omniture

NetEase Announces Third Quarter 2020 Unaudited Financial Results

2020-11-19 16:30 7107

BEIJING, Nov. 19, 2020 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Financial Highlights

  • Net revenues were RMB18.7 billion (US$2.7 billion), an increase of 27.5% compared with the third quarter of 2019.

- Online game services net revenues were RMB13.9 billion (US$2.0 billion), an increase of 20.2% compared with the third quarter of 2019.
- Youdao net revenues were RMB896.0 million (US$132.0 million), an increase of 159.0% compared with the third quarter of 2019.
- Innovative businesses and others net revenues were RMB3.9 billion (US$574.4 million), an increase of 41.6% compared with the third quarter of 2019. 

  • Gross profit was RMB9.9 billion (US$1.5 billion), an increase of 25.6% compared with the third quarter of 2019.
  • Total operating expenses were RMB7.0 billion (US$1.0 billion), an increase of 54.7% compared with the third quarter of 2019.
  • Net income from continuing operations attributable to the Company's shareholders was RMB3.0 billion (US$441.6 million), which includes net exchange losses of RMB1.6 billion (US$231.4 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB3.7 billion (US$540.4 million).[1] 
  • Basic net income from continuing operations was US$0.65 per ADS (US$0.13 per share). Non-GAAP basic net income from continuing operations was US$0.80 per ADS (US$0.16 per share).[1] [2] 

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

[2] Effective October 1, 2020, the Company changed the ratio of its American depositary shares ("ADSs"), representing ordinary shares, from the previous one ADS for every twenty-five ordinary shares to one ADS for every five ordinary shares. The data throughout this announcement have been revised to reflect the ratio change as if it had occurred throughout the periods presented herein. 

Third Quarter 2020 and Recent Operational Highlights

  • Introduced new titles to the Chinese market including Onmyoji: Yokai Koya, PES Club Manager, King of Hunters and For All Time, and EVE Echoes and MARVEL Duel to overseas markets.
  • Extended the popularity of a number of mobile titles that climbed China's iOS top grossing chart in the past months including Invincible, Onmyoji and Sky.
  • Maintained steady performances of flagship PC titles such as Fantasy Westward Journey Online, New Westward Journey Online II and Justice.
  • Strengthened NetEase Game's international presence with strong performances from Knives Out, Life-After and Identity V in Japan.
  • Further developed a robust pipeline with titles including Unknown Future, Akasha Book, Revelation mobile game, Infinite Lagrange, Harry Potter: Magic Awakened, The Lord of the Rings: Rise to War, Nightmare Breaker, Ghost World Chronicle, Diablo® Immortal™ and Pokémon Quest. Several of these titles, including Revelation mobile game, will be released before Chinese New Year.
  • Increased net revenues from Youdao's learning services and products by over 200% year-over-year.

"With strong and steady contributions from our online game services, our total net revenues for the third quarter reached RMB18.7 billion, an increase of 27.5% year-over-year," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "The strength of our games business is bolstered by our diverse and growing game portfolio with impressive longevity. Additionally, our robust pipeline of games ready for launch is hugely exciting, and we cannot wait to unveil our game sensations across multiple genres to both domestic and global players in the coming quarters.  

"Our other businesses including Youdao, NetEase Cloud Music and Yanxuan are also on track, with promising year-over-year topline growth. As we work to bring even more value to our community and shareholders, we will continue to focus on expanding our sustainable growth prospects for each of our businesses," Mr. Ding concluded.

Third Quarter 2020 Financial Results

Net Revenues

Net revenues for the third quarter of 2020 were RMB18,658.2 million (US$2,748.1 million), compared to RMB18,184.8 million and RMB14,635.7 million for the preceding quarter and the third quarter of 2019, respectively.

Net revenues from online game services were RMB13,862.0 million (US$2,041.7 million) for the third quarter of 2020, compared to RMB13,828.3 million and RMB11,534.8 million for the preceding quarter and the third quarter of 2019, respectively. Net revenues from mobile games accounted for approximately 72.7% of net revenues from online games for the third quarter of 2020, compared to 72.3% and 71.0% for the preceding quarter and the third quarter of 2019, respectively.

Net revenues from Youdao were RMB896.0 million (US$132.0 million) for the third quarter of 2020, compared to RMB623.3 million and RMB345.9 million for the preceding quarter and the third quarter of 2019, respectively.

