NetEase Reports Fourth Quarter and Fiscal Year 2020 Unaudited Financial Results

BEIJING,Feb. 25,2021 -- 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 fourth quarter and fiscal year ended December 31,2020.

Fourth Quarter 2020 Financial Highlights

Net revenues were RMB19.8billion (US$3.0billion),an increase of 25.6% compared with the fourth quarter of 2019.

- Online game services net revenues were RMB13.4billion (US$2.1billion),an increase of 15.5% compared with the fourth quarter of 2019.

- Youdao net revenues were RMB1.1 billion (US$169.6 million),an increase of 169.7% compared with the fourth quarter of 2019.

- Innovative businesses and others net revenues were RMB5.3 billion (US$805.3 million),an increase of 41.3% compared with the fourth quarter of 2019.

Gross profit was RMB9.9 billion (US$1.5 billion),an increase of 20.9% compared with the fourth quarter of 2019.

Total operating expenses were RMB6.9 billion (US$1.1 billion),an increase of 32.1% compared with the fourth quarter of 2019.

Net income from continuing operations attributable to the Company's shareholders was RMB975.7 million (US$149.5 million),which includes net exchange losses of RMB1.8 billion (US$276.2 million) andnet investment loss of RMB271.9 million (US$41.7 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB1.6 billion (US$244.9 million). [1]

Basic net income from continuing operations was US$0.04 per share (US$0.22 per ADS). Non-GAAP basic net income from continuing operations was US$0.07 per share (US$0.36 per ADS). [1]

[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.

Fourth Quarter 2020 and Early2021 Operational Highlights

Expanded user base and diversified portfolio with new games launched in the Chinese market including:

- Revelation mobile game,which was released in January 2021 and topped China's iOS download chart soon after its launch,capturing wide interest from players.

- Introduced new titles including For All Time,Unknown Future,Akasha Book and Yu-Gi-Oh! Duel Links.

Continued the popularity of a number of mobile titles that climbed China's iOS top grossing chart in the past few months including Fantasy Westward Journey and Westward Journey Online mobile games,Invincible and Life-After.

Deepened NetEase Games' international reach with Knives Out leading Japan's iOS top grossing chart several times in the fourth quarter.

Advanced exciting game pipeline,including Elysium of Legends,Infinite Lagrange,Harry Potter: Magic Awakened,The Lord of the Rings: Rise to War,Nightmare Breaker,Ghost World Chronicle,Diablo® Immortal™ and Pokémon Quest.

Continued strong growth from Youdao's learning services and learning products for the fourth quarter of 2020,with net revenues up 198.8% and 253.8% year-over-year,respectively and positive net operating cash flow of approximately RMB129.0 million (US$19.8 million).

"We maintained steady developmentacross our primary businesses,with total net revenues of RMB19.8 billion in the fourth quarter,up 25.6% year-over-year," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Our online games businesscontinued its strong performance during 2020,propelled by the sustained and growing popularity of our diversifiedtitles. At the beginning of 2021,we launched Revelation mobile game,which gave us a wonderful start to the first quarter. We are also very excited to introduce a number of other new titles later this year,paving the way for our solid growth in 2021.

"2020 was a challenging year for many businesses around the world. Our ability to weather these obstacles and grow each of our online games,online education,music and e-commerce businesses speaks to the strength of our model,which is centered around content creation and user experience. We are committed to generating even more value for our shareholders and communities through our dedication to innovation that thrills our users,diversification and international expansion that drive our revenue streams,and high-quality products and services that are synonymous with the NetEase brand," Mr. Ding concluded.

Fourth Quarter 2020 Financial Results

Net Revenues

Netrevenues for the fourthquarter of 2020 were RMB19,761.7million (US$3,028.6million),compared to RMB18,658.2million and RMB15,734.8million for the preceding quarter and the fourth quarter of 2019,respectively.

Net revenues from online game services were RMB13,400.2 million (US$2,053.7million) for the fourth quarter of 2020,compared to RMB13,862.0 million and RMB11,604.3million for the preceding quarter and the fourth quarter of 2019,respectively. Net revenues from mobile games accounted for approximately 72.4% of net revenues from online game services for the fourth quarter of 2020,compared to 72.7% and 70.4%forthe precedingquarter and the fourth quarter of 2019,respectively.

