NetEase Announces Third Quarter 2022 Unaudited Financial Results

HANGZHOU,China,Nov. 17,2022 --NetEase,Inc. (NASDAQ: NTES and HKEX: 9999,"NetEase" or the "Company"),one of China's leading internet and onlinegame services providers,today announced its unaudited financial results for the third quarter ended September 30,2022.

ThirdQuarter 2022 Financial Highlights

Net revenues were RMB24.4 billion (US$3.4 billion),an increase of 10.1% compared with the third quarter of 2021.

- Games and related value-added services net revenues were RMB18.7 billion (US$2.6 billion),an increase of 9.1% compared with the third quarter of 2021.[1]

- Youdao net revenues were RMB1.4 billion (US$197.2 million),an increase of 1.1% compared with the third quarter of 2021.

- Cloud Music net revenues were RMB2.4 billion (US$331.4 million),an increase of 22.5% compared with the third quarter of 2021.

- Innovative businesses and others net revenues were RMB2.0 billion (US$276.7 million),an increase of 13.6% compared with the third quarter of 2021.[1]

Gross profit was RMB13.7 billion (US$1.9 billion),an increase of 16.4% compared with the third quarter of 2021.

Total operating expenses were RMB9.0 billion (US$1.3 billion),an increase of 12.0% compared with the third quarter of 2021.

Net income attributable to the Company's shareholders was RMB6.7 billion (US$941.8 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB7.5 billion (US$1.1 billion).[2]

Basic net income per share was US$0.29 (US$1.44 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.32 (US$1.61 per ADS).[2]

[1]Effective as of the second quarter of 2022,the Company renamed its "online game services" segment as "games and related value-added services," and transferred certain business lines that are related or ancillary to its games from "innovative businesses and others" to "games and related value-added services." The Company retrospectively recast prior periods' segment information to conform to the current period presentation. See "Change in Segment Reporting" in this announcement.

[2]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 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.

Third Quarter 2022 and Recent Operational Highlights

Extended the longevity of leading franchise titles including both the Fantasy Westward Journey and Westward Journey Online series,and other hit titles including Identity V and Infinite Lagrange.

Delivered exciting anniversary content updates for the popular title Naraka: Bladepoint in August,winning wide acclaim among players.

Diablo® Immortal™,co-developed by NetEase and Blizzard Entertainment,debuted in Chinese mainland,topping the iOS download chart soon after its launch.

Advanced pipeline,propelling new games under development including Naraka: Bladepoint mobile game,Justice mobile game and Ghost World Chronicle.

Continued preparations for the roll-out of Harry Potter: Magic Awakened in international markets,which is now expected to be launched globally in 2023.

Net revenues of Youdao maintained healthy growth with increased contributions from sales of new services and smart devices.

Enhanced content and product innovation for Cloud Music,driving solid growth in net revenues and continued margin improvement.

As previously disclosed,NetEase has entered into certain licensing agreements covering the publication of several Blizzard titles inChinese mainland. These licenses will expire in January 2023 and will not be renewed. Net revenues and net income contribution from these licensed Blizzard games represented low single digits as a percentage of NetEase's total net revenues and net income in 2021 and in the first nine months of 2022. The expiration of such licenses will have no material impact on NetEase's financial results. The co-development and publishing of Diablo® Immortal™is covered by a separate long-term agreement.

Commenting on this quarter's financial results,Mr. William Ding,Chief Executive Officer and Director of NetEase said,"Steady growth characterized our third quarter,generating total net revenues of RMB24.4 billion,an increase of 10.1% year-over-year. Our games business continues to see solid gains. Beloved flagship titles such as our Fantasy Westward Journey sagas further grew in the third quarter,impressing the industry with their strength and longevity. The successful launch of thrilling new games such as Diablo® Immortal™ is a further testament to our robust R&D programs and ability to captivate the attention of players in the international arena."

"In addition to our games,we maintained our differentiated offerings with Youdao,Cloud Music and Yanxuan businesses. As we move forward,we will continue to leverage our innovative content and services to drive sustainable growth across each of our carefully cultivated businesses," Mr. Ding concluded.