Net revenues from innovative businesses and others were RMB3,900.1 million (US$574.4 million) for the third quarter of 2020, compared to RMB3,733.3 million and RMB2,755.0 million for the preceding quarter and the third quarter of 2019, respectively.   

Gross Profit

Gross profit for the third quarter of 2020 was RMB9,885.8 million (US$1,456.0 million), compared to RMB9,792.2 million and RMB7,870.4 million for the preceding quarter and the third quarter of 2019, respectively.   

The quarter-over-quarter gross profit in online game services was generally stable. The year-over-year increase was primarily due to increased net revenues from self-developed games such as Fantasy Westward Journey H5, Life-After and Knives Out, as well as certain licensed games.

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

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

Gross Profit Margin

Gross profit margin for online game services for the third quarter of 2020 was 63.6%, compared to 63.8% each for the preceding quarter and the third quarter of 2019. Gross profit margin for online game services was generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC games, as well as self-developed and licensed games.

Gross profit margin for Youdao for the third quarter of 2020 was 45.9%, compared to 45.2% and 25.8% for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter gross profit margin was comparatively stable. The year-over-year increase was primarily attributable to the factors enumerated above.

Gross profit margin for innovative businesses and others for the third quarter of 2020 was 16.8%, compared to 18.5% and 15.2% for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter decrease was primarily due to decreased gross profit margin from advertising services. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.

Operating Expenses

Total operating expenses for the third quarter of 2020 were RMB7,015.7 million (US$1,033.3 million), compared to RMB5,622.3 million and RMB4,535.6 million for the preceding quarter and the third quarter of 2019, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to Youdao and online game services, as well as higher staff-related costs and research and development investments.

Other Income

Other income consisted of investment income, interest income, exchange gains/ (losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to net exchange losses of RMB1,571.3 million (US$231.4 million) recorded in the third quarter of 2020, which were mainly related to net unrealized exchange losses arising from the Company's U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods. Such unrealized exchange losses were partially offset by increased investment income arising from fair value changes of equity investments with readily determinable fair value.   

Income Taxes

The Company recorded a net income tax charge of RMB342.7 million (US$50.5 million) for the third quarter of 2020, compared to RMB1,064.5 million and RMB88.0 million for the preceding quarter and the third quarter of 2019, respectively. The effective tax rate for the third quarter of 2020 was 10.9%, compared to 18.6% and 2.1% for the preceding quarter and the third quarter of 2019, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter, and the rate for the third quarter of 2020 was affected by certain tax credits received and recognized during the quarter. 

Net Income and Non-GAAP Net Income 

Net income from continuing operations attributable to the Company's shareholders for the third quarter of 2020 totaled RMB2,998.2 million (US$441.6 million), which includes net exchange losses of RMB1,571.3 million (US$231.4 million), compared to RMB4,537.8 million and RMB4,134.2 million for the preceding quarter and the third quarter of 2019, respectively.

Non-GAAP net income from continuing operations attributable to the Company's shareholders for the third quarter of 2020 totaled RMB3,669.2 million (US$540.4 million), compared to RMB5,226.0 million and RMB4,726.0 million for the preceding quarter and the third quarter of 2019, respectively.

NetEase reported basic and diluted net income from continuing operations per ADS of US$0.65 and US$0.64, respectively, for the third quarter of 2020, compared to US$1.03 and US$1.02, respectively, for the preceding quarter, and US$0.94 each for the third quarter of 2019. NetEase reported basic and diluted net income from continuing operations per share of US$0.13 each for the third quarter of 2020, compared to US$0.21 and US$0.20, respectively, for the preceding quarter, and US$0.19 each for the third quarter of 2019.

Non-GAAP basic and diluted net income from continuing operations per ADS were US$0.80 and US$0.79, respectively, for the third quarter of 2020, compared to US$1.19 and US$1.17, respectively, for the preceding quarter and US$1.08 and US$1.07, respectively, for the third quarter of 2019. Non-GAAP basic and diluted net income from continuing operations per share were US$0.16 each for the third quarter of 2020, compared to US$0.24 and US$0.23, respectively, for the preceding quarter and US$0.22 and US$0.21, respectively, for the third quarter of 2019.

