Published: February 15, 2012
NetEase.com Reports Fourth Quarter and Fiscal Year 2011 Unaudited Financial Results
BEIJING, Feb. 15, 2012 /PRNewswire-Asia-FirstCall/ -- NetEase.com, 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, 2011.
William Ding, Chief Executive Officer and Director of NetEase, stated, "2011 was a year of strong growth for our company. Providing our loyal and growing community of users with the highest quality content continues to fortify NetEase's industry leadership. Our success was highlighted by a 32.0% increase in total revenues for 2011, driven by an increase in online game services revenue of 32.5%, followed by strong growth in our advertising services revenue of 25.6% for the year."
"Our fast growing self-developed games Tianxia III and Ghost led our fourth quarter increase in online game services revenue of 4.4% quarter-over-quarter and 28.9% year-over-year. In October 2011, we launched our 3D MMORPG Tianxia III, a comprehensive upgrade that builds on the strong user base of its predecessor, Tianxia II. Tianxia III demonstrated dramatic growth in the fourth quarter, generating record revenue and user statistics. In addition, following the launch of Ghost's unlimited closed beta testing in April and full scale closed beta testing in September, it became one of the most popular 2.5D MMORPGs of 2011 in China, reaching record user statistics in the fourth quarter. Fantasy Westward Journey, Westward Journey Online II and Heroes of Tang Dynasty also delivered solid performances during the 2011 fourth quarter and full year. Both Fantasy Westward Journey and Westward Journey Online II reached their record high revenue in 2011, and these games, along with World of Warcraft(®), a game licensed from Blizzard Entertainment, were the primary drivers of our growth in online game services revenue for 2011."
"Our approach to technology innovation and product diversification to satisfy user demand is the core of our 2012 growth strategy. In the first half of 2012, we plan to enhance our portfolio of popular games with numerous expansion packs, including updates for Heroes of Tang Dynasty, Westward Journey Online II, Warsong of Westward Journey, New Fly For Fun and Legend of Fairy, as well as commence open beta testing for Ghost and Tianxia III. We also have two new self-developed games in process that are scheduled for beta testing in mid-2012."
Mr. Ding continued, "Internet advertising is rapidly increasing as a dominant media platform for advertisers in China. In 2011, revenue growth from our advertising services segment was consistently strong, led by the financial services, food and beverage products, and Internet services sectors. Seasonality and increased recognition by advertisers of our innovative content, service integration, and NetEase's user appeal drove a 26.3% sequential increase and a 19.2% year-over-year increase in advertising services revenue for the fourth quarter of 2011."
"We continue to evaluate the market and enhance our products and service offerings to meet the demands of a dynamic and competitive market. As the No. 1 free email provider in China, registered email users grew to 450 million as of December 31, 2011, an increase of 4.7% over the third quarter. The number of micro-blogging users grew to 97.6 million users, an increase of 10.3% over the third quarter."
Mr. Ding concluded, "We hold a long history of innovation and community in China's Internet market. Our main priority for 2012 is to continue to satisfy the demand of Internet users by providing high quality and innovative products and services to the market."
Fourth Quarter 2011 Financial Results
Revenues
Total revenues for the fourth quarter of 2011 were RMB2.1 billion (US$341.4 million), compared to RMB2.0 billion and RMB1.7 billion for the preceding quarter and the fourth quarter of 2010, respectively.
Revenues from online game services were RMB1.8 billion (US$291.3 million) for the fourth quarter of 2011, compared to RMB1.8 billion and RMB1.4 billion for the preceding quarter and the fourth quarter of 2010, respectively.
Revenues from advertising services were RMB278.5 million (US$44.2 million) for the fourth quarter of 2011, compared to RMB220.5 million and RMB233.7 million for the preceding quarter and the fourth quarter of 2010, respectively.
Revenues from wireless value-added services and others ("WVAS and others") were RMB37.2 million (US$5.9 million) for the fourth quarter of 2011, compared to RMB31.3 million and RMB23.3 million for the preceding quarter and the fourth quarter of 2010, respectively.
