NetEase Reports First Quarter 2022 Unaudited Financial Results

Author: NetEase, Inc. / 2023-07-24 00:25 / Source: NetEase, Inc.

NetEase Reports First Quarter 2022 Unaudited Financial Results

HANGZHOU,China,May 24,2022 --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 31,2022.

First Quarter 2022 Financial Highlights

Net revenues were RMB23.6billion (US$3.7billion),an increase of 14.8% compared with the first quarter of 2021.

- Online game services net revenues were RMB17.3billion (US$2.7billion),an increase of 15.3% compared with the first quarter of 2021.

- Youdao net revenues were RMB1.2billion (US$189.4 million),a decrease of 10.4% compared with the first quarter of 2021.[1]

- CloudMusicnet revenues were RMB2.1 billion (US$326.1 million),an increase of 38.6% compared with the first quarter of 2021.

- Innovative businesses and others net revenues were RMB3.0 billion (US$475.7 million),an increase of 11.5% compared with the first quarter of 2021.

Gross profit was RMB12.8 billion (US$2.0 billion),an increase of 16.1% compared with the first quarter of 2021.

Total operating expenses were RMB7.3 billion (US$1.2 billion),an increase of 8.1% compared with the first quarter of 2021.

Net income attributable to the Company's shareholders was RMB4.4 billion (US$693.1million). Non-GAAP net income attributable to the Company's shareholders was RMB5.1 billion (US$807.3million).[2]

Basic net income per share was US$0.21(US$1.06per ADS). Non-GAAP basic net income per share was US$0.25(US$1.23per ADS).[2]

[1] Youdao ceased offering after-school tutoring services for academic subjects under China's compulsory education system (the "Academic AST Business") at the end of December 2021. The net revenues from such services were included in its net revenues from learning services in 2021 and prior periods.

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

First Quarter 2022 and Recent Operational Highlights

Announced 2022 launch date for Diablo® Immortal™,co-developed by NetEase and Blizzard Entertainment,slated for global market release on June 2 and release in China and Southeast Asia on June 23.

Invigorated Naraka: Bladepoint's player community with captivating content updates and the first World Championship tournament.

Delivered strong performances from longstanding flagship titles including Fantasy Westward Journey Online and New Westward Journey Online II,and maintained popularity of other hit titles including LifeAfterand Sky.

Launched new games in Japan in April: Revelation mobile game,TheLord of the Rings: Rise to Warand Dead by Daylight Mobile - NetEase,capturing wide interest from game players.

Propelled pipeline by advancing new games under development including console and mobile versions of Naraka: Bladepoint and Ghost World Chronicle,as well as the roll-out of Harry Potter: Magic Awakened in international markets.

Continued Youdao's business development through the expansion of its smart devices and learning services portfolio,following its efficient transition to comply with the changing regulatory environment in China.

Advanced NetEase Cloud Music,with healthy growth in net revenues from both membership subscription and social entertainment services,and improved gross margin to 12.2%.

"Strong contributions from our steady online game services led our healthy growth in the first quarter with total net revenues of RMB23.6billion,an increase of 14.8% year-over-year," said Mr. William Ding,CEO and Director of NetEase. "Both our flagship titles and many of our newer games continued to captivate our enthusiastic player community. Withthe April releases of Revelation mobile game,The Lord of the Rings: Rise to War and Dead by Daylight Mobile –NetEase,wereached more players overseas. With confirmed plans to release Diablo® Immortal™ in June,we are eager to bring players more amazing titles later this year."

"Our other business lines,including Youdao,NetEase Cloud Music and Yanxuan,are also on track. We look forward to creating additional value for our stakeholders and bringing more creative content to our growing global community through the remainder of 2022," Mr. Ding concluded.

First Quarter 2022 Financial Results

Net Revenues

Netrevenues were RMB23,555.8 million (US$3,715.8 million) for the firstquarter of 2022,compared withRMB24,373.6million and RMB20,517.2 million for the preceding quarter and the first quarter of 2021,respectively.

Net revenues from online game services were RMB17,272.7 million (US$2,724.7 million) for the firstquarter of 2022,compared withRMB17,397.5 million and RMB14,981.8 million for the preceding quarter and the first quarter of 2021,respectively. Net revenues from mobile games accounted for approximately 66.9% of net revenues from online game services for the firstquarter of 2022,compared with68.3% and 72.8%forthe precedingquarter and the first quarter of 2021,respectively.

Net revenues from Youdao were RMB1,200.5 million (US$189.4 million) for the firstquarter of 2022,compared withRMB1,333.8 million and RMB1,339.9 million for the preceding quarter and the first quarter of 2021,respectively.

