Netease (NASDAQ:NTES)

First Quarter 2012 Unaudited Financial Results

• Total revenues for the first quarter of 2012 were RMB2.0 billion (US$318.2 million), compared toRMB2.1 billion and RMB1.5 billion for the preceding quarter and the first quarter of 2011, respectively.
• Gross profit for the first quarter of 2012 was RMB1.3 billion (US$211.4 million), compared toRMB1.5 billion and RMB985.0 million for the preceding quarter and the first quarter of 2011, respectively.
• Net profit for the first quarter of 2012 totaled RMB941.7 million (US$149.5 million), compared toRMB898.6 million and RMB737.4 million for the preceding quarter and the first quarter of 2011, respectively.

William Ding, Chief Executive Officer and Director of NetEase, stated, "The growing popularity of our self-developed games continues to drive our revenues. For the first quarter, our total online games revenue increased 31.4% year-over-year, with dynamic growth from our newer games Ghost and Tianxia III and increasing contribution from several of our flagship games, Fantasy Westward Journey, Westward Journey Online II and Heroes of Tang Dynasty."

"Our online games revenue has been driven by the successful execution of our strategy to continuously improve user experience and has been further demonstrated by Ghost's rapid growth since the launch of its full scale closed beta testing in September 2011. In the second quarter, we introduced a series of new features for Ghost in its open beta testing, which has been well received by users. Benefiting from the innovative game play mode, our newest game, Tianxia III, achieved record high revenue in the first quarter. We plan to continue developing new exciting content and launch open beta testing for Tianxia III in the second quarter."

"Moreover, players continue to respond enthusiastically to expansion packs for our long running self-developed games, Fantasy Westward Journey and Westward Journey Online II. We plan to launch new expansion packs combined with large-scale promotional activities for these games in the second and third quarters. Other expansion packs or new versions planned for the second quarter include Heroes of Tang Dynasty, Westward Journey Online III and Warsong of Westward Journey."

"Diversification through the introduction of self-developed games is a key theme in 2012. We are on track to commercialize a number of new titles this year that showcase innovative content and leading technology. In the second and third quarters of 2012, we plan to initiate beta testing of several highly anticipated games in our pipeline, including 3D ARPG, Soul of Warrior, 2.5D MMORPG, Wu Hun, 3D action real-time strategy (or DotA) game, Heroes of Three Kingdoms, and a next generation 3D action MMORPG, Dragon Sword. With respect to our licensed games, we are pleased to have renewed our contract with Blizzard Entertainment to continue our existing cooperation on Blizzard Entertainment's World of Warcraft^� in mainland China. We look forward to releasing Mists of Pandaria^�, the fourth expansion to World of Warcraft, in mainland China as soon as possible."

"Our advertising revenue grew 13.1% year-over-year, with automobile, Internet services and food and beverage services as the top performing sectors. Advertising revenues declined 48.5% quarter-over-quarter, which reflects the typical industry seasonality. We expect the usual uptick in advertising revenues in the second quarter and through the second half of 2012. We remain committed to increasing our appeal to users by offering content innovation, synthesizing user feedback and providing service integration between different mobile device platforms. To leverage the opportunities offered by the upcoming 2012 London Olympics, we have secured a number of partnerships with content providers to offer comprehensive, accurate and in-depth reporting to our portal and mobile Internet users."

Mr. Ding concluded, "Portal traffic grew steadily in the first quarter as we continued to optimize our user experience and mobile access by introducing leading applications and cutting edge technology. Usage of our micro-blogging services is also expanding. In the first quarter, the number of micro-blogging users reached 121.0 million, up 24.0% from December 31, 2011. As the leading free email provider in China, our mailbox services also performed well as we continued to optimize services through mobile access and upgrades to enhance users' experience. As of March 31, 2012, we had approximately 480 million registered email users, up 6.7% quarter-over-quarter. In addition, the number of users and paying subscribers for our corporate mailbox services have grown in their third year of operation. During the first quarter, we were named one of the top corporate mailbox service providers in China.

"With continued execution on expanding and diversifying our game portfolio and user base, as well as driving innovation in content, technology and entertainment across all demographics inChina, we look forward to another great year for NetEase in 2012," Mr. Ding concluded.

