NETEASE, INC. 
By BEIJING, May 16, 2012 /PRNewswire-Asia-FirstCall/ -- NetEase, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the first quarter ended March 31, 2012.
William Ding, Chief Executive Officer and Director of NetEase, stated, "The growing popularity of our self-developed games continues to drive our revenues. For the first quarter, our total online games revenue increased 31.4% year-over-year, with dynamic growth from our newer games Ghost and Tianxia III and increasing contribution from several of our flagship games, Fantasy Westward Journey, Westward Journey Online II and Heroes of Tang Dynasty."
"Our online games revenue has been driven by the successful execution of our strategy to continuously improve user experience and has been further demonstrated by Ghost's rapid growth since the launch of its full scale closed beta testing in September 2011. In the second quarter, we introduced a series of new features for Ghost in its open beta testing, which has been well received by users. Benefiting from the innovative game play mode, our newest game, Tianxia III, achieved record high revenue in the first quarter. We plan to continue developing new exciting content and launch open beta testing for Tianxia III in the second quarter."
"Moreover, players continue to respond enthusiastically to expansion packs for our long running self-developed games, Fantasy Westward Journey and Westward Journey Online II. We plan to launch new expansion packs combined with large-scale promotional activities for these games in the second and third quarters. Other expansion packs or new versions planned for the second quarter include Heroes of Tang Dynasty, Westward Journey Online III and Warsong of Westward Journey."
"Diversification through the introduction of self-developed games is a key theme in 2012. We are on track to commercialize a number of new titles this year that showcase innovative content and leading technology. In the second and third quarters of 2012, we plan to initiate beta testing of several highly anticipated games in our pipeline, including 3D ARPG, Soul of Warrior, 2.5D MMORPG, Wu Hun, 3D action real-time strategy (or DotA) game, Heroes of Three Kingdoms, and a next generation 3D action MMORPG, Dragon Sword. With respect to our licensed games, we are pleased to have renewed our contract with Blizzard Entertainment to continue our existing cooperation on Blizzard Entertainment's World of Warcraft(®)( )in mainland China. We look forward to releasing Mists of Pandaria((TM)), the fourth expansion to World of Warcraft, in mainland China as soon as possible."
"Our advertising revenue grew 13.1% year-over-year, with automobile, Internet services and food and beverage services as the top performing sectors. Advertising revenues declined 48.5% quarter-over-quarter, which reflects the typical industry seasonality. We expect the usual uptick in advertising revenues in the second quarter and through the second half of 2012. We remain committed to increasing our appeal to users by offering content innovation, synthesizing user feedback and providing service integration between different mobile device platforms. To leverage the opportunities offered by the upcoming 2012 London Olympics, we have secured a number of partnerships with content providers to offer comprehensive, accurate and in-depth reporting to our portal and mobile Internet users."
Mr. Ding concluded, "Portal traffic grew steadily in the first quarter as we continued to optimize our user experience and mobile access by introducing leading applications and cutting edge technology. Usage of our micro-blogging services is also expanding. In the first quarter, the number of micro-blogging users reached 121.0 million, up 24.0% from December 31, 2011. As the leading free email provider in China, our mailbox services also performed well as we continued to optimize services through mobile access and upgrades to enhance users' experience. As of March 31, 2012, we had approximately 480 million registered email users, up 6.7% quarter-over-quarter. In addition, the number of users and paying subscribers for our corporate mailbox services have grown in their third year of operation. During the first quarter, we were named one of the top corporate mailbox service providers in China.
"With continued execution on expanding and diversifying our game portfolio and user base, as well as driving innovation in content, technology and entertainment across all demographics in China, we look forward to another great year for NetEase in 2012," Mr. Ding concluded.
First Quarter 2012 Financial Results
Revenues
Total revenues for the first quarter of 2012 were RMB2.0 billion (US$318.2 million), compared to RMB2.1 billion and RMB1.5 billion for the preceding quarter and the first quarter of 2011, respectively.
Revenues from online games were RMB1.8 billion (US$289.2 million) for the first quarter of 2012, compared to RMB1.8 billion and RMB1.4 billion for the preceding quarter and the first quarter of 2011, respectively.
Revenues from advertising services were RMB143.5 million (US$22.8 million) for the first quarter of 2012, compared to RMB278.5 million and RMB126.8 million for the preceding quarter and the first quarter of 2011, respectively.
