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Aug 18, 2022, 04:30 ET
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HANGZHOU, China, Aug. 18, 2022 /PRNewswire/ — NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), one of China’s leading internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2022.
Second Quarter 2022 Financial Highlights
– Games and related value-added services net revenues were RMB18.1 billion (US$2.7 billion), an increase of 15.0% compared with the second quarter of 2021.[1]
– Youdao net revenues were RMB956.2 million (US$142.8 million), a decrease of 26.1% compared with the second quarter of 2021.
– Cloud Music net revenues were RMB2.2 billion (US$327.2 million), an increase of 29.5% compared with the second quarter of 2021.
– Innovative businesses and others net revenues were RMB1.9 billion (US$279.4 million), an increase of 6.1% compared with the second quarter of 2021.[1]
[1] Effective as of the second quarter of 2022, the Company renamed its "online game services" segment as "games and related value-added services," and transferred certain business lines that are related or ancillary to its games from "innovative businesses and others" to "games and related value-added services." The Company retrospectively recast prior periods’ segment information to conform to the current period presentation. See "Change in Segment Reporting" in this announcement.
[2] 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 share and per ADS are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement.
Second Quarter 2022 and Recent Operational Highlights
"In the second quarter, we generated solid results with total net revenues of RMB23.2 billion, an increase of 12.8% year-over-year," said Mr. William Ding, CEO and Director of NetEase. "Players continued to gravitate to our longstanding games in the second quarter, highlighting our strength in game operations longevity. Moreover, the launch of Diablo® Immortal™ attracted the attention of gamers around the world, showcasing our exceptional mobile game development capabilities. With our strong in-house R&D team in China and our very own studios in Canada, Japan and the U.S., as well as plans for other regions in the future, we are spearheading the next generation of top-quality games for the global gaming community.
"Youdao and Cloud Music are also making key advancements that bolster their operations. With exciting gains across our business lines, we hope to make the NetEase brand synonymous with impressive technology, outstanding service and entertainment in its finest form," Mr. Ding concluded.
Second Quarter 2022 Financial Results
Net Revenues
Net revenues for the second quarter of 2022 were RMB23,159.1 million (US$3,457.6 million), compared with RMB23,555.8 million and RMB20,524.5 million for the preceding quarter and the second quarter of 2021, respectively.
Net revenues from games and related value-added services, which include both the operation of online games as well as other related or ancillary services to the games, were RMB18,139.8 million (US$2,708.2 million) for the second quarter of 2022, compared with RMB18,641.8 million and RMB15,774.8 million for the preceding quarter and the second quarter of 2021, respectively. Net revenues from the operation of online games, which is the primary component of this segment, accounted for approximately 92.8% of net revenues from games and related value-added services for the second quarter of 2022, compared with 92.7% and 92.1% for the preceding quarter and the second quarter of 2021, respectively. Net revenues from mobile games accounted for approximately 66.1% of net revenues from the operation of online games for the second quarter of 2022, compared with 66.9% and 72.1% for the preceding quarter and the second quarter of 2021, respectively.
Net revenues from Youdao were RMB956.2 million (US$142.8 million) for the second quarter of 2022, compared with RMB1,200.5 million and RMB1,293.4 million for the preceding quarter and the second quarter of 2021, respectively.
Net revenues from Cloud Music were RMB2,191.5 million (US$327.2 million) for the second quarter of 2022, compared with RMB2,067.2 million and RMB1,692.5 million for the preceding quarter and the second quarter of 2021, respectively.
Net revenues from innovative businesses and others were RMB1,871.5 million (US$279.4 million) for the second quarter of 2022, compared with RMB1,646.3 million and RMB1,763.8 million for the preceding quarter and the second quarter of 2021, respectively.
Gross Profit
Gross profit for the second quarter of 2022 was RMB12,941.5 million (US$1,932.1 million), compared with RMB12,836.4 million and RMB11,189.6 million for the preceding quarter and the second quarter of 2021, respectively.
The year-over-year increase in games and related value-added services gross profit was primarily due to increased net revenues from both mobile and PC games, including the newly launched Naraka: Bladepoint and Harry Potter: Magic Awakened which were released in the third quarter of 2021 and other existing games such as Fantasy Westward Journey Online.
