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                      NetEase Reports Fourth Quarter and Fiscal Year 2018 Unaudited Financial Results
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                      BEIJING, Feb.?20, 2019 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES) ("NetEase" or the "Company"), one of China's leading internet and online game services providers, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2018.

                      Fourth Quarter 2018 Financial Highlights

                      • Net revenues[1] were RMB19,844.3 million (US$2,886.2 million), an increase of 35.8% compared with the fourth quarter of 2017.
                        - Online game services net revenues were RMB11,019.6 million (US$1,602.7 million), an increase of 37.7% compared with the fourth quarter of 2017.
                        - E-commerce net revenues were RMB6,678.7 million (US$971.4 million), an increase of 43.5% compared with the fourth quarter of 2017.
                        - Advertising services net revenues were RMB760.5 million (US$110.6 million), an increase of 3.3% compared with the fourth quarter of 2017.
                        - Innovative businesses and others[2] net revenues were RMB1,385.5 million (US$201.5 million), an increase of 14.2% compared with the fourth quarter of 2017.
                      • Gross profit was RMB7,657.5 million (US$1,113.7 million), an increase of 33.3% compared with the fourth quarter of 2017.
                      • Total operating expenses were RMB5,412.3 million (US$787.2 million), an increase of 25.3% compared with the fourth quarter of 2017.
                      • Net income attributable to the Company's shareholders was RMB1,697.7 million (US$246.9 million). Non-GAAP net income attributable to the Company's shareholders was RMB2,359.6 million (US$343.2 million).[3]
                      • Diluted earnings per ADS were US$1.92; non-GAAP diluted earnings per ADS were US$2.66.

                      ?

                      [1]?The Company adopted ASC 606 as of January 1, 2018 on a modified retrospective basis. The adoption did not have a significant impact on the Company's operating results for the fourth quarter of 2018 and comparable periods. See "Impact of The Recently Adopted Major Accounting Pronouncements" in?this press release.

                      [2]?Effective as of December 31, 2018, the Company renamed its "e-mail and others" segment to "innovative businesses and others" to better articulate the businesses included in this segment.?See "Change in Segment Reporting" in this press release.

                      [3]?As used in this press release, non-GAAP net income attributable to the Company's shareholders is defined to exclude share-based compensation expenses.?See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

                      Fourth Quarter 2018 and Recent 2019 Operational Highlights

                      • Introduced exciting new mobile titles including:
                        - Night Falls: Survival, which topped the China's iOS download chart in November and ranked third in China's iOS game grossing chart for November and December;
                        - Ink, Mountains and Mystery, with its stunning display of classical Chinese arts, reached No.1 on China's iOS download chart on January 1, 2019, the day of its launch.
                      • Expanded footprint beyond mainland China and deepened global reach:
                        - Maintained Knives Out's position as China's top grossing mobile game in overseas markets for five consecutive months since August 2018;
                        - Launched titles overseas in January 2019 including: Night Falls: Survival in Hong Kong, Macau and Taiwan and QwQ in Japan and South Korea;
                        - Furthered collaboration with leading game studios worldwide, including a joint development agreement with Codemasters, a UK game studio, as well as made a minority investment in Quantic Dream, a French game studio, and announced an investment in U.S.-based Second Dinner, a studio founded by ex-Blizzard veterans.
                      • Fortified strong performance of flagship titles, such as Fantasy Westward Journey and New Westward Journey Online series with new expansion packs released (for PC-client and mobile users), which further promoted user engagement and contributed to steady sequential quarterly revenue growth.
                      • Renewed 11-year partnership with Blizzard Entertainment in mainland China, extending the publishing agreement between the two companies until January 2023.
                      • Advanced pipeline with upcoming titles including Fantasy Westward Journey 3D, Xuanyuan Sword, Ages of Isle and Pokémon Quest.
                      • Opened Kaola's first flagship store and first brick-and-mortar store for Yanxuan, both located in Hangzhou's West Lake business district.

                      "We finished the year with total annual net revenues of RMB67 billion, a 24% increase from 2017, driven by a diverse portfolio of online games as well as healthy growth in our e-commerce, advertising services and other internet product and service offerings," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "2018 was a very fruitful year of diversification for our online games. While our flagship titles remain stronger than ever, we also introduced a number?of highly successful titles?for PC-client and mobile platforms. These new titles span a wide variety of genres and led to rapid growth in our user base, gaining us access to new demographics and instilling confidence in our ability to branch out beyond MMORPG categories.

                      "Throughout the year we also made a number of advancements to better position us on the world's stage, most notably in Japan. Our world-class R&D capabilities, particularly in the mobile arena, afford us an exciting opportunity to appeal to a global audience. We plan to continue to invest in global talent, IP and collaboration with other elite game developers worldwide to further this momentum.

                      "While online games remain the cornerstone of our business, we also see huge potential in e-commerce, music and online education. These will be the primary focus of our business strategy in 2019. Our relentless drive to create premium content has paved the way for our success, and our highly focused investments in carefully-chosen new business categories have allowed NetEase to stand the test of time in a rapidly evolving internet industry. Two decades after our inception, our focus on quality remains at the heart of our Company, propelling the unique value proposition we offer to?our community and driving our growing?success," Mr. Ding concluded.

                      Fourth Quarter 2018 Financial Results

                      Net Revenues

                      Net?revenues for the fourth?quarter of 2018 were RMB19,844.3?million (US$2,886.2?million), compared to RMB16,855.3?million and RMB14,607.6?million for the preceding quarter and the fourth quarter of 2017, respectively.

                      Net revenues from online games were RMB11,019.6?million (US$1,602.7?million) for the fourth quarter of 2018, compared to RMB10,348.4?million and RMB8,004.4?million for the preceding quarter and the fourth quarter of 2017, respectively. Mobile games accounted for approximately 69.7% of net revenues from online games for the fourth quarter of 2018, compared to 68.0%?each?for?the preceding?quarter and the fourth quarter of 2017.

                      Net revenues from e-commerce were RMB6,678.7?million (US$971.4?million) for the fourth quarter of 2018, compared to RMB4,458.8?million and RMB4,653.7?million for the preceding quarter and the fourth quarter of 2017, respectively.?

