Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2019shares | |
Document and Entity Information | |
Document Type | 20-F |
Document Registration Statement | false |
Document Annual Report | true |
Document Period End Date | Dec. 31, 2019 |
Document Transition Report | false |
Document Shell Company Report | false |
Entity File Number | 000-30666 |
Entity Registrant Name | NETEASE, INC. |
Entity Incorporation, State or Country Code | E9 |
Entity Address, Address Line One | NetEase Building, No.599 Wangshang Road |
Entity Address, Address Line Two | Binjiang District |
Entity Address, City or Town | Hangzhou |
Entity Address, Postal Zip Code | 310052 |
Entity Address, Country | CN |
Entity Common Stock, Shares Outstanding | 3,228,531,381 |
Entity Well-known Seasoned Issuer | Yes |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Interactive Data Current | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Emerging Growth Company | false |
Document Accounting Standard | U.S. GAAP |
Entity Shell Company | false |
Entity Central Index Key | 0001110646 |
Current Fiscal Year End Date | --12-31 |
Document Fiscal Year Focus | 2019 |
Document Fiscal Period Focus | FY |
Amendment Flag | false |
Business Contact | |
Document and Entity Information | |
Entity Address, Address Line One | NetEase Building, No. 599 Wangshang Road |
Entity Address, Address Line Two | Binjiang District |
Entity Address, City or Town | Hangzhou |
Entity Address, Postal Zip Code | 310052 |
Entity Address, Country | CN |
Contact Personnel Name | Charles Zhaoxuan Yang |
Country Region | 86 |
City Area Code | 571 |
Local Phone Number | 8985-3378 |
Contact Personnel Email Address | ir@service.netease.com |
American Depositary Shares | |
Document and Entity Information | |
Title of 12(b) Security | American Depositary Shares, each representing 25 ordinary shares, par value US$0.0001 per share |
Trading Symbol | NTES |
Security Exchange Name | NASDAQ |
Ordinary shares | |
Document and Entity Information | |
Title of 12(b) Security | Ordinary shares, par value US$0.0001 per share |
No Trading Symbol Flag | true |
Security Exchange Name | NASDAQ |
Consolidated Balance Sheets
Consolidated Balance Sheets ¥ in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Current assets: | |||
Cash and cash equivalents | ¥ 3,246,373 | $ 466,312 | ¥ 4,977,432 |
Time deposits | 53,487,075 | 7,682,937 | 32,900,287 |
Restricted cash | 3,150,354 | 452,520 | 4,692,050 |
Accounts receivable, net | 4,169,358 | 598,891 | 4,002,487 |
Inventories, net | 650,557 | 93,447 | 1,065,615 |
Prepayments and other current assets | 4,817,422 | 691,979 | 3,925,205 |
Short-term investments | 15,312,595 | 2,199,517 | 11,674,775 |
Assets held for sale | 271,278 | 38,967 | 5,477,869 |
Total current assets | 85,105,012 | 12,224,570 | 68,715,720 |
Non-current assets: | |||
Property, equipment and software, net | 4,621,712 | 663,867 | 4,672,079 |
Land use rights, net | 3,707,179 | 532,503 | 3,271,512 |
Operating lease right-of-use assets, net | 463,688 | 66,605 | |
Deferred tax assets | 903,904 | 129,838 | 1,064,295 |
Time deposits | 2,360,000 | 338,993 | 100,000 |
Long-term investments | 9,293,868 | 1,334,980 | 5,245,108 |
Other long-term assets | 5,666,610 | 813,958 | 2,930,069 |
Assets held for sale | 2,398 | 344 | 969,145 |
Total non-current assets | 27,019,359 | 3,881,088 | 18,252,208 |
Total assets | 112,124,371 | 16,105,658 | 86,967,928 |
Current liabilities: | |||
Accounts payable (including accounts payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB909,449 and RMB846,893 as of December 31, 2018 and 2019, respectively) | 1,212,303 | 174,136 | 1,201,210 |
Salary and welfare payables (including salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries of RMB108,699 and RMB97,636 as of December 31, 2018 and 2019, respectively) | 2,957,360 | 424,798 | 2,799,212 |
Taxes payable (including taxes payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB84,118 and RMB122,179 as of December 31, 2018 and 2019, respectively) | 3,156,513 | 453,405 | 2,260,646 |
Short-term loans (including short-term loans of the consolidated VIEs without recourse to the primary beneficiaries of RMB129,900 and RMB197,420 as of December 31, 2018 and 2019, respectively) | 16,828,226 | 2,417,223 | 13,658,554 |
Deferred revenue (including deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries of RMB6,672,715 and RMB7,634,637 as of December 31, 2018 and 2019, respectively) | 8,602,227 | 1,235,633 | 7,718,485 |
Accrued liabilities and other payables (including accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries of RMB1,865,978 and RMB1,919,549 as of December 31, 2018 and 2019, respectively) | 5,292,774 | 760,259 | 5,005,190 |
Short-term operating lease liabilities (including short-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries of nil and RMB14,683 as of December 31, 2018 and 2019, respectively) | 191,454 | 27,501 | |
Liabilities held for sale | 2,156 | 310 | 2,465,713 |
Total current liabilities | 38,243,013 | 5,493,265 | 35,109,010 |
Non-current liabilities: | |||
Deferred tax liabilities | 382,030 | 54,875 | 392,598 |
Long-term operating lease liabilities (including long-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries of nil and RMB12,133 as of December 31, 2018 and 2019, respectively) | 279,949 | 40,212 | |
Other long-term payable (including long-term payable of the consolidated VIEs without recourse to the primary beneficiaries of RMB7,500 and nil as of December 31, 2018 and 2019, respectively) | 176,963 | 25,419 | 48,921 |
Liabilities held for sale | 961 | 138 | 5,818 |
Total non-current liabilities | 839,903 | 120,644 | 447,337 |
Total liabilities | 39,082,916 | 5,613,909 | 35,556,347 |
Commitments and contingencies (See Note 22) | |||
Redeemable noncontrolling interests | 10,448,600 | 1,500,847 | 5,385,736 |
Shareholders' equity: | |||
Ordinary shares, US$0.0001 par value: 1,000,300,000 shares authorized, 3,199,018 shares issued and outstanding as of December 31, 2018 and 3,228,531 shares issued and outstanding as of December 31, 2019 | 2,640 | 379 | 2,620 |
Additional paid-in capital | 3,913,656 | 562,162 | |
Statutory reserves | 1,215,208 | 174,554 | 1,214,578 |
Accumulated other comprehensive income/(loss) | (71,445) | (10,262) | 17,050 |
Retained earnings | 56,393,640 | 8,100,439 | 43,997,388 |
NetEase, Inc.'s shareholders' equity | 61,453,699 | 8,827,272 | 45,231,636 |
Noncontrolling interests | 1,139,156 | 163,630 | 794,209 |
Total shareholders' equity | 62,592,855 | 8,990,902 | 46,025,845 |
Total liabilities, redeemable noncontrolling interests and shareholders' equity | ¥ 112,124,371 | $ 16,105,658 | ¥ 86,967,928 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) ¥ in Thousands, shares in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥)shares | Dec. 31, 2019USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)shares | Dec. 31, 2018$ / shares |
Accounts payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 1,212,303 | $ 174,136 | ¥ 1,201,210 | |
Salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries | 2,957,360 | 424,798 | 2,799,212 | |
Taxes payable of the consolidated VIEs without recourse to the primary beneficiaries | 3,156,513 | 453,405 | 2,260,646 | |
Short-term loans of the consolidated VIEs without recourse to the primary beneficiaries | 16,828,226 | 2,417,223 | 13,658,554 | |
Deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries | 8,602,227 | 1,235,633 | 7,718,485 | |
Accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries | 5,292,774 | 760,259 | 5,005,190 | |
Short-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries | 191,454 | 27,501 | ||
Long-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries | 279,949 | 40,212 | ||
Other long-term payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 176,963 | $ 25,419 | ¥ 48,921 | |
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 | 3,228,531 | 3,228,531 | 3,199,018 | |
Ordinary shares, shares outstanding | shares | 3,228,531 | 3,228,531 | 3,199,018 | |
Primary Beneficiary Consolidated VIEs | ||||
Accounts payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 846,893 | ¥ 909,449 | ||
Salary and welfare payables of the consolidated VIEs without recourse to the primary beneficiaries | 97,636 | 108,699 | ||
Taxes payable of the consolidated VIEs without recourse to the primary beneficiaries | 122,179 | 84,118 | ||
Short-term loans of the consolidated VIEs without recourse to the primary beneficiaries | 197,420 | 129,900 | ||
Deferred revenue of the consolidated VIEs without recourse to the primary beneficiaries | 7,634,637 | 6,672,715 | ||
Accrued liabilities and other payables of the consolidated VIEs without recourse to the primary beneficiaries | 1,919,549 | 1,865,978 | ||
Short-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries | 14,683 | 0 | ||
Long-term operating lease liabilities of the consolidated VIEs without recourse to the primary beneficiaries | 12,133 | 0 | ||
Other long-term payable of the consolidated VIEs without recourse to the primary beneficiaries | ¥ 0 | ¥ 7,500 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Income ¥ in Thousands, shares in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2019CNY (¥)¥ / sharesshares | Dec. 31, 2019USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)¥ / sharesshares | Dec. 31, 2017CNY (¥)¥ / sharesshares | |
Net revenues: | ||||
Total net revenues | ¥ 59,241,145 | $ 8,509,458 | ¥ 51,178,575 | ¥ 44,437,355 |
Cost of revenues | (27,685,845) | (3,976,823) | (23,832,426) | (19,394,314) |
Gross profit | 31,555,300 | 4,532,635 | 27,346,149 | 25,043,041 |
Operating expenses: | ||||
Selling and marketing expenses | (6,221,127) | (893,609) | (6,911,710) | (5,504,613) |
General and administrative expenses | (3,130,298) | (449,639) | (3,078,635) | (2,381,842) |
Research and development expenses | (8,413,224) | (1,208,484) | (7,378,460) | (4,161,673) |
Total operating expenses | (17,764,649) | (2,551,732) | (17,368,805) | (12,048,128) |
Operating profit | 13,790,651 | 1,980,903 | 9,977,344 | 12,994,913 |
Other income/(expenses): | ||||
Investment income/(losses), net | 1,306,320 | 187,641 | (22,383) | 362,113 |
Interest income, net | 821,774 | 118,040 | 586,671 | 666,616 |
Exchange (losses)/gains | 25,166 | 3,615 | (51,799) | (455,948) |
Other, net | 439,422 | 63,119 | 586,916 | 271,885 |
Income before tax | 16,383,333 | 2,353,318 | 11,076,749 | 13,839,579 |
Income tax | (2,914,726) | (418,674) | (2,460,650) | (2,155,988) |
Net income from continuing operations | 13,468,607 | 1,934,644 | 8,616,099 | 11,683,591 |
Net (loss)/income from discontinued operations | 7,962,519 | 1,143,744 | (2,138,682) | (834,454) |
Net income | 21,431,126 | 3,078,388 | 6,477,417 | 10,849,137 |
Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests | (271,543) | (39,005) | (248,098) | |
Net (income)/loss attributable to noncontrolling interests and redeemable noncontrolling interests | 77,933 | 11,194 | (76,912) | (141,198) |
Net income attributable to NetEase, Inc.'s shareholders | 21,237,516 | 3,050,577 | 6,152,407 | 10,707,939 |
Including: | ||||
Net income from continuing operations attributable to NetEase, Inc.'s shareholders | 13,274,997 | 1,906,833 | 8,291,089 | 11,542,393 |
Net (loss)/income from discontinued operations attributable to NetEase, Inc.'s shareholders | 7,962,519 | 1,143,744 | (2,138,682) | (834,454) |
Net income | 21,431,126 | 3,078,388 | 6,477,417 | 10,849,137 |
Other comprehensive income | ||||
Unrealized losses on available-for-sale securities, net of tax | (23,321) | |||
Foreign currency translation adjustment | (93,774) | (13,470) | 18,624 | (1,573) |
Total other comprehensive (loss)/income | (93,774) | (13,470) | 18,624 | (24,894) |
Total comprehensive income | 21,337,352 | 3,064,918 | 6,496,041 | 10,824,243 |
Comprehensive (income)/ loss attributable to noncontrolling interests and redeemable noncontrolling interests | 83,685 | 12,021 | (76,912) | (141,198) |
Comprehensive income attributable to NetEase, Inc.'s shareholders | ¥ 21,421,037 | $ 3,076,939 | ¥ 6,419,129 | ¥ 10,683,045 |
Net income/(loss) per share, basic (in CNY and dollars per share) | (per share) | ¥ 6.59 | $ 0.95 | ¥ 1.90 | ¥ 3.25 |
-Continuing operations (in CNY and dollars per share) | (per share) | 4.12 | 0.59 | 2.56 | 3.51 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 2.47 | 0.36 | (0.66) | (0.26) |
Net income/(loss) per ADS, basic (in CNY and dollars per share) | (per share) | 164.86 | 23.68 | 47.54 | 81.36 |
-Continuing operations (in CNY and dollars per share) | (per share) | 103.05 | 14.80 | 64.07 | 87.70 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 61.81 | 8.88 | (16.53) | (6.34) |
Net income/(loss) per share, diluted (in CNY and dollars per share) | (per share) | 6.53 | 0.94 | 1.89 | 3.23 |
-Continuing operations (in CNY and dollars per share) | (per share) | 4.08 | 0.59 | 2.55 | 3.48 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 2.45 | 0.35 | (0.66) | (0.25) |
Net income/(loss) per ADS, diluted (in CNY and dollars per share) | (per share) | 163.37 | 23.47 | 47.26 | 80.74 |
-Continuing operations (in CNY and dollars per share) | (per share) | 102.12 | 14.67 | 63.69 | 87.03 |
-Discontinued operations (in CNY and dollars per share) | (per share) | ¥ 61.25 | $ 8.80 | ¥ (16.43) | ¥ (6.29) |
Weighted average number of ordinary shares outstanding, basic (in shares) | shares | 3,220,473 | 3,220,473 | 3,235,324 | 3,290,312 |
Weighted average number of ADS outstanding, basic (in shares) | shares | 128,819 | 128,819 | 129,413 | 131,612 |
Weighted average number of ordinary shares outstanding, diluted (in shares) | shares | 3,249,972 | 3,249,972 | 3,254,689 | 3,315,478 |
Weighted average number of ADS outstanding, diluted (in shares) | shares | 129,999 | 129,999 | 130,188 | 132,619 |
Online game | ||||
Net revenues: | ||||
Total net revenues | ¥ 46,422,640 | $ 6,668,195 | ¥ 40,190,057 | ¥ 36,281,642 |
Cost of revenues | (16,974,234) | (14,617,656) | (13,473,339) | |
Gross profit | 29,448,406 | 25,572,401 | 22,808,303 | |
Youdao | ||||
Net revenues: | ||||
Total net revenues | 1,304,883 | 187,435 | 731,598 | 455,746 |
Cost of revenues | (934,261) | (515,133) | (293,807) | |
Gross profit | 370,622 | 216,465 | 161,939 | |
Innovative businesses and others | ||||
Net revenues: | ||||
Total net revenues | 11,513,622 | $ 1,653,828 | 10,256,920 | 7,699,967 |
Cost of revenues | (9,777,350) | (8,699,637) | (5,627,168) | |
Gross profit | ¥ 1,736,272 | ¥ 1,557,283 | ¥ 2,072,799 |
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 (¥) | CNY (¥)shares | USD ($)shares |
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 | ||||||||
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 | ¥ 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 | |||||
Ordinary shares issued upon settlement of restricted share units | ¥ 20 | (1,487) | ¥ 1,467 | ||||||
Ordinary shares issued upon settlement of restricted share units (in shares) | shares | 29,513 | 25 | |||||||
Share-based compensation | 2,341,078 | 46,100 | 2,387,178 | ||||||
Appropriation to statutory reserves | 11,129 | (11,129) | |||||||
Net income attributable to NetEase, Inc. and noncontrolling interest shareholders | 21,509,059 | (77,933) | 21,431,126 | ||||||
Repurchase of shares | ¥ (1,467) | (1,467) | |||||||
Repurchase of shares (in shares) | shares | (25) | ||||||||
Repurchase of noncontrolling interest and redeemable noncontrolling interests | (4,279) | (53) | (4,332) | ||||||
Capital injection in subsidiaries by noncontrolling interest shareholders | 1,153,528 | 378,654 | 1,532,182 | ||||||
Conversion of Youdao's preferred shares recognized as redeemable noncontrolling interests to ordinary shares | 468,788 | 27,757 | 496,545 | ||||||
Dividends to shareholders | (8,840,634) | (8,840,634) | |||||||
Foreign currency translation adjustment | (88,022) | (5,752) | (93,774) | ||||||
Deconsolidation of a subsidiary/Disposal of a subsidiary | (43,972) | (10,499) | (473) | 10,499 | (11,807) | (56,252) | |||
Accretion of redeemable noncontrolling interests | (271,543) | (12,019) | (283,562) | ||||||
Balance at Dec. 31, 2019 | ¥ 2,640 | ¥ 3,913,656 | ¥ 1,215,208 | ¥ (71,445) | ¥ 56,393,640 | ¥ 1,139,156 | ¥ 62,592,855 | $ 8,990,902 | |
Balance (in shares) at Dec. 31, 2019 | shares | 3,228,531 | 3,228,531 | 3,228,531 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||
Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | ||
Cash flows from operating activities: | |||||
Net income | ¥ 21,431,126 | $ 3,078,388 | ¥ 6,477,417 | ¥ 10,849,137 | |
Net loss/(income) from discontinued operations | (7,962,519) | (1,143,744) | 2,138,682 | 834,454 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||||
Depreciation and amortization | 2,613,782 | 375,446 | 2,060,135 | 791,778 | |
Fair value change of equity security investments and other financial instruments | (751,693) | (107,974) | 248,169 | ||
Investment impairment | 177,567 | 25,506 | 159,703 | 58,537 | |
Share-based compensation cost | 2,404,089 | 345,326 | 2,471,731 | 1,984,851 | |
Allowance for/(Reversal of) doubtful accounts | (28,583) | (4,106) | 50,954 | 60,826 | |
Loss/(Gain) on disposal of property, equipment and software | 5,122 | 736 | (1,385) | 5,072 | |
Unrealized exchange losses/(gains) | (9,981) | (1,434) | 31,998 | 440,529 | |
Gain on disposal of long-term investments, business and subsidiaries | (98,489) | (14,147) | (213,339) | (9,595) | |
Deferred income taxes | 150,629 | 21,637 | (70,621) | (438,307) | |
Net equity share of losses/(gains) from equity method investees | (4,322) | (621) | 98,301 | 12,232 | |
Fair value changes of short-term investments | (657,606) | (94,459) | (463,483) | (389,793) | |
Changes in operating assets and liabilities: | |||||
Accounts receivable | (11,314) | (1,625) | (612,656) | 596,054 | |
Inventories | 415,057 | 59,619 | (81,440) | (754,889) | |
Prepayments and other assets | (1,488,564) | (213,819) | (719,035) | 201,931 | |
Accounts payable | 13,229 | 1,900 | 112,435 | 116,906 | |
Salary and welfare payables | 146,146 | 20,993 | 725,515 | 649,460 | |
Taxes payable | (133,801) | (19,219) | 685,024 | (170,130) | |
Deferred revenue | 883,742 | 126,942 | 1,757,874 | (1,375,811) | |
Accrued liabilities and other payables | (182,646) | (26,235) | (196,136) | 1,401,210 | |
Net cash provided by continuing operating activities | 16,910,971 | 2,429,110 | 14,659,843 | 14,864,452 | |
Net cash (used in)/provided by discontinued operating activities | 305,487 | 43,880 | (1,243,966) | (2,975,214) | |
Net cash provided by operating activities | 17,216,458 | 2,472,990 | 13,415,877 | 11,889,238 | |
Cash flows from investing activities: | |||||
Purchase of property, equipment and software | (1,209,477) | (173,731) | (2,169,404) | (1,654,486) | |
Proceeds from sale of property, equipment and software | 60,601 | 8,705 | 6,688 | 4,425 | |
Purchase of intangible assets, content and licensed copyrights | (2,119,307) | (304,419) | (1,741,225) | (791,580) | |
Purchase of land use right | (2,926,795) | (6,488) | |||
Net change of short-term investments with terms of three months or less | (1,023,165) | (146,969) | (1,172,326) | (895,298) | |
Purchase of short-term investments | (22,370,000) | (3,213,249) | (13,393,000) | (12,491,000) | |
Proceeds from maturities of short-term investments | 20,225,342 | 2,905,189 | 13,071,359 | 15,615,544 | |
Investment in equity method investees | (450,695) | (64,738) | (272,451) | (235,769) | |
Acquisitions of other equity investments | (1,111,493) | (159,656) | (2,751,040) | (900,712) | |
Proceeds from disposal of investment in equity method investees and other equity investments | 406,702 | 58,419 | 350,418 | ||
Placement/rollover of time deposits | (77,083,350) | (11,072,330) | (41,553,428) | (33,984,148) | |
Proceeds from maturity of time deposits | 54,381,647 | 7,811,435 | 39,924,525 | 22,429,597 | |
