NetEase Announces Third Quarter 2024 Unaudited Financial Results

HANGZHOU,China,Nov. 14,2024 -- NetEase,Inc. (NASDAQ: NTES and HKEX: 9999,"NetEase" or the "Company"),a leading internet and game services provider,today announced its unaudited financial results for the third quarter ended September 30,2024.

Third Quarter 2024Financial Highlights

Net revenues were RMB26.2 billion (US$3.7 billion),a decrease of 3.9% compared with the same quarter of 2023.

Games and related value-added services net revenues were RMB20.9 billion (US$3.0 billion),a decrease of 4.2% compared with the same quarter of 2023.

Youdao net revenues were RMB1.6billion (US$224.1million),an increase of 2.2% compared with the same quarter of 2023.

NetEaseCloud Music net revenues were RMB2.0 billion (US$284.9million),an increase of 1.3% compared with the same quarter of 2023.

Innovative businesses and others net revenues were RMB1.8 billion (US$252.8 million),a decrease of 10.3% compared with the same quarter of 2023.

Gross profit was RMB16.5 billion (US$2.3 billion),a decrease of 2.9% compared with the same quarter of 2023.

Total operating expenses were RMB9.3 billion (US$1.3 billion),a decrease of 0.8% compared with the same quarter of 2023.

Net income attributable to the Company's shareholders was RMB6.5 billion (US$931.7 million). Non-GAAP net income attributable to the Company's shareholders was RMB7.5 billion (US$1.1 billion).[1]

Basic net income per share was US$0.29 (US$1.46 per ADS). Non-GAAP basic net income per share was US$0.33 (US$1.67 per ADS).[1]

[1] As used in this announcement,non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement.

Third Quarter 2024and Recent Operational Highlights

Launched popular new titles and expanded established games in new regions,strengtheningNetEase's competitive edge across more markets in diversified genres.

Naraka: Bladepoint mobile game gained significant popularity since its launch in July,reaching No. 4 on the iOS grossing chart with its September seasonal update,effectively catering to growing player demand for action-based PvP games.

Racing Mastertopped the App Store and Google Play free-to-play charts in Japan following its launch in August.

World ofWarcraftand Hearthstone's return to China reignited historic level of player community enthusiasm. Following their relaunch,World of Warcraft saw a 50% increase in daily active players as compared to levels before the shutdown,while Hearthstone achieved over 150% growth.

Generated continued popularity of hit gamesIdentity Vand Naraka: Bladepoint,showcasing NetEase's long-term operation capabilities for online games.

Strengthened diversified portfolio,announcing more exciting titles in the making,includingDestiny: Risingand MARVELMystic Mayhem,and new games,such as Marvel RivalsandWhere Winds Meet,set for launch in December.

Youdao significantly improved itsprofitability in the third quarter,achieving its first-ever third-quarter operating profit and a record-high quarterly operating profit,compared with a loss in the same period last year.

NetEase Cloud Music continued to drive quality development across its music-centric ecosystem,further expanding its subscriber base and sustaining healthy revenue growth momentum in its online music services.

"To further diversify our game portfolio across genres and expand globally,we launched a variety of new games to captivate players worldwide and achieved breakthrough milestones," said Mr. William Ding,Chief Executive Officer and Director of NetEase. "Throughout our development journey over the past two decades,players have remained at the core of our creations and operations,ensuring the long-lasting popularity of our games. As we expand,we will continue to prioritize player demand and propel innovation,bringing more exciting NetEase gaming experiences to players domestically and around the world.

"NetEase Cloud Music and Youdao are both positioned for steady growth alongside our games. Across the NetEase family,we focus on creating unique,engaging and impactful experiences for our community that fuel our ongoing success," Mr. Ding concluded.

Third Quarter 2024Financial Results

Net Revenues

Netrevenues for the third quarter of 2024were RMB26.2 billion (US$3.7billion),compared with RMB25.5billion and RMB27.3billion for the preceding quarter and the same quarter of 2023,respectively.

