(MENAFN- PR Newswire) HANGZHOU, China, Aug. 24, 2023 /PRNewswire/ --
NetEase, Inc. (NASDAQ: ntes and HKEX: 9999, "NetEase" or the "Company"), a leading inteand game services provider, today announced its unaudited financial results for the second quarter ended June 30, 2023.

Second
Quarter 2023 Financial Highlights

• revenues were RMB24.0 billion (US$3.3 billion), an increase of 3.7% compared with the second quarter of 2022.
  • Games and related value-added servicesrevenues were RMB18.8 billion (US$2.6 billion), an increase of 3.6% compared with the second quarter of 2022.
  • Youdaorevenues were RMB1.2 billion (US$166.4 million), an increase of 26.2% compared with the second quarter of 2022.
  • Cloud Musicrevenues were RMB1.9 billion (US$268.7 million), a decrease of 11.1% compared with the second quarter of 2022.
  • Innovative businesses and othersrevenues were RMB2.1 billion (US$283.7 million), an increase of 9.9% compared with the second quarter of 2022.
• Gross profit was RMB14.4 billion (US$2.0 billion), an increase 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.
• income attributable to the Company's shareholders was RMB8.2 billion (US$1.1 billion). Non-GAAPincome from continuing operations attributable to the Company's shareholders was RMB9.0 billion (US$1.2 billion).[1]
• Basicincome per share was US$0.35 (US$1.77 per ADS). Non-GAAP basicincome from continuing operations per share was US$0.39 (US$1.93 per ADS).[1]

[1] As used in this announcement, non-GAAPincome from continuing operations attributable to the Company's shareholders and non-GAAP basic and dilutedincome from continuing operations per share and per ADS are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement.

Second Quarter 2023 and Recent Operational Highlights

• Released new hit titles in June across diverse genres and strengthened global appeal:
  • Justice
    mobile game led China's iOS top grossing and download charts following its launch.
  • Racing Master
    ranked No. 3 on China's iOS top grossing chart soon after its launch.
  • Badlanders
    ranked No. 2 on China's iOS top download chart soon after its launch.
  • Launched
    Harry Potter: Magic Awakened in the global market, including Japan, North America and Europe.
• Achieved steady performances with longstanding flagship titles including the
  Fantasy Westward Journey series and maintained the popularity of hit games including Eggy Party, Identity V and Justice.
• Bolstered robust game pipeline with ongoing development of multiple highly anticipated games in diversified genres.
• Delivered notable growth of subscription-based memberships for Cloud Music, driving meaningful profit margin expansion and setting the stage for future development.
• Achieved robust year-over-year revenue growth and improved operating cash flow for
  Youdao, driven by the strong performance of learning services and online marketing services.

"Our steady second quarter results reflect our dedication to producing exceptional content across our businesses, which generated totalrevenues of RMB24.0 billion, up nearly 4% year-over-year," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Players continue to revere our flagship Fantasy Westward Journey
series, while embracing newer titles like Eggy Party
that extend our reach in casual games. The June releases of widely acclaimed Justice
mobile game and Racing Master
further showcase our endless drive to bring players innovative, first-rate games in diversified genres. We believe that each addition to our game portfolio validates our exceptional R&D capabilities and the broad influence our ingenuity has in the marketplace, including expanding the casual game market and altering the face of traditional MMOs.

"In addition to games, our Cloud Music and Youdao
businesses remain on track and are generating premium content. Throughout the NetEase family, we prioritize the creation of novel and high-quality products and services that grow our global appeal, elevate user experiences, and advance their respective industries," Mr. Ding concluded.

Second Quarter 2023 Financial Results

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Net
revenues for the second quarter of 2023
were RMB24,011.3
million (US$3,311.3
million), compared with RMB25,046.3 million and RMB23,159.1
million for the preceding quarter and the second quarter of 2022, respectively.

million (US$2,592.5
million) for the second quarter of 2023, compared with RMB20,065.6 million and RMB18,139.8
million for the preceding quarter and the second quarter of 2022, respectively.revenues from the operation of online games accounted for approximately 91.7% of the segment'srevenues for the second quarter of 2023, compared with 92.7% and
92.8% for
the preceding
quarter and the second quarter of 2022, respectively.revenues from mobile games accounted for approximately 73.6% ofrevenues from the operation of online games for the second quarter of 2023, compared with 72.3% and 66.1%
for
the preceding
quarter and the second quarter of 2022, respectively.

million) for the second quarter of 2023, compared with RMB1,163.3 million and RMB956.2 million for the preceding quarter and the second quarter of 2022, respectively.

