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What changed in NetEase, Inc.'s 20-F — 2022 vs 2023

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Paragraph-level year-over-year comparison of NetEase, Inc.'s 2022 and 2023 20-F annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+953 added−933 removedSource: 20-F (2024-04-25) vs 20-F (2023-04-27)

Top changes in NetEase, Inc.'s 2023 20-F

953 paragraphs added · 933 removed · 718 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

285 edited+98 added−62 removed578 unchanged
Biggest change“Key Information—Risk Factors.” ​ Risks Related to Our Business and Industry ● Risks Related to Our Games and Related Value-added Services ● Risks relating to developing new online games and growing the popularity of existing online games ● Risks relating to claims regarding our gaming contents resulting in negative publicity or a governmental response 8 Table of Contents ● Risks relating to additional restrictions to limit online game playing by the Chinese government ● Risks relating to uncertainties in obtaining approval for new games ● Risks relating to laws, regulations policies and guidelines applicable to the live streaming and online entertainment industries ● Risks relating to international operations of our online games ● Risks relating to third-party platforms that distribute our mobile games and collect payments ● Risks relating to maintaining our existing licenses of game or intellectual property ● Risks relating to illegal game servers, acts of cheating by players and sales and purchases by players of our game accounts and virtual items through third-party auction websites ● Risks Related to Our Other Businesses ● Risks relating to changes in Youdao’s business strategies and offerings ● Risks relating to Youdao business’s compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures ● Risks relating to changes in user acceptance of Youdao, and market trend of integration of technology and learning, and the development and application of our technologies to support and expand Youdao’s product and services ● Risks relating to obtaining legal and regulatory approvals, licenses or permits of our intelligent learning, music streaming, e-commerce, advertising and other innovative businesses ● Risks relating to obtaining licenses for the music content necessary to provide our music streaming services, and our ability to attract and retain users ● Risks relating to generating and maintaining significant advertising revenue ● Risks relating to growing our e-commerce business ● Risks Related to Our Operations Overall ● Risks relating to competing successfully against new entrants and established industry competitors and keeping up with rapid changes in technologies and user behavior and innovating and exploring new areas of operations ● Risks relating to gross profit margin and profitability affected by changes in our mix of revenues ● Risks relating to credit risk on our accounts receivable ● Risks relating to a prolonged slowdown in the PRC or global economy ● Risks relating to economic uncertainty and capital market disruptions caused by rising inflation and geopolitical instability ● Risks relating to compliance with laws and other obligations regarding data protection in China and outside of China ● Risks relating to breaches of our information technology systems and system failure or performance inadequacy that causes interruptions of our services 9 Table of Contents ● Risks relating to our ability to retain our existing key employees and to add and retain senior officers to our management ● Risks relating to natural disasters, widespread public health problems, other outbreaks and epidemics and other events ● Risks relating to the expansion of our businesses and operations internationally Risks Related to Our Corporate Structure ● Risks relating to regulatory changes relating to the contractual arrangements with the VIEs and the viability of our current corporate structure, corporate governance and business operations ● Risks relating to maintaining operational control of the VIEs through contractual arrangements ● Risks relating to the shareholders who have significant influence over our company and the variable interest entities ● Risks relating to our arrangements with the variable interest entities Risks Related to Doing Business in China ● Risks relating to China’s political and economic policies ● Risks relating to compliance with and changes in PRC laws and regulations relating to telecommunications, internet, foreign investment, tax, online games, virtual asset property rights, consumer protection and financial transactions ● Risks relating to claims and liabilities based on the information and content on our platforms ● Risks relating to uncertainties with respect to the interpretation and implementation of the anti-monopoly related laws in the field of internet platforms ● Risks relating to our ability to protect our intellectual property from being infringed ● Risks relating to currency exchange rates Risks Related to Our ADSs and Shares ● Risks relating to being prohibited from trading on Nasdaq under the Holding Foreign Companies Accountable Act if the PCAOB cannot continue to inspect our independent registered public accounting firm for two consecutive years ● Risks relating to the volatility of the trading price of our ADSs and shares ● Risks relating to the different listing rules and regulations that apply to us ● Risks relating to the limitation of the voting, inspection and other rights of holders of ADSs You should carefully consider the following risk factors in addition to the other information set forth in this annual report.
Biggest change“Key Information—Risk Factors.” ​ Risks Related to Our Business and Industry ● Risks Related to Our Games and Related Value-added Services; ● Risks relating to developing new online games and growing the popularity of existing online games; ● Risks relating to claims regarding our gaming contents resulting in negative publicity or a governmental response; 8 Table of Contents ● Risks relating to additional restrictions to limit online game playing by the Chinese government; ● Risks relating to uncertainties in obtaining approval for new games; ● Risks relating to laws, regulations policies and guidelines applicable to the live streaming and online entertainment industries; ● Risks relating to international operations of our online games; ● Risks relating to third-party platforms that distribute our mobile games and collect payments; ● Risks relating to maintaining our existing licenses of game or intellectual property; ● Risks relating to illegal game servers, acts of cheating by players and sales and purchases by players of our game accounts and virtual items through third-party auction websites; ● Risks Related to Our Other Businesses; ● Risks relating to changes in Youdao’s business strategies and offerings; ● Risks relating to Youdao business’s compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures; ● Risks relating to changes in user acceptance of Youdao, and market trend of integration of technology and learning, and the development and application of Youdao’s technologies to support and expand its product and services; ● Risks relating to obtaining legal and regulatory approvals, licenses or permits of our intelligent learning, music streaming, e-commerce, advertising and other innovative businesses; ● Risks relating to obtaining licenses for the music content necessary to provide our music streaming services, and our ability to attract and retain users; ● Risks relating to generating and maintaining significant advertising revenue; ● Risks relating to growing our e-commerce business; ● Risks Related to Our Operations Overall; ● Risks relating to competing successfully against new entrants and established industry competitors and keeping up with rapid changes in technologies and user behavior and innovating and exploring new areas of operations; ● Risks relating to gross profit margin and profitability affected by changes in our mix of revenues; ● Risks relating to credit risk on our accounts receivable; ● Risks relating to a prolonged slowdown in the PRC or global economy; ● Risks relating to economic uncertainty and capital market disruptions caused by rising inflation and geopolitical instability; ● Risks relating to compliance with laws and other obligations regarding data protection in China and outside of China; ● Risks relating to breaches of our information technology systems and system failure or performance inadequacy that causes interruptions of our services; 9 Table of Contents ● Risks relating to our ability to retain our existing key employees and to add and retain senior officers to our management; ● Risks relating to natural disasters, widespread public health problems, other outbreaks and epidemics and other events; ● Risks relating to the expansion of our businesses and operations internationally; ● Risks relating to being deemed an “Investment Company” under the Investment Company Act of 1940.
In addition, the Notice on Strengthening the Administration of Online Show Live and E-commerce Live Streaming, or the Notice 78, Online Performance Brokerage Agencies Measures and the Live Streaming Opinions set forth certain restrictions on inducing users to spend or to promote performers on their platform. For detailed information, please refer to Item 4.B.
