NetEase, Inc

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Press Release $NTES NetEase, Inc

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NetEase Reports Fourth Quarter and Fiscal Year 2012 Unaudited Financial Results

BEIJING, Feb. 6, 2013 /PRNewswire-FirstCall/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2012.

William Ding, Chief Executive Officer and Director of NetEase, stated, "2012 marked another strong year for NetEase as we continued to enhance our games and services, as well as introduce new products and services throughout the year.  Our 12.1% growth in total revenues was primarily due to an 11.2% increase in our online games business and a 6.9% increase in our advertising services business.  We finished the year with a solid fourth quarter, growing our total revenues by 8.3% year-over-year and 13.8% quarter-over-quarter, as well as year-over-year and quarter-over-quarter growth in revenue from our online games business."

"The growing popularity of our self-developed games and the newly launched expansion pack for Blizzard Entertainment's World of Warcraft® contributed to our 13.6% quarter-over-quarter increase in online game revenues, supported by the launch of new games Kung Fu Master, Soul of the Fighter and Heroes of Tang Dynasty II.  2012 has been a remarkable year for our self-developed online games.  The continued growth from our flagship games, new game launches, and exciting expansion packs and upgrades drove our 11.2% year-over-year increase in online game revenues.  Highlights for the year include Fantasy Westward Journey and Westward Journey Online II reaching record high PCU levels in August, Ghost and Tianxia III delivering solid performances during the year, and Kung Fu Master and Heroes of Tang Dynasty II receiving positive feedback following their launches in October and November, respectively."

"Robust game expansion and pipeline development remains a core theme for the anticipated growth of our online game services in 2013.  These initiatives are proceeding well in the first quarter of 2013, with expansion packs for Westward Journey Online III and New Fly for Fun planned to kick-off our online game release schedule.  For the second quarter of 2013, our current plan includes the launch of expansion packs for Westward Journey Online II, Tianxia III, Heroes of Tang Dynasty II, Kung Fu Master and Soul of the Fighter and the new version of Ghost." 

"As we continue to build on our successful game platforms, we are working to diversify our portfolio into new genres, with the development of our 3D action real-time strategy game Heroes of Three Kingdoms and a first person shooter game.  Moreover, we plan to introduce two additional new games that further augment our extensive game portfolio, Dragon Sword, our next generation 3D MMORPG, and Legend of Tibet, a 2.5D MMORPG that follows a unique story based on Tibetan mythology.  The development of these games is well underway, with plans for commercialization in the second half of the year." 

"With regard to advertising services, our revenues for the fourth quarter grew by 6.8% quarter-over-quarter with automobile, financial services and Internet services as the three highest performing sectors.  We continued to enhance our online offerings with the strategic development of our mobile initiatives, which have proved to be highly popular with our users.  As of December 31, 2012, we had over 50 million installations for our Mobile News application with over 22 million active users on a daily basis, 8.5 million installations for Youdao Cloudnote and 128 million installations for Youdao Dictionary on mobile devices.  As we move through 2013, we are cautiously optimistic that we will see continued spending and growth in our advertising business as we work to increase traffic to our portals with a focus on both traditional and mobile Internet."

"2012 marked the 15th anniversary of our mailbox services, where we continue to be one of China's leading e-mail service providers.  With the launch of our new e-mail 5.0 services in August, the number of new users and user activity increased substantially in 2012.  As of December 31, 2012, we had approximately 530 million registered e-mail users.  We continue to optimize these services to enhance their appeal to our users."

"We remain focused on bringing games and content to the Internet market that showcase our innovation and leadership.  Our strategic initiatives are designed to build on our established online games, portal and e-mail businesses through the introduction of high quality content, leading technology and optimization.  In 2013, we will work to achieve growth across our businesses with enhancements to our games and services that underscore our commitment to driving content, community, communication and commerce in China's growing online market," Mr. Ding concluded.

Fourth Quarter 2012 Financial Results

Revenues

Total revenues for the fourth quarter of 2012 were RMB2.3 billion (US$373.5 million), compared to RMB2.0 billion and RMB2.1 billion for the preceding quarter and the fourth quarter of 2011, respectively.