Third Quarter 2022 Financial Results

Net Revenues

Netrevenues for the third quarter of 2022 were RMB24,426.8 million (US$3,433.9million),compared with RMB23,159.1 million and RMB22,190.7million for the preceding quarter and the third quarter of 2021,respectively.

Net revenues from games and related value-added services,which include both the operation of online games as well as other related or ancillary services to thegames,were RMB18,699.1million (US$2,628.7million) for the third quarter of 2022,compared with RMB18,139.8million and RMB17,145.7million for the preceding quarter and the third quarter of 2021,respectively. Net revenues from the operation of online games,which is the primary component of this segment,accounted for approximately 92.9% of the segment for the third quarter of 2022,compared with 92.8% and92.7%for the precedingquarter and the third quarter of 2021,respectively. Net revenues from mobile games accounted for approximately 68.6% of net revenues from the operation of online games for the third quarter of 2022,compared with 66.1% and 69.2%forthe precedingquarter and the third quarter of 2021,respectively.

Net revenues from Youdao were RMB1,402.4 million (US$197.2million) for the third quarter of 2022,compared with RMB956.2 million and RMB1,387.3million for the preceding quarter and the third quarter of 2021,respectively.

Net revenues from Cloud Music were RMB2,357.2 million (US$331.4million) for the third quarter of 2022,compared with RMB2,191.5 million and RMB1,924.7 million for the preceding quarter and the third quarter of 2021,respectively.

Net revenues from innovative businesses and others were RMB1,968.0 million (US$276.7 million) for the third quarter of 2022,compared with RMB1,871.5 million and RMB1,733.1 million for the preceding quarter and the third quarter of 2021,respectively.

Gross Profit

Gross profit for the third quarter of 2022 was RMB13,743.9 million (US$1,932.1million),compared with RMB12,941.5 million and RMB11,810.8million for the preceding quarter and the third quarter of 2021,respectively.

The quarter-over-quarter and year-over-year increases in games and related value-added services gross profit were primarily due to increased net revenues from online games,including the Fantasy Westward Journey Online series and Infinite Lagrange,and certain newly launched titles.

The quarter-over-quarter increase inYoudao gross profit was primarily attributable to the increase in net revenues from improved economies of scale for its learning services as well as increased sales volume of its smart devices.

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

The quarter-over-quarter and year-over-year increases in innovative businesses and others gross profit were primarily due to increased gross profit contribution from Yanxuan.

Gross Profit Margin

Gross profit margin for games and related value-added services for the third quarter of 2022 was 65.0%,compared with 64.9% and 61.3% for the preceding quarter and the third quarter of 2021,respectively.The year-over-year increase in gross profit margin was mainly due to changes in the revenue contribution from different distribution channels.

Gross profit margin for Youdao for the third quarter of 2022 was 54.2%,compared with 42.8% and 56.6% for the preceding quarter and the third quarter of 2021,respectively.The quarter-over-quarter increasewas primarily attributable to the factors enumerated above.The year-over-year decrease mainly resulted from a decline in economies of scale due to the decreased net revenues from its learning services.

Gross profit margin for Cloud Music was 14.2% for the third quarter of 2022,compared with 13.0% and 2.2% for the preceding quarter and the third 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 for the third quarter of 2022 was25.5%,compared with 25.8% and 27.2% for the preceding quarter and the third quarter of 2021,respectively.The year-over-year fluctuations were mainly due to changes in gross profit margin from advertising services.

Operating Expenses

Total operating expenses for the third quarter of 2022 were RMB9,002.1 million (US$1,265.5 million),compared with RMB7,995.2 million and RMB8,035.6 million for the preceding quarter and the third quarter of 2021,respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to games and related value-added services and Youdao,as well as higher staff-related costs.

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 increases were mainly due to investment income arising from the disposal of certain equity investments and net unrealized exchange gains arising from the Company's U.S. dollar-denominated bank deposits and loans balances as the exchange rate of the U.S. dollar against the RMB fluctuated in the third quarter of 2022.

