Record Peak Concurrent Users for Fantasy Westward Journey and Westward Journey Online II
Tianxia II Preparing for On-time Open Beta Testing and Commercial Launch during First Quarter 2007
BEIJING, Feb. 26 /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 fourth quarter and fiscal year ended December 31, 2006.
(Logo: http://www.prnasia.com/sa/200611141244.jpg )
Highlights for the Fourth Quarter 2006
-- Online game revenues were better than the Company's guidance and
decreased 3.5% to RMB451.6 million (US$57.9 million) compared to the
preceding quarter;
-- U.S. GAAP net profit for the quarter increased 1.7% to RMB320.2
million (US$41.0 million), equivalent to US$0.32 (basic) and US$0.30
(diluted) earnings per American Depositary Share (ADS) compared to the
preceding quarter;
-- Fantasy Westward Journey and Westward Journey Online II reported
record peak concurrent user numbers of approximately 1,335,000 and
603,000, respectively;
-- Westward Journey III, which is the upgraded version of Westward
Journey Online II, has come to the final stage of its development
phase, and is scheduled to launch its internal close beta testing in
the second quarter of 2007;
-- The Phase II unlimited open beta testing for the Company's next
generation online 3D game, Tianxia II, will be launched on March 1,
2007;
-- The Company's new proprietary search engine entered beta testing in
December 2006 and is expected to enter open beta testing during the
second quarter of 2007; and
-- As of December 31, 2006, approximately 3.6 million of the Company's
issued and outstanding ADSs had been repurchased for an aggregate
purchase consideration of US$60.1 million (including transaction
costs) pursuant to the share repurchase program announced on August
29, 2006.
Highlights for Fiscal Year 2006
-- Total revenues grew 30.9% year-over-year to RMB2,217.2 million
(US$284.1 million);
-- Online game revenues grew 34.5% year-over-year to RMB1,856.1 million
(US$237.8 million);
-- U.S. GAAP net profit for the year grew 33.3% to RMB1,242.8 million
(US$159.2 million), equivalent to US$1.23 (basic) and US$1.14
(diluted)
earnings per ADS, compared to RMB932.0 million (US$115.5 million,
equivalent to US$0.90 (basic) and US$0.82 (diluted) per ADS in fiscal
2005 and
-- Total cash and time deposit balance was RMB3.9 billion (US$504.6
million) at December 31, 2006, compared to RMB3.4 billion (US$418.5
million) at December 31, 2005.
William Ding, Chief Executive Officer and Director of NetEase stated, "Overall, we were satisfied with the results of the fourth quarter, and pleased with the strong growth rates in total revenues, online game revenues and net profit achieved for fiscal year 2006. We also made significant progress during the year with regard to our games and game upgrades under development. Tianxia II is on schedule for open beta testing beginning March 1, which we expect will be followed closely by its commercial launch. The testing process for Tianxia II has proceeded smoothly and without interruption, and we are confident in the market potential and player appeal of this next generation online 3D game. During the fourth quarter in 2006, we also made substantial progress with Westward Journey III which will enter internal closed beta testing during the second quarter of this year followed by open beta testing in the third quarter. In addition, the latest expansion pack for Fantasy Westward Journey was released late last month."
"We are equally enthusiastic about our portal strategy in 2006," Mr. Ding continued. "Our online communities on our portals, 30-plus million active email users, number one free email ranking in China, and growing blog community are all highly valuable assets."
Fourth Quarter Financial Results
Total revenues for the fourth quarter ended December 31, 2006 were RMB540.3 million (US$69.2 million) compared with RMB571.9 million (US$72.4 million) for the third quarter of 2006, representing a decrease of 5.5%. Total revenues increased 10.9% from RMB487.3 million (US$60.4 million) for the fourth quarter of 2005.
Revenues from online games were RMB451.6 million (US$57.9 million) for the fourth quarter of 2006, representing a decrease of 3.5% from RMB467.9 million (US$59.2 million) for the third quarter of 2006 and an increase of 12.6% over RMB400.9 million (US$49.7 million) for the fourth quarter of 2005.
Revenues from advertising services were RMB72.1 million (US$9.2 million) for the fourth quarter of 2006, representing a decrease of 13.5% from RMB83.4 million (US$10.5 million) for the third quarter of 2006 and an increase of 4.3% over RMB69.1 million (US$8.6 million) for the fourth quarter of 2005.