                      Net revenues from advertising services were RMB760.5?million (US$110.6?million) for the fourth quarter of 2018, compared to RMB644.2?million and RMB736.6?million for the preceding quarter and the fourth quarter of 2017, respectively. The top performing advertising verticals in the fourth quarter of 2018 were automobile, real estate?and internet services sectors.

                      Net revenues from innovative businesses and others were RMB1,385.5?million (US$201.5?million) for the fourth quarter of 2018, compared to RMB1,403.8?million and RMB1,213.0?million for the preceding quarter and the fourth quarter of 2017, respectively.

                      Gross Profit/ (Loss)

                      Gross profit for the fourth quarter of 2018 was RMB7,657.5?million (US$1,113.7?million), compared to RMB7,547.3?million and RMB5,744.6?million for the preceding quarter and the fourth quarter of 2017, respectively.

                      The quarter-over-quarter increase in online game services gross profit was primarily due to increased revenue?contribution?from?newer mobile games such as Night Falls: Survival?and Ancient Nocturne. The year-over-year increase in online game services gross profit was?primarily due to increased revenue?contribution?from?mobile games including Knives Out, Chu Liu Xiang and Identity V.

                      The quarter-over-quarter?and year-over-year decreases in e-commerce gross profit were?primarily due to the larger-scale promotions and certain sales discounts in the fourth quarter of 2018.

                      The quarter-over-quarter increase in advertising services gross profit was primarily due to seasonality. The year-over-year decrease in advertising services gross profit was primarily due to higher staff-related costs and content purchase expenditures.

                      The quarter-over-quarter and year-over-year increases in innovative businesses and others gross loss were?primarily due to decreased revenue contribution from certain online platform businesses, which have relatively higher margins.

                      Gross Profit/ (Loss) Margin

                      Gross profit margin for online game services for the fourth quarter of 2018 was 62.8%, compared to 65.1% and 61.4% for the preceding quarter and the fourth quarter of 2017, respectively.?The quarter-over-quarter decrease in gross profit margin was mainly due to increased revenue contribution from mobile games and licensed games, which have relatively lower profit margins than self-developed PC-client games. The year-over-year increase in gross profit margin was mainly due to increased revenue while certain costs related to the Company's online games segment were fixed.

                      Gross profit margin for e-commerce for the fourth quarter of 2018 was 4.5%, compared to 10.0% and 7.4% for the preceding quarter and the fourth quarter of 2017, respectively. The quarter-over-quarter and year-over-year decreases in e-commerce gross profit margin were primarily due to the larger-scale promotions and certain sales discounts in the fourth quarter of 2018.

                      Gross profit margin for advertising services for the fourth quarter of 2018 was 66.3%, compared to 63.6% and 71.2% for the preceding quarter and the fourth quarter of 2017, respectively.?The quarter-over-quarter increase in advertising services gross profit margin was primarily due to seasonality. The year-over-year decrease in advertising services gross profit margin was primarily due to higher staff-related costs and content purchase expenditures.

                      Gross loss margin for innovative businesses and others for the fourth quarter of 2018 was 5.2%, compared to gross loss margin of 3.3% each for the preceding quarter and the fourth quarter of 2017. The year-over-year and quarter-over-quarter?increases in gross loss margin were?primarily due to decreased revenue contribution from certain online platform businesses which have relatively higher gross profit margins.?

                      Operating Expenses

                      Total operating expenses for the fourth quarter of 2018 were RMB5,412.3 million (US$787.2 million), compared to RMB5,440.1 million and RMB4,317.8 million for the preceding quarter and the fourth quarter of 2017, respectively. The year-over-year increase in operating expenses?was mainly due to increased staff-related costs, research and development investments and shipping and handling costs. Shipping and handling costs included in selling and marketing expenses for the fourth quarter of 2018 were RMB572.5 million (US$83.3 million), compared to RMB385.5 million and RMB393.3 million for the preceding quarter and the fourth quarter of 2017, respectively.

                      Income Taxes

                      The Company recorded a net income tax charge of RMB919.7 million (US$133.8 million) for the fourth quarter of 2018, compared to RMB843.8 million and RMB290.4 million for the preceding quarter and the fourth quarter of 2017, respectively. The effective tax rate for the fourth quarter of 2018 was 34.0%, compared to 34.2% and 18.2% for the preceding quarter and the fourth quarter of 2017, respectively. The higher effective tax rate for the fourth quarter of 2018 was due to the fact that certain subsidiaries of the Company experienced higher operating losses compared with the fourth quarter of 2017.

                      Net Income After Tax

                      Net income attributable to the Company's shareholders for the fourth quarter of 2018 totaled RMB1,697.7 million (US$246.9 million), compared to RMB1,596.3 million and RMB1,285.6 million for the preceding quarter and the fourth quarter of 2017, respectively. Non-GAAP net income attributable to the Company's shareholders for the fourth quarter of 2018 totaled RMB2,359.6 million (US$343.2 million), compared to RMB2,258.8 million and RMB1,878.9 million for the preceding quarter and the fourth quarter of 2017, respectively.?

                      During the fourth quarter of 2018, the Company had a net foreign exchange loss of RMB27.1 million (US$3.9 million), compared to a net foreign exchange gain of RMB56.1 million and a net foreign exchange loss of RMB159.1 million for the preceding quarter and the fourth quarter of 2017, respectively. The changes in foreign exchange gains and losses were?mainly due to foreign currency transactions and unrealized exchange gains and losses arising from the Company's U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.

                      NetEase reported basic and diluted earnings per ADS of US$1.93 and US$1.92, respectively, for the fourth quarter of 2018. The Company reported basic and diluted earnings per ADS of US$1.81 and US$1.80, respectively, for the preceding quarter, and basic and diluted earnings per ADS of US$1.42 and US$1.41, respectively, for the fourth quarter of 2017. Non-GAAP basic and diluted earnings per ADS were US$2.68 and US$2.66, respectively, for the fourth quarter of 2018, compared to non-GAAP basic and diluted earnings per ADS of US$2.56 and US$2.55, respectively, for the preceding quarter, and non-GAAP basic and diluted earnings per ADS of US$2.08 and US$2.06, respectively, for the fourth quarter of 2017.?

