NetEase Reports First Quarter 2021 Unaudited Financial Results

BEIJING,May 18,2021 --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 first quarter ended March 31,2021.

First Quarter 2021 Financial Highlights

Net revenues were RMB20.5 billion (US$3.1 billion),an increase of 20.2% compared with the first quarter of 2020.

Online game services net revenues were RMB15.0 billion (US$2.3 billion),an increase of 10.8% compared with the first quarter of 2020.

Youdao net revenues were RMB1.3 billion (US$204.5 million),an increase of 147.5% compared with the first quarter of 2020.

Innovative businesses and others net revenues were RMB4.2 billion (US$640.4 million),an increase of 39.7% compared with the first quarter of 2020.

Gross profit was RMB11.1 billion (US$1.7 billion),an increase of 17.9% compared with the first quarter of 2020.

Total operating expenses were RMB6.8 billion (US$1.0 billion),an increase of 38.6% compared with the first quarter of 2020.

Net income attributable to the Company's shareholders was RMB4.4 billion (US$677.5 million). Non-GAAP net income attributable to the Company's shareholders was RMB5.1 billion (US$775.5 million). [1]

Basic net income per share was US$0.20 (US$1.01 per ADS). Non-GAAP basic net income per share was US$0.23 (US$1.16 per ADS). [1]

First Quarter 2021and Recent Operational Highlights

Attracted new users and expanded portfolio with new game introductions including:

Revelation mobile game,Yu-Gi-Oh! Duel Links,Elysium of Legends and Pokémon Quest,all of which were well received after their launches.

Infinite Lagrange in European markets in late April,with plans for additional market introductions in the near-term.

Delivered strong performances from longstanding flagship titles including the Fantasy Westward Journey and Westward Journey Online series,and maintained popularity of other hit titles including Life-After,Invincible and Onmyoji.

Progressed strong game pipeline with thrilling titles planned for launch in the coming months including Harry Potter: Magic Awakened,The Lord of the Rings: Rise to War,Nightmare Breaker,Diablo® Immortal™ and Ghost World Chronicle.

Advanced Youdao's learning services and learning products,increasing Youdao's net revenues by 147.5% year-over-year to RMB1.3 billion (US$204.5 million),and drove operating efficiency with total gross profit margin reaching 57.3% in the first quarter of 2021,the highest level since Youdao's IPO in October 2019.

"2021 is off to a strong start withour total net revenues climbing to RMB20.5 billion,up approximately 20% year-over-year," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Net revenues from our online game services grew to RMB15.0 billion in the first quarter supported by the impressive longevity of our time-honored flagship games,as well as newer titles that broaden and diversify our games portfolio. As we near the launch of additional exciting new titles for global audiences in the coming months,we are confident we can deepen our international market presence. Our other businesses also performed well in the first quarter,with solidyear-over-year net revenues growth from Youdao,NetEase Cloud Music and Yanxuan. Leveraging our innovation and technical skills,we plan to bring even more creative products and high-quality services to our users," Mr. Ding concluded.

[1]As used in this announcement,non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement.

First Quarter 2021Financial Results

Net Revenues

Netrevenues were RMB20,517.2 million (US$3,131.5 million) for the firstquarter of 2021,compared to RMB19,761.7 million and RMB17,062.4 million for the preceding quarter and the first quarter of 2020,respectively.

Net revenues from online game services were RMB14,981.8 million (US$2,286.7 million) for the firstquarter of 2021,compared to RMB13,400.2 million and RMB13,518.2 million for the preceding quarter and the first quarter of 2020,respectively. Net revenues from mobile games accounted for approximately 72.8% of net revenues from online game services for the firstquarter of 2021,compared to 72.4% and 70.3%forthe precedingquarter and the first quarter of 2020,respectively.

Net revenues from Youdao were RMB1,339.9 million (US$204.5 million) for the firstquarter of 2021,compared to RMB1,106.8 million and RMB541.4 million for the preceding quarter and the first quarter of 2020,respectively.

Net revenues from innovative businesses and others were RMB4,195.6 million (US$640.4 million) for the firstquarter of 2021,compared to RMB5,254.8 million and RMB3,002.7 million for the preceding quarter and the first quarter of 2020,respectively.

