NetEase Reports Third Quarter 2013 Unaudited Financial Results

BEIJING, Nov. 13, 2013 /PRNewswire-FirstCall/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2013.

"We continue to broaden the platforms for our traditional and mobile Internet product and service offerings," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "During the third quarter we completed key upgrades for two of our most popular games, increased our investment in the mobile Internet business and entered the mobile instant messaging space with the launch of YiChat. These critical advancements support our growth objectives, and for the third quarter we increased our revenues by 23.0% year-over-year, with revenues from our online games and advertising services increasing by 21.0% and 22.9%, respectively."

"Our self-developed traditional and mobile game offerings are resonating well with our audiences. During the third quarter, one of our most popular games, Fantasy Westward Journey II, delivered an excellent performance following the early July launch of its comprehensive upgrade, along with the game's accompanying pocket mobile version. This pocket mobile version has extended the reach of our game from the PC to mobile platforms, and user feedback continues to be favorable. In addition, the exciting new version we launched for Westward Journey Online II in September -now known as New Westward Journey Online II- was a significant upgrade for this classic game, which is stimulating players' enthusiasm and demonstrating positive user trends."

"Our newer games are also performing in-line with our expectations. The expansion pack launched in June for Heroes of Tang Dynasty II was well received by players and contributed to our revenue growth for the period.  For our other game titles, we expect heightened interest in the coming periods as we introduced new expansion packs for Ghost II and Kung Fu Master in September and October, respectively, and have expansion packs planned in the fourth quarter for Heroes of Tang Dynasty II, Tianxia III and Legend of Fairy. Our development schedule is also progressing smoothly. User feedback has been encouraging following our initial commercial launch of Heroes of Three Kingdoms in April and Dragon Sword in August. Large-scale promotional activities were launched for those two games in September and November, respectively, and earlier this month, we commercially launched Legend of Tibet, a 2.5D MMORPG. Before the end of year, we also expect to introduce several high quality mobile games. For 2014, we currently plan to release our first person shooter game, Crisis 2015, in the first half of 2014 and we are preparing to introduce another new game: Revelation, a 3-D epic fantasy MMORPG that we have been developing for the past three years. Revelation features exceptional computer-generated graphic effects using cutting-edge technology and integrates traditional MMO styles with enhanced action elements to provide young players with cool and fast-paced fighting experiences." 

"The upcoming open beta test in mainland China of Blizzard Entertainment's highly anticipated Hearthstone™: Heroes of Warcraft™ will become another important milestone. This new free-to-play online collectible card game featuring legendary heroes, spells and minions from the Warcraft universe, is simple to play yet highly engaging, and we look forward to providing our players with this great gaming experience."

"Turning to our portal, our advertising services revenue increased both sequentially and year-over-year with the largest revenue contributions coming from the automobile, Internet services and fast moving consumer goods sectors. We now have a number of fast growing mobile applications, which provide an important platform for delivery of our value-added services and advertisements. YiChat has been one of our most exciting new additions, and we are extremely pleased to have partnered with China Telecom to launch this instant messaging application. Attracting considerable attention from the Chinese community, downloads for YiChat exceeded 1 million on the first day of its launch in August, and it had reached more than 30 million users by the end of October. YiChat significantly advances our mobile Internet strategy, and we continue to grow our community of loyal users across our robust portals. As of September 30, 2013, we had over 590 million e-mail users and 160 million installations of our leading Mobile News application." 

"We see a great opportunity to integrate and expand our traditional online games and services with complementary mobile Internet offerings that broaden our customer base. We will continue to develop our mobile social networking platform and introduce new products and games to support this strategy. As a pioneer in China's Internet market, we are dedicated to providing our community with competitive products and services that honor our commitment to quality, while simultaneously creating additional value for our shareholder partners," Mr. Ding concluded. 

Third Quarter 2013 Financial Results

Revenues

Total revenues for the third quarter of 2013 were RMB2,514.3 million (US$410.8 million), compared to RMB2,413.8 million and RMB2,044.9 million for the preceding quarter and the third quarter of 2012, respectively.

Revenues from online games were RMB2,105.5 million (US$344.0 million) for the third quarter of 2013, compared to RMB2,066.5 million and RMB1,739.9 million for the preceding quarter and the third quarter of 2012, respectively.

Revenues from advertising services were RMB298.8 million (US$48.8 million) for the third quarter of 2013, compared to RMB272.2 million and RMB243.0 million for the preceding quarter and the third quarter of 2012, respectively.

Revenues from e-mail, wireless value-added services and others ("E-mail, WVAS and others") were RMB110.1 million (US$18.0 million) for the third quarter of 2013, compared to RMB75.1 million and RMB61.9 million for the preceding quarter and the third quarter of 2012, respectively.

