NTES » Topics » Highlights for Fiscal Year 2006

This excerpt taken from the NTES 6-K filed Mar 9, 2007.

Highlights for Fiscal Year 2006

 

 

Total revenues grew 30.9% year-over-year to RMB2,217.2 million (US$284.1 million);

 

 

Online game revenues grew 34.5% year-over-year to RMB1,856.1 million (US$237.8 million);

 

 

U.S. GAAP net profit for the year grew 33.3% to RMB1,242.8 million (US$159.2 million), equivalent to US$1.23 (basic) and US$1.14 (diluted) earnings per ADS, compared to RMB932.0 million (US$115.5 million, equivalent to US$0.90 (basic) and US$0.82 (diluted) per ADS in fiscal 2005 and

 

 

Total cash and time deposit balance was RMB3.9 billion (US$504.6 million) at December 31, 2006, compared to RMB3.4 billion (US$418.5 million) at December 31, 2005.

William Ding, Chief Executive Officer and Director of NetEase stated, “Overall, we were satisfied with the results of the fourth quarter, and pleased with the strong growth rates in total revenues, online game revenues and net profit achieved for fiscal year 2006. We also made significant progress during the year with regard to our games and game upgrades under development. Tianxia II is on schedule for open beta testing beginning March 1, which we expect will be followed closely by its commercial launch. The testing process for Tianxia II has proceeded smoothly and without interruption, and we are confident in the market potential and player appeal of this next generation online 3D game. During the fourth quarter in 2006, we also made substantial progress with Westward Journey III which will enter internal closed beta testing during the second quarter of this year followed by open beta testing in the third quarter. In addition, the latest expansion pack for Fantasy Westward Journey was released late last month.”

“We are equally enthusiastic about our portal strategy in 2006,” Mr. Ding continued. “Our online communities on our portals, 30-plus million active email users, number one free email ranking in China, and growing blog community are all highly valuable assets.”

This excerpt taken from the NTES 6-K filed Aug 15, 2006.

Highlights for Second Quarter 2006

 

    Total revenues for the quarter increased 8.6% quarter-over-quarter and 38.0% year-over-year to RMB575.3 million (US$72.0 million);

 

    Online game revenues for the quarter grew 7.9% quarter-over-quarter and 41.4% year-over-year to RMB486.0 million (US$60.8 million), primarily attributable to the continued growth in the popularity of Fantasy Westward Journey;

 

    Advertising services revenue increased 11.7% quarter-over-quarter and 28.7% year-over-year to RMB68.8 million (US$8.6 million), primarily driven by both the traditional seasonal increase in advertising spending in the second quarter and overall increased advertising expenditures resulting from NetEase’s enhanced website content;

 

    U.S. GAAP net profit for the quarter was RMB314.1 million (US$39.3 million), equivalent to US$0.28 (diluted) earnings per American Depositary Share (ADS);

 

    Non-GAAP net profit for the second quarter, which is exclusive of non-cash, share-based compensation costs, grew 6.5% quarter-over-quarter and 40.2% year-over-year to RMB340.4 million (US$42.6 million), equivalent to US$0.30 (diluted) earnings per ADS;

 

    Fantasy Westward Journey achieved record peak concurrent user number of approximately 1,313,000 during the second quarter;

 

    Datang, the Company’s new online 2.5D game which was commercially launched on July 19, 2006, achieved solid results after a period of approximately one and one-half months open beta testing;

 

    The internal beta testing of the Company’s next generation online 3D game, Tianxia II, remains on track, and open beta testing is expected to commence by the end of 2006; and


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    Approximately 2.4 million of the Company’s issued and outstanding ADSs were repurchased for an aggregate purchase consideration of US$50.3 million (including transaction costs) in accordance with the share repurchase program announced on May 18, 2006.