Quarterly Dividend

The board of directors has approved a dividend of US$0.1950 per ADS (US$0.0390 per share) for the third quarter of 2020, to holders of ADSs and holders of ordinary shares as of the close of business on December 4, 2020, New York Time and Hong Kong Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on December 4, 2020 (Hong Kong Time). The payment date is expected to be on December 15, 2020 for holders of ordinary shares and on or around December 18, 2020 for holders of ADSs (assuming the dividend payment is timely received by the ADS depositary). 

NetEase paid a dividend of US$0.2320 per ADS (US$0.0464 per share) for the first quarter of 2020 in June 2020, and paid a dividend of US$0.2970 per ADS (US$0.0594 per share) for the second quarter of 2020 in September 2020. 

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

Other Information

As of September 30, 2020, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB102,650.0 million (US$15,118.7 million), compared to RMB74,406.0 million as of December 31, 2019. Cash flow generated from continuing operating activities was RMB5,401.0 million (US$795.5 million) for the third quarter of 2020, compared to RMB4,772.3 million and RMB3,846.3 million for the preceding quarter and the third quarter of 2019, respectively. 

Share Purchase / Repurchase Program

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

On February 26, 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on March 2, 2020. On May 19, 2020, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$2.0 billion. Under the terms of this program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. As of September 30, 2020, approximately 15.3 million ADSs had been repurchased under this program for a total cost of US$1.1 billion.

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

** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.7896 on September 30, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2020, or at any other certain date. The percentages stated are calculated based on RMB. 

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 7:00 a.m. New York Time on Thursday, November 19, 2020 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, November 19, 2020). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-646-828-8143 and providing conference ID: 5158324, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 5158324#. The replay will be available through December 2, 2020.

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

About NetEase, Inc.

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

Forward Looking Statements

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

Non-GAAP Financial Measures

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

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

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

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

Contact for Media and Investors:

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

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

 

 

 

NETEASE, INC.







UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



(RMB and USD in thousands)









 December 31, 


 September 30,  


 September 30,  



2019


2020


2020



 RMB  


 RMB  


 USD (Note 1) 

Assets














Current assets:







   Cash and cash equivalents


3,246,373


6,466,250


952,376

   Time deposits


53,487,075


79,639,453


11,729,624

   Restricted cash


3,150,354


2,885,935


425,052

   Accounts receivable, net


4,169,358


4,948,999


728,909

   Inventories, net


650,557


524,360


77,230

   Prepayments and other current assets


4,817,422


7,005,805


1,031,843

   Short-term investments


15,312,595


12,294,335


1,810,760

   Assets held for sale


271,278


-


-

Total current assets


85,105,012


113,765,137


16,755,794








Non-current assets:







   Property, equipment and software, net 


4,621,712


4,439,270


653,834

   Land use right, net


3,707,179


4,200,099


618,608

   Deferred tax assets 


903,904


892,862


131,504

   Time deposits


2,360,000


4,250,000


625,957

   Other long-term assets


15,424,166


17,184,276


2,530,970

   Assets held for sale


2,398


-


-

Total non-current assets


27,019,359


30,966,507


4,560,873

Total assets 


112,124,371


144,731,644


21,316,667








Liabilities,  Redeemable Noncontrolling Interests
    and Shareholders' Equity














Current liabilities:







   Accounts payable 


1,212,303


997,099


146,857

   Salary and welfare payables


2,957,360


2,130,624


313,807

   Taxes payable


3,156,513


4,062,230


598,302

   Short-term loans


16,828,226


22,247,523


3,276,706

   Deferred revenue


8,602,227


10,376,439


1,528,284

   Accrued liabilities and other payables


5,484,228


7,114,994


1,047,925

   Liabilities held for sale


2,156


-


-

Total current liabilities


38,243,013


46,928,909


6,911,881








Non-current liabilities:







   Deferred tax liabilities


382,030


533,208


78,533

   Other long-term payable


456,912


514,763


75,816

   Liabilities held for sale


961


-


-

Total non-current liabilities


839,903


1,047,971


154,349

Total liabilities


39,082,916


47,976,880


7,066,230








Redeemable noncontrolling interests 


10,448,600


10,660,981


1,570,193








Total NetEase, Inc.'s equity


61,453,699


85,246,787


12,555,495

Noncontrolling interests


1,139,156


846,996


124,749

Total shareholders' equity


62,592,855


86,093,783


12,680,244








Total liabilities, redeemable noncontrolling 
    interests and shareholders' equity    


112,124,371


144,731,644


21,316,667








The accompanying notes are an integral part of this announcement.





 

 

 

NETEASE, INC.















UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME













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

















 Three Months Ended 


Nine Months Ended



September 30, 


June 30, 


September 30, 


September 30, 


September 30, 


September 30, 


September 30, 



2019


2020


2020


2020


2019


2020


2020



 RMB 


 RMB 


 RMB 


 USD (Note 1) 


RMB


RMB


USD (Note 1)
















Net revenues


14,635,690


18,184,806


18,658,222


2,748,059


43,506,341


53,905,395


7,939,406
















Cost of revenues


(6,765,340)


(8,392,631)


(8,772,379)


(1,292,032)


(20,161,469)


(24,849,755)


(3,659,973)
















Gross profit


7,870,350


9,792,175


9,885,843


1,456,027


23,344,872


29,055,640


4,279,433
















Selling and marketing expenses 


(1,619,531)


(2,321,397)


(3,442,821)


(507,073)


(4,067,384)


(7,627,289)


(1,123,378)

General and administrative expenses


(753,794)


(892,622)


(783,815)


(115,443)


(2,317,544)


(2,561,871)


(377,323)

Research and development expenses 


(2,162,254)


(2,408,306)


(2,789,051)


(410,783)


(6,145,736)


(7,340,006)


(1,081,066)

Total operating expenses


(4,535,579)


(5,622,325)


(7,015,687)


(1,033,299)


(12,530,664)


(17,529,166)


(2,581,767)
















Operating profit


3,334,771


4,169,850


2,870,156


422,728


10,814,208


11,526,474


1,697,666
















Other income:















Investment income, net


394,907


711,159


1,280,483


188,595


574,873


1,881,911


277,176

Interest income, net


184,795


396,519


446,914


65,823


542,228


1,188,617


175,064

Exchange gains/ (losses), net


120,562


17,008


(1,571,326)


(231,431)


153,688


(1,310,261)


(192,981)

Other, net


214,847


421,199


109,940


16,192


330,037


597,847


88,053
















Income before tax


4,249,882


5,715,735


3,136,167


461,907


12,415,034


13,884,588


2,044,978

Income tax


(87,957)


(1,064,455)


(342,700)


(50,474)


(2,038,397)


(2,489,188)


(366,618)
















Net income from continuing operations


4,161,925


4,651,280


2,793,467


411,433


10,376,637


11,395,400


1,678,360

Net income from discontinued operations


8,596,089


-


-


-


7,962,519


-


-

Net income


12,758,014


4,651,280


2,793,467


411,433


18,339,156


11,395,400


1,678,360
















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


(70,124)


(150,958)


(118,448)


(17,446)


(211,955)


(655,425)


(96,534)

Net loss attributable to noncontrolling interests


42,409


37,484


323,221


47,605


56,583


347,077


51,119

Net income attributable to the Company's shareholders


12,730,299


4,537,806


2,998,240


441,592


18,183,784


11,087,052


1,632,945

Including: 















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


4,134,210


4,537,806


2,998,240


441,592


10,221,265


11,087,052


1,632,945

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


8,596,089


-


-


-


7,962,519


-


-
















Basic net income per share:


3.95


1.40


0.89


0.13


5.65


3.37


0.50

-Continuing operations


1.28


1.40


0.89


0.13


3.18


3.37


0.50

-Discontinued operations


2.67


-


-


-


2.47


-


-









-






-

Basic net income per ADS:


19.73


7.00


4.43


0.65


28.25


16.87


2.48

-Continuing operations


6.41


7.00


4.43


0.65


15.88


16.87


2.48

-Discontinued operations


13.32


-


-


-


12.37


-


-









-






-

Diluted net income per share:


3.91


1.38


0.87


0.13


5.60


3.33


0.49

-Continuing operations


1.27


1.38


0.87


0.13


3.15


3.33


0.49

-Discontinued operations


2.64


-


-


-


2.45


-


-









-






-

Diluted net income per ADS:


19.56


6.92


4.37


0.64


28.02


16.65


2.45

-Continuing operations


6.35


6.92


4.37


0.64


15.75


16.65


2.45

-Discontinued operations


13.21


-


-


-


12.27


-


-
















Weighted average number of ordinary shares outstanding,
    basic


3,225,704


3,242,061


3,384,051


3,384,051


3,217,806


3,286,194


3,286,194

Weighted average number of ADS outstanding, basic 


645,141


648,412


676,810


676,810


643,561


657,239


657,239

Weighted average number of ordinary shares outstanding,
    diluted  


3,254,269


3,281,100


3,431,274


3,431,274


3,244,404


3,329,149


3,329,149

Weighted average number of ADS outstanding, diluted


650,854


656,220


686,255


686,255


648,881


665,830


665,830
















Effective October 1, 2020, the Company changed the ratio of its American depositary shares ("ADSs"), representing ordinary shares, from the previous one ADS for every twenty-five
ordinary shares to one ADS for every five ordinary shares. The data throughout this announcement have been revised to reflect the ratio change as if it had occurred throughout the periods presented herein.