Change in other long-term assets | (42,345) | (6,082) | (133,039) | (100,646) | |
Amounts (paid to) / received from disposed businesses | 9,031,051 | 1,297,229 | (1,889,560) | (3,296,366) | |
Net cash used in continuing investing activities | (21,304,489) | (3,060,197) | (14,999,696) | (15,956,509) | |
Net cash provided by/ (used in) discontinued investing activities | (832,252) | (119,546) | 1,430,181 | 3,101,239 | |
Net cash used in investing activities | (22,136,741) | (3,179,743) | (13,569,515) | (12,855,270) | |
Cash flows from financing activities: | |||||
Net proceeds from short-term loan with terms of three months or less | 2,538,267 | 364,599 | 6,194,113 | 3,095,465 | |
Proceeds of short-term loan | 730,087 | 104,870 | 34,256 | 9,505 | |
Repayment of short-term loan | (296,823) | (42,636) | (18,761) | ||
Dividends paid to shareholders | (8,840,634) | (1,269,878) | (1,440,194) | (3,257,607) | |
Repurchase of redeemable noncontrolling interests | (780,000) | ||||
Proceeds from issuance of redeemable noncontrolling interest shareholders, net of issuance cost | 5,242,180 | 752,992 | 5,294,174 | 600,000 | |
Repurchase of noncontrolling interest | (195,000) | ||||
Capital injection from noncontrolling interest shareholders | 1,698,810 | 244,019 | 15,510 | 311,500 | |
Cash (paid for)/ refund received from share repurchase | 10,638 | 1,528 | (7,516,679) | (2,061,591) | |
Net cash (used in)/provided by financing activities | [1] | 1,082,525 | 155,494 | 1,587,419 | (1,302,728) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies | 29,080 | 4,177 | 81,511 | (12,766) | |
Net (decrease)/increase in cash, cash equivalents and restricted cash | (3,808,678) | (547,082) | 1,515,292 | (2,281,526) | |
Cash, cash equivalents and restricted cash, beginning of the year | 10,206,538 | 1,466,077 | 8,691,246 | 10,972,772 | |
Cash, cash equivalents and restricted cash, end of the year | 6,397,860 | 918,995 | 10,206,538 | 8,691,246 | |
Supplemental disclosures of cash flow information of continuing operation: | |||||
Cash paid for income taxes, net of tax refund | 3,193,802 | 458,761 | 2,003,158 | 2,705,804 | |
Cash paid for interest expenses | 431,395 | 61,966 | 301,761 | 84,708 | |
Supplemental schedule of non-cash investing and financing activities of continuing operation: | |||||
Fixed asset purchases financed by accounts payable and accrued liabilities | ¥ 304,944 | $ 43,802 | ¥ 351,610 | ¥ 293,045 | |
[1] | There is no financing activity from discontinued opearations. |
Consolidated Statements of Ca_2
Consolidated Statements of Cash Flows (Parenthetical) ¥ in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) |
Consolidated Statements of Cash Flows | ||||
Cash, cash equivalents and restricted cash | ¥ 6,397,860 | $ 918,995 | ¥ 10,206,538 | ¥ 8,691,246 |
Less: Cash, cash equivalents and restricted cash of held for sales at end of the year | 1,133 | 163 | 537,056 | 337,212 |
Cash, cash equivalents and restricted cash of continuing operations, end of the year | ¥ 6,396,727 | $ 918,832 | ¥ 9,669,482 | ¥ 8,354,034 |
Organization and Nature of Oper
Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2019 | |
Organization and Nature of Operations | |
Organization and Nature of Operations | 1. Organization and Nature of Operations (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, 2019, the Company has wholly-owned and majority-owned subsidiaries incorporated in countries and jurisdictions mainly in the People’s Republic of China (“PRC" or "China", references to "China" and "PRC" are to the People's Republic of China, excluding, for the purposes of the financial statements only, Hong Kong, Macau and Taiwan), 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”. In September 2019, the Company sold its Kaola e-commerce business. As a result, Kaola has been deconsolidated from the Company and its historical financial results are reflected in the Company's consolidated financial statements as discontinued operations accordingly. See additional discussion on the discontinued operation in Note 3 to the consolidated financial statements. On October 26, 2019, Youdao, Inc. (“Youdao”), one of the Company’s majority-controlled subsidiaries completed its initial public offering (“IPO”) on the New York Stock Exchange. After Youdao’s offering, the Company continues to control Youdao and consolidates Youdao as its controlling shareholder. The major subsidiaries and VIEs through which the Company conducts its business operations as of December 31, 2019 are described below: Place and year of Major Subsidiaries Incorporation Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”) Guangzhou, China 2003 NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”) Hangzhou, China 2006 Hong Kong NetEase Interactive Entertainment Limited Hong Kong, China 2007 Place and year of Major VIEs and VIEs' subsidiaries Incorporation Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”) Guangzhou, China 1997 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 Technology Co., Ltd. ("HZ Leihuo", formerly known as Hangzhou NetEase Leihuo Network Co., Ltd. ) Hangzhou, China 2009 Guangzhou NetEase, a major 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. 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. In addition, Shanghai EaseNet is a PRC company owned by Mr. Ding, and has contractual arrangements with StormNet IT HK (a joint venture established between, and owned equally by, Blizzard Entertainment, Inc. (“Blizzard”) and the Company), and with the Company. StormNet IT HK, together with its wholly owned subsidiary, StormNet IT SH was established concurrently with the licensing of certain online games in August 2008 and provides technical services to Shanghai EaseNet. 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, 2018 2019 RMB RMB Total assets 10,355,050 14,400,564 Total liabilities 9,778,359 12,272,634 For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net revenues 40,566,998 43,231,277 49,455,146 Net income 355,697 224,253 344,134 For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net cash (used in)/provided by operating activities (152,931) 356,907 (249,387) Net cash provided by/ (used in) investing activities 122,286 (720,675) (495,160) Net cash provided by financing activities 4,000 229,862 26,520 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 RMB542.2 million and RMB501.2 million, respectively, as of December 31, 2018 and 2019, as well as certain non-distributable statutory reserves amounting to approximately RMB31.5 million and RMB42.1 million, respectively, as of December 31, 2018 and 2019. 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, 2019. (b) Nature of operations The Group generates revenues mainly from providing online game services, online courses services, advertising services, e-commerce, and other fee-based premium services. 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, online education and e-commerce industry in China; 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 major VIEs 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 major VIEs with respect to the operation of the NetEase websites, operation of self-developed and licensed PC and mobile games, Internet content and wireless value-added services, as well as the provision of advertising services. Based on the agreements with these VIEs, certain of the Company’s subsidiaries provided technical consulting and related services to these VIEs. The principal agreements that transfer economic benefits of Guangzhou NetEase and HZ Leihuo to the Company and its subsidiaries are: ● Cooperative agreements with Guangzhou NetEase — under these agreements, certain of the Company’s subsidiaries, including 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 agreement with HZ Leihuo — under this agreement, 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. Each VIE, the relevant subsidiary of the Company and the relevant VIE shareholders have entered into a series of agreements that give the Company effective control over the VIE. 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 the Company’s subsidiary, NetEase Information Technology (Beijing) Co., Ltd. (“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 HZ Leihuo are: ● Operating Agreement among NetEase Hangzhou, HZ Leihuo and the VIE shareholders of Hangzhou 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 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 the VIE shareholders 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 VIE 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 principal agreements amongst the other VIEs, the relevant subsidiaries and VIE shareholders that provide the Company effective control over these VIEs contains substantially the same terms as those aforementioned agreements related to HZ Leihuo, except that contract expiry date varies. 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 the Company and Shanghai EaseNet, the joint venture established between Blizzard 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, Shanghai EaseNet and certain of the Company’s other VIEs, 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, 2019 | |
Principal Accounting Policies | |
Principal Accounting Policies | 2. Principal Accounting Policies (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) Basis of presentation 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. Critical accounting estimates and assumptions include, but are not limited to, assessing the following: average playing period of paying players of online games and impairment of long-term investments. (c) Revenue recognition 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 historical accounting under Topic 605. The impact of adopting the new revenue standard was not material to the consolidated financial statements. For the year ended December 31, 2018 and 2019, 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 revenues are mainly generated from online game services, online courses services from Youdao, advertising services, e-commerce and other fee-based premium services. Refer to “Note 26 — Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC 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 based on historical players’ churn rates. 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 games The Group sells prepaid points to the end users. Customers can purchase “virtual” prepaid points online or from the vendors who register the points in the Group’s system 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 games, pay for in-game items and use other fee-based services. Proceeds received from the sales of prepaid online points to players are recorded as deferred revenues. The Group earns revenue through providing PC game services to players under two types of revenue models: time-based revenue model and item-based revenue model. For PC 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 estimated average playing period of the paying players for the permanent in-game items of each PC game based on historical players’ churn rate. 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. (ii) The Group offers various types of integrated learning services through Youdao, which primarily cover a wide spectrum of topics and target people from broad age groups through its diverse offerings of K-12 tutoring courses, foreign languages, professional and interest education services as well as IT computer skills, etc. Youdao’s online courses services consist of online live streaming, other activities during the online live streaming period, as well as the content playback service. The aforementioned services are highly interdependent and interrelated in the context of the contract and are only considered accessory services to the online live streaming courses and therefore are not distinct and are not sold standalone. Therefore, the Group’s online courses services are accounted for as a single performance obligation, which is satisfied over the learning period of the students. Accordingly, the Group recognizes the revenues ratably over the estimated average learning period for different courses. The Group considers the average period that students typically spend time on the courses and other learning behavior patterns to arrive at the best estimates for the estimated learning period for each course. (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. 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. For cost per mille ("CPM"), or cost per thousand impressions, advertising arrangements with customers, the Group recognizes revenues based on the number of times that the advertisement has been displayed. For cost per action ("CPA") advertising arrangements with customers, including Youdao online marketing services, 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. For the year ended December 31, 2018 and 2019, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (iv) The Group’s e-commerce revenue are primarily from its E-commerce platform Yanxuan, which was established in April 2016. Yanxuan sells its private label products, including apparel, homeware, kitchenware and other general merchandise which are sourced primarily directly from original design manufacturers in China through online direct sales. 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 delivery to the customer. The Group also provides discount coupons to its customers for use in purchases on the Yanxuan platform, which are treated as a reduction of revenue when the related transaction is recognized. 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, 2018 and 2019. (v) 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. Practical Expedients The Group has used the following practical expedients as allowed under ASC 606: (i) The effects of a significant financing component has not been adjusted for contracts which the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. (ii) The Group applied the portfolio approach in determining the commencement date of consumption and the estimated average playing period of paying players for PC games permanent virtual items and of mobile games for the recognition of online game revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually. (iii) The Group elects to expense the costs to obtain a contract as incurred when the expected amortization period is one year or less. 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, 2017, 2018 and 2019 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 2019 130,648 (30,946) (22,555) 77,147 Under Topic 606, 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 December 31, 2018 and 2019 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 16 - Deferred revenue for further information, including changes in deferred revenue during the year. (d) Cost of revenues Costs of revenues consist primarily of revenue sharing cost, staff costs, royalties fees related to licensed games, traffic acquisition cost, content acquisition cost, service fees related to online payments, server and bandwidth service fee, depreciation and amortization of severs, computers and software, and other direct costs of providing these services, as well as cost of merchandise sold. These costs are charged to the consolidated statements of operations and comprehensive income as incurred. (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, as well as development and enhancement of the Group’s new products, websites and application platforms. For internal use software, the Group expenses all costs incurred for the preliminary project stage and post implementation-operation stage of development, and costs associated with repair or maintenance of the existing platforms. Costs incurred in the application development stage are capitalized and amortized over the estimated useful life. Since the amount of the Group’s research and development expenses qualifying for capitalization has been immaterial for the years ended December 31, 2017, 2018 and 2019, as a result, all development costs incurred for development of internal used software have been expensed as incurred. For external use software, costs incurred for development of external use software have not been capitalized for the years ended December 31, 2017, 2018 and 2019, because the period after the date technical feasibility is reached and the time when the software is marketed is short historically, and the amount of costs qualifying for capitalization has been immaterial. (f) Cash, cash equivalent s and time deposits Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in Hong Kong and/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, 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$244.2 million, HK$90.6 million and Euro0.2 million, respectively (equivalent to approximately RMB1,675.9 million, RMB79.4 million and RMB1.5 million, respectively). As of December 31, 2019, 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$226.6 million, HK$21.3 million and Euro0.4 million, respectively (equivalent to approximately RMB1,580.7 million, RMB19.0 million and RMB2.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. 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, 2019, there were time deposits denominated in US dollars amounting to approximately US$4,382.9 million (equivalent to approximately RMB30,576.3 million). As of December 31, 2018 and 2019, the Group had approximately RMB12.5 billion and RMB14.8 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and VIEs, representing 32.8% and 25.0% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2018 and 2019, the Group had a restricted cash balance approximately RMB4,692.1 million and RMB3,150.4 million, respectively, comprising as follows (in millions): December 31, December 31, 2018 2019 RMB RMB Customer deposit of NetEase Pay accounts 1,364.4 1,523.3 Pledge deposits for short-term bank borrowings — Current 2,695.0 1,595.0 Pledge deposits for Letter of Guarantee 623.6 — Others 9.1 32.1 Total 4,692.1 3,150.4 The Group had no other lien arrangements during 2018 and 2019. (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 loans, deferred revenue and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 27 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) I nvestments 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 6 and Note 27 for additional information. Long-term investments Long-term investments are comprised of equity investments in publicly traded companies, privately-held companies and limited-partnership. 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 insubstance 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. 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. Management regularly evaluates the impairment of the investments in privately-held companies without readily determinable fair value and equity method investments at each balance sheet date, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. For investments without readily determinable fair values, management performs a qualitative assessment of the fair value of the equity interest in comparison to its carrying amount to determine if there is an indication of potential impairment. If such indication exists, management estimates the fair value of the investment, and records an impairment in the consolidated statement of comprehensive income to the extent the carrying amount exceeds the fair value. Significant judgements management applies in the impairment assessment for these equity investments include: (i) the determination as to whether any impairment indicators exist during the year; (ii) the selection of valuation methods; (iii) the determination of significant assumptions used to value the equity investments, including selection of comparable companies and multiples, timing and probabilities of different scenarios, estimated volatility rate, risk-free rate and discount for lack of marketability; and (iv) judgements as to whether a decline in value of equity method investments was other than temporary. For equity method investments, management considers if the investment is impaired when events or circumstances suggest the carrying amount may not be recoverable, and recognizes any impairment charge in the consolidated statement of comprehensive income for a decline in value that is determined to be other than temporary. (j) Lease On January 1, 2019, the Group adopted ASU 2016-02, "Leases (Topic 842)", including certain transitional guidance and subsequent amendments within ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, including ASU 2016-02, "ASC 842"). Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. As of December 31, 2019, the Group has no finance leases. Under ASC 842, the Group determines if an arrangement is a lease at inception. The Group is the lessee in a lease contract when the Group obtain the right to control the asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, and short-term and long-term operating lease liabilities in the Group’s consolidated balance sheets. ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Group’s leases do not provide an implicit rate, the Group generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. For leases with a term of twelve months or less (“short-term leases”), the Group has elected not to recognize lease liabilities and associated ROU assets. Lease payments on short-term leases are recognized as lease expense within cost of revenues or operating expenses on the consolidated statements of operations and comprehensive income, depending on the nature of the lease, on a straight-line basis over the lease term. (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) Land use rights Land use rights represent lease prepayments to the loc |
