Record Peak Concurrent Users for Fantasy Westward Journey
BEIJING, May 22 /Xinhua-PRNewswire-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 quarter ended March 31, 2007.
(Logo: http://www.prnasia.com/sa/200611141244.jpg )
Highlights for the First Quarter 2007
-- Online game revenues increased 6.7% to RMB481.9 million (US$62.4
million) compared to the preceding quarter;
-- Net profit for the quarter was RMB301.5 million (US$39.0 million),
equivalent to US$0.31 (basic) and US$0.29 (diluted) earnings per
American Depositary Share (ADS) compared to RMB320.2 million,
equivalent to US$0.32 (basic) and US$0.30 (diluted) earnings per ADS
for the preceding quarter; and
-- Fantasy Westward Journey reported record peak concurrent user (PCU)
numbers of approximately 1,503,000;
William Ding, Chief Executive Officer and Director of NetEase stated, "Fantasy Westward Journey's record PCU during the first quarter, driven in part by major weekend events and the Chinese Valentine's Day holiday, is a strong indicator of the popularity and long lifecycle of this game. We continue to have positive expectations for Fantasy Westward Journey and plan to release an expansion pack in the second half of the year to capitalize on this game's momentum. In addition, Westward Journey III, the upgraded version of Westward Journey Online II entered internal closed beta testing on May 20, 2007. We are confident in our ability to migrate the existing players to the upgraded version and will launch our marketing campaign concurrent with the internal closed beta. Clearly, we were not satisfied with the results of the open beta testing for Tianxia II in March. We are therefore delaying the commercial launch to allow time to correct certain design issues that will gear the game toward a broader audience of both experienced gamers and beginners."
Mr. Ding continued, "We plan to increase our marketing spending around each of our MMORPGs (massively multiplayer online role-playing games) as necessary in order to stay ahead of the competition and promote our games in an increasingly competitive market. Despite a temporary setback with our Tianxia II testing, NetEase continues to benefit from a number of core competitive strengths in the MMORPG market including game self development, ample resources and funding for sales and marketing investment and superior customer service."
"Marketing for our new proprietary search engine will begin at the end of the second quarter of 2007, and with regard to our portal strategy, we are continuing to see positive trends as we continually enhance the quality of our content," Mr. Ding added.
First Quarter 2007 Financial Results
Total revenues for the first quarter of 2007 were RMB554.6 million (US$71.8 million), compared to RMB540.3 million (US$69.2 million) and RMB529.8 million (US$66.1 million) for the fourth and first quarters of 2006, respectively.
Revenues from online games were RMB481.9 million (US$62.4 million) for the first quarter of 2007, compared to RMB451.6 million (US$57.9 million) and RMB450.6 million (US$56.2 million) for the fourth and first quarters of 2006, respectively.
Revenues from advertising services were RMB56.2 million (US$7.3 million) for the first quarter of 2007, compared to RMB72.1million (US$9.2 million) and RMB61.6 million (US$7.7 million) for the fourth and first quarters of 2006, respectively.
Revenues from wireless value-added services and others remained relatively flat at RMB16.6 million (US$2.1 million) for the first quarter of 2007 and the fourth quarter of 2006, compared to RMB17.6 million (US$2.2 million) for the first quarter of 2006.
Gross profit for the first quarter of 2007 was RMB430.1 million (US$55.7 million), compared to RMB456.7 million (US$58.5 million) and RMB420.8 million (US$52.5 million) for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease in gross profit was primarily due to a one-time business tax refund of RMB35.5 million (US$4.5 million) recorded in the fourth quarter of 2006. The year-over-year increase in gross profit was mainly due to higher online game services revenue in the first quarter of 2007.