William Ding, Chief Executive Officer and Director of NetEase stated, “We experienced another quarter of solid revenue growth driven by sequential growth in all business lines. We intend to bolster the popularity of Fantasy Westward Journey by launching a new expansion pack with rich content updates by the end of 2006. Additionally, for our original and most mature online game, Westward Journey Online II, we are in the process of revamping the game by adding new game playing features, content and artwork and by creating a new game engine in order to spur future usage growth and enhance the overall longevity of the game. We anticipate initiating closed beta testing of this improved version of Westward Journey Online II in early 2007.”

“In addition, we are pleased with the initial results of the launch of our newest online game, Datang. We are confident that we will be able to build on this initial success and to increase the popularity of this game by adding new content and playing features, as well as by signing-up more promotion partners for this game. Moreover, we are on track for the development of Tianxia II and we plan to commence the open beta testing by the end of 2006.”

“In turn, the Company’s growth in advertising revenue benefited from the traditional seasonal increase in advertising spending in the second quarter. Equally importantly, we believe our improved content channels and new services for Internet users continued to widen our audience, which attracted more spending from advertisers.”

Total revenues increased to RMB575.3 million (US$72.0 million) for the second quarter of 2006, representing 8.6% growth from RMB529.8 million (US$66.1 million) for the first quarter of 2006, and 38.0% growth from RMB416.9 million (US$50.4 million) for the second quarter of 2005.

Online game revenues increased to RMB486.0 million (US$60.8 million) for the second quarter of 2006 representing a 7.9% increase over RMB450.6 million (US$56.2 million) for the first quarter of 2006 and a 41.4% increase over RMB343.7 million (US$41.5 million) for the second quarter of 2005.

Revenues from advertising services increased 11.7% to RMB68.8 million (US$8.6 million) from RMB61.6 million (US$7.7 million) for the first quarter of 2006. Advertising services revenues increased 28.7% over RMB53.4 million (US$6.5 million) for the second quarter of 2005.

Revenues from the Company’s wireless value-added services and others increased to RMB20.5 million (US$2.6 million) for the second quarter of 2006, representing an increase of 16.3% over RMB17.6 million (US$2.2 million) for the first quarter of 2006 and an increase of 4.0% from RMB19.7 million (US$2.4 million) for the second quarter of 2005.

GAAP gross profit for the second quarter of 2006 was RMB457.4 million (US$57.2 million). The Company’s non-GAAP gross profit in the second quarter was RMB461.7 million (US$57.8 million), representing an 8.6% increase over the previous quarter’s non-GAAP gross profit of RMB425.3 million


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(US$53.0 million), and a 41.3% increase over non-GAAP gross profit of RMB326.8 million (US$39.5 million) for the corresponding period a year ago. The non-GAAP financial measures included in this release exclude the effect of certain non-cash, share based compensation expenses. The reconciliation of GAAP measures with non-GAAP measures for gross profit, operating expenses, net profit and net profit per ADS is set forth in the Company’s unaudited financial information below.

Total GAAP gross margin for the Company for the second quarter of 2006 was 82.8%. Total non-GAAP gross margin for the second quarter was 83.5% compared with non-GAAP gross margin of 83.6% for the preceding quarter and 83.2% for the same period last year.

GAAP gross margin for the online game business for the second quarter of 2006 was 90.7%. Non-GAAP gross margin for the online game business for the second quarter of 2006 was 91.0% compared with non-GAAP gross margin of 90.7% for the preceding quarter and 90.2% for the second quarter of 2005.

GAAP gross margin for the advertising business for the second quarter of 2006 was 49.8%. Non-GAAP gross margin for the online advertising business for the second quarter of 2006 decreased to 53.3% from non-GAAP gross margin of 55.3% for the preceding quarter and 62.1% for the second quarter of 2005, primarily due to an increase in the salaries and other benefits paid to content editors.

GAAP gross margin for the wireless value-added services and others business for the second quarter of 2006 was -2.3%. Non-GAAP gross margin for the wireless value-added services and others business for the second quarter of 2006 was 1.9% compared with non-GAAP gross margin of -7.1% for the preceding quarter and 18.4% for the second quarter of 2005.

