BEIJING, Feb. 21 /Xinhua-PRNewswire/ -- 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 and fiscal year ended December 31, 2007.
(Logo: http://www.prnasia.com/sa/200611141244.jpg )
William Ding, Chief Executive Officer and Director of NetEase stated, "As fiscal 2007 drew to a close, peak concurrent users for Fantasy Westward Journey hit an all-time high allowing us to conclude the year on a decidedly positive note. We believe that the ongoing diversification in our product offerings, including an intensified focus on item-based games and exploration of strategic licensing opportunities, will allow us to attract a larger array of game players and further solidify our leading position in the Chinese MMORPG market in 2008 and beyond."
Mr. Ding continued, "We are pleased with our improved content and successful integration of our email and blog services, allowing us to retain and grow traffic on the NetEase websites, while providing a solid platform to enhance our advertising revenues. As the world turns its attention to Beijing during the 2008 Olympic Games, we remain focused on capturing domestic market share and building capacity to capitalize on our enhanced marketing initiatives related to our advertising service business."
Fourth Quarter 2007 Financial Results
Total revenues for the fourth quarter of 2007 were RMB622.1 million (US$85.3 million), compared to RMB571.1 million (US$78.3 million) and RMB540.3 million (US$74.1 million) for the preceding quarter and the fourth quarter of 2006, respectively.
Revenues from online games were RMB507.0 million (US$69.5 million) for the fourth quarter of 2007, compared to RMB468.7 million (US$64.2 million) and RMB451.6 million (US$61.9 million) for the preceding quarter and the fourth quarter of 2006, respectively.
Revenues from advertising services were RMB98.1 million (US$13.4 million) for the fourth quarter of 2007, compared to RMB85.5 million (US$11.7 million) and RMB72.1 million (US$9.9 million) for the preceding quarter and the fourth quarter of 2006, respectively.
Revenues from wireless value-added services and others were RMB17.0 million (US$2.3 million) for the fourth quarter of 2007, compared to RMB16.9 million (US$2.3 million) and RMB16.6 million (US$2.3 million) for the preceding quarter and the fourth quarter of 2006, respectively.
Gross profit for the fourth quarter of 2007 was RMB488.0 million (US$66.9 million), compared to RMB441.9 million (US$60.6 million) and RMB456.7 million (US$62.6 million) for the preceding quarter and the fourth quarter of 2006, respectively. The quarter-over-quarter increase in gross profit was primarily driven by higher game and advertising revenues reported for the fourth quarter of 2007. The increase in online games revenues resulted in part from the full-quarter contribution of Westward Journey Online III which was commercially launched in mid-September. Higher revenues were also reported for Fantasy Westward Journey and Westward Journey Online II as a result of the October National Holiday week and the December Christmas season, which are usually peak usage periods for online game players in China. The year-over-year increase in gross profit was primarily attributable to the continued growth in revenues from Fantasy Westward Journey during the fourth quarter of 2007, which experienced a new record high number of peak concurrent users of approximately 1.5 million during that quarter. Higher advertising revenues were reported for the fourth quarter of 2007 in comparison to the preceding quarter and the same period of 2006 primarily due to the Company's continuing improvements to its online content and successful integration of its email and blog services, which resulted in increased traffic and created premium ad spaces on screens when users log on for such services.
Gross margin for the online game business for the fourth quarter of 2007 was 90.7%, compared to 89.4% and 90.3% for the preceding quarter and the fourth quarter of 2006, respectively. The quarter-over-quarter increase was primarily due to higher game revenues reported for the fourth quarter of 2007, while related costs were stable. The year-over-year gross margin ratios remained relatively stable.
Gross margin for the advertising business for the fourth quarter of 2007 was 52.0%, compared to 54.0% and 50.5% for the preceding quarter and the fourth quarter of 2006, respectively. The quarter-over-quarter decrease was primarily driven by higher staff-related and content costs during the fourth quarter of 2007. The year-over-year increase was primarily attributable to higher revenues reported for the fourth quarter of 2007, which outpaced the growth in related costs during the period.