Sales Taxes

Total sales taxes for the third quarter of 2013 were RMB157.7 million (US$25.8 million), compared to RMB149.3 million and RMB42.9 million for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in sales taxes was mainly due to a change in the tax rules in China, which resulted in the Company's online game revenues gradually becoming subject to value-added tax instead of business tax since 2013. This change in tax rules did not have a significant impact on gross profit from the Company's online game services business segment as the increase in value-added tax was substantially offset by a reduction in business taxes on intra-group revenues, which were previously recorded in cost of revenues. As a result, the year-over-year increase in gross profit margin was primarily attributable to lower net revenue due to the increased value-added tax in sales taxes.

Gross Profit

Gross profit for the third quarter of 2013 was RMB1,746.8 million (US$285.4 million), compared to RMB1,697.6 million and RMB1,361.9 million for the preceding quarter and the third quarter of 2012, respectively.

The year-over-year increase in gross profit was primarily attributable to increased gross profit from NetEase's online game and advertising businesses. 

The year-over-year increase in online game revenues was primarily driven by increased revenues from the Company's self-developed games, primarily Fantasy Westward Journey II, Kung Fu Master, Heroes of Tang Dynasty II and New Westward Journey Online II, which was partially offset by a decline in revenue from World of Warcraft®, a game licensed from Blizzard Entertainment.

The year-over-year increase in advertising services revenues was primarily due to a rise in demand, mainly from sectors such as automobile, Internet services and real estate.

The quarter-over-quarter increase in gross profit was primarily attributable to increased gross profit from NetEase's advertising services due to the reason mentioned above, and increased revenues from the one-off sale of certain game accessories, such as a limited edition pack for NetEase's New Westward Journey Online II, which is included in the E-mail, WVAS and others business.

Gross Profit (Loss) Margin

Gross profit margin for the online game business for the third quarter of 2013 was 79.7%, compared to 80.9% and 74.2% for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in gross profit margin was mainly due to the changes in tax rules as mentioned above.

Gross profit margin for the advertising business for the third quarter of 2013 was 59.4%, compared to 55.5% and 36.2% for the preceding quarter and the third quarter of 2012, respectively. The increase in gross profit margin reflects the Company's ability to effectively scale its advertising business.

Gross profit margin for the E-mail, WVAS and others business for the third quarter of 2013 was 4.1%, compared to gross loss margin of 21.0% and gross profit margin of 6.0% for the preceding quarter and the third quarter of 2012, respectively. The increase in gross profit margin was mainly due to increased revenue contribution from sales of higher margin game accessories.

Operating Expenses

Total operating expenses for the third quarter of 2013 were RMB635.2 million (US$103.8 million), compared to RMB626.0 million and RMB537.5 million for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in operating expenses was mainly due to increased staff related cost resulting from  an increase in the number of employees and average compensation, as well as higher research and development investments. The quarter-over-quarter increase in operating expenses was mainly due to increased general and administrative expenses and research and development expenses, which were partially offset by decreased selling and marketing expenditures for licensed games in this quarter.

Income Taxes

The Company recorded a net income tax charge of RMB206.5 million (US$33.7 million) for the third quarter of 2013, compared to RMB131.8 million and RMB194.8 million for the preceding quarter and the third quarter of 2012, respectively. The effective tax rate for the third quarter of 2013 was 16.5%, compared to 10.8% and 19.9% for the preceding quarter and the third quarter of 2012, respectively. The quarter-over-quarter increase in effective tax rate was due to the Company recognizing RMB47.1 million in tax credits related to certain incentives for a deduction in research and development expenses agreed on by tax authorities during the annual tax filing of the Company's PRC entities in the preceding quarter. The year-over-year decrease in effective tax rate was due to the occurrence of a one-time accrued withholding tax of RMB40.0 million associated with the offshore remittance of cash from China in connection with the declaration of a special cash dividend in the third quarter of 2012.

The Company's various principal subsidiaries renewed their qualifications as High and New Technology Enterprises in 2011, and enjoy the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China. 

Net Income after tax

Net profit for the third quarter of 2013 totaled RMB1.0 billion (US$171.3 million), compared to RMB1.1 billion and RMB811.9 million for the preceding quarter and the third quarter of 2012, respectively.

