NetEase.com Reports Fourth Quarter and Fiscal Year 2009 Unaudited Financial Results
BEIJING, Feb. 24 /PRNewswire-Asia/ -- NetEase.com, Inc. (Nasdaq: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2009.
William Ding, Chief Executive Officer and Director of NetEase said, "NetEase concluded 2009 with strong fourth quarter results amid the gradual recovery from the global economic slowdown. We are very pleased with the performance of Tianxia II since its open beta testing launched last September. In December 2009, we launched a new expansion pack for Tianxia II called Flying Dragon, and players' response has been very positive as we continue to observe steady growth in new user registration for the game. In addition, we launched Ancient Runes, the ninth expansion pack for Fantasy Westward Journey in October 2009, and commercially launched Storm of Empires in December 2009. Storm of Empires is our second Web-based game, which players can easily access and play via the Web without downloading and installing any software. In Storm of Empires, each player can choose to play a king ruling one of the seven kingdoms during the Chinese Warring States period and battle the other six kingdoms through a series of game sequences. With the Chinese Spring Festival holidays having happened earlier this month, we have also been busy working on certain large-scale product-specific and Spring Festival-related promotional campaigns."
Mr. Ding continued, "We are committed to the continued success of World of Warcraft(R), a game licensed from Blizzard Entertainment, which is evidenced by the highly positive response from players since the game was re-launched in mainland China on September 19, 2009."
Mr. Ding continued, "Carrying on with the momentum of the third quarter, we achieved an outstanding sequential quarter-over-quarter increase in advertising revenue during the fourth quarter of 2009 as our strategy to restructure our portal business operations and our other new marketing strategies launched in the beginning of the year began to deliver positive results. Looking ahead, we remain cautiously optimistic about the course of our advertising business in 2010."
Mr. Ding concluded, "In 2010, we will continue to follow our pragmatic approach to executing our game plan in order to further enhance our market share in the MMORPG market in China. For our portal business, we look forward to having active coverage of major international events such as Expo 2010 in Shanghai, the 16th Asian Games in Guangzhou and the 2010 FIFA World Cup in South Africa, which will provide great opportunities to our advertisers to reach out to a diverse user base of NetEase services throughout 2010. With our relentless effort in expanding and diversifying our game portfolio and user base, as well as cross-pollination of our game business, email and blog services with the portal business, we look forward to seeing another great year for NetEase in 2010."
Fourth Quarter 2009 Financial Results
Revenues
Total revenues for the fourth quarter of 2009 were RMB1.3 billion (US$189.0 million), compared to RMB879.4 million and RMB801.7 million for the preceding quarter and the fourth quarter of 2008, respectively.
Revenues from online games were RMB1.1 billion (US$159.4 million) for the fourth quarter of 2009, compared to RMB775.1 million and RMB672.5 million for the preceding quarter and the fourth quarter of 2008, respectively.
Revenues from advertising services were RMB183.7 million (US$26.9 million) for the fourth quarter of 2009, compared to RMB86.0 million and RMB111.8 million for the preceding quarter and the fourth quarter of 2008, respectively.
Revenues from wireless value-added services and others ("WVAS and others") were RMB18.5 million (US$2.7 million) for the fourth quarter of 2009, compared to RMB18.3 million and RMB17.4 million for the preceding quarter and the fourth quarter of 2008, respectively.
Gross Profit
Gross profit for the fourth quarter of 2009 was RMB844.1 million (US$123.7 million), compared to RMB627.0 million and RMB639.0 million, for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter and year-over-year increases in gross profit were primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues, such as royalties and consultancy fees related to World of Warcraft operations and increased staff-related costs, resulting from increased headcount, in the current quarter. Increased game revenue was primarily driven by the reporting of a full quarter results of World of Warcraft operations in the fourth quarter of 2009 following its re-launch on September 19, 2009. Increased advertising revenue in the fourth quarter of 2009 primarily resulted from increased advertising service demand brought about by the continued momentum in the growth of consumer spending as well as success achieved through the restructuring of the Company's portal business operations and other new marketing strategies launched since the beginning of 2009 as explained above.
Gross Profit (Loss) Margin
Gross profit margin for the online game business for the fourth quarter of 2009 was 70.8%, compared to 79.9% and 88.0% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter and year-over-year decreases in gross profit margin were primarily due to the reporting of a full quarter operating results for World of Warcraft operations in the fourth quarter of 2009. Lower margin was reported for World of Warcraft operations primarily because of royalties, amortization of license fees and technical consultancy service fees associated with the licensing and operation of World of Warcraft.
