BEIJING, Feb. 26 /PRNewswire-Asia/ -- 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, 2008.
William Ding, Chief Executive Officer and Director of NetEase said, "As fiscal 2008 drew to a close amid the global economic downturn, we are pleased with the solid performance of NetEase's online game business in the fourth quarter of 2008. The performance of Fantasy Westward Journey ("FWJ") continued to demonstrate its robust popularity and extensive community of users among time-based online games in China. In addition, Tianxia II, our first 3D item-based game, achieved positive growth during the fourth quarter in terms of both the number of players and consumption level, following the launch of a new expansion pack on September 24, 2008. We continue to execute well on our strategy to diversify our game product offerings, including an intensified focus on item-based games and targeted exploration of strategic licensing opportunities. We believe we are well positioned to attract new game players to further solidify our leading position in the Chinese online game market in 2009 and beyond."
Mr. Ding continued, "Overall, we are pleased with the performance of our advertising services in the fourth quarter of 2008. We are very focused on strengthening the quality of the content on our portal to attract and retain new users and advertisers to our site. We also continue to enhance our email and blog services to draw more users and create premium ad space for advertisers who wish to reach our audience of consumers. With our ongoing success in delivering integrated services and information to both users and advertisers on our portal, we believe that NetEase will further capitalize on the opportunities brought about by the continuing shift from traditional advertising media to online advertising platforms."
Mr. Ding concluded, "Looking ahead, we plan to continue focusing on the development of appealing and innovative games and enhancement of our portal services for our users and advertisers."
Fourth Quarter 2008 Financial Results
Revenues
Total revenues for the fourth quarter of 2008 were RMB801.7 million (US$117.5 million), compared to RMB806.6 million (US$118.2 million) and RMB622.1 million (US$91.2 million) for the preceding quarter and the fourth quarter of 2007, respectively.
Revenues from online games were RMB672.5 million (US$98.6 million) for the fourth quarter of 2008, compared to RMB675.1 million (US$99.0 million) and RMB507.0 million (US$74.3 million) for the preceding quarter and the fourth quarter of 2007, respectively.
Revenues from advertising services were RMB111.8 million (US$16.4 million) for the fourth quarter of 2008, compared to RMB113.0 million (US$16.6 million) and RMB98.1 million (US$14.4 million) for the preceding quarter and the fourth quarter of 2007, respectively.
Revenues from wireless value-added services and others ("WVAS and others") were RMB17.4 million (US$2.6 million) for the fourth quarter of 2008, compared to RMB18.5 million (US$2.7 million) and RMB17.0 million (US$2.5 million) for the preceding quarter and the fourth quarter of 2007, respectively.
Gross Profit
Gross profit for the fourth quarter of 2008 was RMB639.0 million (US$93.7 million), compared to RMB631.3 million (US$92.5 million) and RMB488.0 million (US$71.5 million) for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter increase in gross profit was primarily attributable to a reduction of Olympics-related content costs recorded in the preceding quarter, which was partially offset by increases in staff-related costs resulting from increases in headcount and performance-related bonus accrual, as well as slightly lower total revenues in the current quarter. The quarter-over-quarter decrease in online game revenue was mainly due to lower revenue from FWJ in the current quarter, compared to the higher revenue in the preceding quarter as a result of the summer holiday season. The year-over-year increase in gross profit was primarily driven by increased online game revenue and advertising revenue, partially offset by higher staff-related costs resulting from increases in headcount and performance-related bonus accrual in the current quarter. The year-over-year increase in online game revenue was primarily attributable to both FWJ-related marketing activities in 2008 and the successful launch of an expansion pack for FWJ in early October of 2008. Advertising revenue for the current quarter remained relatively stable compared to the preceding quarter. The year-over-year increase in advertising revenue was primarily due to increased revenue contributed from the Company's email ad space during the fourth quarter of 2008.
Gross Profit (Loss) Margin
Gross profit margin for the online game business for the fourth quarter of 2008 was 88.0%, compared to 89.7% and 90.7% for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter and
year-over-year decreases in gross profit margin were primarily due to higher staff-related costs resulting from increases in headcount and
performance-related bonus accrual in the current quarter.
Gross profit margin for the advertising business for the fourth quarter of 2008 was 51.1%, compared to 26.9% and 52.0% for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter increase in gross profit margin was primarily due to a reduction of Olympic-related content costs recorded in the preceding quarter. The year-over-year gross profit margin remained relatively stable.
Gross loss margin for the WVAS and others business for the fourth quarter of 2008 was 24.9%, compared to 6.4% and 19.5% for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter and
year-over-year decreases in gross profit margin were mainly due to increased bandwidth charges and server custody usage fees in the current quarter resulting from volume increases associated with the Company's free email and photo blog services.
