EX-99.1 2 a11-30003_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

Contact for Media and Investors:

Brandi Piacente

Investor Relations

brandi@corp.netease.com

Tel: (+1) 212-481-2050

 

Li Jia

NetEase.com, Inc.

liddyli@corp.netease.com

Tel: (+8610) 8255-8208

 

NetEase.com Reports Third Quarter 2011

 

Unaudited Financial Results

 

(Beijing — November 17, 2011) — NetEase.com, Inc. (NASDAQ: NTES), one of China’s leading Internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2011.

 

William Ding, Chief Executive Officer and Director of NetEase, stated, “We continued to achieve dynamic growth across our business during the third quarter. The popularity of our self-developed games, as well as continued interest in Blizzard Entertainment’s World of WarcraftÒ, led our 12.9% quarter-over quarter and 39.5% year-over-year growth in total revenue. For the third quarter, online games revenue rose 11.3% sequentially and 39.8% year-over-year, followed by strong advertising services sales, which increased 30.0%, compared with the prior quarter and 36.1% year-over-year.”

 

“Open beta testing and successful promotional activities for Heroes of Tang Dynasty contributed to record revenue and user statistics for this game during the quarter, and we plan to release its first expansion pack in December. In conjunction with its ninth commercial anniversary on August 15, Westward Journey Online II continued to perform well during the quarter. In addition, we launched our latest expansion packs for Westward Journey Online III and Warsong of Westward Journey in August, and Fantasy Westward Journey in September.  As a follow up to the success of Ghost’s unlimited closed beta testing, we launched its full scale closed beta testing in September, and reached record high PCU in October. To further extend our games pipeline and address the expanding web-based game market in China, we initiated closed beta testing for two new web-based games during the third quarter.”

 

“In late October, we released Tianxia III, a 3D MMORPG. This comprehensive upgrade is designed to leverage the strong Tianxia II user base and further enhance our leading position in the 3D game market.  Before the end of the year, we expect to launch expansion packs for Datang, Heroes of Tang Dynasty and New Fly for Fun. In December, Legend of Fairy, a new European-style fairy-themed MMORPG for relatively casual game players, will enter unlimited closed beta testing.  We plan to utilize our extensive research and development capabilities to introduce a variety of new self-developed games, including three that are currently under development, and two of which we plan to release for beta testing in mid-2012.”

 



 

“The 11.0% revenue contribution from our advertising services segment was based on seasonality, as well as further recognition by advertisers for our content innovation, service integration, new product development and increased user appeal for the NetEase portal.  Compared with the same period last year, we benefited from increased interest from advertisers in the food and beverage, financial services, cosmetic products, real estate, retail and services sectors.”

 

Mr. Ding continued, “Our mailbox services, micro-blogging and search-based products also continue to gain traction among users.  As of September 30, 2011, the number of registered NetEase email users grew to 430 million, an increase of 4.9% over the second quarter, and the number of micro-blogging users soared to 88.5 million, an improvement of 68.6% over the second quarter.”

 

Mr. Ding concluded, “We continue to advance products and services with a focus on growing our three principal businesses. Through our strategic initiatives to further diversify our games pipeline, advance NetEase’s position as the leading email service provider in China and further cultivate our portal business, we believe we can continue to deliver the most innovative products and services that shape the Chinese internet market.”

 

Third Quarter 2011 Financial Results

 

Revenues

 

Total revenues for the third quarter of 2011 were RMB2.0 billion (US$314.8 million), compared to RMB1.8 billion and RMB1.4 billion for the preceding quarter and the third quarter of 2010, respectively.

 

Revenues from online games were RMB1.8 billion (US$275.3 million) for the third quarter of 2011, compared to RMB1.6 billion and RMB1.3 billion for the preceding quarter and the third quarter of 2010, respectively.

 

Revenues from advertising services were RMB220.5 million (US$34.6 million) for the third quarter of 2011, compared to RMB169.6 million and RMB162.0 million for the preceding quarter and the third quarter of 2010, respectively.

 

Revenues from wireless value-added services and others (“WVAS and others”) were RMB31.3 million (US$4.9 million) for the third quarter of 2011, compared to RMB30.7 million and RMB20.9 million for the preceding quarter and the third quarter of 2010, respectively.