Discontinued operations
Discontinued operations | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued operations | |
Discontinued operations | 3. Discontinued operations Disposal of Kaola e-commerce business In September 2019, the Group signed a series of agreements with a subsidiary of Alibaba Group Holding Limited (“Alibaba”) to sell its e-commerce platform Kaola for a consideration of approximately US$1.9 billion. The consideration is comprised of approximately US$1.6 billion in cash payable to the Group and Kaola equity award holders, as well as approximately 14.3 million Alibaba ordinary shares issued to the Group. Upon completion of the transaction, Kaola was deconsolidated from the Group and its historical financial results are reflected in the Group’s consolidated financial statements as discontinued operations accordingly. Additionally, the related assets and liabilities associated with discontinued operations in the prior year consolidated balance sheets were classified as assets/liabilities held for sale to provide the comparable financial information. The following tables set forth the assets, liabilities, statement of operations and cash flows of discontinued operations which were included in the Group’s consolidated financial statements (in thousands): December 31, 2018 RMB Cash and cash equivalents 400,747 Restricted cash 125,290 Accounts receivable, net 169,794 Inventories, net 3,952,208 Prepayments and other current assets 493,563 Total current assets 5,141,602 Property, equipment and software, net 705,432 Land use rights, net 231,058 Other long-term assets 31,248 Total non-current assets 967,738 Total assets 6,109,340 Accounts payable 1,183,143 Salary and welfare payables 188,683 Taxes payable 11,212 Deferred revenue 234,770 Accrued liabilities and other payables 843,073 Total current liabilities 2,460,881 Deferred tax liabilities 1,083 Other long-term payable 4,735 Total non-current liabilities 5,818 Total liabilities 2,466,699 For the year ended December 31, 2017 2018 2019 *** RMB RMB RMB Net revenues 9,664,664 15,977,878 10,571,406 Cost of revenues (8,795,012) (14,920,531) (9,620,388) Gross profit 869,652 1,057,347 951,018 Operating expenses: Selling and marketing expenses (1,452,983) (2,614,760) (1,258,413) General and administrative expenses (48,016) (112,902) (79,985) Research and development expenses (209,755) (414,090) (326,127) Total operating expenses (1,710,754) (3,141,752) (1,664,525) Operating loss (841,102) (2,084,405) (713,507) Other income/(expenses): 13,023 (48,246) (69,282) Loss from discontinued operations (828,079) (2,132,651) (782,789) Income tax (6,375) (6,031) (5,857) Loss from discontinued operations, net of tax (834,454) (2,138,682) (788,646) Gains on disposal, net of tax — — 8,751,165 Net (loss)/income from discontinued operations (834,454) (2,138,682) 7,962,519 For the year ended December 31, 2017 2018 2019 *** RMB RMB RMB Net cash (used in)/provided by discontinued operating activities (2,975,214) (1,243,966) 305,487 Net cash provided by/ (used in) discontinued investing activities 3,101,239 1,430,181 (832,252) *** Included financial results of discontinued operations from January 1, 2019 to September 6, 2019. |
Concentrations and Risks
Concentrations and Risks | 12 Months Ended |
Dec. 31, 2019 | |
Concentrations and Risks | |
Concentrations and Risks | 4. Concentrations and Risks (a) Server and bandwidth service provider The Group relied on telecommunications service providers and their affiliates for server and bandwidth service to support its operations during fiscal years 2017, 2018 and 2019 as follows: For the year ended December 31, 2017 2018 2019 Total number of telecommunications service providers 23 49 79 Number of service providers provided by 10% or more of the Group’s server and bandwidth service expenditure 3 3 2 Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers 67.8 % 57.8 % 56.3 % (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, 2018 and 2019, 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, 2018 and 2019, as follows: December 31, December 31, 2018 2019 Distribution channel A 22.2 % 24.7 % 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 1.9% to 5.5% 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, 2017, 2018 and 2019. (d) Online Games The Group derived 53.9%, 39.6% and 36.8% of its total net revenues from its top 5 online games for the years ended December 31, 2017, 2018 and 2019, respectively. Additionally, 70.8%, 71.0 % and 71.4% of the Group’s total net game revenues were generated from mobile games for the years ended December 31, 2017, 2018 and 2019, respectively. |
Prepayments and Other Current A
Prepayments and Other Current Assets | 12 Months Ended |
Dec. 31, 2019 | |
Prepayments and Other Current Assets | |
Prepayments and Other Current Assets | 5. Prepayments and Other Current Assets The following is a summary of prepayments and other current assets (in thousands): December 31, December 31, 2018 2019 RMB RMB Guarantee payment made to Blizzard - royalty fees 97,642 356,033 Prepayment for royalties, revenue sharing cost 2,000,327 2,627,048 Interest and other operating income receivable 511,364 524,069 Prepayments of content and marketing cost and other operational expenses 664,523 569,122 Prepayment for sales tax and deductible value added tax 312,852 483,547 Bridge loans in connection with ongoing investments 19,540 21,259 Deposits 107,254 11,882 Employee advances 44,337 79,823 Advance to suppliers 76,009 26,664 Others 91,357 117,975 3,925,205 4,817,422 In accordance with the license agreements of World of Warcraft ® ® ® ® ® ® As of December 31, 2018 and 2019, prepayments for royalties and revenue sharing cost mainly represented 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 RMB43.1 million and RMB43.0 million repayable within 12 months from December 31, 2018 and 2019, respectively (see Note 11). No advances were made directly or indirectly to the Group’s executive officers for their personal benefit for the years ended December 31, 2018 and 2019. |
Short-term Investments
Short-term Investments | 12 Months Ended |
Dec. 31, 2019 | |
Short-term Investments | |
Short-term Investments | 6. Short-term Investments As of December 31, 2018 and 2019, 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, 2019, the effective yields of short-term investments ranged from 2.00% to 4.25% per annum (2018: 1.90% to 5.50% per annum). The following is a summary of short-term investments (in thousands): December 31, 2018 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 11,528,300 146,475 11,674,775 December 31, 2019 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 15,116,330 196,265 15,312,595 During the years ended December 31, 2017, 2018 and 2019, the Group recorded investment income related to short-term investments of RMB389.5 million, RMB463.5 million and RMB657.6 million in the consolidated statements of operations and comprehensive income, respectively. |
Property, Equipment and Softwar
Property, Equipment and Software | 12 Months Ended |
Dec. 31, 2019 | |
Property, Equipment and Software | |
Property, Equipment and Software | 7. Property, Equipment and Software The following is a summary of property, equipment and software (in thousands): December 31, December 31, 2018 2019 RMB RMB Building and decoration 1,408,343 2,987,003 Leasehold improvements 164,745 153,145 Furniture, fixtures and office equipment 135,611 198,909 Vehicles 76,192 74,487 Servers and computers 3,852,805 4,066,925 Software 96,092 181,223 Construction in progress 1,567,091 465,993 7,300,879 8,127,685 Less: accumulated depreciation (2,628,800) (3,505,973) Net book value 4,672,079 4,621,712 Depreciation expense was RMB516.2 million, RMB939.8 million and RMB1,119.1 million for the years ended December 31, 2017, 2018 and 2019, respectively. As of December 31, 2018 and 2019, the construction in progress balance were mainly comprised of construction of office buildings and warehouses in Hangzhou, Guangzhou, Jiangxi and Shanghai that have not yet been placed in service for the Group’s 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, 2019 | |
Land use rights | |
Land Use Rights | |
Land Use Rights | 8. Land Use Rights Land use rights represent acquired right to use the land on which the Group’s offices and warehouses are built. In 2018 and 2019, the Group obtained the land use rights in Guangzhou and Shanghai 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, 2018 2019 RMB RMB Cost 3,338,843 3,846,660 Incentive payment from local government (15,000) (15,000) Accumulated amortization (52,331) (124,481) Land use right, net 3,271,512 3,707,179 The total amortization expense for each of the years ended December 31, 2017, 2018 and 2019 amounted to approximately RMB9.2 million, RMB31.3 million and RMB72.2 million, respectively. |
Leases
Leases | 12 Months Ended |
Dec. 31, 2019 | |
Leases | |
Leases | 9. Leases The Group has operating leases for corporate offices, warehouses and retail stores. In addition, upon the adoption of ASC 842, land use rights, net with total carrying amount of RMB3,271.5 million and RMB3,707.2 million (Note 8) were identified as operating lease right-of-use assets as of January 1, 2019 and December 31, 2019, respectively. The Group’s leases have remaining lease terms of 4 months to 49 years, some of which include options to terminate the leases within certain periods. The Group considers these options in determining the classification and measurement of the leases when it is reasonably certain that the Group will exercise that option. The following table provides information related to the Group’s operating leases (in thousands): Year ended December 31, 2019 RMB Operating lease cost (i) 360,383 Cash paid for amounts included in the measurement of operating lease liabilities 284,969 Right-of-use assets obtained in exchange for operating lease obligations: 179,350 (i) Included short-term lease cost of RMB65.6 million and amortization expenses of land use rights of RMB72.2 million for the year ended December 31, 2019. The weighted average remaining lease term and discount rate for operating leases as of December 31, 2019 were 1.93 Prior to adoption of ASC 842, the Group incurred rental expenses in the amounts of approximately RMB172.1 million, and RMB280.7 million for the years ended December 31, 2017 and 2018, respectively. Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands): RMB 2020 195,945 2021 175,286 2022 97,639 2023 20,338 2024 9,960 Thereafter 2,970 Total operating lease payments 502,138 Less: imputed interest (30,735) Total 471,403 The following table summarises the minimum lease payments under noncancelable operating leases with initial or remaining lease terms in excess of one year under ASC 840 as of December 31, 2018 (in thousands): RMB 2019 230,042 2020 172,290 2021 146,999 2022 47,625 Thereafter 7,844 Total operating lease payments 604,800 |
Long-term Investments
Long-term Investments | 12 Months Ended |
Dec. 31, 2019 | |
Long-term Investments | |
Long-term Investments | 10. Long-term Investments The following is a summary of long-term investments (in thousands): December 31, December 31, 2018 2019 RMB RMB Investments in equity method investees 736,551 1,137,774 Equity investments with readily determinable fair values 612,465 3,551,545 Equity investments without readily determinable fair values 3,896,092 4,604,549 5,245,108 9,293,868 (a) Investments in equity method investees The Group recorded equity share of losses of RMB12.2 million, RMB98.3 million and equity share of earnings of RMB million for the years ended December 31, 2017, 2018, and 2019, 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 RMB 200.0 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 RMB 127.5 million. (2) As of December 31, 2018, the Group invested an aggregated cash consideration of RMB295.1 million in two limited partnerships as a limited partner, and in 2019, the Group further contributed RMB326.9 millon cash in these two limited partnerships. The objective of these limited partnerships are to engage in investment in on-line game business. The Group accounted such investments under the equity method. (b) Equity investments with readily determinable fair values (“Available-for-sale securities” prior to adoption of ASU 2016-01). As of December 31, 2019, equity investments with readily determinable fair values included RMB2,650.4 million invested in shares of Alibaba Group Holding Limited (“Alibaba”), RMB578.9 million invested in shares of Huatai Securities Company Limited (“Huatai”) and RMB322.3 million invested in shares of Shenzhen Transsion Holding Limited (“Transsion”). The Group recorded fair value loss of RMB215.8 million and fair value gain of RMB763.2 million related to the equity investments with readily determinable fair value for the year ended December 31, 2018 and 2019, respectively. The Group also received cash dividends of RMB20.9 million, RMB12.7 million and RMB12.7 million from Huatai for the years ended December 31, 2017, 2018, and 2019, respectively. (c) Equity investments without readily determinable fair value (“Equity investments” prior to adoption of ASU 2016-01) Equity investments without readily 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 readily 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 and 2019, there's no upward adjustments to the carrying value of equity securities without readily determinable fair value resulted from such transactions. The Group recognized a gain of RMB9.6million, nil and RMB86.1 million related to the disposal of the Group’s investments 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, 2017, 2018 and 2019. The Group recognized impairment provision of RMB58.5 million, RMB133.6 million and RMB168.4 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, 2017, 2018 and 2019, respectively. |
Other Long-term Assets
Other Long-term Assets | 12 Months Ended |
Dec. 31, 2019 | |
Other Long-term Assets | |
Other Long-term Assets | 11. Other Long-term Assets The following is a summary of other long-term assets (in thousands): December 31, December 31, 2018 2019 RMB Copyrights, licenses and domain names 2,461,377 3,639,211 Long-term receivable — 1,599,524 Staff housing loans 98,244 71,997 Non-current deposits 105,984 140,869 Others 264,464 215,009 2,930,069 5,666,610 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. Balance of long-term receivable represents receivables from Alibaba for disposal of Kaola which was expected to receive in two years. 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 4.75% per annum for the years ended December 31, 2018 and 2019, respectively. The outstanding portion of the staff housing loans repayable within 12 months as of December 31, 2018 and 2019 amounted to approximately RMB43.1 million and RMB43.0 million, respectively, and are reported under prepayments and other current assets in the consolidated balance sheets (see Note 5). |
Taxation
Taxation | 12 Months Ended |
Dec. 31, 2019 | |
Taxation | |
Taxation | 12. Taxation (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 on their taxable income generated from operations in Hong Kong. Commencing from the year of assessment of 2018 and 2019, the first HK$2 million of profits earned by one of the Company’s subsidiaries incorporated in Hong Kong is taxed at half the current tax rate (i.e. 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. 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. Boguan, NetEase Hangzhou and certain other PRC subsidiaries were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2017, 2018 and 2019. In 2017, 2018 and 2019, Boguan, NetEase Hangzhou and certain other PRC subsidiaries were also qualified as a Key Software Enterprise and enjoyed a further reduced preferential tax rate of 10% for 2016, 2017 and 2018. The related tax benefit was recorded in 2017, 2018 and 2019, respectively. 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, 2017, 2018 and 2019 (in thousands except per share data): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,464,587 1,621,063 1,665,199 Earnings per share effect, basic 0.45 0.50 0.52 Earnings per share effect, diluted 0.44 0.50 0.51 The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2017, 2018 and 2019 (in thousands): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Current tax expense 2,594,295 2,531,271 2,764,097 Deferred tax (benefit)/expense (438,307) (70,621) 150,629 Income tax expenses 2,155,988 2,460,650 2,914,726 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, 2017, 2018 and 2019: For the year ended December 31, 2017 2018 2019 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (0.6) (0.1) (2.8) Effect due to different tax rates applicable to overseas entities (0.7) 2.8 (0.9) Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (15.4) (19.4) (13.6) Change in valuation allowance 2.2 7.8 4.9 Effect of withholding income tax 5.1 6.1 5.2 Effective income tax rate 15.6 22.2 17.8 As of December 31, 2019, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2020 3,123 Loss expiring in 2021 181,883 Loss expiring in 2022 903,855 Loss expiring in 2023 3,618,659 Loss expiring after 2024 3,594,379 8,301,899 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 or 17% from sales of general goods. Effective from 1 May, 2018, the 17% VAT rates was reduced to 16% and effective from 1 April, 2019, the 16% VAT rates was further reduced to 13%. 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 and subject to a 50% reduction which is effective from 1 July, 2019. (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, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Deferred tax assets: Deferred revenue, primarily for advanced payments from online games customers 507,982 484,637 Accruals 589,322 478,484 Depreciation of fixed assets 5,103 4,827 Amortization of Intangible assets 16,059 9,360 Net operating tax loss carry forward 1,215,444 2,075,475 2,333,910 3,052,783 Less: valuation allowance (1,269,615) (2,148,879) Total 1,064,295 903,904 December 31, December 31, 2018 2019 RMB RMB Deferred tax liabilities: Withholding income tax (d) 391,862 382,030 Others 736 — Total 392,598 382,030 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 2017 241,394 230,995 472,389 2018 472,389 797,226 1,269,615 2019 1,269,615 879,264 2,148,879 (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. The Group accrued RMB707.1 million, RMB679.4 million and RMB846.6 million (US$121.6 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, 2018 and 2019, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2017, 2018 and 2019. As of December 31, 2018 and 2019, there were approximately RMB1,057.7 million and RMB993.3 million (US$142.7 million) unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries, respectively. And the Group still intends to indefinitely reinvest these remaining undistributed earnings in its PRC subsidiaries. |