Income Taxes

The Company recorded a net income tax charge of RMB1,586.7 million (US$223.1 million) for the third quarter of 2022,259.3 million and RMB807.6 million for the preceding quarter and the third quarter of 2021,respectively. The effective tax rate for the third quarter of 2022 was 19.3%,compared with 22.0% and 19.6% for the preceding quarter and the third quarter of 2021,respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

Net Income and Non-GAAP Net Income

Net income attributable to the Company's shareholders totaled RMB6,699.4million (US$941.8 million) for the third quarter of 2022,compared with RMB5,291.5 million and RMB3,181.8 million for the preceding quarter and the third quarter of 2021,respectively. Net income attributable to the Company's shareholders for the preceding quarter also included net income from discontinued operations of RMB624.9 million which was related to the prior disposal of the Kaola business.

Non-GAAP net income from continuing operations attributable to the Company's shareholders totaled RMB7,469.6 million (US$1,050.1 million) for the third quarter of 2022,409.8 million and RMB3,857.8 million for the preceding quarter and the third quarter of 2021,respectively.

NetEase reported basic net income of US$0.29 per share (US$1.44 per ADS) for the third quarter of 2022,compared with US$0.23 per share (US$1.14 per ADS) and US$0.13 per share (US$0.67 per ADS) for the preceding quarter and the third quarter of 2021,respectively.

NetEase reported non-GAAP basic net income from continuing operations of US$0.32 per share (US$1.61 per ADS) for the third quarter of 2022,compared with US$0.23 per share (US$1.16 per ADS) and US$0.16 per share (US$0.82 per ADS) for the preceding quarter and the third quarter of 2021,respectively.

QuarterlyDividend

The board of directors has approved a dividend of US$0.0870 per share (US$0.4350 per ADS) for the third quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on December 2,2022,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'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 December 2,2022 (Beijing/ Hong Kong Time). The payment date is expected to be on December 13,2022 for holders of ordinary shares and on or around December 16,2022 for holders of ADSs.

NetEase paid a dividend of US$0.0720 per share (US$0.3600 per ADS) for the second quarter of 2022 in September 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 Information

As of September 30,the Company's total cash and cash equivalents,current and non-current time deposits and restricted cash,as well as short-term investments balance,minus short-term and long-term loans totaledRMB94.6 billion (US$13.3billion),compared with RMB85.6 billion as of December 31,2021. Cash flow generated from operating activities was RMB7.5billion (US$1.1 billion) for the third quarter of 2022,compared with RMB6.6billion and RMB6.3billion for the preceding quarter and the third quarter of 2021,respectively.

Change in Segment Reporting

Effective as of the second quarter of 2022,the Company implemented certain changes to align its segment financial reporting more closely with the manner in which the Company's management currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The Company renamed its "online game services" segment as "games and related value-added services," and transferred certain business lines that are related or ancillary to its games from "innovative businesses and others" to "games and related value-added services," including the NetEase CC live streaming service (a platform offering various live streaming content with a primary focus on game broadcasting) and other value-added services. The Company retrospectively recast prior periods' segment information to conform to current period presentation. These changes had no impact on NetEase's previously reported consolidated net revenues,net income or net income per share.

Share Repurchase/ Purchase Program

On February 25,2021,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. 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 September 30,approximately 27.0 million ADSs had been repurchased under this program for a total cost of US$2.5 billion.

The Company also announced today that its board of directors has approved a new share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market transactions. This new share repurchase program will be in effect for a period not to exceed 36 months,commencing upon the expiration of the Company's existing share repurchase program or,if earlier,the date on which the Company has repurchased the maximum amount authorized under the existing program.

On August 31,the Company announced that its board of directors had approved a share purchase program 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 September 30,approximately 2.3 millionADSs had been purchased under this program for a total cost of US$20.7 million.

NetEasealso purchased approximately 0.7 million ordinary shares of Cloud Music in open market transactions on the Hong Kong Stock Exchange for a total cost of US$6.9 million during the third quarter of 2022.

The extent to which NetEase repurchases its ADSs and its ordinary shares or purchases Youdao's ADSs and Cloud Music's ordinary shares 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 7:00 a.m. NewYork Time on Thursday,November 17,2022 (Beijing/ Hong Kong Time: 8:00 p.m.,Thursday,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 1-914-202-3258 and providing conference ID: 10026570,15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10026570. The replay will be available through November 24,2022.

