HANGZHOU, China, Aug. 22, 2024 /PRNewswire/ -- NetEase, Inc. (NASDAQ:NTES, ", NetEase", or the ", Company", )), a leading internet and game services provider, today announced its unaudited financial results for the second quarter ended June 30, 2024.
Second Quarter 2024 Financial Highlights
Net revenues were RMB25.5 billion (US$3.5 billion), an increase of 6.1% compared with the same quarter of 2023.
Games and related value-added services net revenues were RMB20.1 billion (US$2.8 billion), an increase of 6.7% compared with the same quarter of 2023.
Youdao net revenues were RMB1.3 billion (US$181.9 million), an increase of 9.5% compared with the same quarter of 2023.
Cloud Music net revenues were RMB2.0 billion (US$280.8 million), an increase of 4.7% compared with the same quarter of 2023.
Innovative businesses and others net revenues were RMB2.1 billion (US$284.5 million), which was relatively stable compared with the same quarter of 2023.
Gross profit was RMB16.0 billion (US$2.2 billion), an increase of 11.6% compared with the same quarter of 2023.
Total operating expenses were RMB9.0 billion (US$1.2 billion), an increase of 8.9% compared with the same quarter of 2023.
Net income attributable to the Company's shareholders was RMB6.8 billion (US$930.0 million). Non-GAAP net income attributable to the Company's shareholders was RMB7.8 billion (US$1.1 billion).[1]
Basic net income per share was US$0.29 (US$1.45 per ADS). Non-GAAP basic net income per share was US$0.33 (US$1.67 per ADS).[1]
[1] As used in this announcement, non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement.
Second Quarter 2024 and Recent Operational Highlights
Launched popular new titles, further enhancing our appeal in diversified genres:
Lost Light mobile game, a multiplayer tactical shooter game, topped the iOS download charts in China following its June launch.
Once Human, a multiplayer open-world survival game set in a post-apocalyptic world, attained over 230,000 peak concurrent users on Steam soon after its launch, ranking among the top 5 most-played games in the world.
Naraka: Bladepoint mobile game hit the top 3 on iOS grossing charts soon after launch in China, and topped the iOS download chart for over a week.
Generated continued popularity of hit games, with Naraka: Bladepoint reaching record-high DAUs on its three-year anniversary, and Identity V continuing its strong performance, hitting record-high DAUs in July and August, consecutively.
Brought highly anticipated NetEase titles to partners' world-leading gaming platforms:
Unveiled plans to bring Where Winds Meet and Marvel Rivals to consoles at PlayStation State of Play. Marvel Rivals also announced during Gamescom its release date for December 6th.
Announced FragPunk, a 5v5 first-person hero shooter game, at the Xbox Games Showcase 2024, highlighting its innovative shooting experience with unique card mechanics.
Eggy Party joined Nintendo Direct with upcoming plans for a worldwide release on Switch.
Brought World of Warcraft back to China with players enthusiastically welcoming the unfolding return of Blizzard's game portfolio.
Youdao continued to drive growth in digital content services, online marketing services and AI-driven subscription services, recording historic-high operating cash flow and significantly narrowed operating loss compared with the same quarter of last year.
Cloud Music continued to propel quality development across its music-centric ecosystem, further augmented its unique community, and kept bringing users high-quality music experiences.
"The robust R&D and operating capabilities we've built over the past two decades have shaped our formidable games portfolio of time-honored titles and newer innovative hits that redefine genres and diversify our offerings," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "With a growing portfolio of games that feature higher quality and cover more genres, we are thrilled to bring exciting NetEase gaming experiences to more players around the globe. As we expand our reach to players in China and worldwide, innovation remains our priority. We will continue to explore opportunities with talent and partners in the industry to drive the next wave of gaming trends.
"Alongside our games, Cloud Music and Youdao are also on track for continued growth this year. Superior content is the thread that connects our NetEase family, and we continue to bring experiences that resonate with our users across our businesses," Mr. Ding concluded.