Gross Profit
Gross profit for the fourth quarter of 2011 was RMB1.5 billion (US$230.9 million), compared to RMB1.3 billion and RMB1.1 billion for the preceding quarter and the fourth quarter of 2010, respectively. The quarter-over-quarter and year-over-year increases in gross profit were primarily attributable to increased revenues from both the online games and advertising services businesses, partially offset by increased cost of revenues, such as royalties and consultancy fees related to licensed games operations and increased staff-related costs.
The quarter-over-quarter and year-over-year increases in games revenues were primarily attributable to the increased revenues from the Company's self-developed games, which were partially offset by a decline in revenue from Blizzard Entertainment's World of Warcraft.
Tianxia III has performed well since its launch in October. Ghost, Fantasy Westward Journey and Westward Journey Online II also continued their strong performances in the fourth quarter, which was mainly attributable to enhanced game content from their latest expansion packs. The quarter-over-quarter and year-over-year increases in advertising services revenue was primarily attributable to seasonality and the increasing appeal of the Company's portal to users and advertisers, and improved portal and search traffic on the NetEase websites.
Gross Profit (Loss) Margin
Gross profit margin for the online games business for the fourth quarter of 2011 was 72.6%, compared to 71.5% and 71.8% for the preceding quarter and the fourth quarter of 2010, respectively.
Gross profit margin for the advertising business for the fourth quarter of 2011 was 54.5%, compared to 48.4% and 53.5% for the preceding quarter and the fourth 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 fourth quarter without a corresponding increase in advertising related costs.
Gross profit margin for the WVAS and others business for the fourth quarter of 2011 was 2.2%, compared to gross loss margin of 13.2% and 19.7% for the preceding quarter and the fourth quarter of 2010, respectively. The quarter over quarter and year-over-year improvements in gross profit margin are mainly due to increased revenues from the e-commence business and mailbox services.
Operating Expenses
Total operating expenses for the fourth quarter of 2011 were RMB529.0 million (US$84.0 million), compared to RMB408.2 million and RMB320.7 million for the preceding quarter and the fourth 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 Tianxia III, World of Warcraft and Ghost, and increased research and development staff-related costs, as well as an impairment provision of RMB50.3 million (US$8.0 million) on the initial online game license fee of Blizzard Entertainment's StarCraft II(®). The year-over-year increase in operating expenses was primarily due to increased selling and marketing expenses, staff-related costs and the aforementioned impairment provision in general and administrative expenses.
Net Profit
Net profit for the fourth quarter of 2011 totaled RMB898.6 million (US$142.8 million), compared to RMB825.8 million and RMB712.5 million for the preceding quarter and the fourth quarter of 2010, respectively. During the fourth quarter of 2011, the Company reported a net foreign exchange loss of RMB36.4 million (US$5.8 million), compared to a net foreign exchange loss of RMB65.0 million and RMB36.4 million for the preceding quarter and the fourth quarter of 2010, respectively.
The quarter-over-quarter and year-over-year foreign exchange losses were mainly due to the exchange losses arising from the Company's Euro-denominated bank deposit balances as of December 31, 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$1.09 each for the fourth quarter of 2011. The Company reported basic and diluted earnings per ADS of US$1.00 each for the preceding quarter, and basic and diluted earnings per ADS of US$0.87 each for the fourth quarter of 2010.
Income Taxes
The Company recorded a net income tax charge of RMB122.6 million (US$19.5 million) for the fourth quarter of 2011, compared to RMB140.5 million and RMB83.2 million for the preceding quarter and for the fourth quarter of 2010, respectively. The effective tax rate for the fourth quarter of 2011 was 11.8%, compared to 14.7% for the preceding quarter and 10.3% for the fourth 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. As these subsidiaries have recently renewed their qualifications as High and New Technology Enterprises, the preferential enterprise income tax rate will remain in effect for 2011 through 2013, subject to annual review by the relevant tax authorities in China.