Taxes Payable
Taxes Payable | 12 Months Ended |
Dec. 31, 2018 | |
Taxes Payable | |
Taxes Payable | 13. Taxes Payable The following is a summary of taxes payable as of December 31, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Sales Tax payable 256,350 541,175 Withholding individual income taxes for employees 183,681 190,340 Enterprise income taxes 1,775,908 2,377,655 Others 44,707 47,343 2,260,646 3,156,513 |
Short-term Loans
Short-term Loans | 12 Months Ended |
Dec. 31, 2019 | |
Short-term Loans | |
Short-term Loans | 14. Short-term Loans As of December 31, 2018 and 2019, the short-term loans balances represent short-term loan arrangements with banks which were repayable within a maturity term ranging from one week to one year and charged at a fixed interest rates ranging 0.68% and 4.57% per annum. As of December 31, 2018 and 2019, the weighted average interest rate for the outstanding short-term loans was approximately 3.14% and 2.38%, respectively. The short-term loans are denominated in US$, EUR, GBP, CAD, HK$, JPY or CNY. As of December 31, 2018 and 2019, certain short-term loans were secured by RMB deposits of the Group in onshore branches of the banks in the amount of RMB2,695.0 million and RMB1,595.0 million (US$229.1 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$200.0 million of borrowings outstanding under the syndicated facility as of December 31, 2019. The Group was subject to certain covenants under the syndicated facility agreement and was in compliance with these covenants as of December 31, 2019. In 2019, the Group also entered into several uncommitted loan credit facility agreements provided by certain financial institutions. As at December 31, 2019, US$1,015.7 million of such credit facilities has not been utilized. In the year ended December 31, 2019, the Group also entered into several guarantee agreements in the aggregate amount of US$1,062.0 million in respect of certain credit facilities taken by its subsidiaries. As at December 31, 2019, US$240.0 million of such credit facilities had not been utilized. |
Accrued Liabilities and Other P
Accrued Liabilities and Other Payables | 12 Months Ended |
Dec. 31, 2019 | |
Accrued Liabilities and Other Payables | |
Accrued Liabilities and Other Payables | 1 5. Accrued Liabilities and Other Payables The following is a summary of accrued liabilities and other payables as of December 31, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Customer deposits on NetEase Pay accounts 1,369,672 1,539,417 Marketing expenses and promotion materials 1,723,766 1,672,096 Accrued fixed assets related payables 354,388 304,379 Server and bandwidth service fees and technical charges 257,066 231,868 Accrued revenue sharing 373,559 578,940 Content cost 299,837 403,402 Professional fees 243,106 88,041 Accrued freight and warehousing charge 109,716 47,524 Other staff related cost 80,013 69,849 Others 194,067 357,258 5,005,190 5,292,774 |
Deferred Revenue
Deferred Revenue | 12 Months Ended |
Dec. 31, 2019 | |
Deferred Revenue | |
Deferred Revenue | 16 . Deferred Revenue Deferred revenue represents sales proceeds from prepaid 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, 2019, the additions to the deferred revenue balance were primarily due to cash payments received or due in advance of satisfying the Group’s performance obligations, while the reductions to the deferred revenue balance were primarily due to the recognition of revenues upon fulfillment of the Group’s performance obligations, both of which were in the ordinary course of business. During the year ended December 31, 2018 and 2019, RMB5,737.3 million and RMB7,319.4 million of revenues recognized were included in the deferred revenue balance at the beginning of the year, respectively. As of December 31, 2019, the aggregate amount of transaction price allocated to the unsatisfied performance obligations is RMB |
Noncontrolling Interests and Re
Noncontrolling Interests and Redeemable Noncontrolling Interests | 12 Months Ended |
Dec. 31, 2019 | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | 1 7. Noncontrolling Interests and Redeemable Noncontrolling Interests 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 and 2019, 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 and US$711.6 million (the “Offshore Issuance”), respectively. As of December 31, 2019, the NetEase Cloud Music Preferred Shares investors together held approximately 37.4% issued and outstanding interests in NetEase Cloud Music. The Company still maintains in 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. Youdao In April 2018, Youdao issued equity interests with preferential rights ("Youdao Preferred Shares") to two investors 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. Upon completion of the IPO of Youdao in October 2019, all Youdao Preferred Shares held by external preferred shareholders were automatically re-designated and converted on a one-for-one basis into Class A ordinary shares of Youdao. 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, 2019 | |
Capital Structure | |
Capital Structure | 18. Capital Structure 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, 2019 | |
Employee Benefits | |
Employee Benefits | 19. Employee Benefits 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, 2017, 2018 and 2019 (in millions): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Contributions to medical and pension schemes 594.5 788.7 903.4 Other employee benefits 389.1 548.6 631.8 983.6 1,337.3 1,535.2 |
Share-based Compensation
Share-based Compensation | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Compensation | |
Share-based Compensation | 20. Share-based Compensation ( a ) Restricted share units plan 2009 Restricted Share Unit Plan In November 2009, the Company adopted a restricted share unit plan for the Company’s employees, directors and consultants (the “2009 Plan”). The Company has reserved 323,694,050 ordinary shares for issuance under the plan. The 2009 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. The 2009 Plan was expired on November 16, 2019. 2019 Restricted Share Unit Plan In October 2019, the Company adopted a 2019 restricted share unit plan (the “2019 Plan”) for the Company’s employees, directors and others. The 2019 Plan has a ten-year term and a maximum number of 322,458,300 ordinary shares available for issuance pursuant to all awards under the plan. (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, 2017, 2018 and 2019 (in thousands): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Cost of revenues 818,101 757,341 758,810 Selling and marketing expenses 90,271 102,638 84,920 General and administrative expenses 576,629 787,200 797,120 Research and development expenses 499,850 824,552 763,239 1,984,851 2,471,731 2,404,089 As of December 31, 2019, total unrecognized compensation cost related to unvested awards under the 2009 Plan and the 2019 Plan, adjusted for estimated forfeitures, was US$329.2 million (RMB2,291.8 million) and is expected to be recognized through the remaining vesting period of each grant. As of December 31, 2019, the weighted average remaining vesting periods was 2.22 years. (c) Restricted share units award activit ies The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2017, 2018 and 2019: Weighted average grant date fair Number of RSUs value (in thousands) US$ Outstanding at January 1, 2017 1,663 131.08 Granted 1,260 295.95 Vested (1,192) 152.96 Forfeited (59) 177.14 Outstanding at December 31, 2017 1,672 238.18 Outstanding at January 1, 2018 1,672 238.18 Granted 2,073 271.21 Vested (1,228) 250.53 Forfeited (92) 238.34 Outstanding at December 31, 2018 2,425 260.12 Outstanding at January 1, 2019 2,425 260.12 Granted 1,763 231.51 Vested (1,182) 256.12 Forfeited (191) 244.09 Outstanding at December 31, 2019 2,815 244.99 The aggregate intrinsic value of RSUs outstanding as of December 31, 2019 was US$863.1 million. The intrinsic value was calculated based on the Company’s closing stock price of US$306.64 per ADS as of December 31, 2019. 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 2019 RSU Plan was 322,055,900 as of December 31, 2019. (d) Other Share Incentive Plan 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 The Group has used the binomial model to estimate the fair value of the options granted. For the years ended December 31, 2017, 2018, and 2019, RMB91.5 million, RMB32.0 million and RMB56.2 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, 2019, there were RMB307.4 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, 2019 | |
Net Income Per Share | |
Net Income Per Share | 21. Net Income Per Share The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2017, 2018 and 2019: For the year ended December 31, 2017 2018 2019 Numerator (RMB in thousands): Net income from continuing operations attributable to NetEase, Inc's shareholders 11,542,393 8,291,089 13,274,997 Net (loss)/income from discontinued operations attributable to NetEase, Inc's shareholders (834,454) (2,138,682) 7,962,519 Net income attributable to NetEase, Inc.’s shareholders for basic/dilutive net income per share calculation 10,707,939 6,152,407 21,237,516 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,290,312 3,235,324 3,220,473 Dilutive effect of employee stock options and restricted share units 25,166 19,365 29,499 Weighted average number of ordinary shares outstanding, diluted 3,315,478 3,254,689 3,249,972 Net income per share from continuing operations attributable to NetEase, Inc's shareholders, basic (RMB) 3.51 2.56 4.12 Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, basic (RMB) (0.26) (0.66) 2.47 Net income per share, basic (RMB) 3.25 1.90 6.59 Net income per share from continuing operations attributable to NetEase, Inc's shareholders, diluted (RMB) 3.48 2.55 4.08 Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, diluted (RMB) (0.25) (0.66) 2.45 Net income per share, diluted (RMB) 3.23 1.89 6.53 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, 2017, 2018 and 2019, options to purchase ordinary shares and RSUs that were anti-dilutive and excluded from the calculation of diluted net income per share totaled approximately 3.8 million shares, 19.6 million shares and 11.4 million shares, respectively. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies | |
Commitments and Contingencies | 22 . Commitments and Contingencies (a) Commitments As of December 31, 2019, future minimum payment for server and bandwidth service fee commitments, 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): Server and Royalties and Bandwidth Expenditure for Office Machines Service Fee Capital Licensed Content and Other Commitments Commitments Commitments Commitments Total RMB RMB RMB RMB RMB 2020 210,343 467,344 2,057,962 135,903 2,871,552 2021 368,206 578,011 2,166,368 29,304 3,141,889 2022 218,863 217,001 1,707,765 17,886 2,161,515 2023 77,616 209,284 1,311,465 17,619 1,615,984 Beyond 2023 52,848 1,000 849,159 — 903,007 927,876 1,472,640 8,092,719 200,712 10,693,947 (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, 2018 and 2019. Litigation In April 2018, PUBG Corporation and PUBG Santa Monica, Inc. (collectively “PUBG”), filed a lawsuit 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. PUBG subsequently dropped all claims against NetEase (Hong Kong) Limited, and added Hong Kong NetEase Interactive Entertainment Limited to the lawsuit. PUBG’s complaint generally alleged that of the Group’s mobile games, Rules of Survival and Knives Out, infringed PUBG’s copyrights and trade dress in their competing game, Battlegrounds. On March 11, 2019, the Group entered into a settlement agreement with PUBG, and the lawsuit was dismissed. On October 15, 2019, PUBG filed a second lawsuit against the same NetEase defendants, also in the U.S. District Court for the Northern District of California, claiming the Group had allegedly breached the settlement agreement. On March 3, 2020, the court dismissed PUBG’s new lawsuit, without prejudice, for lack of subject matter jurisdiction. On March 4, 2020, the Group initiated a declaratory judgment action against PUBG in the Superior Court of California for the County of San Mateo, requesting a declaration that the Group had not breached the settlement agreement. As at the date of this report, this lawsuit against PUBG is on-going. |
Dividends
Dividends | 12 Months Ended |
Dec. 31, 2019 | |
Dividends | |
Dividends | 23 . Dividends 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. In the second quarter of 2019, the Company’s board of directors determined that quarterly dividends will be set at an amount equivalent to approximately 20%-30% of the Company’s anticipated net income after tax in each fiscal quarter. The Company's board of directors also approved an additional special dividend of US$3.45 per ADS in the third quarter of 2019. Dividends are recognized when declared. There is no dividend payable as of December 31, 2018 and 2019, respectively. The cash dividend declared related to the net profits of fiscal year 2018 and fiscal year 2019 was RMB1,538.3 million and RMB9,353.6 million (US$1,343.6 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, 2019 | |
Share Repurchase Programs | |
Share Repurchase Programs | 24. Share Repurchase Programs 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 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 expiration date of the program, the Company has repurchased approximately 1,015 ADSs (equivalent to 25,375 ordinary shares) for approximately US$0.2 million under this program. In November 2019, the Company announced that its board of directors has approved a share purchase program of up to US$20.0 million of Youdao’s outstanding ADSs for a period not to exceed 12 months. As of December 31, 2019, approximately 50,000 ADSs had been purchased under this program. In February 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company’s outstanding ADSs for a period not to exceed 12 months. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions | |
Related Party Transactions | 25. Related Party Transactions The Group had no material transactions with related parties for the year ended December 31, 2017, 2018 and 2019, and no material related parties’ balances as of December 31, 2019. |
Segment Information
Segment Information | 12 Months Ended |
Dec. 31, 2019 | |
Segment Information | |
Segment Information | 26. Segment Information (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 third quarter of 2019, the Group changed its segment disclosure to add the financial results of its certain advertising services and Yanxuan into innovative businesses and others. In addition, the Group has commenced separately reporting the results of Youdao, which completed its initial public offering and listing on the New York Stock Exchange in October 2019. As a result, the Group now reports segments as online game services, Youdao and 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 year segment information, to conform to current year presentation. (b) Segment data The table below provides a summary of the Group’s operating segment results for the years ended December 31, 2017, 2018 and 2019. 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, 2017, 2018 and 2019 (in thousands). For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net revenues: Online game services 36,281,642 40,190,057 46,422,640 Youdao 455,746 731,598 1,304,883 Innovative businesses and others 7,699,967 10,256,920 11,513,622 Total net revenues 44,437,355 51,178,575 59,241,145 Cost of revenues: Online game services (13,473,339) (14,617,656) (16,974,234) Youdao (293,807) (515,133) (934,261) Innovative businesses and others (5,627,168) (8,699,637) (9,777,350) Total cost of revenues (19,394,314) (23,832,426) (27,685,845) Gross profit: Online game services 22,808,303 25,572,401 29,448,406 Youdao 161,939 216,465 370,622 Innovative businesses and others 2,072,799 1,557,283 1,736,272 Total gross profit 25,043,041 27,346,149 31,555,300 The following table set forth the breakdown of net revenues by type of good or service for the years ended December 31, 2017, 2018 and 2019: For the year ended December 31, 2017 2018 2019 RMB RMB RMB Online games services 36,281,642 40,190,057 46,422,640 Youdao learning services and products 149,915 428,716 851,870 Advertising services 2,449,558 2,769,337 2,581,623 Others 5,556,240 7,790,465 9,385,012 Total Net revenue 44,437,355 51,178,575 59,241,145 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, 2017, 2018 and 2019: For the year ended December 31, 2017 2018 2019 RMB RMB RMB Online game services 157,695 235,896 256,181 Youdao 2,160 3,863 6,076 Innovative businesses and others 98,997 201,707 218,850 Total depreciation and amortization expenses of property and equipment and land use rights 258,852 441,466 481,107 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, 2019 | |
Financial Instruments | |
Financial Instruments | 27. Financial Instruments 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 following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2019 (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 53,487,075 53,487,075 — Time deposits-long term 2,360,000 2,360,000 — Equity investments with readily determinable fair values 3,551,545 3,551,545 — Short-term investments 15,312,595 — 15,312,595 Total 74,711,215 59,398,620 15,312,595 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, 2018 and 2019, certain equity investments without determinable fair value (Note 10) were measured using significant unobservable inputs (Level 3) and written down from their respective carrying value to fair value, with impairment charges of RMB133.6 million and RMB168.4 million incurred and recorded in earnings for the years then ended. |
Restricted Net Assets
Restricted Net Assets | 12 Months Ended |
Dec. 31, 2019 | |
Restricted Net Assets | |
Restricted Net Assets | 28. Restricted Net Assets 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 RMB14.1 billion, or 23% of the Company’s total consolidated net assets, as of December 31, 2019. 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. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events | |
Subsequent Events | 29. Subsequent Events After the outbreak of Coronavirus Disease 2019 (“COVID-19 outbreak”) in early 2020, a series of precautionary and control measures have been and continued to be implemented across the country. The Group prioritizes the health and safety of its employees, and has taken various preventative and quarantine measures across the Group soon after the outbreak. The Group will pay close attention to the development of the COVID-19 outbreak and evaluate its impact on the financial position and operating results of the Group. As at the date on which this form 20-F was filed, the Group was not aware of any material adverse effects on the financial statements as a result of the COVID-19 outbreak. |
