NetEase.com Reports Record Fourth Quarter and fiscal year 2002 Financial
Results
BEIJING--(BUSINESS
WIRE)--Feb. 25, 2003--NetEase.com, Inc. (Nasdaq:NTES - News)
Highlights for the Fourth
Quarter 2002
Highlights for fiscal year 2002
NetEase.com, Inc. (Nasdaq: NTES - News), a leading Internet
technology provider in China, today announced financial results for its fourth
quarter and fiscal year ended December 31, 2002.
For the fourth quarter ended December 31, 2002, the Company
reported total revenues of RMB95.7 million (US$11.6 million), a 28.7% increase
over total revenues of RMB74.4 million (US$9.0 million) for the preceding
quarter and an increase of RMB85.1 million (US$10.3 million) over total
revenues of RMB10.6 million (US$1.3 million) for the corresponding period in
2001. The Company reported net profit of RMB43.1 million (US$5.2 million), or
US$0.17 per American Depositary Share (basic), compared to the previous
quarter's net loss of RMB9.0 million (US$1.1 million). The same quarter in the
previous year had a net loss of RMB41.3 million (US$5.0 million).
For the year ended December 31, 2002, the Company reported
total revenues of RMB232.6 million (US$28.1 million), a substantial increase of
721.8% over total revenues of RMB28.3 million (US$3.4 million) for the fiscal
year 2001. For the fiscal year 2002, NetEase reported a gross profit and
operating profit of RMB149.3 million (US$18.0 million) and RMB4.0 million
(US$0.5 million), respectively, representing a turnaround from a loss on
revenues of RMB34.0 million (US$4.1 million) and operating loss of RMB231.9
million (US$28.0 million) for the fiscal year 2001. The Company reported net
profit of RMB16.3 million (US$2.0 million), or US$0.06 per American Depositary
Share (basic), compared to the previous year's net loss of RMB233.2 million
(US$28.2 million).
For the fourth quarter ended December 31, 2002, advertising
revenues continued to grow steadily, increasing to RMB12.5 million (US$1.5
million), representing a 27.4% increase over RMB9.8 million (US$1.2 million)
for the third quarter and a 305.8% increase over RMB3.1 million (US$0.4
million) for the corresponding period a year ago. Revenues from e-commerce and
other services for the quarter were RMB83.1 million (US$10.0 million),
representing a 29.8% increase over the preceding quarter's RMB64.0 million
(US$7.7 million) and an increase of RMB75.6 million (US$9.1 million) over
RMB7.5 million (US$0.9 million) for the corresponding period a year ago. This
increase in revenues from e-commerce and other services was primarily
attributable to continued growth in the Company's fee-based services. The main
driver was online games, but also included wireless short messaging services
(SMS), and, to a lesser-extent, other fee-based online premium services, such
as premium e-mail, friend finding and dating services. The user base of
"Westward Journey Online version 2.0" grew steadily since it was
launched in August 2002.
The Company achieved gross profit in the fourth quarter of
RMB69.6 million (US$8.4 million), increasing 38.5% over the previous quarter's
RMB50.3 million (US$6.1 million). The corresponding quarter last year had a
loss on revenues of RMB4.3 million (US$0.5 million). Strong revenue growth also
favorably impacted gross margins, which increased from 67.6% in the preceding
quarter to 72.7% in the fourth quarter.
While the Company has had a long-term focus on controlling
expenses in the past year, total operating expenses increased to RMB30.7
million (US$3.7 million) for the quarter as a result of NetEase's recent rapid
business expansion, a 22.7% increase from the previous quarter's RMB25.0
million (US$3.0 million) before a one-time charge which is in connection with
the class action litigation discussed below, but a 15.1% decrease from the
corresponding period a year ago of RMB36.1 million (US$4.4 million). NetEase
reported an operating profit of RMB39.0 million (US$4.7 million) for the
quarter, representing a significant improvement over the previous quarter's
operating loss of RMB10.7 million (US$1.3 million) and the previous year's fourth
quarter operating loss of RMB40.5 million (US$4.9 million).
As of December 31, 2002, the Company's total net cash
balance was RMB561.3 million (US$67.8 million), a 7.4% increase from the
previous quarter's RMB522.7 million (US$63.1 million).
Commenting on the Company's earnings, Ted Sun, Acting Chief
Executive Officer and Director said, "Our 2002 results demonstrate
NetEase's turnaround and the success of our strategy to build on our strengths
while developing new products and services that take full advantage of the
potential in China's fast growing market. I am particularly proud of our team's
ability to leverage new, diversified revenue sources, through, for example,
highly successful games and online community services, while at the same time finding
ways to grow and develop advertising revenue."