Gross profit margin for the advertising business for the fourth quarter of 2009 was 58.4%, compared to 23.1% and 51.1% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter increase in gross profit margin was primarily due to a significant increase in advertising revenues as explained above, which was partially offset by increased staff-related costs and content cost reported for the fourth quarter of 2009. The year-over-year increase in gross profit margin was primarily driven by the higher advertising revenue in the fourth quarter of 2009.
Gross loss margin for the WVAS and others business for the fourth quarter of 2009 was 38.5%, compared to 45.0% and 24.9% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter decrease in gross loss margin was mainly due to reduced depreciation charge in the fourth quarter of 2009 as servers associated with WVAS operations became fully depreciated. The year-over-year increase in gross loss margin was mainly due to increased bandwidth charges and server custody usage fees in the current quarter resulting from volume increases associated with the Company's free email and photo blog services and higher staff-related costs resulting from increased headcount, partially offset by reduced depreciation charge in the fourth quarter of 2009 as assets became fully depreciated.
Operating Expenses
Total operating expenses for the fourth quarter of 2009 were RMB237.0 million (US$34.7 million), compared to RMB218.9 million and RMB168.5 million for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter increase in operating expense was primarily due to increased selling and marketing expenses. The increase in selling and marketing expenses was primarily due to increased staff-related costs, resulting from increased headcount and performance-related bonus accruals as well as brand building marketing costs during the fourth quarter of 2009. The year-over-year increase in operating expenses was primarily due to increased staff-related costs, resulting from increases in headcount and performance-related bonus accruals across the Company's selling and marketing, general and administrative, and research and development areas in the fourth quarter of 2009.
Net Profit
Net profit for the fourth quarter of 2009 totaled RMB571.8 million (US$83.8 million), compared to RMB393.8 million and RMB575.9 million for the preceding quarter and the fourth quarter of 2008, respectively. During the fourth quarter of 2009, the Company reported a net foreign exchange loss of RMB15.3 million (US$2.2 million) under Other, net, compared to a net foreign exchange gain of RMB25.3 million for the preceding quarter, and a net foreign exchange loss of RMB22.0 million for the fourth quarter of 2008. The quarter-over-quarter and year-over-year changes in foreign exchange gains/losses were mainly due to the translation gains/losses arising from the Company's Euro-denominated bank deposit balances as of December 31, 2009 as the exchange rate of the Euro against the RMB fluctuated over the periods. NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.65 and US$0.64, respectively, for the fourth quarter of 2009. The Company reported basic and diluted earnings per ADS of US$0.45 and US$0.44 and US$0.66 and US$0.65 for the preceding quarter and the fourth quarter of 2008, respectively.
Income Taxes
The Company recorded a net income tax charge of RMB71.2 million (US$10.4 million) and RMB65.5 million for the current quarter and the preceding quarter, respectively, compared with a net income tax benefit of RMB79.9 million for the fourth quarter of 2008. The effective tax rate for the fourth quarter of 2009 was 11.3% as compared to 14.3% for the preceding quarter and a net tax benefit rate of 16.1% for the fourth quarter of 2008. During the fourth quarter of 2009, certain subsidiaries of the Company became subject to preferred tax rates as they qualified for "key software enterprise" or "high and new technology enterprise" (HNTE) status at 10% and 15%, respectively for fiscal year 2009. The year-over-year change in effective tax rate was primarily due to the reversal recorded in December 2008 for the excess tax charge related to the first three quarters of 2008 as the Company's various subsidiaries did not receive approval for the preferred tax status of HNTEs until December 2008.
Fiscal Year 2009 Financial Results
Revenues
Total revenues for fiscal year 2009 were RMB3.8 billion (US$560.1 million), compared to RMB3.0 billion for the preceding fiscal year. Revenues from online games were RMB3.4 billion (US$493.5 million) for fiscal year 2009, compared to RMB2.5 billion for the preceding fiscal year. Revenues from advertising services were RMB383.6 million (US$56.2 million) for fiscal year 2009, compared to RMB405.9 million for the preceding fiscal year. Revenues from WVAS and others were RMB71.2 million (US$10.4 million) for fiscal year 2009, compared to RMB71.7 million for the preceding fiscal year.