Gross margin for the online game business for the first quarter of 2007 was 89.6%, compared to 90.3% and 90.4% for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease was primarily due to a one-time business tax refund of RMB35.5 million (US$4.5 million) recorded in the fourth quarter of 2006. The year-over-year decrease was primarily due to higher staff-related costs as a result of an increase in headcount and increased server custody fees and deprecation charges for enhancing the Company's online game development and on-going business capacity requirements.
Gross margin for the advertising business for the first quarter of 2007 was 35.7%, compared to 50.5% and 51.2% for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decline in gross margin was primarily due to the seasonal decline in demand for advertising services while costs remained relatively stable in the first quarter of 2007. The year-over-year decline in gross margin was due to lower advertising services revenue as a result of increased competition, increased production costs for content enhancement and higher server custody fees and depreciation charges to support the Company's online advertising business capacity requirements.
Gross loss margin for the wireless value-added services and others business for the first quarter of 2007 was 36.1%, compared to gross loss margin of 18.9% and 12.0% for the fourth and the first quarters of 2006, respectively. The quarter-over-quarter and the year-over-year decline in gross margin was mainly due to higher server depreciation costs and server custody fees to support the Company's expanding free email and photo storage capacities offered to its registered email account-holders.
Total operating expenses for the first quarter of 2007 were RMB117.7 million (US$15.2 million), compared to RMB123.9 million (US$15.9 million) and RMB113.5 million (US$14.2 million) for the fourth and first quarters of 2006, respectively. The quarter-over-quarter decrease was due to a reversal of provision for doubtful debts of approximately RMB8.2 million (US$1.0 million) as a result of the collection of outstanding accounts receivables with respect to the advertising business during the first quarter of 2007, compared to an increase in provision for doubtful debts of RMB4.3 million (US$0.6 million) made during the fourth quarter of 2006. This was partially offset by an overall increase in selling and marketing costs of RMB6.3 million (US$0.8 million). The increase in selling and marketing costs was mainly in relation to the marketing of Tianxia II during the first quarter of 2007. The year-over-year increase was mainly due to an increase in research and development expenses associated with increased staffing for enhancement of existing products and for the development of new products.
Net profit for the first quarter of 2007 totaled RMB301.5 million (US$39.0 million), compared to RMB320.2 million (US$41.0 million) and RMB293.7 million (US$36.6 million) for the fourth and first quarters of 2006, respectively. NetEase reported basic and diluted earnings per ADS of US$0.31 and US$0.29 for the first quarter of 2007, respectively. The Company reported basic and diluted earnings per ADS of US$0.32 and US$0.30 and US$0.28 and US$0.26 for the fourth and first quarters of 2006, respectively.
Other Information
As of March 31, 2007, the Company's total cash and time deposit balance was RMB4.0 billion (US$520.6 million), compared to RMB3.9 billion (US$504.6 million) and RMB3.8 billion (US$469.8 million) as of December 31, 2006 and March 31, 2006, respectively. Cash flow generated from operating activities was approximately RMB277.0 million (US$35.9 million) for the first quarter of 2007, compared to RMB531.5 million (US$68.1 million) for the preceding quarter and RMB412.4 million (US$51.4 million) for the first quarter of 2006.
On March 13, 2007, the Company's Board authorized a share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed three months. As of March 31, 2007, the Company had effected transactions in the open market purchasing approximately 1.1 million ADSs for an aggregate purchase consideration of approximately US$20.8 million (including transaction costs). With respect to the separate share repurchase program of up to US$100 million authorized by the Company's Board on August 28, 2006, the Company had repurchased approximately 3.6 million of its issued and outstanding ADSs for an aggregate purchase consideration of US$60.1 million (including transaction costs) when the share repurchase program ended on February 27, 2007.
Other Announcements
The Company also announced today that Denny Lee, Chief Financial Officer and a Director, submitted his resignation as an employee of the Company effective June 30, 2007 for personal reasons. He will remain a member of the Board of Directors of the Company following his resignation from management. Onward Choi, currently the Company's Financial Controller, has been named as the Acting Chief Financial Officer. "We would like to thank Denny for his unceasing dedication to NetEase," said William Ding. "As a member of our executive team, Denny has made valuable contributions during a remarkable period of growth for our Company. We look forward to continuing to benefit from his guidance as a member of our Board," added Mr. Ding.