Revenues from e-mail, wireless value-added services and others ("E-mail, WVAS and others") were RMB39.6 million (US$6.3 million) for the first quarter of 2012, compared to RMB37.2 million and RMB25.7 million for the preceding quarter and the first quarter of 2011, respectively.
Gross Profit
Gross profit for the first quarter of 2012 was RMB1.3 billion (US$211.4 million), compared to RMB1.5 billion and RMB985.0 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in gross profit was primarily attributable to a seasonal decline in advertising revenue.
The year-over-year increase in gross profit was primarily attributable to increased revenues from the Company's self-developed games, Ghost, Tianxia III and Fantasy Westward Journey, which were partially offset by a decline in revenue from Blizzard Entertainment's World of Warcraft. Revenue from Ghost has grown rapidly since the launch of its full scale closed beta testing in September 2011, coupled with successful promotional activities. Tianxia III was released in late October of 2011, and its significant growth was leveraged from the strong Tianxia II user base as well as its attractive and innovative game play mode. The year-over-year increase in cost of revenues was primarily due to increased headcount-related costs and server custody costs.
Gross Profit (Loss) Margin
Gross profit margin for the online game business for the first quarter of 2012 was 73.0%, compared to 72.6% and 70.0% for the preceding quarter and the first quarter of 2011, respectively.
Gross profit margin for the advertising business for the first quarter of 2012 was 19.8%, compared to 54.5% and 33.4% for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in gross profit margin was primarily due to a decrease in advertising revenues as explained above. The year-over-year decrease in gross profit margin was primarily due to increased headcount-related costs and content purchase costs in the first quarter of 2012.
Gross loss margin for the E-mail, WVAS and others business for the first quarter of 2012 was 18.0%, compared to gross profit margin of 2.2% and gross loss margin of 21.6% for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter change was mainly due to increased customer services costs and technology support costs in the first quarter of 2012.
Operating Expenses
Total operating expenses for the first quarter of 2012 were RMB355.7 million (US$56.5 million), compared to RMB529.0 million and RMB292.0 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter decrease in operating expenses was mainly due to the fact that there were less selling and marketing promotional activities in the first quarter of 2012. In addition, an impairment provision of RMB50.3 million on the initial online game license fee for Blizzard Entertainment's StarCraft(®) II was recorded in the fourth quarter of 2011. The year-over-year increase in operating expenses was primarily due to increased headcount-related costs and increased research and development costs related to product development.
Net Profit
Net profit for the first quarter of 2012 totaled RMB941.7 million (US$149.5 million), compared to RMB898.6 million and RMB737.4 million for the preceding quarter and the first quarter of 2011, respectively.
During the first quarter of 2012, the Company reported a net foreign exchange gain of RMB17.6 million (US$2.8 million), compared to a net foreign exchange loss of RMB36.4 million and a net foreign exchange gain of RMB25.3 million for the preceding quarter and the first quarter of 2011, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains and losses were mainly due to the unrealized exchange gains and losses arising from the Company's Euro-denominated bank deposit balances as of March 31, 2012 as the exchange rate of the Euro against the RMB fluctuated over the periods.
NetEase reported basic and diluted earnings per ADS of US$1.14 each for the first quarter of 2012. The Company reported basic and diluted earnings per ADS of US$1.09 for the preceding quarter, and reported basic and diluted earnings per ADS of US$0.90 and US$0.89, respectively, for the first quarter of 2011.
Income Taxes
The Company recorded a net income tax charge of RMB163.1 million (US$25.9 million) for the first quarter of 2012, compared with RMB122.6 million and RMB37.2 million for the preceding quarter and the first quarter of 2011, respectively. The effective tax rate for the first quarter of 2012 was 14.9%, compared to 11.8% and 4.8% for the preceding quarter and the first quarter of 2011, respectively.
The Company's various principal subsidiaries have renewed their qualifications as High and New Technology Enterprises in 2011, and enjoy the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China.
The quarter-over-quarter increase in effective tax rate was mainly due to the expiration of the enterprise income tax exemption period for certain subsidiaries that were qualified as Software Enterprises, which resulted in an increase in their applicable tax rate from 0% to 12.5%. The year-over-year increase in effective tax rate was primarily due to the recognition of a tax benefit of RMB47.1 million upon receipt of the Key Software Enterprise status by certain subsidiaries during the first quarter of 2011.
