NetEase Announces First Quarter 2023 Unaudited Financial Results

HANGZHOU,China,May 25,2023 -- 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 first quarter ended March 31,2023.

FirstQuarter 2023 Financial Highlights

Net revenues were RMB25.0 billion (US$3.6 billion),an increase of 6.3% compared with the first quarter of 2022.

Games and related value-added services net revenues were RMB20.1 billion (US$2.9 billion),an increase of 7.6% compared with the first quarter of 2022.

Youdao net revenues were RMB1.2 billion (US$169.4 million),a decrease of 3.1% compared with the first quarter of 2022.

Cloud Music net revenues were RMB2.0 billion (US$285.4 million),a decrease of 5.2% compared with the first quarter of 2022.

Innovative businesses and others net revenues were RMB1.9 billion (US$270.5 million),an increase of 12.8% compared with the first quarter of 2022.

Gross profit was RMB14.9 billion (US$2.2 billion),an increase of 16.0% compared with the first quarter of 2022.

Total operating expenses were RMB7.7 billion (US$1.1 billion),an increase of 4.7% compared with the first quarter of 2022.

Net income attributable to the Company's shareholders was RMB6.8 billion (US$983.6 million). Non-GAAP net income attributable to the Company's shareholders was RMB7.6 billion (US$1.1 billion).[1]

Basic net income per share was US$0.31 (US$1.53 per ADS). Non-GAAP basic net income per share was US$0.34 (US$1.71 per ADS).[1]

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

First Quarter 2023 and Recent 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 Identity V,Justice and the mobile version of New Ghost.

Boosted user growth while further consolidating the ecosystem of Eggy Party,which topped China's iOS games download chart in the first quarter.

Announced release dates for exciting new titles,including Justice mobile game slated for release onJune 30,as well as plans to bring Harry Potter: Magic Awakened to international markets thissummer.

Strengthened robust game pipeline through the development of multiple upcoming titles including Badlanders,Racing Master and Naraka: Bladepoint mobile game,as well as Eggy Party for the international markets.

Continued to enrich the Cloud Music ecosystem and expand its unique content offerings,while enlarging its thriving community with high user engagement,improving its gross margin and fortifying its foundation for future development.

Resumed growth trajectory of STEAM courses and other key business lines of Youdao despite a challenging macro environment in January,positioning it for future development.

"We are off to a good start in 2023 with a stellar performance from our games portfolio,which drove our total net revenues to RMB25.0 billion in the first quarter,up more than 6% year-over-year," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Our flagship games have consistently captivated and engaged our devoted players,while new games like Eggy Party further broaden our appeal and bring new player groups into our community. Looking at the rest of the year,we are excited to unleash several highly anticipated games,which span a variety of genres and geographies. Our primary focus remains on developing games that resonate with diverse demographics,and we're committed to delivering even more exceptional,high-quality games to our global player base.

"In addition to gaming,Cloud Music and Youdao continue to develop trailblazing content that drives their respective industries forward. Across the NetEase family,we strive to raise the bar with dynamic,premium content that increases the value we provide to our growing user community and all of our stakeholders," Mr. Ding concluded.

First Quarter 2023 Financial Results

Net Revenues

Netrevenues for the first quarter of 2023were RMB25,046.3million (US$3,647.0million),compared with RMB25,354.1 million and RMB23,555.8million for the preceding quarter and the first quarter of 2022,respectively.

Net revenues from games and related value-added services were RMB20,065.6million (US$2,921.8million) for the first quarter of 2023,compared with RMB19,085.7 million and RMB18,641.8million for the preceding quarter and the first quarter of 2022,respectively. Net revenues from the operation of online games accounted for approximately 92.7% of the segment's net revenues for the first quarter of 2023,compared with 91.8% and92.7% forthe precedingquarter and the first quarter of 2022,respectively. Net revenues from mobile games accounted for approximately 72.3% of net revenues from the operation of online games for the first quarter of 2023,compared with 66.4% and 66.9%forthe precedingquarter and the first quarter of 2022,respectively.

Net revenues from Youdao were RMB1,163.3 million (US$169.4million) for the first quarter of 2023,compared with RMB1,454.0 million and RMB1,200.5million for the preceding quarter and the first quarter of 2022,respectively.

Net revenues from Cloud Music were RMB1,959.8 million (US$285.4 million) for the first quarter of 2023,compared with RMB2,376.3 million and RMB2,067.2 million for the preceding quarter and the first quarter of 2022,respectively. In the first quarter of 2023,Cloud Music introduced a number of measures to its live streaming services to enhance the listening experience of more dedicated music fans and reinforce its risk controls. These includedreducing the in-app exposure of certain live streaming functions and lowering broadcasters' and agencies' revenue sharing ratio. These measures led to a decrease in net revenues from Cloud Music's social entertainment services in the first quarter.

