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NetEase Announces Second Quarter 2022 Unaudited Financial Results

2022-08-18 16:30

HANGZHOU, China, Aug. 18, 2022 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

  • Net revenues were RMB23.2 billion (US$3.5 billion), an increase of 12.8% compared with the second quarter of 2021.

- Games and related value-added services net revenues were RMB18.1 billion (US$2.7 billion), an increase of 15.0% compared with the second quarter of 2021.[1]

- Youdao net revenues were RMB956.2 million (US$142.8 million), a decrease of 26.1% compared with the second quarter of 2021.

- Cloud Music net revenues were RMB2.2 billion (US$327.2 million), an increase of 29.5% compared with the second quarter of 2021.

- Innovative businesses and others net revenues were RMB1.9 billion (US$279.4 million), an increase of 6.1% compared with the second quarter of 2021.[1]

  • Gross profit was RMB12.9 billion (US$1.9 billion), an increase of 15.7% compared with the second quarter of 2021.
  • Total operating expenses were RMB8.0 billion (US$1.2 billion), an increase of 7.6% compared with the second quarter of 2021.
  • Net income from continuing operations attributable to the Company's shareholders was RMB4.7 billion (US$696.7 million). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB5.4 billion (US$807.7 million). [2] 
  • Basic net income from continuing operations per share was US$0.21 (US$1.07 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.25 (US$1.23 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.

Second Quarter 2022 and Recent Operational Highlights

  • Delivered captivating content updates for popular title Naraka: Bladepoint and launched its Xbox version in June.
  • Diablo® Immortal™, co-developed by NetEase and Blizzard Entertainment, made its debut in the global market, which topped iOS download charts in multiple regions.
  • Extended the longevity of leading franchise titles including both the Fantasy Westward Journey and Westward Journey Online series and maintained the popularity of other hit titles including Identity V and Infinite Lagrange.
  • Propelled pipeline by advancing new games under development including Naraka: Bladepoint mobile game, Justice mobile game and Ghost World Chronicle, as well as the roll-out of Harry Potter: Magic Awakened in international markets.
  • Achieved positive operating cashflow from Youdao, maintained sound development of its STEAM courses and demonstrated the resilience of its smart devices.
  • Enhanced content and product innovation at Cloud Music, driving solid growth in net revenues and continued margin improvement while securing multiple licensing agreements with major overseas and domestic music labels including SM Entertainment and TF Entertainment. 

"In the second quarter, we generated solid results with total net revenues of RMB23.2 billion, an increase of 12.8% year-over-year," said Mr. William Ding, CEO and Director of NetEase. "Players continued to gravitate to our longstanding games in the second quarter, highlighting our strength in game operations longevity. Moreover, the launch of Diablo® Immortal™ attracted the attention of gamers around the world, showcasing our exceptional mobile game development capabilities. With our strong in-house R&D team in China and our very own studios in Canada, Japan and the U.S., as well as plans for other regions in the future, we are spearheading the next generation of top-quality games for the global gaming community.

"Youdao and Cloud Music are also making key advancements that bolster their operations. With exciting gains across our business lines, we hope to make the NetEase brand synonymous with impressive technology, outstanding service and entertainment in its finest form," Mr. Ding concluded.

Second Quarter 2022 Financial Results

Net Revenues

Net revenues for the second quarter of 2022 were RMB23,159.1 million (US$3,457.6 million), compared with RMB23,555.8 million and RMB20,524.5 million for the preceding quarter and the second 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 the games, were RMB18,139.8 million (US$2,708.2 million) for the second quarter of 2022, compared with RMB18,641.8 million and RMB15,774.8 million for the preceding quarter and the second quarter of 2021, respectively. Net revenues from the operation of online games, which is the primary component of this segment, accounted for approximately 92.8% of net revenues from games and related value-added services for the second quarter of 2022, compared with 92.7% and 92.1% for the preceding quarter and the second quarter of 2021, respectively. Net revenues from mobile games accounted for approximately 66.1% of net revenues from the operation of online games for the second quarter of 2022, compared with 66.9% and 72.1% for the preceding quarter and the second quarter of 2021, respectively.