Other Information
As of March 31, 2012, the Company's total cash and time deposits balance was RMB13.1billion (US$2.1 billion), compared to RMB11.9 billion as of December 31, 2011. Cash flow generated from operating activities was RMB1.3 billion (US$212.3 million) for the first quarter of 2012, compared to RMB1.2 billion and RMB969.3 million for the preceding quarter and the first quarter of 2011, respectively.
** The United States dollar (US$) 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$1.00 = RMB6.2975 on the last trading day of March 2012 (March 30, 2012) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 30, 2012, or at any other certain date. The percentages stated are calculated based on RMB.
Conference Call
NetEase's management team will host a conference call at 9:00 p.m. Eastern Time on Wednesday, May 16, 2012 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, May 17, 2012). 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 1-800-406-7325 (international: 1-303-590-3030), and entering passcode 4533318#. The replay will be available through June 7, 2012.
This call is being 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. 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, Tianxia III 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, Warsong of Westward Journey and Fairyland Village, 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 out lined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.
Contact for Media and Investors:
Brandi Piacente
Investor Relations
brandi@corp.netease.com
Tel: (+1) 212-481-2050
Cassia Curran
NetEase, Inc.
cassia@corp.netease.com
Tel: (+86) 571-8985-2076
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(RMB and USD in thousands)
December 31, March 31, March 31,
2011 2012 2012
---- ---- ----
RMB RMB USD (Note 1)
Assets
Current assets:
Cash and cash equivalents 2,214,618 2,012,449 319,563
Time deposits 9,704,777 10,671,235 1,694,519
Restricted cash 318,684 239,338 38,005
Accounts receivable, net 230,047 201,016 31,920
Prepayments and other current
assets 900,464 815,105 129,433
Short-term investments 993,606 1,214,989 192,933
Deferred tax assets 111,990 128,167 20,352
Total current assets 14,474,186 15,282,299 2,426,725
---------- ---------- ---------
Non-current assets:
Property, equipment and software,
net 848,469 814,897 129,400
Land use right, net 11,788 11,723 1,862
License right, net 48,962 31,956 5,074
Deferred tax assets 2,586 2,579 410
Time deposits - 428,000 67,963
Other long-term assets 58,940 69,199 10,988
Total non-current assets 970,745 1,358,354 215,697
------- --------- -------
Total assets 15,444,931 16,640,653 2,642,422
========== ========== =========
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable 134,217 142,554 22,637
Salary and welfare payables 244,398 179,484 28,501
Taxes payable 391,769 412,508 65,503
Deferred revenue 1,014,073 1,085,450 172,362
Accrued liabilities and other
payables 498,120 642,271 101,988
Total current liabilities 2,282,577 2,462,267 390,991
--------- --------- -------
Long-term payable:
Other long-term payable 63,890 52,081 8,270
Total liabilities 2,346,467 2,514,348 399,261
--------- --------- -------
Total NetEase, Inc.'s equity 13,126,701 14,164,494 2,249,225
Noncontrolling interests (28,237) (38,189) (6,064)
------- ------- ------
Total shareholders' equity 13,098,464 14,126,305 2,243,161
---------- ---------- ---------
Total liabilities and
shareholders' equity 15,444,931 16,640,653 2,642,422
========== ========== =========
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(RMB and USD in thousands, except per share data)
Quarter Ended
-------------
March 31, December 31, March 31, March 31,
2011 2011 2012 2012
---- ---- ---- ----
RMB RMB RMB USD (Note 1)
Revenues:
Online game services 1,385,643 1,833,269 1,821,029 289,167
Advertising services 126,828 278,474 143,451 22,779
E-mail, wireless value-added
services and others 25,680 37,249 39,630 6,293
------ ------ ------ -----
Total revenues 1,538,151 2,148,992 2,004,110 318,239
Business taxes (38,200) (49,809) (38,481) (6,111)
------- ------- ------- ------
Total net revenues 1,499,951 2,099,183 1,965,629 312,128