Net revenues from games and related value-added services were RMB20.9 billion (US$3.0billion) for the third quarter of 2024,compared with RMB20.1billion and RMB21.8billion for the preceding quarter and the same quarter of 2023,respectively. Net revenues from the operation of online games accounted for approximately 96.8% of the segment's net revenues for the third quarter of 2024,compared with 96.1% and93.7%for the precedingquarter and the same quarter of 2023,respectively. Net revenues from mobile games accounted for approximately 70.8% of net revenues from the operation of online games for the third quarter of 2024,compared with 76.4% and 77.6%forthe precedingquarter and the same quarter of 2023,respectively.

Net revenues from Youdao were RMB1.6billion (US$224.1million) for the third quarter of 2024,compared with RMB1.3billion and RMB1.5billion for the preceding quarter and the same quarter of 2023,respectively.

Net revenues from NetEase Cloud Music were RMB2.0 billion (US$284.9 million) for the third quarter of 2024,compared withRMB2.0 billion each for the preceding quarter and the same quarter of 2023.

Net revenues from innovative businesses and others were RMB1.8billion (US$252.8million) for the third quarter of 2024,compared with RMB2.1 billion and RMB2.0billion for the preceding quarter and the same quarter of 2023,respectively.

Gross Profit

Gross profit for the third quarter of 2024 was RMB16.5billion (US$2.3billion),compared with RMB16.0billion and RMB17.0billion for the preceding quarter and the same quarter of 2023,respectively.

The quarter-over-quarter increase in games and related value-added services' gross profit was primarily due to higher net revenues from PC games. The year-over-year decrease was primarily due to decreased net revenues from mobile games.

The quarter-over-quarter increase in Youdao's gross profit was primarily due to higher net revenues from sales of smart devicesand learning services.The year-over-year decrease was primarily due to decreased net revenues from itslearning services.

The year-over-yearincrease in NetEase Cloud Music'sgross profit was primarily due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures.

The quarter-over-quarter decrease in innovative businesses and others'gross profit was primarily due to decreased e-commerce gross profit from Yanxuan. The year-over-year increase was primarily due to increased gross profit from several businesses included within the segment.

Gross Profit Margin

Gross profit margin for games and related value-added services for the third quarter of 2024 was 68.8%,compared with 70.0% and69.0% for the preceding quarter and the samequarter of 2023,respectively.The quarter-over-quarter and year-over-year decreases were mainly attributable to changes in product mix.

Gross profit margin for Youdao for the third quarter of 2024 was 50.2%,compared with 48.2% and 55.9% for the preceding quarter and the samequarter of 2023,respectively.The quarter-over-quarter and year-over-year fluctuations were mainly due to the factors enumerated above.

Gross profit margin for NetEase Cloud Music for the third quarter of 2024 was 32.8%,compared with 32.1% and 27.2% for the preceding quarter and the same quarter of 2023,respectively. The quarter-over-quarter and year-over-year increases were mainly due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures.

Gross profit margin for innovative businesses and others for the third quarter of 2024 was37.8%,compared with34.0% and 27.3% for the preceding quarter and the samequarter of 2023,respectively.The quarter-over-quarter and year-over-year increases were mainly due to increased gross profit margins from several businesses included within the segment.

Operating Expenses

Total operating expenses for the third quarter of 2024 were RMB9.3 billion (US$1.3 billion),compared with RMB9.0 billion and RMB9.4 billion for the preceding quarter and the same quarter of 2023,respectively. The quarter-over-quarter increase was mainly due to increased marketing expenditures related to games and related value-added services.

Other Income/(Expenses)

Other income/(expenses) consisted of investment income,interest income,exchange (losses)/gains and others. The quarter-over-quarter and year-over-yeardecreaseswere mainly due tohigher net exchange losses in the third quarter of 2024.