Gross Profit

Gross profit was RMB11,052.6 million (US$1,687.0 million) for the first quarter of 2021,compared to RMB9,927.8 million and RMB9,377.6 million for the preceding quarter and the first quarter of 2020,respectively.

The quarter-over-quarter and year-over-year increases in online game services gross profit were mainly due to increased net revenues from both mobile and PC games,including the newly launched Revelation mobile game and other existing games.

The quarter-over-quarter and 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.

The quarter-over-quarter decrease in innovative businesses and others gross profit was primarily due toa decrease in gross profit from advertising services due to seasonality. The year-over-year increase wasprimarily due to the improved performance of NetEaseCloud Music.

Gross Profit Margin

Gross profit margin for online game services was 64.6% for the first quarter of 2021,compared to 63.1% and 64.1% for the preceding quarter and the first quarter of 2020,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 was 57.3% for the first quarter of 2021,compared to 47.5% and 43.5% for the preceding quarter and the first quarter of 2020,respectively.The quarter-over-quarter and year-over-year increases were mainly due to the significant increase in net revenues,and faculty compensation structure optimization for its learning services.

Gross profit margin for innovative businesses and others was 14.4% for the first quarter of 2021,compared to 18.0% and 15.8% for the preceding quarter and the first quarter of 2020,respectively. The quarter-over-quarter decrease was primarily due to seasonality.

Operating Expenses

Total operating expenses were RMB6,777.1 million (US$1,034.4 million) for the first quarter of 2021,compared to RMB6,915.8 million and RMB4,891.2 million for the preceding quarter and the first quarter of 2020,respectively. The quarter-over-quarter decrease was mainly due to lower marketing expendituresrelated to onlinegame services and innovative businesses and others.The year-over-year increase was mainly due to increased marketing expenditures related to Youdao and other businesses,as well as higher staff-related costs and research and development investments.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment (losses)/ income,interest income,exchange gains/ (losses) and others. The quarter-over-quarter increase was mainly due to unrealized exchange gains arising 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 income arisingfromfair value changes of equity investments with readily determinable fair value. The year-over-year increase was mainly due to investment income arisingfromfair value changes of equity investments with readily determinable fair value.

Income Taxes

The Company recorded a net income tax charge of RMB1,273.4 million (US$194.4 million) for the first quarter of 2021,compared to RMB552.7 million and RMB1,082.0 million for the preceding quarter and the first quarter of 2020,respectively. The effective tax rate for the first quarter of 2021 was 22.0%,compared to 37.2% and 21.5% for the preceding quarter and the first quarter of 2020,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 attributable to the Company's shareholders totaled RMB4,439.2million (US$677.5 million) for the first quarter of 2021,compared to RMB975.7 million and RMB3,551.0 million for the preceding quarter and thefirst quarter of 2020,respectively.

Non-GAAP net income attributable to the Company's shareholders for the first quarter of 2021 totaled RMB5,080.7 million (US$775.5 million),597.9 million and RMB4,212.9 million for the preceding quarter and the first quarter of 2020,respectively.

NetEase reported basic net income of US$0.20 per share (US$1.01 per ADS) for the first quarter of 2021,compared to US$0.04 per share (US$0.22 per ADS) and US$0.17 per share (US$0.84 per ADS) for the preceding quarter and the first quarter of 2020,respectively.

NetEase reported non-GAAP basic net income of US$0.23 per share (US$1.16 per ADS) for the first quarter of 2021,compared to US$0.07 per share (US$0.36 per ADS) and US$0.20 per share (US$1.00 per ADS) for the preceding quarter and the first quarter of 2020,respectively.

QuarterlyDividend

The board of directors has approved a dividend of US$0.0600 per share (US$0.3000 per ADS) for the firstquarter of 2021,to holders of ordinary shares and holders of ADSs as of the close of business on June 3,2021,Hong Kong Time and New York 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 June 3,2021 (Hong Kong Time). The payment date is expected to be on June 15,2021 for holders of ordinary shares and on or around June 18,2021 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,a dividend of US$0.0390 per share (US$0.1950 per ADS) for the third quarter of 2020 in December 2020 and a dividend of US$0.0120 per share (US$0.0600 per ADS) for the fourth quarter of 2020 in March 2021.