Operating Expenses
Total operating expenses for the fourth quarter of 2008 were RMB168.5 million (US$24.7 million), compared to RMB164.6 million (US$24.1 million) and RMB152.8 million (US$22.4 million) for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter increase in selling and marketing expenses was primarily due to increased staff-related costs resulting from an increase in headcount and performance-related bonus accrual, and increased temporary marketing promotion staff costs, partially offset by a reduction of Olympic-related marketing expenses of RMB3.1 million (US$0.5 million), which had been recorded in the preceding quarter. The
quarter-over-quarter decrease in general and administrative expenses was mainly due to a decrease in bad debt provision. The quarter-over-quarter increase in research and development expenses was mainly due to increased depreciation expenses related to additional fixed assets purchased to support increased research and development activities of the Company's online game, search engine and free email services in this quarter. The year-over-year increase in operating expenses was primarily due to increased staff-related costs associated with the Company's selling and marketing efforts as well as research and development activities, primarily resulting from increase in headcount and performance-related bonus accrual in the current quarter.
Net Profit
Net profit for the fourth quarter of 2008 totaled RMB575.9 million (US$84.4 million), compared to RMB313.3 million (US$45.9 million) and RMB389.8 million (US$57.1 million) for the preceding quarter and the fourth quarter of 2007, respectively. During the fourth quarter of 2008, the Company reported a net foreign exchange loss of RMB22.0 million (US$3.2 million) under Other, net, compared to RMB68.3 million (US$10.0 million) and RMB30.2 million (US$4.4 million) for the preceding quarter and the fourth quarter of 2007, respectively. The quarter-over-quarter and year-over-year decreases in net foreign exchange loss were primarily due to the reduction in translation loss related to the Company's bank deposits denominated in US dollar and Euro, resulting from improved stability in the exchange rates of US dollar and/or Euro against Renminbi at the end of the current quarter. NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.66 and US$0.65, respectively, for the fourth quarter of 2008. The Company reported basic and diluted earnings per ADS of US$0.36 and US$0.35 and US$0.47 and US$0.44 for the preceding quarter and the fourth quarter of 2007, respectively.
Income Taxes
Effective as of January 1, 2008, the Chinese government adopted a new income tax law which unified the enterprise income tax payable by domestic and foreign-invested enterprises at 25%. For the first three quarters of 2008, the Company followed the applicable accounting standards and adopted the statutory rate of 25% in making tax provisions, except for entities still enjoying unexpired tax holidays. By December 31, 2008, the Company's applications for the High/New Technology Enterprises ("HNTEs") status by certain of its subsidiaries have been duly assessed and included in the relevant Chinese government authority's published list of approved HNTEs, with the over-paid income taxes for the first three quarters of fiscal year 2008 duly refunded. Accordingly, the Company recorded a net tax benefit of RMB79.9 million (US$11.7 million) for the current quarter compared to a tax charge of RMB125.7 million (US$18.4 million) and a tax benefit of RMB52.9 million (US$7.7 million) for the preceding quarter and the fourth quarter of 2007, respectively.
The quarter-over-quarter decrease in tax charge was primarily attributable to the refund of the over-paid amount of income taxes for the first three quarters of 2008 as explained above, partially offset by the increase in tax charge resulting from the adjustment to recognize the deferred tax assets as of December 31, 2008 at the preferential tax rate for HNTEs. The year-over-year increase in the tax benefit was mainly due to the tax refund and adjustment to deferred tax assets in the current quarter as explained above, whereas the tax benefit reported in the fourth quarter of 2007 primarily resulted from the adjustment to recognize the deferred tax assets at the new statutory tax rate of 25% under the new tax laws, except for entities still enjoying unexpired tax holidays.
Fiscal Year 2008 Financial Results
Revenues
Total revenues for fiscal year 2008 were RMB3.0 billion (US$436.2 million), compared to RMB2.3 billion (US$338.0 million) for the preceding year. Revenues from online games were RMB2.5 billion (US$366.2 million) for fiscal year 2008, compared to RMB1.9 billion (US$283.3 million) for the preceding fiscal year. Revenues from advertising services were RMB405.9 million (US$59.5 million) for fiscal year 2008, compared to RMB305.1 million (US$44.7 million) for the preceding fiscal year. Revenues from WVAS and others were RMB71.7 million (US$10.5 million) for fiscal year 2008, compared to RMB68.0 million (US$10.0 million) for the preceding fiscal year.
Gross Profit
Gross profit for fiscal year 2008 was RMB2.5 billion (US$370.1 million), compared to RMB1.8 billion (US$263.5 million) for the preceding fiscal year. The increased gross profit for fiscal year 2008 was primarily due to increased online game revenue from the Company's various flagship games, as well as the receipt of a business tax refund of RMB146.8 million (US$21.5 million) in June 2008 related to certain excess taxes paid in previous years, which was determined as a result of changes in certain rules in connection with business tax deductions. The foregoing increases in gross profit were partially offset by increased staff-related costs resulting from increased headcount and increased performance-related bonus accrual.