Total GAAP operating expenses for the second quarter of 2006 were RMB134.3 million (US$16.8 million). Total non-GAAP operating expenses for the second quarter of 2006 were RMB112.4 million (US$14.1 million), compared with RMB91.9 million (US$11.5 million) for the preceding quarter and RMB80.1 million (US$9.7 million) for the same period last year. The increase in non-GAAP operating expenses in comparison to the preceding quarter was primarily due to a write-off of RMB11.6 million (US$1.4 million) in software cost for the Company’s licensed online 3D game, Fly for Fun. The Company’s management intends to continue modifying this software to improve the game’s stability and playing features before it is commercially launched.

As a result of foreign currency translation from currencies other than the Renminbi into Renminbi in accordance with applicable accounting standards, the Company reported a RMB45,000 (US$6,000) foreign exchange loss in the second quarter of 2006, compared to a foreign exchange loss of RMB2.1 million (US$0.3 million) in the preceding quarter. The decrease in foreign exchange loss was primarily due to a decrease in the Company’s foreign currency denominated cash balance resulting from the Company’s repurchase of certain of its ADSs and, to a lesser extent, due to the stabilization of the exchange rate of Renminbi versus other currencies in the second quarter. No significant foreign exchange losses were reported in the corresponding quarter a year ago.

GAAP net profit for the second quarter totaled RMB314.1 million (US$39.3 million). Non-GAAP net profit for the second quarter totaled RMB340.4 million (US$42.6 million), a 6.5% increase over the


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previous quarter’s non-GAAP net profit of RMB319.7 million (US$39.9 million) and a 40.2% increase over non-GAAP net profit of RMB242.8 million (US$30.0 million) for the second quarter of 2005. NetEase reported GAAP basic and diluted earnings per ADS of US$0.30 and US$0.28, respectively, which include the impact of approximately US$3.3 million, or US$0.02 per ADS, in non-cash, share-based compensation costs. The Company recorded GAAP basic and diluted earnings per ADS of US$0.23 and US$0.21 for the second quarter of 2005 and US$0.28 and US$0.26 for the first quarter of 2006, respectively.

As of June 30, 2006, the Company’s total cash and time deposit balance was RMB3.6 billion (US$451.8 million), a decrease of 4.1% from RMB3.8 billion (US$469.8 million) at March 31, 2006, primarily due to the utilization of approximately US$50.3 million (including transaction costs) for the repurchase of certain of the Company’s issued and outstanding ADSs. Cash flow generated from operating activities was approximately RMB296.5 million (US$37.1 million), a decrease of 28.1% from the previous quarter’s RMB412.4 million (US$51.4 million) but a 16.1% increase from RMB255.3 million (US$30.8 million) for the second quarter of 2005. The quarter-on-quarter decrease in cash flow generated from operating activities was primarily due to the decrease in accounts payable resulting from the repayment of option proceeds held on behalf by the Company to employees and the seasonal increase in accounts receivable balance in the second quarter of 2006.

During the second quarter of 2006, the Company repurchased approximately 2.4 million ADSs for an aggregate purchase consideration of US$50.3 million (including transaction costs) in accordance with the share repurchase program announced on May 18, 2006. The Company is in the process of canceling these repurchased ADSs, which are recorded as treasury stock in the balance sheet as of June 30, 2006.

Denny Lee, NetEase’s Chief Financial Officer, added, “In addition to our strong revenue and EPS performance for the quarter, we were pleased to have completed a share repurchase that underscores our confidence in the long-term value of our company and returns value back to our shareholders.”

This excerpt taken from the NTES 6-K filed May 17, 2006.

