BEIJING, Aug. 12 /PRNewswire-Asia/ -- NetEase.com, Inc. (Nasdaq: NTES),
one of China's leading Internet and online game services providers, today
announced its unaudited financial results for the quarter ended June 30, 2009.
William Ding, Chief Executive Officer and Director of NetEase said, 'The
forefront of our online game business strategy has always been the ongoing
in-house development and licensing of high-quality games that will continually
diversify our user base. With respect to our strategic licensing strategy and
the much anticipated relaunch of World of Warcraft which is licensed from
Blizzard Entertainment in mainland China, we have completed technical support
configuration and server rollout on schedule. China's Ministry of Culture has
approved the content of the game and it is now under the approval process with
the General Administration of Press and Publication, or GAPP. We have
commenced the beta testing of the game since July 30, 2009 and are well
prepared to start the commercial launch of the game as soon as we receive
approval from GAPP. Collectively, we increased our technical and customer
service staff by approximately 500 to support Blizzard Entertainment's
Battle.net platform and the World of Warcraft relaunch.'
'Meanwhile, we continue to execute on our strategic plan to enhance our
portfolio of in-house developed games. New user statistics were particularly
strong for Westward Journey II, Datang and New Fly for Fun during the second
quarter. Two new item-based games, Buibui and TF Online, were launched
commercially in May and June, respectively. BuiBui, a casual game, offers
players magic gun-firing experiences and TF Online, a 3-D game, offers
star-war heroic role experiences. As of June 30, 2009, we had approximately
1,000 game developers supporting our ongoing game pipeline.'
Mr. Ding continued, 'Advertising services revenue improved
quarter-over-quarter in terms of both sales by product and number of
advertising customers. We believe this was due to improved advertising
spending as a result of domestic economic stimulus and our efforts to upgrade
our portal channels and add premium content. We launched several new channels
covering education, travel network and real estate in July and August. We also
plan to launch a book search and review channel in September. In addition, we
are expanding our sales force to enhance our industry and customer coverage
which we expect will help us driving further advertising revenue growth during
the next six months.'
Mr. Ding concluded, 'We believe that China's economy continues its path to
recovery, we are continuing to focus on our core strengths to maintain our
dominance in China's online game market and look forward to a solid second
half of the year as our newest licensed and in-house games come to market.'
Second Quarter 2009 Financial Results
Revenues
Total revenues for the second quarter of 2009 were RMB872.1 million
(US$127.7 million), compared to RMB781.7 million (US$114.4 million) and
RMB715.9 million (US$104.8 million) for the preceding quarter and the second
quarter of 2008, respectively.
Revenues from online games were RMB781.5 million (US$114.4 million) for
the second quarter of 2009, compared to RMB724.0 million (US$106.0 million)
and RMB595.0 million (US$87.1 million) for the preceding quarter and the
second quarter of 2008, respectively.
Revenues from advertising services were RMB72.8 million (US$10.7 million)
for the second quarter of 2009, compared to RMB41.0 million (US$6.0 million)
and RMB103.9 million (US$15.2 million) for the preceding quarter and the
second quarter of 2008, respectively.
Revenues from wireless value-added services and others, or WVAS and others,
were RMB17.8 million (US$2.6 million) for the second quarter of 2009, compared
to RMB16.6 million (US$2.4 million) and RMB16.9 million (US$2.5 million) for
the preceding quarter and the second quarter of 2008, respectively.
Gross Profit
Gross profit for the second quarter of 2009 was RMB691.9 million (US$101.3
million), compared to RMB641.7 million (US$93.9 million) and RMB722.8 million
(US$105.8 million) for the preceding quarter and the second quarter of 2008,
respectively. The quarter-over-quarter increase in gross profit was primarily
attributable to the recognition of RMB83.3 million (US$12.2 million) of
revenue from the clean up of dormant accounts of online games in June 2009,
partially offset by the increase in business tax resulting from higher revenue
and increased staff-related costs resulting from increased headcount in the
second quarter of 2009. The recognition of revenue from dormant accounts of
online games resulted from a change in our user agreement with online game
players in May 2009, whereby outstanding points in accounts that remain
dormant for a period of 540 days or more will be removed after 30 days of our
public notice issued on May 20, 2009. Going forward, we expect to recognize
revenue related to the outstanding points removed from dormant accounts of
online games on a quarterly basis.