Revenues from wireless value-added services and others were RMB16.6 million (US$2.1 million) for the fourth quarter of 2006, representing a decrease of 19.4% from RMB20.6 million (US$2.6 million) for the third quarter of 2006 and a decrease of 3.5% from RMB17.2 million (US$2.1 million) for the fourth quarter of 2005.
GAAP gross profit for the fourth quarter of 2006 was RMB456.7 million (US$58.5 million), compared to RMB448.1 million (US$56.7 million) for the third quarter of 2006 and RMB386.2 million (US$47.9 million) for the same period last year. The Company's non-GAAP gross profit in the fourth quarter was RMB460.4 million (US$59.0 million), representing an increase of 1.8% over the previous quarter's non-GAAP gross profit of RMB452.3 million (US$57.2 million), and an increase of 19.2% over non-GAAP gross profit of RMB386.2 million (US$47.9 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 fourth quarter of 2006 was 82.4%, compared to 81.7% for the third quarter of 2006 and 82.6% for the same period last year. Total non-GAAP gross margin for the fourth quarter was 83.1% compared with non-GAAP gross margin of 82.5% for the preceding quarter and 82.6% for the same period last year. The increase was primarily attributable to the increase in the gross margin for online games for the reason explained below.
GAAP gross margin for the online game business for the fourth quarter of 2006 was 90.3%, compared to 89.4% for the third quarter of 2006 and 89.4% for the same period last year. Non-GAAP gross margin for the online game business for the fourth quarter of 2006 was 90.6% compared with non-GAAP gross margin of 89.7% for the preceding quarter and 89.4% for the fourth quarter of 2005. The increase was primarily due to a one-time business tax refund of RMB35.5 million (US$4.5 million) which was approved by the relevant local tax bureau in the fourth quarter of 2006.
GAAP gross margin for the advertising business for the fourth quarter of 2006 was 50.5%, compared to 56.1% for the third quarter of 2006 and 62.9% for the same period last year. Non-GAAP gross margin for the online advertising business for the fourth quarter of 2006 was 53.1% compared to non-GAAP gross margin of 58.9% for the preceding quarter and 62.9% for the fourth quarter of 2005. The quarter-over-quarter decrease was primarily due to the seasonal decline in advertising services revenue in the fourth quarter while costs remained relatively stable. The year-over-year decrease was primarily due to the increase in salaries and other benefits paid to content editors and the increased costs associated with the Company's online advertising business so as to enhance the content and attractiveness of the NetEase websites.
GAAP gross loss margin for the wireless value-added services and others business for the fourth quarter of 2006 was 18.9%, compared to gross profit margin of 3.4% for the third quarter of 2006 and gross loss margin of 1.3% for the same period last year. Non-GAAP gross loss margin for the wireless value-added services and others business for the fourth quarter of 2006 was 14.6% compared with non-GAAP gross profit margin of 7.6% for the preceding quarter and gross loss margin of 1.3% for the fourth quarter of 2005. The decline in gross margin was mainly due to the full quarter impact of the implementation of a new requirement from mobile operators that customers provide double confirmations to order SMS monthly subscriptions and the further strengthening of billing policies and procedures of certain provincial mobile network operators. The year-over-year decrease was primarily due to increased server depreciation costs associated with the Company's free email services and redundancy costs paid to staff in rationalizing the wireless value-added services business.
Total GAAP operating expenses for the fourth quarter of 2006 were RMB123.9 million (US$15.9 million), compared to RMB131.5 million (US$16.6 million) for the third quarter of 2006 and RMB94.9 million (US$11.8 million) for the same period last year. Total non-GAAP operating expenses for the fourth quarter of 2006 were RMB104.5 million (US$13.4 million), compared with RMB109.7 million (US$13.9 million) for the preceding quarter and RMB94.9 million (US$11.8 million) for the same period last year. The decrease in non-GAAP operating expenses in comparison to the preceding quarter was primarily due to lower marketing expenses resulting from the completion of a substantial marketing campaign launched in the third quarter. The decrease was partially off-set by a higher provision for doubtful debts of RMB1.6 million (US$0.2 million). The year-over-year increase 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, and increased research and development expenses associated with increased staffing for the enhancement of existing products and for the development of new products.
As a result of the translation of foreign currency denominated assets and liabilities into Renminbi in accordance with applicable accounting standards, the Company recorded a foreign exchange gain of RMB1.3 million (US$172,000) in the fourth quarter of 2006, compared to a foreign exchange gain of RMB219,000 (US$28,000) in the preceding quarter. The Company recorded RMB1.9 million (US$0.2 million) in foreign exchange loss in the fourth quarter of 2005.