The Company's policy is 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 March 31,the Company's total cash and cash equivalents,current and non-current time deposits and short-term investments balance totaled RMB106,249.6 million (US$16,216.9 million),compared to RMB100,099.6 million as of December 31,2020. Cash flows generated from operating activities was RMB5,542.7million (US$846.0 million) for the firstquarter of 2021,compared to RMB8,214.2 million and RMB6,500.6 million for the preceding quarter and the first quarter of 2020,respectively.

Share RepurchaseProgram

On February 26,2020,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. At the end of this programon March 1,approximately 22.8 million ADSs had been repurchased for a total cost of US$1.8 billion.

On February 25,the Company announced that its board of directors had 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. As of March 31,approximately 1.3 million ADSs had been repurchased under this program for a total cost of US$0.1 billion.

** 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$1.00 = RMB6.5518 on March 31,2021 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted into US$ at that rate on March 31,or at any other certain date. The percentages stated are calculated based on RMB.

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 8:00 a.m. New York Time on May 18,2021 (Beijing/Hong Kong Time: 8:00 p.m.,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: 4996242,15 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 4996242#. The replay will be available through May 31,2021.

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 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 attributable to the Company's shareholders and non-GAAP basic and diluted net income 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 attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses,which are non-cash charges. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does,if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income attributable to the Company's shareholders is that it does not reflect all items of expense/ 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 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 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_GlobalNETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)

December 31,

March 31,

2020

2021

2021

RMB

RMB

USD (Note 1)Assets

Current assets:

Cash and cash equivalents

9,117,219

8,790,990

1,341,767Time deposits

71,079,327

75,612,492

11,540,720Restricted cash

3,051,386

3,236,255

493,949Accounts receivable,net

4,576,445

5,056,686

771,801Inventories,net

621,207

874,702

133,506Prepayments and other current assets,net

6,112,433

6,851,353

1,045,721Short-term investments

13,273,026

15,106,079

2,305,638Total current assets

107,831,043

115,528,557

17,633,102

Non-current assets:

Property,equipment and software,555,406

4,651,507

709,959Land use right,178,257

4,156,448

634,398Deferred tax assets

1,086,759

1,042,468

159,112Time deposits

6,630,000

6,740,000

1,028,725Other long-term assets,net

17,593,117

18,384,896

2,806,082Total non-current assets

34,043,539

34,975,319

5,338,276Total assets

141,874,582

150,503,876

22,971,378

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

1,134,413

1,070,965

163,461Salary and welfare payables

3,538,732

2,328,788

355,442Taxes payable

4,282,835

5,841,401

891,572Short-term loans

19,504,696

21,827,017

3,331,453Deferred revenue

10,945,143

11,686,081

1,783,644Accrued liabilities and other payables

7,337,672

7,893,542

1,204,790Total current liabilities

46,743,491

50,647,794

7,730,362

Non-current liabilities:

Deferred tax liabilities

713,439

997,222

152,206Other long-term payable

623,728

737,929

112,630Total non-current liabilities

1,167

1,735,151

264,836Total liabilities

48,080,658

52,382,945

7,995,198

Redeemable noncontrolling interests

10,796,120

10,942,787

1,670,196

NetEase,Inc.'s shareholders' equity

82,126,798

85,706,495

13,081,366Noncontrolling interests

871,006

1,471,649

224,618Total shareholders' equity

82,997,804

87,144

13,984

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

141,378

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

March 31,

December 31,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)

Net revenues

17,062,367

19,761,738

20,517,211

3,131,538Cost of revenues

(7,684,745)

(9,833,976)

(9,464,572)

(1,444,576)Gross profit

9,377,622

9,927,762

11,052,639

1,962Operating expenses:

Selling and marketing expenses

(1,863,071)

(3,076,499)

(2,766,682)

(422,278)General and administrative expenses

(885,434)

(809,956)

(950,194)

(145,028)Research and development expenses

(2,142,649)

(3,029,376)

(3,060,189)