Revenues from online game services were RMB2.0 billion (US$317.4 million) for the fourth quarter of 2012, compared to RMB1.7 billion and RMB1.8 billion for the preceding quarter and the fourth quarter of 2011, respectively.

Revenues from advertising services were RMB259.5 million (US$41.7 million) for the fourth quarter of 2012, compared to RMB243.0 million and RMB278.5 million for the preceding quarter and the fourth quarter of 2011, respectively.

Revenues from e-mail, wireless value-added services and others ("E-mail, WVAS and others") were RMB89.8 million (US$14.4 million) for the fourth quarter of 2012, compared to RMB61.9 million and RMB37.2 million for the preceding quarter and the fourth quarter of 2011, respectively.

Gross Profit

Gross profit for the fourth quarter of 2012 was RMB1.6 billion (US$258.1 million), compared to RMB1.4 billion and RMB1.5 billion for the preceding quarter and the fourth quarter of 2011, respectively.

The quarter-over-quarter increase in gross profit was primarily attributable to increased revenues from both the online games and advertising services businesses. The increase in revenues from self-developed games was mainly attributable to Tianxia III, Heroes of Tang Dynasty II, and NetEase's two new games Kung Fu Master and Soul of the Fighter. The performances of Fantasy Westward Journey, Westward Journey Online II and Ghost were steady in the fourth quarter of 2012.  The increased revenues from licensed games were mainly due to the October 2012 launch in mainland China of Mists of Pandaria®, the fourth expansion for Blizzard Entertainment's World of Warcraft.  The quarter-over-quarter increase in gross profit from advertising services was primarily attributable to seasonality and reduced content costs due to higher content costs incurred in the third quarter for the 2012 London Olympics.

The year-over-year increase in gross profit was primarily attributable to increased revenues from NetEase's self-developed games, which was partially offset by decreased revenues from advertising services. The increase in revenues from NetEase's self-developed games was mainly attributable to Fantasy Westward Journey, Kung Fu Master and Soul of the Fighter.

Gross Profit (Loss) Margin

Gross profit margin for the online games business for the fourth quarter of 2012 was 75.3%, compared to 74.2% and 72.6% for the preceding quarter and the fourth quarter of 2011, respectively.

Gross profit margin for the advertising business for the fourth quarter of 2012 was 54.3%, compared to 36.2% and 54.5% for the preceding quarter and the fourth quarter of 2011, respectively.  The quarter-over-quarter increase in gross profit margin was primarily due to increased revenues and reduced content costs due to higher content costs incurred in the third quarter for the 2012 London Olympics.

Gross profit margin for the E-mail, WVAS and others business for the fourth quarter of 2012 was 13.0%, compared to 6.0% and 2.2% for the preceding quarter and the fourth quarter of 2011, respectively.  The quarter-over-quarter and year-over-year improvements in gross profit margin were mainly due to increased revenues from NetEase's e-commerce and mailbox businesses, as well as the sale of game-related accessories, such as a limited edition package of World of Warcraft. 

Operating Expenses

Total operating expenses for the fourth quarter of 2012 were RMB580.4 million (US$93.2 million), compared to RMB537.5 million and RMB529.0 million for the preceding quarter and the fourth quarter of 2011, respectively.  The quarter-over-quarter increase in operating expenses was primarily due to increased selling and marketing expenses, mainly resulting from increased promotional activities for Kung Fu Master, World of Warcraft and Heroes of Tang Dynasty II, which was partially offset by decreased research and development costs as NetEase has recently commercially launched a number of new products. The year-over-year increase in operating expenses was primarily due to increased selling and marketing expenses and research and development staff-related costs, which was partially offset by an impairment provision of RMB50.3 million made in 2011 on the initial online game license fee of Blizzard Entertainment's StarCraft® II.

