NetEase’s third-quarter revenue of 14.6 billion yuan Sustained operating net profit of 4.7 billion yuan

On November 21, NetEase announced its unaudited financial results for the third quarter ended September 30, 2019. In the third quarter, NetEase’s net income was RMB14.636 billion, up 11.2% YoY, while net operating profit attributable to NetEase shareholders was RMB12.885 billion.

NetEase's third-quarter revenue of 14.6 billion yuan Sustained operating net profit of 4.7 billion yuan

Infographic

Key financial results for the third quarter of 2019:

Net income was RMB14,636 million (US$2.048 billion), up 11.2% YoY. Among them:

Net income from online gaming services was RMB11.535 billion (US$1.614 billion), up 11.5% YoY;

Net income was RMB346 million (US$48.39 million), an increase of 98.4% YoY;

Net income from innovation and other businesses was RMB2,755 million (US$385 million), an increase of 4.5% YoY.

Gross profit was RMB7.870 billion (US$1.101 billion), up 8.9% YoY.

Operating expenses were RMB4.536 billion (US$635 million), down 3.3% YoY.

Net income attributable to NetEase shareholders was RMB12,885 million (US$1.803 billion), and net operating profit attributable to NetEase shareholders was RMB4.726 billion (US$661 million) based on non-US GAAP.

Net income per American Depositary Receipts ongoing operating was $13.97 (basic) and net operating income per American Depositary Receipts per share was $5.12 (basic) based on non-U.S. GAAP.

Q3 and near-term operating highlights for the third quarter of 2019:

In the domestic market launched a series of hand tours, including: “Quantum Special Attack”, “Xuan Jianlong Dance Yunshan” and “Flowers and Swords” and so on.

Further enhance the global reach of NetEase Games:

Wilderness Action has been a hit in Japan, with iOS bestsellers in August, September and October.

“Fifth Personality” reached the iOS bestseller list for the first time in September.

In mainland China released the agent from Blizzard Entertainment’s “World of Warcraft” classic nostalgic clothing, very popular. The game’s revenue and paid subscribers in China both increased year-on-year and month-on-month.

A strategic partnership was reached with Alibaba Group, which acquired the koala business who llysa.

NetEase Music has reached an agreement with Alibaba and Yunfeng Funds to raise a total of about $700 million.

In October this year, there is a completion of the NYSE listing (NYSE: DAO).

“This quarter has been significant for NetEase. Our performance has grown steadily and our lines of business continue to create value for our shareholders. Net income increased by approximately 11% year-over-year, while non-GAAP net operating income attributable to shareholders increased by approximately 74% year-on-year. NetEase’s board of directors has approved a third-quarter dividend of $7.59 per American depositary receipt. “NetEase’s chief executive and director, Ding Lei, said, “NetEase pays special attention to the development of businesses such as gaming, online education, music and private label e-commerce.” With the successful launch of the road, we will continue to invest in learning tools, online courses and smart hardware to help Chinese users continue to improve learning efficiency. “

“The online gaming business has always been our top priority in many business segments. Relying on the robust performance of existing games and the continued introduction of new games in domestic and foreign markets, the performance of online games has steadily improved. Looking to the future, we will continue to focus on the globalization of online gaming and to create more value in other areas such as education, music and e-commerce. Ding Lei concluded.

Analysis of financial results for the third quarter of 2019

Net income

Net income in the third quarter of 2019 was RMB14.636 billion (US$2.048 billion), compared with RMB14.448 billion and RMB13.160 billion in the previous quarter and the same period last year.

Net income from online gaming services was RMB11.535 billion (US$1.614 billion) in the third quarter of 2019, compared with RMB11.433 billion and RMB10.348 billion in the previous quarter and the same period last year. Net income from hand travel accounted for 71.0% of net online gaming services in the quarter, compared with 72.2% in the previous quarter and 68.0% in the same period last year.

Net income in the third quarter of 2019 was RMB346 million (US$48.39 million), compared with RMB323 million and RMB174 million in the previous quarter and the same period last year.

Net revenue from innovation and other businesses in the third quarter of 2019 was RMB2,755 million (US$385 million), compared with RMB2,692 million and RMB2.637 billion in the previous quarter and the same period last year.

Gross profit

Gross profit for the third quarter of 2019 was RMB7.870 billion (US$1.101 billion), compared with RMB7.737 billion and RMB7.224 billion in the previous quarter and the same period last year.

The increase in gross margin on online gaming services was mainly due to higher net income from some end-stream slots. The year-on-year increase in gross margin on online gaming services was mainly due to revenue growth from hand tours, such as After Tomorrow, Rate Land and Fifth Personality.

The year-over-year increase in gross margin was mainly due to an increase in net online education-related income due to an increase in paid users.

The year-on-year decline in gross margin for innovation and other businesses was mainly due to lower advertising revenue due to the macroeconomic environment and higher staff costs and content procurement expenditures.