In addition, the Notice on Strengthening the Administration of Online Show Live and E-commerce Live Streaming, or Notice 78, Online Performance Brokerage Agencies Measures and the Live Streaming Opinions set forth certain restrictions on inducing users to spend or to promote performers on their platform. For detailed information, please refer to Item 4.B.
“Information on the Company—Business Overview—Government Regulations —Regulations on Internet Live Streaming Services.” The Notice 78, the Online Performance Brokerage Agencies Measures and the Live Streaming Opinions are relatively new, and the interpretation and enforcement of these regulations involve uncertainties.
“Information on the Company—Business Overview—Government Regulations —Regulations on Internet Live Streaming Services.” Notice 78, the Online Performance Brokerage Agencies Measures and the Live Streaming Opinions are relatively new, and the interpretation and enforcement of these regulations involve uncertainties.
Games to co-develop the mobile game Harry Potter: Magic Awakened , which successfully launched in 2021 in Chinese mainland, Hong Kong, Macau and Taiwan. If we were to breach any material term of these license agreements, the licensor could terminate the agreement.
Games to co-develop the mobile game Harry Potter: Magic Awakened , which successfully launched in 2021 in the Chinese mainland, Hong Kong, Macau and Taiwan. If we were to breach any material term of these license agreements, the licensor could terminate the agreement.
In order to fully comply with applicable PRC regulatory requirements adopted by the PRC government in the second half of 2021, Youdao disposed of its Academic AST Business. In connection with this disposal, Youdao completed transition to become a leading technology-focused intelligent learning company and has developed a comprehensive suite of product and service offerings.
In order to fully comply with applicable PRC regulatory requirements adopted by the PRC government in the second half of 2021, Youdao disposed of its Academic AST Business. In connection with this disposal, Youdao completed its transition to become a leading technology-focused intelligent learning company and has developed a comprehensive suite of product and service offerings.
With respect to Youdao’s non-academic after school tutoring services, the Alleviating Burden Opinion requires local authorities to identify corresponding competent authorities for different tutoring categories of non-academic after school tutoring services (e.g., physical education, arts, science and etc.) and set forth standards by categories to approve institutions for offering each category of non-academic after school tutoring service.
With respect to Youdao’s non-academic after-school tutoring services, the Alleviating Burden Opinion requires local authorities to identify corresponding competent authorities for different tutoring categories of non-academic after-school tutoring services (e.g., physical education, arts, science, etc.) and set forth standards by categories to approve institutions for offering each category of non-academic after-school tutoring service.
Moreover, although our websites are open and available worldwide, we do not actively solicit business in countries that are subject to comprehensive trade sanctions or from persons who are subject to sanctions.
Moreover, although our websites are open and available worldwide, we do not actively solicit business in countries that are subject to comprehensive trade sanctions or from persons who are subject to trade sanctions.
These regulatory requirements could (1) prohibit or restrict firms from selling, exporting, re-exporting or transferring certain technology, components, software and other items to China-based companies, (2) prohibit or restrict persons from entering into transactions with China-based companies, (3) prohibit or restrict China-based companies from accessing data, providing services in or operating in the sanctioning jurisdiction, or (4) prohibit purchases and sale of securities of Chinese firms, among other prohibitions or restrictions.
These regulatory requirements could, among other restrictions, (1) prohibit or restrict firms from selling, exporting, re-exporting or transferring certain technology, components, software and other items to China-based companies, (2) prohibit or restrict persons from entering into transactions with China-based companies, (3) prohibit or restrict China-based companies from accessing data, providing services in or operating in the sanctioning jurisdiction, or (4) prohibit purchases and sale of securities of Chinese firms, among other prohibitions or restrictions.
U.S. entities and individuals may not be permitted to do business with sanctioned companies and persons, and international banks and other companies may as a matter of law and/or policy decide not to engage in transactions with such companies. In January 2023, the U.S.
U.S. entities and individuals may not be permitted to do business with sanctioned companies or persons, and international banks and other companies may as a matter of law and/or policy decide not to engage in transactions with such companies. In January 2023, the U.S.
These transactions involve significant challenges and risks, including: ● difficulties in, and significant and unanticipated additional costs and expenses resulting from, integrating into our business the personnel, operations, products, services, technology, internal controls and financial reporting of the businesses we acquire; ● disruptions to our ongoing business and distractions to our management and employees when engaging or negotiating these transactions, or when integrating the new business we acquire with our existing business, both of which will increase our expenses; ● departure of skilled professionals and experienced management teams of the acquired businesses, in particular senior game designers and programmers; ● lack of influence over the controlling partners or shareholders or the misalignment of interests between us and our partners or other shareholders, for those investments which we may not obtain management and operational control; ● complex regulatory requirements, restrictions and/or scrutiny on our investments and acquisitions in foreign jurisdictions, including those related to national security, anti-monopoly and competition laws, export controls and etc.; ● actual or alleged misconduct, unscrupulous business practices or non-compliance by us and/or any company we acquire or invest in or by its affiliates or current or former employees, whether before, during or after our acquisition or investments; ● difficulties in and costs associated with identifying and selecting appropriate targets and strategic partners; ● loss of potential opportunities to enter into strategic transactions with competitors of our investee companies and strategic partners; ● difficulties in conducting sufficient and effective due diligence on potential targets to identify hidden liabilities, incidences of non-compliance, operating losses, or costs and expenses, which may adversely affect us following our acquisitions or investments or other strategic transactions; ● losses arising from disposal of investments or split-up of businesses; and ● actual or potential impairment charges or write-offs of investments in equity method investees or intangible assets (including intellectual property we acquire), and goodwill recorded in connection with invested businesses, in the event that a decline in fair value below the carrying value of our equity method investments is other-than-temporary, or the carrying amount of a reporting unit to which goodwill is allocated exceeds its fair value.
These transactions involve significant challenges and risks, including: ● difficulties in, and significant and unanticipated additional costs and expenses resulting from, integrating into our business the personnel, operations, products, services, technology, internal controls and financial reporting of the businesses we acquire; ● disruptions to our ongoing business and distractions to our management and employees when engaging in or negotiating these transactions, or when integrating the new business we acquire with our existing business, both of which will increase our expenses; ● departure of skilled professionals and experienced management teams of the acquired businesses, in particular senior game designers and programmers; ● lack of influence over the controlling partners or shareholders or the misalignment of interests between us and our partners or other shareholders, for those investments in which we may not obtain management and operational control; ● complex regulatory requirements, restrictions and/or scrutiny on our investments and acquisitions in foreign jurisdictions, including those related to national security, anti-monopoly and competition laws, export controls, etc.; ● actual or alleged misconduct, unscrupulous business practices or non-compliance by us and/or any company we acquire or invest in or by its affiliates or current or former employees, whether before, during or after our acquisition or investments; ● difficulties in and costs associated with identifying and selecting appropriate targets and strategic partners; ● loss of potential opportunities to enter into strategic transactions with competitors of our investee companies and strategic partners; ● difficulties in conducting sufficient and effective due diligence on potential targets to identify hidden liabilities, incidences of non-compliance, operating losses, or costs and expenses, which may adversely affect us following our acquisitions or investments or other strategic transactions; ● losses arising from disposal of investments or split-up of businesses; and ● actual or potential impairment charges or write-offs of investments in equity method investees or intangible assets (including intellectual property we acquire), and goodwill recorded in connection with invested businesses, in the event that a decline in fair value below the carrying value of our equity method investments is other-than-temporary, or the carrying amount of a reporting unit to which goodwill is allocated exceeds its fair value.
