Shulou(Shulou.com)11/24 Report--

According to CTOnews.com news on November 17, NetEase, who is currently at the forefront of the storm, released his third-quarter financial results for 2022 this afternoon.

According to the financial report, NetEase's revenue in the third quarter of 2022 was 24.4 billion yuan, compared with 22.19 billion yuan in the same period last year, an increase of 10.1 percent over the same period last year, and the market expects 24.36 billion yuan. The gross profit in the third quarter is 13.7 billion yuan, with an estimated 13.32 billion yuan.

Main financial results for the third quarter of 2022:

Net income was 24.4 billion yuan ($3.4 billion), up 10.1% from a year earlier.

Net income from games and related value-added services was 18.7 billion yuan ($2.6 billion), up 9.1% from a year earlier.

Youdao's net income was 1.4 billion yuan ($197.2 million), up 1.1% from a year earlier.

The net income of Cloud Music was 2.4 billion yuan (US $331.4), an increase of 22.5% over the same period last year.

Net income from innovation and other businesses was 2 billion yuan ($276.7 million), up 13.6% from a year earlier.

Gross profit was 13.7 billion yuan ($1.9 billion), up 16.4% from a year earlier.

Operating expenses totaled 9 billion yuan (US $1.3 billion), an increase of 12.0% over the same period last year.

The net profit attributable to the company's shareholders is 6.7 billion yuan (US $941.8). The continuing operating net profit attributable to the company's shareholders under non-GAAP is 7.5 billion yuan (US $1.1 billion).

Basic net profit per share was $0.29 (basic net profit per American depositary share was $1.44). Net profit from continuing operations under non-GAAP was $0.32 per share (net profit from continuing operations per basic American depositary share was $1.61).

Operational points for the third quarter of 2022 and in the near future:

Classic flagship game products such as "Fantasy Journey to the West" and "A Chinese Odyssey" series maintain extremely strong vitality. Other boutique games such as "Fifth Personality" and "endless Lagrange" remain popular.

The popular game "Forever robbery" launched a wonderful anniversary-related content update in August, which has been widely praised by players.

Diablo: immortality, jointly developed by NetEase and Blizzard Entertainment, was released on Chinese mainland and quickly topped the iOS download list.

Continue to enrich the product line of game development, will soon launch: "forever robbed forever" mobile games, "against the cold" mobile games and "Qiannu ghost hidden world record".

Continue to prepare for the release of Harry Potter: the Magic Awakening in overseas markets, which is expected to be released in 2023.

Youdao's net income continues to grow healthily, thanks to increased sales of its new services and smart hardware.

Cloud Music continues to strengthen content construction and product innovation, promoting the steady growth of net income and the continuous improvement of profit margins.

CTOnews.com learned that, as previously disclosed, NetEase signed a licensing agreement with Blizzard to release a number of Blizzard games in Chinese mainland. These licenses will expire in January 2023 and will not be renewed. These agents from Blizzard games, their contribution to NetEase's net income and net profit in the first nine months of 2021 and 2022 are in low single digits. The expiration of the authorization will not have a significant impact on NetEase's financial performance. The joint development and distribution of Diablo: immortality is covered by another long-term agreement.

Referring to the financial results of the quarter, Mr. Ding Lei, CEO and Director of NetEase Company, said: "NetEase's performance grew steadily in the third quarter, with net income reaching 24.4 billion yuan, an increase of 10.1% over the same period last year. Our gaming business continues to make solid profits. The flagship product "Dream Journey to the West" series is deeply loved by players and continues to make efforts this quarter, and its long-term operating strength and performance have attracted the attention of the industry. The successful launch of new games such as Diablo: immortality further confirms our excellent R & D capabilities, making NetEase shine on the global game stage and attract more players. "

"in addition to the game business, youdao, Cloud Music and Yan Xuan business also continue to maintain their own differentiated development direction. We will continue to move forward, provide innovative content and services, and promote the steady improvement of various boutique businesses." Mr. Ding Lei concluded.

Net income from financial results for the third quarter of 2022

Net income for the third quarter of 2022 was 24426.8 million yuan ($3433.9 million), compared with 23159.1 million yuan in the previous quarter and 22190.7 million yuan in the same period last year.

