NetEase Announces Fourth Quarter and Fiscal Year 2022 Unaudited Financial Results

HANGZHOU,China,Feb. 23,2023 --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 fourth quarter and fiscal year ended December 31,2022.

FourthQuarter 2022 Financial Highlights

Net revenues were RMB25.4 billion (US$3.7 billion),an increase of 4.0% compared with the fourth quarter of 2021.

- Games and related value-added services net revenues were RMB19.1 billion (US$2.8 billion),an increase of 1.6% compared with the fourth quarter of 2021.

- Youdao net revenues were RMB1.5 billion (US$210.8 million),an increase of 9.0% compared with the fourth quarter of 2021.

- Cloud Music net revenues were RMB2.4 billion (US$344.5 million),an increase of 25.8% compared with the fourth quarter of 2021.

- Innovative businesses and others net revenues were RMB2.4 billion (US$353.5 million),an increase of 3.4% compared with the fourth quarter of 2021.

Gross profit was RMB13.2 billion (US$1.9 billion),an increase of 2.5% compared with the fourth quarter of 2021.

Total operating expenses were RMB8.8 billion (US$1.3 billion),an increase of 6.0% compared with the fourth quarter of 2021.

Net income attributable to the Company's shareholders was RMB4.0 billion (US$573.1 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB4.8 billion (US$697.6 million).[1]

Basic net income per share was US$0.18 (US$0.88 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.22 (US$1.08 per ADS).[1]

[1] As used in this announcement,non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per 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.

Fourth Quarter 2022 and Early 2023 Operational Highlights

Extended the popularity of leading franchise titles including both the Fantasy Westward Journey and Westward Journey Online series,as well as other hit titles such as Sky,Invincible and the mobile version of New Ghost.

Drove strong revenue and user growth of Eggy Party,a casual party mobile game initially launched in the Chinese mainland,accumulating the highest daily active users of any game in the history of NetEase Games.

Advanced the development of multiple games in the pipeline including Westward Journey Returns,Justice mobile game,Badlanders,Racing Master and Naraka: Bladepoint mobile game,as well as Harry Potter: Magic Awakened for the international markets.

Continued to grow Cloud Music's net revenues and improved margins. Broadened its music scope by signing multiple licensing agreements with major labels such as B'in Music and Pony Canyon,renewing its cooperation with Avex,and achieved impressive digital album sales by renowned artists such as Chenyu Hua and (G)I-DLE.

Achieved first-ever quarterly income from operations for Youdao,supported by healthy sales expansion of new products and services along with an optimized cost structure,despite a challenging macro environment.

"We experienced solid growth in 2022. Primarily as a result of the ongoing popularity of our leading games and the expansion of our range of products and services,we ended the year with total net revenues reaching RMB25.4 billion in the fourth quarter," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Focusing on our flagship titles and new games alike,in 2022 we brought more players into the fold with our diverse and growing game content. For example,Eggy Partyrepresents a significant breakthrough for us in the casual game arena. The new addition further enlarges and diversifies our user base,augmenting our robust portfolio of games. We are very excited to introduce more new games to broader demographics,which we believe will pave the way for our solid future growth."

"Our other business lines,including Youdao and Cloud Music,are also on track. Leveraging our rich internal development capabilities,we will continue to elevate the value we bring to both customersand investors in 2023 by introducing even more creative,premium content to our growing global community," Mr. Ding concluded.

Fourth Quarter 2022 Financial Results

Net Revenues

Netrevenues for the fourth quarter of 2022 were RMB25,354.1 million (US$3,676.0million),compared with RMB24,426.8 million and RMB24,373.6million for the preceding quarter and the fourth 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 RMB19,085.7million (US$2,767.2million) for the fourth quarter of 2022,compared with RMB18,699.1 million and RMB18,792.0million for the preceding quarter and the fourth quarter of 2021,respectively. Net revenues from the operation of online games accounted for approximately 91.8% of the segment's total net revenues for the fourth quarter of 2022,compared with 92.9% and92.6% forthe precedingquarter and the fourth quarter of 2021,respectively. Net revenues from mobile games accounted for approximately 66.4% of net revenues from the operation of online games for the fourth quarter of 2022,compared with 68.6% and 68.3%forthe precedingquarter and the fourth quarter of 2021,respectively.