 

Gross Profit

 

Gross profit for the third quarter of 2011 was RMB1.3 billion (US$208.1 million), compared to RMB1.2 billion and RMB952.0 million for the preceding quarter and the third quarter of 2010, respectively. The quarter-over-quarter increase in gross profit was primarily attributable to the increase in game revenues from the Company’s self-developed games, such as Fantasy Westward Journey, Heroes of Tang Dynasty and Ghost, as well as increased advertising service revenue, partially offset by increased cost of revenues.  Fantasy Westward Journey performed well during the current quarter, which was mainly attributable to seasonality and enhanced game content.  Revenue from Heroes of Tang Dynasty grew steadily since its open beta testing in June 2011, and Ghost continued its strong performance during its unlimited closed beta testing in the third quarter.  The quarter-over-quarter increase in advertising services revenue was primarily attributable to seasonality and increasing appeal of the

 



 

Company’s portal to users and advertisers.  Increased cost of revenues was primarily due to increased royalties and consultancy fees related to the operation of Blizzard Entertainment’s StarCraftÒ II and World of Warcraft, increased staff-related costs during the third quarter of 2011.

 

The year-over-year increase in gross profit was primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues related mainly to the online games business. The year-over-year increase in online games revenue was primarily driven by increased revenues from the Company’s self-developed games, as well as increased revenue from World of Warcraft.  Revenues from self-developed games increased primarily as a result of various expansion packs and promotional activities in the third quarter of 2011, as well as the unlimited closed beta testing of Ghost starting in April 2011 and the open beta testing of Heroes of Tang Dynasty starting in June 2011. The year-over-year increase in revenue from World of Warcraft was mainly due to the release of the game’s two expansions, Wrath of the Lich King™ and Cataclysm™, in mainland China in August 2010 and July 2011, respectively. The year-over-year increase in cost of revenues for the online games business was mainly due to increased royalties and consultancy fees related to World of Warcraft and StarCraft II operations and increased staff-related costs, resulting from increased headcount in 2011. The year-over-year increase in advertising services revenue was primarily due to continued rising demand for advertising services, primarily from food and beverage products, financial services and Internet services sectors.

 

Gross Profit (Loss) Margin

 

Gross profit margin for the online game business for the third quarter of 2011 was 71.5%, compared to 70.2% and 71.8% for the preceding quarter and the third quarter of 2010, respectively.

 

Gross profit margin for the advertising business for the third quarter of 2011 was 48.4%, compared to 43.9% and 51.5% for the preceding quarter and the third quarter of 2010, respectively.  The quarter-over-quarter increase in gross profit margin was mainly due to economies of scale as advertising revenue increased in the third quarter without a corresponding increase in advertising related costs.

 

Gross loss margin for the WVAS and others business for the third quarter of 2011 was 13.2%, compared to gross loss margin of 7.8% and 42.4% for the preceding quarter and the third quarter of 2010, respectively.  The quarter over quarter increase in gross loss margin is mainly due to an increase in staff-related costs. The year-over-year decrease in gross loss margin is mainly due to increased revenues from the e-commence business and mailbox services.

 

Operating Expenses

 

Total operating expenses for the third quarter of 2011 were RMB408.2 million (US$64.0 million), compared to RMB365.8 million and RMB365.0 million for the preceding quarter and the third quarter of 2010, respectively. The quarter-over-quarter increase in operating expenses was primarily due to increased selling and marketing expenses, mainly resulting from increased marketing promotional activities for Fantasy Westward Journey and Warsong of Westward Journey, increased staff-related costs resulting from increased headcount in research and development, and the reversal of share-based compensation costs and accrued bonuses relating to the resignation of a senior executive and certain staff in the preceding quarter.  The year-over-year increase in operating expenses was primarily due to the increased staff-related costs as explained above and a change in bad debt provision. The Company reversed a RMB18.7 million bad debt provision in the third quarter of 2010 mainly resulting from the satisfactory legal settlement of an outstanding accounts receivable balance. The increase was partially offset by a

 



 

decrease in selling and marketing expenses, which was primarily due to the non-recurrence of marketing promotional expenses associated with the celebration of the first anniversary of Tianxia II in the third quarter of 2010.

