EX-99.1 2 tm2421988d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

Contact for Media and Investors:

Email: ir@service.netease.com

Tel: (+86) 571-8985-3378

 

NetEase Announces Second Quarter 2024 Unaudited Financial Results

 

Hangzhou, China, August 22, 2024 - NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, “NetEase” or the “Company”), a leading internet and game services provider, today announced its unaudited financial results for the second quarter ended June 30, 2024.

 

Second Quarter 2024 Financial Highlights

 

·Net revenues were RMB25.5 billion (US$3.5 billion), an increase of 6.1% compared with the same quarter of 2023.

 

·Games and related value-added services net revenues were RMB20.1 billion (US$2.8 billion), an increase of 6.7% compared with the same quarter of 2023.

 

·Youdao net revenues were RMB1.3 billion (US$181.9 million), an increase of 9.5% compared with the same quarter of 2023.

 

·Cloud Music net revenues were RMB2.0 billion (US$280.8 million), an increase of 4.7% compared with the same quarter of 2023.

 

·Innovative businesses and others net revenues were RMB2.1 billion (US$284.5 million), which was relatively stable compared with the same quarter of 2023.

 

·Gross profit was RMB16.0 billion (US$2.2 billion), an increase of 11.6% compared with the same quarter of 2023.

 

·Total operating expenses were RMB9.0 billion (US$1.2 billion), an increase of 8.9% compared with the same quarter of 2023.

 

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·Net income attributable to the Company’s shareholders was RMB6.8 billion (US$930.0 million). Non-GAAP net income attributable to the Company’s shareholders was RMB7.8 billion (US$1.1 billion).[1]

 

·Basic net income per share was US$0.29 (US$1.45 per ADS). Non-GAAP basic net income per share was US$0.33 (US$1.67 per ADS).[1]

 

Second Quarter 2024 and Recent Operational Highlights

 

·Launched popular new titles, further enhancing our appeal in diversified genres:

 

·Lost Light mobile game, a multiplayer tactical shooter game, topped the iOS download charts in China following its June launch.

 

·Once Human, a multiplayer open-world survival game set in a post-apocalyptic world, attained over 230,000 peak concurrent users on Steam soon after its launch, ranking among the top 5 most-played games in the world.

 

·Naraka: Bladepoint mobile game hit the top 3 on iOS grossing charts soon after launch in China, and topped the iOS download chart for over a week.

 

·Generated continued popularity of hit games, with Naraka: Bladepoint reaching record-high DAUs on its three-year anniversary, and Identity V continuing its strong performance, hitting record-high DAUs in July and August, consecutively.

 

·Brought highly anticipated NetEase titles to partners’ world-leading gaming platforms:

 

·Unveiled plans to bring Where Winds Meet and Marvel Rivals to consoles at PlayStation State of Play. Marvel Rivals also announced during Gamescom its release date for December 6th.

 

·Announced FragPunk, a 5v5 first-person hero shooter game, at the Xbox Games Showcase 2024, highlighting its innovative shooting experience with unique card mechanics.

 

·Eggy Party joined Nintendo Direct with upcoming plans for a worldwide release on Switch.

 

·Brought World of Warcraft back to China with players enthusiastically welcoming the unfolding return of Blizzard’s game portfolio.

 

 

[1] As used in this announcement, non-GAAP net income attributable to the Company’s shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement.

 

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·Youdao continued to drive growth in digital content services, online marketing services and AI-driven subscription services, recording historic-high operating cash flow and significantly narrowed operating loss compared with the same quarter of last year.

 

·Cloud Music continued to propel quality development across its music-centric ecosystem, further augmented its unique community, and kept bringing users high-quality music experiences.

 

“The robust R&D and operating capabilities we’ve built over the past two decades have shaped our formidable games portfolio of time-honored titles and newer innovative hits that redefine genres and diversify our offerings,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “With a growing portfolio of games that feature higher quality and cover more genres, we are thrilled to bring exciting NetEase gaming experiences to more players around the globe. As we expand our reach to players in China and worldwide, innovation remains our priority. We will continue to explore opportunities with talent and partners in the industry to drive the next wave of gaming trends.

 

“Alongside our games, Cloud Music and Youdao are also on track for continued growth this year. Superior content is the thread that connects our NetEase family, and we continue to bring experiences that resonate with our users across our businesses,” Mr. Ding concluded.

 

Second Quarter 2024 Financial Results

 

Net Revenues

 

Net revenues for the second quarter of 2024 were RMB25.5 billion (US$3.5 billion), compared with RMB26.9 billion and RMB24.0 billion for the preceding quarter and the same quarter of 2023, respectively.