"2002 demonstrated that NetEase has its fundamentals
established and we believe is well poised for future growth. Our strategy of
focusing on China's young Internet users not only differentiates us from our
peers, but also positions us extremely well going forward. According to a
report issued in January 2003 by China's Internet Network Information Center,
for example, more than a third of all Internet users are between the ages of 18
to 24, and more than 70 percent of all Internet users in China are 30 years old
or younger. With many industry experts expecting China to soon become the
world's largest Internet and information economy, we believe this places
NetEase extremely well." Mr. Sun concluded, "The combination of our
strong and proven strategy, our able employee base and professional management
team is a strong foundation on which to build future continued success."
Denny Lee, NetEase's Chief Financial Officer said,
"2002 was indeed a remarkable year for NetEase. Our strong financial
results for this past quarter and year are a major accomplishment for the
Company, but especially when compared to our results just one year ago. Our
achievement of both a net and operating profit are also important financial
milestones. It is our goal to ensure that these results continue in the future
and that we build on these successes to create ongoing shareholder value."
Users of the NetEase Web sites continued to grow, with 95.7
million registered accounts at the end of the fourth quarter, an increase of
18.6% over the 80.7 million accounts at the end of the previous quarter and a
121.5% increase over the 43.2 million accounts at the same time a year ago.
The Company also announced today that the plaintiffs in the
class action litigation filed in the U.S. District Court for the Southern
District of New York have completed their confirmatory discovery in connection
with the conditional settlement of that litigation which we announced on
November 6, 2002 and the parties have submitted the settlement to the District
Court for preliminary approval. If the court grants preliminary approval, then
notice will be sent to the class and the court will hold a hearing before it
gives final approval to the settlement. The litigation was initiated in October
2001 against the Company, certain members of its current and former officers
and directors, and the underwriters of the Company's initial public offering,
and claimed that the Company and the other defendants had violated various U.S.
securities laws by misstating its revenue in the year 2000. The aggregate
settlement amount is RMB36.0 million (US$4.35 million) and has been reflected
in our third quarter and full-year financial statements as a one-time charge.
The Company cannot predict if or when this settlement will become final.
Note: The conversion of Renminbi (RMB) into U.S. dollars in
this release is based on the exchange rate of US$1 = RMB8.2800. The percentages
stated in this press release are calculated based on RMB.
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. The NetEase Web sites, operated
by a company affiliate, organize and provide access to 18 content channels
through distribution arrangements with more than one hundred international and
domestic content providers. In addition, the NetEase Web sites offer a variety
of products and services, including Instant Messaging (Popo), Dating, Love,
Alumni and Personal Home Page. These products and services enable users to
communicate about interests and areas of expertise. The sites also offer online
interactive community services through 1,800 community forums. At the end of December
2002, the number of simultaneous chat room participants reached 55,476 during
peak hours, and the number of registered users of the NetEase Web sites reached
95.7 million. The average number of daily pageviews was over 316 million in
December 2002.
NetEase also offers online multi-player games, short
messaging and e-mail services, as well as auction and online mall technology
services that provide opportunities for e-commerce and traditional businesses
to establish an online e-commerce presence on the NetEase Web sites.
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 settlement of the class action
litigation involving NetEase will not become final for whatever reason, in
which case NetEase may have to incur significant additional expenses in
defending against the litigation and possibly pay damages in excess of the
settlement amount; the risk that the online advertising market in China will
not continue to grow and will remain subject to intense competition; the risk
that NetEase will not be able to continue to successfully monetize the user
base of the NetEase Web sites and that its e-commerce and other fee-based
services revenues will not continue to grow; the risk that the current
popularity of SMS in China will not continue for whatever reason, including SMS
being superseded by other technologies for which NetEase is unable to offer
attractive products and services; the risk that NetEase may not be able to
continuously develop new and creative online services; the risk that the online
game market will not continue to grow or that NetEase will not be able to
enhance or maintain its position in that market; the risk that NetEase will not
be able to control its expenses in future periods; the risk that the trading
price of NetEase's American Depositary Shares may decrease for a variety of
reasons, some of which may be beyond the control of management; the possibility
that NetEase and its board of directors have not implemented effective or
complete steps to ensure that the circumstances which led to the restatement of
NetEase's financial statements for the year ended December 31, 2000 will not
recur; the risk that current or future appointees to management are not
effective in their respective positions; the difficulty in locating and
recruiting suitable candidates for middle and senior management positions;
NetEase's ability to develop and implement additional operational and financial
systems to manage NetEase's operations; competition in NetEase's existing and
potential markets; governmental uncertainties, general competition and price
pressures in the marketplace; uncertainty as to future profitability; the risk
that security, reliability and confidentiality concerns may impede broad use of
the Internet and e-commerce and other services; and other risks outlined in
NetEase's filings with the Securities and Exchange Commission, including its
registration statement on Form F-1, as amended. NetEase does not undertake any
obligation to update this forward-looking information, except as required under
applicable law.