omniture

NetEase Announces Second Quarter 2020 Unaudited Financial Results

2020-08-13 16:30 5880

BEIJING, Aug. 13, 2020 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial Highlights

  • Net revenues were RMB18.2 billion (US$2.6 billion), an increase of 25.9% compared with the second quarter of 2019.
    - Online game services net revenues were RMB13.8 billion (US$2.0 billion), an increase of 20.9% compared with the second quarter of 2019.
    - Youdao net revenues were RMB623.3 million (US$88.2 million), an increase of 93.1% compared with the second quarter of 2019.
    - Innovative businesses and others net revenues were RMB3.7 billion (US$528.4 million), an increase of 38.7% compared with the second quarter of 2019. 
  • Gross profit was RMB9.8 billion (US$1.4 billion), an increase of 26.6% compared with the second quarter of 2019.
  • Total operating expenses were RMB5.6 billion (US$795.8 million), an increase of 40.1% compared with the second quarter of 2019.
  • Net income from continuing operations attributable to the Company's shareholders was RMB4.5 billion (US$642.3 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB5.2 billion (US$739.7 million). [1] 
  • Basic net income from continuing operations was US$4.95 per ADS (US$0.20 per share). Non-GAAP basic net income from continuing operations was US$5.70 per ADS (US$0.23 per share). [1]

Second Quarter 2020 and Recent Operational Highlights

  • Launched exciting new titles including EVE Echoes, Fantasy Westward Journey H5, King of Hunters, PES Club Manager and MARVEL Duel.
  • Introduced PC game Justice's two-year anniversary expansion pack in June, propelling high popularity and driving increased new and returning players.
  • Reinforced international games presence with strong performances from Knives Out and Life-After in Japan.
  • Continued popularity of Blizzard Entertainment's World of Warcraft® in China, achieving a record number of peak concurrent users in the first half of this year.
  • Advanced near-term titles for release including Onmyoji: Yokai Koya, as well as other upcoming titles in the pipeline such as: The Lord of the Rings: Rise to War, Harry Potter: Magic Awakened, For All Time, Revelation mobile game, Ghost World Chronicle, Nightmare Breaker, Infinite Lagrange, Diablo® Immortal™ and Pokémon Quest.
  • Grew Youdao's intelligent learning business steadily with net revenues from learning services and products reaching RMB520.1 million (US$73.6 million), up 190.0% year-over-year, and continued positive net operating cash flow of RMB93.0 million (US$13.2 million).
  • Maintained strong momentum for NetEase Cloud Music, with robust growth in net revenues from both membership and live streaming, and secured a multi-year licensing agreement with Universal Music Group recently.
  • Completed listing on the main board of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") in June 2020.
  • Issued first Environmental, Social and Governance report in June 2020.

[1] As used in this announcement, non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per ADS and per share are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement.

"We saw healthy gains across our business in the second quarter, with total net revenues of RMB18.2 billion, up 25.9% year-over-year, driven by strong performances from our online game services and NetEase Cloud Music," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Our games portfolio holds considerable depth and diversity, supporting our online game services net revenues of RMB13.8 billion in the second quarter. We saw steady growth in our overseas revenue in the second quarter. With the continuous expansion of our abundant games pipeline, we are more confident and committed than ever to extending our reach to a broader market. Our other core businesses such as Youdao, NetEase Cloud Music and Yanxuan, among others, also continue to track well against our strategic goals.

"In June, we celebrated the 20th anniversary of our listing on NASDAQ, as well as completed our listing on the Hong Kong Stock Exchange. Creating value for our supporters is always a priority. We will continue to examine ways to drive our Company's growth, keeping in mind the best interests of our long-term investors, who have extended their trust and support to us, as well as our increasingly global community of players," Mr. Ding concluded.

Second Quarter 2020 Financial Results

Net Revenues

Net revenues for the second quarter of 2020 were RMB18,184.8 million (US$2,573.9 million), compared to RMB17,062.4 million and RMB14,448.4 million for the preceding quarter and the second quarter of 2019, respectively.

Net revenues from online game services were RMB13,828.3 million (US$1,957.3 million) for the second quarter of 2020, compared to RMB13,518.2 million and RMB11,433.4 million for the preceding quarter and the second quarter of 2019, respectively. Net revenues from mobile games accounted for approximately 72.3% of net revenues from online games for the second quarter of 2020, compared to 70.3% and 72.2% for the preceding quarter and the second quarter of 2019, respectively.