As such, there remains a leeway for future laws to define contractual arrangements as a form of “foreign investment.” Therefore, there can be no assurance that our consolidation of the VIEs through contractual arrangements will not be deemed as foreign investment in the future.
As such, there remains leeway for future laws to define contractual arrangements as a form of “foreign investment.” Therefore, there can be no assurance that our consolidation of the VIEs through contractual arrangements will not be deemed as foreign investment in the future.
On September 2, 2022, the Standing Committee of the National People’s Congress promulgated the Anti-Telecom and Online Fraud Law of PRC, effective on December 1, 2022, which requires that non-bank payment institutions, together with banking financial institutions, must establish a customer due diligence system during the opening of bank accounts and payment accounts and the provision of payment and settlement services for customers, and during the existence of the business relationship with customers, identify the beneficial owners and take appropriate risk management measures to prevent the use of bank accounts and payment accounts for telecom or online fraud according to relevant laws.
On September 2, 2022, the Standing Committee of the National People’s Congress promulgated the Anti-Telecom and Online Fraud Law of the PRC, effective on December 1, 2022, which requires that non-bank payment institutions, together with banking financial institutions, must establish a customer due diligence system during the opening of bank accounts and payment accounts and the provision of payment and settlement services for customers, and during the existence of the business relationship with customers, identify the beneficial owners and take appropriate risk management measures to prevent the use of bank accounts and payment accounts for telecom or online fraud according to relevant laws.
In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021.
In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021.
Consequently, the trading performance of our shares and/or ADSs may be adversely and materially affected, regardless of our actual operation performance. 60 Table of Contents In addition to market and industry factors, the price and trading volume for our shares and/or ADSs may be highly volatile for factors specific to our operation, including the following: ● variations in our results of operations that are not in line with market or research analyst expectations or changes in financial estimates by securities research analysts; ● announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors; ● changes in the economic performance or market valuations of other market players in our industries; ● announcements made by us or our competitors of new features or functionalities or other product and service offerings, investments, acquisitions, strategic relationships, joint ventures or capital commitments; ● press and other reports, whether or not true, about our business, including negative reports published by short sellers, regardless of their veracity or materiality to us; ● litigation and regulatory allegations or proceedings that involve us and our directors; ● additions to or departures of our management; ● political or market instability or disruptions, and actual or perceived social unrest in the markets where we operate; ● fluctuations of exchange rates among the Renminbi, the Hong Kong dollar and the U.S. dollar; ● sales or perceived potential sales or other dispositions of existing or additional ADSs or other equity or equity-linked securities; ● any actual or alleged illegal acts of our senior management or other key employees; ● any share repurchase program; and ● regulatory developments affecting us or our industry, customers, licensors and other suppliers.
Consequently, the trading performance of our shares and/or ADSs may be adversely and materially affected, regardless of our actual operation performance. 62 Table of Contents In addition to market and industry factors, the price and trading volume for our shares and/or ADSs may be highly volatile for factors specific to our operation, including the following: ● variations in our results of operations that are not in line with market or research analyst expectations or changes in financial estimates by securities research analysts; ● announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors; ● changes in the economic performance or market valuations of other market players in our industries; ● announcements made by us or our competitors of new features or functionalities or other product and service offerings, investments, acquisitions, strategic relationships, joint ventures or capital commitments; ● press and other reports, whether or not true, about our business, including negative reports published by short sellers, regardless of their veracity or materiality to us; ● litigation and regulatory allegations or proceedings that involve us and our directors; ● additions to or departures of our management; ● political or market instability or disruptions, and actual or perceived social unrest in the markets where we operate; ● fluctuations of exchange rates among the Renminbi, the Hong Kong dollar and the U.S. dollar; ● sales or perceived potential sales or other dispositions of existing or additional ADSs or other equity or equity-linked securities; ● any actual or alleged illegal acts of our senior management or other key employees; ● any share repurchase program; and ● regulatory developments affecting us or our industry, customers, licensors and other suppliers.
“Additional Information—Exchange Controls.” 7 Table of Contents The Holding Foreign Companies Accountable Act Pursuant to the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
“Additional Information—Exchange Controls.” 7 Table of Contents The Holding Foreign Companies Accountable Act Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
“Key Information—Risk Factors—Risks Related to Our Corporate Structure—There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations performance of NetEase.
“Key Information—Risk Factors—Risks Related to Our Corporate Structure—There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and, consequently, significantly affect the financial condition and results of operations of NetEase.
For example, U.S. investors who owned our ADSs or shares during any taxable year in which we were a PFIC generally are subject to increased U.S. tax liabilities and reporting requirements for that taxable year and all succeeding years, regardless of whether we actually continue to be a PFIC, although a shareholder election to terminate such deemed PFIC status may be available in certain circumstances.
For example, U.S. investors who owned our ADSs or ordinary shares during any taxable year in which we were a PFIC generally are subject to increased U.S. tax liabilities and reporting requirements for that taxable year and all succeeding years, regardless of whether we actually continue to be a PFIC, although a shareholder election to terminate such deemed PFIC status may be available in certain circumstances.
Thus, if the PRC government finds that our contractual arrangements do not comply with the existing or future restrictions on foreign investment, or if the PRC government otherwise finds that we, the VIEs or any of their subsidiaries are in violation of the existing or future PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including, without limitation: ● revoking our business and operating licenses; ● discontinuing or restricting our operations; ● imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations; ● imposing conditions or requirements with which we may not be able to comply; ● requiring us to restructure the relevant ownership structure or operations; ● restricting our financing activities to finance the business and operations of the VIEs; or ● taking other regulatory or enforcement actions that could be harmful to our business. 41 Table of Contents Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations.
Thus, if the PRC government finds that our contractual arrangements do not comply with the existing or future restrictions on foreign investment, or if the PRC government otherwise finds that we, the VIEs or any of their subsidiaries are in violation of the existing or future PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including, without limitation: ● revoking our business and operating licenses; ● discontinuing or restricting our operations; ● imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations; ● imposing conditions or requirements with which we may not be able to comply; ● requiring us to restructure the relevant ownership structure or operations; ● restricting our financing activities to finance the business and operations of the VIEs; or ● taking other regulatory or enforcement actions that could be harmful to our business. 43 Table of Contents Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations.
Please also see the below risk factors “— Substantial uncertainties exist with respect to how the 2019 Foreign Investment Law may impact the viability of our current corporate structure, corporate governance and business operations.” and “— Risks Related to Doing Business in China—The Chinese government restricts the ability for foreign investors to invest in and operate in certain types of telecommunications and internet businesses.” Substantial uncertainties exist with respect to how the 2019 Foreign Investment Law may impact the viability of our current corporate structure, corporate governance and business operations.