 

Net Profit

 

Net profit for the third quarter of 2011 totaled RMB825.8 million (US$129.5 million), compared to RMB772.5 million and RMB585.3 million for the preceding quarter and the third quarter of 2010, respectively.  During the third quarter of 2011, the Company reported a net foreign exchange loss of RMB65.0 million (US$10.2 million), compared to a net foreign exchange loss of RMB3.0 million and a net foreign exchange gain of RMB54.3 million for the preceding quarter and the third quarter of 2010, respectively.

 

The quarter-over-quarter and year-over-year foreign exchange gains/losses were mainly due to the exchange gains/losses arising from the Company’s Euro-denominated bank deposit balances as of September 30, 2011 as the exchange rate of the Euro against the RMB fluctuated over the periods.

 

NetEase reported basic and diluted earnings per American depositary share (“ADS”) of US$0.99 each for the third quarter of 2011.  The Company reported basic and diluted earnings per ADS of US$0.93 each for the preceding quarter, and basic and diluted earnings per ADS of US$0.71 and US$0.70, respectively, for the third quarter of 2010.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB140.5 million (US$22.0 million) for the third quarter of 2011, compared to RMB92.4 million and RMB91.3 million for the preceding quarter and for the third quarter of 2010, respectively.  The effective tax rate for the third quarter of 2011 was 14.7%, compared to 10.9% for the preceding quarter and 13.7% for the third quarter of 2010.

 

The Company’s various principal subsidiaries enjoyed the preferential enterprise income tax rate of 15% as High and New Technology Enterprises from 2008 to 2010. These subsidiaries are currently in the process of applying to renew the High and New Technology Enterprises qualification and expect to be able to retain this qualification for 2011 to 2013 as the qualification criteria remain unchanged.  The quarter-over-quarter increase in effective tax rate was mainly due to the fact that the above-mentioned foreign exchange losses in the third quarter of 2011 occurred in certain tax-exempt entities.

 

Other Information

 

As of September 30, 2011, the Company’s total cash and time deposit balance was RMB11.3 billion (US$1.8 billion), compared to RMB9.5 billion, as of December 31, 2010.  Total held-to-maturity investments balance was RMB596.5 million (US$93.5 million) as of September 30, 2011 (there were no such investments as of December 31, 2010).  Cash flow generated from operating activities was RMB864.9 million (US$135.6 million) for the third quarter of 2011, compared to RMB995.0 million and RMB532.6 million for the preceding quarter and the third quarter of 2010, respectively.

 

** 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 = RMB6.3780 on September 30, 2011 as set forth in the H.10

 



 

statistical release of the U.S. Federal Reserve Board.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2011, or at any other certain date.  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 p.m. Eastern Time on Wednesday, November 16, 2011 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, November 17, 2011).  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 1-877-941-2068 (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 800-406-7325 (international 303-590-3030), and entering passcode 4482741#.  The replay will be available through December 1, 2011.

 

This call will be webcast live and the replay will be available for 12 months.  Both will be available on NetEase’s corporate web site at http://corp.netease.com, Investor Info: Earnings Call.

 

About NetEase

 

NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China.  NetEase’s online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates.  In particular, NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II, Heroes of Tang Dynasty, Datang and Ghost, as well as the licensed games, Blizzard Entertainment’s World of Warcraft and StarCraft II.

 

NetEase also offers online advertising on its websites, which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified advertising services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet.  NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the Web, which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.

 

Other community services that the NetEase websites offer include instant messaging, online personal advertisements, matchmaking, alumni clubs and community forums. The Company believes that it is also the largest provider of free e-mail services in China.  Furthermore, the NetEase websites as well as its micro-blogging services provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and domestic content providers.

 

*      *      *

 

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 Ghost and Legend of Fairy or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Fantasy Westward Journey, Tianxia II, Westward Journey Online III, and Warsong of Westward Journey, 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 revenue or cause revenue 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 revenue; 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 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.