Net revenues from Youdao were RMB956.2 million (US$142.8 million) for the second quarter of 2022, compared with RMB1,200.5 million and RMB1,293.4 million for the preceding quarter and the second quarter of 2021, respectively.

Net revenues from Cloud Music were RMB2,191.5 million (US$327.2 million) for the second quarter of 2022, compared with RMB2,067.2 million and RMB1,692.5 million for the preceding quarter and the second quarter of 2021, respectively.

Net revenues from innovative businesses and others were RMB1,871.5 million (US$279.4 million) for the second quarter of 2022, compared with RMB1,646.3 million and RMB1,763.8 million for the preceding quarter and the second quarter of 2021, respectively.

Gross Profit

Gross profit for the second quarter of 2022 was RMB12,941.5 million (US$1,932.1 million), compared with RMB12,836.4 million and RMB11,189.6 million for the preceding quarter and the second quarter of 2021, respectively.

The year-over-year increase in games and related value-added services gross profit was primarily due to increased net revenues from both mobile and PC games, including the newly launched Naraka: Bladepoint and Harry Potter: Magic Awakened which were released in the third quarter of 2021 and other existing games such as Fantasy Westward Journey Online.  

The quarter-over-quarter decrease in Youdao gross profit primarily resulted from a decline in economic scale due to decreased learning services revenues in the second quarter of 2022. The year-over-year decrease was mainly due to the conclusion of its after-school tutoring services for academic subjects under China's compulsory education system.

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

The quarter-over-quarter increase in innovative businesses and others gross profit was primarily due to increased gross profit contribution from Yanxuan and advertising services.

Gross Profit Margin

Gross profit margin for games and related value-added services for the second quarter of 2022 was 64.9%, compared with 62.2% and 63.2% for the preceding quarter and the second quarter of 2021, respectively. Gross profit margin for games and related value-added services is generally stable, fluctuating within a narrow band based on the revenue mix of NetEase's mobile and PC games, self-developed, co-developed and licensed games, as well as the relative revenue contribution from different distribution channels.

Gross profit margin for Youdao for the second quarter of 2022 was 42.8%, compared with 53.1% and 52.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year decreases were primarily attributable to the factors enumerated above.

Gross profit margin for Cloud Music was 13.0% for the second quarter of 2022, compared with 12.2% and 4.1% for the preceding quarter and the second 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 second quarter of 2022 was 25.8%, compared with 21.7% and 27.3% for the preceding quarter and the second quarter of 2021, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to changes in the gross profit margin from advertising services.

Operating Expenses

Total operating expenses for the second quarter of 2022 were RMB7,995.2 million (US$1,193.6 million), compared with RMB7,329.3 million and RMB7,431.5 million for the preceding quarter and the second 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, as well as higher staff-related costs and research and development investments.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment income/ (loss), interest income, exchange gains/ (losses) and others. The quarter-over-quarter increase was mainly due to 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 second quarter of 2022.

Income Taxes 

The Company recorded a net income tax charge of RMB1,259.3 million (US$188.0 million) for the second quarter of 2022, compared with RMB1,219.3 million and RMB1,113.2 million for the preceding quarter and the second quarter of 2021, respectively. The effective tax rate for the second quarter of 2022 was 22.0%, compared with 22.0% and 24.3% for the preceding quarter and the second 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 from continuing operations attributable to the Company's shareholders totaled RMB4,666.6 million (US$696.7 million) for the second quarter of 2022, compared with RMB4,394.0 million and RMB3,541.8 million for the preceding quarter and the second quarter of 2021, respectively. Net income from discontinued operations attributable to the Company's shareholders totaled RMB624.9 million (US$93.3 million), which was related to the disposal of the Kaola business.

Non-GAAP net income from continuing operations attributable to the Company's shareholders totaled RMB5,409.8 million (US$807.7 million) for the second quarter of 2022, compared with RMB5,117.6 million and RMB4,227.9 million for the preceding quarter and the second quarter of 2021, respectively.