Gross Profit
Gross profit for fiscal year 2009 was RMB2.8 billion (US$410.9 million), compared to RMB2.5 billion for the preceding fiscal year. The increased gross profit for fiscal year 2009 was primarily due to increased online game revenue contributed from the Company's self-developed flagship games such as Fantasy Westward Journey and Westward Journey Online II, as well as the re-launch of World of Warcraft on September 19, 2009. Furthermore, the Company also recognized approximately RMB101.6 million (US$14.9 million) of revenue from dormant accounts of online games for fiscal year 2009, resulting from a change in its user agreement with online game players in May 2009 as previously reported. The increase in revenue was partially offset by increased cost of revenues, resulting mainly from increased staff related costs due to headcount increase and royalties, amortization of license fees and technical consultancy service fees associated with the operations of World of Warcraft. In addition, in June 2008 the Company recorded a one-time business tax refund of RMB133.9 million for online games.
Operating Expenses
Total operating expenses for fiscal year 2009 were RMB781.3 million (US$114.5 million), compared to RMB610.4 million for the preceding fiscal year. The increase in operating expenses was primarily due to increased staff-related costs, resulting from increases in headcount and performance-related bonus accruals across the Company's selling and marketing, general and administrative, and research and development areas in 2009. In addition, increased selling and marketing costs were also incurred for brand building and market promotion activities for certain self-developed games and the re-launch of World of Warcraft in 2009.
Net Profit
Net profit for fiscal year 2009 totaled RMB1.9 billion (US$271.1 million), compared to RMB1.6 billion for the preceding fiscal year. For fiscal year 2009, the Company reported a net foreign exchange gain of RMB9.6 million (US$1.4 million) under Other, net, compared to a net foreign exchange loss of RMB167.1 million for the preceding fiscal year. The change to a net foreign exchange gain for 2009 as compared to 2008 was mainly due to the translation gains arising from the Company's Euro-denominated bank deposit balances as of December 31, 2009 as the exchange rate of the Euro against the RMB fluctuated over the periods. NetEase reported basic and diluted earnings per ADS of US$2.11 and US$2.09 for fiscal year 2009, respectively. The Company reported basic and diluted earnings per ADS of US$1.88 and US$1.81 for the preceding fiscal year, respectively.
Income Taxes
The Company recorded a net income tax charge of RMB313.9 million (US$46.0 million) and RMB300.7 million at an effective tax rate of 14.6% and 15.8% for fiscal years 2009 and 2008, respectively. The relatively higher effective tax rate for fiscal year 2008 was primarily due to the remeasurement of deferred tax assets previously recorded at the new statutory tax rate of 25% effective January 1, 2008 to the 15% tax rate applicable to HNTEs as certain subsidiaries of the Company in China were granted the HNTEs status (as explained above) for fiscal year 2008 in December 2008.
Other Information
As of December 31, 2009, the Company's total cash and time deposit balance was RMB7.0 billion (US$1.0 billion), compared to RMB5.6 billion, as of December 31, 2008. Cash flow generated from operating activities was RMB712.4 million (US$104.4 million) for the fourth quarter of 2009, compared to RMB270.0 million and RMB514.0 million for the preceding quarter and the fourth quarter of 2008, respectively.
** The United States dollar (US$) 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$1.00 = RMB6.8259 on December 31, 2009 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2009, or at any other certain date. The percentages stated are calculated based on RMB.
Notes to Unaudited Financial Information
The unaudited financial information disclosed in this press release is preliminary. The audit of the financial statements and related notes to be included in the Company's annual report on Form 20-F for the year ended December 31, 2009 is still in progress. In addition, because an audit of the Company's internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, the Company makes no representation as to the effectiveness of those internal controls as of the end of fiscal year 2009.
Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between the Company's audited financial statements and this preliminary unaudited financial information.
Conference Call
The earnings announcement will take place at 8:00 p.m. Eastern Time on Wednesday, February 24, 2010 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 25, 2009). Chief Executive Officer William Ding and Acting Chief Financial Officer Onward Choi will be on the call to discuss the quarterly and full year results and answer questions.
Interested parties may participate in the conference call by dialing 877-941-2069 (international: 480-629-9713), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 800-406-7325 (international 303-590-3030), and entering passcode 4216104. The replay will be available through March 11, 2010.
