NetEase Announces Second Quarter 2021 Unaudited Financial Results
NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, “NetEase” or the “Company”), one of China’s leading internet and online game services providers, today announced its unaudited financial results for the second quarter ended June 30, 2021.
Second Quarter 2021 Financial Highlights
- Net revenues were RMB20.5 billion (US$3.2 billion), an increase of 12.9% compared with the second quarter of 2020.
- Online game services net revenues were RMB14.5 billion (US$2.3 billion), an increase of 5.1% compared with the second quarter of 2020.
- Youdao net revenues were RMB1.3 billion (US$200.3 million), an increase of 107.5% compared with the second quarter of 2020.
- Innovative businesses and others net revenues were RMB4.7 billion (US$728.4 million), an increase of 26.0% compared with the second quarter of 2020.
- Gross profit was RMB11.2 billion (US$1.7 billion), an increase of 14.3% compared with the second quarter of 2020.
- Total operating expenses were RMB7.4 billion (US$1.2 billion), an increase of 32.2% compared with the second quarter of 2020.
- Net income attributable to the Company’s shareholders was RMB3.5 billion (US$548.5 million). Non-GAAP net income attributable to the Company’s shareholders was RMB4.2 billion (US$654.8 million). [1]
- Basic net income per share was US$0.16 (US$0.82 per ADS). Non-GAAP basic net income per share was US$0.20 (US$0.98 per ADS). [1]
Second Quarter 2021 and Recent Operational Highlights
- Expanded user base and diversified portfolio with new games including:
- Naraka: Bladepoint, which led the top-sellers chart on Steam following its global launch in August.
- Other exciting titles such as Infinite Lagrange, Pokémon Quest, MARVEL Super War and Ace Racer thrilled players.
- Invigorated players with longstanding flagship titles including the Fantasy Westward Journey and Westward Journey Online series, as well as popular hit games including Life-After, Onmyoji and Onmyoji Arena.
- Announced that the mobile game Harry Potter: Magic Awakened, co-developed by NetEase and Warner Bros. Interactive Entertainment under the Portkey Games label, will launch on September 9.
- Enriched strong game development pipeline with exciting titles including Nightmare Breaker, The Lord of the Rings: Rise to War, Diablo® Immortal⢠and Ghost World Chronicle.
“Our businesses continued to thrive in the second quarter generating total net revenues of RMB20.5 billion, growing 12.9% year-over-year,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Our existing games grew steadily despite a high base last year, and we are excited about our robust pipeline of new titles that builds on our leading game roster. We kicked off our game-release schedule for the second half of the year with several gripping new hits such as Naraka: Bladepoint, capturing wide interest from passionate game players globally. With confirmed plans to release the game Harry Potter: Magic Awakened on September 9, we are eager to introduce more amazing titles later this year. In addition, we continue to boost our content ecosystem and bring innovative product additions to NetEase Cloud Music strengthening its highly engaged music-centric community,” Mr. Ding concluded.
Second Quarter 2021 Financial Results
Net Revenues
Net revenues for the second quarter of 2021 were RMB20,524.5 million (US$3,178.8 million), compared with RMB20,517.2 million and RMB18,184.8 million for the preceding quarter and the second quarter of 2020, respectively.
Net revenues from online game services were RMB14,528.1 million (US$2,250.1 million) for the second quarter of 2021, compared with RMB14,981.8 million and RMB13,828.3 million for the preceding quarter and the second quarter of 2020, respectively. Net revenues from mobile games accounted for approximately 72.1% of net revenues from online game services for the second quarter of 2021, compared with 72.8% and 72.3% for the preceding quarter and the second quarter of 2020, respectively.
Net revenues from Youdao were RMB1,293.4 million (US$200.3 million) for the second quarter of 2021, compared with RMB1,339.9 million and RMB623.3 million for the preceding quarter and the second quarter of 2020, respectively.
Net revenues from innovative businesses and others were RMB4,703.0 million (US$728.4 million) for the second quarter of 2021, compared with RMB4,195.6 million and RMB3,733.3 million for the preceding quarter and the second quarter of 2020, respectively.
Gross Profit
Gross profit for the second quarter of 2021 was RMB11,189.6 million (US$1,733.1 million), compared with RMB11,052.6 million and RMB9,792.2 million for the preceding quarter and the second quarter of 2020, respectively.
The year-over-year increase in online game services gross profit was primarily due to increased net revenues from both mobile and PC games, including the newly launched Revelation mobile game and other existing games such as Fantasy Westward Journey Online.
The year-over-year increase in Youdao gross profit was primarily attributable to the significant increase in net revenues from, improved economies of scale and faculty compensation structure optimization for its learning services.
The quarter-over-quarter and year-over-year increases in innovative businesses and others gross profit were primarily due to the increased net revenues from, and improved cost control at, NetEase Cloud Music.