Gross loss margin for the wireless value-added services and others business for the fourth quarter of 2007 was 19.5%, compared to 33.3% and 18.9% for the preceding quarter and the fourth quarter of 2006, respectively. The quarter-over-quarter decrease was primarily due to the continued rationalization of operational costs associated with the Company's wireless value-added services business in the fourth quarter of 2007. The year-over-year increase in gross loss margin was mainly due to higher miscellaneous cost of revenues related to that business incurred during the fourth quarter of 2007.
Total operating expenses for the fourth quarter of 2007 were RMB152.8 million (US$21.0 million), compared to RMB179.0 million (US$24.5 million) and RMB123.9 million (US$17.0 million) for the preceding quarter and the fourth quarter of 2006, respectively. The quarter-over-quarter decrease was primarily driven by increased spending on the advertising and marketing promotion of Westward Journey Online III and Fantasy Westward Journey during the third quarter of 2007, which was reduced in the fourth quarter. The year-over-year increase was mainly due to higher marketing spending to promote Westward Journey Online III and Fantasy Westward Journey and higher staff-related cost as a result of an increase in research and development headcount during the fourth quarter of 2007.
Net profit for the fourth quarter of 2007 totaled RMB389.8 million (US$53.4 million), compared to RMB260.2 million (US$35.7 million) and RMB320.2 million (US$43.9 million) for the preceding quarter and the fourth quarter of 2006, respectively. In December 2007, the Company received a reinvestment incentive tax refund of RMB29.9 million (US$4.1 million), which helped reduce the Company's income tax expense for the fourth quarter of 2007. In addition, new corporate income tax laws went into effect as of January 1, 2008, which unify the tax rate generally applicable to domestic and foreign-invested enterprises in China. As the Chinese tax authorities have not yet announced detailed regulations on the applicable requirements and procedures to apply for preferential tax treatment as a high and new technology enterprise and the continued application of a preferential tax rate for the advanced technology enterprise, such as those that have been enjoyed by certain PRC subsidiaries of the Company through 2007, the Company is required under applicable accounting standards to report its deferred tax assets as of December 31, 2007 at the new statutory income tax rate of 25%. The reporting of deferred tax assets at the new statutory income tax rate resulted in a tax benefit of approximately RMB42.0 million (US$5.8 million) for the fourth quarter of 2007. It is expected that the Company will report a higher tax charge in the future quarter if and when confirmation is received from the Chinese tax authorities that such preferential tax treatments will be allowed to continue for the relevant terms, as a result of a reduction to the deferred tax assets to reflect the lower preferred tax rates.
NetEase reported basic and diluted earnings per American depositary share (ADS) of US$0.44 and US$0.41 for the fourth quarter of 2007, respectively. The Company reported basic and diluted earnings per ADS of US$0.29 and US$0.27 and US$0.35 and US$0.32 for the preceding quarter and the fourth quarter of 2006, respectively.
Fiscal Year 2007 Financial Results
Total revenues for fiscal year 2007 were RMB2.31 billion (US$316.1 million), compared to RMB2.22 billion (US$304.0 million) for the preceding year. Revenues from online games were RMB1.93 billion (US$264.9 million) for fiscal 2007, compared to RMB1.86 billion (US$254.4 million) for preceding fiscal year. Revenues from advertising services were RMB305.1 million (US$41.8 million) for fiscal 2007, compared to RMB285.8 million (US$39.2 million) for the preceding fiscal year. Revenues from wireless value-added services and others were RMB68.0 million (US$9.3 million) for fiscal 2007, compared to RMB75.4 million (US$10.3 million) for the preceding fiscal year. Gross profit for fiscal 2007 was RMB1.80 billion (US$246.5 million), compared to RMB1.78 billion (US$244.4 million) for the preceding fiscal year. The increased gross profits for fiscal year 2007 were primarily due to higher revenues reported for Fantasy Westward Journey in fiscal year 2007.
