NetEase Announces Second Quarter 2020 Unaudited Financial Results
BEIJING,Aug. 13,2020 -- NetEase,Inc. (NASDAQ: NTES and HKEX: 9999,"NetEase" or the "Company"),one of China's leading internet and online game services providers,today announced its unaudited financial results for the second quarter ended June 30,2020.
Second Quarter 2020 Financial Highlights
Net revenues were RMB18.2 billion (US$2.6 billion),an increase of 25.9% compared with the second quarter of 2019.
- Online game services net revenues were RMB13.8 billion (US$2.0 billion),an increase of 20.9% compared with the second quarter of 2019.
- Youdao net revenues were RMB623.3 million (US$88.2 million),an increase of 93.1% compared with the second quarter of 2019.
- Innovative businesses and others net revenues were RMB3.7 billion (US$528.4 million),an increase of 38.7% compared with the second quarter of 2019.
Gross profit was RMB9.8 billion (US$1.4 billion),an increase of 26.6% compared with the second quarter of 2019.
Total operating expenses were RMB5.6 billion (US$795.8 million),an increase of 40.1% compared with the second quarter of 2019.
Net income from continuing operations attributable to the Company's shareholders was RMB4.5 billion (US$642.3 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB5.2 billion (US$739.7 million). [1]
Basic net income from continuing operations was US$4.95 per ADS (US$0.20 per share). Non-GAAP basic net income from continuing operations was US$5.70 per ADS (US$0.23 per share). [1]
Second Quarter 2020 and Recent Operational Highlights
Launched exciting new titles including EVE Echoes,Fantasy Westward Journey H5,King of Hunters,PES Club Manager and MARVEL Duel.
Introduced PC game Justice's two-year anniversary expansion pack in June,propelling high popularity and driving increased new and returning players.
Reinforced international games presence with strong performances from Knives Out and Life-After in Japan.
Continued popularity of Blizzard Entertainment's World of Warcraft® in China,achieving a record number of peak concurrent users in the first half of this year.
Advanced near-term titles for release including Onmyoji: Yokai Koya,as well as other upcoming titles in the pipeline such as: The Lord of the Rings: Rise to War,Harry Potter: Magic Awakened,For All Time,Revelation mobile game,Ghost World Chronicle,Nightmare Breaker,Infinite Lagrange,Diablo® Immortal™ and Pokémon Quest.
Grew Youdao's intelligent learning business steadily with net revenues from learning services and products reaching RMB520.1 million (US$73.6 million),up 190.0% year-over-year,and continued positive net operating cash flow of RMB93.0 million (US$13.2 million).
Maintained strong momentum for NetEase Cloud Music,with robust growth in net revenues from both membership and live streaming,and secured a multi-year licensing agreement with Universal Music Group recently.
Completed listing on the main board of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") in June 2020.
Issued first Environmental,Social and Governance report in June 2020.
[1]As used in this announcement,non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per ADS and per share are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement.
"We saw healthy gains across our business in the second quarter,with total net revenues of RMB18.2 billion,up 25.9% year-over-year,driven by strong performances from our online game services and NetEase Cloud Music," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Our games portfolio holds considerable depth and diversity,supporting our online game services net revenues of RMB13.8 billion in the second quarter. We saw steady growth in our overseas revenue in the second quarter. With the continuous expansion of our abundant games pipeline,we are more confident and committed than ever to extending our reach to a broader market. Our other core businesses such as Youdao,NetEase Cloud Music and Yanxuan,among others,also continue to track well against our strategic goals.
"In June,we celebrated the 20th anniversary of our listing on NASDAQ,as well as completed our listing on the Hong Kong Stock Exchange. Creating value for our supporters is always a priority. We will continue to examine ways to drive our Company's growth,keeping in mind the best interests of our long-term investors,who have extended their trust and support to us,as well as our increasingly global community of players," Mr. Ding concluded.