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,Inc. (NASDAQ: NTES and HKEX:9999,"NetEase") provides premium online services centered around content creation. With extensive offerings across its expanding gaming ecosystem,the Company develops and operates some of China's most popular and longest running mobile and PC games. Powered by industry-leading in-house R&D capabilities in China and globally,NetEase creates superior gaming experiences,inspires players,and passionately delivers value for its thriving community worldwide. By infusing play with culture and education with technology,NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.

Beyond games,NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO),China's leading technology-focused intelligent learning company,and Cloud Music (HKEX: 9899),China's leading online music content community,as well as Yanxuan,NetEase's private label consumer lifestyle brand.

NetEase's ESG initiatives are among the best in the global media and entertainment industry,earning it a distinction as one of the S&P Global Industry Movers and an "A" rating from MSCI. 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 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 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. 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

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

December 31,

September 30,

2021

2022

2022

RMB

RMB

USD (Note 1)

Assets

Current assets:

Cash and cash equivalents

14,498,157

17,999,166

2,530,283

Time deposits

70,754,846

89,301,940

12,553,868

Restricted cash

2,876,628

2,844,386

399,857

Accounts receivable,net

5,507,988

5,208,019

732,132

Inventories

964,733

932,905

131,146

Prepayments and other current assets,net

6,235,857

6,371,412

895,679

Short-term investments

12,281,548

8,934,202

1,255,950

Assets held for sale

497

-

-

Total current assets

113,120,254

131,592,030

18,915

Non-current assets:

Property,equipment and software,433,858

6,165,151

866,683

Land use right,net

4,108,090

4,134,507

581,220

Deferred tax assets

1,297,954

1,387,083

194,993

Time deposits

5,823,840

4,473,840

628,922

Restricted cash

1,330

850

119

Other long-term assets,net

23,857,510

24,954,210

3,508,008

Assets held for sale

1,088

-

-

Total non-current assets

40,523,670

41,115,641

5,779,945

Total assets

153,643,924

172,707,671

24,278,860

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

985,059

867,298

121,923

Salary and welfare payables

4,133,254

2,701,749

379,806

Taxes payable

4,537,050

3,740,750

525,866

Short-term loans

19,352,313

25,445,617

3,577,088

Contract liabilities

12,132,743

13,901,882

1,296

Accrued liabilities and other payables

9,360,907

10,294

1,457,973

Total current liabilities

50,501,326

57,028,590

8,016,952

Non-current liabilities:

Deferred tax liabilities

1,345,874

1,354,827

190,459

Long-term loans

1,275,140

3,549,900

499,037

Other long-term liabilities

1,097,708

1,125,227

158,182

Total non-current liabilities

3,718,722

6,029,954

847,678

Total liabilities

54,220,048

63,058,544

8,864,630

Redeemable noncontrolling interests

145,238

143,354

20,152

NetEase,Inc.'s shareholders' equity

95,328,080

105,364,713

14,811,937

Noncontrolling interests

3,950,558

4,141,060

582,141

Total shareholders' equity

99,638

109,505,773

15,394,078

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

153,860

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

Nine Months Ended

September 30,

June 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues

22,190,749

23,159,078

24,426,760

3,860

63,232,461

71,680

10,000,939

Cost of revenues

(10,379,981)

(10,217,587)

(10,682,868)

(1,774)

(29,179,440)

(31,619,918)

(4,058)

Gross profit

11,810,768

12,941,491

13,743,892

1,932,086

34,053,021

39,521,762

5,555,881

Operating expenses:

Selling and marketing expenses

(3,030)

(3,300,705)

(3,768,618)

(529,784)

(8,914,159)

(9,984,812)

(1,403,643)

General and administrative expenses

(1,140,296)

(1,112,755)

(1,264,342)

(177,738)

(3,101,673)

(3,392,866)

(476,962)

Research and development expenses

(3,761,239)

(3,581,700)

(3,969,156)

(557,975)

(10,228,287)

(10,948,938)

(1,539,177)

Total operating expenses

(8,035,565)

(7,995,160)

(9,002,116)

(1,265,497)

(22,244,119)

(24,326,616)

(3,419,782)

Operating profit

3,775,203

4,946,331

4,741,776

666,589

11,808,902

15,195,146

2,136,099

Other income/ (expenses):

Investment (loss)/ income,net

(264,611)

