Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2022 shares | |
Document and Entity Information | |
Document Type | 20-F |
Document Registration Statement | false |
Document Annual Report | true |
Document Period End Date | Dec. 31, 2022 |
Current Fiscal Year End Date | --12-31 |
Document Fiscal Year Focus | 2022 |
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 | 3,223,623,596 |
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 |
ICFR Auditor Attestation Flag | true |
Document Accounting Standard | U.S. GAAP |
Entity Shell Company | false |
Amendment Flag | false |
Auditor Firm ID | 1424 |
Auditor Name | PricewaterhouseCoopers Zhong Tian LLP |
Auditor Location | Beijing, the People’s Republic of China |
Entity Central Index Key | 0001110646 |
Document Fiscal Period Focus | FY |
American Depositary Shares | |
Document and Entity Information | |
Title of 12(b) Security | American Depositary Shares, each representing 5 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 |
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 |
Consolidated Balance Sheets
Consolidated Balance Sheets ¥ in Thousands, $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) |
Current assets: | |||
Cash and cash equivalents | ¥ 24,889,000 | $ 3,608,566 | ¥ 14,498,157 |
Time deposits | 84,947,679 | 12,316,256 | 70,754,846 |
Restricted cash | 2,699,055 | 391,326 | 2,876,628 |
Accounts receivable, net | 5,002,872 | 725,348 | 5,507,988 |
Inventories | 993,636 | 144,064 | 964,733 |
Prepayments and other current assets, net | 5,448,284 | 789,927 | 6,235,857 |
Short-term investments | 7,622,673 | 1,105,184 | 12,281,548 |
Assets held for sale | 497 | ||
Total current assets | 131,603,199 | 19,080,671 | 113,120,254 |
Non-current assets: | |||
Property, equipment and software, net | 6,342,330 | 919,551 | 5,433,858 |
Land use rights, net | 4,121,767 | 597,600 | 4,108,090 |
Operating lease right-of-use assets, net | 887,977 | 128,745 | 1,044,152 |
Deferred tax assets | 1,480,789 | 214,694 | 1,297,954 |
Time deposits | 2,973,840 | 431,166 | 5,823,840 |
Restricted cash | 270 | 39 | 1,330 |
Long-term investments | 18,544,358 | 2,688,679 | 18,804,902 |
Other long-term assets | 6,806,455 | 986,844 | 4,008,456 |
Assets held for sale | 1,088 | ||
Total non-current assets | 41,157,786 | 5,967,318 | 40,523,670 |
Total assets | 172,760,985 | 25,047,989 | 153,643,924 |
Current liabilities: | |||
Accounts payable | 1,507,141 | 218,515 | 985,059 |
Salary and welfare payables | 4,732,941 | 686,212 | 4,133,254 |
Taxes payable | 2,813,096 | 407,861 | 4,537,050 |
Short-term loans | 23,875,704 | 3,461,652 | 19,352,313 |
Contract liabilities | 12,518,890 | 1,815,068 | 12,132,743 |
Accrued liabilities and other payables | 11,122,022 | 1,612,542 | 9,026,508 |
Short-term operating lease liabilities | 259,053 | 37,559 | 334,399 |
Total current liabilities | 56,828,847 | 8,239,409 | 50,501,326 |
Non-current liabilities: | |||
Deferred tax liabilities | 2,126,120 | 308,258 | 1,345,874 |
Long-term operating lease liabilities | 672,640 | 97,524 | 732,127 |
Long-term loans | 3,654,964 | 529,920 | 1,275,140 |
Other long-term liabilities | 604,934 | 87,707 | 365,581 |
Total non-current liabilities | 7,058,658 | 1,023,409 | 3,718,722 |
Total liabilities | 63,887,505 | 9,262,818 | 54,220,048 |
Commitments and contingencies | |||
Redeemable noncontrolling interests | 136,440 | 19,782 | 145,238 |
Shareholders' equity: | |||
Ordinary shares, US$0.0001 par value: 1,000,300,000,000 shares authorized, 3,273,835,376 and 3,223,623,596 shares issued and outstanding as of December 31, 2021 and 2022, respectively | 2,710 | 393 | 2,794 |
Additional paid-in capital | 22,854,234 | 3,313,553 | 37,915,939 |
Treasury stock | (10,910,754) | (1,581,911) | (20,502,188) |
Statutory reserves | 1,278,666 | 185,389 | 1,245,125 |
Accumulated other comprehensive (loss)/ income | 431,786 | 62,603 | (828,065) |
Retained earnings | 91,074,675 | 13,204,587 | 77,494,475 |
NetEase, Inc.'s shareholders' equity | 104,731,317 | 15,184,614 | 95,328,080 |
Noncontrolling interests | 4,005,723 | 580,775 | 3,950,558 |
Total equity | 108,737,040 | 15,765,389 | 99,278,638 |
Total liabilities, redeemable noncontrolling interests and shareholders' equity | ¥ 172,760,985 | $ 25,047,989 | ¥ 153,643,924 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2022 | Dec. 31, 2021 |
Consolidated Balance Sheets | ||
Ordinary shares, US$0.0001 par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Ordinary shares, shares authorized | 1,000,300,000,000 | 1,000,300,000,000 |
Ordinary shares, shares issued | 3,223,623,596 | 3,273,835,376 |
Ordinary shares, shares outstanding | 3,223,623,596 | 3,273,835,376 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Income ¥ in Thousands, shares in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) ¥ / shares shares | Dec. 31, 2022 USD ($) $ / shares shares | Dec. 31, 2021 CNY (¥) ¥ / shares shares | Dec. 31, 2020 CNY (¥) ¥ / shares shares | |
Consolidated Statements of Operations and Comprehensive Income | ||||
Net revenues | ¥ 96,495,809 | $ 13,990,577 | ¥ 87,606,026 | ¥ 73,667,133 |
Cost of revenues | (43,729,683) | (6,340,208) | (40,635,225) | (34,683,731) |
Gross profit | 52,766,126 | 7,650,369 | 46,970,801 | 38,983,402 |
Operating expenses: | ||||
Selling and marketing expenses | (13,402,721) | (1,943,212) | (12,214,191) | (10,703,788) |
General and administrative expenses | (4,695,798) | (680,827) | (4,263,549) | (3,371,827) |
Research and development expenses | (15,039,014) | (2,180,452) | (14,075,991) | (10,369,382) |
Total operating expenses | (33,137,533) | (4,804,491) | (30,553,731) | (24,444,997) |
Operating profit | 19,628,593 | 2,845,878 | 16,417,070 | 14,538,405 |
Other income/(expenses): | ||||
Investment income, net | 53,976 | 7,826 | 2,947,721 | 1,610,045 |
Interest income, net | 2,149,673 | 311,673 | 1,519,714 | 1,598,618 |
Exchange (losses)/gains, net | 1,571,207 | 227,804 | (490,481) | (3,112,152) |
Other, net | 846,815 | 122,777 | 710,435 | 737,168 |
Income before tax | 24,250,264 | 3,515,958 | 21,104,459 | 15,372,084 |
Income tax | (5,031,838) | (729,548) | (4,128,269) | (3,041,849) |
Net income from continuing operations | 19,218,426 | 2,786,410 | 16,976,190 | 12,330,235 |
Net income from discontinued operations | 624,864 | 90,597 | ||
Net income | 19,843,290 | 2,877,007 | 16,976,190 | 12,330,235 |
Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests | (2,978) | (432) | (536,981) | (787,029) |
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | 497,288 | 72,100 | 417,633 | 519,548 |
Net income attributable to the Company's shareholders | 20,337,600 | 2,948,675 | 16,856,842 | 12,062,754 |
Including: | ||||
Net income from continuing operations attributable to the Company's shareholders | 19,712,736 | 2,858,078 | 16,856,842 | 12,062,754 |
Net income from discontinued operations attributable to the Company's shareholders | 624,864 | 90,597 | ||
Net income | 19,843,290 | 2,877,007 | 16,976,190 | 12,330,235 |
Other comprehensive income | ||||
Foreign currency translation adjustment | 1,441,414 | 208,985 | (183,190) | (598,108) |
Total comprehensive income | 21,284,704 | 3,085,992 | 16,793,000 | 11,732,127 |
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests | 315,725 | 45,776 | 423,215 | 538,644 |
Comprehensive income attributable to the Company's shareholders | ¥ 21,600,429 | $ 3,131,768 | ¥ 17,216,215 | ¥ 12,270,771 |
Net income per share, basic (in CNY and dollars per share) | (per share) | ¥ 6.23 | $ 0.90 | ¥ 5.07 | ¥ 3.65 |
-Continuing operations (in CNY and dollars per share) | (per share) | 6.04 | 0.87 | 5.07 | 3.65 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 0.19 | 0.03 | ||
Net income per ADS, basic (in CNY and dollars per share) | (per share) | 31.16 | 4.52 | 25.34 | 18.25 |
-Continuing operations (in CNY and dollars per share) | (per share) | 30.20 | 4.38 | 25.34 | 18.25 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 0.96 | 0.14 | ||
Net income per share, diluted (in CNY and dollars per share) | (per share) | 6.17 | 0.89 | 5.01 | 3.60 |
-Continuing operations (in CNY and dollars per share) | (per share) | 5.98 | 0.86 | 5.01 | 3.60 |
-Discontinued operations (in CNY and dollars per share) | (per share) | 0.19 | 0.03 | ||
Net income per ADS, diluted (in CNY and dollars per share) | (per share) | 30.85 | 4.47 | 25.03 | 18.01 |
-Continuing operations (in CNY and dollars per share) | (per share) | 29.90 | 4.33 | ¥ 25.03 | ¥ 18.01 |
-Discontinued operations (in CNY and dollars per share) | (per share) | ¥ 0.95 | $ 0.14 | ||
Weighted average number of ordinary shares outstanding, basic (in shares) | 3,263,455 | 3,263,455 | 3,325,864 | 3,305,448 |
Weighted average number of ADS outstanding, basic (in shares) | 652,691 | 652,691 | 665,173 | 661,090 |
Weighted average number of ordinary shares outstanding, diluted (in shares) | 3,296,014 | 3,296,014 | 3,367,478 | 3,349,759 |
Weighted average number of ADS outstanding, diluted (in shares) | 659,203 | 659,203 | 673,496 | 669,952 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity ¥ in Thousands, $ in Thousands | Ordinary shares CNY (¥) shares | Additional paid-in capital CNY (¥) | Treasury stock CNY (¥) shares | Statutory reserves CNY (¥) | Accumulated other comprehensive (loss)/income CNY (¥) | Retained earnings CNY (¥) | Noncontrolling interests CNY (¥) | CNY (¥) shares | USD ($) shares |
Balance at Dec. 31, 2019 | ¥ 2,640 | ¥ 3,913,656 | ¥ 1,215,208 | ¥ (71,445) | ¥ 56,393,640 | ¥ 1,139,156 | ¥ 62,592,855 | ||
Balance (in shares) at Dec. 31, 2019 | shares | 3,228,531,000 | ||||||||
Vesting of restricted share units | ¥ 15 | (827,722) | ¥ 827,707 | ||||||
Vesting of restricted share units (in shares) | shares | 20,578,000 | 8,582,000 | |||||||
Issuance of shares in Hong Kong, net of issuance costs | ¥ 139 | 21,883,804 | 21,883,943 | ||||||
Issuance of shares in Hong Kong, net of issuance costs (in shares) | shares | 197,202,000 | ||||||||
Share-based compensation | 2,543,435 | 71,943 | 2,615,378 | ||||||
Appropriation to statutory reserves | 13,240 | (13,240) | |||||||
Net income/(loss) attributable to the Company and noncontrolling interest shareholders | 12,849,783 | (519,548) | 12,330,235 | ||||||
Repurchase of shares | ¥ (11,273,814) | (11,273,814) | |||||||
Repurchase of shares (in shares) | shares | (105,558,000) | ||||||||
Repurchase of noncontrolling interest and redeemable noncontrolling interests | (18,852) | (204,705) | (2,496) | (226,053) | |||||
Change of capital from noncontrolling interest shareholders | 335,110 | 214,203 | 549,313 | ||||||
Dividends to shareholders | (4,280,465) | (4,280,465) | |||||||
Foreign currency translation adjustment | (579,012) | (19,096) | (598,108) | ||||||
Accretion of redeemable noncontrolling interests | (582,324) | (13,156) | (595,480) | ||||||
Balance at Dec. 31, 2020 | ¥ 2,794 | 27,829,431 | ¥ (10,446,107) | 1,228,448 | (650,457) | 64,162,689 | 871,006 | 82,997,804 | |
Balance (in shares) at Dec. 31, 2020 | shares | 3,446,311,000 | ||||||||
Balance (in shares) at Dec. 31, 2020 | shares | (96,976,000) | ||||||||
Vesting of restricted share units | (2,714,220) | ¥ 2,714,220 | |||||||
Vesting of restricted share units (in shares) | shares | 25,335,000 | ||||||||
Share-based compensation | 2,354,851 | 601,183 | 2,956,034 | ||||||
Appropriation to statutory reserves | 16,677 | (16,677) | |||||||
Net income/(loss) attributable to the Company, noncontrolling and redeemable noncontrolling interest shareholders | 17,393,823 | (389,857) | 17,003,966 | ||||||
Repurchase of shares | ¥ (12,770,301) | (12,770,301) | |||||||
Repurchase of shares (in shares) | shares | (100,835,000) | ||||||||
Repurchase of noncontrolling interest and redeemable noncontrolling interests | (53,743) | 1,514 | (52,229) | ||||||
Change of capital from noncontrolling interest shareholders | 1,694,471 | 1,142,239 | 2,836,710 | ||||||
Conversion of Cloud Music's preferred shares recognized as redeemable noncontrolling interests to ordinary shares | 8,805,149 | 2,473,352 | 11,278,501 | ||||||
Dividends to shareholders | (3,508,379) | (3,508,379) | |||||||
Dividends to noncontrolling interest shareholders | (731,250) | (731,250) | |||||||
Foreign currency translation adjustment | (177,608) | (5,582) | (183,190) | ||||||
Accretion of redeemable noncontrolling interests | (536,981) | (12,047) | (549,028) | ||||||
Balance at Dec. 31, 2021 | ¥ 2,794 | 37,915,939 | ¥ (20,502,188) | 1,245,125 | (828,065) | 77,494,475 | 3,950,558 | ¥ 99,278,638 | |
Balance (in shares) at Dec. 31, 2021 | shares | 3,446,311,000 | 3,273,835,376 | 3,273,835,376 | ||||||
Balance (in shares) at Dec. 31, 2021 | shares | (172,476,000) | ||||||||
Vesting of restricted share units | (2,569,917) | ¥ 2,569,917 | |||||||
Vesting of restricted share units (in shares) | shares | 518,000 | 22,632,000 | |||||||
Share-based compensation | 2,763,611 | 277,999 | ¥ 3,041,610 | ||||||
Appropriation to statutory reserves | 33,541 | (33,541) | |||||||
Net income/(loss) attributable to the Company, noncontrolling and redeemable noncontrolling interest shareholders | 20,340,578 | (483,268) | 19,857,310 | ||||||
Repurchase of shares | ¥ (8,006,226) | (8,006,226) | |||||||
Repurchase of shares (in shares) | shares | (73,361,000) | ||||||||
Cancellation of repurchased shares | ¥ (84) | (15,027,659) | ¥ 15,027,743 | ||||||
Cancellation of repurchased shares (in shares) | shares | (125,553,000) | 125,553,000 | |||||||
Repurchase of noncontrolling interest and redeemable noncontrolling interests | (273,319) | (35,259) | (308,578) | ||||||
Change of capital from noncontrolling interest shareholders | 45,579 | 116,374 | 161,953 | ||||||
Dividends to shareholders | (6,723,859) | (6,723,859) | |||||||
Foreign currency translation adjustment | 1,259,851 | 181,563 | 1,441,414 | ||||||
Accretion of redeemable noncontrolling interests | (2,978) | (2,244) | (5,222) | ||||||
Balance at Dec. 31, 2022 | ¥ 2,710 | ¥ 22,854,234 | ¥ (10,910,754) | ¥ 1,278,666 | ¥ 431,786 | ¥ 91,074,675 | ¥ 4,005,723 | ¥ 108,737,040 | $ 15,765,389 |
Balance (in shares) at Dec. 31, 2022 | shares | 3,321,276,000 | 3,223,623,596 | 3,223,623,596 | ||||||
Balance (in shares) at Dec. 31, 2022 | shares | (97,652,000) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Cash flows from operating activities: | ||||
Net income | ¥ 19,843,290 | $ 2,877,007 | ¥ 16,976,190 | ¥ 12,330,235 |
Net income from discontinued operations | (624,864) | (90,597) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 2,858,209 | 414,401 | 3,275,727 | 3,457,782 |
Fair value change of equity security investments | 3,104,336 | 450,086 | (471,880) | (720,565) |
Impairment losses on investments and other intangible assets | 300,249 | 43,532 | 100,424 | 58,395 |
Share-based compensation cost | 3,174,160 | 460,211 | 3,041,492 | 2,663,489 |
Allowance for expected credit losses | 61,393 | 8,901 | 265,930 | 40,600 |
Losses on disposal of property, equipment and software | 3,620 | 525 | 54,052 | 6,482 |
Unrealized exchange losses/ (gains) | (1,604,260) | (232,596) | 488,604 | 3,102,492 |
Gains on disposal of long-term investments, business and subsidiaries | (1,791,355) | (259,722) | (186,920) | (27,063) |
Deferred income taxes | 489,670 | 70,995 | 407,948 | 88,179 |
Share of results on equity method investees and revaluation results from previously held equity interest | (1,259,941) | (182,674) | (1,573,068) | (302,602) |
Fair value changes of short-term investments | (342,642) | (49,678) | (639,757) | (580,732) |
Changes in operating assets and liabilities: | ||||
Accounts receivable | 554,340 | 80,372 | (1,186,586) | (530,413) |
Inventories | (27,613) | (4,004) | (343,587) | 29,699 |
Prepayments and other assets | 731,100 | 106,000 | 640,349 | (13,554) |
Accounts payable | 447,666 | 64,905 | (155,262) | (86,352) |
Salary and welfare payables | 424,513 | 61,549 | 505,334 | 528,927 |
Taxes payable | (917,614) | (133,042) | 255,060 | 1,126,648 |
Contract liabilities | 385,396 | 55,877 | 1,351,261 | 2,342,916 |
Accrued liabilities and other payables | 1,899,580 | 275,413 | 2,121,416 | 1,373,608 |
Net cash provided by operating activities | 27,709,233 | 4,017,461 | 24,926,727 | 24,888,171 |
Cash flows from investing activities: | ||||
Purchase of property, equipment and software | (2,100,264) | (304,510) | (1,601,830) | (1,055,572) |
Proceeds from sale of property, equipment and software | 41,467 | 6,012 | 71,524 | 17,540 |
Purchase of intangible assets, content and licensed copyrights | (543,220) | (78,759) | (1,508,179) | (2,234,915) |
Net change of short-term investments with terms of three months or less | 776,357 | 112,561 | 3,694,890 | (1,655,930) |
Purchase of short-term investments with terms over three months | (5,950,000) | (862,669) | (15,285,000) | (19,905,000) |
Proceeds from maturities of short-term investments with terms over three months | 10,175,160 | 1,475,260 | 13,235,845 | 24,126,210 |
Investment in equity method investees | (705,907) | (102,347) | (1,124,429) | (345,662) |
Investment in other equity investments and acquisition of subsidiaries | (4,423,773) | (641,387) | (5,417,138) | (2,062,030) |
Proceeds from disposal of long-term investments, businesses and subsidiaries | 2,411,070 | 349,572 | 1,115,457 | 722,076 |
Placement/rollover of matured time deposits | (98,973,884) | (14,349,864) | (81,298,080) | (91,518,767) |
Proceeds from maturities of time deposits | 92,247,046 | 13,374,564 | 81,307,297 | 64,880,317 |
Change in other long-term assets | (323,779) | (46,944) | (268,651) | (160,674) |
Net cash used in investing activities | (7,369,727) | (1,068,511) | (7,078,294) | (29,192,407) |
Cash flows from financing activities: | ||||
Net changes from short-term loans with terms of three months or less | (1,274,043) | (184,719) | (442,207) | 3,723,109 |
Proceed of loans with terms over three months | 6,392,695 | 926,854 | 4,447,586 | 1,136,495 |
Payment of loans with terms over three months | (273,639) | (39,674) | (2,297,135) | (818,539) |
Dividends paid to shareholders | (6,723,667) | (974,840) | (3,508,377) | (4,280,462) |
Net amounts received from/(paid for) NetEase's issuance of shares in Hong Kong | (13,800) | 21,911,815 | ||
Repurchase of redeemable noncontrolling interests | (462,650) | |||
Net amounts received/ (paid) related to capital contribution from or repurchase of noncontrolling interests and redeemable noncontrolling interests shareholders | (30,921) | (4,483) | 2,870,147 | 194,307 |
Dividends paid to noncontrolling interest shareholders | (731,250) | |||
Cash paid for repurchase of NetEase's ADSs/purchase of subsidiaries' ADSs and shares | (8,328,124) | (1,207,464) | (12,910,533) | (11,490,988) |
Net cash provided by/(used in) financing activities | (10,237,699) | (1,484,326) | (12,585,569) | 9,913,087 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies | 110,403 | 16,007 | (55,354) | 161,894 |
Net increase in cash, cash equivalents and restricted cash | 10,212,210 | 1,480,631 | 5,207,510 | 5,770,745 |
Cash, cash equivalents and restricted cash, at the beginning of the year | 17,376,115 | 2,519,300 | 12,168,605 | 6,397,860 |
Cash, cash equivalents and restricted cash, at end of the year | 27,588,325 | 3,999,931 | 17,376,115 | 12,168,605 |
Supplemental disclosures of cash flow information: | ||||
Cash paid for income taxes, net | 5,092,391 | 738,327 | 3,547,299 | 2,046,119 |
Cash paid for interest expenses | 588,381 | 85,307 | 187,628 | 246,051 |
Supplemental schedule of non-cash investing and financing activities: | ||||
Fixed asset purchases financed by accounts payable and accrued liabilities | ¥ 689,093 | $ 99,909 | ¥ 698,192 | ¥ 337,333 |
Organization and Nature of Oper
Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2022 | |