Operating Expenses
Total operating expenses for fiscal year 2008 were RMB610.4 million (US$89.5 million), compared to RMB592.2 million (US$86.8 million) for the preceding fiscal year. Higher operating expenses for fiscal year 2008 were primarily due to increased research and development staff-related costs resulting from increased headcount, partially offset by reduced selling and marketing expenses on games as a result of the adoption of certain
cost-savings measures.
Net Profit
Net profit for fiscal year 2008 totaled RMB1.6 billion (US$234.0 million), compared to RMB1.3 billion (US$185.3 million) for the preceding fiscal year. For fiscal year 2008, the Company reported a net foreign exchange loss of RMB167.1 million (US$24.5 million) under Other, net, compared to RMB50.9 million (US$7.5 million) for the preceding fiscal year. The increase in net foreign exchange loss was primarily due to the increase in translation loss related to the Company's bank deposits denominated in US dollar and Euro, resulting from the depreciation in the exchange rate of US dollar and/or Euro against Renminbi at the end of the current quarter. NetEase reported basic and diluted earnings per ADS of US$1.88 and US$1.81 for fiscal year 2008, respectively. The Company reported basic and diluted earnings per ADS of US$1.50 and US$1.40 for the preceding fiscal year, respectively.
Income Taxes
As a result of the new income tax laws in China and the successful application for the HNTEs status (as explained above), and the expiration of the tax holidays of certain subsidiaries, the Company reported a net income tax charge of RMB300.7 million (US$44.1 million) for fiscal year 2008. For fiscal year 2007, the Company reported a net income tax charge of RMB2.7 million (US$0.4 million), primarily attributable to the receipt of reinvestment incentive tax refunds of RMB54.4 million (US$8.0 million) and a net adjustment to the deferred tax assets of approximately RMB42.0 million (US$6.1 million), resulting from the adoption of the new statutory income tax rate of 25% at December 31, 2007, except for entities still enjoying unexpired tax holidays.
Other Information
As of December 31, 2008, the Company's total cash and time deposit balance was RMB5.6 billion (US$822.8 million), compared to RMB4.2 billion (US$609.5 million) as of December 31, 2007. Cash flow generated from operating activities was RMB514.0 million (US$75.3 million) for the fourth quarter of 2008, compared to RMB495.5 million (US$72.7 million) and RMB426.6 million (US$62.5 million) for the preceding quarter and the fourth quarter of 2007, respectively.
On September 12, 2008, the Company's Board authorized a new share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed one year. As of December 31, 2008, the Company has spent in aggregate a total purchase consideration of approximately US$13.1 million (including transaction costs).
Other Announcements
The Company also announced today that Michael Tong, Co-Chief Operating Officer and Director of NetEase, has resigned effective March 12, 2009 from his position as NetEase's Co-Chief Operating Officer for personal reasons. After such date, William Ding will assume the responsibility for the Company's online advertising business. Mr. Tong will remain on the Company's Board of Directors after his resignation becomes effective.
"Michael has been a valuable member of our management team and has made significant contributions to our business over the years," said William Ding. "Michael's knowledge and executive strengths are exceptional. I am personally grateful to him for his leadership, expertise and dedication and he will be greatly missed."
** The United States dollar (US$) amounts disclosed in this press release
are presented solely for the convenience of the reader. Translations of
amounts from RMB into United States dollars for the convenience of the
reader were calculated at the noon buying rate of US$1.00 = RMB6.8225
on December 31, 2008 in The City of New York for the cable transfers of
RMB as certified for customs purposes by the Federal Reserve Bank of
New York. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate on December 31,
2008, or at any other certain date. The percentages stated are
calculated based on RMB.
Notes to Unaudited Financial Information
The unaudited financial information disclosed in this press 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, 2008 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 year 2008.
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
The earnings announcement will take place at 8:00 p.m. Eastern Time on Wednesday, February 25, 2009 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 26, 2009). Chief Executive Officer William Ding and Acting Chief Financial Officer Onward Choi will be on the call to discuss the quarterly and full year results and answer questions.
Interested parties may participate in the conference call by dialing
800-218-0713 (international: +1-303-262-2053), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing
800-405-2236 (international +1-303-590-3000), and entering passcode 11124984#. The replay will be available through 11:59 p.m. Eastern Time on March 11, 2009.
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. NetEase's online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates. In particular, NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang.
NetEase also offers online advertising on its websites which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified advertising 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 advertisements, matchmaking, alumni clubs and community forums. NetEase is also the largest provider of free email 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.