Net revenues from Youdao were RMB1,454.0 million (US$210.8million) for the fourth quarter of 2022,compared with RMB1,402.4 million and RMB1,333.8million for the preceding quarter and the fourth quarter of 2021,respectively.

Net revenues from Cloud Music were RMB2,376.3 million (US$344.5million) for the fourth quarter of 2022,compared with RMB2,357.2 million and RMB1,889.3 million for the preceding quarter and the fourth quarter of 2021,respectively.

Net revenues from innovative businesses and others were RMB2,438.2 million (US$353.5 million) for the fourth quarter of 2022,968.0 million and RMB2,358.5 million for the preceding quarter and the fourth quarter of 2021,respectively.

Gross Profit

Gross profit for the fourth quarter of 2022 was RMB13,244.4 million (US$1,920.3million),compared with RMB13,743.9 million and RMB12,917.8million for the preceding quarter and the fourth quarter of 2021,respectively.

The quarter-over-quarter and year-over-year decreases in games and related value-added services' gross profit were primarily due to the one-off recognition of royalty fees related to certain licensed games.

The quarter-over-quarter and year-over-year increasesin Youdao's gross profit were primarily attributable to increased revenue contribution from its smart devices and online marketing services.

The quarter-over-quarter and year-over-yearincreases in Cloud Music's gross profit were primarily due to increased net revenues from its online music services and 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 fourth quarter of 2022 was 59.1%,compared with 65.0% and 60.9% for the preceding quarter and the fourth quarter of 2021,respectively.The quarter-over-quarter and year-over-yeardecreases were primarily attributable to the one-off recognition of royalty fees related to certain licensed games.

Gross profit margin for Youdao for the fourth quarter of 2022 was 53.3%,compared with 54.2% and 50.7% for the preceding quarter and the fourth quarter of 2021,respectively.The slight quarter-over-quarter decrease was mainly due to higher revenue contribution from sales of smart devices,which carry a lower gross profit margin than learning services. The year-over-year increase was mainly due to improved gross margin from the sale of smart devices.

Gross profit margin for Cloud Music was 17.8% for the fourth quarter of 2022,compared with 14.2% and 4.1% for the preceding quarter and the fourth 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 fourth quarter of 2022 was31.5%,compared with 25.5% and 30.5% for the preceding quarter and the fourth quarter of 2021,respectively.The quarter-over-quarter increase was mainly due to margin improvement from Yanxuan and advertising services. The slight year-over-year increase was mainly due to margin improvement from Yanxuan,which was partially offset by decreased margin from advertising services.

Operating Expenses

Total operating expenses for the fourth quarter of 2022 were RMB8,810.9 million (US$1,277.5 million),compared with RMB9,002.1 million and RMB8,309.6 million for the preceding quarter and the fourth quarter of 2021,respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to games and related value-added services and Youdao.The year-over-year increase was mainly due to higher staff-related costs and marketing expenditures.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment income/ (loss),interest income,exchange (losses)/ gains and others. The quarter-over-quarter and year-over-year decreases in other income were mainly due to lower investment income fromequity investments and higher unrealized net exchange losses 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 during the periods.

Income Taxes

The Company recorded a net income tax charge of RMB966.6 million (US$140.1 million) for the fourth quarter of 2022,586.7 million and RMB934.0 million for the preceding quarter and the fourth quarter of 2021,respectively. The effective tax rate for the fourth quarter of 2022 was 20.2%,compared with 19.3% and 14.2% for the preceding quarter and the fourth 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 RMB3,952.7 million (US$573.1 million) for the fourth quarter of 2022,compared with RMB6,699.4 million and RMB5,694.2 million for the preceding quarter and the fourth quarter of 2021,respectively.