Net revenues from Cloud Music were RMB2,067.2 million (US$326.1million) for the firstquarter of 2022,compared with RMB1,889.3 million and RMB1,491.2 million for the preceding quarter and the first quarter of 2021,respectively.

Net revenues from innovative businesses and others were RMB3,015.4 million (US$475.7 million) for the first quarter of 2022,compared with RMB3,753.0 million and RMB2,704.4 million for the preceding quarter and the first quarter of 2021,respectively.

Gross Profit

Gross profit was RMB12,836.4 million (US$2,024.9 million) for the first quarter of 2022,compared withRMB12,917.8million and RMB11,052.6 million for the preceding quarter and the first quarter of 2021,respectively.

Online game services gross profit was largely stable in the first quarter of 2022 compared with the precedingquarter. The year-over-year increase was mainly due to increased net revenues from newly launched games such as Naraka: Bladepointand Harry Potter: Magic Awakened.

The quarter-over-quarter and year-over-year decreases inYoudao gross profit were primarily due to the conclusion of itsAcademic AST Business.

The quarter-over-quarter and year-over-year increases in Cloud Music gross profit were primarily due to increased net revenues from its membership subscriptions and social entertainment services,as well as improved cost control.

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.

Gross Profit Margin

Gross profit margin for online game services was 65.1% for the first quarter of 2022,compared with64.1% and 64.6% for the preceding quarter and the first quarter of 2021,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 53.1% for the first quarter of 2022,compared with 50.7% and 57.3% for the preceding quarter and the first quarter of 2021,respectively.The quarter-over-quarter increase was mainly due to gross profit margin improvement from its learning services. The year-over-year decrease was mainly due to the conclusionof its Academic AST Business.

Gross profit margin for Cloud Music was 12.2% for the first quarter of 2022,compared with 4.1% and a negative gross margin of 3.1% for the preceding quarter and the first quarter of 2021,respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the factors enumerated above.

Gross profit margin for innovative businesses and others was 23.3% for the first quarter of 2022,compared with 26.8% and 24.1% for the preceding quarter and the first quarter of 2021,respectively. The quarter-over-quarter decrease was primarily due to the factors enumerated above.

Operating Expenses

Total operating expenses were RMB7,329.3 million (US$1,156.2 million) for the first quarter of 2022,compared withRMB8,309.6 million and RMB6,777.1 million for the preceding quarter and the first quarter of 2021,respectively. The quarter-over-quarter decrease was mainly due to lower marketing,research and development expenditures related to online game services. The year-over-year increase was mainly due to increased marketing expenditures related to onlinegame services,as well as higher research and development staff-related costs,which was partially offset by decreased marketing expenditures related to Youdao.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment income/ (loss),interest income,exchange gains/ (losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to higher investment lossarisingfromfair value changes of equity investments with readily determinable fair value.

Income Taxes

The Company recorded a net income tax charge of RMB1,219.3 million (US$192.3 million) for the first quarter of 2022,compared with RMB934.0million and RMB1,273.4 million for the preceding quarter and the first quarter of 2021,respectively. The effective tax rate for the first quarter of 2022 was 22.0%,compared with 14.2% and 22.0% for the preceding quarter and the first quarter of 2021,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 RMB4,394.0million (US$693.1 million) for the first quarter of 2022,compared with RMB5,694.2 million and RMB4,439.2 million for the preceding quarter and thefirst quarter of 2021,respectively.

Non-GAAP net income attributable to the Company's shareholders for the first quarter of 2022 totaled RMB5,117.6 million (US$807.3 million),compared with RMB6,595.6 million and RMB5,080.7 million for the preceding quarter and the first quarter of 2021,respectively.

NetEase reported basic net income of US$0.21 per share (US$1.06 per ADS) for the first quarter of 2022,compared with US$0.27 per share (US$1.37 per ADS) and US$0.21 per share (US$1.05 per ADS) for the preceding quarter and the first quarter of 2021,respectively.

NetEase reported non-GAAP basic net income of US$0.25 per share (US$1.23 per ADS) for the first quarter of 2022,compared with US$0.32 per share (US$1.59 per ADS) and US$0.24 per share (US$1.20 per ADS) for the preceding quarter and the first quarter of 2021,respectively.