(707,489)

1,347,269

189,396

1,320,079

91,078

12,804

Interest income,net

349,550

505,991

556,148

78,182

1,124,685

1,520,383

213,732

Exchange gains/ (losses),net

153,310

865,283

1,398,045

196,534

(159,091)

2,448

304,414

Other,net

117,636

121,175

164,435

23,116

413,191

501,940

70,562

Income before tax

4,131,088

5,731,291

8,207,673

1,153,817

14,766

19,995

2,737,611

Income tax

(807,648)

(1,259,320)

(1,586,673)

(223,051)

(3,194,284)

(4,065,264)

(571,486)

Net income from continuing operations

3,323,440

4,471,971

6,621,000

930,766

11,313,482

15,408,731

2,166,125

Net income from discontinued operations

-

624,864

-

-

-

624,864

87,842

Net income

3,440

5,096,835

6,482

16,033,595

2,253,967

Accretion of redeemable noncontrolling

interests

(147,825)

(754)

(781)

(110)

(437,067)

(2,268)

(319)

Net loss attributable to noncontrolling

interests

6,167

195,395

79,145

11,126

286,273

353,536

49,699

Net income attributable to the

Company's shareholders

3,181,782

5,291,476

6,699,364

941,782

11,162,688

16,384,863

2,303,347

Including:

-Net income from continuing operations

attributable to the Company's

shareholders

3,782

4,666,612

6,688

15,759,999

2,215,505

-Net income from discontinued operations

attributable to the Company's shareholders

-

624,842

Basic net income per share *

0.96

1.62

2.05

0.29

3.34

5.01

0.70

-Continuing operations

0.96

1.43

2.05

0.29

3.34

4.82

0.67

-Discontinued operations

-

0.19

-

-

-

0.19

0.03

Basic net income per ADS *

4.78

8.08

10.27

1.44

16.71

25.04

3.52

-Continuing operations

4.78

7.13

10.27

1.44

16.71

24.09

3.39

-Discontinued operations

-

0.95

-

-

-

0.95

0.13

Diluted net income per share *

0.95

1.60

2.03

0.29

3.30

4.96

0.70

-Continuing operations

0.95

1.41

2.03

0.29

3.30

4.77

0.67

-Discontinued operations

-

0.19

-

-

-

0.19

0.03

Diluted net income per ADS *

4.73

8.00

10.17

1.43

16.50

24.79

3.48

-Continuing operations

4.73

7.05

10.17

1.43

16.50

23.84

3.35

-Discontinued operations

-

0.95

-

-

-

0.95

0.13

Weighted average number of ordinary

shares used in calculating net income

per share *

Basic

3,325,892

3,274,695

3,262,989

3,340,925

3,271,602

3,602

Diluted

3,361,727

3,305,504

3,293,766

3,382,467

3,081

3,081

* 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

Nine Months Ended

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Cash flows from operating activities:

Net income

3,967

Net income from discontinued operations

-

(624,864)

-

-

-

(624,864)

(87,842)

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

805,485

609,036

713,852

100,352

2,439,685

2,089,068

293,676

Fair value changes of equity security investments

1,338

735,159

680,019

95,596

513,021

2,956,180

415,573

Impairment losses of investments and other long-term assets

26,055

243,085

6,763

951

30,852

254,848

35,826

Fair value changes of short-term investments

(184,564)

(119,882)

(119,620)

(16,816)

(473,244)

(319,278)

(44,884)

Share-based compensation cost

688,226

764,447

786,999

110,635

2,038,593

2,600

322,991

Allowance for expected credit losses

212,010

10,965

44,126

6,203

252,998

54,778

7,701

Losses on disposal of property,equipment and software

4,008

481

528

74

5,273

2,454

345

Unrealized exchange (gains)/losses

(157,292)

(890,066)

(1,401,893)

(197,075)

141,369

(2,193,925)

(308,417)

Gains on disposal of long-term investments,business and

subsidiaries

(1)

-

(1,724,433)

(242,417)

(173,829)

(1,728,979)

Deferred income taxes

307,994

(169,539)

(234,336)

(32,943)

838,963

(88,647)

(12,461)

Share of results on equity method investees and revaluation

results from previously held equity interest

(730,363)