This call is being webcast live and archived, and will be available for 12 months on NetEase's corporate web site at http://corp.netease.com , Investor Info: Earnings Call.
About NetEase
NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. NetEase's online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates. In particular, NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang, as well as the licensed game, Blizzard Entertainment's World of Warcraft.
NetEase also offers online advertising on its websites which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified advertising services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the Web which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.
Other community services which the NetEase websites offer include instant messaging, online personal advertisements, matchmaking, alumni clubs and community forums. NetEase is also the largest provider of free email services in China. Furthermore, the NetEase websites provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and Chinese content providers.
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 NetEase will not be successful in its product diversification efforts, including its focus on item- and fee-based games and entry into strategic licensing arrangements; 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 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 or other games licensed by it for a period of time or permanently due to the position of GAPP or other governmental actions; the risk that Shanghai EaseNet or NetEase will be subject to penalties or operating restrictions imposed by governmental authorities in the PRC resulting from the operations of their online games, including suspension of their Internet service or other penalties; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenue or cause revenue to decline; uncertainty regarding the effectiveness of marketing programs for NetEase's online advertising business in China; the risk that NetEase may not be able to continuously develop new and creative online services; 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.
For more information, please contact:
Contact for Media and Investors:
Brandi Piacente
Investor Relations
Tel: +1-212-481-2050
Email: [email protected]
Li Jia
NetEase.com, Inc.
Tel: +86-10-8255-8208
Email: [email protected]
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, December 31, December 31,
2008 2009 2009
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 793,407,922 1,041,290,312 152,549,893
Time deposits 4,820,000,100 5,975,378,114 875,397,840
Restricted cash -- 123,863,334 18,146,081
Accounts receivable, net 231,030,576 187,339,985 27,445,463
Prepayments and other
current assets 104,092,051 568,125,100 83,230,796
Deferred tax assets 25,248,842 76,564,853 11,216,814
Total current assets 5,973,779,491 7,972,561,698 1,167,986,887
Non-current assets:
Property, equipment and
software, net 258,787,534 557,755,641 81,711,663
Land use right, net 12,563,485 12,304,888 1,802,676
License right, net 27,463,600 212,847,221 31,182,294
Deferred tax assets 12,444,636 4,188,376 613,601
Other long-term assets 60,854,557 43,811,015 6,418,350
Total non-current assets 372,113,812 830,907,141 121,728,584
Total assets 6,345,893,303 8,803,468,839 1,289,715,471
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 119,829,878 238,434,710 34,930,882
Salary and welfare
payables 94,922,963 129,493,530 18,970,909
Taxes payable 104,754,356 213,727,123 31,311,200
Deferred revenue 447,725,795 583,469,528 85,478,769
Accrued liabilities and
other payables 61,815,070 212,800,237 31,175,411
Total current liabilities 829,048,062 1,377,925,128 201,867,171
Long-term payable:
Other long-term payable 200,000 200,000 29,300
Total long-term payable 200,000 200,000 29,300
Total liabilities 829,248,062 1,378,125,128 201,896,471
Shareholders' equity 5,516,645,241 7,425,343,711 1,087,819,000
Total liabilities and
shareholders' equity 6,345,893,303 8,803,468,839 1,289,715,471