During the third quarter of 2013, the Company reported a net foreign exchange gain of RMB5.9 million (US$1.0 million), compared to RMB5.6 million and RMB23.7 million for the preceding quarter and the third quarter of 2012, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains were mainly due to the unrealized exchange gains arising from the Company's foreign currency denominated bank deposit and short-term loan balances as of September 30, 2013 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$1.32 and US$1.31, respectively, for the third quarter of 2013. The Company reported basic and diluted earnings per ADS of US$1.38 and US$1.37, respectively, for the preceding quarter, and reported basic and diluted earnings per ADS of US$1.01 each for the third quarter of 2012.

Other Information

As of September 30, 2013, the Company's total cash and time deposits balance was RMB17.2 billion (US$2.8 billion), compared to RMB15.2 billion as of December 31, 2012. Cash flow generated from operating activities was RMB1.0 billion (US$165.9 million) for the third quarter of 2013, compared to RMB1.0 billion and RMB670.1 million for the preceding quarter and the third quarter of 2012, respectively.

Share Repurchase Program

In November 2012, the Company announced that its board of directors approved a new share repurchase program of up to US$100.0 million. As of September 30, 2013, the Company had cumulatively purchased approximately 2.02 million ADSs in open market purchases under this program for a total consideration of approximately US$83.0 million. The share repurchase program will expire on November 20, 2013.

** 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$1.00 = RMB6.1200 on September 30, 2013 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2013, 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 8:00 p.m. Eastern Time on Wednesday, November 13, 2013 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, November 14, 2013). 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 1-877-941-4774 (international: 1-480-629-9760), 10-15 minutes prior to the initiation of the call.  A replay of the call will be available by dialing 1-800-406-7325 (international 1-303-590-3030), and entering passcode 4647045#. The replay will be available through November 28, 2013.

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 online games, e-mail services, advertising services and web portals.  In partnership with Blizzard Entertainment, NetEase also operates one of the most popular international online games in China, World of Warcraft®. 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 such as Kung Fu Master, Heroes of Three Kingdoms, Dragon Sword, Legend of Tibet and Crisis 2015 or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Fantasy Westward Journey II, New Westward Journey Online II and other 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 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 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 micro-blogging 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.

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, 


 September 30, 


 September 30, 



2012


2013


2013



 RMB  


 RMB  


 USD (Note 1) 

Assets














Current assets:







   Cash and cash equivalents


1,590,769


917,302


149,886

   Time deposits


13,098,661


15,851,527


2,590,119

   Restricted cash


570,506


1,983,879


324,163

   Accounts receivable, net


269,485


399,718


65,313

   Prepayments and other current assets


1,121,784


1,112,194


181,731

   Short-term investments


1,073,539


958,603


156,634

   Deferred tax assets


143,929


154,997


25,326

Total current assets


17,868,673


21,378,220


3,493,172








Non-current assets:







   Property, equipment and software, net 


815,026


814,110


133,025

   Land use right, net


11,529


11,335


1,852

   Deferred tax assets 


2,215


3,383


553

   Time deposits


490,000


450,000


73,529

   Other long-term assets


90,513


329,286


53,805

Total non-current assets


1,409,283


1,608,114


262,764

Total assets 


19,277,956


22,986,334


3,755,936








Liabilities and Shareholders' Equity














Current liabilities:







   Accounts payable 


157,764


163,445


26,707

   Salary and welfare payables


289,848


222,715


36,391

   Dividend payable


814,934


-


-

   Taxes payable


389,465


336,712


55,018

   Short-term loan


-


983,680


160,732

   Deferred revenue


1,160,018


1,319,884


215,667

   Accrued liabilities and other payables


764,473


860,773


140,649

   Deferred tax liabilities


-


94,299


15,408

Total current liabilities


3,576,502


3,981,508


650,572








Long-term payable:







   Other long-term payable


99,968


116,242


18,994

Total liabilities


3,676,470


4,097,750


669,566








Total NetEase, Inc.'s equity


15,680,605


18,974,716


3,100,444

Noncontrolling interests


(79,119)


(86,132)


(14,074)

Total shareholders' equity


15,601,486


18,888,584


3,086,370








Total liabilities and shareholders' equity


19,277,956


22,986,334


3,755,936

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

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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



 Quarter Ended 



 September 30, 


June 30,


 September 30, 


 September 30, 



2012


2013


2013


2013



 RMB 


 RMB 


 RMB 


 USD (Note 1) 

Revenues:









Online game services


1,739,922


2,066,540


2,105,451


344,028

Advertising services


243,027


272,236


298,783


48,821

E-mail, WVAS and others


61,916


75,068


110,080


17,987

Total revenues


2,044,865


2,413,844


2,514,314


410,836

Sales taxes


(42,901)


(149,319)


(157,675)


(25,764)

Total net revenues


2,001,964


2,264,525


2,356,639


385,072










Total cost of revenues


(640,049)


