NetEase Beats Wall Street's Targets for the Fourth Quarter

Author: Qasim Khan Editor: Edward Turkson Feb 27, 2020 10:30 PM (GMT+8)

NetEase has released its unaudited financial results for the fourth quarter and fiscal year 2019 as of December 31, 2019.

NetEase's online gaming business has brought in billions of yuan. Image credit: Jippe Joosten/Unsplash

According to the financial report, Netease's fourth-quarter net income was CNY 15.735 billion (USD 2.244 billion), an increase of 9.2% year on year. The firm made a profit of CNY 3.054 billion (USD 435.7 million), a year on year increase of 20.4%.

This is the second financial report after the restructuring of NetEase's business, which began last September with the sale of Koala, its overseas shopping website, the spin-off of its search engine, Youdao, and the return to music with NetEase Cloud Music. The overall statistical scope of the financial report has also been changed to three sections: online games, Youdao, Innovation and other businesses. 

NetEase's fourth-quarter revenue and profits both benefited from the growth in gaming and other core businesses. Among them, game business revenue increased 5.3% year-on-year, Youdao’s revenue increased by 78.4% year on year, and innovation and other business revenue increased by 17.9% year on year.

After the business adjustment, NetEase seems to be more stable. As the second-largest player in the gaming industry after Tencent and an upstart in the online education industry, NetEase's stock price has been rising along with business adjustments. Recently, its market value once again surpassed Baidu’s and became China's fifth-largest Internet company.

In 2020, due to the outbreak of the epidemic situation and prolonged winter vacation, the online gaming industry and online education experienced explosive growth, which will further benefit NetEase’s business.

As the most profitable business of NetEase, online gaming accumulated revenue of CNY 11.604 billion in the fourth quarter, accounting for 73.7% of the total revenue. Nowadays, the capital market prefers a diversified corporate structure to share risks.

However, comparing CNY 11.535 billion with CNY 11.02 billion in the previous quarter the same period of last year respectively, the online gaming revenue increased by 5.3% year on year, with a further slowed down growth rate.

The financial report shows that the growth of the online gaming business is mainly due to the increase in mobile gaming revenue. The net income from mobile games in the fourth quarter accounted for 70.4% of the net revenue of online game services.

Other than the gaming business, in October last year, Netease’s Youdao officially got listed on the New York Stock Exchange, becoming NetEase’s first independently listed company. As this is the second financial report after listing, Youdao managed to bring in a net income of CNY 410 million in the fourth quarter, an increase of 78.4% year on year.

Among them, the revenue of learning products and services reached CNY 310 million, accounting for nearly 80% of the total revenue, becoming a major source of revenue for Youdao. Learning products and services are mainly composed of online courses and intelligent hardware business. 

Thanks to the strong growth in the number of K12 paying students, Youdao's online course sales in the fourth quarter were CNY 346.7 million, a year-on-year increase of 211.1%. In the fourth quarter, the paying users of Youdao’s quality courses reached 258,300, with a year-on-year growth of 68.1% and K12 courses paying users of 161,100, up by 366.3% year on year.

Youdao CEO and Director Zhou Feng pointed out that in August 2019, Youdao launched the Youdao Dictionary Pen 2.0, which boosted the revenue of learning products in the fourth quarter by nearly 400% year on year. 

Although it has achieved good results in the sales of courses and learning products, due to customer acquisition, brand promotion and increase in marketing costs, Youdao's fourth-quarter operating loss reached CNY 204 million with totaled operation losses of CNY 600 million throughout 2019.