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 completed its initial public offering (“IPO”) in July 2000 in connection with its listing on the Nasdaq National Market (now the Nasdaq Global Select Market) in the United States of America. In June 2020, the Company successfully listed its ordinary shares on the main board of the Hong Kong Stock Exchange with a global offering of 197,202,000 ordinary shares at a price of HK$123.00 per share. Gross proceeds from the global offering, before any underwriting fees and other offering expenses, were approximately HK$24,255.8 million. As of December 31, 2022, 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 is also the primary beneficiary of a number of variable interest entities (“VIEs”) and consolidate the VIEs for financial reporting. The Company, its subsidiaries and the VIEs are hereinafter collectively referred to as the “Group”. On October 26, 2019, Youdao, Inc. (“Youdao”), one of the Company’s majority-controlled subsidiaries completed its IPO on the New York Stock Exchange. In February 2021, Youdao completed a follow-on public offering in the New York Stock Exchange. After Youdao’s offerings, the Company continues to control Youdao and consolidates Youdao as its controlling shareholder. On December 2, 2021, Cloud Village, Inc. (“Cloud Music”), one of the Company’s majority-controlled subsidiaries completed its IPO on the Hong Kong Stock Exchange. After Cloud Music’s offering, the Company continues to control Cloud Music and consolidates Cloud Music as its controlling shareholder. The major subsidiaries and the VIEs through which the Company conducts its business operations as of December 31, 2022 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 Hangzhou NetEase Leihuo Technology Co., Ltd. (“HZ Leihuo”, formerly known as Hangzhou NetEase Leihuo Network Co., Ltd.) Hangzhou, China 2009 Guangzhou NetEase 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 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. The following combined financial information of the VIEs was included in the accompanying consolidated financial statements of the Group as follows (in thousands): December 31, December 31, 2021 2022 RMB RMB Cash and cash equivalents 1,541,763 2,303,280 Time deposits 71,000 400,000 Restricted cash 2,846,372 2,654,971 Accounts receivable, net 3,924,446 3,542,272 Inventories 83,672 67,572 Prepayments and other current assets, net 2,522,572 1,867,110 Short-term investments 618,000 73,984 Amounts due from Group companies 7,581,649 9,917,091 Assets held for sale 204 — Total current assets 19,189,678 20,826,280 Property, equipment and software, net 61,343 78,666 Operating lease right-of-use assets, net 58,872 54,653 Deferred tax assets 124,738 155,595 Restricted cash 479 200 Long-term investments 862,839 885,372 Other long-term assets 385,231 164,968 Total non-current assets 1,493,502 1,339,454 Total assets 20,683,180 22,165,734 Accounts payable 463,601 802,717 Salary and welfare payables 115,707 155,478 Taxes payable 157,137 41,352 Short-term loans 52,963 422 Contract liabilities 10,751,917 11,465,101 Accrued liabilities and other payables 2,945,930 3,809,049 Short-term operating lease liabilities 24,991 20,690 Amounts due to Group companies 3,904,328 3,937,784 Total current liabilities 18,416,574 20,232,593 Long-term operating lease liabilities 34,077 34,291 Other long-term payable 257,874 263,373 Total non-current liabilities 291,951 297,664 Total liabilities 18,708,525 20,530,257 For the year ended December 31, 2020 2021 2022 RMB RMB RMB Net revenues Third-party revenues 61,470,764 74,406,521 82,549,444 Intra-Group revenues 720,398 808,648 817,962 Total net revenues 62,191,162 75,215,169 83,367,406 Cost of revenues and operating expenses Third-party cost of revenues and operating expenses (15,430,950) (17,651,675) (18,358,287) Intra-Group cost of revenues and operating expenses related to technical consulting and related service (45,835,734) (56,822,482) (64,777,586) Other intra-Group cost of revenues and operating expenses (217,463) (168,850) (185,608) Total cost of revenues and operating expenses (61,484,147) (74,643,007) (83,321,481) Net income 712,015 624,299 (81,329) For the year ended December 31, 2020 2021 2022 RMB RMB RMB Cash flows from operating activities: Net cash provided by transactions with third-parties 51,605,737 61,272,031 67,459,864 Net cash used in transactions with intra-Group companies related to technical consulting and related service (49,435,342) (59,439,552) (66,970,818) Net cash (used in)/ provided by other transactions with intra-Group companies (498,938) (283,621) 299,452 Net cash provided by operating activities 1,671,457 1,548,858 788,498 Cash flows from investing activities: Net cash used in transactions with third-parties (263,766) (39,430) (71,832) Net cash used in investing activities (263,766) (39,430) (71,832) Cash flows from financing activities: Net cash provided by/(used in) transactions with intra-Group companies 273,889 (622,809) (105,448) Net cash used in transactions with third-parties — (678,287) (52,541) Net cash provided by/(used in) financing activities 273,889 (1,301,096) (157,989) 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 RMB519.7 million and RMB659.7 million, respectively, as of December 31, 2021 and 2022, as well as certain non-distributable statutory reserves amounting to approximately RMB70.1 million and RMB82.4 million, respectively, as of December 31, 2021 and 2022. 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 VIEs which require the Company to provide additional financial support or guarantees to the 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, 2021 and 2022. (b) Nature of operations The Group generates revenues mainly from providing online game services, tutoring services, sales of smart devices, online music services, live streaming 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, online music, live streaming 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 various 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 the major VIEs with respect to the operation of the NetEase websites, operation of in-house 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 agreements with HZ Leihuo - under these agreements, certain of the Company’s subsidiaries, including NetEase Hangzhou provide 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 provide the Company with the power to direct the activities that most significantly impact the economic performance of the VIEs and provide the Company with economic benefits of these VIEs and as such the Company is the primary beneficiary and consolidate the VIEs for financial reporting. The principal agreements that provide the Company and its subsidiaries with such power and economic benefits 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 with such power and economic benefits 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 and any additional 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 with the power to direct the activities that most significantly impact the economic performance of the VIEs and provide the Company with economic benefits of these VIEs contains substantially the same terms as those aforementioned agreements related to HZ Leihuo, except that contract expiry date varies. 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 the VIEs is remote. Risks related to the VIE arrangements The Company believes that its contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. Mr. Ding, who is the major shareholder of Guangzhou NetEase and certain of the 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). 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. The Company believes the possibility that it will no longer be able to consolidate the VIEs as a result of the aforementioned risks and uncertainties is remote. |
Principal Accounting Policies
Principal Accounting Policies | 12 Months Ended |
Dec. 31, 2022 | |
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 the 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 the 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. Effective from October 1, 2020, the Company changed its ADS to ordinary share ratio from the one ADS for every twenty-five ordinary shares to one ADS for every five ordinary shares. Therefore, the number of ADS and the computations of per ADS data as disclosed elsewhere in these consolidated financial statements have been retrospectively restated. 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: revenues for in-game virtual items over the estimated average playing period of paying players and impairment of long-term investments. (c) Revenue recognition 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, tutoring services, sale of smart devices, online music services live streaming services, advertising services, e-commerce and other fee-based premium services. Refer to “Note 28 - Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC games. The Group is the principal of substantially all games it operates, including both in-house developed games and licensed games. As 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 average 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. 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 premium services. Proceeds received from the sales of prepaid online points to players are recorded as contract liabilities. The Group earns revenue through providing PC game services to players mainly 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 the times 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 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 average 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) Tutoring services 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 tutoring courses and digital learning contents, foreign languages, professional and interest education services as well as IT computer skills, etc. Youdao’s tutoring courses consist of online live streaming and 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 tutoring courses 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 based on the estimated learning time customers spend on the courses and the expected number of times customers will take the courses. The Group also offers digital learning contents to customers which are delivered together with online live streaming courses and customized planning services. The customers can either stream the digital learning contents online or download and watch them offline. The downloadable digital learning contents, streaming services, online live streaming courses and customized planning services are considered as distinct performance obligations in the contract. The transaction price is generally collected in advance and allocated to each performance obligation in the contract based on the relative standalone selling prices. The Group recognizes the revenues of downloadable digital learning contents as the performance obligation is satisfied upon the time of delivery. The revenues of streaming services and customized planning services are recognized ratably over the service period. For online live streaming courses, the revenues are recognized ratably over the estimated average learning period. (iii) Smart devices The Group sells smart devices such as dictionary pens, translation devices through Youdao to customers through retailers or distributors. The Group recognizes revenues when control of the goods is transferred to the customer, which generally occurs upon the delivery to the end customers or upon the delivery to distributors. (iv) Online music services The Group offers online music services through Cloud Music, which mainly include membership subscriptions, sales of digital music album and songs and contents sublicensing on the Group’s online platforms. The Group offers users membership subscription packages which entitled paying subscriber access to the Group’s relevant music contents and other privileged features on its platforms. The subscription fees for these packages are primarily time-based mainly from weekly to yearly and is collected upfront. The receipt of subscription fees is initially recognised as contract liabilities. The Group satisfies its performance obligations throughout the subscription period and revenue from the membership subscriptions is recognised over time. The Group also offers users to purchase exclusive digital music albums and songs which can listen both online and offline. The Group considers that the control has been transferred to customer at time of purchase. As a result, the performance obligation is satisfied and revenue is recognised at a point in time. The Group sublicenses certain of its music contents to other music platforms for a fixed period of one (v) Live streaming services The Group operates live streaming platforms through NetEase CC and Cloud Music whereby users can enjoy live performances provided by the live streaming performers and interact with them on a real time basis free of charge. The Group sells virtual items to users at pre-determined price so that the users gift them simultaneously to live streaming performers to show their support and appreciation. 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 live streaming performers, 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. (vi) 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, 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 rebate 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 non-cash consideration in some situations, the value of the non-cash 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, 2020, 2021 and 2022, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (vii) E-commerce The Group’s e-commerce revenue is primarily from its private label consumer lifestyle brand Yanxuan, which was established in April 2016. Yanxuan sells its private label products, including pet supplies, home cleaning products, bedding and other categories which mainly source directly from some excellent manufacturers. 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, 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 “Accrued liabilities and other payables” and “Inventories”, respectively, on the Group’s consolidated balance sheets. Both of the balances are not material as of December 31, 2020, 2021 and 2022. (viii) Fee-based premium services Fee-based premium services revenues, mostly operated on either consumption-basis or a monthly subscription basis, are derived principally from providing premium 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. Practical expedients The Group has used the following practical expedients as allowed under ASC 606: (i) The effects of a significant financing component have 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 of permanent virtual items and the estimated average playing period of paying players for PC games and 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 certain 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’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, 2021 and 2022 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. Refer to Note 16 - Contract liabilities for further information, including changes in contract liabilities 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, 2020, 2021 and 2022, 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, 2020, 2021 and 2022, 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, 2021 and 2022, there were cash at bank and demand deposits with terms of less than three months denominated in U.S. dollars amounting to approximately US$398.4 million and US$623.8 million, respectively (equivalent to approximately RMB2,540.3 million and RMB4,344.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. As of December 31, 2021 and 2022, there were time deposits denominated in U.S. dollars amounting to approximately US$6,847.0 million and US$8,421.0 million, respectively (equivalent to approximately RMB43,654.4 million and RMB58,648.9 million, respectively). As of December 31, 2021 and 2022, the Group had approximately RMB40.5 billion and RMB48.1 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and the VIEs, representing 44.4% and 42.6% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2021 2022 RMB RMB Customer deposit of NetEase Pay accounts 2,091.3 2,627.5 Deposit required by the PRC government authorities related to Youdao’s educational services 749.8 0.9 Others 36.9 70.9 Total 2,878.0 2,699.3 The Group had no other material lien arrangements during 2021 and 2022. (g) Receivables, net The Group closely monitors the collection of its receivables and records a reserve for doubtful accounts against aged accounts and for specifically identified non-recoverable amounts for periods prior to January 1, 2020. 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. Receivable balances are written off when they are determined to be uncollectible. From January 1, 2020, the Group’s receivables are subject to the measurement of credit losses within the scope of ASC Topic 326. The impact of new standard was immaterial to the Company. The Group’s accounts receivable, other receivables recorded in prepayments and other current assets and other long-term receivables recorded in other long-term assets are within the scope of ASC Topic 326. Accounts receivable consist primarily of receivables from advertising customers, and receivables from distribution channels. To estimate expected credit losses, the Group has identified the relevant risk characteristics of its customers and the related receivables and other receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. This is assessed at each quarter based on the Group’s specific facts and circumstances. The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Balance at the beginning of year 77,147 113,253 369,982 Provisions 40,600 265,930 61,393 Write-offs (4,494) (9,201) (28,015) Balance at the end of year 113,253 369,982 403,360 (h) 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, contract liabilities and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 29 for additional information. (i) Inventories Inventories 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. (j) 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 maturity 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)”. 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 7 and Note 29 for additional information. Long-term investments Long-term investments are mainly 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. Unrealized gains and losses for the years ended December 31, 2020, 2021 and 2022 are recognized in other income/(expense). For 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 common stocks or in-substance common stocks, as these equity securities do not have readily determinable fair value, the Group measure these equity securities investments 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 without readily determinable fair value, realized and unrealized, are recognized in other income /(expense). 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 periodically, or when 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 statements of operations and comprehensive income to the extent the carrying amount exceeds the fair value. Significant judgments 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) estimating the impairment amount if an impairment exists; and (iii) judgements as to whether a decline in value of equity method investments was other than temporary. These judgments consider various factors and events including: a) significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investees; b) significant adverse change in the regulatory, economic, or technological environment of the investees; c) significant adverse change in the general market condition of either the geographical area or the industry in which the investees operate; d) bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; e) factors that raise significant concerns about the investees’ ability to continue as a going concern; f) factors that raise significant concerns about the performance of new products and g) valuation methods and key estimates in the determination of the impairment amounts. Key estimates mainly comprised the severity and duration of the impairment indicator and the existence of any positive or mitigating factors. 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 statements of operations and comprehensive income for a decline in value that is determined to be other than temporary. (k) Leases 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, 2021 and 2022, the Group has no material 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 obtains the righ |
Discontinued operations
Discontinued operations | 12 Months Ended |
Dec. 31, 2022 | |
Discontinued operations | |
Discontinued operations | 3. Discontinued operations In 2022, the Company recognized net income from discontinued operations of RMB624.9 million (US$90.6 million) which was related to the disposal of the Kaola business in 2019. |
Acquisition
Acquisition | 12 Months Ended |
Dec. 31, 2022 | |
Acquisition | |
Acquisition | 4. Acquisition Major acquisition in 2020 In 2020, the Group acquired an additional 33.1% equity interest of a previously held equity investment with total cash consideration of RMB168.3 million. Upon the acquisition, the Group increased its equity interest in this investment from 30.0% to 63.1%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB130.1 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2020. Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): Amounts RMB Net assets acquired (i) 16,440 Amortizable intangible assets (ii) Trademark 59,300 Developed technology 182,200 Deferred tax liabilities (60,375) Goodwill 311,109 Noncontrolling interests (187,762) Total 320,912 (i) Net assets acquired mainly included cash and cash equivalents as of the date of acquisition. (ii) Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”. Acquisitions in 2021 In 2021, the Group completed several acquisitions to complete its existing businesses and achieve synergies. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2021 are summarized in the following table (in thousands): Amounts RMB Net assets acquired 76,132 Amortizable intangible assets (i) Trademark 64,662 Other identified intangible assets 13,750 Deferred tax liabilities (13,293) Goodwill 276,463 Redeemable noncontrolling interests (106,368) Total 311,346 (i) Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised. In relation to the revaluation of the previously held equity interests, a loss of RMB2.5 million was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2021. Acquisitions in 2022 In 2022, the Group completed several acquisitions to complete its existing businesses and achieve synergies. Among them, the Group acquired an additional 50.5% equity interest of a previously held equity investment with total cash consideration of RMB760.4 million. Upon the acquisition, the Group increased its equity interest in this investment from 41.5% to 92.0%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB310.4 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2022. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2022 are summarized in the following table (in thousands): Amounts RMB Net liabilities acquired (34,671) Amortizable intangible assets (i) Trademark 143,146 Other identified intangible assets 525,853 Deferred tax liabilities (104,137) Goodwill 1,571,206 Noncontrolling interests (122,983) Total 1,978,414 (i) Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”. Pro forma results of operations for all the acquisitions have not been presented because they were not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022, either individually or in aggregate. |
Concentrations and Risks
Concentrations and Risks | 12 Months Ended |
Dec. 31, 2022 | |
Concentrations and Risks | |
Concentrations and Risks | 5. 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 2020, 2021 and 2022 as follows: For the year ended December 31, 2020 2021 2022 Total number of telecommunications service providers 87 135 126 Number of service providers, offering 10% or more of the Group’s server and bandwidth service expenditure 3 4 4 Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers 62.3 % 67.2 % 62.7 % (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, 2021 and 2022, 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 considers 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, 2021 and 2022, respectively as follows: December 31, December 31, 2021 2022 Distribution channel A 20.2 % 17.8 % 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 1.72% to 5.00% 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, 2020, 2021 and 2022. (d) Online games The Group derived 33.1%, 29.2% and 29.6% of its total net revenues from its top 5 online games for the years ended December 31, 2020, 2021 and 2022, respectively. |
Prepayments and Other Current A
Prepayments and Other Current Assets | 12 Months Ended |
Dec. 31, 2022 | |
Prepayments and Other Current Assets | |
