Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2018shares | |
Document and Entity Information | |
Entity Registrant Name | NetEase, Inc. |
Entity Central Index Key | 0001110646 |
Document Type | 20-F |
Document Period End Date | Dec. 31, 2018 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | Yes |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Emerging Growth Company | false |
Entity Shell Company | false |
Entity Common Stock, Shares Outstanding | 3,199,018,406 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets
Consolidated Balance Sheets ¥ in Thousands, $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Current assets: | |||
Cash and cash equivalents | $ 783,827 | ¥ 5,389,198 | ¥ 2,764,140 |
Time deposits | 4,785,148 | 32,900,287 | 30,603,369 |
Restricted cash | 700,653 | 4,817,340 | 5,926,906 |
Accounts receivable, net | 623,736 | 4,288,500 | 3,619,725 |
Inventories, net | 729,812 | 5,017,823 | 5,474,929 |
Prepayments and other current assets | 673,085 | 4,627,797 | 3,816,028 |
Short-term investments | 1,698,026 | 11,674,775 | 9,742,663 |
Total current assets | 9,994,287 | 68,715,720 | 61,947,760 |
Non-current assets: | |||
Property, equipment and software, net | 782,280 | 5,378,560 | 3,769,326 |
Land use rights, net | 509,428 | 3,502,569 | 593,279 |
Deferred tax assets | 154,795 | 1,064,295 | 823,495 |
Time deposits | 14,544 | 100,000 | 100,000 |
Restricted cash | 200 | ||
Long-term investments | 763,015 | 5,246,108 | 2,684,776 |
Other long-term assets | 430,612 | 2,960,676 | 1,112,579 |
Total non-current assets | 2,654,674 | 18,252,208 | 9,083,655 |
Total assets | 12,648,961 | 86,967,928 | 71,031,415 |
Current liabilities: | |||
Accounts payable (including accounts payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB941,358 and RMB1,022,340 as of December 31, 2017 and 2018, respectively) | 346,857 | 2,384,818 | 2,442,531 |
Salary and welfare payables (including salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries of RMB106,265 and RMB109,917 as of December 31, 2017 and 2018, respectively) | 435,153 | 2,991,897 | 2,189,110 |
Taxes payable (including taxes payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB22,058 and RMB84,118 as of December 31, 2017 and 2018, respectively) | 330,452 | 2,272,023 | 1,564,692 |
Short-term loans (including short-term loans of the consolidated VIEs without recourse to the primary beneficiaries of nil and RMB129,900 as of December 31, 2017 and 2018, respectively) | 1,986,554 | 13,658,554 | 6,623,502 |
Deferred revenue (including deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries of RMB5,853,904 and RMB6,672,715 as of December 31, 2017 and 2018, respectively) | 1,156,753 | 7,953,255 | 6,237,969 |
Accrued liabilities and other payables (including accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries of RMB1,966,436 and RMB1,866,234 as of December 31, 2017 and 2018, respectively) | 850,624 | 5,848,463 | 4,692,310 |
Total current liabilities | 5,106,393 | 35,109,010 | 23,750,114 |
Non-current liabilities: | |||
Deferred tax liabilities | 57,259 | 393,681 | 213,215 |
Other long-term payable (including long-term payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB7,500 and RMB7,500 as of December 31, 2017 and 2018, respectively) | 7,804 | 53,656 | 18,250 |
Total liabilities | 5,171,456 | 35,556,347 | 23,981,579 |
Commitments and contingencies (See Note 20) | |||
Redeemable noncontrolling interests | 783,323 | 5,385,736 | 614,696 |
Shareholders' equity: | |||
Ordinary shares, US$0.0001 par value: 1,000,300,000 shares authorized, 3,283,217 shares issued and outstanding as of December 31, 2017 and 3,199,018 shares issued and outstanding as of December 31, 2018 | 381 | 2,620 | 2,678 |
Additional paid-in capital | 1,753,439 | ||
Statutory reserves | 176,653 | 1,214,578 | 1,206,224 |
Accumulated other comprehensive income | 2,480 | 17,050 | 36,585 |
Retained earnings | 6,399,155 | 43,997,388 | 42,733,081 |
NetEase, Inc.'s shareholders' equity | 6,578,669 | 45,231,636 | 45,732,007 |
Noncontrolling interests | 115,513 | 794,209 | 703,133 |
Total shareholders' equity | 6,694,182 | 46,025,845 | 46,435,140 |
Total liabilities, redeemable noncontrolling interests and shareholders' equity | $ 12,648,961 | ¥ 86,967,928 | ¥ 71,031,415 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) shares in Thousands, $ in Thousands | Dec. 31, 2018USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)shares | Dec. 31, 2017$ / shares | Dec. 31, 2017CNY (¥)shares |
Accounts payable of the consolidated VIEs without recourse to the primary beneficiaries | $ 346,857 | ¥ 2,384,818,000 | ¥ 2,442,531,000 | |
Salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries | 435,153 | 2,991,897,000 | 2,189,110,000 | |
Taxes payable of the consolidated VIEs without recourse to the primary beneficiaries | 330,452 | 2,272,023,000 | 1,564,692,000 | |
Short-term loans of the consolidated VIEs without recourse to the primary beneficiaries | 1,986,554 | 13,658,554,000 | 6,623,502,000 | |
Deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries | 1,156,753 | 7,953,255,000 | 6,237,969,000 | |
Accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries | 850,624 | 5,848,463,000 | 4,692,310,000 | |
Long-term payable of the consolidated VIEs without recourse to the primary beneficiaries | $ 7,804 | ¥ 53,656,000 | ¥ 18,250,000 | |
Ordinary shares, US$0.0001 par value (in dollars per share) | $ / shares | $ 0.0001 | $ 0.0001 | ||
Ordinary shares, shares authorized | shares | 1,000,300,000 | 1,000,300,000 | 1,000,300,000 | |
Ordinary shares, shares issued | shares | 3,199,018 | 3,199,018 | 3,283,217 | |
Ordinary shares, shares outstanding | shares | 3,199,018 | 3,199,018 | 3,283,217 | |
Primary Beneficiary Consolidated VIEs | ||||
Accounts payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 1,022,340,000 | ¥ 941,358,000 | ||
Salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries | 109,917,000 | 106,265,000 | ||
Taxes payable of the consolidated VIEs without recourse to the primary beneficiaries | 84,118,000 | 22,058,000 | ||
Short-term loans of the consolidated VIEs without recourse to the primary beneficiaries | 129,900,000 | 0 | ||
Deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries | 6,672,715,000 | 5,853,904,000 | ||
Accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries | 1,866,234,000 | 1,966,436,000 | ||
Long-term payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 7,500,000 | ¥ 7,500,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Income ¥ in Thousands, shares in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)¥ / sharesshares | Dec. 31, 2017CNY (¥)¥ / sharesshares | Dec. 31, 2016CNY (¥)¥ / sharesshares | |
Net revenues: | ||||
Total net revenues | $ 9,767,501 | ¥ 67,156,453 | ¥ 54,102,019 | ¥ 38,178,844 |
Cost of revenues | ||||
Total cost of revenues | (5,636,384) | (38,752,957) | (28,189,326) | (16,515,032) |
Gross profit | 4,131,117 | 28,403,496 | 25,912,693 | 21,663,812 |
Operating expenses: | ||||
Selling and marketing expenses | (1,385,568) | (9,526,470) | (6,957,596) | (4,481,815) |
General and administrative expenses | (464,190) | (3,191,537) | (2,429,858) | (1,506,154) |
Research and development expenses | (1,133,379) | (7,792,550) | (4,371,428) | (3,046,979) |
Total operating expenses | (2,983,137) | (20,510,557) | (13,758,882) | (9,034,948) |
Operating profit | 1,147,980 | 7,892,939 | 12,153,811 | 12,628,864 |
Other income/(expenses): | ||||
Investment income/(losses), net | (3,238) | (22,266) | 362,113 | 200,333 |
Interest income, net | 85,451 | 587,518 | 667,323 | 541,969 |
Exchange gains/(losses) | (16,482) | (113,323) | (448,827) | 146,510 |
Other, net | 87,154 | 599,230 | 277,080 | 377,685 |
Income before tax | 1,300,865 | 8,944,098 | 13,011,500 | 13,895,361 |
Income tax | (358,764) | (2,466,681) | (2,162,363) | (2,102,498) |
Net income | 942,101 | 6,477,417 | 10,849,137 | 11,792,863 |
Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests | (36,084) | (248,098) | ||
Net income attributable to noncontrolling interests and redeemable noncontrolling interests | (11,186) | (76,912) | (141,198) | (188,343) |
Net income attributable to the NetEase, Inc.'s shareholders | 894,831 | 6,152,407 | 10,707,939 | 11,604,520 |
Net income | 942,101 | 6,477,417 | 10,849,137 | 11,792,863 |
Other comprehensive income | ||||
Unrealized losses on available-for-sale securities, net of tax | ¥ | (23,321) | (232,633) | ||
Reclassification adjustment for losses on available-for-sale securities recorded in net income, nil of tax | ¥ | 266,660 | |||
Foreign currency translation adjustment | 2,709 | 18,624 | (1,573) | |
Total other comprehensive income | 2,709 | 18,624 | (24,894) | 34,027 |
Total comprehensive income | 944,810 | 6,496,041 | 10,824,243 | 11,826,890 |
Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests | (11,186) | (76,912) | (141,198) | (188,343) |
Comprehensive income attributable to the NetEase, Inc.'s shareholders | $ 933,624 | ¥ 6,419,129 | ¥ 10,683,045 | ¥ 11,638,547 |
Net income per share, basic (in CNY and dollars per share) | (per share) | $ 0.28 | ¥ 1.90 | ¥ 3.25 | ¥ 3.54 |
Net income per ADS, basic (in CNY and dollars per share) | (per share) | 6.91 | 47.54 | 81.36 | 88.40 |
Net income per share, diluted (in CNY and dollars per share) | (per share) | 0.27 | 1.89 | 3.23 | 3.51 |
Net income per ADS, diluted (in CNY and dollars per share) | (per share) | $ 6.87 | ¥ 47.26 | ¥ 80.74 | ¥ 87.72 |
Weighted average number of ordinary shares outstanding, basic (in shares) | 3,235,324 | 3,235,324 | 3,290,312 | 3,281,729 |
Weighted average number of ADS outstanding, basic (in shares) | 129,413 | 129,413 | 131,612 | 131,269 |
Weighted average number of ordinary shares outstanding, diluted (in shares) | 3,254,689 | 3,254,689 | 3,315,478 | 3,307,109 |
Weighted average number of ADS outstanding, diluted (in shares) | 130,188 | 130,188 | 132,619 | 132,284 |
Services | ||||
Net revenues: | ||||
Total net revenues | $ 7,056,786 | ¥ 48,518,932 | ¥ 42,654,982 | ¥ 33,748,455 |
Cost of revenues | ||||
Total cost of revenues | (3,067,362) | (21,089,648) | (17,741,107) | (12,602,876) |
Products | ||||
Net revenues: | ||||
Total net revenues | 2,710,715 | 18,637,521 | 11,447,037 | 4,430,389 |
Cost of revenues | ||||
Total cost of revenues | $ (2,569,022) | ¥ (17,663,309) | ¥ (10,448,219) | ¥ (3,912,156) |
Consolidated Statements of Op_2
Consolidated Statements of Operations and Comprehensive Income (Parenthetical) - CNY (¥) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements of Operations and Comprehensive Income | |||
Reclassification adjustment for losses on available-for-sale securities recorded in net income, tax | ¥ 0 | ¥ 0 | ¥ 0 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity ¥ in Thousands, shares in Thousands, $ in Thousands | Ordinary sharesCNY (¥)shares | Additional paid-in capitalCNY (¥) | Treasury stockCNY (¥)shares | Statutory reservesCNY (¥) | Accumulated other comprehensive incomeCNY (¥) | Retained earningsCNY (¥) | Noncontrolling InterestsCNY (¥) | USD ($)shares | CNY (¥)shares |
Balance at Dec. 31, 2015 | ¥ 2,685 | ¥ 1,779,331 | ¥ 1,010,917 | ¥ 27,452 | ¥ 26,419,698 | ¥ 83,516 | ¥ 29,323,599 | ||
Balance (in shares) at Dec. 31, 2015 | shares | 3,286,932 | ||||||||
Ordinary shares issued upon settlement of restricted share units | ¥ 18 | (18) | |||||||
Ordinary shares issued upon settlement of restricted share units (in shares) | shares | 27,664 | ||||||||
Share-based compensation | 1,057,715 | 1,057,715 | |||||||
Appropriation to statutory reserves | 149,244 | (149,244) | |||||||
Net income attributable to NetEase, Inc. and noncontrolling interest shareholders | 11,604,520 | 188,343 | 11,792,863 | ||||||
Repurchase of shares | ¥ (1,199,102) | (1,199,102) | |||||||
Repurchase of shares (in shares) | shares | (33,116) | ||||||||
Cancellation of treasury stock | ¥ (27) | (1,199,075) | ¥ 1,199,102 | ||||||
Cancellation of treasury stock (in shares) | shares | (33,116) | 33,116 | |||||||
Net change in unrealized gains on available-for-sale securities | 34,027 | 34,027 | |||||||
Capital injection in subsidiaries by noncontrolling interest shareholders | 3 | 1 | 4 | ||||||
Dividends to shareholders | (2,546,165) | (2,546,165) | |||||||
Balance at Dec. 31, 2016 | ¥ 2,676 | 1,637,953 | 1,160,161 | 61,479 | 35,328,812 | 271,860 | 38,462,941 | ||
Balance (in shares) at Dec. 31, 2016 | shares | 3,281,480 | ||||||||
Ordinary shares issued upon settlement of restricted share units | ¥ 21 | (21) | |||||||
Ordinary shares issued upon settlement of restricted share units (in shares) | shares | 29,805 | ||||||||
Share-based compensation | 2,177,079 | 2,177,079 | |||||||
Appropriation to statutory reserves | 46,063 | (46,063) | |||||||
Net income attributable to NetEase, Inc. and noncontrolling interest shareholders | 10,707,939 | 126,502 | 10,834,441 | ||||||
Repurchase of shares | ¥ (2,061,591) | (2,061,591) | |||||||
Repurchase of shares (in shares) | shares | (28,068) | ||||||||
Cancellation of treasury stock | ¥ (19) | (2,061,572) | ¥ 2,061,591 | ||||||
Cancellation of treasury stock (in shares) | shares | (28,068) | 28,068 | |||||||
Net change in unrealized gains on available-for-sale securities | (23,321) | (23,321) | |||||||
Capital injection in subsidiaries by noncontrolling interest shareholders | 311,500 | 311,500 | |||||||
Dividends to shareholders | (3,257,607) | (3,257,607) | |||||||
Foreign currency translation adjustment | (1,573) | (1,573) | |||||||
Deconsolidation of a subsidiary/Disposal of a subsidiary | (6,729) | (6,729) | |||||||
Balance at Dec. 31, 2017 | ¥ 2,678 | 1,753,439 | 1,206,224 | 36,585 | 42,733,081 | 703,133 | ¥ 46,435,140 | ||
Balance (in shares) at Dec. 31, 2017 | shares | 3,283,217 | 3,283,217 | 3,283,217 | ||||||
Ordinary shares issued upon settlement of restricted share units | ¥ 19 | (19) | |||||||
Ordinary shares issued upon settlement of restricted share units (in shares) | shares | 30,709 | ||||||||
Share-based compensation | 2,397,798 | 131,852 | ¥ 2,529,650 | ||||||
Appropriation to statutory reserves | 8,354 | (8,354) | |||||||
Net income attributable to NetEase, Inc. and noncontrolling interest shareholders | 6,400,505 | 76,912 | 6,477,417 | ||||||
Repurchase of shares | ¥ (7,592,598) | (7,592,598) | |||||||
Repurchase of shares (in shares) | shares | (114,908) | ||||||||
Cancellation of treasury stock | ¥ (77) | ¥ (4,151,218) | ¥ 7,592,598 | (3,441,303) | |||||
Cancellation of treasury stock (in shares) | shares | (114,908) | 114,908 | |||||||
Repurchase of noncontrolling interest and redeemable noncontrolling interests | (223,243) | (131,143) | (354,386) | ||||||
Capital injection in subsidiaries by noncontrolling interest shareholders | 15,510 | 15,510 | |||||||
Dividends to shareholders | (1,440,194) | (1,440,194) | |||||||
Foreign currency translation adjustment | 18,624 | 18,624 | |||||||
Deconsolidation of a subsidiary/Disposal of a subsidiary | (5,654) | (5,654) | |||||||
Accretion of redeemable noncontrolling interests | (88,712) | (8,768) | (97,480) | ||||||
Balance at Dec. 31, 2018 | ¥ 2,620 | ¥ 1,214,578 | 17,050 | 43,997,388 | 794,209 | $ 6,694,182 | ¥ 46,025,845 | ||
Balance (in shares) at Dec. 31, 2018 | shares | 3,199,018 | 3,199,018 | 3,199,018 | ||||||
Cumulative effect of changes in accounting principles related to revenue recognition and financial instruments | ¥ (38,159) | ¥ 65,608 | ¥ 12,367 | ¥ 39,816 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Cash flows from operating activities: | ||||
Net income | $ 942,101 | ¥ 6,477,417 | ¥ 10,849,137 | ¥ 11,792,863 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 303,033 | 2,083,501 | 801,804 | 327,515 |
Fair value change of equity security investments and other financial instruments | 36,095 | 248,169 | ||
Investment impairment | 23,228 | 159,703 | 58,537 | 278,906 |
Share-based compensation cost | 367,922 | 2,529,650 | 2,004,263 | 990,131 |
Allowance for doubtful accounts | 7,411 | 50,954 | 60,826 | 9,952 |
Loss/(Gain) on disposal of property, equipment and software | (201) | (1,385) | 5,072 | 1,276 |
Unrealized exchange (gains)/losses | 5,735 | 39,427 | 437,868 | (166,638) |
Gain on disposal of long-term investments, business and subsidiaries | (31,029) | (213,339) | (9,595) | (234,050) |
Deferred income taxes | (10,166) | (69,899) | (438,043) | 66,676 |
Net equity share of losses from equity method investees | 14,297 | 98,301 | 12,232 | 85,813 |
Fair value changes of short-term investments | (67,428) | (463,600) | (389,793) | (304,605) |
Changes in operating assets and liabilities: | ||||
Accounts receivable | (103,401) | (710,932) | 565,228 | (1,646,885) |
Inventories | 66,476 | 457,053 | (3,896,799) | (760,365) |
Prepayments and other current assets | (105,114) | (722,711) | (116,240) | (1,063,997) |
Accounts payable | (12,391) | (85,195) | 1,100,787 | 604,089 |
Salary and welfare payables | 117,286 | 806,401 | 700,479 | 570,466 |
Taxes payable | 100,886 | 693,639 | (155,904) | 986,390 |
Deferred revenue | 262,465 | 1,804,579 | (1,291,890) | 2,879,489 |
Accrued liabilities and other payables | 34,055 | 234,144 | 1,591,269 | 1,071,240 |
Net cash provided by operating activities | 1,951,260 | 13,415,877 | 11,889,238 | 15,488,266 |
Cash flows from investing activities: | ||||
Purchase of property, equipment and software | (367,704) | (2,528,149) | (1,842,933) | (1,135,533) |
Proceeds from sale of property, equipment and software | 973 | 6,691 | 4,425 | 2,064 |
Purchase of intangible assets and licensed copyrights of music content | (196,336) | (1,349,905) | (674,803) | (4,434) |
Purchase of land use right | (437,489) | (3,007,959) | (6,488) | (60) |
Net change of short-term investments with terms of three months or less | (170,508) | (1,172,326) | (895,298) | (3,704,332) |
Purchase of short-term investments | (1,952,294) | (13,423,000) | (12,491,000) | (12,439,000) |
Proceeds from maturities of short-term investments | 1,905,531 | 13,101,476 | 15,615,544 | 9,879,319 |
Investment in equity method investees | (39,626) | (272,451) | (235,769) | (364,486) |
Acquisitions of other equity investments | (400,123) | (2,751,040) | (900,712) | (181,117) |
Proceeds from disposal of investment in equity method investees and other equity investments | 350,418 | 249,569 | ||
Placement/rollover of time deposits | (6,043,695) | (41,553,428) | (33,984,148) | (20,367,430) |
Proceeds from maturity of time deposits | 5,806,781 | 39,924,525 | 22,429,597 | 16,377,449 |
Change in other long-term assets | (79,114) | (543,949) | (224,103) | (173,402) |
Net cash used in investing activities | (1,973,604) | (13,569,515) | (12,855,270) | (11,861,393) |
Cash flows from financing activities: | ||||
Net proceeds from short-term loan with terms of three months or less | 900,896 | 6,194,113 | 3,095,465 | 1,494,756 |
Proceeds of short-term loan | 4,982 | 34,256 | 9,505 | |
Repayment of short-term loan | (2,728) | (18,761) | ||
Dividends paid to shareholders | (209,468) | (1,440,194) | (3,257,607) | (2,546,165) |
Repurchase of redeemable noncontrolling interests | (113,446) | (780,000) | ||
Proceeds from issuance of redeemable noncontrolling interest shareholders, net of issuance cost | 770,006 | 5,294,174 | 600,000 | |
Repurchase of noncontrolling interest | (28,362) | (195,000) | ||
Capital injection from noncontrolling interest shareholders | 2,256 | 15,510 | 311,500 | 4 |
Repurchase of shares | (1,093,256) | (7,516,679) | (2,061,591) | (1,199,102) |
Net cash (used in)/provided by financing activities | 230,880 | 1,587,419 | (1,302,728) | (2,250,507) |
Effect of exchange rate changes on cash held in foreign currencies | 11,855 | 81,511 | (12,766) | 132,285 |
Net increase/(decrease) in cash, cash equivalents and restricted cash | 220,391 | 1,515,292 | (2,281,526) | 1,508,651 |
Cash, cash equivalents and restricted cash, beginning of the year | 1,264,089 | 8,691,246 | 10,972,772 | 9,464,121 |
Cash, cash equivalents and restricted cash, end of the year | 1,484,480 | 10,206,538 | 8,691,246 | 10,972,772 |
Supplemental disclosures of cash flow information: | ||||
Cash paid for income taxes, net of tax refund | 291,856 | 2,006,657 | 2,712,875 | 1,097,178 |
Cash paid for interest expenses | 43,889 | 301,761 | 84,708 | 31,171 |
Supplemental schedule of non-cash investing and financing activities: | ||||
Fixed asset purchases financed by accounts payable | $ 59,519 | ¥ 409,222 | ¥ 293,194 | ¥ 260,277 |
Organization and Nature of Oper
Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2018 | |
Organization and Nature of Operations | |
Organization and Nature of Operations | 1. (a) The Group NetEase.com, Inc. was incorporated in the Cayman Islands on July 6, 1999 and changed its name to “NetEase, Inc.” (“the Company”) with effect from March 29, 2012. The Company has been listed on the Nasdaq National Market (now the Nasdaq Global Select Market) in the United States of America since July 2000. As of December 31, 2018, the Company has wholly-owned and majority-owned subsidiaries incorporated in countries and jurisdictions mainly in the People’s Republic of China (“PRC”), Hong Kong, Cayman Islands and British Virgin Islands (“BVI”). The Company also effectively controls a number of variable interest entities (“VIEs”) for which the Company is the primary beneficiary. The Company, its subsidiaries and VIEs are hereinafter collectively referred to as the “Group”. The major subsidiaries and VIEs through which the Company conducts its business operations as of December 31, 2018 are described below: Place and year of Major Subsidiaries Incorporation NetEase Information Technology (Beijing) Co., Ltd. (“NetEase Beijing”) Beijing, China 1999 Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”) Guangzhou, China 2003 NetEase Youdao Information Technology (Beijing) Co., Ltd. (“Youdao Information”) Beijing, China 2006 NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”) Hangzhou, China 2006 Hangzhou Langhe Technology Co., Ltd. (“Hangzhou Langhe”) Hangzhou, China 2009 NetEase Media Technology (Beijing) Co., Ltd. (“Media Beijing”) Beijing, China 2012 HQG, Limited ("HQG") Hong Kong, China 2014 Hangzhou Youmai Technology Co., Ltd. ("Hangzhou Youmai") Hangzhou, China 2014 Tianjin Wang Zhi Yi Innovation and Technology Co., Ltd. ("Tianjin Technology") Tianjin, China 2015 Hangzhou Netease Yanxuan Trading Co., Ltd. ("Hangzhou Yanxuan") Hangzhou, China 2016 Place and year of Major VIEs and VIEs' subsidiaries Incorporation Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”) Guangzhou, China 1997 Beijing NetEase Media Co., Ltd. (previously named "Beijing Guangyitong Advertising Co., Ltd.") (“NetEase Advertising”) Beijing, China 1999 Shanghai EaseNet Network Technology Co., Ltd. (“Shanghai EaseNet”) Shanghai, China 2008 StormNet Information Technology (Hong Kong) Limited (“StormNet IT HK”) Hong Kong, China 2008 StormNet Information Technology (Shanghai) Co., Ltd. (“StormNet IT SH”) Shanghai, China 2008 Hangzhou NetEase Leihuo Network Co., Ltd. (“HZ Leihuo”) Hangzhou, China 2009 Wangyibao Co., Ltd. (“Wangyibao Company”) Hangzhou, China 2010 Guangzhou NetEase, a principal VIE of the Company, was incorporated in June 1997 in China and owned by William Lei Ding, or Mr. Ding, the Company’s Chief Executive Officer, director and major shareholder, and another Chinese employee of the Group. It is responsible for providing online game, e-mail and other value-added telecommunication services. NetEase Advertising, owned by Mr. Ding and another Chinese employee of the Group, was incorporated in November 1999 in China. NetEase Advertising operates the Company’s portal business. HZ Leihuo was incorporated in April 2009 in China by two Chinese employees of the Group and currently operates the Company’s mobile game business. Wangyibao Company was incorporated in July 2010 in China as a wholly-owned subsidiary of Guangzhou NetEase for the purpose of operating the NetEase Pay (formerly known as Wangyibao) online payment platform of the Company to facilitate e-payments by online game or other services customers to the Company. In addition, Shanghai EaseNet is a PRC company owned by Mr. Ding, and has contractual arrangements with the joint venture established between, and owned equally by, Blizzard Entertainment, Inc. (“Blizzard”) and the Company, and with the Company. The joint venture was established concurrently with the licensing of certain online games in August 2008 and provides technical services to Shanghai EaseNet. The joint venture currently consists of two companies, StormNet IT HK and its wholly-owned subsidiary StormNet IT SH. The following combined financial information of the Group’s VIEs was included in the accompanying consolidated financial statements of the Group as follows (in thousands): December 31, December 31, 2017 2018 RMB RMB Total assets 9,729,718 10,491,261 Total liabilities 8,897,521 9,892,724 For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net revenues 31,043,737 40,584,251 43,323,784 Net income 448,771 357,163 224,220 For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net cash provided by/(used in) operating activities 1,736,702 (124,670) 402,754 Net cash (used in)/provided by investing activities (270,733) 122,286 (720,675) Net cash (used in)/provided by financing activities (57,000) 4,000 229,862 In accordance with various contractual agreements, the Company has the power to direct the activities of the VIEs and can have assets transferred out of the VIEs. Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective VIEs, except for the registered capital of the VIEs amounting to approximately RMB536.2 million and RMB562.2 million, respectively, as of December 31, 2017 and 2018, as well as certain non-distributable statutory reserves amounting to approximately RMB27.2 million and RMB32.1 million, respectively, as of December 31, 2017 and 2018. As the respective VIEs are incorporated as limited liability companies under the PRC Company Law, creditors do not have recourse to the general credit of the Company for the liabilities of the respective VIEs. Currently, there are certain contractual arrangements between the Company and several of its VIEs which require the Company to provide additional financial support or guarantees to its VIEs, where necessary. Please see Note 1(b) for additional information. There is no entity in the Company’s group for which the Company has a variable interest but is not the primary beneficiary as of December 31, 2018. (b) Nature of operations The Group generates revenues from providing online game services, e-commerce, advertising services, and initiative businesses and others. The industry in which the Group operates is subject to a number of industry-specific risk factors, including, but not limited to, rapidly changing technologies; government regulations of the Internet, online game and e-commerce industry in China; significant numbers of new entrants; dependence on key individuals; competition of similar services from larger companies; customer preferences; and the need for the continued successful development, marketing and selling of its services. VIE Arrangements with Guangzhou NetEase, NetEase Advertising, HZ Leihuo, and Shanghai EaseNet The Group conducts its business mainly in China. The Chinese government regulates Internet access, telecommunications services, the distribution of news and other information and the provision of commerce through strict business licensing requirements and other governmental regulations, which include, among others, those restricting foreign ownership in Chinese companies providing Internet advertising and other Internet or telecommunications value-added services. To comply with the existing Chinese laws and regulations, the Company and certain of its subsidiaries have entered into a series of contractual arrangements with its principal VIEs with respect to the operation of the NetEase websites, operation of self-developed and licensed PC-client and mobile games, Internet content and wireless value-added services, as well as the provision of advertising services. Our major VIEs include: (1) Guangzhou NetEase (owned by Mr. Ding and a Chinese employee of the Group, (together referred as “the VIE shareholders”)), (2) NetEase Advertising (owned by Mr. Ding and another Chinese employee of the Group), (3) HZ Leihuo (owned by two employees of the Group), and (4) Shanghai EaseNet (owned by Mr. Ding). Based on the agreements with these VIEs, the Company’s subsidiaries NetEase Beijing, Media Beijing, Boguan and NetEase Hangzhou provided technical consulting and related services to these VIEs. The principal agreements that transfer economic benefits of Guangzhou NetEase, NetEase Advertising and HZ Leihuo to the Company and its subsidiaries are: · Cooperative agreements with Guangzhou NetEase — under these agreements, the Company’s subsidiaries NetEase Beijing, Boguan and NetEase Hangzhou provide various technical consulting and related services to Guangzhou NetEase in exchange for substantially all of Guangzhou NetEase’s net profits. · Cooperative agreements with NetEase Advertising — under these agreements, NetEase Beijing until October 2013, and Media Beijing from October 2013 onwards, provide various technical consulting and related services in exchange for substantially all of NetEase Advertising’s profits. · Cooperative agreement with HZ Leihuo — under this agreement, the Company’s subsidiary NetEase Hangzhou provides various technical consulting and related services to HZ Leihuo in exchange for substantially all of HZ Leihuo’s net profits. Each cooperative agreement will remain in effect indefinitely unless any one of the contract parties terminates such agreement by written notice or otherwise required by law. The principal agreements that provide the Company and its subsidiaries effective control over Guangzhou NetEase are: · Shareholder Voting Rights Trust Agreement among the VIE shareholders and NetEase Beijing. Each of the VIE shareholders irrevocably appoints NetEase Beijing to represent him to exercise all the voting rights to which he is entitled as a shareholder of Guangzhou NetEase. The term of this agreement was 10 years from May 12, 2000, which was extended on June 10, 2011 with a term of 20 years from May 12, 2010. · Letter of Agreement. Each of the VIE shareholders have agreed that any amendments to be made to the agreements to which the Company, NetEase Beijing and/or their respective affiliates is a party, on the one hand, and any of their variable interest entities and/or the shareholders of such entities, on the other hand, shall be subject to the approval by the vote of a majority of the Board of the Company, excluding the vote of Mr. Ding. The VIE shareholders have also agreed that, if any amendments to the above mentioned agreements require a vote of the shareholders of the Company or Guangzhou NetEase, as applicable, both of them will vote in their capacity as direct or indirect shareholders of these companies to act based upon the instructions of the Company’s Board. The term of this agreement is 20 years from May 12, 2010. · Other Governance Arrangements. The parties have agreed that upon the Company’s determination and at any time when NetEase Beijing or its affiliates are able to obtain approval to invest in and operate all or any part of any business operated by Guangzhou NetEase, NetEase Beijing or its affiliates may acquire all or any part of the assets or equity interests of Guangzhou NetEase, to the extent permitted by Chinese law. The principal agreements that provide the Company and its subsidiaries effective control over NetEase Advertising are: · Operating Agreement among Media Beijing, NetEase Advertising and the VIE shareholders of NetEase Advertising. To ensure the successful performance of the various agreements between the parties, NetEase Advertising and its VIE shareholders have agreed that, except for transactions in the ordinary course of business, NetEase Advertising will not enter into any transaction that would materially affect the assets, liabilities, rights or operations of NetEase Advertising without the prior written consent of Media Beijing. Media Beijing has also agreed that it will provide performance guarantees and, at Media Beijing’s discretion, guarantee loans for working capital purposes to the extent required by NetEase Advertising for its operations. Furthermore, the VIE shareholders of NetEase Advertising have agreed that, upon instruction from Media Beijing, they will appoint NetEase Advertising’s board members, president, chief financial officer and other senior executive officers. The term of this agreement is 20 years from November 30, 2015 and can be extended with the written consent of Media Beijing. · Shareholder Voting Rights Trust Agreement among Media Beijing and the VIE Shareholders of NetEase Advertising. Under these agreements, each dated November 30, 2015, each of the VIE shareholders agreed to irrevocably entrust a person designated by Media Beijing to represent him to exercise all the voting rights and other shareholders’ rights to which he is entitled as a shareholder of NetEase Advertising. Each agreement shall remain effective for as long as the VIE shareholder remains a shareholder of NetEase Advertising unless Media Beijing unilaterally terminates the agreement by written notice. · Exclusive Purchase Option Agreements among Media Beijing, NetEase Advertising and the VIE shareholders of NetEase Advertising. Under the Exclusive Purchase Option Agreements, each dated November 30, 2015, each of the VIE shareholders has granted Media Beijing an option to purchase all or a portion of his equity interest in NetEase Advertising at a price equal to the original paid-in capital paid by the VIE shareholder. In addition, NetEase Advertising has granted Media Beijing an option under the Exclusive Purchase Option Agreements to purchase all or a portion of the assets held by NetEase Advertising or its subsidiaries at a price equal to the net book value of such assets. Each of NetEase Advertising and the VIE shareholders of NetEase Advertising agrees not to transfer, mortgage or permit any security interest to be created on any equity interest in or assets of NetEase Advertising without the prior written consent of Media Beijing. Each Exclusive Purchase Option Agreement shall remain in effect until all of the equity interests in or assets of NetEase Advertising have been acquired by Media Beijing or its designee or until Media Beijing unilaterally terminates the agreement by written notice. The principal agreements that provide the Company and its subsidiaries effective control over HZ Leihuo are: · Operating Agreement among NetEase Hangzhou, HZ Leihuo and the VIE shareholders of HZ Leihuo. To ensure the successful performance of the various agreements between the parties, HZ Leihuo and its VIE shareholders have agreed that, except for transactions in the ordinary course of business, HZ Leihuo will not enter into any transaction that would materially affect the assets, liabilities, rights or operations of HZ Leihuo without the prior written consent of NetEase Hangzhou. NetEase Hangzhou has also agreed that it will provide performance guarantees and, at NetEase Hangzhou’s discretion, guarantee loans for working capital purposes to the extent required by HZ Leihuo for its operations. Furthermore, the VIE shareholders of HZ Leihuo have agreed that, upon instruction from NetEase Hangzhou, they will appoint HZ Leihuo’s board members, president, chief financial officer and other senior executive officers. The term of this agreement is 20 years from December 1, 2015 and can be extended with the written consent of NetEase Hangzhou. · Shareholder Voting Rights Trust Agreement among NetEase Hangzhou and the VIE shareholders of HZ Leihuo. Under these agreements, each dated December 1, 2015, each of the VIE shareholders of HZ Leihuo has agreed to irrevocably entrust a person designated by NetEase Hangzhou to represent him to exercise all the voting rights and other shareholders’ rights to which he is entitled as a shareholder of HZ Leihuo. Each agreement shall remain effective for as long as the VIE shareholder remains a shareholder of HZ Leihuo unless NetEase Hangzhou unilaterally terminates the agreement by written notice. · Exclusive Purchase Option Agreements among NetEase Hangzhou, HZ Leihuo and the VIE shareholders of HZ Leihuo. Under the Exclusive Purchase Option Agreements, each dated December 1, 2015, each of VIE shareholders of HZ Leihuo has granted NetEase Hangzhou an option to purchase all or a portion of his equity interest in HZ Leihuo at a price equal to the original paid-in capital paid by the ultimate shareholder. In addition, HZ Leihuo has granted NetEase Hangzhou an option to purchase all or a portion of the assets held by HZ Leihuo or its subsidiaries at a price equal to the net book value of such assets. Each of HZ Leihuo and the VIE shareholders of HZ Leihuo agrees not to transfer, mortgage or permit any security interest to be created on any equity interest in or assets of HZ Leihuo without the prior written consent of NetEase Hangzhou. Each Exclusive Purchase Option Agreement shall remain in effect until all of the equity interests in or assets of HZ Leihuo have been acquired by NetEase Hangzhou or its designee or until NetEase Hangzhou unilaterally terminates the agreement by written notice. The Joint Venture In addition to the foregoing, in connection with the licensing of certain online games by Blizzard to Shanghai EaseNet for operation in the PRC, there are certain contractual arrangements among Shanghai EaseNet, the joint venture established between Blizzard and the Company, and the Company. StormNet IT HK, StormNet IT SH and Shanghai EaseNet (collectively referred to as the “JV Group”) are variable interest entities as equity investment at risk is not sufficient to permit the JV Group to finance its activities without additional subordinated financial support provided by any parties. As Blizzard receives its interest as an indirect contribution from NetEase, Blizzard and the Company are considered related parties for purposes of identifying which party is the primary beneficiary under ASC 810. Since the aggregate variable interests held by Blizzard and NetEase would, if held by a single party, identify that party as the primary beneficiary, either Blizzard or the Company will be the primary beneficiary. Based on the assessment of all relevant facts and circumstances, the Company determined that the Company is most closely associated with the JV Group and therefore is the primary beneficiary. As a result, the JV Group’s results of operations, assets and liabilities have been included in the Company’s consolidated financial statements. The Company conducts substantially all of its business through the various VIEs discussed above and their subsidiaries, and therefore these companies directly affect the Company’s financial performance and cash flows. As discussed below, if the Chinese government determines the VIE agreements do not comply with applicable laws and regulations and requires the Company to restructure its operations entirely or discontinue all or any portion of its business, or if the uncertainties in the PRC legal system limit the Group’s ability to enforce these contractual agreements, the Group’s business operations will be significantly disrupted and the Group might be unable to consolidate these companies in the future. In the opinion of management, the likelihood of loss in respect of the Group’s current ownership structure or the contractual arrangements with its VIEs is remote. Risks related to the VIE arrangements The Company believes that its contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. Mr. Ding, who is the major shareholder of Guangzhou NetEase, and is in turn the major shareholder of Wangyibao Company, and of Shanghai EaseNet and NetEase Advertising, is the largest shareholder of the Company. He therefore has no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if Mr. Ding were to reduce his interest in the Company, his interests may diverge from that of the Company and that may potentially increase the risk that he would seek to act contrary to the contractual terms, for example by influencing the VIEs not to pay the service fees when required to do so. If the VIEs or their respective shareholder fail to perform their respective obligations under the current contractual arrangements, the Company may have to incur substantial costs and expend significant resources to enforce those arrangements and rely on legal remedies under Chinese laws. The Chinese laws, rules and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws, rules and regulations involve substantial uncertainties. These uncertainties may impede the ability of the Company to enforce these contractual arrangements, or suffer significant delay or other obstacles in the process of enforcing these contractual arrangements and materially and adversely affect the results of operations and the financial position of the Company. In addition, many Chinese regulations are subject to extensive interpretive powers of governmental agencies and commissions, and there are substantial uncertainties regarding the interpretation and application of current and future Chinese laws and regulations. Accordingly, the Company cannot be assured that Chinese regulatory authorities will not ultimately take a contrary view to its belief and will not take action to prohibit or restrict its business activities. The relevant regulatory authorities would have broad discretion in dealing with any deemed violations which may adversely impact the financial statements, operations and cash flows of the Company (including the restriction on the Company to carry out the business). It is unclear, however, how such restructuring could impact the Company’s business and operating results, as the Chinese government has not yet found any such contractual arrangements non-compliant. If the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government could potentially: · revoke the Group’s business and operating licenses; · require the Group to discontinue or restrict operations; · restrict the Group’s right to collect revenues; · block the Group’s websites; · require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the necessary licenses or relocate the Group’s businesses, staff and assets; · impose additional conditions or requirements with which the Group may not be able to comply; or · take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business. The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the Group to lose the rights to direct the activities of the VIEs or the right to receive their economic benefits, the Group would no longer be able to consolidate the VIEs. The Group does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, its subsidiaries or the VIEs. |
Principal Accounting Policies
Principal Accounting Policies | 12 Months Ended |
Dec. 31, 2018 | |
Principal Accounting Policies | |
Principal Accounting Policies | 2. (a) Basis of consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs for which the Company is the primary beneficiary with the ownership interests of minority shareholders reported as noncontrolling interests. All significant transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation. The Company consolidates a VIE if the Company has the power to direct matters that most significantly impact the activities of the VIE, and has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. (b) The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements are prepared based on the historical cost convention. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results might differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: average playing period of paying players of online games, realization of deferred tax assets and the determination of uncertain tax positions, lower of cost and market value of inventories, useful lives and impairment provision of property, equipment and software and intangibles, assumptions related to stock-based compensation and impairment of long-term investments. (c) On January 1, 2018, the Group adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Group's historic accounting under Topic 605. For the year ended December 31, 2018, net revenue recognized from sources other than contracts with customers under ASC 606 was immaterial. Revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services, reduced by estimates for return allowances, promotional discounts, rebates and Value Added Tax (“VAT”). The recognition of revenues involves certain management judgments, including estimated lives of virtual items purchased by game players, estimated breakage of game points, return allowance for goods sold, the estimation of the fair value of an advertising-for-advertising barter transaction, volume sales rebates. The amount and timing of the Group’s revenues could be different if management made different judgments or utilized different estimates. The Group’s service sales represent revenues from online game services, advertising services, other initiative businesses and others. Product sales represent revenue from the sale of products through its e-commerce platform where the Group records revenue on a gross basis. Refer to “Note 24 - Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC-client games. The Group is the principal of all games it operates, including both self-developed games and licensed games. As all these games are hosted on the Group’s servers, the Group has the pricing discretion, and is responsible for the sale and marketing of the games as well as customer services. Fees paid to game developers, distribution channels (app stores) and payment channels are recorded as cost of revenues. Mobile games The Group generates mobile game revenues from the sale of in-game virtual items, including items, avatars, skills, privileges or other in-game consumables, features or functionality, within the games. The Group’s performance obligation is to provide on-going game services to players who purchased virtual items to gain an enhanced game-playing experience. This performance obligation is satisfied over the playing period of the paying players. Accordingly, the Group recognizes the revenues ratably over the estimated average playing period of these paying players. The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors to arrive at the best estimates for the estimated playing period of the paying players for each game. If a new game is launched and only a limited period of paying player data is available, then the Group considers other qualitative factors, such as the playing patterns for paying users for other games with similar characteristics and playing patterns of paying players, such as targeted players and purchasing frequency. While the Group believes its estimates to be reasonable based on available game player information, the Group may revise such estimates based on new information indicating a change in the game player behavior patterns and any adjustments are applied prospectively. PC-client games The Group sells prepaid point cards to the end users. Customers can purchase physical prepaid point cards in different locations in China, including Internet cafés, software stores, convenience stores and bookstores. Customers can also purchase “virtual” prepaid points from vendors who register the points in the Group’s system and “virtual” prepaid cards online via debit and credit cards or bank transfers via the online payment services platforms, and receive the prepaid point information over the Internet. Customers can use the points to play the Group’s PC-client games, pay for in-game items and use other fee-based services. Proceeds received from the sales of prepaid point cards and online points to players are recorded as deferred revenues. The Group earns revenue through providing PC-client game services to players under two types of revenue models: time-based revenue model and item-based revenue model. For PC-client games using the time-based model, players are charged based on the time they spend playing games. Revenues are recognized ratably over the game playing period as the performance obligations are satisfied. Under the item-based model, the basic game play functions are free of charge, and players are charged for purchases of in-game items. In-game items have different life patterns: one-time use, limited life and permanent life. Revenues from the sales of one-time use in-game items are recognized upon consumption. Limited life items are either limited by the number of uses (for example, 10 times) or limited by time (for example, three months). Revenues from the sales of limited life in-game items are recognized ratably based on the extent of time passed or expired or when the items are fully used. Players are allowed to use permanent life in-game items without any use or time limits. Revenues from the sales of permanent life in-game items are recognized ratably over the estimated average playing period of the paying players. The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors, including the acceptance and popularity of expansion packs, promotional events launched and market conditions to arrive at the best estimates for the playing period of the paying players for the permanent in-game items of PC-client games. This estimate is re-assessed on a quarterly basis. Adjustments arising from the changes of estimated playing period of the paying players are applied prospectively as such changes are resulted from new information indicating a change in the game player behavior patterns. Breakage of unused PC-client game points The Group recognizes expected breakage associated with the Group’s unused online points with expiry dates in a personal game account as revenue in proportion to the pattern of points consumed by the customer, subject to the constrain for estimating variable consideration. For game points that do not expire, the Group recognizes the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. (ii) E-commerce The Group’s e-commerce businesses mainly include cross-border and domestic e-commerce business. The Group established its cross-border e-commerce platform Kaola, in January 2015 and primarily sells imported maternity and baby products, skincare and cosmetics and other general merchandise through online direct sales. In addition, the Group established its domestic e-commerce platform Yanxuan, in April 2016 and sells its private label products, including apparel, homeware, kitchenware and other general merchandise which are sourced primarily directly from original design manufacturers in China. The Group is the principal for the online direct sales, as it controls the inventory before they are transferred to customers. The Group has the primary responsibility for fulfilling the contracts, bears the inventory risk, and has sole discretion in establishing the prices. E-commerce revenues from online direct sales are recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to the customer. The Group also act as the marketplace service provider for third-party vendors to sell their products on the Group’s platform. In online marketplace business, third-party sellers offer products to customers on the Group’s platform and the Group acts as the marketplace service provider. The Group is not the seller of the third-parties’ goods in these transactions and recognize revenue when services are rendered based on a pre-determined service fee rate. The Group also provides discount coupons to its customers for use in purchases on the Kaola and Yanxuan platform, which are treated as a reduction of revenue when the related transaction is recognized. Return allowance Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances and rights to recover products from customers associated with the Group's liabilities are recorded as "Accrue liabilities and other payables" and "Inventories,net", respectively, on the Group's consolidated balance sheets. Both of the balances are not material as of December 31, 2017 and 2018. (iii) Advertising services The Group derives its advertising revenues principally from short-term online advertising contracts. Advertising service contracts may consist of multiple performance obligations with a typical term of less than three months. Each performance obligation generally represent different formats of advertisement, including but not limited to banners, text-links, videos, logos, buttons and rich media. In arrangements where the Group has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Group generally determines standalone selling prices based on the prices charged to customers. If the performance obligation has not been sold separately, the Group estimates the standalone selling price by taking into consideration of the pricing for advertising areas of the Group’s platform with a similar popularities and advertisements with similar formats and quoted prices from competitors as well as other market conditions. Considerations allocated to each performance obligation is recognized as revenue over the advertisement display period, which is usually within three months. The Group also enters into performance-based advertising arrangements with customers. The Group enters into cost per mille ("CPM"), or cost per thousand impressions, advertising arrangements with customers, under which the Group recognizes revenues based on the number of times that the advertisement has been displayed. The Group also enters into cost per action ("CPA") advertising arrangements with customers, under which the Group recognizes revenues based on the number of actions completed resulted from the advertisements, including but not limited to when users click on links. Certain customers may receive volume rebates, which are accounted for as variable consideration. The Group estimates annual expected revenue volume with reference to their historical results and reduce revenues recognized. The Group recognizes revenue from providing advertising service in exchange for non-cash consideration, usually advertising services, promotional benefits, content, consulting services and software provided by counterparties, at the fair value of the non-cash consideration measured as of contract inception date. If the Group is not able to reliably determine the fair value of noncash consideration in some situations, the value of the noncash consideration received is measured indirectly by reference to the standalone selling price of advertising services provided by the Group. The Group has been engaged in certain advertising barter transactions, which primarily involved exchanges of advertising services rendered by the Group for advertising, promotional benefits, content, consulting services and software provided by the counterparties. For the years ended December 31, 2016 and 2017, no revenue from rendering advertising services in exchange for non-cash consideration was recognized as the fair value was not determinable. For the year ended December 31, 2018, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (iv) Innovative businesses and others On December 31, 2018, the Group renamed its "e-mail and others" segment to "innovative businesses and others" to better articulate the businesses included in this segment. For details please see Note 24 - Segment Information. Revenue from innovative businesses and others is predominantly derived from fee-based premium services, online payment platform services and other online services. Fee-based premium services revenues, mostly operated on either consumption-basis or a monthly subscription basis, are derived principally from providing premium live-streaming services, online music services, online reading, e-mail and other innovative businesses. Prepaid subscription fees collected from customers are deferred and are recognized as revenue on a straight-line basis by the Group over the subscription period, during which customers can access the premium online services provided by the Group. Fees collected from customer to be consumed to purchase online services are recognized as revenue when related services are rendered. The Group generates revenue from the operation of its live streaming platforms whereby users can enjoy live performances provided by the hosts and interact with the hosts. Most of the hosts host the performance on their own. The Group creates and sells virtual items to users so that the users present them simultaneously to hosts to show their support. The virtual items sold by the Group comprise of either (i) consumable items or (ii) time-based item, such as privilege titles etc. Under the arrangements with the hosts, the Group shares with them a portion of the revenues derived from the sales of virtual items. Revenues derived from the sale of virtual items are recorded on a gross basis as the Group acts as the principal to fulfill all obligations related to the sale of virtual items. Accordingly, revenue is recognized when the virtual item is delivered and consumed if the virtual item is a consumable item or, in the case of time-based virtual item, recognized ratably over the period each virtual item is made available to the user. In February 2009, the Group launched its NetEase Pay payment platform, through which customers registered for NetEase Pay operations can deposit money in their accounts and use the accounts to pay for game point cards and other fee-based services and products. The Group recognizes revenue when services are rendered to account holders in accordance with service agreement. The Group offers online services related to third-party virtual products to facilitate the sale of products from third-party providers. The Group acts as an agent and do not buy, sell, manufacture, or design such products. Revenues are recognized when services are rendered to customers based on the pre-determined service fee rate. The Group also operated its "Duobao" platform, which provides services that allow users to purchase the virtual currency, "Duobao Bi", and use them to exchange for products. For the services where the Group acts as an agent, products are provided by third-party suppliers and revenues are recognized on a net basis when services are rendered. The Group terminated the Duobao platform in early 2017. Practical Expedients The Group has used the following practical expedients as allowed under ASC 606: (i) (ii) (iii) Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The Group closely monitors the collection of its accounts receivables and records a reserve for doubtful accounts against aged accounts and for specifically identified non-recoverable amounts. If the economic situation and the financial condition of the customer deteriorate resulting in an impairment of the customer’s ability to make payments, additional allowances might be required. Accounts receivables balances are written off when they are determined to be uncollectible. The following table sets out the movements of the allowance for doubtful accounts for the years ended December 31, 2016, 2017 and 2018 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) cost and corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2016 14,185 9,952 (1) 24,136 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 The Group's right to consideration in exchange for goods or services that the Group has transferred to a customer is recognized as a contract asset. Contract assets as of January 1, 2018 and December 31, 2018 were not material. A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Contract liabilities are presented as “Deferred Revenue” on the consolidated balance sheets of the Group. Refer to Note 14 - Deferred revenue for further information, including changes in deferred revenue during the year. (d) Cost of revenues Costs of revenues consist primarily of purchase price, inbound shipping costs and inventory write downs , staff costs, royalties and consultancy fees related to licensed games, revenue sharing cost related to mobile games, depreciation and amortization of computers and software, server custody fees, bandwidth, and other direct costs of providing these services. These costs are charged to the consolidated statements of operations and comprehensive income as incurred. Shipping and handling costs, which primarily include third-party delivery costs relating to the delivery of products from distribution centers to customers, fulfillment expenses occurred in the Group's various distribution facilities and packing material expenses, are classified as selling and marketing expenses. Shipping and handling costs included in selling and marketing expenses were approximately RMB503.0 million, RMB1,182.7 million and RMB1,670.4 million (US$242.9 million) for the years ended December 31, 2016, 2017 and 2018, respectively. (e) Research and development costs Research and development costs mainly consist of personnel-related expenses and technology service costs incurred for the development of online games prior to the establishment of technological feasibility and costs associated with new products development. For the years ended December 31, 2016, 2017 and 2018, the costs incurred for development of online game products have not been capitalized because the period after the date technical feasibility is reached and the time when the game is marketed is short historically and the development cost incurred in the period are insignificant. (f) Cash, cash equivalents and time deposits Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in Hong Kong or China, and highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase with terms of less than three months. As of December 31, 2017, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars, HK dollars and Euro amounting to approximately US$112.5 million, HK$5.3 million and Euro1.6 million, respectively. As of December 31, 2018, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars , HK dollars and Euro amounting to approximately US$269.9 million, HK$90.7 million and Euro1.0 million, respectively (equivalent to approximately RMB1,852.7 million, RMB79.5 million and RMB7.