NetEase : Q2 2020 Investor Presentation

2Q 2020

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. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward- looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. 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 online game market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; the risk that COVID-19 or other health risks in China or globally could adversely affect the Company's operations or financial results; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; competition in NetEase's existing and potential markets; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward- looking information, except as required under the applicable law.

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COMPANY OVERVIEW

Founded in 1997, 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 online education, music streaming and a private label e-commerce platform.

NetEase Inc. has been listed on NASDAQ since 2000 under the symbol (NASDAQ: NTES), and completed

its dual listing on the Hong Kong Stock Exchange in June 2020 under the ticker (HK: 9999).

Its majority-owned education business, Youdao, has been listed on NYSE since October 2019 (NYSE: DAO).

As of June 30, 2020, NetEase had over 22,000 employees.

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MARKET SNAPSHOT

In USD

$62.3 billion

Market Cap 1 (08/12/20)

131	$4.95
million
ADS Outstanding, 2	Basic net income per 3
Diluted	ADS (GAAP) (2Q20)
(2Q20)

	$2.6	$642	$14.6
	billion	million	billion
	Net Revenue	Net income attributable to	Cash, time deposits
	(2Q20)	the Company's shareholders	and short-term investment
		(GAAP) (2Q20)	(06/30/20)
Note:
1	Market Cap is calculated using the closing price on NASDAQ; Our market cap is HK$ 468.9 billion ($ 60.5 billion ) based on the closing price on the Hong Kong Stock Exchange.	4
2	Total weighted average number of ordinary shares outstanding (diluted) is 3,281 million as of June 30, 2020. Our ADSs each represents 25 ordinary shares.
3	Basic net income per ordinary share equals to US$0.198, or HK$1.53 (FX: 1 US$= 7.7501 HKD).

20Q2 OPERATIONAL HIGHLIGHTS

Launched exciting new titles including Fantasy Westward Journey H5, King of Hunters, PES Club Manager and MARVEL Duel

Introduced PC game Justice's two-year anniversary expansion pack in June, propelling high popularity and driving increased new and returning players

Reinforced international games presence with strong performances from Knives Out and Life-After in Japan

Continued popularity of Blizzard Entertainment's World of Warcraft® in China, achieving a record number of peak concurrent users in the first half of this year

Advanced near-term titles for release including EVE Echoes and Onmyoji: Yokai Koya, as well as other upcoming titles in the pipeline such as: The Lord of the Rings: Rise to War, Harry Potter: Magic Awakened, For All Time, Revelation mobile game, Ghost World Chronicle, Nightmare Breaker, Infinite Lagrange, Diablo® Immortal™ and Pokémon Quest.

Grew Youdao's intelligent learning business steadily with net revenues from learning services and products by 190% year-over-year, and achieved positive net operating cash flow again during the quarter

Maintained strong momentum for NetEase Cloud Music, with robust growth in net revenues from both membership and live streaming, and secured a multi-year licensing agreement with Universal Music Group recently.

Completed listing on the main board of the Hong Kong Stock Exchange in June 2020

Issued first Environmental, Social and Governance report in June 2020

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BUSINESS SEGMENTS

Online Games

• Leading developer and operator of self-developed PC and mobile games for internet users in China and internationally;
• Operator of licensed games from Blizzard Entertainment, Mojang AB (a Microsoft subsidiary) and other leading game developers internationally.

Online Music

• Leading interactive music streaming service providers in China with more than 800 million registered users;
• Platform of choice for exploring new and independent music among music enthusiasts in China, and the most popular entertainment app among China's vibrant Generation Z community

Online Education

• A leading intelligent learning service operated by Youdao, our majority-controlled subsidiary 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 a comprehensive selection of affordable 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.

