NetEase announces third quarter financial report: net income of 2.84 billion $US

News on the 19th, NetEase today announced its unaudited financial results for the third quarter ending September 30, 2020.

Thursday, November 19, 2020,

Thursday, November 19, 2020, 9:57 GMT

Data show that NetEase’s net income in the third quarter of 2020 was RMB US$2.7 billion, a year-on-year increase of 27.5%; net profit from continuing operations attributable to the company’s shareholders was RMB US$441.6 million.

Main financial performance for the third quarter of 2020 :

· Net income was RMB 18.7 billion (US$2.7 billion), a year-on-year increase of 27.5%.

· Net income from online game services was RMB 13.9 billion (US$2 billion), a year-on-year increase of 20.2%.

· Youdao’s net income was RMB US$132.0 million, a year-on-year increase of 159.0%.

· Net income from innovation and other businesses was RMB US$574.4 million, an increase of 41.6% year-on-year.

· Gross profit was RMB US$1.5 billion, a year-on-year increase of 25.6%.

· Operating expenses totaled RMB 7 billion (USD 1 billion), an increase of 54.7% year-on-year.

· Net profit from continuing operations attributable to the company’s shareholders was RMB 3 billion (US$441.6 million), of which net exchange losses were RMB 1.6 billion (US$231.4 million). Non-GAAP net profit attributable to shareholders of the company from continuing operations was RMB 3.7 billion (US$540.4 million).

·Basic continuing operating net profit per share of American depositary shares was 0.65 US dollars, and basic continuing operating net profit per share was 0.13 US dollars. The basic non-GAAP net profit per share from continuing operations is US$0.80, and the non-GAAP basic net profit per share from continuing operations is US$0.16.

Key operating points for the third quarter of 2020 and in the near future:

NetEase has launched a number of new products, including “Onmyoji: Monster House”, “Live Club Manager”, “The Hunter King” and “The Painted Traveler in Time and Space” in the Chinese market, as well as the “Star” in overseas markets. Eve Before the War: No Ember Star River and Marvel Showdown, etc.

The popularity of mobile game products has not diminished, and games such as “Surrounding the Land”, “Onmyoji” and “Light Yu” have recently been among the top iOS best-selling lists in China.

Flagship end-game products such as the computer version of “Fantasy Westward Journey”, “Western Journey 2” and “Backwater Cold” performed well.

With the excellent performance of “Operation Wilderness”, “After Tomorrow” and “Fifth Personality” in Japan, the international influence of NetEase games has been further enhanced.

New products to be launched also include: “Above the Dark Tide”, “The Magic Book of Revelation”, “Tianyu” mobile game, “Endless Lagrange”, “Harry Potter: Magic Awakening”, “The “Lord of the Rings: Rise to War”, “Super Fighting Dream”, “A Chinese Ghost Story”, “Diablo: Immortality” and “Pokémon Adventure” etc. Among them, many games such as “Tianyu” mobile game will be released before the Spring Festival.

The net income of Youdao Learning’s services and products increased by more than 200% year-on-year.

“Leveraging on the strong and steady revenue contribution from online game services, our overall net income in the third quarter reached RMB 18.7 billion, a year-on-year increase of 27.5%,” said Ding Lei, CEO and director of NetEase. With the diversified game product matrix and its long-lasting vitality, NetEase Games has shown a strong momentum. In addition, NetEase is about to release a series of exciting new game products. We are eagerly looking forward to helping China in the next few quarters. Foreign players bring a more diverse gaming experience.”

“Youdao, NetEase Cloud Music, and Yanxuan are also moving toward their goals in an orderly manner, and their respective revenues have achieved year-on-year growth. While we strive to create more value for users and shareholders, we will continue to explore various businesses. The sustainable growth of the line.” Ding Lei concluded.

Financial results for the third quarter of 2020

Net income

Net income for the third quarter of 2020 was RMB 18,658.2 million (US$2,748.1 million), compared with RMB 18,184.8 million and RMB 14,635.7 million in the previous quarter and the same period last year.

Net income from online game services in the third quarter of 2020 was RMB 13,862.0 million (US$2,041.7 million), compared with RMB 13,828.3 million and RMB 11,534.8 million in the previous quarter and the same period last year. In this quarter, net income from mobile games accounted for 72.7% of net income from online game services, compared to 72.3% and 71.0% in the previous quarter and the same period last year.

Youdao’s net income for the third quarter of 2020 was RMB 896.0 million (US$132.0 million), compared with RMB 623.3 million and RMB 345.9 million in the previous quarter and the same period last year.

Net income from innovation and other businesses in the third quarter of 2020 was RMB 3,900.1 million (US$574.4 million), compared with RMB 3,733.3 million and RMB 2,755.0 million in the previous quarter and the same period last year.