Second Quarter 2020 Financial Results
Net Revenues
Netrevenues for the secondquarter of 2020 were RMB18,184.8million (US$2,573.9million),compared to RMB17,062.4million and RMB14,448.4million for the preceding quarter and the second quarter of 2019,respectively.
Net revenues from online game services were RMB13,828.3million (US$1,957.3million) for the second quarter of 2020,compared to RMB13,518.2million and RMB11,433.4million for the preceding quarter and the second quarter of 2019,respectively. Net revenues from mobile games accounted for approximately 72.3% of net revenues from online games for the second quarter of 2020,compared to 70.3% and 72.2%forthe precedingquarter and the second quarter of 2019,respectively.
Net revenues from Youdao were RMB623.3million (US$88.2million) for the second quarter of 2020,compared to RMB541.4million and RMB322.8million for the preceding quarter and the second quarter of 2019,respectively.
Net revenues from innovative businesses and others were RMB3,733.3million (US$528.4million) for the second quarter of 2020,compared to RMB3,002.7million and RMB2,692.3million for the preceding quarter and the second quarter of 2019,respectively.
Gross Profit
Gross profit for the second quarter of 2020 was RMB9,792.2million (US$1,386.0million),compared to RMB9,377.6million and RMB7,736.8million for the preceding quarter and the second quarter of 2019,respectively.
The quarter-over-quarterincrease in online game services gross profitwasprimarily due to increased net revenues from self-developed mobile gamessuch as Invincible,Life-After and Knives Out. The year-over-year increase wasprimarily due to increased net revenues from self-developed mobile gamesFantasy Westward Journey 3D,Invincible and Fantasy Westward Journey mobile game,as well as certain licensed games.
The quarter-over-quarterand year-over-year increases in Youdao gross profit were primarily attributable to the significant increase in net revenues,improved economies of scale and faculty compensation structure optimization for its learning services and products.
The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to the improvement in gross profit from advertising services,Yanxuan and NetEase Cloud Music. The year-over-year increase wasprimarily due to increased net revenues from NetEaseCloud Music.
Gross Profit Margin
Gross profit margin for online game services for the second quarter of 2020 was 63.8%,compared to 64.1% and 63.1% for the preceding quarter and the second quarter of 2019,respectively.Gross profit margin for online game serviceswas generally stable,fluctuating within a narrow band based on the revenue mix of mobile and PC games,as well as self-developed and licensed games.
Gross profit margin for Youdao for the second quarter of 2020 was 45.2%,compared to 43.5% and 32.9% for the preceding quarter and the second quarter of 2019,respectively.The quarter-over-quarter margin was comparatively stable. The year-over-year increasewas primarily attributable to the factors enumerated above.
Gross profit margin for innovative businesses and others for the second quarter of 2020 was 18.5%,compared to 15.8% and 15.5% for the preceding quarter and the second quarter of 2019,respectively. The quarter-over-quarter increase was primarily due to improvement in gross profit margin from advertising services,Yanxuan and NetEase Cloud Music. The year-over-year increase was primarily due to increased net revenues from NetEase Cloud Music.
Operating Expenses
Total operating expenses for the second quarter of 2020 were RMB5,622.3million (US$795.8million),compared to RMB4,891.2million and RMB4,012.5 million for the preceding quarter and the second quarter of 2019,respectively. The quarter-over-quarterand year-over-year increases were mainly due to increased marketing expenditures related to online game services and Youdao,as well as higher staff-related costs and research and development investments.
Other Income
Other income consisted of investment income/ (loss),interest income,exchange gains and others. The quarter-over-quarter and year-over-year increases were mainly due to the gains fromfair value changes of equity investments with readily determinable fair value and government incentives recognized.
Income Taxes
The Company recorded a net income tax charge of RMB1,064.5 million (US$150.7 million) for the second quarter of 2020,compared to RMB1,082.0 million and RMB683.8 million for the preceding quarter and the second quarter of 2019,respectively. The effective tax rate for the second quarter of 2020 was 18.6%,compared to 21.5% and 16.7% for the preceding quarter and the second quarter of 2019,respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.