                      Fiscal Year 2018?Financial Results

                      Net Revenues

                      Total net revenues for fiscal year 2018 were RMB67,156.5 million (US$9,767.5?million), compared to RMB54,102.0 million for fiscal year 2017.

                      Net revenues from online games were RMB40,190.1 million (US$5,845.4?million) for fiscal year 2018, compared to RMB36,281.6?million for fiscal year 2017. Mobile games accounted for approximately 71.0% of net revenues from online games for fiscal year 2018, compared to 70.8% for fiscal year 2017.

                      Net revenues from e-commerce were RMB19,235.5 million (US$2,797.7 million) for fiscal year 2018, compared to RMB11,670.4 million for fiscal year 2017.

                      Net revenues from advertising services were RMB2,500.8 million (US$363.7?million) for fiscal year 2018, compared to RMB2,408.8?million for fiscal year 2017. The top performing advertising verticals in 2018 were automobile, real estate and internet services sectors.

                      Net revenues from innovative businesses and others were RMB5,230.1?million?(US$760.7 million) for fiscal year 2018, compared to RMB3,741.1?million for fiscal year 2017.?

                      Gross Profit

                      Gross profit for fiscal year 2018 was RMB28,403.5?million (US$4,131.1?million), compared to RMB25,912.7 million for fiscal year 2017.

                      The increase in online game services gross profit?in 2018 was primarily attributable to increased revenue?contribution from?the Company's self-developed mobile games such as?Knives Out and Chu Liu Xiang, as well as PC-client games such as Justice.?

                      The increase?in e-commerce gross profit in 2018?was?primarily due?to business development of Kaola?and Yanxuan.?

                      The increase in advertising services gross profit?in 2018 was due to NetEase's?enhanced monetization efforts.

                      The decrease in innovative businesses and others gross profit in 2018 was?primarily due to higher copyright costs related to licensed music content and decreased revenue contribution from certain online platform businesses which have relatively higher margins.

                      Operating Expenses

                      Total operating expenses for fiscal year 2018?were RMB20,510.6 million (US$2,983.1?million), compared to RMB13,758.9 million for fiscal year 2017. The increase in operating expenses in 2018?was primarily due to increased selling and marketing expenses, research and development investments and staff-related costs, as well as increased shipping and handling costs. Shipping and handling costs included in selling and marketing expenses for fiscal year 2018 were RMB1,670.4 million (US$242.9 million), compared to RMB1,182.7 million for fiscal year 2017.

                      Income Taxes

                      The Company recorded a net income tax charge of RMB2,466.7?million (US$358.8?million) and RMB2,162.4 million for fiscal years 2018?and 2017, respectively. The effective tax rate was 27.6%?for fiscal year 2018,?compared to 16.6% for fiscal year 2017. The higher effective tax rate for fiscal year 2018 was due to the fact that certain subsidiaries of the Company experienced higher operating losses compared with fiscal year 2017.

                      Net Income After Tax

                      Net income attributable to the Company's shareholders for fiscal year 2018?totaled RMB6,152.4?million (US$894.8?million), compared to RMB10,707.9 million for fiscal year 2017. Non-GAAP net income?attributable to the Company's shareholders?for fiscal year?2018?totaled RMB8,680.5?million (US$1,262.5?million), compared to RMB12,712.2?million?for fiscal year 2017.

                      For fiscal year 2018, the Company reported a net foreign exchange loss of RMB113.3 million (US$16.5?million), compared to a net foreign exchange loss?of RMB448.8?million for fiscal year 2017. The changes in foreign exchange gains and losses were?mainly due to foreign currency transactions and unrealized exchange gains and losses arising from the Company's U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over these years.

                      NetEase reported basic and diluted earnings per ADS of US$6.91?and US$6.87, respectively, for fiscal year 2018, and?basic and?diluted earnings per ADS of US$11.83?and?US$11.74, respectively,?for fiscal year?2017. Non-GAAP basic and diluted earnings per ADS were US$9.76?and US$9.70, respectively, for fiscal year?2018, compared to non-GAAP basic and diluted earnings per ADS of US$14.05?and US$13.94, respectively, for fiscal year?2017.?

                      Quarterly?Dividend

                      The board of directors has approved a dividend of US$0.48 per ADS for the fourth quarter of 2018, which is expected to be paid on March 15, 2019 to shareholders of record as of the close of business on March 8, 2019.

                      NetEase paid a dividend of US$0.38 per ADS for the fourth quarter of 2017 on March 2, 2018, a dividend of US$0.23 per ADS for the first quarter of 2018 on June 8, 2018, a dividend of US$0.61 per ADS for the second quarter of 2018 on August 31, 2018 and a dividend of US$0.45 per ADS for the third quarter of 2018 on December 7, 2018.??

                      Under the Company's quarterly dividend policy announced on May 13, 2014, quarterly dividends will be set at an amount equivalent to approximately 25% of the Company's anticipated net income after tax in each fiscal quarter. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.?

                      Other Information

                      As of December 31, 2018, the Company's total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB50,064.3?million (US$7,281.5?million), compared to RMB43,210.2?million as of December 31, 2017. Cash flow generated from operating activities was RMB13,415.9 million (US$1,951.3?million) for fiscal year 2018, compared to RMB11,889.2?million for fiscal year 2017.

                      Share Repurchase Program

                      On November 15, 2017, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on November 16, 2017. On June 11, 2018, the Company announced that its board of directors approved an amendment to expand the authorized repurchase amount to US$2.0 billion. As of November 15, 2018, the last day of such program, the Company had repurchased approximately 4.6 million ADSs for approximately US$1,178.5 million under this program.

                      On November 14, 2018, the Company also announced that its board of directors had approved a new share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months beginning on November 16, 2018. As of December 31, 2018, no ADS was repurchased under this program.

