NetEase, Inc. (NASDAQ:NTES) Q3 2023 Earnings Call Transcript November 16, 2023 7:00 AM ET Company Participants Margaret Shi - Senior Director of IR Charles Yang - CFO William Ding - CEO Conference Call Participants Ritchie Sun - HSBC Yang Bai - CICC Felix Liu - UBS Thomas Chong - Jefferies Lincoln Kong - Goldman Sachs Ritchie Sun - HSBC Alex Poon - Morgan Stanley Alicia Yap - Citigroup Operator Good day, and welcome to the NetEase 2023 Third Quarter Earnings Conference Call. Today's conference is being reco ...

Good day and welcome to the NetEase 2023 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Margaret Shee, Senior IR Director of NetEase. Please go ahead, ma'am. Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for a safe harbour from liability, as established by the US Private Securities Mitigation ...

Financial Performance - NetEase reported Q3 2023 net revenue of RMB 27.3 billion (USD 3.7 billion), an increase of 11.6% year-over-year[4]. - Game and related value-added services net revenue reached RMB 21.8 billion (USD 3.0 billion), up 16.5% year-over-year[4]. - Youdao net revenue was RMB 1.5 billion (USD 210.9 million), reflecting a 9.7% year-over-year increase[4]. - Cloud Music net revenue decreased to RMB 2.0 billion (USD 270.4 million), down 16.3% year-over-year[4]. - Gross profit for Q3 2023 was RMB 17.0 billion (USD 2.3 billion), a 23.4% increase year-over-year[4]. - Net profit attributable to shareholders was RMB 7.8 billion (USD 1.1 billion), with non-GAAP net profit at RMB 8.6 billion (USD 1.2 billion)[5]. - The net profit attributable to shareholders in Q3 2023 was RMB 7,836.9 million (approximately USD 1,074.1 million), compared to RMB 8,242.8 million in the previous quarter and RMB 6,699.4 million year-over-year[15]. - Net income for the nine months ended September 30, 2023, was RMB 22,680,891, an increase from RMB 16,033,595 in the same period of 2022, representing a growth of approximately 41.5%[26]. - The company achieved a net profit margin of approximately 30.5% for the nine months ended September 30, 2023, compared to 28.5% in the same period of 2022[26]. - The total revenue for the nine months ended September 30, 2023, was RMB 76,327,994, an increase from RMB 71,141,680 in the same period of 2022, indicating a growth of about 7.5%[26]. Operating Expenses - The total operating expenses for Q3 2023 amounted to RMB 9,408.4 million (approximately USD 1,289.5 million), an increase from RMB 8,312.8 million in the previous quarter and RMB 9,002.1 million year-over-year[12]. - The total operating costs for the nine months ended September 30, 2023, were RMB 30,089,735, a decrease of 4.8% from RMB 31,619,918 in the same period of 2022[28]. - Research and development expenses for the nine months ended September 30, 2023, totaled RMB 3,648,011, compared to RMB 3,392,866 in the same period of 2022, reflecting an increase of approximately 7.5%[26]. - Research and development expenses for the nine months ended September 30, 2023, amounted to RMB 869,361, reflecting an increase from RMB 782,259 in the same period of 2022[30]. Cash Flow and Assets - As of September 30, 2023, the net cash and cash equivalents, along with short-term investments, amounted to RMB 104.4 billion (approximately USD 14.3 billion), an increase from RMB 95.6 billion at the end of 2022[16]. - The net cash flow from operating activities for Q3 2023 was RMB 9.8 billion (approximately USD 1.3 billion), compared to RMB 7.7 billion in the previous quarter and RMB 7.5 billion year-over-year[16]. - Cash and cash equivalents at the end of September 30, 2023, totaled RMB 20,844 million, an increase from RMB 18,158 million at the end of the previous year[27]. - Operating cash flow for the nine months ended September 30, 2023, was RMB 18,700 million, down from RMB 23,523 million in the previous year, indicating a decrease of about 20.5%[27]. - The company reported a net cash