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NetEase.com Reports Fourth Quarter and Fiscal Year 2009 Unaudited Financial Results
Feb 24, 2010 (05:02 PM EST)


BEIJING, Feb. 24 /PRNewswire-Asia/ -- NetEase.com, Inc. (Nasdaq: NTES), one of China's leading Internet and online game services providers, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2009.

William Ding, Chief Executive Officer and Director of NetEase said, "NetEase concluded 2009 with strong fourth quarter results amid the gradual recovery from the global economic slowdown. We are very pleased with the performance of Tianxia II since its open beta testing launched last September. In December 2009, we launched a new expansion pack for Tianxia II called Flying Dragon, and players' response has been very positive as we continue to observe steady growth in new user registration for the game. In addition, we launched Ancient Runes, the ninth expansion pack for Fantasy Westward Journey in October 2009, and commercially launched Storm of Empires in December 2009. Storm of Empires is our second Web-based game, which players can easily access and play via the Web without downloading and installing any software. In Storm of Empires, each player can choose to play a king ruling one of the seven kingdoms during the Chinese Warring States period and battle the other six kingdoms through a series of game sequences. With the Chinese Spring Festival holidays having happened earlier this month, we have also been busy working on certain large-scale product-specific and Spring Festival-related promotional campaigns."

Mr. Ding continued, "We are committed to the continued success of World of Warcraft(R), a game licensed from Blizzard Entertainment, which is evidenced by the highly positive response from players since the game was re-launched in mainland China on September 19, 2009."

Mr. Ding continued, "Carrying on with the momentum of the third quarter, we achieved an outstanding sequential quarter-over-quarter increase in advertising revenue during the fourth quarter of 2009 as our strategy to restructure our portal business operations and our other new marketing strategies launched in the beginning of the year began to deliver positive results. Looking ahead, we remain cautiously optimistic about the course of our advertising business in 2010."

Mr. Ding concluded, "In 2010, we will continue to follow our pragmatic approach to executing our game plan in order to further enhance our market share in the MMORPG market in China. For our portal business, we look forward to having active coverage of major international events such as Expo 2010 in Shanghai, the 16th Asian Games in Guangzhou and the 2010 FIFA World Cup in South Africa, which will provide great opportunities to our advertisers to reach out to a diverse user base of NetEase services throughout 2010. With our relentless effort in expanding and diversifying our game portfolio and user base, as well as cross-pollination of our game business, email and blog services with the portal business, we look forward to seeing another great year for NetEase in 2010."

Fourth Quarter 2009 Financial Results

Revenues

Total revenues for the fourth quarter of 2009 were RMB1.3 billion (US$189.0 million), compared to RMB879.4 million and RMB801.7 million for the preceding quarter and the fourth quarter of 2008, respectively.

Revenues from online games were RMB1.1 billion (US$159.4 million) for the fourth quarter of 2009, compared to RMB775.1 million and RMB672.5 million for the preceding quarter and the fourth quarter of 2008, respectively.

Revenues from advertising services were RMB183.7 million (US$26.9 million) for the fourth quarter of 2009, compared to RMB86.0 million and RMB111.8 million for the preceding quarter and the fourth quarter of 2008, respectively.

Revenues from wireless value-added services and others ("WVAS and others") were RMB18.5 million (US$2.7 million) for the fourth quarter of 2009, compared to RMB18.3 million and RMB17.4 million for the preceding quarter and the fourth quarter of 2008, respectively.

Gross Profit

Gross profit for the fourth quarter of 2009 was RMB844.1 million (US$123.7 million), compared to RMB627.0 million and RMB639.0 million, for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter and year-over-year increases in gross profit were primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues, such as royalties and consultancy fees related to World of Warcraft operations and increased staff-related costs, resulting from increased headcount, in the current quarter. Increased game revenue was primarily driven by the reporting of a full quarter results of World of Warcraft operations in the fourth quarter of 2009 following its re-launch on September 19, 2009. Increased advertising revenue in the fourth quarter of 2009 primarily resulted from increased advertising service demand brought about by the continued momentum in the growth of consumer spending as well as success achieved through the restructuring of the Company's portal business operations and other new marketing strategies launched since the beginning of 2009 as explained above.

Gross Profit (Loss) Margin

Gross profit margin for the online game business for the fourth quarter of 2009 was 70.8%, compared to 79.9% and 88.0% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter and year-over-year decreases in gross profit margin were primarily due to the reporting of a full quarter operating results for World of Warcraft operations in the fourth quarter of 2009. Lower margin was reported for World of Warcraft operations primarily because of royalties, amortization of license fees and technical consultancy service fees associated with the licensing and operation of World of Warcraft.