Gross Profit

Gross profit for the second quarter of 2023 was RMB14,375.4 million (US$1,982.5
million), compared with RMB14,896.5 million and RMB12,941.5
million for the preceding quarter and the second quarter of 2022, respectively.

The quarter-over-quarter decrease in games and related value-added services' gross profit was primarily due to decreasedrevenues from the operation of online games as a result of seasonality. The year-over-year increase was primarily due to increasedrevenues from the operation of online games such as Eggy Party,
as well as decreased royalty fees due to the termination of certain licensed games.

The quarter-over-quarter decrease in
Youdao's gross profit primarily resulted from decreased revenue contribution
from its learning services.
The year-over-year increase primarily resulted from increased revenue contribution
from
its
online marketing services and learning services.

The quarter-over-quarter and year-over-year
increases in Cloud Music's gross profit primarily resulted from increasedrevenues from sales of membership subscriptions and continued improvement in cost control measures.

The quarter-over-quarter and year-over-year increases in innovative businesses and others' gross profit were primarily due to increased e-commercerevenues from Yanxuan.

Gross Profit Margin

Gross profit margin for games and related value-added services for the second quarter of 2023 was 67.4%, compared with 66.7% and 64.9% for the preceding quarter and the second quarter of 2022, respectively.
The quarter-over-quarter and year-over-year increases were primarily attributable to changes in the revenue mix of NetEase's self-developed, co-developed and licensed games.

Gross profit margin for Youdao for the second quarter of 2023 was 47.0%, compared with 51.7% and 42.8% for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter decrease was mainly due to the reduction in revenue contribution
from its learning services which have a higher gross profit margin compared to its other products and services. The year-over-year increase was mainly due to increased revenue contribution
from
its
online marketing services and learning services.

Gross profit margin for Cloud Music for the second quarter of 2023 was 27.0%, compared with 22.4% and 13.0% for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the factors enumerated above.

Gross profit margin for innovative businesses and others for the second quarter of 2023 was
29.5%, compared with 25.4% and 25.8% for the preceding quarter and the second quarter of 2022, respectively.
The quarter-over-quarter and year-over-year increases
were mainly due to margin improvement from Yanxuan.

Operating Expenses

Total operating expenses for the second quarter of 2023 were RMB8,312.8 million (US$1,146.4 million), compared with RMB7,676.5 million and RMB7,995.2 million for the preceding quarter and the second quarter of 2022, respectively. The quarter-over-quarter increase was mainly due to increased marketing and research and development expenditures related to games and related value-added services. The year-over-year increase was mainly due to higher staff-related costs.

Other Income/ (Expenses)

Other income/ (expenses) consisted of investment (loss)/ income, interest income, exchange gains/ (losses) and others. The quarter-over-quarter increase was mainly due tounrealized exchange gains arising from the Company's U.S. dollar-denominated bank deposits and loans balances as the exchange rate of the U.S. dollar against the RMB fluctuated in the second quarter of 2023. The year-over-year increase was mainly due to higher investment income from fair value changes of equity investments with readily determinable fair value, as well as higher net
unrealized exchange gains.

Income Tax

The Company recorded aincome tax charge of RMB712.1 million (US$98.2 million) for the second quarter of 2023, compared with RMB1,628.6 million and RMB1,259.3 million for the preceding quarter and the second quarter of 2022, respectively. The effective tax rate for the second quarter of 2023 was 8.0%, compared with 19.5% and 22.0% for the preceding quarter and the second quarter of 2022, respectively. The lower effective tax rate for the second quarter of 2023 was primarily due to tax benefits recognized in the quarter. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

NetEase reported basicincome of US$0.35 per share (US$1.77 per ADS) for the second quarter of 2023, compared with US$0.29 per share (US$1.45 per ADS) and US$0.22 per share (US$1.11 per ADS) for the preceding quarter and the second quarter of 2022, respectively.

Non-GAAPincome from continuing operations attributable to the Company's shareholders totaled RMB9,017.5 million (US$1,243.6 million) for the second quarter of 2023, compared with RMB7,566.2 million and RMB5,409.8 million for the preceding quarter and the second quarter of 2022, respectively.