Total operating expenses for fiscal 2007 were RMB592.2 million (US$81.2 million), compared to RMB503.2 million (US$69.0 million) for the preceding fiscal year. Higher operating expenses for fiscal 2007 were primarily due to increased marketing costs to promote Westward Journey Online III and Fantasy Westward Journey, as well as higher staff-related costs due to an increase in headcount for the online games research and development team.
Net profit for fiscal 2007 totaled RMB1.26 billion (US$173.3 million), compared to RMB1.24 billion (US$170.4 million) for the preceding fiscal year. In 2007, the Company received reinvestment incentive tax refunds of RM54.4 million (US$7.5 million), which reduced the Company's income tax expense for fiscal 2007. In addition, as mentioned above, the reporting of deferred tax assets at the new statutory income tax rate resulted in a tax benefit of approximately RMB42.0 million (US$5.8 million) for the fourth quarter of 2007. NetEase reported basic and diluted earnings per ADS of US$1.40 and US$1.31 for fiscal 2007, respectively. The Company reported basic and diluted earnings per ADS of US$1.32 and US$1.22 for the preceding fiscal year, respectively.
Other Information
As of December 31, 2007, the Company's total cash and time deposit balance was RMB4.16 billion (US$570.1 million), compared to RMB3.94 billion (US$539.8 million) as of December 31, 2006. As previously announced, the Company had obtained a revolving loan facility, which was taken out to enable the Company at its discretion to fund any redemption requests made by the holders of its zero coupon convertible subordinated notes in accordance with the terms of those notes during a period from May 17, 2007 to July 31, 2008. In December 2007, the Company cancelled such facility with the bank prior to its expiration. As a result of the termination of the loan facility, the related restriction on the Company's cash balance was removed on December 31, 2007, and the outstanding convertible notes as of December 31, 2007 were classified as current liabilities.
Cash flow generated from operating activities was approximately RMB426.6 million (US$58.5 million) for the fourth quarter of 2007, compared to RMB339.2 million (US$46.5 million) and RMB531.5 million (US$72.9 million) for the preceding quarter and the fourth quarter of 2006, respectively.
On July 2, 2007, the Company's Board authorized a share repurchase program of up to US$120 million of the Company's outstanding ADSs. As of December 31, 2007 the Company had spent in aggregate a total purchase consideration of approximately US$35.7 million (including transaction costs). The share repurchase program will end on July 1, 2008.
** The United States dollar (US$) 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$1.00 = RMB7.2946 on December 31, 2007 in The City of New York for the cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 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, 2007 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 2007.
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 Wednesday, February 20, 2008, (Beijing/Hong Kong Time: 9:00 am, Thursday, February 21, 2008). 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 800-240-6709 (international: 303-262-2140), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 800-405-2236 (international 303-590-3000), and entering pass code 11108212#. The replay will be available through March 6, 2008 Easter 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. 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, Westward Journey Online III 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 successful in its product diversification efforts, including its focus on item-based games and exploration of strategic licensing opportunities; 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, December 31, December 31,