Forward-Looking Statements
This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that NetEase will not be successful in its product diversification efforts, including its focus on item- and fee-based games and exploration of strategic licensing opportunities; 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 ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that changes in Chinese government regulation of the 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; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive approvals of the preferential tax treatments previously available to certain of its subsidiaries and VIEs in China), 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,
2007 2008 2008
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 2,482,820,821 793,407,922 116,292,843
Time deposits 1,675,813,944 4,820,000,100 706,485,907
Accounts receivable, net 166,727,514 231,030,576 33,863,038
Prepayments and other
current assets 45,143,728 104,092,051 15,257,172
Deferred tax assets 65,787,113 25,248,842 3,700,820
Total current assets 4,436,293,120 5,973,779,491 875,599,780
Non-current assets:
Non-current rental deposits 3,033,171 3,443,249 504,690
Property, equipment and
software, net 183,471,666 258,787,534 37,931,482
Land use right, net 26,956,800 12,563,485 1,841,478
Prepayment for license right -- 27,463,600 4,025,445
Deferred tax assets 19,060,225 12,444,636 1,824,058
Other long-term assets 16,844,399 57,411,308 8,414,996
Total non-current assets 249,366,261 372,113,812 54,542,149
Total assets 4,685,659,381 6,345,893,303 930,141,929
Liabilities and Shareholders’
Equity
Current liabilities:
Zero-coupon convertible
subordinated notes due
July 15, 2023 641,778,908 -- --
Accounts payable 89,143,868 119,829,878 17,563,925
Salary and welfare payables 68,653,742 94,922,963 13,913,223
Taxes payable 92,438,670 104,754,356 15,354,248
Deferred revenue 354,966,697 447,725,795 65,624,888
Accrued liabilities 29,844,067 61,815,070 9,060,472
Total current liabilities 1,276,825,952 829,048,062 121,516,756
Long-term payable:
Other long-term payable 10,200,000 200,000 29,315
Total long-term payable 10,200,000 200,000 29,315
Total liabilities 1,287,025,952 829,248,062 121,546,071
Shareholders' equity 3,398,425,631 5,516,435,976 808,565,185
Minority interests 207,798 209,265 30,673
Total liabilities and
shareholders’ equity 4,685,659,381 6,345,893,303 930,141,929
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,
2007 2008
RMB RMB
Revenues:
Online game services 506,968,240 675,127,723
Advertising services 98,055,630 113,005,479
Wireless value-added
services and others 17,026,320 18,477,994
Total revenues 622,050,190 806,611,196
Business taxes (25,761,100) (10,641,607)
Total net revenues 596,289,090 795,969,589
Total cost of revenues (108,270,695) (164,696,351)
Gross profit 488,018,395 631,273,238
Operating expenses:
Selling and marketing expenses (59,767,163) (62,505,815)
General and administrative expenses (44,341,316) (48,810,235)
Research and development expenses (48,724,456) (53,322,288)
Total operating expenses (152,832,935) (164,638,338)
Operating profit 335,185,460 466,634,900
Other income (expenses):
Investment income 114,007 1,202,091
Interest income 31,733,301 39,704,670
Other, net (30,144,109) (68,543,630)
Profit before tax 336,888,659 438,998,031
Income tax 52,868,775 (125,687,666)
Profit after tax 389,757,434 313,310,365
Minority interests 74,364 2,235
Net profit 389,831,798 313,312,600
Earnings per share, basic 0.13 0.10
Earnings per ADS, basic 3.21 2.45
Earnings per share, diluted 0.12 0.10
Earnings per ADS, diluted 3.01 2.42
Weighted average number of
ordinary shares outstanding,
basic 3,033,153,746 3,199,978,057
Weighted average number of
ADS outstanding, basic 121,326,150 127,999,122
Weighted average number of
ordinary shares outstanding,
diluted 3,240,836,099 3,240,451,297
Weighted average number of
ADS outstanding, diluted 129,633,444 129,618,052
Quarter Ended
December 31, December 31,
2008 2008
RMB USD (Note 1)
Revenues:
Online game services 672,491,424 98,569,648
Advertising services 111,800,172 16,386,980
Wireless value-added
services and others 17,424,193 2,553,931
Total revenues 801,715,789 117,510,559
Business taxes (10,509,954) (1,540,484)
Total net revenues 791,205,835 115,970,075
Total cost of revenues (152,249,013) (22,315,722)
Gross profit 638,956,822 93,654,353
Operating expenses:
Selling and marketing expenses (67,395,203) (9,878,373)
General and administrative expenses (45,760,016) (6,707,221)
Research and development expenses (55,308,137) (8,106,726)