Fiscal Year 2011 Financial Results
Revenues
Total revenues for fiscal year 2011 were RMB7.5 billion (US$1.2 billion), compared to RMB5.7 billion for the preceding fiscal year. Revenues from online games were RMB6.6 billion (US$1.0 billion) for fiscal year 2011, compared to RMB4.9 billion for the preceding fiscal year. Revenues from advertising services were RMB795.4 million (US$126.4 million) for fiscal year 2011, compared to RMB633.2 million for the preceding fiscal year.
Revenues from WVAS and others were RMB124.9 million (US$19.8 million) for fiscal year 2011, compared to RMB82.1 million for the preceding fiscal year.
Gross Profit
Gross profit for fiscal year 2011 was RMB4.9 billion (US$781.4 million), compared to RMB3.7 billion for the preceding fiscal year. The increase in gross profit for fiscal year 2011 was primarily driven by increased revenue, which was partially offset by increased cost of revenue from the online game and advertising service businesses.
The significant increase in online game services revenue in 2011 was principally attributable to the increased revenues from the Company's self-developed games such as Ghost, Fantasy Westward Journey, Heroes of Tang Dynasty, Tianxia III and Westward Journey Online II for the reasons explained above, as well as increased revenue from games licensed from Blizzard Entertainment.
The increase in advertising services revenue in 2011 was attributable to a combination of factors, including the growing Chinese online advertising market and increasing appeal of the Company's portal to users, which improved portal and search traffic on the NetEase websites.
Operating Expenses
Total operating expenses for fiscal year 2011 were RMB1.6 billion (US$253.4 million), compared to RMB1.2 billion for the preceding fiscal year. The increase in operating expenses in 2011 was primarily due to increased selling and marketing expenses comprising mainly marketing and promotional activities for Ghost, Heroes of Tang Dynasty, Blizzard Entertainment's World of Warcraft and StarCraft II, and increased staff-related costs resulting from increased headcount in general and administration and research and development areas, as well as the impairment provision of an initial online game license fee as mentioned above.
Net Profit
Net profit for fiscal year 2011 totaled RMB3.2 billion (US$513.9 million), compared to RMB2.2 billion for the preceding fiscal year. For fiscal year 2011, the Company reported a net foreign exchange loss of RMB79.1 million (US$12.6 million), compared to a net foreign exchange loss of RMB89.5 million for the preceding fiscal year. The net foreign exchange losses for 2011 and 2010 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$3.93 and US$3.92 for fiscal year 2011, respectively. The Company reported basic and diluted earnings per ADS of US$2.74 and US$2.72 for the preceding fiscal year, respectively.
Income Taxes
The Company recorded a net income tax charge of RMB392.8 million (US$62.4 million) and RMB344.4 million at an effective tax rate of 10.9% and 13.4% for fiscal years 2011 and 2010, respectively.
Other Information
As of December 31, 2011, the Company's total cash and time deposit balance was RMB11.9 billion (US$1.9 billion), compared to RMB9.5 billion as of December 31, 2010. Total held-to-maturity investments balance was RMB993.6 million (US$157.9 million) as of December 31, 2011 (there were no such investments as of December 31, 2010). Cash flow generated from operating activities was RMB1.2 billion (US$197.6 million) for the fourth quarter of 2011, compared to RMB864.9 million and RMB901.5 million for the preceding quarter and the fourth quarter of 2010, respectively.
On December 1, 2011, the Company's Board authorized a share repurchase program of up to US$50 million of the Company's outstanding ADSs. No ADSs have been repurchased as of December 31, 2011. The share repurchase program will end on February 29, 2012.
** The United States dollar (US$) 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$1.00 = RMB6.2939 on the last trading day of 2011 (December 30, 2011) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 30, 2011, 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, 2011 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 2011.
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 15, 2012 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 16, 2012). 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 1-877-941-4774 (international: 1-480-629-9760), 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 4507729#. The replay will be available through March 1, 2012.