The accompanying notes are an integral part of this announcement.















 

 

 

NETEASE, INC.
















UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS












(RMB and USD in thousands)


















Three Months Ended



Nine Months Ended



 September 30,  


 June 30,  


 September 30,  


 September 30,  



 September 30,  


 September 30,  


 September 30,  



2019


2020


2020


2020



2019


2020


2020



 RMB  


 RMB  


 RMB  


 USD (Note 1) 



 RMB  


 RMB  


 USD (Note 1) 

Cash flows from operating activities:
















     Net income  


12,758,014


4,651,280


2,793,467


411,433



18,339,156


11,395,400


1,678,360

     Net income from discontinued operations 


(8,596,089)


-


-


-



(7,962,519)


-


-

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
















     Depreciation and amortization 


703,387


892,150


913,049


134,478



1,918,138


2,495,256


367,511

     Fair value changes of equity security investments  


(144,547)


(503,281)


(1,103,428)


(162,517)



(187,425)


(1,279,669)


(188,475)

     Impairment losses of investments and other intangible
        assets 


12,585


-


-


-



177,567


6,600


972

     Fair value changes of short-term investments 


(198,390)


(174,738)


(133,943)


(19,728)



(497,354)


(461,787)


(68,014)

     Share-based compensation cost 


593,259


691,945


676,751


99,675



1,781,726


2,034,510


299,651

     Allowance for/ (reversal of) provision for doubtful debts 


4,725


(1,305)


(2,146)


(316)



(10,740)


46,488


6,847

     (Gains)/losses on disposal of property, equipment and
        software 


(2,639)


1,070


2,645


390



1,551


3,752


553

     Unrealized exchange (gains)/losses 


(111,807)


(20,159)


1,568,627


231,034



(141,850)


1,305,960


192,347

     (Gains)/losses on disposal of long-term investments, 
        business and subsidiaries 


(83,678)


(14,803)


2,995


441



(95,812)


(27,241)


(4,012)

     Deferred income taxes 


(114,434)


499,509


(550,137)


(81,026)



654,942


162,220


23,892

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


(8,595)


(10,948)


(28,915)


(4,259)



7,947


(86,074)


(12,677)

     Changes in operating assets and liabilities:  
















         Accounts receivable 


(333,859)


(498,550)


43,177


6,359



(556,921)


(885,908)


(130,480)

         Inventories 


83,150


3,329


34,429


5,071



378,866


126,198


18,587

         Prepayments and other assets


(746,434)


233,607


65,383


9,630



(1,179,256)


(804,808)


(118,535)

         Accounts payable 


(105,131)


(271,697)


147,811


21,770



(123,461)


(222,565)


(32,780)

         Salary and welfare payables 


(447,025)


132,037


(447,645)


(65,931)



(888,267)


(853,515)


(125,709)

         Taxes payable 


(408,348)


(568,138)


240,464


35,416



(302,048)


906,404


133,499

         Deferred revenue 


816,599


(605,444)


1,000,530


147,362



477,582


1,774,212


261,313

         Accrued liabilities and other payables 


175,544


336,444


177,853


26,195



(391,548)


1,038,491


152,953

     Net cash provided by continuing operating activities 


3,846,287


4,772,308


5,400,967


795,477



11,400,274


16,673,924


2,455,803

     Net cash provided by discontinued operating activities 


7,136


-


-


-



305,487


-


-

     Net cash provided by operating activities 


3,853,423


4,772,308


5,400,967


795,477



11,705,761


16,673,924


2,455,803

Cash flows from investing activities:
















     Purchase of property, equipment and software 


(329,722)


(237,039)


(350,866)


(51,677)



(973,760)


(752,225)


(110,791)

     Proceeds from sale of property, equipment and software 


5,190


3,970


4,903


722



10,908


9,645


1,421

     Purchase of intangible assets, content and licensed
        copyrights 


(208,748)