NetEase reported basic net income from continuing operations of US$0.21 per share (US$1.07 per ADS) for the second quarter of 2022, compared with US$0.20 per share (US$1.00 per ADS) and US$0.16 per share (US$0.79 per ADS) for the preceding quarter and the second quarter of 2021, respectively.

NetEase reported non-GAAP basic net income from continuing operations of US$0.25 per share (US$1.23 per ADS) for the second quarter of 2022, compared with US$0.23 per share (US$1.17 per ADS) and US$0.19 per share (US$0.94 per ADS) for the preceding quarter and the second quarter of 2021, respectively. 

Quarterly Dividend

The board of directors has approved a dividend of US$0.0720 per share (US$0.3600 per ADS) for the second quarter of 2022 to holders of ordinary shares and holders of ADSs as of the close of business on September 1, 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 September 1, 2022 (Beijing/ Hong Kong Time). The payment date is expected to be on September 13, 2022 for holders of ordinary shares and on or around September 16, 2022 for holders of ADSs.

NetEase paid a dividend of US$0.0644 per share (US$0.3220 per ADS) for the first quarter of 2022 in June 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 June 30, 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 totaled RMB87.7 billion (US$13.1 billion), compared with RMB85.6 billion as of December 31, 2021. Cash flow generated from operating activities was RMB6.6 billion (US$990.0 million) for the second quarter of 2022, compared with RMB4.6 billion and RMB4.7 billion for the preceding quarter and the second 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, 2021, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of June 30, 2022, approximately 23.6 million ADSs had been repurchased under this program for a total cost of US$2.3 billion

On August 31, 2021, 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 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao's ADSs in open-market transactions on the New York Stock Exchange. As of June 30, 2022, approximately 1.7 million ADSs had been purchased under this program for a total cost of US$17.7 million.

The Company also purchased approximately 0.8 million ordinary shares of Cloud Music in open market transactions on the Hong Kong Stock Exchange for a total cost of US$8.3 million during the second 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 8:00 a.m. New York Time on Thursday, August 18, 2022 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, August 18, 2022). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-323-701-0160 and providing conference ID: 1239376, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 1239376#. The replay will be available through August 31, 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,  


 June 30, 


 June 30, 



2021


2022


2022



 RMB  


 RMB  


 USD (Note 1) 

Assets







Current assets:







   Cash and cash equivalents


14,498,157


16,461,908


2,457,698

   Time deposits


70,754,846


84,916,751


12,677,737

   Restricted cash


2,876,628


3,089,413


461,237

   Accounts receivable, net


5,507,988


5,213,151


778,303

   Inventories


964,733


843,767


125,971

   Prepayments and other current assets, net


6,235,857


7,317,644


1,092,495

   Short-term investments


12,281,548


10,166,531


1,517,823

   Assets held for sale


497


-


-

Total current assets


113,120,254


128,009,165


19,111,264








Non-current assets:







   Property, equipment and software, net 


5,433,858


6,022,365


899,115

   Land use right, net


4,108,090


4,156,674


620,575

   Deferred tax assets 


1,297,954


1,254,640


187,313

   Time deposits


5,823,840


4,473,840


667,927

   Restricted cash


1,330


1,129


169

   Other long-term assets, net


23,857,510


24,261,773


3,622,187

   Assets held for sale


1,088


-


-

Total non-current assets


40,523,670


40,170,421


5,997,286

Total assets 


153,643,924


168,179,586


25,108,550








Liabilities, Redeemable Noncontrolling Interests
    and Shareholders' Equity







Current liabilities:







   Accounts payable 


985,059


942,070


140,647

   Salary and welfare payables


4,133,254


3,211,330


479,439

   Taxes payable


4,537,050


3,260,873


486,835

   Short-term loans


19,352,313


28,027,125


4,184,340

   Contract liabilities


12,132,743


12,316,763


1,838,844

   Accrued liabilities and other payables


9,360,907


9,686,526


1,446,160

Total current liabilities


50,501,326


57,444,687


8,576,265








Non-current liabilities:







   Deferred tax liabilities


1,345,874


1,448,250


216,218

   Long-term loans


1,275,140


3,355,700


500,993

   Other long-term payable


1,097,708


1,023,880


152,861

Total non-current liabilities


3,718,722


5,827,830


870,072

Total liabilities


54,220,048


63,272,517


9,446,337








Redeemable noncontrolling interests 


145,238


142,579


21,286








NetEase, Inc.'s shareholders' equity


95,328,080


100,830,817


15,053,645

Noncontrolling interests


3,950,558


3,933,673


587,282

Total shareholders' equity


99,278,638


104,764,490


15,640,927








Total liabilities, redeemable noncontrolling 
    interests and shareholders' equity    


153,643,924


168,179,586


25,108,550








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 


 Six Months Ended



 June 30, 


March 31, 


June 30, 


 June 30,  


June 30,


June 30,


June 30,



2021


2022


2022


2022


2021


2022


2022



 RMB 


 RMB 


 RMB 


 USD (Note 1) 


RMB


RMB


USD (Note 1)
















Net revenues


20,524,501


23,555,842


23,159,078


3,457,559


41,041,712


46,714,920


6,974,354

Cost of revenues


(9,334,887)


(10,719,463)


(10,217,587)


(1,525,446)


(18,799,459)


(20,937,050)


(3,125,819)

Gross profit


11,189,614


12,836,379


12,941,491


1,932,113


22,242,253


25,777,870


3,848,535
















Operating expenses:















Selling and marketing expenses 


(3,013,447)


(2,915,489)


(3,300,705)


(492,782)


(5,780,129)


(6,216,194)


(928,053)

General and administrative expenses


(1,011,183)


(1,015,769)


(1,112,755)


(166,130)


(1,961,377)


(2,128,524)


(317,780)

Research and development expenses 


(3,406,859)


(3,398,082)


(3,581,700)


(534,734)


(6,467,048)


(6,979,782)


(1,042,054)

Total operating expenses


(7,431,489)


(7,329,340)


(7,995,160)


(1,193,646)


(14,208,554)


(15,324,500)


(2,287,887)

Operating profit


3,758,125


5,507,039


4,946,331


738,467


8,033,699


10,453,370


1,560,648
















Other income/ (expenses):















Investment income/ (loss), net


889,392


(548,702)


(707,489)


(105,625)


1,584,690


(1,256,191)


(187,544)

Interest income, net


386,207


458,244


505,991


75,542


775,135


964,235


143,956

Exchange  (losses)/gains, net


(591,720)


(97,880)


865,283


129,183


(312,401)


767,403


114,570

Other, net


147,588


216,330


121,175


18,091


295,555


337,505


50,388

Income before tax


4,589,592


5,535,031


5,731,291


855,658


10,376,678


11,266,322


1,682,018

Income tax


(1,113,228)


(1,219,271)


(1,259,320)


(188,012)


(2,386,636)


(2,478,591)


(370,044)
















Net income from continuing operations


3,476,364


4,315,760


4,471,971


667,646


7,990,042


8,787,731


1,311,974

Net income from discontinued operations


-


-


624,864


93,290


-


624,864


93,290

Net income


3,476,364


4,315,760


5,096,835


760,936


7,990,042


9,412,595


1,405,264
















Accretion of redeemable noncontrolling
    interests


(145,415)


(733)


(754)


(113)


(289,242)


(1,487)


(222)

Net loss attributable to noncontrolling
    interests


210,805


78,996


195,395


29,172


280,106


274,391


40,965

Net income attributable to the
    Company's shareholders


3,541,754


4,394,023


5,291,476


789,995


7,980,906


9,685,499


1,446,007

Including: 















-Net income from continuing operations
attributable to the  Company's shareholders


3,541,754


4,394,023


4,666,612


696,705


7,980,906


9,060,635


1,352,717

-Net income from discontinued operations
attributable to the Company's shareholders