Net Income and Non-GAAP Net Income
Net income from continuing operations attributable to the Company's shareholders for the second quarter of 2020 totaled RMB4,537.8million (US$642.3 million),551.0 million and RMB3,354.2 million for the preceding quarter and the second quarter of 2019,respectively.
Non-GAAP net income from continuing operations attributable to the Company's shareholders for the second quarter of 2020 totaled RMB5,226.0 million (US$739.7 million),212.9 million and RMB3,921.1 million for the preceding quarter and the second quarter of 2019,respectively.
NetEase reported basic and diluted net income from continuing operations per ADS of US$4.95 and US$4.89 for the second quarter of 2020,compared to US$3.89 and US$3.84,respectively for the preceding quarter and US$3.68 and US$3.65,respectively for the second quarter of 2019. NetEase reported basic and diluted net income from continuing operations per share of US$0.20 each for the second quarter of 2020,compared to US$0.16 and US$0.15,respectively for the preceding quarter and US$0.15 each for the second quarter of 2019.
Non-GAAP basic and diluted net income from continuing operations per ADS were US$5.70 and US$5.64 for the second quarter of 2020,compared to US$4.61 and US$4.55,respectively for the preceding quarter and US$4.31 and US$4.27,respectively for the second quarter of 2019. Non-GAAP basic and diluted net income from continuing operations per share were US$0.23 each for the second quarter of 2020,compared to US$0.18 each for the preceding quarter and US$0.17 each for the second quarter of 2019.
QuarterlyDividend
The board of directors has approved a dividend of US$1.485 per ADS (US$0.0594 per share) for the second quarter of 2020,to holders of ADSs and holders of ordinary shares as of the close of business on August 28,2020,New York Time and Hong Kong Time,respectively,payable in U.S. dollars. For holders of ordinary shares,in order to qualify for the dividend,all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar,Computershare Hong Kong Investor Services Limited,at Shops 1712-1716,17th Floor,Hopewell Centre,183 Queen's Road East,Wanchai,Hong Kong no later than 4:30 p.m. on August 28,2020 (Hong Kong Time). The payment date is expected to be on September 14,2020 for holders of ordinary shares and on or around September 18,2020 for holders of ADSs (assuming the dividend payment is timely received by the ADS depositary).
Change in Segment Reporting
Effective in the third quarter of 2019,the Company has reported the following segments: online game services,Youdao and innovative businesses and others,aligning with the manner in which the Company's chief operating decision maker ("CODM") currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company retrospectively revised prior period segment information to conform to current period presentation.
Initial Public Offering in Hong Kong
In June,the Company successfully listed its ordinary shares on the main board of the Hong Kong Stock Exchange with a global offering of 197,202,000 ordinary shares. Gross proceeds from the global offering,before any underwriting fees and other offering expenses,were approximately HK$24,255.8 million.
Impact of the Recently Adopted Major Accounting Pronouncements
In June 2016,the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326)",which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience,current conditions,and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company adopted the new standard effective January 1,2020 on a modified retrospective basis and did not restate comparative periods. The impact of new standard was immaterial to the Company.
Conference Call
NetEase's management team will host a teleconference call with simultaneous webcast at 7:30 a.m. NewYork Time on Thursday,August 13,2020 (Beijing/Hong Kong Time: 7:30 p.m.,Thursday,2020). 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 1-929-477-0324 (US),400-120-9101 (Mainland China) or 852-3008-1527 (Hong Kong) and providing conference ID: 7890540,10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 7890540#. The replay will be available through August 26,2020.
This call will be webcast live and the replay will be available for 12 months.Both will be available on NetEase's Investor Relations website at http://ir.netease.com/.
About NetEase,Inc.