Gross profit margin for the advertising business for the fourth quarter of 2009 was 58.4%, compared to 23.1% and 51.1% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter increase in gross profit margin was primarily due to a significant increase in advertising revenues as explained above, which was partially offset by increased staff-related costs and content cost reported for the fourth quarter of 2009. The year-over-year increase in gross profit margin was primarily driven by the higher advertising revenue in the fourth quarter of 2009.

Gross loss margin for the WVAS and others business for the fourth quarter of 2009 was 38.5%, compared to 45.0% and 24.9% for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter decrease in gross loss margin was mainly due to reduced depreciation charge in the fourth quarter of 2009 as servers associated with WVAS operations became fully depreciated. The year-over-year increase in gross loss margin was mainly due to increased bandwidth charges and server custody usage fees in the current quarter resulting from volume increases associated with the Company's free email and photo blog services and higher staff-related costs resulting from increased headcount, partially offset by reduced depreciation charge in the fourth quarter of 2009 as assets became fully depreciated.

Operating Expenses

Total operating expenses for the fourth quarter of 2009 were RMB237.0 million (US$34.7 million), compared to RMB218.9 million and RMB168.5 million for the preceding quarter and the fourth quarter of 2008, respectively. The quarter-over-quarter increase in operating expense was primarily due to increased selling and marketing expenses. The increase in selling and marketing expenses was primarily due to increased staff-related costs, resulting from increased headcount and performance-related bonus accruals as well as brand building marketing costs during the fourth quarter of 2009. The year-over-year increase in operating expenses was primarily due to increased staff-related costs, resulting from increases in headcount and performance-related bonus accruals across the Company's selling and marketing, general and administrative, and research and development areas in the fourth quarter of 2009.

Net Profit

Net profit for the fourth quarter of 2009 totaled RMB571.8 million (US$83.8 million), compared to RMB393.8 million and RMB575.9 million for the preceding quarter and the fourth quarter of 2008, respectively. During the fourth quarter of 2009, the Company reported a net foreign exchange loss of RMB15.3 million (US$2.2 million) under Other, net, compared to a net foreign exchange gain of RMB25.3 million for the preceding quarter, and a net foreign exchange loss of RMB22.0 million for the fourth quarter of 2008. The quarter-over-quarter and year-over-year changes in foreign exchange gains/losses were mainly due to the translation gains/losses arising from the Company's Euro-denominated bank deposit balances as of December 31, 2009 as the exchange rate of the Euro against the RMB fluctuated over the periods. NetEase reported basic and diluted earnings per American depositary share ("ADS") of US$0.65 and US$0.64, respectively, for the fourth quarter of 2009. The Company reported basic and diluted earnings per ADS of US$0.45 and US$0.44 and US$0.66 and US$0.65 for the preceding quarter and the fourth quarter of 2008, respectively.

Income Taxes

The Company recorded a net income tax charge of RMB71.2 million (US$10.4 million) and RMB65.5 million for the current quarter and the preceding quarter, respectively, compared with a net income tax benefit of RMB79.9 million for the fourth quarter of 2008. The effective tax rate for the fourth quarter of 2009 was 11.3% as compared to 14.3% for the preceding quarter and a net tax benefit rate of 16.1% for the fourth quarter of 2008. During the fourth quarter of 2009, certain subsidiaries of the Company became subject to preferred tax rates as they qualified for "key software enterprise" or "high and new technology enterprise" (HNTE) status at 10% and 15%, respectively for fiscal year 2009. The year-over-year change in effective tax rate was primarily due to the reversal recorded in December 2008 for the excess tax charge related to the first three quarters of 2008 as the Company's various subsidiaries did not receive approval for the preferred tax status of HNTEs until December 2008.

Fiscal Year 2009 Financial Results

Revenues

Total revenues for fiscal year 2009 were RMB3.8 billion (US$560.1 million), compared to RMB3.0 billion for the preceding fiscal year. Revenues from online games were RMB3.4 billion (US$493.5 million) for fiscal year 2009, compared to RMB2.5 billion for the preceding fiscal year. Revenues from advertising services were RMB383.6 million (US$56.2 million) for fiscal year 2009, compared to RMB405.9 million for the preceding fiscal year. Revenues from WVAS and others were RMB71.2 million (US$10.4 million) for fiscal year 2009, compared to RMB71.7 million for the preceding fiscal year.

Gross Profit

Gross profit for fiscal year 2009 was RMB2.8 billion (US$410.9 million), compared to RMB2.5 billion for the preceding fiscal year. The increased gross profit for fiscal year 2009 was primarily due to increased online game revenue contributed from the Company's self-developed flagship games such as Fantasy Westward Journey and Westward Journey Online II, as well as the re-launch of World of Warcraft on September 19, 2009. Furthermore, the Company also recognized approximately RMB101.6 million (US$14.9 million) of revenue from dormant accounts of online games for fiscal year 2009, resulting from a change in its user agreement with online game players in May 2009 as previously reported. The increase in revenue was partially offset by increased cost of revenues, resulting mainly from increased staff related costs due to headcount increase and royalties, amortization of license fees and technical consultancy service fees associated with the operations of World of Warcraft. In addition, in June 2008 the Company recorded a one-time business tax refund of RMB133.9 million for online games.