Income Tax

The Company recorded a net income tax charge of RMB1.3 billion (US$183.8 million) for the third quarter of 2024,compared withRMB1.3 billion each for the preceding quarter and the same quarter of 2023. The effective tax rate for the third quarter of 2024 was 16.1%,compared with 16.0% and 14.2% for the preceding quarter and the same quarter of 2023,respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.

Net Income and Non-GAAP Net Income

Net income attributable to the Company's shareholders totaled RMB6.5 billion (US$931.7 million) for the third quarter of 2024,compared with RMB6.8 billion and RMB7.8 billion for the preceding quarter and the same quarter of 2023,respectively.

NetEase reported basic net income of US$0.29 per share (US$1.46 per ADS) for the third quarter of 2024,compared with US$0.30 per share (US$1.50 per ADS) and US$0.35 per share (US$1.74 per ADS) for the preceding quarter and the same quarter of 2023,respectively.

Non-GAAP net income attributable to the Company's shareholders totaled RMB7.5 billion (US$1.1 billion) for the third quarter of 2024,compared with RMB7.8 billion and RMB8.6 billion for the preceding quarter and the same quarter of 2023,respectively.

NetEase reported non-GAAP basic net income of US$0.33 per share (US$1.67 per ADS) for the third quarter of 2024,compared with US$0.35 per share (US$1.73 per ADS) and US$0.38 per share (US$1.92 per ADS) for the preceding quarter and the same quarter of 2023,respectively.

Other Financial Information

As of September 30,2024,the Company's net cash (total cash and cash equivalents,current and non-current time deposits and restricted cash,as well as short-term investments balance,minus short-term and long-term loans) totaled RMB120.0 billion (US$17.1 billion),compared with RMB110.9 billion as of December 31,2023. Net cash provided by operating activities was RMB10.6 billion (US$1.5 billion) for the third quarter of 2024,compared with RMB6.5 billion and RMB9.8 billion for the preceding quarter and the same quarter of 2023,respectively.

QuarterlyDividend

The board of directors approved a dividend of US$0.0870per share (US$0.4350per ADS)for the third quarter of 2024 to holders of ordinary shares and holders of ADSs as of the close of business on November 29,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 November 29,2024 (Beijing/ Hong Kong Time). The payment date is expected to be December 10,2024 for holders of ordinary shares and on or around December 13,2024 for holders of ADSs.

NetEase paid a dividend of US$0.0870per share (US$0.4350 per ADS) for the second quarter of 2024 in September 2024.

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 hadapproved a 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 and will be in effect for a period not to exceed 36 months from such date. As of September 30,approximately 18.2 million ADSs had been repurchased under this program for a total cost of US$1.6 billion.

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 a simultaneous webcast at 7:00 a.m. NewYork Time on Thursday,November 14,2024 (Beijing/Hong Kong Time: 8:00 p.m.,Thursday,2024). 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 1-914-202-3258and providing conference ID: 10042941,15 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: 10042941. The replay will be available through November 21,2024.

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 http://ir.netease.com/.

About NetEase,Inc.

NetEase,"NetEase") isa leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem,the Company develops and operates some of themost 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 NetEase 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.

For more information,please visit: http://ir.netease.com/.

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 expressions. 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; risksrelated to economic uncertainty and capital market disruption; risks related to the expansion of NetEase's businesses and operations internationally;risks associated with cybersecurity threats or incidents; 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-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income 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-GAAP net income attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income 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 this non-GAAP financial measure 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-GAAP net income 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-GAAP net income 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-GAAP net income 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 the 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:

Email: [email protected]

Tel: (+86) 571-8985-3378

NETEASE,INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

December 31,

September 30,

2023

2024

2024

RMB

RMB

USD (Note 1)

Assets

Current assets:

Cash and cash equivalents

21,428,902

20,184,013

2,876,199

Time deposits

100,856,034

91,195,431

12,995,245

Restricted cash

2,777,206

2,994,096

426,655

Accounts receivable,net

6,422,417

6,173,077

879,656

Inventories

695,374

613,685

87,449

Prepayments and other current assets,076,595

6,811,171

970,584

Short-term investments

4,436,057

12,607,188

1,796,510

Total current assets

142,692,585

140,578,661

20,032,298

Non-current assets:

Property,equipment and software,net

8,075,044

8,200,464

1,168,557

Land use rights,net

4,143

4,204,865

599,188

Deferred tax assets

1,560,088

1,270

167,190

Time deposits

1,050,000

4,025,000

573,558

Restricted cash

550

5,277

752

Other long-term assets

28,471,568

26,708,737

3,805,965

Total non-current assets

43,232,393

44,317,613

6,315,210

Total assets

185,924,978

184,896,274

26,347,508

Liabilities,Redeemable Noncontrolling Interests

and Shareholders' Equity

Current liabilities:

Accounts payable

881,016

755,372

107,640

Salary and welfare payables

4,857,941,618

419,177

Taxes payable

2,571,534

2,606,842

371,472

Short-term loans

19,240,163

10,594,342

1,509,682

Contract liabilities

13,362,166

15,543,023

2,214,863

Accrued liabilities and other payables

12,930,399

13,270,811

1,891,075

Total current liabilities

53,842,484

45,712,008

6,513,909

Non-current liabilities:

Deferred tax liabilities

2,299,303

1,828,869

260,612

Long-term loans

427,997

427,997

60,989

Other long-term liabilities

1,271,113

1,199,075

170,867

Total non-current liabilities

3,998,413

3,455,941

492,468

Total liabilities

57,840,897

49,167,949

7,006,377

Redeemable noncontrolling interests

115,759

122,494

17,455

NetEase,Inc.'s shareholders' equity

124,285,776

132,150,155

18,831,246

Noncontrolling interests

3,682,546

3,676

492,430

Total equity

127,968,322

135,605,831

19,323,676

Total liabilities,redeemable noncontrolling

interests and shareholders' equity

185,508

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

Nine Months Ended

September 30,

June 30,

2023

2024

2024

2024

2023

2024

2024

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues

27,406

25,485,805

26,209,879

3,734,878

76,327,994

78,547,425

11,192,919

Cost of revenues

(10,304,106)

(9,443,587)

(9,733,274)

(1,386,980)

(30,089,735)

(29,012,682)

(4,134,274)

Gross profit

16,966,300

16,042,218

16,476,605

2,898

46,238,259

49,534,743

7,058,645

Operating expenses:

Selling and marketing expenses

(3,567,153)

(3,501,737)

(3,071)

(542,218)

(9,743,904)

(11,329,012)

(1,614,371)

General and administrative expenses

(1,494,186)

(1,091,441)

(1,100,328)

(156,795)

(3,648,011)

(3,388,244)

(482,821)

Research and development expenses

(4,052)

(4,717)

(4,424,469)

(630,482)

(12,005,691)

(13,054,944)

(1,860,315)

Total operating expenses

(9,408,391)

(9,048,895)

(9,868)

(1,495)

(25,397,606)

(27,772,200)

(3,957,507)

Operating profit

7,557,909

6,993,323

7,146,737

1,018,403

20,653

21,762,543

3,101,138

Other income/(expenses):

Investment income,net

556,603

103,674

578,398

82,421

1,662

861,363

122,743

Interest income,net

1,147,227

1,186,219

1,282,766

182,793

2,858,835

3,746,582

533,884

Exchange (losses)/gains,net

(400,483)

(239,375)

(1,055,518)

(150,410)

677,905

(1,279,882)

(182,382)

Other,net

240,024

85,694

43,600

6,213

618,883

323,182

46,053

Income before tax

9,280

8,129,535

7,983

1,139,420

26,311,938

25,413,788

3,621,436

Income tax

(1,290,398)

(1,300,939)