As a leading internet technology company based in China,NetEase,"NetEase") is dedicated to providing premium online services centered around innovative and diverse content,community,communication and commerce. NetEase develops and operates some of China's most popular mobile and PC games. In more recent years,NetEase has expanded into international markets including Japan and North America. In addition to its self-developed game content,NetEase partners with other leading game developers,such as Blizzard Entertainment and Mojang AB (a Microsoft subsidiary),to operate globally renowned games in China. NetEase's other innovative service offerings include the intelligent learning services of its majority-controlled subsidiary,Youdao (NYSE: DAO); music streaming through its leading NetEase Cloud Music business; and its private label e-commerce platform,Yanxuan. For more information,please visit: http://ir.netease.com/.
Forward Looking Statements
This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition,statements that are not historical facts,including statements about NetEase's strategies and business plans,its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"),in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"),in press releases and other written materials and in oral statements made by its officers,directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated,including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company's operations or financial results; risks associated with NetEase's business and operating strategies and itsability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for,among other things,capital,technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set,or follow in a timely manner,trends in the market; competition in NetEase's existing and potential markets; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information,except as required under the applicable law.
Non-GAAP Financial Measures
NetEase considers and uses non-GAAP financial measures,such as non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per ADS and per share,as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
NetEase defines non-GAAP net income from continuing operations attributable to the Company's shareholders as net income from continuing operations attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income from continuing operations attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses,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 prospects in the same manner as management does,if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.
Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income from continuing operations attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income from continuing operations attributable to the Company's shareholders. In addition,the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies,including peer companies,and therefore their comparability may be limited.
NetEase compensates for these limitations by reconciling non-GAAP net income from continuing operations attributable to the Company's shareholders to the nearest U.S. GAAP performance measure,all of which should be considered when evaluating the Company's performance. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.
Contact for Media and Investors:
Margaret Shi
Email: ir@service.netease.com
Tel: (+86) 571-8985-3378
Twitter: https://twitter.com/NetEase_Global
Brandi Piacente
Email: netease@thepiacentegroup.com
Tel: (+1) 212-481-2050
NETEASE,INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(RMB and USD in thousands)
December 31,
June 30,
2019
2020
2020
RMB
RMB
USD (Note 1)
Assets
Current assets:
Cash and cash equivalents
3,246,373