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ONLINE GAMES

Online Games Net Revenue and Gross Margin

RMB million	65.1%		Gross Margin			Mobile Game Net Revenue			PC Game Net Revenue
64.3%	63.7%	63.1%	63.8%	63.1%	64.1%	63.8%
62.8%
		11,850						13,518	13,828
	11,020	11,433	11,535	11,604

10,061 10,348

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

Online Games Net

Revenue

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

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ONLINE GAMES - PC GAMES

Flagship Self-Developed PC titles

Flagship Licensed PC titles

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ONLINE GAMES - MOBILE GAMES

• Over 100 mobile games offered in China

Self-Developed Mobile Games

Licensed Mobile Games From Overseas Developers

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ONLINE GAMES - MOBILE GAMES

Launching Mobile Games in Overseas Markets

Overseas games net revenue accounts for above 10% of total online games net revenue.

• Overseas games net revenue reaches a new record driven by robust growths from Knives Out and Life-After in Japan
• Knives Out successfully collaborated with Tokyo Ghoul anime, and topped Japan's iOS grossing chart for nearly a week

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ONLINE EDUCATION

	Youdao Net Revenue and Gross Margin
RMB million			Gross Margin		Net Revenue
			43.5%	45.2%
36.3%		32.9%	29.8%
29.7%
23.3%	23.4%		25.8%

323

230226

193174

623

541

410

346

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

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ONLINE EDUCATION

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

• Youdao continues to scale at a rapid pace, achieving a positive operating cash flow again during the quarter.
• Gross billings generated by online courses increased 223% year-over-year in the second quarter.

• Net revenues of learning devices performed well, and Youdao released Dictionary Pen 2.0 Pro in June.	12

INNOVATIVE BUSINESSES AND OTHERS

Innovative Businesses and Others

Net Revenue and Gross Margin

RMB million	Gross Margin		Net Revenue

18.5%

15.5%15.8%

3,734

3,003

2,692

NetEase	NetEase Yanxuan
Cloud Music

NetEase E-mail

NetEase Media

NetEase CC

2Q191Q202Q20

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INNOVATIVE BUSINESSES AND OTHERS

NetEase Cloud Music	NetEase Yanxuan
• Launched in April 2013, NetEase Cloud Music is	• Our innovative private label e-commerce business,
one of the largest online music streaming	targeting middle-class consumers in China with a
platforms in China with more than 800 million	strong emphasis on quality of life
registered users	• Initiated two successful live streaming broadcasts
• Secured a multi-year licensing agreement with
featuring both NetEase and Yanxuan executives,
Universal Music Group, marking a great step	with the associated gross billings exceeding our
forward for China's music industry as a whole	expectations
• Launched our Karaoke App, which allows one-	• Continued to optimize our operating efficiency by
click remix capabilities for limitless creative	introducing a number of popular products, and
possibilities when singing on the App	significantly reducing inventory turnover days

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INNOVATIVE BUSINESSES 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 leading e-mail service provider since 1997
• Around 630 million annual active users as of June 30, 2020

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FINANCIAL HIGHLIGHTS

	Net Revenue
RMB billion	17.1	18.2
	14.4

2Q191Q202Q20

RMB billion

Operating Cash Flow

6.5

	Net Income attributable to shareholders
RMB billion	(Continuing) (GAAP)
	4.5
3.4	3.6

2Q191Q202Q20

Value Returned to Shareholders

US$	2019FY	2Q19	3Q19	4Q19	1Q20	2Q20
Dividend per	$10.34	$1.04	$7.59	$1.02	$1.16	$1.485
ADS

4.5

4.8

Dividend paid	$1,270 m	$89 m	$129 m	$990 m	$131 m	$158 m
(during the period)
Share Buyback	$0.2 m	$0	$0.2m	$0	$341.9m	$413.8m
(during the period)

2Q19

1Q20

2Q20

16

BALANCE SHEET SUMMARY

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INCOME STATEMENT SUMMARY

Note:	18
All percentages are calculated based on numbers in millions except per ADS data

CONTACT US

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

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THANK YOU

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