NetEase : Q3 2019 Investor Presentation

3Q 2019

Investor Presentation

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SAFE HARBOR STATEMENT

This presentation 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. These forward-looking statements are based on the current assumptions, expectations and projections of the Company's management about future events. Although the assumptions, expectations and projections reflected in these forward-looking statements represent management's best judgment at the time of this presentation, the Company can give no assurance that they will prove to be correct. Numerous factors, including those related to market conditions and those detailed from time-to-time in the Company's filings with the Securities Exchange Commission, may cause results of the Company to differ materially from those anticipated in these forward-looking statements. Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. These forward- looking statements are subject to risks and uncertainties and, therefore, actual results may differ materially. The Company cautions you not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. All references to "Company" and "NetEase" as used throughout this presentation refer to NetEase, Inc. and its subsidiaries.

2

COMPANY OVERVIEW

Founded in 1997 and listed on NASDAQ since 2000, NetEase, Inc. is a leading China-based internet technology company that develops and operates some of China's most popular online PC and mobile games, and offers other innovative services, including the intelligent learning services of its majority-controlled subsidiary, Youdao, music streaming and its private label e-commerce platform.

As of September 30, 2019, NetEase had around 21,000 employees, with offices globally.

3

MARKET SNAPSHOT

In USD

$36.8	$130
billion	million
Market Cap	ADS Outstanding,
(11/20/19)	diluted
	(3Q19)

$2.0	$1,803
billion	million
Net Revenue	Net income attributable to
(3Q19)
the Company's shareholders
	(Continuing) (GAAP)
	(3Q19)

$13.97

Earnings per ADS

(Continuing) (GAAP)

(3Q19)

$8.6 billion

Cash, time deposits and short-term investment

(09/30/19)

4

BUSINESS SEGMENTS

PC & Mobile Games

Leading developer and operator of self-developed PC and mobile games to internet users in China; Operator of licensed games from Blizzard Entertainment and Mojang AB (a Microsoft subsidiary) in China.

Cloud Music

Leading interactive music streaming service providers in China with more than 800 million users and one of China's most active music platforms in terms of user retention rate, user time spent on the platform and the level of user-generated content.

Online Education

Leading intelligent learning service provider through Youdao, a company dedicated to developing and using technologies to provide learning content, applications and solutions to users of all ages.

E-commerce and Others

Leading service provider of private label e-commerce through Yanxuan, a platform offers access to cost effective and high-quality products in China;

Others include one of the largest providers of free e-mail services in China, one of the most popular internet media service providers in China, as well as our CC live-streaming platform.

5

ONLINE GAMES

Online Games Net Revenue and Gross Margin

RMB million		Gross Margin		Mobile Game Net Revenue		PC Game Net Revenue
	64.3%	65.1%
		63.7%	63.1%	63.8%
		62.8%
62.1%
		11,020	11,850	11,433		11,535

10,061 10,348

8,761

Mobile Games as a	75%	68%	70%	72%	72%	71%
72%
Percentage of

Online Games Net

Revenue

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

6

ONLINE GAMES - PC GAMES

Flagship Self-Developed PC titles

Flagship Licensed PC titles

7

ONLINE GAMES - MOBILE GAMES

• Over 100 mobile games offered in China

Self-Developed Mobile Games

Licensed Mobile Games From Overseas Developers

8

ONLINE GAMES - MOBILE GAMES

Launching Mobile Games in Overseas Markets

Overseas games revenue reached a new record high in the third quarter of 2019, accounting for more than 10% of total online games revenue

• Knives Out led Japan's iOS top grossing chart several times in August, September and October
• Identity V led Japan's iOS top grossing chart for the first time in September
• Life-after,a newer release, is also ramping up in Japan

9

ONLINE EDUCATION

Online Education Net Revenue and Gross Margin

RMB million		Gross Margin		Net Revenue
36.3%
	32.9%
28.0%	29.7%
	25.8%
	23.4%
23.3%
			346
		323

230226

193

174

134

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

10

ONLINE EDUCATION

				Youdao Premium Courses
	Dual-teacher Live Streaming Class & Interactive Learning Experience Empowered by AI
			STEM		China University MOOC
			Learning			NetEase Cloud Classroom
		Gamified Learning		Certificates & Career Advancement
	Youdao	Youdao
	Fun Reading	Math
	Youdao	U-Dictionary	Youdao	Manual	Youdao	Cloud	Youdao
	Dictionary	Translation	Translation	Cloudnote	Collaboration	Speaking
	Age of Students	Serving Diversified Demands Across All Age Groups
0	6			15	18	22
	Pre-School		K-12

• Youdao is the leading intelligent learning company in China with over 100 million average total MAUs
• K-12continues to be the primary growth engine for Youdao where we offer online courses via after-school curriculum tutorials and extra-curriculum courses in STEAM subjects