The quarter-over-quarter decrease in Youdao gross profit primarily resulted from a decline in economic scale due to decreased learning services revenues in the second quarter of 2022. The year-over-year decrease was mainly due to the conclusion of its after-school tutoring services for academic subjects under China’s compulsory education system.
The quarter-over-quarter and year-over-year increases in Cloud Music gross profit were primarily due to increased net revenues from its membership subscriptions and social entertainment services, as well as improved cost control.
The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to increased gross profit contribution from Yanxuan and advertising services.
Gross Profit Margin
Gross profit margin for games and related value-added services for the second quarter of 2022 was 64.9%, compared with 62.2% and 63.2% for the preceding quarter and the second quarter of 2021, respectively. Gross profit margin for games and related value-added services is generally stable, fluctuating within a narrow band based on the revenue mix of NetEase’s mobile and PC games, self-developed, co-developed and licensed games, as well as the relative revenue contribution from different distribution channels.
Gross profit margin for Youdao for the second quarter of 2022 was 42.8%, compared with 53.1% and 52.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year decreases were primarily attributable to the factors enumerated above.
Gross profit margin for Cloud Music was 13.0% for the second quarter of 2022, compared with 12.2% and 4.1% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the factors enumerated above.
Gross profit margin for innovative businesses and others for the second quarter of 2022 was 25.8%, compared with 21.7% and 27.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to changes in the gross profit margin from advertising services.
Operating Expenses
Total operating expenses for the second quarter of 2022 were RMB7,995.2 million (US$1,193.6 million), compared with RMB7,329.3 million and RMB7,431.5 million for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to games and related value-added services, as well as higher staff-related costs and research and development investments.
Other Income/ (Expenses)
Other income/ (expenses) consisted of investment income/ (loss), interest income, exchange gains/ (losses) and others. The quarter-over-quarter increase was mainly due to net unrealized exchange gains arising from the Company’s U.S. dollar-denominated bank deposits and loans balances as the exchange rate of the U.S. dollar against the RMB fluctuated in the second quarter of 2022.
Income Taxes
The Company recorded a net income tax charge of RMB1,259.3 million (US$188.0 million) for the second quarter of 2022, compared with RMB1,219.3 million and RMB1,113.2 million for the preceding quarter and the second quarter of 2021, respectively. The effective tax rate for the second quarter of 2022 was 22.0%, compared with 22.0% and 24.3% for the preceding quarter and the second quarter of 2021, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.
Net Income and Non-GAAP Net Income
Net income from continuing operations attributable to the Company’s shareholders totaled RMB4,666.6 million (US$696.7 million) for the second quarter of 2022, compared with RMB4,394.0 million and RMB3,541.8 million for the preceding quarter and the second quarter of 2021, respectively. Net income from discontinued operations attributable to the Company’s shareholders totaled RMB624.9 million (US$93.3 million), which was related to the disposal of the Kaola business.
Non-GAAP net income from continuing operations attributable to the Company’s shareholders totaled RMB5,409.8 million (US$807.7 million) for the second quarter of 2022, compared with RMB5,117.6 million and RMB4,227.9 million for the preceding quarter and the second quarter of 2021, respectively.
NetEase reported basic net income from continuing operations of US$0.21 per share (US$1.07 per ADS) for the second quarter of 2022, compared with US$0.20 per share (US$1.00 per ADS) and US$0.16 per share (US$0.79 per ADS) for the preceding quarter and the second quarter of 2021, respectively.
NetEase reported non-GAAP basic net income from continuing operations of US$0.25 per share (US$1.23 per ADS) for the second quarter of 2022, compared with US$0.23 per share (US$1.17 per ADS) and US$0.19 per share (US$0.94 per ADS) for the preceding quarter and the second quarter of 2021, respectively.
Quarterly Dividend
The board of directors has approved a dividend of US$0.0720 per share (US$0.3600 per ADS) for the second quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on September 1, 2022, 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 1, 2022 (Beijing/ Hong Kong Time). The payment date is expected to be on September 13, 2022 for holders of ordinary shares and on or around September 16, 2022 for holders of ADSs.
NetEase paid a dividend of US$0.0644 per share (US$0.3220 per ADS) for the first quarter of 2022 in June 2022.