Net revenues from Youdao were RMB623.3 million (US$88.2 million) for the second quarter of 2020, compared to RMB541.4 million and RMB322.8 million for the preceding quarter and the second quarter of 2019, respectively.

Net revenues from innovative businesses and others were RMB3,733.3 million (US$528.4 million) for the second quarter of 2020, compared to RMB3,002.7 million and RMB2,692.3 million for the preceding quarter and the second quarter of 2019, respectively.   

Gross Profit

Gross profit for the second quarter of 2020 was RMB9,792.2 million (US$1,386.0 million), compared to RMB9,377.6 million and RMB7,736.8 million for the preceding quarter and the second quarter of 2019, respectively.

The quarter-over-quarter increase in online game services gross profit was primarily due to increased net revenues from self-developed mobile games such as Invincible, Life-After and Knives Out. The year-over-year increase was primarily due to increased net revenues from self-developed mobile games Fantasy Westward Journey 3D, Invincible and Fantasy Westward Journey mobile game, as well as certain licensed games.

The quarter-over-quarter and year-over-year increases in Youdao gross profit were primarily attributable to the significant increase in net revenues, improved economies of scale and faculty compensation structure optimization for its learning services and products.

The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to the improvement in gross profit from advertising services, Yanxuan and NetEase Cloud Music. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.

Gross Profit Margin

Gross profit margin for online game services for the second quarter of 2020 was 63.8%, compared to 64.1% and 63.1% for the preceding quarter and the second quarter of 2019, respectively. Gross profit margin for online game services was generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC games, as well as self-developed and licensed games.

Gross profit margin for Youdao for the second quarter of 2020 was 45.2%, compared to 43.5% and 32.9% for the preceding quarter and the second quarter of 2019, respectively. The quarter-over-quarter margin was comparatively stable. The year-over-year increase was primarily attributable to the factors enumerated above.

Gross profit margin for innovative businesses and others for the second quarter of 2020 was 18.5%, compared to 15.8% and 15.5% for the preceding quarter and the second quarter of 2019, respectively. The quarter-over-quarter increase was primarily due to improvement in gross profit margin from advertising services, Yanxuan and NetEase Cloud Music. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.

Operating Expenses

Total operating expenses for the second quarter of 2020 were RMB5,622.3 million (US$795.8 million), compared to RMB4,891.2 million and RMB4,012.5 million for the preceding quarter and the second quarter of 2019, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to online game services and Youdao, as well as higher staff-related costs and research and development investments.

Other Income

Other income consisted of investment income/ (loss), interest income, exchange gains and others. The quarter-over-quarter and year-over-year increases were mainly due to the gains from fair value changes of equity investments with readily determinable fair value and government incentives recognized.

Income Taxes 

The Company recorded a net income tax charge of RMB1,064.5 million (US$150.7 million) for the second quarter of 2020, compared to RMB1,082.0 million and RMB683.8 million for the preceding quarter and the second quarter of 2019, respectively. The effective tax rate for the second quarter of 2020 was 18.6%, compared to 21.5% and 16.7% for the preceding quarter and the second quarter of 2019, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

Net Income and Non-GAAP Net Income  

Net income from continuing operations attributable to the Company's shareholders for the second quarter of 2020 totaled RMB4,537.8 million (US$642.3 million), compared to RMB3,551.0 million and RMB3,354.2 million for the preceding quarter and the second quarter of 2019, respectively.

Non-GAAP net income from continuing operations attributable to the Company's shareholders for the second quarter of 2020 totaled RMB5,226.0 million (US$739.7 million), compared to RMB4,212.9 million and RMB3,921.1 million for the preceding quarter and the second quarter of 2019, respectively.

NetEase reported basic and diluted net income from continuing operations per ADS of US$4.95 and US$4.89 for the second quarter of 2020, compared to US$3.89 and US$3.84, respectively for the preceding quarter and US$3.68 and US$3.65, respectively for the second quarter of 2019. NetEase reported basic and diluted net income from continuing operations per share of US$0.20 each for the second quarter of 2020, compared to US$0.16 and US$0.15, respectively for the preceding quarter and US$0.15 each for the second quarter of 2019.