NetEase reported non-GAAP basicincome from continuing operations of US$0.39 per share (US$1.93 per ADS) for the second quarter of 2023, compared with US$0.32 per share (US$1.62 per ADS) and US$0.23 per share (US$1.14 per ADS) for the preceding quarter and the second quarter of 2022, respectively.

Other Financial Information

As of June 30, 2023, the Company's total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, mishort-term and long-term loans, totaled
RMB99.6 billion (US$13.7
billion), compared with RMB95.6 billion as of December 31, 2022. Cash flow generated from operating activities was RMB7.7 billion (US$1.1 billion) for the second
quarter of 2023, compared with RMB6.0 billion and RMB6.6 billion for the preceding quarter and the second quarter of 2022, respectively.

Quarterly
Dividend

The board of directors has approved a dividend of US$0.1050 per share (US$0.5250 per ADS)
for the second quarter of 2023 to holders of ordinary shares and holders of ADSs as of the close of business on September 8, 2023, Beijing/ Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar,
Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on September 8, 2023 (Beijing/ Hong Kong Time). The payment date is expected to be September 19, 2023 for holders of ordinary shares, and on or around September 22, 2023 for holders of ADSs.

NetEase paid a dividend of US$0.0930 per share (US$0.4650
per ADS) for the first quarter of 2023 in June 2023.

Under the Company's current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.

Share Repurchase Program

On November 17, 2022, the Company announced that its board of directors had
approved a new share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market transactions. This share repurchase program commenced on January 10, 2023 following the completion of the prior program on January 9, 2023, and will be in effect for a period not to exceed 36 months from such date. As of June 30, 2023, approximately
6.1 million ADSs had been repurchased under this program for a total cost of US$536.4 million.

The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.

** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB.

Conference Call

NetEase's management team will host a teleconference call with simultanewebcast at 8:00 a.m. New
York Time on Thursday, August 24, 2023 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, August 24, 2023). NetEase's management will be on the call to discuss the quarterly results and answer questions.

Interested parties may participate in the conference call by dialing 1-914-202-3258
and providing conference ID: 10032534, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10032534. The replay will be available through August 31, 2023.

This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at .

About NetEase, Inc.

NetEase, Inc. (NASDAQ: ntes and HKEX: 9999, "NetEase") is
a leading inteand game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the
most popular and longest running mobile and PC games available in China and globally.

Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.

Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: dao ), an intelligent learning company with industry-leading technology, and Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase's private label consumer lifestyle brand.

NetEase's market-leading ESG initiatives are among the most recognized in the global media and entertainment industry, earning it inclusion in 2022 Dow Jones Sustainability World Index, 2022 Dow Jones Sustainability Emerging Markets Index, and 2023 Bloomberg Gender-Equality Index, as well as receiving an "A" rating from MSCI. For more information, please visit: .

Forward Looking Statements

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 as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel;
potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; the risk related to economic uncertainty and capital market disruption; the risk related to the expansion of NetEase's businesses and operations internationally;
and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.

Non-GAAP Financial Measures

NetEase considers and uses non-GAAP financial measures, such as non-GAAPincome from continuing operations attributable to the Company's shareholders and non-GAAP basic and dilutedincome from continuing operations per ADS and per share, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

NetEase defines non-GAAPincome from continuing operations attributable to the Company's shareholders asincome from continuing operations attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAPincome from continuing operations attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAPincome from continuing operations attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAPincome from continuing operations attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.

NetEase compensates for these limitations by reconciling non-GAAPincome from continuing operations attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.

Contact for Media and Investors:

Margaret Shi
Email: [email protected]
Tel: (+86) 571-8985-3378
Twitter:

NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
		December 31,		June 30,		June 30,
		2022		2023		2023
		RMB		RMB		USD (Note 1)
Assets
Current assets:
Cash and cash equivalents		24,889,000		12,766,270		1,760,549
Time deposits		84,947,679		90,195,524		12,438,532
Restricted cash		2,699,055		2,912,852		401,701
Accounts receivable, net		5,002,872		5,343,028		736,837
Inventories		993,636		806,960		111,285
Prepayments and other current assets, net		5,448,284		5,352,876		738,195
Short-term investments		7,622,673		6,846,342		944,154
Total current assets		131,603,199		124,223,852		17,131,253
Non-current assets:
Property, equipment and software, net		6,342,330		7,347,204		1,013,226
Land use rights, net		4,121,767		4,147,468		571,962
Deferred tax assets		1,480,789		1,320,697		182,132
Time deposits		2,973,840		2,681,840		369,843
Restricted cash		270		290		40
Other long-term assets		26,238,790		28,184,371		3,886,803
Total non-current assets		41,157,786		43,681,870		6,024,006
Total assets		172,760,985		167,905,722		23,155,259
Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
Current liabilities:
Accounts payable		1,507,141		740,607		102,134
Salary and welfare payables		4,732,941		3,386,236		466,983
Taxes payable		2,813,096		2,560,047		353,047
Short-term loans		23,875,704		11,881,623		1,638,551
Contract liabilities		12,518,890		12,943,844		1,785,038
Accrued liabilities and other payables		11,381,075		10,826,617		1,493,060
Total current liabilities		56,828,847		42,338,974		5,838,813
Non-current liabilities:
Deferred tax liabilities		2,126,120		2,209,583		304,715
Long-term loans		3,654,964		3,953,664		545,235
Other long-term liabilities		1,277,574		1,137,672		156,892
Total non-current liabilities		7,058,658		7,300,919		1,006,842
Total liabilities		63,887,505		49,639,893		6,845,655
Redeemable noncontrolling interests		136,440		135,415		18,675
NetEase, Inc.'s shareholders' equity		104,731,317		114,264,783		15,757,834
Noncontrolling interests		4,005,723		3,865,631		533,095
Total equity		108,737,040		118,130,414		16,290,929
Total liabilities, redeemable noncontrolling interests and shareholders' equity		172,760,985		167,905,722		23,155,259

The accompanying notes are an integral part of this announcement.

NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data or per ADS data)
		Three Months Ended		Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
		2022		2023		2023		2023		2022		2023		2023
		RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
revenues		23,159,078		25,046,287		24,011,301		3,311,310		46,714,920		49,057,588		6,765,351
Cost of revenues		(10,217,587)		(10,149,741)		(9,635,888)		(1,328,851)		(20,937,050)		(19,785,629)		(2,728,563)
Gross profit		12,941,491		14,896,546		14,375,413		1,982,459		25,777,870		29,271,959		4,036,788
Operating expenses:
Selling and marketing expenses		(3,300,705)		(2,905,046)		(3,271,705)		(451,188)		(6,216,194)		(6,176,751)		(851,813)
General and administrative expenses		(1,112,755)		(1,021,678)		(1,132,147)		(156,130)		(2,128,524)		(2,153,825)		(297,026)
Research and development expenses		(3,581,700)		(3,749,732)		(3,908,907)		(539,063)		(6,979,782)		(7,658,639)		(1,056,175)
Total operating expenses		(7,995,160)		(7,676,456)		(8,312,759)		(1,146,381)		(15,324,500)		(15,989,215)		(2,205,014)
Operating profit		4,946,331		7,220,090		6,062,654		836,078		10,453,370		13,282,744		1,831,774
Other income/ (expenses):
Investment (loss)/ income, net		(707,489)		471,368		287,691		39,674		(1,256,191)		759,059		104,679
Interest income, net		505,991		776,030		935,578		129,022		964,235		1,711,608		236,042
Exchange gains/ (losses), net		865,283		(386,568)		1,464,956		202,027		767,403		1,078,388		148,717
Other, net		121,175		258,033		120,826		16,663		337,505		378,859		52,247
Income before tax		5,731,291		8,338,953		8,871,705		1,223,464		11,266,322		17,210,658		2,373,459
Income tax		(1,259,320)		(1,628,559)		(712,090)		(98,202)		(2,478,591)		(2,340,649)		(322,790)
income from continuing operations		4,471,971		6,710,394		8,159,615		1,125,262		8,787,731		14,870,009		2,050,669
income from discontinued operations		624,864		-		-		-		624,864		-		-
income		5,096,835		6,710,394		8,159,615		1,125,262		9,412,595		14,870,009		2,050,669
Accretion of redeemable noncontrolling interests		(754)		(860)		(868)		(120)		(1,487)		(1,728)		(238)
interests		195,395		45,100		84,020		11,587		274,391		129,120		17,806
income attributable to the Company's shareholders		5,291,476		6,754,634		8,242,767		1,136,729		9,685,499		14,997,401		2,068,237
Including:
income from continuing operations attributable to the Company's shareholders		4,666,612		6,754,634		8,242,767		1,136,729		9,060,635		14,997,401		2,068,237
income from discontinued operations attributable to the Company's shareholders		624,864		-		-		-		624,864		-		-
Basicincome per share *		1.62		2.10		2.56		0.35		2.96		4.66		0.64
-Continuing operations		1.43		2.10		2.56		0.35		2.77		4.66		0.64
-Discontinued operations		0.19		-		-		-		0.19		-		-
Basicincome per ADS *		8.08		10.49		12.80		1.77		14.78		23.29		3.21
-Continuing operations		7.13		10.49		12.80		1.77		13.83		23.29		3.21
-Discontinued operations		0.95		-		-		-		0.95		-		-
Dilutedincome per share *		1.60		2.07		2.54		0.35		2.93		4.61		0.64
-Continuing operations		1.41		2.07		2.54		0.35		2.74		4.61		0.64
-Discontinued operations		0.19		-		-		-		0.19		-		-
Dilutedincome per ADS *		8.00		10.37		12.69		1.75		14.63		23.05		3.18
-Continuing operations		7.05		10.37		12.69		1.75		13.69		23.05		3.18
-Discontinued operations		0.95		-		-		-		0.94		-		-
Weighted average number of ordinary shares used in calculatingincome per share *
Basic		3,274,695		3,221,083		3,218,783		3,218,783		3,275,980		3,219,926		3,219,926
Diluted		3,305,504		3,256,511		3,248,916		3,248,916		3,310,809		3,252,707		3,252,707