(839,441)


(755,132)


(111,219)



(1,358,609)


(1,901,408)


(280,047)

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


(683,304)


1,083,342


298,667


43,989



779,524


601,474


88,588

     Purchase of short-term investments 


(4,997,000)


(3,080,000)


(4,555,000)


(670,879)



(18,997,000)


(17,705,000)


(2,607,665)

     Proceeds from maturities of short-term investments 


5,901,842


2,345,218


11,295,357


1,663,626



10,972,655


20,528,551


3,023,529

     Investment in associated companies and other long-term
        investments        


(711,229)


(520,762)


(647,533)


(95,371)



(1,330,474)


(1,373,300)


(202,265)

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


127,332


33,856


397,342


58,522



378,413


628,150


92,516

     Placement/rollover of matured time deposits 


(19,339,634)


(38,412,268)


(26,718,380)


(3,935,192)



(52,170,926)


(76,798,135)


(11,311,143)

     Proceeds from maturities of time deposits 


11,869,243


19,442,266


13,550,559


1,995,782



46,417,255


46,633,442


6,868,364

     Change in other long-term assets 


63,196


(76,103)


(21,957)


(3,234)



(25,116)


(108,582)


(15,993)

     Amounts received from disposed businesses 


1,488,349


-


-


-



1,938,835


-


-

     Net cash used in continuing investing activities 


(6,814,485)


(20,256,961)


(7,502,040)


(1,104,931)



(14,358,295)


(30,237,388)


(4,453,486)

     Net cash used in discontinued investing activities 


(264,897)


-


-


-



(832,252)


-


-

     Net cash used in investing activities 


(7,079,382)


(20,256,961)


(7,502,040)


(1,104,931)



(15,190,547)


(30,237,388)


(4,453,486)

















The accompanying notes are an integral part of this announcement.














 

 

 

NETEASE, INC.
















UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)










(RMB and USD in thousands)


















Three Months Ended



 Nine Months Ended



 September 30,  


 June 30,  


 September 30,  


 September 30,  



 September 30,  


 September 30,  


 September 30,  



2019


2020


2020


2020



2019


2020


2020



 RMB  


 RMB  


 RMB  


 USD (Note 1) 



 RMB  


 RMB  


 USD (Note 1) 

Cash flows from financing activities:
















     Proceeds of short-term bank loans 


58,840


360,474


68,978


10,159



371,715


529,452


77,980

     Payment of short-term bank loans 


-


(358,171)


-


-



-


(456,566)


(67,245)

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


1,469,031


2,305,176


1,031,040


151,856



1,066,023


5,875,786


865,410

     Net proceeds received from/(paid for) issuance of shares in
        Hong Kong 


-


22,083,467


(212)


(31)



-


22,083,255


3,252,512

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


128,192


163,865


4,815


709



412,716


(278,952)


(41,085)

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


(7)


(3,260,996)


(2,223,165)


(327,437)



10,638


(8,045,058)


(1,184,909)

     Dividends paid to shareholders 


(923,444)


(1,115,136)


(1,377,570)


(202,894)



(1,950,150)


(3,419,251)


(503,601)

     Net cash provided/(used in) by financing activities      


732,612


20,178,679


(2,496,114)


(367,638)



(89,058)


16,288,666


2,399,062

















 Effect of exchange rate changes on cash, cash equivalents 
















     and restricted cash held in foreign currencies 


38,196


180,056


(25,033)


(3,687)



55,926


229,123


33,746

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


(2,455,151)


4,874,082


(4,622,220)


(680,779)



(3,517,918)


2,954,325


435,125

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


9,143,771


9,100,323


13,974,405


2,058,207



10,206,538


6,397,860


942,303

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


6,688,620


13,974,405


9,352,185


1,377,428



6,688,620


9,352,185


1,377,428

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


14,693


-


-


-



14,693


-


-

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


6,673,927


13,974,405


9,352,185


1,377,428



6,673,927


9,352,185


1,377,428

















Supplemental disclosures of cash flow information of
   continuing operations:
















     Cash paid for income tax, net 


906,425


548,556


948,130


139,644



2,004,180


1,698,730


250,196

     Cash paid for interest expense 


73,573


55,301


47,862


7,049



297,647


199,874


29,438

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
















    Fixed asset purchases financed by accounts payable and accrued
        liabilities


292,528


277,314


238,309


35,099



292,528


238,309


35,099

















The accompanying notes are an integral part of this announcement.