Prepayments and Other Current Assets | 6. Prepayments and Other Current Assets The following is a summary of prepayments and other current assets (in thousands): December 31, December 31, 2021 2022 RMB RMB Guarantee payment made to Blizzard - royalty fees 319,210 634,909 Prepayment for royalties, revenue sharing cost 2,635,766 1,787,638 Receivable due from Alibaba 837,148 38,366 Interest and other operating income receivable 676,714 1,373,854 Prepayments of content and marketing cost and other operational expenses 826,220 725,183 Prepayment for sales tax and deductible value added tax 483,397 492,552 Bridge loans in connection with ongoing investments 41,835 43,313 Deposits 86,621 68,285 Employee advances 67,848 61,480 Advance to suppliers 134,712 105,903 Others 126,386 116,801 6,235,857 5,448,284 As of December 31, 2021 and 2022, prepayments for royalties and revenue sharing cost mainly represented prepaid royalties or revenue sharing cost related to game distribution and operations of licensed games. Balance of receivable from Alibaba represents receivable for disposal of Kaola which was expected to receive in one year. The amount of employee advances listed above included staff housing loan balances of RMB29.2 million and RMB22.7 million repayable within 12 months from December 31, 2021 and 2022 respectively (see Note 12). No advances were made directly or indirectly to the Group’s executive officers for their personal benefit for the years ended December 31, 2021 and 2022. |
Short-term Investments
Short-term Investments | 12 Months Ended |
Dec. 31, 2022 | |
Short-term Investments | |
Short-term Investments | 7. Short-term Investments As of December 31, 2021 and 2022, 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, 2022, the effective yields of short-term investments ranged from 1.72% to 5.00% per annum (2021: 2.25% to 4.40% per annum). The following is a summary of short-term investments (in thousands): December 31, 2021 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 12,081,868 199,680 12,281,548 December 31, 2022 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 7,563,805 58,868 7,622,673 During the years ended December 31, 2020, 2021 and 2022, the Group recorded investment income related to short-term investments of RMB580.7 million, RMB639.8 million and RMB342.6 million in the consolidated statements of operations and comprehensive income, respectively. |
Property, Equipment and Softwar
Property, Equipment and Software, net | 12 Months Ended |
Dec. 31, 2022 | |
Property, Equipment and Software, net | |
Property, Equipment and Software, net | 8. Property, Equipment and Software, net The following is a summary of property, equipment and software (in thousands): December 31, December 31, 2021 2022 RMB RMB Building and decoration 3,676,626 3,875,063 Leasehold improvements 287,510 304,365 Furniture, fixtures, office and other equipment 339,791 379,938 Vehicles 98,651 102,823 Servers and computers 5,417,716 6,018,709 Software 237,550 344,410 Construction in progress 653,239 1,587,413 10,711,083 12,612,721 Less: accumulated depreciation (5,277,225) (6,270,391) Net book value 5,433,858 6,342,330 Depreciation expense was RMB1,113.0 million, RMB928.5 million and RMB1,127.2 million for the years ended December 31, 2020, 2021 and 2022, respectively. As of December 31, 2021 and 2022, the construction in progress balance were mainly comprised of construction of buildings in Shanghai and Hangzhou 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, net
Land Use Rights, net | 12 Months Ended |
Dec. 31, 2022 | |
Land Use Rights, net | |
Land Use Rights, net | |
Land Use Rights, net | 9. Land Use Rights, net Land use rights represent acquired right to use the land on which the Group’s offices and warehouses are built. In 2021 and 2022, the Group mainly obtained the land use rights in Guangzhou and Hangzhou 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, 2021 2022 RMB RMB Cost 4,415,809 4,521,308 Incentive payment from local government (15,000) (15,000) Accumulated amortization (292,719) (384,541) Land use right, net 4,108,090 4,121,767 The total amortization expense for each of the years ended December 31, 2020, 2021 and 2022 amounted to approximately RMB84.7 million, RMB87.4 million and RMB91.8 million, respectively. |
Leases
Leases | 12 Months Ended |
Dec. 31, 2022 | |
Leases | |
Leases | 10. Leases The Group has operating leases for corporate offices, warehouses and retail stores. In addition, upon the adoption of ASC 842, land use rights with total carrying amount of RMB4,108.1 million and RMB4,121.8 million (Note 9) were identified as operating lease right-of-use assets as of December 31, 2021 and 2022, respectively. The Group’s leases have remaining lease terms of 1 months to 68 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): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Operating lease cost (i) 433,412 580,375 528,474 Cash paid for amounts included in the measurement of operating lease liabilities 323,836 503,127 471,214 Right-of-use assets obtained in exchange for operating lease obligations 658,168 763,919 336,381 (i) Included short-term lease cost of RMB 27.6 million, RMB 31.4 million and RMB 27.4 million and amortization expenses of land use rights of RMB 84.7 million, RMB 87.4 million and RMB 91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively. The following table provides a summary of the Group’s operating lease terms and discount rates, which excludes the land use rights, as of December 31, 2021 and 2022: December 31, December 31, 2021 2022 Weighted average remaining lease term 2.84 years 3.22 years Weighted average discount rate 3.95 % 3.82 % Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands): RMB 2023 297,607 2024 232,019 2025 138,099 2026 102,114 2027 76,546 Thereafter 183,808 Total operating lease payments 1,030,193 Less: imputed interest (98,500) Total 931,693 |
Long-term Investments
Long-term Investments | 12 Months Ended |
Dec. 31, 2022 | |
Long-term Investments | |
Long-term Investments | 11. Long-term Investments The following is a summary of long-term investments (in thousands): December 31, December 31, 2021 2022 RMB RMB Investments in equity method investees 3,776,245 5,239,242 Equity investments with readily determinable fair values 5,886,911 2,567,268 Equity investments without readily determinable fair values 8,802,976 10,463,304 Investments accounted for at fair values 194,280 246,073 Debt investments 144,490 28,471 18,804,902 18,544,358 (a) Investments in equity method investees The Group recorded equity share of earnings of RMB172.5 million, RMB1,575.5 million and RMB1,259.9 million for the years ended December 31, 2020, 2021, and 2022, 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”), Zhejiang Yixin Technology Co., Ltd. (formerly known as 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. Full impairment amounted to RMB 197.7 million was made for this investment due to the investee not performing to expectation for the year ended December 31, 2022. (2) As of December 31, 2021, the Group invested an aggregated cash consideration of RMB 1,643.2 million in five limited partnerships as a limited partner, and in 2022, the Group further contributed RMB 32.9 million, RMB 58.1 million and RMB 121.4 million cash in three of them, respectively. The objectives of these limited partnerships are to engage in investment in online game business. The Group accounted such investments under the equity method. (b) Equity investments with readily determinable fair values As of December 31, 2022, equity investments with readily determinable fair values included RMB1,099.0 million invested in shares of Alibaba, RMB374.1 million invested in shares of Huatai Securities Company Limited (“Huatai”), RMB283.3 million invested in shares of Shenzhen Transsion Holding Limited, RMB257.7 million invested in shares of AppLovin Corporation, RMB247.5 million invested in shares of Embracer Group AB (publ), RMB187.8 million invested in shares of Devolver Digital, Inc., and RMB117.9 million invested in shares of tinyBuild Inc. The Group recorded fair value gain of RMB720.6 million, RMB91.1 million and fair value loss of RMB3,414.7 million related to the equity investments with readily determinable fair value for the year ended December 31, 2020, 2021 and 2022, respectively. The Group also received cash dividends of RMB12.7 million, RMB18.9 million and RMB21.1 million from Huatai for the years ended December 31, 2020, 2021 and 2022, respectively. (c) Equity investments without readily determinable fair value 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. 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, 2020, 2021 and 2022, nil, RMB380.8 million and nil upward adjustments to the carrying value of equity securities without readily determinable fair value resulted from such transactions were recognized as “Investment income, net” in the consolidated statements of operations and comprehensive income, respectively. The Group recognized a gain of RMB36.1 million, RMB172.5 million and RMB1,784.9 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, 2020, 2021 and 2022, respectively. The Group recognized impairment provision of RMB55.6 million, RMB19.2 million and RMB85.2 million related to certain of the equity investments without readily determinable fair value as “Investment income, net” in the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022, respectively. |
Other Long-term Assets
Other Long-term Assets | 12 Months Ended |
Dec. 31, 2022 | |
Other Long-term Assets | |
Other Long-term Assets | 12. Other Long-term Assets The following is a summary of other long-term assets (in thousands): December 31, December 31, 2021 2022 RMB RMB Copyrights, licenses, domain names, trademark and technology 2,617,164 2,117,688 Long-term receivable 58,366 1,638,572 Long-term interest receivables 98,594 100,397 Goodwill 595,280 2,166,486 Staff housing loans 55,275 39,228 Non-current deposits 150,666 174,357 Others 433,111 569,727 4,008,456 6,806,455 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. Goodwill December 31, December 31, 2021 2022 RMB RMB Beginning balance 318,943 595,280 Additions 276,337 1,571,206 Ending balance 595,280 2,166,486 For the years ended December 31, 2021 and 2022, the carrying value of goodwill was mainly recorded under the games and related value-added services segment.The Group performed impairment tests using the qualitative and quantitative method and concluded that the goodwill was not impaired as at December 31, 2021 and 2022, therefore, no provision was recorded. 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% and 2.1% to 4.75% per annum for the years ended December 31, 2021 and 2022, respectively. The outstanding portion of the staff housing loans repayable within 12 months as of December 31, 2021 and 2022 amounted to approximately RMB29.2 million and RMB22.7 million, respectively. The amounts are reported under “Prepayments and other current assets” in the consolidated balance sheets (see Note 6). |
Taxation
Taxation | 12 Months Ended |
Dec. 31, 2022 | |
Taxation | |
Taxation | 13. 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. For the years ended December 31, 2020, 2021 and 2022, 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 Under the EIT Law, Foreign Invested Enterprises (“FIEs”) and domestic companies would be subject to 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 EIT 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 2020, 2021 and 2022. In 2020, Boguan, NetEase Hangzhou and certain other PRC subsidiaries were also qualified as a Key Software Enterprise to enjoy preferential tax rate of 10% for 2019. The related tax benefit was recorded in 2020. The Key Software Enterprise status is subject to review by the relevant authorities every year. In 2021 and 2022, no subsidiaries were qualified as a Key Software Enterprise for 2020 and 2021, 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, 2020, 2021 and 2022 (in thousands except per share data): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,969,414 2,238,907 2,631,764 Earnings per share effect, basic 0.60 0.67 0.81 Earnings per share effect, diluted 0.59 0.66 0.80 The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Current tax expense 2,953,670 3,720,321 4,542,168 Deferred tax expense 88,179 407,948 489,670 Income tax expenses 3,041,849 4,128,269 5,031,838 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, 2020, 2021 and 2022: For the year ended December 31, 2020 2021 2022 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (1.9) (2.7) (5.0) Effect due to different tax rates applicable to overseas entities (0.5) (1.8) 0.2 Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (16.5) (10.1) (10.1) Change in valuation allowance 6.8 3.9 1.8 Effect of withholding income tax (d) 6.9 5.3 8.8 Effective income tax rate 19.8 19.6 20.7 As of December 31, 2022, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2023 3,371,946 Loss expiring in 2024 3,054,886 Loss expiring in 2025 2,191,529 Loss expiring in 2026 2,571,936 Loss expiring after 2027 3,934,633 15,124,930 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 the VIEs are generally subject to VAT at a rate of 6% from revenues earned from services provided or 16% from sales of general goods, which was reduced to 13% effective from 1 April, 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, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Deferred tax assets: Contract liabilities, primarily for advanced payments from online games customers 776,719 1,009,624 Accruals 641,198 654,348 Depreciation of fixed assets 11,557 4,883 Amortization of intangible assets 4,331 2,217 Net operating tax loss carry forward 3,513,019 3,781,233 4,946,824 5,452,305 Less: valuation allowance (3,648,870) (3,971,516) Total 1,297,954 1,480,789 December 31, December 31, 2021 2022 RMB RMB Deferred tax liabilities: Withholding income tax (d) 1,257,552 1,947,190 Others 88,322 178,930 Total 1,345,874 2,126,120 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 Balance at January 1 for the year December 31 RMB RMB RMB 2020 2,148,879 1,106,975 3,255,854 2021 3,255,854 393,016 3,648,870 2022 3,648,870 322,646 3,971,516 (d) Withholding income tax The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. On February 22, 2008, the Ministry of Finance and State Taxation Administration 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. The Group accrued RMB1,056.9 million, RMB1,124.4 million and RMB2,144.4 million (US$310.9 million) withholding tax liabilities associated with all of its earnings expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes in 2020, 2021 and 2022, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2020, 2021 and 2022. As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries. |
Taxes Payable
Taxes Payable | 12 Months Ended |
Dec. 31, 2022 | |
Taxes Payable | |
Taxes Payable | 14. Taxes Payable The following is a summary of taxes payable as of December 31, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Sales Tax payable 681,815 290,272 Withholding individual income taxes for employees 263,845 306,861 EIT payable 3,459,307 2,116,014 Others 132,083 99,949 4,537,050 2,813,096 |
Short-term Loans
Short-term Loans | 12 Months Ended |
Dec. 31, 2022 | |
Short-term Loans | |
Short-term Loans | 15. Short-term Loans As of December 31, 2021 and 2022, the short-term loans balances represent short-term loan arrangements with banks which were repayable within a maturity term ranging from one week to one year and charged at a fixed interest rates ranging 0.65% and 5.13% per annum. As of December 31, 2021 and 2022, the weighted average interest rate for the outstanding short-term loans was approximately 0.79% and 4.36%, respectively. The short-term loans are denominated in US$ and other currencies. 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. This syndicated facility agreement was expired on August 9, 2021. In 2022, the Group also entered into several uncommitted loan credit facility agreements provided by certain financial institutions. As of December 31, 2022, US$2,084.7 million of such credit facilities has not been utilized. In 2022, the Group also entered into several guarantee agreements in the aggregate amount of US$2,575.0 million in respect of certain credit facilities taken by its subsidiaries. As at December 31, 2022, US$461.0 million of such credit facilities had not been utilized. |
Contract Liabilities
Contract Liabilities | 12 Months Ended |
Dec. 31, 2022 | |
Contract Liabilities | |
Contract liabilities | 16 . Contract Liabilities Contract liabilities 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, 2022, the additions to the contract liabilities balance were primarily due to cash payments received or due in advance of satisfying the Group’s performance obligations, while the reductions to the contract liabilities 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, 2021 and 2022, RMB10,513.0 million and RMB11,822.3 million of revenues recognized were included in the contract liabilities balance at the beginning of the year, respectively. As of December 31, 2022, the aggregate amount of transaction price allocated to the unsatisfied performance obligations is RMB12,793.6 million, which includes the contract liabilities balances and amounts to be invoiced and recognized as revenues in future periods. The Group expects to recognize RMB12,518.9 million as revenues over the next 12 months, and the remaining unsatisfied performance obligations expected to be recognized thereafter was recognized in other long-term liabilities. This balance does not include an estimate for variable consideration arising from sales rebates to advertising service customers and estimated breakage for online points. |
Accrued Liabilities and Other P
Accrued Liabilities and Other Payables | 12 Months Ended |
Dec. 31, 2022 | |
Accrued Liabilities and Other Payables | |
Accrued Liabilities and Other Payables | 17 . Accrued Liabilities and Other Payables The following is a summary of accrued liabilities and other payables as of December 31, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Customer deposits on NetEase Pay accounts 2,388,546 3,113,107 Marketing expenses and promotion materials 1,857,133 2,046,559 Accrued fixed assets related payables 706,583 635,566 Server and bandwidth service fees 264,513 246,243 Accrued revenue sharing 1,176,349 1,032,559 Content cost 838,293 1,703,218 Professional fees and technical charges 608,752 595,491 Accrued freight and warehousing charge 84,490 105,356 Administrative expenses and other staff related cost 399,753 414,214 Deferred government grants 174,241 179,961 Acquisition considerations — 203,584 Customer refund for licensed games — 283,763 Others 527,855 562,401 9,026,508 11,122,022 |
Long-term Loans
Long-term Loans | 12 Months Ended |
Dec. 31, 2022 | |
Long-term loans | |
Long-term loans | 18. Long-term loans On June 2, 2021, the Group entered into a five-year term loan facility and revolving loan facility agreement with aggregate commitments of US$1.0 billion. The facility is priced at 85 basis points per annum over LIBOR and has a commitment fee of 0.20% on the undrawn portion. There were US$200.0 million and US$500.0 million of borrowings outstanding under the syndicated facility as of December 31, 2021 and 2022 with no pledge, respectively. The Group was subject to certain covenants under the syndicated facility agreement and was in compliance with these financial covenants as of December 31, 2022. |
Noncontrolling Interests and Re
Noncontrolling Interests and Redeemable Noncontrolling Interests | 12 Months Ended |
Dec. 31, 2022 | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |
Noncontrolling interests and redeemable noncontrolling interests | 1 9. Noncontrolling Interests and Redeemable Noncontrolling Interests Cloud Music In 2018 and 2019, Cloud Music issued preferred shares (“Cloud Music Preferred Shares”) to certain investors for an aggregated cash consideration of US$716.3 million and US$711.6 million, respectively. In 2020, pursuant to the agreements entered between one of the redeemable noncontrolling interest and Cloud Music, Cloud Music repurchased this redeemable noncontrolling interest at a cash consideration of US$66.3 million. The Group accounted for the 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 redeemable noncontrolling interests surrendered, amounting to RMB207.0 million was recognized as a deemed dividend to preferred shareholders, among which RMB204.7 million attributable to the Company’s shareholders also reduces the numerator for EPS calculation. The 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. Upon completion of the IPO of Cloud Music in December 2021, all Cloud Music Preferred Shares held by external preferred shareholders were automatically re-designated and converted on a one-for-one basis into ordinary shares of Cloud Music. 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, 2022 | |
Capital Structure | |
Capital structure | 20. 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, 2022 | |
Employee Benefits | |
Employee Benefits | 21. Employee Benefits The Company’s subsidiaries and the 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 the 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, 2020, 2021 and 2022 (in millions): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Contributions to medical and pension schemes 769.4 1,463.8 1,710.4 Other employee benefits 766.8 1,044.5 1,202.8 1,536.2 2,508.3 2,913.2 |
Share-based Compensation
Share-based Compensation | 12 Months Ended |
Dec. 31, 2022 | |
Share-based Compensation | |