Fourth Quarter 2011 Financial Results

• Total revenues for the fourth quarter of 2011 were RMB2.1 billion (US$341.4 million), compared to RMB2.0 billion and RMB1.7 billion for the preceding quarter and the fourth quarter of 2010, respectively.
• NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$1.09 each for the fourth quarter of 2011. The Company reported basic and diluted earnings per ADS of US$1.00 each for the preceding quarter, and basic and diluted earnings per ADS of US$0.87 each for the fourth quarter of 2010.

William Ding, Chief Executive Officer and Director of NetEase, stated, "2011 was a year of strong growth for our company. Providing our loyal and growing community of users with the highest quality content continues to fortify NetEase's industry leadership. Our success was highlighted by a 32.0% increase in total revenues for 2011, driven by an increase in online game services revenue of 32.5%, followed by strong growth in our advertising services revenue of 25.6% for the year."

"Our approach to technology innovation and product diversification to satisfy user demand is the core of our 2012 growth strategy. In the first half of 2012, we plan to enhance our portfolio of popular games with numerous expansion packs, including updates for Heroes of Tang Dynasty, Westward Journey Online II, Warsong of Westward Journey, New Fly For Fun and Legend of Fairy, as well as commence open beta testing for Ghost and Tianxia III. We also have two new self-developed games in process that are scheduled for beta testing in mid-2012."

Mr. Ding continued, "Internet advertising is rapidly increasing as a dominant media platform for advertisers in China. In 2011, revenue growth from our advertising services segment was consistently strong, led by the financial services, food and beverage products, and Internet services sectors. Seasonality and increased recognition by advertisers of our innovative content, service integration, and NetEase's user appeal drove a 26.3% sequential increase and a 19.2% year-over-year increase in advertising services revenue for the fourth quarter of 2011."

"We continue to evaluate the market and enhance our products and service offerings to meet the demands of a dynamic and competitive market. As the No. 1 free email provider in China, registered email users grew to 450 million as of December 31, 2011, an increase of 4.7% over the third quarter. The number of micro-blogging users grew to 97.6 million users, an increase of 10.3% over the third quarter."

Mr. Ding concluded, "We hold a long history of innovation and community in China's Internet market. Our main priority for 2012 is to continue to satisfy the demand of Internet users by providing high quality and innovative products and services to the market."

BEIJING, Dec. 1, 2011 /PRNewswire-Asia-FirstCall/ -- NetEase.com, Inc. (NASDAQ: NTES), one of China's leading Internet and online game services providers, today announced that its board of directors has approved a new share repurchase program of up to US$50 million of the company's outstanding American Depositary Shares (ADSs) for a period not to exceed three months.  

Under the terms of the approved program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. The timing and dollar amount of repurchase transactions will be subject to Securities and Exchange Commission (SEC) Rule 10b-18 requirements. It is also expected that such repurchases will be effected pursuant to a plan in conformity with SEC Rule 10b5-1. NetEase plans to fund repurchases made under this program from available working capital.

Third Quarter 2011 Financial Results

• Total revenues for the third quarter of 2011 were RMB2.0 billion (US$314.8 million), compared to RMB1.8 billion and RMB1.4 billion for the preceding quarter and the third quarter of 2010, respectively.

• Net profit for the third quarter of 2011 totaled RMB825.8 million (US$129.5 million), compared to RMB772.5 million and RMB585.3 million for the preceding quarter and the third quarter of 2010, respectively. During the third quarter of 2011, the Company reported a net foreign exchange loss of RMB65.0 million (US$10.2 million), compared to a net foreign exchange loss of RMB3.0 million and a net foreign exchange gain of RMB54.3 million for the preceding quarter and the third quarter of 2010, respectively.

• The quarter-over-quarter and year-over-year foreign exchange gains/losses were mainly due to the exchange gains/losses arising from the Company's Euro-denominated bank deposit balances as of September 30, 2011 as the exchange rate of the Euro against the RMB fluctuated over the periods.

• NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.99 each for the third quarter of 2011. The Company reported basic and diluted earnings per ADS of US$0.93 each for the preceding quarter, and basic and diluted earnings per ADS of US$0.71 and US$0.70, respectively, for the third quarter of 2010.