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.
Other Information
As of June 30, 2022, the Company’s 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 RMB87.7 billion (US$13.1 billion), compared with RMB85.6 billion as of December 31, 2021. Cash flow generated from operating activities was RMB6.6 billion (US$990.0 million) for the second quarter of 2022, compared with RMB4.6 billion and RMB4.7 billion for the preceding quarter and the second quarter of 2021, respectively.
Change in Segment Reporting
Effective as of the second quarter of 2022, the Company implemented certain changes to align its segment financial reporting more closely with the manner in which the Company’s management currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company renamed its "online game services" segment as "games and related value-added services," and transferred certain business lines that are related or ancillary to its games from "innovative businesses and others" to "games and related value-added services," including the NetEase CC live streaming service (a platform offering various live streaming content with a primary focus on game broadcasting) and other value-added services. The Company retrospectively recast prior periods’ segment information to conform to current period presentation. These changes had no impact on NetEase’s previously reported consolidated net revenues, net income or net income per share.
Share Repurchase/ Purchase Program
On February 25, 2021, the Company announced that its board of directors had approved a new share repurchase program of up to US$2.0 billion of the Company’s outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2, 2021. On August 31, 2021, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of June 30, 2022, approximately 23.6 million ADSs had been repurchased under this program for a total cost of US$2.3 billion.
On August 31, 2021, the Company announced that its board of directors had approved a share purchase program of up to US$50.0 million of Youdao’s outstanding ADSs for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange. As of June 30, 2022, approximately 1.7 million ADSs had been purchased under this program for a total cost of US$17.7 million.
The Company also purchased approximately 0.8 million ordinary shares of Cloud Music in open market transactions on the Hong Kong Stock Exchange for a total cost of US$8.3 million during the second quarter of 2022.
The extent to which NetEase repurchases its ADSs and its ordinary shares or purchases Youdao’s ADSs and Cloud Music’s ordinary shares will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB.
Conference Call
NetEase’s management team will host a teleconference call with simultaneous webcast at 8:00 a.m. New York Time on Thursday, August 18, 2022 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, August 18, 2022). 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 1-323-701-0160 and providing conference ID: 1239376, 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 1239376#. The replay will be available through August 31, 2022.
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") provides premium online services centered around content creation. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of China’s most popular and longest running mobile and PC games. Powered by industry-leading in-house R&D capabilities in China and globally, 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.
Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), China’s leading technology-focused intelligent learning company, and Cloud Music (HKEX: 9899), China’s leading online music content community, as well as Yanxuan, NetEase’s private label consumer lifestyle brand.