Total operating expenses (168,463,356) (24,692,320)
Operating profit 470,493,466 68,962,033
Other income (expenses):
Investment income 90,615 13,282
Interest income 42,787,380 6,271,510
Other, net (17,387,729) (2,548,586)
Profit before tax 495,983,732 72,698,239
Income tax 79,850,979 11,704,064
Profit after tax 575,834,711 84,402,303
Minority interests 19,020 2,788
Net profit 575,853,731 84,405,091
Earnings per share, basic 0.18 0.03
Earnings per ADS, basic 4.49 0.66
Earnings per share, diluted 0.18 0.03
Earnings per ADS, diluted 4.46 0.65
Weighted average number of
ordinary shares outstanding,
basic 3,209,693,009 3,209,693,009
Weighted average number of
ADS outstanding, basic 128,387,720 128,387,720
Weighted average number of
ordinary shares outstanding,
diluted 3,227,031,848 3,227,031,848
Weighted average number of
ADS outstanding, diluted 129,081,274 129,081,274
Year Ended
December 31, December 31, December 31,
2007 2008 2008
RMB RMB USD (Note 1)
Revenues:
Online game services 1,932,634,947 2,498,518,103 366,217,384
Advertising services 305,057,556 405,887,007 59,492,416
Wireless value-added
services and others 68,018,461 71,718,938 10,512,120
Total revenues 2,305,710,964 2,976,124,048 436,221,920
Business taxes (92,424,200) 108,460,101 15,897,413
Total net revenues 2,213,286,764 3,084,584,149 452,119,333
Total cost of revenues (415,453,046) (559,605,362) (82,023,505)
Gross profit 1,797,833,718 2,524,978,787 370,095,828
Operating expenses:
Selling and marketing
expenses (235,318,304) (221,551,138) (32,473,600)
General and administrative
expenses (176,178,740) (181,841,322) (26,653,180)
Research and development
expenses (180,734,713) (207,023,649) (30,344,250)
Total operating expenses (592,231,757) (610,416,109) (89,471,030)
Operating profit 1,205,601,961 1,914,562,678 280,624,798
Other income (expenses):
Investment income 474,446 1,517,890 222,483
Interest income 112,599,994 144,805,368 21,224,678
Other, net (51,975,334) (163,549,591) (23,972,092)
Profit before tax 1,266,701,067 1,897,336,345 278,099,867
Income tax (2,689,309) (300,673,321) (44,070,842)
Profit after tax 1,264,011,758 1,596,663,024 234,029,025
Minority interests 74,364 24,883 3,647
Net profit 1,264,086,122 1,596,687,907 234,032,672
Earnings per share, basic 0.41 0.51 0.07
Earnings per ADS, basic 10.24 12.81 1.88
Earnings per share, diluted 0.38 0.49 0.07
Earnings per ADS, diluted 9.55 12.34 1.81
Weighted average number of
ordinary shares
outstanding, basic 3,086,451,412 3,117,117,306 3,117,117,306
Weighted average number of
ADS outstanding, basic 123,458,056 124,684,692 124,684,692
Weighted average number of
ordinary shares
outstanding, diluted 3,307,538,379 3,234,214,324 3,234,214,324
Weighted average number of
ADS outstanding, diluted 132,301,535 129,368,573 129,368,573
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,
2007 2008
RMB RMB
Cash flows from operating activities:
Net profit 389,831,798 313,312,600
Adjustments to reconcile net profit
to net cash provided by
operating activities:
Depreciation and amortization 26,752,268 22,478,837
Share-based compensation cost 22,060,172 16,117,448
Allowance/(reversal) of provision for
doubtful debts (228,892) 9,458,347
(Gain)/Loss on disposal of property,
equipment and software 38,711 581,041
Unrealized exchange losses 30,229,825 68,605,629
Share of loss by minority interests (74,364) (2,235)
Net equity share of loss (gain) from
an associated company 351,101 1,268,384
Others -- (7,292)
Changes in operating assets and
liabilities:
Accounts receivable (28,797,530) (33,769,360)
Prepayments and other current
assets 19,140,543 (6,234,669)
Deferred tax assets (45,969,165) 24,151,981
Deferred tax assets - non-current (11,939,153) 347,875
Accounts payable 4,839,436 57,055,571
Salary and welfare payables 25,160,475 (12,943,811)
Taxes payable 11,798,902 (1,129,914)
Deferred revenue (14,094,607) 37,929,704
Deferred tax liabilities -- --
Accrued liabilities (2,499,785) (1,709,862)
Net cash provided by
operating activities 426,599,735 495,510,274
Cash flows from investing activities:
Purchase of property, equipment
and software (13,885,112) (49,664,942)
Proceeds from sale of property,
equipment and software 25,434 150,070
Prepayment for land use right -- --
Incentive received on land use
right -- --
Prepayment for license right -- (27,463,600)
Prepayment for royalties -- --
Investment in an associated
company -- (31,000,000)
Net cash paid upon closure of
VIE -- --
Transfer from restricted cash 761,580,600 --
Net change in time deposits