GAAP net profit for the fourth quarter totaled RMB320.2 million (US$41.0 million), compared to RMB314.8 million (US$39.8 million) for the third quarter of 2006 and RMB276.7 million (US$34.3 million) for the same period last year. Non-GAAP net profit for the fourth quarter totaled RMB343.3 million (US$44.0 million), a 0.7% increase over the previous quarter's non-GAAP net profit of RMB340.8 million (US$43.1 million) and a 24.1% increase over non-GAAP net profit of RMB276.7 million (US$34.3 million) for the fourth quarter of 2005. NetEase reported GAAP basic and diluted earnings per ADS of US$0.32 and US$0.30 for the fourth quarter of 2006, respectively, which includes the impact of approximately US$3.0 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$0.31 and US$0.29 for the third quarter of 2006, and US$0.27 and US$0.25 for the fourth quarter of 2005, respectively.
Fiscal Year 2006 Financial Results
Total revenues for fiscal year 2006 totaled RMB2,217.2 million (US$284.1 million), a 30.9% increase over fiscal 2005 revenues of RMB1,694.4 million (US$210.0 million). Online game revenues for fiscal 2006 totaled RMB1,856.1 million (US$237.8 million), up 34.5% from RMB1,379.5 million (US$170.9 million) in fiscal 2005, which was primarily attributable to the continued growth in the popularity of Fantasy Westward Journey. Advertising revenues grew 18.5%, due primarily to an overall expansion of China's robust online advertising market, whereas wireless value-added services and others revenues grew 2.3% year-over-year.
Gross margin was 82.4% in fiscal 2006, and remained relatively stable in comparison to 82.9% in fiscal 2005. Non-GAAP gross margin was 83.2% in fiscal 2006, up from 82.9% in fiscal 2005.
GAAP net profit for fiscal 2006 was RMB1,242.8 million (US$159.2 million) or basic and diluted earnings per ADS of US$1.23 and US$1.14, respectively, compared to RMB932.0 million (US$115.5 million) or basic and diluted earnings per ADS of US$0.90 and US$0.82, respectively, for fiscal 2005. Non-GAAP net profit in fiscal 2006 was RMB1,344.1 million (US$172.2 million) or basic and diluted earnings per ADS of US$1.23 and US$1.14, respectively, compared to RMB932.0 million (US$115.5 million) or basic and diluted earnings per ADS of US$0.90 and US$0.82, respectively, for fiscal 2005.
Other Information
As of December 31, 2006, the Company's total cash and time deposit balance was RMB3.9 billion (US$504.6 million), compared to RMB3.8 billion (US$478.7 million) and RMB3.4 billion (US$418.5 million) as of September 30, 2006 and December 31, 2005, respectively. Cash flow generated from operating activities was approximately RMB531.5 million (US$68.1 million) for the fourth quarter of 2006, compared to RMB344.5 million (US$43.6 million) for the preceding quarter and RMB220.3 million (US$27.3 million) for the fourth 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 December 31, 2006, the Company had effected transactions in the open market purchasing approximately 3.6 million ADSs for an aggregate purchase amount of approximately US$60.1 million (including transaction costs), representing 60.1% of the total authorized share repurchase amount. The share repurchase program will end on March 4, 2007.
Non-GAAP Disclosure
To supplement the unaudited consolidated financial statements presented in accordance with the U.S. GAAP, NetEase's management uses non-GAAP measures of gross margin, gross profit, operating expenses, net profit and net profit per ADS, 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 Condensed 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=RMB7.8041. The percentages stated are calculated based on RMB.**
Notes to Unaudited Financial Information
The unaudited financial information disclosed in this release is preliminary. The audit of the financial statements and related notes to be included in our annual report on Form 20-F for the year ended December 31, 2006 is still in progress. In addition, because an audit of our internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, we make no representation as to the effectiveness of those internal controls as of the end of fiscal 2006.
Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between our audited financial statements and this preliminary unaudited financial information.