Net Profit

Net profit for the fourth quarter of 2012 totaled RMB1.0 billion (US$161.9 million), compared to RMB811.9 million and RMB898.6 million for the preceding quarter and the fourth quarter of 2011, respectively.  During the fourth quarter of 2012, the Company reported a net foreign exchange loss of RMB5.8 million (US$0.9 million), compared to a net foreign exchange gain of RMB23.7 million and a net foreign exchange loss of RMB36.4 million for the preceding quarter and the fourth quarter of 2011, respectively.  The quarter-over-quarter and year-over-year foreign exchange gain/losses were mainly due to the exchange gain/losses arising from the Company's foreign currency denominated bank deposit balances as of December 31, 2012, as the exchange rate of the Euro and US dollar against the RMB fluctuated over the periods. 

NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$1.23 each for the fourth quarter of 2012.  The Company reported basic and diluted earnings per ADS of US$0.99 each for the preceding quarter, and basic and diluted earnings per ADS of US$1.10 each for the fourth quarter of 2011.

Income Taxes

The Company recorded a net income tax charge of RMB184.2 million (US$29.6 million) for the fourth quarter of 2012, compared to RMB194.8 million and RMB122.6 million for the preceding quarter and the fourth quarter of 2011, respectively.  The effective tax rate for the fourth quarter of 2012 was 15.4%, compared to 19.9% for the preceding quarter and 11.8% for the fourth quarter of 2011. The quarter-over-quarter decrease in effective tax rate was due to the occurrence in the preceding quarter of a one-time accrued withholding tax of RMB40.0 million associated with the offshore remittance of cash from China in connection with the declaration of a special cash dividend.

The Company's various principal subsidiaries renewed their qualifications as High and New Technology Enterprises in 2011 and receive the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China.

Fiscal Year 2012 Financial Results

Revenues

Total revenues for fiscal year 2012 were RMB8.4 billion (US$1.3 billion), compared to RMB7.5 billion for the preceding fiscal year. Revenues from online games were RMB7.3 billion (US$1.2 billion) for fiscal year 2012, compared to RMB6.6 billion for the preceding fiscal year.  Revenues from advertising services were RMB850.2 million (US$136.5 million) for fiscal year 2012, compared to RMB795.4 million for the preceding fiscal year.  Revenues from E-mail, WVAS and others were RMB242.7 million (US$39.0 million) for fiscal year 2012, compared to RMB124.9 million for the preceding fiscal year.

Gross Profit

Gross profit for fiscal year 2012 was RMB5.6 billion (US$902.5 million), compared to RMB4.9 billion for the preceding fiscal year.  The increase in gross profit for fiscal year 2012 was primarily driven by increased revenues, which was partially offset by increased cost of revenues.

The increase in online game services revenue in 2012 was primarily attributable to increased revenues from the Company's self-developed games such as Fantasy Westward Journey, Ghost, Tianxia III, Kung Fu Master and Westward Journey Online II for the reasons explained above, which was partially offset by decreased revenues from games licensed from Blizzard Entertainment.

The increase in advertising services revenue in 2012 was primarily attributable to large-scale global sporting events such as Euro Cup 2012 and the 2012 London Olympics, which contributed to an increase in portal and search traffic on NetEase's websites. The year-over-year decrease in gross profit margin was primarily due to increased headcount-related costs and content costs incurred for the 2012 London Olympics.

Operating Expenses

Total operating expenses for fiscal year 2012 were RMB1.9 billion (US$306.8 million), compared to RMB1.6 billion for the preceding fiscal year. The increase in operating expenses in 2012 was primarily due to increased selling and marketing expenses as a result of marketing and promotional activities for various games, including Kung Fu Master, Soul of the Fighter and Blizzard Entertainment's World of Warcraft, and increased staff-related costs resulting from increased headcount in general and administration and research and development areas, which was partially offset by the impairment provision of an initial online game license fee in 2011, as mentioned above.

Net Profit

Net profit for fiscal year 2012 totaled RMB3.6 billion (US$583.9 million), compared to RMB3.2 billion for the preceding fiscal year. For fiscal year 2012, the Company reported a net foreign exchange loss of RMB0.6 million (US$0.1 million), compared to a net foreign exchange loss of RMB79.1 million for the preceding fiscal year. The net foreign exchange losses for 2012 and 2011 were mainly due to exchange losses arising from the Company's Euro-denominated bank deposit balances as the exchange rate of the Euro against the RMB fluctuated over these periods. NetEase reported basic and diluted earnings per ADS of US$4.45 and US$4.44 for fiscal year 2012, respectively.  The Company reported basic and diluted earnings per ADS of US$3.97 and US$3.96 for the preceding fiscal year, respectively.