Gross margin

Gross margin for online gaming services was 63.8% in the third quarter of 2019, compared with 63.1% in the previous quarter and 65.1% in the same period last year. The year-on-year decline in gross margin of online gaming services was mainly due to an increase in the proportion of hand-travel revenue with relatively low gross margin in the current quarter.

The gross margin of the dow business was 25.8% in the third quarter of 2019, compared with 32.9% in the previous quarter and 23.3% in the same period last year. The decline in gross margin of business was mainly due to the decline in the gross margin of its advertising business.

Gross margin for innovation and other businesses was 15.2% in the third quarter of 2019, compared with 15.5% in the previous quarter and 17.0% in the same period last year. The year-on-year decline in gross margin on innovation and other businesses was mainly due to lower advertising revenue due to the macroeconomic environment, and higher staff costs and content procurement expenditures.

Operating expenses

Operating expenses for the third quarter of 2019 were RMB4.536 billion (US$635 million), compared with RMB4,012 million and RMB4,689 million in the previous quarter and the same period last year. The month-on-month increase in operating expenses was mainly due to the increase in online gaming services and related marketing costs, as well as the increase in staff costs. The year-on-year decline in operating expenses was mainly due to lower marketing fees for the online gaming business.

Other income

Other income mainly includes investment gains and losses, interest income, net exchange income and other. Other revenue increased year-on-year, mainly due to the disposal of koalas and investment returns.

Income tax

Income tax expense for the third quarter of 2019 was RMB1,117 million (US$156 million), compared with RMB684 million and RMB843 million in the previous quarter and the same period last year. The effective tax rate for the third quarter of 2019 was 8.0%, compared with 16.7% in the previous quarter and 28.8% in the same period last year. The effective tax rate reflects the Group’s estimate of the tax obligations and rights applicable to each quarter. The tax rate for the current quarter was influenced by a number of factors, such as the confirmation of certain tax rebates.

Net profit and net income based on non-U.S. GAAP

Net income attributable to NetEase’s shareholders in the third quarter of 2019 was RMB12,885 million (US$1.803 billion), compared with RMB3.354 billion and RMB2,063 million in the previous quarter and the same period last year. Based on non-U.S. GAAP, net income attributable to NetEase shareholders was RMB4,726 million ($661 million) in the third quarter of 2019, compared with RMB3,921 million and RMB2.712 billion in the previous quarter and the same period last year.

Net operating income per American Depositary Receipt per share in the third quarter of 2019 was $13.97 (basic) and $13.85 (diluted), compared with $3.64 (basic) and $3.61 (diluted) in the previous quarter, compared to $2.25 (basic) and $2.24 (diluted) in the third quarter of 2019. Based on non-U.S. GAAP, Net operating income per American Depositary Receipt per share in the third quarter of 2019 was $5.12 (basic) and $5.08 (diluted), compared with $4.26 (basic) and $4.22 (diluted) in the previous quarter, compared to $2.95 (basic) and $2.94 (diluted) in the third quarter of 2019.

Quarterly dividends

Net income per American depositary receipt per share for the third quarter of 2019 was $13.80 (basic). The Board approved a dividend of $7.59 per American Depositary Receipt per Share for the third quarter of 2019, of which the regular dividend was $4.14 per American Depositary Receipt, approximately 30% of net income attributable to NetEase shareholders, and the special dividend was $3.45 per American Depositary Receipt. The total dividend for the quarter totals approximately US$1 billion and is expected to be paid to all shareholders registered after the close of business on December 6, 2019.

The second-quarter 2019 dividend was $1.04 per American Depositary Receipt and paid on August 30, 2019.

According to the dividend policy approved by the Board of Directors, from the second quarter of 2019, quarterly dividends will be approximately 20% to 30% of net net profit after tax per financial quarter. The issuance and specific amount of the quarterly dividend will be at the sole discretion of the Board of Directors and will be based on NetEase’s operating and profitability, cash flow, financial position and other relevant factors.

Additional information

NetEase’s cash and cash equivalents, term deposits and short-term investments totalled RMB61,432 million (US$8.595 billion) as of September 30, 2018, and rmb49.664 billion as of December 31, 2018. Net cash inflows from continuing operations in the third quarter of 2019 were RMB3.846 billion (US$538 million), compared with RMB4,928 million in the previous quarter and RMB4,492 million in the same period last year.

Share Repurchase/Purchase Plan

On November 14, 2018, NetEase announced that its Board of Directors has approved a share repurchase program that will, starting on November 16, 2018, buy back U.S. Depositary Receipts with a total amount of no more than $1 billion in outstanding transactions for a period of no more than 12 months. As of November 15, 2019, the last day of the program, more than 1,000 U.S. Depositary Receipts have been repurchased.

NetEase announced today that its board of directors has approved a share purchase plan that, starting november 25, 2019, will buy back U.S. U.S. Depositary Receipts with a total amount of no more than $20 million in circulation for a period of up to 12 months, in accordance with SEC regulations.

Add a Comment

Your email address will not be published. Required fields are marked *