Total cost of revenues (514,990) (646,086) (634,407) (100,739)
-------- -------- -------- --------
Gross profit 984,961 1,453,097 1,331,222 211,389
------- --------- --------- -------
Operating expenses:
Selling and marketing expenses (130,345) (280,680) (130,497) (20,722)
General and administrative expenses (63,332) (105,787) (70,284) (11,161)
Research and development expenses (98,306) (142,514) (154,961) (24,607)
-------- -------- -------
Total operating expenses (291,983) (528,981) (355,742) (56,490)
-------- -------- -------- -------
Operating profit 692,978 924,116 975,480 154,899
Other income:
Investment income 82 9,954 13,926 2,211
Interest income 51,363 78,624 86,490 13,734
Exchange gains (losses) 25,274 (36,394) 17,597 2,794
Other, net 2,084 62,544 1,298 207
----- ------ ----- ---
Net income before tax 771,781 1,038,844 1,094,791 173,845
Income tax (37,208) (122,621) (163,063) (25,893)
------- -------- -------- -------
Net income after tax 734,573 916,223 931,728 147,952
Net loss (gain) attributable to noncontrolling
interests 2,814 (17,598) 9,952 1,580
Net income attributable to the Company's shareholders 737,387 898,625 941,680 149,532
======= ======= ======= =======
Comprehensive income 734,573 916,223 931,728 147,952
Comprehensive loss (income) attributable to
noncontrolling interests 2,814 (17,598) 9,952 1,580
Comprehensive income attributable to the 737,387 898,625 941,680 149,532
Company's shareholders
Earnings per share, basic 0.23 0.27 0.29 0.05
==== ==== ==== ====
Earnings per ADS, basic 5.66 6.86 7.18 1.14
==== ==== ==== ====
Earnings per share, diluted 0.23 0.27 0.29 0.05
==== ==== ==== ====
Earnings per ADS, diluted 5.63 6.85 7.17 1.14
==== ==== ==== ====
Weighted average number of ordinary shares
outstanding, basic 3,255,764 3,272,617 3,278,157 3,278,157
========= ========= ========= =========
Weighted average number of ADS outstanding, basic 130,231 130,905 131,126 131,126
======= ======= ======= =======
Weighted average number of ordinary shares
outstanding, diluted 3,273,909 3,279,404 3,284,428 3,284,428
========= ========= ========= =========
Weighted average number of ADS outstanding, diluted 130,956 131,176 131,377 131,377
======= ======= ======= =======
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RMB and USD in thousands)
Quarter Ended
-------------
March 31, December 31, March 31, March 31,
2011 2011 2012 2012
---- ---- ---- ----
RMB RMB RMB USD (Note 1)
Cash flows from operating activities:
Net income 734,573 916,223 931,728 147,952
Adjustments to reconcile net profit
to net cash
provided by operating activities:
Depreciation and amortization 65,706 76,323 71,677 11,382
Impairment loss for license right - 50,316 - -
Share-based compensation cost 38,238 45,143 68,273 10,842
Allowance for (reversal of) provision
for doubtful debts (1,366) (6,212) 921 146
Loss (gain) on disposal of property,
equipment 4 (35) (122) (19)
and software
Unrealized exchange (gains) losses (31,077) 41,263 (18,719) (2,972)
Deferred income taxes (8,401) 22,054 (16,170) (2,568)
Net equity share of loss from
associated companies 330 1,010 256 41
Others (162) (9,272) 2,894 460
Changes in operating assets and
liabilities:
Accounts receivable 75,613 6,603 20,720 3,290
Prepayments and other current assets 54,987 79,852 180,825 28,714
Accounts payable (18,560) 14,477 14,857 2,359
Salary and welfare payables (64,934) 48,575 (64,930) (10,310)
Taxes payable (30,719) (2,706) (19,620) (3,116)
Deferred revenue 91,107 (3,777) 71,378 11,334
Accrued liabilities and other
payables 63,976 (36,144) 92,897 14,751
Net cash provided by operating
activities 969,315 1,243,693 1,336,865 212,286
------- --------- --------- -------
Cash flows from investing activities:
Purchase of property, equipment and
software (141,157) (171,422) (23,280) (3,697)
Proceeds from sale of property,
equipment and software 1 43 182 29
Purchase of other intangible assets - (1,042) - -
Net change in short-term investments
with terms
of three months or less - - (500,000) (79,397)
Purchase of short-term investments - (407,863) (154,277) (24,498)
Proceeds from maturities of short-
term investments - 20,000 430,000 68,281
Transfer (to) from restricted cash - (44,885) 79,346 12,600