Income Taxes

The Company recorded a net income tax charge of RMB691.6 million (US$111.0 million) and RMB392.8 million at an effective tax rate of 16.2% and 10.9% for fiscal years 2012 and 2011, respectively.  The change in the effective tax rate was mainly due to the expiration of the tax exemption period for certain subsidiaries in 2012, a one-time accrued withholding tax of RMB40.0 million in 2012, as mentioned above, and a tax refund of RMB47.1 million that was received in 2011.

Other Information

As of December 31, 2012, the Company's total cash and time deposit balance was RMB15.2 billion (US$2.4 billion), compared to RMB11.9 billion as of December 31, 2011.  Total held-to-maturity investments and other short-term investments balance was RMB1.1 billion (US$172.3 million) as of December 31, 2012, compared to RMB993.6 million as of December 31, 2011.  Cash flow generated from operating activities was RMB4.2 billion (US$678.0 million) for fiscal year 2012, compared to RMB4.1 billion for the preceding fiscal year.

Special Cash Dividend

In November 2012, the Company announced that its board of directors declared a special cash dividend of US$0.04 per ordinary share, which is equivalent to US$1.00 per ADS (each ADS represents 25 ordinary shares).  The special cash dividend amounting to approximately US$131 million was paid to shareholders of record as of January 15, 2013.

Share Repurchase Program

In November 2012, the Company announced that its board of directors approved a new share repurchase program of up to US$100 million.  As of December 31, 2012, the Company had cumulatively purchased approximately 1.66 million ADSs in open market purchases under this program for a total consideration of approximately US$67.2 million. The share repurchase program will expire on November 20, 2013.

** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader.  Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.2301 on the last trading day of 2012 (December 31, 2012) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2012, or at any other certain date.  The percentages stated are calculated based on RMB.

Notes to Unaudited Financial Information

The unaudited financial information disclosed in this press release is preliminary.  The audit of the financial statements and related notes to be included in the Company's annual report on Form 20-F for the year ended December 31, 2012 is still in progress.  In addition, because an audit of the Company's internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, the Company makes no representation as to the effectiveness of those internal controls as of the end of fiscal year 2012.

Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between the Company's audited financial statements and this preliminary unaudited financial information.

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 8:00 p.m. Eastern Time on Wednesday, February 6, 2013 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 7, 2013).  NetEase's management will be on the call to discuss the quarterly and annual results and answer questions.

Interested parties may participate in the conference call by dialing 1-877-941-2068 (international: 1-480-629-9712), 10-15 minutes prior to the initiation of the call.  A replay of the call will be available by dialing 1-800-406-7325 (international 1-303-590-3030), and entering passcode 4588210#.  The replay will be available through February 21, 2013.

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, Inc. (NASDAQ: NTES) is a leading Internet technology company in China.  Dedicated to providing online services centered around content, community, communication and commerce, NetEase develops and operates some of China's most popular online games, e-mail services, advertising services and web portals.  In partnership with Blizzard Entertainment, NetEase also operates one of the most popular international online games in China, World of Warcraft®. For more information, please visit: http://ir.netease.com/.

*      *      *

Forward Looking Statements

This press release 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.  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 leading position in that market, which could occur if, for example, its new online games such as Heroes of Tang Dynasty II, Kung Fu Master and Soul of the Fighter or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Fantasy Westward Journey, Westward Journey Online II, and other games, do not become as popular as management anticipates; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that Shanghai EaseNet will not be able to continue operating World of Warcraft, StarCraft II or other games licensed by it for a period of time or permanently due to possible governmental actions or the risk that such games will not be popular with game players in China; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenues or cause revenues to decline; competition in the online advertising business and the risk that investments by NetEase in its content and services may not increase the appeal of the NetEase websites among Internet users or result in increased advertising revenues; the risk that NetEase may not be able to continuously develop new and creative online services, including its ability to maintain and enhance the popularity of its e-mail, mobile and micro-blogging services; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments and general competition and price pressures in the marketplace); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission.  NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