QuarterlyDividendThe board of directors has approved a dividend of US$0.0644 per share (US$0.3220 per ADS) for the firstquarter of 2022,to holders of ordinary shares and holders of ADSs as of the close of business on June 8,2022,Beijing/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'sHong 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 8,2022 (Beijing/ Hong Kong Time). The payment date is expected to be on June20,2022for holders of ordinary shares and on or around June23,2022 for holders of ADSs.NetEase paid a dividend of US$0.0810 per share (US$0.4050 per ADS) for the fourth quarter of 2021 in March 2022.Under the Company's current dividend policy,the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings,cash flow,financial condition and other relevant factors.Other InformationAs of March 31,the Company's total cash and cash equivalents,current and non-current time deposits and short-term investments balance totaled RMB107.0billion (US$16.9 billion),compared withRMB103.4 billion as of December 31,2021. Cash flows generated from operating activities was RMB4,582.6million (US$722.9 million) for the firstquarter of 2022,compared with RMB8,368.6million and RMB5,542.7 million for the preceding quarter and the first quarter of 2021,respectively.Share Repurchase/PurchaseProgramOn February 25,2021,the Company announced that its board of directors had approved a 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. On August 31,the Company announced that its board of directors hadapproved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of March 31,approximately20.1 million ADSs had been repurchased under this program for a total cost of US$1.9 billion.On August 31,the Company announced that its board of directors had approved a share purchaseprogram of up to US$50.0 million of Youdao's outstanding ADSs for a period not to exceed 36 monthsbeginning on September 2,2021. Under the terms of this program,NetEase may purchase Youdao's ADSs inopen-market transactions on the New York Stock Exchange. As of March 31,approximately 1.2 millionADSs had been purchased under this program for a total cost of US$14.1 million.The extent to which NetEase repurchases its ADSs and its ordinary shares or purchases Youdao's ADSs will depend upon a variety of factors,including market conditions. These programs may be suspended or discontinued at any time.** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. 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 24,2022 (Beijing/Hong Kong Time: 8:00 p.m.,2022). 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 1-323-701-0160 and providing conference ID: 2366082,15 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 2366082#. The replay will be available through June 6,2022.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") provides 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 majority-controlled subsidiaries Youdao (NYSE: DAO),China's leading technology-focused intelligent learning company,and Cloud Village (HKEX: 9899),also known as NetEase Cloud Music,China's leading online music content community,as well as Yanxuan,NetEase's private label e-commerce platform. 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 its ability 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,including,among others,initiatives to enhance supervision of companies listed on an overseas stock exchange and tighten scrutiny over data privacy and data security,as well as the risk that NetEase's ADSs could be barred from trading in the United States as a result of the Holding Foreign Companies Accountable Act and the rules promulgated thereunder; 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 share and per ADS,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. 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 income / expense 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,

2021

2022

RMB

USD (Note 1)Assets

Current assets:

Cash and cash equivalents

14,498,157

9,851,996

1,554,114Time deposits

70,754,846

81,302,719

12,825,189Restricted cash

2,876,628

3,335,627

526,182Accounts receivable,net

5,507,988

5,277,364

832,484Inventories,net

964,733

861,312

135,869Prepayments and other current assets,net

6,235,857

7,097,923

1,119,671Short-term investments

12,281,548

11,346,649

1,789,890Assets held for sale

497

-Total current assets

113,120,254

119,073,590

18,783,399

Non-current assets:

Property,equipment and software,433,858

5,842,168

921,579Land use right,net

4,108,090

4,149,942

654,637Deferred tax assets

1,297,954

1,127,257

177,820Time deposits

5,823,840

4,473,840

705,731Restricted cash

1,330

1,079

170Other long-term assets,net

23,857,510

24,580,233

3,877,436Assets held for sale

1,088

-Total non-current assets

40,523,670

40,174,519

6,337,373Total assets

153,643,924

159,248,109

25,772

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

985,059

924,572

145,848Salary and welfare payables

4,133,254

2,401,213

378,782Taxes payable

4,537,050

4,614,865

727,977Short-term loans

19,352,313

22,679,519

3,577,606Contract liabilities

12,132,743

12,050,962

1,900,992Accrued liabilities and other payables

9,360,907

9,093,256

1,434,426Total current liabilities

50,501,326

51,764,387

8,165,631

Non-current liabilities:

Deferred tax liabilities

1,345,874

1,490,406

235,106Long-term loans

1,275,140

3,100

500,702Other long-term payable

1,708

1,044,882

164,826Total non-current liabilities

3,718,722

5,709,388

900,634Total liabilities

54,220,048

57,775

9,066,265

Redeemable noncontrolling interests

145,238

146,754

23,150

NetEase,Inc.'s shareholders' equity

95,328,080

97,671,521

15,407,304Noncontrolling interests

3,950,558

3,956,059

624,053Total shareholders' equity

99,278,638

101,627,580

16,031,357

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

153,772

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,

2021

2022

RMB

USD (Note 1)