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
December 31, September 30, December 31, December 31,
2008 2009 2009 2009
RMB RMB RMB USD (Note 1)
Revenues:
Online game
services 672,491,424 775,141,663 1,088,040,623 159,398,852
Advertising
services 111,800,172 86,049,485 183,679,014 26,909,128
Wireless
value-added
services
and others 17,424,193 18,257,187 18,479,826 2,707,310
Total
revenues 801,715,789 879,448,335 1,290,199,463 189,015,290
Business
taxes (10,509,954) (11,421,825) (40,290,883) (5,902,647)
Total net
revenues 791,205,835 868,026,510 1,249,908,580 183,112,643
Total cost
of revenues (152,249,013) (241,003,866) (405,786,869) (59,448,112)
Gross profit 638,956,822 627,022,644 844,121,711 123,664,531
Operating
expenses:
Selling and
marketing
expenses (67,395,203) (102,694,671) (119,779,629) (17,547,816)
General and
administrative
expenses (45,760,016) (53,406,612) (54,159,703) (7,934,441)
Research and
development
expenses (55,308,137) (62,783,771) (63,054,014) (9,237,465)
Total operating
expenses (168,463,356) (218,885,054) (236,993,346) (34,719,722)
Operating
profit 470,493,466 408,137,590 607,128,365 88,944,809
Other income
(expenses):
Investment
income 90,615 82,497 83,341 12,210
Interest
income 42,787,380 29,775,123 29,746,136 4,357,834
Other, net (17,387,729) 21,344,811 (7,571,161) (1,109,181)
Net income
before tax 495,983,732 459,340,021 629,386,681 92,205,672
Income tax 79,850,979 (65,544,656) (71,194,080) (10,429,992)
Net income
after tax 575,834,711 393,795,365 558,192,601 81,775,680
Add: Net loss
attributable to
noncontrolling
interests 19,020 34,189 13,574,180 1,988,629
Net income
attributable to
the Company's
shareholders 575,853,731 393,829,554 571,766,781 83,764,309
Earnings per
share, basic 0.18 0.12 0.18 0.03
Earnings per
ADS, basic 4.49 3.04 4.42 0.65
Earnings per
share, diluted 0.18 0.12 0.18 0.03
Earnings per
ADS, diluted 4.46 3.02 4.39 0.64
Weighted average
number of
ordinary shares
outstanding,
basic 3,209,693,009 3,236,059,232 3,237,487,643 3,237,487,643
Weighted
average
number of ADS
outstanding,
basic 128,387,720 129,442,369 129,499,506 129,499,506
Weighted
average
number of
ordinary
shares
outstanding,
diluted 3,227,031,848 3,260,784,175 3,259,643,745 3,259,643,745
Weighted
average
number of ADS
outstanding,
diluted 129,081,274 130,431,367 130,385,750 130,385,750
Year Ended
December 31, December 31, December 31,
2008 2009 2009
RMB RMB USD (Note 1)
Revenues:
Online game services 2,498,518,103 3,368,688,576 493,515,665
Advertising services 405,887,007 383,560,557 56,191,939
Wireless value-added
services and others 71,718,938 71,201,485 10,431,076
Total revenues 2,976,124,048 3,823,450,618 560,138,680
Business taxes 108,460,101 (66,503,485) (9,742,816)
Total net revenues 3,084,584,149 3,756,947,133 550,395,864
Total cost of revenues (559,605,362) (952,229,078) (139,502,348)
Gross profit 2,524,978,787 2,804,718,055 410,893,516
Operating expenses:
Selling and marketing
expenses (221,551,138) (338,308,601) (49,562,490)
General and
administrative
expenses (181,841,322) (212,533,368) (31,136,314)
Research and
development
expenses (207,023,649) (230,439,880) (33,759,633)
Total operating
expenses (610,416,109) (781,281,849) (114,458,437)
Operating profit 1,914,562,678 2,023,436,206 296,435,079
Other income
(expenses):
Investment income 1,517,890 353,554 51,796
Interest income 144,805,368 128,168,329 18,776,766
Other, net (163,549,591) (1,318,046) (193,095)
Net income before tax 1,897,336,345 2,150,640,043 315,070,546
Income tax (300,673,321) (313,861,139) (45,980,917)
Net income after tax 1,596,663,024 1,836,778,904 269,089,629
Add: Net loss
attributable to
noncontrolling
interests 24,883 13,657,100 2,000,776
Net income
attributable to the
Company's
shareholders 1,596,687,907 1,850,436,004 271,090,405
Earnings per
share, basic 0.51 0.58 0.08
Earnings per ADS, basic 12.81 14.38 2.11
Earnings per
share, diluted 0.49 0.57 0.08
Earnings per ADS,
diluted 12.34 14.28 2.09
Weighted average
number of ordinary
shares outstanding,
basic 3,117,117,306 3,216,437,747 3,216,437,747
Weighted average