 

Net revenues from games and related value-added services were RMB20.1 billion (US$2.8 billion) for the second quarter of 2024, compared with RMB21.5 billion and RMB18.8 billion for the preceding quarter and the same quarter of 2023, respectively. Net revenues from the operation of online games accounted for approximately 96.1% of the segment’s net revenues for the second quarter of 2024, compared with 95.2% and 91.7% for the preceding quarter and the same quarter of 2023, respectively. Net revenues from mobile games accounted for approximately 76.4% of net revenues from the operation of online games for the second quarter of 2024, compared with 78.6% and 73.6% for the preceding quarter and the same quarter of 2023, respectively.

 

Net revenues from Youdao were RMB1.3 billion (US$181.9 million) for the second quarter of 2024, compared with RMB1.4 billion and RMB1.2 billion for the preceding quarter and the same quarter of 2023, respectively.

 

Net revenues from Cloud Music were RMB2.0 billion (US$280.8 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB1.9 billion for the preceding quarter and the same quarter of 2023, respectively.

 

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Net revenues from innovative businesses and others were RMB2.1 billion (US$284.5 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB2.1 billion for the preceding quarter and the same quarter of 2023, respectively.

 

Gross Profit

 

Gross profit for the second quarter of 2024 was RMB16.0 billion (US$2.2 billion), compared with RMB17.0 billion and RMB14.4 billion for the preceding quarter and the same quarter of 2023, respectively.

 

The quarter-over-quarter decrease in games and related value-added services’ gross profit was primarily due to lower net revenues from certain mobile games. The year-over-year increase was primarily due to increased net revenues from mobile games such as Identity V and Justice mobile game, launched in 2023.

 

The quarter-over-quarter decrease in Youdao’s gross profit was primarily due to lower net revenues from its learning services. The year-over-year increase was primarily due to higher net revenues from its online marketing services.

 

The quarter-over-quarter decrease in Cloud Music’s gross profit primarily resulted from the one-off adjustment of certain copyright costs in the preceding quarter. The year-over-year increase was primarily due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures.

 

The quarter-over-quarter and year-over-year increases in innovative businesses and others’ gross profit were primarily due to increased gross profit from Yanxuan and several other businesses included within the segment.

 

Gross Profit Margin

 

Gross profit margin for games and related value-added services for the second quarter of 2024 was 70.0%, compared with 69.5% and 67.4% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly attributable to changes in product mix.

 

Gross profit margin for Youdao for the second quarter of 2024 was 48.2%, compared with 49.0% and 47.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased revenue contribution from its learning services. The year-over-year increase was mainly due to the improvement of gross profit margin from its online marketing services.

 

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Gross profit margin for Cloud Music for the second quarter of 2024 was 32.1%, compared with 38.0% and 27.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to the factors enumerated above. The one-off adjustment of copyright costs mentioned above increased the gross profit margin in the preceding quarter by approximately five percentage points.

 

Gross profit margin for innovative businesses and others for the second quarter of 2024 was 34.0%, compared with 33.4% and 29.5% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly due to changes in the product mix within the segment.

 

Operating Expenses

 

Total operating expenses for the second quarter of 2024 were RMB9.0 billion (US$1.2 billion), compared with RMB9.4 billion and RMB8.3 billion for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to games and related value-added services. The year-over-year increase was mainly due to increased research and development investments and marketing expenditures associated with games and related value-added services.

 

Other Income/(Expenses)

 

Other income/(expenses) 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 in the second quarter of 2024 compared with net exchange gains recorded in the preceding quarter and the same quarter of 2023.

 

Income Tax

 

The Company recorded a net income tax charge of RMB1.3 billion (US$179.0 million) for the second quarter of 2024, compared with RMB1.5 billion and RMB712.1 million for the preceding quarter and the same quarter of 2023, respectively. The effective tax rate for the second quarter of 2024 was 16.0%, compared with 16.0% and 8.0% for the preceding quarter and the same quarter of 2023, 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 attributable to the Company’s shareholders totaled RMB6.8 billion (US$930.0 million) for the second quarter of 2024, compared with RMB7.6 billion and RMB8.2 billion for the preceding quarter and the same quarter of 2023, respectively.

 

NetEase reported basic net income of US$0.29 per share (US$1.45 per ADS) for the second quarter of 2024, compared with US$0.33 per share (US$1.64 per ADS) and US$0.35 per share (US$1.76 per ADS) for the preceding quarter and the same quarter of 2023, respectively.