2006 2007 2007
RMB RMB USD (Note 1)
Assets
Current assets:
Cash 1,206,476,526 2,482,820,821 340,364,218
Time deposits 2,731,396,687 1,675,813,944 229,733,494
Accounts receivable, net 131,724,899 166,727,514 22,856,293
Prepayments and other
current assets 33,913,350 45,143,728 6,188,650
Deferred tax assets 25,674,468 65,787,113 9,018,605
Total current assets 4,129,185,930 4,436,293,120 608,161,260
Non-current assets:
Non-current rental deposits 3,353,209 3,033,171 415,810
Property, equipment and
software, net 224,207,833 183,471,666 25,151,710
Prepayment for land use
right -- 26,956,800 3,695,446
Investment in an associated
company -- 1,948,958 267,178
Deferred tax assets 5,502,361 19,060,225 2,612,923
Other long-term assets 11,458,497 14,895,441 2,041,982
Total non-current assets 244,521,900 249,366,261 34,185,049
Total assets 4,373,707,830 4,685,659,381 642,346,309
Liabilities and Shareholders'
Equity
Current liabilities:
Zero-coupon convertible
subordinated notes due
July 15, 2023 -- 641,778,908 87,980,000
Accounts payable 105,555,248 89,143,868 12,220,529
Salary and welfare payables 54,924,038 68,653,742 9,411,584
Taxes payable 95,476,498 92,438,670 12,672,205
Deferred revenue 385,720,720 354,966,697 48,661,571
Deferred tax liabilities 3,391,754 -- --
Accrued liabilities 31,340,217 29,844,067 4,091,255
Total current liabilities 676,408,475 1,276,825,952 175,037,144
Long-term payable:
Zero-coupon convertible
subordinated notes due
July 15, 2023 780,253,918 -- --
Other long-term payable 11,377,256 10,200,000 1,398,295
Total long-term payable 791,631,174 10,200,000 1,398,295
Total liabilities 1,468,039,649 1,287,025,952 176,435,439
Shareholders' equity 2,905,668,181 3,398,425,631 465,882,383
Minority interests -- 207,798 28,487
Total liabilities and
shareholders' equity 4,373,707,830 4,685,659,381 642,346,309
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
December 31, September 30,
2006 2007
RMB RMB
Revenues:
Online game services 451,586,343 468,651,024
Advertising services 72,087,480 85,478,302
Wireless value-added
services and others 16,632,276 16,946,709
Total revenues 540,306,099 571,076,035
Business taxes 13,823,672 (23,420,856)
Total net revenues 554,129,771 547,655,179
Total cost of revenues (97,406,648) (105,710,714)
Gross profit 456,723,123 441,944,465
Operating expenses:
Selling and marketing expenses (36,825,961) (83,189,695)
General and administrative
expenses (49,976,139) (48,276,202)
Research and development
expenses (37,112,476) (47,515,112)
Total operating expenses (123,914,576) (178,981,009)
Operating profit 332,808,547 262,963,456
Other income (expenses):
Investment income 102,885 116,843
Interest income 22,661,439 29,194,435
Other, net 1,283,947 (12,164,815)
Profit before tax 356,856,818 280,109,919
Income tax (37,026,868) (19,946,757)
Profit after tax 319,829,950 260,163,162
Minority interests 400,046 --
Net profit 320,229,996 260,163,162
Earnings per share, basic 0.10 0.09
Earnings per ADS, basic 2.52 2.13
Earnings per share, diluted 0.09 0.08
Earnings per ADS, diluted 2.34 1.99
Weighted average number of
ordinary shares outstanding,
basic 3,180,435,508 3,053,681,518
Weighted average number of
ADS outstanding, basic 127,217,420 122,147,261
Weighted average number of
ordinary shares outstanding,
diluted 3,425,090,889 3,261,550,487
Weighted average number of