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Three Months Ended		Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
	2022		2023		2023		2023		2022		2023		2023
	RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
Cash flows from operating activities:
income	5,096,835		6,710,394		8,159,615		1,125,262		9,412,595		14,870,009		2,050,669
income from discontinued operations	(624,864)		-		-		-		(624,864)		-		-
Adjustments to reconcileincome tocash provided by operating activities:
Depreciation and amortization	609,036		1,082,269		661,363		91,206		1,375,216		1,743,632		240,458
Fair value changes of equity security investments	735,159		(226,720)		(78,035)		(10,762)		2,276,161		(304,755)		(42,028)
Impairment losses of investments and other long-term assets	243,085		-		47,870		6,602		248,085		47,870		6,602
Fair value changes of short-term investments	(119,882)		(137,916)		(96,884)		(13,361)		(199,658)		(234,800)		(32,380)
Share-based compensation cost	764,447		822,413		787,862		108,652		1,510,601		1,610,275		222,067
Allowance for expected credit losses	10,965		20,720		8,540		1,178		10,652		29,260		4,035
Losses/ (gains) on disposal of property, equipment and software	481		(610)		252		35		1,926		(358)		(49)
Unrealized exchange (gains)/ losses	(890,066)		385,961		(1,466,295)		(202,211)		(792,032)		(1,080,334)		(148,985)
Gains on disposal of long-term investments	-		(5,768)		(16,382)		(2,259)		(4,000)		(22,150)		(3,055)
Deferred income taxes	(169,539)		577,666		(334,380)		(46,113)		145,689		243,286		33,551
Share of results on equity method investees	(134,569)		(95,808)		(129,292)		(17,830)		(1,046,067)		(225,100)		(31,043)
Changes in operating assets and liabilities:
Accounts receivable	82,282		(1,116,282)		770,551		106,264		294,357		(345,731)		(47,678)
Inventories	17,791		117,330		69,410		9,572		121,382		186,740		25,753
Prepayments and other assets	(163,612)		125,827		(7,233)		(997)		(733,455)		118,594		16,355
Accounts payable	48,452		(612,939)		(115,791)		(15,968)		(43,921)		(728,730)		(100,496)
Salary and welfare payables	782,789		(2,225,737)		758,106		104,548		(973,435)		(1,467,631)		(202,396)
Taxes payable	(538,234)		733,716		(992,892)		(136,926)		(464,788)		(259,176)		(35,742)
Contract liabilities	279,669		489,991		(41,196)		(5,681)		201,469		448,795		61,892
Accrued liabilities and other payables	600,934		(643,836)		(306,784)		(42,312)		497,798		(950,620)		(131,099)
cash provided by operating activities	6,631,159		6,000,671		7,678,405		1,058,899		11,213,711		13,679,076		1,886,431
Cash flows from investing activities:
Purchase of property, equipment and software	(445,054)		(652,939)		(520,544)		(71,786)		(1,194,415)		(1,173,483)		(161,831)
Proceeds from sale of property, equipment and software	23,338		2,504		4,292		592		35,903		6,796		937
Purchase of intangible assets, content and licensed copyrights	(85,121)		(826,682)		(283,321)		(39,072)		(228,957)		(1,110,003)		(153,076)
change in short-term investments with terms of three months or less	(159,173)		(723,151)		1,630,013		224,789		1,551,672		906,862		125,062
Purchase of short-term investments with terms over three months	-		-		-		-		(1,250,000)		-		-
Proceeds from maturities of short-term investments with terms over three months	1,459,172		104,269		-		-		2,013,003		104,269		14,379
Investment in long-term investments	(899,968)		(1,229,048)		(270,228)		(37,266)		(2,590,239)		(1,499,276)		(206,760)
Proceeds from disposal of long-term investments	6,413		41,280		16,531		2,280		40,650		57,811		7,973
Placement/ rollover of matured time deposits	(33,122,029)		(36,320,103)		(10,874,831)		(1,499,708)		(57,168,026)		(47,194,934)		(6,508,479)
Proceeds from maturities of time deposits	32,100,141		22,332,349		21,918,791		3,022,740		46,799,936		44,251,140		6,102,511
Change in other long-term assets	(60,900)		(120,841)		(31,189)		(4,301)		(230,445)		(152,030)		(20,966)
cash (used in)/ provided by investing activities	(1,183,181)		(17,392,362)		11,589,514		1,598,268		(12,220,918)		(5,802,848)		(800,250)