Net revenues from Youdao were RMB1,106.8 million (US$169.6million) for the fourth quarter of 2020,compared to RMB896.0million and RMB410.4million for the preceding quarter and the fourth quarter of 2019,respectively.

Net revenues from innovative businesses and others were RMB5,254.8 million (US$805.3million) for the fourth quarter of 2020,compared to RMB3,900.1million and RMB3,720.0million for the preceding quarter and the fourth quarter of 2019,respectively.

Gross Profit

Gross profit for the fourth quarter of 2020 was RMB9,927.8million (US$1,521.5million),compared to RMB9,885.8million and RMB8,210.4million for the preceding quarter and the fourth quarter of 2019,respectively.

The quarter-over-quarter decrease in online game services gross profit was mainly due to slightly decreased net revenues from certain mobile games. The year-over-year increase was primarily due to increased net revenues from mobile games such as Fantasy Westward Journey H5,Sky,Life-After and Invincible,as well as PC games such as Fantasy Westward Journey Online.

The quarter-over-quarterand year-over-year increases in Youdao gross profit were primarily due to increased net revenues from its learning services and learning products.

The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to increased gross profit from advertising services and Yanxuan. The year-over-year increase wasprimarily due to improved performances from Yanxuan and NetEaseCloud Music.

Gross Profit Margin

Gross profit margin for online game services for the fourth quarter of 2020 was 63.1%,compared to 63.6% and 63.1% for the preceding quarter and the fourth 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 fourth quarter of 2020 was 47.5%,compared to 45.9% and 29.8% for the preceding quarter and the fourth quarter of 2019,respectively.The quarter-over-quarter and year-over-year increases were mainly due to improved economies of scale and the continuous optimization of Youdao's faculty compensation structure,as well as substantially increased sales volume of Youdao Dictionary Pen,which has a comparatively higher gross profit margin.

Gross profit margin for innovative businesses and others for the fourth quarter of 2020 was 18.0%,compared to 16.8% and 20.6% for the preceding quarter and the fourth quarter of 2019,respectively. The quarter-over-quarter increase was primarily due to increased gross profit margin from advertising services. The year-over-year decrease was primarily due to decreased gross profit margin from NetEase CC live streaming platform.

Operating Expenses

Total operating expenses for the fourth quarter of 2020 were RMB6,915.8 million (US$1,059.9 million),compared to RMB7,015.7million and RMB5,234.0 million for the preceding quarter and the fourth quarter of 2019,respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expendituresrelated to Youdao.The year-over-year increase was 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 losses and others. The quarter-over-quarter and year-over-year decreases were mainly due to higher unrealized exchange lossesarising from the Company's U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods,as well as investment loss arisingfromfair value changes of equity investments with readily determinable fair value.

Income Taxes

The Company recorded a net income tax charge of RMB552.7 million (US$84.7 million) for the fourth quarter of 2020,compared to RMB342.7million and RMB876.3 million for the preceding quarter and the fourth quarter of 2019,respectively. The effective tax rate for the fourth quarter of 2020 was 37.2%,compared to 10.9% and 22.1% for the preceding quarter and the fourth quarter of 2019,respectively. The effective tax rate represents certain estimates by the Company regarding 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 fourth quarter of 2020 totaled RMB975.7million (US$149.5 million) which includes net exchange losses of RMB1,801.9million (US$276.2 million)andnet investment loss of RMB271.9 million (US$41.7 million),compared to RMB2,998.2 million and RMB3,053.7 million for the preceding quarter and the fourth quarter of 2019,respectively.

Non-GAAP net income from continuing operations attributable to the Company's shareholders for the fourth quarter of 2020 totaled RMB1,597.9 million (US$244.9 million),669.2 million and RMB3,662.3 million for the preceding quarter and the fourth quarter of 2019,respectively.

NetEase reported basic and diluted net income from continuing operations per share of US$0.04 each for the fourth quarter of 2020,compared to US$0.14 and US$0.13,respectively,for the preceding quarter,and US$0.15 and US$0.14,for the fourth quarter of 2019.