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
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 III, 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 that 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 Heroes of Tang Dynasty, Tianxia III, 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, December 31, December 31,
2010 2011 2011
---- ---- ----
RMB RMB USD (Note 1)
Assets
Current
assets:
Cash and cash
equivalent 1,285,137 2,214,618 351,867
Time deposits 8,193,972 9,704,777 1,541,934
Restricted
cash 140,599 318,684 50,634
Accounts
receivable,
net 256,335 230,047 36,551
Prepayments
and other
current
assets 678,793 900,464 143,070
Held-to-
maturity
investments - 993,606 157,868
Deferred tax
assets 72,059 111,990 17,793
Total current
assets 10,626,895 14,474,186 2,299,717
---------- ---------- ---------
Non-current
assets:
Property,
equipment
and
software,
net 755,778 848,469 134,808
Land use
right, net 12,046 11,788 1,873
License
right, net 144,637 48,962 7,779
Deferred tax
assets 1,530 2,586 411
Other long-
term assets 45,776 58,940 9,365
Total non-
current
assets 959,767 970,745 154,236
------- ------- -------
Total assets 11,586,662 15,444,931 2,453,953
========== ========== =========
Liabilities
and
Shareholders'
Equity
Current
liabilities:
Accounts
payable 130,558 134,217 21,325
Salary and
welfare
payables 181,973 244,398 38,831
Taxes payable 289,332 391,769 62,246
Deferred
revenue 773,952 1,014,073 161,120
Accrued
liabilities
and other
payables 452,412 498,120 79,143
Total current
liabilities 1,828,227 2,282,577 362,665
--------- --------- -------
Long-term
payable:
Other long-
term payable 33,342 63,890 10,151
Deferred tax
liabilities 1,455 - -
Total long-
term payable 34,797 63,890 10,151
------ ------ ------
Total
liabilities 1,863,024 2,346,467 372,816
--------- --------- -------
Total
NetEase.com,
Inc.'s
equity 9,740,811 13,126,701 2,085,623
Non-
controlling
interests (17,173) (28,237) (4,486)
Total
shareholders'
equity 9,723,638 13,098,464 2,081,137
--------- ---------- ---------
Total
liabilities
and
shareholders'
equity 11,586,662 15,444,931 2,453,953
========== ========== =========
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
-------------
December September December December
31, 30, 31, 31,
2010 2011 2011 2011
USD (Note
RMB RMB RMB 1)
Revenues:
Online game services 1,422,408 1,755,709 1,833,269 291,277
Advertising services 233,701 220,476 278,474 44,245
Wireless value-added
services and others 23,301 31,300 37,249 5,918
------ ------ ------ -----
Total revenues 1,679,410 2,007,485 2,148,992 341,440
Business taxes (45,671) (49,583) (49,809) (7,914)
------- ------- ------- ------
Total net revenues 1,633,739 1,957,902 2,099,183 333,526
--------- --------- --------- -------
Total cost of
revenues (520,325) (630,456) (646,086) (102,653)
-------- -------- -------- --------
Gross profit 1,113,414 1,327,446 1,453,097 230,873
--------- --------- --------- -------
Operating expenses:
Selling and marketing
expenses (180,789) (225,282) (280,680) (44,596)
General and
administrative (53,805) (61,263) (105,787) (16,808)
expenses
Research and
development (86,151) (121,662) (142,514) (22,643)
expenses -------- -------- -------
Total operating
expenses (320,745) (408,207) (528,981) (84,047)
-------- -------- -------- -------
Operating profit 792,669 919,239 924,116 146,826
------- ------- ------- -------
Other income
(expenses):
Investment income 76 3,693 9,954 1,582
Interest income 41,173 68,647 78,624 12,492
Exchange losses (36,432) (64,977) (36,394) (5,782)