 



 

NETEASE.COM, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

December 31,

 

September 30,

 

September 30,

 

 

 

2010

 

2011

 

2011

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalent

 

1,285,137

 

1,943,529

 

304,724

 

Time deposits

 

8,193,972

 

9,361,447

 

1,467,772

 

Restricted cash

 

140,599

 

273,799

 

42,929

 

Accounts receivable, net

 

256,335

 

231,167

 

36,244

 

Prepayments and other current assets

 

678,793

 

963,896

 

151,128

 

Held-to-maturity investments

 

 

596,471

 

93,520

 

Deferred tax assets

 

72,059

 

133,733

 

20,968

 

Total current assets

 

10,626,895

 

13,504,042

 

2,117,285

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

755,778

 

756,165

 

118,558

 

Land use right, net

 

12,046

 

11,852

 

1,858

 

License right, net

 

144,637

 

122,075

 

19,140

 

Deferred tax assets

 

1,530

 

2,897

 

454

 

Other long-term assets

 

45,776

 

65,729

 

10,306

 

Total non-current assets

 

959,767

 

958,718

 

150,316

 

Total assets

 

11,586,662

 

14,462,760

 

2,267,601

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

130,558

 

127,466

 

19,984

 

Salary and welfare payables

 

181,973

 

195,823

 

30,703

 

Taxes payable

 

289,332

 

377,350

 

59,165

 

Deferred revenue

 

773,952

 

1,017,850

 

159,588

 

Accrued liabilities and other payables

 

452,412

 

539,618

 

84,606

 

Total current liabilities

 

1,828,227

 

2,258,107

 

354,046

 

 

 

 

 

 

 

 

 

Long-term payable:

 

 

 

 

 

 

 

Other long-term payable

 

33,342

 

33,293

 

5,220

 

Deferred tax liabilities

 

1,455

 

 

 

Total long-term payable

 

34,797

 

33,293

 

5,220

 

 

 

 

 

 

 

 

 

Total liabilities

 

1,863,024

 

2,291,400

 

359,266

 

 

 

 

 

 

 

 

 

Total NetEase.com, Inc.’s equity

 

9,740,811

 

12,217,195

 

1,915,521

 

Non-controlling interests

 

(17,173

)

(45,835

)

(7,186

)

Total shareholders’ equity

 

9,723,638

 

12,171,360

 

1,908,335

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

11,586,662

 

14,462,760

 

2,267,601

 

 

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

 



 

NETEASE.COM, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2010

 

2011

 

2011

 

2011

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,255,922

 

1,577,810

 

1,755,709

 

275,276

 

Advertising services

 

162,012

 

169,644

 

220,476

 

34,568

 

Wireless value-added services and others

 

20,867

 

30,669

 

31,300

 

4,907

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

1,438,801

 

1,778,123

 

2,007,485

 

314,751

 

Business taxes

 

(38,354

)

(44,507

)

(49,583

)

(7,774

)

 

 

 

 

 

 

 

 

 

 

Total net revenues

 

1,400,447

 

1,733,616

 

1,957,902

 

306,977

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

(448,428

)

(580,756

)

(630,456

)

(98,849

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

952,019

 

1,152,860

 

1,327,446

 

208,128

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(241,158

)

(212,898

)

(225,282

)

(35,321

)

General and administrative expenses

 

(38,338

)

(49,845

)

(61,263

)

(9,605

)

Research and development expenses

 

(85,551

)

(103,008

)

(121,662

)

(19,075

)

Total operating expenses

 

(365,047

)

(365,751

)

(408,207

)

(64,001

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

586,972

 

787,109

 

919,239

 

144,127

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

Investment income

 

65

 

399

 

3,693

 

579

 

Interest income

 

36,248

 

59,419

 

68,647

 

10,763

 

Exchange gains (losses)

 

54,260

 

(2,961

)

(64,977

)

(10,188

)

Other, net

 

(10,155

)

6,381

 

28,155

 

4,414

 

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

667,390

 

850,347

 

954,757

 

149,695

 

Income tax

 

(91,268

)

(92,428

)

(140,499

)

(22,029

)

 

 

 

 

 

 

 

 

 

 

Net income

 

576,122

 

757,919

 

814,258

 

127,666

 

Net loss (income) attributable to non-controlling interests

 

9,195

 

14,577

 

11,498

 

1,803

 

Net income attributable to the NetEase.com, Inc.’s shareholders

 

585,317

 

772,496

 

825,756

 

129,469

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic

 

0.18

 

0.24

 

0.25

 