 

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Non-GAAP net income attributable to the Company’s shareholders totaled RMB7.8 billion (US$1.1 billion) for the second quarter of 2024, compared with RMB8.5 billion and RMB9.0 billion for the preceding quarter and the same quarter of 2023, respectively.

 

NetEase reported non-GAAP basic net income of US$0.33 per share (US$1.67 per ADS) for the second quarter of 2024, compared with US$0.36 per share (US$1.82 per ADS) and US$0.39 per share (US$1.93 per ADS) for the preceding quarter and the same quarter of 2023, respectively.

 

Other Financial Information

 

As of June 30, 2024, the Company’s net cash (total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, minus short-term and long-term loans) totaled RMB116.1 billion (US$16.0 billion), compared with RMB110.9 billion as of December 31, 2023. Net cash provided by operating activities was RMB6.5 billion (US$898.8 million) for the second quarter of 2024, compared with RMB9.6 billion and RMB7.7 billion for the preceding quarter and the same quarter of 2023, respectively.

 

Quarterly Dividend

 

The board of directors has approved a dividend of US$0.0870 per share (US$0.4350 per ADS) for the second quarter of 2024 to holders of ordinary shares and holders of ADSs as of the close of business on September 6, 2024, Beijing/Hong Kong Time and New York 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 September 6, 2024 (Beijing/ Hong Kong Time). The payment date is expected to be September 17, 2024 for holders of ordinary shares and on or around September 20, 2024 for holders of ADSs.

 

NetEase paid a dividend of US$0.0990 per share (US$0.4950 per ADS) for the first quarter of 2024 in June 2024.

 

Under the Company’s current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company’s operations and earnings, cash flow, financial condition and other relevant factors.

 

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Share Repurchase Program

 

On November 17, 2022, the Company announced that its board of directors had approved a share repurchase program of up to US$5.0 billion of the Company’s ADSs and ordinary shares in open market transactions. This share repurchase program commenced on January 10, 2023 and will be in effect for a period not to exceed 36 months from such date. As of June 30, 2024, approximately 11.9 million ADSs had been repurchased under this program for a total cost of US$1.1 billion.

 

The extent to which NetEase repurchases its ADSs and its ordinary shares depends 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. The percentages stated are calculated based on RMB.

 

Conference Call

 

NetEase’s management team will host a teleconference call with a simultaneous webcast at 8:00 a.m. New York Time on Thursday, August 22, 2024 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, August 22, 2024). 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 1-914-202-3258 and providing conference ID: 10040836, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10040836. The replay will be available through August 29, 2024.

 

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.

 

NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, “NetEase”) is a leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the most popular and longest running mobile and PC games available in China and globally.

 

Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.

 

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Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), an intelligent learning company with industry-leading technology, and Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase’s private label consumer lifestyle brand.

 

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 expressions. 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 games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; 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; risks related to economic uncertainty and capital market disruption; risks related to the expansion of NetEase’s businesses and operations internationally; risks associated with cybersecurity threats or incidents; 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 applicable law.

 

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Non-GAAP Financial Measures

 

NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company’s shareholders and non-GAAP basic and diluted net income 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 attributable to the Company’s shareholders as net income attributable to the Company’s shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company’s shareholders enables NetEase’s management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that this non-GAAP financial measure 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 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 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 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 the 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.

 

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NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

   December 31,   June 30,   June 30, 
   2023   2024   2024 
   RMB   RMB   USD (Note 1) 
Assets               
Current assets:               
Cash and cash equivalents   21,428,902    18,982,239    2,612,043 
Time deposits   100,856,034    93,456,225    12,860,005 
Restricted cash   2,777,206    2,869,827    394,901 
Accounts receivable, net   6,422,417    6,364,847    875,832 
Inventories   695,374    574,441    79,046 
Prepayments and other current assets, net   6,076,595    5,487,749    755,139 
Short-term investments   4,436,057    10,417,802    1,433,537 
Total current assets   142,692,585    138,153,130    19,010,503 
                
Non-current assets:               
Property, equipment and software, net   8,075,044    8,092,032    1,113,501 
Land use rights, net   4,075,143    4,022,255    553,481 
Deferred tax assets   1,560,088    1,504,697    207,053 
Time deposits   1,050,000    3,940,000    542,162 
Restricted cash   550    3,250    447 
Other long-term assets   28,471,568    27,627,257    3,801,637 
Total non-current assets   43,232,393    45,189,491    6,218,281 
Total assets   185,924,978    183,342,621    25,228,784 
                