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. As of December 31, 2017, there were time deposits denominated in US dollars amounting to approximately US$2,547.8 million. As of December 31, 2018, there were time deposits denominated in US dollars amounting to approximately US$2,456.3 million (equivalent to approximately RMB16,857.9 million). As of December 31, 2017 and 2018, the Group had approximately RMB15.1 billion and RMB12.7 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and VIEs, representing 45.1% and 33.1% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2017 and 2018, the Group had a restricted cash balance approximately RMB5,927.1 million and RMB4,817.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2017 2018 RMB RMB Customer deposit of NetEase Pay accounts 1,554.8 1,364.4 Pledge deposits for short-term bank borrowings — Current 4,091.0 2,695.0 Pledge deposits for Letter of Guarantee 271.0 748.5 Others 10.3 9.4 Total 5,927.1 4,817.3 The Group had no other lien arrangements during 2017 and 2018. (g) Fair value of financial instruments Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value: Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets Level 2 — Include other inputs that are directly or indirectly observable in the marketplace Level 3 — Unobservable inputs which are supported by little or no market activity The Group’s financial instruments include cash and cash equivalents and time deposits, accounts receivable, prepayments and other current assets, short-term investments, accounts payable, short-term loan, deferred revenue and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 25 for additional information. (h) Inventories, net Inventories, net mainly represent products for the Group’s e-commerce business, are stated at the lower of cost or net realizable value in the consolidated balance sheets. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Group takes ownership, risks and rewards of the products purchased. Write downs are recorded in cost of revenues in the consolidated statements of operations and comprehensive income. Certain costs attributable to buying and receiving products, such as purchase freights, are also included in inventories. (i) Investments Short-term investments Short-term investments include investments in financial instruments with a variable interest rate indexed to performance of underlying assets, all of which are with an original maturities of less than 12 months. In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of operations and comprehensive income as other income /(expense), net. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 5 and Note 25 for additional information. Long-term investments Long-term investments are comprised of equity investments in publicly traded companies and privately-held companies. Equity investments in publicly traded companies are reported at fair value as equity investment with readily determinable fair value. Prior to January 1, 2018, they were classified as available-for-sale equity securities under long-term investments, with unrealized gains or losses, if any, recorded in accumulated other comprehensive income/(loss) in shareholders’ equity. The treatment of a decline in the fair value of an individual security was based on whether the decline was other-than-temporary. The Group assessed its available-for-sale equity securities for other-than-temporary impairment by considering factors including, but not limited to, its ability and intent to hold the individual security, severity of the impairment, expected duration of the impairment and forecasted recovery of fair value. If the Group determines a decline in fair value was other-than-temporary, the cost basis of the individual security was written down to fair value as a new cost basis and the amount of the write-down was accounted for as a realized loss charged to the consolidated statements of comprehensive income. The fair value of the investment would then become the new cost basis of the investment and were not adjusted for subsequent recoveries in fair value. Starting January 1, 2018, upon the adoption of ASU 2016-01, unrealized gains and losses during the year are recognized in other income/(expense), net. Prior to January 1, 2018, investments in common stock or in-substance common stock issued by privately-held companies on which the Group does not have significant influence, and investments in privately-held companies’ shares that are not ordinary shares or in-substance ordinary shares, as these equity securities do not have readily determinable fair value, the Group carried these investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings that exceed the Group’s share of earnings since its investment. Starting January 1, 2018, upon the adoption of ASU 2016-01, the Group elects to measure these equity securities investments without readily determinable fair value at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). All gains and losses on these equity securities, realized and unrealized, are recognized in other income/(expense), net. Management regularly evaluates the impairment of the investments in privately-held companies based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in earnings equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment. (j) Investment in equity method investees Investments in common stock or in-substance common stock of investees and limited-partnership investments in which the Group is in a position to exercise significant influence by participating in, but not controlling or jointly controlling, the financial and operating policies are accounted for using the equity method and are reported under long-term investments in the consolidated balance sheets . (k) Property, equipment and software Property, equipment and software are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the following estimated useful lives, taking into account any estimated residual value: Building 20 years Decoration 5 years Leasehold improvements lesser of the term of the lease and the estimated useful lives of the assets Furniture, fixtures, office and other equipment 3-10 years Vehicles 5 years Servers and computers 3 years Software 3 years Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred. (l) Intangible assets Finite-lived intangible assets are tested for impairment if impairment indicators arise. The Group amortizes its finite-lived intangible assets using the straight-line method: Land use right over the remaining term of the land use right period License right over the license period Technology 10 years The Group obtains music content for customers through licensing agreements. When the license fee for music title is determinable or reasonably estimable and the content is available for streaming, the Group recognizes an asset representing the fee and a corresponding liability for the amounts owed. The Group relieves the liability as payments are made and the Group amortizes the asset to “Cost of revenues” on a straight-line basis over the term of the respective licensing agreements. (m) Advertising expenses The Group expenses advertising costs as incurred and reports these costs under selling and marketing expense. Advertising expenses totaled approximately RMB1,116.9 million, RMB2,310.6 million and RMB2,933.8 (US$426.7 million) for the years ended December 31, 2016, 2017 and 2018, respectively. (n) Foreign currency translation The Group’s reporting currency is RMB. The Company and its subsidiaries and VIEs, with an exception of several subsidiaries incorporated in Cayman Islands, use RMB as their functional currency. In 2017, several of the Company’s subsidiaries incorporated in Cayman Islands changed their functional currency from RMB to US$. The determination of the respective functional currency is based on the criteria of ASC 830, Foreign Currency Matters and such change has not resulted in any material effect on the Group’s financial statements. Transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in curre |
Concentrations and Risks
Concentrations and Risks | 12 Months Ended |
Dec. 31, 2018 | |
Concentrations and Risks | |
Concentrations and Risks | 3. Concentrations and Risks (a) Bandwidth and server custody service provider The Group relied on telecommunications service providers and their affiliates for bandwidth and server custody service to support its operations during fiscal years 2016, 2017 and 2018 as follows: For the year ended December 31, 2016 2017 2018 Total number of telecommunications service providers 14 23 49 Number of service providers provided by 10% or more of the Group’s bandwidth and server custody expenditure 3 3 3 Total % of the Group’s bandwidth and server custody expenditure provided by 10% or greater service providers 79.5 % 67.8 % 57.8 % (b) Credit risk Financial instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and cash equivalents, time deposits, restricted cash, accounts receivable and short-term investments. As of December 31, 2017 and 2018, substantially all of the Group's cash equivalents, time deposits and restricted cash were held in major financial institutions located in the PRC or Hong Kong, which management consider being of high credit quality. Accounts receivable are typically unsecured and are generally derived from revenue earned from mobile games services (mainly related to remittances from distribution channels) and advertising services. One distribution channel had a receivable balance exceeding 10% of the total accounts receivable balance for the year ended December 31, 2017 and 2018, as follows: December 31, December 31, 2017 2018 Distribution channel A 34.6 % 22.2 % Allowance for doubtful accounts Not applicable Not applicable Short-term investments consist of financial products issued by commercial banks in China with a variable interest rate indexed to performance of underlying assets, which have a maturity date within one year as of the purchase date. The effective yields of the short-term investments range from 1.90% to 5.50% per annum. Any negative events or deterioration in financial well-being with respect to the counterparties of the above investments and the underlying collateral may cause a material loss to the Group and have a material effect on the Group’s financial condition and results of operations. (c) Major Customers No single customer represented 10% or more of the Group’s total net revenues for the years ended December 31, 2016, 2017 and 2018. (d) Online Games The Group derived 46.3%, 44.3% and 30.2% of its total net revenues from its top 5 online games for the years ended December 31, 2016, 2017 and 2018, respectively. Additionally, 61.9%, 70.8% and 71.0% of the Group’s total net game revenues were generated from mobile games for the years ended December 31, 2016, 2017 and 2018, respectively. |
Prepayments and Other Current A
Prepayments and Other Current Assets | 12 Months Ended |
Dec. 31, 2018 | |
Prepayments and Other Current Assets | |
Prepayments and Other Current Assets | 4. Prepayments and Other Current Assets The following is a summary of prepayments and other current assets (in thousands): December 31, December 31, 2017 2018 RMB RMB Guarantee payment made to Blizzard - royalty fees 42,697 97,642 Prepayment for royalties, revenue sharing cost 1,479,817 2,000,327 Interest and other operating income receivable 417,843 511,364 Prepayments of content and marketing cost and other operational expenses 381,213 729,376 Prepayment for sales tax and deductible value added tax 698,902 463,411 Bridge loans in connection with ongoing investments 30,575 19,679 Deposits 138,633 123,995 Employee advances 55,045 44,469 Advance to suppliers 337,938 330,903 Others 233,365 306,631 3,816,028 4,627,797 In accordance with the license agreements of World of Warcraft ®, StarCraft ® II series, Hearthstone ®, Heroes of the Storm®, Diablo ® III and Overwatch®, the Group made certain guarantee payments to Blizzard on behalf of Shanghai EaseNet for the minimum guaranteed royalties as of December 31, 2017 and 2018. The guarantee amounts will be released to the Group when actual royalties are paid by Shanghai EaseNet to Blizzard. As of December 31, 2017 and 2018, prepayments for royalties and revenue sharing cost representing prepaid royalties or revenue sharing cost related to operations of licensed PC and mobile games. The amount of employee advances listed above included staff housing loan balances of RMB48.5 million and RMB43.1 million repayable within 12 months from December 31, 2017 and 2018, respectively (see Note 9). No advances were made directly or indirectly to the Group’s executive officers for their personal benefit for the years ended December 31, 2017 and 2018. |
Short-term Investments
Short-term Investments | 12 Months Ended |
Dec. 31, 2018 | |
Short-term Investments | |
Short-term Investments | 5. As of December 31, 2017 and 2018, the Group’s short-term investments mainly consisted of financial products issued by commercial banks in China with a variable interest rate indexed to the performance of underlying assets and a maturity date within one year when purchased. As of December 31, 2018, the effective yields of short-term investments ranged from 1.90% to 5.50% per annum (2017: 2.00% to 5.30% per annum). The following is a summary of short-term investments (in thousands): December 31, 2017 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 9,597,381 145,282 9,742,663 9,597,381 145,282 9,742,663 December 31, 2018 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 11,528,300 146,475 11,674,775 11,528,300 146,475 11,674,775 During the years ended December 31, 2016, 2017 and 2018, the Group recorded investment income related to short-term investments of RMB303.4 million, RMB389.5 million and RMB463.6 million in the consolidated statements of operations and comprehensive income, respectively. |
Property, Equipment and Softwar
Property, Equipment and Software | 12 Months Ended |
Dec. 31, 2018 | |
Property, Equipment and Software | |
Property, Equipment and Software | 6. The following is a summary of property, equipment and software (in thousands): December 31, December 31, 2017 2018 RMB RMB Building and decoration 1,496,971 1,499,947 Leasehold improvements 98,278 176,174 Furniture, fixtures and office equipment 124,201 141,697 Vehicles 68,414 76,913 Servers and computers 2,583,270 3,885,881 Software 86,650 96,850 Construction in progress 1,086,773 2,153,966 5,544,557 8,031,428 Less: accumulated depreciation (1,775,231) (2,652,868) Net book value 3,769,326 5,378,560 Depreciation expense was RMB312.9 million, RMB522.2 million and RMB954.7 million for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2017 and 2018, the construction in progress balance were mainly comprised of construction of office buildings and warehouses in Hangzhou, Zhoushan, Guangzhou and Ningbo that have not yet been placed in service for our intended use. All the related cost is capitalized in construction in progress to the extent it is incurred for the purposes of bringing the construction development to a usable state. |
Land Use Rights
Land Use Rights | 12 Months Ended |
Dec. 31, 2018 | |
Land Use Rights | |
Land Use Rights | |
Land Use Rights | 7. Land use rights represent acquired right to use the land on which the Group’s offices and warehouses are built. In 2018, the Group obtained the land use rights in Guangzhou, Shanghai and Tianjin from the local authorities. Amortization of the land use right is made over the remaining term of the land use right period from the date when the land was made available for use by the Group. The land use rights are summarized as follows (in thousands): December 31, December 31, 2017 2018 RMB RMB Cost 637,057 3,581,508 Incentive payment from local government (15,000) (15,000) Accumulated amortization (28,778) (63,939) Land use right, net 593,279 3,502,569 The total amortization expense for each of the years ended December 31, 2016, 2017 and 2018 amounted to approximately RMB11.4 million, RMB12.5 million, and RMB35.2 million, respectively. |
Long-term Investments
Long-term Investments | 12 Months Ended |
Dec. 31, 2018 | |
Long-term Investments | |
Long-term Investments | 8. The following is a summary of long-term investments (in thousands): December 31, December 31, 2017 2018 RMB RMB Investments in equity method investees 563,896 736,551 Equity investments with readily determinable fair values 828,260 612,465 Equity investments without readily determinable fair values 1,292,620 3,897,092 2,684,776 5,246,108 (a) The Group recorded equity share of loss of RMB85.8 million, RMB12.2 million, and RMB98.3 million for the years ended December 31, 2016, 2017 and 2018, respectively, which was included in “investment income, net” in the consolidated statements of operations and comprehensive income. Significant equity method investments are summarized as follows. (1) In August 2013, the Group established a joint venture with China Telecom Corp. Ltd. (“China Telecom”), Hangzhou Yixin Technology Co., Ltd. (“Yixin”) to launch “YiChat”, a proprietary social instant messaging application for smart phones. The Group contributed RMB200.0 million cash in exchange for a 27.0% equity interest in Yixin. In July 2015, the Group increased its equity shares in Yixin to 35.0% with a cash consideration of approximately RMB127.5 million. (2) In 2016, the Group acquired a 49.0% equity interest in MAXWIN (B.V.I) LIMITED ("MAXWIN"), which is engaged in the retail business of casual and sportswear apparel, for a consideration of approximately RMB344.6 million in cash. In 2017, the Group disposed the 49.0% equity interest in MAXWIN for a cash consideration of approximately RMB340.4 million. (3) As of December 31, 2018, the Group contributed RMB228.6 million cash in a limited partnership as a limited partner. The objective of the limited partnership is to engage in investment in on-line game business. The Group accounted such investment under the equity method. (b) As of December 31, 2018, equity investments with readily determinable fair values included RMB509.5 million invested in shares of Huatai Securities Company Limited (“Huatai”) and RMB102.9 million invested in shares of Caissa Touristic Group (“Caissa”). The Group recorded unrealized fair value loss of RMB215.8 million related to the equity investments with readily determinable fair value for the year ended December 31, 2018. Prior to adoption of ASU 2016-01, these investments were classified as available-for-sale equity securities. For the year ended December 31, 2016 and 2017, RMB266.7 million and nil impairment provision for Huatai were recognized as “investment income, net” in the consolidated statements of comprehensive income, respectively. The Group also received cash dividends of RMB21.4 million, RMB20.9 million and RMB12.7 million from Huatai for the years ended December 31, 2016, 2017 and 2018, respectively. (c) Equity investments without determinable fair value represent investments in privately held companies with no readily determinable fair value. The Group does not have significant influence on these investees, or the investments are not common stock or in substance common stock. Prior to January 1, 2018, the Group accounted for investments in these equity securities at cost less impairment. On January 1, 2018, the Group adopted ASU 2016-01 prospectively. These investments are classified as equity investments without determinable fair value, and are carried at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For the year ended December 31, 2018, there's no upward adjustments to the carrying value of equity securities without readily determinable fair value resulted from such transactions. The Group did not sell any investments in equity securities without readily determinable fair value during the year ended December 31, 2018. The Group recognized a gain of RMB234.1 million and RMB9.6 million related to the partial disposal of one of the Group’s investment in equity securities without readily determinable fair value as “investment income, net” in the consolidated statements of operations and comprehensive income for the years ended December 31, 2016 and 2017. The Group recognized impairment provision of RMB12.2 million, RMB58.5 million and RMB133.6 million related to certain of the equity investments as “investment income, net” in the consolidated statements of operations and comprehensive income for the years ended December 31, 2016, 2017 and 2018, respectively. |
Other Long-term Assets
Other Long-term Assets | 12 Months Ended |
Dec. 31, 2018 | |
Other Long-term Assets | |
Other Long-term Assets | 9. The following is a summary of other long-term assets (in thousands): December 31, December 31, 2017 2018 RMB Copyrights, licenses and domain names 820,362 2,464,971 Staff housing loans 107,203 98,244 Non-current deposits 93,147 109,805 Others 91,867 287,656 1,112,579 2,960,676 Balances of copyrights and licenses represents prepaid minimum royalties for exploitation of related intellectual properties, which was amortized over the term of the respective licensing agreements or estimated amortization periods. The Group made housing loans to its employees (excluding executive officers) for house purchases via a third-party commercial bank in China. Each individual staff housing loan is collateralized either by the property for which the loan is extended or by approved personal guarantees for the loan amount granted. The repayment term is five years from the date of drawdown. The interest rate is fixed varying from 1.5% to 3.25% per annum for the years ended December 31, 2017 and 2018, respectively. The outstanding portion of the staff housing loans repayable within 12 months as of December 31, 2017 and 2018 amounted to approximately RMB48.5 million and RMB43.1 million, respectively, and are reported under prepayments and other current assets in the consolidated balance sheets (see Note 4). |
Taxation
Taxation | 12 Months Ended |
Dec. 31, 2018 | |
Taxation | |