Net income from games and related value-added services in the third quarter of 2022 was RMB 18699.1 million (US $2628.7), including online games and other game-related or ancillary value-added services, compared with RMB 18139.8 million in the previous quarter and RMB 17145.7 million in the same period last year. As a major component of the business segment, net income from online games accounted for 92.9% of net income from games and related value-added services in the current quarter, up from 92.8% in the previous quarter and 92.7% in the same period last year. In the current quarter, net income from mobile games accounted for 68.6% of net income from online games, compared with 66.1% in the previous quarter and 69.2% in the same period last year.

Youdao's net income for the third quarter of 2022 was 1402.4 million yuan ($197.2 million), compared with 956.2 million yuan in the previous quarter and 1387.3 million yuan in the same period last year.

The net income of Cloud Music in the third quarter of 2022 was 2357.2 million yuan (US $331.4), compared with 2191.5 million yuan in the previous quarter and 1924.7 million yuan in the same period last year.

Net income from innovation and other businesses in the third quarter of 2022 was 1968.0 million yuan ($276.7 million), compared with 1871.5 million yuan in the previous quarter and 1733.1 million yuan in the same period last year.

Gross profit

Gross profit in the third quarter of 2022 was 13743.9 million yuan ($1932.1 million), compared with 12941.5 million yuan in the previous quarter and 11810.8 million yuan in the same period last year.

Gross profit month-on-month and year-on-year growth in games and related value-added services are mainly due to an increase in net revenue from online games, including existing games such as the Fantasy Journey to the West series and endless Lagrange and some new games.

The month-on-month increase in youdao gross profit is mainly due to improved economies of scale and increased sales of smart hardware as a result of the increase in net income from learning services.

Cloud Music's gross profit month-on-month and year-on-year growth are mainly due to the increase in net revenue from social entertainment services and the overall improvement in cost control.

Innovation and other business gross profit month-on-month and year-on-year growth is mainly due to NetEase's strict selection of gross profit increase.

Gross profit margin

The gross profit margin of games and related value-added services was 65.0% in the third quarter of 2022, compared with 64.9% in the previous quarter and 61.3% in the same period last year. The year-on-year increase in gross profit margin is mainly due to changes in the contribution of income from different channels.

Youdao's gross profit margin was 54.2% in the third quarter of 2022, compared with 42.8% in the previous quarter and 56.6% in the same period last year. The month-on-month increase in gross profit margin is mainly due to the above-mentioned reasons. The year-on-year decline is mainly due to the reduction of economies of scale due to the decline in net income from learning services.

Cloud Music's gross profit margin was 14.2% in the third quarter of 2022, compared with 13.0% in the previous quarter and 2.2% in the same period last year. Its gross profit margin month-on-month and year-on-year improvement is mainly due to the above reasons.

The gross profit margin for innovation and other businesses in the third quarter of 2022 was 25.5%, compared with 25.8% in the previous quarter and 27.2% in the same period last year. The year-on-year fluctuation of gross profit margin is mainly due to the change of gross profit margin of advertising services.

Operating expenses

Operating expenses totaled 9002.1 million yuan ($1265.5 million) in the third quarter of 2022, compared with 7995.2 million yuan in the previous quarter and 8035.6 million yuan in the same period last year. Its month-on-month and year-on-year increase is mainly due to the increase in expenditure on games and related value-added services and youdao marketing, as well as an increase in personnel costs.

Other income / (expenses)

Other income / (expenses) includes investment gains / (losses), interest income, exchange gains / (losses) and others. The month-on-month and year-on-year increases are mainly due to the investment income from the disposal of some equity investments, as well as the unrealized net exchange gains from the company's dollar-denominated bank deposits and loan balances due to fluctuations in the exchange rate between the US dollar and RMB in the current period.

Income tax

The company recognized income tax expenses of 1586.7 million yuan ($223.1 million) in the third quarter of 2022, compared with 1259.3 million yuan in the previous quarter and 807.6 million yuan in the same period last year. The effective tax rate was 19.3% in the third quarter of 2022, compared with 22.0% in the previous quarter and 19.6% in the same period last year. The effective tax rate reflects the company's estimate of the tax obligations and rights applicable each quarter.

Net profit and net profit under non-GAAP

The net profit attributable to the company's shareholders in the third quarter of 2022 was 6699.4 million yuan ($941.8 million), compared with 5291.5 million yuan in the previous quarter and 3181.8 million yuan in the same period last year. The net profit attributable to the company's shareholders in the previous quarter also included a non-continuing operating profit of 624.9 million yuan related to the sale of the koala business.

The net profit from continuing operations attributable to the Company's shareholders under non-GAAP for the third quarter of 2022 was 7469.6 million yuan ($1050.1 million), compared with 5409.8 million yuan in the previous quarter and 3857.8 million yuan in the same period last year.