(134,569)

(159,128)

(22,370)

(1,015)

(1,205,195)

(169,424)

Changes in operating assets and liabilities:

Accounts receivable

(1,178,290)

82,282

35,786

5,031

(1,522)

330,143

46,411

Inventories

(154,072)

17,791

(88,300)

(12,413)

(417,175)

33,082

4,651

Prepayments and other assets

(38,490)

(163,612)

368,673

51,827

(230,335)

(364,782)

(51,280)

Accounts payable

172,696

48,452

(84,434)

(11,870)

(66,055)

(128,355)

(18,044)

Salary and welfare payables

(647,029)

782,789

(567,676)

(79,803)

(1,409)

(1,541,111)

(216,646)

Taxes payable

(434,893)

(538,234)

475,245

66,809

(273,665)

10,457

1,470

Contract liabilities

2,154,751

279,669

1,580,450

222,176

2,514,243

1,781,919

250,498

Accrued liabilities and other payables

928,647

600,934

552,688

77,696

1,334,899

1,050,486

147,675

Net cash provided by operating activities

6,292,656

6,631,159

7,486,309

1,052,409

16,558,129

18,700,020

2,628,807

Cash flows from investing activities:

Purchase of property,equipment and software

(407,688)

(445,054)

(557,028)

(78,306)

(1,751,443)

(246,214)

Proceeds from sale of property,equipment and software

11,030

23,338

3,307

465

15,007

39,210

5,512

Purchase of intangible assets,content and licensed

copyrights

(218,168)

(85,121)

(152,276)

(21,407)

(1,211,037)

(381,233)

(53,593)

Net change in short-term investments with terms of three

months or less

167,978

(159,173)

156,475

21,997

5,169,261

1,708,147

240,127

Purchase of short-term investments with terms over three

months

(630,000)

-

-

-

(10,985,000)

(1,250,000)

(175,722)

Proceeds from maturities of short-term investments with terms

over three months

6,251,750

1,459,172

1,475

168,057

9,922,302

3,478

451,041

Investment in long-term investments and acquisition of

subsidiaries

(586,124)

(899,968)

(844,513)

(118,720)

(4,538)

(3,434,752)

(482,850)

Proceeds from disposal of long-term investments,

businesses and subsidiaries

33,731

6,413

2,277,625

320,183

498,915

2,318,275

325,898

Placement/rollover of matured time deposits

(11,723,614)

(33,122,029)

(18,830,844)

(2,647,198)

(54,669,947)

(75,998,870)

(10,683,752)

Proceeds from maturities of time deposits

28,155

32,100,141

17,770,581

2,149

65,599,476

64,570,517

9,077,179

Change in other long-term assets

(69,429)

(60,900)

(31,782)

(4,468)

(168,959)

(262,227)

(36,863)

Net cash provided by/ (used in) investing activities

21,157,621

(1,183,181)

987,020

138,752

8,489,174

(11,233,898)

(1,579,237)

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

Nine Months Ended

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Cash flows from financing activities:

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

(7,967,910)

2,721,487

(3,645,232)

(512,439)

(867,227)

2,479,450

348,556

Proceed of bank loans with terms over three months

612,885

1,641,708

70,691

9,938

2,170,415

3,627,609

509,961

Payment of bank loans with terms over three months

(235,284)

(32,273)

(50,208)

(7,058)

(985,312)

(82,481)

(11,595)

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

34,800

33,200

14,305

2,011

1,550,025

(54,537)

(7,667)

Cash paid for repurchase of NetEase's ADSs/ purchase of

subsidiaries' ADSs and shares

(6,310,841)

(2,119,613)

(1,829)

(275,087)

(10,798,277)

(5,359)

(747,924)

Dividends paid to NetEase's shareholders

(1,637)

(1,617,574)

(227,395)

(2,567,837)

(4,704,683)

(661,374)

Net cash (used in)/ provided by financing activities

(14,894,466)

840,872

(7,184,847)

(1,010,030)

(11,512,013)

(4,055,001)

(570,043)