Please also see the below risk factors “— Substantial uncertainties exist with respect to how the 2019 Foreign Investment Law may impact the viability of our current corporate structure, corporate governance and business operations” and “— Risks Related to Doing Business in China—The Chinese government restricts the ability for foreign investors to invest in and operate in certain types of telecommunications and internet businesses.” Substantial uncertainties exist with respect to how the 2019 Foreign Investment Law may impact the viability of our current corporate structure, corporate governance and business operations.
For example, in general our Youdao, Cloud Music and innovative businesses and others segments have had lower gross profit margins compared to our games and related value-added services segment. These individual gross margins in turn can be impacted in any given period by factors such as competition, the implementation of new regulatory requirements and other factors.
For example, in general our segments, namely Youdao, Cloud Music and innovative businesses and others, have had lower gross profit margins compared to our games and related value-added services segment. These individual gross margins in turn can be impacted in any given period by factors such as competition, the implementation of new regulatory requirements and other factors.
In addition, Cloud Music and its subsidiaries are required to obtain various government approvals, licenses and permits or make various registrations and filings to provide internet information services, internet culture services, internet publication services, online audio-visual products and other related value-added telecommunications services, including the requirement to hold AVSP or complete the registration in the national network audio-visual platform information registration management system.
In addition, Cloud Music and its subsidiaries are required to obtain various government approvals, licenses and permits or make various registrations and filings to provide internet information services, internet culture services, internet publication services, online audio-visual products and other related value-added telecommunications services, including the requirement to hold an AVSP or complete the registration in the national network audio-visual platform information registration management system.
The expansion of our online games to markets outside of China will involve a variety of risks, including: ● difficulties in anticipating the preferences of game players in markets outside of China; ● challenges in formulating effective local sales and marketing strategies targeting users from various jurisdictions and cultures; ● challenges in identifying appropriate local business partners, including local game operators, and establishing and maintaining good working relationships with them; ● changes in a specific country’s or region’s political or economic conditions; ● unexpected changes in regulatory requirements, taxes or trade laws; ● difficulties in adapting and/or developing games which effectively address cultural differences and consumer preferences and are compliant with the local legal and regulatory environment; ● difficulties in managing a business in international markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; 15 Table of Contents ● more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information; ● currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we choose to do so in the future; ● laws and business practices favoring local competitors or general preferences for local vendors; ● limited or insufficient intellectual property protection; and ● adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
The expansion of our online games to markets outside of China will involve a variety of risks, including: ● difficulties in anticipating the preferences of game players in markets outside of China; ● challenges in formulating effective local sales and marketing strategies targeting users from various jurisdictions and cultures; ● challenges in identifying appropriate local business partners, including local game operators, and establishing and maintaining good working relationships with them; ● changes in a specific country’s or region’s political or economic conditions; ● unexpected changes in regulatory requirements, taxes or trade laws; ● difficulties in adapting and/or developing games which effectively address cultural differences and consumer preferences and are compliant with the local legal and regulatory environment; ● difficulties in managing a business in international markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; ● more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information; ● currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we choose to do so in the future; ● laws and business practices favoring local competitors or general preferences for local vendors; ● limited or insufficient intellectual property protection; and ● adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
In addition, unlike large portion of game players in China mainland who access games through PCs and mobile devices, many game players in international markets play games predominantly via consoles such as Xbox and PlayStation. We launched Naraka: Bladepoint on console in June 2022 and plan to release numerous additional console game releases in the future.
In addition, unlike a large portion of game players in China mainland who access games through PCs and mobile devices, many game players in international markets play games predominantly via consoles such as Xbox and PlayStation. We launched Naraka: Bladepoint on console in June 2022 and plan to release numerous additional console game releases in the future.
In anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our business, we face potential risks if we are deemed as a “critical information infrastructure operator” or a “network platform operator” that affects or may affect national security under the Cybersecurity Review Measures, and would be required to follow cybersecurity review procedures.
In anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our business, we face potential risks if we are deemed a “critical information infrastructure operator” or a “network platform operator” that affects or may affect national security under the Cybersecurity Review Measures, and would be required to follow cybersecurity review procedures.
We have implemented internal controls to manage and monitor our compliance with applicable trade sanctions, but there can be no assurance that we are able to prevent or detect inadvertent business dealings with sanctioned parties and we have limited control over the activities of our international business partners and non-controlled investees.
We have implemented internal controls to manage and monitor our compliance with applicable trade sanctions, but there can be no assurance that we are able to prevent or detect inadvertent business dealings with or involving sanctioned parties and we have limited control over the activities of our international business partners and non-controlled investees.
Our disaster recovery plan may not fully ensure safety in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, geopolitical events and similar events. If any of the foregoing occurs, we may experience a system shutdown. We do not carry any business interruption insurance.
Our disaster recovery plan may not fully ensure safety in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, geopolitical events and similar events. If any of the foregoing occurs, we may experience a system shutdown. We generally do not carry any business interruption insurance.
However, uncertainties still exist in relation to interpretation and implementation of the 2019 PRC Foreign Investment Law, especially in regard to, including, among other things, the nature of VIE structure, the promulgation schedule of both the “negative list” under the 2019 PRC Foreign Investment Law and specific rules regulating the organization form of foreign-invested enterprises within the five-year transition period.
However, uncertainties still exist in relation to interpretation and implementation of the 2019 PRC Foreign Investment Law, especially in regard to, among other things, the nature of VIE structure, the promulgation schedule of both the “negative list” under the 2019 PRC Foreign Investment Law and specific rules regulating the organization form of foreign invested enterprises within the five-year transition period.
The PRC government has recently published new policies that adversely affected our industry and our business, and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could further adversely affect our business, financial condition and results of operations. Contract drafting, interpretation and enforcement in China involve significant uncertainty.
The PRC government has recently published new policies that adversely affected our industry and our business, and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could further adversely affect our business, financial condition and results of operations. Contract drafting, interpretation and enforcement in China involve uncertainty.
The significant changes in Youdao’s business strategies and offerings have not only rendered its historical results no longer indicative of its future performance, but they may also have some or all of the following unintended effects: ● some users, customers and business partners may not receive the changes in Youdao’s business strategies and offerings in a positive manner, and relationships with these parties may be jeopardized; ● Youdao’s new products and services may not be accepted by its users as we expect; ● Youdao’s new products and services may not attract users and customers or generate the revenue required to succeed; 21 Table of Contents ● the underlying assumptions and estimates about Youdao’s new businesses and the new markets that it attempts to enter into may prove incorrect, which may cause Youdao’s actual results of operations to fall short of our expectations; ● to the extent Youdao enters into new businesses, its previous operating history may be of limited use for investors to evaluate Youdao’s future performance and prospects; ● the development of new products and services could be costly and time-consuming and requires us to make significant investments in research and product development, develop new technologies, and increase sales and marketing efforts, all of which may not be successful; ● expenses will be incurred in the implementation of the new business strategies, which could be substantial; and ● the changes in organizational structure that will be required to support the changes in Youdao’s business strategies and offerings may lead to dissatisfaction among employees which could make it more difficult for Youdao to retain key employees.