ADS outstanding, diluted 137,003,636 130,462,019
Quarter Ended
December 31, December 31,
2007 2007
RMB USD(Note 1)
Revenues:
Online game services 506,968,240 69,499,114
Advertising services 98,055,630 13,442,222
Wireless value-added
services and others 17,026,320 2,334,099
Total revenues 622,050,190 85,275,435
Business taxes (25,761,100) (3,531,530)
Total net revenues 596,289,090 81,743,905
Total cost of revenues (108,270,695) (14,842,581)
Gross profit 488,018,395 66,901,324
Operating expenses:
Selling and marketing expenses (59,767,163) (8,193,343)
General and administrative
expenses (44,341,316) (6,078,649)
Research and development
expenses (48,724,456) (6,679,524)
Total operating expenses (152,832,935) (20,951,516)
Operating profit 335,185,460 45,949,808
Other income (expenses):
Investment income 114,007 15,629
Interest income 31,733,301 4,350,246
Other, net (30,144,109) (4,132,387)
Profit before tax 336,888,659 46,183,296
Income tax 52,868,775 7,247,659
Profit after tax 389,757,434 53,430,955
Minority interests 74,364 10,194
Net profit 389,831,798 53,441,149
Earnings per share, basic 0.13 0.02
Earnings per ADS, basic 3.21 0.44
Earnings per share, diluted 0.12 0.02
Earnings per ADS, diluted 3.01 0.41
Weighted average number of
ordinary shares outstanding,
basic 3,033,153,746 3,033,153,746
Weighted average number of
ADS outstanding, basic 121,326,150 121,326,150
Weighted average number of
ordinary shares outstanding,
diluted 3,240,836,099 3,240,836,099
Weighted average number of
ADS outstanding, diluted 129,633,444 129,633,444
Year Ended
December 31, December 31, December 31,
2006 2007 2007
RMB RMB USD(Note 1)
Revenues:
Online game
services 1,856,062,971 1,932,634,947 264,940,497
Advertising
services 285,772,653 305,057,556 41,819,641
Wireless
value-added
services and others 75,406,121 68,018,461 9,324,495
Total revenues 2,217,241,745 2,305,710,964 316,084,633
Business taxes (52,882,275) (92,424,200) (12,670,222)
Total net revenues 2,164,359,470 2,213,286,764 303,414,411
Total cost of revenues (381,298,181) (415,453,046) (56,953,506)
Gross profit 1,783,061,289 1,797,833,718 246,460,905
Operating
expenses:
Selling and marketing
expenses (170,142,691) (235,318,304) (32,259,247)
General and administrative
expenses (179,879,602) (176,178,740) (24,151,940)
Research and development
expenses (153,162,158) (180,734,713) (24,776,508)
Total operating expenses (503,184,451) (592,231,757) (81,187,695)
Operating profit 1,279,876,838 1,205,601,961 165,273,210
Other income (expenses):
Investment income 340,721 474,446 65,041
Interest income 94,364,852 112,599,994 15,436,075
Other, net 280,670 (51,975,334) (7,125,179)
Profit before
tax 1,374,863,081 1,266,701,067 173,649,147
Income tax (132,485,543) (2,689,309) (368,671)
Profit after tax 1,242,377,538 1,264,011,758 173,280,476
Minority
interests 400,046 74,364 10,194
Net profit 1,242,777,584 1,264,086,122 173,290,670
Earnings per share,
basic 0.38 0.41 0.06
Earnings per
ADS, basic 9.61 10.24 1.40
Earnings per
share, diluted 0.36 0.38 0.05
Earnings per
ADS, diluted 8.91 9.55 1.31
Weighted average number
of ordinary shares
outstanding, basic 3,231,832,008 3,086,451,412 3,086,451,412
Weighted average number
Of ADS outstanding,
basic 129,273,280 123,458,056 123,458,056
Weighted average number
of ordinary shares
outstanding, diluted 3,498,405,110 3,307,538,379 3,307,538,379
Weighted average number
of ADS outstanding,
diluted 139,936,204 132,301,535 132,301,535
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
December 31, September 30, December 31, December 31,
2006 2007 2007 2007
RMB RMB RMB USD(Note 1)