0.04

 

Earnings per ADS, basic

 

4.50

 

5.92

 

6.32

 

0.99

 

Earnings per share, diluted

 

0.18

 

0.24

 

0.25

 

0.04

 

Earnings per ADS, diluted

 

4.48

 

5.90

 

6.30

 

0.99

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,248,176

 

3,264,927

 

3,268,673

 

3,268,673

 

Weighted average number of ADS outstanding, basic

 

129,927

 

130,597

 

130,747

 

130,747

 

Weighted average number of ordinary shares outstanding, diluted

 

3,264,036

 

3,275,651

 

3,277,636

 

3,277,636

 

Weighted average number of ADS outstanding, diluted

 

130,561

 

131,026

 

131,105

 

131,105

 

 

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

 



 

NETEASE.COM, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Quarter Ended

 

 

 

September 30,

 

March 31,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2010

 

2011

 

2011

 

2011

 

2011

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

576,122

 

734,573

 

757,919

 

814,258

 

127,666

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

57,003

 

65,706

 

75,895

 

75,315

 

11,809

 

Share-based compensation cost

 

40,667

 

38,238

 

15,710

 

22,941

 

3,597

 

Allowance for (reversal of) provision for doubtful debts

 

(18,721

)

(1,366

)

1,788

 

6,206

 

973

 

Loss/(gain) on disposal of property, equipment and software

 

2,867

 

4

 

(49

)

6

 

1

 

Unrealized exchange losses/(gains)

 

(56,091

)

(31,077

)

(1,238

)

67,314

 

10,554

 

Deferred income taxes

 

28,970

 

(8,401

)

(33,430

)

(22,665

)

(3,554

)

Net equity share of losses/(gains) from associated companies

 

246

 

330

 

(778

)

633

 

99

 

Others

 

 

(162

)

162

 

(3,308

)

(519

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

9,588

 

75,613

 

(20,211

)

(51,205

)

(8,028

)

Prepayments and other current assets

 

(303,527

)

54,987

 

125,434

 

(343,763

)

(53,898

)

Accounts payable

 

11,352

 

(18,560

)

(2,429

)

29,222

 

4,582

 

Salary and welfare payables

 

(16,203

)

(64,934

)

40,634

 

38,150

 

5,981

 

Taxes payable

 

(1,232

)

(30,719

)

4,201

 

62,553

 

9,808

 

Deferred revenue

 

100,420

 

91,107

 

59,969

 

92,822

 

14,553

 

Accrued liabilities and other payables

 

101,182

 

63,976

 

(28,574

)

76,458

 

11,988

 

Net cash provided by operating activities

 

532,643

 

969,315

 

995,003

 

864,937

 

135,612

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(95,931

)

(141,157

)

(36,130

)

(61,411

)

(9,629

)

Proceeds from sale of property, equipment and software

 

219

 

1

 

49

 

170

 

27

 

Purchase of held-to-maturity investments

 

 

 

(170,000

)

(423,163

)

(66,347

)

Purchase of license right

 

 

 

(39,300

)

 

 

Transfer to restricted cash

 

 

 

(35,000

)

(98,200

)

(15,397

)

Net change in time deposits with terms of three months

 

(727,576

)

231,682

 

12,928

 

(438,342

)

(68,727

)

Placement/rollover of matured time deposits

 

(2,231,621

)

(2,863,899

)

(1,551,500

)

(2,702,844

)

(423,776

)

Uplift of matured time deposits

 

2,097,921

 

2,157,008

 

1,002,444

 

2,941,207

 

461,149

 

Net change in other assets

 

(4,099

)

(5,844

)

(14,115

)

(1,673

)

(262

)

Net cash used in investing activities

 

(961,087

)

(622,209

)

(830,624

)

(784,256

)

(122,962

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital contribution from non-controlling interests

 

 

 

226

 

 

 

Proceeds from employees exercising stock options

 

10,047

 

30,252

 

10,728

 

22,480

 

3,525

 

Payment of other long-term payable

 

 

(10

)

 

 

 

Net cash provided by financing activities

 

10,047

 

30,242

 

10,954

 

22,480

 

3,525

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash held in foreign currencies

 

(2,380

)

7,112

 

(438

)

(4,124

)