 

 

 

NETEASE, INC.















UNAUDITED SEGMENT INFORMATION













(RMB and USD in thousands, except percentages)



























Three Months Ended


 Nine Months Ended



September 30, 


 June 30,  


 September 30,  


 September 30,  


September 30, 


September 30, 


September 30, 



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Net revenues:















Online game services


11,534,763


13,828,256


13,862,035


2,041,657


34,818,308


41,208,535


6,069,361

Youdao


345,908


623,290


896,041


131,973


894,451


2,060,719


303,511

Innovative businesses and others


2,755,019


3,733,260


3,900,146


574,429


7,793,582


10,636,141


1,566,534

Total net revenues


14,635,690


18,184,806


18,658,222


2,748,059


43,506,341


53,905,395


7,939,406
















Cost of revenues:















Online game services


(4,172,678)


(5,009,354)


(5,044,177)


(742,927)


(12,692,675)


(14,905,362)


(2,195,323)

Youdao


(256,674)


(341,751)


(484,488)


(71,357)


(646,259)


(1,131,902)


(166,711)

Innovative businesses and others


(2,335,988)


(3,041,526)


(3,243,714)


(477,748)


(6,822,535)


(8,812,491)


(1,297,939)

Total cost of revenues


(6,765,340)


(8,392,631)


(8,772,379)


(1,292,032)


(20,161,469)


(24,849,755)


(3,659,973)
















Gross profit:















Online game services


7,362,085


8,818,902


8,817,858


1,298,730


22,125,633


26,303,173


3,874,038

Youdao


89,234


281,539


411,553


60,616


248,192


928,817


136,800

Innovative businesses and others


419,031


691,734


656,432


96,681


971,047


1,823,650


268,595

Total gross profit


7,870,350


9,792,175


9,885,843


1,456,027


23,344,872


29,055,640


4,279,433
















Gross profit margin:















Online game services


63.8%


63.8%


63.6%


63.6%


63.5%


63.8%


63.8%

Youdao


25.8%


45.2%


45.9%


45.9%


27.7%


45.1%


45.1%

Innovative businesses and others


15.2%


18.5%


16.8%


16.8%


12.5%


17.1%


17.1%
















The accompanying notes are an integral part of this announcement.









 

 

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.7896 on the last trading day of September 2020 (September 30, 2020) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.

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



Three Months Ended


Nine Months Ended



September 30, 


June 30, 


September 30, 


September 30, 


September 30, 


September 30, 


September 30, 



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Share-based compensation cost included in:















Cost of revenues


180,990


204,953


200,116


29,474


567,340


612,984


90,283

Operating expenses















- Selling and marketing expenses


21,176


27,034


25,563


3,765


67,567


77,408


11,401

- General and administrative expenses


200,394


247,589


236,323


34,807


585,614


714,283


105,203

- Research and development expenses


190,699


212,369


214,749


31,629


561,205


629,835


92,765
















The accompanying notes are an integral part of this announcement.











 

 

NETEASE, INC.















UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS















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
































Three Months Ended


 Nine Months Ended



September 30, 


June 30, 


 September 30,  


 September 30,  


September 30, 


September 30, 


September 30, 



2019


2020


2020


2020


2019


2020


2020



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

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


4,134,210


4,537,806


2,998,240


441,592


10,221,265


11,087,052


1,632,945

Add: Share-based compensation


591,769


688,227


671,004


98,828


1,779,077


2,021,102


297,676

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


4,725,979


5,226,033


3,669,244


540,420


12,000,342


13,108,154


1,930,621
















Non-GAAP basic net income from continuing
    operations per share


1.47


1.61


1.08


0.16


3.73


3.99


0.59

Non-GAAP basic net income from continuing
    operations per ADS


7.33


8.06


5.42


0.80


18.65


19.94


2.94

Non-GAAP diluted net income from continuing
    operations per share


1.45


1.59


1.07


0.16


3.70


3.94


0.58

Non-GAAP diluted net income from continuing
    operations per ADS


7.26


7.96


5.35


0.79


18.49


19.69


2.90
















The accompanying notes are an integral part of this announcement.















 

 

Cision View original content:http://www.prnewswire.com/news-releases/netease-announces-third-quarter-2020-unaudited-financial-results-301176782.html

Source: NetEase, Inc.
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