Effect of exchange rate changes on cash,cash equivalents and

restricted cash held in foreign currencies

14,435

74,898

3,470

488

25,316

57,166

8,036

Net increase in cash,cash equivalents and restricted cash

12,246

6,363,748

1,952

181,619

13,560,606

3,468,287

487,563

Cash,cash equivalents and restricted cash,at the beginning

of the period

13,158,965

13,188,702

19,552,450

2,748,640

12,168,605

17,376,115

2,442,696

Cash,at end of the period

25,729,211

19,450

20,402

2,930,259

25,211

20,259

Supplemental disclosures of cash flow information:

Cash paid for income tax,net

898,112

1,096

1,748

218,001

2,688,995

4,121,174

579,345

Cash paid for interest expense

52,765

93,079

193,329

27,178

144,749

324,149

45,568

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION

(in thousands,except percentages)

Three Months Ended

Nine Months Ended

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues:

Games and related value-added services

17,145,668

18,139,843

18,106

2,679

49,027,297

55,480,763

7,799,362

Youdao

1,292

956,225

1,402,434

197,151

4,020,566

3,559,200

500,344

Cloud Music

1,924,683

2,191,510

2,357,248

331,377

5,357

6,615,964

930,057

Innovative businesses and others

1,733,106

1,871,500

1,972

276,653

5,076,241

5,485,753

771,176

Total net revenues

22,939

Cost of revenues:

Games and related value-added services

(6,634,238)

(6,375,598)

(6,551,193)

(920,952)

(18,660,292)

(19,978,581)

Youdao

(601,741)

(546,498)

(642,254)

(90,287)

(1,790,817)

(1,214)

Cloud Music

(1,881,859)

(1,905,954)

(2,023,600)

(284,473)

(5,042,912)

(5,745,203)

(807,648)

Innovative businesses and others

(1,143)

(1,389,537)

(1,465,821)

(206,062)

(3,685,419)

(4,144,431)

(582,615)

Total cost of revenues

(10,058)

Gross profit:

Games and related value-added services

10,511,430

11,764,245

12,147,913

1,727

30,367,005

35,922

4,990,781

Youdao

785,551

409,727

760,180

106,864

2,229,749

1,807,757

254,130

Cloud Music

42,824

285,556

333,648

46,904

65,445

870,761

122,409

Innovative businesses and others

470,963

481,963

502,151

70,591

1,390,822

1,341,322

188,561

Total gross profit

11,881

Gross profit margin:

Games and related value-added services

61.3%

64.9%

65.0%

65.0%

61.9%

64.0%

64.0%

Youdao

56.6%

42.8%

54.2%

54.2%

55.5%

50.8%

50.8%

Cloud Music

2.2%

13.0%

14.2%

14.2%

1.3%

13.2%

13.2%

Innovative businesses and others

27.2%

25.8%

25.5%

25.5%

27.4%

24.5%

24.5%

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

NOTES TO UNAUDITED FINANCIALINFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.1135 on the last trading day of September 2022 (September 30,2022) 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 September 30,or at any other certain date.

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

Nine Months Ended

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Share-based compensation cost included in:

Cost of revenues

180,669

173,840

190,645

26,800

565,965

562,620

79,092

Operating expenses

Selling and marketing expenses

29,289

31,817

24,980

3,512

79,954

87,170

12,254

General and administrative expenses

258,805

297,891

288,598

40,570

746,952

865,551

121,677

Research and development expenses

219,463

260,899

282,776

39,752

645,722

782,259

109,968

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

Nine Months Ended

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net income from continuing operations attributable to the

Company's shareholders

3,505

Add: Share-based compensation

675,999

743,198

770,255

108,281

2,003,644

2,237,056

314,480

Non-GAAP net income from continuing operations

attributable to the Company's shareholders

3,781

5,409,810

7,469,619

1,063

13,332

17,997,055

2,529,985

Non-GAAP basic net income from continuing

operations per share *

1.16

1.65

2.29

0.32

3.94

5.50

0.77

Non-GAAP basic net income from continuing

operations per ADS *

5.80

8.26

11.45

1.61

19.70

27.50

3.87

Non-GAAP diluted net income from continuing

operations per share *

1.15

1.64

2.27

0.32

3.89

5.45

0.77

Non-GAAP diluted net income from continuing

operations per ADS *

5.74

8.18

11.34

1.59

19.46

27.23

3.83

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

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