Contact for Media and Investors:

Cassia Curran
NetEase, Inc.
cassia@corp.netease.com
Tel: (+86) 571-8985-2076

Brandi Piacente
Investor Relations
brandi@corp.netease.com
Tel: (+1) 212-481-2050

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)



 December 31,


 December 31,


 December 31,



2011


2012


2012



 RMB 


 RMB 


 USD (Note 1)

Assets














Current assets:







   Cash and cash equivalents


2,214,618


1,590,769


255,336

   Time deposits


9,704,777


13,098,661


2,102,480

   Restricted cash


318,684


570,506


91,573

   Accounts receivable, net


230,047


269,485


43,255

   Prepayments and other current assets


900,464


1,121,784


180,059

   Short-term investments


993,606


1,073,539


172,315

   Deferred tax assets


111,990


143,929


23,102

Total current assets


14,474,186


17,868,673


2,868,120








Non-current assets:







   Property, equipment and software, net


848,469


815,026


130,821

   Land use right, net


11,788


11,529


1,851

   License right, net


48,962


-


-

   Deferred tax assets


2,586


2,215


356

   Time deposits


-


490,000


78,650

   Other long-term assets


58,940


90,513


14,528

Total non-current assets


970,745


1,409,283


226,206

Total assets


15,444,931


19,277,956


3,094,326








Liabilities and Shareholders' Equity














Current liabilities:







   Accounts payable


134,217


157,764


25,323

   Salary and welfare payables


244,398


289,848


46,524

   Dividend payable


-


814,934


130,806

   Taxes payable


391,769


389,465


62,513

   Deferred revenue


1,014,073


1,160,018


186,196

   Accrued liabilities and other payables


498,120


764,473


122,706

Total current liabilities


2,282,577


3,576,502


574,068








Long-term payable:







   Other long-term payable


63,890


99,968


16,046

Total liabilities


2,346,467


3,676,470


590,114








Total NetEase, Inc.'s equity


13,126,701


15,680,605


2,516,911

Noncontrolling interests


(28,237)


(79,119)


(12,699)

Total shareholders' equity


13,098,464


15,601,486


2,504,212








Total liabilities and shareholders' equity


15,444,931


19,277,956


3,094,326








The accompanying notes are an integral part of this press release.





 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(RMB and USD in thousands, except per share data)



 Quarter Ended


Year Ended



 December 31,


 September 30,


 December 31,


 December 31,


 December 31,


 December 31,


 December 31,



2011


2012


2012


2012

2011


2012


2012



 RMB


 RMB


 RMB


 USD (Note 1)


 RMB


 RMB


 USD (Note 1)

Revenues:















Online game services


1,833,269


1,739,922


1,977,417


317,397


6,552,431


7,287,063


1,169,654

Advertising services


278,474


243,027


259,500


41,653


795,422


850,157


136,460

E-mail, WVAS and others


37,249


61,916


89,799


14,414


124,898


242,741


38,963
















Total revenues


2,148,992


2,044,865


2,326,716


373,464


7,472,751


8,379,961


1,345,077

Sales taxes


(49,809)


(42,901)


(55,842)


(8,963)


(182,099)


(179,005)


(28,732)
















Total net revenues


2,099,183


2,001,964


2,270,874


364,501


7,290,652


8,200,956


1,316,345
















Total cost of revenues


(646,086)


(640,049)


(662,600)


(106,355)


(2,372,288)


(2,578,067)


(413,808)
















Gross profit


1,453,097


1,361,915


1,608,274


258,146


4,918,364


5,622,889


902,537































Selling and marketing expenses


(280,680)


(259,947)


(321,584)


(51,618)


(849,205)


(906,707)


(145,537)

General and administrative expenses


(105,787)


(75,851)


(69,452)


(11,148)


(280,227)


(286,223)


(45,942)

Research and development expenses


(142,514)


(201,661)


(189,345)


(30,392)


(465,490)


(718,315)


(115,298)

Total operating expenses


(528,981)


(537,459)


(580,381)


(93,158)


(1,594,922)


(1,911,245)


