NetEase Reports Second Quarter 2015 Unaudited Financial Results

Aug 12, 2015, 18:00 ET from NetEase, Inc.

BEIJING, Aug. 12, 2015 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2015.

"The strong second quarter 2015 results reflect our recent successes on both PC and mobile platforms," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Each of our three business segments achieved healthy revenue gains sequentially and year-over-year, led by a 64.8% increase in online games revenues, a 22.8% increase in advertising services revenues, and a 123.3% increase in e-mail, e-commerce and others revenues, compared with the same quarter in 2014."

"Mobile games are driving additional growth both for our company and China's online games industry as a whole. With more than 30 high quality mobile games in our portfolio, we have offerings that appeal to a wide audience, and we intend to continue to build on this success. Our Fantasy Westward Journey mobile game reached a record peak concurrent user level of more than 2.0 million in May and has been ranked as the top grossing app in the iOS China app store since its launch in March of this year. It also became the only mobile game in China with its own customized download page in the iOS app store in July. For our PC-client games, we were very pleased with the favorable feedback for Revelation, our 3D oriental fantasy MMORPG, and our 2.5D MMORPG Demon Seals, which was launched in the second quarter. Other new releases in the second quarter included expansion packs for New Westward Journey Online II and Ghost II. During the second quarter, we also conducted further beta testing for our 3D warfare MMORPG, Hegemon-King of Western Chu."

"Our licensed games also fared well in the second quarter. We were very excited to launch open beta testing for Blizzard Entertainment's Diablo III®: Reaper of Souls in China in April, through the joint effort of Blizzard and NetEase and with the incredible support of passionate Chinese players. Additionally, the April launch of the mobile phone version of Blizzard Entertainment's Hearthstone®: Heroes of Warcrafthelped drive that game's number of active users to a new high. Lastly, Heroes of the Storm, Blizzard's brand-new free-to-play online team brawler, began open beta testing in late May followed by the game's official launch in early June, which had a promising performance. We continue to work closely with Blizzard to introduce exciting new content to China and are thrilled to have licensed Overwatch, Blizzard's first-ever first-person shooter game."

"Our strong research and development program has produced a diverse pipeline of PC-client and mobile games. In July, we released a new expansion pack for our popular title Tianxia III and are targeting a number of new expansion packs later in the third quarter for our self-developed games, including Fantasy Westward Journey II. Our mobile portfolio is also expanding with the release of several new titles in July, including Fairy Tales: The World of the Brave, a licensed cartoon-style side-scrolling mobile game, which was well received by our users. In the coming months, we plan to release more mobile games based on our acclaimed self-developed franchises, including the Westward Journey Online mobile game, The X-World, an action-packed mobile ARPG game from the Tianxia universe, and Fantasy Westward Journey: Warriors, an exciting mobile action adventure game."

"In addition, our strategy to expand our reach to international markets is underway, and we are making early stage progress. We plan to use a number of channels to reach a broad market, including independent sales, cross-country partnerships and licensing. We expect to launch Speedy Ninja, our first mobile game title in North America, in late August, and have already licensed several of our mobile games in the Southeast Asia market."

"Our advertising services business continued to perform well in the second quarter, driven by overall market demand and monetization efforts for our Mobile News App. The top performing advertising verticals in the second quarter were the automobile, Internet services, and food and beverage sectors. Furthermore, our cross-border e-commerce platform, Kaola.com, experienced rapid growth in the second quarter and continues to gain user traction."

"Our ability to grow with the mobile market and adapt our technology and creative resources to meet that demand supports our strategy to expand and diversify our portfolio. We will continue to focus on creating innovative new games, enhancing the synergy between PC-client and mobile games and expanding our loyal user base. Our goal is to achieve balanced growth in all of our businesses by delivering the highest quality products and services," Mr. Ding concluded.

Second Quarter 2015 Financial Results

Revenues

Total revenues for the second quarter of 2015 were RMB4,833.1 million (US$779.5 million), compared to RMB3,885.2 million and RMB2,951.9 million for the preceding quarter and the second quarter of 2014, respectively.

Revenues from online games were RMB3,849.9 million (US$621.0 million) for the second quarter of 2015, compared to RMB3,104.2 million and RMB2,336.5 million for the preceding quarter and the second quarter of 2014, respectively.

Revenues from advertising services were RMB477.7 million (US$77.0 million) for the second quarter of 2015, compared to RMB332.6 million and RMB389.1 million for the preceding quarter and the second quarter of 2014, respectively.