Other, net 6,358 28,155 62,544 9,937
----- ------ ------ -----
Net income before tax 803,844 954,757 1,038,844 165,055
Income tax (83,182) (140,499) (122,621) (19,482)
------- -------- -------- -------
Net income 720,662 814,258 916,223 145,573
Net (income) loss
attributable (8,139) 11,498 (17,598) (2,796)
to non-controlling
interests ------
Net income
attributable to 712,523 825,756 898,625 142,777
the NetEase.com,
Inc.'s ======= ======= ======= =======
shareholders
Earnings per share,
basic 0.22 0.25 0.27 0.04
==== ==== ==== ====
Earnings per ADS,
basic 5.48 6.32 6.86 1.09
==== ==== ==== ====
Earnings per share,
diluted 0.22 0.25 0.27 0.04
==== ==== ==== ====
Earnings per ADS,
diluted 5.45 6.30 6.85 1.09
==== ==== ==== ====
Weighted average
number of 3,251,764 3,268,673 3,272,617 3,272,617
ordinary shares
outstanding, ========= ========= ========= =========
basic
Weighted average
number of 130,071 130,747 130,905 130,905
ADS outstanding,
basic ======= ======= ======= =======
Weighted average
number of 3,265,856 3,277,636 3,279,404 3,279,404
ordinary shares
outstanding, ========= ========= ========= =========
diluted
Weighted average
number of 130,634 131,105 131,176 131,176
ADS outstanding,
diluted ======= ======= ======= =======
Year Ended
----------
December December December
31, 31, 31,
2010 2011 2011
USD (Note
RMB RMB 1)
Revenues:
Online game services 4,944,439 6,552,431 1,041,077
Advertising services 633,209 795,422 126,380
Wireless value-added
services and others 82,141 124,898 19,844
------ ------- ------
Total revenues 5,659,789 7,472,751 1,187,301
Business taxes (152,120) (182,099) (28,933)
-------- -------- -------
Total net revenues 5,507,669 7,290,652 1,158,368
--------- --------- ---------
Total cost of
revenues (1,798,841) (2,372,288) (376,919)
---------- ---------- --------
Gross profit 3,708,828 4,918,364 781,449
--------- --------- -------
Operating expenses:
Selling and marketing
expenses (656,976) (849,205) (134,925)
General and
administrative (189,621) (280,227) (44,524)
expenses
Research and
development (317,929) (465,490) (73,959)
expenses -------- -------
Total operating
expenses (1,164,526) (1,594,922) (253,408)
---------- ---------- --------
Operating profit 2,544,302 3,323,442 528,041
--------- --------- -------
Other income
(expenses):
Investment income 290 14,128 2,245
Interest income 141,001 258,053 41,000
Exchange losses (89,488) (79,058) (12,561)
Other, net (19,634) 99,164 15,756
------- ------ ------
Net income before tax 2,576,471 3,615,729 574,481
Income tax (344,446) (392,756) (62,402)
-------- -------- -------
Net income 2,232,025 3,222,973 512,079
Net (income) loss
attributable 3,747 11,291 1,794
to non-controlling
interests
Net income
attributable to 2,235,772 3,234,264 513,873
the NetEase.com,
Inc.'s ========= ========= =======
shareholders
Earnings per share,
basic 0.69 0.99 0.16
==== ==== ====
Earnings per ADS,
basic 17.22 24.76 3.93
===== ===== ====
Earnings per share,
diluted 0.69 0.99 0.16
==== ==== ====
Earnings per ADS,
diluted 17.14 24.68 3.92
===== ===== ====
Weighted average
number of 3,246,426 3,265,550 3,265,550
ordinary shares
outstanding, ========= ========= =========
basic
Weighted average
number of 129,857 130,622 130,622
ADS outstanding,
basic ======= ======= =======
Weighted average
number of 3,261,886 3,276,704 3,276,704
ordinary shares
outstanding, ========= ========= =========
diluted
Weighted average
number of 130,475 131,068 131,068
ADS outstanding,
diluted ======= ======= =======
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