Net revenues from innovative businesses and others were RMB1,857.6 million (US$270.5 million) for the first quarter of 2023,438.2 million and RMB1,646.3 million for the preceding quarter and the first quarter of 2022,respectively.

Gross Profit

Gross profit for the first quarter of 2023 was RMB14,896.5 million (US$2,169.1million),compared with RMB13,244.4 million and RMB12,836.4million for the preceding quarter and the first quarter of 2022,respectively.

The quarter-over-quarter increase in games and related value-added services' gross profit was primarily due to increased net revenues from the operation of online games such as Eggy Party,as well as the one-off recognition of royalty fees related to certain licensedgames recorded under cost of revenues in the preceding quarter. The year-over-year increase was primarily due to increased net revenues from the operation of online games such as Eggy Party,which was launched in May 2022.

The quarter-over-quarter decrease inYoudao's gross profit primarily resulted from decreased net revenues from smart devices due to seasonality,as well as the adverse impact from the pandemic in the first quarter of 2023.The year-over-year decrease primarily resulted from decreased net revenues fromlearning services.

The quarter-over-quarter and year-over-yearincreases in Cloud Music's gross profit primarily resulted from continued improvement in cost control measures.

The quarter-over-quarter decrease ininnovative businesses and others' gross profit was primarily due to decreased e-commerce net revenues from Yanxuan and advertising services resulting from seasonality. The year-over-year increase was primarily due to increased e-commerce net revenues from Yanxuan.

Gross Profit Margin

Gross profit margin for games and related value-added services for the first quarter of 2023 was 66.7%,compared with 59.1% and 62.2% for the preceding quarter and the first quarter of 2022,respectively.The quarter-over-quarter increase was primarily attributable to the one-off recognition of royalty fees related to certain licensed games recorded under cost of revenues in the preceding quarter,as well as changes in the revenue mix of NetEase's self-developed,co-developed and licensed games. The year-over-year increase was attributable to changes in the revenue mix.

Gross profit margin for Youdao for the first quarter of 2023 was 51.7%,compared with 53.3% and 53.1% for the preceding quarter and the first quarter of 2022,respectively. The quarter-over-quarter decrease was mainly due to the reduction in net revenues from smart devices,while the year-over-year decrease was mainly due to decreased net revenues from learning services,as enumerated above.

Gross profit margin for Cloud Music was 22.4% for the first quarter of 2023,compared with 17.8% and 12.2% for the preceding quarter and the first quarter of 2022,respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the improvement in cost control measures.

Gross profit margin for innovative businesses and others for the first quarter of 2023 was25.4%,compared with 31.5% and 21.7% for the preceding quarter and the first quarter of 2022,respectively.The quarter-over-quarter and year-over-year fluctuationswere mainly due to the factors enumerated above.

Operating Expenses

Total operating expenses for the first quarter of 2023 were RMB7,676.5 million (US$1,117.8 million),compared with RMB8,810.9 million and RMB7,329.3 million for the preceding quarter and the first quarter of 2022,respectively. The quarter-over-quarter decrease was mainly due to decreased marketing and research and development expenditures related to games and related value-added services. The year-over-year increase was mainly due to higher staff-related costs.

Other Income/ (Expenses)

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

Income Taxes

The Company recorded a net income tax charge of RMB1,628.6 million (US$237.1 million) for the first quarter of 2023,compared with RMB966.6 million and RMB1,219.3 million for the preceding quarter and the first quarter of 2022,respectively. The effective tax rate for the first quarter of 2023 was 19.5%,compared with 20.2% and 22.0% for the preceding quarter and the first quarter of 2022,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 RMB6,754.6 million (US$983.6 million) for the first quarter of 2023,compared with RMB3,952.7 million and RMB4,394.0 million for the preceding quarter and the first quarter of 2022,respectively.

NetEase reported basic net income of US$0.31 per share (US$1.53 per ADS) for the first quarter of 2023,compared with US$0.18 per share (US$0.89 per ADS) and US$0.20 per share (US$0.98 per ADS) for the preceding quarter and the first quarter of 2022,respectively.

Non-GAAP net income attributable to the Company's shareholders totaled RMB7,566.2 million (US$1,101.7 million) for the first quarter of 2023,compared with RMB4,811.4 million and RMB5,117.6 million for the preceding quarter and the first quarter of 2022,respectively.