The significant changes in Youdao’s business strategies and offerings have not only rendered its historical results no longer indicative of its future performance, but they may also have some or all of the following unintended effects: ● some users, customers and business partners may not receive the changes in Youdao’s business strategies and offerings in a positive manner, and relationships with these parties may be jeopardized; ● Youdao’s new products and services may not be accepted by its users as we expect; ● Youdao’s new products and services may not attract users and customers or generate the revenue required to succeed; ● the underlying assumptions and estimates about Youdao’s new businesses and the new markets that it attempts to enter into may prove incorrect, which may cause Youdao’s actual results of operations to fall short of our expectations; ● to the extent Youdao enters into new businesses, its previous operating history may be of limited use for investors to evaluate Youdao’s future performance and prospects; ● the development of new products and services could be costly and time-consuming and requires us to make significant investments in research and product development, develop new technologies, and increase sales and marketing efforts, all of which may not be successful; ● expenses will be incurred in the implementation of the new business strategies, which could be substantial; and ● the changes in organizational structure that will be required to support the changes in Youdao’s business strategies and offerings may lead to dissatisfaction among employees which could make it more difficult for Youdao to retain key employees.
Item 3. Key Information Our Corporate Structure and Contractual Arrangements with the Variable Interest Entities NetEase, Inc. is not a PRC operating company but a Cayman Islands holding company with operations primarily conducted through (i) our subsidiaries incorporated in China mainland, or China mainland subsidiaries, and (ii) contractual arrangements with the variable interest entities based in China mainland.
Item 3. Key Information Our Corporate Structure and Contractual Arrangements with the Variable Interest Entities NetEase, Inc. is not a PRC operating company but a Cayman Islands holding company with operations primarily conducted through (i) our subsidiaries incorporated in China mainland, or China mainland subsidiaries, and (ii) contractual arrangements with the VIEs based in China mainland.
The PRC government has recently published new policies that affected various industries, including industries in which we operate in, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations.
The PRC government has recently published new policies that affect various industries, including industries in which we operate, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations.
With respect to the cross-border transfer of personal information outside the territory of PRC, PIPL requires that unless otherwise provided in the related international treaties or agreements concluded or acceded to by PRC, the handler of personal information must meet one of the following conditions: (i) pass the security assessment organized by CAC (on August 31, 2022, the CAC issued the Guidelines for Declaring Data Cross-border Security Assessment (First Edition), which became effective on September 1, 2022, to further clarify the scope of application, declaration methods and processes of data cross-border security assessment), (ii) have been certified by a specialized agency for protection of personal information in accordance with the provisions of the CAC (on November 4, 2022, the CAC promulgated the Announcement on the Implementation of Certification for Personal Information Protection to substantiate the details of such certification); (iii) enter into a contract with the overseas recipient under the standard contract formulated by CAC (on February 24, 2023, the CAC promulgated the Measures for Standard Contracts for Cross-border Transfers of Personal Information, or the Measures, together with a template of such standard contract as an annex to the Measures, which will take effect on June 1, 2023, to specify the circumstances to conclude such standard contract and a template of such standard contract); or (iv) meet other conditions prescribed by laws, administrative regulations or the CAC.
With respect to the cross-border transfer of personal information outside the territory of PRC, PIPL requires that unless otherwise provided in the related international treaties or agreements concluded or acceded to by PRC, the handler of personal information must meet one of the following conditions: (i) pass the security assessment organized by CAC (on August 31, 2022, the CAC issued the Guidelines for Declaring Data Cross-border Security Assessment (First Edition), which became effective on September 1, 2022, to further clarify the scope of application, declaration methods and processes of data cross-border security assessment); (ii) have been certified by a specialized agency for protection of personal information in accordance with the provisions of the CAC (on November 4, 2022, the CAC promulgated the Announcement on the Implementation of Certification for Personal Information Protection to substantiate the details of such certification); (iii) enter into a contract with the overseas recipient under the standard contract formulated by CAC (on February 24, 2023, the CAC promulgated the Measures for Standard Contracts for Cross-border Transfers of Personal Information, or the Measures, together with a template of such standard contract as an annex to the Measures, which took effect on June 1, 2023, to specify the circumstances to conclude such standard contract and a template of such standard contract); or (iv) meet other conditions prescribed by laws, administrative regulations or the CAC.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs.” Although the Foreign Investment Law of the China mainland does not explicitly classify contractual arrangements as a form of foreign investment, the definition of “foreign investment” thereunder is relatively wide and contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs.” Although the Foreign Investment Law of the PRC does not explicitly classify contractual arrangements as a form of foreign investment, the definition of “foreign investment” thereunder is relatively wide and contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council.
See below “—Risks Related to Our Corporate Structure” and “—Risks Related to Doing Business in China.” As these industries are evolving rapidly in China, the interpretation and application of the existing PRC laws and possible new laws, regulations or policies have created substantial uncertainties regarding our businesses.
See “—Risks Related to Our Corporate Structure” and “—Risks Related to Doing Business in China.” As these industries are evolving rapidly in China, the interpretation and application of the existing PRC laws and possible new laws, regulations or policies have created substantial uncertainties regarding our businesses.
By providing technology for hypertext links to third-party websites, we may be held liable for copyright or trademark violations by those third- party sites. Third parties could assert claims against us for losses incurred in reliance on any erroneous information distributed by us.
By providing technology for hypertext links to third-party websites, we may be held liable for copyright, trademark or other violations by those third- party sites. Third parties could assert claims against us for losses incurred in reliance on any erroneous information distributed by us.
Also, we may be subject to administrative actions brought by relevant PRC competent governmental authorities and in the most severe scenario criminal prosecution for alleged infringement, and as a result may be subject to fines and other penalties and be required to discontinue infringing activities.
Also, we may be subject to administrative actions brought by relevant PRC governmental authorities and in the most severe scenario criminal prosecution for alleged infringement, and as a result may be subject to fines and other penalties and be required to discontinue infringing activities.
Whether U.S. investors make (or are eligible to make) a timely mark-to-market election may affect the U.S. federal income tax consequences to U.S. investors with respect to the acquisition, ownership and disposition of our ADSs or shares and any distributions such U.S. investors may receive.
Whether U.S. investors make (or are eligible to make) a timely mark-to-market election may affect the U.S. federal income tax consequences to U.S. investors with respect to the acquisition, ownership and disposition of our ADSs or ordinary shares and any distributions such U.S. investors may receive.
Violations or perceived violations of Chinese laws arising from information displayed on, retrieved from or linked to the NetEase websites and other online and mobile platforms could result in significant penalties, including a temporary or complete cessation of our business. 50 Table of Contents Multiple organizations are involved in the administering of such regulations, including the Propaganda Department of the Chinese Communist Party, which has been given the responsibility to censor news published in China to ensure a particular political ideology, and the CAC, which has been given the responsibility to protect, supervise and administer cyber security issues in China.
Violations or perceived violations of Chinese laws arising from information displayed on, retrieved from or linked to the NetEase websites and other online and mobile platforms could result in significant penalties, including a temporary or complete cessation of our business. 52 Table of Contents Multiple organizations are involved in the administering of such regulations, including the Propaganda Department of the Chinese Communist Party, which has been given the responsibility to censor news published in China to ensure a particular political ideology, and the CAC, which has been given the responsibility to protect, supervise and administer cyber security issues in China.