-------------
December September December December
31, 30, 31, 31,
2010 2011 2011 2011
---- ---- ---- ----
USD (Note
RMB RMB RMB 1)
Cash flows
from
operating
activities:
Net income 720,662 814,258 916,223 145,573
Depreciation
and
amortization 57,526 75,315 76,323 12,127
Impairment
loss for
license
right - - 50,316 7,994
Share-
based
compensation
cost 24,508 22,941 45,143 7,173
Allowance
for
(reversal
of)
provision 1,466 6,206 (6,212) (987)
for
doubtful
debts
Loss/
(gain) on
disposal
of
property,
equipment 154 6 (35) (6)
and
software
Unrealized
exchange
losses 33,960 67,314 41,263 6,556
Deferred
income
taxes 16,487 (22,665) 22,054 3,504
Net equity
share of
(gains)/losses
from (246) 633 1,010 160
associated
companies
Others - (3,308) (9,272) (1,473)
Changes in
operating
assets and
liabilities:
Accounts
receivable (75,353) (51,205) 6,603 1,049
Prepayments
and other
current
assets 26,335 (343,763) 79,852 12,687
Accounts
payable 39,519 29,222 14,477 2,300
Salary and
welfare
payables 88,448 38,150 48,575 7,718
Taxes
payable 12,541 62,553 (2,706) (430)
Deferred
revenue 7,297 92,822 (3,777) (600)
Accrued
liabilities
and other
payables (51,794) 76,458 (36,144) (5,742)
Net cash
provided
by 901,510 864,937 1,243,693 197,603
operating
activities ------- ------- --------- -------
Cash flows
from
investing
activities:
Purchase of
property,
equipment (63,199) (61,411) (171,422) (27,236)
and
software
Proceeds
from sale
of
property,
equipment 121 170 43 7
and
software
Purchase of
other
intangible
assets - - (1,042) (166)
Purchase of
held-to-
maturity
investments - (423,163) (407,863) (64,803)
Proceeds
from
disposals
of held-
to-
maturity - - 20,000 3,178
investments
Purchase of
license
right - - - -
Transfer to
restricted
cash (108,600) (98,200) (44,885) (7,132)
Net change
in time
deposits
with terms 487,580 (438,342) (125,205) (19,893)
of three
months
Placement/
rollover
of matured
time
deposits (4,390,645) (2,702,844) (3,743,262) (594,744)
Uplift of
matured
time
deposits 2,799,112 2,941,207 3,497,811 555,746
Net change
in other
assets (1,746) (1,673) 4,681 744
Net cash
used in
investing
activities (1,277,377) (784,256) (971,144) (154,299)
---------- -------- -------- --------
Cash flows
from
financing
activities:
Capital
contribution
from 16 - - -
non-
controlling
interests
Proceeds
from
employees
exercising 1 22,480 9,877 1,569
stock
options
Payment of
other
long-term
payable - - (10) (2)
Net cash
provided
by
financing
activities 17 22,480 9,867 1,567
--- ------ ----- -----
Effect of
exchange
rate
changes on
cash (3,123) (4,124) (11,327) (1,800)
held in
foreign
currencies ------ ------ ------- ------
Net
increase/
(decrease)
in cash (378,973) 99,037 271,089 43,071
Cash,
beginning
of the
period 1,664,110 1,844,492 1,943,529 308,796
Cash, end
of the
period 1,285,137 1,943,529 2,214,618 351,867
========= ========= ========= =======
Supplemental
disclosures
of cash
flow
information:
Cash paid
for income
tax, net
of tax
refund 31,177 71,301 129,437 20,565
Supplemental
schedule
of non-
cash
investing
and
financing
activities
Fixed asset
purchases
financed
by 146,523 63,254 37,614 5,976
accounts
payable
Year Ended
----------
December December December
31, 31, 31,
2010 2011 2011
---- ---- ----
USD (Note
RMB RMB 1)
Cash flows from
operating
activities:
Net income 2,232,025 3,222,973 512,079
Depreciation and
amortization 232,171 293,239 46,591
Impairment loss for
license right - 50,316 7,994
Share-based
compensation cost 102,406 122,032 19,389
Allowance for
(reversal of)