Gross profit

Gross profit for the third quarter of 2020 was RMB 9,885.8 million (US$1,456.0 million), compared with RMB 9,792.2 million and RMB 7,870.4 million in the previous quarter and the same period last year.

The gross profit of online game services remained stable month-on-month. The year-on-year increase was mainly due to the increase in net income from self-developed games, such as “Fantasy Westward Journey Web Edition”, “After Tomorrow” and “Operation Wilderness”, as well as the increase in revenue from certain agency games.

The month-on-month and year-on-year growth of Youdao’s gross profit was mainly due to the significant increase in net income from learning services and products, the increase in scale effect, and the further optimization of teacher compensation structure.

The quarter-on-quarter decline in gross profit of innovation and other businesses was mainly due to the decline in gross profit of advertising services. The year-on-year growth was mainly due to the growth of NetEase Cloud Music’s net income.

Gross margin

The gross profit margin of online game services in the third quarter of 2020 was 63.6%, compared with 63.8% in the previous quarter and the same period last year. The gross profit margin of online game services is generally relatively stable, and fluctuates slightly due to changes in the proportion of revenue from mobile games and mobile games, and the proportion of revenue from self-research and agency games.

Youdao’s gross profit margin was 45.9% in the third quarter of 2020, compared with 45.2% and 25.8% in the previous quarter and the same period last year. Its gross profit margin was relatively stable month-on-month. The year-on-year increase was mainly due to the aforementioned factors.

The gross profit margin of innovation and other businesses in the third quarter of 2020 was 16.8%, compared to 18.5% and 15.2% in the previous quarter and the same period last year. The quarter-on-quarter decline in its gross profit margin was mainly due to the decline in gross profit margin of advertising services. The year-on-year increase was mainly due to the net income growth of NetEase Cloud Music.

Operating expenses

In the third quarter of 2020, operating expenses totaled RMB 7,015.7 million (US$1,033.3 million), compared with RMB 5,622.3 million and RMB 4,535.6 million in the previous quarter and the same period last year. The quarter-on-quarter and year-on-year increase was mainly due to the increase in Youdao and online game service marketing fees, as well as the increase in labor costs and R&D investment.

Other income

Other income includes investment income, interest income, exchange gains/(losses) and others. The quarter-on-quarter and year-on-year decrease was mainly due to the confirmed net exchange loss of RMB 1,571.3 million (US$231.4 million) in the current period. Achieve net exchange losses. The net exchange loss is partially offset by the gains from changes in the fair value of equity investments whose fair value can be easily determined.

Income tax

The income tax expense recognized by the company in the third quarter of 2020 was RMB 342.7 million (USD 50.5 million), compared with RMB 1,064.5 million and RMB 88.0 million in the previous quarter and the same period last year. The effective tax rate for the third quarter of 2020 was 10.9%, compared to 18.6% and 2.1% in the previous quarter and the same period last year. The effective tax rate reflects the company’s estimate of the tax obligations and rights applicable to each quarter. The effective tax rate for the third quarter of 2020 is affected by certain tax returns in the current quarter.

Net profit and non-GAAP net profit

Net profit from continuing operations attributable to the company’s shareholders for the third quarter of 2020 was RMB 2,998.2 million (US$441.6 million), of which net exchange losses were RMB 1,571.3 million (US$231.4 million), the previous quarter and the same period last year They were RMB 4,537.8 million and RMB 4,134.2 million, respectively.

Net profit from continuing operations attributable to shareholders of the company under non-GAAP in the third quarter of 2020 was RMB 3,669.2 million (US$540.4 million), compared with RMB 5,226.0 million and RMB 4,726.0 million in the previous quarter and the same period last year yuan.

In the third quarter of 2020, basic and diluted continuing operating net profits per ADS were US$0.65 and US$0.64, respectively, compared with US$1.03 and US$1.02 in the previous quarter, and US$0.94 in the same period last year. In the third quarter of 2020, both basic and diluted continuing operating net profit per share were US$0.13, compared with US$0.21 and US$0.20 in the previous quarter, and US$0.19 in the same period last year.

In the third quarter of 2020, non-GAAP basic and diluted continuing operating net profits per ADS were US$0.80 and US$0.79, respectively, compared to US$1.19 and US$1.17 in the previous quarter, and US$1.08 and 1.07 in the same period last year. Dollar. In the third quarter of 2020, non-GAAP basic and diluted continuing operating net profit per share were both US$0.16, compared with US$0.24 and US$0.23 in the previous quarter, and US$0.22 and US$0.21 in the same period last year.