(566,912)


(609,884)


(99,654)










Gross profit


1,361,915


1,697,613


1,746,755


285,418










Selling and marketing expenses 


(259,947)


(314,761)


(283,026)


(46,246)

General and administrative expenses


(75,851)


(87,639)


(94,795)


(15,489)

Research and development expenses 


(201,661)


(223,584)


(257,345)


(42,050)

Total operating expenses


(537,459)


(625,984)


(635,166)


(103,785)










Operating profit


824,456


1,071,629


1,111,589


181,633

Other income:









Investment income


9,353


10,806


9,041


1,477

Interest income


115,459


126,067


123,567


20,191

Exchange gains


23,659


5,630


5,900


964

Other, net


5,087


3,103


1,025


167










Net income before tax


978,014


1,217,235


1,251,122


204,432

Income tax


(194,797)


(131,808)


(206,503)


(33,742)










Net income after tax


783,217


1,085,427


1,044,619


170,690

Net loss attributable
   to noncontrolling interests


28,718


9,675


3,675


600

Net income attributable to
   the Company's shareholders


811,935


1,095,102


1,048,294


171,290










Comprehensive income


783,217


1,085,427


1,044,619


170,690

Comprehensive loss attributable to
   noncontrolling interests


28,718


9,675


3,675


600

Comprehensive income attributable
   to the Company's shareholders


811,935


1,095,102


1,048,294


171,290










Earnings per share, basic


0.25


0.34


0.32


0.05

Earnings per ADS, basic


6.17


8.43


8.06


1.32

Earnings per share, diluted


0.25


0.34


0.32


0.05

Earnings per ADS, diluted


6.17


8.41


8.04


1.31










Weighted average number of
   ordinary shares outstanding, basic


3,287,370


3,249,077


3,250,078


3,250,078

Weighted average number of
   ADS outstanding, basic


131,495


129,963


130,003


130,003

Weighted average number of
   ordinary shares outstanding, diluted


3,292,462


3,255,244


3,260,350


3,260,350

Weighted average number of
   ADS outstanding, diluted


131,698


130,210


130,414


130,414

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



 September 30, 


 March 31, 


 June 30, 


 September 30, 


 September 30, 



2012


2013


2013


2013


2013



 RMB  


 RMB  


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from operating activities:











     Net income  


783,217


1,068,920


1,085,427


1,044,619


170,690

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











     Depreciation and amortization 


52,310


38,289


39,806


39,890


6,518

     Share-based compensation cost 


47,969


58,706


79,389


83,219


13,598

      (Reversal of) allowance for provision
         for doubtful debts 


(593)


(190)


947


2,616


427

     Loss (gain) on disposal of property,
         equipment and software 


90


(220)


1


(268)


(44)

     Unrealized exchange (gains) loss  


(27,330)


7,763


(4,959)


(8,308)


(1,358)

     Deferred income taxes 


7,894


261,550


10,525


(50,011)


(8,172)

     Net equity share of (gain) loss from
         associated companies 


(389)


339


(430)


1,938


317

     Amortization of premium (discount) of 
         short-term investments 


18,739


(3,280)


(2,425)


641


105

     Changes in operating assets and liabilities: 











         Accounts receivable 


(31,834)


72,418


(131,097)


(74,931)


(12,244)

         Prepayments and other current assets 


(253,134)


(105,062)


65,962


50,116


8,189

         Accounts payable 


26,755


(26,612)


40,378


1,626


266

         Salary and welfare payables 


(29,563)


(60,697)


39,845


(46,280)


(7,562)

         Taxes payable 


18,096


(4,545)


(58,637)


(129,572)


(21,172)

         Deferred revenue 


17,241


51,554


9,422


98,890


16,158

         Accrued liabilities and other payables 


40,631


188,959


(124,342)


1,208


197

             Net cash provided by operating activities 


670,099


1,547,892


1,049,812


1,015,393


165,913












Cash flows from investing activities:











     Purchase of property, equipment and software 


(65,430)


(35,578)


(33,883)


(40,437)


(6,607)

     Proceeds from sale of property,
         equipment and software 


546


696


-


276


45

     Purchase of other intangible assets 


-


-


(650)


(250)


(41)

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


150,000


20,000


(650,000)


330,000


53,922

     Purchase of short-term investments 


(70,845)


(20,000)


(80,000)


-


-

     Proceeds from maturities of short-term investments 


330,000


150,000


220,000


150,000


24,510

     Investment in an associated company 


(7,915)


-


-


(200,000)


(32,680)

     Transfer from (to) restricted cash 


51,899


(1,432,315)


(8,276)