Principal Accounting Policies (
Principal Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
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) Basis of presentation 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. Critical accounting estimates and assumptions include, but are not limited to, assessing the following: average playing period of paying players of online games and impairment of long-term investments. |
Revenue recognition | (c) Revenue recognition 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 historical accounting under Topic 605. The impact of adopting the new revenue standard was not material to the consolidated financial statements. For the year ended December 31, 2018 and 2019, 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 revenues are mainly generated from online game services, online courses services from Youdao, advertising services, e-commerce and other fee-based premium services. Refer to “Note 26 — Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC 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 based on historical players’ churn rates. 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 games The Group sells prepaid points to the end users. Customers can purchase “virtual” prepaid points online or from the vendors who register the points in the Group’s system 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 games, pay for in-game items and use other fee-based services. Proceeds received from the sales of prepaid online points to players are recorded as deferred revenues. The Group earns revenue through providing PC game services to players under two types of revenue models: time-based revenue model and item-based revenue model. For PC 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 estimated average playing period of the paying players for the permanent in-game items of each PC game based on historical players’ churn rate. 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. (ii) The Group offers various types of integrated learning services through Youdao, which primarily cover a wide spectrum of topics and target people from broad age groups through its diverse offerings of K-12 tutoring courses, foreign languages, professional and interest education services as well as IT computer skills, etc. Youdao’s online courses services consist of online live streaming, other activities during the online live streaming period, as well as the content playback service. The aforementioned services are highly interdependent and interrelated in the context of the contract and are only considered accessory services to the online live streaming courses and therefore are not distinct and are not sold standalone. Therefore, the Group’s online courses services are accounted for as a single performance obligation, which is satisfied over the learning period of the students. Accordingly, the Group recognizes the revenues ratably over the estimated average learning period for different courses. The Group considers the average period that students typically spend time on the courses and other learning behavior patterns to arrive at the best estimates for the estimated learning period for each course. (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. 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. For cost per mille ("CPM"), or cost per thousand impressions, advertising arrangements with customers, the Group recognizes revenues based on the number of times that the advertisement has been displayed. For cost per action ("CPA") advertising arrangements with customers, including Youdao online marketing services, 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. For the year ended December 31, 2018 and 2019, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (iv) The Group’s e-commerce revenue are primarily from its E-commerce platform Yanxuan, which was established in April 2016. Yanxuan sells its private label products, including apparel, homeware, kitchenware and other general merchandise which are sourced primarily directly from original design manufacturers in China through online direct sales. 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 delivery to the customer. The Group also provides discount coupons to its customers for use in purchases on the Yanxuan platform, which are treated as a reduction of revenue when the related transaction is recognized. 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, 2018 and 2019. (v) 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. Practical Expedients The Group has used the following practical expedients as allowed under ASC 606: (i) The effects of a significant financing component has not been adjusted for contracts which the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. (ii) The Group applied the portfolio approach in determining the commencement date of consumption and the estimated average playing period of paying players for PC games permanent virtual items and of mobile games for the recognition of online game revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually. (iii) The Group elects to expense the costs to obtain a contract as incurred when the expected amortization period is one year or less. 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, 2017, 2018 and 2019 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 2019 130,648 (30,946) (22,555) 77,147 Under Topic 606, 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 December 31, 2018 and 2019 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 16 - 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 revenue sharing cost, staff costs, royalties fees related to licensed games, traffic acquisition cost, content acquisition cost, service fees related to online payments, server and bandwidth service fee, depreciation and amortization of severs, computers and software, and other direct costs of providing these services, as well as cost of merchandise sold. These costs are charged to the consolidated statements of operations and comprehensive income as incurred. |
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, as well as development and enhancement of the Group’s new products, websites and application platforms. For internal use software, the Group expenses all costs incurred for the preliminary project stage and post implementation-operation stage of development, and costs associated with repair or maintenance of the existing platforms. Costs incurred in the application development stage are capitalized and amortized over the estimated useful life. Since the amount of the Group’s research and development expenses qualifying for capitalization has been immaterial for the years ended December 31, 2017, 2018 and 2019, as a result, all development costs incurred for development of internal used software have been expensed as incurred. For external use software, costs incurred for development of external use software have not been capitalized for the years ended December 31, 2017, 2018 and 2019, because the period after the date technical feasibility is reached and the time when the software is marketed is short historically, and the amount of costs qualifying for capitalization has been immaterial. |
Cash, cash equivalents and time deposits | (f) Cash, cash equivalent s and time deposits Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in Hong Kong and/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, 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$244.2 million, HK$90.6 million and Euro0.2 million, respectively (equivalent to approximately RMB1,675.9 million, RMB79.4 million and RMB1.5 million, respectively). As of December 31, 2019, 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$226.6 million, HK$21.3 million and Euro0.4 million, respectively (equivalent to approximately RMB1,580.7 million, RMB19.0 million and RMB2.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. 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, 2019, there were time deposits denominated in US dollars amounting to approximately US$4,382.9 million (equivalent to approximately RMB30,576.3 million). As of December 31, 2018 and 2019, the Group had approximately RMB12.5 billion and RMB14.8 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and VIEs, representing 32.8% and 25.0% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2018 and 2019, the Group had a restricted cash balance approximately RMB4,692.1 million and RMB3,150.4 million, respectively, comprising as follows (in millions): December 31, December 31, 2018 2019 RMB RMB Customer deposit of NetEase Pay accounts 1,364.4 1,523.3 Pledge deposits for short-term bank borrowings — Current 2,695.0 1,595.0 Pledge deposits for Letter of Guarantee 623.6 — Others 9.1 32.1 Total 4,692.1 3,150.4 The Group had no other lien arrangements during 2018 and 2019. |
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 loans, deferred revenue and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 27 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) I nvestments 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 6 and Note 27 for additional information. Long-term investments Long-term investments are comprised of equity investments in publicly traded companies, privately-held companies and limited-partnership. 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 insubstance 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. 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. Management regularly evaluates the impairment of the investments in privately-held companies without readily determinable fair value and equity method investments at each balance sheet date, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. For investments without readily determinable fair values, management performs a qualitative assessment of the fair value of the equity interest in comparison to its carrying amount to determine if there is an indication of potential impairment. If such indication exists, management estimates the fair value of the investment, and records an impairment in the consolidated statement of comprehensive income to the extent the carrying amount exceeds the fair value. Significant judgements management applies in the impairment assessment for these equity investments include: (i) the determination as to whether any impairment indicators exist during the year; (ii) the selection of valuation methods; (iii) the determination of significant assumptions used to value the equity investments, including selection of comparable companies and multiples, timing and probabilities of different scenarios, estimated volatility rate, risk-free rate and discount for lack of marketability; and (iv) judgements as to whether a decline in value of equity method investments was other than temporary. For equity method investments, management considers if the investment is impaired when events or circumstances suggest the carrying amount may not be recoverable, and recognizes any impairment charge in the consolidated statement of comprehensive income for a decline in value that is determined to be other than temporary. |
Lease | (j) Lease On January 1, 2019, the Group adopted ASU 2016-02, "Leases (Topic 842)", including certain transitional guidance and subsequent amendments within ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, including ASU 2016-02, "ASC 842"). Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. As of December 31, 2019, the Group has no finance leases. Under ASC 842, the Group determines if an arrangement is a lease at inception. The Group is the lessee in a lease contract when the Group obtain the right to control the asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, and short-term and long-term operating lease liabilities in the Group’s consolidated balance sheets. ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Group’s leases do not provide an implicit rate, the Group generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. For leases with a term of twelve months or less (“short-term leases”), the Group has elected not to recognize lease liabilities and associated ROU assets. Lease payments on short-term leases are recognized as lease expense within cost of revenues or operating expenses on the consolidated statements of operations and comprehensive income, depending on the nature of the lease, on a straight-line basis over the lease term. |
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. |
Land use rights | (l) Land use rights Land use rights represent lease prepayments to the local government authorities. As of December 31, 2018, land use rights were carried at cost less accumulated amortization and any impairment loss. Amortization is provided to write off the cost of lease prepayments on a straight-line basis over the remaining term of the land use right period. Upon the adoption of ASC 842 on January 1, 2019, land use rights, net were identified as operating lease right-of-use assets, which is separately disclosed as “Land use rights” in the Group’s consolidated balance sheets. Accordingly, the Group disclosed the cash used for obtaining the land use rights in operating cash flow activities for the year ended December 31, 2019, with no adjustments made to the comparative periods. |
Intangible assets | (m) 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: 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 | (n) Advertising expenses The Group expenses advertising costs as incurred and reports these costs under selling and marketing expense. Advertising expenses totaled approximately RMB1,998.4 million, RMB2,222.2 million and RMB1,679.3 million (US$241.2 million) for the years ended December 31, 2017, 2018, and 2019, respectively. |
Foreign currency translation | (o) Foreign currency translation The Group’s reporting currency is RMB. The Company and its subsidiaries and VIEs, with an exception of several subsidiaries incorporated in Cayman Islands, use RMB as their functional currency. In 2017, several of the Company’s subsidiaries incorporated in Cayman Islands changed their functional currency from RMB to US$. 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 = RMB6.9618 on the last trading day of 2019 (December 31, 2019) 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 | (p) Share-based compensation Under its 2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan (see Note 20(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 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 20 for further information regarding share-based compensation assumptions and expense. |
Taxation | (q) 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, 2017, 2018 and 2019. The Group did not have any significant unrecognized uncertain tax positions as of December 31, 2018 and 2019. 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") | (r) 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 | (s) 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. |
Noncontrolling interests and Redeemable noncontrolling interests | (t) 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 17), 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 | (u) 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 | (v) 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, 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 | (w) 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 26. |
Dividends | ( x ) Dividends Dividends of the Company are recognized when declared. |
Recently issued accounting pronouncements | ( y ) Recently issued accounting pronouncements In February 2016, the FASB issued ASU 2016-02 “Leases”, which was further modified in ASU No. 2018-01, “Land easement practical expedient for transition to Topic 842”, ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Leases (Topic 842) Targeted Improvements”, ASU No. 2018-20, “Narrow-scope improvement for lessors” and ASU No. 2019-01 “Leases (Topic 842) Codification Improvements” to clarify the implementation guidance. The new accounting standard generally requires the recognition on the balance sheet of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Group adopted the new lease standard using the modified retrospective method by applying the new lease standard to all leases existing as of January 1, 2019, the date of initial adoption, and no adjustments were made to the comparative periods. The Group elected the million as total right-of-use (“ROU”) assets as well as total lease liabilities 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 the Group beginning on January 1, 2020. The Group does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. |
Organization and Nature of Op_2
Organization and Nature of Operations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2019 are described below: Place and year of Major Subsidiaries Incorporation Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”) Guangzhou, China 2003 NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”) Hangzhou, China 2006 Hong Kong NetEase Interactive Entertainment Limited Hong Kong, China 2007 Place and year of Major VIEs and VIEs' subsidiaries Incorporation Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”) Guangzhou, China 1997 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 Technology Co., Ltd. ("HZ Leihuo", formerly known as Hangzhou NetEase Leihuo Network Co., Ltd. ) Hangzhou, China 2009 |
Schedule of combined financial information of the Group's VIEs included in the accompanying consolidated financial statements of the Group | December 31, December 31, 2018 2019 RMB RMB Total assets 10,355,050 14,400,564 Total liabilities 9,778,359 12,272,634 For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net revenues 40,566,998 43,231,277 49,455,146 Net income 355,697 224,253 344,134 For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net cash (used in)/provided by operating activities (152,931) 356,907 (249,387) Net cash provided by/ (used in) investing activities 122,286 (720,675) (495,160) Net cash provided by financing activities 4,000 229,862 26,520 |
Principal Accounting Policies_2
Principal Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2017, 2018 and 2019 (in thousands): Write-off of receivable Charged to/(Write-back balances and Balance at against) corresponding Balance at January 1, expenses provisions December 31, RMB RMB RMB RMB 2017 24,136 60,826 (53) 84,909 2018 84,909 50,954 (5,215) 130,648 2019 130,648 (30,946) (22,555) 77,147 |
Schedule of restricted cash balance | As of December 31, 2018 and 2019, the Group had a restricted cash balance approximately RMB4,692.1 million and RMB3,150.4 million, respectively, comprising as follows (in millions): December 31, December 31, 2018 2019 RMB RMB Customer deposit of NetEase Pay accounts 1,364.4 1,523.3 Pledge deposits for short-term bank borrowings — Current 2,695.0 1,595.0 Pledge deposits for Letter of Guarantee 623.6 — Others 9.1 32.1 Total 4,692.1 3,150.4 |
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 | License right over the license period Technology 10 years |
Discontinued operations (Tables
Discontinued operations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued operations | |