Conference Call
NetEase's management team will host a conference call at 9:00 pm Eastern Time on February 26, 2007 (Beijing/Hong Kong Time: 10:00 am, February 27, 2007). 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 800-289-0485 (international: 913-981-5518), 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 6425478. The replay will be available through March 12, 2007 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 December 2006, the NetEase websites had more than 710 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 CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, December 31, December 31,
2005 2006 2006
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 1,685,744,081 1,206,476,526 154,595,216
Time Deposit 1,691,976,255 2,731,396,687 349,995,091
Accounts receivable, net 69,631,541 131,724,899 16,878,935
Prepayments and other
current assets 30,021,448 33,913,350 4,345,581
Deferred tax assets 19,929,499 21,097,746 2,703,418
Total current assets 3,497,302,824 4,124,609,208 528,518,241
Non-current assets:
Non-current rental deposit 1,341,162 3,353,209 429,673
Property, equipment and
software, net 126,341,533 224,207,833 28,729,493
Deferred tax assets - long-
term portion - 6,687,329 856,899
Other long-term assets - 11,458,497 1,468,266
Total non-current assets 127,682,695 245,706,868 31,484,331
Total assets 3,624,985,519 4,370,316,076 560,002,572
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable 28,848,690 105,555,248 13,525,614
Salary and welfare payable 46,438,269 54,924,038 7,037,844
Taxes payable 83,828,862 95,476,498 12,234,146
Deferred revenue 231,670,971 385,720,720 49,425,394
Deferred tax liabilities 3,940,854 - -
Accrued liabilities 20,751,404 31,340,217 4,015,866
Total current liabilities 415,479,050 673,016,721 86,238,864
Long-term Payable:
Zero-coupon Convertible
Subordinated Notes due
July 15, 2023 806,858,596 780,253,918 99,980,000
Other long-term payable 11,554,512 11,377,256 1,457,856
Total long-term payable 818,413,108 791,631,174 101,437,856
Total liabilities 1,233,892,158 1,464,647,895 187,676,720
Shareholders' equity 2,391,093,361 2,905,668,181 372,325,852
Minority interests - - -
Total liabilities and
shareholders' equity 3,624,985,519 4,370,316,076 560,002,572
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
December 31, September 30,
2005 2006
RMB RMB
Revenues:
Online game services 400,942,544 467,910,918
Advertising services 69,087,777 83,359,202
Wireless value-added services and others 17,232,471 20,632,782
Total revenues 487,262,792 571,902,902
Business taxes (19,738,004) (23,297,732)
Total net revenues 467,524,788 548,605,170
Total cost of revenues (81,312,339) (100,461,056)
Gross profit 386,212,449 448,144,114
Operating expenses:
Selling and marketing expenses (37,979,095) (46,106,919)
General and administrative expenses (32,179,955) (46,650,953)
Research and development expenses (24,774,299) (38,730,988)
Total operating expenses (94,933,349) (131,488,860)
Operating profit 291,279,100 316,655,254
Other income (expenses):
Investment income - 104,838
Interest income 20,411,335 24,631,766
Interest expense - -
Other, net (2,481,486) 1,588,129
Profit before tax 309,208,949 342,979,987
Income tax (32,537,941) (28,200,106)
Profit after tax 276,671,008 314,779,881
Minority interests - -
Net profit 276,671,008 314,779,881
Earnings per share, basic 0.08 0.10
Earnings per ADS, basic 2.12 2.44
Earnings per share, diluted 0.08 0.09
Earnings per ADS, diluted 1.95 2.26
Weighted average number of ordinary
shares outstanding, basic 3,263,094,061 3,225,819,282
Weighted average number of ADS
outstanding, basic 130,523,762 129,032,771
Weighted average number of ordinary
shares outstanding, diluted 3,580,605,698 3,485,412,140
Weighted average number of ADS
outstanding, diluted 143,224,228 139,416,486
The accompanying notes are an integral part of this press release.
Quarter Ended
December 31, December 31,
2006 2006
RMB USD(Note 1)
Revenues:
Online game services 451,586,343 57,865,269
Advertising services 72,087,480 9,237,129
Wireless value-added services and others 16,632,276 2,131,223
Total revenues 540,306,099 69,233,621
Business taxes 13,823,672 1,771,335
Total net revenues 554,129,771 71,004,956
Total cost of revenues (97,406,648) (12,481,471)
Gross profit 456,723,123 58,523,485
Operating expenses:
Selling and marketing expenses (36,825,961) (4,718,797)
General and administrative expenses (49,976,139) (6,403,831)
Research and development expenses (37,112,476) (4,755,510)
Total operating expenses (123,914,576) (15,878,138)
Operating profit 332,808,547 42,645,347
Other income (expenses):
Investment income 102,885 13,183
Interest income 22,661,439 2,903,786
Interest expense - -
Other, net 1,283,947 164,522
Profit before tax 356,856,818 45,726,838
Income tax (37,026,868) (4,744,540)
Profit after tax 319,829,950 40,982,298
Minority interests 400,046 51,261
Net profit 320,229,996 41,033,559
Earnings per share, basic 0.10 0.01
Earnings per ADS, basic 2.52 0.32
Earnings per share, diluted 0.09 0.01
Earnings per ADS, diluted 2.34 0.30
Weighted average number of ordinary
shares outstanding, basic 3,180,435,508 3,180,435,508
Weighted average number of ADS
outstanding, basic 127,217,420 127,217,420
Weighted average number of ordinary
shares outstanding, diluted 3,425,090,889 3,425,090,889
Weighted average number of ADS
outstanding, diluted 137,003,636 137,003,636
The accompanying notes are an integral part of this press release.
