internet technology company
that pioneered the development of applications, services and other
technologies for the Internet in China. Our online communities and
personalized premium services have established a large and stable user base
for the NetEase websites which are operated by our affiliates. For the month
of September 2006, the NetEase websites had more than 535 million average
daily page views, making us one of the most popular destinations in China and
on the World Wide Web. In particular, NetEase provides online game services
to Internet users through the licensing or in-house development of massively
multi-player online role-playing games, including Fantasy Westward Journey,
Westward Journey Online II and Datang.
NetEase also offers online advertising on its websites which enables
advertisers to reach our substantial user base. In addition, NetEase has paid
listings on its search engine and web directory and classified ads services,
as well as an online mall, which provides opportunities for e-commerce and
traditional businesses to establish their own storefront on the Internet.
NetEase also offers wireless value-added services such as news and
information content, matchmaking services, music and photos from the Web
which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.
Other community services which the NetEase websites offer include instant
messaging, online personal ads, matchmaking, alumni clubs, personal home
pages and community forums. NetEase is also the largest provider of free e-
mail services in China. Furthermore, the NetEase websites provide various
channels of content. NetEase aggregates news content on world events, sports,
science and technology, and financial markets, as well as entertainment
content such as cartoons, games, astrology and jokes, from over one hundred
international and domestic content providers.
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, 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 changes in Chinese
government regulation of the online game market may limit future growth of
NetEase's revenue or cause revenue to decline; the risk that NetEase may not
be able to continuously develop new and creative online services; the risk
that NetEase will not be able to control its expenses in future periods; the
impact of the outbreak of severe acute respiratory syndrome, or SARS, in
China and risks related to any possible recurrence of SARS or another public
health problem in China; 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), general competition and price pressures in the marketplace; the
risk that security, reliability and confidentiality concerns may impede broad
use of the Internet and e-commerce and other services; 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 applicable law.
NETEASE.COM, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
December 31, September 30, September 30,
2005 2006 2006
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 1,685,744,081 1,137,359,377 143,896,682
Time deposit 1,691,976,255 2,646,489,209 334,829,100
Accounts receivable, net 69,631,541 117,779,247 14,901,220
Prepayments and other
current assets 30,021,448 71,373,186 9,030,009
Deferred tax assets 19,929,499 19,740,103 2,497,483
Total current assets 3,497,302,824 3,992,741,122 505,154,494
Property, equipment and
software, net 126,341,533 195,172,224 24,692,842
Other assets 1,341,162 14,498,456 1,834,318
Total assets 3,624,985,519 4,202,411,802 531,681,654
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
other liabilities 28,848,690 35,890,884 4,540,850
Salary and welfare payable 46,438,269 41,260,920 5,220,259
Taxes payable 83,828,862 94,340,718 11,935,820
Deferred revenue 231,670,971 304,622,921 38,540,349
Deferred tax liabilities 3,940,854 4,474,045 566,048
Accrued liabilities 20,751,404 21,776,634 2,755,141
Total current
liabilities 415,479,050 502,366,122 63,558,467
Long-term payable: 818,413,108 801,619,176 101,419,430
Total liabilities 1,233,892,158 1,303,985,298 164,977,897
Shareholders' equity:
Ordinary shares,
US$0.0001 par value:
1,000,300,000,000
shares authorized,
3,263,526,525 shares
issued and outstanding
as of December 31, 2005,
and 3,244,644,875
shares issued and
outstanding as of
September 30, 2006 2,700,407 2,685,004 339,702
Additional paid-in capital 1,129,733,009 850,158,243 107,560,506
Treasury stock - (135,413,438) (17,132,267)
Statutory reserve 135,238,835 135,238,835 17,110,176
Translation adjustments 210,838 - -
Retained earnings 1,123,210,272 2,045,757,860 258,825,640
Total shareholders'
equity 2,391,093,361 2,898,426,504 366,703,757
Total liabilities and
shareholders' equity 3,624,985,519 4,202,411,802 531,681,654