NetEase’s ESG initiatives are among the best in the global media and entertainment industry, earning it a distinction as one of the S&P Global Industry Movers and an "A" rating from MSCI. 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, including, among others, initiatives to enhance supervision of companies listed on an overseas stock exchange and tighten scrutiny over data privacy and data security, as well as the risk that NetEase’s ADSs could be barred from trading in the United States as a result of the Holding Foreign Companies Accountable Act and the rules promulgated thereunder; 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. 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: [email protected]
Tel: (+86) 571-8985-3378
Twitter: https://twitter.com/NetEase_Global
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
June 30,
June 30,
2021
2022
2022
RMB
RMB
USD (Note 1)
Assets
Current assets:
Cash and cash equivalents
14,498,157
16,461,908
2,457,698
Time deposits
70,754,846
84,916,751
12,677,737
Restricted cash
2,876,628
3,089,413
461,237
Accounts receivable, net
5,507,988
5,213,151
778,303
Inventories
964,733
843,767
125,971
Prepayments and other current assets, net
6,235,857
7,317,644
1,092,495
Short-term investments
12,281,548
10,166,531
1,517,823
Assets held for sale
497
–
–
Total current assets
113,120,254
128,009,165
19,111,264
Non-current assets:
Property, equipment and software, net
5,433,858
6,022,365
899,115
Land use right, net
4,108,090
4,156,674
620,575
Deferred tax assets
1,297,954
1,254,640
187,313
Time deposits
5,823,840
4,473,840
667,927
Restricted cash
1,330
1,129
169
Other long-term assets, net
23,857,510
24,261,773
3,622,187
Assets held for sale
1,088
–
–
Total non-current assets
40,523,670
40,170,421
5,997,286
Total assets
153,643,924
168,179,586
25,108,550
Liabilities, Redeemable Noncontrolling Interests
and Shareholders’ Equity
Current liabilities:
Accounts payable
985,059
942,070
140,647
Salary and welfare payables
4,133,254
3,211,330
479,439
Taxes payable
4,537,050
3,260,873
486,835
Short-term loans
19,352,313
28,027,125
4,184,340
Contract liabilities
12,132,743
12,316,763
1,838,844
Accrued liabilities and other payables
9,360,907
9,686,526
1,446,160
Total current liabilities
50,501,326
57,444,687
8,576,265
Non-current liabilities:
Deferred tax liabilities
1,345,874
1,448,250
216,218
Long-term loans
1,275,140
3,355,700
500,993
Other long-term payable
1,097,708
1,023,880
152,861
Total non-current liabilities
3,718,722
5,827,830
870,072
Total liabilities
54,220,048
63,272,517
9,446,337
Redeemable noncontrolling interests
145,238
142,579
21,286
NetEase, Inc.’s shareholders’ equity
95,328,080
100,830,817
15,053,645
Noncontrolling interests
3,950,558
3,933,673
587,282
Total shareholders’ equity
99,278,638
104,764,490
15,640,927
Total liabilities, redeemable noncontrolling
interests and shareholders’ equity
153,643,924
168,179,586
25,108,550
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data or per ADS data)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
June 30,
June 30,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues
20,524,501
23,555,842
23,159,078
3,457,559
41,041,712
46,714,920
6,974,354
Cost of revenues
(9,334,887)
(10,719,463)
(10,217,587)
(1,525,446)
(18,799,459)
(20,937,050)
(3,125,819)
Gross profit
11,189,614
12,836,379
12,941,491
1,932,113
22,242,253
25,777,870
3,848,535
Operating expenses:
Selling and marketing expenses
(3,013,447)
(2,915,489)
(3,300,705)
(492,782)
(5,780,129)
(6,216,194)
(928,053)
General and administrative expenses
(1,011,183)
(1,015,769)
(1,112,755)
(166,130)
(1,961,377)
(2,128,524)
(317,780)
Research and development expenses
(3,406,859)
(3,398,082)
(3,581,700)
(534,734)
(6,467,048)
(6,979,782)
(1,042,054)
Total operating expenses
(7,431,489)
(7,329,340)
(7,995,160)
(1,193,646)
(14,208,554)
(15,324,500)
(2,287,887)
Operating profit
3,758,125
5,507,039
4,946,331
738,467
8,033,699
10,453,370
1,560,648
Other income/ (expenses):
Investment income/ (loss), net
889,392
(548,702)
(707,489)
(105,625)
1,584,690
(1,256,191)
(187,544)
Interest income, net
386,207
458,244
505,991
75,542
775,135
964,235
143,956
Exchange (losses)/gains, net
(591,720)
(97,880)
865,283
129,183
(312,401)
767,403
114,570
Other, net
147,588
216,330
121,175