Share-based Compensation | 22. Share-based Compensation For the years ended December 31, 2020, 2021 and 2022, total share-based compensation expenses recognized were RMB2,663.5 million, RMB3,041.5 million and RMB3,174.2 million, respectively. The table below presents a summary of the Group’s share-based compensation cost (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Cost of revenues 794,855 833,389 758,413 Selling and marketing expenses 102,300 118,611 120,171 General and administrative expenses 929,013 1,105,547 1,214,995 Research and development expenses 837,321 983,945 1,080,581 2,663,489 3,041,492 3,174,160 ( a ) Restricted Share Units Plan 2009 RSU Plan In November 2009, the Company adopted 2009 Restricted Share Unit Plan for the Company’s employees, directors and consultants (the “2009 RSU Plan”). The Company has reserved 323,694,050 ordinary shares for issuance under the plan. The 2009 RSU Plan was adopted by a resolution of the board of directors on November 17, 2009 and became effective for a term of ten years unless sooner terminated. The 2009 RSU Plan was expired on November 16, 2019. 2019 Share Plan In October 2019, the Company adopted 2019 Restricted Share Unit Plan for the Company’s employees, directors and others, with a ten-year term and a maximum number of 322,458,300 ordinary shares available for issuance pursuant to all awards under the plan. Effective February 22, 2023, the Company amended and restated the 2019 Restricted Share Unit Plan to permit to grant stock option awards to the Company’s employees, directors and others, and renamed it as Amended and Restated 2019 Share Incentive Plan (the “2019 Share Plan”). The Group recognizes share-based compensation cost related to RSUs 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. As of December 31, 2022, total unrecognized compensation cost related to unvested awards under the 2009 RSU Plan and the 2019 Share Plan, adjusted for estimated forfeitures, was US$436.3 million (RMB3,009.0 million) and is expected to be recognized through the remaining vesting period of each grant. As of December 31, 2022, the weighted average remaining vesting periods was 1.75 years. Restricted Share Unit Award Activities The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2020, 2021 and 2022: Weighted average grant date fair Number of RSUs value (in thousands) US$ Outstanding at January 1, 2020 14,075 49.00 Granted 6,269 68.35 Vested (5,832) 48.02 Forfeited (416) 54.47 Outstanding at December 31, 2020 14,096 57.85 Outstanding at January 1, 2021 14,096 57.85 Granted 4,579 110.19 Vested (5,067) 58.02 Forfeited (612) 75.29 Outstanding at December 31, 2021 12,996 75.40 Outstanding at January 1, 2022 12,996 75.40 Granted 5,335 93.98 Vested (4,630) 75.01 Forfeited (696) 84.55 Outstanding at December 31, 2022 13,005 82.67 The aggregate intrinsic value of RSUs outstanding as of December 31, 2022 was US$944.5 million. The intrinsic value was calculated based on the Company’s closing stock price of US$72.63 per ADS as of December 31, 2022. The Company’s practice is to issue new shares or utilize treasury stock upon vesting of RSUs. The number of shares available for future grant under the Company’s 2019 RSU Plan was 258,221,415 as of December 31, 2022. (b) Other Share Incentive Plan Certain of the Company’s subsidiaries have adopted stock incentive plans, most of which are stock option plans and allow the related subsidiaries to grant options to certain employees of the Group. The options expire in four to ten years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met (“Vesting Commencement Date”). The award can become 100% vested on the Vesting Commencement Date, or vests in three, four or five substantially equal annual installments with the first installment vesting on the Vesting Commencement Date. But for certain share options granted with vesting conditions outside the Group’s control, no expenses will be recorded until the occurrence of the vesting conditions when the Group determine that it is probable that the vesting conditions will be satisfied. The Group has used the binomial model to estimate the fair value of the options granted. For the years ended December 31, 2020, 2021, and 2022, RMB117.7 million, RMB528.2 million and RMB327.9 million compensation expenses were recorded for the share options granted. As of December 31, 2022, there were approximately RMB28.3 million unrecognized share-based compensation expenses related to share options for which the service condition had been met and are expected to be recognized when the vesting conditions are achieved. |
Net Income Per Share
Net Income Per Share | 12 Months Ended |
Dec. 31, 2022 | |
Net Income Per Share | |
Net Income Per Share | 23. 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, 2020, 2021 and 2022: For the year ended December 31, 2020 2021 2022 Numerator (RMB in thousands): Net income from continuing operations attributable to the Company’s shareholders 12,062,754 16,856,842 19,712,736 Net income from discontinued operations attributable to the Company’s shareholders — — 624,864 Net income attributable to the Company’s shareholders for basic/dilutive net income per share calculation 12,062,754 16,856,842 20,337,600 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,305,448 3,325,864 3,263,455 Dilutive effect of restricted share units 44,311 41,614 32,559 Weighted average number of ordinary shares outstanding, diluted 3,349,759 3,367,478 3,296,014 Net income per share from continuing operations attributable to the Company’s shareholders, basic (RMB) 3.65 5.07 6.04 Net income per share from discontinued operations attributable to the Company’s shareholders, basic (RMB) — — 0.19 Net income per share, basic (RMB) 3.65 5.07 6.23 Net income per share from continuing operations attributable to the Company’s shareholders, diluted (RMB) 3.60 5.01 5.98 Net income per share from discontinued operations attributable to the Company’s shareholders, diluted (RMB) — — 0.19 Net income per share, diluted (RMB) 3.60 5.01 6.17 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, 2020, 2021 and 2022, RSUs that were anti-dilutive and excluded from the calculation of diluted net income per share totaled approximately 6.0 million shares, 6.7 million shares and 11.3 million shares, respectively. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2022 | |
Commitments and Contingencies | |
Commitments and Contingencies | 24 . Commitments and Contingencies (a) Commitments As of December 31, 2022, future minimum payment for server and bandwidth service fee commitments, capital commitments, royalties and other expenditures commitments related to licensed contents, 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 2023 553,533 1,971,894 1,034,633 313,287 3,873,347 2024 341,458 756,196 18,111 17,098 1,132,863 2025 244,584 206,918 — — 451,502 2026 103,392 111,562 — — 214,954 Beyond 2026 31,970 52,146 — — 84,116 1,274,937 3,098,716 1,052,744 330,385 5,756,782 (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, 2021 and 2022. 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 two of the Group’s mobile games, Rules of Survival and Knives Out, infringed PUBG’s copyrights and trade dress in their competing game, Player Unknown’s 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. On March 13, 2020, PUBG filed a cross claim, realleging that the Group breached the settlement agreement. The court has set the trial date on May 1, 2023, and the litigation remains ongoing. |
Dividends
Dividends | 12 Months Ended |
Dec. 31, 2022 | |
Dividends | |
Dividends | 25 . Dividends Quarterly Dividend Policy Under the Company’s current dividend policy, 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. Prior to the Company’s current dividend policy, the Company’s board of directors determined that quarterly dividends for each quarter in 2020 and 2021 was set at an amount equivalent to approximately 20%-30% of the Company’s anticipated net income after tax in that fiscal quarter. Dividends are recognized when declared. There is no significant dividend payable as of December 31, 2021 and 2022, respectively. The cash dividend declared related to the net profits of fiscal year 2021 and fiscal year 2022 was RMB4,931.0 million and RMB6,252.5 million (US$906.5 million) in total, respectively. |
Share Repurchase Programs
Share Repurchase Programs | 12 Months Ended |
Dec. 31, 2022 | |
Share Repurchase Programs | |
Share Repurchase Programs | 26. 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. The Company may from time to time utilize treasury stock upon vesting of RSUs. The cost of treasury stock reissued is determined using the weighted average method and recorded as a reduction of additional paid-in-capital. 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. On May 19, 2020, 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. Under the terms of this program, the Company may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. As of expiration date of the program, the Company has repurchased approximately 22.8 million ADSs (equivalent to 114.0 million ordinary shares) for approximately US$1,820.1 million under this program. In February 2021, the Company announced that its board of directors had approved a share repurchase program of up to US$2.0 billion of the Company’s outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2, 2021. In August 2021, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of January 9, 2023, this share repurchase program was completed with the Company having purchased an aggregate of approximately 33.6 million ADSs for nearly US$3.0 billion. On November 17, 2022, the Company announced that its board of directors had approved a new share repurchase program of up to US$5.0 billion of the Company’s ADSs and ordinary shares in open market transactions. This new share repurchase program commenced on January 10, 2023 following the completion of the prior program and will be in effect for a period not to exceed 36 months from such date. In August 2021, the Company announced that its board of directors had approved a share purchase program of up to US$50.0 million of Youdao’s outstanding ADSs for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange. As of December 31, 2022, approximately 2.7 million ADSs had been purchased under this program for a total cost of US$22.0 million. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2022 | |
Related Party Transactions | |
Related Party Transactions | 27. Related Party Transactions The Group had no material transactions with related parties for the year ended December 31, 2020, 2021 and 2022, and no material related parties’ balances as of December 31, 2021 and 2022. |
Segment Information
Segment Information | 12 Months Ended |
Dec. 31, 2022 | |
Segment Information | |
Segment Information | 28. 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 fourth quarter of 2021, the Group changed its segment disclosure to separately report the results of Cloud Music. Effective in the second quarter of 2022, the Company renamed its “online game services” segment as “games and related value-added services,” and transferred certain business lines that are related or ancillary to its games from “innovative businesses and others” to “games and related value-added services,” including the NetEase CC live streaming service and other value-added services. As a result, the Group now reports segments as games and related value-added services, Youdao, Cloud Music 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 recast prior years 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, 2020, 2021 and 2022. 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, 2020, 2021 and 2022 (in thousands). For the year ended December 31, 2020 2021 2022 RMB RMB RMB Net revenues: Games and related value-added services 58,719,895 67,819,288 74,566,471 Youdao 3,167,515 5,354,357 5,013,182 Cloud Music 4,895,731 6,997,622 8,992,221 Innovative businesses and others 6,883,992 7,434,759 7,923,935 Total net revenues 73,667,133 87,606,026 96,495,809 Cost of revenues: Games and related value-added services (22,730,558) (26,007,412) (27,784,419) Youdao (1,713,229) (2,448,146) (2,430,738) Cloud Music (5,491,066) (6,854,948) (7,699,103) Innovative businesses and others (4,748,878) (5,324,719) (5,815,423) Total cost of revenues (34,683,731) (40,635,225) (43,729,683) Gross profit: Games and related value-added services 35,989,337 41,811,876 46,782,052 Youdao 1,454,286 2,906,211 2,582,444 Cloud Music (595,335) 142,674 1,293,118 Innovative businesses and others 2,135,114 2,110,040 2,108,512 Total gross profit 38,983,402 46,970,801 52,766,126 The following table set forth the disaggregation of net revenues by timing of revenue recognition for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB A point in time 15,911,575 19,581,668 23,322,675 Over time 57,755,558 68,024,358 73,173,134 Total Net revenue 73,667,133 87,606,026 96,495,809 The following table presents the total depreciation expenses of property and equipment recorded under cost of revenues by segment for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Games and related value-added services 270,457 278,780 339,300 Youdao 7,239 9,330 11,610 Cloud Music 6,878 3,827 6,044 Innovative businesses and others 189,536 114,442 129,693 Total depreciation expenses of property and equipment 474,110 406,379 486,647 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, 2022 | |
Financial Instruments | |
Financial Instruments | 29. 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, 2021 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Equity investments with readily determinable fair values 5,886,911 5,886,911 — — Short-term investments 12,281,548 — 12,281,548 — Investments accounted for at fair values 194,280 — — 194,280 Total 18,362,739 5,886,911 12,281,548 194,280 The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2022 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Equity investments with readily determinable fair values 2,567,268 2,567,268 — — Short-term investments 7,622,673 — 7,622,673 — Investments accounted for at fair values 246,073 — — 246,073 Total 10,436,014 2,567,268 7,622,673 246,073 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, 2021 and 2022, certain equity investments without determinable fair value (Note 11) were measured using significant unobservable inputs (Level 3) and written down from their respective carrying value to fair value, with impairment charges of RMB19.2 million and RMB85.2 million incurred and recorded in earnings for the years then ended. |
Restricted Net Assets
Restricted Net Assets | 12 Months Ended |
Dec. 31, 2022 | |
Restricted Net Assets | |
Restricted Net Assets | 30. 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 the 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 |
Principal Accounting Policies (
Principal Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2022 | |
Principal Accounting Policies | |
Basis of consolidation | (a) Basis of consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries and the 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 the 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. Effective from October 1, 2020, the Company changed its ADS to ordinary share ratio from the one ADS for every twenty-five ordinary shares to one ADS for every five ordinary shares. Therefore, the number of ADS and the computations of per ADS data as disclosed elsewhere in these consolidated financial statements have been retrospectively restated. 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: revenues for in-game virtual items over the estimated average playing period of paying players and impairment of long-term investments. |
Revenue recognition | (c) Revenue recognition 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, tutoring services, sale of smart devices, online music services live streaming services, advertising services, e-commerce and other fee-based premium services. Refer to “Note 28 - Segment Information” for disaggregation of revenue. (i) Online game services The Group operates mobile games and PC games. The Group is the principal of substantially all games it operates, including both in-house developed games and licensed games. As 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 average 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. 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 premium services. Proceeds received from the sales of prepaid online points to players are recorded as contract liabilities. The Group earns revenue through providing PC game services to players mainly 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 the times 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 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 average 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) Tutoring services 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 tutoring courses and digital learning contents, foreign languages, professional and interest education services as well as IT computer skills, etc. Youdao’s tutoring courses consist of online live streaming and 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 tutoring courses 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 based on the estimated learning time customers spend on the courses and the expected number of times customers will take the courses. The Group also offers digital learning contents to customers which are delivered together with online live streaming courses and customized planning services. The customers can either stream the digital learning contents online or download and watch them offline. The downloadable digital learning contents, streaming services, online live streaming courses and customized planning services are considered as distinct performance obligations in the contract. The transaction price is generally collected in advance and allocated to each performance obligation in the contract based on the relative standalone selling prices. The Group recognizes the revenues of downloadable digital learning contents as the performance obligation is satisfied upon the time of delivery. The revenues of streaming services and customized planning services are recognized ratably over the service period. For online live streaming courses, the revenues are recognized ratably over the estimated average learning period. (iii) Smart devices The Group sells smart devices such as dictionary pens, translation devices through Youdao to customers through retailers or distributors. The Group recognizes revenues when control of the goods is transferred to the customer, which generally occurs upon the delivery to the end customers or upon the delivery to distributors. (iv) Online music services The Group offers online music services through Cloud Music, which mainly include membership subscriptions, sales of digital music album and songs and contents sublicensing on the Group’s online platforms. The Group offers users membership subscription packages which entitled paying subscriber access to the Group’s relevant music contents and other privileged features on its platforms. The subscription fees for these packages are primarily time-based mainly from weekly to yearly and is collected upfront. The receipt of subscription fees is initially recognised as contract liabilities. The Group satisfies its performance obligations throughout the subscription period and revenue from the membership subscriptions is recognised over time. The Group also offers users to purchase exclusive digital music albums and songs which can listen both online and offline. The Group considers that the control has been transferred to customer at time of purchase. As a result, the performance obligation is satisfied and revenue is recognised at a point in time. The Group sublicenses certain of its music contents to other music platforms for a fixed period of one (v) Live streaming services The Group operates live streaming platforms through NetEase CC and Cloud Music whereby users can enjoy live performances provided by the live streaming performers and interact with them on a real time basis free of charge. The Group sells virtual items to users at pre-determined price so that the users gift them simultaneously to live streaming performers to show their support and appreciation. 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 live streaming performers, 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. (vi) 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, 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 rebate 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 non-cash consideration in some situations, the value of the non-cash 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, 2020, 2021 and 2022, revenue from rendering adverting services in exchange for non-cash consideration is insignificant. (vii) E-commerce The Group’s e-commerce revenue is primarily from its private label consumer lifestyle brand Yanxuan, which was established in April 2016. Yanxuan sells its private label products, including pet supplies, home cleaning products, bedding and other categories which mainly source directly from some excellent manufacturers. 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, 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 “Accrued liabilities and other payables” and “Inventories”, respectively, on the Group’s consolidated balance sheets. Both of the balances are not material as of December 31, 2020, 2021 and 2022. (viii) Fee-based premium services Fee-based premium services revenues, mostly operated on either consumption-basis or a monthly subscription basis, are derived principally from providing premium 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. Practical expedients The Group has used the following practical expedients as allowed under ASC 606: (i) The effects of a significant financing component have 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 of permanent virtual items and the estimated average playing period of paying players for PC games and 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 certain 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’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, 2021 and 2022 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. Refer to Note 16 - Contract liabilities for further information, including changes in contract liabilities 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, 2020, 2021 and 2022, 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, 2020, 2021 and 2022, 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, 2021 and 2022, there were cash at bank and demand deposits with terms of less than three months denominated in U.S. dollars amounting to approximately US$398.4 million and US$623.8 million, respectively (equivalent to approximately RMB2,540.3 million and RMB4,344.7 million, respectively). Time deposits represent time deposits placed with banks with original maturities of three months or more. As of December 31, 2021 and 2022, there were time deposits denominated in U.S. dollars amounting to approximately US$6,847.0 million and US$8,421.0 million, respectively (equivalent to approximately RMB43,654.4 million and RMB58,648.9 million, respectively). As of December 31, 2021 and 2022, the Group had approximately RMB40.5 billion and RMB48.1 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and the VIEs, representing 44.4% and 42.6% of total cash and cash equivalents and time deposits of the Group, respectively. As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2021 2022 RMB RMB Customer deposit of NetEase Pay accounts 2,091.3 2,627.5 Deposit required by the PRC government authorities related to Youdao’s educational services 749.8 0.9 Others 36.9 70.9 Total 2,878.0 2,699.3 The Group had no other material lien arrangements during 2021 and 2022. |