Schedule of assets, liabilities, statement of operations and cash flows of discontinued operations | The following tables set forth the assets, liabilities, statement of operations and cash flows of discontinued operations which were included in the Group’s consolidated financial statements (in thousands): December 31, 2018 RMB Cash and cash equivalents 400,747 Restricted cash 125,290 Accounts receivable, net 169,794 Inventories, net 3,952,208 Prepayments and other current assets 493,563 Total current assets 5,141,602 Property, equipment and software, net 705,432 Land use rights, net 231,058 Other long-term assets 31,248 Total non-current assets 967,738 Total assets 6,109,340 Accounts payable 1,183,143 Salary and welfare payables 188,683 Taxes payable 11,212 Deferred revenue 234,770 Accrued liabilities and other payables 843,073 Total current liabilities 2,460,881 Deferred tax liabilities 1,083 Other long-term payable 4,735 Total non-current liabilities 5,818 Total liabilities 2,466,699 For the year ended December 31, 2017 2018 2019 *** RMB RMB RMB Net revenues 9,664,664 15,977,878 10,571,406 Cost of revenues (8,795,012) (14,920,531) (9,620,388) Gross profit 869,652 1,057,347 951,018 Operating expenses: Selling and marketing expenses (1,452,983) (2,614,760) (1,258,413) General and administrative expenses (48,016) (112,902) (79,985) Research and development expenses (209,755) (414,090) (326,127) Total operating expenses (1,710,754) (3,141,752) (1,664,525) Operating loss (841,102) (2,084,405) (713,507) Other income/(expenses): 13,023 (48,246) (69,282) Loss from discontinued operations (828,079) (2,132,651) (782,789) Income tax (6,375) (6,031) (5,857) Loss from discontinued operations, net of tax (834,454) (2,138,682) (788,646) Gains on disposal, net of tax — — 8,751,165 Net (loss)/income from discontinued operations (834,454) (2,138,682) 7,962,519 For the year ended December 31, 2017 2018 2019 *** RMB RMB RMB Net cash (used in)/provided by discontinued operating activities (2,975,214) (1,243,966) 305,487 Net cash provided by/ (used in) discontinued investing activities 3,101,239 1,430,181 (832,252) *** Included financial results of discontinued operations from January 1, 2019 to September 6, 2019. |
Concentrations and Risks (Table
Concentrations and Risks (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Service providers | Server and bandwidth service provider | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | For the year ended December 31, 2017 2018 2019 Total number of telecommunications service providers 23 49 79 Number of service providers provided by 10% or more of the Group’s server and bandwidth service expenditure 3 3 2 Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers 67.8 % 57.8 % 56.3 % |
Accounts receivable | Credit risk | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | December 31, December 31, 2018 2019 Distribution channel A 22.2 % 24.7 % Allowance for doubtful accounts Not applicable Not applicable |
Prepayments and Other Current_2
Prepayments and Other Current Assets (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2018 2019 RMB RMB Guarantee payment made to Blizzard - royalty fees 97,642 356,033 Prepayment for royalties, revenue sharing cost 2,000,327 2,627,048 Interest and other operating income receivable 511,364 524,069 Prepayments of content and marketing cost and other operational expenses 664,523 569,122 Prepayment for sales tax and deductible value added tax 312,852 483,547 Bridge loans in connection with ongoing investments 19,540 21,259 Deposits 107,254 11,882 Employee advances 44,337 79,823 Advance to suppliers 76,009 26,664 Others 91,357 117,975 3,925,205 4,817,422 |
Short-term Investments (Tables)
Short-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Short-term Investments | |
Summary of short-term investments | The following is a summary of short-term investments (in thousands): December 31, 2018 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 11,528,300 146,475 11,674,775 December 31, 2019 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 15,116,330 196,265 15,312,595 |
Property, Equipment and Softw_2
Property, Equipment and Software (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2018 2019 RMB RMB Building and decoration 1,408,343 2,987,003 Leasehold improvements 164,745 153,145 Furniture, fixtures and office equipment 135,611 198,909 Vehicles 76,192 74,487 Servers and computers 3,852,805 4,066,925 Software 96,092 181,223 Construction in progress 1,567,091 465,993 7,300,879 8,127,685 Less: accumulated depreciation (2,628,800) (3,505,973) Net book value 4,672,079 4,621,712 |
Land Use Rights (Tables)
Land Use Rights (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2018 2019 RMB RMB Cost 3,338,843 3,846,660 Incentive payment from local government (15,000) (15,000) Accumulated amortization (52,331) (124,481) Land use right, net 3,271,512 3,707,179 |
Leases (Tables)
Leases (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Leases | |
Schedule of information related to operating leases | The following table provides information related to the Group’s operating leases (in thousands): Year ended December 31, 2019 RMB Operating lease cost (i) 360,383 Cash paid for amounts included in the measurement of operating lease liabilities 284,969 Right-of-use assets obtained in exchange for operating lease obligations: 179,350 (i) Included short-term lease cost of RMB65.6 million and amortization expenses of land use rights of RMB72.2 million for the year ended December 31, 2019. |
Schedule of maturities of operating lease liabilities | Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands): RMB 2020 195,945 2021 175,286 2022 97,639 2023 20,338 2024 9,960 Thereafter 2,970 Total operating lease payments 502,138 Less: imputed interest (30,735) Total 471,403 |
Summary of minimum lease payments under noncancelable operating leases | The following table summarises the minimum lease payments under noncancelable operating leases with initial or remaining lease terms in excess of one year under ASC 840 as of December 31, 2018 (in thousands): RMB 2019 230,042 2020 172,290 2021 146,999 2022 47,625 Thereafter 7,844 Total operating lease payments 604,800 |
Long-term Investments (Tables)
Long-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Long-term Investments | |
Schedule of long-term investments | The following is a summary of long-term investments (in thousands): December 31, December 31, 2018 2019 RMB RMB Investments in equity method investees 736,551 1,137,774 Equity investments with readily determinable fair values 612,465 3,551,545 Equity investments without readily determinable fair values 3,896,092 4,604,549 5,245,108 9,293,868 |
Other Long-term Assets (Tables)
Other Long-term Assets (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2018 2019 RMB Copyrights, licenses and domain names 2,461,377 3,639,211 Long-term receivable — 1,599,524 Staff housing loans 98,244 71,997 Non-current deposits 105,984 140,869 Others 264,464 215,009 2,930,069 5,666,610 |
Taxation (Tables)
Taxation (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2017, 2018 and 2019 (in thousands except per share data): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,464,587 1,621,063 1,665,199 Earnings per share effect, basic 0.45 0.50 0.52 Earnings per share effect, diluted 0.44 0.50 0.51 |
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, 2017, 2018 and 2019 (in thousands): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Current tax expense 2,594,295 2,531,271 2,764,097 Deferred tax (benefit)/expense (438,307) (70,621) 150,629 Income tax expenses 2,155,988 2,460,650 2,914,726 |
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, 2017 2018 2019 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (0.6) (0.1) (2.8) Effect due to different tax rates applicable to overseas entities (0.7) 2.8 (0.9) Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (15.4) (19.4) (13.6) Change in valuation allowance 2.2 7.8 4.9 Effect of withholding income tax 5.1 6.1 5.2 Effective income tax rate 15.6 22.2 17.8 |
Summary of net operating tax loss carry forwards | As of December 31, 2019, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2020 3,123 Loss expiring in 2021 181,883 Loss expiring in 2022 903,855 Loss expiring in 2023 3,618,659 Loss expiring after 2024 3,594,379 8,301,899 |
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, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Deferred tax assets: Deferred revenue, primarily for advanced payments from online games customers 507,982 484,637 Accruals 589,322 478,484 Depreciation of fixed assets 5,103 4,827 Amortization of Intangible assets 16,059 9,360 Net operating tax loss carry forward 1,215,444 2,075,475 2,333,910 3,052,783 Less: valuation allowance (1,269,615) (2,148,879) Total 1,064,295 903,904 December 31, December 31, 2018 2019 RMB RMB Deferred tax liabilities: Withholding income tax (d) 391,862 382,030 Others 736 — Total 392,598 382,030 |
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 2017 241,394 230,995 472,389 2018 472,389 797,226 1,269,615 2019 1,269,615 879,264 2,148,879 |
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, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Sales Tax payable 256,350 541,175 Withholding individual income taxes for employees 183,681 190,340 Enterprise income taxes 1,775,908 2,377,655 Others 44,707 47,343 2,260,646 3,156,513 |
Accrued Liabilities and Other_2
Accrued Liabilities and Other Payables (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2018 and 2019 (in thousands): December 31, December 31, 2018 2019 RMB RMB Customer deposits on NetEase Pay accounts 1,369,672 1,539,417 Marketing expenses and promotion materials 1,723,766 1,672,096 Accrued fixed assets related payables 354,388 304,379 Server and bandwidth service fees and technical charges 257,066 231,868 Accrued revenue sharing 373,559 578,940 Content cost 299,837 403,402 Professional fees 243,106 88,041 Accrued freight and warehousing charge 109,716 47,524 Other staff related cost 80,013 69,849 Others 194,067 357,258 5,005,190 5,292,774 |
Employee Benefits (Tables)
Employee Benefits (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2017, 2018 and 2019 (in millions): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Contributions to medical and pension schemes 594.5 788.7 903.4 Other employee benefits 389.1 548.6 631.8 983.6 1,337.3 1,535.2 |
Share-based Compensation (Table
Share-based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2017, 2018 and 2019 (in thousands): For the year ended December 31, 2017 2018 2019 RMB RMB RMB Cost of revenues 818,101 757,341 758,810 Selling and marketing expenses 90,271 102,638 84,920 General and administrative expenses 576,629 787,200 797,120 Research and development expenses 499,850 824,552 763,239 1,984,851 2,471,731 2,404,089 |
Restricted share units | |
Share based Compensation | |
Summary of the Company's RSUs award activities | Weighted average grant date fair Number of RSUs value (in thousands) US$ Outstanding at January 1, 2017 1,663 131.08 Granted 1,260 295.95 Vested (1,192) 152.96 Forfeited (59) 177.14 Outstanding at December 31, 2017 1,672 238.18 Outstanding at January 1, 2018 1,672 238.18 Granted 2,073 271.21 Vested (1,228) 250.53 Forfeited (92) 238.34 Outstanding at December 31, 2018 2,425 260.12 Outstanding at January 1, 2019 2,425 260.12 Granted 1,763 231.51 Vested (1,182) 256.12 Forfeited (191) 244.09 Outstanding at December 31, 2019 2,815 244.99 |
Net Income Per Share (Tables)
Net Income Per Share (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Net Income Per Share | |
Schedule of computation of basic and diluted net income per share | For the year ended December 31, 2017 2018 2019 Numerator (RMB in thousands): Net income from continuing operations attributable to NetEase, Inc's shareholders 11,542,393 8,291,089 13,274,997 Net (loss)/income from discontinued operations attributable to NetEase, Inc's shareholders (834,454) (2,138,682) 7,962,519 Net income attributable to NetEase, Inc.’s shareholders for basic/dilutive net income per share calculation 10,707,939 6,152,407 21,237,516 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,290,312 3,235,324 3,220,473 Dilutive effect of employee stock options and restricted share units 25,166 19,365 29,499 Weighted average number of ordinary shares outstanding, diluted 3,315,478 3,254,689 3,249,972 Net income per share from continuing operations attributable to NetEase, Inc's shareholders, basic (RMB) 3.51 2.56 4.12 Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, basic (RMB) (0.26) (0.66) 2.47 Net income per share, basic (RMB) 3.25 1.90 6.59 Net income per share from continuing operations attributable to NetEase, Inc's shareholders, diluted (RMB) 3.48 2.55 4.08 Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, diluted (RMB) (0.25) (0.66) 2.45 Net income per share, diluted (RMB) 3.23 1.89 6.53 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies | |
Schedule of future commitments under various contracts | As of December 31, 2019, future minimum payment for server and bandwidth service fee commitments, 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): Server and Royalties and Bandwidth Expenditure for Office Machines Service Fee Capital Licensed Content and Other Commitments Commitments Commitments Commitments Total RMB RMB RMB RMB RMB 2020 210,343 467,344 2,057,962 135,903 2,871,552 2021 368,206 578,011 2,166,368 29,304 3,141,889 2022 218,863 217,001 1,707,765 17,886 2,161,515 2023 77,616 209,284 1,311,465 17,619 1,615,984 Beyond 2023 52,848 1,000 849,159 — 903,007 927,876 1,472,640 8,092,719 200,712 10,693,947 |
Segment Information (Tables)
Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Segment Information | |
Summary of the Group's operating segment results | There was no significant transaction between reportable segments for the years ended December 31, 2017, 2018 and 2019 (in thousands). For the year ended December 31, 2017 2018 2019 RMB RMB RMB Net revenues: Online game services 36,281,642 40,190,057 46,422,640 Youdao 455,746 731,598 1,304,883 Innovative businesses and others 7,699,967 10,256,920 11,513,622 Total net revenues 44,437,355 51,178,575 59,241,145 Cost of revenues: Online game services (13,473,339) (14,617,656) (16,974,234) Youdao (293,807) (515,133) (934,261) Innovative businesses and others (5,627,168) (8,699,637) (9,777,350) Total cost of revenues (19,394,314) (23,832,426) (27,685,845) Gross profit: Online game services 22,808,303 25,572,401 29,448,406 Youdao 161,939 216,465 370,622 Innovative businesses and others 2,072,799 1,557,283 1,736,272 Total gross profit 25,043,041 27,346,149 31,555,300 |
Schedule of breakdown of net revenues by type of good or service | For the year ended December 31, 2017 2018 2019 RMB RMB RMB Online games services 36,281,642 40,190,057 46,422,640 Youdao learning services and products 149,915 428,716 851,870 Advertising services 2,449,558 2,769,337 2,581,623 Others 5,556,240 7,790,465 9,385,012 Total Net revenue 44,437,355 51,178,575 59,241,145 |
Schedule of total depreciation and amortization expenses of property and equipment and land use rights by segment | For the year ended December 31, 2017 2018 2019 RMB RMB RMB Online game services 157,695 235,896 256,181 Youdao 2,160 3,863 6,076 Innovative businesses and others 98,997 201,707 218,850 Total depreciation and amortization expenses of property and equipment and land use rights 258,852 441,466 481,107 |
Financial Instruments (Tables)
Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 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 following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2019 (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 53,487,075 53,487,075 — Time deposits-long term 2,360,000 2,360,000 — Equity investments with readily determinable fair values 3,551,545 3,551,545 — Short-term investments 15,312,595 — 15,312,595 Total 74,711,215 59,398,620 15,312,595 |
Organization and Nature of Op_3
Organization and Nature of Operations (Details) $ in Thousands | Dec. 01, 2015 | May 12, 2010 | May 12, 2000 | Dec. 31, 2019CNY (¥)entity | Dec. 31, 2019USD ($)entity | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019USD ($) | Apr. 30, 2009employee | |
Principle subsidiaries and variable interest entities | ||||||||||
Total assets | ¥ 112,124,371,000 | ¥ 86,967,928,000 | $ 16,105,658 | |||||||
Total liabilities | 39,082,916,000 | 35,556,347,000 | $ 5,613,909 | |||||||
Net Revenues | 59,241,145,000 | $ 8,509,458 | 51,178,575,000 | ¥ 44,437,355,000 | ||||||
Net income | 21,431,126,000 | 3,078,388 | 6,477,417,000 | 10,849,137,000 | ||||||
Net cash (used in)/provided by operating activities | 17,216,458,000 | 2,472,990 | 13,415,877,000 | 11,889,238,000 | ||||||
Net cash provided by/ (used in) investing activities | (22,136,741,000) | (3,179,743) | (13,569,515,000) | (12,855,270,000) | ||||||
Net cash provided by financing activities | [1] | 1,082,525,000 | $ 155,494 | 1,587,419,000 | (1,302,728,000) | |||||
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 | 501,200,000 | 542,200,000 | ||||||||
Non-distributable statutory reserves of the consolidated VIEs | ¥ 42,100,000 | 31,500,000 | ||||||||
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 | ||||||||||
Total assets | ¥ 14,400,564,000 | 10,355,050,000 | ||||||||
Total liabilities | 12,272,634,000 | 9,778,359,000 | ||||||||
Net Revenues | 49,455,146,000 | 43,231,277,000 | 40,566,998,000 | |||||||
Net income | 344,134,000 | 224,253,000 | 355,697,000 | |||||||
Net cash (used in)/provided by operating activities | (249,387,000) | 356,907,000 | (152,931,000) | |||||||
Net cash provided by/ (used in) investing activities | (495,160,000) | (720,675,000) | 122,286,000 | |||||||
Net cash provided by financing activities | ¥ 26,520,000 | ¥ 229,862,000 | ¥ 4,000,000 | |||||||
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 | |||||||||
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 | |||||||||
[1] | There is no financing activity from discontinued opearations. |
Principal Accounting Policies_3
Principal Accounting Policies (Details) ¥ in Thousands, $ in Thousands, € in Millions, $ in Millions | 12 Months Ended | ||||||||
Dec. 31, 2019CNY (¥)item | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2019HKD ($) | Dec. 31, 2019EUR (€) | Dec. 31, 2018USD ($) | Dec. 31, 2018HKD ($) | Dec. 31, 2018EUR (€) | |
Revenue recognition | |||||||||
Number of revenue models used for PC-client game services | item | 2 | ||||||||
Practical Expedients - financing component | true | ||||||||
Practical Expedients - costs to obtain a contract | true | ||||||||
Movements of the allowance for doubtful accounts | |||||||||
Balance at the beginning of the year | ¥ 130,648 | ¥ 84,909 | ¥ 24,136 | ||||||
Charged to/(write-back against) expenses | (30,946) | 50,954 | 60,826 | ||||||
Write-off of receivable balances and corresponding provisions | (22,555) | (5,215) | (53) | ||||||
Balance at the end of the year | 77,147 | 130,648 | ¥ 84,909 | ||||||
Cash, cash equivalents and time deposits | |||||||||
Cash at bank and demand deposits | 3,246,373 | 4,977,432 | $ 466,312 | ||||||
PRC subsidiaries and VIEs | |||||||||
Cash, cash equivalents and time deposits | |||||||||
Cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | ¥ 14,800,000 | ¥ 12,500,000 | |||||||
Percentage of cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | 25.00% | 32.80% | 25.00% | 25.00% | 25.00% | 32.80% | 32.80% | 32.80% | |
Denominated in USD | |||||||||
Cash, cash equivalents and time deposits | |||||||||
Cash at bank and demand deposits | ¥ 1,580,700 | ¥ 1,675,900 | $ 226,600 | $ 244,200 | |||||
Time deposits | 30,576,300 | 16,857,900 | $ 4,382,900 | $ 2,456,300 | |||||
Denominated in HKD | |||||||||
Cash, cash equivalents and time deposits | |||||||||
Cash at bank and demand deposits | 19,000 | 79,400 | $ 21.3 | $ 90.6 | |||||
Denominated in EUR | |||||||||
Cash, cash equivalents and time deposits | |||||||||
Cash at bank and demand deposits | ¥ 2,700 | ¥ 1,500 | € 0.4 | € 0.2 | |||||
Less than | |||||||||
Revenue recognition | |||||||||
Term of advertising service contracts | 3 months |
Principal Accounting Policies_4
Principal Accounting Policies (Details 2) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2019CNY (¥)agreement | Dec. 31, 2018CNY (¥)agreement | |
Restricted cash | ||
Total restricted cash | ¥ 3,150.4 | ¥ 4,692.1 |