Year Ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB USD(Note 1)
Revenues:
Online game services 1,379,475,803 1,856,062,971 237,831,777
Advertising services 241,200,444 285,772,653 36,618,272
Wireless value-added
services and others 73,742,136 75,406,121 9,662,372
Total revenues 1,694,418,383 2,217,241,745 284,112,421
Business taxes (82,054,902) (52,882,275) (6,776,217)
Total net revenues 1,612,363,481 2,164,359,470 277,336,204
Total cost of revenues (275,236,973) (381,298,181) (48,858,700)
Gross profit 1,337,126,508 1,783,061,289 228,477,504
Operating expenses:
Selling and marketing
expenses (152,192,422) (170,142,691) (21,801,706)
General and administrative
expenses (117,942,605) (179,879,602) (23,049,372)
Research and development
expenses (90,170,092) (153,162,158) (19,625,858)
Total operating expenses (360,305,119) (503,184,451) (64,476,936)
Operating profit 976,821,389 1,279,876,838 164,000,568
Other income (expenses):
Investment income 1,301,975 340,721 43,659
Interest income 58,070,148 94,364,852 12,091,702
Interest expense (344,859) - -
Other, net (8,901,462) 280,670 35,964
Profit before tax 1,026,947,191 1,374,863,081 176,171,893
Income tax (94,957,022) (132,485,543) (16,976,403)
Profit after tax 931,990,169 1,242,377,538 159,195,490
Minority interests - 400,046 51,261
Net profit 931,990,169 1,242,777,584 159,246,751
Earnings per share, basic 0.29 0.38 0.05
Earnings per ADS, basic 7.22 9.61 1.23
Earnings per share, diluted 0.26 0.35 0.05
Earnings per ADS, diluted 6.59 8.91 1.14
Weighted average number of
ordinary shares outstanding,
basic 3,225,684,510 3,231,832,008 3,231,832,008
Weighted average number of
ADS outstanding, basic 129,027,380 129,273,280 129,273,280
Weighted average number of
ordinary shares outstanding,
diluted 3,565,412,019 3,498,405,110 3,498,405,110
Weighted average number of
ADS outstanding, diluted 142,616,481 139,936,204 139,936,204
The accompanying notes are an integral part of this press release.
NETEASE.COM INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
December 31, September 30,
2005 2006
RMB RMB
Cash flows from operating activities:
Net profit 276,671,008 314,779,881
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 11,889,502 20,216,665
Non-cash share compensation cost - 25,989,512
Provision for doubtful debts 1,538,472 2,722,739
Amortization of issuance cost of
convertible notes 1,915,050 530,114
Loss on disposal of property,
equipment and software - -
Write-off of property, equipment and
software - -
Non-cash exchange losses (gains) 1,920,572 (219,222)
Share of loss by minority interests - -
Changes in operating assets and liabilities:
Accounts receivable 3,985,536 (23,966,921)
Prepayments and other current assets 707,740 (15,707,637)
Deferred assets - -
Deferred tax assets (548,886) (2,391,803)
Accounts payable (99,633,134) (13,204,082)
Salary and welfare payables 17,020,247 (4,015,330)
Taxes payable 1,642,269 12,449,108
Deferred revenue 407,992 33,785,515
Deferred tax liabilities 3,940,854 479,699
Accrued liabilities (1,147,966) (6,996,754)
Net cash provided by operating
activities 220,309,256 344,451,484
Cash flows from investing activities
Purchase of property, equipment
and software (14,900,930) (52,529,277)
Proceeds from sale of property,
equipment and software - -
Increase in held-to-maturity investments - -
Net change in time deposits with
terms of
three months or less 395,561,264 (536,649,818)
Placement/rollover of matured time
deposits (655,507,939) (668,307,391)
Uplift/rollover of matured time
deposits - 469,599,506
Net (increase)/decrease in other
assets - (2,570,962)
Net cash used in investing
activities (274,847,605) (790,457,942)
Cash flows from financing activities:
Proceed from employees exercising
stock options 1,431,465 27,755,249
Repurchase of company shares - (135,413,438)
Payment of other long-term payable (199,979) -
Capital injection from minority
interests - -
Net cash (used in)/provided by
financing activities 1,231,486 (107,658,189)
Effect of exchange rate changes on
cash
held in foreign currencies (4,229,442) (9,186,668)
Net increase (decrease) in cash (57,536,305) (562,851,315)
Cash, beginning of the year/quarter 1,743,280,386 1,700,210,692
Cash, end of the year/quarter 1,685,744,081 1,137,359,377
Supplemental disclosures of cash flow
information:
Cash paid for income taxes, net of
tax refund 25,963,450 46,273,131
Supplemental schedule of non-cash
investing and financing activities:
Treasury stock cancellation - 401,741,200
Fixed asset purchases financed by
accounts payable - -
The accompanying notes are an integral part of this press release.