"We are extremely pleased to name Onward as our Acting Chief Financial Officer. He has been invaluable in his role as our Financial Controller, and with his broad base of financial experience and expertise, he is well-prepared to take on this new leadership role and to help NetEase in achieving future growth," said Mr. Ding.
Mr. Choi has served as Financial Controller for NetEase since January 2005. Previously, he was Corporate Finance Director since joining NetEase in November 2003. Prior to joining the Company, Mr. Choi worked in the Beijing office of Ernst & Young for three years, culminating in the position of Senior Manager in one of the audit departments where he specialized in auditing international clients. During his employment with Ernst & Young, he also worked with a number of Chinese companies with respect to accounting and other aspects of their initial public offerings on the Hong Kong Stock Exchange, due diligence work in relation to potential investments in Chinese companies, and financial and operational reviews of Chinese companies in connection with proposed investments in such companies by foreign investors. Prior to that, Mr. Choi worked at the Hong Kong office of KPMG for five years and at the Hong Kong Trade Development Council for three years. Mr. Choi graduated with a Bachelor of Arts degree with honors from the Hong Kong Polytechnic University with a major in Accountancy. He is a member of the Institute of Chartered Accountants in England and Wales, a fellow member of the Association of Charted Certified Accountants, United Kingdom and a fellow (practicing) member of the Hong Kong Institute of Certified Public Accountants.
In addition, the Company announced that Mr. Donghua Ding has resigned from its Board of Directors, on which he had served since June 2003. William Ding stated, "Donghua has been an important contributor to our board, and we will miss him. We understand that he is resigning due to his retirement and sincerely wish him every happiness in the future."
** 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$1.00 = RMB7.7232 on March 31, 2007 in The City of New York for the cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2007, 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 release is preliminary. The audit of the financial statements and related notes to be included in our annual report on Form 20-F for the year ended December 31, 2006 is still in progress. In addition, because an audit of our internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, we make no representation as to the effectiveness of those internal controls as of the end of fiscal 2006.
Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between our audited financial statements and this preliminary unaudited financial information.
Conference Call
NetEase's management team will host a conference call at 8:00 pm Eastern Time on Monday, May 21, 2007 (Beijing/Hong Kong Time: 8:00 am, Tuesday, May 22, 2007). Chief Executive Officer William Ding, Acting Chief Financial Officer Onward Choi, and Co-Chief Operating Officer Michael Tong will be on the call to discuss the quarterly results and answer questions.
Interested parties may participate in the conference call by dialing 888-208-1812 (international: 719-457-2654), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 888-203-1112 (international 719-457-0820), and entering passcode 6823345. The replay will be available through June 3, 2007 Eastern Time.
This call is being webcast live and archived, and will be available for 12 months on NetEase's corporate web site at http://corp.netease.com, Investor Info: Earnings Call.
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. For the month of March 2007, the NetEase websites had more than 676 million average daily page views, making the Group one of the most popular destinations in China and on the World Wide Web. In particular, NetEase provides online game services to Internet users through the licensing or in-house development of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II and Datang.
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 ads 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 which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.
Other community services which the NetEase websites offer include instant messaging, online personal ads, matchmaking, alumni clubs, personal home pages and community forums. NetEase is also the largest provider of free e-mail services in China. Furthermore, the NetEase websites 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.