Operating Expenses

Total operating expenses for fiscal year 2009 were RMB781.3 million (US$114.5 million), compared to RMB610.4 million for the preceding fiscal year. The increase in operating expenses was primarily due to increased staff-related costs, resulting from increases in headcount and performance-related bonus accruals across the Company's selling and marketing, general and administrative, and research and development areas in 2009. In addition, increased selling and marketing costs were also incurred for brand building and market promotion activities for certain self-developed games and the re-launch of World of Warcraft in 2009.

Net Profit

Net profit for fiscal year 2009 totaled RMB1.9 billion (US$271.1 million), compared to RMB1.6 billion for the preceding fiscal year. For fiscal year 2009, the Company reported a net foreign exchange gain of RMB9.6 million (US$1.4 million) under Other, net, compared to a net foreign exchange loss of RMB167.1 million for the preceding fiscal year. The change to a net foreign exchange gain for 2009 as compared to 2008 was mainly due to the translation gains arising from the Company's Euro-denominated bank deposit balances as of December 31, 2009 as the exchange rate of the Euro against the RMB fluctuated over the periods. NetEase reported basic and diluted earnings per ADS of US$2.11 and US$2.09 for fiscal year 2009, respectively. The Company reported basic and diluted earnings per ADS of US$1.88 and US$1.81 for the preceding fiscal year, respectively.

Income Taxes

The Company recorded a net income tax charge of RMB313.9 million (US$46.0 million) and RMB300.7 million at an effective tax rate of 14.6% and 15.8% for fiscal years 2009 and 2008, respectively. The relatively higher effective tax rate for fiscal year 2008 was primarily due to the remeasurement of deferred tax assets previously recorded at the new statutory tax rate of 25% effective January 1, 2008 to the 15% tax rate applicable to HNTEs as certain subsidiaries of the Company in China were granted the HNTEs status (as explained above) for fiscal year 2008 in December 2008.

Other Information

As of December 31, 2009, the Company's total cash and time deposit balance was RMB7.0 billion (US$1.0 billion), compared to RMB5.6 billion, as of December 31, 2008. Cash flow generated from operating activities was RMB712.4 million (US$104.4 million) for the fourth quarter of 2009, compared to RMB270.0 million and RMB514.0 million for the preceding quarter and the fourth quarter of 2008, respectively.

** 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$1.00 = RMB6.8259 on December 31, 2009 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2009, or at any other certain date. The percentages stated are calculated based on RMB.

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, 2009 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 2009.

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

The earnings announcement will take place at 8:00 p.m. Eastern Time on Wednesday, February 24, 2010 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, February 25, 2009). Chief Executive Officer William Ding and Acting Chief Financial Officer Onward Choi will be on the call to discuss the quarterly and full year results and answer questions.

Interested parties may participate in the conference call by dialing 877-941-2069 (international: 480-629-9713), 10-15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 800-406-7325 (international 303-590-3030), and entering passcode 4216104. The replay will be available through March 11, 2010.

This call is being webcast live and archived, and will be available for 12 months on NetEase's corporate web site at http://corp.netease.com , Investor Info: Earnings Call.

About NetEase

NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. NetEase's online communities and personalized premium services have established a large and stable user base for the NetEase websites which are operated by its affiliates. In particular, NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang, as well as the licensed game, Blizzard Entertainment's World of Warcraft.

NetEase also offers online advertising on its websites which enables advertisers to reach its substantial user base. In addition, NetEase has paid listings on its search engine and web directory and classified advertising services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. NetEase also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the Web which are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.

Other community services which the NetEase websites offer include instant messaging, online personal advertisements, matchmaking, alumni clubs and community forums. NetEase is also the largest provider of free email services in China. Furthermore, the NetEase websites provide various channels of content. NetEase aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content such as cartoons, games, astrology and jokes, from over one hundred international and Chinese content providers.

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 NetEase will not be successful in its product diversification efforts, including its focus on item- and fee-based games and entry into strategic licensing arrangements; 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 effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that Shanghai EaseNet will not be able to continue operating World of Warcraft or other games licensed by it for a period of time or permanently due to the position of GAPP or other governmental actions; the risk that Shanghai EaseNet or NetEase will be subject to penalties or operating restrictions imposed by governmental authorities in the PRC resulting from the operations of their online games, including suspension of their Internet service or other penalties; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase's revenue or cause revenue to decline; uncertainty regarding the effectiveness of marketing programs for NetEase's online advertising business in China; the risk that NetEase may not be able to continuously develop new and creative online services; 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 and general competition and price pressures in the marketplace); 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.