Non-GAAP basic and diluted net income from continuing operations per ADS were US$5.70 and US$5.64 for the second quarter of 2020, compared to US$4.61 and US$4.55, respectively for the preceding quarter and US$4.31 and US$4.27, respectively for the second quarter of 2019. Non-GAAP basic and diluted net income from continuing operations per share were US$0.23 each for the second quarter of 2020, compared to US$0.18 each for the preceding quarter and US$0.17 each for the second quarter of 2019.

Quarterly Dividend

The board of directors has approved a dividend of US$1.485 per ADS (US$0.0594 per share) for the second quarter of 2020, to holders of ADSs and holders of ordinary shares as of the close of business on August 28, 2020, New York Time and Hong Kong Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on August 28, 2020 (Hong Kong Time). The payment date is expected to be on September 14, 2020 for holders of ordinary shares and on or around September 18, 2020 for holders of ADSs (assuming the dividend payment is timely received by the ADS depositary).

NetEase paid a dividend of US$1.16 per ADS (US$0.0464 per share) for the first quarter of 2020 in June 2020.

Starting in the second quarter of 2019, the Company's policy has been to set quarterly dividends at an amount equivalent to approximately 20%-30% of the Company's anticipated net income after tax in each fiscal quarter. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors. 

Other Information

As of June 30, 2020, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB102,993.6 million (US$14,577.8 million), compared to RMB74,406.0 million as of December 31, 2019. Cash flow generated from continuing operating activities was RMB4,772.3 million (US$675.5 million) for the second quarter of 2020, compared to RMB6,500.6 million and RMB4,928.1 million for the preceding quarter and the second quarter of 2019, respectively. 

Share Purchase / Repurchase Program

On November 20, 2019, the Company announced that its board of directors had approved a share purchase program of up to US$20.0 million of Youdao's outstanding ADSs for a period not to exceed 12 months beginning on November 25, 2019. Under the terms of this program, NetEase may purchase Youdao's ADSs in open-market transactions on the New York Stock Exchange. As of June 30, 2020, approximately 198,000 ADSs had been purchased under this program for a total cost of US$3.4 million.

On February 26, 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on March 2, 2020. On May 19, 2020, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$2.0 billion. Under the terms of this program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. As of June 30, 2020, approximately 2.3 million ADSs had been repurchased under this program for a total cost of US$755.7 million.

For both of the above-mentioned current programs, it is expected that the timing and dollar amount of purchase transactions will be in accordance with the Securities and Exchange Commission (SEC) Rule 10b-18 requirements and such purchases may be affected pursuant to a plan in conformity with SEC Rule 10b5-1. The extent to which NetEase repurchases its ADSs or purchases Youdao's ADSs will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.

** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB7.0651 on June 30, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2020, or at any other certain date. The percentages stated are calculated based on RMB.

Change in Segment Reporting

Effective in the third quarter of 2019, the Company has reported the following segments: online game services, Youdao and innovative businesses and others, aligning with the manner in which the Company's chief operating decision maker ("CODM") currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company retrospectively revised prior period segment information to conform to current period presentation.

Initial Public Offering in Hong Kong

In June, the Company successfully listed its ordinary shares on the main board of the Hong Kong Stock Exchange with a global offering of 197,202,000 ordinary shares. Gross proceeds from the global offering, before any underwriting fees and other offering expenses, were approximately HK$24,255.8 million.

Impact of the Recently Adopted Major Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326)", which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company adopted the new standard effective January 1, 2020 on a modified retrospective basis and did not restate comparative periods. The impact of new standard was immaterial to the Company.

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 7:30 a.m. New York Time on Thursday, August 13, 2020 (Beijing/Hong Kong Time: 7:30 p.m., Thursday, August 13, 2020). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-929-477-0324 (US), 400-120-9101 (Mainland China) or 852-3008-1527 (Hong Kong) and providing conference ID: 7890540, 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 7890540#. The replay will be available through August 26, 2020.

This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com/.

About NetEase, Inc.

As a leading internet technology company based in China, NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase") is dedicated to providing premium online services centered around innovative and diverse content, community, communication and commerce. NetEase develops and operates some of China's most popular mobile and PC games. In more recent years, NetEase has expanded into international markets including Japan and North America. In addition to its self-developed game content, NetEase partners with other leading game developers, such as Blizzard Entertainment and Mojang AB (a Microsoft subsidiary), to operate globally renowned games in China. NetEase's other innovative service offerings include the intelligent learning services of its majority-controlled subsidiary, Youdao (NYSE: DAO); music streaming through its leading NetEase Cloud Music business; and its private label e-commerce platform, Yanxuan. For more information, please visit: http://ir.netease.com/.