Second Quarter 2024 Financial Results
Net Revenues
Net revenues for the second quarter of 2024 were RMB25.5 billion (US$3.5 billion), compared with RMB26.9 billion and RMB24.0 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from games and related value-added services were RMB20.1 billion (US$2.8 billion) for the second quarter of 2024, compared with RMB21.5 billion and RMB18.8 billion for the preceding quarter and the same quarter of 2023, respectively. Net revenues from the operation of online games accounted for approximately 96.1% of the segment's net revenues for the second quarter of 2024, compared with 95.2% and 91.7% for the preceding quarter and the same quarter of 2023, respectively. Net revenues from mobile games accounted for approximately 76.4% of net revenues from the operation of online games for the second quarter of 2024, compared with 78.6% and 73.6% for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from Youdao were RMB1.3 billion (US$181.9 million) for the second quarter of 2024, compared with RMB1.4 billion and RMB1.2 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from Cloud Music were RMB2.0 billion (US$280.8 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB1.9 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from innovative businesses and others were RMB2.1 billion (US$284.5 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB2.1 billion for the preceding quarter and the same quarter of 2023, respectively.
Gross Profit
Gross profit for the second quarter of 2024 was RMB16.0 billion (US$2.2 billion), compared with RMB17.0 billion and RMB14.4 billion for the preceding quarter and the same quarter of 2023, respectively.
The quarter-over-quarter decrease in games and related value-added services' gross profit was primarily due to lower net revenues from certain mobile games. The year-over-year increase was primarily due to increased net revenues from mobile games such as Identity V and Justice mobile game, launched in 2023.
The quarter-over-quarter decrease in Youdao's gross profit was primarily due to lower net revenues from its learning services. The year-over-year increase was primarily due to higher net revenues from its online marketing services.
The quarter-over-quarter decrease in Cloud Music's gross profit primarily resulted from the one-off adjustment of certain copyright costs in the preceding quarter. The year-over-year increase was primarily due to 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 gross profit from Yanxuan and several other businesses included within the segment.
Gross Profit Margin
Gross profit margin for games and related value-added services for the second quarter of 2024 was 70.0%, compared with 69.5% and 67.4% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly attributable to changes in product mix.
Gross profit margin for Youdao for the second quarter of 2024 was 48.2%, compared with 49.0% and 47.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased revenue contribution from its learning services. The year-over-year increase was mainly due to the improvement of gross profit margin from its online marketing services.
Gross profit margin for Cloud Music for the second quarter of 2024 was 32.1%, compared with 38.0% and 27.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to the factors enumerated above. The one-off adjustment of copyright costs mentioned above increased the gross profit margin in the preceding quarter by approximately five percentage points.
Gross profit margin for innovative businesses and others for the second quarter of 2024 was 34.0%, compared with 33.4% and 29.5% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly due to changes in the product mix within the segment.
Operating Expenses
Total operating expenses for the second quarter of 2024 were RMB9.0 billion (US$1.2 billion), compared with RMB9.4 billion and RMB8.3 billion for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to games and related value-added services. The year-over-year increase was mainly due to increased research and development investments and marketing expenditures associated with games and related value-added services.
Other Income/(Expenses)
Other income/(expenses) consisted of investment income, interest income, exchange gains/(losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to net exchange losses in the second quarter of 2024 compared with net exchange gains recorded in the preceding quarter and the same quarter of 2023.
Income Tax
The Company recorded a net income tax charge of RMB1.3 billion (US$179.0 million) for the second quarter of 2024, compared with RMB1.5 billion and RMB712.1 million for the preceding quarter and the same quarter of 2023, respectively. The effective tax rate for the second quarter of 2024 was 16.0%, compared with 16.0% and 8.0% for the preceding quarter and the same quarter of 2023, respectively. 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 RMB6.8 billion (US$930.0 million) for the second quarter of 2024, compared with RMB7.6 billion and RMB8.2 billion for the preceding quarter and the same quarter of 2023, respectively.