-


-


624,864


93,290


-


624,864


93,290
















Basic net income per share *


1.06


1.34


1.62


0.24


2.38


2.96


0.44

-Continuing operations


1.06


1.34


1.43


0.21


2.38


2.77


0.41

-Discontinued operations


-


-


0.19


0.03


-


0.19


0.03
















Basic net income per ADS *


5.29


6.70


8.08


1.21


11.92


14.78


2.21

-Continuing operations


5.29


6.70


7.13


1.07


11.92


13.83


2.07

-Discontinued operations


-


-


0.95


0.14


-


0.95


0.14
















Diluted net income per share *


1.05


1.33


1.60


0.24


2.35


2.93


0.44

-Continuing operations


1.05


1.33


1.41


0.21


2.35


2.74


0.41

-Discontinued operations


-


-


0.19


0.03


-


0.19


0.03
















Diluted net income per ADS *


5.23


6.63


8.00


1.19


11.76


14.63


2.18

-Continuing operations


5.23


6.63


7.05


1.05


11.76


13.69


2.04

-Discontinued operations


-


-


0.95


0.14


-


0.94


0.14
















Weighted average number of ordinary 
    shares used in calculating net income
    per share *















Basic


3,347,507


3,277,280


3,274,695


3,274,695


3,348,567


3,275,980


3,275,980

Diluted


3,385,953


3,316,129


3,305,504


3,305,504


3,392,961


3,310,809


3,310,809
















*  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


Six Months Ended



 June 30, 


 March 31,  


 June 30,  


 June 30,  


 June 30,  


 June 30,  


 June 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 


3,476,364


4,315,760


5,096,835


760,936


7,990,042


9,412,595


1,405,264

    Net income from discontinued operations 


-


-


(624,864)


(93,290)


-


(624,864)


(93,290)

    Adjustments to reconcile net income to net cash provided
        by operating activities:















    Depreciation and amortization


814,370


766,180


609,036


90,927


1,634,200


1,375,216


205,314

    Fair value changes of equity security investments 


(203,720)


1,541,002


735,159


109,756


(681,317)


2,276,161


339,822

    Impairment losses of investments and other long-term assets


4,797


5,000


243,085


36,292


4,797


248,085


37,038

    Fair value changes of short-term investments


(170,676)


(79,776)


(119,882)


(17,898)


(288,680)


(199,658)


(29,808)

    Share-based compensation cost


700,114


746,154


764,447


114,129


1,350,367


1,510,601


225,527

    Allowance for/ (reversal of) expected credit losses


27,384


(313)


10,965


1,637


40,988


10,652


1,590

    Losses on disposal of property, equipment and software 


1,424


1,445


481


72


1,265


1,926


288

    Unrealized exchange  losses/(gains)


572,708


98,034


(890,066)


(132,883)


298,661


(792,032)


(118,247)

    Gains on disposal of long-term investments, business and
        subsidiaries


(166,505)


(4,000)


-


-


(173,828)


(4,000)


(597)

    Deferred income taxes


202,894


315,228


(169,539)


(25,312)


530,969


145,689


21,751

    Share of results on equity method investees and revaluation
        results from previously held equity interest


(342,760)


(911,498)


(134,569)


(20,091)


(394,652)


(1,046,067)


(156,174)

    Changes in operating assets and liabilities: 















        Accounts receivable


573,111


212,075


82,282


12,284


88,768


294,357


43,946

        Inventories


(9,608)


103,591


17,791


2,656


(263,103)


121,382


18,122

        Prepayments and other assets


593,379


(569,843)


(163,612)


(24,426)


(191,845)


(733,455)


(109,502)

        Accounts payable


(178,097)


(92,373)


48,452


7,234


(238,751)


(43,921)


(6,557)

        Salary and welfare payables


856,775


(1,756,224)


782,789


116,867


(369,380)


(973,435)


(145,330)

        Taxes payable


(1,397,390)


73,446


(538,234)


(80,355)


161,228


(464,788)


(69,391)

        Contract liabilities


(381,446)


(78,200)


279,669


41,754


359,492


201,469


30,078

        Accrued liabilities and other payables


(250,312)


(103,136)


600,934


89,717


406,252


497,798


74,319

    Net cash provided by operating activities


4,722,806


4,582,552


6,631,159


990,006


10,265,473


11,213,711


1,674,163
















Cash flows from investing activities:















    Purchase of property, equipment and software


(421,872)


(749,361)


(445,054)


(66,445)


(751,618)


(1,194,415)


(178,321)