    For more information, please contact:

    Contact for Media and Investors:
     Brandi Piacente
     Investor Relations
     Tel:   +1-212-481-2050
     Email: brandi@corp.netease.com

     Li Jia
     NetEase.com, Inc.
     Tel:   +86-10-8255-8208
     Email: liddyli@corp.netease.com



    NETEASE.COM, INC.
    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                      December 31,  December 31,  December 31,
                                         2008          2009         2009
                                          RMB           RMB      USD (Note 1)
    Assets
    Current assets:
       Cash                           793,407,922 1,041,290,312    152,549,893
       Time deposits                4,820,000,100 5,975,378,114    875,397,840
       Restricted cash                         --   123,863,334     18,146,081
       Accounts receivable, net       231,030,576   187,339,985     27,445,463
       Prepayments and other
        current assets                104,092,051   568,125,100     83,230,796
       Deferred tax assets             25,248,842    76,564,853     11,216,814
    Total current assets            5,973,779,491 7,972,561,698  1,167,986,887

    Non-current assets:
       Property, equipment and
        software, net                 258,787,534   557,755,641    81,711,663
       Land use right, net             12,563,485    12,304,888     1,802,676
       License right, net              27,463,600   212,847,221    31,182,294
       Deferred tax assets             12,444,636     4,188,376       613,601
       Other long-term assets          60,854,557    43,811,015     6,418,350
    Total non-current assets          372,113,812   830,907,141   121,728,584

    Total assets                    6,345,893,303 8,803,468,839 1,289,715,471

    Liabilities and Shareholders' Equity

    Current liabilities:
       Accounts payable               119,829,878   238,434,710    34,930,882
       Salary and welfare
        payables                       94,922,963   129,493,530    18,970,909
       Taxes payable                  104,754,356   213,727,123    31,311,200
       Deferred revenue               447,725,795   583,469,528    85,478,769
       Accrued liabilities and
        other payables                 61,815,070   212,800,237    31,175,411
    Total current liabilities         829,048,062 1,377,925,128   201,867,171

    Long-term payable:
      Other long-term payable             200,000       200,000        29,300
    Total long-term payable               200,000       200,000        29,300

    Total liabilities                 829,248,062 1,378,125,128   201,896,471

    Shareholders' equity            5,516,645,241 7,425,343,711 1,087,819,000

    Total liabilities and
     shareholders' equity           6,345,893,303 8,803,468,839 1,289,715,471

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



    NETEASE.COM, INC.
    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Quarter Ended
                     December 31,  September 30,  December 31,    December 31,
                        2008            2009          2009           2009
                         RMB             RMB           RMB        USD (Note 1)
    Revenues:
    Online game
     services         672,491,424    775,141,663  1,088,040,623   159,398,852
    Advertising
     services         111,800,172     86,049,485    183,679,014    26,909,128
    Wireless
     value-added
     services
     and others        17,424,193     18,257,187     18,479,826     2,707,310
    Total
     revenues         801,715,789    879,448,335  1,290,199,463   189,015,290
    Business
     taxes            (10,509,954)   (11,421,825)   (40,290,883)   (5,902,647)

    Total net
     revenues         791,205,835    868,026,510  1,249,908,580   183,112,643

    Total cost
     of revenues     (152,249,013)  (241,003,866)  (405,786,869)  (59,448,112)


    Gross profit      638,956,822    627,022,644    844,121,711   123,664,531

    Operating
     expenses:
    Selling and
     marketing
     expenses         (67,395,203)  (102,694,671)  (119,779,629)  (17,547,816)
    General and
     administrative
     expenses         (45,760,016)   (53,406,612)   (54,159,703)   (7,934,441)
    Research and
     development
     expenses         (55,308,137)   (62,783,771)   (63,054,014)   (9,237,465)
    Total operating
     expenses        (168,463,356)  (218,885,054)  (236,993,346)  (34,719,722)

    Operating
     profit           470,493,466    408,137,590    607,128,365    88,944,809
    Other income
     (expenses):
    Investment
     income                90,615         82,497         83,341        12,210
    Interest
     income            42,787,380     29,775,123     29,746,136     4,357,834
    Other, net        (17,387,729)    21,344,811     (7,571,161)   (1,109,181)

    Net income
     before tax       495,983,732    459,340,021    629,386,681    92,205,672
    Income tax         79,850,979    (65,544,656)   (71,194,080)  (10,429,992)