The accompanying notes are an integral part of this announcement.

NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
		Three Months Ended		Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
		2022		2023		2023		2023		2022		2023		2023
		RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
Cash flows from financing activities:
changes from loans with terms of three months or less		2,721,487		2,638,040		(14,970,935)		(2,064,586)		6,124,682		(12,332,895)		(1,700,784)
Proceed of loans with terms over three months		1,641,708		1,279,559		2,171,541		299,469		3,556,918		3,451,100		475,928
Payment of loans with terms over three months		(32,273)		(40,422)		(3,233,500)		(445,920)		(32,273)		(3,273,922)		(451,494)
Amounts received/ (paid) related to capital contribution from or repurchase of noncontrolling interests shareholders		33,200		24,349		22,228		3,065		(68,842)		46,577		6,423
Cash paid for repurchase of NetEase's ADSs/ purchase of subsidiaries' ADSs and shares		(2,119,613)		(2,116,757)		(2,195,210)		(302,733)		(3,363,530)		(4,311,967)		(594,647)
Dividends paid to NetEase's shareholders		(1,403,637)		(1,212,340)		(2,119,316)		(292,267)		(3,087,109)		(3,331,656)		(459,456)
cash provided by/ (used in) financing activities		840,872		572,429		(20,325,192)		(2,802,972)		3,129,846		(19,752,763)		(2,724,030)
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies		74,898		15,498		(47,876)		(6,602)		53,696		(32,378)		(4,465)
	6,363,748		(10,803,764)		(1,105,149)		(152,407)		2,176,335		(11,908,913)		(1,642,314)
Cash, cash equivalents and restricted cash, at the beginning of the period		13,188,702		27,588,325		16,784,561		2,314,697		17,376,115		27,588,325		3,804,604
Cash, cash equivalents and restricted cash, at end of the period		19,552,450		16,784,561		15,679,412		2,162,290		19,552,450		15,679,412		2,162,290
Supplemental disclosures of cash flow information:
Cash paid for income tax, net		1,055,096		1,074,579		1,625,045		224,104		2,570,426		2,699,624		372,295
Cash paid for interest expense		93,079		275,714		326,646		45,047		130,820		602,360		83,069

The accompanying notes are an integral part of this announcement.