(467,076)Total operating expenses

(4,891,154)

(6,915,831)

(6,777,065)

(1,034,382)Operating profit

4,486,468

3,011,931

4,275,574

652,580Other income/ (expenses):

Investment (losses)/ income,net

(109,731)

(271,866)

695,298

106,123Interest income,net

345,184

410,001

388,928

59,362Exchange gains/ (losses),net

244,057

(1,801,891)

279,319

42,632Other,net

66,708

139,321

147,967

22,584Income before tax

5,032,686

1,487,496

5,787,086

883,281Income tax

(1,082,033)

(552,661)

(1,408)

(194,360)Net income

3,950,653

934,835

4,513,678

688,921

Accretion and deemed dividends in connection with

repurchase of redeemable noncontrolling interests

(386,019)

(131,604)

(143,827)

(21,952)Net (income)/ loss attributable to noncontrolling interests

(13,628)

172,471

69,301

10,577Net income attributable to the Company's shareholders

3,551,006

975,702

4,439,152

677,546

Net income per share *

Basic

1.10

0.29

1.33

0.20Diluted

1.08

0.29

1.31

0.20

Net income per ADS *

Basic

5.49

1.45

6.63

1.01Diluted

5.42

1.43

6.53

1.00

Weighted average number of ordinary shares used in

calculating net income per share *

Basic

3,231,395

3,362,793

3,349,638

3,638Diluted

3,999

3,411,169

3,399,981

3,981

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended

March 31,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)Cash flows from operating activities:

Net income

3,921Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

690,057

962,526

819,830

125,131Fair value changes of equity security investments

327,040

559,104

(477,597)

(72,896)Impairment losses of investments and other intangible

assets

6,600

51,795

-

-Fair value changes of short-term investments

(153,106)

(118,945)

(118,004)

(18,011)Share-based compensation cost

665,814

628,979

650,253

99,247Allowance for/ (reversal of) expected credit losses

49,939

(5,888)

13,604

2,076Losses/ (gains) on disposal of property,equipment and software

37

2,730

(159)

(24)Unrealized exchange (gains) / losses

(242,508)

1,532

(274,047)

(41,828)(Gains)/ losses on disposal of long-term investments,

business and subsidiaries

(15,433)

178

(7,323)

(1,118)Deferred income taxes

212,848

(74,041)

328,075

50,074Share of results on equity method investees and revaluation

gains from previously held equity interest

(46,211)

(216,528)

(51,892)

(7,920)Changes in operating assets and liabilities:

Accounts receivable

(430,535)

355,495

(484,343)

(73,925)Inventories

88,440

(96,499)

(253,495)

(38,691)Prepayments and other assets

(1,103,798)

791,254

(785,224)

(119,848)Accounts payable

(98,679)

136,213

(60,654)

(9,257)Salary and welfare payables

(537,907)

1,442

(1,226,155)

(187,148)Taxes payable

1,234,078

220,244

1,558,618

237,892Deferred revenue

1,379,126

568,704

740,938

113,089Accrued liabilities and other payables

524,194

335,117

656,564

100,211Net cash provided by operating activities

6,500,649

8,214,247

5,542,667

845,975

Cash flows from investing activities:

Purchase of property,equipment and software

(164,320)

(303,347)

(329,746)

(50,329)Proceeds from sale of property,equipment and software

772

7,895

1,519

232Purchase of intangible assets,content and licensed

copyrights

(306,835)

(333,507)

(426,133)

(65,041)Net change in short-term investments with terms of three

months or less

(780,535)

(2,257,404)

3,332,610

508,656Purchase of short-term investments

(10,000)

(2,200,000)

(7,905,000)

(1,206,539)Proceeds from maturities of short-term investments

6,887,976

3,597,659

2,857,341

436,115Investment in long-term investments and acquisition of

subsidiaries

(205,005)

(1,392)

(558,441)

(85,235)Proceeds from disposal of long-term investments,

businesses and subsidiaries

196,952

93,926

198,900

30,358Placement/rollover of matured time deposits

(11,667,487)

(14,720,632)

(15,722,749)

(2,760)Proceeds from maturities of time deposits

13,640,617

18,246,875

11,481,135

1,752,364Change in other long-term assets

(10,522)