NetEase reported basic net income of US$0.29 per share (US$1.45 per ADS) for the second quarter of 2024, compared with US$0.33 per share (US$1.64 per ADS) and US$0.35 per share (US$1.76 per ADS) for the preceding quarter and the same quarter of 2023, respectively.
Non-GAAP net income attributable to the Company's shareholders totaled RMB7.8 billion (US$1.1 billion) for the second quarter of 2024, compared with RMB8.5 billion and RMB9.0 billion for the preceding quarter and the same quarter of 2023, respectively.
NetEase reported non-GAAP basic net income of US$0.33 per share (US$1.67 per ADS) for the second quarter of 2024, compared with US$0.36 per share (US$1.82 per ADS) and US$0.39 per share (US$1.93 per ADS) for the preceding quarter and the same quarter of 2023, respectively.
Other Financial Information
As of June 30, 2024, the Company's net cash (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 RMB116.1 billion (US$16.0 billion), compared with RMB110.9 billion as of December 31, 2023. Net cash provided by operating activities was RMB6.5 billion (US$898.8 million) for the second quarter of 2024, compared with RMB9.6 billion and RMB7.7 billion for the preceding quarter and the same quarter of 2023, respectively.
Quarterly Dividend
The board of directors has approved a dividend of US$0.0870 per share (US$0.4350 per ADS) for the second quarter of 2024 to holders of ordinary shares and holders of ADSs as of the close of business on September 6, 2024, 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 6, 2024 (Beijing/ Hong Kong Time). The payment date is expected to be September 17, 2024 for holders of ordinary shares and on or around September 20, 2024 for holders of ADSs.
NetEase paid a dividend of US$0.0990 per share (US$0.4950 per ADS) for the first quarter of 2024 in June 2024.
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 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 and will be in effect for a period not to exceed 36 months from such date. As of June 30, 2024, approximately 11.9 million ADSs had been repurchased under this program for a total cost of US$1.1 billion.
The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) 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 a simultaneous webcast at 8:00 a.m. New York Time on Thursday, August 22, 2024 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, August 22, 2024). 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: 10040836, 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: 10040836. The replay will be available through August 29, 2024.
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, ", 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.
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 expressions. 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; risks related to economic uncertainty and capital market disruption; risks related to the expansion of NetEase's businesses and operations internationally; risks associated with cybersecurity threats or incidents; 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 attributable to the Company's shareholders and non-GAAP basic and diluted net income 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 attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income 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 this non-GAAP financial measure 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 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 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 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 the 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:Email: (+86) 571-8985-3378
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
June 30,
June 30,
2023
2024
2024
RMB
RMB
USD (Note 1)
Assets
Current assets:
Cash and cash equivalents
21,428,902
18,982,239
2,612,043
Time deposits
100,856,034
93,456,225
12,860,005
Restricted cash