Forward Looking Statements

This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company's operations or financial results; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; competition in NetEase's existing and potential markets; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

Non-GAAP Financial Measures

NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per ADS and per share, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

NetEase defines non-GAAP net income from continuing operations attributable to the Company's shareholders as net income from continuing operations attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income from continuing operations attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses, which are non-cash charges. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income from continuing operations attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income from continuing operations attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.

NetEase compensates for these limitations by reconciling non-GAAP net income from continuing operations attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.    

Contact for Media and Investors:
Margaret Shi 
Email: ir@service.netease.com
Tel: (+86) 571-8985-3378
Twitter: https://twitter.com/NetEase_Global

Brandi Piacente
Email: netease@thepiacentegroup.com
Tel: (+1) 212-481-2050

 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)










 December 31, 


 June 30,  


 June 30,  



2019


2020


2020



 RMB  


 RMB  


 USD (Note 1) 

Assets














Current assets:







   Cash and cash equivalents


3,246,373


10,622,795


1,503,559

   Time deposits


53,487,075


66,348,005


9,390,951

   Restricted cash


3,150,354


3,351,610


474,390

   Accounts receivable, net


4,169,358


5,018,414


710,310

   Inventories, net


650,557


558,789


79,091

   Prepayments and other current assets


4,817,422


6,014,017


851,229

   Short-term investments


15,312,595


19,199,417


2,717,501

   Assets held for sale


271,278


-


-

Total current assets


85,105,012


111,113,047


15,727,031








Non-current assets:







   Property, equipment and software, net 


4,621,712


4,416,247


625,079

   Land use right, net


3,707,179


4,221,940


597,577

   Deferred tax assets 


903,904


790,046


111,824

   Time deposits


2,360,000


6,823,390


965,788

   Other long-term assets


15,424,166


16,805,584


2,378,676

   Assets held for sale


2,398


-


-

Total non-current assets


27,019,359


33,057,207


4,678,944

Total assets 


112,124,371


144,170,254


20,405,975








Liabilities,  Redeemable Noncontrolling Interests
    and Shareholders' Equity














Current liabilities:







   Accounts payable 


1,212,303


853,745


120,840

   Salary and welfare payables


2,957,360


2,570,216


363,790

   Taxes payable


3,156,513


3,822,542


541,046

   Short-term loans


16,828,226


21,932,603


3,104,358

   Deferred revenue


8,602,227


9,375,909


1,327,074

   Accrued liabilities and other payables


5,484,228


6,640,467


939,897

   Liabilities held for sale


2,156


-


-

Total current liabilities


38,243,013


45,195,482


6,397,005








Non-current liabilities:







   Deferred tax liabilities


382,030


980,530


138,785

   Other long-term payable


456,912


476,640


67,464

   Liabilities held for sale


961


-


-

Total non-current liabilities


839,903


1,457,170


206,249

Total liabilities


39,082,916


46,652,652


6,603,254








Redeemable noncontrolling interests 


10,448,600


10,538,663


1,491,651








Total NetEase, Inc.'s equity


61,453,699


85,804,783


12,144,879

Noncontrolling interests


1,139,156


1,174,156


166,191

Total shareholders' equity


62,592,855


86,978,939


12,311,070








Total liabilities, redeemable noncontrolling 
    interests and shareholders' equity    


112,124,371


144,170,254


20,405,975








The accompanying notes are an integral part of this announcement.