The year-over-year increase in gross profit was primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues related mainly to the online games business. The year-over-year increase in online games revenue was primarily driven by increased revenues from the Company's self-developed games, as well as increased revenue from World of Warcraft. Revenues from self-developed games increased primarily as a result of various expansion packs and promotional activities in the third quarter of 2011, as well as the unlimited closed beta testing of Ghost starting in April 2011 and the open beta testing of Heroes of Tang Dynasty starting in June 2011. The year-over-year increase in revenue from World of Warcraft was mainly due to the release of the game's two expansions, Wrath of the Lich King™ and Cataclysm™, in mainland China in August 2010 and July 2011, respectively. The year-over-year increase in cost of revenues for the online games business was mainly due to increased royalties and consultancy fees related to World of Warcraft and StarCraft II operations and increased staff-related costs, resulting from increased headcount in 2011. The year-over-year increase in advertising services revenue was primarily due to continued rising demand for advertising services, primarily from food and beverage products, financial services and Internet services sectors.

Second Quarter 2011 Financial Results

• Total revenues for the second quarter of 2011 were RMB1.8 billion (US$275.1 million), compared to RMB1.5 billion and RMB1.3 billion for the preceding quarter and the second quarter of 2010, respectively.
• Net profit for the second quarter of 2011 totaled RMB772.5 million (US$119.5 million), compared to RMB737.4 million and RMB485.7 million for the preceding quarter and the second quarter of 2010, respectively. During the second quarter of 2011, the Company reported a net foreign exchange loss of RMB3.0 million (US$0.5 million), compared to a net foreign exchange gain of RMB25.3 million and a net foreign exchange loss of RMB67.8 million for the preceding quarter and the second quarter of 2010, respectively.
• The quarter-over-quarter and year-over-year foreign exchange gains/losses were mainly due to the translation gains/losses arising from the Company's Euro-denominated bank deposit balances as of June 30, 2011 as the exchange rate of the Euro against the RMB fluctuated over the periods.
• NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.92 and US$0.91, respectively, for the second quarter of 2011. The Company reported basic and diluted earnings per ADS of US$0.88 and US$0.87, respectively, for the preceding quarter and basic and diluted earnings per ADS of US$0.58 each for the second quarter of 2010.

The year-over-year increase in gross profit was primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues related mainly to the online games business. The year-over-year increase in online games revenue was primarily driven by increased revenues from the Company's self-developed games as well as increased revenue from World of Warcraft. Revenues from self-developed games increased primarily as a result of various expansion packs and promotional activities in the second quarter of 2011, as well as the unlimited closed beta testing of Ghost starting in April 2011. The year-over-year increase in revenue from World of Warcraft was mainly due to the release of Blizzard Entertainment's Wrath of the Lich King™ expansion pack in August 2010. The year-over-year increase in cost of revenues for the online games business was mainly due to increased royalties and consultancy fees related to World of Warcraft and StarCraft II operations and increased staff-related costs, resulting from increased headcount in 2011.

The year-over-year increase in advertising services revenue was primarily due to continued rising demand for advertising services, primarily from Internet services, food and beverage products and financial services sectors.

We believe that our current levels of cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, we may need additional cash resources if we experience changed business conditions or other developments. We may also need additional cash resources if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar action. If we determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain a credit facility.

First Quarter Results:

William Ding, Chief Executive Officer and Director of NetEase, stated, "For the first quarter, total revenues from online games increased by approximately 28% year-over-year, driven by higher revenue contributions from our self-developed games, namely Heroes of Tang Dynasty, Fantasy Westward Journey, Westward Journey Online II and Tianxia II, along with continued revenue growth from World of Warcraft®, a game licensed from Blizzard Entertainment. Online game revenue decreased by 3% quarter-over-quarter mainly due to seasonality. Fantasy Westward Journey and Westward Journey Online II continued to perform well due to well-received promotional campaigns during the first quarter, along with favorable response to the latest expansion pack for Fantasy Westward Journey released in January 2011. As a game in its eighth year of commercial operation, we were tremendously pleased with Westward Journey Online II's new record quarterly revenue in the current quarter as well as a new record number of peak concurrent users, resulting from players' positive response to the promotional activities held during the recent Labor Day holidays in China. We plan to keep working hard to make the game a continued success. Our newer games Heroes of Tang Dynasty and Tianxia II also continued to show solid growth. Moreover, we concluded the open beta test for Blizzard Entertainment's StarCraft® II in China during the first quarter and commenced commercial operation on April 6, 2011. StarCraft II holds the record for fastest-selling strategy game of all time, and we are delighted to bring this exciting gaming experience to Chinese players.