    Net income
     after tax        575,834,711    393,795,365    558,192,601    81,775,680
    Add: Net loss
     attributable to
     noncontrolling
     interests             19,020         34,189     13,574,180     1,988,629
    Net income
     attributable to
     the Company's
     shareholders     575,853,731    393,829,554    571,766,781    83,764,309

    Earnings per
     share, basic            0.18           0.12           0.18          0.03
    Earnings per
     ADS, basic              4.49           3.04           4.42          0.65
    Earnings per
     share, diluted          0.18           0.12           0.18          0.03
    Earnings per
     ADS, diluted            4.46           3.02           4.39          0.64
    Weighted average
     number of
     ordinary shares
     outstanding,
     basic          3,209,693,009  3,236,059,232  3,237,487,643 3,237,487,643
    Weighted
     average
     number of ADS
     outstanding,
     basic            128,387,720    129,442,369    129,499,506   129,499,506
    Weighted
     average
     number of
     ordinary
     shares
     outstanding,
     diluted        3,227,031,848  3,260,784,175  3,259,643,745 3,259,643,745
    Weighted
     average
     number of ADS
     outstanding,
     diluted          129,081,274    130,431,367    130,385,750   130,385,750



                                                Year Ended
                               December 31,     December 31,     December 31,
                                  2008             2009              2009
                                   RMB              RMB         USD (Note 1)
    Revenues:
    Online game services     2,498,518,103    3,368,688,576     493,515,665

    Advertising services       405,887,007      383,560,557      56,191,939

    Wireless value-added
     services and others        71,718,938       71,201,485      10,431,076

    Total revenues           2,976,124,048    3,823,450,618     560,138,680
    Business taxes             108,460,101      (66,503,485)     (9,742,816)

    Total net revenues       3,084,584,149    3,756,947,133     550,395,864

    Total cost of revenues    (559,605,362)    (952,229,078)   (139,502,348)

    Gross profit             2,524,978,787    2,804,718,055     410,893,516

    Operating expenses:
    Selling and marketing
     expenses                 (221,551,138)    (338,308,601)    (49,562,490)
    General and
     administrative
     expenses                 (181,841,322)    (212,533,368)    (31,136,314)
    Research and
     development
     expenses                 (207,023,649)    (230,439,880)    (33,759,633)
    Total operating
     expenses                 (610,416,109)    (781,281,849)   (114,458,437)


    Operating profit         1,914,562,678    2,023,436,206     296,435,079

    Other income
     (expenses):
    Investment income            1,517,890          353,554          51,796
    Interest income            144,805,368      128,168,329      18,776,766

    Other, net                (163,549,591)      (1,318,046)       (193,095)


    Net income before tax    1,897,336,345    2,150,640,043     315,070,546

    Income tax                (300,673,321)    (313,861,139)    (45,980,917)


    Net income after tax     1,596,663,024    1,836,778,904     269,089,629

    Add: Net loss
     attributable to
     noncontrolling
     interests                      24,883       13,657,100       2,000,776
    Net income
     attributable to the
     Company's
     shareholders            1,596,687,907    1,850,436,004     271,090,405

    Earnings per
     share, basic                     0.51             0.58            0.08
    Earnings per ADS, basic          12.81            14.38            2.11
    Earnings per
     share, diluted                   0.49             0.57            0.08
    Earnings per ADS,
     diluted                         12.34            14.28            2.09
    Weighted average
     number of ordinary
     shares outstanding,
     basic                   3,117,117,306    3,216,437,747   3,216,437,747
    Weighted average
     number of ADS
     outstanding, basic        124,684,692      128,657,510     128,657,510
    Weighted average
     number of ordinary
     shares outstanding,
     diluted                 3,234,214,324    3,240,170,656   3,240,170,656
    Weighted average
     number of ADS
     outstanding, diluted      129,368,573      129,606,826     129,606,826