 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data or per ADS data)


















 Three Months Ended 


 Six Months Ended



June 30,


March 31, 


June 30,


June 30,


June 30, 


June 30, 


June 30, 



2019


2020


2020


2020


2019


2020


2020



 RMB 


 RMB 


 RMB 


 USD (Note 1) 


RMB


RMB


USD (Note 1)
















Net revenues


14,448,442


17,062,367


18,184,806


2,573,892


28,870,651


35,247,173


4,988,914
















Cost of revenues


(6,711,594)


(7,684,745)


(8,392,631)


(1,187,900)


(13,396,129)


(16,077,376)


(2,275,605)
















Gross profit


7,736,848


9,377,622


9,792,175


1,385,992


15,474,522


19,169,797


2,713,309
















Selling and marketing expenses 


(1,289,763)


(1,863,071)


(2,321,397)


(328,572)


(2,447,853)


(4,184,468)


(592,273)

General and administrative expenses


(776,900)


(885,434)


(892,622)


(126,342)


(1,563,750)


(1,778,056)


(251,667)

Research and development expenses 


(1,945,788)


(2,142,649)


(2,408,306)


(340,874)


(3,983,482)


(4,550,955)


(644,146)

Total operating expenses


(4,012,451)


(4,891,154)


(5,622,325)


(795,788)


(7,995,085)


(10,513,479)


(1,488,086)
















Operating profit


3,724,397


4,486,468


4,169,850


590,204


7,479,437


8,656,318


1,225,223
















Other income:















Investment income/ (loss), net


24,142


(109,731)


711,159


100,658


179,966


601,428


85,127

Interest income, net


185,227


345,184


396,519


56,124


357,433


741,703


104,981

Exchange gains, net


72,646


244,057


17,008


2,407


33,126


261,065


36,951

Other, net


78,026


66,708


421,199


59,617


115,190


487,907


69,059
















Income before tax


4,084,438


5,032,686


5,715,735


809,010


8,165,152


10,748,421


1,521,341

Income tax


(683,755)


(1,082,033)


(1,064,455)


(150,664)


(1,950,440)


(2,146,488)


(303,816)
















Net income from continuing operations


3,400,683


3,950,653


4,651,280


658,346


6,214,712


8,601,933


1,217,525

Net loss from discontinued operations


(282,815)


-


-


-


(633,570)


-


-

Net income


3,117,868


3,950,653


4,651,280


658,346


5,581,142


8,601,933


1,217,525
















Accretion and deemed dividends in connection with
    repurchase of redeemable noncontrolling interests


(73,048)


(386,019)


(150,958)


(21,367)


(141,831)


(536,977)


(76,004)

Net loss/ (income) attributable to noncontrolling interests


26,547


(13,628)


37,484


5,306


14,174


23,856


3,377

Net income attributable to the Company's shareholders


3,071,367


3,551,006


4,537,806


642,285


5,453,485


8,088,812


1,144,898

Including: 















-Net income from continuing operations attributable to the
    Company's shareholders


3,354,182


3,551,006


4,537,806


642,285


6,087,055


8,088,812


1,144,898

-Net loss from discontined operations attributable to the
    Company's shareholders


(282,815)


-


-


-


(633,570)


-


-
















Basic net income/ (loss) per share:


0.95


1.10


1.40


0.20


1.70


2.50


0.35

-Continuing operations


1.04


1.10


1.40


0.20


1.89


2.50


0.35

-Discontinued operations


(0.09)


-


-


-


(0.19)


-


-
















Basic net income/ (loss) per ADS:


23.84


27.47


34.99


4.95


42.42


62.48


8.84

-Continuing operations


26.03


27.47


34.99


4.95


47.35


62.48


8.84

-Discontinued operations


(2.19)


-


-


-


(4.93)


-


-
















Diluted net income/ (loss) per share:


0.95


1.08


1.38


0.20


1.68


2.47


0.35

-Continuing operations


1.03


1.08


1.38


0.20


1.88


2.47


0.35

-Discontinued operations


(0.08)


-


-


-


(0.20)


-


-
















Diluted net income/ (loss) per ADS:


23.64


27.12


34.58


4.89


42.09


61.70


8.73

-Continuing operations


25.82


27.12


34.58


4.89


46.98


61.70


8.73

-Discontinued operations


(2.18)


-


-


-


(4.89)


-


-
















Weighted average number of ordinary shares outstanding,
    basic


3,221,306


3,231,395


3,242,061


3,242,061


3,213,792


3,236,728


3,236,728

Weighted average number of ADS outstanding, basic 


128,852


129,256


129,682


129,682


128,552


129,469


129,469

Weighted average number of ordinary shares outstanding,
    diluted  


3,247,408


3,273,999


3,281,100


3,281,100


3,239,406


3,277,550


3,277,550

Weighted average number of ADS outstanding, diluted


129,896


130,960


131,244


131,244


129,576


131,102


131,102
















The accompanying notes are an integral part of this announcement.