Taxation | 10. (a) Income taxes Cayman Islands Under the current laws of the Cayman Islands, the Company, and its intermediate holding companies in the Cayman Islands are not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company or its subsidiaries in the Cayman Islands to their shareholders, no Cayman Islands withholding tax will be imposed. British Virgin Islands (“BVI”) Subsidiaries in the BVI are exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI. Hong Kong Subsidiaries in Hong Kong are subject to 16.5% income tax for 2016, 2017 and 2018 on their taxable income generated from operations in Hong Kong. The payments of dividends by these companies to their shareholders are not subject to any Hong Kong withholding tax. China On March 16, 2007, the National People’s Congress of PRC enacted the Enterprise Income Tax Law, under which Foreign Invested Enterprises (“FIEs”) and domestic companies would be subject to enterprise income tax (“EIT”) at a uniform rate of 25%. Preferential tax treatments will continue to be granted to FIEs or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as “Software Enterprises”, “Key Software Enterprises” and/or “High and New Technology Enterprises” (“HNTEs”). The Enterprise Income Tax Law became effective on January 1, 2008. NetEase Beijing, Boguan, NetEase Hangzhou, Media Beijing and Hangzhou Langhe were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2016, 2017 and 2018. In 2016, 2017 and 2018, Boguan, Netease Hangzhou and Media Beijing were qualified as a Key Software Enterprise and enjoyed a further reduced preferential tax rate of 10% for 2015, 2016 and 2017. The related tax benefit was recorded in 2016, 2017 and 2018, respectively. Lede Technology was recognized as a Software Enterprise in 2014. It was exempt from EIT for 2014 and 2015 and subject to a 50% reduction in its EIT rate from 2016 to 2018. Tianjin Technology was recognised as a Software Enterprise in 2016 to enjoy exemption from EIT for 2015 and 2016 and subject to a 50% reduction in its EIT rate from 2017 to 2019. Hence, the related tax benefit for 2015 was recorded in 2016. The aforementioned preferential tax rates are subject to annual review by the relevant tax authorities in China. The following table presents the combined effects of EIT exemptions and tax rate reductions enjoyed by the Group for the years ended December 31, 2016, 2017 and 2018 (in thousands except per share data): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,417,150 1,464,587 1,621,063 Earnings per share effect, basic 0.43 0.45 0.50 Earnings per share effect, diluted 0.43 0.44 0.50 The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2016, 2017 and 2018 (in thousands): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Current tax expense 2,035,822 2,600,406 2,536,580 Deferred tax expense/(benefit) 66,676 (438,043) (69,899) Income tax expenses 2,102,498 2,162,363 2,466,681 The following table presents a reconciliation of the differences between the statutory income tax rate and the Group’s effective income tax rate for the years ended December 31, 2016, 2017 and 2018: For the year ended December 31, 2016 2017 2018 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (0.8) (0.5) 2.3 Effect due to different tax rates applicable to overseas entities (0.1) (0.5) 3.7 Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (13.3) (16.2) (24.1) Change in valuation allowance 1.4 3.4 13.1 Effect of withholding income tax 2.9 5.4 7.6 Effective income tax rate 15.1 16.6 27.6 As of December 31, 2018, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2019 3,582 Loss expiring in 2020 9,222 Loss expiring in 2021 191,412 Loss expiring in 2022 968,390 Loss expiring after 2022 4,083,469 5,256,075 Full valuation allowance was provided on the related deferred tax assets as the Group’s management does not believe that sufficient positive evidence exists to conclude that recoverability of such deferred tax assets is more likely than not to be realized. (b) Sales tax Pursuant to the provision regulation of the PRC on VAT and its implementation rules, the Company’s subsidiaries and VIEs are generally subject to VAT at a rate of 6% from revenues earned from services provided. All entities that engaged in the sale of general goods in China are generally required to pay VAT at a rate of 17% or other applicable value added tax rate implemented by the provision regulation of the gross sales proceeds received, less any creditable value added tax already paid or borne by the taxpayer. Pursuant to further VAT reform implemented from 1 May, 2018, all industries that were previously subject to VAT at a rate of 17% were adjusted to 16%. The Group is also subject to cultural development fee on the provision of advertising services in China. The applicable tax rate is 3% of the advertising services revenue. (c) Deferred tax assets and liabilities The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Deferred tax assets: Deferred revenue, primarily for advanced payments from online games customers 285,919 507,982 Accruals 510,522 616,453 Depreciation of fixed assets 3,697 5,103 Amortization of Intangible assets 55,168 43,899 Net operating tax loss carry forward 742,512 1,653,496 1,597,818 2,826,933 Less: valuation allowance (774,323) (1,762,638) Total 823,495 1,064,295 December 31, December 31, 2017 2018 RMB RMB Deferred tax liabilities: Withholding income tax (d) 183,642 392,945 Others 29,573 736 Total 213,215 393,681 The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of deferred tax assets of certain entities of the Group is more likely than not to be realized. Consequently, the Group has provided full valuation allowances for certain entities of the Group on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented (in thousands): Balance at Provision/(Write-off) Balance at January 1 for the year December 31 RMB RMB RMB 2016 223,644 143,784 367,428 2017 367,428 406,895 774,323 2018 774,323 988,315 1,762,638 (d) Withholding income tax The Enterprise Income Tax Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China. Such withholding income tax was exempted under the previous income tax law. On February 22, 2008, the Ministry of Finance and State Administration of Taxation jointly issued a circular which stated that for FIEs, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors. Based on the interpretation of the current tax laws, management believes that the Company and all its non-PRC subsidiaries are not considered as a “resident enterprise” in China for corporate income tax purposes, but it cannot be certain that the relevant PRC tax authorities will agree with this determination. Except for the foregoing withholding taxes, the Company’s non-PRC subsidiaries, which are currently all incorporated in Hong Kong, the British Virgin Islands or Cayman Islands are not subject to taxation on dividends they receive from the Company’s PRC subsidiaries. In 2016, the Group accrued RMB404.8 million withholding tax liabilities, associated with its quarterly dividend and cash expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes. In 2017, the Group altered its capital allocation strategy due to the change of business strategy. As a result, the Group recorded withholding tax liabilities of RMB707.1 million and RMB679.4 million (US$98.8 million) in 2017 and 2018, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2017 and 2018. As of December 31, 2017 and 2018, there were approximately RMB1,079.5 million and RMB1,057.7 million (US$153.8 million) unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries, respectively. And the Group still intends to indefinitely reinvest these remaining undistributed earnings in its PRC subsidiaries. |
Taxes Payable
Taxes Payable | 12 Months Ended |
Dec. 31, 2018 | |
Taxes Payable | |
Taxes Payable | 11. The following is a summary of taxes payable as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Value Added Tax payable 103,182 231,167 Withholding individual income taxes for employees 161,814 191,367 Enterprise income taxes 1,248,518 1,778,029 Others 51,178 71,460 1,564,692 2,272,023 |
Short-term Loan
Short-term Loan | 12 Months Ended |
Dec. 31, 2018 | |
Short-term Loan | |
Short-term Loan | 12. As of December 31, 2017 and 2018, the short-term loan balances represent short-term loan arrangements with banks which were repayable within a maturity term ranging from one month to one year and charged at a fixed interest rates ranging from 0.78% to 2.42% and 0.74% to 4.57% per annum, respectively. As of December 31, 2017 and 2018, the weighted average interest rate for the outstanding short-term loans was approximately 2.13% and 3.14%, respectively. The short-term loan are denominated in US$, EUR, HK$, JPY or CNY. As of December 31, 2017 and 2018, certain short-term loans were secured by RMB deposits of the Group in onshore branches of the banks in the amount of RMB4,091.0 million and RMB2,695.0 million (US$392.0 million), which was recognized as restricted cash (see Note 2(f)). On August 9, 2018, the Group entered into a three year US$500 million syndicated facility agreement with a group of four mandated lead arrangers and bookrunners. The facility is priced at 95 basis points over London interbank offered rate (“LIBOR”) and has a commitment fee of 0.20% on the undrawn portion. There were US$100 million of borrowings outstanding under the syndicated facility as of December 31, 2018. The Group was subject to certain covenants under the syndicated facility agreement and was in compliance with these covenants as of December 31, 2018. In 2018, the Group also entered into several uncommitted loan credit facility agreements provided by certain financial institution. As at December 31, 2018, US$933.5 million of such credit facilities has not been utilized. In the year ended December 31, 2018, the Company also entered into several guarantee agreements in the aggregate amount of US$785.0 million in respect of certain credit facilities taken by its subsidiaries. As at December 31, 2018, US$177.6 million of such credit facilities had not been utilized. |
Accrued Liabilities and Other P
Accrued Liabilities and Other Payables | 12 Months Ended |
Dec. 31, 2018 | |
Accrued Liabilities and Other Payables | |
Accrued Liabilities and Other Payables | 13. The following is a summary of accrued liabilities and other payables as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Customer deposits on NetEase Pay accounts 1,554,789 1,369,672 Marketing expenses and promotion materials 1,434,596 2,102,970 Accrued fixed assets related payables 294,970 413,723 Server custody fees and telecommunication charges 232,395 260,280 Accrued revenue sharing 187,838 373,559 Other staff related cost 38,950 80,400 Content cost 406,890 299,837 Professional fees 65,404 246,425 Accrued freight and warehousing charge 257,877 455,561 Others 218,601 246,036 4,692,310 5,848,463 |
Deferred Revenue
Deferred Revenue | 12 Months Ended |
Dec. 31, 2018 | |
Deferred Revenue | |
Deferred Revenue | 14. Deferred revenue represents sales proceeds from prepaid point cards, online points sold, unamortized mobile game in-game spending, prepaid products fees before delivery and prepaid subscription fees for Internet value-added services for which services are yet to be provided as of the balance sheet dates. For the year ended December 31, 2018, the additions to the deferred revenue balance were primarily due to cash payments received or due in advance of satisfying our performance obligations, while the reductions to the deferred revenue balance were primarily due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course of business. During the year ended December 31, 2018, RMB5,925.4 million of revenues recognized were included in the deferred revenue balance at the beginning of the year. As of December 31, 2018, the aggregate amount of transaction price allocated to our unsatisfied performance obligations is RMB7,953.3 million, which includes our deferred revenues balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize a significant majority of this balance as revenue over the next 12 months, and the remainder thereafter. This balance does not include an estimate for variable consideration arising from sales rebates to advertising service customers and estimated breakage for online points. |
Noncontrolling Interests and Re
Noncontrolling Interests and Redeemable Noncontrolling Interests | 12 Months Ended |
Dec. 31, 2018 | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | 15. NetEase Cloud Music In the first quarter of 2017, pursuant to the agreements entered into by certain of the Group's subsidiaries and VIE (together referred as "NetEase Cloud Music") and some investors, one of NetEase Cloud Music’s PRC subsidiary (“Hangzhou Cloud Music”) issued equity interests with preferential rights to certain investors for a total cash consideration of RMB600.0 million. In addition, Hangzhou Cloud Music issued equity interest to one investor for a total cash consideration of RMB150.0 million. After the issuance of the equity interests, the investors together held approximately 12.59% equity interests in NetEase Cloud Music. The Group determined that the equity interests with preferential rights of RMB600.0 million should be classified as redeemable noncontrolling interests since they are contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of the Company. The redemption price equals initial investment plus annual interests. Equity interests issued of RMB150.0 million was classified as noncontrolling interests. In the first quarter of 2018, due to the changes of NetEase Cloud Music financing plan, the Group repurchased all of the redeemable noncontrolling interests and noncontrolling interest issued in China by Hangzhou Cloud Music at a cash consideration of RMB780.0 million and RMB195.0 million, respectively (the “Onshore Repurchase”). The Group accounted for the Onshore Repurchase as an equity transaction, no gains or losses were recognized from the repurchase. The excess of the consideration transferred over the carrying amount of the noncontrolling interests surrendered, amounting to RMB63.9 million was recorded as a reduction to retained earnings. The excess of the consideration transferred over the carrying amount of the redeemable noncontrolling interests surrendered, amounting to RMB159.4 million was recognized as a deemed dividend to preferred shareholders, which also reduces the numerator for EPS calculation. The repurchased redeemable noncontrolling interest and noncontrolling interest of NetEase Cloud Music were then retired. Following the Onshore Repurchase, during 2018, Cloud Village Inc., the Cayman holding company of NetEase Cloud Music issued Preferred Shares ("NetEase Cloud Music Preferred Shares") to certain investors for an aggregated cash consideration of US$716.3 million (the “Offshore Issuance”). Immediately after the Offshore Issuance, the NetEase Cloud Music Preferred Shares investors together held approximately 24.13% issued and outstanding interests in Netease Cloud Music. The Company still maintains control of NetEase Cloud Music. The NetEase Cloud Music Preferred Shares were entitled to certain preferences and privileges with respect to redemption. The Group determined that the preferred shares should be classified as redeemable noncontrolling interests since they are contingently redeemable upon the occurrence of a conditional event or a deemed redemption event, which is not solely within the control of the Group. The redemption price equals to the net initial investment amount plus annual interests, if any. Others In April 2018, a subsidiary of the Group issued equity interests with preferential rights ("Other Preferred Shares") to a group of investor for a total cash consideration of US$70.0 million. The Group determined that the equity interests with preferential rights should be classified as redeemable noncontrolling interest since they are contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of the Company. The redemption price equals to the net initial investment amount plus annual interests. Each issuance of the preferred shares is recognized at the respective issue price at the date of issuance net of issuance costs. The Group records accretions on the redeemable noncontrolling interest to the redemption value from the issuance dates to the earliest redemption dates if redemption is probable. The accretions using the effective interest method, are recorded as deemed dividends to preferred shareholders, which reduces retained earnings and equity classified noncontrolling interests, and earnings available to common shareholders in calculating basic and diluted earnings per share. |
Capital Structure
Capital Structure | 12 Months Ended |
Dec. 31, 2018 | |
Capital Structure | |
Capital Structure | 16. The holders of ordinary shares in the Company are entitled to one vote per share and to receive ratably such dividends, if any, as may be declared by the board of directors of the Company. In the event of liquidation, the holders of ordinary shares are entitled to share ratably in all assets remaining after payment of liabilities. The ordinary shares have no preemptive, conversion, or other subscription rights. |
Employee Benefits
Employee Benefits | 12 Months Ended |
Dec. 31, 2018 | |
Employee Benefits | |
Employee Benefits | 17. The Company’s subsidiaries and VIEs incorporated in China participate in a government-mandated multi-employer defined contribution plan under which certain retirement, medical, housing and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s Chinese subsidiaries and VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; hence, the Group has no further commitments beyond its monthly contribution. The following table presents the Group’s employee welfare benefits expense for the years ended December 31, 2016, 2017 and 2018 (in millions): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Contributions to medical and pension schemes 481.8 626.4 849.3 Other employee benefits 315.1 410.5 593.4 796.9 1,036.9 1,442.7 |
Share-based Compensation
Share-based Compensation | 12 Months Ended |
Dec. 31, 2018 | |
Share-based Compensation | |
Share-based Compensation | 18. (a) Restricted share units plan In November 2009, the Company adopted a restricted share units plan for the Company’s employees, directors and consultants (the “2009 RSU Plan”). The Company has reserved 323,694,050 ordinary shares for issuance under the plan. The 2009 RSU Plan was adopted by a resolution of the board of directors on November 17, 2009 and became effective for a term of ten years unless sooner terminated. (b) Share-based compensation expense The Group recognizes share-based compensation cost in the consolidated statements of operations and comprehensive income based on awards ultimately expected to vest, after considering estimated forfeitures. Forfeitures are estimated based on the Group’s historical experience over the last five years and revised in subsequent periods if actual forfeitures differ from those estimates. The table below presents a summary of the Group’s share-based compensation cost for the years ended December 31, 2016, 2017 and 2018 (in thousands): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Cost of revenues 444,187 820,281 764,972 Selling and marketing expenses 52,689 95,382 116,611 General and administrative expenses 238,750 581,337 804,565 Research and development expenses 254,505 507,263 843,502 990,131 2,004,263 2,529,650 As of December 31, 2018, total unrecognized compensation cost related to unvested awards under the 2009 RSU Plan, adjusted for estimated forfeitures, was US$598.1 million (RMB4,112.5 million) and is expected to be recognized through the remaining vesting period of each grant. As of December 31, 2018, the weighted average remaining vesting period was 2.44 years. (c) The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2016, 2017 and 2018: Director and Employees Consultants Total (in thousands) (in thousands) (in thousands) Number of ordinary shares issuable upon vesting of restricted share units: Outstanding at January 1, 2016 39,623 162 39,785 Granted 30,980 100 31,080 Vested (27,545) (119) (27,664) Forfeited (1,633) — (1,633) Outstanding at December 31, 2016 41,425 143 41,568 Outstanding at January 1, 2017 41,425 143 41,568 Granted 31,452 45 31,497 Vested (29,705) (100) (29,805) Forfeited (1,465) — (1,465) Outstanding at December 31, 2017 41,707 88 41,795 Outstanding at January 1, 2018 41,707 88 41,795 Granted 33,807 46 33,853 Vested (30,671) (38) (30,709) Forfeited (2,305) — (2,305) Outstanding at December 31, 2018 42,538 96 42,634 The following table presents the total fair value of RSUs on vesting dates for the years ended December 31, 2016, 2017 and 2018, respectively: RSU US$ RMB (in millions) (in millions) Total fair value vested: 2016 177.2 1,230.4 2017 343.6 2,235.9 2018 324.4 2,230.7 The following table presents the weighted average remaining contractual life for the RSUs outstanding as of December 31, 2018: Weighted Average Weighted Number Outstanding Remaining Average Exercise Price / Exercisable Contractual Life Exercise Price (in thousands) Years US$ Restricted Share Units Performance-based settled in stock 36,687 3.66 n/a Time-based-settled in stock/cash 44,564 2.20 n/a Time-based-settled in stock 6,133 2.03 n/a 87,384 2.80 n/a The aggregate intrinsic value of RSUs outstanding as of December 31, 2018 was US$822.7 million. The intrinsic value was calculated based on the Company’s closing stock price of US$235.37 per ADS, or US$9.4148 per ordinary share as of December 31, 2018. It is the Company’s policy to issue new shares upon vesting of RSUs. The number of shares available for future grant under the Company’s 2009 RSU Plan was 79,343,175 as of December 31, 2018. (d) Certain of the Company’s subsidiaries have adopted stock option plans, which allow the related subsidiaries to grant options to certain employees of the Group. The options expire in five to seven years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met (“Vesting Commencement Date”). The award can become 100% vested on the Vesting Commencement Date, or vests in two, four or five substantially equal annual installments with the first installment vesting on the Vesting Commencement Date. The Group has used the binomial model to estimate the fair value of the options granted. For the years ended December 31, 2016, 2017 and 2018, nil, RMB93.1 and RMB38.7 million compensation expenses were recorded for the share options granted. While certain share options granted will become vested or commence vesting beginning on the Vesting Commencement Date, the effectiveness of the conditions is not within the control of the Group and is not deemed probable to occur for accounting purposes until the Vesting Commencement Date. For such share options, no compensation expenses were recorded. As of December 31, 2018, there were RMB352.6 million unrecognized share based compensation expenses are related to such share options for which the service condition had been met and are expected to be recognized when the conditions are achieved. |
Net Income Per Share
Net Income Per Share | 12 Months Ended |
Dec. 31, 2018 | |
Net Income Per Share | |
Net Income Per Share | 19. The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2016, 2017 and 2018: For the year ended December 31, 2016 2017 2018 Numerator (RMB in thousands): Net income attributable to NetEase, Inc.’s shareholders for basic/dilutive net income per share calculation 11,604,520 10,707,939 6,152,407 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,281,729 3,290,312 3,235,324 Dilutive effect of employee stock options and restricted share units 25,380 25,166 19,365 Weighted average number of ordinary shares outstanding, diluted 3,307,109 3,315,478 3,254,689 Net income per share, basic (RMB) 3.54 3.25 1.90 Net income per share, diluted (RMB) 3.51 3.23 1.89 Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income per share is computed using the weighted average number of ordinary shares and potential ordinary shares outstanding during the year. For the years ended December 31, 2016, 2017 and 2018, options to purchase ordinary shares and RSUs that were anti-dilutive and excluded from the calculation of diluted net income per share totaled approximately 2.7 million shares, 3.8 million shares and 19.6 million shares, respectively. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies | |
Commitments and Contingencies | 20. (a) Commitments The Group leases office space, staff quarters and certain equipment under non-cancelable operating lease agreements, which expire at various dates through December 2022. As of December 31, 2018, future minimum lease under non-cancelable operating lease agreements, capital commitments, royalties and other expenditures commitments related to licensed contents, including the royalties and minimum marketing expenditure commitment for the games licensed by Blizzard, as well as other commitments related to office machines and services purchases, were as follows (in thousands): Royalties and Server Custody Expenditure for Office Machines Rental Fee Capital Licensed Content and Other Commitments Commitments Commitments Commitments Commitments Total RMB RMB RMB RMB RMB RMB 2019 384,395 134,683 788,755 79,164 4,134,240 2020 270,552 43,290 719,101 60,838 2,638,948 2021 204,218 39,168 392,574 20,858 2,785,358 2022 89,263 11,592 — 17,529 1,685,149 Beyond 2022 64,981 — — 113 2,342,559 1,013,409 228,733 1,900,430 178,502 13,586,254 For the years ended December 31, 2016, 2017 and 2018, the Group incurred rental expenses in the amounts of approximately RMB146.3million, RMB231.9 million and RMB471.9 million, respectively. (b) Litigation Overview From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Group’s financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods. The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Group reviews the need for any such liability on a regular basis. The Group has not recorded any material liabilities in this regard as of December 31, 2017 and 2018. Litigation In April 2018, PUBG Corporation and PUBG Santa Monica, Inc. filed suit against defendants NetEase, Inc., NetEase Information Technology Corp. and NetEase (Hong Kong) Limited in the U.S. District Court for the Northern District of California. The complaint generally alleges that two of the Company’s mobile games, Rules of Survival and Knives Out, infringe the plaintiffs’ copyrights and trademarks and that the Company have engaged in unfair business competition under California law. As of March 31, 2019, the Group has reached a settlement agreement with PUBG with respect to this matter. |
Dividends
Dividends | 12 Months Ended |
Dec. 31, 2018 | |
Dividends | |
Dividends | 21. Quarterly Dividend Policy In May 2014, the Company's board of directors approved a new quarterly dividend policy. Under this policy, the Company intends to make quarterly cash dividend distributions at an amount equivalent to approximately 25% of the Group’s anticipated net income after tax in each fiscal quarter. Dividends are recognized when declared. There is no dividend payable as of December 31, 2017 and 2018 respectively. The cash dividend declared related to the net profits of fiscal year 2017 and fiscal year 2018 was RMB2,656.0 million and RMB1,538.3 million (US$223.7 million) in total, respectively. The determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the Company's board of directors and will be based upon its operations and earnings, cash flow, financial condition, capital and other reserve requirements and surplus, any applicable contractual restrictions, the ability of the Company’s PRC subsidiaries to make distributions to their offshore parent companies, and any other conditions or factors which the board deems relevant and having regard to the directors' fiduciary duties. |
Share Repurchase Programs
Share Repurchase Programs | 12 Months Ended |
Dec. 31, 2018 | |
Share Repurchase Programs | |
Share Repurchase Programs | 22. The Company accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in-capital and retained earnings, as applicable. An excess of purchase price over par value is allocated to additional paid-in-capital first with any remaining excess charged entirely to retained earnings. In November 2016, the Company announced that its board of directors approved a new share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months. As of expiration date of the program, the Company has repurchased approximately 1.1 million ADSs (equivalent to 28.1 million ordinary shares) for approximately US$306.1 million under this program. In November 2017, the Company announced that its board of directors approved a new share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months. On June 11, 2018, the Company announced that its board of directors approved an amendment to its share repurchase program, authorizing the repurchase of up to an additional US$1.0 billion of the Company’s outstanding ADSs. This expands the US$1.0 billion repurchase program that was approved on November 15, 2017 for a period not to exceed 12 months, bringing the total authorized repurchase amount to US$2.0 billion. As of expiration date of the program, the Company has repurchased approximately 4.6 million ADSs (equivalent to 114.9 million ordinary shares) for approximately US$1,178.5 million under this program. In November 2018, the Company announced that its board of directors approved a new share repurchase program of up to US$1.0 billion of the Company's outstanding ADSs for a period not to exceed 12 months. As of December 31, 2018, no ADSs were repurchased under this program. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions | |
Related Party Transactions | 23. The Group had no material transactions with related parties for the year ended December 31, 2016, 2017 and 2018, and no material related parties’ balances as of December 31, 2018. |
Segment Information
Segment Information | 12 Months Ended |
Dec. 31, 2018 | |
Segment Information | |