(306,777)
















Operating profit


924,116


824,456


1,027,893


164,988


3,323,442


3,711,644


595,760

Other income:















Investment income


9,954


9,353


7,523


1,208


14,128


43,770


7,026

Interest income


78,624


115,459


115,530


18,544


258,053


423,634


67,998

Exchange (losses) gains


(36,394)


23,659


(5,782)


(928)


(79,058)


(554)


(89)

Other, net


62,544


5,087


52,139


8,369


99,164


99,718


16,006
















Net income before tax


1,038,844


978,014


1,197,303


192,181


3,615,729


4,278,212


686,701

Income tax


(122,621)


(194,797)


(184,238)


(29,572)


(392,756)


(691,642)


(111,016)
















Net income after tax


916,223


783,217


1,013,065


162,609


3,222,973


3,586,570


575,685

Net (income) loss attributable
   to noncontrolling interests


(17,598)


28,718


(4,530)


(727)


11,291


50,882


8,167

Net income attributable to
   the Company's shareholders


898,625


811,935


1,008,535


161,882


3,234,264


3,637,452


583,852
















Comprehensive income


916,223


783,217


1,013,065


162,609


3,222,973


3,586,570


575,685

Comprehensive (income) loss
   attributable to noncontrolling interests


(17,598)


28,718


(4,530)


(727)


11,291


50,882


8,167

Comprehensive income attributable
   to the Company's shareholders


898,625


811,935


1,008,535


161,882


3,234,264


3,637,452


583,852
















Earnings per share, basic


0.27


0.25


0.31


0.05


0.99


1.11


0.18

Earnings per ADS, basic


6.86


6.17


7.69


1.23


24.76


27.70


4.45

Earnings per share, diluted


0.27


0.25


0.31


0.05


0.99


1.11


0.18

Earnings per ADS, diluted


6.85


6.17


7.68


1.23


24.68


27.65


4.44
















Weighted average number of
   ordinary shares outstanding, basic


3,272,617


3,287,370


3,278,877


3,278,877


3,265,550


3,282,663


3,282,663

Weighted average number of
   ADS outstanding, basic


130,905


131,495


131,155


131,155


130,622


131,307


131,307

Weighted average number of
   ordinary shares outstanding, diluted


3,279,404


3,292,462


3,283,903


3,283,903


3,276,704


3,288,330


3,288,330

Weighted average number of                    
   ADS outstanding, diluted


131,176


131,698


131,356


131,356


131,068


131,533


131,533
















The accompanying notes are an integral part of this press release.











 

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)



Quarter Ended


Year Ended



 December 31,


 September 30,


 December 31,


 December 31,


 December 31,


 December 31,


 December 31,



2011


2012


2012


2012


2011


2012


2012



 RMB 


 RMB 


 RMB 


 USD (Note 1)


 RMB 


 RMB 


 USD (Note 1)

Cash flows from operating activities:















Net income


916,223


783,217


1,013,065


162,609


3,222,973


3,586,570


575,685

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















Depreciation and amortization


76,323


52,310


37,647


6,043


293,239


233,509


37,481

Impairment loss for license right


50,316


-


-


-


50,316


-


-

Share-based compensation cost


45,143


47,969


28,869


4,634


122,032


203,018


32,587

(Reversal of) allowance for  provision
   for doubtful debts


(6,212)


(593)


(1,063)


(171)


416


3,088


495

(Gain) loss on disposal of property,
   equipment and software


(35)


90


(11)


(2)


(74)


(42)


(7)

Unrealized exchange losses (gains)


41,263


(27,330)


4,491


721


76,262


(5,665)


(909)

Deferred income taxes


22,054


7,894


(6,668)


(1,070)


(42,442)


(31,568)


(5,067)

Net equity share of loss (gain) from
   associated companies


1,010


(389)


(87)


(14)


1,195


(842)


(135)

Others


(9,272)


18,739


(5,407)


(868)


(12,580)


21,758


3,492

Changes in operating assets and liabilities:















   Accounts receivable


6,603


(31,834)


19,806


3,179


10,800


(70,318)


(11,288)

   Prepayments and other current assets


79,852


(253,134)