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity               
Current liabilities:               
Accounts payable   881,016    792,003    108,983 
Salary and welfare payables   4,857,206    3,606,360    496,252 
Taxes payable   2,571,534    2,381,220    327,667 
Short-term loans   19,240,163    13,187,247    1,814,626 
Contract liabilities   13,362,166    13,615,857    1,873,604 
Accrued liabilities and other payables   12,930,399    12,345,208    1,698,757 
Total current liabilities   53,842,484    45,927,895    6,319,889 
                
Non-current liabilities:               
Deferred tax liabilities   2,299,303    1,448,781    199,359 
Long-term loans   427,997    427,997    58,894 
Other long-term liabilities   1,271,113    1,192,543    164,099 
Total non-current liabilities   3,998,413    3,069,321    422,352 
Total liabilities   57,840,897    48,997,216    6,742,241 
                
Redeemable noncontrolling interests   115,759    119,498    16,443 
                
NetEase,Inc.’s shareholders’ equity   124,285,776    130,909,906    18,013,803 
Noncontrolling interests   3,682,546    3,316,001    456,297 
Total equity   127,968,322    134,225,907    18,470,100 
                
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   185,924,978    183,342,621    25,228,784 

 

The accompanying notes are an integral part of this announcement.

 

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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, 
   2023   2024   2024   2024   2023   2024   2024 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues   24,011,301    26,851,741    25,485,805    3,506,963    49,057,588    52,337,546    7,201,886 
Cost of revenues   (9,635,888)   (9,835,821)   (9,443,587)   (1,299,481)   (19,785,629)   (19,279,408)   (2,652,935)
Gross profit   14,375,413    17,015,920    16,042,218    2,207,482    29,271,959    33,058,138    4,548,951 
                                    
Operating expenses:                                   
Selling and marketing expenses   (3,271,705)   (4,022,204)   (3,501,737)   (481,855)   (6,176,751)   (7,523,941)   (1,035,329)
General and administrative expenses   (1,132,147)   (1,196,475)   (1,091,441)   (150,187)   (2,153,825)   (2,287,916)   (314,828)
Research and development expenses   (3,908,907)   (4,174,758)   (4,455,717)   (613,127)   (7,658,639)   (8,630,475)   (1,187,593)
Total operating expenses   (8,312,759)   (9,393,437)   (9,048,895)   (1,245,169)   (15,989,215)   (18,442,332)   (2,537,750)
Operating profit   6,062,654    7,622,483    6,993,323    962,313    13,282,744    14,615,806    2,011,201 
                                    
Other income/(expenses):                                   
Investment income, net   287,691    179,291    103,674    14,266    759,059    282,965    38,937 
Interest income, net   935,578    1,277,597    1,186,219    163,229    1,711,608    2,463,816    339,032 
Exchange gains/(losses), net   1,464,956    15,011    (239,375)   (32,939)   1,078,388    (224,364)   (30,874)
Other, net   120,826    193,888    85,694    11,792    378,859    279,582    38,472 
Income before tax   8,871,705    9,288,270    8,129,535    1,118,661    17,210,658    17,417,805    2,396,768 
Income tax   (712,090)   (1,485,910)   (1,300,939)   (179,015)   (2,340,649)   (2,786,849)   (383,483)
Net income   8,159,615    7,802,360    6,828,596    939,646    14,870,009    14,630,956    2,013,285 
                                    
Accretion of redeemable noncontrolling interests   (868)   (958)   (960)   (132)   (1,728)   (1,918)   (264)
Net loss/(income) attributable to noncontrolling interests and redeemable noncontrolling interests   84,020    (167,456)   (68,887)   (9,479)   129,120    (236,343)   (32,522)
Net income attributable to the Company’s shareholders   8,242,767    7,633,946    6,758,749    930,035    14,997,401    14,392,695    1,980,499 
                                    
Net income per share *                                   
Basic   2.56    2.38    2.10    0.29    4.66    4.48    0.62 
Diluted   2.54    2.35    2.08    0.29    4.61    4.43    0.61 
                                    
Net income per ADS *                                   
Basic   12.80    11.88    10.50    1.45    23.29    22.39    3.08 
Diluted   12.69    11.75    10.42    1.43    23.05    22.17    3.05 
                                    
Weighted average number of ordinary shares used in calculating net income per share *                                   
Basic   3,218,783    3,211,665    3,217,699    3,217,699    3,219,926    3,214,682    3,214,682 
Diluted   3,248,916    3,249,452    3,243,056    3,243,056    3,252,707    3,246,254    3,246,254 

 

* Each ADS represents five ordinary shares.