Number of other lien arrangements | agreement | 0 | 0 |
Customer deposit | NetEase Pay | ||
Restricted cash | ||
Total restricted cash | ¥ 1,523.3 | ¥ 1,364.4 |
Pledge deposits for short-term bank borrowings - Current | ||
Restricted cash | ||
Total restricted cash | 1,595 | 2,695 |
Pledge deposits for Letter of Guarantee | ||
Restricted cash | ||
Total restricted cash | 623.6 | |
Others | ||
Restricted cash | ||
Total restricted cash | ¥ 32.1 | ¥ 9.1 |
Principal Accounting Policies_5
Principal Accounting Policies (Details 3) | 12 Months Ended |
Dec. 31, 2019 | |
Building | |
Property, Equipment and Software | |
Estimated useful lives of assets | 20 years |
Decoration | |
Property, Equipment and Software | |
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 | 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 |
Servers and computers | |
Property, Equipment and Software | |
Estimated useful lives of assets | 3 years |
Software | |
Property, Equipment and Software | |
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, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Advertising Expense | ||||
Advertising expenses | ¥ 1,679.3 | $ 241.2 | ¥ 2,222.2 | ¥ 1,998.4 |
Foreign currency translation | ||||
Buying rate per US$ | 6.9618 | 6.9618 | ||
Licensing right | ||||
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 |
Principal Accounting Policies_7
Principal Accounting Policies (Details 5) | 12 Months Ended |
Dec. 31, 2019 | |
Share based Compensation | |
Number of preceding years considered for estimating forfeiture | 5 years |
2009 Plan and 2019 Plan | Restricted share units | Equal to or more than | |
Share based Compensation | |
Service vesting period | 1 year |
2009 Plan and 2019 Plan | Restricted share units | 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 | 10 years |
Principal Accounting Policies_8
Principal Accounting Policies (Details 6) - PRC | 12 Months Ended |
Dec. 31, 2019 | |
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 | Jan. 01, 2019CNY (¥) | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Recently adopted and issued accounting pronouncements | ||||
Package of practical expedients | true | |||
Total right-of-use assets | ¥ 463,688,000 | $ 66,605 | ||
Total lease liabilities | 471,403,000 | |||
Retained earnings | ¥ 56,393,640,000 | $ 8,100,439 | ¥ 43,997,388,000 | |
ASU No. 2016-02 | Adjustment | ||||
Recently adopted and issued accounting pronouncements | ||||
Total right-of-use assets | ¥ 577,000,000 | |||
Total lease liabilities | 577,000,000 | |||
Retained earnings | ¥ 0 |
Discontinued operations (Detail
Discontinued operations (Details) - Kaola e-commerce business - Discontinued operations, disposed of by sale shares in Millions, $ in Billions | Sep. 30, 2019USD ($)shares |
Discontinued operations | |
Consideration from sale of business | $ 1.9 |
Consideration from sale of business, cash | $ 1.6 |
Consideration from sale of business, ordinary share (in shares) | shares | 14.3 |
Discontinued operations (Deta_2
Discontinued operations (Details 2) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||||
Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019USD ($) | |||
Discontinued operations | |||||||
Total current assets | ¥ 271,278 | ¥ 5,477,869 | $ 38,967 | ||||
Total non-current assets | 2,398 | 969,145 | 344 | ||||
Total current liabilities | 2,156 | 2,465,713 | 310 | ||||
Total non-current liabilities | 961 | 5,818 | $ 138 | ||||
Operating expenses: | |||||||
Net (loss)/income from discontinued operations | 7,962,519 | $ 1,143,744 | (2,138,682) | ¥ (834,454) | |||
Net cash (used in)/provided by discontinued operating activities | 305,487 | 43,880 | (1,243,966) | (2,975,214) | |||
Net cash provided by/ (used in) discontinued investing activities | (832,252) | $ (119,546) | 1,430,181 | 3,101,239 | |||
Kaola e-commerce business | Discontinued operations, disposed of by sale | |||||||
Discontinued operations | |||||||
Cash and cash equivalents | 400,747 | ||||||
Restricted cash | 125,290 | ||||||
Accounts receivable, net | 169,794 | ||||||
Inventories, net | 3,952,208 | ||||||
Prepayments and other current assets | 493,563 | ||||||
Total current assets | 5,141,602 | ||||||
Property, equipment and software, net | 705,432 | ||||||
Land use rights, net | 231,058 | ||||||
Other long-term assets | 31,248 | ||||||
Total non-current assets | 967,738 | ||||||
Total assets | 6,109,340 | ||||||
Accounts payable | 1,183,143 | ||||||
Salary and welfare payables | 188,683 | ||||||
Taxes payable | 11,212 | ||||||
Deferred revenue | 234,770 | ||||||
Accrued liabilities and other payables | 843,073 | ||||||
Total current liabilities | 2,460,881 | ||||||
Deferred tax liabilities | 1,083 | ||||||
Other long-term payable | 4,735 | ||||||
Total non-current liabilities | 5,818 | ||||||
Total liabilities | 2,466,699 | ||||||
Net revenues | 10,571,406 | [1] | 15,977,878 | 9,664,664 | |||
Cost of revenues | (9,620,388) | [1] | (14,920,531) | (8,795,012) | |||
Gross profit | 951,018 | [1] | 1,057,347 | 869,652 | |||
Operating expenses: | |||||||
Selling and marketing expenses | (1,258,413) | [1] | (2,614,760) | (1,452,983) | |||
General and administrative expenses | (79,985) | [1] | (112,902) | (48,016) | |||
Research and development expenses | (326,127) | [1] | (414,090) | (209,755) | |||
Total operating expenses | (1,664,525) | [1] | (3,141,752) | (1,710,754) | |||
Operating loss | (713,507) | [1] | (2,084,405) | (841,102) | |||
Other income/(expenses): | (69,282) | [1] | (48,246) | 13,023 | |||
Loss from discontinued operations | (782,789) | [1] | (2,132,651) | (828,079) | |||
Income tax | (5,857) | [1] | (6,031) | (6,375) | |||
Loss from discontinued operations, net of tax | (788,646) | [1] | (2,138,682) | (834,454) | |||
Gains on disposal, net of tax | [1] | 8,751,165 | |||||
Net (loss)/income from discontinued operations | 7,962,519 | [1] | (2,138,682) | (834,454) | |||
Net cash (used in)/provided by discontinued operating activities | 305,487 | [1] | (1,243,966) | (2,975,214) | |||
Net cash provided by/ (used in) discontinued investing activities | ¥ (832,252) | [1] | ¥ 1,430,181 | ¥ 3,101,239 | |||
[1] | Included financial results of discontinued operations from January 1, 2019 to September 6, 2019. |
Concentrations and Risks (Detai
Concentrations and Risks (Details) | 12 Months Ended | ||
Dec. 31, 2019itemcustomer | Dec. 31, 2018itemcustomer | Dec. 31, 2017itemcustomer | |
Service providers | Server and bandwidth service provider | |||
Concentrations and Risks | |||
Total number of telecommunications service providers | 79 | 49 | 23 |
Number of service providers provided by 10% or more of the Group's server and bandwidth service expenditure | 2 | 3 | 3 |
Concentration risk (as a percent) | 56.30% | 57.80% | 67.80% |
Service providers | Server and bandwidth 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) | 24.70% | 22.20% | |
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) | 36.80% | 39.60% | 53.90% |
Top online games | 5 | 5 | 5 |
Total net game revenues | Mobile games | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 71.40% | 71.00% | 70.80% |
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, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Prepayments and Other Current Assets | |||
Guarantee payment made to Blizzard - royalty fees | ¥ 356,033,000 | ¥ 97,642,000 | |
Prepayment for royalties, revenue sharing cost | 2,627,048,000 | 2,000,327,000 | |
Interest and other operating income receivable | 524,069,000 | 511,364,000 | |
Prepayments of content and marketing cost and other operational expenses | 569,122,000 | 664,523,000 | |
Prepayment for sales tax and deductible value added tax | 483,547,000 | 312,852,000 | |
Bridge loans in connection with ongoing investments | 21,259,000 | 19,540,000 | |
Deposits | 11,882,000 | 107,254,000 | |
Employee advances | 79,823,000 | 44,337,000 | |
Advance to suppliers | 26,664,000 | 76,009,000 | |
Others | 117,975,000 | 91,357,000 | |
Prepayments and other current assets | 4,817,422,000 | $ 691,979 | 3,925,205,000 |
Staff housing loans outstanding repayable within 12 months | 43,000,000 | 43,100,000 | |
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, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Short-term Investments | |||
Investment income related to short-term investments | ¥ 657,600 | ¥ 463,500 | ¥ 389,500 |
Short-term investments | |||
Short-term Investments | |||
Cost | 15,116,330 | 11,528,300 | |
Unrealized Gains/(Losses) | 196,265 | 146,475 | |
Estimated Fair Value | ¥ 15,312,595 | ¥ 11,674,775 | |
Short-term investments | Equal to or more than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 2.00% | 1.90% | |
Short-term investments | Less than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 4.25% | 5.50% |
Property, Equipment and Softw_3
Property, Equipment and Software (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019USD ($) | |
Summary of property, equipment and software | ||||
Gross book value | ¥ 8,127,685 | ¥ 7,300,879 | ||
Less: accumulated depreciation | (3,505,973) | (2,628,800) | ||
Net book value | 4,621,712 | 4,672,079 | $ 663,867 | |
Depreciation expense | 1,119,100 | 939,800 | ¥ 516,200 | |
Building and decoration | ||||
Summary of property, equipment and software | ||||
Gross book value | 2,987,003 | 1,408,343 | ||
Leasehold improvements | ||||
Summary of property, equipment and software | ||||
Gross book value | 153,145 | 164,745 | ||
Furniture, fixtures, office and other equipment | ||||
Summary of property, equipment and software | ||||
Gross book value | 198,909 | 135,611 | ||
Vehicles | ||||
Summary of property, equipment and software | ||||
Gross book value | 74,487 | 76,192 | ||
Servers and computers | ||||
Summary of property, equipment and software | ||||
Gross book value | 4,066,925 | 3,852,805 | ||
Software | ||||
Summary of property, equipment and software | ||||
Gross book value | 181,223 | 96,092 | ||
Construction in progress | ||||
Summary of property, equipment and software | ||||
Gross book value | ¥ 465,993 | ¥ 1,567,091 |
Land Use Rights (Details)
Land Use Rights (Details) - Land use rights - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Land Use Rights | |||
Cost | ¥ 3,846,660 | ¥ 3,338,843 | |
Incentive payment from local government | (15,000) | (15,000) | |
Accumulated amortization | (124,481) | (52,331) | |
Land use right, net | 3,707,179 | 3,271,512 | |
Total amortization expense | ¥ 72,200 | ¥ 31,300 | ¥ 9,200 |
Leases (Details)
Leases (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||||
Dec. 31, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019USD ($) | Jan. 01, 2019CNY (¥) | ||
Leases | ||||||
Operating lease right-of-use assets, net | ¥ 463,688 | $ 66,605 | ||||
Options to terminate the leases (true or false) | true | |||||
Operating lease cost | [1] | ¥ 360,383 | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | 284,969 | |||||
Right-of-use assets obtained in exchange for operating lease obligations: | 179,350 | |||||
Short-term lease cost | ¥ 65,600 | |||||
Weighted average remaining lease term (in years) | 1 year 11 months 5 days | 1 year 11 months 5 days | ||||
Discount rate for operating leases | 4.35% | 4.35% | ||||
Rental expenses | ¥ 280,700 | ¥ 172,100 | ||||
Equal to or more than | ||||||
Leases | ||||||
Remaining lease terms (in months or years) | 4 months | |||||
Less than | ||||||
Leases | ||||||
Remaining lease terms (in months or years) | 49 years | |||||
Land use rights | ||||||
Leases | ||||||
Amortization expenses of land use rights | ¥ 72,200 | ¥ 31,300 | ¥ 9,200 | |||
ASU No. 2016-02 | Adjustment | ||||||
Leases | ||||||
Operating lease right-of-use assets, net | ¥ 577,000 | |||||
ASU No. 2016-02 | Adjustment | Land use rights | ||||||
Leases | ||||||
Operating lease right-of-use assets, net | ¥ 3,707,200 | ¥ 3,271,500 | ||||
[1] | Included short-term lease cost of RMB65.6 million and amortization expenses of land use rights of RMB72.2 million for the year ended December 31, 2019. |
Leases (Details 2)
Leases (Details 2) ¥ in Thousands | Dec. 31, 2019CNY (¥) |
Leases | |
2020 | ¥ 195,945 |
2021 | 175,286 |
2022 | 97,639 |
2023 | 20,338 |
2024 | 9,960 |
Thereafter | 2,970 |
Total operating lease payments | 502,138 |
Less: imputed interest | (30,735) |
Total | ¥ 471,403 |
Leases (Details 3)
Leases (Details 3) ¥ in Thousands | Dec. 31, 2018CNY (¥) |
Leases | |
2019 | ¥ 230,042 |
2020 | 172,290 |
2021 | 146,999 |
2022 | 47,625 |
Thereafter | 7,844 |
Total operating lease payments | ¥ 604,800 |
Long-term Investments (Details)
Long-term Investments (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Long-term Investments | |||
Investments in equity method investees | ¥ 1,137,774 | ¥ 736,551 | |
Equity investments with readily determinable fair values | 3,551,545 | 612,465 | |
Equity investments without readily determinable fair values | 4,604,549 | 3,896,092 | |
Total | ¥ 9,293,868 | $ 1,334,980 | ¥ 5,245,108 |
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, 2019CNY (¥)LimitedPartnership | Dec. 31, 2019USD ($)LimitedPartnership | Dec. 31, 2018CNY (¥)LimitedPartnership | Dec. 31, 2017CNY (¥) | |
Investments in equity method investees | ||||||
Equity share of earnings (losses) | ¥ 4,322,000 | $ 621 | ¥ (98,301,000) | ¥ (12,232,000) | ||
Consideration in cash | 450,695,000 | $ 64,738 | 272,451,000 | 235,769,000 | ||
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 | 3,551,545,000 | 612,465,000 | ||||
Fair value (loss)/gain of equity investments with readily determinable fair values | 763,200,000 | (215,800,000) | ||||
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 | 0 | ||||
Investment income, net | ||||||
Investments in equity method investees | ||||||
Equity share of earnings (losses) | 4,300,000 | (98,300,000) | (12,200,000) | |||
Equity investments without readily determinable fair value ("Equity investments" prior to adoption of ASU 2016-01) | ||||||
Gain related to the disposal of the Group's investments in equity securities without readily determinable fair value | 86,100,000 | 0 | 9,600,000 | |||
Yixin | ||||||
Investments in equity method investees | ||||||
Percentage of equity interest acquired | 35.00% | 27.00% | ||||
Consideration in cash | ¥ 127,500,000 | ¥ 200,000,000 | ||||
Limited partnership invested to operate on-line game business | ||||||
Investments in equity method investees | ||||||
Consideration in cash | ¥ 326,900,000 | |||||
Aggregated cash consideration | ¥ 295,100,000 | |||||
Number of limited partnerships invested | LimitedPartnership | 2 | 2 | 2 | |||
Alibaba | ||||||
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 | ¥ 2,650,400,000 | |||||
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 | 578,900,000 | |||||
Cash dividends received | 12,700,000 | ¥ 12,700,000 | 20,900,000 | |||
Transsion | ||||||
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 | 322,300,000 | |||||
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 | ¥ 168,400,000 | ¥ 133,600,000 | ¥ 58,500,000 |
Other Long-term Assets (Details
Other Long-term Assets (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | |
Copyrights, licenses and domain names | ¥ 3,639,211 | ¥ 2,461,377 | |
Long-term receivable | 1,599,524 | ||
Staff housing loans | 71,997 | 98,244 | |
Non-current deposits | 140,869 | 105,984 | |
Others | 215,009 | 264,464 | |
Total | ¥ 5,666,610 | $ 813,958 | ¥ 2,930,069 |
Alibaba | |||
Expected period of long-term receivables (in years) | 2 years |
Other Long-term Assets (Detai_2
Other Long-term Assets (Details 2) - CNY (¥) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Housing loans made to employees | ||
Term of staff housing loan | 5 years | |
Staff housing loans outstanding repayable within 12 months | ¥ 43 | ¥ 43.1 |
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) | 4.75% | 4.75% |
Taxation (Details)
Taxation (Details) ¥ / shares in Units, $ in Millions | 12 Months Ended | |||||
Dec. 31, 2019CNY (¥)¥ / shares | Dec. 31, 2019HKD ($) | Dec. 31, 2018CNY (¥)¥ / shares | Dec. 31, 2018HKD ($) | Dec. 31, 2017CNY (¥)¥ / shares | Dec. 31, 2016 | |
Income taxes | ||||||
Income tax rate (as a percent) | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | |
Combined effects of EIT exemptions and tax rate reductions | ||||||
Aggregate amount of EIT exemptions and tax rate reductions | ¥ 1,665,199,000 | ¥ 1,621,063,000 | ¥ 1,464,587,000 | |||
Earnings per share effect, basic (in CNY per share) | ¥ / shares | ¥ 0.52 | ¥ 0.50 | ¥ 0.45 | |||
Earnings per share effect, diluted (in CNY per share) | ¥ / shares | ¥ 0.51 | ¥ 0.50 | ¥ 0.44 | |||
Cayman Islands | ||||||
Income taxes | ||||||
Withholding tax amount | ¥ 0 | |||||
BVI | ||||||
Income taxes | ||||||
Withholding tax amount | ¥ 0 | |||||
Hong Kong | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 16.50% | 16.50% | ||||
Taxable income | $ | $ 2 | $ 2 | ||||
Hong Kong | Taxable income below threshold amount | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 8.25% | 8.25% | 8.25% | 8.25% | ||
Hong Kong | Taxable income over threshold amount | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 16.50% | 16.50% | 16.50% | 16.50% | ||
PRC | ||||||
Income taxes | ||||||
Income tax rate (as a percent) | 25.00% | 25.00% | ||||
PRC | Boguan, NetEase Hangzhou and certain other PRC subsidiaries | HNTEs | ||||||
Income taxes | ||||||
Preferential tax rate | 15.00% | 15.00% | 15.00% | 15.00% | 15.00% | |
PRC | Boguan, NetEase Hangzhou and certain other PRC subsidiaries | Key Software Enterprise | ||||||
Income taxes | ||||||
Preferential tax rate | 10.00% | 10.00% | 10.00% | 10.00% |
Taxation (Details 2)
Taxation (Details 2) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Component of income tax expenses | ||||
Current tax expense | ¥ 2,764,097 | ¥ 2,531,271 | ¥ 2,594,295 | |
Deferred tax (benefit)/expense | 150,629 | (70,621) | (438,307) | |
Income tax expenses | ¥ 2,914,726 | $ 418,674 | ¥ 2,460,650 | ¥ 2,155,988 |
Taxation (Details 3)
Taxation (Details 3) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
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% |
Permanent differences (as a percent) | (2.80%) | (0.10%) | (0.60%) |
Effect due to different tax rates applicable to overseas entities | (0.90%) | 2.80% | (0.70%) |
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (as a percent) | (13.60%) | (19.40%) | (15.40%) |
Change in valuation allowance (as a percent) | 4.90% | 7.80% | 2.20% |
Effect of withholding income tax (as a percent) | 5.20% | 6.10% | 5.10% |
Effective income tax rate (as a percent) | 17.80% | 22.20% | 15.60% |
Taxation (Details 4)
Taxation (Details 4) ¥ in Thousands | Dec. 31, 2019CNY (¥) |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | ¥ 8,301,899 |
2020 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 3,123 |
2021 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 181,883 |
2022 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 903,855 |
2023 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 3,618,659 |
After 2024 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | ¥ 3,594,379 |
Taxation (Details 5)
Taxation (Details 5) | 4 Months Ended | 6 Months Ended | 9 Months Ended | 11 Months Ended | 12 Months Ended |
Apr. 30, 2018 | Dec. 31, 2019 | Dec. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2019 | |
Sales tax | |||||
Value added tax rate, services provided (as a percent) | 6.00% | ||||
Value added tax rate, sales of general goods (as a percent) | 17.00% | 13.00% | 16.00% | ||
Cultural development fee rate on advertising services revenue (as a percent) | 3.00% | ||||
Percentage of reduction in cultural development fee rate (as a percent) | 50.00% |
Taxation (Details 6)
Taxation (Details 6) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||||
Dec. 31, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Deferred tax assets: | |||||||
Deferred revenue, primarily for advanced payments from online games customers | ¥ 484,637 | ¥ 507,982 | |||||