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



    NETEASE.COM, INC.
    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               Quarter Ended
                      December 31,  September 30,   December 31,  December 31,
                         2008           2009           2009          2009
                          RMB            RMB            RMB       USD (Note 1)
    Cash flows from
     operating
     activities:
      Net income      575,834,711    393,795,365    558,192,601    81,775,680
      Adjustments to
       reconcile net
       profit to net
       cash provided
       by operating
       activities:
      Depreciation and
       amortization    21,214,759     42,479,635     58,656,520     8,593,229
      Share-based
       Compensation
        cost           11,712,364      6,008,286      5,774,089       845,909
      Allowance for
       provision for
       doubtful debts   1,768,291      4,148,839      1,507,691       220,878
      (Gain)/loss on
       disposal of
       property,
       equipment
       and software      (192,511)       446,393        666,897        97,701
      Unrealized
       exchange
       (gains)/losses  21,131,801    (25,338,559)    13,304,810     1,949,166
      Net equity share
       of loss (gain)
       from associated
       companies         (113,653)     1,285,489       (167,757)      (24,577)
      Others               (9,014)        13,371             --            --
      Changes in
       operating
       assets and
       liabilities:
        Accounts
         receivable   (14,699,446)    12,044,441    (71,358,155)  (10,454,029)
        Prepayments
         and other
         current
         assets       (37,373,232)  (248,662,365)  (116,969,002)  (17,136,058)
        Deferred tax
         assets         4,597,642    (12,249,742)   (23,037,892)   (3,375,070)
        Deferred tax
         assets
         - non-current  6,364,324      1,512,981      6,339,682       928,769
        Accounts
         payable      (39,605,453)  (117,137,897)    65,450,761     9,588,591
        Salary and
         welfare
         payables      41,161,456    (15,600,191)    65,650,799     9,617,896
        Taxes payable (73,972,379)    (8,467,595)    51,631,111     7,564,000
        Deferred
         revenue        3,858,634    141,140,067     16,958,728     2,484,468
        Accrued
         liabilities
         and other
         payables      (7,672,623)    94,546,582     79,764,980    11,685,636
          Net cash
           provided by
           operating
           activities 514,005,671    269,965,100    712,365,863   104,362,189

    Cash flows from
     investing
     activities:
      Purchase of
       property,
       equipment and
       software       (47,987,508)   (91,139,494)   (54,090,682)   (7,924,330)
      Proceeds from
       sale of
       property,
       equipment and
       software            11,603         89,019         10,068         1,475
      Prepayment for
       land use right          --             --             --            --
      Incentive
       received on land
       use right               --             --             --            --
      Prepayment for
       license right           --             --             --            --
      Purchase of
       license right           --             --             --            --
      Prepayment for
       royalties      (13,687,749)            --             --            --
      Investment in
       associated
       companies       (2,559,525)    (4,207,050)            --            --
      Transfer to
       restricted cash         --             --    (41,863,334)   (6,133,013)
      Net change in
       time deposits
       with terms
       of three
       months         974,552,227    (95,918,953)   (39,621,702)   (5,804,612)
      Placement/
       rollover of
       matured
       time
       deposits    (1,817,119,582)(1,511,411,788)(2,646,827,584) (387,762,432)
      Uplift of
       matured
       time
       deposits       290,674,696  1,494,799,368  1,752,281,101   256,710,632
      Net change in
       other assets    (5,682,050)      (824,101)        50,191         7,353
         Net cash
          used in
          investing
          activities (621,797,888)  (208,612,999)(1,030,061,942) (150,904,927)


    Cash flows from
     financing
     activities:
      Capital
       contribution
       from non-
       controlling
       interests           23,641          2,602         15,619         2,288
      Proceeds from
       employees
       exercising
       stock
       options          1,426,708            944      2,964,845       434,352
      Repurchase of
       company shares (88,868,640)            --             --            --
      Decrease in
       other long-
       term payable            --             --             --            --
        Net cash
         provided
         by (used in)
         financing
         activities   (87,418,291)         3,546      2,980,464       436,640

      Effect of
       exchange
       rate changes
       on cash held
       in foreign
       currencies       3,579,775     12,850,834       (299,494)      (43,876)
        Net increase
         (decrease)
         in cash     (191,630,733)    74,206,481   (315,015,109)  (46,149,974)
    Cash, beginning
     of the period    985,038,655  1,282,098,940  1,356,305,421   198,699,867
    Cash, end of
     the period       793,407,922  1,356,305,421  1,041,290,312   152,549,893

    Supplemental
     disclosures of
     cash flow
     information:
      Cash paid for
       income tax,
       net of tax
       refund          16,023,949     54,590,335     80,044,424    11,726,574
    Supplemental
     schedule
     of non-cash
     investing and
     financing
     activities:
      Treasury stock
       cancellation    89,293,078             --             --            --
      Fixed asset
       purchases
       financed by
       accounts
       payable         37,302,324     36,812,035     47,427,382     6,948,151
      Conversion of
       convertible
       notes to
       ordinary
       shares                  --             --             --            --