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 NetEase will not be able to adequately address feedback from gamers to enhance the appeal Tianxia II; 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 or expansion packs and other improvements to its existing games 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 changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenue or cause revenue to decline; the risk that NetEase may not be able to continuously develop new and creative online 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), general competition and price pressures in the marketplace; the risk that security, reliability and confidentiality concerns may impede broad use of the Internet and e-commerce and other services; 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 applicable law.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31, March 31,
2006 2007 2007
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 1,206,476,526 1,507,868,910 195,238,879
Time deposits 2,731,396,687 2,512,617,696 325,333,760
Accounts receivable, net 131,724,899 76,278,041 9,876,481
Prepayments and other
current assets 33,913,350 53,315,255 6,903,260
Deferred tax assets 25,574,468 26,004,827 3,367,105
Total current assets 4,129,085,930 4,176,084,729 540,719,485
Non-current assets:
Non-current rental deposits 3,353,209 3,074,885 398,136
Property, equipment and
software, net 224,207,833 221,572,914 28,689,263
Deferred tax assets 6,687,329 375,697 48,645
Other long-term assets 11,458,497 11,505,782 1,489,769
Total non-current assets 245,706,868 236,529,278 30,625,813
Total assets 4,374,792,798 4,412,614,007 571,345,298
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable 105,555,248 70,849,229 9,173,559
Salary and welfare payables 54,924,038 48,999,937 6,344,512
Taxes payable 95,476,498 71,778,647 9,293,900
Deferred revenue 385,720,720 341,368,770 44,200,431
Deferred tax liabilities 4,576,722 4,089,877 529,557
Accrued liabilities 31,340,217 23,602,626 3,056,068
Total current liabilities 677,593,443 560,689,086 72,598,027
Long-term payable:
Zero-coupon Convertible
Subordinated Notes due
July 15, 2023 780,253,918 685,279,536 88,730,000
Other long-term payable 11,377,256 11,238,575 1,455,171
Total long-term payable 791,631,174 696,518,111 90,185,171
Total liabilities 1,469,224,617 1,257,207,197 162,783,198
Minority interests - - -
Shareholders' equity 2,905,668,181 3,155,406,810 408,562,100
Total liabilities and
shareholders' equity 4,374,892,798 4,412,614,007 571,345,298
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
March 31, December 31, March 31, March 31,
2006 2006 2007 2007
RMB RMB RMB USD (Note 1)
Revenues:
Online game
services 450,559,604 451,586,343 481,865,952 62,392,007
Advertising
services 61,562,176 72,087,480 56,195,605 7,276,207
Wireless
value-added
services and
others 17,633,673 16,632,276 16,550,555 2,142,966
Total revenues 529,755,453 540,306,099 554,612,112 71,811,180
Business taxes (20,761,791) 13,823,672 (21,316,231) (2,760,026)
Total net
revenues 508,993,662 554,129,771 533,295,881 69,051,154
Total cost of
revenues (88,160,633) (97,406,648) (103,204,518) (13,362,922)
Gross profit 420,833,029 456,723,123 430,091,363 55,688,232
Operating
expenses:
Selling and
marketing
expenses (42,999,177) (36,825,961) (43,089,175) (5,579,187)
General and
administrative
expenses (39,445,469) (49,976,139) (35,181,129) (4,555,253)
Research and
development
expenses (31,024,759) (37,112,476) (39,384,969) (5,099,566)
Total
operating
expenses (113,469,405) (123,914,576) (117,655,273) (15,234,006)
Operating