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
September 30, June 30, September 30, September 30,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Revenues:
Online game
services 372,681,557 486,006,106 467,910,918 59,199,256
Advertising
services 73,395,974 68,763,795 83,359,202 10,546,458
Wireless value-
added services
and others 16,513,205 20,507,390 20,632,782 2,610,423
Total revenues 462,590,736 575,277,291 571,902,902 72,356,137
Business taxes (19,146,596) (22,646,424) (23,297,732) (2,947,588)
Total net revenues 443,444,140 552,630,867 548,605,170 69,408,549
Total cost of
revenues (72,530,177) (95,269,844)(100,461,056) (12,710,154)
Gross profit 370,913,963 457,361,023 448,144,114 56,698,395
Operating expenses:
Selling and
marketing
expenses (45,833,299) (44,210,634) (46,106,919) (5,833,365)
General and
administrative
expenses (31,565,291) (43,807,041) (46,650,953) (5,902,195)
Research and
development
expenses (17,349,717) (46,293,935) (38,730,988) (4,900,176)
Total operating
expenses (94,748,307)(134,311,610)(131,488,860) (16,635,736)
Operating profit 276,165,656 323,049,413 316,655,254 40,062,659
Other income (expenses):
Investment income 332,510 100,931 104,838 13,264
Interest income 15,027,087 24,263,200 24,631,766 3,116,367
Other, net (6,320,579) (414,399) 1,588,129 200,927
Profit before tax 285,204,674 346,999,145 342,979,987 43,393,217
Income tax (26,562,308) (32,888,956) (28,200,106) (3,567,827)
Net profit 258,642,366 314,110,189 314,779,881 39,825,390
Earnings per share,
basic 0.08 0.10 0.10 0.01
Earnings per ADS,
basic (Note 2) 1.98 2.41 2.44 0.31
Earnings per share,
diluted 0.07 0.09 0.09 0.01
Earnings per ADS,
diluted (Note 2) 1.79 2.23 2.26 0.29
Weighted average
number of ordinary
shares outstanding,
basic 3,273,814,404 3,254,702,252 3,225,819,282 3,225,819,282
Weighted average
number of ADS
outstanding,
basic (Note 2) 130,952,576 130,188,090 129,032,771 129,032,771
Weighted average
number of ordinary
shares outstanding,
diluted 3,633,097,331 3,537,762,110 3,485,412,140 3,485,412,140
Weighted average
number of ADS
outstanding,
diluted (Note 2) 145,323,893 141,510,484 139,416,486 139,416,486
The accompanying notes are an integral part of this press release.
NETEASE.COM INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
September 30, June30, September30, September30,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Cash flows from operating activities:
Net profit 258,642,366 314,110,189 314,779,881 39,825,390
Adjustments for:
Depreciation 12,102,757 17,001,040 20,216,665 2,557,776
Share compensation
cost - 26,246,035 25,989,512 3,288,147
Provision for
doubtful debts 779,723 407,553 2,722,739 344,476
Amortization of
issuance cost
of convertible
bonds 1,920,528 1,897,029 530,114 67,069
Loss on disposal
of property and
equipment - 526,268 - -
Write-off of
software cost - 11,638,451 - -
Exchange loss (gain) 6,440,261 44,705 (219,222) (27,736)
Increase in accounts
receivable (897,282) (35,163,684) (23,966,921) (3,032,252)
Increase in
prepayments
and other
current
assets (1,544,647) (5,727,096) (15,707,637) (1,987,302)
Decrease in
deferred assets 389,060 - - -
(Increase) Decrease
in deferred tax
assets (3,639,677) 3,610,105 (2,391,803) (302,607)
Increase (Decrease)
in accounts
payable and
other
liabilities 90,683,363 (62,187,069) (13,204,082) (1,670,557)
Increase in
deferred
revenue 51,810,565 23,220,662 33,785,515 4,274,483
Increase (Decrease)
in salary and
welfare payable (3,604,027) 5,989,995 (4,015,330) (508,011)
Increase (Decrease)
in taxes payable 10,311,127 (13,188,444) 12,449,108 1,575,039
Increase in
deferred tax
liabilities - 46,461 479,699 60,691
Increase (Decrease)
in accrued
liabilities 1,530,214 8,024,310 (6,996,754) (885,217)
Net cash provided
by operating
activities 424,924,331 296,496,510 344,451,484 43,579,389
Cash flows from
investing activities
Decrease in
held-to-maturity
investments 82,766,000 - - -
Purchase of
property,
equipment and
software (31,957,739) (34,694,354) (52,529,277) (6,645,911)
Proceeds of
disposed
property and
equipment - 148,076 - -
Increase in time
deposit (1,432,524,938) (44,367,121) (735,357,703) (93,036,147)
Increase in
other assets (348,143) (23,525,366) (2,570,962) (325,274)
Net cash used in
investing
activities (1,382,064,820)(102,438,765) (790,457,942) (100,007,332)
Cash flows from financing activities:
Proceed from
employees
exercising
stock
options 83,972,844 10,560,050 27,755,249 3,511,545
Increase in
treasury stock - (401,741,200) (135,413,438) (17,132,267)
Decrease in
long-term
payable (38,575) (177,256) - -
Net cash provided
by financing
activities 83,934,269 (391,358,406) (107,658,189) (13,620,722)