Segment Information | 24. (a) Description of segments Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Chief Executive Officer. The Group’s organizational structure is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but are not limited to, customer base, homogeneity of products and technology. The Group’s operating segments are based on this organizational structure and information reviewed by the Group’s CODM to evaluate the operating segment results. Effective in the fourth quarter of 2017, the Group changed its segment disclosure to separately report the financial results of its e-commerce business in light of the significant growth of the revenue contribution from e-commerce to the Group’s total consolidated net revenues in 2017. This segment primarily reflects the results of NetEase’s two e-commerce platforms, Kaola and Yanxuan, which were established in January 2015 and April 2016, respectively. On December 31, 2018, the Group renamed its "e-mail and others" segment to "innovative businesses and others" to better articulate the businesses included in this segment, there's no change to the business mix included in this segment. The Group now reports four reporting segments: 1) Online game services, 2) E-commerce, 3) Advertising services, and 4) Innovative businesses and others. This change in segment reporting aligns with the manner in which the Group’s CODM currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. This change in segment presentation does not affect consolidated balance sheets, consolidated statements of operations and comprehensive income or consolidated statements of cash flows. The Group retrospectively revised prior period segment information, to conform to current period presentation. (b) Segment data The table below provides a summary of the Group’s operating segment results for the years ended December 31, 2016, 2017 and 2018. The Group does not allocate any operating costs or assets to its business segments as the Group’s CODM does not use this information to measure the performance of the operating segments. There was no significant transaction between reportable segments for the years ended December 31, 2016, 2017 and 2018 (in thousands). For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net revenues: Online game services 27,980,491 36,281,642 40,190,057 E-commerce 4,541,744 11,670,416 19,235,476 Advertising services 2,152,379 2,408,823 2,500,833 Innovative businesses and others 3,504,230 3,741,138 5,230,087 Total net revenues 38,178,844 54,102,019 67,156,453 Cost of revenues: Online game services (9,974,146) (13,473,339) (14,617,656) E-commerce (3,986,871) (10,464,714) (17,688,717) Advertising services (749,652) (797,892) (889,677) Innovative businesses and others (1,804,363) (3,453,381) (5,556,907) Total cost of revenues (16,515,032) (28,189,326) (38,752,957) Gross profit/(loss): Online game services 18,006,345 22,808,303 25,572,401 E-commerce 554,873 1,205,702 1,546,759 Advertising services 1,402,727 1,610,931 1,611,156 Innovative businesses and others 1,699,867 287,757 (326,820) Total gross profit 21,663,812 25,912,693 28,403,496 The following table set forth the breakdown of net revenues by type of good or service for the years ended December 31, 2016, 2017 and 2018: For the year ended December 31, 2016 2017 2018 RMB RMB RMB Online games services 27,980,491 36,281,642 40,190,057 Online product sales from e-commerce platforms 4,430,389 11,447,037 18,637,521 Advertising services 2,152,379 2,408,823 2,500,833 Others 3,615,585 3,964,517 5,828,042 Total Net revenue 38,178,844 54,102,019 67,156,453 The following table presents the total depreciation and amortization expenses of property and equipment and land use rights by segment for the years ended December 31, 2016, 2017 and 2018: For the year ended December 31, 2016 2017 2018 RMB RMB RMB Online game services 101,400 157,695 235,896 E-commerce 274 4,745 18,482 Advertising services 4,061 8,712 10,727 Innovative businesses and others 52,933 89,953 184,987 Total depreciation and amortization expenses of property and equipment and land use rights 158,668 261,105 450,092 As substantially all of the Group's long-lived assets are located in the PRC and substantially all of the Group's revenue of reportable segments are derived from China based on the geographical locations where services and products are provided to customers, no geographical information is presented. |
Financial Instruments
Financial Instruments | 12 Months Ended |
Dec. 31, 2018 | |
Financial Instruments | |
Financial Instruments | 25. The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2017 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other for Identical Observable Assets Inputs Total (Level 1) (Level 2) Time deposits-short term 30,603,369 30,603,369 — Time deposits-long term 100,000 100,000 — Equity investments with readily determinable fair values 828,260 828,260 — Short-term investments 9,742,663 — 9,742,663 Total 41,274,292 31,531,629 9,742,663 The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2018 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other for Identical Observable Assets Inputs Total (Level 1) (Level 2) Time deposits-short term 32,900,287 32,900,287 — Time deposits-long term 100,000 100,000 — Equity investments with readily determinable fair values 612,465 612,465 — Short-term investments 11,674,775 — 11,674,775 Total 45,287,527 33,612,752 11,674,775 The rates of interest under the loan agreements with the lending banks were determined based on the prevailing interest rates in the market. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements of short-term bank loans. For other financial assets and liabilities with carrying values that approximate fair value, if measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. As of December 31, 2017 and 2018, certain equity investments without determinable fair value (Note 8) were measured using significant unobservable inputs (Level 3) and written down from their respective carrying value to fair value, with impairment charges of RMB58.5 million and RMB133.6 million incurred and recorded in earnings for the years then ended. |
Restricted Net Assets
Restricted Net Assets | 12 Months Ended |
Dec. 31, 2018 | |
Restricted Net Assets | |
Restricted Net Assets | 26. Relevant PRC laws and regulations permit PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiaries and VIEs can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the general reserve fund and the statutory surplus fund respectively. The general reserve fund and the statutory surplus fund require that annual appropriations of 10% of net after-tax income should be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB6.7 billion, or 15% of the Company’s total consolidated net assets, as of December 31, 2018. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries and VIEs for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries and VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders. |
Principal Accounting Policies (
Principal Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Principal Accounting Policies | |
Basis of consolidation | (a) Basis of consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs for which the Company is the primary beneficiary with the ownership interests of minority shareholders reported as noncontrolling interests. All significant transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation. The Company consolidates a VIE if the Company has the power to direct matters that most significantly impact the activities of the VIE, and has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. |
Basis of presentation | (b) The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements are prepared based on the historical cost convention. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results might differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: average playing period of paying players of online games, realization of deferred tax assets and the determination of uncertain tax positions, lower of cost and market value of inventories, useful lives and impairment provision of property, equipment and software and intangibles, assumptions related to stock-based compensation and impairment of long-term investments. |
Revenue recognition | (c) On January 1, 2018, the Group adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Group's historic accounting under Topic 605. For the year ended December 31, 2018, net revenue recognized from sources other than contracts with customers under ASC 606 was immaterial. Revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services, reduced by estimates for return allowances, promotional discounts, rebates and Value Added Tax (“VAT”). The recognition of revenues involves certain management judgments, including estimated lives of virtual items purchased by game players, estimated breakage of game points, return allowance for goods sold, the estimation of the fair value of an advertising-for-advertising barter transaction, volume sales rebates. The amount and timing of the Group’s revenues could be different if management made different judgments or utilized different estimates. The Group’s service sales represent revenues from online game services, advertising services, other initiative businesses and others. Product sales represent revenue from the sale of products through its e-commerce platform where the Group records revenue on a gross basis. Refer to “Note 24 - Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC-client games. The Group is the principal of all games it operates, including both self-developed games and licensed games. As all these games are hosted on the Group’s servers, the Group has the pricing discretion, and is responsible for the sale and marketing of the games as well as customer services. Fees paid to game developers, distribution channels (app stores) and payment channels are recorded as cost of revenues. Mobile games The Group generates mobile game revenues from the sale of in-game virtual items, including items, avatars, skills, privileges or other in-game consumables, features or functionality, within the games. The Group’s performance obligation is to provide on-going game services to players who purchased virtual items to gain an enhanced game-playing experience. This performance obligation is satisfied over the playing period of the paying players. Accordingly, the Group recognizes the revenues ratably over the estimated average playing period of these paying players. The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors to arrive at the best estimates for the estimated playing period of the paying players for each game. If a new game is launched and only a limited period of paying player data is available, then the Group considers other qualitative factors, such as the playing patterns for paying users for other games with similar characteristics and playing patterns of paying players, such as targeted players and purchasing frequency. While the Group believes its estimates to be reasonable based on available game player information, the Group may revise such estimates based on new information indicating a change in the game player behavior patterns and any adjustments are applied prospectively. PC-client games The Group sells prepaid point cards to the end users. Customers can purchase physical prepaid point cards in different locations in China, including Internet cafés, software stores, convenience stores and bookstores. Customers can also purchase “virtual” prepaid points from vendors who register the points in the Group’s system and “virtual” prepaid cards online via debit and credit cards or bank transfers via the online payment services platforms, and receive the prepaid point information over the Internet. Customers can use the points to play the Group’s PC-client games, pay for in-game items and use other fee-based services. Proceeds received from the sales of prepaid point cards and online points to players are recorded as deferred revenues. The Group earns revenue through providing PC-client game services to players under two types of revenue models: time-based revenue model and item-based revenue model. For PC-client games using the time-based model, players are charged based on the time they spend playing games. Revenues are recognized ratably over the game playing period as the performance obligations are satisfied. Under the item-based model, the basic game play functions are free of charge, and players are charged for purchases of in-game items. In-game items have different life patterns: one-time use, limited life and permanent life. Revenues from the sales of one-time use in-game items are recognized upon consumption. Limited life items are either limited by the number of uses (for example, 10 times) or limited by time (for example, three months). Revenues from the sales of limited life in-game items are recognized ratably based on the extent of time passed or expired or when the items are fully used. Players are allowed to use permanent life in-game items without any use or time limits. Revenues from the sales of permanent life in-game items are recognized ratably over the estimated average playing period of the paying players. The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors, including the acceptance and popularity of expansion packs, promotional events launched and market conditions to arrive at the best estimates for the playing period of the paying players for the permanent in-game items of PC-client games. This estimate is re-assessed on a quarterly basis. Adjustments arising from the changes of estimated playing period of the paying players are applied prospectively as such changes are resulted from new information indicating a change in the game player behavior patterns. Breakage of unused PC-client game points The Group recognizes expected breakage associated with the Group’s unused online points with expiry dates in a personal game account as revenue in proportion to the pattern of points consumed by the customer, subject to the constrain for estimating variable consideration. For game points that do not expire, the Group recognizes the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. (ii) E-commerce The Group’s e-commerce businesses mainly include cross-border and domestic e-commerce business. The Group established its cross-border e-commerce platform Kaola, in January 2015 and primarily sells imported maternity and baby products, skincare and cosmetics and other general merchandise through online direct sales. In addition, the Group established its domestic e-commerce platform Yanxuan, in April 2016 and sells its private label products, including apparel, homeware, kitchenware and other general merchandise which are sourced primarily directly from original design manufacturers in China. The Group is the principal for the online direct sales, as it controls the inventory before they are transferred to customers. The Group has the primary responsibility for fulfilling the contracts, bears the inventory risk, and has sole discretion in establishing the prices. E-commerce revenues from online direct sales are recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to the customer. The Group also act as the marketplace service provider for third-party vendors to sell their products on the Group’s platform. In online marketplace business, third-party sellers offer products to customers on the Group’s platform and the Group acts as the marketplace service provider. The Group is not the seller of the third-parties’ goods in these transactions and recognize revenue when services are rendered based on a pre-determined service fee rate. The Group also provides discount coupons to its customers for use in purchases on the Kaola and Yanxuan platform, which are treated as a reduction of revenue when the related transaction is recognized. Return allowance Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances and rights to recover products from customers associated with the Group's liabilities are recorded as "Accrue liabilities and other payables" and "Inventories,net", respectively, on the Group's consolidated balance sheets. Both of the balances are not material as of December 31, 2017 and 2018. (iii) Advertising services The Group derives its advertising revenues principally from short-term online advertising contracts. Advertising service contracts may consist of multiple performance obligations with a typical term of less than three months. Each performance obligation generally represent different formats of advertisement, including but not limited to banners, text-links, videos, logos, buttons and rich media. In arrangements where the Group has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Group generally determines standalone selling prices based on the prices charged to customers. If the performance obligation has not been sold separately, the Group estimates the standalone selling price by taking into consideration of the pricing for advertising areas of the Group’s platform with a similar popularities and advertisements with similar formats and quoted prices from competitors as well as other market conditions. Considerations allocated to each performance obligation is recognized as revenue over the advertisement display period, which is usually within three months. The Group also enters into performance-based advertising arrangements with customers. The Group enters into cost per mille ("CPM"), or cost per thousand impressions, advertising arrangements with customers, under which the Group recognizes revenues based on the number of times that the advertisement has been displayed. The Group also enters into cost per action ("CPA") advertising arrangements with customers, under which the Group recognizes revenues based on the number of actions completed resulted from the advertisements, including but not limited to when users click on links. Certain customers may receive volume rebates, which are accounted for as variable consideration. The Group estimates annual expected revenue volume with reference to their historical results and reduce revenues recognized. The Group recognizes revenue from providing advertising service in exchange for non-cash consideration, usually advertising services, promotional benefits, content, consulting services and software provided by counterparties, at the fair value of the non-cash consideration measured as of contract inception date. If the Group is not able to reliably determine the fair value of noncash consideration in some situations, the value of the noncash consideration received is measured indirectly by reference to the standalone selling price of advertising services provided by the Group. The Group has been engaged in certain advertising barter transactions, which primarily involved exchanges of advertising services rendered by the Group for advertising, promotional benefits, content, consulting services and software provided by the counterparties. For the years ended December 31, 2016 and 2017, no revenue from rendering advertising services in exchange for non-cash consideration was recognized as the fair value was not determinable. For the year ended December 31, 2018, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (iv) Innovative businesses and others On December 31, 2018, the Group renamed its "e-mail and others" segment to "innovative businesses and others" to better articulate the businesses included in this segment. For details please see Note 24 - Segment Information. Revenue from innovative businesses and others is predominantly derived from fee-based premium services, online payment platform services and other online services. Fee-based premium services revenues, mostly operated on either consumption-basis or a monthly subscription basis, are derived principally from providing premium live-streaming services, online music services, online reading, e-mail and other innovative businesses. Prepaid subscription fees collected from customers are deferred and are recognized as revenue on a straight-line basis by the Group over the subscription period, during which customers can access the premium online services provided by the Group. Fees collected from customer to be consumed to purchase online services are recognized as revenue when related services are rendered. The Group generates revenue from the operation of its live streaming platforms whereby users can enjoy live performances provided by the hosts and interact with the hosts. Most of the hosts host the performance on their own. The Group creates and sells virtual items to users so that the users present them simultaneously to hosts to show their support. The virtual items sold by the Group comprise of either (i) consumable items or (ii) time-based item, such as privilege titles etc. Under the arrangements with the hosts, the Group shares with them a portion of the revenues derived from the sales of virtual items. Revenues derived from the sale of virtual items are recorded on a gross basis as the Group acts as the principal to fulfill all obligations related to the sale of virtual items. Accordingly, revenue is recognized when the virtual item is delivered and consumed if the virtual item is a consumable item or, in the case of time-based virtual item, recognized ratably over the period each virtual item is made available to the user. In February 2009, the Group launched its NetEase Pay payment platform, through which customers registered for NetEase Pay operations can deposit money in their accounts and use the accounts to pay for game point cards and other fee-based services and products. The Group recognizes revenue when services are rendered to account holders in accordance with service agreement. The Group offers online services related to third-party virtual products to facilitate the sale of products from third-party providers. The Group acts as an agent and do not buy, sell, manufacture, or design such products. Revenues are recognized when services are rendered to customers based on the pre-determined service fee rate. The Group also operated its "Duobao" platform, which provides services that allow users to purchase the virtual currency, "Duobao Bi", and use them to exchange for products. For the services where the Group acts as an agent, products are provided by third-party suppliers and revenues are recognized on a net basis when services are rendered. The Group terminated the Duobao platform in early 2017. Practical Expedients The Group has used the following practical expedients as allowed under ASC 606: (i) (ii) (iii) Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The Group closely monitors the collection of its accounts receivables and records a reserve for doubtful accounts against aged accounts and for specifically identified non-recoverable amounts. If the economic situation and the financial condition of the customer deteriorate resulting in an impairment of the customer’s ability to make payments, additional allowances might be required. Accounts receivables balances are written off when they are determined to be uncollectible. The following table sets out the movements of the allowance for doubtful accounts for the years ended December 31, 2016, 2017 and 2018 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) cost and corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2016 14,185 9,952 (1) 24,136 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 The Group's right to consideration in exchange for goods or services that the Group has transferred to a customer is recognized as a contract asset. Contract assets as of January 1, 2018 and December 31, 2018 were not material. A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Contract liabilities are presented as “Deferred Revenue” on the consolidated balance sheets of the Group. Refer to Note 14 - Deferred revenue for further information, including changes in deferred revenue during the year. |
Cost of revenues | (d) Cost of revenues Costs of revenues consist primarily of purchase price, inbound shipping costs and inventory write downs , staff costs, royalties and consultancy fees related to licensed games, revenue sharing cost related to mobile games, depreciation and amortization of computers and software, server custody fees, bandwidth, and other direct costs of providing these services. These costs are charged to the consolidated statements of operations and comprehensive income as incurred. Shipping and handling costs, which primarily include third-party delivery costs relating to the delivery of products from distribution centers to customers, fulfillment expenses occurred in the Group's various distribution facilities and packing material expenses, are classified as selling and marketing expenses. Shipping and handling costs included in selling and marketing expenses were approximately RMB503.0 million, RMB1,182.7 million and RMB1,670.4 million (US$242.9 million) for the years ended December 31, 2016, 2017 and 2018, respectively. |
Research and development costs | (e) Research and development costs Research and development costs mainly consist of personnel-related expenses and technology service costs incurred for the development of online games prior to the establishment of technological feasibility and costs associated with new products development. For the years ended December 31, 2016, 2017 and 2018, the costs incurred for development of online game products have not been capitalized because the period after the date technical feasibility is reached and the time when the game is marketed is short historically and the development cost incurred in the period are insignificant. |
Cash, cash equivalents and time deposits | (f) Cash, cash equivalents and time deposits Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in Hong Kong or China, and highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase with terms of less than three months. As of December 31, 2017, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars, HK dollars and Euro amounting to approximately US$112.5 million, HK$5.3 million and Euro1.6 million, respectively. As of December 31, 2018, there were cash at bank and demand deposits with terms of less than three months denominated in US dollars , HK dollars and Euro amounting to approximately US$269.9 million, HK$90.7 million and Euro1.0 million, respectively (equivalent to approximately RMB1,852.7 million, RMB79.5 million and RMB7.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. As of December 31, 2017, there were time deposits denominated in US dollars amounting to approximately US$2,547.8 million. As of December 31, 2018, there were time deposits denominated in US dollars amounting to approximately US$2,456.3 million (equivalent to approximately RMB16,857.9 million). As of December 31, 2017 and 2018, the Group had approximately RMB15.1 billion and RMB12.7 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and VIEs, representing 45.1% and 33.1% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2017 and 2018, the Group had a restricted cash balance approximately RMB5,927.1 million and RMB4,817.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2017 2018 RMB RMB Customer deposit of NetEase Pay accounts 1,554.8 1,364.4 Pledge deposits for short-term bank borrowings — Current 4,091.0 2,695.0 Pledge deposits for Letter of Guarantee 271.0 748.5 Others 10.3 9.4 Total 5,927.1 4,817.3 The Group had no other lien arrangements during 2017 and 2018. |
Fair value of financial instruments | (g) Fair value of financial instruments Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value: Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets Level 2 — Include other inputs that are directly or indirectly observable in the marketplace Level 3 — Unobservable inputs which are supported by little or no market activity The Group’s financial instruments include cash and cash equivalents and time deposits, accounts receivable, prepayments and other current assets, short-term investments, accounts payable, short-term loan, deferred revenue and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 25 for additional information. |
Inventories, net | (h) Inventories, net Inventories, net mainly represent products for the Group’s e-commerce business, are stated at the lower of cost or net realizable value in the consolidated balance sheets. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Group takes ownership, risks and rewards of the products purchased. Write downs are recorded in cost of revenues in the consolidated statements of operations and comprehensive income. Certain costs attributable to buying and receiving products, such as purchase freights, are also included in inventories. |
Investments | (i) Investments Short-term investments Short-term investments include investments in financial instruments with a variable interest rate indexed to performance of underlying assets, all of which are with an original maturities of less than 12 months. In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of operations and comprehensive income as other income /(expense), net. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 5 and Note 25 for additional information. Long-term investments Long-term investments are comprised of equity investments in publicly traded companies and privately-held companies. Equity investments in publicly traded companies are reported at fair value as equity investment with readily determinable fair value. Prior to January 1, 2018, they were classified as available-for-sale equity securities under long-term investments, with unrealized gains or losses, if any, recorded in accumulated other comprehensive income/(loss) in shareholders’ equity. The treatment of a decline in the fair value of an individual security was based on whether the decline was other-than-temporary. The Group assessed its available-for-sale equity securities for other-than-temporary impairment by considering factors including, but not limited to, its ability and intent to hold the individual security, severity of the impairment, expected duration of the impairment and forecasted recovery of fair value. If the Group determines a decline in fair value was other-than-temporary, the cost basis of the individual security was written down to fair value as a new cost basis and the amount of the write-down was accounted for as a realized loss charged to the consolidated statements of comprehensive income. The fair value of the investment would then become the new cost basis of the investment and were not adjusted for subsequent recoveries in fair value. Starting January 1, 2018, upon the adoption of ASU 2016-01, unrealized gains and losses during the year are recognized in other income/(expense), net. Prior to January 1, 2018, investments in common stock or in-substance common stock issued by privately-held companies on which the Group does not have significant influence, and investments in privately-held companies’ shares that are not ordinary shares or in-substance ordinary shares, as these equity securities do not have readily determinable fair value, the Group carried these investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings that exceed the Group’s share of earnings since its investment. Starting January 1, 2018, upon the adoption of ASU 2016-01, the Group elects to measure these equity securities investments without readily determinable fair value at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). All gains and losses on these equity securities, realized and unrealized, are recognized in other income/(expense), net. Management regularly evaluates the impairment of the investments in privately-held companies based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. An impairment loss is recognized in earnings equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value would then become the new cost basis of investment. |