profit 307,363,624 332,808,547 312,436,090 40,454,226
Other income
(expenses):
Investment
income 32,067 102,885 126,279 16,351
Interest
income 22,808,447 22,661,439 23,262,363 3,012,011
Other, net (2,177,007) 1,283,947 (732,222) (94,808)
Profit before
tax 328,027,131 356,856,818 335,092,510 43,387,780
Income tax (34,369,613) (37,026,868) (33,597,844) (4,350,249)
Profit after
tax 293,657,518 319,829,950 301,494,666 39,037,531
Minority
interests - 400,046 - -
Net profit 293,657,518 320,229,996 301,494,666 39,037,531
Earnings per
share, basic 0.09 0.10 0.10 0.01
Earnings per
ADS, basic 2.25 2.52 2.39 0.31
Earnings per
share,
diluted 0.08 0.09 0.09 0.01
Earnings per
ADS, diluted 2.08 2.34 2.21 0.29
Weighted
average
number of
ordinary
shares
outstanding,
basic 3,267,392,635 3,180,435,508 3,160,128,710 3,160,128,710
Weighted
average
number of
ADS
outstanding,
basic 130,695,705 127,217,420 126,405,148 126,405,148
Weighted
average
number of
ordinary
shares
outstanding,
diluted 3,546,376,948 3,425,090,889 3,410,647,795 3,410,647,795
Weighted
average
number of
ADS
outstanding,
diluted 141,855,078 137,003,636 136,425,912 136,425,912
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31, December 31, March 31, March 31,
2006 2006 2007 2007
RMB RMB RMB USD (Note 1)
Cash flows from
operating
activities:
Net profit 293,657,518 320,229,996 301,494,666 39,037,531
Adjustments to
reconcile net
profit to net
cash provided
by operating
activities:
Depreciation 14,949,734 26,202,590 24,274,997 3,143,127
Non-cash share-
based
compensation
cost 25,995,621 23,055,508 20,237,797 2,620,390
(Reversal)
provision for
doubtful debts 40,773 4,316,554 (8,182,712) (1,059,498)
Amortization of
issuance cost
of convertible
notes 1,903,873 - - -
Loss on disposal
of property,
equipment and
software - 59,986 416,242 53,895
Write-off of
property,
equipment
and
software - 2,024,936 - -
Deferred tax
- non-
current - (6,687,329) 6,311,632 817,230
Non-cash
exchange losses
(gains) 2,103,907 (1,344,778) 531,592 68,831
Share of loss by
minority
interests - (400,046) - -
Other - - 278,324 36,037
Changes in
operating
assets and
liabilities:
Accounts
receivable 7,811,834 (18,262,206) 63,629,570 8,238,757
Prepayments
and other
current
assets (24,248,021) 31,760,833 (19,599,070) (2,537,687)
Deferred tax
assets (1,028,906) (5,934,365) (330,359) (42,775)
Accounts
payable 70,236,516 39,050,562 (23,295,601) (3,016,315)
Salary and
welfare
payables (6,327,748) 13,764,854 (6,687,391) (865,883)
Taxes payable 11,251,192 12,922,506 (23,419,176) (3,032,315)
Deferred
revenue 15,945,773 81,097,799 (44,351,950) (5,742,691)
Deferred tax
liabilities 7,031 102,677 (486,845) (63,037)
Accrued
liabilities 116,470 9,563,582 (7,779,795) (1,007,328)
Net cash
provided by
operating
activities 412,415,567 531,523,659 283,041,921 36,648,269
Cash flows from
investing
activities
Purchase of
property,
equipment
and software (21,793,571) (33,496,300) (33,208,899) (4,299,889)
Proceeds
from sales of
property,
equipment
and software - - 14,109 1,827
Net decrease
(increase) in
time deposits
with terms
of three months
or less (110,096,580) (85,380,462) 223,356,370 28,920,185
Placement/
rollover of
matured time
deposits (65,000,000) (655,105,518) (75,000,000) (9,711,001)
Uplift/
placement of
matured
time deposits - 655,507,938 65,000,000 8,416,201
Net decrease
(increase) in
other assets (10,564,836) 583,578 4,355 564
Net cash (used
in) provided
by investing
activities (207,454,987) (117,890,764) 180,165,935 23,327,887
Cash flows from
financing
activities:
Proceeds from
employees
exercising
stock
options 16,826,137 207,554 1,870,625 242,209