NETEASE, INC.
UNAUDITED SEGMENT INFORMATION
(in thousands, except percentages)
	Three Months Ended		Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
		2022		2023		2023		2023		2022		2023		2023
		RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
revenues:
Games and related value-added services		18,139,843		20,065,597		18,798,646		2,592,452		36,781,657		38,864,243		5,359,624
Youdao		956,225		1,163,270		1,206,634		166,402		2,156,766		2,369,904		326,825
Cloud Music		2,191,510		1,959,841		1,948,539		268,716		4,258,716		3,908,380		538,990
Innovative businesses and others		1,871,500		1,857,579		2,057,482		283,740		3,517,781		3,915,061		539,912
Totalrevenues		23,159,078		25,046,287		24,011,301		3,311,310		46,714,920		49,057,588		6,765,351
Cost of revenues:
Games and related value-added services		(6,375,598)		(6,683,048)		(6,122,836)		(844,379)		(13,427,648)		(12,805,884)		(1,766,012)
Youdao		(546,498)		(561,420)		(639,459)		(88,185)		(1,109,189)		(1,200,879)		(165,609)
Cloud Music		(1,905,954)		(1,520,378)		(1,422,855)		(196,221)		(3,721,603)		(2,943,233)		(405,890)
Innovative businesses and others		(1,389,537)		(1,384,895)		(1,450,738)		(200,066)		(2,678,610)		(2,835,633)		(391,052)
Total cost of revenues		(10,217,587)		(10,149,741)		(9,635,888)		(1,328,851)		(20,937,050)		(19,785,629)		(2,728,563)
Gross profit:
Games and related value-added services		11,764,245		13,382,549		12,675,810		1,748,073		23,354,009		26,058,359		3,593,612
Youdao		409,727		601,850		567,175		78,217		1,047,577		1,169,025		161,216
Cloud Music		285,556		439,463		525,684		72,495		537,113		965,147		133,100
Innovative businesses and others		481,963		472,684		606,744		83,674		839,171		1,079,428		148,860
Total gross profit		12,941,491		14,896,546		14,375,413		1,982,459		25,777,870		29,271,959		4,036,788
Gross profit margin:
Games and related value-added services		64.9 %		66.7 %		67.4 %		67.4 %		63.5 %		67.0 %		67.0 %
Youdao		42.8 %		51.7 %		47.0 %		47.0 %		48.6 %		49.3 %		49.3 %
Cloud Music		13.0 %		22.4 %		27.0 %		27.0 %		12.6 %		24.7 %		24.7 %
Innovative businesses and others		25.8 %		25.4 %		29.5 %		29.5 %		23.9 %		27.6 %		27.6 %

The accompanying notes are an integral part of this announcement.

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.2513 on the last trading day of June 2023 (June 30, 2023) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2023, or at any other certain date.

Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
	2022		2023		2023		2023		2022		2023		2023
	RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
Share-based compensation cost included in:
Cost of revenues	173,840		203,514		193,001		26,616		371,975		396,515		54,682
Operating expenses
Selling and marketing expenses	31,817		32,353		31,069		4,285		62,190		63,422		8,746
General and administrative expenses	297,891		294,281		281,326		38,797		576,953		575,607		79,380
Research and development expenses	260,899		292,265		282,466		38,954		499,483		574,731		79,259

The accompanying notes are an integral part of this announcement.

Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirement.

Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (in thousands, except per share data or per ADS data):

		Three Months Ended		Six Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,		June 30,		June 30,
		2022		2023		2023		2023		2022		2023		2023
		RMB		RMB		RMB		USD (Note 1)		RMB		RMB		USD (Note 1)
< /> from continuing operations attributable to the Company's shareholders		4,666,612		6,754,634		8,242,767		1,136,729		9,060,635		14,997,401		2,068,237
Add: Share-based compensation		743,198		811,600		774,683		106,834		1,466,801		1,586,283		218,758
Non-GAAPincome from continuing operations attributable to the Company's shareholders		5,409,810		7,566,234		9,017,450		1,243,563		10,527,436		16,583,684		2,286,995
Non-GAAP basicincome from continuing operations per share *		1.65		2.35		2.80		0.39		3.21		5.15		0.71
Non-GAAP basicincome from continuing operations per ADS *		8.26		11.74		14.01		1.93		16.07		25.75		3.55
Non-GAAP dilutedincome from continuing operations per share *		1.64		2.32		2.78		0.38		3.18		5.10		0.70
Non-GAAP dilutedincome from continuing operations per ADS *		8.18		11.62		13.88		1.91		15.90		25.49		3.52

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.

Note 5: A reconciliation statement to the International Financial Reporting Standards in respect of the Company's unaudited financial results for the six months ended June 30, 2023 prepared in accordance with U.S. GAAP set forth above will be published pursuant to the rules and regulations applicable to the Company in Hong Kong by September 30, 2023.

SOURCE NetEase, Inc.

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