                      Under the terms of the current approved program, NetEase may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. The timing and dollar amount of repurchase transactions will be subject to the Securities and Exchange Commission (SEC) Rule 10b-18 requirements. It is also expected that such repurchases will be effected pursuant to a plan in conformity with SEC Rule 10b5-1.?The extent to which NetEase repurchases its ADSs will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by NetEase's management team. The repurchase program may be suspended or discontinued at any time.

                      ** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.8755 on December 31, 2018 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2018, or at any other certain date. The percentages stated are calculated based on RMB.

                      Change in Segment Reporting

                      Effective as of December 31, 2017, the Company changed its segment disclosure to separately report the financial results of its e-commerce business in light of the significant growth of the revenue contribution from e-commerce to the Company's total consolidated net revenues in 2017. This segment primarily reflects the results of NetEase's two e-commerce platforms, Kaola and Yanxuan, which were established in January 2015 and April 2016, respectively. In addition,?effective as of December 31, 2018, the Company renamed its "e-mail and others" segment to "innovative businesses and others" to better articulate the businesses included in this segment. The changes in segment reporting align with the manner in which the Company's chief operating decision maker ("CODM") currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. The changes in segment presentation do not affect consolidated balance sheets,?consolidated statements of income or?consolidated statements of cash flows. The Company retrospectively revised prior period segment information to conform to current period presentation. The Company now reports four reporting segments: online game services, e-commerce, advertising services and innovative businesses and others.

                      Impact of the Recently Adopted Major Accounting Pronouncements

                      On January 1, 2018, the Company adopted Topic 606?"Revenue from Contracts with Customers" using the modified-retrospective transition approach and recorded a reduction of its deferred revenue of approximately RMB81.7 million and a net increase to its retained earnings of approximately RMB27.4 million (net of tax) as a result of estimating game point breakage.?The adoption of Topic 606 did not have a significant impact on the Company's operating results for fiscal year 2018 and comparable periods.?

                      On January 1, 2018, the Company adopted ASU No. 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", and reclassified RMB38.2 million of accumulated other comprehensive income for the Company's available-for-sale equity securities that existed as of December 31, 2017 into retained earnings upon the adoption. In addition, the Company recorded net investment losses of RMB215.8 million related to the equity investments?with readily determinable fair value for fiscal year 2018. Given that there were no material observable price changes in orderly transactions for the identical or similar investments of the same issuer, the Company did not record any changes to the carrying value of equity investments?without readily determinable fair value for fiscal year 2018.

                      The Company also adopted ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash" starting from the first quarter of 2018. Pursuant to the new guidance, the Company's cash, cash equivalents and restricted cash increased by an aggregate of RMB393.8 million for fiscal year 2017, compared to the amounts presented under previous guidance.

                      Notes to Unaudited Financial Information

                      The unaudited financial information disclosed in this press release is preliminary. The audit of the financial statements and related notes to be included in the Company's annual report on Form 20-F for the year ended December 31, 2018 is still in progress. In addition, because an audit of the Company's internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, the Company makes no representation as to the effectiveness of those internal controls as of the end of fiscal year 2018.

                      Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between the Company's audited financial statements and this preliminary unaudited financial information.?

                      Conference Call

                      NetEase's management team will host a teleconference call with simultaneous webcast at 8:00 p.m. Eastern Time on Wednesday, February 20, 2019 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 21, 2019). 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 1-800-458-4121 (international: 1-929-477-0324), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-888-203-1112 (international: 1-719-457-0820), and entering passcode 9925506#. The replay will be available through March 6, 2019.

                      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://www.9009240.com.

                      About NetEase, Inc.

                      NetEase, Inc. (NASDAQ: NTES) is a leading internet technology company in China. Dedicated to providing online services centered around content, community, communication and commerce, NetEase develops and operates some of China's most popular PC-client?and mobile games, e-commerce businesses and advertising services, as well as a variety of other innovative businesses. In partnership with Blizzard Entertainment, Mojang AB (a Microsoft subsidiary) and other global game developers, NetEase also operates some of the most popular international online games in China. For more information, please visit: http://www.9009240.com/.

                      Forward Looking Statements

                      This press release 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. 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 game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games or expansion packs and other improvements to its existing games do not become as popular as management anticipates; the ability of NetEase to successfully expand its mobile internet offerings; the ability of NetEase to?effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that NetEase's affiliates will not be able to continue operating Minecraft, World of Warcraft?, StarCraft? II, Hearthstone?, Diablo? III: Reaper of Souls?,?Heroes of the Storm?, Overwatch??or other games licensed by it for a period of time or permanently due to possible governmental actions or the risk that such games will not be popular with game players in China; the risk that changes in Chinese government regulation of the online game market and the market for NetEase's e-commerce businesses?may limit future growth of NetEase's revenues or cause revenues to decline; competition in the online advertising business and the risk that investments by NetEase in its content and services may not increase the appeal of the NetEase websites among internet users or result in increased advertising revenues; the risk that NetEase may not be able to continuously develop new and creative online services, including its ability to maintain and enhance the popularity of its online game and e-commerce businesses; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase's existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results; and other risks outlined in NetEase's filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the 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 earnings per ADS, 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, which are non-cash charges. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and future 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 that affect our operations. Share-based compensation expenses have been and may continue to be incurred in our 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 "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release. 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
                      NetEase, Inc.
                      [email protected]
                      Tel: (+86) 571-8985-3378

                      Brandi Piacente
                      Investor Relations
                      [email protected]
                      Tel: (+1) 212-481-2050

                      ?

                      NETEASE, INC.

                      UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                      (RMB and USD in thousands)



                      ?December 31,?


                      ?December 31,?


                      ?December 31,?



                      2017


                      2018


                      2018



                      ?RMB??


                      ?RMB??


                      ?USD (Note 1)?

                      Assets














                      Current assets:







                      ?? Cash and cash equivalents


                      2,764,140


                      5,389,198


                      783,827

                      ?? Time deposits


                      30,603,369


                      32,900,287


                      4,785,148

                      ?? Restricted cash


                      5,926,906


                      4,817,340


                      700,653

                      ?? Accounts receivable, net


                      3,619,725


                      4,288,500


                      623,736

                      ?? Inventories, net


                      5,474,929


                      5,017,823


                      729,812

                      ?? Prepayments and other current assets


                      3,816,028


                      4,627,797


                      673,085

                      ?? Short-term investments


                      9,742,663


                      11,674,775


                      1,698,026

                      Total current assets


                      61,947,760


                      68,715,720


                      9,994,287








                      Non-current assets:







                      ?? Property, equipment and software, net?