Quarterly dividend

The board of directors approved a dividend for the third quarter of 2020, which is US$0.1950 per American Depositary Share (US$0.0390 per share), which will be paid in US dollars to the United States registered after the market close on December 4, 2020 New York time and Hong Kong time Holders of depositary shares and ordinary shares . In order to be eligible for dividends, holders of ordinary shares must send all valid share transfer files and relevant stock certificates to NetEase’s share transfer registration no later than 4:30 pm on December 4, 2020, Hong Kong time. The branch office, Computershare Hong Kong Investor Services Limited, handles the registration procedures. Its address is Shop 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. The ordinary stock dividend payment date is expected to be December 15, 2020, and the American depositary stock dividend payment date is expected to be around December 18, 2020 (assuming that the American depositary stock depositary receives the dividend in time).

The dividend for the first quarter of 2020 was US$0.2320 per American Depositary Share (US$0.0464 per share), which was paid in June 2020. The dividend for the second quarter of 2020 was US$0.2970 per American Depositary Share (US$0.0594 per share), which was paid in September 2020.

According to company policy, starting from the second quarter of 2019, quarterly dividends are expected to be approximately 20%-30% of the company’s net profit after tax for each financial quarter. The payment of quarterly dividends and the specific amount are determined by the board of directors with full authority and will be based on the company’s operations and profitability, cash flow, financial status and other relevant factors.

other information

As of September 30, 2020, the company’s cash and cash equivalents, current and non-current time deposits and short-term investment balances totaled RMB 102,650.0 million (US$15,118.7 million). As of December 31, 2019, the balance was RMB 74,406.0 million yuan. Net cash inflows from continuing operations in the third quarter of 2020 were RMB 5,401.0 million (US$795.5 million), compared with RMB 4,772.3 million and RMB 3,846.3 million in the previous quarter and the same period last year.

Share purchase / repurchase plan

On November 20, 2019, the company announced that its board of directors has approved a share purchase plan, that is, starting from November 25, 2019, within a period of no more than 12 months, the total amount of public purchases on the NYSE will not exceed Youdao American Depositary Shares with USD 20.0 million outstanding. As of September 30, 2020, approximately 198,000 American depositary shares have been purchased for a total of approximately US$3.4 million.

On February 26, 2020, the company announced that its board of directors had approved a share repurchase plan, that is, starting from March 2, 2020, within a period of no more than 12 months, it can be used in the Nasdaq Global Select Market The total amount of public repurchase of American depositary shares does not exceed 1 billion US dollars. On May 19, 2020, the company announced that its board of directors has approved the amendment to the plan, increasing the total amount of public repurchase in the Nasdaq Global Select Market to 2 billion US dollars. As of September 30, 2020, approximately 15.3 million American depositary shares have been repurchased for a total of approximately US$1.1 billion.

The transaction time and amount of the two current plans mentioned above must meet the requirements of the US Securities and Exchange Commission (SEC) Rule 10b-18, and will also be affected by SEC Rule 10b5-1. NetEase’s repurchase of its American Depositary Shares or Youdao American Depositary Shares will depend on many factors including market conditions. These plans may be suspended or suspended at any time.

**The dollar figures listed in this announcement are for ease of reading only. The conversion basis for USD and RMB is the buying exchange rate at noon on September 30, 2020 announced by the H.10 statistics of the Federal Reserve Bank of the United States, namely: 1 USD = RMB 6.7896. There is no official statement stating that the RMB has been or may be converted into US dollars at the exchange rate on September 30, 2020 or any other specific date. The percentages in this announcement are converted on the basis of RMB.

telephone conference

NetEase’s management will hold a conference call at 7:00 am on Thursday, November 19, 2020, New York time (8 pm on Thursday, November 19, 2020, Beijing/Hong Kong time). NetEase’s management will discuss the company’s quarterly results and Answer question.

Interested parties please dial 1-646-828-8143 15 minutes before the start of the meeting and provide the meeting number: 5158324. The playback of the conference call is reserved until December 2, 2020. The phone number is 1-719-457-0820 and the password is 5158324#.

At the same time, the company’s investor relations website ir.netease.com/ will conduct a live broadcast of the financial report release and retain the playback for 12 months.

[1] As used in this announcement, non-GAAP net profit from continuing operations attributable to shareholders of the company, basic and diluted continuing operations net profit per ADS, and basic and diluted continuing operations net profit per share are Defined as the net profit excluding share-based incentive expenses. Please refer to the “Unaudited GAAP and Non-GAAP Reconciliations” at the end of this announcement.

[2] Effective October 1, 2020, the company will change the ratio of American depositary shares to common shares representing common shares from one American depositary share equal to 25 common shares to one American depositary share. The shares are equal to five ordinary shares. All relevant data in this announcement, including historical data, have been revised to reflect the changes in the ratio.

References:

dtech