Cash flows from
operating
activities:
Net profit 320,229,996 260,163,162 389,831,798 53,441,149
Adjustments to
reconcile net
profit to net
cash provided
by operating
activities:
Depreciation and
amortization 26,202,590 24,019,586 26,752,268 3,667,407
Share-based
compensation
cost 23,055,508 26,072,433 22,060,172 3,024,178
(Reversal)
provision for
doubtful debts 4,316,554 1,067,169 (228,892) (31,378)
Amortization of
issuance cost
of convertible
notes -- -- -- --
Loss on disposal
of property,
equipment
and software 59,986 696,754 38,711 5,307
Write-off of
property,
equipment and
software 2,024,936 -- -- --
Non-cash
exchange
(gains) losses (1,344,778) 11,262,944 30,229,825 4,144,137
Share of loss by
minority interests (400,046) -- (74,364) (10,194)
Net equity share
of loss from an
associated company -- 199,941 351,101 48,132
Others -- -- -- --
Changes in
operating
assets and
liabilities:
Accounts
receivable (18,262,206) (16,898,211) (28,797,530) (3,947,787)
Prepayments
and other
current
assets 31,760,833 2,411,864 19,140,543 2,623,933
Deferred tax
assets (5,934,365) 2,060,348 (45,969,165) (6,301,808)
Deferred tax
assets -
non-current (5,502,361) (5,356,345) (11,939,153) (1,636,711)
Accounts
payable 39,050,562 (12,339,449) 4,839,436 663,427
Salary and
welfare
payables 13,764,854 (10,472,826) 25,160,475 3,449,192
Taxes payable 12,922,506 9,217,774 11,798,902 1,617,484
Deferred
revenue 81,097,799 39,167,706 (14,094,607) (1,932,197)
Deferred tax
liabilities (1,082,291) -- -- --
Accrued
liabilities 9,563,582 7,941,122 (2,499,785) (342,690)
Net cash
provided by
operating
activities 531,523,659 339,213,972 426,599,735 58,481,581
Cash flows from
investing
activities:
Purchase
of
property,
equipment
and
software (33,496,300) (16,472,855) (13,885,112) (1,903,478)
Proceeds
from sale
of
property,
equipment
and
software -- 10,320 25,434 3,487
Prepayment
for land use
right -- -- -- --
Investment in
an associated
company -- (2,500,000) -- --
Net cash
received
upon
closure
of VIE -- (1,217,831) -- --
Transfer from
restricted
cash -- -- 761,580,600 104,403,339
Net change
in time
deposits
with terms
of three
months (85,380,462) (216,493,992) (246,295,721) (33,764,116)
Placement/
rollover
of
matured
time
deposits (655,105,518) (201,035,000) (270,000,000) (37,013,681)
Uplift of
matured
time
deposits 655,507,938 598,179,141 655,105,518 89,806,914
Net
increase
in other
assets 583,578 (2,306) (89,786) (12,309)
Net cash
provided
by (used
in)
investing
activi-
ties (117,890,764) 160,467,477 886,440,933 121,520,156
Cash flows from
financing
activities:
Minority
interests 400,046 -- 282,162 38,681
Proceeds from
employees
exercising
stock
options 207,554 20,819,202 1,618,804 221,918
Repurchase of
company
shares (336,251,381) (231,914,175) (36,478,319) (5,000,729)
Payment of
other long-
term payable -- -- -- --
Net cash
used in
financing
activities (335,643,781) (211,094,973) (34,577,353) (4,740,130)
Effect of
exchange rate
changes on cash
held in foreign
currencies (8,871,965) (3,525,100) (1,064,010) (145,863)
Net increase
(decrease) in
cash 69,117,149 285,061,376 1,277,399,305 175,115,744
Cash, beginning
of the
quarter/year 1,137,359,377 920,360,140 1,205,421,516 165,248,474
Cash, end of the
quarter/year 1,206,476,526 1,205,421,516 2,482,820,821 340,364,218
Supplemental
disclosures of
cash flow
information:
Cash paid for
income tax, net
of refund/(net
tax refund) 16,946,423 19,457,537 (9,165,960) (1,256,540)
Supplemental
schedule of
non-cash
investing and
financing
activities:
Treasury
stock
cancellation 282,862,720 237,971,707 121,821,189 16,700,188
Fixed asset
purchases