Revenues from e-mail, e-commerce and others were RMB505.5 million (US$81.5 million) for the second quarter of 2015, compared to RMB448.4 million and RMB226.3 million for the preceding quarter and the second quarter of 2014, respectively.

Sales Taxes

Total sales taxes for the second quarter of 2015 were RMB265.2 million (US$42.8 million), compared to RMB225.0 million and RMB184.4 million for the preceding quarter and the second quarter of 2014, respectively. The year-over-year and quarter-over-quarter increases in sales taxes were mainly due to the increases in NetEase's total revenues.

Gross Profit

Gross profit for the second quarter of 2015 was RMB2,845.6 million (US$459.0 million), compared to RMB2,489.1 million and RMB1,999.7 million for the preceding quarter and the second quarter of 2014, respectively.

The year-over-year and quarter-over-quarter increases in online games gross profit were primarily driven by revenue contribution from mobile games such as the Fantasy Westward Journey mobile game, and licensed games such as Blizzard Entertainment's Diablo III®, Hearthstone®: Heroes of Warcraft and Heroes of the Storm, as well as NetEase's new self-developed PC-client games such as Revelation and Demon Seals.

The year-over-year increase in advertising services gross profit was primarily attributable to strong demand from the automobile, Internet services and food and beverage sectors, and NetEase's monetization efforts for its mobile applications, primarily its Mobile News App. The quarter-over-quarter increase in advertising services revenues and gross profit was primarily due to seasonality.

The year-over-year and quarter-over-quarter decreases in e-mail, e-commerce and others gross profit were primarily due to the temporary suspension of e-commerce services related to third-party lottery products since late February 2015, which was partially offset by increased revenue contribution from NetEase's cross-border e-commerce platform Kaola.com and e-mail services, which have relatively lower gross profit margins.

Gross Profit Margin

Gross profit margin for the online games business for the second quarter of 2015 was 69.3%, compared to 73.1% and 77.6% for the preceding quarter and the second quarter of 2014, respectively. The year-over-year and quarter-over-quarter decreases in gross profit margin were mainly due to increased revenue contribution from mobile games, which have relatively lower gross profit margins, as a percentage of NetEase's total online games revenues. 

Gross profit margin for the advertising services business for the second quarter of 2015 was 68.2%, compared to 59.2% and 60.9% for the preceding quarter and the second quarter of 2014, respectively. The year-over-year and quarter-over-quarter increases in gross profit margin were mainly due to enhanced economies of scale driven by revenue growth.

Gross profit margin for the e-mail, e-commerce and others business for the second quarter of 2015 was 4.2%, compared to 38.9% and 35.7% for the preceding quarter and the second quarter of 2014, respectively. The year-over-year and quarter-over-quarter decreases in gross profit margin were primarily attributable to the temporary suspension of e-commerce services related to third-party lottery products discussed above, as well as increased revenue contribution from Kaola.com and e-mail services, which have relatively lower gross profit margins.

Operating Expenses

Total operating expenses for the second quarter of 2015 were RMB1,395.2 million (US$225.0 million), compared to RMB1,173.5 million and RMB823.7 million for the preceding quarter and the second quarter of 2014, respectively. The year-over-year increase in operating expenses was mainly due to increased selling and marketing expenses for mobile and PC-client games, and increased staff-related research and development costs resulting from an increase in the number of employees and share-based compensation. The quarter-over-quarter increase in operating expenses was mainly due to increased promotional costs for online games, which was partially offset by decreased promotional costs for the e-mail, e-commerce and others business.

Income Taxes

The Company recorded a net income tax charge of RMB145.9 million (US$23.5 million) for the second quarter of 2015, compared to RMB214.5 million and RMB97.9 million for the preceding quarter and the second quarter of 2014, respectively. The effective tax rate for the second quarter of 2015 was 9.2%, compared to 14.1% and 7.4% for the preceding quarter and the second quarter of 2014, respectively. The quarter-over-quarter decrease in the effective tax rate was mainly due to the fact that the Company recognized certain tax credits in the second quarter of 2015 related to annual tax filing benefits, most of which comprised extra tax deductions for research and development expenses approved by the tax authorities.