Net revenues

20,517,211

24,373,565

23,555,842

3,715,843Cost of revenues

(9,464,572)

(11,455,785)

(10,719,463)

(1,690,954)Gross profit

11,052,639

12,917,780

12,836,379

2,024,889

Operating expenses:

Selling and marketing expenses

(2,766,682)

(3,300,032)

(2,915,489)

(459,907)General and administrative expenses

(950,194)

(1,161,876)

(1,015,769)

(160,234)Research and development expenses

(3,060,189)

(3,847,704)

(3,398,082)

(536,034)Total operating expenses

(6,777,065)

(8,309,612)

(7,329,340)

(1,156,175)Operating profit

4,574

4,608,168

5,039

868,714

Other income/ (expenses):

Investment income/ (loss),net

695,298

1,642

(548,702)

(86,556)Interest income,net

388,928

395,029

458,244

72,286Exchange gains/ (losses),net

279,319

(331,390)

(97,880)

(15,440)Other,net

147,967

297,244

216,330

34,125Income before tax

5,787,086

6,596,693

5,535,031

873,129Income tax

(1,273,408)

(933,985)

(1,219,271)

(192,335)Net income

4,513,678

5,662,708

4,315,760

680,794

Accretion of redeemable noncontrolling

interests

(143,827)

(99,914)

(733)

(116)Net loss attributable to noncontrolling

interests

69,301

131,360

78,996

12,461Net income attributable to the

Company's shareholders

4,439,152

5,694,154

4,394,023

693,139

Net income per share *

Basic

1.33

1.74

1.34

0.21Diluted

1.31

1.71

1.33

0.21

Net income per ADS *

Basic

6.63

8.68

6.70

1.06Diluted

6.53

8.57

6.63

1.05

Weighted average number of ordinary

shares used in calculating net income

per share *

Basic

3,349,638

3,172

3,280

3,280Diluted

3,399,981

3,323,004

3,316,129

3,129

* 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,

2021

2022

RMB

USD (Note 1)Cash flows from operating activities:

Net income

4,794Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

819,830

836,042

766,180

120,862Fair value changes of equity security investments

(477,597)

(984,901)

1,541,002

243,087Impairment losses of investments and other long-term assets

69,572

5,000

789Fair value changes of short-term investments

(118,004)

(166,513)

(79,776)

(12,584)Share-based compensation cost

650,253

1,002,899

746,154

117,703Allowance for/ (reversal of) expected credit losses

13,604

12,932

(313)

(49)(Gains)/ losses on disposal of property,equipment and software

(159)

48,779

1,445

228Unrealized exchange (gains)/ losses

(274,047)

347,235

98,034

15,464Gains on disposal of long-term investments,business and

subsidiaries

(7,323)

(13,091)

(4,000)

(631)Deferred income taxes

328,075

(431,015)

315,228

49,726Share of results on equity method investees and revaluation

results from previously held equity interest

(51,892)

(448,053)

(911,498)

(143,785)Changes in operating assets and liabilities:

Accounts receivable

(484,343)

(97,064)

212,075

33,454Inventories

(253,495)

73,588

103,591

16,341Prepayments and other assets

(785,224)

870,684

(569,843)

(89,891)Accounts payable

(60,654)

(89,207)

(92,373)

(14,571)Salary and welfare payables

(1,226,155)

1,521,743

(1,756,224)

(277,038)Taxes payable

1,558,618

528,725

73,446

11,586Contract liabilities

740,938

(1,162,982)

(78,200)

(12,336)Accrued liabilities and other payables

656,564

786,517

(103,136)

(16,269)Net cash provided by operating activities

5,542,667

8,368,598

4,582,552

722,880

Cash flows from investing activities:

Purchase of property,equipment and software

(329,746)

(442,524)

(749,361)

(118,209)Proceeds from sale of property,equipment and software

1,519

56,517

12,565

1,982Purchase of intangible assets,content and licensed copyrights

(426,133)

(297,142)

(143,836)

(22,690)Net change in short-term investments with terms of three

months or less

3,332,610

(1,474,371)

1,710,845

269,879Purchase of short-term investments with terms over three

months

(7,905,000)

(4,000)

(1,250,000)

(197,183)Proceeds from maturities of short-term investments with terms

over three months

2,341

3,313,543

553,831

87,365Investment in long-term investments and acquisition of

subsidiaries

(558,441)

(2,020,029)

(1,271)

(266,634)Proceeds from disposal of long-term investments,businesses

and subsidiaries

198,900

616,542

34,237

5,401Placement/rollover of matured time deposits

(15,722,749)