Furthermore, we may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements going forward. 65 Table of Contents Holders of our ADSs and shares may have difficulty effecting service of process and enforcing judgments obtained against us and our management, the ability of U.S. authorities to bring actions in the PRC may also be limited, and our Articles of Association include certain provisions that may be different from common practices in Hong Kong.
Furthermore, we may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements going forward. 67 Table of Contents Holders of our ADSs and shares may have difficulty effecting service of process and enforcing judgments obtained against us and our management, the ability of U.S. authorities to bring actions in the PRC may also be limited, and our Articles of Association include certain provisions that may be different from common practices in Hong Kong.
The expansion of our online game business and potentially other businesses outside of China will also expose us to risks and challenges inherent in operating businesses globally, including: ● challenges in replicating or adapting our corporate policies and procedures to operating environments different from that of China, including technology and logistics infrastructure; ● challenges in maintaining efficient and consolidated internal systems, including IT infrastructure, and customizing and integrating these systems with the other parts of our business; ● lack of acceptance of our product and service offerings, and challenges of adapting our offerings to appeal to local tastes; ● failure to understand cultural differences, local consumer behaviors and preferences and local business practices; ● protectionist or national security policies that restrict our ability to: ● invest in or acquire companies; ● develop, import or export certain technologies; ● utilize technologies that are deemed by local governmental to pose a threat to their national security; or ● obtain or maintain the necessary licenses and authorizations to operate our businesses; ● the need for increased resources to manage regulatory compliance across our international businesses; 38 Table of Contents ● failure to attract and retain capable talent with international perspectives who can effectively manage and operate local businesses; ● compliance with local laws and regulations, including those relating to online games, e-commerce, digital services and platforms, such as the Digital Services Act and Digital Markets Act which has been adopted by the European Commission, privacy and data security, such as the GDPR, and consumer and labor protection laws, which will increase our compliance costs across different legal systems; ● heightened restrictions and barriers on the transfer of data between different jurisdictions; ● availability, reliability and security of international and cross-border payment systems and logistics infrastructure; ● exchange rate fluctuations; and ● political instability and general economic or political conditions in particular countries or regions, including territorial or trade disputes, war and terrorism.
The expansion of our online game business and potentially other businesses outside of China will also expose us to risks and challenges inherent in operating businesses globally, including: ● challenges in replicating or adapting our corporate policies and procedures to operating environments different from that of China, including technology and logistics infrastructure; ● challenges in maintaining efficient and consolidated internal systems, including IT infrastructure, and customizing and integrating these systems with the other parts of our business; ● lack of acceptance of our product and service offerings, and challenges of adapting our offerings to appeal to local tastes; ● failure to understand cultural differences, local consumer behavior and preferences and local business practices; ● protectionist or national security policies that restrict our ability to: ● invest in or acquire companies; ● develop, import or export certain technologies; ● utilize technologies that are deemed by local governmental to pose a threat to their national security; or ● obtain or maintain the necessary licenses and authorizations to operate our businesses; ● the need for increased resources to manage regulatory compliance across our international businesses; 38 Table of Contents ● failure to attract and retain capable talent with international perspectives who can effectively manage and operate local businesses; ● compliance with local laws and regulations, including those relating to online games, e-commerce, digital services and platforms, such as the DSA and Digital Markets Act which have been adopted by the European Commission, privacy and data security, such as the GDPR, and consumer and labor protection laws, which will increase our compliance costs across different legal systems; ● heightened restrictions and barriers on the transfer of data between different jurisdictions; ● availability, reliability and security of international and cross-border payment systems and logistics infrastructure; ● exchange rate fluctuations; and ● political instability and general economic or political conditions in particular countries or regions, including territorial or trade disputes, war and terrorism.
We are involved in intellectual property infringement claims or actions from time to time and are occasionally subject to defamation claims or infringement claims related to individual’s publicity rights. We believe that the amounts claimed in these actions, in the aggregate, are not material to our business.
We are involved in intellectual property infringement claims or actions from time to time and are occasionally subject to defamation claims or infringement claims related to an individual’s publicity rights. We believe that the amounts claimed in these actions, in the aggregate, are not material to our business.
The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. 59 Table of Contents On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed China mainland and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. 61 Table of Contents On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed China mainland and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
The online game industry is affected by a number of factors that are beyond our control, including: ● general economic conditions and the level of discretionary spending devoted by players to non-essentials such as acquiring in-game virtual items; ● the availability and popularity of other forms of interactive entertainment, particularly games on console systems which are more popular in North America, Europe and Japan but which we have only recently begun offering, and other leisure activities; ● the availability of reliable telecommunication and internet infrastructure and sufficient server bandwidth in the markets where we operate; ● evolving PC, smartphone and tablet technologies; ● changes in game player demographics and public tastes and preferences; ● any government restrictions on the playing of online games; and ● the availability and popularity of alternative gameplay models such as cloud-gaming services.
The online game industry is affected by a number of factors that are beyond our control, including: ● general economic conditions and the level of discretionary spending devoted by players to non-essentials such as acquiring in-game virtual items; ● the availability and popularity of other forms of interactive entertainment, particularly games on console systems which are more popular in North America, Europe and Japan but which we have only recently begun offering, and other leisure activities; ● the availability of reliable telecommunication and internet infrastructure and sufficient server bandwidth in the markets where we operate; ● evolving PC, smartphone and tablet technologies; ● changes in game player demographics and public tastes and preferences; ● any government restrictions on the playing of online games; and 16 Table of Contents ● the availability and popularity of alternative gameplay models such as cloud-gaming services.
Furthermore, our competitors are constantly developing innovations, on both mobile devices and personal computers, to enhance users’ online experience in areas that we currently operate or areas that we wish to expand our operations into.
Furthermore, our competitors are constantly developing innovations, on both mobile devices and personal computers, to enhance users’ online experience in areas where we currently operate or areas that we wish to expand our operations into.
The Comment Threading Provisions further provide that the producers and business operators of official accounts may, according to the user service agreement, apply to the comment threading service providers for management authorities of the comment threading area, and the comment threading service providers must, after conducting a credit assessment on the comment management by the producers and business operators of the official accounts, reasonably set the management authority and provide relevant technical support. 51 Table of Contents The Ministry of Public Security has the authority to require any local internet service provider to block any website maintained outside China at its sole discretion.
The Comment Threading Provisions further provide that the producers and business operators of official accounts may, according to the user service agreement, apply to the comment threading service providers for management authorities of the comment threading area, and the comment threading service providers must, after conducting a credit assessment on the comment management by the producers and business operators of the official accounts, reasonably set the management authority and provide relevant technical support. 53 Table of Contents The Ministry of Public Security has the authority to require any local internet service provider to block any website maintained outside China at its sole discretion.
The amendment also authorizes the relevant authority to investigate transactions where there is evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. 52 Table of Contents Recently, the SAMR has imposed administrative penalties in a number of anti-monopoly cases in the internet industry, and the regulatory environment for anti-monopoly in the internet industry has been entering into a phase of normalized regulation and control.
The amendment also authorizes the relevant authority to investigate transactions where there is evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. 54 Table of Contents Recently, the SAMR has imposed administrative penalties in a number of anti-monopoly cases in the internet industry, and the regulatory environment for anti-monopoly in the internet industry has been entering into a phase of normalized regulation and control.