10,622,795
1,503,559
Time deposits
53,487,075
66,348,005
9,390,951
Restricted cash
3,150,354
3,351,610
474,390
Accounts receivable,net
4,169,358
5,018,414
710,310
Inventories,net
650,557
558,789
79,091
Prepayments and other current assets
4,817,422
6,014,017
851,229
Short-term investments
15,312,595
19,199,417
2,717,501
Assets held for sale
271,278
-
-
Total current assets
85,105,012
111,113,047
15,727,031
Non-current assets:
Property,equipment and software,621,712
4,416,247
625,079
Land use right,net
3,707,179
4,221,940
597,577
Deferred tax assets
903,904
790,046
111,824
Time deposits
2,360,000
6,823,390
965,788
Other long-term assets
15,424,166
16,805,584
2,378,676
Assets held for sale
2,398
-
-
Total non-current assets
27,019,359
33,057,207
4,678,944
Total assets
112,124,371
144,170,254
20,405,975
Liabilities,Redeemable Noncontrolling Interests
and Shareholders' Equity
Current liabilities:
Accounts payable
1,212,303
853,745
120,840
Salary and welfare payables
2,957,360
2,570,216
363,790
Taxes payable
3,156,513
3,822,542
541,046
Short-term loans
16,828,226
21,932,603
3,104,358
Deferred revenue
8,602,227
9,375,909
1,327,074
Accrued liabilities and other payables
5,484,228
6,640,467
939,897
Liabilities held for sale
2,156
-
-
Total current liabilities
38,243,013
45,195,482
6,397,005
Non-current liabilities:
Deferred tax liabilities
382,030
980,530
138,785
Other long-term payable
456,912
476,640
67,464
Liabilities held for sale
961
-
-
Total non-current liabilities
839,903
1,457,170
206,249
Total liabilities
39,082,916
46,652,652
6,603,254
Redeemable noncontrolling interests
10,448,600
10,538,663
1,491,651
Total NetEase,Inc.'s equity
61,453,699
85,804,783
12,144,879
Noncontrolling interests
1,139,156
1,174,156
166,191
Total shareholders' equity
62,592,855
86,978,939
12,311,070
Total liabilities,redeemable noncontrolling
interests and shareholders' equity
112,975
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands,except per share data or per ADS data)
Three Months Ended
Six Months Ended
June 30,
March 31,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues
14,442
17,062,367
18,184,806
2,573,892
28,870,651
35,247,173
4,988,914
Cost of revenues
(6,711,594)
(7,684,745)
(8,392,631)
(1,187,900)
(13,396,129)
(16,077,376)
(2,275,605)
Gross profit
7,736,848
9,377,622
9,792,175
1,385,992
15,474,522
19,797
2,713,309
Selling and marketing expenses
(1,289,763)
(1,863,071)
(2,321,397)
(328,572)
(2,447,853)
(4,468)
(592,273)
General and administrative expenses
(776,900)
(885,434)
(892,622)
(126,342)
(1,563,750)
(1,778,056)
(251,667)
Research and development expenses
(1,945,788)
(2,142,649)
(2,408,306)
(340,874)
(3,983,482)
(4,550,955)
(644,146)
Total operating expenses
(4,012,451)
(4,891,154)
(5,325)
(795,788)
(7,995,085)
(10,513,479)
(1,488,086)
Operating profit
3,724,397
4,486,468
4,850
590,204
7,479,437
8,656,318
1,225,223
Other income:
Investment income/ (loss),net
24,142
(109,731)
711,159
100,658
179,966
601,428
85,127
Interest income,net
185,227
345,184
396,519
56,124
357,433
741,703
104,981
Exchange gains,net
72,646
244,057
17,008
2,407
33,126
261,065
36,951
Other,net
78,026
66,708
421,199
59,617
115,190
487,907
69,059
Income before tax
4,084,438
5,032,686
5,715,735
809,010
8,165,152
10,748,421
1,521,341
Income tax
(683,755)
(1,033)
(1,064,455)
(150,664)
(1,950,440)
(2,146,488)
(303,816)
Net income from continuing operations
3,400,683
3,653
4,651,280
658,346
6,214,712
8,601,933
1,217,525
Net loss from discontinued operations
(282,815)
-
-
-
(633,570)
-
-
Net income
3,117,868
3,346
5,581,142
8,525
Accretion and deemed dividends in connection with
repurchase of redeemable noncontrolling interests
(73,048)
(386,019)
(150,958)
(21,367)
(141,831)
(536,977)
(76,004)