(52,092)

(54,653)

(8,342)Net cash (used in)/ provided by investing activities

(2,478,387)

1,044,981

(7,125,217)

(1,087,521)

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

March 31,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)Cash flows from financing activities:

Proceeds of short-term loans

100,000

607,043

236,916

36,160Payment of short-term loans

(98,395)

(361,973)

(167,700)

(25,596)Net changes in short-term loans with terms of three months

or less

2,539,570

(2,152,677)

2,122,041

323,887Net amounts paid for issuance of shares in Hong Kong

-

(171,440)

(13,800)

(2,106)(Repurchase of) / capital injection from noncontrolling interests

and redeemable noncontrolling interests shareholders,net

(447,632)

10,609

1,507,049

230,021Cash paid for repurchase of NetEase's/ purchase of Youdao's

ADSs

(2,560,897)

(3,445,930)

(2,018,467)

(308,078)Dividends paid to shareholders

(926,545)

(861,211)

(260,842)

(39,812)Net cash (used in) / provided by financing activities

(1,393,899)

(6,375,579)

1,405,197

214,476

Effect of exchange rate changes on cash,cash equivalents

and restricted cash held in foreign currencies

74,100

(67,229)

35,993

5,494Net increase / (decrease) in cash,cash equivalents and restricted

cash

2,702,463

2,816,420

(141,360)

(21,576)Cash,cash equivalents and restricted cash,at the beginning

of the period

6,397,860

9,352,185

12,168,605

1,292Cash,at end of the

period

9,100,323

12,605

12,027,245

1,835,716Less: Cash,cash equivalents and restricted cash of held for sale

at end of the period

371

-

-

-Cash,cash equivalents and restricted cash at end of the period

9,099,952

12,716

Supplemental disclosures of cash flow information:

Cash paid for income tax,net

202,044

347,389

550,191

83,976Cash paid for interest expense

96,711

46,177

43,902

6,701

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION(in thousands,except percentages)

Three Months Ended

March 31,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)Net revenues:

Online game services

13,518,244

13,400,182

14,981,784

2,286,667Youdao

541,388

1,796

1,339,867

204,503Innovative businesses and others

3,002,735

5,254,760

4,195,560

640,368Total net revenues

17,538

Cost of revenues:

Online game services

(4,831)

(4,484)

(5,302,713)

(809,352)Youdao

(305,663)

(581,327)

(572,415)

(87,367)Innovative businesses and others

(2,527,251)

(4,310,165)

(3,589,444)

(547,857)Total cost of revenues

(7,576)

Gross profit:

Online game services

8,666,413

8,457,698

9,679,071

1,477,315Youdao

235,725

525,469

767,452

117,136Innovative businesses and others

475,484

944,595

606,116

92,511Total gross profit

9,962

Gross profit margin:

Online game services

64.1%

63.1%

64.6%

64.6%Youdao

43.5%

47.5%

57.3%

57.3%Innovative businesses and others

15.8%

18.0%

14.4%

14.4%

The accompanying notes are an integral part of this announcement.NETEASE,INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.5518on the last trading day of March 2021(March31,2021) 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

March 31,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)Share-based compensation cost included in:

Cost of revenues

207,915

181,871

187,926

28,683Operating expenses

- Selling and marketing expenses

24,811

24,892

24,231

3,698- General and administrative expenses

230,371

214,730

229,603

35,044- Research and development expenses

202,717

207,486

208,493

31,822

The accompanying notes are an integral part of this announcement.NETEASE,INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS(in thousands,

2020

2020

2021

2021

RMB

RMB

RMB

USD (Note 1)Net income attributable to the Company's shareholders

3,546Add: Share-based compensation

661,871

622,185

641,534

97,917Non-GAAP net income attributable to the Company's

shareholders

4,212,877

1,887

5,686

775,463

Non-GAAP net income per share *

Basic

1.30

0.48

1.52

0.23Diluted

1.29

0.47

1.49

0.23

Non-GAAP net income per ADS *

Basic

6.52

2.38

7.58

1.16Diluted

6.43

2.34

7.47

1.14

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

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