(1,289,545)

(183,759)

(3,631,047)

(4,394)

(580,881)

Net income

7,810,882

6,596

6,706,438

955,661

22,680,891

21,337,394

3,040,555

Accretion of redeemable noncontrolling

interests

(895)

(960)

(962)

(137)

(2,623)

(2,880)

(410)

Net loss/(income) attributable to noncontrolling

interests and redeemable noncontrolling

interests

26,901

(68,887)

(167,041)

(23,803)

156,021

(403,384)

(57,482)

Net income attributable to the

Company's shareholders

7,836,888

6,758,749

6,538,435

931,721

22,834,289

20,931,130

2,982,663

Net income per share *

Basic

2.44

2.10

2.04

0.29

7.10

6.52

0.93

Diluted

2.41

2.08

2.03

0.29

7.02

6.46

0.92

Net income per ADS *

Basic

12.19

10.50

10.22

1.46

35.48

32.61

4.65

Diluted

12.06

10.42

10.14

1.44

35.11

32.30

4.60

Weighted average number of ordinary

shares used in calculating net income

per share *

Basic

3,213,834

3,217,699

3,198,646

3,873

3,298

3,298

Diluted

3,249,649

3,243,056

3,224,110

3,251,666

3,834

* 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

Nine Months Ended

September 30,

2023

2024

2024

2024

2023

2024

2024

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Cash flows from operating activities:

Net income

7,555

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

651,856

631,957

520,567

74,180

2,395,488

1,720,447

245,162

Fair value changes of equity security,other investments

and financial instruments

(382,132)

(7,887)

(824,608)

(117,506)

(686,887)

(1,753)

(171,106)

Impairment losses on investments

280,641

210,741

529,668

75,477

328,511

868,826

123,807

Fair value changes of short-term investments

(72,875)

(128,295)

(100,071)

(14,260)

(307,675)

(289,176)

(41,207)

Share-based compensation cost

819,548

1,079,056

978,139

139,384

2,429,823

2,951,495

420,584

Allowance for expected credit losses

22,386

9,281

36,022

5,133

51,646

56,903

8,109

Losses/(gains) on disposal of property,equipment and software

2,649

(326)

(2,920)

(416)

2,291

(1,114)

(159)

Unrealized exchange losses/(gains)

362,213

(209,311)

1,644

149,715

(718,121)

823,824

117,394

Gains on disposal of long-term investments,business and

subsidiaries

(3,197)

(141,114)

(118,046)

(16,821)

(25,347)

(272,647)

(38,852)

Deferred income taxes

(305,703)

(1,280,076)

711,639

101,408

(62,417)

(83,383)

(11,882)

Share of results on equity method investees

(160,042)

39,200

(28,466)

(4,057)

(385,142)

175,005

24,938

Changes in operating assets and liabilities:

Accounts receivable

(1,177,732)

1,410,478

146,758

20,913

(1,523,463)

198,525

28,289

Inventories

84,970

29,552

(39,285)

(5,598)

271,710

81,645

11,634

Prepayments and other assets

(573,631)

530,856

(1,234,390)

(175,899)

(455,037)

(377,394)

(53,778)

Accounts payable

150,868

(126,862)

6,316

900

(577,862)

(127,547)

(18,175)

Salary and welfare payables

(588,217)

879,058

(670,750)

(95,581)

(2,848)

(1,970,300)

(280,766)

Taxes payable

515,087

(1,462,700)

224,015

31,922

255,911

33,137

4,722

Contract liabilities

1,628

(1,324)

1,928,060

274,746

2,009,423

2,231,822

318,032

Accrued liabilities and other payables

845,721

(490,048)

755,882

107,712

(104,899)

507,904

72,376

Net cash provided by operating activities

9,843,920

6,531,832

10,575,612

1,507,013

23,522,996

26,664,613

3,799,677

Cash flows from investing activities:

Purchase of property,equipment and software

(643,144)