Receivables, net | (g) Receivables, net The Group closely monitors the collection of its receivables and records a reserve for doubtful accounts against aged accounts and for specifically identified non-recoverable amounts for periods prior to January 1, 2020. 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. Receivable balances are written off when they are determined to be uncollectible. From January 1, 2020, the Group’s receivables are subject to the measurement of credit losses within the scope of ASC Topic 326. The impact of new standard was immaterial to the Company. The Group’s accounts receivable, other receivables recorded in prepayments and other current assets and other long-term receivables recorded in other long-term assets are within the scope of ASC Topic 326. Accounts receivable consist primarily of receivables from advertising customers, and receivables from distribution channels. To estimate expected credit losses, the Group has identified the relevant risk characteristics of its customers and the related receivables and other receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. This is assessed at each quarter based on the Group’s specific facts and circumstances. The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Balance at the beginning of year 77,147 113,253 369,982 Provisions 40,600 265,930 61,393 Write-offs (4,494) (9,201) (28,015) Balance at the end of year 113,253 369,982 403,360 |
Fair value of financial instruments | (h) 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, contract liabilities and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 29 for additional information. |
Inventories | (i) Inventories Inventories 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 | (j) 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 maturity 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)”. 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 7 and Note 29 for additional information. Long-term investments Long-term investments are mainly 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. Unrealized gains and losses for the years ended December 31, 2020, 2021 and 2022 are recognized in other income/(expense). For 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 common stocks or in-substance common stocks, as these equity securities do not have readily determinable fair value, the Group measure these equity securities investments 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 without readily determinable fair value, realized and unrealized, are recognized in other income /(expense). 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 periodically, or when 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 statements of operations and comprehensive income to the extent the carrying amount exceeds the fair value. Significant judgments 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) estimating the impairment amount if an impairment exists; and (iii) judgements as to whether a decline in value of equity method investments was other than temporary. These judgments consider various factors and events including: a) significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investees; b) significant adverse change in the regulatory, economic, or technological environment of the investees; c) significant adverse change in the general market condition of either the geographical area or the industry in which the investees operate; d) bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; e) factors that raise significant concerns about the investees’ ability to continue as a going concern; f) factors that raise significant concerns about the performance of new products and g) valuation methods and key estimates in the determination of the impairment amounts. Key estimates mainly comprised the severity and duration of the impairment indicator and the existence of any positive or mitigating factors. 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 statements of operations and comprehensive income for a decline in value that is determined to be other than temporary. |
Leases | (k) Leases 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, 2021 and 2022, the Group has no material 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 obtains 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 | (l) 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 | (m) Land use rights Land use rights represent lease prepayments to the local government authorities. 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, net” 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, 2020, 2021 and 2022. |
Intangible assets | (n) 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 7-10 years Trademark 10 years The Group obtains music content for customers through licensing agreements. When the license fee for music title is determinable or reasonably estimable, the content is available for streaming and the Group has a binding obligation for the payment, 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. Intangible assets and other long-term assets are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When these events occur, the Group evaluates the impairment for intangible assets and other long-term assets by comparing the carrying amount of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over the fair value of the assets. |
Goodwill | (o) Goodwill Goodwill represents the excess of the purchase consideration over the fair value of the identifiable assets and liabilities acquired as a result of the Group’s acquisitions of interests in its subsidiaries and consolidated VIEs. The Group allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis, or more frequently if events occur or circumstances change that indicate that it is more likely than not the fair value of a reporting unit would be below its carrying value. A goodwill impairment loss, if any, shall be measured as the amount by which the carrying amount of the reporting unit including goodwill exceeds its fair value, limited to the total carrying amount of goodwill allocated to that reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the growth rate for business, estimation of the useful life over which cash flows will occur, and determination of weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. |
Advertising expenses | (p) Advertising expenses The Group expenses advertising costs as incurred and reports these costs under selling and marketing expense. Advertising expenses totaled approximately RMB3,782.1 million, RMB3,762.8 million and RMB5,196.0 million (US$753.4 million) for the years ended December 31, 2020, 2021, and 2022, respectively. |
Foreign currency translation | (q) Foreign currency translation The Group’s reporting currency is RMB. The Company and its subsidiaries and the VIEs, with an exception of many overseas subsidiaries, use RMB as their functional currency. Several of the Company’s overseas subsidiaries used US$ or their respective local currencies as their functional currency. The determination of the respective functional currency is based on the criteria of ASC 830, Foreign Currency Matters. 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 = RMB6.8972 on the last trading day of 2022 (December 30, 2022) 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 | (r) Share-based compensation Under its 2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan (see Note 22(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. Effective February 22, 2023, the Board of Directors of the Company amended and restated the 2019 Restricted Share Unit Plan to permit the grant of stock option awards thereunder as an additional award type and to make certain other ministerial and administrative changes and renamed it the NetEase, Inc. Amended and Restated 2019 Share Incentive Plan (the “Amended and Restated 2019 Plan”). 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 four 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 22 for further information regarding share-based compensation assumptions and expense. |
Taxation | (s) 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. On March 16, 2007, the National People’s Congress of PRC enacted the Enterprise Income Tax (“EIT”) Law which imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. 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, 2020, 2021 and 2022. The Group did not have any significant unrecognized uncertain tax positions as of December 31, 2021 and 2022. 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") | (t) 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 | (u) Statutory reserves The Company’s subsidiaries and the 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 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. |
Business combination | (v) Business combination The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Group may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded on the consolidated statements of operations and comprehensive income. In a business combination achieved in stages, the Group re-measures the previously held equity interests in the acquiree when obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized on the consolidated statements of operations and comprehensive income. When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained noncontrolling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary. |
Noncontrolling interests and redeemable noncontrolling interests | (w) Noncontrolling interests and redeemable noncontrolling interests Noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and the 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 19), 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 | (x) 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 | (y) 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. |
Segment reporting | (z) 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 28. |
Dividends | (aa) Dividends Dividends of the Company are recognized when declared. |
Recently adopted accounting pronouncements | ( bb ) Recently adopted accounting pronouncements In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements. |
Recently issued accounting pronouncements not yet adopted | (cc) Recently issued accounting pronouncements not yet adopted In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively with any adjustments from the adoption recognized in earnings and disclosed on the date of adoption, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on the consolidated financial statements. |
Organization and Nature of Op_2
Organization and Nature of Operations (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Organization and Nature of Operations | |
Schedule of major subsidiaries and VIEs | The major subsidiaries and the VIEs through which the Company conducts its business operations as of December 31, 2022 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 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 VIEs included in the accompanying consolidated financial statements of the Group | The following combined financial information of the VIEs was included in the accompanying consolidated financial statements of the Group as follows (in thousands): December 31, December 31, 2021 2022 RMB RMB Cash and cash equivalents 1,541,763 2,303,280 Time deposits 71,000 400,000 Restricted cash 2,846,372 2,654,971 Accounts receivable, net 3,924,446 3,542,272 Inventories 83,672 67,572 Prepayments and other current assets, net 2,522,572 1,867,110 Short-term investments 618,000 73,984 Amounts due from Group companies 7,581,649 9,917,091 Assets held for sale 204 — Total current assets 19,189,678 20,826,280 Property, equipment and software, net 61,343 78,666 Operating lease right-of-use assets, net 58,872 54,653 Deferred tax assets 124,738 155,595 Restricted cash 479 200 Long-term investments 862,839 885,372 Other long-term assets 385,231 164,968 Total non-current assets 1,493,502 1,339,454 Total assets 20,683,180 22,165,734 Accounts payable 463,601 802,717 Salary and welfare payables 115,707 155,478 Taxes payable 157,137 41,352 Short-term loans 52,963 422 Contract liabilities 10,751,917 11,465,101 Accrued liabilities and other payables 2,945,930 3,809,049 Short-term operating lease liabilities 24,991 20,690 Amounts due to Group companies 3,904,328 3,937,784 Total current liabilities 18,416,574 20,232,593 Long-term operating lease liabilities 34,077 34,291 Other long-term payable 257,874 263,373 Total non-current liabilities 291,951 297,664 Total liabilities 18,708,525 20,530,257 For the year ended December 31, 2020 2021 2022 RMB RMB RMB Net revenues Third-party revenues 61,470,764 74,406,521 82,549,444 Intra-Group revenues 720,398 808,648 817,962 Total net revenues 62,191,162 75,215,169 83,367,406 Cost of revenues and operating expenses Third-party cost of revenues and operating expenses (15,430,950) (17,651,675) (18,358,287) Intra-Group cost of revenues and operating expenses related to technical consulting and related service (45,835,734) (56,822,482) (64,777,586) Other intra-Group cost of revenues and operating expenses (217,463) (168,850) (185,608) Total cost of revenues and operating expenses (61,484,147) (74,643,007) (83,321,481) Net income 712,015 624,299 (81,329) For the year ended December 31, 2020 2021 2022 RMB RMB RMB Cash flows from operating activities: Net cash provided by transactions with third-parties 51,605,737 61,272,031 67,459,864 Net cash used in transactions with intra-Group companies related to technical consulting and related service (49,435,342) (59,439,552) (66,970,818) Net cash (used in)/ provided by other transactions with intra-Group companies (498,938) (283,621) 299,452 Net cash provided by operating activities 1,671,457 1,548,858 788,498 Cash flows from investing activities: Net cash used in transactions with third-parties (263,766) (39,430) (71,832) Net cash used in investing activities (263,766) (39,430) (71,832) Cash flows from financing activities: Net cash provided by/(used in) transactions with intra-Group companies 273,889 (622,809) (105,448) Net cash used in transactions with third-parties — (678,287) (52,541) Net cash provided by/(used in) financing activities 273,889 (1,301,096) (157,989) |
Principal Accounting Policies_2
Principal Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Principal Accounting Policies | |
Schedule of restricted cash balance | As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions): December 31, December 31, 2021 2022 RMB RMB Customer deposit of NetEase Pay accounts 2,091.3 2,627.5 Deposit required by the PRC government authorities related to Youdao’s educational services 749.8 0.9 Others 36.9 70.9 Total 2,878.0 2,699.3 |
Schedule of movements of the allowance for expected credit losses | The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Balance at the beginning of year 77,147 113,253 369,982 Provisions 40,600 265,930 61,393 Write-offs (4,494) (9,201) (28,015) Balance at the end of year 113,253 369,982 403,360 |
Schedule of property, equipment and software 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 7-10 years Trademark 10 years |
Acquisition (Tables)
Acquisition (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Acquisition | |
Schedule of consideration allocation on the acquisition date based on fair value of the assets acquired and the liabilities assumed | Major acquisition in 2020 In 2020, the Group acquired an additional 33.1% equity interest of a previously held equity investment with total cash consideration of RMB168.3 million. Upon the acquisition, the Group increased its equity interest in this investment from 30.0% to 63.1%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB130.1 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2020. Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): Amounts RMB Net assets acquired (i) 16,440 Amortizable intangible assets (ii) Trademark 59,300 Developed technology 182,200 Deferred tax liabilities (60,375) Goodwill 311,109 Noncontrolling interests (187,762) Total 320,912 (i) Net assets acquired mainly included cash and cash equivalents as of the date of acquisition. (ii) Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”. Acquisitions in 2021 In 2021, the Group completed several acquisitions to complete its existing businesses and achieve synergies. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2021 are summarized in the following table (in thousands): Amounts RMB Net assets acquired 76,132 Amortizable intangible assets (i) Trademark 64,662 Other identified intangible assets 13,750 Deferred tax liabilities (13,293) Goodwill 276,463 Redeemable noncontrolling interests (106,368) Total 311,346 (i) Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised. In relation to the revaluation of the previously held equity interests, a loss of RMB2.5 million was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2021. Acquisitions in 2022 In 2022, the Group completed several acquisitions to complete its existing businesses and achieve synergies. Among them, the Group acquired an additional 50.5% equity interest of a previously held equity investment with total cash consideration of RMB760.4 million. Upon the acquisition, the Group increased its equity interest in this investment from 41.5% to 92.0%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB310.4 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2022. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2022 are summarized in the following table (in thousands): Amounts RMB Net liabilities acquired (34,671) Amortizable intangible assets (i) Trademark 143,146 Other identified intangible assets 525,853 Deferred tax liabilities (104,137) Goodwill 1,571,206 Noncontrolling interests (122,983) Total 1,978,414 (i) Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”. |
Concentrations and Risks (Table
Concentrations and Risks (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Service providers | Server and bandwidth service provider | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | For the year ended December 31, 2020 2021 2022 Total number of telecommunications service providers 87 135 126 Number of service providers, offering 10% or more of the Group’s server and bandwidth service expenditure 3 4 4 Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers 62.3 % 67.2 % 62.7 % |
Accounts receivable | Credit risk | |
Concentrations and Risks | |
Schedule of concentration risk by risk factor | December 31, December 31, 2021 2022 Distribution channel A 20.2 % 17.8 % |
Prepayments and Other Current_2
Prepayments and Other Current Assets (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2021 2022 RMB RMB Guarantee payment made to Blizzard - royalty fees 319,210 634,909 Prepayment for royalties, revenue sharing cost 2,635,766 1,787,638 Receivable due from Alibaba 837,148 38,366 Interest and other operating income receivable 676,714 1,373,854 Prepayments of content and marketing cost and other operational expenses 826,220 725,183 Prepayment for sales tax and deductible value added tax 483,397 492,552 Bridge loans in connection with ongoing investments 41,835 43,313 Deposits 86,621 68,285 Employee advances 67,848 61,480 Advance to suppliers 134,712 105,903 Others 126,386 116,801 6,235,857 5,448,284 |
Short-term Investments (Tables)
Short-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Short-term Investments | |
Summary of short-term investments | The following is a summary of short-term investments (in thousands): December 31, 2021 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 12,081,868 199,680 12,281,548 December 31, 2022 Unrealized Estimated Cost Gains/(Losses) Fair Value RMB RMB RMB Short-term investments 7,563,805 58,868 7,622,673 |
Property, Equipment and Softw_2
Property, Equipment and Software, net (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Property, Equipment and Software, net | |
Summary of property, equipment and software | The following is a summary of property, equipment and software (in thousands): December 31, December 31, 2021 2022 RMB RMB Building and decoration 3,676,626 3,875,063 Leasehold improvements 287,510 304,365 Furniture, fixtures, office and other equipment 339,791 379,938 Vehicles 98,651 102,823 Servers and computers 5,417,716 6,018,709 Software 237,550 344,410 Construction in progress 653,239 1,587,413 10,711,083 12,612,721 Less: accumulated depreciation (5,277,225) (6,270,391) Net book value 5,433,858 6,342,330 |
Land Use Rights, net (Tables)
Land Use Rights, net (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Land use rights | |
Land Use Rights, net | |
Summary of land use rights | The land use rights are summarized as follows (in thousands): December 31, December 31, 2021 2022 RMB RMB Cost 4,415,809 4,521,308 Incentive payment from local government (15,000) (15,000) Accumulated amortization (292,719) (384,541) Land use right, net 4,108,090 4,121,767 |
Leases (Tables)
Leases (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Leases | |
Schedule of information related to operating leases | The following table provides information related to the Group’s operating leases (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Operating lease cost (i) 433,412 580,375 528,474 Cash paid for amounts included in the measurement of operating lease liabilities 323,836 503,127 471,214 Right-of-use assets obtained in exchange for operating lease obligations 658,168 763,919 336,381 (i) Included short-term lease cost of RMB 27.6 million, RMB 31.4 million and RMB 27.4 million and amortization expenses of land use rights of RMB 84.7 million, RMB 87.4 million and RMB 91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively. |
Schedule of information related to operating lease terms and discount rates, which excludes the land use rights | December 31, December 31, 2021 2022 Weighted average remaining lease term 2.84 years 3.22 years Weighted average discount rate 3.95 % 3.82 % |
Schedule of maturities of operating lease liabilities | Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands): RMB 2023 297,607 2024 232,019 2025 138,099 2026 102,114 2027 76,546 Thereafter 183,808 Total operating lease payments 1,030,193 Less: imputed interest (98,500) Total 931,693 |