inflow from investment activities of RMB 987 million for the three months ended September 30, 2023, compared to an outflow of RMB 515 million in the same period last year[27]. Shareholder Returns - The company announced a quarterly dividend of USD 0.0990 per share, payable on December 12, 2023, to shareholders registered by December 1, 2023[17]. - The company has initiated a share repurchase plan of up to USD 5 billion, with approximately 6.6 million ADS repurchased for about USD 587.9 million as of September 30, 2023[18]. Market and Product Development - The mobile game "Nirvana in Fire" achieved strong revenue and user growth, surpassing 50 million registered players[6]. - The newly launched basketball game "All-Star Street Basketball Party" topped the iOS sales chart in China[6]. - The company plans to release several highly anticipated new games in 2024, showcasing its R&D capabilities[6]. - Youdao's learning services and online marketing services continue to drive revenue growth, improving operational losses[10]. - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[26]. - The company emphasizes the integration of culture and education into gaming, enhancing the meaningfulness and vibrancy of its games[22]. Financial Metrics and Comparisons - Non-GAAP financial metrics are used to assess operational performance, excluding stock-based compensation expenses from net profit attributable to shareholders[24]. - The non-GAAP net profit attributable to shareholders is defined as the profit after excluding stock-based compensation expenses, providing a clearer view of operational performance[24]. - The company acknowledges that non-GAAP metrics may differ from those used by other companies, affecting comparability[24]. - NetEase encourages a comprehensive review of its financial information rather than relying on any single financial metric[24]. Tax and Regulatory - The effective tax rate for Q3 2023 was 14.2%, a decrease from 19.3% year-over-year, primarily due to the recognition of tax incentives[14]. Balance Sheet Highlights - As of September 30, 2023, total assets amounted to RMB 172.76 billion, a slight increase from RMB 171.58 billion as of December 31, 2022[25]. - Cash and cash equivalents decreased to RMB 15.12 billion from RMB 24.89 billion, representing a decline of approximately 39.2%[25]. - Total current liabilities increased significantly to RMB 56.83 billion, up from RMB 43.87 billion, reflecting a rise of about 29.5%[25]. - The company's total equity decreased to RMB 108.74 billion from RMB 123.80 billion, a decline of approximately 12.1%[25]. - Short-term borrowings surged to RMB 23.88 billion, compared to RMB 11.22 billion, marking an increase of around 112.5%[25]. - The net value of accounts receivable rose to RMB 6.49 billion from RMB 5.00 billion, an increase of approximately 29.8%[25]. - Non-current assets totaled RMB 41.16 billion, down from RMB 44.01 billion, indicating a decrease of about 6.5%[25]. - The company's total liabilities reached RMB 63.89 billion, up from RMB 47.63 billion, reflecting an increase of approximately 34.1%[25]. - The net value of inventories increased to RMB 721.96 million from RMB 993.64 million, a decrease of about 27.3%[25]. - The total amount of restricted cash was RMB 3.04 billion, a decrease from RMB 2.70 billion, indicating a decline of approximately 10.3%[25]. Leadership Changes - The company is undergoing a leadership transition as CFO Yang Zhaoxuan will resign effective November 30, 2023, but will remain as an advisor until June 30, 2024[19]. ESG Performance - NetEase has been recognized for its strong ESG performance, being included in the 2022 Dow Jones Sustainability World Index and receiving an A rating from MSCI[22]. Risks and Challenges - Forward-looking statements indicate potential risks, including the online gaming market's growth stagnation and challenges in maintaining market position[23].