12,034


1,932


(83,490)


(68,833)


(11,049)

   Accounts payable


14,477


26,755


42,197


6,773


22,710


43,168


6,929

   Salary and welfare payables


48,575


(29,563)


111,449


17,889


62,425


45,434


7,293

   Taxes payable


(2,706)


18,096


16,904


2,713


33,329


(34,449)


(5,530)

   Deferred revenue


(3,777)


17,241


3,465


556


240,121


145,946


23,426

   Accrued liabilities and other payables


(36,144)


40,631


59,729


9,586


75,716


153,516


24,641

            Net cash provided by
                operating activities


1,243,693


670,099


1,336,420


214,510


4,072,948


4,224,290


678,044
















Cash flows from investing activities:















      Purchase of property,
         equipment and software


(171,422)


(65,430)


(41,029)


(6,586)


(410,120)


(178,654)


(28,676)

      Proceeds from sale of property,
         equipment and software


43


546


43


7


263


777


125

      Purchase of other intangible assets


(1,042)


-


(32)


(5)


(1,042)


(32)


(5)

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


-


150,000


430,000


69,020


-


(120,000)


(19,261)

      Purchase of short-term investments


(407,863)


(70,845)


(876,569)


(140,699)


(1,001,026)


(1,101,691)


(176,834)

      Proceeds from maturities of
        short-term investments


20,000


330,000


-


-


20,000


1,120,000


179,772

      Purchase of license right


-


-


-


-


(39,300)


-


-

      Investment in an associated company


-


(7,915)


-


-


-


(7,915)


(1,270)

      Transfer (to) from restricted cash


(44,885)


51,899


(101,322)


(16,263)


(178,085)


(251,822)


(40,420)

      Net change in time deposits with terms 















           of three months


(125,205)


(178,954)


1,036,845


166,425


(318,937)


889,350


142,751

      Placement/rollover of matured time deposits


(3,743,262)


(3,971,447)


(5,002,890)


(803,019)


(10,861,505)


(16,393,642)


(2,631,361)

      Proceeds from maturities of time deposits


3,497,811


3,209,753


4,045,543


649,354


9,598,470


11,626,594


1,866,197

      Net change in other assets


4,681


(11,094)


(6,186)


(993)


(16,951)


(37,003)


(5,940)

            Net cash used in investing activities        


(971,144)


(563,487)


(515,597)


(82,759)


(3,208,233)


(4,454,038)


(714,922)

 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)



Quarter Ended


Year Ended



 December 31,


 September 30,


 December 31,


 December 31,


 December 31,


 December 31,


 December 31,



2011


2012


2012


2012


2011


2012


2012



 RMB 


 RMB 


 RMB 


 USD (Note 1)


 RMB 


 RMB 


 USD (Note 1)
















Cash flows from financing activities:















     Capital contribution from
         non-controlling interests


-


-


-


-


227


-


-

     Proceeds from employees exercising
         stock options


9,877


-


-


-


73,337


24,712


3,967

     Purchase of shares


-


-


(414,942)


(66,603)


-


(414,942)


(66,603)

     Payment of other long-term payable


(10)


-


-


-


(20)


-


-

            Net cash provided by/ used in 
                financing activities


9,867


-


(414,942)


(66,603)


73,544


(390,230)


(62,636)
















   Effect of exchange rate changes on cash















     held in foreign currencies


(11,327)


2,200


342


55


(8,778)


(3,871)


(621)

            Net increase (decrease) in
                cash and cash equivalents


271,089


108,812


406,223


65,203


929,481


(623,849)


(100,135)

Cash and cash equivalents, beginning
    of the period


1,943,529


1,075,734


1,184,546


190,133


1,285,137


2,214,618


355,471

Cash and cash equivalents, end of the period

2,214,618


1,184,546


1,590,769


255,336


2,214,618


1,590,769


255,336
















Supplemental disclosures of cash flow
    information:















         Cash paid for income tax, net of tax refund

129,437


148,758


160,146


25,705


371,238


648,609


104,109

         Withholding income tax paid associated with













             the repatriation of cash for a special dividend

-


-


35,000


5,618


-


35,000


5,618

Supplemental schedule of non-cash investing















    and financing activities:















        Share repurchase financed by accounts payable

-


-


7,547


1,211


-


7,547


1,211

        Fixed asset purchases financed by 
            accounts payable and accrued liabilities           


37,614


14,096


7,228


1,160


37,614


7,228


1,160
















The accompanying notes are an integral part of this press release.