Long-term Investments (Tables)
Long-term Investments (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Long-term Investments | |
Schedule of long-term investments | The following is a summary of long-term investments (in thousands): December 31, December 31, 2021 2022 RMB RMB Investments in equity method investees 3,776,245 5,239,242 Equity investments with readily determinable fair values 5,886,911 2,567,268 Equity investments without readily determinable fair values 8,802,976 10,463,304 Investments accounted for at fair values 194,280 246,073 Debt investments 144,490 28,471 18,804,902 18,544,358 |
Other Long-term Assets (Tables)
Other Long-term Assets (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2021 2022 RMB RMB Copyrights, licenses, domain names, trademark and technology 2,617,164 2,117,688 Long-term receivable 58,366 1,638,572 Long-term interest receivables 98,594 100,397 Goodwill 595,280 2,166,486 Staff housing loans 55,275 39,228 Non-current deposits 150,666 174,357 Others 433,111 569,727 4,008,456 6,806,455 |
Schedule of goodwill | December 31, December 31, 2021 2022 RMB RMB Beginning balance 318,943 595,280 Additions 276,337 1,571,206 Ending balance 595,280 2,166,486 |
Taxation (Tables)
Taxation (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2020, 2021 and 2022 (in thousands except per share data): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Aggregate amount of EIT exemptions and tax rate reductions 1,969,414 2,238,907 2,631,764 Earnings per share effect, basic 0.60 0.67 0.81 Earnings per share effect, diluted 0.59 0.66 0.80 |
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, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Current tax expense 2,953,670 3,720,321 4,542,168 Deferred tax expense 88,179 407,948 489,670 Income tax expenses 3,041,849 4,128,269 5,031,838 |
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, 2020 2021 2022 % % % Statutory income tax rate 25.0 25.0 25.0 Permanent differences (1.9) (2.7) (5.0) Effect due to different tax rates applicable to overseas entities (0.5) (1.8) 0.2 Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs (16.5) (10.1) (10.1) Change in valuation allowance 6.8 3.9 1.8 Effect of withholding income tax (d) 6.9 5.3 8.8 Effective income tax rate 19.8 19.6 20.7 (d) Withholding income tax The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. On February 22, 2008, the Ministry of Finance and State Taxation Administration 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. The Group accrued RMB1,056.9 million, RMB1,124.4 million and RMB2,144.4 million (US$310.9 million) withholding tax liabilities associated with all of its earnings expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes in 2020, 2021 and 2022, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2020, 2021 and 2022. As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries. |
Summary of net operating tax loss carry forwards | As of December 31, 2022, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): RMB Loss expiring in 2023 3,371,946 Loss expiring in 2024 3,054,886 Loss expiring in 2025 2,191,529 Loss expiring in 2026 2,571,936 Loss expiring after 2027 3,934,633 15,124,930 |
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, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Deferred tax assets: Contract liabilities, primarily for advanced payments from online games customers 776,719 1,009,624 Accruals 641,198 654,348 Depreciation of fixed assets 11,557 4,883 Amortization of intangible assets 4,331 2,217 Net operating tax loss carry forward 3,513,019 3,781,233 4,946,824 5,452,305 Less: valuation allowance (3,648,870) (3,971,516) Total 1,297,954 1,480,789 December 31, December 31, 2021 2022 RMB RMB Deferred tax liabilities: Withholding income tax (d) 1,257,552 1,947,190 Others 88,322 178,930 Total 1,345,874 2,126,120 (d) Withholding income tax The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. On February 22, 2008, the Ministry of Finance and State Taxation Administration 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. The Group accrued RMB1,056.9 million, RMB1,124.4 million and RMB2,144.4 million (US$310.9 million) withholding tax liabilities associated with all of its earnings expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes in 2020, 2021 and 2022, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2020, 2021 and 2022. As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries. |
Schedule of movement of the aggregate valuation allowances for deferred tax assets | Balance at Provision Balance at January 1 for the year December 31 RMB RMB RMB 2020 2,148,879 1,106,975 3,255,854 2021 3,255,854 393,016 3,648,870 2022 3,648,870 322,646 3,971,516 |
Taxes Payable (Tables)
Taxes Payable (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Taxes Payable | |
Summary of taxes payable | The following is a summary of taxes payable as of December 31, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Sales Tax payable 681,815 290,272 Withholding individual income taxes for employees 263,845 306,861 EIT payable 3,459,307 2,116,014 Others 132,083 99,949 4,537,050 2,813,096 |
Accrued Liabilities and Other_2
Accrued Liabilities and Other Payables (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2021 and 2022 (in thousands): December 31, December 31, 2021 2022 RMB RMB Customer deposits on NetEase Pay accounts 2,388,546 3,113,107 Marketing expenses and promotion materials 1,857,133 2,046,559 Accrued fixed assets related payables 706,583 635,566 Server and bandwidth service fees 264,513 246,243 Accrued revenue sharing 1,176,349 1,032,559 Content cost 838,293 1,703,218 Professional fees and technical charges 608,752 595,491 Accrued freight and warehousing charge 84,490 105,356 Administrative expenses and other staff related cost 399,753 414,214 Deferred government grants 174,241 179,961 Acquisition considerations — 203,584 Customer refund for licensed games — 283,763 Others 527,855 562,401 9,026,508 11,122,022 |
Employee Benefits (Tables)
Employee Benefits (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2020, 2021 and 2022 (in millions): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Contributions to medical and pension schemes 769.4 1,463.8 1,710.4 Other employee benefits 766.8 1,044.5 1,202.8 1,536.2 2,508.3 2,913.2 |
Share-based Compensation (Table
Share-based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Cost of revenues 794,855 833,389 758,413 Selling and marketing expenses 102,300 118,611 120,171 General and administrative expenses 929,013 1,105,547 1,214,995 Research and development expenses 837,321 983,945 1,080,581 2,663,489 3,041,492 3,174,160 |
Restricted share units | |
Share based Compensation | |
Summary of the company's RSUs award activities | The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2020, 2021 and 2022: Weighted average grant date fair Number of RSUs value (in thousands) US$ Outstanding at January 1, 2020 14,075 49.00 Granted 6,269 68.35 Vested (5,832) 48.02 Forfeited (416) 54.47 Outstanding at December 31, 2020 14,096 57.85 Outstanding at January 1, 2021 14,096 57.85 Granted 4,579 110.19 Vested (5,067) 58.02 Forfeited (612) 75.29 Outstanding at December 31, 2021 12,996 75.40 Outstanding at January 1, 2022 12,996 75.40 Granted 5,335 93.98 Vested (4,630) 75.01 Forfeited (696) 84.55 Outstanding at December 31, 2022 13,005 82.67 |
Net Income Per Share (Tables)
Net Income Per Share (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Net Income Per Share | |
Schedule of computation of basic and diluted net income per share | For the year ended December 31, 2020 2021 2022 Numerator (RMB in thousands): Net income from continuing operations attributable to the Company’s shareholders 12,062,754 16,856,842 19,712,736 Net income from discontinued operations attributable to the Company’s shareholders — — 624,864 Net income attributable to the Company’s shareholders for basic/dilutive net income per share calculation 12,062,754 16,856,842 20,337,600 Denominator (No. of shares in thousands): Weighted average number of ordinary shares outstanding, basic 3,305,448 3,325,864 3,263,455 Dilutive effect of restricted share units 44,311 41,614 32,559 Weighted average number of ordinary shares outstanding, diluted 3,349,759 3,367,478 3,296,014 Net income per share from continuing operations attributable to the Company’s shareholders, basic (RMB) 3.65 5.07 6.04 Net income per share from discontinued operations attributable to the Company’s shareholders, basic (RMB) — — 0.19 Net income per share, basic (RMB) 3.65 5.07 6.23 Net income per share from continuing operations attributable to the Company’s shareholders, diluted (RMB) 3.60 5.01 5.98 Net income per share from discontinued operations attributable to the Company’s shareholders, diluted (RMB) — — 0.19 Net income per share, diluted (RMB) 3.60 5.01 6.17 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Commitments and Contingencies | |
Schedule of future commitments under various contracts | As of December 31, 2022, future minimum payment for server and bandwidth service fee commitments, capital commitments, royalties and other expenditures commitments related to licensed contents, 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 2023 553,533 1,971,894 1,034,633 313,287 3,873,347 2024 341,458 756,196 18,111 17,098 1,132,863 2025 244,584 206,918 — — 451,502 2026 103,392 111,562 — — 214,954 Beyond 2026 31,970 52,146 — — 84,116 1,274,937 3,098,716 1,052,744 330,385 5,756,782 |
Segment Information (Tables)
Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
Segment Information | |
Summary of the Group's operating segment results | There was no significant transaction between reportable segments for the years ended December 31, 2020, 2021 and 2022 (in thousands). For the year ended December 31, 2020 2021 2022 RMB RMB RMB Net revenues: Games and related value-added services 58,719,895 67,819,288 74,566,471 Youdao 3,167,515 5,354,357 5,013,182 Cloud Music 4,895,731 6,997,622 8,992,221 Innovative businesses and others 6,883,992 7,434,759 7,923,935 Total net revenues 73,667,133 87,606,026 96,495,809 Cost of revenues: Games and related value-added services (22,730,558) (26,007,412) (27,784,419) Youdao (1,713,229) (2,448,146) (2,430,738) Cloud Music (5,491,066) (6,854,948) (7,699,103) Innovative businesses and others (4,748,878) (5,324,719) (5,815,423) Total cost of revenues (34,683,731) (40,635,225) (43,729,683) Gross profit: Games and related value-added services 35,989,337 41,811,876 46,782,052 Youdao 1,454,286 2,906,211 2,582,444 Cloud Music (595,335) 142,674 1,293,118 Innovative businesses and others 2,135,114 2,110,040 2,108,512 Total gross profit 38,983,402 46,970,801 52,766,126 |
Schedule of disaggregation of net revenues by timing of revenue recognition | The following table set forth the disaggregation of net revenues by timing of revenue recognition for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB A point in time 15,911,575 19,581,668 23,322,675 Over time 57,755,558 68,024,358 73,173,134 Total Net revenue 73,667,133 87,606,026 96,495,809 |
Schedule of total depreciation expenses of property and equipment recorded under cost of revenues by segment | The following table presents the total depreciation expenses of property and equipment recorded under cost of revenues by segment for the years ended December 31, 2020, 2021 and 2022 (in thousands): For the year ended December 31, 2020 2021 2022 RMB RMB RMB Games and related value-added services 270,457 278,780 339,300 Youdao 7,239 9,330 11,610 Cloud Music 6,878 3,827 6,044 Innovative businesses and others 189,536 114,442 129,693 Total depreciation expenses of property and equipment 474,110 406,379 486,647 |
Financial Instruments (Tables)
Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2022 | |
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, 2021 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Equity investments with readily determinable fair values 5,886,911 5,886,911 — — Short-term investments 12,281,548 — 12,281,548 — Investments accounted for at fair values 194,280 — — 194,280 Total 18,362,739 5,886,911 12,281,548 194,280 The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2022 (in thousands): Fair Value Measurements (RMB) Quoted Prices in Active Market Significant Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Equity investments with readily determinable fair values 2,567,268 2,567,268 — — Short-term investments 7,622,673 — 7,622,673 — Investments accounted for at fair values 246,073 — — 246,073 Total 10,436,014 2,567,268 7,622,673 246,073 |
Organization and Nature of Op_3
Organization and Nature of Operations (Details) $ / shares in Units, $ in Millions | 1 Months Ended | |
Jun. 30, 2020 HKD ($) $ / shares shares | Apr. 30, 2009 employee | |
HZ Leihuo | ||
Principle subsidiaries and variable interest entities | ||
Number of employees incorporating new entity | employee | 2 | |
Global offering on the main board of the Hong Kong Stock Exchange | Ordinary shares | ||
Principle subsidiaries and variable interest entities | ||
Issuance of shares in Hong Kong (in shares) | shares | 197,202,000 | |
Share price (in HK dollars per share) | $ / shares | $ 123 | |
Gross proceeds from issuance of stock | $ | $ 24,255.8 |
Organization and Nature of Op_4
Organization and Nature of Operations - Combined financial information of the VIEs (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | Dec. 31, 2022 USD ($) | |
Consolidated Balance Sheets | |||||
Cash and cash equivalents | ¥ 24,889,000 | ¥ 14,498,157 | $ 3,608,566 | ||
Time deposits | 84,947,679 | 70,754,846 | 12,316,256 | ||
Restricted cash | 2,699,055 | 2,876,628 | 391,326 | ||
Accounts receivable, net | 5,002,872 | 5,507,988 | 725,348 | ||
Inventories | 993,636 | 964,733 | 144,064 | ||
Prepayments and other current assets, net | 5,448,284 | 6,235,857 | 789,927 | ||
Short-term investments | 7,622,673 | 12,281,548 | 1,105,184 | ||
Assets held for sale | 497 | ||||
Total current assets | 131,603,199 | 113,120,254 | 19,080,671 | ||
Property, equipment and software, net | 6,342,330 | 5,433,858 | 919,551 | ||
Operating lease right-of-use assets, net | 887,977 | 1,044,152 | 128,745 | ||
Deferred tax assets | 1,480,789 | 1,297,954 | 214,694 | ||
Restricted cash | 270 | 1,330 | 39 | ||
Long-term investments | 18,544,358 | 18,804,902 | 2,688,679 | ||
Other long-term assets | 6,806,455 | 4,008,456 | 986,844 | ||
Total non-current assets | 41,157,786 | 40,523,670 | 5,967,318 | ||
Total assets | 172,760,985 | 153,643,924 | 25,047,989 | ||
Accounts payable | 1,507,141 | 985,059 | 218,515 | ||
Salary and welfare payables | 4,732,941 | 4,133,254 | 686,212 | ||
Taxes payable | 2,813,096 | 4,537,050 | 407,861 | ||
Short-term loans | 23,875,704 | 19,352,313 | 3,461,652 | ||
Contract liabilities | 12,518,890 | 12,132,743 | 1,815,068 | ||
Accrued liabilities and other payables | 11,122,022 | 9,026,508 | 1,612,542 | ||
Short-term operating lease liabilities | 259,053 | 334,399 | 37,559 | ||
Total current liabilities | 56,828,847 | 50,501,326 | 8,239,409 | ||
Long-term operating lease liabilities | 672,640 | 732,127 | 97,524 | ||
Other long-term payable | 604,934 | 365,581 | 87,707 | ||
Total non-current liabilities | 7,058,658 | 3,718,722 | 1,023,409 | ||
Total liabilities | 63,887,505 | 54,220,048 | $ 9,262,818 | ||
Net revenues | |||||
Total net revenues | 96,495,809 | $ 13,990,577 | 87,606,026 | ¥ 73,667,133 | |
Cost of revenues and operating expenses | |||||
Net income | 19,843,290 | 2,877,007 | 16,976,190 | 12,330,235 | |
Cash flows from operating activities: | |||||
Net cash (used in)/provided by operating activities | 27,709,233 | 4,017,461 | 24,926,727 | 24,888,171 | |
Cash flows from investing activities: | |||||
Net cash used in investing activities | (7,369,727) | (1,068,511) | (7,078,294) | (29,192,407) | |
Cash flows from financing activities: | |||||
Net cash provided by/(used in) financing activities | (10,237,699) | $ (1,484,326) | (12,585,569) | 9,913,087 | |
Primary Beneficiary Consolidated VIEs | |||||
Consolidated Balance Sheets | |||||
Cash and cash equivalents | 2,303,280 | 1,541,763 | |||
Time deposits | 400,000 | 71,000 | |||
Restricted cash | 2,654,971 | 2,846,372 | |||
Accounts receivable, net | 3,542,272 | 3,924,446 | |||
Inventories | 67,572 | 83,672 | |||
Prepayments and other current assets, net | 1,867,110 | 2,522,572 | |||
Short-term investments | 73,984 | 618,000 | |||
Amounts due from Group companies | 9,917,091 | 7,581,649 | |||
Assets held for sale | 204 | ||||
Total current assets | 20,826,280 | 19,189,678 | |||
Property, equipment and software, net | 78,666 | 61,343 | |||
Operating lease right-of-use assets, net | 54,653 | 58,872 | |||
Deferred tax assets | 155,595 | 124,738 | |||
Restricted cash | 200 | 479 | |||
Long-term investments | 885,372 | 862,839 | |||
Other long-term assets | 164,968 | 385,231 | |||
Total non-current assets | 1,339,454 | 1,493,502 | |||
Total assets | 22,165,734 | 20,683,180 | |||
Accounts payable | 802,717 | 463,601 | |||
Salary and welfare payables | 155,478 | 115,707 | |||
Taxes payable | 41,352 | 157,137 | |||
Short-term loans | 422 | 52,963 | |||
Contract liabilities | 11,465,101 | 10,751,917 | |||
Accrued liabilities and other payables | 3,809,049 | 2,945,930 | |||
Short-term operating lease liabilities | 20,690 | 24,991 | |||
Amounts due to Group companies | 3,937,784 | 3,904,328 | |||
Total current liabilities | 20,232,593 | 18,416,574 | |||
Long-term operating lease liabilities | 34,291 | 34,077 | |||
Other long-term payable | 263,373 | 257,874 | |||
Total non-current liabilities | 297,664 | 291,951 | |||
Total liabilities | 20,530,257 | 18,708,525 | |||
Net revenues | |||||
Total net revenues | 83,367,406 | 75,215,169 | 62,191,162 | ||
Cost of revenues and operating expenses | |||||
Total cost of revenues and operating expenses | (83,321,481) | (74,643,007) | (61,484,147) | ||
Net income | (81,329) | 624,299 | 712,015 | ||
Cash flows from operating activities: | |||||
Net cash (used in)/provided by operating activities | 788,498 | 1,548,858 | 1,671,457 | ||
Cash flows from investing activities: | |||||
Net cash used in investing activities | (71,832) | (39,430) | (263,766) | ||
Cash flows from financing activities: | |||||
Net cash provided by/(used in) financing activities | (157,989) | (1,301,096) | 273,889 | ||
Primary Beneficiary Consolidated VIEs' third-parties | |||||
Net revenues | |||||
Total net revenues | 82,549,444 | 74,406,521 | 61,470,764 | ||
Cost of revenues and operating expenses | |||||
Total cost of revenues and operating expenses | (18,358,287) | (17,651,675) | (15,430,950) | ||
Cash flows from operating activities: | |||||
Net cash (used in)/provided by operating activities | 67,459,864 | 61,272,031 | 51,605,737 | ||
Cash flows from investing activities: | |||||
Net cash used in investing activities | (71,832) | (39,430) | (263,766) | ||
Cash flows from financing activities: | |||||
Net cash provided by/(used in) financing activities | (52,541) | (678,287) | |||
Primary Beneficiary Consolidated VIEs' intra-Group companies | |||||
Net revenues | |||||
Total net revenues | 817,962 | 808,648 | 720,398 | ||
Cash flows from financing activities: | |||||
Net cash provided by/(used in) financing activities | (105,448) | (622,809) | 273,889 | ||
Primary Beneficiary Consolidated VIEs' intra-Group companies | Technical consulting and related service | |||||
Cost of revenues and operating expenses | |||||
Total cost of revenues and operating expenses | (64,777,586) | (56,822,482) | (45,835,734) | ||
Cash flows from operating activities: | |||||
Net cash (used in)/provided by operating activities | (66,970,818) | (59,439,552) | (49,435,342) | ||
Primary Beneficiary Consolidated VIEs' intra-Group companies | Other | |||||
Cost of revenues and operating expenses | |||||
Total cost of revenues and operating expenses | (185,608) | (168,850) | (217,463) | ||
Cash flows from operating activities: | |||||
Net cash (used in)/provided by operating activities | ¥ 299,452 | ¥ (283,621) | ¥ (498,938) |
Organization and Nature of Op_5
Organization and Nature of Operations - Additional information (Details) | 12 Months Ended | ||||
Dec. 01, 2015 | May 12, 2010 | May 12, 2000 | Dec. 31, 2022 CNY (¥) entity | Dec. 31, 2021 CNY (¥) entity | |
Principle subsidiaries and variable interest entities | |||||
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 | 659,700,000 | ¥ 519,700,000 | |||
Non-distributable statutory reserves of the consolidated VIEs | ¥ 82,400,000 | ¥ 70,100,000 | |||
Number of entities for which the company has a variable interest but is not the primary beneficiary | entity | 0 | 0 | |||
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 | ||||
HZ Leihuo | Operating agreement | |||||
Principle subsidiaries and variable interest entities | |||||
Term of principal (or amended principal) agreement | 20 years |
Principal Accounting Policies -
Principal Accounting Policies - Basis of presentation (Details) | Oct. 01, 2020 | Sep. 30, 2020 |
Principal Accounting Policies | ||
ADS to ordinary share ratio | 5 | 25 |
Principal Accounting Policies_3
Principal Accounting Policies - Revenue recognition, cost of revenues and cash, cash equivalents and time deposits (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) item | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2021 USD ($) | |
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 | |||
Cash, cash equivalents and time deposits | ||||
Cash at bank and demand deposits | ¥ 24,889,000 | $ 3,608,566 | ¥ 14,498,157 | |
PRC subsidiaries and VIEs | ||||
Cash, cash equivalents and time deposits | ||||
Cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | ¥ | ¥ 48,100,000 | ¥ 40,500,000 | ||
Percentage of cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs | 42.60% | 42.60% | 44.40% | 44.40% |
Denominated in U.S. dollars | ||||
Cash, cash equivalents and time deposits | ||||
Cash at bank and demand deposits | ¥ 4,344,700 | $ 623,800 | ¥ 2,540,300 | $ 398,400 |
Time deposits | ¥ 58,648,900 | $ 8,421,000 | ¥ 43,654,400 | $ 6,847,000 |
Less than | ||||
Revenue recognition | ||||
Term of sublicenses of music contents | 3 years | |||
Term of advertising service contracts | 3 months | |||
Equal to or more than | ||||
Revenue recognition | ||||
Term of sublicenses of music contents | 1 year |
Principal Accounting Policies_4
Principal Accounting Policies - Restricted cash and other lien arrangements (Details) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2022 CNY (¥) agreement | Dec. 31, 2021 CNY (¥) agreement | |