NetEase reported basic net income of US$0.18 per share (US$0.88 per ADS) for the fourth quarter of 2022,compared with US$0.30 per share (US$1.49 per ADS) and US$0.25 per share (US$1.26 per ADS) for the preceding quarter and the fourth quarter of 2021,respectively.

Non-GAAP net income from continuing operations attributable to the Company's shareholders totaled RMB4,811.4 million (US$697.6 million) for the fourth quarter of 2022,compared with RMB7,469.6 million and RMB6,595.6 million for the preceding quarter and the fourth quarter of 2021,respectively.

NetEase reported non-GAAP basic net income from continuing operations of US$0.22 per share (US$1.08 per ADS) for the fourth quarter of 2022,compared with US$0.33 per share (US$1.66 per ADS) and US$0.29 per share (US$1.46 per ADS) for the preceding quarter and the fourth quarter of 2021,respectively.

Fiscal Year 2022Financial Results

Net Revenues

Net revenues for fiscal year 2022 were RMB96,495.8 million (US$13,990.6million),compared with RMB87,606.0million for fiscal year 2021.

Net revenues from games and related value-added services were RMB74,566.5 million (US$10,811.1million) for fiscal year 2022,compared with RMB67,819.3 million for fiscal year 2021. Net revenues from the operation of online games accounted for approximately 92.5% of the segment's total net revenues for fiscal year 2022,compared with 92.6% for fiscal year 2021. Net revenues from mobile games accounted for approximately 67.0% of net revenues from the operation of online games for fiscal year 2022,compared with 70.4% for fiscal year 2021. The lower percentage contribution from mobile games was mainly due to a higher proportion of net revenues generated by PC games such as Fantasy Westward Journey Online and Naraka: Bladepoint,although the total amount of net revenues from mobile games also increased in 2022 compared to the prior year.

Net revenues from Youdao were RMB5,013.2 million (US$726.8 million) for fiscal year 2022,compared with RMB5,354.4 million for fiscal year 2021.

Net revenues from Cloud Music were RMB8,992.2 million (US$1,303.7 million) for fiscal year 2022,997.6 million for fiscal year 2021.

Net revenues from innovative businesses and others were RMB7,923.9 million(US$1,148.9million) for fiscal year 2022,434.8 million for fiscal year 2021.

Gross Profit

Gross profit for fiscal year 2022 was RMB52,766.1million (US$7,650.4million),compared with RMB46,970.8million for fiscal year 2021.

The year-over-year increase in games and related value-added servicesgross profit was primarily due to increased net revenues from the operation of online games,including PC games such as Fantasy Westward Journey Online and Naraka: Bladepoint and mobile games such as certain newly launched gamesand existing hit titles like Infinite Lagrange.

The year-over-year decrease in Youdao gross profit was mainly due to the conclusion of its after-school tutoring services for academic subjects under China's compulsory education system,which was partially offset by increased revenue contribution from its new services and products.

The year-over-year increase in Cloud Music gross profit was primarily attributable to increased net revenues,mainly from its social entertainment services,as well as improved cost control.

The slight year-over-year decrease in innovative businesses and others gross profit wasprimarily due to decreased gross profit from the Company's advertising business,which was partially offset by increased gross profits from Yanxuan.

Operating Expenses

Total operating expenses for fiscalyear 2022 were RMB33,137.5 million (US$4,804.5million),compared with RMB30,553.7 million for fiscal year 2021. The year-over-year increase was primarily due to higher staff-related costs and marketing expenditures mainly for games and related value-added services,as well as Cloud Music and Yanxuan.

