NetEase.com Announces Strong First Quarter Results
Monday April 28, 4:11 pm ET

Continued revenue growth of 23.2% over preceding quarter results in further enhanced gross margins of 77.9%

Company achieves operating profit of RMB63.6 million (US$7.7 million) and net profit of RMB68.9 million (US$8.3 million), or US$0.27 per American Depositary Share (basic)

BEIJING--(BUSINESS WIRE)--April 28, 2003-- NetEase.com, Inc. (Nasdaq:NTES - News), a leading Internet technology provider in China, today announced financial results for its first quarter ended March 31, 2003.

 

The Company reported total revenues of RMB117.9 million (US$14.2 million) for the first quarter, a 23.2% increase over total revenues of RMB95.7 million (US$11.6 million) for the preceding quarter ended December 31, 2002 and a 392.3% increase over total revenues of RMB24.0 million (US$2.9 million) for the corresponding period in 2002. The Company reported a net profit of RMB68.9 million (US$8.3 million), or US$0.27 and US$0.26 per basic and diluted American Depositary Share respectively, compared to the previous quarter's net profit of RMB43.1 million (US$5.2 million), or US$0.17 and US$0.16 per basic and diluted American Depositary Share respectively. The same quarter in the previous year had a net loss of RMB17.8 million (US$2.1 million).

 

Advertising revenues were RMB12.0 million (US$1.4 million) for the quarter ended March 31, 2003, representing a 3.7% decrease over RMB12.5 million (US$1.5 million) for the preceding quarter but a 204.0% increase over RMB3.9 million (US$0.5 million) for the corresponding period a year ago. Revenues from e-commerce and other services for the quarter were RMB105.8 million (US$12.8 million), representing a 27.4% increase over the preceding quarter's RMB83.1 million (US$10.0 million) and a 429.7% increase over RMB20.0 million (US$2.4 million) for the corresponding period a year ago. The increase in revenues from e-commerce and other services was primarily attributable to continued growing interest in NetEase's proprietary online game, "Westward Journey Online Version 2.0," as well as to steady growth in the Company's wireless short messaging services (SMS) business.

 

The Company reported gross profit in the first quarter of RMB91.8 million (US$11.1 million), increasing 31.9% over the previous quarter's RMB69.6 million (US$8.4 million) and 1143.4% over RMB7.4 million (US$0.9 million) for the corresponding period a year ago. Strong revenue growth also favorably impacted gross margins, which increased from 72.7% in the preceding quarter to 77.9% in the first quarter.

 

Total operating expenses were RMB28.3 million (US$3.4 million), a 7.8% decrease from the previous quarter's RMB30.7 million (US$3.7 million) but a 7.0% increase from the corresponding period a year ago of RMB26.4 million (US$3.2 million). The Company reported an operating profit of RMB63.6 million (US$7.7 million) in the first quarter, representing continued improvement over last quarter's operating profit of RMB39.0 million (US$4.7 million) and the previous year's first quarter's operating loss of RMB19.0 million (US$2.3 million).

 

Other income for the first quarter of 2003 of RMB5.5 million (US$0.7 million) primarily represents the repayment of loans the Company made to four related parties, the proceeds of which were used by those related parties to purchase the Company's American Depositary Shares. The Company previously made full provision for these loans in the Company's audited consolidated financial statements for the year 2001, which impacted the Company's statement of operations in that period.

 

As of March 31, 2003, the Company's total net cash balance was RMB639.3 million (US$77.2 million), a 13.9% increase from the previous quarter's RMB561.3 million (US$67.8 million). Operating cash flow was RMB81.4 million (US$ 9.8 million) during the quarter.

 

Commenting on these first quarter results, Ted Sun, acting Chief Executive Officer and Director of the Company said, "I am very pleased to announce another strong quarter for NetEase, which we believe demonstrates the continued success of our strategy of focusing on a diversified range of revenue streams and innovative customer offerings. During the first quarter, our online games business continued to exhibit good growth, due largely to the success of our in-house-developed title, 'Westward Journey Online Version 2.0.' We believe that our proprietary online game development capabilities provide us with a unique competitive advantage in this area and that this revenue segment will continue to do well, especially as we improve our current games and develop new ones for our customers.

 

"Our wireless SMS business is also growing steadily. Taking advantage of the fast-growing user rates for this service, we are continuously developing additional applications for SMS, as well as for emerging telecommunication technologies such as Multimedia Messaging Service (MMS), which leverage our existing Internet and SMS products. We expect strong potential from this area and we believe we are positioning ourselves well to capture future business opportunities as the technology evolves.

 

"Although advertising revenues, which are typically sluggish in the first quarter of each year, had a less strong performance in comparison to last quarter, the outlook for this segment is still positive and we will strive to achieve steady growth going forward. We continue to see advertising as an important revenue source and will continue to develop innovative marketing and promotion solutions for our advertisers in order to leverage our advertising real estate."

 

Sun continued, "We remain dedicated to providing the highest quality service to our consumers, as evidenced by the establishment of our 24 hour/7 day a week customer service center during the quarter. This focus on service and customer relations will continue in the future."

 

Denny Lee, NetEase's Chief Financial Officer added, "From a financial point of view, this past quarter was a very healthy one for the Company, and revenue growth favorably impacted our gross margins and operating margins. Looking ahead, we will remain focused on controlling costs and maintaining sustainable, long-term profitability."

 

Users of the NetEase Web sites continued to grow, with 114 million registered accounts at the end of the first quarter, an increase of 19% over the 96 million accounts at the end of the previous quarter and a 114% increase over the 53 million accounts at the same time a year ago.

 

Mr. Sun concluded, "Our goal is to build on the strength of this first quarter to grow all business areas -- Internet Portal, Wireless Value-added Services and Online Games -- while continuing to enhance value for shareholders."