Tencent Technology News On February 23, NetEase released its 2022Q4 and full-year financial reports. According to the financial report, NetEase's net income in Q4 2022 was 25.4 billion yuan, and the market expected 25.3 billion yuan, in line with market expectations. On a non-GAAP basis, Q4 net profit attributable to shareholders of the Company from continuing operations was RMB4.8 billion.
NetEase's net income in 2022 was 96.5 billion yuan; Non-GAAP net income from continuing operations attributable to shareholders was $22.8 billion. The company's R&D investment in 2022 exceeded 15 billion yuan, accounting for 15.6% of revenue, of which 4.1 billion yuan was invested in R&D in the fourth quarter, a record high.
Key financial results for the fourth quarter of 2022
--Net income was RMB25.4 billion (US$3.7 billion), an increase of 4.0% year-over-year.
--Net revenue from games and related value-added services was RMB19.1 billion (US$2.8 billion), an increase of 1.6% year-over-year.
--Youdao's net income was RMB1.5 billion (US$210.8 million), an increase of 9.0% year-over-year.
--Cloud Music net revenue was RMB2.4 billion (US$344.5 million), an increase of 25.8% year-over-year.
--Net income from innovation and other businesses was RMB2.4 billion (US$353.5 million), an increase of 3.4% year-over-year.
Gross profit was RMB13.2 billion (US$1.9 billion), up 2.5% year-over-year.
--Operating expenses totaled RMB8.8 billion (US$1.3 billion), an increase of 6.0% year-over-year.
• Net income attributable to shareholders of the Company was RMB4 billion (US$573.1 million). Non-GAAP net income from continuing operations attributable to shareholders was RMB4.8 billion (US$697.6 million). (Note: As used in this announcement, non-GAAP net income from continuing operations, basic and diluted net income from continuing operations per American depositary share attributable to shareholders of the Company is defined as net income excluding stock-based incentive expenses.) ）
Basic net income per share was $0.18 (basic net income per American depositary share was $0.88). Non-GAAP basic net operating income per share was $0.22 (basic net operating income per ADS was $1.08).
Operational highlights for the fourth quarter of 2022 and early 2023
--Classic flagship game products such as "Fantasy Westward Journey" and "Westward Journey" series have maintained extremely vigorous vitality, and other boutique games such as "Light--Encounter", "Coast of the Land" and "Qiannu Ghost" mobile games have not decreased in popularity.
--The casual competitive mobile game "Egg Party" grew strongly in revenue and user numbers in the Chinese mainland market, becoming the game with the highest number of daily active users in NetEase Games' history.
--Continue to enrich the product line of game development, with the upcoming launches: Westward Journey: Homecoming, Against the Water and Cold, Pioneer, Peak Speed, and Eternal Calamity, and will launch Harry Potter: Magical Awakening in overseas markets.
--Cloud Music net revenue and profit margin continued to improve. Through cooperation agreements with a number of large labels such as Believe Music and Poly Music, and the smooth renewal of contracts with Ebex, the content of the music library continued to expand. Digital albums by well-known artists such as Hua Chenyu and (G)I-DLE have also achieved good sales.
--Youdao achieved its first quarterly profit in operating profit with solid sales growth of new products and services and optimization of its cost structure in a challenging macro environment.
"We achieved solid growth in 2022. In the fourth quarter, our overall net revenue reached RMB25.4 billion, mainly due to the longevity of classic games and the expansion of product and service categories," said Ding Lei, CEO and Director of NetEase. For example, our Egg Party is a major breakthrough in casual gaming, further expanding and enriching our user community and adding to our product matrix. We look forward to bringing more new games to a wider market and laying a solid foundation for continued growth in the future." ”
"Our other business segments such as Youdao and NetEase Cloud Music are also growing healthily. With the empowerment of strong independent research and development strength, in 2023, we will open up the vast international market with more innovative and high-quality content and create greater value. Ding Lei concluded.