Restricted cash | ||
Total | ¥ 2,699.3 | ¥ 2,878 |
Number of other lien arrangements | agreement | 0 | 0 |
Customer deposit | NetEase Pay | ||
Restricted cash | ||
Total | ¥ 2,627.5 | ¥ 2,091.3 |
Deposit required by the PRC government authorities related to Youdao's educational services | Youdao | ||
Restricted cash | ||
Total | 0.9 | 749.8 |
Others | ||
Restricted cash | ||
Total | ¥ 70.9 | ¥ 36.9 |
Principal Accounting Policies_5
Principal Accounting Policies - Receivables, net (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Principal Accounting Policies | ||||
Balance at the beginning of year | ¥ 369,982 | ¥ 113,253 | ¥ 77,147 | |
Provisions | 61,393 | $ 8,901 | 265,930 | 40,600 |
Write-offs | (28,015) | (9,201) | (4,494) | |
Balance at the end of year | ¥ 403,360 | ¥ 369,982 | ¥ 113,253 |
Principal Accounting Policies_6
Principal Accounting Policies - Property, equipment and software (Details) | 12 Months Ended |
Dec. 31, 2022 | |
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_7
Principal Accounting Policies - Intangible assets, advertising expenses and foreign currency translation (Details) ¥ in Millions, $ in Millions | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) $ / ¥ | Dec. 31, 2022 USD ($) $ / ¥ | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Advertising Expense | ||||
Advertising expenses | ¥ 5,196 | $ 753.4 | ¥ 3,762.8 | ¥ 3,782.1 |
Foreign currency translation | ||||
Buying rate per US$ | 6.8972 | 6.8972 | ||
License right | ||||
Intangible assets | ||||
Estimated useful lives of assets | over the license period | over the license period | ||
Technology | Equal to or more than | ||||
Intangible assets | ||||
Estimated useful lives of assets | 7 years | 7 years | ||
Technology | Less than | ||||
Intangible assets | ||||
Estimated useful lives of assets | 10 years | 10 years | ||
Trademark | ||||
Intangible assets | ||||
Estimated useful lives of assets | 10 years | 10 years |
Principal Accounting Policies_8
Principal Accounting Policies - Share-based compensation (Details) | 12 Months Ended |
Dec. 31, 2022 | |
Share based Compensation | |
Number of preceding years considered for estimating forfeiture | 5 years |
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan | Restricted share units | Equal to or more than | |
Share based Compensation | |
Service vesting period | 1 year |
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit 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 | 4 years |
Certain subsidiaries | Stock Options | Less than | |
Share based Compensation | |
Expiration period | 10 years |
Principal Accounting Policies_9
Principal Accounting Policies - Taxation (Details) | 12 Months Ended | |
Mar. 16, 2007 | Dec. 31, 2022 | |
Principal Accounting Policies | ||
Withholding tax rate on dividend distributed by foreign investment entities to its non-resident enterprise investors (as a percent) | 10% | 10% |
Lower withholding income tax rate on dividend applied, if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements (as a percent) | 5% | 5% |
Minimum equity interest in PRC entities (as a percent) | 25% | 25% |
Principal Accounting Policie_10
Principal Accounting Policies - Statutory reserves (Details) - PRC | 12 Months Ended |
Dec. 31, 2022 | |
General reserve fund | |
Statutory reserves | |
Required minimum percentage of annual appropriations | 10% |
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required | 50% |
Statutory surplus reserve | |
Statutory reserves | |
Required minimum percentage of annual appropriations | 10% |
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required | 50% |
Discontinued operations (Detail
Discontinued operations (Details) - 12 months ended Dec. 31, 2022 ¥ in Thousands, $ in Thousands | CNY (¥) | USD ($) |
Discontinued operations | ||
Net income from discontinued operations | ¥ 624,864 | $ 90,597 |
Kaola e-commerce business | Discontinued operations, disposed of by sale | ||
Discontinued operations | ||
Net income from discontinued operations | ¥ 624,900 | $ 90,600 |
Acquisition (Details)
Acquisition (Details) - CNY (¥) ¥ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | ||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Goodwill | ¥ 2,166,486 | ¥ 595,280 | ¥ 318,943 | |
Major acquisition in 2020 | ||||
Acquisition | ||||
Equity interest acquired (as a percent) | 33.10% | |||
Cash consideration | ¥ 168,300 | |||
Previously held equity interest in equity investments (as a percent) | 30% | |||
Equity interest after acquisition (as a percent) | 63.10% | |||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Net assets/(liabilities) acquired | [1] | ¥ 16,440 | ||
Deferred tax liabilities | (60,375) | |||
Goodwill | 311,109 | |||
Noncontrolling interests | (187,762) | |||
Total | 320,912 | |||
Major acquisition in 2020 | Trademark | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | [2] | 59,300 | ||
Major acquisition in 2020 | Developed technology | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | [2] | 182,200 | ||
Major acquisition in 2020 | Investment income, net | ||||
Acquisition | ||||
Gain in relation to the revaluation of the previously held equity interests | ¥ 130,100 | |||
Acquisitions in 2021 | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Net assets/(liabilities) acquired | 76,132 | |||
Deferred tax liabilities | (13,293) | |||
Goodwill | 276,463 | |||
Redeemable noncontrolling interests | (106,368) | |||
Total | 311,346 | |||
Impairment loss on amortizable intangible assets | ¥ 56,800 | |||
Impairment of Intangible Asset, Finite-Lived, Statement of Income or Comprehensive Income Extensible Enumeration not Disclosed Flag | true | |||
Acquisitions in 2021 | Trademark | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | [3] | ¥ 64,662 | ||
Acquisitions in 2021 | Other identified intangible assets | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | [3] | 13,750 | ||
Acquisitions in 2021 | Investment income, net | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Loss in relation to the revaluation of the previously held equity interests | ¥ 2,500 | |||
Acquisitions in 2022 | ||||
Acquisition | ||||
Equity interest acquired (as a percent) | 50.50% | |||
Cash consideration | ¥ 760,400 | |||
Previously held equity interest in equity investments (as a percent) | 41.50% | |||
Equity interest after acquisition (as a percent) | 92% | |||
Gain in relation to the revaluation of the previously held equity interests | ¥ 310,400 | |||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Net assets/(liabilities) acquired | (34,671) | |||
Deferred tax liabilities | (104,137) | |||
Goodwill | 1,571,206 | |||
Noncontrolling interests | (122,983) | |||
Total | 1,978,414 | |||
Acquisitions in 2022 | Trademark | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | 143,146 | |||
Acquisitions in 2022 | Other identified intangible assets | ||||
Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands): | ||||
Amortizable intangible assets | ¥ 525,853 | |||
[1]Net assets acquired mainly included cash and cash equivalents as of the date of acquisition.[2]Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”.[3]Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised. |
Concentrations and Risks (Detai
Concentrations and Risks (Details) | 12 Months Ended | ||
Dec. 31, 2022 item customer | Dec. 31, 2021 item customer | Dec. 31, 2020 customer item | |
Server and bandwidth service provider | Service providers | Telecommunication | |||
Concentrations and Risks | |||
Total number of telecommunications service providers | 126 | 135 | 87 |
Number of service providers, offering 10% or more of the Group's server and bandwidth service expenditure | 4 | 4 | 3 |
Concentration risk (as a percent) | 62.70% | 67.20% | 62.30% |
Server and bandwidth service provider | Service providers | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10% | 10% | 10% |
Credit risk | Accounts receivable | |||
Concentrations and Risks | |||
Number of distribution channel | 1 | 1 | |
Credit risk | Accounts receivable | Distribution channel A | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 17.80% | 20.20% | |
Credit risk | Accounts receivable | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10% | 10% | |
Credit risk | Short-term investments | Equal to or more than | |||
Concentrations and Risks | |||
Effective yields of short-term investments | 1.72% | ||
Credit risk | Short-term investments | Less than | |||
Concentrations and Risks | |||
Effective yields of short-term investments | 5% | ||
Major customers | Total net revenues | |||
Concentrations and Risks | |||
Number of customers | customer | 0 | 0 | 0 |
Major customers | Total net revenues | Equal to or more than | |||
Concentrations and Risks | |||
Threshold for disclosure of risk (as a percent) | 10% | 10% | 10% |
Top 5 online games | Total net revenues | |||
Concentrations and Risks | |||
Top online games | 5 | 5 | 5 |
Top 5 online games | Total net revenues | Top 5 Online Games | |||
Concentrations and Risks | |||
Concentration risk (as a percent) | 29.60% | 29.20% | 33.10% |
Prepayments and Other Current_3
Prepayments and Other Current Assets (Details) $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) |
Prepayments and Other Current Assets | |||
Guarantee payment made to Blizzard - royalty fees | ¥ 634,909,000 | ¥ 319,210,000 | |
Prepayment for royalties, revenue sharing cost | 1,787,638,000 | 2,635,766,000 | |
Receivable due from Alibaba | 38,366,000 | 837,148,000 | |
Interest and other operating income receivable | 1,373,854,000 | 676,714,000 | |
Prepayments of content and marketing cost and other operational expenses | 725,183,000 | 826,220,000 | |
Prepayment for sales tax and deductible value added tax | 492,552,000 | 483,397,000 | |
Bridge loans in connection with ongoing investments | 43,313,000 | 41,835,000 | |
Deposits | 68,285,000 | 86,621,000 | |
Employee advances | 61,480,000 | 67,848,000 | |
Advance to suppliers | 105,903,000 | 134,712,000 | |
Others | 116,801,000 | 126,386,000 | |
Prepayments and other current assets | 5,448,284,000 | $ 789,927 | 6,235,857,000 |
Staff housing loans outstanding repayable within 12 months | 22,700,000 | 29,200,000 | |
Advances 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, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Short-term Investments | |||
Investment income related to short-term investments | ¥ 342,600 | ¥ 639,800 | ¥ 580,700 |
Short-term investments | |||
Short-term Investments | |||
Cost | 7,563,805 | 12,081,868 | |
Unrealized Gains/(Losses) | 58,868 | 199,680 | |
Estimated Fair Value | ¥ 7,622,673 | ¥ 12,281,548 | |
Short-term investments | Equal to or more than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 1.72% | 2.25% | |
Short-term investments | Less than | |||
Short-term Investments | |||
Short-term investments, effective yields (as a percent) | 5% | 4.40% |
Property, Equipment and Softw_3
Property, Equipment and Software, net (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | Dec. 31, 2022 USD ($) | |
Summary of property, equipment and software | ||||
Gross book value | ¥ 12,612,721 | ¥ 10,711,083 | ||
Less: accumulated depreciation | (6,270,391) | (5,277,225) | ||
Net book value | 6,342,330 | 5,433,858 | $ 919,551 | |
Depreciation expense | 1,127,200 | 928,500 | ¥ 1,113,000 | |
Building and decoration | ||||
Summary of property, equipment and software | ||||
Gross book value | 3,875,063 | 3,676,626 | ||
Leasehold improvements | ||||
Summary of property, equipment and software | ||||
Gross book value | 304,365 | 287,510 | ||
Furniture, fixtures, office and other equipment | ||||
Summary of property, equipment and software | ||||
Gross book value | 379,938 | 339,791 | ||
Vehicles | ||||
Summary of property, equipment and software | ||||
Gross book value | 102,823 | 98,651 | ||
Servers and computers | ||||
Summary of property, equipment and software | ||||
Gross book value | 6,018,709 | 5,417,716 | ||
Software | ||||
Summary of property, equipment and software | ||||
Gross book value | 344,410 | 237,550 | ||
Construction in progress | ||||
Summary of property, equipment and software | ||||
Gross book value | ¥ 1,587,413 | ¥ 653,239 |
Land Use Rights, net (Details)
Land Use Rights, net (Details) - Land use rights - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Land Use Rights, net | |||
Cost | ¥ 4,521,308 | ¥ 4,415,809 | |
Incentive payment from local government | (15,000) | (15,000) | |
Accumulated amortization | (384,541) | (292,719) | |
Land use right, net | 4,121,767 | 4,108,090 | |
Total amortization expense | ¥ 91,800 | ¥ 87,400 | ¥ 84,700 |
Leases (Details)
Leases (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | Dec. 31, 2022 USD ($) | ||
Leases | |||||
Operating lease right-of-use assets, net | ¥ 887,977 | ¥ 1,044,152 | $ 128,745 | ||
Options to terminate the leases (true or false) | true | ||||
Operating lease cost | [1] | ¥ 528,474 | 580,375 | ¥ 433,412 | |
Cash paid for amounts included in the measurement of operating lease liabilities | 471,214 | 503,127 | 323,836 | ||
Right-of-use assets obtained in exchange for operating lease obligations | 336,381 | 763,919 | 658,168 | ||
Short-term lease cost | ¥ 27,400 | ¥ 31,400 | 27,600 | ||
Weighted average remaining lease term (in years) | 3 years 2 months 19 days | 2 years 10 months 2 days | 3 years 2 months 19 days | ||
Weighted average discount rate | 3.82% | 3.95% | 3.82% | ||
Equal to or more than | |||||
Leases | |||||
Remaining lease terms (in months or years) | 1 month | 1 month | |||
Less than | |||||
Leases | |||||
Remaining lease terms (in months or years) | 68 years | 68 years | |||
Land use rights | |||||
Leases | |||||
Amortization expenses of land use rights | ¥ 91,800 | ¥ 87,400 | ¥ 84,700 | ||
ASU No. 2016-02 | Cumulative effect of changes in accounting principles | Land use rights | |||||
Leases | |||||
Operating lease right-of-use assets, net | ¥ 4,121,800 | ¥ 4,108,100 | |||
[1] Included short-term lease cost of RMB 27.6 million, RMB 31.4 million and RMB 27.4 million and amortization expenses of land use rights of RMB 84.7 million, RMB 87.4 million and RMB 91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively. |
Leases - Maturities of operatin
Leases - Maturities of operating lease liabilities (Details) ¥ in Thousands | Dec. 31, 2022 CNY (¥) |
Leases | |
2023 | ¥ 297,607 |
2024 | 232,019 |
2025 | 138,099 |
2026 | 102,114 |
2027 | 76,546 |
Thereafter | 183,808 |
Total operating lease payments | 1,030,193 |
Less: imputed interest | (98,500) |
Total | ¥ 931,693 |
Long-term Investments - Summary
Long-term Investments - Summary of long-term investments (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) |
Long-term Investments | |||
Investments in equity method investees | ¥ 5,239,242 | ¥ 3,776,245 | |
Equity investments with readily determinable fair values | 2,567,268 | 5,886,911 | |
Equity investments without readily determinable fair values | 10,463,304 | 8,802,976 | |
Investments accounted for at fair values | 246,073 | 194,280 | |
Debt investments | 28,471 | 144,490 | |
Total | ¥ 18,544,358 | $ 2,688,679 | ¥ 18,804,902 |
Long-term Investments - Additio
Long-term Investments - Additional information (Details) $ in Thousands | 1 Months Ended | 12 Months Ended | ||||
Jul. 31, 2015 CNY (¥) | Aug. 31, 2013 CNY (¥) | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) LimitedPartnership | Dec. 31, 2020 CNY (¥) | |
Investments in equity method investees | ||||||
Consideration in cash | ¥ 705,907,000 | $ 102,347 | ¥ 1,124,429,000 | ¥ 345,662,000 | ||
Equity investments with readily determinable fair values | ||||||
Fair value gain/(loss) of equity investments with readily determinable fair values | (3,414,700,000) | 91,100,000 | 720,600,000 | |||
Investment income, net | ||||||
Investments in equity method investees | ||||||
Equity share of earnings | 1,259,900,000 | 1,575,500,000 | 172,500,000 | |||
Equity investments without readily determinable fair value | ||||||
Upward adjustments to the carrying value of equity securities without readily determinable fair value | 0 | 380,800,000 | 0 | |||
Gain related to the disposal of the Group's investments in equity securities without readily determinable fair value | 1,784,900,000 | 172,500,000 | 36,100,000 | |||
Yixin | ||||||
Investments in equity method investees | ||||||
Consideration in cash | ¥ 127,500,000 | ¥ 200,000,000 | ||||
Percentage of equity interest acquired | 35% | 27% | ||||
Impairment of equity investment | 197,700,000 | |||||
Limited partnership invested to operate online game business | ||||||
Investments in equity method investees | ||||||
Aggregated cash consideration | ¥ 1,643,200,000 | |||||
Number of limited partnerships invested | LimitedPartnership | 5 | |||||
Limited partnerships invested to operate online game business, one | ||||||
Investments in equity method investees | ||||||
Consideration in cash | 32,900,000 | |||||
Limited partnerships invested to operate online game business, two | ||||||
Investments in equity method investees | ||||||
Consideration in cash | 58,100,000 | |||||
Limited partnerships invested to operate online game business, three | ||||||
Investments in equity method investees | ||||||
Consideration in cash | 121,400,000 | |||||
Alibaba | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 1,099,000,000 | |||||
Huatai | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 374,100,000 | |||||
Cash dividends received | 21,100,000 | ¥ 18,900,000 | 12,700,000 | |||
Shenzhen Transsion Holding Limited | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 283,300,000 | |||||
AppLovin Corporation | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 257,700,000 | |||||
Embracer Group AB | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 247,500,000 | |||||
Devolver Digital, Inc | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 187,800,000 | |||||
tinyBuild Inc | ||||||
Equity investments with readily determinable fair values | ||||||
Equity investments with readily determinable fair values | 117,900,000 | |||||
Certain of equity investments | Investment income, net | ||||||
Equity investments without readily determinable fair value | ||||||
Impairment provision related to certain of the equity investments without readily determinable fair value | ¥ 85,200,000 | ¥ 19,200,000 | ¥ 55,600,000 |
Other Long-term Assets - Summar
Other Long-term Assets - Summary of other long-term assets (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) |
Other Long-term Assets | ||||
Copyrights, licenses, domain names, trademark and technology | ¥ 2,117,688 | ¥ 2,617,164 | ||
Long-term receivable | 1,638,572 | 58,366 | ||
Long-term interest receivables | 100,397 | 98,594 | ||
Goodwill | 2,166,486 | 595,280 | ¥ 318,943 | |
Staff housing loans | 39,228 | 55,275 | ||
Non-current deposits | 174,357 | 150,666 | ||
Others | 569,727 | 433,111 | ||
Total | ¥ 6,806,455 | $ 986,844 | ¥ 4,008,456 |
Other Long-term Assets - Goodwi
Other Long-term Assets - Goodwill (Details) - CNY (¥) | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
Goodwill | ||
Beginning balance | ¥ 595,280,000 | ¥ 318,943,000 |
Additions | 1,571,206,000 | 276,337,000 |
Ending balance | 2,166,486,000 | 595,280,000 |
Impairment charges | ¥ 0 | ¥ 0 |
Other Long-term Assets - Additi
Other Long-term Assets - Additional information (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
Housing loans made to employees | ||
Term of staff housing loan (in years) | 5 years | |
Staff housing loans outstanding repayable within 12 months | ¥ 22.7 | ¥ 29.2 |
Prepayments and other current assets | ||
Housing loans made to employees | ||
Staff housing loans outstanding repayable within 12 months | ¥ 22.7 | ¥ 29.2 |
Equal to or more than | ||
Housing loans made to employees | ||
Interest rate on staff housing loan (as a percent) | 2.10% | 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, 2022 CNY (¥) ¥ / shares | Dec. 31, 2022 HKD ($) | Dec. 31, 2021 CNY (¥) ¥ / shares | Dec. 31, 2021 HKD ($) | Dec. 31, 2020 CNY (¥) ¥ / shares | Dec. 31, 2020 HKD ($) | Dec. 31, 2019 | |
Income taxes | |||||||
Income tax rate (as a percent) | 25% | 25% | 25% | 25% | 25% | 25% | |
Combined effects of EIT exemptions and tax rate reductions | |||||||
Aggregate amount of EIT exemptions and tax rate reductions | ¥ 2,631,764,000 | ¥ 2,238,907,000 | ¥ 1,969,414,000 | ||||
Earnings per share effect, basic (in CNY per share) | ¥ / shares | ¥ 0.81 | ¥ 0.67 | ¥ 0.60 | ||||
Earnings per share effect, diluted (in CNY per share) | ¥ / shares | ¥ 0.80 | ¥ 0.66 | ¥ 0.59 | ||||
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% | 16.50% | 16.50% | 16.50% | 16.50% | |
Taxable income | $ | $ 2 | $ 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% | 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% | 16.50% | 16.50% | |
PRC | |||||||
Income taxes | |||||||
Income tax rate (as a percent) | 25% | 25% | |||||
PRC | Boguan, NetEase Hangzhou and certain other PRC subsidiaries | HNTEs | |||||||
Income taxes | |||||||
Preferential tax rate | 15% | 15% | 15% | 15% | 15% | 15% | |
PRC | Boguan, NetEase Hangzhou and certain other PRC subsidiaries | Key Software Enterprise | |||||||
Income taxes | |||||||
Preferential tax rate | 10% |
Taxation - Component of income
Taxation - Component of income tax expenses (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Component of income tax expenses | ||||
Current tax expense | ¥ 4,542,168 | ¥ 3,720,321 | ¥ 2,953,670 | |
Deferred tax expense | 489,670 | 407,948 | 88,179 | |
Income tax expenses | ¥ 5,031,838 | $ 729,548 | ¥ 4,128,269 | ¥ 3,041,849 |
Taxation - Reconciliation of di
Taxation - Reconciliation of differences between statutory and effective income tax rates (Details) | 12 Months Ended | ||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Reconciliation of the differences between the statutory income tax rate and the Group's effective income tax rate | |||
Statutory income tax rate | 25% | 25% | 25% |
Permanent differences | (5.00%) | (2.70%) | (1.90%) |
Effect due to different tax rates applicable to overseas entities | 0.20% | (1.80%) | (0.50%) |
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs | (10.10%) | (10.10%) | (16.50%) |
Change in valuation allowance | 1.80% | 3.90% | 6.80% |
Effect of withholding income tax | 8.80% | 5.30% | 6.90% |
Effective income tax rate | 20.70% | 19.60% | 19.80% |
Taxation - Net operating tax lo
Taxation - Net operating tax loss carry forwards (Details) ¥ in Thousands | Dec. 31, 2022 CNY (¥) |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | ¥ 15,124,930 |