 

The accompanying notes are an integral part of this announcement.

 

11 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Three Months Ended   Six Months Ended 
   June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30, 
   2023   2024   2024   2024   2023   2024   2024 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Cash flows from operating activities:                                   
Net income   8,159,615    7,802,360    6,828,596    939,646    14,870,009    14,630,956    2,013,285 
Adjustments to reconcile net income to net cash provided by operating activities:                                   
Depreciation and amortization   661,363    567,923    631,957    86,960    1,743,632    1,199,880    165,109 
Fair value changes of equity security and other investments   (78,035)   (368,258)   (7,887)   (1,085)   (304,755)   (376,145)   (51,759)
Impairment losses on investments   47,870    128,417    210,741    28,999    47,870    339,158    46,670 
Fair value changes of short-term investments   (96,884)   (60,810)   (128,295)   (17,654)   (234,800)   (189,105)   (26,022)
Share-based compensation cost   787,862    894,300    1,079,056    148,482    1,610,275    1,973,356    271,543 
Allowance for expected credit losses   8,540    11,600    9,281    1,277    29,260    20,881    2,873 
Losses/(gains) on disposal of property, equipment and software   252    2,132    (326)   (45)   (358)   1,806    249 
Unrealized exchange (gains)/losses   (1,466,295)   (17,509)   (209,311)   (28,802)   (1,080,334)   (226,820)   (31,211)
Gains on disposal of long-term investments, business and subsidiaries   (16,382)   (13,487)   (141,114)   (19,418)   (22,150)   (154,601)   (21,274)
Deferred income taxes   (334,380)   485,054    (1,280,076)   (176,144)   243,286    (795,022)   (109,399)
Share of results on equity method investees   (129,292)   164,271    39,200    5,394    (225,100)   203,471    27,999 
Changes in operating assets and liabilities:                                   
Accounts receivable   770,551    (1,358,711)   1,410,478    194,088    (345,731)   51,767    7,123 
Inventories   69,410    91,378    29,552    4,067    186,740    120,930    16,641 
Prepayments and other assets   (7,233)   326,140    530,856    73,048    118,594    856,996    117,927 
Accounts payable   (115,791)   (7,001)   (126,862)   (17,457)   (728,730)   (133,863)   (18,420)
Salary and welfare payables   758,106    (2,178,608)   879,058    120,963    (1,467,631)   (1,299,550)   (178,824)
Taxes payable   (992,892)   1,271,822    (1,462,700)   (201,274)   (259,176)   (190,878)   (26,266)
Contract liabilities   (41,196)   1,574,086    (1,270,324)   (174,801)   448,795    303,762    41,799 
Accrued liabilities and other payables   (306,784)   242,070    (490,048)   (67,433)   (950,620)   (247,978)   (34,123)
Net cash provided by operating activities   7,678,405    9,557,169    6,531,832    898,811    13,679,076    16,089,001    2,213,920 
                                    
Cash flows from investing activities:                                   
Purchase of property, equipment and software   (520,544)   (415,018)   (168,880)   (23,239)   (1,173,483)   (583,898)   (80,347)
Proceeds from sale of property, equipment and software   4,292    3,506    660    91    6,796    4,166    573 
Purchase of intangible assets, content and licensed copyrights   (283,321)   (188,821)   (399,533)   (54,978)   (1,110,003)   (588,354)   (80,960)
Net changes of short-term investments with terms of three months or less   1,630,013    2,401,649    (8,194,289)   (1,127,572)   906,862    (5,792,640)   (797,094)
Proceeds from maturities of short-term investments with terms over three months   -    -    -    -    104,269    -    - 
Investment in long-term investments and acquisition of subsidiaries   (270,228)   (481,804)   (193,450)   (26,620)   (1,499,276)   (675,254)   (92,918)
Proceeds from disposal of long-term investments, businesses and subsidiaries   16,531    85,456    840,649    115,677    57,811    926,105    127,436 
Placement/rollover of matured time deposits   (10,874,831)   (34,558,836)   (61,775,606)   (8,500,606)   (47,194,934)   (96,334,442)   (13,256,060)
Proceeds from maturities of time deposits   21,918,791    46,048,382    55,211,839    7,597,402    44,251,140    101,260,221    13,933,870 
Change in other long-term assets   (31,189)   (34,625)   (172,543)   (23,743)   (152,030)   (207,168)   (28,507)
Net cash provided by/(used in)investing activities   11,589,514    12,859,889    (14,851,153)   (2,043,588)   (5,802,848)   (1,991,264)   (274,007)
                                    