number of ADS
outstanding, basic 124,684,692 128,657,510 128,657,510
Weighted average
number of ordinary
shares outstanding,
diluted 3,234,214,324 3,240,170,656 3,240,170,656
Weighted average
number of ADS
outstanding, diluted 129,368,573 129,606,826 129,606,826
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
December 31, September 30, December 31, December 31,
2008 2009 2009 2009
RMB RMB RMB USD (Note 1)
Cash flows from
operating
activities:
Net income 575,834,711 393,795,365 558,192,601 81,775,680
Adjustments to
reconcile net
profit to net
cash provided
by operating
activities:
Depreciation and
amortization 21,214,759 42,479,635 58,656,520 8,593,229
Share-based
Compensation
cost 11,712,364 6,008,286 5,774,089 845,909
Allowance for
provision for
doubtful debts 1,768,291 4,148,839 1,507,691 220,878
(Gain)/loss on
disposal of
property,
equipment
and software (192,511) 446,393 666,897 97,701
Unrealized
exchange
(gains)/losses 21,131,801 (25,338,559) 13,304,810 1,949,166
Net equity share
of loss (gain)
from associated
companies (113,653) 1,285,489 (167,757) (24,577)
Others (9,014) 13,371 -- --
Changes in
operating
assets and
liabilities:
Accounts
receivable (14,699,446) 12,044,441 (71,358,155) (10,454,029)
Prepayments
and other
current
assets (37,373,232) (248,662,365) (116,969,002) (17,136,058)
Deferred tax
assets 4,597,642 (12,249,742) (23,037,892) (3,375,070)
Deferred tax
assets
- non-current 6,364,324 1,512,981 6,339,682 928,769
Accounts
payable (39,605,453) (117,137,897) 65,450,761 9,588,591
Salary and
welfare
payables 41,161,456 (15,600,191) 65,650,799 9,617,896
Taxes payable (73,972,379) (8,467,595) 51,631,111 7,564,000
Deferred
revenue 3,858,634 141,140,067 16,958,728 2,484,468
Accrued
liabilities
and other
payables (7,672,623) 94,546,582 79,764,980 11,685,636
Net cash
provided by
operating
activities 514,005,671 269,965,100 712,365,863 104,362,189
Cash flows from
investing
activities:
Purchase of
property,
equipment and
software (47,987,508) (91,139,494) (54,090,682) (7,924,330)
Proceeds from
sale of
property,
equipment and
software 11,603 89,019 10,068 1,475
Prepayment for
land use right -- -- -- --
Incentive
received on land
use right -- -- -- --
Prepayment for
license right -- -- -- --
Purchase of
license right -- -- -- --
Prepayment for
royalties (13,687,749) -- -- --
Investment in
associated
companies (2,559,525) (4,207,050) -- --
Transfer to
restricted cash -- -- (41,863,334) (6,133,013)
Net change in
time deposits
with terms
of three
months 974,552,227 (95,918,953) (39,621,702) (5,804,612)
Placement/
rollover of
matured
time
deposits (1,817,119,582)(1,511,411,788)(2,646,827,584) (387,762,432)
Uplift of
matured
time
deposits 290,674,696 1,494,799,368 1,752,281,101 256,710,632
Net change in
other assets (5,682,050) (824,101) 50,191 7,353
Net cash
used in
investing
activities (621,797,888) (208,612,999)(1,030,061,942) (150,904,927)
Cash flows from
financing
activities:
Capital
contribution
from non-
controlling
interests 23,641 2,602 15,619 2,288
Proceeds from
employees
exercising
stock
options 1,426,708 944 2,964,845 434,352
Repurchase of
company shares (88,868,640) -- -- --
Decrease in
other long-
term payable -- -- -- --
Net cash
provided
by (used in)
financing
activities (87,418,291) 3,546 2,980,464 436,640
Effect of
exchange
rate changes
on cash held
in foreign
currencies 3,579,775 12,850,834 (299,494) (43,876)
Net increase
(decrease)
in cash (191,630,733) 74,206,481 (315,015,109) (46,149,974)
Cash, beginning
of the period 985,038,655 1,282,098,940 1,356,305,421 198,699,867
Cash, end of
the period 793,407,922 1,356,305,421 1,041,290,312 152,549,893
Supplemental
disclosures of
cash flow
information:
Cash paid for
income tax,
net of tax
refund 16,023,949 54,590,335 80,044,424 11,726,574
Supplemental
schedule
of non-cash
investing and
financing
activities:
Treasury stock
cancellation 89,293,078 -- -- --
Fixed asset
purchases
financed by
accounts
payable 37,302,324 36,812,035 47,427,382 6,948,151
Conversion of
convertible
notes to
ordinary
shares -- -- -- --