Net loss/ (income) attributable to noncontrolling interests
26,547
(13,628)
37,484
5,306
14,174
23,856
3,377
Net income attributable to the Company's shareholders
3,071,367
3,551,006
4,537,806
642,285
5,485
8,088,812
1,898
Including:
-Net income from continuing operations attributable to the
Company's shareholders
3,354,182
3,285
6,087,055
8,898
-Net loss from discontined operations attributable to the
Company's shareholders
(282,570)
-
-
Basic net income/ (loss) per share:
0.95
1.10
1.40
0.20
1.70
2.50
0.35
-Continuing operations
1.04
1.10
1.40
0.20
1.89
2.50
0.35
-Discontinued operations
(0.09)
-
-
-
(0.19)
-
-
Basic net income/ (loss) per ADS:
23.84
27.47
34.99
4.95
42.42
62.48
8.84
-Continuing operations
26.03
27.47
34.99
4.95
47.35
62.48
8.84
-Discontinued operations
(2.19)
-
-
-
(4.93)
-
-
Diluted net income/ (loss) per share:
0.95
1.08
1.38
0.20
1.68
2.47
0.35
-Continuing operations
1.03
1.08
1.38
0.20
1.88
2.47
0.35
-Discontinued operations
(0.08)
-
-
-
(0.20)
-
-
Diluted net income/ (loss) per ADS:
23.64
27.12
34.58
4.89
42.09
61.70
8.73
-Continuing operations
25.82
27.12
34.58
4.89
46.98
61.70
8.73
-Discontinued operations
(2.18)
-
-
-
(4.89)
-
-
Weighted average number of ordinary shares outstanding,
basic
3,306
3,231,395
3,242,061
3,213,792
3,236,728
3,728
Weighted average number of ADS outstanding,basic
128,852
129,256
129,682
129,682
128,552
129,469
129,469
Weighted average number of ordinary shares outstanding,
diluted
3,408
3,273,999
3,281,100
3,239,406
3,277,550
3,550
Weighted average number of ADS outstanding,diluted
129,896
130,960
131,244
131,244
129,576
131,102
131,102
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RMB and USD in thousands)
Three Months Ended
Six Months Ended
June 30,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from operating activities:
Net income
3,525
Net loss from discontinued operations
282,815
-
-
-
633,570
-
-
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
633,574
690,057
892,150
126,276
1,751
1,582,207
223,947
Fair value changes of equity security investments
87,034
327,040
(503,281)
(71,235)
(42,878)
(176,241)
(24,945)
Impairment losses of investments and other intangible assets
68,883
6,600
-
-
164,982
6,600
934
Fair value changes of short-term investments
(174,316)
(153,106)
(174,738)
(24,732)
(298,964)
(327,844)
(46,403)
Share-based compensation cost
567,668
665,814
691,945
97,938
1,188,467
1,357,759
192,178
Allowance for/ (reversal of) provision for doubtful debts
2,854
49,939
(1,305)
(185)
(15,465)
48,634
6,884
Losses on disposal of property,equipment and software
1,452
37
1,070
151
4,190
1,107
157
Unrealized exchange gains
(71,849)
(242,508)
(20,159)
(2,853)
(30,043)
(262,667)
(37,178)
Gains on disposal of long-term investments,business and subsidiaries
(156)
(15,433)
(14,803)
(2,095)
(12,134)
(30,236)
(4,280)
Deferred income taxes
466,324
212,848
499,509
70,701
769,376
712,357
100,828
Net equity share of (gains)/ losses from associated companies
(912)
(46,211)
(10,948)
(1,550)
16,542
(57,159)
(8,090)
Changes in operating assets and liabilities:
Accounts receivable
386,030
(430,535)
(498,550)
(70,565)
(223,062)
(929,085)
(131,503)
Inventories
132,712
88,440
3,329
471
295,716
91,769
12,989
Prepayments and other assets
546,551
(1,103,798)
233,607
33,065
(432,822)
(870,191)
(123,168)
Accounts payable
(112,477)
(98,679)
(271,697)
(38,456)
(18,330)
(370,376)
(52,423)
Salary and welfare payables
42,803
(537,907)
132,037
18,689
(441,242)
(405,870)
(57,447)
Taxes payable
(833,059)
1,234,078
(568,138)
(80,415)
106,300
665,940
94,258
Deferred revenue
(490,658)
1,379,126
(605,444)
(85,695)
(339,017)
773,682
109,507
Accrued liabilities and other payables
274,985
524,194
336,444
47,621
(567,092)
860,638
121,815