(168,880)

(379,520)

(54,081)

(1,816,627)

(963,418)

(137,286)

Proceeds from sale of property,equipment and software

3,101

660

1,072

153

9,897

5,238

746

Purchase of intangible assets,content and licensed copyrights

(742,523)

(399,533)

(222,247)

(31,670)

(1,852,526)

(810,601)

(115,510)

Net changes of short-term investments with terms of three

months or less

(1,921)

(8,194,289)

1,585,395

225,917

(1,087,059)

(4,207,245)

(599,528)

Purchase of short-term investments with terms over three

months

-

-

(3,675,000)

(523,683)

-

(3,683)

Proceeds from maturities of short-term investments with terms

over three months

376,950

-

-

-

481,219

-

-

Investment in long-term investments and acquisition of

subsidiaries

(417,448)

(193,450)

(226,086)

(32,217)

(1,916,724)

(901,340)

(128,440)

Proceeds from disposal of long-term investments,businesses,

subsidiaries and other financial instruments

20,898

840,649

1,541,338

219,639

78,709

2,467,443

351,608

Placement/rollover of matured time deposits

(30,994)

(61,775,606)

(36,766,094)

(5,239,127)

(78,026,928)

(133,536)

(18,675)

Proceeds from maturities of time deposits

33,893,436

55,211,839

37,546,192

5,350,289

78,144,576

138,806,413

19,779,756

Change in other long-term assets

(181,263)

(172,543)

(125,911)

(17,942)

(333,293)

(333,079)

(47,463)

Net cash used in investing activities

(515,908)

(14,851,153)

(720,861)

(102,722)

(6,318,756)

(2,125)

(386,475)

Cash flows from financing activities:

Net changes from loans with terms of three months or less

(7,788)

(2,085,053)

(4,778,301)

(680,902)

(19,683)

(7,263,080)

(1,034,981)

Proceeds of loans with terms over three months

7,060

1,069,020

5,810

768,897

11,160

13,463,080

1,918,473

Payment of loans with terms over three months

(4,250,550)

(10,681,827)

(3,520)

(441,821)

(7,524,472)

(14,739,347)

(2,340)

Net amounts received/(paid) related to capital contribution from

or repurchase of noncontrolling interests shareholders

11,573

50,572

(8,394)

(1,196)

58,150

84,392

12,026

Cash paid for repurchase of NetEase's ADSs/purchase of

subsidiaries' ADSs and shares

(296,495)

(2,007,030)

(3,212)

(569,171)

(4,608,462)

(7,235,022)

(1,030,982)

Dividends paid to NetEase's shareholders

(2,423,355)

(2,264,799)

(1,972,928)

(281,140)

(5,755,011)

(9,182,743)

(1,308,530)

Net cash used in financing activities

(6,853,555)

(15,919,117)

(8,458,545)

(1,205,333)

(26,318)

(24,872,720)

(3,544,334)

Effect of exchange rate changes on cash,cash equivalents and

restricted cash held in foreign currencies

4,197

8,234

(68,136)

(9,710)

(28,181)

(103,040)

(14,683)

Net increase/(decrease) in cash,cash equivalents and restricted cash 2,478,654

(24,230,204)

1,328,070

189,248

(9,430,259)

(1,023,272)

(145,815)

Cash,cash equivalents and restricted cash,at the beginning

of the period

15,679,412

46,520

21,855,316

3,114,358

27,588,325

24,206,658

3,449,421

Cash,at end of the period

18,158,066

21,316

23,183,386

3,303,606

18,066

23,606

Supplemental disclosures of cash flow information:

Cash paid for income taxes,net

1,165,196

2,848,493

554,867

79,068

3,864,820

4,586,071

653,510

Cash paid for interest expenses

105,665

152,943

165,881

23,638

708,025

465,279

66,302

The accompanying notes are an integral part of this announcement.

NETEASE,INC.