Effect of exchange
rate changes on
cashheld in foreign
currencies (25,455,455) (2,061,070) (9,186,668) (1,162,281)
Net decrease
in cash (898,661,675)(199,361,731) (562,851,315) (71,210,946)
Cash, beginning
of the quarter 2,641,942,061 1,899,572,423 1,700,210,692 215,107,628
Cash, end of the
quarter 1,743,280,386 1,700,210,692 1,137,359,377 143,896,682
Supplemental disclosures of cash flow information:
Cash paid during
the quarter for
income taxes 21,241,734 36,511,672 46,273,131 5,854,394
Supplemental schedule of non-cash operating, investing and financing
activities:
Net exchange
losses (gain) 6,440,261 44,705 (219,222) (27,736)
Compensation costs,
arising from
transfer of
ordinary shares
and issuance
of stock options
in the Company
to senior
management
personnel and
some non-employees
of the Company - 26,246,035 25,989,512 3,288,147
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
September 30, June 30, September 30, September 30,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Revenues:
Online game
services 372,681,557 486,006,106 467,910,918 59,199,256
Advertising
services 73,395,974 68,763,795 83,359,202 10,546,458
Wireless
value-added
services and
others 16,513,205 20,507,390 20,632,782 2,610,423
Total revenues 462,590,736 575,277,291 571,902,902 72,356,137
Business taxes:
Online game
services (12,298,491) (16,038,201) (15,441,061) (1,953,576)
Advertising
services (6,238,658) (5,844,923) (7,085,532) (896,449)
Wireless
value-added
services and
others (609,447) (763,300) (771,139) (97,563)
Total business
taxes (19,146,596) (22,646,424) (23,297,732) (2,947,588)
Net revenues:
Online game
services 360,383,066 469,967,905 452,469,857 57,245,680
Advertising
services 67,157,316 62,918,872 76,273,670 9,650,009
Wireless
value-added
services and
others 15,903,758 19,744,090 19,861,643 2,512,860
Total net
revenues 443,444,140 552,630,867 548,605,170 69,408,549
Cost of revenues:
Online game
services (37,028,524) (43,479,571) (47,833,799) (6,051,847)
Advertising
services (21,393,626) (31,587,268) (33,447,437) (4,231,710)
Wireless
value-added
services and
others (14,108,027) (20,203,005) (19,179,820) (2,426,597)
Total cost of
revenues (72,530,177) (95,269,844)(100,461,056) (12,710,154)
Gross profit (loss):
Online game
services 323,354,542 426,488,334 404,636,058 51,193,833
Advertising
services 45,763,690 31,331,604 42,826,233 5,418,299
Wireless
value-added
services and
others 1,795,731 (458,915) 681,823 86,263
Total gross
profit 370,913,963 457,361,023 448,144,114 56,698,395
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
RECONCILIATIONS TO UNAUDITED STATEMENTS OF OPERATIONS
NON-GAAP GROSS PROFIT, TOTAL OPERATING EXPENSES, NET PROFIT AND EARNINGS
PER SHARE
EXCLUDING SHARE-BASED COMPENSATION EXPENSE
Quarter Ended
September 30, June 30, September 30, September 30,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Gross Profit
GAAP gross profit 370,913,963 457,361,023 448,144,114 56,698,394
Add: share-based
compensation
cost under cost
of revenues - 4,345,487 4,184,265 529,386
Non-GAAP gross
profit 370,913,963 461,706,510 452,328,379 57,227,780
Operating expenses
GAAP operating
expenses (94,748,307)(134,311,610)(131,488,860) (16,635,736)
Add: share-based
compensation cost
- Selling and
marketing
expenses - 5,431,785 5,406,776 684,055
- General and
administrative
expenses - 9,521,066 9,534,605 1,206,301
- Research and
development
expenses - 6,947,697 6,863,866 868,404
Non-GAAP operating
expenses (94,748,307)(112,411,062)(109,683,613) (13,876,976)
Net profit
GAAP net profit 258,642,366 314,110,189 314,779,881 39,825,390
Add: share-based
compensation cost - 26,246,035 25,989,512 3,288,147
Non-GAAP net
profit 258,642,366 340,356,224 340,769,393 43,113,537
Earnings per share, diluted
GAAP earnings
per ADS, diluted 1.79 2.23 2.26 0.29
Add: Adjustment
for dilutive impact
of share based
compensation cost - 0.19 0.19 0.02
Non-GAAP earnings
per ADS, diluted 1.79 2.42 2.45 0.31
Note 1: The conversion of Renminbi (RMB) into United States dollars
(USD) is based on the noon buying rate of USD1.00 = RMB7.9040 on September
30, 2006 in The City of New York for cable transfers of Renminbi as certified
for customs purposes by the Federal Reserve Bank of New York.
Note 2: Effective from March 27, 2006, the Company changed its ADR to
ordinary share ratio from one ADR for every 100 ordinary shares to one ADR
for every 25 ordinary shares. The basic and diluted earnings per ADR and the
basic and diluted weighted average number of ADSs outstanding for the
comparative period ended September 30, 2005 have been restated to conform to
the current ADR ratio for the period ended September 30, 2006 accordingly.