                      3,769,326


                      5,378,560


                      782,280

                      ?? Land use right, net


                      593,279


                      3,502,569


                      509,428

                      ?? Deferred tax assets?


                      823,495


                      1,064,295


                      154,795

                      ?? Time deposits


                      100,000


                      100,000


                      14,544

                      ?? Restricted cash


                      200


                      -


                      -

                      ?? Other long-term assets


                      3,797,355


                      8,206,784


                      1,193,627

                      Total non-current assets


                      9,083,655


                      18,252,208


                      2,654,674

                      Total assets?


                      71,031,415


                      86,967,928


                      12,648,961








                      Liabilities,?Redeemable Noncontrolling Interests and
                      ??? Shareholders' Equity














                      Current liabilities:







                      ?? Accounts payable?


                      2,442,531


                      2,384,818


                      346,857

                      ?? Salary and welfare payables


                      2,189,110


                      2,991,897


                      435,153

                      ?? Taxes payable


                      1,564,692


                      2,272,023


                      330,452

                      ?? Short-term loans


                      6,623,502


                      13,658,554


                      1,986,554

                      ?? Deferred revenue


                      6,237,969


                      7,953,255


                      1,156,753

                      ?? Accrued liabilities and other payables


                      4,692,310


                      5,848,463


                      850,624

                      Total current liabilities


                      23,750,114


                      35,109,010


                      5,106,393








                      Long-term payable:







                      ?? Deferred tax liabilities


                      213,215


                      393,681


                      57,259

                      ?? Other long-term payable


                      18,250


                      53,656


                      7,804

                      Total liabilities


                      23,981,579


                      35,556,347


                      5,171,456








                      Redeemable noncontrolling interests?


                      614,696


                      5,385,736


                      783,323








                      Total NetEase, Inc.'s equity


                      45,732,007


                      45,231,636


                      6,578,669

                      Noncontrolling interests


                      703,133


                      794,209


                      115,513

                      Total shareholders' equity


                      46,435,140


                      46,025,845


                      6,694,182








                      Total liabilities, redeemable noncontrolling interests and
                      ??? shareholders' equity????


                      71,031,415


                      86,967,928


                      12,648,961








                      The accompanying notes are an integral part of this press release.

                      ?

                      ?

                      NETEASE, INC.

                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                      (RMB and USD in thousands, except per share data)



                      ?Quarter Ended?



                      Year Ended



                      December 31,


                      September 30,?


                      December 31,


                      ?December 31,?



                      December 31,


                      December 31,


                      ?December 31,?



                      2017


                      2018


                      2018


                      2018



                      2017


                      2018


                      2018



                      ?RMB?


                      ?RMB?


                      ?RMB?


                      ?USD (Note 1)?



                      ?RMB?


                      ?RMB?


                      ?USD (Note 1)?

















                      Net revenues


                      14,607,636


                      16,855,303


                      19,844,275


                      2,886,229



                      54,102,019


                      67,156,453


                      9,767,501

















                      Cost of revenues


                      (8,863,025)


                      (9,307,955)


                      (12,186,817)


                      (1,772,499)



                      (28,189,326)


                      (38,752,957)


                      (5,636,384)

















                      Gross profit


                      5,744,611


                      7,547,348


                      7,657,458


                      1,113,730



                      25,912,693


                      28,403,496


                      4,131,117

















                      Selling and marketing expenses?


                      (2,397,214)


                      (2,357,010)


                      (2,405,349)


                      (349,844)



                      (6,957,596)


                      (9,526,470)


                      (1,385,568)

                      General and administrative expenses


                      (678,370)


                      (822,292)


                      (851,573)


                      (123,856)



                      (2,429,858)


                      (3,191,537)


                      (464,190)

                      Research and development expenses?


                      (1,242,213)


                      (2,260,768)


                      (2,155,409)


                      (313,491)



                      (4,371,428)


                      (7,792,550)


                      (1,133,379)

                      Total operating expenses


                      (4,317,797)


                      (5,440,070)


                      (5,412,331)


                      (787,191)



                      (13,758,882)


                      (20,510,557)


                      (2,983,137)

















                      Operating profit


                      1,426,814


                      2,107,278


                      2,245,127


                      326,539



                      12,153,811


                      7,892,939


                      1,147,980

















                      Other income:
















                      Investment income/ (loss), net


                      96,030


                      (25,401)


                      46,484


                      6,761



                      362,113


                      (22,266)


                      (3,238)

                      Interest income, net


                      190,733


                      113,118


                      167,296


                      24,332



                      667,323


                      587,518


                      85,451

                      Exchange (losses)/ gains, net


                      (159,106)


                      56,097


                      (27,103)


                      (3,942)



                      (448,827)


                      (113,323)


                      (16,482)

                      Other, net


                      37,814


                      213,564


                      276,568


                      40,225



                      277,080


                      599,230


                      87,154

















                      Income before tax


                      1,592,285


                      2,464,656


                      2,708,372


                      393,915



                      13,011,500


                      8,944,098


                      1,300,865

                      Income tax


                      (290,372)


                      (843,795)


                      (919,674)


                      (133,761)



                      (2,162,363)


                      (2,466,681)


                      (358,764)

















                      Net income after tax


                      1,301,913


                      1,620,861


                      1,788,698


                      260,154



                      10,849,137


                      6,477,417


                      942,101

















                      Accretion and deemed dividends in connection with
                      ??? repurchase of redeemable noncontrolling interests


                      -


                      (18,086)


                      (54,604)


                      (7,942)



                      -


                      (248,098)


                      (36,084)

                      Net income attributable to noncontrolling interests
                      ??? and redeemable noncontrolling interests


                      (16,300)


                      (6,482)


                      (36,395)


                      (5,293)



                      (141,198)


                      (76,912)


                      (11,186)