We cannot confirm whether we will be considered a “resident enterprise” because the implementation rules are unclear at this time. 56 Table of Contents Under the implementation rules of the Enterprise Income Tax Law, dividends paid to “non-resident enterprises” by “resident enterprises” on profits earned after January 1, 2008 are regarded as income from “sources within the PRC” and therefore subject to a 10.0% withholding income tax, while dividends on profits earned before January 1, 2008 are not subject to the withholding income tax.
We cannot confirm whether we will be considered a “resident enterprise” because the implementation rules are unclear at this time. 58 Table of Contents Under the implementation rules of the Enterprise Income Tax Law, dividends paid to “non-resident enterprises” by “resident enterprises” on profits earned after January 1, 2008 are regarded as income from “sources within the PRC” and therefore subject to a 10.0% withholding income tax, while dividends on profits earned before January 1, 2008 are not subject to the withholding income tax.
As a result, both U.S. and non-U.S. parties cannot export, re-export, or transfer (in-country) certain U.S.-origin advanced computing semiconductor chips, computer commodities that contain such chips, and certain semiconductor manufacturing items to China with export licensing, and the export to China of non-U.S. origin items in these categories from other countries may be subject to U.S. export licensing requirements if they are the product of controlled U.S. software and technology or of equipment or facilities that are themselves the product of controlled software or technology, or incorporate controlled U.S.-origin items.
As a result, both U.S. and non-U.S. parties cannot export, re-export, or transfer (in-country) certain U.S.-origin advanced computing semiconductor chips, computer commodities that contain such chips, and certain semiconductor manufacturing items to China without export licensing, and the export to China of non-U.S. origin items in these categories from other countries may be subject to U.S. export licensing requirements if they are the product of certain controlled U.S. software and technology or of equipment or facilities that are themselves the product of certain controlled software or technology, or incorporate certain controlled U.S.-origin items.
Our business, financial condition, results of operations, cash flows and prospects may also be materially adversely affected by export controls and economic and trade sanctions that target China and/or China-based business.
Our business, financial condition, results of operations, cash flows and prospects may also be materially adversely affected by export controls and trade sanctions that target China and/or China-based business.
Recently on December 19, 2022, we were removed from Nasdaq-100 Index, which may cause a reduction in the holdings of our ADS by some institutional investors on NASDAQ.
On December 19, 2022, we were removed from Nasdaq-100 Index, which may cause a reduction in the holdings of our ADS by some institutional investors on NASDAQ.
However, the success of new products and services depends on a number of factors including the quality of our products or services, the acceptance by the targeted customers and our assessment of market demands and trends.
However, the success of new products and services depends on a number of factors, including the quality of our products or services, their acceptance by the targeted customers and our assessment of market demands and trends.
We mainly compete to: ● attract, engage and retain users based on the design, quality, popularity and efficacy of our content offerings, the overall user experience of our products and services, as well as the effectiveness of our marketing activities; ● attract and retain motivated and capable talent, including engineers, game designers, product developers and creative professionals to build compelling content, tools and functions; and ● win collaboration relationships with game studios and content owners based on our level of expertise in systematically developing original games, delivering a compelling user experience through operational know-how and customizing our established game titles for rapid expansion into overseas markets.
We mainly compete to: ● attract, engage and retain users based on the design, quality, popularity and efficacy of our content offerings, the overall user experience of our products and services, as well as the effectiveness of our marketing activities; ● attract and retain motivated and capable talent, including engineers, game designers, product developers and creative professionals to build compelling content, tools and functions; and 26 Table of Contents ● win collaboration relationships with game studios and content owners based on our level of expertise in systematically developing original games, delivering a compelling user experience through operational know-how and customizing our established game titles for rapid expansion into overseas markets.
In the event that any possible future laws, administrative regulations or provisions deem contractual arrangements as a way of foreign investment, or if any of our operations through contractual arrangements is classified in the “restricted” or “prohibited” industry in the future “negative list” under the 2019 Foreign Investment Law, our contractual arrangements may be deemed as invalid and illegal, and we may be required to unwind the VIE contractual arrangements and/or dispose of any affected business.
In the event that any possible future laws, administrative regulations or provisions deem contractual arrangements as foreign investment, or if any of our operations through contractual arrangements is classified in the “restricted” or “prohibited” industry in the future “negative list” under the 2019 Foreign Investment Law, our contractual arrangements may be deemed invalid and illegal, and we may be required to unwind the VIE contractual arrangements and/or dispose of any affected business.
The existence of litigation, claims, investigations and proceedings against our directors and employees, even if they do not involve NetEase, may harm our reputation and adversely affect the trading price of our ADSs. 61 Table of Contents Substantial future sales or perceived potential sales of our shares, ADSs, or other equity or equity-linked securities in the public market could cause the price of our shares and/or ADSs to decline.
The existence of litigation, claims, investigations and proceedings against our directors and employees, even if they do not involve NetEase, may harm our reputation and adversely affect the trading price of our ADSs. 63 Table of Contents Substantial future sales or perceived potential sales of our shares, ADSs, or other equity or equity-linked securities in the public market could cause the price of our shares and/or ADSs to decline.
As a result, shareholders who exchange shares into ADSs, and vice versa, may not achieve the level of economic return the shareholders may anticipate. 62 Table of Contents As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq rules.
As a result, shareholders who exchange shares into ADSs, and vice versa, may not achieve the level of economic return the shareholders may anticipate. 64 Table of Contents As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq rules.
For example, platforms providing show live streaming should have registered their information and business operations by November 30, 2020, and live streaming platforms that provide network audio-visual program services must hold an Audio and Video Service Permission (the “AVSP”) or complete the registration in the National Network Audio-visual Platform Information Registration Management System. For more information, see Item 4.B.
For example, platforms providing show live streaming should have registered their information and business operations by November 30, 2020, and live streaming platforms that provide network audio-visual program services must hold an Audio and Video Service Permission, or AVSP, or complete the registration in the National Network Audio-visual Platform Information Registration Management System. For more information, see Item 4.B.
We may be held liable for information or content displayed on, retrieved from or linked to the NetEase websites and other NetEase’s online and mobile platforms.
We may be held liable for information or content displayed on, retrieved from or linked to the NetEase websites and other NetEase online and mobile platforms.
Failure to take timely and appropriate measures to handle any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations. 42 Table of Contents Our contractual arrangements with the VIEs may not be as effective in providing operational control as direct ownership.
Failure to take timely and appropriate measures to handle any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations. 44 Table of Contents Our contractual arrangements with the VIEs may not be as effective in providing operational control as direct ownership.
Treasury Department in this regard as well as China’s possible responses could result in greater fluctuation of the Renminbi against the U.S. dollar. 57 Table of Contents Our revenues are primarily denominated in Renminbi, and any significant depreciation of the RMB may affect the value of, and dividends (if any) payable on, our ordinary shares or ADSs in U.S. dollar terms.