11

INNOVATIVE BUSINESS AND OTHERS

Innovative Business and Others

Net Revenue and Gross Margin

RMB million

	Gross Margin		Net Revenue
17.0%	15.5%		Cloud Music	NetEase Yanxuan
	15.2%

2,755

2,692

NetEase E-mail

NetEase Media

2,637

NetEase CC

3Q18 2Q19 3Q19

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INNOVATIVE BUSINESS AND OTHERS

NetEase Cloud Music

NetEase Yanxuan

• Launched in April 2013
• One of the largest online music streaming services in China with more than 800 million users
• China's most active music platform, with a market leading user retention rate and user time spent on the platform
• Continues to ramp up the monetization efforts, Cloud Music reached a new record high revenue in the third quarter of 2019

• Our popular private label business, targetingmiddle-class consumers in China with a strong emphasis on quality of life
• We work with over 500 quality manufactures and provide a premium selection ofhigh-quality and cost-effective lifestyle products to end users, eliminating the extraneous costs and third-party layers of distribution and retail
• During the third quarter, we made additional progress to improve our operating efficiency, continue to maximize our supply chain management and refine our factory relationships, successfully reducing our inventory to a more optimal level

13

INNOVATIVE BUSINESS AND OTHERS

Internet Media

• www.163.com is one of China's most visited internet portals, with strong user diversity, reach and stickiness
• Mobile News App is one of the most popular news apps in China

Live Streaming

• CC live streaming platform offers various live streaming content with a primary focus on games

E-mail Services

• China's leadinge-mail service provider since 1997
• 1.05 billion registerede-mail users as of Sep 30, 2019

14

FINANCIAL HIGHLIGHTS

Net Revenues

RMB billion		14.6
	14.4
13.2
3Q18	2Q19	3Q19
RMB billion	Operating Cash Flow (Continuing)
4.5	4.9
	3.8

3Q18

2Q19

3Q19

Net Income (Continuing) (GAAP)

RMB billion

12.9

3.4

2.1

3Q182Q193Q19

Value Returned to Shareholders

US$	2018FY	3Q18	4Q18	1Q19	2Q19	3Q19
Dividend per ADS	$1.77	$0.45	$0.48	$0.69	$1.04	$7.59
Share Buyback	$1,178.5m	$255.7m	$10.8m	$0	$0	$0.2m

(during the period)

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BALANCE SHEET SUMMARY

	2018		2019
in millions	Dec 31, RMB	Sep 30, RMB	Sep 30, USD
(Unaudited)	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	4,988	2,741	384
Time deposits	32,900	39,224	5,488
Other current assets	30,828	40,581	5,677
Total current assets	68,716	82,546	11,549
Property, equipment and software	4,673	4,708	659
Other non-current assets	13,579	18,570	2,597
Total assets	86,968	105,824	14,805
LIABILITIES, REDEEMABLE NONCONTROLING INTERESTS &
SHAREHOLDERS' EQUITY
Current liabilities:
Deferred revenue	7,718	8,196	1,147
Other current liabilities	27,391	26,415	3,695
Total current liabilities	35,109	34,611	4,842
Total liabilities	35,556	35,818	5,011
Redeemable Noncontrolling Interests	5,386	5,954	833
Total shareholders' equity	46,026	64,052	8,961
Total liabilities and shareholders' equity	86,968	105,824	14,805

16

INCOME STATEMENT SUMMARY

3Q18	2Q19	3Q19	3Q19	QoQ	YoY
RMB	RMB	RMB	USD	Change	Change
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)

Total net revenues:	13,160	14,448	14,636	2,048	1.3%	11.2%
Online game services	10,348	11,433	11,535	1,614	0.9%	11.5%
Youdao	174	323	346	48	7.2%	98.4%
Innovative businesses and others	2,638	2,692	2,755	386	2.3%	4.4%
Gross profit	7,224	7,737	7,870	1,101	1.7%	8.9%
Gross profit margin	54.9%	53.5%	53.8%	53.8%
Operating profit	2,535	3,724	3,335	467	-10.5%	31.5%
Operating profit margin	19.3%	25.8%	22.8%	22.8%
Net income attributable to the	1,596	3,071	12,730	1,781	314.5%	697.5%
Company's shareholders
Diluted earnings per ADS	¥12.37	¥23.64	¥97.80	$13.68	313.7%	690.6%
Diluted earnings per ADS	¥15.98	¥25.82	¥98.99	$13.85	283.4%	519.5%
(Continuing operations)

17

CONTACT US

Margaret Shi	Brandi Piacente
NetEase, Inc.	The Piacente Group, Inc.
E-mail: [e-mail]	E-mail: [e-mail]
Tel: [phone]	Tel: [phone]

18

THANK YOU

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