Net cash provided by continuing operating activities
4,928,126
6,500,649
4,772,308
675,477
7,553,987
11,272,957
1,595,585
Net cash (used in)/ provided by discontinued operating activities
(462,362)
-
-
-
298,351
-
-
Net cash provided by operating activities
4,465,764
6,852,338
11,585
Cash flows from investing activities:
Purchase of property,equipment and software
(274,448)
(164,320)
(237,039)
(33,551)
(644,038)
(401,359)
(56,809)
Proceeds from sale of property,898
772
3,970
562
5,718
4,742
671
Purchase of intangible assets,content and licensed copyrights
(298,301)
(306,835)
(839,441)
(118,815)
(1,149,861)
(1,276)
(162,245)
Net change in short-term investments with terms of three
months or less
1,083
(780,535)
1,083,342
153,337
1,462,828
302,807
42,860
Purchase of short-term investments
(9,110,000)
(10,070,000)
(3,080,000)
(435,946)
(14,000,000)
(13,000)
(1,861,262)
Proceeds from maturities of short-term investments
2,759,491
6,887,976
2,345,218
331,944
5,813
9,233,194
1,306,874
Investment in associated companies and other long-term investments
(227,229)
(205,005)
(520,762)
(73,708)
(619,245)
(725,767)
(102,726)
Proceeds from disposal of investment in equity investments,businesses
and subsidiaries
42,399
196,952
33,856
4,792
251,081
230,808
32,669
Placement/rollover of matured time deposits
(16,752)
(11,667,487)
(38,412,268)
(5,436,904)
(32,831,292)
(50,079,755)
(7,329)
Proceeds from maturities of time deposits
18,588,553
13,617
19,442,266
2,751,874
34,548,012
33,883
4,682,578
Change in other long-term assets
(56,553)
(10,522)
(76,103)
(10,772)
(88,312)
(86,625)
(12,261)
Amounts (paide to)/ received from disposed businesses
(200,690)
-
-
-
450,486
-
-
Net cash used in continuing investing activities
(3,506,549)
(2,478,387)
(20,256,961)
(2,867,187)
(7,543,810)
(22,735,348)
(3,980)
Net cash provided by/ (used in) discontinued investing activities
136,649
-
-
-
(567,355)
-
-
Net cash used in investing activities
(3,369,900)
(2,187)
(8,111,165)
(22,980)
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(RMB and USD in thousands)
Three Months Ended
Six Months Ended
June 30,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Cash flows from financing activities:
Proceeds of short-term bank loans
297,875
100,000
360,474
51,022
312,875
460,474
65,176
Payment of short-term bank loans
-
(98,395)
(358,171)
(50,696)
-
(456,566)
(64,623)
Net changes in short-term loans with terms of three months or less
(1,121)
2,539,570
2,305,176
326,276
(403,008)
4,844,746
685,729
Net proceeds received from issuance of shares in Hong Kong
-
-
22,467
3,125,712
-
22,712
Capital injection from/ (repurchase of) noncontrolling interests and redeemable
noncontrolling interests shareholders,net
215,913
(447,632)
163,865
23,194
284,524
(283,767)
(40,165)
Cash received from/ (paid for) repurchase of NetEase's/ purchase of Youdao's
ADSs
10,645
(2,560,897)
(3,260,996)
(461,564)
10,645
(5,821,893)
(824,035)
Dividends paid to shareholders
(613,117)
(926,545)
(1,115,136)
(157,837)
(1,026,706)
(2,041,681)
(288,981)
Net cash (used in)/ provided by financing activities
(1,232,805)
(1,393,899)
20,178,679
2,856,107
(821,670)
18,784,780
2,658,813
Effect of exchange rate changes on cash,cash equivalents
and restricted cash held in foreign currencies
35,624
74,100
180,056
25,485
17,730
254,156
35,973
Net (decrease)/ increase in cash,cash equivalents and restricted cash
(101,317)
2,702,463
4,874,082
689,882
(1,767)
7,576,545
1,072,391
Cash,cash equivalents and restricted cash,
at the beginning of the period
9,245,088
6,860
9,100,323
1,288,067
10,206,538
6,860
905,558
Cash,at end of the period
9,143,771
9,323
13,974,405
1,977,949
9,771
13,949
Less: Cash,cash equivalents and restricted cash of held for sale at end of the period
255,151
371
-
-