                                                  Year Ended
                                 December 31,    December 31,    December 31,
                                    2008            2009            2009
                                     RMB             RMB          USD (Note 1)
    Cash flows from operating
     activities:
      Net income               1,596,663,024   1,836,778,904     269,089,629
      Adjustments to reconcile
       net profit to net cash
       provided by operating
       activities:
      Depreciation and
       amortization               90,962,041     143,579,975      21,034,585
      Share-based compensation
       cost                       67,948,661      31,384,695       4,597,884
      Allowance for provision for
       doubtful debts              8,604,654      15,981,202       2,341,259
      (Gain)/loss on disposal
       of property, equipment
       and software                  316,916       3,988,530         584,323
      Unrealized exchange
       (gains)/losses            166,712,075     (11,687,105)     (1,712,171)
      Net equity share of loss
       (gain) from associated
       companies                   2,028,154       4,103,657         601,189
      Others                         (16,306)         13,346           1,955
      Changes in operating assets
       and liabilities:
        Accounts receivable      (72,907,716)     27,709,389       4,059,448
        Prepayments and other
         current assets          (52,387,634)   (453,046,685)    (66,371,713)
        Deferred tax assets       40,538,271     (51,316,011)     (7,517,838)
        Deferred tax assets -
         non-current               6,615,589       8,256,260       1,209,549
        Accounts payable          32,756,625     119,614,930      17,523,686
        Salary and welfare
         payables                 26,269,221      34,570,567       5,064,617
        Taxes payable             12,315,686     108,972,767      15,964,601
        Deferred revenue          92,759,098     135,743,733      19,886,569
        Accrued liabilities
         and other payables       (1,379,171)    139,846,825      20,487,676
          Net cash provided
           by operating
           activities          2,017,799,188   2,094,494,979     306,845,248

    Cash flows from investing
     activities:
      Purchase of property,
       equipment and
       software                 (133,329,185)   (407,727,191)    (59,732,371)
      Proceeds from sale of
       property, equipment
       and software                  280,714         120,215          17,612
      Prepayment for land
       use right                    (822,182)             --              --
      Incentive received on
       land use right             15,000,000              --              --
      Prepayment for
       license right             (27,463,600)
      Purchase of license
       right                              --    (204,819,000)    (30,006,153)
      Prepayment for
       royalties                 (13,687,749)             --              --
      Investment in
       associated companies      (33,559,525)     (4,207,050)       (616,336)
      Transfer to
       restricted cash                    --    (123,863,334)    (18,146,081)
      Net change in time
       deposits with terms
       of three months          (520,970,208)  1,105,918,036     162,017,908
      Placement/rollover of
       matured time
       deposits               (3,732,114,167) (6,406,601,065)   (938,572,359)
      Uplift of matured
       time deposits           1,042,752,487   4,136,425,777     605,989,800
      Net change in other
       assets                     (5,344,734)     (2,829,937)       (414,588)
        Net cash used
         in investing
         activities           (3,409,258,149) (1,907,583,549)   (279,462,568)

    Cash flows from financing
     activities:
      Capital contribution
       from non-controlling
       interests                      26,351          18,861           2,763
      Proceeds from employees
       exercising stock
       options                    18,407,235      40,513,481       5,935,259
      Repurchase of company
       shares                   (165,726,730)             --              --
      Decrease in other
       long-term payable         (10,000,000)             --              --
        Net cash provided by
         (used in) financing
         activities             (157,293,144)     40,532,342       5,938,022

      Effect of exchange rate
       changes on cash held in
       foreign currencies       (140,660,794)     20,438,618       2,994,274
        Net increase
        (decrease) in
         cash                 (1,689,412,899)    247,882,390      36,314,976
    Cash, beginning of the
     period                    2,482,820,821     793,407,922     116,234,917
    Cash, end of the period      793,407,922   1,041,290,312     152,549,893

    Supplemental disclosures of
     cash flow information:
      Cash paid for
       income tax, net
       of tax refund             250,080,776     294,273,083      43,111,250
    Supplemental schedule of
     non-cash investing and
        financing activities:
      Treasury stock
       cancellation              165,726,730              --              --
      Fixed asset
       purchases financed
       by accounts
       payable                    37,302,324      47,427,382       6,948,151
      Conversion of
       convertible notes
       to ordinary shares        602,041,878              --              --

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



    NETEASE.COM, INC.
    UNAUDITED SEGMENT INFORMATION

                                         Quarter Ended
                      December 31, September 30,   December 31,   December 31,
                          2008          2009          2009           2009
                           RMB           RMB           RMB       USD (Note 1)
    Revenues:
    Online game
     services         672,491,424   775,141,663 1,088,040,623    159,398,852
    Advertising
     services         111,800,172    86,049,485   183,679,014     26,909,128
    Wireless
     value-added
     services and
     others            17,424,193    18,257,187    18,479,826      2,707,310
    Total revenues    801,715,789   879,448,335 1,290,199,463    189,015,290

    Business taxes:
    Online game
     services            (892,846)   (3,287,201)  (22,466,299)    (3,291,331)
    Advertising
     services          (9,502,935)   (7,886,109)  (17,573,989)    (2,574,604)
    Wireless
     value-added
     services and
     others              (114,173)     (248,515)     (250,595)       (36,712)
    Total business
     taxes            (10,509,954)  (11,421,825)  (40,290,883)    (5,902,647)

