NetEase Announces Second Quarter 2023 Unaudited Financial Results

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August 24, 2023 4:36 AM EDT

HANGZHOU, China, Aug. 24, 2023 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Financial Highlights

  • Net revenues were RMB24.0 billion (US$3.3 billion), an increase of 3.7% compared with the second quarter of 2022.
    • Games and related value-added services net revenues were RMB18.8 billion (US$2.6 billion), an increase of 3.6% compared with the second quarter of 2022.
    • Youdao net revenues were RMB1.2 billion (US$166.4 million), an increase of 26.2% compared with the second quarter of 2022.
    • Cloud Music net revenues were RMB1.9 billion (US$268.7 million), a decrease of 11.1% compared with the second quarter of 2022.
    • Innovative businesses and others net revenues were RMB2.1 billion (US$283.7 million), an increase of 9.9% compared with the second quarter of 2022.
  • Gross profit was RMB14.4 billion (US$2.0 billion), an increase of 11.1% compared with the second quarter of 2022.
  • Total operating expenses were RMB8.3 billion (US$1.1 billion), an increase of 4.0% compared with the second quarter of 2022.
  • Net income attributable to the Company's shareholders was RMB8.2 billion (US$1.1 billion). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB9.0 billion (US$1.2 billion).[1]
  • Basic net income per share was US$0.35 (US$1.77 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.39 (US$1.93 per ADS).[1]

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

Second Quarter 2023 and Recent Operational Highlights

  • Released new hit titles in June across diverse genres and strengthened global appeal:
    • Justice mobile game led China's iOS top grossing and download charts following its launch.
    • Racing Master ranked No. 3 on China's iOS top grossing chart soon after its launch.
    • Badlanders ranked No. 2 on China's iOS top download chart soon after its launch.
    • Launched Harry Potter: Magic Awakened in the global market, including Japan, North America and Europe.
  • Achieved steady performances with longstanding flagship titles including the Fantasy Westward Journey series and maintained the popularity of hit games including Eggy Party, Identity V and Justice.
  • Bolstered robust game pipeline with ongoing development of multiple highly anticipated games in diversified genres.
  • Delivered notable growth of subscription-based memberships for Cloud Music, driving meaningful profit margin expansion and setting the stage for future development.
  • Achieved robust year-over-year revenue growth and improved operating cash flow for Youdao, driven by the strong performance of learning services and online marketing services.

"Our steady second quarter results reflect our dedication to producing exceptional content across our businesses, which generated total net revenues of RMB24.0 billion, up nearly 4% year-over-year," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Players continue to revere our flagship Fantasy Westward Journey series, while embracing newer titles like Eggy Party that extend our reach in casual games. The June releases of widely acclaimed Justice mobile game and Racing Master further showcase our endless drive to bring players innovative, first-rate games in diversified genres. We believe that each addition to our game portfolio validates our exceptional R&D capabilities and the broad influence our ingenuity has in the marketplace, including expanding the casual game market and altering the face of traditional MMOs.

"In addition to games, our Cloud Music and Youdao businesses remain on track and are generating premium content. Throughout the NetEase family, we prioritize the creation of novel and high-quality products and services that grow our global appeal, elevate user experiences, and advance their respective industries," Mr. Ding concluded.

Second Quarter 2023 Financial Results

Net Revenues

Net revenues for the second quarter of 2023 were RMB24,011.3 million (US$3,311.3 million), compared with RMB25,046.3 million and RMB23,159.1 million for the preceding quarter and the second quarter of 2022, respectively.

Net revenues from games and related value-added services were RMB18,798.6 million (US$2,592.5 million) for the second quarter of 2023, compared with RMB20,065.6 million and RMB18,139.8 million for the preceding quarter and the second quarter of 2022, respectively. Net revenues from the operation of online games accounted for approximately 91.7% of the segment's net revenues for the second quarter of 2023, compared with 92.7% and 92.8% for the preceding quarter and the second quarter of 2022, respectively. Net revenues from mobile games accounted for approximately 73.6% of net revenues from the operation of online games for the second quarter of 2023, compared with 72.3% and 66.1% for the preceding quarter and the second quarter of 2022, respectively. 