Loss expiring in 2023 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 3,371,946 |
Loss expiring in 2024 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 3,054,886 |
Loss expiring in 2025 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 2,191,529 |
Loss expiring in 2026 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | 2,571,936 |
Loss expiring after 2027 | |
Net operating tax loss carry forwards | |
Net operating tax loss carry forwards | ¥ 3,934,633 |
Taxation - Sales tax (Details)
Taxation - Sales tax (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Mar. 31, 2019 | Dec. 31, 2019 | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Sales tax | |||||
Value added tax rate, services provided (as a percent) | 6% | ||||
Value added tax rate, sales of general goods (as a percent) | 16% | 13% | 13% | 13% | 13% |
Taxation - Deferred tax assets
Taxation - Deferred tax assets and liabilities & withholding income tax (Details) ¥ in Thousands, $ in Millions | 12 Months Ended | ||||
Mar. 16, 2007 | Dec. 31, 2022 CNY (¥) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | Dec. 31, 2022 USD ($) | |
Deferred tax assets: | |||||
Contract liabilities, primarily for advanced payments from online games customers | ¥ 1,009,624 | ¥ 776,719 | |||
Accruals | 654,348 | 641,198 | |||
Depreciation of fixed assets | 4,883 | 11,557 | |||
Amortization of intangible assets | 2,217 | 4,331 | |||
Net operating tax loss carry forward | 3,781,233 | 3,513,019 | |||
Deferred tax assets , gross | 5,452,305 | 4,946,824 | |||
Less: valuation allowance | (3,971,516) | (3,648,870) | ¥ (3,255,854) | ||
Total | 1,480,789 | 1,297,954 | |||
Deferred tax liabilities: | |||||
Withholding income tax | 1,947,190 | 1,257,552 | |||
Others | 178,930 | 88,322 | |||
Total | 2,126,120 | 1,345,874 | |||
Movement of the aggregate valuation allowances for deferred tax assets | |||||
Balance at the beginning of the period | 3,648,870 | 3,255,854 | 2,148,879 | ||
Provision for the year | 322,646 | 393,016 | 1,106,975 | ||
Balance at the end of the period | ¥ 3,971,516 | 3,648,870 | 3,255,854 | ||
Withholding income tax | |||||
Withholding tax rate on dividend distributed by foreign investment entities to its non-resident enterprise investors (as a percent) | 10% | 10% | |||
Lower withholding income tax rate on dividend applied, if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements (as a percent) | 5% | 5% | |||
Minimum equity interest in PRC entities (as a percent) | 25% | 25% | |||
Accrued withholding tax liabilities | ¥ 2,144,400 | 1,124,400 | ¥ 1,056,900 | $ 310.9 | |
Unrecognized deferred tax liabilities related to undistributed earnings of the Group's PRC subsidiaries | ¥ 1,104,200 |
Taxes Payable (Details)
Taxes Payable (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) |
Taxes Payable | |||
Sales Tax payable | ¥ 290,272 | ¥ 681,815 | |
Withholding individual income taxes for employees | 306,861 | 263,845 | |
EIT payable | 2,116,014 | 3,459,307 | |
Others | 99,949 | 132,083 | |
Total taxes payable | ¥ 2,813,096 | $ 407,861 | ¥ 4,537,050 |
Short-term Loans (Details)
Short-term Loans (Details) $ in Millions | 12 Months Ended | ||
Aug. 09, 2018 USD ($) item | Dec. 31, 2022 USD ($) | Dec. 31, 2021 | |
Short-term Loan | |||
Weighted average interest rate for the outstanding short-term loans (as a percent) | 4.36% | 0.79% | |
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 | ||
Basis points | 0.95% | ||
Commitment fee | 0.20% | ||
Uncommitted loan credit facilities | |||
Short-term Loan | |||
Credit facilities not utilized | $ 2,084.7 | ||
Guarantee agreements | |||
Short-term Loan | |||
Credit facilities not utilized | 461 | ||
Unutilized amount of credit facilities taken by its subsidiaries | $ 2,575 | ||
Equal to or more than | |||
Short-term Loan | |||
Short-term loan, maturity term | 7 days | 7 days | |
Short-term loan, fixed interest rate (as a percent) | 0.65% | 0.65% | |
Less than | |||
Short-term Loan | |||
Short-term loan, maturity term | 1 year | 1 year | |
Short-term loan, fixed interest rate (as a percent) | 5.13% | 5.13% |
Contract Liabilities (Details)
Contract Liabilities (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | |
Dec. 31, 2022 | Dec. 31, 2021 | |
Contract Liabilities | ||
Amount of revenues recognized included in the contract liabilities | ¥ 11,822.3 | ¥ 10,513 |
Transaction price allocated to unsatisfied performance obligations | 12,793.6 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 | ||
Contract Liabilities | ||
Performance obligation recognized as revenue | ¥ 12,518.9 | |
Expected timing of performance obligation recognized as revenue (in months) | 12 months |
Accrued Liabilities and Other_3
Accrued Liabilities and Other Payables (Details) ¥ in Thousands, $ in Thousands | Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) |
Accrued Liabilities and Other Payables | |||
Customer deposits on NetEase Pay accounts | ¥ 3,113,107 | ¥ 2,388,546 | |
Marketing expenses and promotion materials | 2,046,559 | 1,857,133 | |
Accrued fixed assets related payables | 635,566 | 706,583 | |
Server and bandwidth service fees | 246,243 | 264,513 | |
Accrued revenue sharing | 1,032,559 | 1,176,349 | |
Content cost | 1,703,218 | 838,293 | |
Professional fees and technical charges | 595,491 | 608,752 | |
Accrued freight and warehousing charge | 105,356 | 84,490 | |
Administrative expenses and other staff related cost | 414,214 | 399,753 | |
Deferred government grants | 179,961 | 174,241 | |
Acquisition considerations | 203,584 | ||
Customer refund for licensed games | 283,763 | ||
Others | 562,401 | 527,855 | |
Total accrued liabilities and other payables | ¥ 11,122,022 | $ 1,612,542 | ¥ 9,026,508 |
Long-term loans (Details)
Long-term loans (Details) - Term loan facility and revolving loan facility agreement - USD ($) | Jun. 02, 2021 | Dec. 31, 2022 | Dec. 31, 2021 |
Long-term loans | |||
Maturity term | 5 years | ||
Aggregate commitments | $ 1,000,000,000 | ||
Commitment fee | 0.20% | ||
Borrowings outstanding | $ 500,000,000 | $ 200,000,000 | |
Pledge | $ 0 | $ 0 | |
LIBOR | |||
Long-term loans | |||
Basis points | 0.85% |
Noncontrolling Interests and _2
Noncontrolling Interests and Redeemable Noncontrolling Interests (Details) $ in Millions | 1 Months Ended | 12 Months Ended | |||||
Dec. 31, 2021 | Oct. 31, 2019 | Apr. 30, 2018 USD ($) item | Dec. 31, 2020 CNY (¥) | Dec. 31, 2020 USD ($) | Dec. 31, 2019 USD ($) | Dec. 31, 2018 USD ($) | |
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Cash consideration for repurchase of redeemable noncontrolling interests | ¥ 462,650,000 | ||||||
Cloud Music | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 711.6 | $ 716.3 | |||||
Cash consideration for repurchase of redeemable noncontrolling interests | $ | $ 66.3 | ||||||
Gains or losses from repurchase of noncontrolling interest | 0 | ||||||
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders | 207,000,000 | ||||||
Cloud Music | The Company | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders | ¥ 204,700,000 | ||||||
Cloud Music | Ordinary shares | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Stock re-designation/conversion ratio, into ordinary shares | 1 | ||||||
Youdao | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Total cash consideration from issuance of redeemable noncontrolling interest | $ | $ 70 | ||||||
Number of investors | item | 2 | ||||||
Youdao | Class A ordinary shares | |||||||
Noncontrolling Interests and Redeemable Noncontrolling Interests | |||||||
Stock re-designation/conversion ratio, into ordinary shares | 1 |
Capital Structure (Details)
Capital Structure (Details) | 12 Months Ended |
Dec. 31, 2022 | |
Capital Structure | |
Voting rights per share | one vote per share |
Employee Benefits (Details)
Employee Benefits (Details) - CNY (¥) ¥ in Millions | 12 Months Ended | ||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Employee Benefits | |||
Contributions to medical and pension schemes | ¥ 1,710.4 | ¥ 1,463.8 | ¥ 769.4 |
Other employee benefits | 1,202.8 | 1,044.5 | 766.8 |
Total group's employee welfare benefits expense | ¥ 2,913.2 | ¥ 2,508.3 | ¥ 1,536.2 |
Share-based Compensation - Sche
Share-based Compensation - Schedule of share-based compensation cost (Details) - CNY (¥) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Share-based compensation cost | |||
Share-based compensation | ¥ 3,174,160 | ¥ 3,041,492 | ¥ 2,663,489 |
Cost of revenues | |||
Share-based compensation cost | |||
Share-based compensation | 758,413 | 833,389 | 794,855 |
Selling and marketing expenses | |||
Share-based compensation cost | |||
Share-based compensation | 120,171 | 118,611 | 102,300 |
General and administrative expenses | |||
Share-based compensation cost | |||
Share-based compensation | 1,214,995 | 1,105,547 | 929,013 |
Research and development expenses | |||
Share-based compensation cost | |||
Share-based compensation | ¥ 1,080,581 | ¥ 983,945 | ¥ 837,321 |
Share-based Compensation - Rest
Share-based Compensation - Restricted Share Units Plan (Details) - shares | 1 Months Ended | 12 Months Ended | ||
Nov. 17, 2009 | Oct. 31, 2019 | Dec. 31, 2022 | Nov. 30, 2009 | |
Share based Compensation | ||||
Number of preceding years considered for estimating forfeiture | 5 years | |||
2009 Restricted Share Unit Plan | ||||
Share based Compensation | ||||
Number of ordinary shares reserved for issuance under the plan | 323,694,050 | |||
Term of plan | 10 years | |||
2019 Restricted Share Unit 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 - Re_2
Share-based Compensation - Restricted Share Unit Award Activities -Table (Details) - 2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan $ / shares in Units, shares in Thousands, ¥ in Millions, $ in Millions | 12 Months Ended | |||
Dec. 31, 2022 USD ($) $ / shares shares | Dec. 31, 2021 $ / shares shares | Dec. 31, 2020 $ / shares shares | Dec. 31, 2022 CNY (¥) | |
Share based Compensation | ||||
Total unrecognized compensation cost related to unvested awards | $ 436.3 | ¥ 3,009 | ||
Weighted average remaining vesting period over which unrecognized compensation cost is recognized | 1 year 9 months | |||
Restricted share units | ||||
Number of RSUs | ||||
Outstanding at the beginning of the period (in shares) | shares | 12,996 | 14,096 | 14,075 | |
Granted (in shares) | shares | 5,335 | 4,579 | 6,269 | |
Vested (in shares) | shares | (4,630) | (5,067) | (5,832) | |
Forfeited (in shares) | shares | (696) | (612) | (416) | |
Outstanding at end of the period (in shares) | shares | 13,005 | 12,996 | 14,096 | |
Weighted average grant date fair value | ||||
Outstanding at the beginning of the period (in dollars per share) | $ / shares | $ 75.40 | $ 57.85 | $ 49 | |
Granted (in dollars per share) | $ / shares | 93.98 | 110.19 | 68.35 | |
Vested (in dollars per share) | $ / shares | 75.01 | 58.02 | 48.02 | |
Forfeited (in dollars per share) | $ / shares | 84.55 | 75.29 | 54.47 | |
Outstanding at the end of the period (in dollars per share) | $ / shares | $ 82.67 | $ 75.40 | $ 57.85 |
Share-based Compensation - Re_3
Share-based Compensation - Restricted Share Unit Award Activities - Narrative (Details) - Restricted share units $ / shares in Units, $ in Millions | Dec. 31, 2022 USD ($) $ / shares shares |
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan | |
Share based Compensation | |
Aggregate intrinsic value of RSUs outstanding | $ | $ 944.5 |
Company's closing stock price per ADS used to calculate intrinsic value | $ / shares | $ 72.63 |
2019 Restricted Share Unit Plan | |
Share based Compensation | |
Number of shares available for future grant | shares | 258,221,415 |
Share-based Compensation - Othe
Share-based Compensation - Other Share Incentive Plan (Details) ¥ in Thousands | 12 Months Ended | ||
Dec. 31, 2022 CNY (¥) installment | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Share based Compensation | |||
Share-based compensation | ¥ | ¥ 3,174,160 | ¥ 3,041,492 | ¥ 2,663,489 |
Unrecognized share based compensation expenses relating to share options | ¥ | 28,300 | ||
Stock Options | |||
Share based Compensation | |||
Share-based compensation | ¥ | ¥ 327,900 | ¥ 528,200 | ¥ 117,700 |
Certain subsidiaries | Stock Options | Vesting option I | |||
Share based Compensation | |||
Percentage of vesting of equity awards on the predefined Vesting Commencement Date | 100% | ||
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 | 3 | ||
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 | 4 | ||
Certain subsidiaries | Stock Options | Vesting option V | |||
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 | 4 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, 2022 CNY (¥) ¥ / shares shares | Dec. 31, 2022 USD ($) $ / shares shares | Dec. 31, 2021 CNY (¥) ¥ / shares shares | Dec. 31, 2020 CNY (¥) ¥ / shares shares | |
Numerator (RMB in thousands): | ||||
Net income from continuing operations attributable to the Company's shareholders | ¥ 19,712,736 | $ 2,858,078 | ¥ 16,856,842 | ¥ 12,062,754 |
Net income from discontinued operations attributable to the Company's shareholders | 624,864 | 90,597 | ||
Net income attributable to the Company's shareholders | ¥ 20,337,600 | $ 2,948,675 | ¥ 16,856,842 | ¥ 12,062,754 |
Denominator (No. of shares in thousands): | ||||
Weighted average number of ordinary shares outstanding, basic (in shares) | 3,263,455 | 3,263,455 | 3,325,864 | 3,305,448 |
Dilutive effect of restricted share units (in shares) | 32,559 | 32,559 | 41,614 | 44,311 |
Weighted average number of ordinary shares outstanding, diluted (in shares) | 3,296,014 | 3,296,014 | 3,367,478 | 3,349,759 |
Net income per share from continuing operations attributable to the Company's shareholders, basic (in CNY per share) | (per share) | ¥ 6.04 | $ 0.87 | ¥ 5.07 | ¥ 3.65 |
Net income per share from discontinued operations attributable to the Company's shareholders, basic (in CNY per share) | (per share) | 0.19 | 0.03 | ||
Net income per share, basic (in CNY and dollars per share) | (per share) | 6.23 | 0.90 | 5.07 | 3.65 |
Net income per share from continuing operations attributable to the Company's shareholders, diluted (in CNY per share) | (per share) | 5.98 | 0.86 | 5.01 | 3.60 |
Net income per share from discontinued operations attributable to the Company's shareholders, diluted (in CNY per share) | (per share) | 0.19 | 0.03 | ||
Net income per share, diluted (in CNY and dollars per share) | (per share) | ¥ 6.17 | $ 0.89 | ¥ 5.01 | ¥ 3.60 |
Anti-dilutive restricted share units excluded from the calculation of diluted net income per share (in shares) | 11,300 | 11,300 | 6,700 | 6,000 |
Commitments and Contingencies_2
Commitments and Contingencies (Details) ¥ in Thousands | 1 Months Ended | |
Apr. 30, 2018 item | Dec. 31, 2022 CNY (¥) | |
Litigation | ||
Number of mobile games involved in the lawsuit | item | 2 | |
Total | ||
Commitments and Contingencies | ||
2023 | ¥ 3,873,347 | |
2024 | 1,132,863 | |
2025 | 451,502 | |
2026 | 214,954 | |
Beyond 2026 | 84,116 | |
Total | 5,756,782 | |
Server and Bandwidth Service Fee Commitments | ||
Commitments and Contingencies | ||
2023 | 553,533 | |
2024 | 341,458 | |
2025 | 244,584 | |
2026 | 103,392 | |
Beyond 2026 | 31,970 | |
Total | 1,274,937 | |
Capital Commitments | ||
Commitments and Contingencies | ||
2023 | 1,971,894 | |
2024 | 756,196 | |
2025 | 206,918 | |
2026 | 111,562 | |
Beyond 2026 | 52,146 | |
Total | 3,098,716 | |
Royalties and Expenditure for Licensed Content Commitments | ||
Commitments and Contingencies | ||
2023 | 1,034,633 | |
2024 | 18,111 | |
Total | 1,052,744 | |
Office Machines and Other Commitments | ||
Commitments and Contingencies | ||
2023 | 313,287 | |
2024 | 17,098 | |
Total | ¥ 330,385 |
Dividends (Details)
Dividends (Details) ¥ in Thousands, $ in Millions | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Dividends | ||||
Cash dividend declared | ¥ 6,723,859 | ¥ 3,508,379 | ¥ 4,280,465 | |
Less than | ||||
Dividends | ||||
Quarterly cash dividend distribution percentage | 30% | 30% | ||
Equal to or more than | ||||
Dividends | ||||
Quarterly cash dividend distribution percentage | 20% | 20% | ||
With respect to fiscal year 2021 | ||||
Dividends | ||||
Cash dividend declared | ¥ 4,931,000 | |||
With respect to fiscal year 2022 | ||||
Dividends | ||||
Cash dividend declared | ¥ 6,252,500 | $ 906.5 |
Share Repurchase Programs (Deta
Share Repurchase Programs (Details) ¥ in Thousands, shares in Millions, $ in Millions | 1 Months Ended | 12 Months Ended | |||||||||
Jan. 09, 2023 USD ($) shares | Nov. 17, 2022 USD ($) | Aug. 31, 2021 USD ($) | Feb. 28, 2021 USD ($) | Feb. 29, 2020 USD ($) | Dec. 31, 2022 CNY (¥) shares | Dec. 31, 2022 USD ($) shares | Dec. 31, 2021 CNY (¥) | Feb. 28, 2021 USD ($) shares | Dec. 31, 2020 CNY (¥) | May 19, 2020 USD ($) | |
Share Repurchase Programs | |||||||||||
Value of shares repurchased | ¥ | ¥ 8,006,226 | ¥ 12,770,301 | ¥ 11,273,814 | ||||||||
American Depositary Shares | 2020 share repurchase program | |||||||||||
Share Repurchase Programs | |||||||||||
Authorized amount | $ 1,000 | ||||||||||
Share repurchase program period, maximum | 12 months | ||||||||||
Additional authorized amount | $ 1,000 | ||||||||||
Shares repurchased (in shares) | shares | 22.8 | ||||||||||
Value of shares repurchased | $ 1,820.1 | ||||||||||
American Depositary Shares | 2021 share repurchase program | |||||||||||
Share Repurchase Programs | |||||||||||
Authorized amount | $ 3,000 | $ 2,000 | $ 2,000 | ||||||||
Share repurchase program period, maximum | 24 months | ||||||||||
Shares repurchased (in shares) | shares | 33.6 | ||||||||||
Value of shares repurchased | $ 3,000 | ||||||||||
American Depositary Shares | 2021 share repurchase program | Youdao | |||||||||||
Share Repurchase Programs | |||||||||||
Authorized amount | $ 50 | ||||||||||
Share repurchase program period, maximum | 36 months | ||||||||||
Shares repurchased (in shares) | shares | 2.7 | 2.7 | |||||||||
Value of shares repurchased | $ 22 | ||||||||||
American Depositary Shares | 2022 share repurchase program | |||||||||||
Share Repurchase Programs | |||||||||||
Authorized amount | $ 5,000 | ||||||||||
Share repurchase program period, maximum | 36 months | ||||||||||
Ordinary shares | 2020 share repurchase program | |||||||||||
Share Repurchase Programs | |||||||||||
Shares repurchased (in shares) | shares | 114 |
Segment Information (Details)
Segment Information (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | |||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2022 USD ($) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2020 CNY (¥) | |
Net revenues | ||||
Total net revenues | ¥ 96,495,809 | $ 13,990,577 | ¥ 87,606,026 | ¥ 73,667,133 |
Cost of revenues: | ||||
Total cost of revenues | (43,729,683) | (6,340,208) | (40,635,225) | (34,683,731) |
Gross profit: | ||||
Gross profit | 52,766,126 | $ 7,650,369 | 46,970,801 | 38,983,402 |
Depreciation expenses | ||||
Total depreciation expenses of property and equipment | 486,647 | 406,379 | 474,110 | |
A point in time | ||||
Net revenues | ||||
Total net revenues | 23,322,675 | 19,581,668 | 15,911,575 | |
Over time | ||||
Net revenues | ||||
Total net revenues | 73,173,134 | 68,024,358 | 57,755,558 | |
Games and related value-added services | ||||
Net revenues | ||||
Total net revenues | 74,566,471 | 67,819,288 | 58,719,895 | |
Cost of revenues: | ||||
Total cost of revenues | (27,784,419) | (26,007,412) | (22,730,558) | |
Gross profit: | ||||
Gross profit | 46,782,052 | 41,811,876 | 35,989,337 | |
Depreciation expenses | ||||
Total depreciation expenses of property and equipment | 339,300 | 278,780 | 270,457 | |
Youdao | ||||
Net revenues | ||||
Total net revenues | 5,013,182 | 5,354,357 | 3,167,515 | |
Cost of revenues: | ||||
Total cost of revenues | (2,430,738) | (2,448,146) | (1,713,229) | |
Gross profit: | ||||
Gross profit | 2,582,444 | 2,906,211 | 1,454,286 | |
Depreciation expenses | ||||
Total depreciation expenses of property and equipment | 11,610 | 9,330 | 7,239 | |
Cloud Music | ||||
Net revenues | ||||
Total net revenues | 8,992,221 | 6,997,622 | 4,895,731 | |
Cost of revenues: | ||||
Total cost of revenues | (7,699,103) | (6,854,948) | (5,491,066) | |
Gross profit: | ||||
Gross profit | 1,293,118 | 142,674 | (595,335) | |
Depreciation expenses | ||||
Total depreciation expenses of property and equipment | 6,044 | 3,827 | 6,878 | |
Innovative businesses and others | ||||
Net revenues | ||||
Total net revenues | 7,923,935 | 7,434,759 | 6,883,992 | |
Cost of revenues: | ||||
Total cost of revenues | (5,815,423) | (5,324,719) | (4,748,878) | |
Gross profit: | ||||
Gross profit | 2,108,512 | 2,110,040 | 2,135,114 | |
Depreciation expenses | ||||
Total depreciation expenses of property and equipment | ¥ 129,693 | ¥ 114,442 | ¥ 189,536 |
Financial Instruments (Details)
Financial Instruments (Details) ¥ in Thousands, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2022 CNY (¥) | Dec. 31, 2021 CNY (¥) | Dec. 31, 2022 USD ($) | |
Fair Value Measurements | |||
Equity investments with readily determinable fair values | ¥ 2,567,268 | ¥ 5,886,911 | |
Short-term investments | 7,622,673 | 12,281,548 | $ 1,105,184 |
Investments accounted for at fair values | 246,073 | 194,280 | |
Total | 10,436,014 | 18,362,739 | |
Quoted Prices in Active Market for Identical Assets (Level 1) | |||
Fair Value Measurements | |||
Equity investments with readily determinable fair values | 2,567,268 | 5,886,911 | |
Total | 2,567,268 | 5,886,911 | |
Significant Other Observable Inputs (Level 2) | |||
Fair Value Measurements | |||
Short-term investments | 7,622,673 | 12,281,548 | |
Total | 7,622,673 | 12,281,548 | |
Significant Unobservable Inputs (Level 3) | |||
Fair Value Measurements | |||
Investments accounted for at fair values | 246,073 | 194,280 | |
Total | 246,073 | 194,280 | |
Significant Unobservable Inputs (Level 3) | Certain of equity investments | |||
Fair Value Measurements | |||
Impairment charges of certain equity investments without determinable fair value | ¥ 85,200 | ¥ 19,200 |
Restricted Net Assets (Details)
Restricted Net Assets (Details) ¥ in Billions | 12 Months Ended |
Dec. 31, 2022 CNY (¥) | |
Restricted Net Assets | |
Restricted net assets | ¥ 13.3 |
Restricted net assets as a percentage of total consolidated net assets | 12% |
PRC | General reserve fund | |
Restricted Net Assets | |
Required minimum percentage of annual appropriations | 10% |
PRC | Statutory surplus reserve | |
Restricted Net Assets | |
Required minimum percentage of annual appropriations | 10% |