    Proceeds from sale of property, equipment and software


2,458


12,565


23,338


3,484


3,977


35,903


5,360

    Purchase of intangible assets, content and licensed copyrights    


(566,736)


(143,836)


(85,121)


(12,708)


(992,869)


(228,957)


(34,182)

    Net change in short-term investments with terms of three
        months or less


1,668,673


1,710,845


(159,173)


(23,764)


5,001,283


1,551,672


231,659

    Purchase of short-term investments with terms over three
        months


(2,450,000)


(1,250,000)


-


-


(10,355,000)


(1,250,000)


(186,620)

    Proceeds from maturities of short-term investments with terms
        over three months


813,211


553,831


1,459,172


217,849


3,670,552


2,013,003


300,533

    Investment in long-term investments and acquisition of
        subsidiaries   


(3,376,973)


(1,690,271)


(899,968)


(134,362)


(3,935,414)


(2,590,239)


(386,713)

    Proceeds from disposal of long-term investments, businesses
        and subsidiaries


266,284


34,237


6,413


957


465,184


40,650


6,069

    Placement/rollover of matured time deposits


(27,223,584)


(24,045,997)


(33,122,029)


(4,944,989)


(42,946,333)


(57,168,026)


(8,534,962)

    Proceeds from maturities of time deposits


25,790,186


14,699,795


32,100,141


4,792,425


37,271,321


46,799,936


6,987,046

    Change in other long-term assets


(44,877)


(169,545)


(60,900)


(9,092)


(99,530)


(230,445)


(34,405)

    Net cash used in investing activities


(5,543,230)


(11,037,737)


(1,183,181)


(176,645)


(12,668,447)


(12,220,918)


(1,824,536)
















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



 Six Months Ended



 June 30, 


 March 31,  


 June 30,  


 June 30,  



 June 30,  


 June 30,  


 June 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      

4,978,642


3,403,195


2,721,487


406,307



7,100,683


6,124,682


914,391

    Proceed of bank loans with terms over three months


1,320,614


1,915,210


1,641,708


245,101



1,557,530


3,556,918


531,034

    Payment of bank loans with terms over three months


(582,328)


-


(32,273)


(4,818)



(750,028)


(32,273)


(4,818)

    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


8,176


(102,042)


33,200


4,957



1,515,225


(68,842)


(10,278)

    Cash paid for repurchase of NetEase's ADSs/ purchase of
        subsidiaries' ADSs and shares      


(2,468,969)


(1,243,917)


(2,119,613)


(316,450)



(4,487,436)


(3,363,530)


(502,162)

    Dividends paid to NetEase's shareholders


(1,278,879)


(1,683,472)


(1,403,637)


(209,557)



(1,539,721)


(3,087,109)


(460,893)

    Net cash provided by financing activities     


1,977,256


2,288,974


840,872


125,540



3,382,453


3,129,846


467,274

















    Effect of exchange rate changes on cash, cash equivalents and
        restricted cash held in foreign currencies


(25,112)


(21,202)


74,898


11,182



10,881


53,696


8,017

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

1,131,720


(4,187,413)


6,363,748


950,083



990,360


2,176,335


324,918

Cash, cash equivalents and restricted cash, at the beginning
    of the period


12,027,245


17,376,115


13,188,702


1,969,021



12,168,605


17,376,115


2,594,186

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


13,158,965


13,188,702


19,552,450


2,919,104



13,158,965


19,552,450


2,919,104

















Supplemental disclosures of cash flow information:
















    Cash paid for income tax, net


1,240,692


1,515,330


1,055,096


157,522



1,790,883


2,570,426


383,754

    Cash paid for interest expense


48,082


37,741


93,079


13,896



91,984


130,820


19,531

















The accompanying notes are an integral part of this announcement.