Repurchase of
company
shares - (336,251,381) (160,750,459) (20,813,971)
Payment of
other long-
term payable - - (138,681) (17,956)
Capital
injection
from minority
interests - 400,046 - -
Net cash
provided by
(used in)
financing
activities 16,826,137 (335,643,781) (159,018,515) (20,589,718)
Effect of
exchange rate
changes on cash
held in
foreign
currencies (7,958,375) (8,871,965) (2,796,957) (362,150)
Net increase in
cash 213,828,342 69,117,149 301,392,384 39,024,288
Cash, beginning
of the quarter 1,685,744,081 1,137,359,377 1,206,476,526 156,214,591
Cash, end of
the quarter 1,899,572,423 1,206,476,526 1,507,868,910 195,238,879
Supplemental
disclosures of
cash flow
information:
Cash paid for
income taxes,
net of tax
refund 25,507,306 16,946,423 45,443,563 5,884,033
Supplemental
schedule of
non-cash
investing and
financing
activities:
Treasury
stock
cancellation - 282,862,720 188,802,099 24,446,097
Fixed asset
purchases
financed by
accounts
payable 1,332,680 19,262,046 9,518,303 1,232,430
Conversion of
convertible
notes to
ordinary
shares - - 86,886,000 11,250,000
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
March 31, December 31, March 31, March 31,
2006 2006 2007 2007
RMB RMB RMB USD (Note 1)
Revenues:
Online game services 450,559,604 451,586,343 481,865,952 62,392,007
Advertising services 61,562,176 72,087,480 56,195,605 7,276,207
Wireless value-added
services and others 17,633,673 16,632,276 16,550,555 2,142,966
Total revenues 529,755,453 540,306,099 554,612,112 71,811,180
Business taxes:
Online game services (14,868,467) 20,578,370 (15,901,576) (2,058,936)
Advertising services (5,232,785) (6,127,436) (4,776,626) (618,478)
Wireless value-added
services and others (660,539) (627,262) (638,029) (82,612)
Total business taxes (20,761,791) 13,823,672 (21,316,231) (2,760,026)
Net revenues:
Online game services 435,691,137 472,164,713 465,964,376 60,333,071
Advertising services 56,329,391 65,960,044 51,418,979 6,657,729
Wireless value-added
services and others 16,973,134 16,005,014 15,912,526 2,060,354
Total net revenues 508,993,662 554,129,771 533,295,881 69,051,154
Cost of revenues:
Online game services (41,630,463) (45,733,082) (48,506,860) (6,280,669)
Advertising services (27,512,062) (32,636,526) (33,039,634) (4,277,972)
Wireless value-added
services and others (19,018,108) (19,037,040) (21,658,024) (2,804,281)
Total cost of
revenues (88,160,633) (97,406,648) (103,204,518) (13,362,922)
Gross profit/(loss):
Online game services 394,060,674 426,431,631 417,457,516 54,052,402
Advertising services 28,817,329 33,323,518 18,379,345 2,379,757
Wireless value-added
services and others (2,044,974) (3,032,026) (5,745,498) (743,927)
Total gross profit 420,833,029 456,723,123 430,091,363 55,688,232
Gross profit/(loss)
margin:
Online game services 90.4% 90.3% 89.6% 89.6%
Advertising services 51.2% 50.5% 35.7% 35.7%
Wireless value-added
services and others -12.0% -18.9% -36.1% -36.1%
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 = RMB7.7232 on March 31, 2007 in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York.
Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of operations is set out as follows:
Quarter Ended
December
March 31, 31, March 31, March 31,
2006 2006 2007 2007
RMB RMB RMB USD (Note 1)
Share-based compensation cost
included in:
Cost of revenue 4,434,511 3,650,046 3,124,056 404,503
Operating expenses
- Selling and marketing
expenses 5,365,664 4,943,118 3,508,632 454,298
- General and administrative
expenses 9,364,705 8,940,057 8,006,729 1,036,711
- Research and development
expenses 6,830,741 5,522,287 5,598,380 724,878