                      Net income attributable to
                      ?? the Company's shareholders


                      1,285,613


                      1,596,293


                      1,697,699


                      246,919



                      10,707,939


                      6,152,407


                      894,831

































                      Basic earnings per share


                      0.39


                      0.50


                      0.53


                      0.08



                      3.25


                      1.90


                      0.28

                      Basic earnings per ADS


                      9.79


                      12.43


                      13.27


                      1.93



                      81.36


                      47.54


                      6.91

                      Diluted earnings per share


                      0.39


                      0.49


                      0.53


                      0.08



                      3.23


                      1.89


                      0.27

                      Diluted earnings per ADS


                      9.71


                      12.37


                      13.18


                      1.92



                      80.74


                      47.26


                      6.87

















                      Weighted average number of
                      ?? ordinary shares outstanding, basic


                      3,284,028


                      3,210,940


                      3,199,277


                      3,199,277



                      3,290,312


                      3,235,324


                      3,235,324

                      Weighted average number of
                      ?? ADS outstanding, basic


                      131,361


                      128,438


                      127,971


                      127,971



                      131,612


                      129,413


                      129,413

                      Weighted average number of
                      ?? ordinary shares outstanding, diluted


                      3,310,586


                      3,226,763


                      3,220,724


                      3,220,724



                      3,315,478


                      3,254,689


                      3,254,689

                      Weighted average number of
                      ?? ADS outstanding, diluted


                      132,423


                      129,071


                      128,829


                      128,829



                      132,619


                      130,188


                      130,188

















                      The accompanying notes are an integral part of this press release.












                      ?

                      ?

                      NETEASE, INC.

                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                      (RMB and USD in thousands)



                      Quarter Ended


                      Year Ended



                      ?December 31,??


                      ?September 30,??


                      ?December 31,??


                      ?December 31,??


                      ?December 31,?


                      ?December 31,?


                      ?December 31,?



                      2017


                      2018


                      2018


                      2018


                      2017


                      2018


                      2018



                      ?RMB??


                      ?RMB??


                      ?RMB??


                      ?USD (Note 1)?


                      ?RMB??


                      ?RMB??


                      ?USD (Note 1)?

                      Cash flows from operating activities:















                      ???? Net income??


                      1,301,913


                      1,620,861


                      1,788,698


                      260,154


                      10,849,137


                      6,477,417


                      942,101

                      ???? Adjustments to reconcile net income to net
                      ???????? cash provided by operating activities:?















                      ???? Depreciation and amortization?


                      274,298


                      570,232


                      676,020


                      98,323


                      801,804


                      2,083,501


                      303,033

                      ???? Fair value changes and impairment losses of short-term investments,
                      ??????? investments in associated companies, other long-term investments
                      ??????? and other financial instruments?


                      (67,546)


                      6,233


                      (88,012)


                      (12,801)


                      (331,256)


                      (55,728)


                      (8,105)

                      ???? Share-based compensation cost?


                      593,301


                      663,031


                      662,280


                      96,325


                      2,004,263


                      2,529,650


                      367,922

                      ???? Allowance for/ (reversal of) provision for doubtful debts?


                      28,914


                      38,424


                      (2,090)


                      (304)


                      60,826


                      50,954


                      7,411

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


                      5,118


                      768


                      (640)


                      (93)


                      5,072


                      (1,385)


                      (201)

                      ???? Unrealized exchange losses/ (gains)?


                      155,511


                      (116,521)


                      1,675


                      243


                      437,868


                      39,427


                      5,735

                      ???? Gains on disposal of long-term investments, business and
                      ????????? subsidiaries?


                      -


                      -


                      (175,957)


                      (25,592)


                      (9,595)


                      (213,339)


                      (31,029)

                      ???? Deferred income taxes?


                      (83,865)


                      (194,858)


                      (133,369)


                      (19,398)


                      (438,043)


                      (69,899)


                      (10,166)

                      ???? Net equity share of (gains)/ losses from associated companies?


                      (20,849)


                      21,949


                      17,643


                      2,566


                      12,232


                      98,301


                      14,297

                      ???? Changes in operating assets and liabilities:?















                      ???????? Accounts receivable?


                      (391,603)


                      (729,660)


                      283,044


                      41,167


                      565,228


                      (710,932)


                      (103,401)

                      ???????? Inventories?


                      (806,556)


                      (614,998)


                      1,273,230


                      185,184


                      (3,896,799)


                      457,053


                      66,476

                      ???????? Prepayments and other current assets?


                      151,224


                      (447,543)


                      209,737


                      30,505


                      (116,240)


                      (722,711)


                      (105,114)

                      ???????? Accounts payable?


                      403,973


                      420,882


                      (188,464)


                      (27,411)


                      1,100,787


                      (85,195)


                      (12,391)

                      ???????? Salary and welfare payables?


                      805,435


                      596,723


                      310,915


                      45,221


                      700,479


                      806,401


                      117,286

                      ???????? Taxes payable?


                      594,408


                      702,261


                      430,123


                      62,559


                      (155,904)


                      693,639


                      100,886

                      ???????? Deferred revenue?


                      73,352


                      1,012,281


                      593,199


                      86,277


                      (1,291,890)


                      1,804,579


                      262,465

                      ???????? Accrued liabilities and other payables?


                      864,426


                      67,466


                      277,410


                      40,349


                      1,591,269


                      234,144


                      34,055

                      ???????????? Net cash provided by operating activities?


                      3,881,454


                      3,617,531


                      5,935,442


                      863,274


                      11,889,238


                      13,415,877


                      1,951,260
















                      Cash flows from investing activities:















                      ???? Purchase of property, equipment and software?


                      (572,115)


                      (670,337)


                      (412,766)


                      (60,034)


                      (1,842,933)


                      (2,528,149)


                      (367,704)

                      ???? Proceeds from sale of property, equipment and software?


                      1,187


                      1,616


                      973


                      142


                      4,425


                      6,691


                      973

                      ???? Purchase of intangible assets and licensed copyrights
                      ????????? of music content?


                      (351,378)


                      (287,867)


                      (389,870)


                      (56,704)


                      (674,803)


                      (1,349,905)


                      (196,336)

                      ???? Purchase of land use right?