NetEase reported non-GAAP basic net income of US$0.34 per share (US$1.71 per ADS) for the first quarter of 2023,compared with US$0.22 per share (US$1.08 per ADS) and US$0.23 per share (US$1.14 per ADS) for the preceding quarter and the first quarter of 2022,respectively.

QuarterlyDividend

The board of directors has approved a dividend of US$0.0930 per share (US$0.4650 per ADS) for the first quarter of 2023 to holders of ordinary shares and holders of ADSs as of the close of business on June 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 June 9,2023 (Beijing/ Hong Kong Time). The payment date is expected to be June 21,2023 for holders of ordinary shares,and on or around June 23,2023 for holders of ADSs.

NetEase paid a dividend of US$0.0540 per share (US$0.2700per ADS) for the fourth quarter of 2022 in March 2023.

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 March 31,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,totaledRMB95.1 billion (US$13.9billion),compared with RMB95.6 billion as of December 31,2022. Cash flow generated from operating activities was RMB6,000.7million (US$873.8 million) for the firstquarter of 2023,compared with RMB9,009.2 million and RMB4,582.6 million for the preceding quarter and the first quarter of 2022,respectively.

Share RepurchaseProgram

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 17,2022,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. As of March 31,approximately3.1 million ADSs had been repurchased under this program for a total cost of US$267.1 million.

The extent to which NetEase repurchases its ADSs and its ordinary shares depends 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. NewYork Time on Thursday,2023 (Beijing/ Hong Kong Time: 8:00 p.m.,Thursday,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: 10030397,15 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: 10030397. The replay will be available through June 1,2023.

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.

NetEase,"NetEase") isa leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem,the Company develops and operates some of themost popular and longest running mobile and PC games available in China and globally.

Powered by one of the largest in-house game R&D teams focused on mobile,PC and console,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),an intelligent learning company with industry-leading technology,and Cloud Music (HKEX: 9899),a well-known online music platform featuring a vibrant 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; 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; the risk related to economic uncertainty and capital market disruption; the risk related to the expansion of NetEase's businesses and operations internationally;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 applicable law.

Non-GAAP Financial Measures

NetEase considers and uses non-GAAP financial measures,such as non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per ADS and per share,as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

NetEase defines non-GAAP net income attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does,if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income attributable to the Company's shareholders. In addition,the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies,including peer companies,and therefore their comparability may be limited.

NetEase compensates for these limitations by reconciling non-GAAP net income attributable to the Company's shareholders to the nearest U.S. GAAP performance measure,all of which should be considered when evaluating the Company's performance. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.

Contact for Media and Investors:

Margaret Shi

Email: ir@service.netease.com

Tel: (+86) 571-8985-3378

Twitter: https://twitter.com/NetEase_Global

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

December 31,

March 31,

2022

2023

2023

RMB

RMB

USD (Note 1)

Assets

Current assets:

Cash and cash equivalents

24,889,000

13,700,778

1,994,988

Time deposits

84,947,679

98,364,645

14,323,001

Restricted cash

2,699,055

3,083,493

448,991

Accounts receivable,net

5,002,872

6,091,593

887,005

Inventories

993,636

876,303

127,600

Prepayments and other current assets,448,284

5,051,010

735,484

Short-term investments

7,622,673

8,379,470

1,220,145

Total current assets

131,603,199

135,547,292

19,737,214

Non-current assets:

Property,equipment and software,net

6,342,330

6,617,950

963,648

Land use rights,net

4,121,767

4,122,407

600,269

Deferred tax assets

1,480,789

1,269,291

184,823

Time deposits

2,973,840

2,731,840

397,787

Restricted cash

270

290

42

Other long-term assets

26,238,790

27,952,374

4,070,181

Total non-current assets

41,157,786

42,694,152

6,216,750

Total assets

172,760,985

178,241,444

25,953,964

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

1,507,141

831,118

121,020

Salary and welfare payables

4,732,941

2,572,177

374,538

Taxes payable

2,813,096

3,553

516,564

Short-term loans

23,875,704

27,392,771

3,988,696

Contract liabilities

12,518,890

12,997,793

1,892,625

Accrued liabilities and other payables

11,381,075

10,839,222

1,578,313

Total current liabilities

56,828,847

58,180,634

8,471,756

Non-current liabilities:

Deferred tax liabilities

2,126,120

2,492,242

362,899

Long-term loans

3,654,964

3,730,073

543,141

Other long-term liabilities

1,277,574

1,165,017

169,640

Total non-current liabilities

7,058,658

7,387,332

1,075,680

Total liabilities

63,887,505

65,567,966

9,436

Redeemable noncontrolling interests

136,440

136,860

19,928

NetEase,Inc.'s shareholders' equity

104,317

108,642,145

15,819,521

Noncontrolling interests

4,005,723

3,894,473

567,079

Total equity

108,040

112,536,618

16,386,600

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

172,964

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,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Net revenues

23,555,842

25,354,129

25,046,287

3,647,022

Cost of revenues

(10,719,463)

(12,109,765)

(10,149,741)

(1,477,917)

Gross profit

12,836,379

13,244,364

14,896,546

2,169,105

Operating expenses:

Selling and marketing expenses

(2,915,489)

(3,417,909)

(2,905,046)

(423,007)

General and administrative expenses

(1,015,769)

(1,302,932)

(1,021,678)

(148,768)

Research and development expenses

(3,398,082)

(4,090,076)

(3,749,732)

(546,003)

Total operating expenses

(7,329,340)

(8,810,917)

(7,676,456)

(1,117,778)

Operating profit

5,039

4,433,447

7,090

1,327

Other income/ (expenses):

Investment (loss)/ income,net

(548,702)

(37,102)

471,368

68,636

Interest income,net

458,244

629,290

776,030

112,999

Exchange losses,net

(97,880)

(594,241)

(386,568)

(56,289)

Other,net

216,330

344,875

258,033

37,573

Income before tax

5,535,031

4,776,269

8,338,953

1,214,246

Income tax

(1,219,271)

(966,574)

(1,628,559)

(237,137)

Net income

4,315,760

3,809,695

6,710,394

977,109

Accretion of redeemable noncontrolling

interests

(733)

(710)

(860)

(125)

Net loss attributable to noncontrolling

interests

78,996

143,752

45,100

6,567

Net income attributable to the

Company's shareholders

4,394,023

3,737

6,754,634

983,551

Net income per share *

Basic

1.34

1.22

2.10

0.31

Diluted

1.33

1.21

2.07

0.30

Net income per ADS *

Basic

6.70

6.10

10.49

1.53

Diluted

6.63

6.05

10.37

1.51

Weighted average number of ordinary

shares used in calculating net income

per share *

Basic

3,280

3,239,282

3,221,083

3,083

Diluted

3,316,129

3,082

3,256,511

3,511

* 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,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Cash flows from operating activities:

Net income

4,109

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

766,180

769,141

1,082,269

157,590

Fair value changes of equity security investments

1,541,002

148,156

(226,720)

(33,013)

Impairment losses of investments and other long-term assets

5,000

45,401

-

-

Fair value changes of short-term investments

(79,776)

(23,364)

(137,916)

(20,082)

Share-based compensation cost

746,154

876,560

822,413

119,753

(Reversal of)/ allowance for expected credit losses

(313)

6,615

20,720

3,017

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

1,445

1,166

(610)

(89)

Unrealized exchange losses

98,034

589,665

385,961

56,200

Gains on disposal of long-term investments

(4,000)

(62,922)

(5,768)

(840)

Deferred income taxes

315,228

578,317

577,666

84,115

Share of results on equity method investees and revaluation

results from previously held equity interest

(911,498)

(54,746)

(95,808)

(13,951)

Changes in operating assets and liabilities:

Accounts receivable

212,075

224,197

(1,116,282)

(162,543)

Inventories

103,591

(60,695)

117,330

17,085

Prepayments and other assets

(569,843)

1,095,882

125,827

18,322

Accounts payable

(92,373)

576,021

(612,939)

(89,251)

Salary and welfare payables

(1,756,224)

1,965,624

(2,225,737)

(324,092)

Taxes payable

73,446

(928,071)

733,716

106,837

Contract liabilities

(78,200)

(1,396,523)

489,991

71,348

Accrued liabilities and other payables

(103,136)

849,094

(643,836)

(93,750)

Net cash provided by operating activities

4,582,552

9,009,213

6,000,671

873,765

Cash flows from investing activities:

Purchase of property,equipment and software

(749,361)

(348,821)

(652,939)

(95,075)

Proceeds from sale of property,equipment and software

12,565

2,257

2,504

365

Purchase of intangible assets,content and licensed copyrights

(143,836)

(161,987)

(826,682)

(120,374)

Net change in short-term investments with terms of three

months or less

1,845

(931,790)

(723,151)

(105,299)

Purchase of short-term investments with terms over three

months

(1,250,000)

(4,000)

-

-

Proceeds from maturities of short-term investments with terms

over three months

553,831

6,966,682

104,269

15,183

Investment in long-term investments and acquisition of

subsidiaries

(1,690,271)