OtherIncome/ (Expenses)

The slight year-over-year decrease was mainly due to higher investment loss arisingfrom fair value changes of equity investments with readily determinable fair value,which was partially offset by higher unrealized net exchange gains,interest income and others.

Income Taxes

The Company recorded a net income tax charge of RMB5,031.8 million (US$729.5 million) for fiscal year 2022,compared with RMB4,128.3 million for fiscal year 2021. The effective tax rate was 20.7%for fiscal year 2022,compared with 19.6%for fiscal year 2021.

Net Income and Non-GAAP Net Income

Net income attributable to the Company's shareholders for fiscal year 2022 totaled RMB20,337.6 million (US$2,948.7 million),compared with RMB16,856.8 million for fiscal year 2021. Net income attributable to the Company's shareholders for fiscal year 2022 included net income from discontinued operations of RMB624.9 million (US$90.6 million),which was related to the prior disposal of the Kaola business.

NetEase reported basic net income of US$0.90 per share (US$4.52 per ADS) for fiscal year 2022,compared with US$0.74 per share (US$3.67 per ADS) for fiscal year2021.

Non-GAAP net incomefrom continuing operations attributable to the Company's shareholdersfor fiscal year2022 totaled RMB22,808.4 million (US$3,306.9 million),compared with RMB19,761.9 millionfor fiscal year 2021.

NetEase reported non-GAAP basic net income from continuing operations of US$1.01 per share (US$5.07 per ADS) for fiscal year 2022,compared with US$0.86 per share (US$4.31 per ADS) for fiscal year 2021.

QuarterlyDividend

The board of directors has approved a dividend of US$0.0540 per share (US$0.2700 per ADS) for the fourth quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on March 9,2023,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 March 9,2023 (Beijing/ Hong Kong Time). The payment date is expected to be March 21,2023 for holders of ordinary shares,and on,or around,March 24,2023 for holders of ADSs.

NetEase paid a dividend of US$0.0870 per share (US$0.4350per ADS) for the third quarter of 2022 in December 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 December 31,2022,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,totaledRMB95.6 billion (US$13.9billion),compared with RMB85.6 billion as of December 31,2021. Cash flow generated from operating activities was RMB27.7billion (US$4.0 billion) for fiscal year 2022,compared with RMB24.9 billion for fiscal year 2021.

Share Repurchase/ Purchase Program

On 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. This amount was subsequently increased to US$3.0 billion. This share repurchase program was completed on January 9,2023 with the Company having purchased an aggregate of approximately 33.6 million ADSs for nearly US$3.0 billion.

On November 17,the Company announced that its board of directors hadapproved 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 commenced on January 10,2023 following the completion of the prior program and will be in effect for a period not to exceed 36 months from such date.

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 December 31,approximately 2.7 millionADSs had been purchased under this program for a total cost of US$22.0 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 7:00 a.m. NewYork Time on Thursday,February 23,2023 (Beijing/ Hong Kong Time: 8:00 p.m.,Thursday,February23,2023). 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 1-914-202-3258and providing conference ID: 10028543,15 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: 10028543. The replay will be available through March2,2023.

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 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 market-leading ESG initiatives are among the most recognized in the global media and entertainment industry,earning it inclusion in 2022 Dow Jones Sustainability World Index,2022 Dow Jones Sustainability Emerging Markets Index,and 2023 Bloomberg Gender-Equality Index,as well as receiving 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 games 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; 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,

December 31,

2021

2022

2022

RMB

RMB

USD (Note 1)

Assets

Current assets:

Cash and cash equivalents

14,498,157

24,889,000

3,608,566

Time deposits

70,754,846

84,947,679

12,316,256

Restricted cash

2,876,628

2,699,055

391,326

Accounts receivable,net

5,507,988

5,002,872

725,348

Inventories,net

964,733

993,636

144,064

Prepayments and other current assets,net

6,235,857

5,448,284

789,927

Short-term investments

12,281,548

7,622,673

1,105,184

Assets held for sale

497

-

-

Total current assets

113,120,254

131,603,199

19,080,671

Non-current assets:

Property,equipment and software,433,858

6,342,330

919,551

Land use rights,net

4,108,090

4,121,767

597,600

Deferred tax assets

1,297,954

1,480,789

214,694

Time deposits

5,823,840

2,973,840

431,166

Restricted cash

1,330

270

39

Other long-term assets,net

23,857,510

26,238,790

3,804,268

Assets held for sale

1,088

-

-

Total non-current assets

40,523,670

41,157,786

5,967,318

Total assets

153,643,924

172,760,985

25,047,989

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

985,059

1,141

218,515

Salary and welfare payables

4,133,254

4,732,941

686,212

Taxes payable

4,537,050

2,813,096

407,861

Short-term loans

19,352,313

23,875,704

3,461,652

Contract liabilities

12,132,743

12,518,890

1,815,068

Accrued liabilities and other payables

9,360,907

11,381,075

1,650,101

Total current liabilities

50,501,326

56,828,847

8,239,409

Non-current liabilities:

Deferred tax liabilities

1,345,874

2,126,120

308,258

Long-term loans

1,275,140

3,654,964

529,920

Other long-term liabilities

1,097,708

1,277,574

185,231

Total non-current liabilities

3,718,722

7,058,658

1,023,409

Total liabilities

54,220,048

63,887,505

9,262,818

Redeemable noncontrolling interests

145,238

136,440

19,782

NetEase,Inc.'s shareholders' equity

95,328,080

104,731,317

15,184,614

Noncontrolling interests

3,950,558

4,005,723

580,775

Total shareholders' equity

99,278,638

108,737,040

15,765,389

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

153,989

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands,except per share data or per ADS data)

Three Months Ended

Year Ended

December 31,

September 30,

2021

2022

2022

2022

2021

2022

2022

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues

24,373,565

24,426,760

25,354,129

3,676,003

87,606,026

96,495,809

13,990,577

Cost of revenues

(11,455,785)

(10,682,868)

(12,109,765)

(1,755,751)

(40,635,225)

(43,729,683)

(6,340,208)

Gross profit

12,917,780

13,743,892

13,244,364

1,920,252

46,970,801

52,766,126

7,369

Operating expenses:

Selling and marketing expenses

(3,300,032)

(3,768,618)

(3,417,909)

(495,550)

(12,214,191)

(13,402,721)

(1,943,212)

General and administrative expenses

(1,161,876)

(1,264,342)

(1,302,932)

(188,907)

(4,263,549)

(4,695,798)

(680,827)

Research and development expenses

(3,847,704)

(3,969,156)

(4,090,076)

(593,005)

(14,075,991)

(15,039,014)

(2,180,452)

Total operating expenses

(8,309,612)

(9,116)

(8,810,917)

(1,462)

(30,553,731)

(33,137,533)

(4,491)

Operating profit

4,168

4,741,776

4,447

642,790

16,070

19,628,593

2,845,878

Other income/ (expenses):

Investment income/ (loss),net

1,627,642

1,347,269

(37,102)

(5,379)

2,721

53,976

7,826

Interest income,net

395,029

556,148

629,290

91,238

1,519,714

2,149,673

311,673

Exchange (losses)/ gains,net

(331,390)

1,398,045

(594,241)

(86,157)

(490,481)

1,571,207

227,804

Other,net

297,244

164,435

344,875

50,002

710,435

846,815

122,777

Income before tax

6,596,693

8,207,673

4,776,269

692,494

21,104,459

24,250,264

3,515,958

Income tax

(933,985)

(1,586,673)

(966,574)

(140,140)

(4,128,269)

(5,031,838)

(729,548)

Net income from continuing operations

5,662,708

6,621,809,695

552,354

16,976,190

19,218,426

2,786,410

Net income from discontinued operations

-

-

-

-

-

624,864

90,597

Net income

5,843,290

2,877,007

Accretion of redeemable noncontrolling

interests

(99,914)