UNAUDITED SEGMENT INFORMATION

(in thousands,except percentages)

Three Months Ended

Nine Months Ended

September 30,

2023

2024

2024

2024

2023

2024

2024

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net revenues:

Games and related value-added services

21,851

20,819

20,036

2,973,102

60,644,094

62,380,233

8,889,113

Youdao

1,783

1,321,721

1,572,541

224,085

3,908,687

4,286,121

610,767

NetEase Cloud Music

1,064

2,952

1,999,163

284,878

5,881,444

6,656

864,919

Innovative businesses and others

1,978,708

2,067,313

1,774,139

252,813

5,769

5,415

828,120

Total net revenues

27,919

Cost of revenues:

Games and related value-added services

(6,749,507)

(6,008,604)

(6,503,146)

(926,691)

(19,555,391)

(19,061)

(2,717,034)

Youdao

(679,147)

(684,942)

(783,085)

(111,588)

(1,880,026)

(2,178,383)

(310,417)

NetEase Cloud Music

(1,552)

(1,385,756)

(1,343,921)

(191,507)

(4,379,785)

(3,988,683)

(568,383)

Innovative businesses and others

(1,438,900)

(1,364,285)

(1,103,122)

(157,194)

(4,274,533)

(3,555)

(538,440)

Total cost of revenues

(10,274)

Gross profit:

Games and related value-added services

15,344

14,047,215

14,360,890

2,046,411

41,088,703

43,313,172

6,172,079

Youdao

859,636

636,779

789,456

112,497

2,028,661

2,107,738

300,350

NetEase Cloud Music

536,512

655,196

655,242

93,371

1,659

2,080,973

296,536

Innovative businesses and others

539,808

703,028

671,017

95,619

1,619,236

2,860

289,680

Total gross profit

16,645

Gross profit margin:

Games and related value-added services

69.0%

70.0%

68.8%

68.8%

67.8%

69.4%

69.4%

Youdao

55.9%

48.2%

50.2%

50.2%

51.9%

49.2%

49.2%

NetEase Cloud Music

27.2%

32.1%

32.8%

32.8%

25.5%

34.3%

34.3%

Innovative businesses and others

27.3%

34.0%

37.8%

37.8%

27.5%

35.0%

35.0%

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 = RMB7.0176 on the last trading day of September 2024 (September 30,2024)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 September 30,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

Nine Months Ended

September 30,

2023

2024

2024

2024

2023

2024

2024

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Share-based compensation cost included in:

Cost of revenues

210,533

319,949

306,283

43,645

607,048

881,167

125,565

Operating expenses

Selling and marketing expenses

33,804

42,865

36,365

5,182

97,226

97,099

13,836

General and administrative expenses

280,581

286,350

247,440

35,260

856,188

823,426

117,337

Research and development expenses

294,630

429,892

388,051

55,297

869,361

1,149,803

163,846

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 subsidiary to meet the disclosure requirements under different accounting standards requirements.

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

Nine Months Ended

September 30,

2023

2024

2024

2024

2023

2024

2024

RMB

RMB

RMB

USD (Note 1)

RMB

RMB

USD (Note 1)

Net income attributable to the Company's shareholders

7,663

Add: Share-based compensation

808,276

1,059,939

960,706

136,900

2,394,559

2,897,543

412,897

Non-GAAP net income attributable to the Company's shareholders

8,645,164

7,818,688

7,499,141

1,068,621

25,228,848

23,673

3,560

Non-GAAP net income per share *

Basic

2.69

2.43

2.34

0.33

7.84

7.42

1.06

Diluted

2.66

2.41

2.33

0.33

7.76

7.35

1.05

Non-GAAP net income per ADS *

Basic

13.45

12.15

11.72

1.67

39.20

37.12

5.29

Diluted

13.30

12.05

11.63

1.66

38.79

36.77

5.24

* Each ADS represents five ordinary shares.

The accompanying notes are an integral part of this announcement.