with terms of three months (246,295,721) (932,958,372)
Placement/rollover of matured
time deposits (270,000,000) (1,290,712,014)
Uplift of matured time deposits 655,105,518 445,500,062
Net change in other assets (89,786) 668,111
Net cash provided by
investing activities 886,440,933 (1,885,480,685)
Cash flows from financing activities:
Capital contribution from minority
shareholders 282,162 2,710
Proceeds from employees exercising
stock options 1,618,804 16,009,885
Repurchase of company shares (36,478,319) (424,438)
Payment of other long-term payable -- (10,000,000)
Net cash (used in)
financing activities (34,577,353) 5,588,157
Effect of exchange rate changes on
cash held in foreign currencies (1,064,010) (29,719,910)
Net increase in cash 1,277,399,305 (1,414,102,164)
Cash, beginning of the quarter 1,205,421,516 2,399,140,819
Cash, end of the quarter 2,482,820,821 985,038,655
Supplemental disclosures of cash flow
information:
(Net tax refund)/cash paid
for income tax, net of tax
refund (9,165,960) 83,231,216
Supplemental schedule of non-cash
investing and financing activities:
Treasury stock cancellation 121,821,189 --
Fixed asset purchases
financed by accounts payable 6,112,886 24,305,244
Conversion of convertible
notes to ordinary shares -- 433,664,691
Quarter Ended
December 31, December 31,
2008 2008
RMB USD (Note 1)
Cash flows from operating activities:
Net profit 575,853,731 84,405,091
Adjustments to reconcile net profit
to net cash provided by
operating activities:
Depreciation and amortization 21,214,759 3,109,529
Share-based compensation cost 11,712,364 1,716,726
Allowance/(reversal) of provision for
doubtful debts 1,768,291 259,185
(Gain)/Loss on disposal of property,
equipment and software (192,511) (28,217)
Unrealized exchange losses 21,131,801 3,097,369
Share of loss by minority interests (19,021) (2,788)
Net equity share of loss (gain) from
an associated company (113,653) (16,659)
Others (9,014) (1,321)
Changes in operating assets and
liabilities:
Accounts receivable (14,699,446) (2,154,554)
Prepayments and other current
assets (37,373,231) (5,477,938)
Deferred tax assets 4,597,642 673,894
Deferred tax assets - non-current 6,364,324 932,843
Accounts payable (39,605,453) (5,805,123)
Salary and welfare payables 41,161,456 6,033,193
Taxes payable (73,972,379) (10,842,415)
Deferred revenue 3,858,634 565,575
Deferred tax liabilities 0 0
Accrued liabilities (7,672,623) (1,124,606)
Net cash provided by
operating activities 514,005,671 75,339,784
Cash flows from investing activities:
Purchase of property, equipment
and software (47,987,508) (7,033,713)
Proceeds from sale of property,
equipment and software 11,603 1,701
Prepayment for land use right -- --
Incentive received on land use
right -- --
Prepayment for license right -- --
Prepayment for royalties (13,687,749) (2,006,266)
Investment in an associated
company (2,559,525) (375,159)
Net cash paid upon closure of
VIE -- --
Transfer from restricted cash -- --
Net change in time deposits
with terms of three months 974,552,227 142,843,859
Placement/rollover of matured
time deposits (1,817,119,582) (266,342,189)
Uplift of matured time deposits 290,674,696 42,605,305
Net change in other assets (5,682,050) (832,840)
Net cash (used in)
investing activities (621,797,888) (91,139,302)
Cash flows from financing activities:
Capital contribution from minority
shareholders 23,641 3,465
Proceeds from employees exercising
stock options 1,426,708 209,118
Repurchase of company shares (88,868,640) (13,025,818)
Payment of other long-term payable -- --
Net cash (used in)
financing activities (87,418,291) (12,813,235)
Effect of exchange rate changes on
cash held in foreign currencies 3,579,775 524,701
Net increase (decrease)
in cash (191,630,733) (28,088,052)
Cash, beginning of the quarter 985,038,655 144,380,895
Cash, end of the quarter 793,407,922 116,292,843
Supplemental disclosures of cash flow
information:
(Net tax refund)/cash paid
for income tax, net of tax
refund 16,023,949 2,348,692
Supplemental schedule of non-cash
investing and financing activities:
Treasury stock cancellation 89,293,078 13,088,029
Fixed asset purchases
financed by accounts payable 37,302,324 5,467,545
Conversion of convertible
notes to ordinary shares -- --
Year Ended
December 31, December 31, December 31,
2007 2008 2008
RMB RMB USD (Note 1)
Cash flows from operating
activities:
Net profit 1,264,086,122 1,596,687,907 234,032,672
Adjustments to reconcile net
profit to net cash provided
by operating activities:
Depreciation and
amortization 99,110,799 90,962,041 13,332,655