Highlights for First Quarter 2006

 

    Total revenues for the quarter grew 8.7% quarter-over-quarter and 61.7% year-over-year to RMB529.8 million (US$66.1 million);

 

    Online game revenues for the quarter grew 12.4% quarter-over-quarter and 71.9% year-over-year to RMB450.6 million (US$56.2 million), exceeding the Company’s guidance of 8-10% quarter-over-quarter growth;

 

    U.S. GAAP net profit for the quarter was RMB293.7 million (US$36.6 million), equivalent to US$0.26 (diluted) earnings per American Depositary Share;

 

    Non-GAAP net profit for the quarter grew 15.5% quarter-over-quarter and 107.7% year-over-year to RMB319.7 million (US$39.9 million), equivalent to US$0.28 (diluted) earnings per American Depositary Share; and

 

    Fantasy Westward Journey and Westward Journey Online II reported peak concurrent user numbers of approximately 1,280,000 and 580,000, respectively, for the first quarter.

William Ding, Chief Executive Officer and Director of NetEase said, “We saw double digit growth in revenues derived from Fantasy Westward Journey, which remains the #1 online game in China two years after its initial launch in 2004. While we did see some quarter-over-quarter decline in revenues for Westward Journey II, this game – now in its fourth year – continues to remain among the top 3 most popular online games in China. During the quarter, we continued to make progress in the development of our next-generation of online games, Datang and Tianxia. Datang is expected to enter open beta testing by May 31, 2006 and Tianxia is expected to enter open beta testing in the second half of 2006. By maintaining focus on our core strengths – deepening our relationship with our large and loyal customer base and creating quality, innovative online game content – we believe we will continue to achieve strong growth in 2006.”


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For the first quarter of 2006, total revenues increased to RMB529.8 million (US$66.1 million), representing 8.7% growth from RMB487.3 million (US$60.4 million) for the preceding fourth quarter of 2005, and 61.7% growth from RMB327.7 million (US$39.6 million) for the same period last year.

Online game revenues for the quarter exceeded the Company’s guidance and increased 12.4% quarter-over-quarter and 71.9% year-over-year to RMB450.6 million (US$56.2 million), driven primarily by double digit growth in Fantasy Westward Journey as a result of the continued organic growth and, in particular, after players celebrated the second anniversary of the game in January 2006.

Revenues from advertising services declined by 10.9% to RMB61.6 million (US$7.7 million), compared to the preceding quarter’s RMB69.1 million (US$8.6 million), primarily as a result of a seasonal decline in spending by certain advertisers during the first quarter of 2006. This represents an increase of 36.0% over RMB45.3 million (US$5.5 million) for the corresponding period a year ago.

Revenues from the Company’s wireless value-added services and others increased to RMB17.6 million (US$2.2 million) for the first quarter of 2006, representing a slight increase of 2.3% over the preceding quarter’s RMB17.2 million (US$2.1 million) and 13.0% decrease from RMB20.3 million (US$2.4 million) for the first quarter of 2005. The quarter-over-quarter revenue growth was due primarily to increased sales of online game related merchandise and, to a lesser extent, increased revenue from value-added services provided to free email users.

Chief Operating Officer Michael Tong commented, “The continued success of Fantasy Westward Journey further solidifies the strength of our game development strategy and philosophy. Our focus in 2006 is to ensure that the upcoming launches of Datang and Tianxia are equally successful by executing on the same solid business model that has made NetEase the leading provider of online games in China.”

GAAP gross profit for the first quarter of 2006 was RMB420.9 million (US$52.5 million). The Company recorded non-GAAP gross profit in the first quarter of RMB425.3 million (US$53.0 million), representing a 10.1% increase over the previous quarter’s non-GAAP gross profit of RMB386.2 million (US$47.9 million) and a 68.0% increase over non-GAAP gross profit of RMB253.2 million (US$30.6 million) for the corresponding period a year ago. The non-GAAP financial measures presented in this release exclude the effect of certain non-cash, share-based compensation expense totaled RMB26.0 million (US$3.2 million) incurred in the first quarter of 2006. The reconciliation of GAAP measures with non-GAAP measures for gross margin, gross profit, operating expenses, net profit and net profit per American Depositary Share included in this release is set forth in the Company’s unaudited financial information below.