Financial Performance - Net revenues for Q3 2023 were RMB27.3 billion (US$3.7 billion), an increase of 11.6% compared to Q3 2022[26] - Net revenues from games and related value-added services were RMB21.8 billion (US$3.0 billion), a year-over-year increase of 16.5%[1] - Gross profit for Q3 2023 was RMB17.0 billion (US$2.3 billion), reflecting a 23.4% increase compared to Q3 2022[3] - Basic net income per share was US$0.33 (US$1.67 per ADS), while non-GAAP basic net income from continuing operations per share was US$0.37 (US$1.84 per ADS)[5] - Total net revenues for the third quarter of 2023 reached RMB 27,270,406, representing a year-over-year increase of 11.5% from RMB 24,426,760 in the same quarter of 2022[64] - Gross profit for the third quarter of 2023 was RMB 16,966,300, up 23.5% from RMB 13,743,892 in the third quarter of 2022[64] - Net income attributable to the Company's shareholders for the three months ended September 30, 2023, was RMB 7,836,888, compared to RMB 6,699,364 in the same period of 2022, reflecting a growth of 16.9%[61] - Non-GAAP net income from continuing operations attributable to shareholders was RMB8.6 billion (US$1.2 billion) for Q3 2023[30] Operating Expenses - Total operating expenses were RMB9.4 billion (US$1.3 billion), an increase of 4.5% compared to Q3 2022[29] - Total operating expenses for the three months ended September 30, 2023, were RMB 9,408,391, up from RMB 9,002,116 in the same quarter of 2022[61] - The company reported an income tax expense of RMB 1,290,398 for the three months ended September 30, 2023, compared to RMB 1,586,673 in the same period of 2022[61] Cash Flow and Assets - Net cash provided by operating activities was RMB 9.8 billion for Q3 2023, an increase from RMB 7.7 billion in Q2 2023 and RMB 7.5 billion in Q3 2022[74] - Cash and cash equivalents dropped from RMB 24.9 billion to RMB 15.1 billion, a decrease of about 39%[60] - Total current assets decreased from RMB 131.6 billion to RMB 127.6 billion, a decline of approximately 2%[60] - The company reported a net cash provided by operating activities of RMB 845,721 for the three months ended September 30, 2023, compared to RMB 552,688 in the same period last year[101] - Cash flows from operating activities for the nine months ended September 30, 2023, totaled RMB 23,522,996, an increase of 26% from RMB 18,700,020 for the same period last year[101] Shareholder Equity and Liabilities - Total liabilities decreased from RMB 63.9 billion to RMB 47.6 billion, a reduction of approximately 26%[60] - Shareholders' equity increased from RMB 104.7 billion to RMB 120.0 billion, an increase of around 15%[60] - Current liabilities decreased from RMB 56.8 billion to RMB 43.9 billion, a reduction of approximately 23%[60] Market and Growth Strategies - The company continues to focus on expanding its market presence and investing in new technologies to drive future growth[63] - NetEase's strategies include the development of new online services and international business expansion[84] - Market expansion plans include entering three new countries by the end of 2024, targeting a potential market of 5 million users[102] - The company is investing $100 million in R&D for new technology development in the upcoming fiscal year[102] User Engagement and Product Development - User base grew to 10 million active users, a 20% increase compared to the previous quarter[102] - New product launch is scheduled for Q1 2024, anticipated to drive an additional $500 million in revenue[102] - Customer retention rate improved to 85%, up from 80% in the previous quarter[102] Financial Guidance and Future Outlook - The company provided guidance for Q4 2023, expecting revenue to be between $2.7 billion and $2.9 billion, indicating a growth of 8% to 16%[102] - The company plans to implement a new marketing strategy, aiming for a 25% increase in brand awareness by mid-2024[102] Management Changes - The company announced the resignation of CFO Charles Zhaoxuan Yang effective November 30, 2023, to pursue other career interests[78]