18,091
295,555
337,505
50,388
Income before tax
4,589,592
5,535,031
5,731,291
855,658
10,376,678
11,266,322
1,682,018
Income tax
(1,113,228)
(1,219,271)
(1,259,320)
(188,012)
(2,386,636)
(2,478,591)
(370,044)
Net income from continuing operations
3,476,364
4,315,760
4,471,971
667,646
7,990,042
8,787,731
1,311,974
Net income from discontinued operations
–
–
624,864
93,290
–
624,864
93,290
Net income
3,476,364
4,315,760
5,096,835
760,936
7,990,042
9,412,595
1,405,264
Accretion of redeemable noncontrolling
interests
(145,415)
(733)
(754)
(113)
(289,242)
(1,487)
(222)
Net loss attributable to noncontrolling
interests
210,805
78,996
195,395
29,172
280,106
274,391
40,965
Net income attributable to the
Company’s shareholders
3,541,754
4,394,023
5,291,476
789,995
7,980,906
9,685,499
1,446,007
Including:
-Net income from continuing operations
attributable to the Company’s shareholders
3,541,754
4,394,023
4,666,612
696,705
7,980,906
9,060,635
1,352,717
-Net income from discontinued operations
attributable to the Company’s shareholders
–
–
624,864
93,290
–
624,864
93,290
Basic net income per share *
1.06
1.34
1.62
0.24
2.38
2.96
0.44
-Continuing operations
1.06
1.34
1.43
0.21
2.38
2.77
0.41
-Discontinued operations
–
–
0.19
0.03
–
0.19
0.03
Basic net income per ADS *
5.29
6.70
8.08
1.21
11.92
14.78
2.21
-Continuing operations
5.29
6.70
7.13
1.07
11.92
13.83
2.07
-Discontinued operations
–
–
0.95
0.14
–
0.95
0.14
Diluted net income per share *
1.05
1.33
1.60
0.24
2.35
2.93
0.44
-Continuing operations
1.05
1.33
1.41
0.21
2.35
2.74
0.41
-Discontinued operations
–
–
0.19
0.03
–
0.19
0.03
Diluted net income per ADS *
5.23
6.63
8.00
1.19
11.76
14.63
2.18
-Continuing operations
5.23
6.63
7.05
1.05
11.76
13.69
2.04
-Discontinued operations
–
–
0.95
0.14
–
0.94
0.14
Weighted average number of ordinary
shares used in calculating net income
per share *
Basic
3,347,507
3,277,280
3,274,695
3,274,695
3,348,567
3,275,980
3,275,980
Diluted
3,385,953
3,316,129
3,305,504
3,305,504
3,392,961
3,310,809
3,310,809
* Each ADS represents five ordinary shares.
The accompanying notes are an integral part of this announcement.
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,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from operating activities:
Net income
3,476,364
4,315,760
5,096,835
760,936
7,990,042
9,412,595
1,405,264
Net income from discontinued operations
–
–
(624,864)
(93,290)
–
(624,864)
(93,290)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
814,370
766,180
609,036
90,927
1,634,200
1,375,216
205,314
Fair value changes of equity security investments
(203,720)
1,541,002
735,159
109,756
(681,317)
2,276,161
339,822
Impairment losses of investments and other long-term assets
4,797
5,000
243,085
36,292
4,797
248,085
37,038
Fair value changes of short-term investments
(170,676)
(79,776)
(119,882)
(17,898)
(288,680)
(199,658)
(29,808)
Share-based compensation cost
700,114
746,154
764,447
114,129
1,350,367
1,510,601
225,527
Allowance for/ (reversal of) expected credit losses
27,384
(313)
10,965
1,637
40,988
10,652
1,590
Losses on disposal of property, equipment and software
1,424
1,445
481
72
1,265
1,926
288
Unrealized exchange losses/(gains)
572,708
98,034
(890,066)
(132,883)
298,661
(792,032)
(118,247)
Gains on disposal of long-term investments, business and
subsidiaries
(166,505)
(4,000)
–
–
(173,828)
(4,000)
(597)
Deferred income taxes
202,894
315,228
(169,539)
(25,312)
530,969
145,689
21,751
Share of results on equity method investees and revaluation
results from previously held equity interest
(342,760)
(911,498)
(134,569)
(20,091)
(394,652)
(1,046,067)
(156,174)
Changes in operating assets and liabilities:
Accounts receivable
573,111
212,075
82,282
12,284
88,768
294,357
43,946
Inventories
(9,608)
103,591
17,791
2,656
(263,103)
121,382
18,122
Prepayments and other assets
593,379
(569,843)
(163,612)
(24,426)
(191,845)
(733,455)
(109,502)
Accounts payable
(178,097)
(92,373)
48,452
7,234
(238,751)
(43,921)
(6,557)
Salary and welfare payables
856,775
(1,756,224)