Net revenues from Youdao were RMB1,206.6 million (US$166.4 million) for the second quarter of 2023, compared with RMB1,163.3 million and RMB956.2 million for the preceding quarter and the second quarter of 2022, respectively.

Net revenues from Cloud Music were RMB1,948.5 million (US$268.7 million) for the second quarter of 2023, compared with RMB1,959.8 million and RMB2,191.5 million for the preceding quarter and the second quarter of 2022, respectively.

Net revenues from innovative businesses and others were RMB2,057.5 million (US$283.7 million) for the second quarter of 2023, compared with RMB1,857.6 million and RMB1,871.5 million for the preceding quarter and the second quarter of 2022, respectively.

Gross Profit

Gross profit for the second quarter of 2023 was RMB14,375.4 million (US$1,982.5 million), compared with RMB14,896.5 million and RMB12,941.5 million for the preceding quarter and the second quarter of 2022, respectively.

The quarter-over-quarter decrease in games and related value-added services' gross profit was primarily due to decreased net revenues from the operation of online games as a result of seasonality. The year-over-year increase was primarily due to increased net revenues from the operation of online games such as Eggy Party, as well as decreased royalty fees due to the termination of certain licensed games.

The quarter-over-quarter decrease in Youdao's gross profit primarily resulted from decreased revenue contribution from its learning services. The year-over-year increase primarily resulted from increased revenue contribution from its online marketing services and learning services.

The quarter-over-quarter and year-over-year increases in Cloud Music's gross profit primarily resulted from increased net revenues from sales of membership subscriptions and continued improvement in cost control measures. 

The quarter-over-quarter and year-over-year increases in innovative businesses and others' gross profit were primarily due to increased e-commerce net revenues from Yanxuan.

Gross Profit Margin

Gross profit margin for games and related value-added services for the second quarter of 2023 was 67.4%, compared with 66.7% and 64.9% for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter and year-over-year increases were primarily attributable to changes in the revenue mix of NetEase's self-developed, co-developed and licensed games.

Gross profit margin for Youdao for the second quarter of 2023 was 47.0%, compared with 51.7% and 42.8% for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter decrease was mainly due to the reduction in revenue contribution from its learning services which have a higher gross profit margin compared to its other products and services. The year-over-year increase was mainly due to increased revenue contribution from its online marketing services and learning services. 

Gross profit margin for Cloud Music for the second quarter of 2023 was 27.0%, compared with 22.4% and 13.0% for the preceding quarter and the second quarter of 2022, 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 2023 was 29.5%, compared with 25.4% and 25.8% for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter and year-over-year increases were mainly due to margin improvement from Yanxuan.

Operating Expenses

Total operating expenses for the second quarter of 2023 were RMB8,312.8 million (US$1,146.4 million), compared with RMB7,676.5 million and RMB7,995.2 million for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter increase was mainly due to increased marketing and research and development expenditures related to games and related value-added services. The year-over-year increase was mainly due to higher staff-related costs.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment (loss)/ income, interest income, exchange 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 2023. The year-over-year increase was mainly due to higher investment income from fair value changes of equity investments with readily determinable fair value, as well as higher net unrealized exchange gains.

Income Tax

The Company recorded a net income tax charge of RMB712.1 million (US$98.2 million) for the second quarter of 2023, compared with RMB1,628.6 million and RMB1,259.3 million for the preceding quarter and the second quarter of 2022, respectively. The effective tax rate for the second quarter of 2023 was 8.0%, compared with 19.5% and 22.0% for the preceding quarter and the second quarter of 2022, respectively. The lower effective tax rate for the second quarter of 2023 was primarily due to tax benefits recognized in the quarter. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

Net Income and Non-GAAP Net Income

Net income attributable to the Company's shareholders totaled RMB8,242.8 million (US$1,136.7 million) for the second quarter of 2023, compared with RMB6,754.6 million and RMB5,291.5 million for the preceding quarter and the second quarter of 2022, respectively.

NetEase reported basic net income of US$0.35 per share (US$1.77 per ADS) for the second quarter of 2023, compared with US$0.29 per share (US$1.45 per ADS) and US$0.22 per share (US$1.11 per ADS) for the preceding quarter and the second quarter of 2022, respectively.