Financial Performance - NetEase reported net revenue of RMB 24.01 billion (USD 3.31 billion) for Q2 2023, a year-over-year increase of 3.7%[3] - Revenue from games and related value-added services was RMB 18.80 billion (USD 2.59 billion), representing a year-over-year increase of 3.6%[3] - Youdao's revenue reached RMB 1.21 billion (USD 166.4 million), showing a significant year-over-year growth of 26.2%[3] - Cloud Music revenue was RMB 1.95 billion (USD 268.7 million), a year-over-year decrease of 11.1%[3] - Gross profit amounted to RMB 14.40 billion (USD 2.00 billion), reflecting a year-over-year increase of 11.1%[3] - Net profit attributable to shareholders was RMB 8.20 billion (USD 1.10 billion), with non-GAAP net profit of RMB 9.00 billion (USD 1.20 billion)[4] - Basic earnings per share were USD 0.35, with non-GAAP basic earnings per share of USD 0.39[4] - The net profit attributable to shareholders in Q2 2023 was RMB 8,242.8 million (USD 1,136.7 million), compared to RMB 6,754.6 million in the previous quarter and RMB 5,291.5 million year-over-year[12] - Net income for the six months ended June 30, 2023, was RMB 14,870,009 thousand, representing a significant increase from RMB 9,412,595 thousand in the same period of 2022, reflecting a growth of approximately 58.8%[22] - The company reported a net profit attributable to shareholders of RMB 14,997,401 thousand for the six months ended June 30, 2023, compared to RMB 9,685,499 thousand in the same period of 2022, which is an increase of about 55.0%[22] Operating Expenses - Total operating expenses in Q2 2023 were RMB 8,312.8 million (USD 1,146.4 million), an increase from RMB 7,676.5 million in the previous quarter and RMB 7,995.2 million year-over-year[9] - The total operating expenses for the six months ended June 30, 2023, were RMB 15,989,215 thousand, compared to RMB 15,324,500 thousand in the same period of 2022, reflecting an increase of approximately 4.3%[22] - The operating costs for the six months ended June 30, 2023, totaled RMB 19,785,629, a decrease from RMB 20,937,050 in the same period of 2022, showing a reduction of 5.5%[24] Cash Flow and Liquidity - As of June 30, 2023, the net cash and cash equivalents amounted to RMB 99.6 billion (USD 13.7 billion), an increase from RMB 95.6 billion at the end of 2022[14] - Cash and cash equivalents at the end of June 30, 2023, totaled RMB 15,679,412, down from RMB 19,552,450 at the end of the previous quarter[23] - The company reported a net cash outflow from investing activities of RMB 5,802,848 for the six months ended June 30, 2023, compared to a net cash outflow of RMB 12,220,918 in the same period last year[23] - The company experienced a net cash inflow from financing activities of RMB 572,429 for the six months ended June 30, 2023, compared to a net cash outflow of RMB 20,325,192 in the same period last year[23] Assets and Liabilities - As of June 30, 2023, the total assets of NetEase amounted to RMB 172.76 billion, a decrease from RMB 167.91 billion as of December 31, 2022, representing a decline of approximately 2.5%[21] - The total liabilities increased significantly to RMB 63.89 billion as of June 30, 2023, compared to RMB 49.64 billion at the end of 2022, marking an increase of about 28.7%[21] - The total equity attributable to NetEase shareholders was RMB 104.73 billion as of June 30, 2023, down from RMB 114.26 billion at the end of 2022, a decrease of approximately 8.3%[21] Margins and Profitability - The gross margin for online games and related value-added services was 67.4%, up from 66.7% in the previous quarter and 64.9% year-over-year[8] - The gross margin for Youdao was 47.0%, down from 51.7% in the previous quarter but up from 42.8% year-over-year, reflecting changes in revenue contributions[8] - The gross margin for Cloud Music was 27.0%, an increase from 22.4% in the previous quarter and 13.0% year-over-year, driven by increased subscription revenue and cost control improvements[8] Strategic Initiatives - The company launched several popular new games in June, enhancing its international presence and expanding its game portfolio[5] - Cloud Music subscription numbers increased significantly, contributing to improved profitability[5] - Youdao's learning services and online marketing services showed strong revenue growth, with improved operating cash flow[5] - The company plans to continue investing in new technologies and market expansion to drive future growth[23] - The company is committed to developing innovative online services and keeping pace with market trends[19] Non-GAAP Metrics - The company emphasizes the importance of non-GAAP financial metrics, such as net profit attributable to shareholders after excluding stock-based compensation[20] - Non-GAAP metrics are used to provide investors with a clearer understanding of operational performance and future prospects[20] - The company acknowledges the limitations of non-GAAP financial indicators, which may not reflect all income/expense items affecting operations[20] Risks and Uncertainties - NetEase's forward-looking statements are subject to various business risks and uncertainties, including market growth and regulatory changes[19] - Economic uncertainties and capital market volatility are potential risks that could impact NetEase's business performance[19] - The company is focused on maintaining its market position in both China and globally amidst competitive pressures[19] ESG and Recognition - NetEase has been recognized for its ESG performance, being included in the 2022 Dow Jones Sustainability World Index and receiving an MSCI rating of A[18]