Year Ended
December 31, December 31, December 31,
2008 2009 2009
RMB RMB USD (Note 1)
Cash flows from operating
activities:
Net income 1,596,663,024 1,836,778,904 269,089,629
Adjustments to reconcile
net profit to net cash
provided by operating
activities:
Depreciation and
amortization 90,962,041 143,579,975 21,034,585
Share-based compensation
cost 67,948,661 31,384,695 4,597,884
Allowance for provision for
doubtful debts 8,604,654 15,981,202 2,341,259
(Gain)/loss on disposal
of property, equipment
and software 316,916 3,988,530 584,323
Unrealized exchange
(gains)/losses 166,712,075 (11,687,105) (1,712,171)
Net equity share of loss
(gain) from associated
companies 2,028,154 4,103,657 601,189
Others (16,306) 13,346 1,955
Changes in operating assets
and liabilities:
Accounts receivable (72,907,716) 27,709,389 4,059,448
Prepayments and other
current assets (52,387,634) (453,046,685) (66,371,713)
Deferred tax assets 40,538,271 (51,316,011) (7,517,838)
Deferred tax assets -
non-current 6,615,589 8,256,260 1,209,549
Accounts payable 32,756,625 119,614,930 17,523,686
Salary and welfare
payables 26,269,221 34,570,567 5,064,617
Taxes payable 12,315,686 108,972,767 15,964,601
Deferred revenue 92,759,098 135,743,733 19,886,569
Accrued liabilities
and other payables (1,379,171) 139,846,825 20,487,676
Net cash provided
by operating
activities 2,017,799,188 2,094,494,979 306,845,248
Cash flows from investing
activities:
Purchase of property,
equipment and
software (133,329,185) (407,727,191) (59,732,371)
Proceeds from sale of
property, equipment
and software 280,714 120,215 17,612
Prepayment for land
use right (822,182) -- --
Incentive received on
land use right 15,000,000 -- --
Prepayment for
license right (27,463,600)
Purchase of license
right -- (204,819,000) (30,006,153)
Prepayment for
royalties (13,687,749) -- --
Investment in
associated companies (33,559,525) (4,207,050) (616,336)
Transfer to
restricted cash -- (123,863,334) (18,146,081)
Net change in time
deposits with terms
of three months (520,970,208) 1,105,918,036 162,017,908
Placement/rollover of
matured time
deposits (3,732,114,167) (6,406,601,065) (938,572,359)
Uplift of matured
time deposits 1,042,752,487 4,136,425,777 605,989,800
Net change in other
assets (5,344,734) (2,829,937) (414,588)
Net cash used
in investing
activities (3,409,258,149) (1,907,583,549) (279,462,568)
Cash flows from financing
activities:
Capital contribution
from non-controlling
interests 26,351 18,861 2,763
Proceeds from employees
exercising stock
options 18,407,235 40,513,481 5,935,259
Repurchase of company
shares (165,726,730) -- --
Decrease in other
long-term payable (10,000,000) -- --
Net cash provided by
(used in) financing
activities (157,293,144) 40,532,342 5,938,022
Effect of exchange rate
changes on cash held in
foreign currencies (140,660,794) 20,438,618 2,994,274
Net increase
(decrease) in
cash (1,689,412,899) 247,882,390 36,314,976
Cash, beginning of the
period 2,482,820,821 793,407,922 116,234,917
Cash, end of the period 793,407,922 1,041,290,312 152,549,893
Supplemental disclosures of
cash flow information:
Cash paid for
income tax, net
of tax refund 250,080,776 294,273,083 43,111,250
Supplemental schedule of
non-cash investing and
financing activities:
Treasury stock
cancellation 165,726,730 -- --
Fixed asset
purchases financed
by accounts
payable 37,302,324 47,427,382 6,948,151
Conversion of
convertible notes
to ordinary shares 602,041,878 -- --
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
December 31, September 30, December 31, December 31,
2008 2009 2009 2009
RMB RMB RMB USD (Note 1)
Revenues:
Online game
services 672,491,424 775,141,663 1,088,040,623 159,398,852
Advertising
services 111,800,172 86,049,485 183,679,014 26,909,128
Wireless
value-added
services and
others 17,424,193 18,257,187 18,479,826 2,707,310
Total revenues 801,715,789 879,448,335 1,290,199,463 189,015,290
Business taxes:
Online game
services (892,846) (3,287,201) (22,466,299) (3,291,331)
Advertising
services (9,502,935) (7,886,109) (17,573,989) (2,574,604)
Wireless