Non-GAAP net income from continuing operations attributable to the Company's shareholders totaled RMB9,017.5 million (US$1,243.6 million) for the second quarter of 2023, compared with RMB7,566.2 million and RMB5,409.8 million for the preceding quarter and the second quarter of 2022, respectively.

NetEase reported non-GAAP basic net income from continuing operations of US$0.39 per share (US$1.93 per ADS) for the second quarter of 2023, compared with US$0.32 per share (US$1.62 per ADS) and US$0.23 per share (US$1.14 per ADS) for the preceding quarter and the second quarter of 2022, respectively.

Other Financial Information

As of June 30, 2023, 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 RMB99.6 billion (US$13.7 billion), compared with RMB95.6 billion as of December 31, 2022. Cash flow generated from operating activities was RMB7.7 billion (US$1.1 billion) for the second quarter of 2023, compared with RMB6.0 billion and RMB6.6 billion for the preceding quarter and the second quarter of 2022, respectively.

Quarterly Dividend

The board of directors has approved a dividend of US$0.1050 per share (US$0.5250 per ADS) for the second quarter of 2023 to holders of ordinary shares and holders of ADSs as of the close of business on September 8, 2023, Beijing/ Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on September 8, 2023 (Beijing/ Hong Kong Time). The payment date is expected to be September 19, 2023 for holders of ordinary shares, and on or around September 22, 2023 for holders of ADSs.

NetEase paid a dividend of US$0.0930 per share (US$0.4650 per ADS) for the first quarter of 2023 in June 2023.

Under the Company's current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.

Share Repurchase Program

On November 17, 2022, the Company announced that its board of directors had approved a new share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market transactions. This share repurchase program commenced on January 10, 2023 following the completion of the prior program on January 9, 2023, and will be in effect for a period not to exceed 36 months from such date. As of June 30, 2023, approximately 6.1 million ADSs had been repurchased under this program for a total cost of US$536.4 million.

The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.

** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB.

Conference Call

NetEase's management team will host a teleconference call with simultaneous webcast at 8:00 a.m. New York Time on Thursday, August 24, 2023 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, August 24, 2023). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-914-202-3258 and providing conference ID: 10032534, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10032534. The replay will be available through August 31, 2023.

This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com/.

About NetEase, Inc.

NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase") is a leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the most popular and longest running mobile and PC games available in China and globally.

Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.

Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), an intelligent learning company with industry-leading technology, and Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase's private label consumer lifestyle brand.

NetEase's market-leading ESG initiatives are among the most recognized in the global media and entertainment industry, earning it inclusion in 2022 Dow Jones Sustainability World Index, 2022 Dow Jones Sustainability Emerging Markets Index, and 2023 Bloomberg Gender-Equality Index, as well as receiving an "A" rating from MSCI. For more information, please visit: http://ir.netease.com/.

Forward Looking Statements

This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; the risk related to economic uncertainty and capital market disruption; the risk related to the expansion of NetEase's businesses and operations internationally; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.

Non-GAAP Financial Measures

NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income 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: [email protected]
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, 



2022


2023


2023



 RMB  


 RMB  


 USD (Note 1) 

Assets







Current assets:







   Cash and cash equivalents


24,889,000


12,766,270


1,760,549

   Time deposits


84,947,679


90,195,524


12,438,532

   Restricted cash


2,699,055


2,912,852


401,701

   Accounts receivable, net


5,002,872


5,343,028


736,837

   Inventories


993,636


806,960


111,285

   Prepayments and other current assets, net


5,448,284


5,352,876


738,195

   Short-term investments


7,622,673


6,846,342


944,154

Total current assets


131,603,199


124,223,852


17,131,253








Non-current assets:







   Property, equipment and software, net 


6,342,330


7,347,204


1,013,226

   Land use rights, net


4,121,767


4,147,468


571,962

   Deferred tax assets 


1,480,789


1,320,697


182,132

   Time deposits


2,973,840


2,681,840


369,843

   Restricted cash


270


290


40

   Other long-term assets


26,238,790


28,184,371


3,886,803

Total non-current assets


41,157,786


43,681,870


6,024,006

Total assets 


172,760,985


167,905,722


23,155,259








Liabilities, Redeemable Noncontrolling Interests
    and Shareholders' Equity







Current liabilities:







   Accounts payable 


1,507,141


740,607


102,134

   Salary and welfare payables


4,732,941


3,386,236


466,983

   Taxes payable


2,813,096


2,560,047


353,047

   Short-term loans


23,875,704


11,881,623


1,638,551

   Contract liabilities


12,518,890


12,943,844


1,785,038

   Accrued liabilities and other payables


11,381,075


10,826,617


1,493,060

Total current liabilities


56,828,847


42,338,974


5,838,813








Non-current liabilities:







   Deferred tax liabilities


2,126,120


2,209,583


304,715

   Long-term loans


3,654,964


3,953,664


545,235

   Other long-term liabilities


1,277,574


1,137,672


156,892

Total non-current liabilities


7,058,658


7,300,919


1,006,842

Total liabilities


63,887,505


49,639,893


6,845,655








Redeemable noncontrolling interests 


136,440


135,415


18,675








NetEase, Inc.'s shareholders' equity


104,731,317


114,264,783


15,757,834

Noncontrolling interests


4,005,723


3,865,631


533,095

Total equity


108,737,040


118,130,414


16,290,929








Total liabilities, redeemable noncontrolling 
    interests and shareholders' equity    


172,760,985


167,905,722


23,155,259


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, 



2022


2023


2023


2023


2022


2023


2023



 RMB 


 RMB 


 RMB 


 USD (Note 1) 


RMB


RMB


USD (Note 1)
















Net revenues


23,159,078


25,046,287


24,011,301


3,311,310


46,714,920


49,057,588


6,765,351

Cost of revenues


(10,217,587)


(10,149,741)


(9,635,888)


(1,328,851)


(20,937,050)


(19,785,629)


(2,728,563)

Gross profit


12,941,491


14,896,546


14,375,413


1,982,459


25,777,870


29,271,959


4,036,788
















Operating expenses:















Selling and marketing expenses 


(3,300,705)


(2,905,046)


(3,271,705)


(451,188)


(6,216,194)


(6,176,751)


(851,813)

General and administrative expenses


(1,112,755)


(1,021,678)


(1,132,147)


(156,130)


(2,128,524)


(2,153,825)


(297,026)

Research and development expenses 


(3,581,700)


(3,749,732)


(3,908,907)


(539,063)


(6,979,782)


(7,658,639)


(1,056,175)

Total operating expenses


(7,995,160)


(7,676,456)


(8,312,759)


(1,146,381)


(15,324,500)


(15,989,215)


(2,205,014)

Operating profit


4,946,331


7,220,090


6,062,654


836,078


10,453,370


13,282,744


1,831,774
















Other income/ (expenses):















Investment (loss)/ income, net


(707,489)


471,368


287,691


39,674


(1,256,191)


759,059


104,679

Interest income, net


505,991


776,030


935,578


129,022


964,235


1,711,608


236,042

Exchange gains/ (losses), net


865,283


(386,568)


1,464,956


202,027


767,403


1,078,388


148,717

Other, net


121,175


258,033


120,826


16,663


337,505


378,859


52,247

Income before tax


5,731,291


8,338,953


8,871,705


1,223,464


11,266,322


17,210,658


2,373,459

Income tax


(1,259,320)


(1,628,559)


(712,090)


(98,202)


(2,478,591)


(2,340,649)


(322,790)
















Net income from continuing operations


4,471,971


6,710,394


8,159,615


1,125,262


8,787,731


14,870,009


2,050,669

Net income from discontinued operations


624,864


-


-


-


624,864


-


-

Net income


5,096,835


6,710,394


8,159,615


1,125,262


9,412,595


14,870,009


2,050,669
















Accretion of redeemable noncontrolling
    interests


(754)


(860)


(868)


(120)


(1,487)


(1,728)


(238)

Net loss attributable to noncontrolling
    interests


195,395


45,100


84,020


11,587


274,391


129,120


17,806

Net income attributable to the
    Company's shareholders


5,291,476


6,754,634


8,242,767


1,136,729


9,685,499


14,997,401


2,068,237

Including: 