• Total revenues for the first quarter of 2011 were RMB1.5 billion (US$234.9 million), compared to RMB1.7 billion and RMB1.2 billion for the preceding quarter and the first quarter of 2010, respectively.
• Gross profit for the first quarter of 2011 was RMB985.0 million (US$150.4 million), compared to RMB1.1 billion and RMB772.4 million for the preceding quarter and the first quarter of 2010, respectively
• Net profit for the first quarter of 2011 totaled RMB737.4 million (US$112.6 million), compared to RMB712.5 million and RMB452.3 million for the preceding quarter and the first quarter of 2010, respectively.
• NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.86 each for the first quarter of 2011. The Company reported basic and diluted earnings per ADS of US$0.84 and US$0.83 for the preceding quarter and US$0.53 each for the first quarter of 2010.

Fourth Quarter Highlights:

• Total revenues for the fourth quarter of 2010 were RMB1.7 billion (US$254.5 million), compared to RMB1.4 billion and RMB1.3 billion for the preceding quarter and the fourth quarter of 2009, respectively.
• Gross profit for the fourth quarter of 2010 was RMB1.1 billion (US$168.7 million), compared to RMB952.0 million and RMB838.4 million for the preceding quarter and the fourth quarter of 2009, respectively.
• Net profit for the fourth quarter of 2010 totaled RMB712.5 million (US$108.0 million), compared to RMB585.3 million and RMB571.8 million for the preceding quarter and the fourth quarter of 2009, respectively.
• NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.83 each for the fourth quarter of 2010. The Company reported basic and diluted earnings per ADS of US$0.68 each and US$0.67 each for the preceding quarter and the fourth quarter of 2009, respectively.

William Ding, Chief Executive Officer and Director of NetEase, stated, "We ended 2010 with strong fourth quarter results in both online games and advertising services, delivering solid sequential and year-over-year revenue growth.  Fourth quarter online game revenues increased 13% quarter-over-quarter and 31% year-over-year, driven primarily by the Wrath of the Lich King(TM) expansion pack launched on August 31, 2010 for World of Warcraft(R), a game licensed from Blizzard Entertainment, and the outstanding performances from our fastest growing self-developed games, Tianxia II, Heroes of Tang Dynasty and Westward Journey Online II.

Mr. Ding concluded, "In conjunction with our online games strategy for 2011, for our portal business, we will focus on new product applications in mobile phones and will explore new advertising formats and marketing models to attract premier advertisers and stimulate ad spending. We are working to achieve healthy growth across our business in 2011 in line with anticipated market expansion in order to maintain our leading position in China's burgeoning Internet community."

Third Quarter 2010 Financial Results

• Total revenues for the third quarter of 2010 were RMB1.4 billion (US$215.1 million), compared to RMB1.3 billion and RMB879.4 million for the preceding quarter and the third quarter of 2009, respectively.

• Net profit for the third quarter of 2010 totaledRMB585.3 million (US$87.5 million), compared to RMB485.7 million and RMB393.8 millionfor the preceding quarter and the third quarter of 2009, respectively. During the third quarter of 2010, the Company reported a net foreign exchange gain ofRMB54.3 million (US$8.1 million), compared to a net foreign exchange loss of RMB67.8 million in the preceding quarter and a net foreign exchange gain of RMB25.3 million in the third quarter of 2009.  The quarter-over-quarter and year-over-year changes in foreign exchange gains/losses were mainly due to the translation changes arising from the Company's Euro-denominated bank deposit balances as of September 30, 2010, as the exchange rate of the Euro against the RMB fluctuated over the periods.  

• NetEase reported basic and diluted earnings per ADS of US$0.67 each for the third quarter of 2010.  The Company reported basic and diluted earnings per ADS of US$0.56 each and US$0.45each for the preceding quarter and the third quarter of 2009, respectively.