Net Income After Tax

Net income attributable to the Company's shareholders for the second quarter of 2015 totaled RMB1.4 billion (US$229.7 million), compared to RMB1.3 billion and RMB1.2 billion for the preceding quarter and the second quarter of 2014, respectively. Non-GAAP net income attributable to the Company's shareholders[1] for the second quarter of 2015 totaled RMB1.6 billion (US$256.4 million), compared to RMB1.4 billion and RMB1.3 billion for the preceding quarter and the second quarter of 2014, respectively.

During the second quarter of 2015, the Company had a net foreign exchange loss of RMB21.7 million (US$3.5 million), compared to a net foreign exchange gain of RMB22.7 million and a net foreign exchange loss of RMB20.2 million for the preceding quarter and the second quarter of 2014, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains/(losses) were mainly due to unrealized exchange gains/(losses) arising from the Company's foreign currency-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.

NetEase reported basic and diluted earnings per ADS of US$1.75 and US$1.74, respectively, for the second quarter of 2015. The Company reported basic and diluted earnings per ADS of US$1.56 and US$1.55, respectively, for the preceding quarter, and basic and diluted earnings per ADS of US$1.48 each for the second quarter of 2014. Non-GAAP basic and diluted earnings per ADS were US$1.95 and US$1.94, respectively, for the second quarter of 2015, compared to non-GAAP basic and diluted earnings per ADS of US$1.75 and US$1.74, respectively, in the preceding quarter, and US$1.57 each for the second quarter of 2014.

[1]

As used in this press release, non-GAAP net income attributable to the Company's shareholders is defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

Quarterly Dividend

Under the Company's quarterly dividend policy announced on May 13, 2014, quarterly dividends will be set at an amount equivalent to approximately 25% of the Company's anticipated net income after tax in each fiscal quarter.

NetEase paid a dividend of US$0.39 per ADS for the first quarter of 2015 on June 5, 2015.

The board of directors has approved a dividend of US$0.44 per ADS for the second quarter of 2015, which is expected to be paid on September 4, 2015 to shareholders of record as of the close of business on August 28, 2015. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.

Other Information

As of June 30, 2015, the Company's total cash and current and non-current time deposits balance was RMB20.7 billion (US$3.3 billion), compared to RMB21.2 billion as of December 31, 2014. Cash flow generated from operating activities was RMB835.9 million (US$134.8 million) for the second quarter of 2015, compared to RMB1.9 billion and RMB1.2 billion for the preceding quarter and the second quarter of 2014, respectively.

Beginning in the first quarter of 2015, NetEase made a reclassification of certain revenue and cost of revenue items from its advertising services segment to its e-mail, e-commerce and others segment. The segments reclassification reflects changes in the way the Company evaluates its business performance and manages its operations. Certain prior period amounts have been reclassified to conform to the current period presentation.

** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.2000 on June 30, 2015 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2015, 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 9:00 p.m. Eastern Time on Wednesday, August 12, 2015 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, August 13, 2015). 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 1-888-364-3109 (international: 1-719-325-2376), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-888-203-1112 (international: 1-719-457-0820), and entering passcode 5672075#. The replay will be available through August 26, 2015.

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) is a leading Internet technology company in China. Dedicated to providing online services centered around content, community, communication and commerce, NetEase develops and operates some of China's most popular PC-client and mobile games, advertising services, e-mail services and e-commerce platforms. In partnership with Blizzard Entertainment, NetEase also operates some of the most popular international online games in China. For more information, please visit: http://ir.netease.com/.

Forward Looking Statements

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the ability of NetEase to successfully expand its mobile Internet offerings; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that Shanghai EaseNet will not be able to continue operating World of Warcraft®, StarCraft® II, Hearthstone®:Heroes of Warcraft, Diablo III®: Reaper of Souls, Heroes of the Storm , Overwatch or other games licensed by it for a period of time or permanently due to possible governmental actions or the risk that such games will not be popular with game players in China; the risk that changes in Chinese government regulation of the online game market and the market for NetEase's e-commerce services may limit future growth of NetEase's revenues or cause revenues to decline; competition in the online advertising business and the risk that investments by NetEase in its content and services may not increase the appeal of the NetEase websites among Internet users or result in increased advertising revenues; the risk that NetEase may not be able to continuously develop new and creative online services, including its ability to maintain and enhance the popularity of its e-mail, mobile and e-commerce services and develop attractive mobile games; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments and general competition and price pressures in the marketplace); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

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 earnings per ADS, 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, 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 future 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 that affect our operations. Share-based compensation expenses have been and may continue to be incurred in our 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 we use 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 "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.