provision (20,029) 416 66
for doubtful debts
Loss/(gain) on
disposal of
property,
equipment 13,985 (74) (12)
and software
Unrealized exchange
losses 100,219 76,262 12,117
Deferred income
taxes 8,619 (42,442) (6,743)
Net equity share of
(gains)/losses
from (1,093) 1,195 190
associated
companies
Others - (12,580) (1,999)
Changes in
operating assets
and liabilities:
Accounts receivable (89,997) 10,800 1,716
Prepayments and
other current
assets 3,047 (83,490) (13,265)
Accounts payable (37,557) 22,710 3,608
Salary and welfare
payables 52,480 62,425 9,918
Taxes payable 12,592 33,329 5,295
Deferred revenue 190,482 240,121 38,151
Accrued liabilities
and other payables 55,604 75,716 12,031
Net cash provided
by 2,854,954 4,072,948 647,126
operating
activities --------- --------- -------
Cash flows from
investing
activities:
Purchase of
property,
equipment (297,980) (410,120) (65,162)
and software
Proceeds from sale
of property,
equipment 359 263 42
and software
Purchase of other
intangible assets - (1,042) (166)
Purchase of held-
to-maturity
investments - (1,001,026) (159,047)
Proceeds from
disposals of held-
to-maturity - 20,000 3,178
investments
Purchase of license
right - (39,300) (6,244)
Transfer to
restricted cash (16,736) (178,085) (28,295)
Net change in time
deposits with
terms (338,570) (318,937) (50,674)
of three months
Placement/rollover
of matured time
deposits (10,402,822) (10,861,505) (1,725,719)
Uplift of matured
time deposits 8,443,805 9,598,470 1,525,043
Net change in other
assets (9,218) (16,951) (2,693)
Net cash used in
investing
activities (2,621,162) (3,208,233) (509,737)
---------- ---------- --------
Cash flows from
financing
activities:
Capital
contribution from 16 226 36
non-controlling
interests
Proceeds from
employees
exercising 24,123 73,337 11,652
stock options
Payment of other
long-term payable - (20) (3)
Net cash provided
by financing
activities 24,139 73,543 11,685
------ ------ ------
Effect of exchange
rate changes on
cash (14,084) (8,777) (1,395)
held in foreign
currencies ------- ------ ------
Net increase/
(decrease) in cash 243,847 929,481 147,679
Cash, beginning of
the period 1,041,290 1,285,137 204,188
Cash, end of the
period 1,285,137 2,214,618 351,867
========= ========= =======
Supplemental
disclosures of
cash flow
information:
Cash paid for
income tax, net of
tax refund 252,040 371,238 58,984
Supplemental
schedule of non-
cash
investing and
financing
activities
Fixed asset
purchases financed
by 146,523 37,614 5,976
accounts payable
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
(in thousands)
Quarter Ended
-------------
December September December December
31, 30, 31, 31,
2010 2011 2011 2011
---- ---- ---- ----
USD (Note
RMB RMB RMB 1)
Revenues:
Online game services 1,422,408 1,755,709 1,833,269 291,277
Advertising services 233,701 220,476 278,474 44,245
Wireless value-added
services and others 23,301 31,300 37,249 5,918
Total revenues 1,679,410 2,007,485 2,148,992 341,440
--------- --------- --------- -------
Business taxes:
Online game services (22,772) (27,704) (23,161) (3,680)
Advertising services (22,329) (21,040) (25,850) (4,107)
Wireless value-added
services and others (570) (839) (798) (127)
Total business taxes (45,671) (49,583) (49,809) (7,914)
------- ------- ------- ------
Net revenues:
Online game services 1,399,636 1,728,005 1,810,108 287,597
Advertising services 211,372 199,436 252,624 40,138
Wireless value-added 22,731 30,461 36,451 5,791
services and others
Total net revenues 1,633,739 1,957,902 2,099,183 333,526
--------- --------- --------- -------