NetEase, Inc. (NASDAQ:NTES) Q2 2023 Earnings Conference Call August 24, 2023 8:00 AM ET Company Participants Margaret Shi - Senior Director of IR Charles Yang - CFO William Ding - CEO Conference Call Participants Alex Poon - Morgan Stanley Yang Bai - CICC Ritchie Sun - HSBC Felix Liu - UBS Lincoln Kong - Goldman Sachs Kenneth Fong - Credit Suisse Natalie Wu - Haitong International Operator Good day, and welcome to the NetEase 2023 Second Quarter Earnings Conference Call. Today's conference is being recorded ...

N et E ase 2Q23 Investor Presentation Investor Relations SAFE HARBOR STATEMENT This announcement 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 ...

Financial Performance - NetEase reported Q2 2023 net revenue of RMB 24.01 billion (USD 3.31 billion), a year-over-year increase of 3.7%[4] - Revenue from games and related value-added services reached RMB 18.80 billion (USD 2.59 billion), up 3.6% year-over-year[4] - Youdao's net revenue was RMB 1.21 billion (USD 166.4 million), reflecting a strong year-over-year growth of 26.2%[4] - Cloud Music's net revenue decreased to RMB 1.95 billion (USD 268.7 million), down 11.1% year-over-year[4] - Gross profit for Q2 2023 was RMB 14.40 billion (USD 2.00 billion), representing an 11.1% increase year-over-year[4] - Operating expenses totaled RMB 8.30 billion (USD 1.10 billion), an increase of 4.0% compared to the previous year[4] - Net profit attributable to shareholders was RMB 8.20 billion (USD 1.10 billion), with non-GAAP net profit from continuing operations at RMB 9.00 billion (USD 1.20 billion)[5] - Basic earnings per share were USD 0.35, with non-GAAP basic earnings per share from continuing operations at USD 0.39[5] Game Development and Strategy - The company launched several popular new games in June, enhancing its international presence and expanding its game portfolio[6] - NetEase is a leading internet and gaming service provider, continuously expanding its gaming ecosystem with a rich product matrix[19] - The company has a strong in-house R&D team focused on mobile, PC, and console games, contributing to an exceptional gaming experience[19] - The company aims to integrate cultural and educational elements into its games, enhancing their value and engagement[19] Profitability and Margins - The gross margin for online games and related value-added services in Q2 2023 was 67.4%, up from 66.7% in the previous quarter and 64.9% year-over-year[9] - The gross margin for Youdao in Q2 2023 was 47.0%, down from 51.7% in the previous quarter but up from 42.8% year-over-year[9] - The gross margin for Cloud Music in Q2 2023 was 27.0%, an increase from 22.4% in the previous quarter and 13.0% year-over-year, driven by increased subscription revenue and cost control improvements[9] Cash Flow and Financial Position - As of June 30, 2023, the net cash and cash equivalents, after deducting short-term and long-term borrowings, amounted to RMB 99.6 billion (USD 13.7 billion), an increase from RMB 95.6 billion at the end of 2022[15] - The company declared a quarterly dividend of USD 0.1050 per share (USD 0.5250 per American Depositary Share) for Q2 2023, compared to USD 0.0930 per share in Q1 2023[16] - The company has a share repurchase plan approved for up to USD 5 billion, with approximately 6.1 million American Depositary Shares repurchased for about USD 536.4 million as of June 30, 2023[17] Tax and Regulatory Environment - The effective tax rate for Q2 2023 was 8.0%, significantly lower than 19.5% in the previous quarter and 22.0% year-over-year, primarily due to the recognition of tax incentives[12] Assets and Liabilities - As of June 30, 2023, the total assets of NetEase amounted to RMB 172.76 billion, a decrease from RMB 167.91 billion as of December 31, 2022, representing a decline of approximately 5.1%[23] - The total liabilities increased significantly to RMB 63.89 billion as of June 30, 2023, compared to RMB 49.64 billion at the end of 2022, marking an increase of about 28.7%[23] - Cash and cash equivalents decreased to RMB 12.77 billion from RMB 24.89 billion, reflecting a decline of approximately 48.7%[23] - The total current liabilities rose to RMB 56.83 billion, up from RMB 42.34 billion, indicating an increase of approximately 34.3%[23] - The company's equity attributable to shareholders decreased to RMB 104.73 billion from RMB 114.26 billion, a decline of about 8.3%[23] Future Outlook and Risks - Forward-looking statements indicate potential risks, including market growth stagnation and challenges in maintaining market position[21] - NetEase's global expansion efforts may face risks related to economic uncertainty and currency fluctuations[21] - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[24] Research and Development - Research and development expenses for the six months ended June 30, 2023, totaled RMB 2,153,825 thousand, slightly up from RMB 2,128,524 thousand in the same period last year[24] - Research and development expenses for the company were RMB 282,466 for the three months ended June 30, 2023, compared to RMB 260,899 for the same period in 2022, reflecting an increase of 8.5%[28] Non-GAAP Financial Metrics - Non-GAAP financial metrics are used to assess operational performance, excluding stock-based compensation expenses[22] - The non-GAAP net profit attributable to shareholders is defined as net profit excluding stock-based compensation expenses[22] - The company emphasizes the importance of considering all financial indicators rather than relying on a single metric[22]

NetEase Announces Second Quarter 2023 Unaudited Financial Results · Net revenues were RMB24.0 billion (US$3.3 billion), an increase of 3.7% compared with the second quarter of 2022. · Cloud Music net revenues were RMB1.9 billion (US$268.7 million), a decrease of 11.1% compared with the second quarter of 2022. · Total operating expenses were RMB8.3 billion (US$1.1 billion), an increase of 4.0% compared with the second quarter of 2022. · Basic net income per share was US$0.35 (US$1.77 per ADS). Non-GAAP basic ...

NetEase, Inc. (NASDAQ:NTES) Q1 2023 Earnings Conference Call May 25, 2023 8:00 AM ET Company Participants Margaret Shi - Senior Director of IR Charles Yang - CFO William Ding - CEO Conference Call Participants Alicia Yap - Citigroup Xueqing Zhang - CICC Felix Liu - UBS Kenneth Fong - Credit Suisse Lei Zhang - Bank of America Securities Lincoln Kong - Goldman Sachs Alex Poon - Morgan Stanley Natalie Wu - Haitong International Operator Good day, and welcome to the NetEase 2023 First Quarter Earnings Conferenc ...