(781)

(710)

(103)

(536,981)

(2,978)

(432)

Net loss attributable to noncontrolling

interests

131,360

79,145

143,752

20,842

417,633

497,288

72,100

Net income attributable to the

Company's shareholders

5,694,154

6,364

3,952,737

573,093

16,856,842

20,337,600

2,948,675

Including:

-Net income from continuing operations

attributable to the Company's shareholders

5,842

19,712,736

2,858,078

-Net income from discontinued operations

attributable to the Company's shareholders

-

-

-

-

-

624,597

Basic net income per share *

1.74

2.05

1.22

0.18

5.07

6.23

0.90

-Continuing operations

1.74

2.05

1.22

0.18

5.07

6.04

0.87

-Discontinued operations

-

-

-

-

-

0.19

0.03

Basic net income per ADS *

8.68

10.27

6.10

0.88

25.34

31.16

4.52

-Continuing operations

8.68

10.27

6.10

0.88

25.34

30.20

4.38

-Discontinued operations

-

-

-

-

-

0.96

0.14

Diluted net income per share *

1.71

2.03

1.21

0.18

5.01

6.17

0.89

-Continuing operations

1.71

2.03

1.21

0.18

5.01

5.98

0.86

-Discontinued operations

-

-

-

-

-

0.19

0.03

Diluted net income per ADS *

8.57

10.17

6.05

0.88

25.03

30.85

4.47

-Continuing operations

8.57

10.17

6.05

0.88

25.03

29.90

4.33

-Discontinued operations

-

-

-

-

-

0.95

0.14

Weighted average number of ordinary

shares used in calculating net income

per share *

Basic

3,172

3,989

3,282

3,325,864

3,455

3,455

Diluted

3,323,004

3,293,766

3,269,082

3,367,478

3,296,014

3,014

* 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

Year Ended

December 31,

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

5,007

Net income from discontinued operations

-

-

-

-

-

(624,864)

(90,597)

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

836,042

713,852

769,141

111,515

3,727

2,209

414,401

Fair value changes of equity security investments

(984,901)

680,019

148,156

21,481

(471,880)

3,336

450,086

Impairment losses of investments and other long-term assets

69,572

6,763

45,401

6,583

100,424

300,249

43,532

Fair value changes of short-term investments

(166,513)

(119,620)

(23,364)

(3,388)

(639,757)

(342,642)

(49,678)

Share-based compensation cost

1,899

786,999

876,560

127,089

3,041,492

3,174,160

460,211

Allowance for expected credit losses

12,932

44,126

6,615

959

265,930

61,393

8,901

Losses on disposal of property,equipment and software

48,779

528

1,166

169

54,052

3,620

525

Unrealized exchange losses/ (gains)

347,235

(1,401,893)

589,665

85,493

488,604

(1,604,260)

(232,596)

Gains on disposal of long-term investments,business and

subsidiaries

(13,091)

(1,724,433)

(62,922)

(9,123)

(186,920)

(1,791,355)

(259,722)

Deferred income taxes

(431,015)

(234,336)

578,317

83,848

407,948

489,670

70,995

Share of results on equity method investees and revaluation

results from previously held equity interest

(448,053)

(159,128)

(54,746)

(7,937)

(1,573,068)

(1,259,941)

(182,674)

Changes in operating assets and liabilities:

Accounts receivable

(97,064)

35,786

224,197

32,506

(1,186,586)

554,340

80,372

Inventories

73,588

(88,300)

(60,695)

(8,800)

(343,587)

(27,613)

(4,004)

Prepayments and other assets

870,684

368,095,882

158,888

640,349

731,100

106,000

Accounts payable

(89,207)

(84,434)

576,021

83,515

(155,262)

447,666

64,905

Salary and welfare payables

1,521,743

(567,676)