Investment in equity method investees | (j) Investment in equity method investees Investments in common stock or in-substance common stock of investees and limited-partnership investments in which the Group is in a position to exercise significant influence by participating in, but not controlling or jointly controlling, the financial and operating policies are accounted for using the equity method and are reported under long-term investments in the consolidated balance sheets . |
Property, equipment and software | (k) Property, equipment and software Property, equipment and software are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the following estimated useful lives, taking into account any estimated residual value: Building 20 years Decoration 5 years Leasehold improvements lesser of the term of the lease and the estimated useful lives of the assets Furniture, fixtures, office and other equipment 3-10 years Vehicles 5 years Servers and computers 3 years Software 3 years Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred. |
Intangible assets | (l) Intangible assets Finite-lived intangible assets are tested for impairment if impairment indicators arise. The Group amortizes its finite-lived intangible assets using the straight-line method: Land use right over the remaining term of the land use right period License right over the license period Technology 10 years The Group obtains music content for customers through licensing agreements. When the license fee for music title is determinable or reasonably estimable and the content is available for streaming, the Group recognizes an asset representing the fee and a corresponding liability for the amounts owed. The Group relieves the liability as payments are made and the Group amortizes the asset to “Cost of revenues” on a straight-line basis over the term of the respective licensing agreements. |
Advertising expenses | (m) Advertising expenses The Group expenses advertising costs as incurred and reports these costs under selling and marketing expense. Advertising expenses totaled approximately RMB1,116.9 million, RMB2,310.6 million and RMB2,933.8 (US$426.7 million) for the years ended December 31, 2016, 2017 and 2018, respectively. |
Foreign currency translation | (n) Foreign currency translation The Group’s reporting currency is RMB. The Company and its subsidiaries and VIEs, with an exception of several subsidiaries incorporated in Cayman Islands, use RMB as their functional currency. In 2017, several of the Company’s subsidiaries incorporated in Cayman Islands changed their functional currency from RMB to US$. The determination of the respective functional currency is based on the criteria of ASC 830, Foreign Currency Matters and such change has not resulted in any material effect on the Group’s financial statements. Transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. The resulting exchange differences are included in the consolidated statements of operations and comprehensive income. Assets and liabilities of the Group companies are translated from their respective functional currencies to the reporting currency at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates in effect during the reporting period. The exchange differences for the translation of group companies with non-RMB functional currency into the RMB functional currency are included in foreign currency translation adjustments, which is a separate component of shareholders’ equity on the consolidated financial statements. Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.8755 on the last trading day of 2018 (December 31, 2018) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at such rate. |
Share-based compensation | (o) Share-based compensation Under its 2009 Restricted Share Unit Plan (see Note 18(a)), the Company issues restricted share units (RSUs) to its employees, directors and consultants with performance conditions and service vesting periods ranging from one year to five years. Some of the RSUs issued are to be settled, at the Company’s discretion, in stock or cash upon vesting based on the stock price at grant date. At each reporting period, the Company evaluates the likelihood of performance conditions being met. Share-based compensation costs are then recorded for the number of RSUs expected to vest on a graded-vesting basis, net of estimated forfeitures, over the requisite service period. The compensation cost of the RSUs to be settled in stock only is measured based on the fair value of stock when all conditions to establish the grant date have been met. The compensation cost of RSUs to be settled either in stock or cash at the Company’s discretion is remeasured until the date when settlement in stock or cash is determined by the Company. The Company records share-based compensation to the consolidated statements of operations and comprehensive income with the corresponding credit to the additional paid-in-capital for share options and RSUs to the extent that such awards are to be settled only in stock. Certain subsidiaries of the Company granted options exercisable for ordinary shares to certain of the Group’s employees. The options expire five to seven years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met (“Vesting Commencement Date”). The Group adopts the binomial option pricing model to determine the fair value of stock options and accounts for share-based compensation cost using an estimated forfeiture rate. Forfeitures were estimated based on the Group’s weighted average historical forfeiture rate of the past five years. Differences between actual and estimated forfeitures are expensed in the period that the differences occur. See Note 18 for further information regarding share-based compensation assumptions and expense. |
Taxation | (p) Taxation Income tax expense is recognized in accordance with the laws of the relevant taxing authorities, with deferred taxes being provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Tax rate changes are reflected in income during the period the changes are enacted. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities as well as the expected future tax benefit to be derived from tax loss and tax credit carry forwards. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount “more likely than not” to be realized in future tax returns. For a particular tax-paying component of an enterprise and within a particular tax jurisdiction, all deferred tax assets and liabilities are offset and presented as a single amount. The Group does not offset deferred tax assets and liabilities attributable to different tax-paying components of the enterprise or to different tax jurisdictions. The Group reports tax-related interest expense and penalty in Other, net in the consolidated statements of operations and comprehensive income, if there is any. The Group did not incur any material penalty or interest payments in connection with tax positions during the years ended December 31, 2016, 2017 and 2018. The Group did not have any significant unrecognized uncertain tax positions as of December 31, 2017 and 2018. In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. |
Net earnings per share ("EPS") and per American Depositary Share ("ADS") | (q) Net earnings per share (“EPS”) and per American Depositary Share (“ADS”) Basic earnings per share is computed on the basis of the weighted-average number of ordinary shares outstanding during the period under measurement. Diluted earnings per share are based on the weighted-average number of ordinary shares outstanding and potential ordinary shares. Potential ordinary shares result from the assumed exercise of outstanding stock options, RSUs or other potentially dilutive equity instruments, when they are dilutive under the treasury stock method or the if-converted method. |
Statutory reserves | (r) Statutory reserves The Company’s subsidiaries and VIEs incorporated in China are required to make appropriations to certain non-distributable statutory reserves. In accordance with the laws applicable to foreign invested enterprises in China, its subsidiaries have to make appropriations from its after-tax profit as reported in their PRC statutory accounts to non-distributable statutory reserves including (i) general reserve fund. (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund is at least 10% of the after-tax profits as reported in the PRC statutory accounts. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the respective company. The appropriation to the other reserve funds is at the discretion of the board of directors of the respective company. At the same time, the Company’s VIEs, in accordance with the China Company Laws, must make appropriations from their after-tax profit as reported in their PRC statutory accounts to non-distributable statutory reserves including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund is at least 10% of the after-tax profits as reported in their PRC statutory accounts. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the board of directors of the respective companies. The general reserve fund and statutory surplus fund are restricted to set off against losses, expansion of production and operation or increase in the registered capital of the respective companies. The staff bonus and welfare fund is available to fund payments of special bonuses to staff and for collective welfare benefits. Upon approval by the board of directors, the discretionary surplus and enterprise expansion fund can be used to offset accumulated losses or to increase capital. The staff bonus and welfare fund is a liability in nature. The other statutory reserves are not transferable to the Company in the form of cash dividends, loans or advances, and therefore are not available for distribution except in liquidation. |
Noncontrolling interests and Redeemable noncontrolling interests | (s) Noncontrolling interests and Redeemable noncontrolling interests Noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and VIEs which is not attributable, directly or indirectly, to the controlling shareholder. The noncontrolling interest will continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance. Redeemable noncontrolling interests represent redeemable equity interests issued by the Group’s subsidiaries to certain investors (see Note 15), and have been classified as mezzanine classified noncontrolling interests in the consolidated financial statements as these redeemable interests are contingently redeemable upon the occurrence of certain conditional events, which is not solely within the control of the Group. The Group accreted the redeemable equity interests to their redemption value, which is purchase price plus interest per year over the period since issuance to the earliest redemption date. The accretions were recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Once additional paid-in capital had been exhausted, additional charges were recorded by increasing the accumulated deficit. |
Related parties | (t) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation. |
Comprehensive income | (u) Comprehensive income Comprehensive income is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income for the years ended December 31, 2016 and 2017 includes net income, change in unrealized gains/(losses) on marketable securities classified as available-for-sale securities (net of tax) and foreign currency translation adjustment. Starting from January 1, 2018, upon adoption of ASU 2016-01, gain/(losses) on marketable securities are recognized in other income/(expense), net. |
Segment reporting | (v) Segment reporting The Group’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements is set out in detail under Note 24. |
Dividends | (w) Dividends Dividends of the Company are recognized when declared. |
Recently adopted accounting pronouncements | (x) Recently adopted accounting pronouncements Revenue from Contracts with Customers In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 "Revenue Recognition" (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Group adopted Topic 606 on January 1, 2018 using the modified retrospective method. Additionally, the Group elected to apply the new revenue accounting standard only to contracts not completed as of the adoption date. The Group recognized the cumulative effect of initially applying the new revenue accounting standard as an adjustment to the opening balance of retained earnings. The comparative financial statements have not been restated and continue to be reported under the accounting standards in effect for those periods. The adoption of Topic 606 primarily impacts the accounting of the recognition of breakage associated with the Group’s unused online points in a personal game account as a result of recording revenue based upon estimates of breakage under the new revenue standard. Under Topic 605, revenue for unused points was not recorded until the points expired. Thus, for unused points, revenue is recorded earlier under the new standard. The cumulative-effect adjustment upon adoption includes a reduction of its deferred revenue of approximately RMB81.7 million and a net increase to its retained earnings of approximately RMB27.4 million (net of tax). Revenues of related game points would have been recorded in the consolidated statement of operations and comprehensive income for the year ended December 31, 2018 under Topic 605 based on its actual expiry date. Therefore, adoption of the new revenue accounting standard impacted the Company’s consolidated statement of operations and comprehensive income for the year ended December 31, 2018 by reducing RMB81.7 million of revenues. The adoption of Topic 606 does not have significant impact to other used game points as of December 31, 2018. Financial Instruments - Recognition and Measurement In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU No. 2016-01) “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The Group adopted this guidance on January 1, 2018, and RMB38.2 million of accumulated other comprehensive income for the Group's available-for-sale equity securities that existed as of December 31, 2017 was reclassified into retained earnings upon the adoption. For equity investments without readily determinable fair value, the Group elected to measure them at their costs minus impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. The Group did not record any changes to the carrying value of equity investments without readily determinable fair value for the year ended December 31, 2018. Statement of Cash Flows In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash”. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. The standard should be applied using a retrospective transition method to each period presented. The Group adopted this guidance on January 1, 2018 on a retrospective transition method. Pursuant to the new guidance, the net change of cash, cash equivalents and restricted cash increased RMB2,140.6 million and decreased RMB393.8 million for the year ended 31 December, 2016 and 2017, respectively, compared to the amounts presented under previous guidance. |
Recently issued accounting pronouncements not yet adopted | (y) In February 2016, the FASB issued ASU 2016-02 “Leases” as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Group will adopt the new standard effective January 1, 2019 on a modified retrospective basis and will not restate comparative periods. The Group estimate approximately RMB861.5 million would be recognized as total right-of-use assets and total lease liabilities on its consolidated balance sheet as of January 1, 2019. Other than disclosed, the Group do not expect the new standard to have a material impact on the net assets of the consolidated financial statements. In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Group is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures. In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The guidance simplifies the accounting for share-based payments made to non-employees so the accounting for such payments is substantially the same as those made to employees. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Group does not expect the adoption of this guidance to have a material impact on the consolidated financial statements. |
Organization and Nature of Op_2
Organization and Nature of Operations (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Organization and Nature of Operations | |
Schedule of major subsidiaries and VIEs | The major subsidiaries and VIEs through which the Company conducts its business operations as of December 31, 2018 are described below: Place and year of Major Subsidiaries Incorporation NetEase Information Technology (Beijing) Co., Ltd. (“NetEase Beijing”) Beijing, China 1999 Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”) Guangzhou, China 2003 NetEase Youdao Information Technology (Beijing) Co., Ltd. (“Youdao Information”) Beijing, China 2006 NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”) Hangzhou, China 2006 Hangzhou Langhe Technology Co., Ltd. (“Hangzhou Langhe”) Hangzhou, China 2009 NetEase Media Technology (Beijing) Co., Ltd. (“Media Beijing”) Beijing, China 2012 HQG, Limited ("HQG") Hong Kong, China 2014 Hangzhou Youmai Technology Co., Ltd. ("Hangzhou Youmai") Hangzhou, China 2014 Tianjin Wang Zhi Yi Innovation and Technology Co., Ltd. ("Tianjin Technology") Tianjin, China 2015 Hangzhou Netease Yanxuan Trading Co., Ltd. ("Hangzhou Yanxuan") Hangzhou, China 2016 Place and year of Major VIEs and VIEs' subsidiaries Incorporation Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”) Guangzhou, China 1997 Beijing NetEase Media Co., Ltd. (previously named "Beijing Guangyitong Advertising Co., Ltd.") (“NetEase Advertising”) Beijing, China 1999 Shanghai EaseNet Network Technology Co., Ltd. (“Shanghai EaseNet”) Shanghai, China 2008 StormNet Information Technology (Hong Kong) Limited (“StormNet IT HK”) Hong Kong, China 2008 StormNet Information Technology (Shanghai) Co., Ltd. (“StormNet IT SH”) Shanghai, China 2008 Hangzhou NetEase Leihuo Network Co., Ltd. (“HZ Leihuo”) Hangzhou, China 2009 Wangyibao Co., Ltd. (“Wangyibao Company”) Hangzhou, China 2010 |
Schedule of combined financial information of the Group's VIEs included in the accompanying consolidated financial statements of the Group | December 31, December 31, 2017 2018 RMB RMB Total assets 9,729,718 10,491,261 Total liabilities 8,897,521 9,892,724 For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net revenues 31,043,737 40,584,251 43,323,784 Net income 448,771 357,163 224,220 For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net cash provided by/(used in) operating activities 1,736,702 (124,670) 402,754 Net cash (used in)/provided by investing activities (270,733) 122,286 (720,675) Net cash (used in)/provided by financing activities (57,000) 4,000 229,862 |
Principal Accounting Policies_2
Principal Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Principal Accounting Policies | |
Schedule of movements of the allowance for doubtful accounts | The following table sets out the movements of the allowance for doubtful accounts for the years ended December 31, 2016, 2017 and 2018 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) cost and corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2016 14,185 9,952 (1) 24,136 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 |
Schedule of restricted cash balance | As of December 31, 2017 and 2018, the Group had a restricted cash balance approximately RMB5,927.1 million and RMB4,817.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2017 2018 RMB RMB Customer deposit of NetEase Pay accounts 1,554.8 1,364.4 Pledge deposits for short-term bank borrowings — Current 4,091.0 2,695.0 Pledge deposits for Letter of Guarantee 271.0 748.5 Others 10.3 9.4 Total 5,927.1 4,817.3 |
Schedule of property and equipment useful lives | Building 20 years Decoration 5 years Leasehold improvements lesser of the term of the lease and the estimated useful lives of the assets Furniture, fixtures, office and other equipment 3-10 years Vehicles 5 years Servers and computers 3 years Software 3 years |
Schedule of intangible assets and its estimated useful life | Land use right over the remaining term of the land use right period License right over the license period Technology 10 years |
Concentrations and Risks (Table
Concentrations and Risks (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Service providers | Bandwidth and server custody service provider | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | For the year ended December 31, 2016 2017 2018 Total number of telecommunications service providers 14 23 49 Number of service providers provided by 10% or more of the Group’s bandwidth and server custody expenditure 3 3 3 Total % of the Group’s bandwidth and server custody expenditure provided by 10% or greater service providers 79.5 % 67.8 % 57.8 % |
Accounts receivable | Credit risk | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | December 31, December 31, 2017 2018 Distribution channel A 34.6 % 22.2 % Allowance for doubtful accounts Not applicable Not applicable |
Prepayments and Other Current_2
Prepayments and Other Current Assets (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Prepayments and Other Current Assets | |
Summary of prepayments and other current assets | The following is a summary of prepayments and other current assets (in thousands): December 31, December 31, 2017 2018 RMB RMB Guarantee payment made to Blizzard - royalty fees 42,697 97,642 Prepayment for royalties, revenue sharing cost 1,479,817 2,000,327 Interest and other operating income receivable 417,843 511,364 Prepayments of content and marketing cost and other operational expenses 381,213 729,376 Prepayment for sales tax and deductible value added tax 698,902 463,411 Bridge loans in connection with ongoing investments 30,575 19,679 Deposits 138,633 123,995 Employee advances 55,045 44,469 Advance to suppliers 337,938 330,903 Others 233,365 306,631 3,816,028 4,627,797 |
Short-term Investments (Tables)
Short-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Short-term Investments | |
Summary of short-term investments | The following is a summary of short-term investments (in thousands): December 31, 2017 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 9,597,381 145,282 9,742,663 9,597,381 145,282 9,742,663 December 31, 2018 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 11,528,300 146,475 11,674,775 11,528,300 146,475 11,674,775 |
Property, Equipment and Softw_2
Property, Equipment and Software (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property, Equipment and Software | |
Summary of property, equipment and software | The following is a summary of property, equipment and software (in thousands): December 31, December 31, 2017 2018 RMB RMB Building and decoration 1,496,971 1,499,947 Leasehold improvements 98,278 176,174 Furniture, fixtures and office equipment 124,201 141,697 Vehicles 68,414 76,913 Servers and computers 2,583,270 3,885,881 Software 86,650 96,850 Construction in progress 1,086,773 2,153,966 5,544,557 8,031,428 Less: accumulated depreciation (1,775,231) (2,652,868) Net book value 3,769,326 5,378,560 |
Land Use Rights (Tables)
Land Use Rights (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Land Use Rights | |
Land Use Rights | |
Summary of land use rights | The land use rights are summarized as follows (in thousands): December 31, December 31, 2017 2018 RMB RMB Cost 637,057 3,581,508 Incentive payment from local government (15,000) (15,000) Accumulated amortization (28,778) (63,939) Land use right, net 593,279 3,502,569 |
Long-term Investments (Tables)
Long-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Long-term Investments | |
Schedule of long-term investments | The following is a summary of long-term investments (in thousands): December 31, December 31, 2017 2018 RMB RMB Investments in equity method investees 563,896 736,551 Equity investments with readily determinable fair values 828,260 612,465 Equity investments without readily determinable fair values 1,292,620 3,897,092 2,684,776 5,246,108 |
Other Long-term Assets (Tables)
Other Long-term Assets (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Other Long-term Assets | |
Summary of other long-term assets | The following is a summary of other long-term assets (in thousands): December 31, December 31, 2017 2018 RMB Copyrights, licenses and domain names 820,362 2,464,971 Staff housing loans 107,203 98,244 Non-current deposits 93,147 109,805 Others 91,867 287,656 1,112,579 2,960,676 |
Taxation (Tables)
Taxation (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Taxation | |
Schedule of the combined effects of EIT exemptions and tax rate reductions | The following table presents the combined effects of EIT exemptions and tax rate reductions enjoyed by the Group for the years ended December 31, 2016, 2017 and 2018 (in thousands except per share data): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,417,150 1,464,587 1,621,063 Earnings per share effect, basic 0.43 0.45 0.50 Earnings per share effect, diluted 0.43 0.44 0.50 |
Schedule of component of income tax expenses | The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2016, 2017 and 2018 (in thousands): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Current tax expense 2,035,822 2,600,406 2,536,580 Deferred tax expense/(benefit) 66,676 (438,043) (69,899) Income tax expenses 2,102,498 2,162,363 2,466,681 |
Schedule of reconciliation of the differences between the statutory income tax rate and the Group's effective income tax rate | For the year ended December 31, 2016 2017 2018 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (0.8) (0.5) 2.3 Effect due to different tax rates applicable to overseas entities (0.1) (0.5) 3.7 Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (13.3) (16.2) (24.1) Change in valuation allowance 1.4 3.4 13.1 Effect of withholding income tax 2.9 5.4 7.6 Effective income tax rate 15.1 16.6 27.6 |
Summary of net operating tax loss carry forwards | As of December 31, 2018, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2019 3,582 Loss expiring in 2020 9,222 Loss expiring in 2021 191,412 Loss expiring in 2022 968,390 Loss expiring after 2022 4,083,469 5,256,075 |
Schedule of tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities | The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Deferred tax assets: Deferred revenue, primarily for advanced payments from online games customers 285,919 507,982 Accruals 510,522 616,453 Depreciation of fixed assets 3,697 5,103 Amortization of Intangible assets 55,168 43,899 Net operating tax loss carry forward 742,512 1,653,496 1,597,818 2,826,933 Less: valuation allowance (774,323) (1,762,638) Total 823,495 1,064,295 December 31, December 31, 2017 2018 RMB RMB Deferred tax liabilities: Withholding income tax (d) 183,642 392,945 Others 29,573 736 Total 213,215 393,681 |
Schedule of movement of the aggregate valuation allowances for deferred tax assets | The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented (in thousands): Balance at Provision/(Write-off) Balance at January 1 for the year December 31 RMB RMB RMB 2016 223,644 143,784 367,428 2017 367,428 406,895 774,323 2018 774,323 988,315 1,762,638 |
Taxes Payable (Tables)