782,789
116,867
(369,380)
(973,435)
(145,330)
Taxes payable
(1,397,390)
73,446
(538,234)
(80,355)
161,228
(464,788)
(69,391)
Contract liabilities
(381,446)
(78,200)
279,669
41,754
359,492
201,469
30,078
Accrued liabilities and other payables
(250,312)
(103,136)
600,934
89,717
406,252
497,798
74,319
Net cash provided by operating activities
4,722,806
4,582,552
6,631,159
990,006
10,265,473
11,213,711
1,674,163
Cash flows from investing activities:
Purchase of property, equipment and software
(421,872)
(749,361)
(445,054)
(66,445)
(751,618)
(1,194,415)
(178,321)
Proceeds from sale of property, equipment and software
2,458
12,565
23,338
3,484
3,977
35,903
5,360
Purchase of intangible assets, content and licensed copyrights
(566,736)
(143,836)
(85,121)
(12,708)
(992,869)
(228,957)
(34,182)
Net change in short-term investments with terms of three
months or less
1,668,673
1,710,845
(159,173)
(23,764)
5,001,283
1,551,672
231,659
Purchase of short-term investments with terms over three
months
(2,450,000)
(1,250,000)
–
–
(10,355,000)
(1,250,000)
(186,620)
Proceeds from maturities of short-term investments with terms
over three months
813,211
553,831
1,459,172
217,849
3,670,552
2,013,003
300,533
Investment in long-term investments and acquisition of
subsidiaries
(3,376,973)
(1,690,271)
(899,968)
(134,362)
(3,935,414)
(2,590,239)
(386,713)
Proceeds from disposal of long-term investments, businesses
and subsidiaries
266,284
34,237
6,413
957
465,184
40,650
6,069
Placement/rollover of matured time deposits
(27,223,584)
(24,045,997)
(33,122,029)
(4,944,989)
(42,946,333)
(57,168,026)
(8,534,962)
Proceeds from maturities of time deposits
25,790,186
14,699,795
32,100,141
4,792,425
37,271,321
46,799,936
6,987,046
Change in other long-term assets
(44,877)
(169,545)
(60,900)
(9,092)
(99,530)
(230,445)
(34,405)
Net cash used in investing activities
(5,543,230)
(11,037,737)
(1,183,181)
(176,645)
(12,668,447)
(12,220,918)
(1,824,536)
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
June 30,
June 30,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from financing activities:
Net changes in bank loans with terms of three months or less
4,978,642
3,403,195
2,721,487
406,307
7,100,683
6,124,682
914,391
Proceed of bank loans with terms over three months
1,320,614
1,915,210
1,641,708
245,101
1,557,530
3,556,918
531,034
Payment of bank loans with terms over three months
(582,328)
–
(32,273)
(4,818)
(750,028)
(32,273)
(4,818)
Amounts paid for NetEase’s issuance of shares in Hong Kong
–
–
–
–
(13,800)
–
–
Net Amounts received/ (paid) related to capital contribution from
or repurchase of noncontrolling interests and redeemable
noncontrolling interests shareholders
8,176
(102,042)
33,200
4,957
1,515,225
(68,842)
(10,278)
Cash paid for repurchase of NetEase’s ADSs/ purchase of
subsidiaries’ ADSs and shares
(2,468,969)
(1,243,917)
(2,119,613)
(316,450)
(4,487,436)
(3,363,530)
(502,162)
Dividends paid to NetEase’s shareholders
(1,278,879)
(1,683,472)
(1,403,637)
(209,557)
(1,539,721)
(3,087,109)
(460,893)
Net cash provided by financing activities
1,977,256
2,288,974
840,872
125,540
3,382,453
3,129,846
467,274
Effect of exchange rate changes on cash, cash equivalents and
restricted cash held in foreign currencies
(25,112)
(21,202)
74,898
11,182
10,881
53,696
8,017
Net increase/ (decrease) in cash, cash equivalents and restricted cash
1,131,720
(4,187,413)
6,363,748
950,083
990,360
2,176,335
324,918
Cash, cash equivalents and restricted cash, at the beginning
of the period
12,027,245
17,376,115
13,188,702
1,969,021
12,168,605
17,376,115
2,594,186
Cash, cash equivalents and restricted cash, at end of the period
13,158,965
13,188,702
19,552,450
2,919,104
13,158,965
19,552,450
2,919,104
Supplemental disclosures of cash flow information:
Cash paid for income tax, net
1,240,692
1,515,330
1,055,096
157,522
1,790,883
2,570,426
383,754
Cash paid for interest expense
48,082
37,741
93,079
13,896
91,984
130,820
19,531
The accompanying notes are an integral part of this announcement.