                      -


                      (2,420,029)


                      (31,759)


                      (4,619)


                      (6,488)


                      (3,007,959)


                      (437,489)

                      ???? Net change in short-term investments with terms of three
                      ????????? months or less?


                      (3,119,511)


                      865,824


                      (2,619,634)


                      (381,010)


                      (895,298)


                      (1,172,326)


                      (170,508)

                      ???? Purchase of short-term investments?


                      (1,235,000)


                      (2,460,000)


                      (2,940,000)


                      (427,605)


                      (12,491,000)


                      (13,423,000)


                      (1,952,294)

                      ???? Proceeds from maturities of short-term investments?


                      2,656,842


                      2,778,151


                      5,333,016


                      775,655


                      15,615,544


                      13,101,476


                      1,905,531

                      ???? Investment in associated companies and long-term investments?

                      (572,842)


                      (1,031,594)


                      (393,801)


                      (57,276)


                      (1,136,481)


                      (3,023,491)


                      (439,749)

                      ???? Proceeds from disposal of investment in associated company
                      ????????? and long-term investments?


                      -


                      -


                      -


                      -


                      350,418


                      -


                      -

                      ???? Placement/rollover of matured time deposits?


                      (8,183,371)


                      (11,405,346)


                      (19,933,370)


                      (2,899,188)


                      (33,984,148)


                      (41,553,428)


                      (6,043,695)

                      ???? Proceeds from maturities of time deposits?


                      7,409,214


                      14,306,245


                      13,349,755


                      1,941,641


                      22,429,597


                      39,924,525


                      5,806,781

                      ???? Net change in other assets?


                      (27,760)


                      (75,563)


                      (194,765)


                      (28,328)


                      (224,103)


                      (543,949)


                      (79,114)

                      ???????????? Net cash used in investing activities?


                      (3,994,734)


                      (398,900)


                      (8,232,221)


                      (1,197,326)


                      (12,855,270)


                      (13,569,515)


                      (1,973,604)
















                      The accompanying notes are an integral part of this press release.














                      ?

                      ?

                      NETEASE, INC.

                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                      (RMB and USD in thousands)



                      Quarter Ended


                      Year Ended



                      ?December 31,??


                      ?September 30,??


                      ?December 31,??


                      ?December 31,??


                      ?December 31,?


                      ?December 31,?


                      ?December 31,?



                      2017


                      2018


                      2018


                      2018


                      2017


                      2018


                      2018



                      ?RMB??


                      ?RMB??


                      ?RMB??


                      ?USD (Note 1)?


                      ?RMB??


                      ?RMB??


                      ?USD (Note 1)?
















                      Cash flows from financing activities:















                      ???? Net proceeds in short-term loan with terms of three months or less?


                      974,570


                      265,422


                      41,163


                      5,987


                      3,104,970


                      6,209,608


                      903,150

                      ???? Capital contribution from noncontrolling? interests and? redeemable
                      ????? noncontrolling interests shareholders, net?


                      40,000


                      1,139,700


                      3,216,112


                      467,764


                      911,500


                      4,334,684


                      630,454

                      ???? Repurchase of shares?


                      (436,630)


                      (1,785,572)


                      (61,574)


                      (8,956)


                      (2,061,591)


                      (7,516,679)


                      (1,093,256)

                      ???? Dividends paid to shareholders?


                      (624,395)


                      (533,726)


                      (399,374)


                      (58,087)


                      (3,257,607)


                      (1,440,194)


                      (209,468)

                      ???????????? Net cash (used)/ provided in financing activities??????


                      (46,455)


                      (914,176)


                      2,796,327


                      406,708


                      (1,302,728)


                      1,587,419


                      230,880
















                      ???????????? Effect of exchange rate changes on cash, cash equivalents?















                      ????????????????? and restricted cash held in foreign currencies?


                      (11,646)


                      54,007


                      (14,517)


                      (2,111)


                      (12,766)


                      81,511


                      11,855

                      ????????????? Net (decrease)/ increase in cash, cash equivalents and
                      ???????????????? restricted cash?


                      (171,381)


                      2,358,462


                      485,031


                      70,545


                      (2,281,526)


                      1,515,292


                      220,391

                      Cash, cash equivalents and restricted cash,
                      ??? beginning of the period *


                      8,862,627


                      7,363,045


                      9,721,507


                      1,413,935


                      10,972,772


                      8,691,246


                      1,264,089

                      Cash, cash equivalents and restricted cash,? end of the period *

                      8,691,246


                      9,721,507


                      10,206,538


                      1,484,480


                      8,691,246


                      10,206,538


                      1,484,480
















                      Supplemental disclosures of cash flow information:















                      ???? Cash (received)/ paid for income tax, net?


                      (238,447)


                      600,115


                      419,555


                      61,022


                      2,712,875


                      2,006,657


                      291,856

                      Supplemental schedule of non-cash investing?















                      ???? and financing activities:















                      ???? Fixed asset purchases financed by
                      ???????? accounts payable and accrued liabilities?


                      293,194


                      382,176


                      409,222


                      59,519


                      293,194


                      409,222


                      59,519































                      *In 2018, the Company adopted the guidance of ASU 2016-18 issued by FASB in November?2016, which requires that a statement of cash flows explain the change during the period in the total of cash, cash
                      equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, the Company included restricted cash with cash and cash equivalents when reconciling the beginning-of-period
                      and end-of-period total amounts shown in the statement of cash flows.? Pursuant to the guidance, the Company retropsectively restated the statement of cash flows in the comparative periods.
















                      The accompanying notes are an integral part of this press release.

                      ?

                      ?

                      NETEASE, INC.

                      UNAUDITED SEGMENT INFORMATION

                      (RMB and USD in thousands, except percentages)

















                      Quarter Ended


                      Year Ended



                      December 31,


                      September 30,?


                      ?December 31,?


                      ?December 31,?


                      December 31,


                      ?December 31,?


                      ?December 31,?