NETEASE.COM INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
December 31, December 31,
2006 2006
RMB USD(Note 1)
Cash flows from operating activities:
Net profit 320,229,996 41,033,559
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 26,202,590 3,357,542
Non-cash share compensation cost 23,055,508 2,954,281
Provision for doubtful debts 4,316,554 553,114
Amortization of issuance cost of
convertible notes - -
Loss on disposal of property,
equipment and software 59,986 7,686
Write-off of property, equipment and
software 2,024,936 259,471
Non-cash exchange losses (gains) (1,344,778) (172,317)
Share of loss by minority interests (400,046) (51,261)
Changes in operating assets and
liabilities:
Accounts receivable (18,262,206) (2,340,078)
Prepayments and other current assets 31,760,833 4,069,761
Deferred assets - -
Deferred tax assets (8,044,972) (1,030,865)
Accounts payable 39,050,562 5,003,852
Salary and welfare payables 13,764,854 1,763,798
Taxes payable 12,922,506 1,655,861
Deferred revenue 81,097,799 10,391,691
Deferred tax liabilities (4,474,045) (573,294)
Accrued liabilities 9,563,582 1,225,456
Net cash provided by operating
activities 531,523,659 68,108,257
Cash flows from investing activities
Purchase of property, equipment
and software (33,496,300) (4,292,141)
Proceeds from sale of property,
equipment and software - -
Increase in held-to-maturity investments - -
Net change in time deposits with
terms of three months or less (85,380,462) (10,940,462)
Placement/rollover of matured time
deposits (655,105,518) (83,943,763)
Uplift/rollover of matured time
deposits 655,507,938 83,995,328
Net (increase)/decrease in other assets 583,578 74,778
Net cash used in investing activities (117,890,764) (15,106,260)
Cash flows from financing activities:
Proceed from employees exercising
stock options 207,554 26,596
Repurchase of company shares (336,251,381) (43,086,503)
Payment of other long-term payable - -
Capital injection from minority interests 400,046 51,261
Net cash (used in)/provided by
financing activities (335,643,781) (43,008,646)
Effect of exchange rate changes on cash
held in foreign currencies (8,871,965) (1,136,834)
Net increase (decrease) in cash 69,117,149 8,856,517
Cash, beginning of the year/quarter 1,137,359,377 145,738,699
Cash, end of the year/quarter 1,206,476,526 154,595,216
Supplemental disclosures of cash flow
information:
Cash paid for income taxes, net of
tax refund 16,946,423 2,171,477
Supplemental schedule of non-cash
investing and financing activities:
Treasury stock cancellation 282,862,720 36,245,399
Fixed asset purchases financed by
accounts payable 19,262,046 2,468,196
The accompanying notes are an integral part of this press release.