Taxes Payable (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Taxes Payable | |
Summary of taxes payable | The following is a summary of taxes payable as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Value Added Tax payable 103,182 231,167 Withholding individual income taxes for employees 161,814 191,367 Enterprise income taxes 1,248,518 1,778,029 Others 51,178 71,460 1,564,692 2,272,023 |
Accrued Liabilities and Other_2
Accrued Liabilities and Other Payables (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Accrued Liabilities and Other Payables | |
Summary of accrued liabilities and other payables | The following is a summary of accrued liabilities and other payables as of December 31, 2017 and 2018 (in thousands): December 31, December 31, 2017 2018 RMB RMB Customer deposits on NetEase Pay accounts 1,554,789 1,369,672 Marketing expenses and promotion materials 1,434,596 2,102,970 Accrued fixed assets related payables 294,970 413,723 Server custody fees and telecommunication charges 232,395 260,280 Accrued revenue sharing 187,838 373,559 Other staff related cost 38,950 80,400 Content cost 406,890 299,837 Professional fees 65,404 246,425 Accrued freight and warehousing charge 257,877 455,561 Others 218,601 246,036 4,692,310 5,848,463 |
Employee Benefits (Tables)
Employee Benefits (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Employee Benefits | |
Schedule of group's employee welfare benefits expense | The following table presents the Group’s employee welfare benefits expense for the years ended December 31, 2016, 2017 and 2018 (in millions): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Contributions to medical and pension schemes 481.8 626.4 849.3 Other employee benefits 315.1 410.5 593.4 796.9 1,036.9 1,442.7 |
Share-based Compensation (Table
Share-based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Share based Compensation | |
Summary of the Group's share-based compensation cost | The table below presents a summary of the Group’s share-based compensation cost for the years ended December 31, 2016, 2017 and 2018 (in thousands): For the year ended December 31, 2016 2017 2018 RMB RMB RMB Cost of revenues 444,187 820,281 764,972 Selling and marketing expenses 52,689 95,382 116,611 General and administrative expenses 238,750 581,337 804,565 Research and development expenses 254,505 507,263 843,502 990,131 2,004,263 2,529,650 |
2009 RSU Plan | |
Share based Compensation | |
Summary of the Company's RSUs activities | Director and Employees Consultants Total (in thousands) (in thousands) (in thousands) Number of ordinary shares issuable upon vesting of restricted share units: Outstanding at January 1, 2016 39,623 162 39,785 Granted 30,980 100 31,080 Vested (27,545) (119) (27,664) Forfeited (1,633) — (1,633) Outstanding at December 31, 2016 41,425 143 41,568 Outstanding at January 1, 2017 41,425 143 41,568 Granted 31,452 45 31,497 Vested (29,705) (100) (29,805) Forfeited (1,465) — (1,465) Outstanding at December 31, 2017 41,707 88 41,795 Outstanding at January 1, 2018 41,707 88 41,795 Granted 33,807 46 33,853 Vested (30,671) (38) (30,709) Forfeited (2,305) — (2,305) Outstanding at December 31, 2018 42,538 96 42,634 |
Schedule of total fair value of RSUs vested during the period | RSU US$ RMB (in millions) (in millions) Total fair value vested: 2016 177.2 1,230.4 2017 343.6 2,235.9 2018 324.4 2,230.7 |
Schedule of weighted average remaining contractual life for the RSUs outstanding | The following table presents the weighted average remaining contractual life for the RSUs outstanding as of December 31, 2018: Weighted Average Weighted Number Outstanding Remaining Average Exercise Price / Exercisable Contractual Life Exercise Price (in thousands) Years US$ Restricted Share Units Performance-based settled in stock 36,687 3.66 n/a Time-based-settled in stock/cash 44,564 2.20 n/a Time-based-settled in stock 6,133 2.03 n/a 87,384 2.80 n/a |
Net Income Per Share (Tables)
Net Income Per Share (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Net Income Per Share | |
Schedule of computation of basic and diluted net income per share | For the year ended December 31, 2016 2017 2018 Numerator (RMB in thousands): Net income attributable to NetEase, Inc.’s shareholders for basic/dilutive net income per share calculation 11,604,520 10,707,939 6,152,407 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,281,729 3,290,312 3,235,324 Dilutive effect of employee stock options and restricted share units 25,380 25,166 19,365 Weighted average number of ordinary shares outstanding, diluted 3,307,109 3,315,478 3,254,689 Net income per share, basic (RMB) 3.54 3.25 1.90 Net income per share, diluted (RMB) 3.51 3.23 1.89 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies | |
Schedule of future commitments under various contracts | As of December 31, 2018, future minimum lease under non-cancelable operating lease agreements, capital commitments, royalties and other expenditures commitments related to licensed contents, including the royalties and minimum marketing expenditure commitment for the games licensed by Blizzard, as well as other commitments related to office machines and services purchases, were as follows (in thousands): Royalties and Server Custody Expenditure for Office Machines Rental Fee Capital Licensed Content and Other Commitments Commitments Commitments Commitments Commitments Total RMB RMB RMB RMB RMB RMB 2019 384,395 134,683 788,755 79,164 4,134,240 2020 270,552 43,290 719,101 60,838 2,638,948 2021 204,218 39,168 392,574 20,858 2,785,358 2022 89,263 11,592 — 17,529 1,685,149 Beyond 2022 64,981 — — 113 2,342,559 1,013,409 228,733 1,900,430 178,502 13,586,254 |
Segment Information (Tables)
Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Segment Information | |
Summary of the Group's operating segment results | There was no significant transaction between reportable segments for the years ended December 31, 2016, 2017 and 2018 (in thousands). For the year ended December 31, 2016 2017 2018 RMB RMB RMB Net revenues: Online game services 27,980,491 36,281,642 40,190,057 E-commerce 4,541,744 11,670,416 19,235,476 Advertising services 2,152,379 2,408,823 2,500,833 Innovative businesses and others 3,504,230 3,741,138 5,230,087 Total net revenues 38,178,844 54,102,019 67,156,453 Cost of revenues: Online game services (9,974,146) (13,473,339) (14,617,656) E-commerce (3,986,871) (10,464,714) (17,688,717) Advertising services (749,652) (797,892) (889,677) Innovative businesses and others (1,804,363) (3,453,381) (5,556,907) Total cost of revenues (16,515,032) (28,189,326) (38,752,957) Gross profit/(loss): Online game services 18,006,345 22,808,303 25,572,401 E-commerce 554,873 1,205,702 1,546,759 Advertising services 1,402,727 1,610,931 1,611,156 Innovative businesses and others 1,699,867 287,757 (326,820) Total gross profit 21,663,812 25,912,693 28,403,496 |
Schedule of breakdown of net revenues by type of good or service | For the year ended December 31, 2016 2017 2018 RMB RMB RMB Online games services 27,980,491 36,281,642 40,190,057 Online product sales from e-commerce platforms 4,430,389 11,447,037 18,637,521 Advertising services 2,152,379 2,408,823 2,500,833 Others 3,615,585 3,964,517 5,828,042 Total Net revenue 38,178,844 54,102,019 67,156,453 |
Schedule of total depreciation and amortization expenses of property and equipment and land use rights by segment | For the year ended December 31, 2016 2017 2018 RMB RMB RMB Online game services 101,400 157,695 235,896 E-commerce 274 4,745 18,482 Advertising services 4,061 8,712 10,727 Innovative businesses and others 52,933 89,953 184,987 Total depreciation and amortization expenses of property and equipment and land use rights 158,668 261,105 450,092 |
Financial Instruments (Tables)
Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Financial Instruments | |
Schedule of financial instruments, measured at fair value | The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2017 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other for Identical Observable Assets Inputs Total (Level 1) (Level 2) Time deposits-short term 30,603,369 30,603,369 — Time deposits-long term 100,000 100,000 — Equity investments with readily determinable fair values 828,260 828,260 — Short-term investments 9,742,663 — 9,742,663 Total 41,274,292 31,531,629 9,742,663 The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2018 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other for Identical Observable Assets Inputs Total (Level 1) (Level 2) Time deposits-short term 32,900,287 32,900,287 — Time deposits-long term 100,000 100,000 — Equity investments with readily determinable fair values 612,465 612,465 — Short-term investments 11,674,775 — 11,674,775 Total 45,287,527 33,612,752 11,674,775 |
Organization and Nature of Op_3
Organization and Nature of Operations (Details) $ in Thousands | Dec. 01, 2015 | Nov. 30, 2015 | May 12, 2010 | May 12, 2000 | Dec. 31, 2018USD ($)entity | Dec. 31, 2018CNY (¥)entitycompany | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Apr. 30, 2009employee |
Principle subsidiaries and variable interest entities | |||||||||
Total assets | ¥ 10,491,261,000 | ¥ 9,729,718,000 | |||||||
Total liabilities | 9,892,724,000 | 8,897,521,000 | |||||||
Net Revenues | $ 9,767,501 | 67,156,453,000 | 54,102,019,000 | ¥ 38,178,844,000 | |||||
Net income | 942,101 | 6,477,417,000 | 10,849,137,000 | 11,792,863,000 | |||||
Net cash provided by/(used in) operating activities | 1,951,260 | 13,415,877,000 | 11,889,238,000 | 15,488,266,000 | |||||
Net cash (used in)/provided by investing activities | (1,973,604) | (13,569,515,000) | (12,855,270,000) | (11,861,393,000) | |||||
Net cash (used in)/provided by financing activities | $ 230,880 | 1,587,419,000 | (1,302,728,000) | (2,250,507,000) | |||||
Amount of assets for settlement of obligations except for the registered capital of the VIEs and certain non-distributable statutory reserves | 0 | ||||||||
Registered capital of VIEs | 562,200,000 | 536,200,000 | |||||||
Non-distributable statutory reserves of the consolidated VIEs | ¥ 32,100,000 | 27,200,000 | |||||||
Number of entities for which the company has a variable interest but is not the primary beneficiary | entity | 0 | 0 | |||||||
Primary Beneficiary Consolidated VIEs | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Net Revenues | ¥ 43,323,784,000 | 40,584,251,000 | 31,043,737,000 | ||||||
Net income | 224,220,000 | 357,163,000 | 448,771,000 | ||||||
Net cash provided by/(used in) operating activities | 402,754,000 | (124,670,000) | 1,736,702,000 | ||||||
Net cash (used in)/provided by investing activities | (720,675,000) | 122,286,000 | (270,733,000) | ||||||
Net cash (used in)/provided by financing activities | ¥ 229,862,000 | ¥ 4,000,000 | ¥ (57,000,000) | ||||||
HZ Leihuo | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Number of employees incorporating new entity | employee | 2 | ||||||||
HZ Leihuo | Operating agreement | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Term of principal (or amended principal) agreement | 20 years | ||||||||
StormNet IT HK and StormNet IT SH Joint Venture | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Number of companies in joint venture | company | 2 | ||||||||
Guangzhou NetEase | Shareholder voting rights trust agreement | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Term of principal (or amended principal) agreement | 20 years | 10 years | |||||||
Guangzhou NetEase | Letter of agreement | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Term of principal (or amended principal) agreement | 20 years | ||||||||
NetEase Advertising | Operating agreement | |||||||||
Principle subsidiaries and variable interest entities | |||||||||
Term of principal (or amended principal) agreement | 20 years |
Principal Accounting Policies_3
Principal Accounting Policies (Details) $ in Thousands, € in Millions, $ in Millions | 12 Months Ended | |||||||||||
Dec. 31, 2018USD ($)item | Dec. 31, 2018CNY (¥)item | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Dec. 31, 2018HKD ($) | Dec. 31, 2018EUR (€) | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017HKD ($) | Dec. 31, 2017EUR (€) | Dec. 31, 2017USD ($) | Dec. 31, 2017CNY (¥) | |
Revenue recognition | ||||||||||||
Number of revenue models used for PC-client game services | item | 2 | 2 | ||||||||||
Net Revenues | $ 9,767,501 | ¥ 67,156,453,000 | ¥ 54,102,019,000 | ¥ 38,178,844,000 | ||||||||
Practical Expedients - financing component | true | true | ||||||||||
Practical Expedients - costs to obtain a contract | true | true | ||||||||||
Movements of the allowance for doubtful accounts | ||||||||||||
Balance at the beginning of the year | ¥ 84,909,000 | 24,136,000 | 14,185,000 | |||||||||
Charged to (write-back against) cost and expenses | $ 7,411 | 50,954,000 | 60,826,000 | 9,952,000 | ||||||||
Write-off of receivable balances and corresponding provisions | (5,215,000) | (53,000) | (1,000) | |||||||||
Balance at the end of the year | 130,648,000 | 84,909,000 | 24,136,000 | |||||||||
Cash, cash equivalents and time deposits | ||||||||||||
Cash at bank and demand deposits | $ 783,827 | ¥ 5,389,198,000 | ¥ 2,764,140,000 | |||||||||
Services | ||||||||||||
Revenue recognition | ||||||||||||
Net Revenues | 7,056,786 | 48,518,932,000 | 42,654,982,000 | 33,748,455,000 | ||||||||
Advertising barter transactions | ||||||||||||
Revenue recognition | ||||||||||||
Net Revenues | 0 | 0 | ||||||||||
PRC subsidiaries and VIEs | ||||||||||||
Cash, cash equivalents and time deposits | ||||||||||||
Cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | ¥ 12,700,000,000 | ¥ 15,100,000,000 | ||||||||||
Percentage of cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | 33.10% | 33.10% | 33.10% | 33.10% | 45.10% | 45.10% | 45.10% | 45.10% | ||||
Denominated in USD | ||||||||||||
Cash, cash equivalents and time deposits | ||||||||||||
Cash at bank and demand deposits | $ 269,900 | ¥ 1,852,700,000 | $ 112,500 | |||||||||
Time deposits | $ 2,456,300 | 16,857,900,000 | $ 2,547,800 | |||||||||
Denominated in HKD | ||||||||||||
Cash, cash equivalents and time deposits | ||||||||||||
Cash at bank and demand deposits | $ 90.7 | 79,500,000 | $ 5.3 | |||||||||
Denominated in EUR | ||||||||||||
Cash, cash equivalents and time deposits | ||||||||||||
Cash at bank and demand deposits | € 1 | ¥ 7,700,000 | € 1.6 | |||||||||
Selling and marketing expenses | ||||||||||||
Cost of revenues | ||||||||||||
Shipping and handling costs | $ 242,900 | ¥ 1,670,400,000 | ¥ 1,182,700,000 | ¥ 503,000,000 | ||||||||
Less than | ||||||||||||
Revenue recognition | ||||||||||||
Term of advertising service contracts | 3 months | 3 months |
Principal Accounting Policies_4
Principal Accounting Policies (Details 2) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2018CNY (¥)agreement | Dec. 31, 2017CNY (¥)agreement | |
Restricted cash | ||
Total restricted cash | ¥ 4,817.3 | ¥ 5,927.1 |
Number of other lien arrangements | agreement | 0 | 0 |
Customer deposit | NetEase Pay | ||
Restricted cash | ||
Total restricted cash | ¥ 1,364.4 | ¥ 1,554.8 |
Pledge deposits for short-term bank borrowings - Current | ||
Restricted cash | ||
Total restricted cash | 2,695 | 4,091 |
Pledge deposits for Letter of Guarantee | ||
Restricted cash | ||
Total restricted cash | 748.5 | 271 |
Others | ||
Restricted cash | ||
Total restricted cash | ¥ 9.4 | ¥ 10.3 |
Principal Accounting Policies_5
Principal Accounting Policies (Details 3) | 12 Months Ended |
Dec. 31, 2018 | |
Building | |
Property, Equipment and Software | |
Estimated useful lives of assets | 20 years |
Estimated useful lives of assets | 20 years |
Decoration | |
Property, Equipment and Software | |
Estimated useful lives of assets | 5 years |
Estimated useful lives of assets | 5 years |
Leasehold improvements | |
Property, Equipment and Software | |
Estimated useful lives of assets | lesser of the term of the lease and the estimated useful lives of the assets |
Furniture, fixtures, office and other equipment | |
Property, Equipment and Software | |
Estimated useful lives of assets | 3-10 years |
Furniture, fixtures, office and other equipment | Equal to or more than | |
Property, Equipment and Software | |
Estimated useful lives of assets | 3 years |
Furniture, fixtures, office and other equipment | Less than | |
Property, Equipment and Software | |
Estimated useful lives of assets | 10 years |
Vehicles | |
Property, Equipment and Software | |
Estimated useful lives of assets | 5 years |
Estimated useful lives of assets | 5 years |
Servers and computers | |
Property, Equipment and Software | |
Estimated useful lives of assets | 3 years |
Estimated useful lives of assets | 3 years |
Software | |
Property, Equipment and Software | |
Estimated useful lives of assets | 3 years |
Estimated useful lives of assets | 3 years |
Principal Accounting Policies_6
Principal Accounting Policies (Details 4) ¥ in Millions, $ in Millions | 12 Months Ended | |||
Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Advertising Expense | ||||
Advertising expenses | $ 426.7 | ¥ 2,933.8 | ¥ 2,310.6 | ¥ 1,116.9 |
Foreign currency translation | ||||
Buying rate per US$ | 6.8755 | 6.8755 | ||
Land Use Rights | ||||
Intangible assets | ||||
Estimated useful lives of assets | over the remaining term of the land use right period | over the remaining term of the land use right period | ||
Licensing Rights | ||||
Intangible assets | ||||
Estimated useful lives of assets | over the license period | over the license period | ||
Technology | ||||
Intangible assets | ||||
Estimated useful lives of assets | 10 years | 10 years | ||
Estimated useful lives of assets | 10 years | 10 years |
Principal Accounting Policies_7
Principal Accounting Policies (Details 5) | Nov. 17, 2009 | Dec. 31, 2018 |
Share based Compensation | ||
Number of preceding years considered for estimating forfeiture | 5 years | |
2009 RSU Plan | ||
Share based Compensation | ||
Expiration period | 10 years | |
2009 RSU Plan | 2009 RSU Plan | Equal to or more than | ||
Share based Compensation | ||
Service vesting period | 1 year | |
2009 RSU Plan | 2009 RSU Plan | Less than | ||
Share based Compensation | ||
Service vesting period | 5 years | |
Certain subsidiaries | Stock Options | Equal to or more than | ||
Share based Compensation | ||
Expiration period | 5 years | |
Certain subsidiaries | Stock Options | Less than | ||
Share based Compensation | ||
Expiration period | 7 years |
Principal Accounting Policies_8
Principal Accounting Policies (Details 6) - PRC | 12 Months Ended |
Dec. 31, 2018 | |
General reserve fund | |
Statutory reserves | |
Required minimum percentage of annual appropriations | 10.00% |
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required | 50.00% |
Statutory surplus reserve | |
Statutory reserves | |
Required minimum percentage of annual appropriations | 10.00% |
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required | 50.00% |
Principal Accounting Policies_9
Principal Accounting Policies (Details 7) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||||
Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Jan. 01, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Jan. 01, 2018CNY (¥) | |
Recently adopted and issued accounting pronouncements | |||||||
Reduction of deferred revenue | $ (1,156,753) | ¥ (6,237,969) | ¥ (7,953,255) | ||||
Increase to retained earnings | 6,399,155 | 42,733,081 | 43,997,388 | ||||
Decrease in revenue | (9,767,501) | ¥ (67,156,453) | (54,102,019) | ¥ (38,178,844) | |||
Cumulative effect of changes in accounting principles related to financial instruments | 39,816 | ||||||
Net change of cash, cash equivalents and restricted cash | $ 220,391 | 1,515,292 | (2,281,526) | 1,508,651 | |||
Accumulated other comprehensive income | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Cumulative effect of changes in accounting principles related to financial instruments | (38,159) | ||||||
Retained earnings | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Cumulative effect of changes in accounting principles related to financial instruments | 65,608 | ||||||
ASU No. 2014-09 | Cumulative-effect adjustment | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Reduction of deferred revenue | 81,700 | ||||||
Increase to retained earnings | ¥ 27,400 | ||||||
Decrease in revenue | ¥ 81,700 | ||||||
ASU No. 2016-01 | Accumulated other comprehensive income | Adjustment | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Cumulative effect of changes in accounting principles related to financial instruments | ¥ (38,200) | ||||||
ASU No. 2016-01 | Retained earnings | Adjustment | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Cumulative effect of changes in accounting principles related to financial instruments | ¥ 38,200 | ||||||
ASU No. 2016-18 | Adjustment | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Net change of cash, cash equivalents and restricted cash | ¥ (393,800) | ¥ 2,140,600 | |||||
ASU No. 2016-02 | Forecast adjustment | |||||||
Recently adopted and issued accounting pronouncements | |||||||
Total right-of-use assets | ¥ 861,500 | ||||||
Total lease liabilities | ¥ 861,500 |
Concentrations and Risks (Detai
Concentrations and Risks (Details) | 12 Months Ended | ||
Dec. 31, 2018itemcustomer | Dec. 31, 2017itemcustomer | Dec. 31, 2016itemcustomer | |
Service providers | Bandwidth and server custody service provider | |||
Concentrations and Risks | |||
Total number of telecommunications service providers | 49 | 23 | 14 |
Number of service providers provided by 10% or more of the Group's bandwidth and server custody expenditure | 3 | 3 | 3 |
Concentration risk (as a percent) | 57.80% | 67.80% | 79.50% |
Service providers | Bandwidth and server custody service provider | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10.00% | 10.00% | 10.00% |
Accounts receivable | Credit risk | |||
Concentrations and Risks | |||
Number of distribution channel | 1 | 1 | |
Accounts receivable | Credit risk | Distribution channel A | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 22.20% | 34.60% | |
Accounts receivable | Credit risk | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10.00% | 10.00% | |
Total net revenues | Major Customers | |||
Concentrations and Risks | |||
Number of customers | customer | 0 | 0 | 0 |
Total net revenues | Major Customers | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10.00% | 10.00% | 10.00% |
Total net revenues | Top 5 online games | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 30.20% | 44.30% | 46.30% |
Top online games | 5 | 5 | 5 |
Total net game revenues | Mobile games | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 71.00% | 70.80% | 61.90% |
Short-term investments | Credit risk | Equal to or more than | |||
Concentrations and Risks | |||
Effective yields of short-term investments | 1.90% | ||
Short-term investments | Credit risk | Less than | |||
Concentrations and Risks | |||
Effective yields of short-term investments | 5.50% |
Prepayments and Other Current_3
Prepayments and Other Current Assets (Details) $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Prepayments and Other Current Assets | |||
Guarantee payment made to Blizzard - royalty fees | ¥ 97,642,000 | ¥ 42,697,000 | |
Prepayment for royalties, revenue sharing cost | 2,000,327,000 | 1,479,817,000 | |
Interest and other operating income receivable | 511,364,000 | 417,843,000 | |
Prepayments of content and marketing cost and other operational expenses | 729,376,000 | 381,213,000 | |
Prepayment for sales tax and deductible value added tax | 463,411,000 | 698,902,000 | |
Bridge loans in connection with ongoing investments | 19,679,000 | 30,575,000 | |
Deposits | 123,995,000 | 138,633,000 | |
Employee advances | 44,469,000 | 55,045,000 | |
Advance to suppliers | 330,903,000 | 337,938,000 | |
Others | 306,631,000 | 233,365,000 | |
Prepayments and other current assets | $ 673,085 | 4,627,797,000 | 3,816,028,000 |
Staff housing loans outstanding repayable within 12 months | 43,100,000 | 48,500,000 | |
Advances were made directly or indirectly to the executive officers for their personal benefit | ¥ 0 | ¥ 0 |
Short-term Investments (Details
Short-term Investments (Details) - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Short-term Investments | |||
Investment income related to short-term investments | ¥ 463,600 | ¥ 389,500 | ¥ 303,400 |
Short-term investments | |||
Short-term Investments | |||
Cost | 11,528,300 | 9,597,381 | |
Unrealized Gains/(Losses) | 146,475 | 145,282 | |
Estimated Fair Value | ¥ 11,674,775 | ¥ 9,742,663 | |
Short-term investments | Equal to or more than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 1.90% | 2.00% | |
Short-term investments | Less than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 5.50% | 5.30% |
Property, Equipment and Softw_3
Property, Equipment and Software (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||
Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | |
Summary of property, equipment and software | |||||
Gross book value | ¥ 5,544,557 | ¥ 8,031,428 | |||
Less: accumulated depreciation | (1,775,231) | (2,652,868) | |||
Net book value | 3,769,326 | $ 782,280 | 5,378,560 | ||
Depreciation expense | ¥ 954,700 | 522,200 | ¥ 312,900 | ||
Building and decoration | |||||
Summary of property, equipment and software | |||||
Gross book value | 1,496,971 | 1,499,947 | |||
Leasehold improvements | |||||
Summary of property, equipment and software | |||||
Gross book value | 98,278 | 176,174 | |||
Furniture, fixtures, office and other equipment | |||||
Summary of property, equipment and software | |||||
Gross book value | 124,201 | 141,697 | |||
Vehicles | |||||
Summary of property, equipment and software | |||||
Gross book value | 68,414 | 76,913 | |||
Servers and computers | |||||
Summary of property, equipment and software | |||||
Gross book value | 2,583,270 | 3,885,881 | |||
Software | |||||
Summary of property, equipment and software | |||||
Gross book value | 86,650 | 96,850 | |||
Construction in progress | |||||
Summary of property, equipment and software | |||||
Gross book value | ¥ 1,086,773 | ¥ 2,153,966 |
Land Use Rights (Details)
Land Use Rights (Details) - Land Use Rights - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Land Use Rights | |||
Cost | ¥ 3,581,508 | ¥ 637,057 | |
Incentive payment from local government | (15,000) | (15,000) | |
Accumulated amortization | (63,939) | (28,778) | |
Land use right, net | 3,502,569 | 593,279 | |
Total amortization expense | ¥ 35,200 | ¥ 12,500 | ¥ 11,400 |
Long-term Investments (Details)
Long-term Investments (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Long-term Investments | |||
Investments in equity method investees | ¥ 736,551 | ¥ 563,896 | |
Equity investments with readily determinable fair values | 612,465 | 828,260 | |
Equity investments without readily determinable fair values | 3,897,092 | 1,292,620 | |
Total | $ 763,015 | ¥ 5,246,108 | ¥ 2,684,776 |
Long-term Investments (Details
Long-term Investments (Details 2) $ in Thousands | 1 Months Ended | 12 Months Ended | ||||
Jul. 31, 2015CNY (¥) | Aug. 31, 2013CNY (¥) | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Investments in equity method investees | ||||||
Equity share of loss | $ 14,297 | ¥ 98,301,000 | ¥ 12,232,000 | ¥ 85,813,000 | ||
Consideration in cash | 39,626 | 272,451,000 | 235,769,000 | 364,486,000 | ||
Equity investments with readily determinable fair values ("Available-for-sale securities" prior to adoption of ASU 2016-01) | ||||||
Equity investments with readily determinable fair values | 612,465,000 | 828,260,000 | ||||
Unrealized fair value loss of equity investments with readily determinable fair value | 215,800,000 | |||||
Impairment provision recorded in the consolidated statements of comprehensive income | 23,228 | 159,703,000 | 58,537,000 | 278,906,000 | ||
Equity investments without readily determinable fair value ("Equity investments" prior to adoption of ASU 2016-01) | ||||||
Upward adjustments to the carrying value of equity securities without readily determinable fair value | 0 | |||||
Gain related to the partial disposal of one of the Group's investment in equity securities without readily determinable fair value | $ 31,029 | 213,339,000 | 9,595,000 | 234,050,000 | ||
Investment income, net | ||||||
Equity investments without readily determinable fair value ("Equity investments" prior to adoption of ASU 2016-01) | ||||||
Gain related to the partial disposal of one of the Group's investment in equity securities without readily determinable fair value | ¥ 9,600,000 | ¥ 234,100,000 | ||||
Yixin | ||||||
Investments in equity method investees | ||||||
Percentage of equity interest acquired | 35.00% | 27.00% | ||||
Consideration in cash | ¥ 127,500,000 | ¥ 200,000,000 | ||||
MAXWIN | ||||||
Investments in equity method investees | ||||||
Percentage of equity interest acquired | 49.00% | |||||
Consideration in cash | ¥ 344,600,000 | |||||