                      2017


                      2018


                      2018


                      2018


                      2017


                      2018


                      2018



                      RMB


                      RMB


                      RMB


                      USD (Note 1)


                      RMB


                      RMB


                      USD (Note 1)

                      Net revenues:















                      Online game services


                      8,004,352


                      10,348,430


                      11,019,553


                      1,602,728


                      36,281,642


                      40,190,057


                      5,845,402

                      E-commerce


                      4,653,652


                      4,458,828


                      6,678,673


                      971,372


                      11,670,416


                      19,235,476


                      2,797,684

                      Advertising services


                      736,597


                      644,207


                      760,538


                      110,615


                      2,408,823


                      2,500,833


                      363,731

                      Innovative businesses and others


                      1,213,035


                      1,403,838


                      1,385,511


                      201,514


                      3,741,138


                      5,230,087


                      760,684

                      Total net revenues


                      14,607,636


                      16,855,303


                      19,844,275


                      2,886,229


                      54,102,019


                      67,156,453


                      9,767,501
















                      Cost of revenues:















                      Online game services


                      (3,087,192)


                      (3,611,946)


                      (4,094,688)


                      (595,548)


                      (13,473,339)


                      (14,617,656)


                      (2,126,050)

                      E-commerce


                      (4,310,338)


                      (4,011,132)


                      (6,378,827)


                      (927,762)


                      (10,464,714)


                      (17,688,717)


                      (2,572,717)

                      Advertising services


                      (212,488)


                      (234,800)


                      (256,014)


                      (37,236)


                      (797,892)


                      (889,677)


                      (129,398)

                      Innovative businesses and others


                      (1,253,007)


                      (1,450,077)


                      (1,457,288)


                      (211,953)


                      (3,453,381)


                      (5,556,907)


                      (808,219)

                      Total cost of revenues


                      (8,863,025)


                      (9,307,955)


                      (12,186,817)


                      (1,772,499)


                      (28,189,326)


                      (38,752,957)


                      (5,636,384)
















                      Gross profit/ (loss):















                      Online game services


                      4,917,160


                      6,736,484


                      6,924,865


                      1,007,180


                      22,808,303


                      25,572,401


                      3,719,352

                      E-commerce


                      343,314


                      447,696


                      299,846


                      43,610


                      1,205,702


                      1,546,759


                      224,967

                      Advertising services


                      524,109


                      409,407


                      504,524


                      73,379


                      1,610,931


                      1,611,156


                      234,333

                      Innovative businesses and others


                      (39,972)


                      (46,239)


                      (71,777)


                      (10,439)


                      287,757


                      (326,820)


                      (47,535)

                      Total gross profit


                      5,744,611


                      7,547,348


                      7,657,458


                      1,113,730


                      25,912,693


                      28,403,496


                      4,131,117
















                      Gross profit/ (loss) margin:















                      Online game services


                      61.4%


                      65.1%


                      62.8%


                      62.8%


                      62.9%


                      63.6%


                      63.6%

                      E-commerce


                      7.4%


                      10.0%


                      4.5%


                      4.5%


                      10.3%


                      8.0%


                      8.0%

                      Advertising services


                      71.2%


                      63.6%


                      66.3%


                      66.3%


                      66.9%


                      64.4%


                      64.4%

                      Innovative businesses and others


                      (3.3%)


                      (3.3%)


                      (5.2%)


                      (5.2%)


                      7.7%


                      (6.2%)


                      (6.2%)
















                      The accompanying notes are an integral part of this press release.











                      ?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 = RMB6.8755 on the last trading day of December 2018?(December 31, 2018) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.

                      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):


















                      Quarter Ended


                      Year Ended



                      December 31,


                      September 30,?


                      December 31,


                      December 31,


                      December 31,


                      December 31,


                      December 31,



                      2017


                      2018


                      2018


                      2018


                      2017


                      2018


                      2018



                      RMB


                      RMB


                      RMB


                      USD (Note 1)


                      RMB


                      RMB


                      USD (Note 1)

                      Share-based compensation cost included in:















                      Cost of revenue


                      248,433


                      198,269


                      207,158


                      30,130


                      820,281


                      764,972


                      111,261

                      Operating expenses















                      - Selling and marketing expenses


                      29,925


                      26,779


                      31,819


                      4,628


                      95,382


                      116,611


                      16,960

                      - General and administrative expenses


                      165,827


                      206,483


                      201,404


                      29,293


                      581,337


                      804,565


                      117,019

                      - Research and development expenses


                      149,116


                      231,500


                      221,899


                      32,274


                      507,263


                      843,502


                      122,682
















                      The accompanying notes are an integral part of this press release.











                      ?

                      ?

                      NETEASE, INC.

                      UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

                      (RMB and USD in thousands, except per share data)


















                      Quarter Ended


                      Year Ended



                      December 31,


                      September 30,?


                      ?December 31,?


                      ?December 31,?


                      December 31,


                      ?December 31,?


                      ?December 31,?



                      2017


                      2018


                      2018


                      2018


                      2017


                      2018


                      2018



                      RMB


                      RMB


                      RMB


                      USD (Note 1)


                      RMB


                      RMB


                      USD (Note 1)

                      Net income attributable to the Company's shareholders


                      1,285,613


                      1,596,293


                      1,697,699


                      246,919


                      10,707,939


                      6,152,407


                      894,831

                      Add: Share-based compensation


                      593,301


                      662,551


                      661,859


                      96,263


                      2,004,263


                      2,528,098


                      367,697

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


                      1,878,914


                      2,258,844


                      2,359,558


                      343,182


                      12,712,202


                      8,680,505


                      1,262,528
















                      Non-GAAP basic earnings per share


                      0.57


                      0.70


                      0.74


                      0.11


                      3.86


                      2.68


                      0.39

                      Non-GAAP basic earnings per ADS


                      14.30


                      17.59


                      18.44


                      2.68


                      96.59


                      67.08


                      9.76

                      Non-GAAP diluted earnings per share


                      0.57


                      0.70


                      0.73


                      0.11


                      3.83


                      2.67


                      0.39

                      Non-GAAP diluted earnings per ADS


                      14.19


                      17.50


                      18.32


                      2.66


                      95.86


                      66.68


                      9.70
















                      The accompanying notes are an integral part of this press release.













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