1,965,624

284,989

505,334

424,513

61,549

Taxes payable

528,725

475,245

(928,071)

(134,558)

255,060

(917,614)

(133,042)

Contract liabilities

(1,162,982)

1,580,450

(1,396,523)

(202,477)

1,351,261

385,396

55,877

Accrued liabilities and other payables

786,517

552,688

849,094

123,106

2,416

1,899,580

275,413

Net cash provided by operating activities

8,368,598

7,486,309

9,009,213

1,306,212

24,926,727

27,709,233

4,017,461

Cash flows from investing activities:

Purchase of property,equipment and software

(442,524)

(557,028)

(348,821)

(50,574)

(1,601,830)

(2,100,264)

(304,510)

Proceeds from sale of property,equipment and software

56,517

3,307

2,257

327

71,524

41,467

6,012

Purchase of intangible assets,content and licensed copyrights

(297,142)

(152,276)

(161,987)

(23,486)

(1,508,179)

(543,220)

(78,759)

Net change in short-term investments with terms of three

months or less

(1,474,371)

156,475

(931,790)

(135,097)

3,890

776,357

112,561

Purchase of short-term investments with terms over three

months

(4,000)

-

(4,700,000)

(681,436)

(15,285,000)

(5,000)

(862,669)

Proceeds from maturities of short-term investments with terms

over three months

3,313,543

1,195,475

6,966,682

1,010,074

13,845

10,175,160

1,475,260

Investment in long-term investments and acquisition of

subsidiaries

(2,020,029)

(844,513)

(1,928)

(245,741)

(6,541,567)

(5,129,680)

(743,734)

Proceeds from disposal of long-term investments,businesses

and subsidiaries

616,542

2,625

92,795

13,454

1,115,457

2,411,070

349,572

Placement/ rollover of matured time deposits

(26,133)

(18,830,844)

(22,975,014)

(3,331,064)

(81,298,080)

(98,884)

(14,349,864)

Proceeds from maturities of time deposits

15,707,821

17,770,581

27,529

4,012,719

81,307,297

92,247,046

13,374,564

Change in other long-term assets

(99,692)

(31,782)

(61,552)

(8,924)

(268,651)

(323,779)

(46,944)

Net cash (used in)/ provided by investing activities

(15,567,468)

987,020

3,864,171

560,252

(7,078,294)

(7,369,727)

(1,068,511)

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

Three Months Ended

Year Ended

December 31,

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 from loans with terms of three months or less

425,020

(3,645,232)

(3,753,493)

(544,205)

(442,207)

(1,274,043)

(184,719)

Proceed of loans with terms over three months

2,171

70,691

2,086

400,900

4,447,586

6,392,695

926,854

Payment of loans with terms over three months

(1,311,823)

(50,208)

(191,158)

(27,715)

(2,135)

(273,639)

(39,674)

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

1,320,122

14,305

23,616

3,424

2,870,147

(30,921)

(4,483)

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

subsidiaries' ADSs and shares

(2,112,256)

(1,956,829)

(3,007,765)

(436,085)

(12,910,533)

(8,124)

(1,464)

Dividends paid to noncontrolling interest shareholders

(731,250)

-

-

-

(731,250)

-

-

Dividends paid to NetEase's shareholders

(940,540)

(1,617,574)

(2,018,984)

(292,725)

(3,377)

(6,723,667)

(974,840)

Net cash used in by financing activities

(1,073,556)

(7,847)

(6,182,698)

(896,406)

(12,585,569)

(10,237,699)

(1,484,326)

Effect of exchange rate changes on cash,cash equivalents and

restricted cash held in foreign currencies

(80,670)

3,470

53,237

7,719

(55,354)

110,403

16,007

Net increase in cash,cash equivalents and restricted cash

(8,353,096)