NETEASE.COM INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB USD(Note 1)
Cash flows from operating
activities:
Net profit 931,990,169 1,242,777,584 159,246,751
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation 40,904,586 78,370,029 10,042,161
Non-cash share compensation
cost 13,835 101,286,676 12,978,649
Provision for doubtful debts 3,561,765 7,487,619 959,447
Amortization of issuance
cost of convertible notes 7,755,532 4,331,016 554,967
Loss on disposal of
property,
equipment and software - 586,254 75,121
Write-off of property,
equipment and software - 13,663,387 1,750,796
Non-cash exchange losses
(gains) 8,360,834 584,612 74,911
Share of loss by minority
interests - (400,046) (51,261)
Changes in operating assets
and liabilities:
Accounts receivable (16,888,544) (69,580,977) (8,915,951)
Prepayments and other
current assets (13,134,958) (13,921,921) (1,783,923)
Deferred assets 326,670 - -
Deferred tax assets (19,929,499) (7,855,576) (1,006,596)
Accounts payable 12,823,515 45,117,500 5,781,256
Salary and welfare
payables 10,355,713 9,411,771 1,206,003
Taxes payable 39,819,520 23,434,362 3,002,827
Deferred revenue 96,774,108 154,049,749 19,739,592
Deferred tax liabilities 3,940,854 (3,940,854) (504,972)
Accrued liabilities (1,884,669) 10,707,608 1,372,049
Net cash provided by
operating activities 1,104,789,431 1,596,108,793 204,521,827
Cash flows from investing
activities
Purchase of property,
equipment and software (92,608,975) (142,513,502) (18,261,363)
Proceeds from sale of
property, equipment
and software - 148,076 18,974
Increase in held-to-maturity
investments 165,532,000 - -
Net change in time deposits
with terms of three months
or less (637,492,419) (563,980,613) (72,267,220)
Placement/rollover of
matured time deposits (1,054,979,194) (1,600,926,277) (205,139,129)
Uplift/rollover of matured
time deposits - 1,125,107,444 144,168,763
Net (increase)/decrease in
other assets 799,232 (36,077,586) (4,622,902)
Net cash used in
investing activities (1,618,749,356) (1,218,242,458) (156,102,877)
Cash flows from financing
activities:
Proceed from employees
exercising stock options 105,692,433 44,127,417 5,654,389
Repurchase of company shares - (873,406,019) (111,916,303)
Payment of other long-term
payable (195,067) (177,256) (22,713)
Capital injection from
minority interests - 400,046 51,261
Net cash (used in)/provided by
financing activities 105,497,366 (829,055,812) (106,233,366)
Effect of exchange rate
changes on cash held in
foreign currencies (29,684,897) (28,078,078) (3,597,862)
Net increase (decrease) in
cash (438,147,456) (479,267,555) (61,412,278)
Cash, beginning of the
year/quarter 2,123,891,537 1,685,744,081 216,007,494
Cash, end of the
year/quarter 1,685,744,081 1,206,476,526 154,595,216
Supplemental disclosures of
cash flow information:
Cash paid for income
taxes, net of tax refund 67,993,005 125,238,532 16,047,787
Supplemental schedule of
non-cash investing and
financing activities:
Treasury stock
cancellation - 684,603,920 87,723,622
Fixed asset purchases
financed by accounts
payable - 20,051,899 2,569,406
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
December 31, September 30, December 31, December 31,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Revenues:
Online game services 400,942,544 467,910,918 451,586,343 57,865,269
Advertising services 69,087,777 83,359,202 72,087,480 9,237,129
Wireless value-added
services and others 17,232,471 20,632,782 16,632,276 2,131,223
Total revenues 487,262,792 571,902,902 540,306,099 69,233,621
Business taxes:
Online game services (13,231,104) (15,441,061) 20,578,370 2,636,867
Advertising services (5,872,461) (7,085,532) (6,127,436) (785,156)
Wireless value-added
services and others (634,439) (771,139) (627,262) (80,376)
Total business taxes (19,738,004) (23,297,732) 13,823,672 1,771,335
Net revenues:
Online game services 387,711,440 452,469,857 472,164,713 60,502,136
Advertising services 63,215,316 76,273,670 65,960,044 8,451,973
Wireless value-added
services and others 16,598,032 19,861,643 16,005,014 2,050,847
Total net revenues 467,524,788 548,605,170 554,129,771 71,004,956
Cost of revenues:
Online game services (41,052,587) (47,833,799) (45,733,082) (5,860,135)
Advertising services (23,450,822) (33,447,437) (32,636,526) (4,181,972)
Wireless value-added
and others (16,808,930) (19,179,820) (19,037,040) (2,439,364)
Total cost of