255,151
-
-
Cash,cash equivalents and restricted cash of continuing operations
at end of the period
8,888,620
9,099,952
13,949
8,620
13,949
Supplemental disclosures of cash flow information of continuing
operations:
Cash paid for income tax,net
562,032
202,044
548,556
77,643
1,097,755
750,600
106,241
Cash paid for interest expense
115,410
96,711
55,301
7,827
224,074
152,012
21,516
Supplemental schedule of non-cash investing and financing activities
of continuing opearations:
Fixed asset purchases financed by accounts payable and accrued
liabilities
312,346
377,564
277,314
39,251
312,346
277,251
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
UNAUDITED SEGMENT INFORMATION
(RMB and USD in thousands,except percentages)
Three Months Ended
Six Months Ended
June 30,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues:
Online game services
11,433,361
13,518,244
13,256
1,263
23,283,545
27,346,500
3,646
Youdao
322,812
541,388
623,290
88,221
548,543
1,164,678
164,849
Innovative businesses and others
2,692,269
3,002,735
3,733,260
528,408
5,038,563
6,995
953,419
Total net revenues
14,914
Cost of revenues:
Online game services
(4,220,652)
(4,851,831)
(5,009,354)
(709,028)
(8,519,997)
(9,185)
(1,395,760)
Youdao
(216,749)
(305,663)
(341,751)
(48,372)
(389,585)
(647,414)
(91,636)
Innovative businesses and others
(2,274,193)
(2,527,251)
(3,526)
(430,500)
(4,547)
(5,568,777)
(788,209)
Total cost of revenues
(6,605)
Gross profit:
Online game services
7,709
8,666,413
8,818,902
1,248,235
14,763,548
17,485,315
2,886
Youdao
106,063
235,725
281,539
39,849
158,958
517,264
73,213
Innovative businesses and others
418,076
475,484
691,734
97,908
552,016
1,167,218
165,210
Total gross profit
7,309
Gross profit margin:
Online game services
63.1%
64.1%
63.8%
63.8%
63.4%
63.9%
63.9%
Youdao
32.9%
43.5%
45.2%
45.2%
29.0%
44.4%
44.4%
Innovative businesses and others
15.5%
15.8%
18.5%
18.5%
11.0%
17.3%
17.3%
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
NOTES TO UNAUDITED FINANCIALINFORMATION
Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.0651on the last trading day of June 2020(June 30,2020) 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):
Three Months Ended
Six Months Ended
June 30,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Share-based compensation cost included in:
Cost of revenues
187,141
207,915
204,953
29,009
386,350
412,868
58,438
Operating expenses
- Selling and marketing expenses
21,144
24,811
27,034
3,826
46,391
51,845
7,338
- General and administrative expenses
187,362
230,371
247,589
35,044
385,220
477,960
67,651
- Research and development expenses
172,021
202,717
212,369
30,059
370,506
415,086
58,752
The accompanying notes are an integral part of this announcement.
NETEASE,INC.
UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(in thousands,
2019
2020
2020
2020
2019
2020
2020
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net income from continuing operations attributable to
the Company's shareholders
3,898
Add: Share-based compensation
566,869
661,871
688,227
97,412
1,308
1,350,098
191,094
Non-GAAP net income from continuing operations
attributable to the Company's shareholders
3,921,051
4,877
5,226,033
739,697
7,363
9,438,910
1,335,992
Non-GAAP basic net income from continuing
operations per share
1.22
1.30
1.61
0.23
2.26
2.92
0.41
Non-GAAP basic net income from continuing
operations per ADS
30.43
32.59
40.30
5.70
56.59
72.90
10.32
Non-GAAP diluted net income from continuing
operations per share
1.21
1.29
1.59
0.23
2.25
2.88
0.41
Non-GAAP diluted net income from continuing
operations per ADS
30.19
32.17
39.82
5.64
56.14
72.00
10.19
The accompanying notes are an integral part of this announcement.
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