Cash flows from financing activities:                                   
Net changes from loans with terms of three months or less   (14,970,935)   (399,726)   (2,085,053)   (286,913)   (12,332,895)   (2,484,779)   (341,917)
Proceeds of loans with terms over three months   2,171,541    6,998,250    1,069,020    147,102    3,451,100    8,067,270    1,110,093 
Payment of loans with terms over three months   (3,233,500)   (957,000)   (10,681,827)   (1,469,868)   (3,273,922)   (11,638,827)   (1,601,556)
Net amounts received related to capital contribution from noncontrolling interests shareholders   22,228    42,214    50,572    6,959    46,577    92,786    12,768 
Cash paid for repurchase of NetEase’s ADSs/purchase of subsidiaries’ ADSs and shares   (2,195,210)   (1,233,780)   (2,007,030)   (276,177)   (4,311,967)   (3,240,810)   (445,950)
Dividends paid to NetEase’s shareholders   (2,119,316)   (4,945,016)   (2,264,799)   (311,647)   (3,331,656)   (7,209,815)   (992,104)
Net cash used in financing activities   (20,325,192)   (495,058)   (15,919,117)   (2,190,544)   (19,752,763)   (16,414,175)   (2,258,666)
                                    
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies   (47,876)   (43,138)   8,234    1,133    (32,378)   (34,904)   (4,803)
Net (decrease)/increase in cash, cash equivalents and restricted cash   (1,105,149)   21,878,862    (24,230,204)   (3,334,188)   (11,908,913)   (2,351,342)   (323,556)
Cash, cash equivalents and restricted cash, at the beginning of the period   16,784,561    24,206,658    46,085,520    6,341,579    27,588,325    24,206,658    3,330,947 
Cash, cash equivalents and restricted cash, at end of the period   15,679,412    46,085,520    21,855,316    3,007,391    15,679,412    21,855,316    3,007,391 
                                    
Supplemental disclosures of cash flow information:                                   
Cash paid for income taxes, net   1,625,045    1,182,711    2,848,493    391,966    2,699,624    4,031,204    554,712 
Cash paid for interest expenses   326,646    146,455    152,943    21,046    602,360    299,398    41,199 

 

The accompanying notes are an integral part of this announcement.

 

12 

 

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

 

   Three Months Ended   Six Months Ended 
   June 30,   March 31,   June 30,   June 30,   June 30,   June 30,   June 30, 
   2023   2024   2024   2024   2023   2024   2024 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net revenues:                                   
Games and related value-added services   18,798,646    21,460,378    20,055,819    2,759,772    38,864,243    41,516,197    5,712,819 
Youdao   1,206,634    1,391,859    1,321,721    181,875    2,369,904    2,713,580    373,401 
Cloud Music   1,948,539    2,029,541    2,040,952    280,844    3,908,380    4,070,493    560,118 
Innovative businesses and others   2,057,482    1,969,963    2,067,313    284,472    3,915,061    4,037,276    555,548 
Total net revenues   24,011,301    26,851,741    25,485,805    3,506,963    49,057,588    52,337,546    7,201,886 
                                    
Cost of revenues:                                   
Games and related value-added services   (6,122,836)   (6,555,311)   (6,008,604)   (826,812)   (12,805,884)   (12,563,915)   (1,728,853)
Youdao   (639,459)   (710,356)   (684,942)   (94,251)   (1,200,879)   (1,395,298)   (191,999)
Cloud Music   (1,422,855)   (1,259,006)   (1,385,756)   (190,686)   (2,943,233)   (2,644,762)   (363,931)
Innovative businesses and others   (1,450,738)   (1,311,148)   (1,364,285)   (187,732)   (2,835,633)   (2,675,433)   (368,152)
Total cost of revenues   (9,635,888)   (9,835,821)   (9,443,587)   (1,299,481)   (19,785,629)   (19,279,408)   (2,652,935)
                                    
Gross profit:                                   
Games and related value-added services   12,675,810    14,905,067    14,047,215    1,932,960    26,058,359    28,952,282    3,983,966 
Youdao   567,175    681,503    636,779    87,624    1,169,025    1,318,282    181,402 
Cloud Music   525,684    770,535    655,196    90,158    965,147    1,425,731    196,187 
Innovative businesses and others   606,744    658,815    703,028    96,740    1,079,428    1,361,843    187,396 
Total gross profit   14,375,413    17,015,920    16,042,218    2,207,482    29,271,959    33,058,138    4,548,951 
                                    
Gross profit margin:                                   
Games and related value-added services   67.4%   69.5%   70.0%   70.0%   67.0%   69.7%   69.7%
Youdao   47.0%   49.0%   48.2%   48.2%   49.3%   48.6%   48.6%
Cloud Music   27.0%   38.0%   32.1%   32.1%   24.7%   35.0%   35.0%
Innovative businesses and others   29.5%   33.4%   34.0%   34.0%   27.6%   33.7%   33.7%

 

The accompanying notes are an integral part of this announcement.