Basic net income per share was $0.29 in the third quarter of 2022 ($1.44 per basic American depositary share), compared with $0.23 per share in the previous quarter ($1.14 per basic American depositary share). In the same period last year, basic net profit per share was $0.13 (basic net profit per American depositary share was $0.67).

In the third quarter of 2022, basic continuing operating net profit per share was $0.32 (basic continuing operating net profit per American depositary share was $1.61). In the previous quarter, basic continuing operating net profit per share was $0.23 (basic continuing net profit per American depositary share was $1.16). In the same period last year, basic continuing operating net profit per share was $0.16 (basic continuing operating net profit per American depositary share was $0.82).

Quarterly dividend

The board of directors approved a dividend of $0.0870 per share ($0.4350 per American depositary share) for the third quarter of 2022, which will be paid in US dollars, respectively, holders of common shares and American depositary shares that were closed on December 2, 2022, Beijing / Hong Kong time and New York time. In order to be eligible for dividend, ordinary share holders are required to send all valid share transfer files together with the relevant share certificate documents to NetEase's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, no later than 04:30 on December 2, 2022 / HKT, at shops 1712-1716, 17th floor, Hopewell Centre, 183Queen's Road East, Wanchai, Hong Kong. The dividend payment date for common stock is expected to be December 13, 2022, and the dividend payment date for American depositary shares is expected to be around December 16, 2022.

The dividend for the second quarter of 2022 was $0.0720 per share ($0.3600 per American depositary share), which was paid in September 2022.

In accordance with the Company's current dividend policy, the distribution of dividends and the amount to be distributed in any given quarter will be at the discretion of the Board of Directors and will be based on the Company's operations and earnings, cash flow, financial position and other relevant factors.

Additional information

As of September 30, 2022, the company's cash and cash equivalents, current and non-current term deposits and restricted cash and short-term investment balances, net of short-term and long-term loans, was 94.6 billion yuan ($13.3 billion). As of December 31, 2021, the net amount was 85.6 billion yuan. Net cash inflows from operating activities in the third quarter of 2022 were 7.5 billion yuan ($1.1 billion), compared with 6.6 billion yuan in the previous quarter and 6.3 billion yuan in the same period last year.

Changes in segment information disclosure

Since the second quarter of 2022, the company has changed the presentation of segment financial information to make it more consistent with the current management's use of financial information to allocate resources and evaluate performance. The company renamed the "online Game Services" division to "Games and related value-added Services", and adjusted some business lines related to or affiliated to games from "Innovation and other Business" to "Games and related value-added Services", including NetEase CC Live Service (which is a live broadcast platform providing diversified content based on game live broadcasting) and other value-added services. The company has retroactively adjusted segment information in previous periods to maintain the same caliber as the current disclosure. This change has no impact on NetEase's previously disclosed consolidated net income, net profit or net profit per share.

Share buyback / purchase plan

On February 25, 2021, the company announced that its board of directors had approved a share buyback program that would repurchase outstanding American depositary shares and common shares up to $2 billion in total on the open market for a period of not more than 24 months starting from March 2, 2021. On August 31, 2021, the company announced that its board of directors had approved a revision to expand the total repurchase amount of the program to no more than $3 billion. As of September 30, 2022, the company had repurchased approximately 27.0 million American depositary shares under the program, totaling approximately $2.5 billion.

The company also announced today that its board of directors has approved a new share buyback program to repurchase American depositary shares and common shares outstanding in the open market with a total amount of not more than US $5 billion for a period of not more than 36 months. The new repurchase plan will be implemented as soon as the existing repurchase plan expires or after the company has used up the repurchase quota granted under the existing plan.

On August 31, 2021, the company announced that its board of directors had approved a share purchase program to publicly purchase youdao American depositary shares with a total amount of up to US $50.0 million outstanding on the New York Stock Exchange for a period of up to 36 months from September 2, 2021. As of September 30, 2022, the company had purchased approximately 2.3 million American depositary shares under the program, totaling approximately $20.7 million.

In the third quarter of 2022, NetEase also publicly purchased about 0.7m common shares of Yun Music on the Hong Kong Stock Exchange, totaling about US $6.9m.

NetEase's repurchase of its American depositary shares and common shares, or the purchase of youdao American depositary shares and cloud music common shares, will depend on a variety of factors, including market conditions. These plans may be suspended or suspended at any time.

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