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,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues:
Games and related value-added services
15,774,818
18,641,814
18,139,843
2,708,207
31,881,629
36,781,657
5,491,357
Youdao
1,293,407
1,200,541
956,225
142,761
2,633,274
2,156,766
321,997
Cloud Music
1,692,507
2,067,206
2,191,510
327,184
3,183,674
4,258,716
635,810
Innovative businesses and others
1,763,769
1,646,281
1,871,500
279,407
3,343,135
3,517,781
525,190
Total net revenues
20,524,501
23,555,842
23,159,078
3,457,559
41,041,712
46,714,920
6,974,354
Cost of revenues:
Games and related value-added services
(5,813,002)
(7,052,050)
(6,375,598)
(951,852)
(12,026,054)
(13,427,648)
(2,004,695)
Youdao
(616,661)
(562,691)
(546,498)
(81,590)
(1,189,076)
(1,109,189)
(165,598)
Cloud Music
(1,623,327)
(1,815,649)
(1,905,954)
(284,551)
(3,161,053)
(3,721,603)
(555,621)
Innovative businesses and others
(1,281,897)
(1,289,073)
(1,389,537)
(207,453)
(2,423,276)
(2,678,610)
(399,905)
Total cost of revenues
(9,334,887)
(10,719,463)
(10,217,587)
(1,525,446)
(18,799,459)
(20,937,050)
(3,125,819)
Gross profit:
Games and related value-added services
9,961,816
11,589,764
11,764,245
1,756,355
19,855,575
23,354,009
3,486,662
Youdao
676,746
637,850
409,727
61,171
1,444,198
1,047,577
156,399
Cloud Music
69,180
251,557
285,556
42,633
22,621
537,113
80,189
Innovative businesses and others
481,872
357,208
481,963
71,954
919,859
839,171
125,285
Total gross profit
11,189,614
12,836,379
12,941,491
1,932,113
22,242,253
25,777,870
3,848,535
Gross profit margin:
Games and related value-added services
63.2 %
62.2 %
64.9 %
64.9 %
62.3 %
63.5 %
63.5 %
Youdao
52.3 %
53.1 %
42.8 %
42.8 %
54.8 %
48.6 %
48.6 %
Cloud Music
4.1 %
12.2 %
13.0 %
13.0 %
0.7 %
12.6 %
12.6 %
Innovative businesses and others
27.3 %
21.7 %
25.8 %
25.8 %
27.5 %
23.9 %
23.9 %
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 = RMB6.6981 on the last trading day of June 2022 (June 30, 2022) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2022, 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,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Share-based compensation cost included in:
Cost of revenues
197,370
198,135
173,840
25,954
385,296
371,975
55,534
Operating expenses
Selling and marketing expenses
26,434
30,373
31,817
4,750
50,665
62,190
9,285
General and administrative expenses
258,544
279,062
297,891
44,474
488,147
576,953
86,137
Research and development expenses
217,766
238,584
260,899
38,951
426,259
499,483
74,571
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 subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirement.
Note 4: The unaudited reconciliation on 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,
2021
2022
2022
2022
2021
2022
2022
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net income from continuing operations attributable to
the Company’s shareholders
3,541,754
4,394,023
4,666,612
696,705
7,980,906
9,060,635
1,352,717
Add: Share-based compensation
686,111
723,603
743,198
110,957
1,327,645
1,466,801
218,988
Non-GAAP net income from continuing operations
attributable to the Company’s shareholders
4,227,865
5,117,626
5,409,810
807,662
9,308,551
10,527,436
1,571,705
Non-GAAP basic net income from continuing
operations per share *
1.26
1.56
1.65
0.25
2.78
3.21
0.48
Non-GAAP basic net income from continuing
operations per ADS *
6.31
7.81
8.26
1.23
13.90
16.07
2.40
Non-GAAP diluted net income from continuing
operations per share *
1.25
1.54
1.64
0.24
2.74
3.18
0.47
Non-GAAP diluted net income from continuing
operations per ADS *
6.24
7.72
8.18
1.22
13.72
15.90
2.37
* Each ADS represents five ordinary shares.
The accompanying notes are an integral part of this announcement.
SOURCE NetEase, Inc.
Cision Distribution 888-776-0942
from 8 AM – 9 PM ET