Fourth quarter 2022 financial results
net income
NetEase's net revenue for the fourth quarter of 2022 was RMB25,354.1 million (US$3,676.0 million), compared to RMB24,426.8 million in the previous quarter and RMB24,373.6 million in the same period last year.
Net revenue from games and related value-added services was RMB19,085.7 million (US$2,767.2 million) for the fourth quarter of 2022, including online games and other value-added services related to or affiliated with games, compared to RMB18,699.1 million in the previous quarter and RMB18,792.0 million in the same period last year and the same period last year. Net revenue from online games accounted for 91.8% of net revenue from games and related value-added services in the quarter, compared to 92.9% in the previous quarter and 92.6% in the same period last year. In the quarter, net revenue from mobile games accounted for 66.4% of net revenue from online games, compared to 68.6% in the previous quarter and 68.3% in the same period last year.
Youdao's net income for the fourth quarter of 2022 was RMB1,454.0 million (US$210.8 million), compared to RMB1,402.4 million in the previous quarter and RMB1,333.8 million in the same period last year.
Cloud Music's net revenue for the fourth quarter of 2022 was RMB2,376.3 million (US$344.5 million), compared to RMB2,357.2 million in the previous quarter and RMB1,889.3 million in the same period last year.
Net income from innovation and other businesses was RMB2,438.2 million (US$353.5 million) in the fourth quarter of 2022, compared to RMB1,968.0 million in the previous quarter and RMB2,358.5 million in the same period last year.
Gross profit
Gross profit for the fourth quarter of 2022 was RMB13,244.4 million (US$1,920.3 million), compared to RMB13,743.9 million in the previous quarter and RMB12,917.8 million in the same period last year.
Gross profit for games and related value-added services decreased sequentially and year-over-year, primarily due to the one-time recognition of royalties for certain agency games in the fourth quarter.
Youdao gross profit increased sequentially and year-over-year primarily due to increased revenue contribution from smart hardware and online marketing services.
The sequential and year-over-year growth in cloud music gross profit was driven by net revenue growth from online music services and social entertainment services, as well as continued improvements in cost control.
The sequential and year-over-year increase in gross profit of innovation and other businesses was mainly due to the increase in gross profit of NetEase Yanxuan.
Gross margin
Gross margin for games and related value-added services was 59.1% in the fourth quarter of 2022, compared to 65.0% in the previous quarter and 60.9% in the same period last year. The sequential and year-over-year decrease in gross margin was primarily due to the one-time recognition of royalties for certain agency games in the fourth quarter.
Youdao's gross margin was 53.3% in the fourth quarter of 2022, compared to 54.2% in the previous quarter and 50.7% in the same period last year. Its gross margin decreased slightly sequentially, mainly due to the increased contribution of smart hardware sales revenue, and the gross margin level of this business was relatively low compared to learning services. The year-on-year increase in gross margin was mainly due to the increase in gross margin of smart hardware.
Cloud Music's gross margin was 17.8% in the fourth quarter of 2022, compared to 14.2% in the previous quarter and 4.1% in the same period last year. The sequential and year-over-year improvement in gross margin was primarily due to the aforementioned reasons.
Gross margin for Innovation and Other businesses was 31.5% in the fourth quarter of 2022, compared to 25.5% in the previous quarter and 30.5% in the same period last year. Its gross margin improved sequentially, mainly due to the improvement of the gross margin of strict selection and advertising services. Its gross margin increased slightly year-over-year, mainly due to the improvement of carefully selected gross margin, partially offset by a decrease in advertising services gross margin.
Operating expenses
Operating expenses totaled RMB8,810.9 million (US$1,277.5 million) in the fourth quarter of 2022, compared to RMB9,002.1 million in the previous quarter and RMB8,309.6 million in the same period last year. The sequential decrease was mainly due to lower spending on games and related value-added services and Youdao marketing. The year-over-year increase was mainly due to increased personnel costs and promotional expenses.