financed by
accounts
payable 20,051,899 11,313,407 6,112,886 838,002
Year Ended
December 31, December 31, December 31,
2006 2007 2007
RMB RMB USD(Note 1)
Cash flows from operating
activities:
Net profit 1,242,777,584 1,264,086,122 173,290,670
Adjustments to reconcile net
profit to net cash
provided by operating
activities:
Depreciation and
amortization 78,370,029 99,110,799 13,586,872
Share-based compensation
cost 101,286,676 95,428,175 13,082,029
(Reversal) provision for
doubtful debts 7,487,619 (5,334,898) (731,349)
Amortization of issuance
cost of convertible notes 4,331,016 -- --
Loss on disposal of
property, equipment
and software 586,254 830,169 113,806
Write-off of property,
equipment and software 13,663,387 -- --
Non-cash exchange (gains)
losses 584,612 50,891,073 6,976,541
Share of loss by minority
interests (400,046) (74,364) (10,194)
Net equity share of loss
from an associated company -- 551,042 75,541
Others -- 278,324 38,155
Changes in operating assets
and liabilities:
Accounts receivable (69,580,977) (29,756,151) (4,079,203)
Prepayments and other
current assets (13,921,921) (16,535,100) (2,266,756)
Deferred tax assets (5,744,969) (40,112,645) (5,498,951)
Deferred tax assets -
non-current (5,502,361) (13,557,864) (1,858,617)
Accounts payable 45,117,500 945,594 129,629
Salary and welfare
payables 9,411,771 13,216,566 1,811,829
Taxes payable 23,434,362 (2,750,313) (377,034)
Deferred revenue 154,049,749 (30,754,023) (4,215,999)
Deferred tax liabilities (549,100) (3,391,754) (464,968)
Accrued liabilities 10,707,608 (3,168,330) (434,339)
Net cash provided by
operating activities 1,596,108,793 1,379,902,422 189,167,662
Cash flows from investing
activities:
Purchase of property,
equipment and
software (142,513,502) (71,515,551) (9,803,903)
Proceeds from sale of
property, equipment
and software 148,076 55,675 7,632
Prepayment for land
use right -- (26,956,800) (3,695,446)
Investment in an
associated company -- (2,500,000) (342,719)
Net cash received
upon closure of VIE -- (1,217,831) (166,950)
Transfer from
restricted cash -- -- --
Net change in time
deposits with terms
of three months (563,980,613) 74,476,020 10,209,747
Placement/rollover of
matured time deposits (1,600,926,277) (636,577,729) (87,266,982)
Uplift of matured time
deposits 1,125,107,444 1,530,798,027 209,853,594
Net increase in other
assets (36,077,586) (87,737) (12,028)
Net cash provided
by (used in)
investing
activities (1,218,242,458) 866,474,074 118,782,945
Cash flows from financing
activities:
Minority interests 400,046 282,162 38,681
Proceeds from employees
exercising stock options 44,127,417 43,232,921 5,926,702
Repurchase of company
shares (873,406,019) (1,003,747,328) (137,601,421)
Payment of other long-
term payable (177,256) (177,256) (24,300)
Net cash used in
financing activities (829,055,812) (960,409,501) (131,660,338)
Effect of exchange rate
changes on cash held in
foreign currencies (28,078,078) (9,622,700) (1,319,154)
Net increase (decrease)
in cash (479,267,555) 1,276,344,295 174,971,115
Cash, beginning of the
quarter/year 1,685,744,081 1,206,476,526 165,393,103
Cash, end of the
quarter/year 1,206,476,526 2,482,820,821 340,364,218
Supplemental disclosures of
cash flow information:
Cash paid for income tax,
net of refund/(net tax
refund) 125,238,532 71,797,010 9,842,488
Supplemental schedule of
non-cash investing and
financing activities:
Treasury stock
cancellation 684,603,920 1,192,549,427 163,483,868
Fixed asset
purchases financed
by accounts payable 20,051,899 6,112,886 838,002
The accompanying notes are an integral part of this press release.
NETEASE.COM, INC.