value-added
services and
others (114,173) (248,515) (250,595) (36,712)
Total business
taxes (10,509,954) (11,421,825) (40,290,883) (5,902,647)
Net revenues:
Online game
services 671,598,578 771,854,462 1,065,574,324 156,107,521
Advertising
services 102,297,237 78,163,376 166,105,025 24,334,524
Wireless
value-added
services and
others 17,310,020 18,008,672 18,229,231 2,670,598
Total net
revenues 791,205,835 868,026,510 1,249,908,580 183,112,643
Cost of
revenues:
Online game
services (80,640,289) (154,810,194) (311,402,332) (45,620,700)
Advertising
services (49,984,535) (60,088,698) (69,143,032) (10,129,511)
Wireless
value-added
services and
others (21,624,189) (26,104,974) (25,241,505) (3,697,901)
Total cost of
revenues (152,249,013) (241,003,866) (405,786,869) (59,448,112)
Gross profit
(loss):
Online game
services 590,958,289 617,044,268 754,171,992 110,486,821
Advertising
services 52,312,702 18,074,678 96,961,993 14,205,013
Wireless
value-added
services and
others (4,314,169) (8,096,302) (7,012,274) (1,027,303)
Total gross
profit 638,956,822 627,022,644 844,121,711 123,664,531
Gross profit
(loss) margin:
Online game
services 88.0% 79.9% 70.8% 70.8%
Advertising
services 51.1% 23.1% 58.4% 58.4%
Wireless
value-added
services and
others (24.9%) (45.0%) (38.5%) (38.5%)
Year Ended
December 31, December 31, December 31,
2008 2009 2009
RMB RMB USD (Note 1)
Revenues:
Online game services 2,498,518,103 3,368,688,576 493,515,665
Advertising services 405,887,007 383,560,557 56,191,939
Wireless value-added
services and others 71,718,938 71,201,485 10,431,076
Total revenues 2,976,124,048 3,823,450,618 560,138,680
Business taxes:
Online game services 130,666,281 (28,758,137) (4,213,092)
Advertising services (34,500,316) (36,875,590) (5,402,304)
Wireless value-added
services and others 12,294,136 (869,758) (127,420)
Total business taxes 108,460,101 (66,503,485) (9,742,816)
Net revenues:
Online game services
2,629,184,384 3,339,930,439 489,302,573
Advertising services 371,386,691 346,684,967 50,789,635
Wireless value-added
services and others 84,013,074 70,331,727 10,303,656
Total net revenues 3,084,584,149 3,756,947,133 550,395,864
Cost of revenues:
Online game services (268,574,306) (629,918,759) (92,283,619)
Advertising services (208,907,875) (225,626,677) (33,054,495)
Wireless value-added
services and others (82,123,181) (96,683,642) (14,164,234)
Total cost of revenues (559,605,362) (952,229,078) (139,502,348)
Gross profit (loss):
Online game services
2,360,610,078 2,710,011,680 397,018,954
Advertising services 162,478,816 121,058,290 17,735,140
Wireless value-added
services and others 1,889,893 (26,351,915) (3,860,578)
Total gross profit 2,524,978,787 2,804,718,055 410,893,516
Gross profit (loss)
margin:
Online game services 89.8% 81.1% 81.1%
Advertising services 43.7% 34.9% 34.9%
Wireless value-added
services and others 2.2% (37.5%) (37.5%)
The accompanying notes are an integral part of this press release.
NETEASE.COM, 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 = RMB6.8259 on
December 31, 2009 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 operations is set out as
follows:
Quarter Ended
December 31, September 30, December 31, December 31,
2008 2009 2009 2009
RMB RMB RMB USD (Note 1)
Share-based
compensation
cost included in:
Cost of revenue 3,294,120 1,852,934 1,811,066 265,323
Operating expenses
- Selling and
marketing
expenses 1,328,916 350,137 341,660 50,053
- General and
administrative
expenses 3,464,280 1,640,203 1,607,124 235,445
- Research and
development
expenses 3,625,048 2,165,012 2,014,239 295,088
Year Ended
December 31, December 31, December 31,
2008 2009 2009
RMB RMB USD (Note 1)
Share-based
compensation cost
included in:
Cost of revenue 13,678,836 9,020,785 1,321,552
Operating expenses
- Selling and marketing
expenses 8,564,177 2,323,006 340,323
- General and
administrative
expenses 23,586,590 9,861,181 1,444,671
- Research and
development
expenses 22,119,058 10,179,723 1,491,338
SOURCE NetEase.com, Inc.
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