NetEase reported basic and diluted net income from continuing operations per ADS of US$0.22 each for the fourth quarter of 2020,compared to US$0.68 and US$0.67,and US$0.72 each for the fourth quarter of 2019.

Non-GAAP basic and diluted net income from continuing operations per share were US$0.07 each for the fourth quarter of 2020,compared to US$0.17 and US$0.16,for the preceding quarter and US$0.17 each for the fourth quarter of 2019.

Non-GAAP basic and diluted net income from continuing operations per ADS were US$0.36 each for the fourth quarter of 2020,compared to US$0.83 and US$0.82,and US$0.87 and US$0.86,for the fourth quarter of 2019.

Fiscal Year 2020Financial Results

Net Revenues

Net revenues for fiscal year 2020 were RMB73,667.1 million (US$11,290.0million),compared to RMB59,241.1million for fiscal year 2019.

Net revenues from online game services were RMB54,608.7 million (US$8,369.2million) for fiscal year 2020,compared to RMB46,422.6 million for fiscal year 2019. Net revenues from mobile games accounted for approximately 71.9% of net revenues from online game services for fiscal year 2020,compared to 71.4% for fiscal year 2019.

Net revenues from Youdao were RMB3,167.5 million (US$485.4 million) for fiscal year 2020,compared to RMB1,304.9 million for fiscal year 2019.

Net revenues from innovative businesses and others were RMB15,890.9 million(US$2,435.4million) for fiscal year 2020,compared to RMB11,513.6 million for fiscal year 2019.

Gross Profit

Gross profit for fiscal year 2020 was RMB38,983.4million (US$5,974.5million),compared to RMB31,555.3million for fiscal year 2019.

The year-over-year increase in online game services gross profitwas primarily attributable to increased revenuecontribution fromself-developed games such asFantasy Westward Journey H5and Fantasy Westward Journey 3D.

The year-over-year increasein Youdao gross profit wasprimarily attributable to increased gross profit from its learning services and learning products.

The year-over-year increase in innovative businesses and others gross profit wasprimarily due to improved performances from NetEaseCloud Music.

Operating Expenses

Total operating expenses for fiscal year 2020 were RMB24,445.0 million (US$3,746.4million),compared to RMB17,764.6million for fiscal year 2019. The year-over-year increase was primarily due to increased marketing expenditures related to online game services and Youdao,as well as higher research and development investments and staff-related costs.

Other Income

Other income consisted of investment income,exchange gains/ (losses) and others. The year-over-year decrease in other income was mainly due to higher net exchange losses recorded.

Income Taxes

The Company recorded a net income tax charge of RMB3,041.8 million (US$466.2 million) for fiscal year 2020,914.7million for fiscal year 2019. The effective tax rate was 19.8%for fiscal year 2020,compared to 17.8%for fiscal year 2019. The higher effective tax rate for fiscal year 2020 was mainly due to increased losses from certain subsidiaries of the Company.

Net Income and Non-GAAP Net Income

Net income from continuing operations attributable to the Company's shareholders for fiscal year 2020 totaled RMB12,062.8 million (US$1,848.7 million),which includes net exchange losses of RMB3,112.2million (US$477.0million),275.0million for fiscal year 2019.

Non-GAAP net incomefrom continuing operations attributable to the Company's shareholdersfor fiscal year2020 totaled RMB14,706.0 million (US$2,253.8 million),compared to RMB15,662.7millionfor fiscal year 2019.

NetEase reported basic and diluted net income from continuing operations per share of US$0.56and US$0.55,for fiscal year 2020,compared to US$0.63 eachfor fiscal year2019.

NetEase reported basic and diluted net income from continuing operations per ADS of US$2.80and US$2.76,compared toUS$3.16andUS$3.13,for fiscal year2019.

Non-GAAP basic and diluted net income from continuing operations per share were US$0.68and US$0.67,for fiscal year2020,compared to US$0.74eachfor fiscal year2019.

Non-GAAP basic and diluted net income from continuing operations per ADS were US$3.41and US$3.36,compared to US$3.73and US$3.69,for fiscal year2019.