 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)




Three Months Ended


 Six Months Ended



 June 30, 



 March 31,  


 June 30,  


 June 30,  


 June 30, 


 June 30,  


 June 30,  



2019



2020


2020


2020


2019


2020


2020



 RMB  



 RMB  


 RMB  


 USD (Note 1) 


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from operating activities:
















     Net income  


3,117,868



3,950,653


4,651,280


658,346


5,581,142


8,601,933


1,217,525

     Net loss from discontinued operations 


282,815



-


-


-


633,570


-


-

     Adjustments to reconcile net income to net cash provided by operating
         activities: 
















     Depreciation and amortization 


633,574



690,057


892,150


126,276


1,214,751


1,582,207


223,947

     Fair value changes of equity security investments  


87,034



327,040


(503,281)


(71,235)


(42,878)


(176,241)


(24,945)

     Impairment losses of investments and other intangible assets 


68,883



6,600


-


-


164,982


6,600


934

     Fair value changes of short-term investments 


(174,316)



(153,106)


(174,738)


(24,732)


(298,964)


(327,844)


(46,403)

     Share-based compensation cost 


567,668



665,814


691,945


97,938


1,188,467


1,357,759


192,178

     Allowance for/ (reversal of) provision for doubtful debts 


2,854



49,939


(1,305)


(185)


(15,465)


48,634


6,884

     Losses on disposal of property, equipment and software 


1,452



37


1,070


151


4,190


1,107


157

     Unrealized exchange gains 


(71,849)



(242,508)


(20,159)


(2,853)


(30,043)


(262,667)


(37,178)

     Gains on disposal of long-term investments, business and subsidiaries 


(156)



(15,433)


(14,803)


(2,095)


(12,134)


(30,236)


(4,280)

     Deferred income taxes 


466,324



212,848


499,509


70,701


769,376


712,357


100,828

     Net equity share of (gains)/ losses from associated companies 


(912)



(46,211)


(10,948)


(1,550)


16,542


(57,159)


(8,090)

     Changes in operating assets and liabilities:  
















         Accounts receivable 


386,030



(430,535)


(498,550)


(70,565)


(223,062)


(929,085)


(131,503)

         Inventories 


132,712



88,440


3,329


471


295,716


91,769


12,989

         Prepayments and other assets


546,551



(1,103,798)


233,607


33,065


(432,822)


(870,191)


(123,168)

         Accounts payable 


(112,477)



(98,679)


(271,697)


(38,456)


(18,330)


(370,376)


(52,423)

         Salary and welfare payables 


42,803



(537,907)


132,037


18,689


(441,242)


(405,870)


(57,447)

         Taxes payable 


(833,059)



1,234,078


(568,138)


(80,415)


106,300


665,940


94,258

         Deferred revenue 


(490,658)



1,379,126


(605,444)


(85,695)


(339,017)


773,682


109,507

         Accrued liabilities and other payables 


274,985



524,194


336,444


47,621


(567,092)


860,638


121,815

     Net cash provided by continuing operating activities 


4,928,126



6,500,649


4,772,308


675,477


7,553,987


11,272,957


1,595,585

     Net cash (used in)/ provided by discontinued operating activities 


(462,362)



-


-


-


298,351


-


-

     Net cash provided by operating activities 


4,465,764



6,500,649


4,772,308


675,477


7,852,338


11,272,957


1,595,585

Cash flows from investing activities:
















     Purchase of property, equipment and software 


(274,448)



(164,320)


(237,039)


(33,551)


(644,038)


(401,359)


(56,809)

     Proceeds from sale of property, equipment and software 


1,898



772


3,970


562


5,718


4,742


671

     Purchase of intangible assets, content and licensed copyrights 


(298,301)



(306,835)


(839,441)


(118,815)


(1,149,861)


(1,146,276)


(162,245)

     Net change in short-term investments with terms of three
        months or less 


1,503,083



(780,535)


1,083,342


153,337


1,462,828


302,807


42,860

     Purchase of short-term investments 


(9,110,000)



(10,070,000)


(3,080,000)


(435,946)


(14,000,000)


(13,150,000)


(1,861,262)

     Proceeds from maturities of short-term investments 


2,759,491



6,887,976


2,345,218


331,944


5,070,813


9,233,194


1,306,874

     Investment in associated companies and other long-term investments        


(227,229)



(205,005)