revenues (81,312,339) (100,461,056) (97,406,648) (12,481,471)
Gross profit/(loss):
Online game services 346,658,853 404,636,058 426,431,631 54,642,001
Advertising services 39,764,494 42,826,233 33,323,518 4,270,001
Wireless value-added
services and others (210,898) 681,823 (3,032,026) (388,517)
Total gross profit 386,212,449 448,144,114 456,723,123 58,523,485
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Year Ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB USD (Note 1)
Revenues:
Online game services 1,379,475,803 1,856,062,971 237,831,777
Advertising services 241,200,444 285,772,653 36,618,272
Wireless value-added services
and others 73,742,136 75,406,121 9,662,372
Total revenues 1,694,418,383 2,217,241,745 284,112,421
Business taxes:
Online game services (58,851,439) (25,769,359) (3,302,028)
Advertising services (20,502,038) (24,290,676) (3,112,553)
Wireless value-added services
and others (2,701,425) (2,822,240) (361,636)
Total business taxes (82,054,902) (52,882,275) (6,776,217)
Net revenues:
Online game services 1,320,624,364 1,830,293,612 234,529,749
Advertising services 220,698,406 261,481,977 33,505,719
Wireless value-added services
and others 71,040,711 72,583,881 9,300,736
Total net revenues 1,612,363,481 2,164,359,470 277,336,204
Cost of revenues:
Online game services (137,301,493) (178,676,915) (22,895,263)
Advertising services (78,589,395) (125,183,293) (16,040,708)
Wireless value-added and others (59,346,085) (77,437,973) (9,922,729)
Total cost of revenues (275,236,973) (381,298,181) (48,858,700)
Gross profit/(loss):
Online game services 1,183,322,871 1,651,616,697 211,634,486
Advertising services 142,109,011 136,298,684 17,465,011
Wireless value-added services
and others 11,694,626 (4,854,092) (621,993)
Total gross profit 1,337,126,508 1,783,061,289 228,477,504
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
December 31, September 30, December 31, December 31,
2005 2006 2006 2006
RMB RMB RMB USD (Note 1)
Gross Profit
GAAP gross profit 386,212,449 448,144,114 456,723,123 58,523,485
Add: share-based
compensation cost - 4,184,265 3,650,046 467,709
Non-GAAP gross
profit 386,212,449 452,328,379 460,373,169 58,991,194
Operating expenses
GAAP operating
expenses (94,933,349) (131,488,860) (123,914,576) (15,878,138)
Add: share-based
compensation cost
- Selling and
marketing expenses - 5,406,776 4,943,118 633,400
- General and
administrative
expenses - 9,534,605 8,940,057 1,145,558
- Research and
development
expenses - 6,863,866 5,522,287 707,614
Non-GAAP operating
expenses (94,933,349) (109,683,613) (104,509,114) (13,391,566)
Net profit
GAAP net profit 276,671,008 314,779,881 320,229,996 41,033,559
Add: share-based
compensation cost - 25,989,512 23,055,508 2,954,281
Non-GAAP net profit 276,671,008 340,769,393 343,285,504 43,987,840
Earnings per share,
diluted
GAAP earnings per
ADS, diluted 1.95 2.26 2.34 0.30
Add: Adjustment for
dilutive impact of
share-based
compensation - 0.19 0.17 0.02
Non-GAAP earnings
per ADS, diluted 1.95 2.45 2.51 0.32
Year Ended
December 31, December 31, December 31,
2005 2006 2006
RMB RMB USD(Note 1)
Gross Profit
GAAP gross profit 1,337,126,508 1,783,061,289 228,477,504
Add: share-based compensation
cost - 16,614,309 2,128,921
Non-GAAP gross profit 1,337,126,508 1,799,675,598 230,606,425
Operating expenses
GAAP operating expenses (360,305,119) (503,184,451) (64,476,936)
Add: share-based compensation
cost
- Selling and marketing
expenses - 21,147,343 2,709,773
- General and administrative
expenses 13,835 37,360,433 4,787,283
- Research and development
expenses - 26,164,591 3,352,672
Non-GAAP operating expenses (360,291,284) (418,512,084) (53,627,208)
Net profit
GAAP net profit 931,990,169 1,242,777,584 159,246,751
Add: share-based compensation
cost 13,835 101,286,676 12,978,649
Non-GAAP net profit 932,004,004 1,344,064,260 172,225,400
Earnings per share, diluted
GAAP earnings per ADS, diluted 6.59 8.91 1.14
Add: Adjustment for dilutive
impact of share-based
compensation - 0.72 0.09
Non-GAAP earnings per ADS,
diluted 6.59 9.63 1.23
The accompanying notes are an integral part of this press release.
NETEASE.COM, 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 = RMB7.8041 on
December 31, 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
December 31, 2005 have been restated to conform to the current
ADR ratio for the period ended December 31, 2006 accordingly.