 

13 

 

 

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 = RMB7.2672 on the last trading day of June 2024 (June 28, 2024) 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 28, 2024, or at any other certain date.

 

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, 
   2023   2024   2024   2024   2023   2024   2024 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Share-based compensation cost included in:                                   
Cost of revenues   193,001    254,935    319,949    44,026    396,515    574,884    79,107 
Operating expenses                                   
Selling and marketing expenses   31,069    17,869    42,865    5,898    63,422    60,734    8,357 
General and administrative expenses   281,326    289,636    286,350    39,403    575,607    575,986    79,258 
Research and development expenses   282,466    331,860    429,892    59,155    574,731    761,752    104,821 

 

The accompanying notes are an integral part of this announcement.

 

Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase’s listed subsidiary to meet the disclosure requirements under different accounting standards requirements.

 

Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (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, 
   2023   2024   2024   2024   2023   2024   2024 
   RMB   RMB   RMB   USD (Note 1)   RMB   RMB   USD (Note 1) 
Net income attributable to the Company’s shareholders   8,242,767    7,633,946    6,758,749    930,035    14,997,401    14,392,695    1,980,499 
Add: Share-based compensation   774,683    876,898    1,059,939    145,852    1,586,283    1,936,837    266,518 
Non-GAAP net income attributable to the Company’s shareholders   9,017,450    8,510,844    7,818,688    1,075,887    16,583,684    16,329,532    2,247,017 
                                    
Non-GAAP net income per share *                                   
Basic   2.80    2.65    2.43    0.33    5.15    5.08    0.70 
Diluted   2.78    2.62    2.41    0.33    5.10    5.03    0.69 
                                    
Non-GAAP net income per ADS *                                   
Basic   14.01    13.25    12.15    1.67    25.75    25.40    3.49 
Diluted   13.88    13.10    12.05    1.66    25.49    25.15    3.46 

 

* Each ADS represents five ordinary shares.

 

The accompanying notes are an integral part of this announcement.

 

Note 5: Reconciliation between U.S. GAAP and International Financial Reporting Standards

 

The unaudited condensed consolidated financial information is prepared in accordance with U.S. GAAP, which differ in certain respects from International Financial Reporting Standards (“IFRSs”). The effects of material differences between the unaudited condensed consolidated financial information prepared under U.S. GAAP and IFRSs (“Reconciliation Statement”) are as follows in RMB (in thousands).

 

14 

 

 

PricewaterhouseCoopers, the auditor of the Company in Hong Kong, has performed a limited assurance engagement on the Reconciliation Statement in accordance with International Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”.

 

Reconciliation of unaudited condensed consolidated statements of income (Extract):

 

       For the Six Months Ended June 30, 2023 IFRSs adjustments     
   Amounts as
reported under U.S.
   Investments measured at fair
value
   Redeemable
noncontrolling interests
   Amounts as
reported under
 
   GAAP   (Note (a))   (Note (b))   IFRSs 
Investment income, net   759,059    694,453    -    1,453,512 
Income before tax   17,210,658    694,453    -    17,905,111 
Income tax   (2,340,649)   15,289    -    (2,325,360)
Net income   14,870,009    709,742    -    15,579,751 
Accretion of redeemable noncontrolling interests   (1,728)   -    1,728    - 
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests   129,120    -    (3,879)   125,241 
Net income attributable to the Company’s shareholders   14,997,401    709,742    (2,151)   15,704,992 

 

       For the Six Months Ended June 30, 2024 IFRSs adjustments     
   Amounts as
reported under U.S.
   Investments measured at fair
value
   Redeemable
noncontrolling interests
   Amounts as
reported under
 