QuarterlyDividend

The board of directors has approved a dividend of US$0.0120 per share (US$0.0600 per ADS) for the fourth quarter of 2020,to holders of ordinary shares and holders of ADSs as of the close of business on March 12,2021,Hong Kong Time and New York Time,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 March 12,2021 (Hong Kong Time). The payment date is expected to be on March 23,2021 for holders of ordinary shares and on or around March 26,2021 for holders of ADSs.

NetEase paid a dividend of US$0.0464 per share (US$0.2320 per ADS) for the first quarter of 2020 in June 2020,a dividend of US$0.0594 per share (US$0.2970 per ADS) for the second quarter of 2020 in September 2020 and a dividend of US$0.0390 per share (US$0.1950 per ADS) for the third quarter of 2020 in December 2020.

Starting in the second quarter of 2019,the Company's policy has been to set quarterly dividends at an amount equivalent to approximately 20%-30% of the Company's anticipated net income after tax in each fiscal quarter. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings,cash flow,financial condition and other relevant factors.

Other Information

As of December 31,2020,the Company's total cash and cash equivalents,current and non-current time deposits and short-term investments balance totaled RMB100,099.6million (US$15,340.9million),compared to RMB74,406.0 million as of December 31,2019. Cash flow generated from continuing operating activities was RMB24,888.2million (US$3,814.3 million) for fiscal year 2020,compared to RMB16,911.0million for fiscal year 2019.

Share Purchase/ RepurchaseProgram

On November 20,2019,the Company announced that its board of directors had approved a share purchase program of up to US$20.0 million of Youdao's outstanding ADSs for a period not to exceed 12 months beginning on November 25,2019. Under the terms of this program,NetEase may purchase Youdao's ADSs in open-market transactions on the New York Stock Exchange. At the end of this program on November 24,approximately198,000 ADSs had been purchased for a total cost of US$3.4 million.

On February 26,the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on March 2,2020. On May 19,the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$2.0 billion. Under the terms of this program,NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. As of December 31,approximately 21.1 million ADSs had been repurchased under this program for a total cost of US$1.6 billion.

The Company also announced today that its board of directors has approved a new share repurchase program of up to US$2.0 billion of the Company's outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2,2021. The extent to which NetEase repurchases its ADSs and ordinary shares will depend upon a variety of factors,including market conditions. This program may be suspended or discontinued at any time.

** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.5250 on December 31,2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted into US$ at that rate on December 31,or at any other certain date. The percentages stated are calculated based on RMB.

Other Announcement

The Company also announced today that Mr. Michael Tong has resigned from its board of directors for personal reasons,effective immediately. Mr. Tong's resignation did not result from any disagreement with the Company on any matter relating to the Company's operations,policies or practices. The Company's board now consists of six directors,five of whom are independent directors. Mr. William Ding stated,"Michael has been an important contributor to our board. Having joined our board in December 1999,he is our second longest serving director after myself,and we will miss him."

Notes to Unaudited Financial Information

The unaudited financial information disclosed in this announcement is preliminary. The audit of the financial statements and related notes to be included in the Company's annual report to shareholders for the year ended December 31,2020 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 2020.

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

NetEase's management team will host a teleconference call with simultaneous webcast at 7:00 a.m. New York Time on Thursday,February 25,2021 (Beijing/Hong Kong Time: 8:00 p.m.,Thursday,2021). 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 1-646-828-8193 and providing conference ID: 1965811,15 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 1965811#. The replay will be available through March 10,2021.