Percentage of equity interest disposed | 49.00% | |||||
Cash consideration from equity interest disposed | ¥ 340,400,000 | |||||
Limited partnership invested to operate on-line game business | ||||||
Investments in equity method investees | ||||||
Consideration in cash | 228,600,000 | |||||
Huatai | ||||||
Equity investments with readily determinable fair values ("Available-for-sale securities" prior to adoption of ASU 2016-01) | ||||||
Equity investments with readily determinable fair values | 509,500,000 | |||||
Cash dividends received | 12,700,000 | 20,900,000 | 21,400,000 | |||
Huatai | Investment income, net | ||||||
Equity investments with readily determinable fair values ("Available-for-sale securities" prior to adoption of ASU 2016-01) | ||||||
Impairment provision recorded in the consolidated statements of comprehensive income | 0 | 266,700,000 | ||||
Caissa | ||||||
Equity investments with readily determinable fair values ("Available-for-sale securities" prior to adoption of ASU 2016-01) | ||||||
Equity investments with readily determinable fair values | 102,900,000 | |||||
Certain of equity investments | Investment income, net | ||||||
Equity investments without readily determinable fair value ("Equity investments" prior to adoption of ASU 2016-01) | ||||||
Impairment provision related to certain of the equity investments | ¥ 133,600,000 | ¥ 58,500,000 | ¥ 12,200,000 |
Other Long-term Assets (Details
Other Long-term Assets (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Other Long-term Assets | |||
Copyrights, licenses and domain names | ¥ 2,464,971 | ¥ 820,362 | |
Staff housing loans | 98,244 | 107,203 | |
Non-current deposits | 109,805 | 93,147 | |
Others | 287,656 | 91,867 | |
Total | $ 430,612 | ¥ 2,960,676 | ¥ 1,112,579 |
Other Long-term Assets (Detai_2
Other Long-term Assets (Details 2) - CNY (¥) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Housing loans made to employees | ||
Term of staff housing loan | 5 years | |
Staff housing loans outstanding repayable within 12 months | ¥ 43.1 | ¥ 48.5 |
Equal to or more than | ||
Housing loans made to employees | ||
Interest rate on staff housing loan (as a percent) | 1.50% | 1.50% |
Less than | ||
Housing loans made to employees | ||
Interest rate on staff housing loan (as a percent) | 3.25% | 3.25% |
Taxation (Details)
Taxation (Details) - CNY (¥) | 12 Months Ended | 36 Months Ended | ||||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Income taxes | ||||||
Income tax rate (as a percent) | 25.00% | 25.00% | 25.00% | |||
Combined effects of EIT exemptions and tax rate reductions | ||||||
Aggregate amount of EIT exemptions and tax rate reductions | ¥ 1,621,063,000 | ¥ 1,464,587,000 | ¥ 1,417,150,000 | |||
Earnings per share effect, basic (in CNY per share) | ¥ 0.50 | ¥ 0.45 | ¥ 0.43 | |||
Earnings per share effect, diluted (in CNY per share) | ¥ 0.50 | ¥ 0.44 | ¥ 0.43 | |||
Cayman Islands | ||||||
Income taxes | ||||||
Withholding tax amount | ¥ 0 | ¥ 0 | ||||
BVI | ||||||
Income taxes | ||||||
Withholding tax amount | ¥ 0 | ¥ 0 | ||||
Hong Kong | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 16.50% | 16.50% | 16.50% | |||
PRC | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 25.00% | |||||
PRC | NetEase Beijing | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | |||
PRC | Boguan | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | |||
PRC | Boguan | Key Software Enterprise | ||||||
Income taxes | ||||||
Preferential tax rate | 10.00% | |||||
PRC | NetEase Hangzhou | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | |||
PRC | NetEase Hangzhou | Key Software Enterprise | ||||||
Income taxes | ||||||
Preferential tax rate | 10.00% | |||||
PRC | Media Beijing | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | |||
PRC | Media Beijing | Key Software Enterprise | ||||||
Income taxes | ||||||
Preferential tax rate | 10.00% | |||||
PRC | Hangzhou Langhe | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | |||
PRC | Lede Technology | Software Enterprises | ||||||
Income taxes | ||||||
Percentage of tax reduction | 50.00% | |||||
PRC | Tianjin Technology | Software Enterprises | ||||||
Income taxes | ||||||
Percentage of tax reduction | 50.00% |
Taxation (Details 2)
Taxation (Details 2) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Component of income tax expenses | ||||
Current tax expense | ¥ 2,536,580 | ¥ 2,600,406 | ¥ 2,035,822 | |
Deferred tax expense/(benefit) | (69,899) | (438,043) | 66,676 | |
Income tax expenses | $ 358,764 | ¥ 2,466,681 | ¥ 2,162,363 | ¥ 2,102,498 |
Reconciliation of the differences between the statutory income tax rate and the Group's effective income tax rate | ||||
Statutory income tax rate (as a percent) | 25.00% | 25.00% | 25.00% | 25.00% |
Permanent differences (as a percent) | 2.30% | 2.30% | (0.50%) | (0.80%) |
Effect due to different tax rates applicable to overseas entities | 3.70% | 3.70% | (0.50%) | (0.10%) |
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (as a percent) | (24.10%) | (24.10%) | (16.20%) | (13.30%) |
Change in valuation allowance (as a percent) | 13.10% | 13.10% | 3.40% | 1.40% |
Effect of withholding income tax (as a percent) | 7.60% | 7.60% | 5.40% | 2.90% |
Effective income tax rate (as a percent) | 27.60% | 27.60% | 16.60% | 15.10% |
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | ¥ 5,256,075 | |||
2019 | ||||
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | 3,582 | |||
2020 | ||||
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | 9,222 | |||
2021 | ||||
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | 191,412 | |||
2022 | ||||
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | 968,390 | |||
After 2022 | ||||
Net operating tax loss carry forwards | ||||
Net operating tax loss carry forwards | ¥ 4,083,469 |
Taxation (Details 3)
Taxation (Details 3) | 4 Months Ended | 8 Months Ended | 12 Months Ended |
Apr. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2018 | |
Sales tax | |||
Value added tax rate, services provided (as a percent) | 6.00% | ||
Value added tax rate, sale of goods (as a percent) | 17.00% | 16.00% | |
Cultural development fee rate on advertising services revenue (as a percent) | 3.00% |
Taxation (Details 4)
Taxation (Details 4) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||||
Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Deferred tax assets: | |||||||
Deferred revenue, primarily for advanced payments from online games customers | ¥ 507,982 | ¥ 285,919 | |||||
Accruals | 616,453 | 510,522 | |||||
Depreciation of fixed assets | 5,103 | 3,697 | |||||
Amortization of Intangible assets | 43,899 | 55,168 | |||||
Net operating tax loss carry forward | 1,653,496 | 742,512 | |||||
Deferred tax assets , gross | 2,826,933 | 1,597,818 | |||||
Less: valuation allowance | ¥ (774,323) | ¥ (367,428) | ¥ (223,644) | (1,762,638) | (774,323) | ¥ (367,428) | |
Total | $ 154,795 | 1,064,295 | 823,495 | ||||
Deferred tax liabilities: | |||||||
Withholding income tax | 392,945 | 183,642 | |||||
Others | 736 | 29,573 | |||||
Total | 57,259 | 393,681 | 213,215 | ||||
Movement of the aggregate valuation allowances for deferred tax assets | |||||||
Balance at the beginning of the period | 774,323 | 367,428 | 223,644 | ||||
Provision/(Write-off) for the year | 988,315 | 406,895 | 143,784 | ||||
Balance at the end of the period | ¥ 1,762,638 | ¥ 774,323 | ¥ 367,428 | ||||
Withholding income tax | |||||||
Withholding tax rate on dividend distributed by foreign investment entities to its immediate holding company outside of China (as a percent) | 10.00% | ||||||
Lower withholding income tax rate on dividend applied, if the FIE's immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China (as a percent) | 5.00% | ||||||
Accrued withholding tax liabilities | 98,800 | 679,400 | 707,100 | ¥ 404,800 | |||
Unrecognized deferred tax liabilities related to undistributed earnings of the Group's PRC subsidiaries | $ 153,800 | ¥ 1,057,700 | ¥ 1,079,500 |
Taxes Payable (Details)
Taxes Payable (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Taxes Payable | |||
Value Added Tax payable | ¥ 231,167 | ¥ 103,182 | |
Withholding individual income taxes for employees | 191,367 | 161,814 | |
Enterprise income taxes | 1,778,029 | 1,248,518 | |
Others | 71,460 | 51,178 | |
Total taxes payable | $ 330,452 | ¥ 2,272,023 | ¥ 1,564,692 |
Short-term Loan (Details)
Short-term Loan (Details) ¥ in Millions, $ in Millions | Aug. 09, 2018USD ($)item | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Short-term Loan | ||||
Weighted average interest rate for the outstanding short-term loans (as a percent) | 3.14% | 3.14% | 2.13% | |
Deposits to secure short-term loan | $ 392 | ¥ 2,695 | ¥ 4,091 | |
Credit facilities not utilized | 933.5 | |||
Syndicated facility agreement | ||||
Short-term Loan | ||||
Short-term loan, maturity term | 3 years | |||
Aggregate amount of facilities agreement | $ 500 | |||
Number of mandated lead arrangers and bookrunners | item | 4 | |||
Commitment fee | 0.20% | |||
Borrowings outstanding | 100 | |||
Syndicated facility agreement | LIBOR | ||||
Short-term Loan | ||||
Basis points | 0.95% | |||
Guarantee agreements | the Company | ||||
Short-term Loan | ||||
Aggregate amount of facilities agreement | 785 | |||
Unutilized amount of credit facilities taken by its subsidiaries | $ 177.6 | |||
Equal to or more than | ||||
Short-term Loan | ||||
Short-term loan, maturity term | 1 month | |||
Short-term loan, fixed interest rate (as a percent) | 0.74% | 0.74% | 0.78% | |
Less than | ||||
Short-term Loan | ||||
Short-term loan, maturity term | 1 year | |||
Short-term loan, fixed interest rate (as a percent) | 4.57% | 4.57% | 2.42% |
Accrued Liabilities and Other_3
Accrued Liabilities and Other Payables (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Accrued Liabilities and Other Payables | |||
Customer deposits on NetEase Pay accounts | ¥ 1,369,672 | ¥ 1,554,789 | |
Marketing expenses and promotion materials | 2,102,970 | 1,434,596 | |
Accrued fixed assets related payables | 413,723 | 294,970 | |
Server custody fees and telecommunication charges | 260,280 | 232,395 | |
Accrued revenue sharing | 373,559 | 187,838 | |
Other staff related cost | 80,400 | 38,950 | |
Content cost | 299,837 | 406,890 | |
Professional fees | 246,425 | 65,404 | |
Accrued freight and warehousing charge | 455,561 | 257,877 | |
Others | 246,036 | 218,601 | |
Total accrued liabilities and other payables | $ 850,624 | ¥ 5,848,463 | ¥ 4,692,310 |
Deferred Revenue (Details)
Deferred Revenue (Details) ¥ in Millions | 12 Months Ended |
Dec. 31, 2018CNY (¥) | |
Deferred Revenue | |
Amount of revenues recognized included in the deferred revenue | ¥ 5,925.4 |
Transaction price allocated to unsatisfied performance obligations | ¥ 7,953.3 |
Explanation of expected timing of satisfaction remaining performance obligation | We expect to recognize a significant majority of this balance as revenue over the next 12 months, and the remainder thereafter. |
Noncontrolling Interests and _2
Noncontrolling Interests and Redeemable Noncontrolling Interests (Details) ¥ in Thousands, $ in Thousands | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||||
Apr. 30, 2018USD ($) | Mar. 31, 2018CNY (¥) | Mar. 31, 2017CNY (¥)shareholder | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of noncontrolling interests | $ 2,256 | ¥ 15,510 | ¥ 311,500 | ¥ 4 | |||
Cash consideration for repurchase of redeemable noncontrolling interests | 113,446 | 780,000 | |||||
Cash consideration for repurchase of noncontrolling interests | $ 28,362 | ¥ 195,000 | |||||
Hangzhou Cloud Music | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Cash consideration for repurchase of redeemable noncontrolling interests | ¥ 780,000 | ||||||
Cash consideration for repurchase of noncontrolling interests | 195,000 | ||||||
Excess of consideration transferred over carrying amount of noncontrolling interests surrendered recorded as a reduction to retained earnings | 63,900 | ||||||
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders | ¥ 159,400 | ||||||
A subsidiary | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 70,000 | ||||||
NetEase Cloud Music | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Ownership percentage, owned by noncontrolling owners | 12.59% | 24.13% | 24.13% | ||||
Hangzhou Cloud Music | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of redeemable noncontrolling interest | ¥ 600,000 | ||||||
Number of investors | shareholder | 1 | ||||||
Total cash consideration from issuance of noncontrolling interests | ¥ 150,000 | ||||||
Cloud Village Inc | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 716,300 |
Capital Structure (Details)
Capital Structure (Details) | 12 Months Ended |
Dec. 31, 2018Vote | |
Capital Structure | |
Voting rights per share | 1 |
Employee Benefits (Details)
Employee Benefits (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Employee Benefits | |||
Contributions to medical and pension schemes | ¥ 849.3 | ¥ 626.4 | ¥ 481.8 |
Other employee benefits | 593.4 | 410.5 | 315.1 |
Total group's employee welfare benefits expense | ¥ 1,442.7 | ¥ 1,036.9 | ¥ 796.9 |
Share-based Compensation (Detai
Share-based Compensation (Details) - 2009 RSU Plan - shares | Nov. 17, 2009 | Nov. 30, 2009 |
Share based Compensation | ||
Number of ordinary shares reserved for issuance under the plan | 323,694,050 | |
Term of plan | 10 years |
Share-based Compensation (Det_2
Share-based Compensation (Details 2) - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based Compensation | |||
Number of preceding years considered for estimating forfeiture | 5 years | ||
Share-based compensation cost | |||
Share-based Compensation Expense | ¥ 2,529,650 | ¥ 2,004,263 | ¥ 990,131 |
Cost of revenues | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 764,972 | 820,281 | 444,187 |
Selling and marketing expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 116,611 | 95,382 | 52,689 |
General and administrative expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 804,565 | 581,337 | 238,750 |
Research and development expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | ¥ 843,502 | ¥ 507,263 | ¥ 254,505 |
Share-based Compensation (Det_3
Share-based Compensation (Details 3) shares in Thousands, ¥ in Millions, $ in Millions | 12 Months Ended | ||||||
Dec. 31, 2018USD ($)shares | Dec. 31, 2018CNY (¥)shares | Dec. 31, 2017USD ($)shares | Dec. 31, 2017CNY (¥)shares | Dec. 31, 2016USD ($)shares | Dec. 31, 2016CNY (¥)shares | Dec. 31, 2018CNY (¥) | |
2009 RSU Plan | |||||||
Number of ordinary shares issuable upon vesting of restricted share units: | |||||||
Outstanding at the beginning of the period (in shares) | 41,795 | 41,795 | 41,568 | 41,568 | 39,785 | 39,785 | |
Granted (in shares) | 33,853 | 33,853 | 31,497 | 31,497 | 31,080 | 31,080 | |
Vested (in shares) | (30,709) | (30,709) | (29,805) | (29,805) | (27,664) | (27,664) | |
Forfeited (in shares) | (2,305) | (2,305) | (1,465) | (1,465) | (1,633) | (1,633) | |
Outstanding at end of the period (in shares) | 42,634 | 42,634 | 41,795 | 41,795 | 41,568 | 41,568 | |
Total intrinsic value of options exercised and the total fair value of RSUs on vesting dates | |||||||
Total fair value vested | $ 324.4 | ¥ 2,230.7 | $ 343.6 | ¥ 2,235.9 | $ 177.2 | ¥ 1,230.4 | |
2009 RSU Plan | Employees | |||||||
Number of ordinary shares issuable upon vesting of restricted share units: | |||||||
Outstanding at the beginning of the period (in shares) | 41,707 | 41,707 | 41,425 | 41,425 | 39,623 | 39,623 | |
Granted (in shares) | 33,807 | 33,807 | 31,452 | 31,452 | 30,980 | 30,980 | |
Vested (in shares) | (30,671) | (30,671) | (29,705) | (29,705) | (27,545) | (27,545) | |
Forfeited (in shares) | (2,305) | (2,305) | (1,465) | (1,465) | (1,633) | (1,633) | |
Outstanding at end of the period (in shares) | 42,538 | 42,538 | 41,707 | 41,707 | 41,425 | 41,425 | |
2009 RSU Plan | Director and Consultants | |||||||
Number of ordinary shares issuable upon vesting of restricted share units: | |||||||
Outstanding at the beginning of the period (in shares) | 88 | 88 | 143 | 143 | 162 | 162 | |
Granted (in shares) | 46 | 46 | 45 | 45 | 100 | 100 | |
Vested (in shares) | (38) | (38) | (100) | (100) | (119) | (119) | |
Outstanding at end of the period (in shares) | 96 | 96 | 88 | 88 | 143 | 143 | |
2009 RSU Plan | |||||||
Share based Compensation | |||||||
Total unrecognized compensation cost related to unvested awards | $ 598.1 | ¥ 4,112.5 | |||||
Weighted average remaining vesting period over which unrecognized compensation cost is recognized | 2 years 5 months 9 days | 2 years 5 months 9 days |
Share-based Compensation (Det_4
Share-based Compensation (Details 4) shares in Thousands | 12 Months Ended |
Dec. 31, 2018shares | |
2009 RSU Plan | |
Share based Compensation | |
Number Outstanding/ Exercisable | 87,384 |
Weighted Average Remaining Contractual Life | 2 years 9 months 18 days |
Performance-based settled in stock | |
Share based Compensation | |
Number Outstanding/ Exercisable | 36,687 |
Weighted Average Remaining Contractual Life | 3 years 7 months 28 days |
Time-based-settled in stock/cash | |
Share based Compensation | |
Number Outstanding/ Exercisable | 44,564 |
Weighted Average Remaining Contractual Life | 2 years 2 months 12 days |
Time-based-settled in stock | |
Share based Compensation | |
Number Outstanding/ Exercisable | 6,133 |
Weighted Average Remaining Contractual Life | 2 years 11 days |
Share-based Compensation (Det_5
Share-based Compensation (Details 5) - 2009 RSU Plan $ / shares in Units, $ in Millions | Dec. 31, 2018USD ($)$ / sharesshares |
Share based Compensation | |
Aggregate intrinsic value of RSUs outstanding | $ | $ 822.7 |
Company's closing stock price per ADS used to calculate intrinsic value | $ 235.37 |
Company's closing stock price per share used to calculate intrinsic value | $ 9.4148 |
Number of shares available for future grant | shares | 79,343,175 |
Share-based Compensation (Det_6
Share-based Compensation (Details 6) | 12 Months Ended | ||
Dec. 31, 2018CNY (¥)installment | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Share based Compensation | |||
Compensation expenses | ¥ | ¥ 2,529,650,000 | ¥ 2,004,263,000 | ¥ 990,131,000 |
Unrecognized share based compensation expenses relating to share options | ¥ | 352,600,000 | ||
Stock Options | |||
Share based Compensation | |||
Compensation expenses | ¥ | ¥ 38,700,000 | ¥ 93,100,000 | ¥ 0 |
Certain subsidiaries | Stock Options | Vesting option I | |||
Share based Compensation | |||
Percentage of vesting of equity awards on the predefined Vesting Commencement Date | 100.00% | ||
Certain subsidiaries | Stock Options | Vesting option II | |||
Share based Compensation | |||
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date | installment | 2 | ||
Certain subsidiaries | Stock Options | Vesting option III | |||
Share based Compensation | |||
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date | installment | 4 | ||
Certain subsidiaries | Stock Options | Vesting option IV | |||
Share based Compensation | |||
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date | installment | 5 | ||
Certain subsidiaries | Equal to or more than | Stock Options | |||
Share based Compensation | |||
Expiration period | 5 years | ||
Certain subsidiaries | Less than | Stock Options | |||
Share based Compensation | |||
Expiration period | 7 years |
Net Income Per Share (Details)
Net Income Per Share (Details) ¥ / shares in Units, $ / shares in Units, ¥ in Thousands, shares in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)¥ / sharesshares | Dec. 31, 2017CNY (¥)¥ / sharesshares | Dec. 31, 2016CNY (¥)¥ / sharesshares | |
Numerator (RMB in thousands): | ||||
Net income attributable to NetEase, Inc.'s shareholders for basic/dilutive net income per share calculation | $ 894,831 | ¥ 6,152,407 | ¥ 10,707,939 | ¥ 11,604,520 |
Denominator (No. of shares in thousands): | ||||
Weighted average number of ordinary shares outstanding, basic (in shares) | 3,235,324 | 3,235,324 | 3,290,312 | 3,281,729 |
Dilutive effect of employee stock options and restricted share units | 19,365 | 19,365 | 25,166 | 25,380 |
Weighted average number of ordinary shares outstanding, diluted | 3,254,689 | 3,254,689 | 3,315,478 | 3,307,109 |
Net income per share, basic | (per share) | $ 0.28 | ¥ 1.90 | ¥ 3.25 | ¥ 3.54 |
Net income per share, diluted | (per share) | $ 0.27 | ¥ 1.89 | ¥ 3.23 | ¥ 3.51 |
Anti-dilutive ordinary shares and restricted share units excluded from the calculation of diluted net income per share | 19,600 | 19,600 | 3,800 | 2,700 |
Commitments and Contingencies_2
Commitments and Contingencies (Details) ¥ in Thousands | 1 Months Ended | 12 Months Ended | ||
Apr. 30, 2018item | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Rent expense - additional disclosures | ||||
Rental expenses | ¥ 471,900 | ¥ 231,900 | ¥ 146,300 | |
Litigation | ||||
Number of mobile games involved in the lawsuit | item | 2 | |||
Total | ||||
Commitments | ||||
2019 | 4,134,240 | |||
2020 | 2,638,948 | |||
2021 | 2,785,358 | |||
2022 | 1,685,149 | |||
Beyond 2022 | 2,342,559 | |||
Total | 13,586,254 | |||
Rental Commitments | ||||
Commitments | ||||
2019 | 384,395 | |||
2020 | 270,552 | |||
2021 | 204,218 | |||
2022 | 89,263 | |||
Beyond 2022 | 64,981 | |||
Total | 1,013,409 | |||
Server Custody Fee Commitments | ||||
Commitments | ||||
2019 | 134,683 | |||
2020 | 43,290 | |||
2021 | 39,168 | |||
2022 | 11,592 | |||
Total | 228,733 | |||
Capital Commitments | ||||
Commitments | ||||
2019 | 788,755 | |||
2020 | 719,101 | |||
2021 | 392,574 | |||
Total | 1,900,430 | |||
Royalties and Expenditure for Licensed Content Commitments | ||||
Commitments | ||||
2019 | 2,747,243 | |||
2020 | 1,545,167 | |||
2021 | 2,128,540 | |||
2022 | 1,566,765 | |||
Beyond 2022 | 2,277,465 | |||
Total | 10,265,180 | |||
Office Machines and Other Commitments | ||||
Commitments | ||||
2019 | 79,164 | |||
2020 | 60,838 | |||
2021 | 20,858 | |||
2022 | 17,529 | |||
Beyond 2022 | 113 | |||
Total | ¥ 178,502 |
Dividends (Details)
Dividends (Details) $ in Millions | 1 Months Ended | 12 Months Ended | |||
May 31, 2014 | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Dividends | |||||
Quarterly cash dividend distribution percentage | 25.00% | ||||
Dividend payable | ¥ 0 | ¥ 0 | |||
Cash dividend declared | 1,440,194,000 | 3,257,607,000 | ¥ 2,546,165,000 | ||
With respect to fiscal year 2017 | |||||
Dividends | |||||
Cash dividend declared | ¥ 2,656,000,000 | ||||
With respect to fiscal year 2018 | |||||
Dividends | |||||
Cash dividend declared | $ 223.7 | ¥ 1,538,300,000 |
Share Repurchase Programs (Deta
Share Repurchase Programs (Details) ¥ in Thousands, $ in Millions | 1 Months Ended | 12 Months Ended | |||||
Nov. 30, 2018USD ($)shares | Nov. 30, 2017USD ($)shares | Nov. 30, 2016USD ($) | Dec. 31, 2018CNY (¥)shares | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | Jun. 11, 2018USD ($) | |
Share repurchases | |||||||
Value of shares repurchased | ¥ | ¥ 7,592,598 | ¥ 2,061,591 | ¥ 1,199,102 | ||||
ADS shares | 2016 share repurchase program | |||||||
Share repurchases | |||||||
Authorized amount | $ 1,000 | ||||||
Share repurchase program period, maximum | 12 months | ||||||
Shares repurchased (in shares) | shares | 1,100,000 | ||||||
Value of shares repurchased | $ 306.1 | ||||||
ADS shares | 2017 share repurchase program | |||||||
Share repurchases | |||||||
Authorized amount | $ 1,000 | $ 2,000 | |||||
Share repurchase program period, maximum | 12 months | ||||||
Shares repurchased (in shares) | shares | 4,600,000 | ||||||
Value of shares repurchased | $ 1,178.5 | ||||||
Additional authorized amount | $ 1,000 | ||||||
ADS shares | 2018 share repurchase program | |||||||
Share repurchases | |||||||
Authorized amount | $ 1,000 | ||||||
Share repurchase program period, maximum | 12 months | ||||||
Shares repurchased (in shares) | shares | 0 | ||||||
Ordinary shares | 2016 share repurchase program | |||||||
Share repurchases | |||||||
Shares repurchased (in shares) | shares | 28,100,000 | ||||||
Ordinary shares | 2017 share repurchase program | |||||||
Share repurchases | |||||||
Shares repurchased (in shares) | shares | 114,900,000 |
Segment Information (Details)
Segment Information (Details) ¥ in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended | |||
Dec. 31, 2017item | Dec. 31, 2018USD ($)segmentitem | Dec. 31, 2018CNY (¥)segmentitem | Dec. 31, 2017CNY (¥) | Dec. 31, 2016CNY (¥) | |
Segment Information | |||||
Number of e-commerce platforms | item | 2 | 2 | 2 | ||
Number of reportable segments | segment | 4 | 4 | |||
Net revenues: | |||||
Total net revenues | $ 9,767,501 | ¥ 67,156,453 | ¥ 54,102,019 | ¥ 38,178,844 | |
Cost of revenues: | |||||
Total cost of revenues | (5,636,384) | (38,752,957) | (28,189,326) | (16,515,032) | |
Gross profit/(loss): | |||||
Gross profit/(loss) | 4,131,117 | 28,403,496 | 25,912,693 | 21,663,812 | |
Depreciation and amortization expenses | |||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 450,092 | 261,105 | 158,668 | ||
Online game services | |||||
Net revenues: | |||||
Total net revenues | 40,190,057 | 36,281,642 | 27,980,491 | ||
Products | |||||
Net revenues: | |||||
Total net revenues | 2,710,715 | 18,637,521 | 11,447,037 | 4,430,389 | |
Cost of revenues: | |||||
Total cost of revenues | $ (2,569,022) | (17,663,309) | (10,448,219) | (3,912,156) | |
Advertising services | |||||
Net revenues: | |||||
Total net revenues | 2,500,833 | 2,408,823 | 2,152,379 | ||
Others | |||||
Net revenues: | |||||
Total net revenues | 5,828,042 | 3,964,517 | 3,615,585 | ||
Online game services | |||||
Net revenues: | |||||
Total net revenues | 40,190,057 | 36,281,642 | 27,980,491 | ||
Cost of revenues: | |||||
Total cost of revenues | (14,617,656) | (13,473,339) | (9,974,146) | ||
Gross profit/(loss): | |||||
Gross profit/(loss) | 25,572,401 | 22,808,303 | 18,006,345 | ||
Depreciation and amortization expenses | |||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 235,896 | 157,695 | 101,400 | ||
E-commerce | |||||
Net revenues: | |||||
Total net revenues | 19,235,476 | 11,670,416 | 4,541,744 | ||
Cost of revenues: | |||||
Total cost of revenues | (17,688,717) | (10,464,714) | (3,986,871) | ||
Gross profit/(loss): | |||||
Gross profit/(loss) | 1,546,759 | 1,205,702 | 554,873 | ||
Depreciation and amortization expenses | |||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 18,482 | 4,745 | 274 | ||
Advertising services | |||||
Net revenues: | |||||
Total net revenues | 2,500,833 | 2,408,823 | 2,152,379 | ||
Cost of revenues: | |||||
Total cost of revenues | (889,677) | (797,892) | (749,652) | ||
Gross profit/(loss): | |||||
Gross profit/(loss) | 1,611,156 | 1,610,931 | 1,402,727 | ||
Depreciation and amortization expenses | |||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 10,727 | 8,712 | 4,061 | ||
Innovative businesses and others | |||||
Net revenues: | |||||
Total net revenues | 5,230,087 | 3,741,138 | 3,504,230 | ||
Cost of revenues: | |||||
Total cost of revenues | (5,556,907) | (3,453,381) | (1,804,363) | ||
Gross profit/(loss): | |||||
Gross profit/(loss) | (326,820) | 287,757 | 1,699,867 | ||
Depreciation and amortization expenses | |||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | ¥ 184,987 | ¥ 89,953 | ¥ 52,933 |
Financial Instruments (Details)
Financial Instruments (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2018USD ($) | Dec. 31, 2018CNY (¥) | |
Fair Value Measurements | ||||
Time deposits-short term | ¥ 30,603,369 | $ 4,785,148 | ¥ 32,900,287 | |
Time deposits-long term | 100,000 | 14,544 | 100,000 | |
Equity investments with readily determinable fair values | 828,260 | 612,465 | ||
Short-term investments | 9,742,663 | $ 1,698,026 | 11,674,775 | |
Total | 41,274,292 | 45,287,527 | ||
Quoted Prices in Active Market for Identical Assets (Level 1) | ||||
Fair Value Measurements | ||||
Time deposits-short term | 30,603,369 | 32,900,287 | ||
Time deposits-long term | 100,000 | 100,000 | ||
Equity investments with readily determinable fair values | 828,260 | 612,465 | ||
Total | 31,531,629 | 33,612,752 | ||
Significant Other Observable Inputs (Level 2) | ||||
Fair Value Measurements | ||||
Short-term investments | 9,742,663 | 11,674,775 | ||
Total | 9,742,663 | ¥ 11,674,775 | ||
Significant Unobservable Inputs (Level 3) | Certain of equity investments | ||||
Fair Value Measurements | ||||
Impairment charges of certain equity investments without determinable fair value | ¥ 133,600 | ¥ 58,500 |
Restricted Net Assets (Details)
Restricted Net Assets (Details) ¥ in Billions | 12 Months Ended |
Dec. 31, 2018CNY (¥) | |
Restricted Net Assets | |
Restricted net assets | ¥ 6.7 |
Restricted net assets as a percentage of total consolidated net assets | 15.00% |
PRC | General reserve fund | |
Restricted Net Assets | |
Required minimum percentage of annual appropriations | 10.00% |
PRC | Statutory surplus reserve | |
Restricted Net Assets | |
Required minimum percentage of annual appropriations | 10.00% |