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pww.comNetEase.com, Inc., Q3 2010 Earnings Call, Nov 17, 2010 - SEHK:9999

SEHK:9999

** Summary of Executives' Statements**

Brandi Piacente (Executives)

Key Points:

  • The discussion contains forward-looking statements and is subject to risks and uncertainties.
  • The company does not undertake any obligation to update forward-looking information unless required by law.
  • The conference call is being recorded and a webcast replay will be available on the NetEase corporate website.

Onward Choi (Executives)

Key Points:

  • Q3 2010 Financial Overview:

    • Total revenues increased 63.6% year-over-year to RMB 1.4 billion.
    • Online game revenues increased 62% year-over-year to RMB 1.3 billion, driven by "World of Warcraft" and self-developed games.
    • Advertising services revenues grew 88.3% year-over-year to RMB 162 million.
    • Net profit increased 48.6% year-over-year to RMB 585.3 million.
    • Sequentially, total revenues increased 6.8%, online game revenues increased 6.4%, and advertising services revenues increased 11%.
    • Net profit increased 20.5% quarter-over-quarter, including a net foreign exchange gain of RMB 54.3 million.

  • Online Games:

    • "Fantasy Westward Journey" performed well, driven by successful sales and branding activities.
    • "Heroes of Tang Dynasty" and "Tianxia II" showed strong revenue and user engagement.
    • New games like "Ghost" are in development.
    • "World of Warcraft" expansion pack "Wrath of the Lich King" was released with strong player enthusiasm.
    • "Tianxia II" celebrated its one-year anniversary with a new expansion pack.

  • Portal Activity:

    • Sponsored and conducted promotional activities for the 16th Asian Games in Guangzhou.
    • Top-performing advertising categories: automobile, Internet services, apparel, finance, and beverages.
    • Enhanced portal content and ad placement systems, driving user traffic and advertising ROI.
    • Micro-blog service grew from 2.5 million to over 9 million registered users.
    • Youdao Dictionary updates and e-mail service improvements.

  • Financial Details:

    • Gross profit for Q3 2010 was RMB 959.2 million, up from RMB 878.4 million in Q2 2010 and RMB 627 million in Q3 2009.
    • Gross profit margin for the Online Game business was 72%, slightly down from 79.9% in Q3 2009.
    • Gross profit margin for the Advertising Services business was 54.2%, up from 23.1% in Q3 2009.
    • Operating expenses increased due to marketing and promotional costs for various games and new research and development headcounts.
    • Net profit for Q3 2010 was RMB 585.3 million, up from RMB 485.7 million in Q2 2010 and RMB 393.8 million in Q3 2009.
    • Cash flows from operating activities were RMB 532.6 million, down from RMB 744.3 million in Q2 2010.
    • Total cash and time deposit balance as of September 30, 2010, was RMB 8.8 billion.

  • Future Outlook:

    • Continued focus on enhancing game quality and introducing new content.
    • Expectations for moderate marketing and promotional expenses in Q4.
    • Potential share buyback, dividend payout, or further licensing opportunities.
    • Effective tax rate expected to be in the 13% to 16% range for the year.

William Ding (Executives)

Key Points:

  • Market Outlook:

    • Positive outlook for the online games market, emphasizing the importance of good products.
    • NetEase will continue to enhance product quality and roll out new content.
    • Strong response to "Wrath of the Lich King" expansion pack.
    • Various game types, including shooting, action, and strategy, have potential in the market.

  • Competitive Landscape:

    • Despite intense competition, NetEase believes in the quality of its products and the efforts invested.

    • Focus on maintaining and growing user base through content enrichment and promotional activities.

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