27,218


4,447

     Placement/rollover of matured time deposits 


(4,626,840)


(4,908,848)


(4,668,529)


(7,803,312)


(1,275,051)

     Proceeds from maturities of time deposits 


3,686,192


4,817,487


3,734,349


6,096,194


996,110

     Net change in other assets 


(11,094)


2,613


(5,508)


(36,674)


(5,992)

             Net cash used in investing activities 


(563,487)


(1,405,945)


(1,492,497)


(1,476,985)


(241,337)

 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)



Quarter Ended



 September 30, 


 March 31, 


 June 30, 


 September 30, 


 September 30, 



2012


2013


2013


2013


2013



 RMB  


 RMB  


 RMB  


 RMB  


 USD (Note 1) 












Cash flows from financing activities:











     Proceeds of short-term bank loan 


-


1,005,680


-


-


-

     Proceeds from employees exercising stock options 


-


-


1,961


513


84

     Capital contribution from non-controlling interests 


-


-


-


916


150

     Purchase of shares 


-


(106,809)


-


-


-

     Dividends paid to shareholders 


-


(815,413)


-


-


-

             Net cash provided by financing activities      


-


83,458


1,961


1,429


234












     Effect of exchange rate changes on cash 











         held in foreign currencies 


2,200


(11,158)


(812)


13,985


2,285

             Net increase (decrease) in cash and cash equivalents 


108,812


214,247


(441,536)


(446,178)


(72,905)

Cash and cash equivalents, beginning of the period


1,075,734


1,590,769


1,805,016


1,363,480


222,791

Cash and cash equivalents, end of the period


1,184,546


1,805,016


1,363,480


917,302


149,886












Supplemental disclosures of cash flow information:











     Cash paid (received) for income tax, net 


148,758


192,134


176,728


(121,033)


(19,777)

     Withholding income tax paid associated with  











         the repatriation of cash for a special dividend 


-


5,000


-


196,201


32,059

Supplemental schedule of non-cash investing 











     and financing activities:











     Fixed asset purchases financed by
         accounts payable and accrued liabilities 


14,096


13,894


18,410


15,299


2,500

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



September 30,


June 30,


September 30,


September 30,



2012


2013


2013


2013



RMB


RMB


RMB


USD (Note 1)

Revenues:









Online game services


1,739,922


2,066,540


2,105,451


344,028

Advertising services


243,027


272,236


298,783


48,821

E-mail, WVAS and others


61,916


75,068


110,080


17,987

Total revenues


2,044,865


2,413,844


2,514,314


410,836










Sales taxes:  









Online game services


(17,053)


(117,479)


(119,994)


(19,607)

Advertising services


(24,562)


(27,405)


(29,421)


(4,807)

E-mail, WVAS and others


(1,286)


(4,435)


(8,260)


(1,350)

Total sales taxes


(42,901)


(149,319)


(157,675)


(25,764)










Net revenues:









Online game services


1,722,869


1,949,061


1,985,457


324,421

Advertising services


218,465


244,831


269,362


44,014

E-mail, WVAS and others


60,630


70,633


101,820


16,637

Total net revenues


2,001,964


2,264,525


2,356,639


385,072










Cost of revenues:









Online game services


(443,789)


(372,543)


(402,732)


(65,806)

Advertising services


(139,296)


(108,892)


(109,466)


(17,887)

E-mail, WVAS and others


(56,964)


(85,477)


(97,686)


(15,961)

Total cost of revenues


(640,049)


(566,912)


(609,884)


(99,654)










Gross profit (loss):









Online game services


1,279,080


1,576,518


1,582,725


258,615

Advertising services


79,169


135,939


159,896


26,127

E-mail, WVAS and others


3,666


(14,844)


4,134


676

Total gross profit


1,361,915


1,697,613


1,746,755


285,418










Gross profit (loss) margin:









Online game services


74.2%


80.9%


79.7%


79.7%

Advertising services


36.2%


55.5%


59.4%


59.4%

E-mail, WVAS and others


6.0%


(21.0%)


4.1%


4.1%

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 = RMB6.1200 on the last trading day of September 2013 (September 30, 2013)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



September 30,


June 30,


September 30,


September 30,



2012


2013


2013


2013



RMB


RMB


RMB


USD (Note 1)

Share-based compensation cost included in:









Cost of revenue


25,063


42,020


46,098


7,532

Operating expenses









- Selling and marketing expenses


2,933


4,432


4,759


778

- General and administrative expenses


7,830


12,358


13,144


2,148

- Research and development expenses


12,143


20,579


19,218


3,140

 

SOURCE NetEase, Inc.



RELATED LINKS
http://corp.netease.com

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