1,291,952

6,923

977,777

5,510

10,212,210

1,631

Cash,cash equivalents and restricted cash,at the beginning

of the period

25,211

19,552,450

20,844,402

3,022,154

12,168,605

17,376,115

2,300

Cash,at end of the period

17,115

20,402

27,588,325

3,999,931

17,115

27,931

Supplemental disclosures of cash flow information:

Cash paid for income tax,net

858,304

1,550,748

971,217

140,813

3,547,299

5,092,391

738,327

Cash paid for interest expense

42,879

193,329

264,232

38,310

187,628

588,381

85,307

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION

(in thousands,except percentages)

Three Months Ended

Year Ended

December 31,

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

18,991

18,106

19,085,708

2,767,168

67,819,288

74,566,471

10,811,122

Youdao

1,333,791

1,434

1,453,982

210,808

5,357

5,013,182

726,843

Cloud Music

1,265

2,357,248

2,257

344,525

6,997,622

8,992,221

1,303,749

Innovative businesses and others

2,358,518

1,972

2,438,182

353,502

7,434,759

7,923,935

1,148,863

Total net revenues

24,577

Cost of revenues:

Games and related value-added services

(7,120)

(6,551,193)

(7,805,578)

(1,131,702)

(26,412)

(27,784,419)

(4,028,362)

Youdao

(657,329)

(642,254)

(679,295)

(98,489)

(2,146)

(2,430,738)

(352,424)

Cloud Music

(1,812,036)

(2,600)

(1,953,900)

(283,289)

(6,854,948)

(7,103)

(1,116,265)

Innovative businesses and others

(1,639,300)

(1,465,821)

(1,670,992)

(242,271)

(5,324,719)

(5,423)

(843,157)

Total cost of revenues

(11,208)

Gross profit:

Games and related value-added services

11,444,871

12,147,913

11,280,130

1,466

41,876

46,782,052

6,760

Youdao

676,462

760,180

774,687

112,319

2,906,211

2,582,444

374,419

Cloud Music

77,229

333,648

422,357

61,236

142,674

1,118

187,484

Innovative businesses and others

719,218

502,151

767,190

111,231

2,110,040

2,512

305,706

Total gross profit

12,369

Gross profit margin:

Games and related value-added services

60.9%

65.0%

59.1%

59.1%

61.7%

62.7%

62.7%

Youdao

50.7%

54.2%

53.3%

53.3%

54.3%

51.5%

51.5%

Cloud Music

4.1%

14.2%

17.8%

17.8%

2.0%

14.4%

14.4%

Innovative businesses and others

30.5%

25.5%

31.5%

31.5%

28.4%

26.6%

26.6%

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

NOTES TO UNAUDITED FINANCIALINFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.8972 on the last trading day of December 2022 (December 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 December 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

Year Ended

December 31,

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

267,424

190,645

195,793

28,387

833,389

758,413

109,960

Operating expenses

Selling and marketing expenses

38,657

24,980

33,001

4,785

118,611

120,171

17,423

General and administrative expenses

358,595

288,598

349,444

50,664

1,547

1,995

176,158

Research and development expenses

338,223

282,776

298,322

43,253

983,945

1,581

156,670

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

Year Ended

December 31,

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

5,078

Add: Share-based compensation

901,421

770,255

858,637

124,491

2,905,065

3,693

448,833

Non-GAAP net income from continuing operations

attributable to the Company's shareholders

6,595,575

7,469,619

4,374

697,584

19,761,907

22,808,429

3,911

Non-GAAP basic net income from continuing

operations per share *

2.01

2.29

1.49

0.22

5.94

6.99

1.01

Non-GAAP basic net income from continuing

operations per ADS *

10.05

11.45

7.43

1.08

29.71

34.95

5.07

Non-GAAP diluted net income from continuing

operations per share *

1.98

2.27

1.47

0.21

5.87

6.92

1.00

Non-GAAP diluted net income from continuing

operations per ADS *

9.92

11.34

7.36

1.07

29.34

34.60

5.02

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

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