 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

















Three Months Ended


 Six Months Ended



 June 30, 


 March 31,  


 June 30,  


 June 30,  


June 30,


June 30,


June 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 


15,774,818


18,641,814


18,139,843


2,708,207


31,881,629


36,781,657


5,491,357

Youdao


1,293,407


1,200,541


956,225


142,761


2,633,274


2,156,766


321,997

Cloud Music


1,692,507


2,067,206


2,191,510


327,184


3,183,674


4,258,716


635,810

Innovative businesses and others


1,763,769


1,646,281


1,871,500


279,407


3,343,135


3,517,781


525,190

Total net revenues


20,524,501


23,555,842


23,159,078


3,457,559


41,041,712


46,714,920


6,974,354
















Cost of revenues:















Games and related value-added services 


(5,813,002)


(7,052,050)


(6,375,598)


(951,852)


(12,026,054)


(13,427,648)


(2,004,695)

Youdao


(616,661)


(562,691)


(546,498)


(81,590)


(1,189,076)


(1,109,189)


(165,598)

Cloud Music


(1,623,327)


(1,815,649)


(1,905,954)


(284,551)


(3,161,053)


(3,721,603)


(555,621)

Innovative businesses and others


(1,281,897)


(1,289,073)


(1,389,537)


(207,453)


(2,423,276)


(2,678,610)


(399,905)

Total cost of revenues


(9,334,887)


(10,719,463)


(10,217,587)


(1,525,446)


(18,799,459)


(20,937,050)


(3,125,819)
















Gross profit:















Games and related value-added services 


9,961,816


11,589,764


11,764,245


1,756,355


19,855,575


23,354,009


3,486,662

Youdao


676,746


637,850


409,727


61,171


1,444,198


1,047,577


156,399

Cloud Music


69,180


251,557


285,556


42,633


22,621


537,113


80,189

Innovative businesses and others


481,872


357,208


481,963


71,954


919,859


839,171


125,285

Total gross profit


11,189,614


12,836,379


12,941,491


1,932,113


22,242,253


25,777,870


3,848,535
















Gross profit margin:















Games and related value-added services 


63.2 %


62.2 %


64.9 %


64.9 %


62.3 %


63.5 %


63.5 %

Youdao


52.3 %


53.1 %


42.8 %


42.8 %


54.8 %


48.6 %


48.6 %

Cloud Music


4.1 %


12.2 %


13.0 %


13.0 %


0.7 %


12.6 %


12.6 %

Innovative businesses and others


27.3 %


21.7 %


25.8 %


25.8 %


27.5 %


23.9 %


23.9 %
















The accompanying notes are an integral part of this announcement.

 

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.6981 on the last trading day of June 2022 (June 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 June 30, 2022, 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


 Six Months Ended





June 30,


March 31, 


June 30, 


June 30, 


June 30,


June 30,


June 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


197,370


198,135


173,840


25,954


385,296


371,975


55,534



Operating expenses

















  Selling and marketing expenses


26,434


30,373


31,817


4,750


50,665


62,190


9,285



  General and administrative expenses


258,544


279,062


297,891


44,474


488,147


576,953


86,137



  Research and development expenses


217,766


238,584


260,899


38,951


426,259


499,483


74,571




















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


 Six Months Ended





 June 30, 


 March 31,  


 June 30,  


 June 30,  


June 30,


June 30,


June 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


3,541,754


4,394,023


4,666,612


696,705


7,980,906


9,060,635


1,352,717



Add: Share-based compensation


686,111


723,603


743,198


110,957


1,327,645


1,466,801


218,988



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


4,227,865


5,117,626


5,409,810


807,662


9,308,551


10,527,436


1,571,705




















Non-GAAP basic net income from continuing
    operations per share *


1.26


1.56


1.65


0.25


2.78


3.21


0.48



Non-GAAP basic net income from continuing
    operations per ADS *


6.31


7.81


8.26


1.23


13.90


16.07


2.40



Non-GAAP diluted net income from continuing
    operations per share *


1.25


1.54


1.64


0.24


2.74


3.18


0.47



Non-GAAP diluted net income from continuing
    operations per ADS *


6.24


7.72


8.18


1.22


13.72


15.90


2.37




















*  Each ADS represents five ordinary shares.


The accompanying notes are an integral part of this announcement.


 

 

Cision View original content:https://www.prnewswire.com/news-releases/netease-announces-second-quarter-2022-unaudited-financial-results-301608275.html

Source: NetEase, Inc.

Related stocks: HongKong:9999 NASDAQ:NTES

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