 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)









Quarter Ended

Year Ended



December 31,


September 30,


December 31,


December 31,


December 31,


December 31,


December 31,



2011


2012


2012


2012


2011


2012


2012



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Revenues:















Online game services


1,833,269


1,739,922


1,977,417


317,397


6,552,431


7,287,063


1,169,654

Advertising services


278,474


243,027


259,500


41,653


795,422


850,157


136,460

E-mail, WVAS and others


37,249


61,916


89,799


14,414


124,898


242,741


38,963

Total revenues


2,148,992


2,044,865


2,326,716


373,464


7,472,751


8,379,961


1,345,077
















Sales taxes: 















Online game services


(23,161)


(17,053)


(25,170)


(4,040)


(103,824)


(86,478)


(13,881)

Advertising services


(25,850)


(24,562)


(24,240)


(3,891)


(75,349)


(82,680)


(13,271)

E-mail, WVAS and others


(798)


(1,286)


(6,432)


(1,032)


(2,926)


(9,847)


(1,580)

Total sales taxes


(49,809)


(42,901)


(55,842)


(8,963)


(182,099)


(179,005)


(28,732)
















Net revenues:















Online game services


1,810,108


1,722,869


1,952,247


313,357


6,448,607


7,200,585


1,155,773

Advertising services


252,624


218,465


235,260


37,762


720,073


767,477


123,189

E-mail, WVAS and others


36,451


60,630


83,367


13,382


121,972


232,894


37,383

Total net revenues


2,099,183


2,001,964


2,270,874


364,501


7,290,652


8,200,956


1,316,345
















Cost of revenues:















Online game services


(495,506)


(443,789)


(482,513)


(77,449)


(1,859,176)


(1,872,734)


(300,594)

Advertising services


(114,949)


(139,296)


(107,555)


(17,264)


(380,201)


(474,165)


(76,109)

E-mail, WVAS and others


(35,631)


(56,964)


(72,532)


(11,642)


(132,911)


(231,168)


(37,105)

Total cost of revenues


(646,086)


(640,049)


(662,600)


(106,355)


(2,372,288)


(2,578,067)


(413,808)
















Gross profit (loss):















Online game services


1,314,602


1,279,080


1,469,734


235,908


4,589,431


5,327,851


855,179

Advertising services


137,675


79,169


127,705


20,498


339,872


293,312


47,080

E-mail, WVAS and others


820


3,666


10,835


1,740


(10,939)


1,726


278

Total gross profit


1,453,097


1,361,915


1,608,274


258,146


4,918,364


5,622,889


902,537
















Gross profit (loss) margin:













Online game services


72.6%


74.2%


75.3%


75.3%


71.2%


74.0%


74.0%

Advertising services           


54.5%


36.2%


54.3%


54.3%


47.2%


38.2%


38.2%

E-mail, WVAS and others


2.2%


6.0%


13.0%


13.0%


(9.0%)


0.7%


0.7%
















The accompanying notes are an integral part of this press release.









 

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 = RMB6.2301 on the last trading day of 2012 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.

Note 2:

Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of operations is set out as follows (in thousands):



Quarter Ended


Year Ended



December 31,


September 30,


December 31,


December 31,


December 31,


December 31,


December 31,



2011


2012


2012


2012


2011


2012


2012



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Share-based compensation cost
    included in:















Cost of revenue                           


21,030


25,063


12,957


2,080


57,318


100,540


16,138

Operating expenses















- Selling and marketing
     expenses


3,897


2,933


2,397


385


11,357


13,368


2,146

- General and administrative
     expenses


7,661


7,830


4,260


684


17,897


33,374


5,357

- Research and development
     expenses


12,555


12,143


9,255


1,485


35,460


55,736


8,946

 

SOURCE NetEase, Inc.

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