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 StatementsThis 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

(in thousands)

December 31,

December 31,

2019

2020

2020

RMB

RMB

USD (Note 1)

Assets

Current assets:

Cash and cash equivalents

3,246,373

9,117,219

1,397,275

Time deposits

53,487,075

71,079,327

10,893,383

Restricted cash

3,150,354

3,051,386

467,645

Accounts receivable,net

4,169,358

4,576,445

701,371

Inventories,net

650,557

621,207

95,204

Prepayments and other current assets

4,817,422

6,112,433

936,771

Short-term investments

15,312,595

13,273,026

2,034,180

Assets held for sale

271,278

-

-

Total current assets

85,105,012

107,831,043

16,525,829

Non-current assets:

Property,equipment and software,621,712

4,555,406

698,147

Land use right,net

3,707,179

4,178,257

640,346

Deferred tax assets

903,904

1,086,759

166,553

Time deposits

2,360,000

6,630,000

1,016,092

Other long-term assets

15,424,166

17,593,117

2,696,263

Assets held for sale

2,398

-

-

Total non-current assets

27,019,359

34,043,539

5,217,401

Total assets

112,124,371

141,874,582

21,743,230

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

1,212,303

1,134,413

173,856

Salary and welfare payables

2,957,360

3,538,732

542,334

Taxes payable

3,156,513

4,282,835

656,373

Short-term loans

16,828,226

19,504,696

2,989,225

Deferred revenue

8,602,227

10,945,143

1,677,417

Accrued liabilities and other payables

5,484,228

7,337,672

1,548

Liabilities held for sale

2,156

-

-

Total current liabilities

38,243,013

46,491

7,163,753

Non-current liabilities:

Deferred tax liabilities

382,030

713,439

109,339

Other long-term payable

456,912

623,728

95,590

Liabilities held for sale

961

-

-

Total non-current liabilities

839,903

1,167

204,929

Total liabilities

39,082,916

48,080,658

7,368,682

Redeemable noncontrolling interests

10,448,600

10,796,120

1,654,578

Total NetEase,Inc.'s equity

61,453,699

82,126,798

12,586,482

Noncontrolling interests

1,139,156

871,006

133,488

Total shareholders' equity

62,592,855

82,997,804

12,719,970

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

112,230

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

Year Ended

December 31,

September 30,

2019

2020

2020

2020

2019

2020

2020

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues

15,734,804

18,658,222

19,761,738

3,028,619

59,241,145

73,667,133

11,289,982

Cost of revenues

(7,524,376)

(8,772,379)

(9,833,976)

(1,507,123)

(27,685,845)

(34,683,731)

(5,315,514)

Gross profit

8,210,428

9,885,843

9,927,762

1,521,496

31,300

38,983,402

5,974,468

Operating expenses

Selling and marketing expenses

(2,153,743)

(3,442,821)

(3,076,499)

(471,494)

(6,221,127)

(10,703,788)

(1,640,427)

General and administrative expenses

(812,754)

(783,815)

(809,956)

(124,131)

(3,130,298)

(3,371,827)

(516,755)

Research and development expenses

(2,267,488)

(2,789,051)

(3,029,376)

(464,272)

(8,413,224)

(10,369,382)

(1,589,177)

Total operating expenses

(5,233,985)

(7,015,687)

(6,915,831)

(1,059,897)

(17,764,649)

(24,444,997)

(3,746,359)

Operating profit

2,976,443

2,870,156

3,011,931

461,599

13,790,651

14,405

2,228,109

Other income:

Investment income/ (loss),net

731,447

1,280,483

(271,866)

(41,665)

1,306,320

1,610,045

246,750

Interest income,net

279,546

446,914

410,001

62,835

821,774

1,598,618

244,999

Exchange (losses)/gains,net

(128,522)

(1,571,326)

(1,801,891)

(276,152)

25,166

(3,152)

(476,958)

Other,net

109,385

109,940

139,321

21,352

439,422

737,168

112,976

Income before tax

3,968,299

3,136,167

1,496

227,969

16,383,333

15,372,084

2,355,876

Income tax

(876,329)

(342,700)

(552,661)

(84,699)

(2,914,726)

(3,041,849)

(466,184)

Net income from continuing operations

3,091,970

2,793,467

934,835

143,270

13,468,607

12,330,235

1,889,692

Net income from discontinued operations

-

-

-

-

7,962,519

-

-

Net income

3,270

21,431,126

12,692

Accretion and deemed dividends in connection with

repurchase of redeemable noncontrolling interests

(59,588)

(118,448)

(131,604)

(20,169)

(271,543)

(787,029)

(120,617)