Total GAAP gross margin for the Company for the first quarter of 2006 was 82.7%. Total non-GAAP gross margin for the Company was 83.6% compared with non-GAAP gross margin of 82.6% for the preceding quarter and 82.0% for the same period last year.


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Non-GAAP gross margin for the online game business for the first quarter of 2006 improved slightly to 90.7% from non-GAAP gross margin of 89.4% for the preceding quarter and 89.0% for the first quarter of 2005, primarily due to the termination of revenue sharing arrangements with spokespersons for Fantasy Westward Journey and Westward Journey Online II in November 2005. GAAP gross margin for the online game business for the first quarter of 2006 was 90.4%.

Non-GAAP gross margin for the online advertising business for the first quarter of 2006 declined to 55.3% from non-GAAP gross margin of 62.9% for the preceding quarter and 63.3% for the first quarter of 2005, primarily due to a seasonal decline in advertising expenditure and, to a lesser extent, due to the increased costs associated with the Company’s online advertising business in 2006, GAAP gross margin for the advertising business for the first quarter of 2006 was 51.2%. Also, both GAAP and non-GAAP gross margin for the wireless value-added services and others business declined in comparison to the preceding quarter and the same quarter a year ago, due to increased server depreciation costs associated with the Company’s free email services.

Total GAAP operating expenses for the first quarter of 2006 were RMB113.5 million (US$14.2 million). Total non-GAAP operating expenses for the first quarter of 2006 were RMB91.9 million (US$11.5 million), compared with RMB94.9 million (US$11.8 million) for the preceding quarter and RMB90.5 million (US$10.9 million) for the same period last year. The decline in non-GAAP operating expenses in comparison to the preceding quarter was primarily the result of lower general and administrative expenses resulting from the decrease in provision for doubtful debts expenses due mainly to the settlement of long-term debts.

As a result of foreign currency translation from currencies other than the Renminbi into Renminbi in accordance with applicable accounting standards, the Company reported a RMB2.1 million (US$0.3 million) foreign exchange loss in the first quarter of 2006, compared to foreign exchange losses of RMB1.9 million (US$0.2 million) in the preceding quarter and RMB nil in the corresponding quarter a year ago.

GAAP net profit for the first quarter totaled RMB293.7 million (US$36.6 million). Non-GAAP net profit for the first quarter totaled RMB319.7 million (US$39.9 million), a 15.5% increase over the previous quarter’s non-GAAP net profit of RMB276.7 million (US$34.3 million) and 107.7% increase over non-GAAP net profit of RMB153.9 million (US$18.6 million) for the first quarter of 2005. NetEase reported basic and diluted earnings per American Depositary Share of US$0.28 and US$0.26, respectively, which include the impact of approximately US$3.3 million, or US$0.02 per American Depositary Share, in non-cash, share-based compensation costs. For the first quarter of 2005, the Company recorded basic and diluted earnings per American Depositary Share of US$0.15 and US$0.13, respectively.

As of March 31, 2006, the Company’s total cash and time deposit balance was RMB3.8 billion (US$469.8 million), an 11.5% increase from the previous quarter’s RMB3.4 billion (US$418.5 million). Cash flow generated from operating activities was approximately RMB412.4 million (US$51.4 million), an 87.2% increase from the previous quarter’s RMB220.3 million (US$27.3 million) and a 101.9% increase from the corresponding quarter’s RMB204.2 million (US$24.7 million).


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Denny Lee, NetEase’s Chief Financial Officer, added, “We continued to carefully manage our expenses and operations to achieve solid financial results during the quarter. During 2006, we will remain focused on investing the necessary resources to expand our customer acquisition and game development efforts vital to our sustained growth. At the same time, we will continue to tightly control expenses to achieve long-term value for our shareholders.”

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