2,777,206
2,869,827
394,901
Accounts receivable, net
6,422,417
6,364,847
875,832
Inventories
695,374
574,441
79,046
Prepayments and other current assets, net
6,076,595
5,487,749
755,139
Short-term investments
4,436,057
10,417,802
1,433,537
Total current assets
142,692,585
138,153,130
19,010,503
Non-current assets:
Property, equipment and software, net
8,075,044
8,092,032
1,113,501
Land use rights, net
4,075,143
4,022,255
553,481
Deferred tax assets
1,560,088
1,504,697
207,053
Time deposits
1,050,000
3,940,000
542,162
Restricted cash
550
3,250
447
Other long-term assets
28,471,568
27,627,257
3,801,637
Total non-current assets
43,232,393
45,189,491
6,218,281
Total assets
185,924,978
183,342,621
25,228,784
Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
Current liabilities:
Accounts payable
881,016
792,003
108,983
Salary and welfare payables
4,857,206
3,606,360
496,252
Taxes payable
2,571,534
2,381,220
327,667
Short-term loans
19,240,163
13,187,247
1,814,626
Contract liabilities
13,362,166
13,615,857
1,873,604
Accrued liabilities and other payables
12,930,399
12,345,208
1,698,757
Total current liabilities
53,842,484
45,927,895
6,319,889
Non-current liabilities:
Deferred tax liabilities
2,299,303
1,448,781
199,359
Long-term loans
427,997
427,997
58,894
Other long-term liabilities
1,271,113
1,192,543
164,099
Total non-current liabilities
3,998,413
3,069,321
422,352
Total liabilities
57,840,897
48,997,216
6,742,241
Redeemable noncontrolling interests
115,759
119,498
16,443
NetEase, Inc.'s shareholders' equity
124,285,776
130,909,906
18,013,803
Noncontrolling interests
3,682,546
3,316,001
456,297
Total equity
127,968,322
134,225,907
18,470,100
Total liabilities, redeemable noncontrolling interests and shareholders' equity
185,924,978
183,342,621
25,228,784
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,
2023
2024
2024
2024
2023
2024
2024
RMB
RMB
RMB
USD (Note 1)
RMB
RMB
USD (Note 1)
Net revenues
24,011,301
26,851,741
25,485,805
3,506,963
49,057,588
52,337,546
7,201,886
Cost of revenues
(9,635,888)
(9,835,821)
(9,443,587)
(1,299,481)
(19,785,629)
(19,279,408)
(2,652,935)
Gross profit
14,375,413
17,015,920
16,042,218
2,207,482
29,271,959
33,058,138
4,548,951
Operating expenses:
Selling and marketing expenses
(3,271,705)
(4,022,204)
(3,501,737)
(481,855)
(6,176,751)
(7,523,941)
(1,035,329)
General and administrative expenses
(1,132,147)
(1,196,475)
(1,091,441)
(150,187)
(2,153,825)
(2,287,916)
(314,828)
Research and development expenses
(3,908,907)
(4,174,758)
(4,455,717)
(613,127)
(7,658,639)
(8,630,475)
(1,187,593)
Total operating expenses
(8,312,759)
(9,393,437)
(9,048,895)
(1,245,169)
(15,989,215)
(18,442,332)
(2,537,750)
Operating profit
6,062,654
7,622,483
6,993,323
962,313
13,282,744
14,615,806
2,011,201
Other income/(expenses):
Investment income, net
287,691
179,291
103,674
14,266
759,059
282,965
38,937
Interest income, net
935,578
1,277,597
1,186,219
163,229
1,711,608
2,463,816
339,032
Exchange gains/(losses), net
1,464,956
15,011
(239,375)
(32,939)
1,078,388
(224,364)
(30,874)
Other, net
120,826
193,888
85,694
11,792
378,859
279,582
38,472
Income before tax
8,871,705
9,288,270
8,129,535
1,118,661
17,210,658
17,417,805
2,396,768
Income tax
(712,090)
(1,485,910)
(1,300,939)
(179,015)
(2,340,649)
(2,786,849)
(383,483)
Net income
8,159,615
7,802,360
6,828,596
939,646
14,870,009
14,630,956
2,013,285
Accretion of redeemable noncontrolling interests
(868)
(958)
(960)
(132)
(1,728)
(1,918)
(264)
Net loss/(income) attributable to noncontrolling interests and redeemable noncontrolling interests
84,020
(167,456)
(68,887)
(9,479)
129,120
(236,343)
(32,522)
Net income attributable to the Company's shareholders
8,242,767
7,633,946
6,758,749
930,035
14,997,401
14,392,695
1,980,499
Net income per share *
Basic
2.56
2.38
2.10
0.29
4.66
4.48
0.62
Diluted
2.54
2.35
2.08
0.29
4.61
4.43
0.61
Net income per ADS *
Basic
12.80
11.88
10.50
1.45
23.29
22.39