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


4,666,612


6,754,634


8,242,767


1,136,729


9,060,635


14,997,401


2,068,237

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


624,864


-


-


-


624,864


-


-
















Basic net income per share *


1.62


2.10


2.56


0.35


2.96


4.66


0.64

 -Continuing operations


1.43


2.10


2.56


0.35


2.77


4.66


0.64

 -Discontinued operations


0.19


-


-


-


0.19


-


-
















Basic net income per ADS *


8.08


10.49


12.80


1.77


14.78


23.29


3.21

 -Continuing operations


7.13


10.49


12.80


1.77


13.83


23.29


3.21

 -Discontinued operations


0.95


-


-


-


0.95


-


-
















Diluted net income per share *


1.60


2.07


2.54


0.35


2.93


4.61


0.64

 -Continuing operations


1.41


2.07


2.54


0.35


2.74


4.61


0.64

 -Discontinued operations


0.19


-


-


-


0.19


-


-
















Diluted net income per ADS *


8.00


10.37


12.69


1.75


14.63


23.05


3.18

 -Continuing operations


7.05


10.37


12.69


1.75


13.69


23.05


3.18

 -Discontinued operations


0.95


-


-


-


0.94


-


-
















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















Basic


3,274,695


3,221,083


3,218,783


3,218,783


3,275,980


3,219,926


3,219,926

Diluted


3,305,504


3,256,511


3,248,916


3,248,916


3,310,809


3,252,707


3,252,707


*  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,  


2022


2023


2023


2023


2022


2023


2023


 RMB  


 RMB  


 RMB  


 USD (Note 1) 


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from operating activities:














    Net income 

5,096,835


6,710,394


8,159,615


1,125,262


9,412,595


14,870,009


2,050,669

    Net income from discontinued operations 

(624,864)


-


-


-


(624,864)


-


-

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














    Depreciation and amortization

609,036


1,082,269


661,363


91,206


1,375,216


1,743,632


240,458

    Fair value changes of equity security investments 

735,159


(226,720)


(78,035)


(10,762)


2,276,161


(304,755)


(42,028)

    Impairment losses of investments and other long-term assets

243,085


-


47,870


6,602


248,085


47,870


6,602

    Fair value changes of short-term investments

(119,882)


(137,916)


(96,884)


(13,361)


(199,658)


(234,800)


(32,380)

    Share-based compensation cost

764,447


822,413


787,862


108,652


1,510,601


1,610,275


222,067

    Allowance for expected credit losses

10,965


20,720


8,540


1,178


10,652


29,260


4,035

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

481


(610)


252


35


1,926


(358)


(49)


    Unrealized exchange (gains)/ losses

(890,066)


385,961


(1,466,295)


(202,211)


(792,032)


(1,080,334)


(148,985)

    Gains on disposal of long-term investments

-


(5,768)


(16,382)


(2,259)


(4,000)


(22,150)


(3,055)

    Deferred income taxes

(169,539)


577,666


(334,380)


(46,113)


145,689


243,286


33,551

    Share of results on equity method investees

(134,569)


(95,808)


(129,292)


(17,830)


(1,046,067)


(225,100)


(31,043)

    Changes in operating assets and liabilities: 














        Accounts receivable

82,282


(1,116,282)


770,551


106,264


294,357


(345,731)


(47,678)

        Inventories

17,791


117,330


69,410


9,572


121,382


186,740


25,753

        Prepayments and other assets

(163,612)


125,827


(7,233)


(997)


(733,455)


118,594


16,355

        Accounts payable

48,452


(612,939)


(115,791)


(15,968)


(43,921)


(728,730)


(100,496)

        Salary and welfare payables

782,789


(2,225,737)


758,106


104,548


(973,435)


(1,467,631)


(202,396)

        Taxes payable

(538,234)


733,716


(992,892)


(136,926)


(464,788)


(259,176)


(35,742)

        Contract liabilities

279,669


489,991


(41,196)


(5,681)


201,469


448,795


61,892

        Accrued liabilities and other payables

600,934


(643,836)


(306,784)


(42,312)


497,798


(950,620)


(131,099)

    Net cash provided by operating activities

6,631,159


6,000,671


7,678,405


1,058,899


11,213,711


13,679,076


1,886,431















Cash flows from investing activities:














    Purchase of property, equipment and software

(445,054)


(652,939)


(520,544)


(71,786)


(1,194,415)


(1,173,483)


(161,831)

    Proceeds from sale of property, equipment and software

23,338


2,504


4,292


592


35,903


6,796


937

    Purchase of intangible assets, content and licensed copyrights    

(85,121)


(826,682)


(283,321)


(39,072)


(228,957)


(1,110,003)


(153,076)

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

(159,173)


(723,151)


1,630,013


224,789


1,551,672


906,862


125,062

    Purchase of short-term investments with terms over three
        months

-


-


-


-


(1,250,000)


-


-

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

1,459,172


104,269


-


-


2,013,003


104,269


14,379

    Investment in long-term investments

(899,968)


(1,229,048)


(270,228)


(37,266)


(2,590,239)


(1,499,276)


(206,760)

    Proceeds from disposal of long-term investments

6,413


41,280


16,531


2,280


40,650


57,811


7,973

    Placement/ rollover of matured time deposits

(33,122,029)


(36,320,103)


(10,874,831)


(1,499,708)


(57,168,026)


(47,194,934)


(6,508,479)

    Proceeds from maturities of time deposits

32,100,141


22,332,349


21,918,791


3,022,740


46,799,936


44,251,140


6,102,511

    Change in other long-term assets

(60,900)


(120,841)


(31,189)


(4,301)


(230,445)


(152,030)


(20,966)

    Net cash (used in)/ provided by investing activities

(1,183,181)


(17,392,362)


11,589,514


1,598,268


(12,220,918)


(5,802,848)


(800,250)


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,  



2022


2023


2023


2023


2022


2023


2023



 RMB  


 RMB  


 RMB  


 USD (Note 1) 


 RMB  


 RMB  


 USD (Note 1) 

Cash flows from financing activities:















    Net changes from loans with terms of three months or less  


2,721,487


2,638,040


(14,970,935)


(2,064,586)


6,124,682


(12,332,895)


(1,700,784)

    Proceed of loans with terms over three months


1,641,708


1,279,559


2,171,541


299,469


3,556,918


3,451,100


475,928

    Payment of loans with terms over three months


(32,273)


(40,422)


(3,233,500)


(445,920)


(32,273)


(3,273,922)


(451,494)

    Net Amounts received/ (paid) related to capital contribution from
        or repurchase of noncontrolling interests shareholders


33,200


24,349


22,228


3,065


(68,842)


46,577


6,423

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


(2,119,613)


(2,116,757)


(2,195,210)


(302,733)


(3,363,530)


(4,311,967)


(594,647)

    Dividends paid to NetEase's shareholders


(1,403,637)


(1,212,340)


(2,119,316)


(292,267)


(3,087,109)


(3,331,656)


(459,456)

    Net cash provided by/ (used in) financing activities     


840,872


572,429


(20,325,192)


(2,802,972)


3,129,846


(19,752,763)


(2,724,030)
















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


74,898


15,498


(47,876)


(6,602)


53,696


(32,378)


(4,465)

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

6,363,748


(10,803,764)


(1,105,149)


(152,407)


2,176,335


(11,908,913)


(1,642,314)

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


13,188,702


27,588,325


16,784,561


2,314,697


17,376,115


27,588,325


3,804,604

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


19,552,450


16,784,561


15,679,412


2,162,290


19,552,450


15,679,412


2,162,290
















Supplemental disclosures of cash flow information:















    Cash paid for income tax, net


1,055,096


1,074,579


1,625,045


224,104


2,570,426


2,699,624


372,295

    Cash paid for interest expense


93,079


275,714


326,646


45,047


130,820


602,360


83,069


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, 



2022


2023


2023


2023


2022


2023


2023



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Net revenues:















Games and related value-added services 


18,139,843


20,065,597


18,798,646


2,592,452


36,781,657


38,864,243


5,359,624

Youdao


956,225


1,163,270


1,206,634


166,402


2,156,766


2,369,904


326,825

Cloud Music


2,191,510


1,959,841


1,948,539


268,716


4,258,716


3,908,380


538,990

Innovative businesses and others


1,871,500


1,857,579


2,057,482


283,740


3,517,781


3,915,061


539,912

Total net revenues


23,159,078


25,046,287


24,011,301


3,311,310


46,714,920


49,057,588


6,765,351
















Cost of revenues:















Games and related value-added services 


(6,375,598)


(6,683,048)


(6,122,836)


(844,379)


(13,427,648)


(12,805,884)


(1,766,012)

Youdao


(546,498)


(561,420)


(639,459)


(88,185)


(1,109,189)


(1,200,879)


(165,609)

Cloud Music


(1,905,954)


(1,520,378)


(1,422,855)


(196,221)


(3,721,603)


(2,943,233)


(405,890)

Innovative businesses and others


(1,389,537)


(1,384,895)


(1,450,738)


(200,066)


(2,678,610)


(2,835,633)


(391,052)

Total cost of revenues


(10,217,587)


(10,149,741)


(9,635,888)


(1,328,851)


(20,937,050)


(19,785,629)


(2,728,563)
















Gross profit:















Games and related value-added services 


11,764,245


13,382,549


12,675,810


1,748,073


23,354,009


26,058,359


3,593,612

Youdao


409,727


601,850


567,175


78,217


1,047,577


1,169,025


161,216

Cloud Music


285,556


439,463


525,684


72,495


537,113


965,147


133,100

Innovative businesses and others


481,963


472,684


606,744


83,674


839,171


1,079,428


148,860

Total gross profit


12,941,491


14,896,546


14,375,413


1,982,459


25,777,870


29,271,959


4,036,788
















Gross profit margin:















Games and related value-added services 


64.9 %


66.7 %


67.4 %


67.4 %


63.5 %


67.0 %


67.0 %

Youdao


42.8 %


51.7 %


47.0 %


47.0 %


48.6 %


49.3 %


49.3 %

Cloud Music


13.0 %


22.4 %


27.0 %


27.0 %


12.6 %


24.7 %


24.7 %

Innovative businesses and others


25.8 %


25.4 %


29.5 %


29.5 %


23.9 %


27.6 %


27.6 %


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 = RMB7.2513 on the last trading day of June 2023 (June 30, 2023) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2023, 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, 


2022


2023


2023


2023


2022


2023


2023


RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

Share-based compensation cost included in:














Cost of revenues

173,840


203,514


193,001


26,616


371,975


396,515


54,682

Operating expenses














  Selling and marketing expenses

31,817


32,353


31,069


4,285


62,190


63,422


8,746

  General and administrative expenses

297,891


294,281


281,326


38,797


576,953


575,607


79,380

  Research and development expenses

260,899


292,265


282,466


38,954


499,483


574,731


79,259


The accompanying notes are an integral part of this announcement.

Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirement.

Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (in thousands, except per share data or per ADS data):



Three Months Ended


 Six Months Ended



 June 30,  


 March 31,  


 June 30,  


 June 30,  


 June 30,  


June 30, 


June 30, 



2022


2023


2023


2023


2022


2023


2023



RMB


RMB


RMB


USD (Note 1)


RMB


RMB


USD (Note 1)

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


4,666,612


6,754,634


8,242,767


1,136,729


9,060,635


14,997,401


2,068,237

Add: Share-based compensation


743,198


811,600


774,683


106,834


1,466,801


1,586,283


218,758

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


5,409,810


7,566,234


9,017,450


1,243,563


10,527,436


16,583,684


2,286,995
















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


1.65


2.35


2.80


0.39


3.21


5.15


0.71

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


8.26


11.74


14.01


1.93


16.07


25.75


3.55

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


1.64


2.32


2.78


0.38


3.18


5.10


0.70

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


8.18


11.62


13.88


1.91


15.90


25.49


3.52


*  Each ADS represents five ordinary shares.        

The accompanying notes are an integral part of this announcement.

Note 5: A reconciliation statement to the International Financial Reporting Standards in respect of the Company's unaudited financial results for the six months ended June 30, 2023 prepared in accordance with U.S. GAAP set forth above will be published pursuant to the rules and regulations applicable to the Company in Hong Kong by September 30, 2023.

 

Cision View original content:https://www.prnewswire.com/news-releases/netease-announces-second-quarter-2023-unaudited-financial-results-301909008.html

SOURCE NetEase, Inc.


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