(520,762)


(73,708)


(619,245)


(725,767)


(102,726)

     Proceeds from disposal of investment in equity investments, businesses
        and subsidiaries 


42,399



196,952


33,856


4,792


251,081


230,808


32,669

     Placement/rollover of matured time deposits 


(16,234,752)



(11,667,487)


(38,412,268)


(5,436,904)


(32,831,292)


(50,079,755)


(7,088,329)

     Proceeds from maturities of time deposits 


18,588,553



13,640,617


19,442,266


2,751,874


34,548,012


33,082,883


4,682,578

     Change in other long-term assets 


(56,553)



(10,522)


(76,103)


(10,772)


(88,312)


(86,625)


(12,261)

     Amounts (paide to)/ received from disposed businesses 


(200,690)



-


-


-


450,486


-


-

     Net cash used in continuing investing activities 


(3,506,549)



(2,478,387)


(20,256,961)


(2,867,187)


(7,543,810)


(22,735,348)


(3,217,980)

     Net cash provided by/ (used in) discontinued investing activities 


136,649



-


-


-


(567,355)


-


-

     Net cash used in investing activities 


(3,369,900)



(2,478,387)


(20,256,961)


(2,867,187)


(8,111,165)


(22,735,348)


(3,217,980)

















The accompanying notes are an integral part of this announcement.
















 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)


















Three Months Ended


 Six Months Ended



 June 30, 


 March 31,  


 June 30,  


 June 30,  


 June 30, 


 June 30,  


 June 30,  



2019


2020


2020


2020


2019


2020


2020



 RMB  


 RMB  


 RMB  


 USD (Note 1) 


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from financing activities:















     Proceeds of short-term bank loans 


297,875


100,000


360,474


51,022


312,875


460,474


65,176

     Payment of short-term bank loans 


-


(98,395)


(358,171)


(50,696)


-


(456,566)


(64,623)

     Net changes in short-term loans with terms of three months or less 


(1,144,121)


2,539,570


2,305,176


326,276


(403,008)


4,844,746


685,729

     Net proceeds received from issuance of shares in Hong Kong 


-


-


22,083,467


3,125,712


-


22,083,467


3,125,712

     Capital injection from/ (repurchase of) noncontrolling interests and redeemable
        noncontrolling interests shareholders, net 


215,913


(447,632)


163,865


23,194


284,524


(283,767)


(40,165)

     Cash received from/ (paid for) repurchase of NetEase's/ purchase of Youdao's
        ADSs 


10,645


(2,560,897)


(3,260,996)


(461,564)


10,645


(5,821,893)


(824,035)

     Dividends paid to shareholders 


(613,117)


(926,545)


(1,115,136)


(157,837)


(1,026,706)


(2,041,681)


(288,981)

     Net cash (used in)/ provided by financing activities      


(1,232,805)


(1,393,899)


20,178,679


2,856,107


(821,670)


18,784,780


2,658,813
















 Effect of exchange rate changes on cash, cash equivalents 















     and restricted cash held in foreign currencies 


35,624


74,100


180,056


25,485


17,730


254,156


35,973

 Net (decrease)/ increase in cash, cash equivalents and restricted cash                


(101,317)


2,702,463


4,874,082


689,882


(1,062,767)


7,576,545


1,072,391

Cash, cash equivalents and restricted cash,
    at the beginning of the period


9,245,088


6,397,860


9,100,323


1,288,067


10,206,538


6,397,860


905,558

Cash, cash equivalents and restricted cash, at end of the period


9,143,771


9,100,323


13,974,405


1,977,949


9,143,771


13,974,405


1,977,949

Less: Cash, cash equivalents and restricted cash of held for sale at end of the period


255,151


371


-


-


255,151


-


-

Cash, cash equivalents and restricted cash of continuing operations
    at end of the period


8,888,620


9,099,952


13,974,405


1,977,949


8,888,620


13,974,405


1,977,949
















Supplemental disclosures of cash flow information of continuing
    operations:















     Cash paid for income tax, net 


562,032


202,044


548,556


77,643


1,097,755


750,600


106,241

     Cash paid for interest expense 


115,410


96,711


55,301


7,827


224,074


152,012


21,516

Supplemental schedule of non-cash investing and financing activities
    of continuing opearations:















    Fixed asset purchases financed by accounts payable and accrued
        liabilities


312,346


377,564


277,314


39,251


312,346


277,314


39,251
















The accompanying notes are an integral part of this announcement.