Net loss attributable to noncontrolling interests

21,350

323,221

172,471

26,432

77,933

519,548

79,624

Net income attributable to the Company's

shareholders

3,053,732

2,998,240

975,702

149,533

21,237,516

12,062,754

1,848,699

Including:

-Net income from continuing operations attributable to the

Company's shareholders

3,533

13,274,997

12,699

-Net income from discontinued operations attributable to the

Company's shareholders

-

-

-

-

7,519

-

-

Basic net income per share:

0.95

0.89

0.29

0.04

6.59

3.65

0.56

-Continuing operations

0.95

0.89

0.29

0.04

4.12

3.65

0.56

-Discontinued operations

-

-

-

-

2.47

-

-

-

Basic net income per ADS:

4.73

4.43

1.45

0.22

32.97

18.25

2.80

-Continuing operations

4.73

4.43

1.45

0.22

20.61

18.25

2.80

-Discontinued operations

-

-

-

-

12.36

-

-

-

Diluted net income per share:

0.93

0.87

0.29

0.04

6.53

3.60

0.55

-Continuing operations

0.93

0.87

0.29

0.04

4.08

3.60

0.55

-Discontinued operations

-

-

-

-

2.45

-

-

-

Diluted net income per ADS:

4.67

4.37

1.43

0.22

32.67

18.01

2.76

-Continuing operations

4.67

4.37

1.43

0.22

20.42

18.01

2.76

-Discontinued operations

-

-

-

-

12.25

-

-

Weighted average number of ordinary shares outstanding,

basic

3,387

3,384,051

3,362,793

3,220,473

3,305,448

3,448

Weighted average number of ADS outstanding,basic

645,677

676,810

672,559

672,559

644,095

661,090

661,090

Weighted average number of ordinary shares outstanding,

diluted

3,266,587

3,274

3,411,169

3,249,972

3,349,759

3,759

Weighted average number of ADS outstanding,diluted

653,317

686,255

682,234

682,234

649,994

669,952

669,952

Effective October 1,the Company changed the ratio of its American depositary shares ("ADSs"),representing ordinary shares,from the previous one ADS for

every twenty-five ordinary shares to one ADS for every five ordinary shares. The data throughout this announcement have been revised to reflect the ratio change as if it had

occurred throughout the periods presented herein.

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended

Year Ended

December 31,

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

3,692

Net income from discontinued operations

-

-

-

-

(7,519)

-

-

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

695,644

913,049

962,526

147,514

2,613,782

3,457,782

529,928

Fair value changes of equity security investments

(564,268)

(1,103,428)

559,104

85,686

(751,693)

(720,565)

(110,431)

Impairment losses of investments and other intangible

assets

-

-

51,795

7,938

177,567

58,395

8,949

Fair value changes of short-term investments

(160,252)

(133,943)

(118,945)

(18,229)

(657,606)

(580,732)

(89,001)

Share-based compensation cost

622,363

676,751

628,979

96,395

2,404,089

2,663,489

408,198

(Reversal of) / allowance for provision for doubtful debts/

expected credit losses

(17,843)

(2,146)

(5,888)

(902)

(28,583)

40,600

6,222

Losses on disposal of property,equipment and software

3,571

2,645

2,730

418

5,122

6,482

993

Unrealized exchange losses / (gains)

131,869

1,568,627

1,532

275,331

(9,981)

3,102,492

475,478

(Gains)/losses on disposal of long-term investments,

business and subsidiaries

(2,677)

2,995

178

27

(98,489)

(27,063)

(4,148)

Deferred income taxes

(504,313)

(550,137)

(74,041)

(11,347)

150,629

88,179

13,514

Share of results on equity method investees and revaluation

gains from previously held equity interest

(12,269)

(28,915)

(216,528)

(33,184)

(4,322)

(302,602)

(46,376)

Changes in operating assets and liabilities:

Accounts receivable

545,607

43,177

355,495

54,482

(11,314)

(530,413)

(81,289)

Inventories

36,191

34,429

(96,499)

(14,789)

415,057

29,699

4,552

Prepayments and other assets

(309,308)

65,383

791,254

121,265

(1,488,564)

(13,554)

(2,077)