Accruals | 478,484 | 589,322 | |||||
Depreciation of fixed assets | 4,827 | 5,103 | |||||
Amortization of Intangible assets | 9,360 | 16,059 | |||||
Net operating tax loss carry forward | 2,075,475 | 1,215,444 | |||||
Deferred tax assets , gross | 3,052,783 | 2,333,910 | |||||
Less: valuation allowance | ¥ (2,148,879) | ¥ (472,389) | ¥ (472,389) | (2,148,879) | (1,269,615) | ¥ (472,389) | |
Total | 903,904 | 1,064,295 | |||||
Deferred tax liabilities: | |||||||
Withholding income tax | 382,030 | 391,862 | |||||
Others | 736 | ||||||
Total | 382,030 | $ 54,875 | 392,598 | ||||
Movement of the aggregate valuation allowances for deferred tax assets | |||||||
Balance at the beginning of the period | 1,269,615 | 472,389 | 241,394 | ||||
Provision/(Write-off) for the year | 879,264 | 797,226 | 230,995 | ||||
Balance at the end of the period | ¥ 2,148,879 | ¥ 1,269,615 | ¥ 472,389 | ||||
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 | 846,600 | 121,600 | 679,400 | ¥ 707,100 | |||
Unrecognized deferred tax liabilities related to undistributed earnings of the Group's PRC subsidiaries | ¥ 993,300 | $ 142,700 | ¥ 1,057,700 |
Taxes Payable (Details)
Taxes Payable (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Taxes Payable | |||
Sales Tax payable | ¥ 541,175 | ¥ 256,350 | |
Withholding individual income taxes for employees | 190,340 | 183,681 | |
Enterprise income taxes | 2,377,655 | 1,775,908 | |
Others | 47,343 | 44,707 | |
Total taxes payable | ¥ 3,156,513 | $ 453,405 | ¥ 2,260,646 |
Short-term Loans (Details)
Short-term Loans (Details) ¥ in Millions, $ in Millions | Aug. 09, 2018USD ($)item | Dec. 31, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Dec. 31, 2019USD ($) |
Short-term Loan | ||||
Short-term loan, fixed interest rate (as a percent) | 4.57% | 0.68% | 4.57% | |
Weighted average interest rate for the outstanding short-term loans (as a percent) | 2.38% | 3.14% | 2.38% | |
Deposits to secure short-term loan | ¥ 1,595 | ¥ 2,695 | $ 229.1 | |
Credit facilities not utilized | 1,015.7 | |||
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 | 200 | |||
Syndicated facility agreement | LIBOR | ||||
Short-term Loan | ||||
Basis points | 0.95% | |||
Guarantee agreements | ||||
Short-term Loan | ||||
Aggregate amount of facilities agreement | 1,062 | |||
Unutilized amount of credit facilities taken by its subsidiaries | $ 240 | |||
Equal to or more than | ||||
Short-term Loan | ||||
Short-term loan, maturity term | 7 days | 7 days | ||
Less than | ||||
Short-term Loan | ||||
Short-term loan, maturity term | 1 year | 1 year |
Accrued Liabilities and Other_3
Accrued Liabilities and Other Payables (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) |
Accrued Liabilities and Other Payables | |||
Customer deposits on NetEase Pay accounts | ¥ 1,539,417 | ¥ 1,369,672 | |
Marketing expenses and promotion materials | 1,672,096 | 1,723,766 | |
Accrued fixed assets related payables | 304,379 | 354,388 | |
Server and bandwidth service fees and technical charges | 231,868 | 257,066 | |
Accrued revenue sharing | 578,940 | 373,559 | |
Content cost | 403,402 | 299,837 | |
Professional fees | 88,041 | 243,106 | |
Accrued freight and warehousing charge | 47,524 | 109,716 | |
Other staff related cost | 69,849 | 80,013 | |
Others | 357,258 | 194,067 | |
Total accrued liabilities and other payables | ¥ 5,292,774 | $ 760,259 | ¥ 5,005,190 |
Deferred Revenue (Details)
Deferred Revenue (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Deferred Revenue | ||
Amount of revenues recognized included in the deferred revenue | ¥ 7,319.4 | ¥ 5,737.3 |
Transaction price allocated to unsatisfied performance obligations | ¥ 8,602.2 | |
Explanation of expected timing of satisfaction remaining performance obligation | The Group 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 | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||
Oct. 31, 2019 | Apr. 30, 2018USD ($)item | Mar. 31, 2018CNY (¥) | Mar. 31, 2017CNY (¥)shareholder | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2018USD ($) | Dec. 31, 2017CNY (¥) | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Total cash consideration from issuance of noncontrolling interests | ¥ 1,698,810,000 | $ 244,019 | ¥ 15,510,000 | ¥ 311,500,000 | |||||
Cash consideration for repurchase of redeemable noncontrolling interests | 780,000,000 | ||||||||
Cash consideration for repurchase of noncontrolling interests | ¥ 195,000,000 | ||||||||
Hangzhou Cloud Music | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Cash consideration for repurchase of redeemable noncontrolling interests | ¥ 780,000,000 | ||||||||
Cash consideration for repurchase of noncontrolling interests | 195,000,000 | ||||||||
Gains or losses from repurchase of noncontrolling interest | 0 | ||||||||
Excess of consideration transferred over carrying amount of noncontrolling interests surrendered recorded as a reduction to retained earnings | 63,900,000 | ||||||||
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders | ¥ 159,400,000 | ||||||||
NetEase Cloud Music | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Ownership percentage, owned by noncontrolling owners | 12.59% | 37.40% | 37.40% | ||||||
Hangzhou Cloud Music | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Total cash consideration from issuance of redeemable noncontrolling interest | ¥ 600,000,000 | ||||||||
Number of investors | shareholder | 1 | ||||||||
Total cash consideration from issuance of noncontrolling interests | ¥ 150,000,000 | ||||||||
Cloud Village Inc | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 711,600 | $ 716,300 | |||||||
Youdao | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 70,000 | ||||||||
Number of investors | item | 2 | ||||||||
Youdao | Class A ordinary shares | |||||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||||
Stock re-designation/conversion ratio, into Class A ordinary shares | 1 |
Capital Structure (Details)
Capital Structure (Details) | 12 Months Ended |
Dec. 31, 2019Vote | |
Capital Structure | |
Voting rights per share | 1 |
Employee Benefits (Details)
Employee Benefits (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Employee Benefits | |||
Contributions to medical and pension schemes | ¥ 903.4 | ¥ 788.7 | ¥ 594.5 |
Other employee benefits | 631.8 | 548.6 | 389.1 |
Total group's employee welfare benefits expense | ¥ 1,535.2 | ¥ 1,337.3 | ¥ 983.6 |
Share-based Compensation (Detai
Share-based Compensation (Details) - shares | Nov. 17, 2009 | Oct. 31, 2019 | Nov. 30, 2009 |
2009 Plan | |||
Share based Compensation | |||
Number of ordinary shares reserved for issuance under the plan | 323,694,050 | ||
Term of plan | 10 years | ||
2019 Plan | |||
Share based Compensation | |||
Number of ordinary shares reserved for issuance under the plan | 322,458,300 | ||
Term of plan | 10 years |
Share-based Compensation (Det_2
Share-based Compensation (Details 2) - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Share-based compensation cost | |||
Number of preceding years considered for estimating forfeiture | 5 years | ||
Share-based Compensation Expense | ¥ 2,404,089 | ¥ 2,471,731 | ¥ 1,984,851 |
Cost of revenues | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 758,810 | 757,341 | 818,101 |
Selling and marketing expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 84,920 | 102,638 | 90,271 |
General and administrative expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | 797,120 | 787,200 | 576,629 |
Research and development expenses | |||
Share-based compensation cost | |||
Share-based Compensation Expense | ¥ 763,239 | ¥ 824,552 | ¥ 499,850 |
Share-based Compensation (Det_3
Share-based Compensation (Details 3) - 2009 Plan and 2019 Plan $ / shares in Units, shares in Thousands, ¥ in Millions, $ in Millions | 12 Months Ended | |||
Dec. 31, 2019CNY (¥)$ / sharesshares | Dec. 31, 2018$ / sharesshares | Dec. 31, 2017$ / sharesshares | Dec. 31, 2019USD ($) | |
Share based Compensation | ||||
Total unrecognized compensation cost related to unvested awards | ¥ 2,291.8 | $ 329.2 | ||
Weighted average remaining vesting period over which unrecognized compensation cost is recognized | 2 years 2 months 19 days | |||
Restricted share units | ||||
Number of RSUs | ||||
Outstanding at the beginning of the period (in shares) | shares | 2,425 | 1,672 | 1,663 | |
Granted (in shares) | shares | 1,763 | 2,073 | 1,260 | |
Vested (in shares) | shares | (1,182) | (1,228) | (1,192) | |
Forfeited (in shares) | shares | (191) | (92) | (59) | |
Outstanding at end of the period (in shares) | shares | 2,815 | 2,425 | 1,672 | |
Weighted average grant date fair value | ||||
Outstanding at the beginning of the period (in dollars per share) | $ / shares | ¥ 260.12 | $ 238.18 | $ 131.08 | |
Granted during the year (in dollars per share) | $ / shares | 231.51 | 271.21 | 295.95 | |
Vested during the year (in dollars per share) | $ / shares | 256.12 | 250.53 | 152.96 | |
Forfeited during the year (in dollars per share) | $ / shares | 244.09 | 238.34 | 177.14 | |
Outstanding at the end of the period (in dollars per share) | $ / shares | ¥ 244.99 | $ 260.12 | $ 238.18 |
Share-based Compensation (Det_4
Share-based Compensation (Details 4) - Restricted share units $ / shares in Units, $ in Millions | Dec. 31, 2019USD ($)$ / sharesshares |
2009 Plan and 2019 Plan | |
Share based Compensation | |
Aggregate intrinsic value of RSUs outstanding | $ | $ 863.1 |
Company's closing stock price per ADS used to calculate intrinsic value | $ / shares | $ 306.64 |
2019 Plan | |
Share based Compensation | |
Number of shares available for future grant | shares | 322,055,900 |
Share-based Compensation (Det_5
Share-based Compensation (Details 5) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2019CNY (¥)installment | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Share based Compensation | |||
Compensation expenses | ¥ | ¥ 2,404,089 | ¥ 2,471,731 | ¥ 1,984,851 |
Unrecognized share based compensation expenses relating to share options | ¥ | 307,400 | ||
Stock Options | |||
Share based Compensation | |||
Compensation expenses | ¥ | ¥ 56,200 | ¥ 32,000 | ¥ 91,500 |
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 | 10 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, 2019CNY (¥)¥ / sharesshares | Dec. 31, 2019USD ($)$ / sharesshares | Dec. 31, 2018CNY (¥)¥ / sharesshares | Dec. 31, 2017CNY (¥)¥ / sharesshares | |
Numerator (RMB in thousands): | ||||
Net income from continuing operations attributable to NetEase, Inc's shareholders | ¥ 13,274,997 | $ 1,906,833 | ¥ 8,291,089 | ¥ 11,542,393 |
Net (loss)/income from discontinued operations attributable to NetEase, Inc's shareholders | 7,962,519 | 1,143,744 | (2,138,682) | (834,454) |
Net income attributable to NetEase, Inc.'s shareholders | ¥ 21,237,516 | $ 3,050,577 | ¥ 6,152,407 | ¥ 10,707,939 |
Denominator (No. of shares in thousands): | ||||
Weighted average number of ordinary shares outstanding, basic (in shares) | 3,220,473 | 3,220,473 | 3,235,324 | 3,290,312 |
Dilutive effect of employee stock options and restricted share units | 29,499 | 29,499 | 19,365 | 25,166 |
Weighted average number of ordinary shares outstanding, diluted | 3,249,972 | 3,249,972 | 3,254,689 | 3,315,478 |
Net income per share from continuing operations attributable to NetEase, Inc's shareholders, basic | (per share) | ¥ 4.12 | $ 0.59 | ¥ 2.56 | ¥ 3.51 |
Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, basic | (per share) | 2.47 | 0.36 | (0.66) | (0.26) |
Net income/(loss) per share, basic (in CNY and dollars per share) | (per share) | 6.59 | 0.95 | 1.90 | 3.25 |
Net income per share from continuing operations attributable to NetEase, Inc's shareholders, diluted | (per share) | 4.08 | 0.59 | 2.55 | 3.48 |
Net (loss)/income per share from discontinued operations attributable to NetEase, Inc's shareholders, diluted | (per share) | 2.45 | 0.35 | (0.66) | (0.25) |
Net income/(loss) per share, diluted (in CNY and dollars per share) | (per share) | ¥ 6.53 | $ 0.94 | ¥ 1.89 | ¥ 3.23 |
Anti-dilutive ordinary shares and restricted share units excluded from the calculation of diluted net income per share | 11,400 | 11,400 | 19,600 | 3,800 |
Commitments and Contingencies_2
Commitments and Contingencies (Details) ¥ in Thousands | 1 Months Ended | |
Apr. 30, 2018item | Dec. 31, 2019CNY (¥) | |
Litigation | ||
Number of mobile games involved in the lawsuit | item | 2 | |
Total | ||
Commitments | ||
2020 | ¥ 2,871,552 | |
2021 | 3,141,889 | |
2022 | 2,161,515 | |
2023 | 1,615,984 | |
Beyond 2023 | 903,007 | |
Total | 10,693,947 | |
Server and Bandwidth Service Fee Commitments | ||
Commitments | ||
2020 | 210,343 | |
2021 | 368,206 | |
2022 | 218,863 | |
2023 | 77,616 | |
Beyond 2023 | 52,848 | |
Total | 927,876 | |
Capital Commitments | ||
Commitments | ||
2020 | 467,344 | |
2021 | 578,011 | |
2022 | 217,001 | |
2023 | 209,284 | |
Beyond 2023 | 1,000 | |
Total | 1,472,640 | |
Royalties and Expenditure for Licensed Content Commitments | ||
Commitments | ||
2020 | 2,057,962 | |
2021 | 2,166,368 | |
2022 | 1,707,765 | |
2023 | 1,311,465 | |
Beyond 2023 | 849,159 | |
Total | 8,092,719 | |
Office Machines and Other Commitments | ||
Commitments | ||
2020 | 135,903 | |
2021 | 29,304 | |
2022 | 17,886 | |
2023 | 17,619 | |
Total | ¥ 200,712 |
Dividends (Details)
Dividends (Details) $ / shares in Units, $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||||
May 31, 2014 | Sep. 30, 2019$ / shares | Jun. 30, 2019 | Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Dividends | |||||||
Quarterly cash dividend distribution percentage | 25.00% | ||||||
Dividend payable | ¥ 0 | ¥ 0 | |||||
Cash dividend declared | 8,840,634,000 | 1,440,194,000 | ¥ 3,257,607,000 | ||||
Less than | |||||||
Dividends | |||||||
Quarterly cash dividend distribution percentage | 30.00% | ||||||
Equal to or more than | |||||||
Dividends | |||||||
Quarterly cash dividend distribution percentage | 20.00% | ||||||
With respect to fiscal year 2018 | |||||||
Dividends | |||||||
Cash dividend declared | ¥ 1,538,300,000 | ||||||
With respect to fiscal year 2019 | |||||||
Dividends | |||||||
Cash dividend declared | ¥ 9,353,600,000 | $ 1,343.6 | |||||
American Depositary Shares | |||||||
Dividends | |||||||
Additional special dividend approved (in dollars per share) | $ / shares | $ 3.45 |
Share Repurchase Programs (Deta
Share Repurchase Programs (Details) ¥ in Thousands, $ in Millions | 1 Months Ended | 12 Months Ended | ||||||
Feb. 29, 2020USD ($) | Nov. 30, 2019USD ($)shares | Nov. 30, 2018USD ($)shares | Nov. 30, 2017USD ($) | Dec. 31, 2019CNY (¥)shares | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | Jun. 11, 2018USD ($) | |
Share repurchases | ||||||||
Value of shares repurchased | ¥ | ¥ 1,467 | ¥ 7,592,598 | ¥ 2,061,591 | |||||
ADS shares | 2017 share repurchase program | ||||||||
Share repurchases | ||||||||
Authorized amount | $ 1,000 | $ 2,000 | ||||||
Share repurchase program period, maximum | 12 months | |||||||
Additional authorized amount | $ 1,000 | |||||||
Shares repurchased (in shares) | shares | 4,600,000 | |||||||
Value of shares repurchased | $ 1,178.5 | |||||||
ADS shares | 2018 share repurchase program | ||||||||
Share repurchases | ||||||||
Authorized amount | $ 1,000 | |||||||
Share repurchase program period, maximum | 12 months | |||||||
Shares repurchased (in shares) | shares | 1,015 | |||||||
Value of shares repurchased | $ 0.2 | |||||||
ADS shares | 2019 share repurchase program | Youdao | ||||||||
Share repurchases | ||||||||
Authorized amount | $ 20 | |||||||
Share repurchase program period, maximum | 12 months | |||||||
Shares repurchased (in shares) | shares | 50,000 | |||||||
ADS shares | 2020 share repurchase program | Subsequent event | ||||||||
Share repurchases | ||||||||
Authorized amount | $ 1,000 | |||||||
Share repurchase program period, maximum | 12 months | |||||||
Ordinary shares | 2017 share repurchase program | ||||||||
Share repurchases | ||||||||
Shares repurchased (in shares) | shares | 114,900,000 | |||||||
Ordinary shares | 2018 share repurchase program | ||||||||
Share repurchases | ||||||||
Shares repurchased (in shares) | shares | 25,375 |
Segment Information (Details)
Segment Information (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2019CNY (¥) | Dec. 31, 2019USD ($) | Dec. 31, 2018CNY (¥) | Dec. 31, 2017CNY (¥) | |
Net revenues: | ||||
Total net revenues | ¥ 59,241,145 | $ 8,509,458 | ¥ 51,178,575 | ¥ 44,437,355 |
Cost of revenues: | ||||
Total cost of revenues | (27,685,845) | (3,976,823) | (23,832,426) | (19,394,314) |
Gross profit: | ||||
Gross profit | 31,555,300 | 4,532,635 | 27,346,149 | 25,043,041 |
Depreciation and amortization expenses | ||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 481,107 | 441,466 | 258,852 | |
Online games services | ||||
Net revenues: | ||||
Total net revenues | 46,422,640 | 40,190,057 | 36,281,642 | |
Youdao learning services and products | ||||
Net revenues: | ||||
Total net revenues | 851,870 | 428,716 | 149,915 | |
Advertising services | ||||
Net revenues: | ||||
Total net revenues | 2,581,623 | 2,769,337 | 2,449,558 | |
Others | ||||
Net revenues: | ||||
Total net revenues | 9,385,012 | 7,790,465 | 5,556,240 | |
Online game | ||||
Net revenues: | ||||
Total net revenues | 46,422,640 | 6,668,195 | 40,190,057 | 36,281,642 |
Cost of revenues: | ||||
Total cost of revenues | (16,974,234) | (14,617,656) | (13,473,339) | |
Gross profit: | ||||
Gross profit | 29,448,406 | 25,572,401 | 22,808,303 | |
Depreciation and amortization expenses | ||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 256,181 | 235,896 | 157,695 | |
Youdao | ||||
Net revenues: | ||||
Total net revenues | 1,304,883 | 187,435 | 731,598 | 455,746 |
Cost of revenues: | ||||
Total cost of revenues | (934,261) | (515,133) | (293,807) | |
Gross profit: | ||||
Gross profit | 370,622 | 216,465 | 161,939 | |
Depreciation and amortization expenses | ||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | 6,076 | 3,863 | 2,160 | |
Innovative businesses and others | ||||
Net revenues: | ||||
Total net revenues | 11,513,622 | $ 1,653,828 | 10,256,920 | 7,699,967 |
Cost of revenues: | ||||
Total cost of revenues | (9,777,350) | (8,699,637) | (5,627,168) | |
Gross profit: | ||||
Gross profit | 1,736,272 | 1,557,283 | 2,072,799 | |
Depreciation and amortization expenses | ||||
Total depreciation and amortization expenses of property and equipment and land use rights by segment | ¥ 218,850 | ¥ 201,707 | ¥ 98,997 |
Financial Instruments (Details)
Financial Instruments (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2019CNY (¥) | Dec. 31, 2018CNY (¥) | Dec. 31, 2019USD ($) | |
Fair Value Measurements | |||
Time deposits-short term | ¥ 53,487,075 | ¥ 32,900,287 | $ 7,682,937 |
Time deposits-long term | 2,360,000 | 100,000 | 338,993 |
Equity investments with readily determinable fair values | 3,551,545 | 612,465 | |
Short-term investments | 15,312,595 | 11,674,775 | $ 2,199,517 |
Total | 74,711,215 | 45,287,527 | |
Quoted Prices in Active Market for Identical Assets (Level 1) | |||
Fair Value Measurements | |||
Time deposits-short term | 53,487,075 | 32,900,287 | |
Time deposits-long term | 2,360,000 | 100,000 | |
Equity investments with readily determinable fair values | 3,551,545 | 612,465 | |
Total | 59,398,620 | 33,612,752 | |
Significant Other Observable Inputs (Level 2) | |||
Fair Value Measurements | |||
Short-term investments | 15,312,595 | 11,674,775 | |
Total | 15,312,595 | 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 | ¥ 168,400 | ¥ 133,600 |
Restricted Net Assets (Details)
Restricted Net Assets (Details) ¥ in Billions | 12 Months Ended |
Dec. 31, 2019CNY (¥) | |
Restricted Net Assets | |
Restricted net assets | ¥ 14.1 |
Restricted net assets as a percentage of total consolidated net assets | 23.00% |
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% |