Other income/(expenses)
Other income/(expenses) include investment gain/(loss), interest income, exchange (loss)/gain and others. The sequential and year-over-year decreases were primarily due to lower investment income related to equity investments and an increase in unrealized net exchange losses on the Company's U.S. dollar-denominated bank deposits and loan balances due to fluctuations in the U.S. dollar-renminbi exchange rate in the current period.
income tax
The Company's recognized income tax expense was RMB966.6 million (US$140.1 million) in the fourth quarter of 2022, compared to RMB1,586.7 million in the previous quarter and RMB934.0 million in the same period last year. The effective tax rate for the fourth quarter of 2022 was 20.2%, compared to 19.3% in the previous quarter and 14.2% in the same period last year. The effective tax rate reflects the company's estimate of the tax obligations and entitlements applicable each quarter.
Net income and non-GAAP net income
Net profit attributable to the Company's shareholders for the fourth quarter of 2022 was RMB3,952.7 million (US$573.1 million), compared to RMB6,699.4 million in the previous quarter and RMB5,694.2 million in the same period last year.
Basic net income per share was $0.18 (basic ADS net income per share was $0.88) for the fourth quarter of 2022, compared to $0.30 (basic net income per ADS was $1.49) for the previous quarter and $0.25 (basic net income per ADS was $1.26) in the same period last year.
Non-GAAP net income attributable to shareholders from continuing operations was RMB4,811.4 million (US$697.6 million) for the fourth quarter of 2022, compared to RMB7,469.6 million in the previous quarter and RMB6,595.6 million in the same period last quarter.
Non-GAAP net income from continuing operations was $0.22 per non-GAAP share for the fourth quarter of 2022 (basic net income from continuing operations per American depositary share was $1.08), compared to $0.33 per basic proceeding share (basic net income from continuing operations per ADS of $1.66) for the previous quarter and $0.29 per basic proceeding share (basic net income from continuing operations per ADS1.46) for the same period last year.
Financial results for fiscal year 2022
net income
Net revenue was RMB96,495.8 million (US$13,990.6 million) in 2022, compared to RMB87,606.0 million in 2021.
Net revenue from games and related value-added services was RMB74,566.5 million (US$10,811.1 million) in 2022, compared to RMB67,819.3 million in 2021. Net revenue from online games accounted for 92.5% of net revenue from games and related value-added services in 2022, compared to 92.6% in 2021. In 2022, net revenue from mobile games accounted for 67.0% of net revenue from online games, compared to 70.4% in 2021. Although the amount of mobile game revenue in 2022 increased year-on-year, its proportion decreased, mainly due to the increase in the contribution of mobile game revenue brought by the computer version of "Fantasy Westward Journey" and "Eternal Calamity".
Youdao's net income was RMB5,013.2 million (US$726.8 million) in 2022 and RMB5,354.4 million in 2021.
Cloud Music's net revenue was RMB8,992.2 million (US$1,303.7 million) in 2022 and RMB6,997.6 million in 2021.
Net income from innovation and other businesses was RMB7,923.9 million (US$1,148.9 million) in 2022, compared to RMB7,434.8 million in 2021.
Gross profit
Gross profit was RMB52,766.1 million (US$7,650.4 million) in 2022, compared to RMB46,970.8 million in 2021.
The year-over-year increase in gross profit from games and related value-added services was mainly due to the increase in net revenue from online games, such as Fantasy Westward Journey PC and Forever, as well as newbie games and existing popular mobile games including Endless Lagrange.
The year-on-year decrease in Youdao gross profit was mainly due to the cessation of subject-based extracurricular training business in the compulsory education stage in China, which was partially offset by an increase in revenue contribution from new services and products.
The year-over-year increase in cloud music gross profit was mainly due to the increase in net revenue from social entertainment services and improved cost control.
The slight year-over-year decrease in gross profit from innovation and other businesses was mainly due to the decline in gross profit of advertising business, partially offset by the increase in gross profit of NetEase Strict Selection.
Operating expenses
Operating expenses were RMB33,137.5 million (US$4,804.5 million) in 2022 and RMB30,553.7 million in 2021. The year-over-year increase was primarily due to higher personnel costs and higher marketing expenses for games and related value-added services, cloud music and Select.