Contact for Media and Investors:

Cassia Curran
NetEase, Inc.
cassia@corp.netease.com
Tel: (+86) 571-8985-2076

Brandi Piacente
Investor Relations
brandi@corp.netease.com
Tel: (+1) 212-481-2050

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS





(RMB and USD in thousands)









 December 31, 


 June 30, 


 June 30, 



2014


2015


2015



 RMB  


 RMB  


 USD (Note 1) 

Assets














Current assets:







   Cash and cash equivalents


2,021,453


5,389,872


869,334

   Time deposits


18,496,574


15,065,806


2,429,969

   Restricted cash


2,628,847


3,219,784


519,320

   Accounts receivable, net


873,137


1,774,275


286,173

   Prepayments and other current assets


1,451,919


3,101,900


500,306

   Short-term investments


2,058,552


2,450,798


395,290

   Deferred tax assets


202,040


295,005


47,581

Total current assets


27,732,522


31,297,440


5,047,973








Non-current assets:







   Property, equipment and software, net 


1,281,225


1,636,218


263,906

   Land use right, net


77,648


79,372


12,802

   Deferred tax assets 


21,160


25,077


4,045

   Time deposits


673,000


280,000


45,161

   Other long-term assets


569,116


1,683,621


271,552

Total non-current assets


2,622,149


3,704,288


597,466

Total assets 


30,354,671


35,001,728


5,645,439








Liabilities, Mezzanine Classified Noncontrolling Interests
    and Shareholders' Equity














Current liabilities:







   Accounts payable 


410,722


366,466


59,107

   Salary and welfare payables


534,565


562,973


90,802

   Taxes payable


334,290


491,282


79,239

   Short-term loan


2,049,865


2,139,760


345,123

   Deferred revenue


1,967,780


3,808,656


614,299

   Accrued liabilities and other payables


1,357,228


1,620,409


261,356

   Deferred tax liabilities


101,997


55,056


8,880

Total current liabilities


6,756,447


9,044,602


1,458,806








Long-term payable:







   Other long-term payable


106,430


58,524


9,439

Total liabilities


6,862,877


9,103,126


1,468,245








Mezzanine classified noncontrolling interests 


133,634


135,738


21,893








Total NetEase, Inc.'s equity


23,390,345


25,738,605


4,151,388

Noncontrolling interests


(32,185)


24,259


3,913

Total shareholders' equity


23,358,160


25,762,864


4,155,301








Total liabilities, mezzanine classified noncontrolling
    interests and shareholders' equity    


30,354,671


35,001,728


5,645,439








The accompanying notes are an integral part of this press release.






 

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(RMB and USD in thousands, except per share data)



 Quarter Ended 



June 30, 


March 31, 


June 30, 


 June 30,  



2014


2015


2015


2015



 RMB 


 RMB 


 RMB 


 USD (Note 1) 

Revenues:









Online game services


2,336,498


3,104,204


3,849,938


620,958

Advertising services


389,102


332,612


477,705


77,049

E-mail, e-commerce and others


226,348


448,404


505,480


81,529

Total revenues


2,951,948


3,885,220


4,833,123


779,536

Sales taxes


(184,358)


(224,973)


(265,218)


(42,777)

Total net revenues


2,767,590


3,660,247


4,567,905


736,759










Total cost of revenues


(767,905)


(1,171,139)


(1,722,331)


(277,795)










Gross profit


1,999,685


2,489,108


2,845,574


458,964










Selling and marketing expenses 


(433,494)


(551,045)


(696,188)


(112,289)

General and administrative expenses


(98,054)


(170,599)


(202,228)


(32,617)

Research and development expenses 


(292,108)


(451,826)


(496,782)


(80,126)

Total operating expenses


(823,656)


(1,173,470)


(1,395,198)


(225,032)










Operating profit


1,176,029


1,315,638


1,450,376


233,932

Other income/(expenses):









Investment income, net


10,482


3,326


1,901


307

Interest income


146,456


167,047


156,653


25,266

Exchange  (losses)/ gains


(20,181)


22,689


(21,682)


(3,497)

Other, net


6,783


11,246


562


91










Net income before tax


1,319,569


1,519,946


1,587,810


256,099

Income tax


(97,936)


(214,543)


(145,933)


(23,538)










