Netease Operation Highlights for Q4 2019

Expanded user base and diversified portfolio with new games launched in China including:

• Fantasy Westward Journey 3D, released in December, topped China’s iOS download chart soon after its launch, capturing wide interest from game players.
• Introduced other thrilling new titles including Xuan Yuan Sword: Dragon Upon the Cloud, Bloom & Blade, Onmyoji: The Card Game, Champion of the Fields, The Ninth Institute and Astracraft.

Deepened international brand recognition with popular games:

• Knives Out remained popular in Japan and topped the iOS grossing chart several times in the fourth quarter.
• Identity V ranked third on Japan’s top iOS grossing chart several times in November and December
• Marvel Super War, released in December in several Southeast Asian markets, gained popularity and topped many iOS download charts.

The continued popularity of Blizzard Entertainment’s World of Warcraft^® in China, bolstered by the release of World of Warcraft Classic, achieving a record number of total monthly subscribers in the fourth quarter, with increased revenue quarter-over-quarter.

The advanced exciting game pipeline, including Onmyoji: Yokai Koya, Harry Potter: Magic Awakened，EVE Echoes, Ghost World Chronicle, Revelation mobile game, Diablo^® Immortal^™ and Pokémon Quest.

Net revenues from Youdao’s learning services and products were RMB311.9 million (US$44.8 million) for the fourth quarter of 2019, a 128.6% increase from the same period in 2018.

Advanced NetEase Cloud Music with strong revenue growth, expanding the Company’s community of independent musicians to more than 100,000 and over 270 billion playbacks of their songs in 2019.

Netease Q4 2019 Financial Highlights

Net revenues were RMB15,734.8 million (US$2,260.2 million), an increase of 9.2% compared with Q4 2018.

• Online game services net revenues were RMB11,604.3 million (US$1,666.9 million), an increase of 5.3% YoY.
• Youdao net revenues were RMB410.4 million (US$59.0 million), an increase of 78.4% YoY
• Innovative businesses and others net revenues were RMB3,720.0 million (US$534.4 million), an increase of 17.9% YoY

Gross profit was RMB8,210.4 million (US$1,179.4 million), an increase of 9.0% YoY.

Total operating expenses were RMB5,234.0 million (US$751.8 million), an increase of 17.5% YoY.

Net income from continuing operations attributable to Netease’s shareholders was RMB3,053.7 million (US$438.6 million). Non-GAAP net income from continuing operations attributable to the Company’s shareholders was RMB3,662.3 million (US$526.1 million).

Basic net income per ADS from continuing operations was US$3.40. Non-GAAP basic net income per ADS from continuing operations was US$4.07.

Netease Financial Results for The Fiscal Year 2019

Net Revenues

Net revenues for the fiscal year 2019 were RMB59,241.1 million (US$8,509.5 million), compared to RMB51,178.6 million for the fiscal year 2018.

• Net revenues from online game services were RMB46,422.6 million (US$6,668.2 million) for fiscal year 2019, compared to RMB40,190.1 million for fiscal year 2018. Mobile games accounted for approximately 71.4% of net revenues from online game services for fiscal year 2019, compared to 71.0% for fiscal year 2018.
• Net revenues from Youdao were RMB1,304.9 million (US$187.4 million) for fiscal year 2019, compared to RMB731.6 million for fiscal year 2018.
• Net revenues from innovative businesses and others were RMB11,513.6 million (US$1,653.8 million) for fiscal year 2019, compared to RMB10,256.9 million for fiscal year 2018.

Gross Profit

Gross profit for the fiscal year 2019 was RMB31,555.3 million (US$4,532.6 million), compared to RMB27,346.1 million for the fiscal year 2018.

• The year-over-year increase in online game services gross profit for fiscal year 2019 was primarily attributable to increased revenue contribution from mobile games such as Life-After, Invincible and Identity V.
• The year-over-year increase in Youdao gross profit for fiscal year 2019 was primarily attributable to the rapid development of its learning services and products.
• The year-over-year increase in innovative businesses and others gross profit for fiscal year 2019 was primarily due to increased net revenues from NetEase Cloud Music, CC live-streaming and Yanxuan, as well as improved cost control.

Operating Expenses

Total operating expenses for fiscal year 2019 were RMB17,764.6 million (US$2,551.7 million), compared to RMB17,368.8 million for fiscal year 2018. The year-over-year increase in total operating expenses for fiscal year 2019 was primarily due to increased research and development investments and staff-related costs, partially offset by decreased selling and marketing expenditures.

Other Income

Other income consisted of investment income/ (loss), interest income, foreign exchange gains and losses and others. The year-over-year increase in other income for fiscal year 2019 was mainly due to fair value changes of equity investments in publicly traded companies.