   GAAP   (Note (a))   (Note (b))   IFRSs 
Fair value changes of redeemable noncontrolling interests   -    -    (571)   (571)
Investment income, net   282,965    (108,548)   -    174,417 
Income before tax   17,417,805    (108,548)   (571)   17,308,686 
Income tax   (2,786,849)   7,127    -    (2,779,722)
Net income   14,630,956    (101,421)   (571)   14,528,964 
Accretion of redeemable noncontrolling interests   (1,918)   -    1,918    - 
Net income attributable to noncontrolling interests and redeemable noncontrolling interests   (236,343)   -    571    (235,772)
Net income attributable to the Company’s shareholders   14,392,695    (101,421)   1,918    14,293,192 

 

Reconciliation of unaudited condensed consolidated balance sheets (Extract):

 

       As of December 31, 2023 IFRSs adjustments     
   Amounts as
reported under U.S.
   Investments measured at fair
value
   Redeemable
noncontrolling interests
   Amounts as
reported under
 
   GAAP   (Note (a))   (Note (b))   IFRSs 
Other long-term assets   28,471,568    (15,673,947)   -    12,797,621 
Financial assets at fair value through profit or loss   -    18,369,496    -    18,369,496 
Total Assets   185,924,978    2,695,549    -    188,620,527 
Financial liabilities at fair value through profit or loss   -    -    37,961    37,961 
Deferred tax liabilities   2,299,303    29,886    -    2,329,189 
Total Liabilities   57,840,897    29,886    37,961    57,908,744 
Redeemable noncontrolling interests   115,759    -    (115,759)   - 
Total equity   127,968,322    2,665,663    77,798    130,711,783 
Total liabilities, redeemable noncontrolling interests and shareholders’ equity   185,924,978    2,695,549    -    188,620,527 

 

       As of June 30, 2024 IFRSs adjustments     
   Amounts as
reported under U.S.
   Investments measured at fair
value
   Redeemable
noncontrolling interests
   Amounts as
reported under
 
   GAAP   (Note (a))   (Note (b))   IFRSs 
Other long-term assets   27,627,257    (14,942,321)   -    12,684,936 
Financial assets at fair value through profit or loss   -    17,529,322    -    17,529,322 
Total Assets   183,342,621    2,587,001    -    185,929,622 
Financial liabilities at fair value through profit or loss   -    -    38,532    38,532 
Deferred tax liabilities   1,448,781    22,759    -    1,471,540 
Total Liabilities   48,997,216    22,759    38,532    49,058,507 
Redeemable noncontrolling interests   119,498    -    (119,498)   - 
Total equity   134,225,907    2,564,242    80,966    136,871,115 
Total liabilities, redeemable noncontrolling interests and shareholders' equity   183,342,621    2,587,001    -    185,929,622 

 

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Notes:

 

Basis of Preparation

 

The Company is responsible for preparation of the Reconciliation Statement in accordance with the relevant requirements of the Hong Kong Listing Rules and relevant guidance in HKEX-GL111-22. The Reconciliation Statement was prepared based on the Company’s unaudited condensed consolidated financial information for the six months ended June 30, 2024 prepared under U.S. GAAP, with material adjustments made (if any) thereto in arriving at the unaudited financial information of the Company prepared under IFRSs. The adjustments reflect the material differences between the Company’s accounting policies under U.S. GAAP and IFRSs.

 

Note a. Investments measured at fair value

 

Under U.S. GAAP, the investments in convertible redeemable preferred shares and ordinary shares with preferential rights that are issued by privately-held companies and therefore without readily determinable fair values could be accounted for using measurement alternative as an accounting policy choice. NetEase elected the measurement alternative to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes.

 

Under IFRSs, these investments were classified as financial assets at fair value through profit or loss and measured at fair value with changes in fair value recognized through profit or loss.

 

Note b. Redeemable noncontrolling interests

 

Under U.S. GAAP, SEC guidance provides for mezzanine-equity (temporary equity) category in addition to the financial liability and permanent equity categories. The purpose of this “in-between” category is to indicate that a security whose redemption is outside the control of the issuer may not be classified as a permanent part of equity. NetEase classified the redeemable preferred shares issued by certain subsidiaries as redeemable noncontrolling interests in the condensed consolidated balance sheets and recorded them initially at fair value, net of issuance costs. NetEase recognized accretion to the respective redemption value of the redeemable preferred shares over the period starting from issuance date to the earliest redemption date.

 

Under IFRSs, there is no concept of mezzanine or temporary equity classification. NetEase designated the redeemable preferred shares as financial liabilities at fair value through profit or loss which are measured at fair value. Subsequent to initial recognition, the amounts of changes in fair value that were attributed to changes in credit risk of the issuer were recognized in other comprehensive income, and the remaining amounts of changes in fair value were recognized in the profit or loss.

 

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