Net income after tax


1,221,633


1,305,403


1,441,877


232,561

Net income attributable to noncontrolling interests
    and mezzanine classified noncontrolling interests


(19,284)


(40,981)


(17,557)


(2,832)

Net income attributable to
   the Company's shareholders


1,202,349


1,264,422


1,424,320


229,729



















Earnings per share, basic


0.37


0.39


0.43


0.07

Earnings per ADS, basic


9.20


9.65


10.83


1.75

Earnings per share, diluted


0.37


0.38


0.43


0.07

Earnings per ADS, diluted


9.18


9.60


10.77


1.74










Weighted average number of
   ordinary shares outstanding, basic


3,266,483


3,274,098


3,287,495


3,287,495

Weighted average number of
   ADS outstanding, basic


130,659


130,964


131,500


131,500

Weighted average number of
   ordinary shares outstanding, diluted


3,274,167


3,294,334


3,306,039


3,306,039

Weighted average number of
   ADS outstanding, diluted


130,967


131,773


132,242


132,242










The accompanying notes are an integral part of this press release.







 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)



Quarter Ended




June 30, 


 March 31,  


 June 30,  


 June 30,  




2014


2015


2015


2015




 RMB  


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from operating activities:










     Net income  



1,221,633


1,305,403


1,441,877


232,561

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










     Depreciation and amortization 



34,131


38,675


42,529


6,860

     Share-based compensation cost 



70,378


160,459


165,335


26,667

     Allowance for provision for doubtful debts 



990


5,974


280


45

     Gain on disposal of property,
         equipment and software 



(22)


(88)


(4)


(1)

     Unrealized exchange losses (gains)    



18,071


(7,141)


17,816


2,874

     Deferred income taxes 



(90,218)


41,137


(184,958)


(29,832)

     Net equity share of loss from associated companies 



11,450


21,530


24,748


3,992

     Fair value changes of short-term investments 



(23,342)


(21,787)


(25,534)


(4,118)

     Changes in operating assets and liabilities: 










         Accounts receivable 



(207,179)


(23,999)


(883,386)


(142,482)

         Prepayments and other current assets 



(75,137)


(310,698)


(1,344,935)


(216,925)

         Accounts payable 



37,861


(46,234)


2,509


405

         Salary and welfare payables 



53,264


(72,485)


100,892


16,273

         Taxes payable 



35,581


178,991


(22,015)


(3,551)

         Deferred revenue 



90,056


224,742


1,616,133


260,666

         Accrued liabilities and other payables 



(20,335)


430,669


(115,341)


(18,604)

             Net cash provided by operating activities 



1,157,182


1,925,148


835,946


134,830











Cash flows from investing activities:










     Purchase of property, equipment and software 



(88,879)


(120,352)


(332,099)


(53,565)

     Proceeds from sale of property, equipment and software 



133


136


214


35

     Purchase of other intangible assets 



(3,138)


-


(91)


(15)

     Purchase of land use right 



-


-


(2,557)


(412)

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



314,161


386,479


(38,192)


(6,160)

     Purchase of short-term investments 



(1,059,190)


(830,000)


(1,437,000)


(231,774)

     Proceeds from maturities of short-term investments 



610,736


507,648


1,066,140


171,958

     Investment in associated companies 



-


-


(157,532)


(25,408)

     Transfer (to)/from restricted cash 



(143,159)


252,526


(843,479)


(136,045)

     Placement/rollover of matured time deposits 



(5,533,779)


(5,337,795)


(3,907,368)


(630,221)

     Proceeds from maturities of time deposits 



3,797,651


6,156,953


6,915,647


1,115,427

     Net change in other assets 



(85,044)


(79,609)


(1,041,025)


(167,907)

             Net cash (used in)/ provided by investing activities 



(2,190,508)


935,986


222,658


35,913











The accompanying notes are an integral part of this press release.



NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)



Quarter Ended




June 30, 


 March 31,  


 June 30,  


 June 30,  




2014


2015


2015


2015




 RMB  


 RMB  


 RMB  


 USD (Note 1) 











Cash flows from financing activities:










     Proceeds of short-term bank loans 



277,110


1,219,853


917,154


147,928

     Payment of short-term bank loans 



-


(2,049,865)


-


-

     Proceeds from employees exercising stock options 



2,047


-


-


-

     Capital injection from noncontrolling interests shareholders 



10


15


-


-

     Dividends paid to shareholders 



(274,031)


(313,406)


(313,780)


(50,610)

             Net cash provided by/ (used in) financing activities      



5,136


(1,143,403)


603,374


97,318











     Effect of exchange rate changes on cash 










         held in foreign currencies 



(15,838)


717


(12,007)


(1,937)

             Net (decrease)/increase in cash and cash equivalents 



(1,044,028)


1,718,448


1,649,971


266,124

Cash and cash equivalents, beginning of the period



2,713,009


2,021,453


3,739,901


603,210

Cash and cash equivalents, end of the period



1,668,981


3,739,901


5,389,872


869,334











Supplemental disclosures of cash flow information:










     Cash paid for income tax, net 



130,480


141,893


386,977


62,416

Supplemental schedule of non-cash investing 










     and financing activities:










     Fixed asset purchases financed by
         accounts payable and accrued liabilities 



36,193


42,198


57,936


9,345











The accompanying notes are an integral part of this press release.


 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)











Quarter Ended



June 30, 


March 31, 


 June 30,  


 June 30,  



2014


2015


2015


2015



RMB


RMB


RMB


USD (Note 1)

Revenues:









Online game services


2,336,498


3,104,204


3,849,938


620,958

Advertising services


389,102


332,612


477,705


77,049

E-mail, e-commerce and others


226,348


448,404


505,480


81,529

Total revenues


2,951,948


3,885,220


4,833,123


779,536










Sales taxes:  









Online game services


(132,402)


(162,973)


(192,802)


(31,097)

Advertising services


(38,856)


(34,820)


(49,969)


(8,060)

E-mail, e-commerce and others


(13,100)


(27,180)


(22,447)


(3,620)

Total sales taxes


(184,358)


(224,973)


(265,218)


(42,777)










Net revenues:









Online game services


2,204,096


2,941,231


3,657,136


589,861

Advertising services


350,246


297,792


427,736


68,989

E-mail, e-commerce and others


213,248


421,224


483,033


77,909

Total net revenues


2,767,590


3,660,247


4,567,905


736,759










Cost of revenues:









Online game services


(493,713)


(792,470)


(1,123,290)


(181,176)

Advertising services


(137,041)


(121,392)


(136,093)


(21,950)

E-mail, e-commerce and others


(137,151)


(257,277)


(462,948)


(74,669)

Total cost of revenues


(767,905)


(1,171,139)


(1,722,331)


(277,795)










Gross profit:









Online game services


1,710,383


2,148,761


2,533,846


408,685

Advertising services


213,205


176,400


291,643


47,039

E-mail, e-commerce and others


76,097


163,947


20,085


3,240

Total gross profit


1,999,685


2,489,108


2,845,574


458,964










Gross profit margin:









Online game services


77.6%


73.1%


69.3%


69.3%

Advertising services


60.9%


59.2%


68.2%


68.2%

E-mail, e-commerce and others


35.7%


38.9%


4.2%


4.2%










The accompanying notes are an integral part of this press release.














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 = RMB6.2000 on the last trading day of June 2015 (June 30, 2015) 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):



Quarter Ended



June 30, 


March 31, 


June 30, 


June 30, 



2014


2015


2015


2015



RMB


RMB


RMB


USD (Note 1)

Share-based compensation cost included in:









Cost of revenue


36,144


75,562


81,339


13,119

Operating expenses









- Selling and marketing expenses


4,771


8,967


8,943


1,442

- General and administrative expenses


9,611


25,410


25,914


4,180

- Research and development expenses


19,852


50,520


49,139


7,926










The accompanying notes are an integral part of this press release.





 

NETEASE, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(RMB and USD in thousands, except per share data)











Quarter Ended



June 30,


March 31,


June 30,


June 30,



2014


2015


2015


2015



RMB


RMB


RMB


USD (Note 1)

Net income attributable to the Company's shareholders


1,202,349


1,264,422


1,424,320


229,729

Add: Share-based compensation


70,378


160,459


165,335


26,667

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


1,272,727


1,424,881


1,589,655


256,396










Non-GAAP earnings per share, basic


0.39


0.44


0.48


0.08

Non-GAAP earnings per ADS, basic


9.74


10.88


12.09


1.95

Non-GAAP earnings per share, diluted


0.39


0.43


0.48


0.08

Non-GAAP earnings per ADS, diluted


9.72


10.81


12.02


1.94

 

 

 

 

SOURCE NetEase, Inc.



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