Income Taxes

The Company recorded a net income tax charge of RMB2,914.7 million (US$418.7 million) and RMB2,460.7 million for fiscal years 2019 and 2018, respectively. The effective tax rate was 17.8% for fiscal year 2019, compared to 22.2% for fiscal year 2018. The lower effective tax rate for fiscal year 2019 was mainly due to reduced losses from certain subsidiaries of the Company.

Net Income and Non-GAAP Net Income

Net income from continuing operations attributable to the Company’s shareholders for fiscal year 2019 totaled RMB13,275.0 million (US$1,906.8 million), compared to RMB8,291.1 million for fiscal year 2018.

Non-GAAP net income from continuing operations attributable to the Company’s shareholders for fiscal year 2019 totaled RMB15,662.7 million (US$2,249.8 million), compared to RMB10,761.3 million for fiscal year 2018.

NetEase reported basic and diluted net income from continuing operations per ADS of US$14.80 and US$14.67, respectively, for fiscal year 2019, and basic and diluted net income from continuing operations per ADS of US$9.20 and US$9.15, respectively, for fiscal year 2018.

Non-GAAP basic and diluted net income from continuing operations per ADS were US$17.46 and US$17.31, respectively, for fiscal year 2019, compared to non-GAAP basic and diluted net income from continuing operations per ADS of US$11.94 and US$11.87, respectively, for fiscal year 2018.

According to CNZZ, Baidu search engine market share by volume accounted for 63.55%, ranking the first. Baidu search engine market share had been gradually encroached by its competitors. Baidu search engine market share by volume dropped monthly by 0.31% in November. 360, however, its search engine market share by volume increased by 1% to 21.84%, ranking the second. Followed by Sogou and Google.

Except for Baidu, 360 and Sogou, other search engines’ market share all fell below 3%. Google only accounted for 1.66%, Microsoft Bing accounted for 0.56%.

In November, only 360, Sogou and Youdao had a growth in market share. 360 had the biggest growth monthly, almost by 1%. Sogou grew by 0.78% monthly. While, Soso had the biggest drop in November, decreasing by 1.4%. After the integration of Sogou and Soso, they both experienced different developing tracks. Whether the merge would enable the new Sogou to compete with 360 and Baidu, we will wait and see.

Analysis International, a China Internet research company, released search engine market data for the first quarter in 2012. Total revenue in Q1 has grown by 70.4% (YoY) to 5.53 billion yuan (USD$877 million) though it’s dropped by 4.7% compared to the previous quarter.

Baidu’s Q1 earnings surged 76% as the Chinese Internet search giant’s revenue continued to surge. Baidu posted a profit of 1.88 billion Chinese yuan ($299 million), or CNY5.38 (85 U.S. cents) per ADS, up from CNY1.07 billion, or CNY3.06 an ADS, a year earlier.

Let’s take a look at a few ways to search Weibo platform in real-time.

Weibo Search Function

On Weibo platforms like Sina Weibo, you can conduct a search on any page or go to a search page such as s.weibo.com.

You can bookmark the search result page or “follow” the topic you searched for to create shortcuts. It’s nice and easy.

Update (25 August 2020): the feature to “follow” a topic on Weibo is no longer available.  Users on Weibo can filter the search results to users, articles, videos, images, and topics.

Search Weibo with Panguso

Launched this February, Panguso is joint efforts by China Mobile and Xinhua News Agency.

Update (25 August 2020): On March 1, 2014, Panguso merged with Jike and became ChinaSo. And, the Weibo search function is no longer available.

Real-time Search with Tencent SoSo

Similar to Panguso real-time search, the results on SoSo search are also auto refreshed and include also microblog content.

Update (25 August 2020): Soso discontinued services and now redirects to Sogou Search.  Sogou can’t be used to search Weibo but it can be used to search WeChat.

Real-time Search with Youdao

Youdao is NetEase’s effort in Chinese search market. It’s the first search engine that launched real-time search feature and also my favorite real-time search engine.

Update (25 August 2020): Youdao search discontinued though it still exists and focuses on the language-translation tool and services.

Weibo Search on China Search

China Search, or Zhongsou, just launched Weibo search in November this year.

I like Youdao for real-time search because Youdao’s real-time search indexes not only microblogs but also forums and news. It’s a great tool, simple and free, for marketers to monitor the online conversation.

Update (March 2, 2012): Baidu yesterday announced the integration of Weibo results including Sina Weibo into Baidu SERPs. You can visit our Facebook Page for screen capture.

Update (25 August 2020): Baidu desktop search doesn’t return any results from Weibo. But on mobile, on either browser or Baidu App, it shows a filtered channel specifically for Weibo search results:

If you’d like to monitor Weibo search results, you need more powerful tools. There are currently no free ones in the market and it usually costs about US$3,000-US$7,000 per year.

China’s mobile search market overview 2020