Accounts payable

136,690

147,811

136,213

20,876

13,229

(86,352)

(13,234)

Salary and welfare payables

1,413

(447,645)

1,382,442

211,868

146,146

528,927

81,062

Taxes payable

168,247

240,464

220,244

33,754

(133,801)

1,648

172,666

Deferred revenue

406,160

1,000,530

568,704

87,158

883,742

2,342,916

359,068

Accrued liabilities and other payables

208,902

177,853

335,117

51,358

(182,646)

1,373,608

210,515

Net cash provided by continuing operating activities

5,510,697

5,400,967

8,214,247

1,258,889

16,910,971

24,888,171

3,814,281

Net cash provided by discontinued operating activities

-

-

-

-

305,487

-

-

Net cash provided by operating activities

5,889

17,216,458

24,281

Cash flows from investing activities:

Purchase of property,equipment and software

(235,717)

(350,866)

(303,347)

(46,490)

(1,209,477)

(1,055,572)

(161,773)

Proceeds from sale of property,equipment and software

49,693

4,903

7,895

1,210

60,601

17,540

2,688

Purchase of intangible assets,content and licensed

copyrights

(760,698)

(755,132)

(333,507)

(51,112)

(2,119,307)

(2,234,915)

(342,516)

Net change in short-term investments with terms of three

months or less

(1,802,689)

298,667

(2,257,404)

(345,962)

(1,023,165)

(1,655,930)

(253,782)

Purchase of short-term investments

(3,000)

(4,000)

(2,200,000)

(337,165)

(22,370,000)

(19,905,000)

(3,050,575)

Proceeds from maturities of short-term investments

9,252,687

11,295,357

3,597,659

551,365

20,225,342

24,210

3,697,503

Investment in equity method investees and other long-term

investments and acquisition of subsidiaries

(231,714)

(647,533)

(1,392)

(158,528)

(1,562,188)

(2,407,692)

(368,995)

Proceeds from disposal of investment in equity

investments,businesses and subsidiaries

28,289

397,342

93,926

14,395

406,702

722,076

110,662

Placement/rollover of matured time deposits

(24,912,424)

(26,718,380)

(14,720,632)

(2,256,036)

(77,083,350)

(91,518,767)

(14,025,865)

Proceeds from maturities of time deposits

7,964,392

13,550,559

18,875

2,456

54,381,647

64,880,317

9,943,344

Change in other long-term assets

(17,229)

(21,957)

(52,092)

(7,983)

(42,345)

(160,674)

(24,624)

Amounts received from disposed businesses

7,092,216

-

-

-

9,031,051

-

-

Net cash (used in)/ provided by continuing investing activities

(6,946,194)

(7,502,040)

1,044,981

160,150

(21,304,489)

(29,192,407)

(4,473,933)

Net cash used in discontinued investing activities

-

-

-

-

(832,252)

-

-

Net cash (used in)/ provided by investing activities

(6,150

(22,741)

(29,933)

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

Three Months Ended

Year Ended

December 31,

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

358,372

68,978

607,043

93,033

730,087

1,495

174,175

Payment of short-term bank loans

(296,823)

-

(361,973)

(55,475)

(296,823)

(818,539)

(125,447)

Net changes in short-term loans with terms of three months

or less

1,472,244

1,040

(2,152,677)

(329,912)

2,267

3,723,109

570,591

Net proceeds (paid for)/ received from issuance of shares in

Hong Kong

-

(212)

(171,440)

(26,274)

-

21,911,815

3,358,133

Capital injection from/ (repurchase of) noncontrolling interests

and redeemable noncontrolling interests shareholders,net

6,528,274

4,815

10,609

1,626

6,940,990

(268,343)

(41,125)

Cash (paid for)/ received from repurchase of NetEase's/ purchase

of Youdao's ADSs

-

(2,223,165)

(3,445,930)

(528,112)

10,638

(11,490,988)

(1,071)

Dividends paid to shareholders

(6,890,484)

(1,377,570)

(861,211)

(131,987)

(8,840,634)

(4,462)

(656,010)

Net cash provided by/ (used in) financing activities

1,171,583

(2,496,114)

(6,375,579)

(977,101)