(26,628,133)

(24,045,997)

(3,793,163)Proceeds from maturities of time deposits

11,481,135

15,707,821

14,699,795

2,318,836Change in other long-term assets

(54,653)

(99,692)

(169,545)

(26,745)Net cash used in investing activities

(7,125,217)

(15,567,468)

(11,037,737)

(1,741,161)

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,

2021

2022

RMB

USD (Note 1)Cash flows from financing activities:

Net changes in bank loans with terms of three months or less

2,122,041

425,020

3,403,195

536,841Proceed of bank loans with terms over three months

236,916

2,171

1,210

302,117Payment of bank loans with terms over three months

(167,700)

(1,311,823)

-Amounts paid for NetEase's issuance of shares in Hong Kong

(13,800)

-Net Amounts received/ (paid) related to capital contribution from

or repurchase of noncontrolling interests and redeemable

noncontrolling interests shareholders

1,049

1,320,122

(102,042)

(16,097)Cash paid for repurchase of NetEase's ADSs/ purchase of

subsidiaries' ADSs and shares

(2,018,467)

(2,112,256)

(1,243,917)

(196,223)Dividends paid to noncontrolling interest shareholders

(731,250)

-Dividends paid to NetEase's shareholders

(260,842)

(940,540)

(1,683,472)

(265,561)Net cash provided by/ (used in) financing activities

1,405,197

(1,556)

2,288,974

361,077

Effect of exchange rate changes on cash,cash equivalents and

restricted cash held in foreign currencies

35,993

(80,670)

(21,202)

(3,345)Net decrease in cash,cash equivalents and restricted cash

(141,360)

(8,353,096)

(4,187,413)

(660,549)Cash,cash equivalents and restricted cash,at the beginning

of the period

12,168,605

25,729,211

17,376,115

2,015Cash,at end of the period

12,027,245

17,115

13,188,702

2,080,466

Supplemental disclosures of cash flow information:

Cash paid for income tax,net

550,191

858,304

1,515,330

239,037Cash paid for interest expense

43,902

42,879

37,741

5,953

The accompanying notes are an integral part of this announcement.

NETEASE,INC.UNAUDITED SEGMENT INFORMATION(in thousands,except percentages)

Three Months Ended

March 31,

2021

2022

RMB

USD (Note 1)Net revenues:

Online game services

14,981,784

17,397,517

17,272,650

2,724,694Youdao

1,339,867

1,333,791

1,200,541

189,381Cloud Music

1,491,167

1,889,265

2,067,206

326,094Innovative businesses and others

2,704,393

3,752,992

3,445

475,674Total net revenues

20,843

Cost of revenues:

Online game services

(5,713)

(6,239,410)

(6,519)

(950,818)Youdao

(572,415)

(657,329)

(562,691)

(88,762)Cloud Music

(1,726)

(1,812,036)

(1,815,649)

(286,412)Innovative businesses and others

(2,051,718)

(2,747,010)

(2,604)

(364,962)Total cost of revenues

(9,954)

Gross profit:

Online game services

9,071

11,158,107

11,245,131

1,773,876Youdao

767,452

676,462

637,850

100,619Cloud Music

(46,559)

77,229

251,557

39,682Innovative businesses and others

652,675

1,005,982

701,841

110,712Total gross profit

11,889

Gross profit margin:

Online game services

64.6%

64.1%

65.1%

65.1%Youdao

57.3%

50.7%

53.1%

53.1%Cloud Music

(3.1%)

4.1%

12.2%

12.2%Innovative businesses and others

24.1%

26.8%

23.3%

The accompanying notes are an integral part of this announcement.NETEASE,INC.NOTES TO UNAUDITED FINANCIALINFORMATIONNote 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.3393on the last trading day of March 2022(March31,2022) 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.Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of income is set out as follows in RMB and USD (in thousands):

Three Months Ended

March 31,

2021

2022

RMB

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

Cost of revenues

187,926

267,424

198,135

31,255Operating expenses

Selling and marketing expenses

24,231

38,657

30,373

4,791General and administrative expenses

229,603

358,595

279,062

44,021Research and development expenses

208,493

338,223

238,584

37,636

The accompanying notes are an integral part of this announcement.Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirement.Note 4: The unaudited reconciliation on GAAP and non-GAAP results is set out as follows in RMB and USD(in thousands,except per share data or per ADS data):

Three Months Ended

March 31,

2021

2022

RMB

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

4,139Add: Share-based compensation

641,534

901,421

723,603

114,146Non-GAAP net income attributable to the Company's

shareholders