(1,928)

(1,229,048)

(178,963)

Proceeds from disposal of long-term investments

34,237

92,795

41,280

6,011

Placement/ rollover of matured time deposits

(24,045,997)

(22,975,014)

(36,320,103)

(5,288,617)

Proceeds from maturities of time deposits

14,795

27,529

22,332,349

3,251,842

Change in other long-term assets

(169,545)

(61,552)

(120,841)

(17,596)

Net cash (used in)/ provided by investing activities

(11,037,737)

3,864,171

(17,362)

(2,532,523)

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,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Cash flows from financing activities:

Net changes from loans with terms of three months or less

3,403,195

(3,753,493)

2,638,040

384,128

Proceed of loans with terms over three months

1,210

2,765,086

1,279,559

186,318

Payment of loans with terms over three months

-

(191,158)

(40,422)

(5,886)

Net amounts (paid)/ received related to repurchase of or capital

contribution from noncontrolling interests and redeemable

noncontrolling interests shareholders

(102,042)

23,616

24,545

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

subsidiaries' ADSs and shares

(1,243,917)

(3,007,765)

(2,757)

(308,224)

Dividends paid to NetEase's shareholders

(1,683,472)

(2,018,984)

(1,212,340)

(176,530)

Net cash provided by/ (used in) financing activities

2,974

(6,182,698)

572,429

83,351

Effect of exchange rate changes on cash,cash equivalents and

restricted cash held in foreign currencies

(21,202)

53,237

15,498

2,257

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

(4,187,413)

6,743,923

(10,803,764)

(1,573,150)

Cash,cash equivalents and restricted cash,at the beginning

of the period

17,376,115

20,844,402

27,588,325

4,017,171

Cash,at end of the period

13,188,702

27,325

16,784,561

2,444,021

Supplemental disclosures of cash flow information:

Cash paid for income tax,net

1,515,330

971,217

1,074,579

156,471

Cash paid for interest expense

37,741

264,232

275,714

40,147

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION

(in thousands,except percentages)

Three Months Ended

March 31,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Net revenues:

Games and related value-added services

18,641,814

19,085,708

20,065,597

2,921,777

Youdao

1,200,541

1,453,982

1,163,270

169,385

Cloud Music

2,067,206

2,257

1,959,841

285,375

Innovative businesses and others

1,646,281

2,438,182

1,857,579

270,485

Total net revenues

23,022

Cost of revenues:

Games and related value-added services

(7,052,050)

(7,805,578)

(6,048)

(973,127)

Youdao

(562,691)

(679,295)

(561,420)

(81,749)

Cloud Music

(1,815,649)

(1,900)

(1,520,378)

(221,384)

Innovative businesses and others

(1,289,073)

(1,670,992)

(1,384,895)

(201,657)

Total cost of revenues

(10,917)

Gross profit:

Games and related value-added services

11,589,764

11,280,130

13,382,549

1,948,650

Youdao

637,850

774,687

601,850

87,636

Cloud Music

251,557

422,357

439,463

63,991

Innovative businesses and others

357,208

767,190

472,684

68,828

Total gross profit

12,105

Gross profit margin:

Games and related value-added services

62.2%

59.1%

66.7%

66.7%

Youdao

53.1%

53.3%

51.7%

51.7%

Cloud Music

12.2%

17.8%

22.4%

22.4%

Innovative businesses and others

21.7%

31.5%

25.4%

25.4%

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

NOTES TO UNAUDITED FINANCIALINFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.8676 on the last trading day of March 2023 (March 31,2023) 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 comprehensive income is set out as follows in RMB and USD (in thousands):

Three Months Ended

March 31,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Share-based compensation cost included in:

Cost of revenues

198,135

195,793

203,514

29,634

Operating expenses

Selling and marketing expenses

30,373

33,001

32,353

4,711

General and administrative expenses

279,062

349,444

294,281

42,851

Research and development expenses

238,584

298,322

292,265

42,557

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 of 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,

2022

2022

2023

2023

RMB

RMB

RMB

USD (Note 1)

Net income attributable to the Company's shareholders

4,551

Add: Share-based compensation

723,603

858,637

811,600

118,178

Non-GAAP net income attributable to the Company's shareholders

5,626

4,811,374

7,566,234

1,101,729

Non-GAAP net income per share *

Basic

1.56

1.49

2.35

0.34

Diluted

1.54

1.47

2.32

0.34

Non-GAAP net income per ADS *

Basic

7.81

7.43

11.74

1.71

Diluted

7.72

7.36

11.62

1.69

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.