The year-over-year decrease in gross profit was primarily attributable to
the receipt of a business tax refund of RMB146.8 million (US$21.5 million) in
June 2008 and increased cost of revenues in the second quarter of 2009 as a
result of increased staff-related costs resulting from increased headcount and
increased business tax due to higher revenues in the second quarter of 2009,
partially offset by increased game revenues in the second quarter of 2009. The
increase in game revenue in the second quarter of 2009 was primarily due to
revenue recognized from dormant accounts in June 2009 as explained above and
increased revenue from Westward Journey II and Tianxia II. Increased revenue
from Westward Journey II was mainly due to enhanced game play introduced in
the expansion pack released in August 2008. We reported a full second quarter
revenue for Tianxia II in 2009 compared to only one month revenue for the
second quarter of 2008 as the game entered unlimited closed beta testing on
June 6, 2008.
Gross Profit (Loss) Margin
Gross profit margin for the online game business for the second quarter of
2009 was 88.3%, compared to 90.0% and 91.2% for the preceding quarter and the
second quarter of 2008, respectively. The quarter-over-quarter and
year-over-year decreases in gross profit margin were primarily due to
increased staff-related costs in the second quarter of 2009.
Gross profit margin for the advertising business for the second quarter of
2009 was 16.6%, compared to gross loss margin of 13.1% and gross profit margin
of 52.6% for the preceding quarter and the second quarter of 2008,
respectively. The quarter-over-quarter improvement in gross profit margin was
primarily due to increased revenue brought about by certain economic stimulus
measures implemented by the Chinese government in the past few months,
especially with respect to the automobile and electrical home appliances
sectors. The year-over-year decrease in gross profit margin was primarily
attributable to significantly reduced advertising revenues in the current
quarter as demand for advertising services remained relatively low with
advertisers remaining cautious and still looking ahead for clear signs of
economic recovery.
Gross loss margin for the WVAS and others business for the second quarter
of 2009 was 43.0%, compared to 22.3% for the preceding quarter and gross
profit margin of 28.8% for the second quarter of 2008. The
quarter-over-quarter increase in gross loss margin was primarily due to
increased staff-related costs and increased bandwidth and custody fees
resulting from increased traffic. The year-over-year increase in gross loss
margin was mainly attributable to the receipt of the business tax refund in
June 2008 and increased staff-related costs resulting from increased headcount
in the second quarter of 2009.
Operating Expenses
Total operating expenses for the second quarter of 2009 were RMB174.8
million (US$25.6 million), compared to RMB150.6 million (US$22.0 million) and
RMB149.7 million (US$21.9 million) for the preceding quarter and the second
quarter of 2008, respectively. The quarter-over-quarter increase in operating
expenses was primarily due to nationwide marketing costs for promoting the
open beta testing of New Fly for Fun in May and June of 2009 and costs
associated with other promotional activities, as well as increased research
and development expenses resulting from increased staff-related costs
resulting from increased headcount.
The year-over-year increase in selling and marketing expenses was mainly
due to increased staff-related costs resulting from increased salaries and
wage levels and new headcount in 2009, and increased marketing costs for
promoting online games and advertising services in the current quarter. The
year-over-year increase in general and administration expenses was mainly
caused by increased provision for bad debts resulting from an increase in
accounts receivable balance aged over six months as of June 30, 2009, and
increased office rental and property management fees resulting from increased
office space in Beijing, China. The year-over-year research and development
expenses remained relatively stable.
Net Profit
Net profit for the second quarter of 2009 totaled RMB468.1 million
(US$68.5 million), compared to RMB416.7 million (US$61.0 million) and RMB438.2
million (US$64.2 million) for the preceding quarter and the second quarter of
2008, respectively. During the current quarter, the Company reported a net
foreign exchange gain of RMB47.2 million (US$6.9 million) under Other, net,
compared to losses of RMB47.5 million (US$7.0 million) and RMB26.4 million
(US$3.9 million) for the preceding quarter and the second quarter of 2008,
respectively. The quarter-over-quarter and year-over-year decrease in foreign
exchange loss was mainly due to the reversal of translation loss with respect
to the Company's Euro-denominated bank deposit balances as of June 30, 2009 as
the exchange rate of the Euro against the RMB fluctuated over the periods.
NetEase reported basic and diluted earnings per American depositary share, or
ADS of US$0.53 each for the second quarter of 2009. The Company reported basic
and diluted earnings per ADS of US$0.48 and US$0.47 and US$0.53 and US$0.50
for the preceding quarter and the second quarter of 2008, respectively.
Income Taxes
The Company recorded income tax charge of RMB115.4 million (US$16.9
million), RMB61.7 million (US$9.0 million) and RMB140.0 million (US$20.5
million) for the current quarter, the preceding quarter, and the second
quarter of 2008, respectively.