Gross Profit Margin
Gross profit margin for online game services for the second quarter of 2021 was 66.1%, compared with 64.6% and 63.8% for the preceding quarter and the second quarter of 2020, respectively. Gross profit margin for online game services is generally stable, fluctuating within a narrow band based on the revenue mix of mobile and PC games, as well as NetEase’s self-developed and licensed games.
Gross profit margin for Youdao for the second quarter of 2021 was 52.3%, compared with 57.3% and 45.2% for the preceding quarter and the second quarter of 2020, respectively. The year-over-year increase was primarily attributable to the factors enumerated above.
Gross profit margin for innovative businesses and others for the second quarter of 2021 was 19.3%, compared with 14.4% and 18.5% for the preceding quarter and the second quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were primarily attributable to the factors enumerated above.
Operating Expenses
Total operating expenses for the second quarter of 2021 were RMB7,431.5 million (US$1,151.0 million), compared with RMB6,777.1 million and RMB5,622.3 million for the preceding quarter and the second quarter of 2020, respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased marketing expenditures related to Youdao and other businesses, as well as higher staff-related costs and research and development investments.
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 unrealized exchange losses arising from the Company’s U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.
Income Taxes
The Company recorded a net income tax charge of RMB1,113.2 million (US$172.4 million) for the second quarter of 2021, compared with RMB1,273.4 million and RMB1,064.5 million for the preceding quarter and the second quarter of 2020, respectively. The effective tax rate for the second quarter of 2021 was 24.3%, compared with 22.0% and 18.6% for the preceding quarter and the second quarter of 2020, 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 RMB3,541.8 million (US$548.5 million) for the second quarter of 2021, compared with RMB4,439.2 million and RMB4,537.8 million for the preceding quarter and the second quarter of 2020, respectively.
Non-GAAP net income attributable to the Company’s shareholders totaled RMB4,227.9 million (US$654.8 million) for the second quarter of 2021, compared with RMB5,080.7 million and RMB5,226.0 million for the preceding quarter and the second quarter of 2020, respectively.
NetEase reported basic net income of US$0.16 per share (US$0.82 per ADS) for the second quarter of 2021, compared with US$0.21 per share (US$1.03 per ADS) and US$0.22 per share (US$1.08 per ADS) for the preceding quarter and the second quarter of 2020, respectively.
NetEase reported non-GAAP basic net income of US$0.20 per share (US$0.98 per ADS) for the second quarter of 2021, compared with US$0.24 per share (US$1.17 per ADS) and US$0.25 per share (US$1.25 per ADS) for the preceding quarter and the second quarter of 2020, respectively.
QuarterlyDividend
The board of directors has approved a dividend of US$0.0480 per share (US$0.2400 per ADS) for the second quarter of 2021, to holders of ordinary shares and holders of ADSs as of the close of business on September 14, 2021, 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 14, 2021 (Beijing/ Hong Kong Time). The payment date is expected to be on September 27, 2021 for holders of ordinary shares and on or around September 30, 2021 for holders of ADSs.
NetEase paid a dividend of US$0.0600 per share (US$0.3000 per ADS) for the first quarter of 2021 in June 2021.
The Company’s policy is to set quarterly dividends at an amount equivalent to approximately 20%-30% of the Company’s anticipated net income after tax in each fiscal quarter. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company’s operations and earnings, cash flow, financial condition and other relevant factors.
Other Information
As of June 30, 2021, the Company’s total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB108.0 billion (US$16.7 billion), compared with RMB100.1 billion as of December 31, 2020. Cash flow generated from operating activities was RMB4.7 billion (US$731.5 million) for the second quarter of 2021, compared with RMB5.5 billion and RMB4.8 billion for the preceding quarter and the second quarter of 2020, respectively.
Update on PRC Regulatory Policy Related to Youdao
As previously announced by Youdao, its business, financial condition and corporate structure are expected to be materially affected in future periods by the changing regulatory environment primarily in China’s K-12 education industry, although the magnitude of the impact remains uncertain at this time.
Share Repurchase/ Purchase Program
On February 25, 2021, the Company announced that its board of directors had approved a new share repurchase program of up to US$2.0 billion of the Company’s outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2, 2021. As of June 30, 2021, approximately 4.6 million ADSs had been repurchased under this program for a total cost of US$0.5 billion. The Company today announced that its board of directors has approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion.
The Company today also announced that its board of directors has approved a share purchase program of up to US$50.0 million of Youdao’s outstanding ADSs for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange.
The extent to which NetEase repurchases its ADSs and its ordinary shares or purchases Youdao’s ADSs will depend upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.4566 on June 30, 2021 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2021, or at any other certain date. The percentages stated are calculated based on RMB.
Conference Call
NetEase’s management team will host a teleconference call with simultaneous webcast at 8:00 a.m. New York Time on Tuesday, August 31, 2021 (Beijing/ Hong Kong Time: 8:00 p.m., Tuesday, August 31, 2021). 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 1-646-828-8193 and providing conference ID: 7055363, 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-719-457-0820 and entering passcode 7055363#. The replay will be available through September 13, 2021.
This call will be webcast live and the replay will be available for 12 months.
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