Share-based compensation
cost 95,428,175 67,948,661 9,959,496
Allowance/(reversal) of
provision for doubtful
debts (5,334,898) 8,604,654 1,261,217
(Gain)/Loss on disposal of
property, equipment and
software 830,169 316,916 46,452
Unrealized exchange losses 50,891,094 166,712,075 24,435,628
Share of loss by minority
interests (74,364) (24,884) (3,647)
Net equity share of loss
(gain) from an associated
company 551,042 2,028,154 297,274
Others 278,322 (16,306) (2,390)
Changes in operating assets
and liabilities:
Accounts receivable (29,756,151) (72,907,716) (10,686,364)
Prepayments and other
current assets (16,535,099) (52,387,633) (7,678,657)
Deferred tax assets (40,112,645) 40,538,271 5,941,850
Deferred tax assets -
non-current (13,557,864) 6,615,589 969,672
Accounts payable 945,594 32,756,625 4,801,264
Salary and welfare
payables 13,216,566 26,269,221 3,850,381
Taxes payable (2,750,313) 12,315,686 1,805,157
Deferred revenue (30,754,023) 92,759,098 13,596,057
Deferred tax liabilities (3,391,754) -- --
Accrued liabilities (3,168,330) (1,379,171) (202,150)
Net cash
provided by
operating
activities 1,379,902,442 2,017,799,188 295,756,567
Cash flows from investing
activities:
Purchase of property,
equipment and
software (71,515,551) (133,329,185) (19,542,570)
Proceeds from sale of
property, equipment
and software 55,675 280,714 41,145
Prepayment for land
use right (26,956,800) (822,182) (120,510)
Incentive received on
land use right -- 15,000,000 2,198,608
Prepayment for license
right -- (27,463,600) (4,025,445)
Prepayment for
royalties -- (13,687,749) (2,006,266)
Investment in an
associated company (2,500,000) (33,559,525) (4,918,948)
Net cash paid upon
closure of VIE (1,217,831) -- --
Transfer from
restricted cash -- -- --
Net change in time
deposits with terms
of three months 160,300,370 (520,970,208) (76,360,602)
Placement/rollover of
matured time deposits (636,577,729) (3,732,114,167) (547,030,292)
Uplift of matured time
deposits 1,530,798,027 1,042,752,487 152,840,233
Net change in other
assets (87,737) (5,344,734) (783,398)
Net cash
provided by
(used in)
investing
activities 952,298,424 (3,409,258,149) (499,708,045)
Cash flows from financing
activities:
Capital contribution from
minority shareholders 282,162 26,351 3,862
Proceeds from employees
exercising stock options 43,232,921 18,407,235 2,698,019
Repurchase of company
shares (1,003,747,328) (165,726,730) (24,291,203)
Payment of other long-
term payable (177,256) (10,000,000) (1,465,738)
Minority interests
Net cash (used
in) financing
activities (960,409,501) (157,293,144) (23,055,060)
Effect of exchange rate
changes on cash held in
foreign currencies (95,447,070) (140,660,794) (20,617,192)
Net increase
(decrease) in
cash 1,276,344,295 (1,689,412,899) (247,623,730)
Cash, beginning of the
quarter 1,206,476,526 2,482,820,821 363,916,573
Cash, end of the quarter 2,482,820,821 793,407,922 116,292,843
Supplemental disclosures of
cash flow information:
(Net tax
refund)/cash paid
for income tax,
net of tax refund 71,797,010 250,080,776 36,655,299
Supplemental schedule of
non-cash investing and
financing activities:
Treasury stock
cancellation 1,192,549,427 165,726,730 24,291,203
Fixed asset
purchases financed
by accounts payable 6,112,886 37,302,324 5,467,545
Conversion of
convertible notes
to ordinary shares 92,424,750 602,041,878 88,243,588
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
December 31, September 30,
2007 2008
RMB RMB
Revenues:
Online game services 506,968,240 675,127,723
Advertising services 98,055,630 113,005,479
Wireless value-added services and
others 17,026,320 18,477,994
Total revenues 622,050,190 806,611,196
Business taxes:
Online game services (16,729,952) (849,228)
Advertising services (8,334,729) (9,605,466)
Wireless value-added services and
others (696,419) (186,913)
Total business taxes (25,761,100) (10,641,607)
Net revenues:
Online game services 490,238,288 674,278,495
Advertising services 89,720,901 103,400,013
Wireless value-added services and
others 16,329,901 18,291,081
Total net revenues 596,289,090 795,969,589
Cost of revenues:
Online game services (45,658,298) (69,658,107)
Advertising services (43,104,579) (75,569,816)
Wireless value-added services and
others (19,507,818) (19,468,428)
Total cost of revenues (108,270,695) (164,696,351)
Gross profit (loss):
Online game services 444,579,990 604,620,388
Advertising services 46,616,322 27,830,197
Wireless value-added services and
others (3,177,917) (1,177,347)
Total gross profit 488,018,395 631,273,238
Gross profit (loss) margin:
Online game services 90.7% 89.7%