Net change in time deposits with
terms
of three months 231,682 (125,205) 117,997 18,737
Placement/rollover of matured time
deposits (2,863,899) (3,743,262) (4,429,917) (703,441)
Proceeds from maturities of time
deposits 2,157,008 3,497,811 2,933,775 465,863
Net change in other assets (5,844) 4,681 (14,158) (2,248)
Net cash used in investing activities (622,209) (971,144) (1,560,332) (247,771)
-------- -------- ---------- --------
Cash flows from financing activities:
Proceeds from employees exercising
stock options 30,252 9,877 21,033 3,340
Payment of other long-term payable (10) (10) - -
Net cash provided by financing
activities 30,242 9,867 21,033 3,340
------ ----- ------ -----
Effect of exchange rate changes on
cash held in
foreign currencies 7,112 (11,327) 265 42
Net increase (decrease) in cash and
cash equivalents 384,460 271,089 (202,169) (32,103)
Cash and cash equivalents, beginning
of the period 1,285,137 1,943,529 2,214,618 351,666
Cash and cash equivalents, end of the
period 1,669,597 2,214,618 2,012,449 319,563
========= ========= ========= =======
Supplemental disclosures of cash flow information:
Cash paid for income tax, net of tax
refund 91,682 129,437 145,625 23,124
Supplemental schedule of non-cash
investing and
financing activities:
Fixed asset purchases financed by
accounts payable 64,347 37,614 35,393 5,620
and accrued liabilities
The accompanying notes are an integral part of this press release.
NETEASE, INC.
UNAUDITED SEGMENT INFORMATION
(RMB and USD in thousands)
Quarter Ended
-------------
March 31, December 31, March 31, March 31,
2011 2011 2012 2012
---- ---- ---- ----
RMB RMB RMB USD (Note 1)
Revenues:
Online game services 1,385,643 1,833,269 1,821,029 289,167
Advertising services 126,828 278,474 143,451 22,779
E-mail, wireless value-
added services and others 25,680 37,249 39,630 6,293
Total revenues 1,538,151 2,148,992 2,004,110 318,239
--------- --------- --------- -------
Business taxes:
Online game services (25,392) (23,161) (23,566) (3,742)
Advertising services (12,198) (25,850) (14,009) (2,225)
E-mail, wireless value-
added services and others (610) (798) (906) (144)
Total business taxes (38,200) (49,809) (38,481) (6,111)
------- ------- ------- ------
Net revenues:
Online game services 1,360,251 1,810,108 1,797,463 285,425
Advertising services 114,630 252,624 129,442 20,554
E-mail, wireless value-
added services and others 25,070 36,451 38,724 6,149
Total net revenues 1,499,951 2,099,183 1,965,629 312,128
--------- --------- --------- -------
Cost of revenues:
Online game services (408,201) (495,506) (484,894) (76,998)
Advertising services (76,316) (114,949) (103,827) (16,487)
E-mail, wireless value-
added services and others (30,473) (35,631) (45,686) (7,254)
Total cost of revenues (514,990) (646,086) (634,407) (100,739)
-------- -------- -------- --------
Gross profit (loss):
Online game services 952,050 1,314,602 1,312,569 208,427
Advertising services 38,314 137,675 25,615 4,067
E-mail, wireless value-
added services and others (5,403) 820 (6,962) (1,105)
Total gross profit 984,961 1,453,097 1,331,222 211,389
======= ========= ========= =======
Gross profit (loss) margin:
Online game services 70.0% 72.6% 73.0% 73.0%
Advertising services 33.4% 54.5% 19.8% 19.8%
E-mail, wireless value-
added services and others (21.6%) 2.2% (18.0%) (18.0%)
The accompanying notes are an integral part of this press release.
NETEASE, INC.
NOTES TO UNAUDITED FINANCIAL INFORMATION
Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.2975 on the last trading
day of March 2012 (March 30, 2012)as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.
Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as
follows in RMB and USD (in thousands):
Quarter Ended
-------------
March 31, December 31, March 31, March 31,
2011 2011 2012 2012
---- ---- ---- ----
RMB RMB RMB USD (Note 1)
Share-based compensation
cost included in:
Cost of revenue 13,602 21,030 33,215 5,274
Operating expenses
-Selling and marketing
expenses 3,255 3,897 4,680 743
-General and
administrative expenses 11,237 7,661 11,926 1,894
-Research and development
expenses 10,144 12,555 18,452 2,931
SOURCE NetEase.com, Inc.