    Net revenues:
    Online game
     services         671,598,578   771,854,462 1,065,574,324    156,107,521
    Advertising
     services         102,297,237    78,163,376   166,105,025     24,334,524
    Wireless
     value-added
     services and
     others            17,310,020    18,008,672    18,229,231      2,670,598
    Total net
     revenues         791,205,835   868,026,510 1,249,908,580    183,112,643

    Cost of
     revenues:
    Online game
     services         (80,640,289) (154,810,194) (311,402,332)   (45,620,700)
    Advertising
     services         (49,984,535)  (60,088,698)  (69,143,032)   (10,129,511)
    Wireless
     value-added
     services and
     others           (21,624,189)  (26,104,974)  (25,241,505)    (3,697,901)
    Total cost of
     revenues        (152,249,013) (241,003,866) (405,786,869)   (59,448,112)

    Gross profit
     (loss):
    Online game
     services         590,958,289   617,044,268   754,171,992    110,486,821
    Advertising
     services          52,312,702    18,074,678    96,961,993     14,205,013
    Wireless
     value-added
     services and
     others            (4,314,169)   (8,096,302)   (7,012,274)    (1,027,303)
    Total gross
     profit           638,956,822   627,022,644   844,121,711    123,664,531

    Gross profit
     (loss) margin:
    Online game
     services               88.0%         79.9%         70.8%          70.8%
    Advertising
     services               51.1%         23.1%         58.4%          58.4%
    Wireless
     value-added
     services and
     others                (24.9%)       (45.0%)       (38.5%)        (38.5%)


                                                 Year Ended
                                 December 31,    December 31,  December 31,
                                     2008           2009           2009
                                      RMB            RMB       USD (Note 1)
    Revenues:
    Online game services        2,498,518,103  3,368,688,576   493,515,665
    Advertising services          405,887,007    383,560,557    56,191,939
    Wireless value-added
     services and others           71,718,938     71,201,485    10,431,076
    Total revenues              2,976,124,048  3,823,450,618   560,138,680

    Business taxes:
    Online game services          130,666,281    (28,758,137)   (4,213,092)
    Advertising services          (34,500,316)   (36,875,590)   (5,402,304)
    Wireless value-added
     services and others           12,294,136       (869,758)     (127,420)
    Total business taxes          108,460,101    (66,503,485)   (9,742,816)

    Net revenues:
    Online game services
                                2,629,184,384  3,339,930,439   489,302,573
    Advertising services          371,386,691    346,684,967    50,789,635
    Wireless value-added
     services and others           84,013,074     70,331,727    10,303,656
    Total net revenues          3,084,584,149  3,756,947,133   550,395,864

    Cost of revenues:
    Online game services         (268,574,306)  (629,918,759)  (92,283,619)
    Advertising services         (208,907,875)  (225,626,677)  (33,054,495)
    Wireless value-added
     services and others          (82,123,181)   (96,683,642)  (14,164,234)
    Total cost of revenues       (559,605,362)  (952,229,078) (139,502,348)

    Gross profit (loss):
    Online game services
                                2,360,610,078  2,710,011,680   397,018,954
    Advertising services          162,478,816    121,058,290    17,735,140
    Wireless value-added
     services and others            1,889,893    (26,351,915)   (3,860,578)

    Total gross profit          2,524,978,787  2,804,718,055   410,893,516

    Gross profit (loss)
     margin:
    Online game services                89.8%          81.1%         81.1%
    Advertising services                43.7%          34.9%         34.9%
    Wireless value-added
     services and others                 2.2%         (37.5%)       (37.5%)

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



    NETEASE.COM, 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 = RMB6.8259 on
             December 31, 2009 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 operations is set out as
             follows:


                                           Quarter Ended
                        December 31, September 30, December 31,  December 31,
                            2008         2009        2009            2009
                             RMB          RMB         RMB         USD (Note 1)
    Share-based
     compensation
     cost included in:
    Cost of revenue       3,294,120    1,852,934    1,811,066        265,323
    Operating expenses
     - Selling and
       marketing
       expenses           1,328,916      350,137      341,660         50,053
     - General and
       administrative
       expenses           3,464,280    1,640,203    1,607,124        235,445
    - Research and
      development
      expenses            3,625,048    2,165,012    2,014,239        295,088


                                                Year Ended
                             December 31,       December 31,     December 31,
                                2008              2009               2009
                                 RMB               RMB           USD (Note 1)
    Share-based
     compensation cost
     included in:
    Cost of revenue           13,678,836         9,020,785         1,321,552
    Operating expenses
    - Selling and marketing
      expenses                 8,564,177         2,323,006           340,323
    - General and
      administrative
      expenses                23,586,590         9,861,181         1,444,671
    - Research and
      development
      expenses                22,119,058        10,179,723         1,491,338

SOURCE NetEase.com, Inc.