Other income/(expenses)
The slight decrease in other net income year-over-year was primarily due to an increase in fair value change loss on equity investments that are readily recognized, partially offset by an increase in unrealized net exchange gains, interest income and other net income.
income tax
The Company's recognized income tax expense was RMB5,031.8 million (US$729.5 million) in 2022 and RMB4,128.3 million in 2021. The effective tax rate is 20.7% in 2022 and 19.6% in 2021.
Net income and non-GAAP net income
Net profit attributable to shareholders of the Company was RMB20,337.6 million (US$2,948.7 million) in 2022 and RMB16,856.8 million in 2021. Net income attributable to shareholders of the Company in 2022 also includes net income from discontinuing operations of RMB624.9 million (US$90.6 million) related to the sale of the Kaola business.
Basic net income per share was $0.90 in 2022 (basic net income per ADS was $4.52) and basic net income per share in 2021 was $0.74 (basic net income per ADS was $3.67).
Non-GAAP net income attributable to shareholders from continuing operations was RMB22,808.4 million (US$3,306.9 million) in 2022, compared to RMB19,761.9 million in 2021.
Non-GAAP basic operating net income per share was $1.01 (basic net income per ADS of $5.07) for 2022 and $0.86 per basic ADS for 2021 (basic net income per ADS of $4.31).
Quarterly dividends
The Board of Directors approved a dividend of $0.0540 per share ($0.2700 per American Depositary Share) for the fourth quarter of 2022, which will be paid in U.S. dollars to holders of common shares and American depositary shares of record after the market closes on March 9, 2023 in Beijing/Hong Kong time and New York time. To be eligible for dividends, holders of ordinary shares are required to deliver all valid share transfer files together with relevant share proof documents to NetEase's Hong Kong share transfer sub-office, Cybersecurities Depository Company Limited, at Shop 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong by 4:30 p.m. Beijing/Hong Kong time at the latest. The dividend payment date for common shares is expected to be March 21, 2023, and the dividend payment date for American depositary shares is expected to be around March 24, 2023.
The third quarter 2022 dividend was $0.0870 per share ($0.4350 per American depositary share), which was paid in December 2022.
In accordance with the Company's current dividend policy, dividend distributions in any given quarter and the amount to be distributed will be determined by the Board of Directors at its discretion and will be based on the Company's operations and earnings, cash flows, financial condition and other relevant factors.
Additional Information
As of December 31, 2022, the Company's cash and cash equivalents, current and non-current time deposits and restricted cash, and short-term investment balances, net of short- and long-term borrowings, were RMB95.6 billion (US$13.9 billion), compared to RMB85.6 billion as of December 31, 2021. Net cash inflow from operating activities was RMB27.7 billion (US$4 billion) in 2022, compared to RMB24.9 billion in 2021.
Share repurchase/purchase program
On February 25, 2021, the Company announced that its Board of Directors approved a share repurchase program to repurchase American depositary shares and common shares in the open market for a period not exceeding $2 billion in the open market for a period not exceeding 24 months, commencing March 2, 2021, and thereafter increasing the total amount to $3 billion. As of January 9, 2023, the $3 billion repurchase line under the program has been substantially exhausted, and the Company has repurchased approximately 33.6 million American depositary shares.
On November 17, 2022, the Company announced that its Board of Directors approved a new share repurchase program to repurchase American depositary shares and common shares in the open market up to US$5 billion in aggregate outstanding amounts. Following the end of the previous program, the new program was launched on January 10, 2023, and will be implemented within a period of no more than 36 months.
On August 31, 2021, the Company announced that its Board of Directors approved a share purchase plan to publicly purchase U.S. Depositary Shares on the NYSE for a period not exceeding $50.0 million for a period not exceeding 36 months, beginning September 2, 2021. As of December 31, 2022, the Company has purchased approximately 2.7 million American Depositary Shares under the Program for a total of approximately US$22.0 million.
NetEase's repurchase of its American depositary shares and common shares, or the purchase of Youdao American depositary shares, will depend on a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
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