(647

)

Net increase/(decrease) in cash

 

(420,777

)

384,460

 

174,895

 

99,037

 

15,528

 

Cash, beginning of the period

 

2,084,887

 

1,285,137

 

1,669,597

 

1,844,492

 

289,196

 

Cash, end of the period

 

1,664,110

 

1,669,597

 

1,844,492

 

1,943,529

 

304,724

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income tax, net of tax refund

 

56,534

 

91,682

 

78,818

 

71,301

 

11,179

 

Supplemental schedule of non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable

 

105,574

 

64,347

 

91,811

 

63,254

 

9,918

 

 

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

 



 

NETEASE.COM, INC.

UNAUDITED SEGMENT INFORMATION

(in thousands, except percentages)

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2010

 

2011

 

2011

 

2011

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,255,922

 

1,577,810

 

1,755,709

 

275,276

 

Advertising services

 

162,012

 

169,644

 

220,476

 

34,568

 

Wireless value-added services and others

 

20,867

 

30,669

 

31,300

 

4,907

 

Total revenues

 

1,438,801

 

1,778,123

 

2,007,485

 

314,751

 

 

 

 

 

 

 

 

 

 

 

Business taxes:

 

 

 

 

 

 

 

 

 

Online game services

 

(22,639

)

(27,567

)

(27,704

)

(4,344

)

Advertising services

 

(15,326

)

(16,261

)

(21,040

)

(3,299

)

Wireless value-added services and others

 

(389

)

(679

)

(839

)

(131

)

Total business taxes

 

(38,354

)

(44,507

)

(49,583

)

(7,774

)

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,233,283

 

1,550,243

 

1,728,005

 

270,932

 

Advertising services

 

146,686

 

153,383

 

199,436

 

31,269

 

Wireless value-added services and others

 

20,478

 

29,990

 

30,461

 

4,776

 

Total net revenues

 

1,400,447

 

1,733,616

 

1,957,902

 

306,977

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

(348,165

)

(462,444

)

(493,025

)

(77,301

)

Advertising services

 

(71,105

)

(85,978

)

(102,958

)

(16,143

)

Wireless value-added services and others

 

(29,158

)

(32,334

)

(34,473

)

(5,405

)

Total cost of revenues

 

(448,428

)

(580,756

)

(630,456

)

(98,849

)

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

Online game services

 

885,118

 

1,087,799

 

1,234,980

 

193,631

 

Advertising services

 

75,581

 

67,405

 

96,478

 

15,126

 

Wireless value-added services and others

 

(8,680

)

(2,344

)

(4,012

)

(629

)

Total gross profit

 

952,019

 

1,152,860

 

1,327,446

 

208,128

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss) margin:

 

 

 

 

 

 

 

 

 

Online game services

 

71.8

%

70.2

%

71.5

%

71.5

%

Advertising services

 

51.5

%

43.9

%

48.4

%

48.4

%

Wireless value-added services and others

 

(42.4

)%

(7.8

)%

(13.2

)%

(13.2

)%

 

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

 



 

NETEASE.COM, 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 = RMB6.3780 on September 30, 2011 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

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2010

 

2011

 

2011

 

2011

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

14,044

 

11,565

 

11,121

 

1,744

 

Operating expenses

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

3,210

 

2,217

 

1,989

 

312

 

- General and administrative expenses

 

13,515

 

(4,517

)

3,514

 

551

 

- Research and development expenses

 

9,898

 

6,445

 

6,317

 

990

 

 

In the second quarter of 2011, share-based compensation cost of RMB9.4 million, which had been previously recorded, was reversed due to the resignation of certain staff and members of management in that quarter.

 

Note 3:              In the fourth quarter of 2010, management of the Company decided to allocate facility costs comprising of office and staff quarter rentals and management fees, building amortization and miscellaneous utility costs previously recorded under general and administration to the respective functions based on headcount under cost of revenue, selling and marketing, research and development and general and administration.  The change was implemented to better reflect staff-related operating cost.  Reclassifications have been made to cost of revenue and operating expense amounts in the condensed consolidated statements of operations and segment information for the relevant prior period in order to conform to the current period’s presentation.  There is no change to the condensed consolidated balance sheets and the condensed consolidated statements of cash flows.