Cost of revenues:
Online game services (394,764) (493,025) (495,506) (78,728)
Advertising services (98,354) (102,958) (114,949) (18,264)
Wireless value-added (27,207) (34,473) (35,631) (5,661)
services and others
Total cost of
revenues (520,325) (630,456) (646,086) (102,653)
-------- -------- -------- --------
Gross profit (loss):
Online game services 1,004,872 1,234,980 1,314,602 208,869
Advertising services 113,018 96,478 137,675 21,874
Wireless value-added (4,476) (4,012) 820 130
services and others
Total gross profit 1,113,414 1,327,446 1,453,097 230,873
========= ========= ========= =======
Gross profit (loss)
margin:
Online game services 71.8% 71.5% 72.6% 72.6%
Advertising services 53.5% 48.4% 54.5% 54.5%
Wireless value-added (19.7%) (13.2%) 2.2% 2.2%
services and others
Year Ended
----------
December December December
31, 31, 31,
2010 2011 2011
---- ---- ----
USD (Note
RMB RMB 1)
Revenues:
Online game services 4,944,439 6,552,431 1,041,077
Advertising services 633,209 795,422 126,380
Wireless value-added
services and others 82,141 124,898 19,844
Total revenues 5,659,789 7,472,751 1,187,301
--------- --------- ---------
Business taxes:
Online game services (89,937) (103,824) (16,496)
Advertising services (60,551) (75,349) (11,972)
Wireless value-added
services and others (1,632) (2,926) (465)
Total business taxes (152,120) (182,099) (28,933)
-------- -------- -------
Net revenues:
Online game services 4,854,502 6,448,607 1,024,581
Advertising services 572,658 720,073 114,408
Wireless value-added 80,509 121,972 19,379
services and others
Total net revenues 5,507,669 7,290,652 1,158,368
--------- --------- ---------
Cost of revenues:
Online game services (1,378,018) (1,859,176) (295,393)
Advertising services (312,921) (380,201) (60,408)
Wireless value-added (107,902) (132,911) (21,118)
services and others
Total cost of
revenues (1,798,841) (2,372,288) (376,919)
---------- ---------- --------
Gross profit (loss):
Online game services 3,476,484 4,589,431 729,188
Advertising services 259,737 339,872 54,000
Wireless value-added (27,393) (10,939) (1,739)
services and others
Total gross profit 3,708,828 4,918,364 781,449
========= ========= =======
Gross profit (loss)
margin:
Online game services 71.6% 71.2% 71.2%
Advertising services 45.4% 47.2% 47.2%
Wireless value-added (34.0%) (9.0%) (9.0%)
services and others
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 = RMB6.2939 on the last trading day of 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
-------------
December September December December
31, 30, 31, 31,
2010 2011 2011 2011
---- ---- ---- ----
USD (Note
RMB RMB RMB 1)
Share-based
compensation
cost included in:
Cost of revenue 8,081 11,121 21,030 3,341
Operating expenses
-Selling and
marketing 1,869 1,989 3,897 619
expenses
-General and
administrative 7,915 3,514 7,661 1,217
expenses
-Research and
development expenses 6,643 6,317 12,555 1,996
Year Ended
----------
December December December
31, 31, 31,
2010 2011 2011
---- ---- ----
USD (Note
RMB RMB 1)
Share-based
compensation
cost included in:
Cost of revenue 37,342 57,318 9,107
Operating expenses
-Selling and
marketing 8,123 11,357 1,804
expenses
-General and
administrative 31,580 17,897 2,844
expenses
-Research and
development expenses 25,361 35,460 5,634
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.
Contact for Media and Investors:
Brandi Piacente
Investor Relations
brandi@corp.netease.com
Tel: (+1) 212-481-2050
SOURCE NetEase.com, Inc.
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