Advertising services 52.0% 26.9%
Wireless value-added services and
others (19.5%) (6.4%)
Quarter Ended
December 31, December 31,
2008 2008
RMB USD (Note 1)
Revenues:
Online game services 672,491,424 98,569,648
Advertising services 111,800,172 16,386,980
Wireless value-added services and
others 17,424,193 2,553,931
Total revenues 801,715,789 117,510,559
Business taxes:
Online game services (892,846) (130,868)
Advertising services (9,502,935) (1,392,882)
Wireless value-added services and
others (114,173) (16,734)
Total business taxes (10,509,954) (1,540,484)
Net revenues:
Online game services 671,598,578 98,438,780
Advertising services 102,297,237 14,994,098
Wireless value-added services and
others 17,310,020 2,537,197
Total net revenues 791,205,835 115,970,075
Cost of revenues:
Online game services (80,640,289) (11,819,757)
Advertising services (49,984,535) (7,326,425)
Wireless value-added services and
others (21,624,189) (3,169,540)
Total cost of revenues (152,249,013) (22,315,722)
Gross profit (loss):
Online game services 590,958,289 86,619,023
Advertising services 52,312,702 7,667,673
Wireless value-added services and
others (4,314,169) (632,343)
Total gross profit 638,956,822 93,654,353
Gross profit (loss) margin:
Online game services 88.0% 88.0%
Advertising services 51.1% 51.1%
Wireless value-added services and
others (24.9%) (24.9%)
Year Ended
December 31, December 31, December 31,
2007 2008 2008
RMB RMB USD (Note 1)
Revenues:
Online game services 1,932,634,947 2,498,518,103 366,217,384
Advertising services 305,057,556 405,887,007 59,492,416
Wireless value-added services
and others 68,018,461 71,718,938 10,512,120
Total revenues 2,305,710,964 2,976,124,048 436,221,920
Business taxes:
Online game services (63,776,953) 130,666,281 19,152,258
Advertising services (25,929,892) (34,500,316) (5,056,844)
Wireless value-added services
and others (2,717,355) 12,294,136 1,801,999
Total business taxes (92,424,200) 108,460,101 15,897,413
Net revenues:
Online game services 1,868,857,994 2,629,184,384 385,369,642
Advertising services 279,127,664 371,386,691 54,435,572
Wireless value-added services
and others 65,301,106 84,013,074 12,314,119
Total net revenues 2,213,286,764 3,084,584,149 452,119,333
Cost of revenues:
Online game services (187,411,229) (268,574,306) (39,365,966)
Advertising services (143,676,057) (208,907,875) (30,620,429)
Wireless value-added services
and others (84,365,760) (82,123,181) (12,037,110)
Total cost of revenues (415,453,046) (559,605,362) (82,023,505)
Gross profit (loss):
Online game services 1,681,446,765 2,360,610,078 346,003,676
Advertising services 135,451,607 162,478,816 23,815,143
Wireless value-added services
and others (19,064,654) 1,889,893 277,009
Total gross profit 1,797,833,718 2,524,978,787 370,095,828
Gross profit (loss) margin:
Online game services 90.0% 89.8% 89.8%
Advertising services 48.5% 43.7% 43.7%
Wireless value-added services
and others (29.2%) 2.2% 2.2%
The accompanying notes are an integral part of this press release.
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 = RMB6.8225 on
December 31, 2008 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: Share-based compensation cost reported in the Company’s unaudited
condensed consolidated statements of operations is set out as
follows:
Quarter Ended
December 31, September 30,
2007 2008
RMB RMB
Share-based compensation cost included
in:
Cost of revenue 3,444,268 3,840,525
Operating expenses
- Selling and marketing expenses 3,043,367 2,010,771
- General and administrative expenses 7,822,539 5,498,972
- Research and development expenses 7,749,998 4,767,180
Quarter Ended
December 31, December 31,
2008 2008
RMB USD (Note 1)
Share-based compensation cost
included in:
Cost of revenue 3,294,120 482,831
Operating expenses
- Selling and marketing expenses 1,328,916 194,784
- General and administrative expenses 3,464,280 507,774
- Research and development expenses 3,625,048 531,337
Year Ended
December December December
31, 31, 31,
2007 2008 2008
RMB RMB USD(Note 1)
Share-based compensation cost included
in:
Cost of revenue 14,890,378 13,678,836 2,004,959
Operating expenses
- Selling and marketing expenses 14,357,336 8,564,177 1,255,284
- General and administrative expenses 33,887,323 23,586,590 3,457,177
- Research and development expenses 32,293,138 22,119,058 3,242,075
For further information, please contact:
NetEase.com, Inc.
Brandi Piacente, Investor Relations
Tel: +1-212-481-2050
Email: brandi@corp.netease.com
Li Jia
Email: liddyli@corp.netease.com
Tel: +86-10-8255-8208