UNAUDITED SEGMENT INFORMATION
Quarter Ended
December 31, September 30, December 31, December 31,
2006 2007 2007 2007
RMB RMB RMB USD (Note 1)
Revenues:
Online game services 451,586,343 468,651,024 506,968,240 69,499,114
Advertising services 72,087,480 85,478,302 98,055,630 13,442,222
Wireless value-added
services and others 16,632,276 16,946,709 17,026,320 2,334,099
Total revenues 540,306,099 571,076,035 622,050,190 85,275,435
Business taxes:
Online game services 20,578,370 (15,465,484) (16,729,952) (2,293,471)
Advertising services (6,127,436) (7,265,655) (8,334,729) (1,142,589)
Wireless value-added
services and others (627,262) (689,717) (696,419) (95,470)
Total business taxes 13,823,672 (23,420,856) (25,761,100) (3,531,530)
Net revenues:
Online game services 472,164,713 453,185,540 490,238,288 67,205,643
Advertising services 65,960,044 78,212,647 89,720,901 12,299,633
Wireless value-added
services and others 16,005,014 16,256,992 16,329,901 2,238,629
Total net revenues 554,129,771 547,655,179 596,289,090 81,743,905
Cost of revenues:
Online game services (45,733,082) (48,094,598) (45,658,298) (6,259,191)
Advertising services (32,636,526) (35,946,007) (43,104,579) (5,909,108)
Wireless value-added
services and others (19,037,040) (21,670,109) (19,507,818) (2,674,282)
Total cost of
revenues (97,406,648) (105,710,714) (108,270,695) (14,842,581)
Gross profit (loss)
Online game services 426,431,631 405,090,942 444,579,990 60,946,452
Advertising services 33,323,518 42,266,640 46,616,322 6,390,525
Wireless value-added
services and others (3,032,026) (5,413,117) (3,177,917) (435,653)
Total gross profit 456,723,123 441,944,465 488,018,395 66,901,324
Gross profit (loss)
margin
Online game services 90.3% 89.4% 90.7% 90.7%
Advertising services 50.5% 54.0% 52.0% 52.0%
Wireless value-added
services and others (18.9%) (33.3%) (19.5%) (19.5%)
Year Ended
December 31, December 31, December 31,
2006 2007 2007
RMB RMB USD(Note 1)
Revenues:
Online game services 1,856,062,971 1,932,634,947 264,940,497
Advertising services 285,772,653 305,057,556 41,819,641
Wireless value-added services
and others 75,406,121 68,018,461 9,324,495
Total revenues 2,217,241,745 2,305,710,964 316,084,633
Business taxes:
Online game services (25,769,359) (63,776,953) (8,743,036)
Advertising services (24,290,676) (25,929,892) (3,554,669)
Wireless value-added services
and others (2,822,240) (2,717,355) (372,517)
Total business taxes (52,882,275) (92,424,200) (12,670,222)
Net revenues:
Online game services 1,830,293,612 1,868,857,994 256,197,461
Advertising services 261,481,977 279,127,664 38,264,972
Wireless value-added services
and others 72,583,881 65,301,106 8,951,978
Total net revenues 2,164,359,470 2,213,286,764 303,414,411
Cost of revenues:
Online game services (178,676,915) (187,411,229) (25,691,776)
Advertising services (125,183,293) (143,676,057) (19,696,221)
Wireless value-added services
and others (77,437,973) (84,365,760) (11,565,509)
Total cost of revenues (381,298,181) (415,453,046) (56,953,506)
Gross profit (loss)
Online game services 1,651,616,697 1,681,446,765 230,505,685
Advertising services 136,298,684 135,451,607 18,568,751
Wireless value-added services
and others (4,854,092) (19,064,654) (2,613,531)
Total gross profit 1,783,061,289 1,797,833,718 246,460,905
Gross profit (loss) margin
Online game services 90.2% 90.0% 90.0%
Advertising services 52.1% 48.5% 48.5%
Wireless value-added services
and others (6.7%) (29.2%) (29.2%)
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 = RMB7.2946
on December 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 31, September 30, December 31, December 31,
2006 2007 2007 2007
RMB RMB RMB USD (Note 1)
Share-based
compensation cost
included in:
Cost of revenue 3,650,046 4,110,297 3,444,268 472,167
Operating expenses
- Selling and
marketing
expenses 4,943,118 3,716,654 3,043,367 417,208
- General and
administrative
expenses 8,940,057 8,824,199 7,822,539 1,072,374
- Research and
development
expenses 5,522,287 9,421,283 7,749,998 1,062,429
Year Ended
December 31, December 31, December 31,
2006 2007 2007
RMB RMB USD (Note 1)
Share-based
compensation cost
included in:
Cost of revenue 16,614,309 14,890,378 2,041,288
Operating expenses
- Selling and
marketing expenses 21,147,343 14,357,336 1,968,214
- General and
administrative
expenses 37,360,433 33,887,323 4,645,535
- Research and
development
expenses 26,164,591 32,293,138 4,426,992