 

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)

















Three Months Ended


 Six Months Ended



June 30,


 March 31,


 June 30,


 June 30,


June 30,


June 30,


June 30,



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Net revenues:















Online game services


11,433,361


13,518,244


13,828,256


1,957,263


23,283,545


27,346,500


3,870,646

Youdao


322,812


541,388


623,290


88,221


548,543


1,164,678


164,849

Innovative businesses and others


2,692,269


3,002,735


3,733,260


528,408


5,038,563


6,735,995


953,419

Total net revenues


14,448,442


17,062,367


18,184,806


2,573,892


28,870,651


35,247,173


4,988,914
















Cost of revenues:















Online game services


(4,220,652)


(4,851,831)


(5,009,354)


(709,028)


(8,519,997)


(9,861,185)


(1,395,760)

Youdao


(216,749)


(305,663)


(341,751)


(48,372)


(389,585)


(647,414)


(91,636)

Innovative businesses and others


(2,274,193)


(2,527,251)


(3,041,526)


(430,500)


(4,486,547)


(5,568,777)


(788,209)

Total cost of revenues


(6,711,594)


(7,684,745)


(8,392,631)


(1,187,900)


(13,396,129)


(16,077,376)


(2,275,605)
















Gross profit:















Online game services


7,212,709


8,666,413


8,818,902


1,248,235


14,763,548


17,485,315


2,474,886

Youdao


106,063


235,725


281,539


39,849


158,958


517,264


73,213

Innovative businesses and others


418,076


475,484


691,734


97,908


552,016


1,167,218


165,210

Total gross profit


7,736,848


9,377,622


9,792,175


1,385,992


15,474,522


19,169,797


2,713,309
















Gross profit margin:















Online game services


63.1%


64.1%


63.8%


63.8%


63.4%


63.9%


63.9%

Youdao


32.9%


43.5%


45.2%


45.2%


29.0%


44.4%


44.4%

Innovative businesses and others


15.5%


15.8%


18.5%


18.5%


11.0%


17.3%


17.3%
















The accompanying notes are an integral part of this announcement.











 

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.0651 on the last trading day of June 2020 (June 30, 2020) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.

Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands):

 


















Three Months Ended


Six Months Ended



June 30, 


March 31, 


June 30, 


June 30, 


June 30, 


June 30, 


June 30, 



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Share-based compensation cost included in:















Cost of revenues


187,141


207,915


204,953


29,009


386,350


412,868


58,438

Operating expenses















- Selling and marketing expenses


21,144


24,811


27,034


3,826


46,391


51,845


7,338

- General and administrative expenses


187,362


230,371


247,589


35,044


385,220


477,960


67,651

- Research and development expenses


172,021


202,717


212,369


30,059


370,506


415,086


58,752
















The accompanying notes are an integral part of this announcement.









 

 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(in thousands, except per share data or per ADS data)


















Three Months Ended


 Six Months Ended



June 30,


March 31, 


 June 30, 


 June 30, 


June 30, 


June 30, 


June 30, 



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Net income from continuing operations attributable to
    the Company's shareholders


3,354,182


3,551,006


4,537,806


642,285


6,087,055


8,088,812


1,144,898

Add: Share-based compensation


566,869


661,871


688,227


97,412


1,187,308


1,350,098


191,094

Non-GAAP net income from continuing operations
    attributable to the Company's shareholders


3,921,051


4,212,877


5,226,033


739,697


7,274,363


9,438,910


1,335,992
















Non-GAAP basic net income from continuing
    operations per share


1.22


1.30


1.61


0.23


2.26


2.92


0.41

Non-GAAP basic net income from continuing
    operations per ADS


30.43


32.59


40.30


5.70


56.59


72.90


10.32

Non-GAAP diluted net income from continuing
    operations per share


1.21


1.29


1.59


0.23


2.25


2.88


0.41

Non-GAAP diluted net income from continuing
    operations per ADS


30.19


32.17


39.82


5.64


56.14


72.00


10.19
















The accompanying notes are an integral part of this announcement.













 

 

Cision View original content:http://www.prnewswire.com/news-releases/netease-announces-second-quarter-2020-unaudited-financial-results-301111598.html

Source: NetEase, Inc.
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