1,525

9,913,519,246

Effect of exchange rate changes on cash,cash equivalents

and restricted cash held in foreign currencies

(26,846)

(25,033)

(67,229)

(10,303)

29,080

161,894

24,811

Net (decrease)/ increase in cash,cash equivalents and restricted

cash

(290,760)

(4,622,220)

2,816,420

431,635

(3,808,678)

5,770,745

884,405

Cash,cash equivalents and restricted cash,at the beginning

of the period

6,688,620

13,405

9,352,185

1,433,285

10,206,538

6,860

980,515

Cash,at end of the

period

6,860

9,185

12,168,605

1,864,920

6,860

12,920

Less: Cash,cash equivalents and restricted cash of held for sale

at end of the period

1,133

-

-

-

1,133

-

-

Cash,cash equivalents and restricted cash of continuing

operations at end of the period

6,396,727

9,727

12,920

Supplemental disclosures of cash flow information of

continuing operations:

Cash paid for income tax,net

1,189,622

948,130

347,389

53,240

3,193,802

2,046,119

313,581

Cash paid for interest expense

133,748

47,862

46,177

7,077

431,395

246,051

37,709

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION

(in thousands,except percentages)

Three Months Ended

Year Ended

December 31,

2019

2020

2020

2020

2019

2020

2020

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues:

Online game services

11,604,332

13,862,035

13,182

2,668

46,422,640

54,608,717

8,152

Youdao

410,432

896,041

1,106,796

169,624

1,883

3,167,515

485,443

Innovative businesses and others

3,040

3,900,146

5,254,760

805,327

11,513,622

15,901

2,435,387

Total net revenues

15,982

Cost of revenues:

Online game services

(4,281,559)

(5,177)

(4,942,484)

(757,469)

(16,234)

(19,847,846)

(3,815)

Youdao

(288,002)

(484,488)

(581,327)

(89,092)

(934,261)

(1,713,229)

(262,564)

Innovative businesses and others

(2,954,815)

(3,714)

(4,310,165)

(660,562)

(9,777,350)

(13,122,656)

(2,135)

Total cost of revenues

(7,514)

Gross profit:

Online game services

7,322,773

8,858

8,698

1,296,199

29,406

34,760,871

5,327,337

Youdao

122,430

411,553

525,469

80,532

370,622

1,454,286

222,879

Innovative businesses and others

765,225

656,432

944,595

144,765

1,736,272

2,768,245

424,252

Total gross profit

8,468

Gross profit margin:

Online game services

63.1%

63.6%

63.1%

63.1%

63.4%

63.7%

63.7%

Youdao

29.8%

45.9%

47.5%

47.5%

28.4%

45.9%

45.9%

Innovative businesses and others

20.6%

16.8%

18.0%

18.0%

15.1%

17.4%

17.4%

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 = RMB6.5250on the last trading day of December 2020(December 31,2020) 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

Year Ended

December 31,

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

191,470

200,116

181,871

27,873

758,810

794,855

121,817

Operating expenses

- Selling and marketing expenses

17,353

25,563

24,892

3,815

84,920

102,300

15,678

- General and administrative expenses

211,506

236,323

214,730

32,909

797,120

929,013

142,377

- Research and development expenses

202,034

214,749

207,486

31,798

763,239

837,321

128,326

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

3,699

Add: Share-based compensation

608,598

671,004

622,185

95,354

2,387,675

2,643,287

405,101

Non-GAAP net income from continuing operations

attributable to the Company's shareholders

3,662,330

3,669,887

244,887

15,672

14,706,041

2,253,800

Non-GAAP basic net income from continuing

operations per share

1.13

1.08

0.48

0.07

4.86

4.45

0.68

Non-GAAP basic net income from continuing

operations per ADS

5.67

5.42

2.38

0.36

24.32

22.25

3.41

Non-GAAP diluted net income from continuing

operations per share

1.12

1.07

0.47

0.07

4.82

4.39

0.67

Non-GAAP diluted net income from continuing

operations per ADS

5.61

5.35

2.34

0.36

24.10

21.95

3.36

The accompanying notes are an integral part of this announcement.

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