Treasury Department in this regard as well as China’s possible responses could result in greater fluctuation of the Renminbi against the U.S. dollar. 59 Table of Contents Our revenues are primarily denominated in Renminbi, and any significant depreciation of the RMB may affect the value of, and dividends (if any) payable on, our ordinary shares or ADSs in U.S. dollar terms.
In June 2022, we further launched Naraka: Bladepoint on Xbox Series X and S and plan to launch numerous additional console games in the future.
In June 2022, we further launched Naraka: Bladepoint on Xbox Series X and S and plan to launch additional console games in the future.
These platforms’ operators could also develop their own competitive offerings that could compete with our mobile games. Furthermore, a few of these third-party platforms dominate the mobile application distribution channels. Any changes in the revenue-sharing, payment or other arrangements that we have with any of the major third-party application distribution platforms may materially impact our revenue and profitability.
These platforms’ operators could also develop their own competitive offerings that could compete with our mobile games. Furthermore, a few of these third-party platforms dominate the distribution of mobile applications. Any changes in the revenue-sharing, payment or other arrangements that we have with any of the major third-party application platforms may materially impact our revenue and profitability.
On March 15, 2019, the Standing Committee of National People’s Congress promulgated the 2019 PRC Foreign Investment Law, which became effective on January 1, 2020.
On March 15, 2019, the Standing Committee of National People’s Congress promulgated the Foreign Investment Law of the PRC, or the 2019 PRC Foreign Investment Law, which became effective on January 1, 2020.
We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations. 45 Table of Contents RISKS RELATED TO DOING BUSINESS IN CHINA The political relationships between China and other countries may affect our business, financial condition, results of operations, cash flows and prospects.
We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations. 47 Table of Contents RISKS RELATED TO DOING BUSINESS IN CHINA The political relationships between China and other countries may affect our business, financial condition, results of operations, cash flows and prospects.
Failure to renew any revenue-sharing agreement or any other material agreement with these major third-party distribution platforms may result in discontinued or limited access to such distribution platforms, which could harm our business. In addition, changes in the credit period or the settlement cycle terms of these third-party platforms may materially and adversely affect our cash flow.
Failure to renew any revenue-sharing agreement or any other material agreement with these major third-party application platforms may result in discontinued or limited access to such platforms, which could harm our business. In addition, changes in the credit period or the settlement cycle terms of these third-party platforms may materially and adversely affect our cash flow.
Youdao, our majority-controlled subsidiary, relies on our financial support. Since its formation, Youdao has received various financial support from the NetEase group, among others, currently including RMB878.0 million outstanding interest-bearing short-term loans as of December 31, 2022 and a US$300.0 million revolving loan facility.
Youdao, our majority-controlled subsidiary, relies on our financial support. Since its formation, Youdao has received various financial support from the NetEase group, among others, currently including RMB878.0 million outstanding interest-bearing short-term loans as of December 31, 2023 and a US$300.0 million revolving loan facility.
Some trade sanctions specifically target China and China-based companies which may affect our business (see “—Export controls and economic and trade sanctions explicitly or implicitly involving China could negatively affect our business operations and subject us to regulatory investigations, fines, penalties or other actions and reputational harm, which could materially adversely affect our business, financial condition and results of operations.” below).
Some trade sanctions specifically target China and China-based companies which may affect our business (see “—Export controls and trade sanctions explicitly or implicitly involving China could negatively affect our business operations and subject us to regulatory investigations, fines, penalties or other actions and reputational harm, which could materially adversely affect our business, financial condition and results of operations” below).
Any inability to continue operating our current online payment platform would likely materially and adversely affect the operation and profitability of our business. 54 Table of Contents Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.
Any inability to continue operating our current online payment platform would likely materially and adversely affect the operation and profitability of our business. 56 Table of Contents Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.
Our ability to generate and maintain significant advertising revenue will depend on a number of factors, many of which are beyond our control, including: ● macroeconomic conditions; ● operations and financial conditions of our advertisers and the general level of advertiser spending; ● the development of a large base of users possessing demographic characteristics attractive to advertisers; ● competition with other major and emerging online advertising platforms; ● the development of software that blocks internet advertisements before they appear on a user’s screen; ● downward pressure on online advertising prices; and ● the effectiveness of our advertising delivery and tracking system.
Our ability to generate and maintain significant advertising revenue will depend on a number of factors, many of which are beyond our control, including: ● macroeconomic conditions; ● operations and financial conditions of our advertisers and the general level of advertiser spending; ● the development of a large base of users possessing demographic characteristics attractive to advertisers; ● competition with other major and emerging online advertising platforms; 25 Table of Contents ● the development of software that blocks internet advertisements before they appear on a user’s screen; ● downward pressure on online advertising prices; and ● the effectiveness of our advertising delivery and tracking system.
Youdao’s technologies may become obsolete or insufficient, and we may have difficulties in following and adapting to technological changes in the intelligent learning industry in a timely and cost-effective manner. New technologies and solutions developed and introduced by Youdao’s competitors could render its offerings less attractive or obsolete thus materially affecting Youdao’s business and prospects.
Youdao’s technologies may become obsolete or insufficient, and Youdao may have difficulties in following and adapting to technological changes in the intelligent learning industry in a timely and cost-effective manner. New technologies and solutions developed and introduced by Youdao’s competitors could render its offerings less attractive or obsolete thus materially affecting Youdao’s business and prospects.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China mainland and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China mainland and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
These and additional regulatory restrictions and requirements that may become effective from time to time may increase our compliance burden and affect our ability and efficiency in expanding to international markets. Our business, financial condition and results of operations may be materially adversely affected by current or future trade sanctions.
These and additional regulatory restrictions and requirements that may become effective from time to time may increase our compliance burden and affect our ability and efficiency in expanding to international markets. Our business, financial condition and results of operations may be materially adversely affected by current or future export controls and/or trade sanctions.
We may be required to make significant expenditures or modify our business practices to comply with existing or future laws and regulations, which may increase our costs and materially limit our ability to operate our business. 53 Table of Contents Regulatory restrictions on financial transactions may adversely affect the operation and profitability of our business.
We may be required to make significant expenditures or modify our business practices to comply with existing or future laws and regulations, which may increase our costs and materially limit our ability to operate our business. 55 Table of Contents Regulatory restrictions on financial transactions may adversely affect the operation and profitability of our business.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China mainland and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China mainland and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
With respect to our internet portal and relate mobile app, the CAC’s Provisions for the Administration of Internet News Information Services, which became effective from June 1, 2017, expressly prohibit any Sino-foreign equity joint venture or cooperative joint venture or any foreign-funded enterprise to conduct internet-based news information services.
With respect to our internet portal and related mobile app, the CAC’s Provisions for the Administration of Internet News Information Services, which became effective from June 1, 2017, expressly prohibit any Sino-foreign equity joint venture or cooperative joint venture or any foreign-funded enterprise to conduct internet-based news information services.
If we or such PRC participants fail to comply with these regulations, we or such PRC participants may be subject to fines and other legal or administrative sanctions. 58 Table of Contents The Chinese government has strengthened the regulation of investments made by Chinese residents in offshore companies and reinvestments in China made by these offshore companies.
If we or such PRC participants fail to comply with these regulations, we or such PRC participants may be subject to fines and other legal or administrative sanctions. 60 Table of Contents The Chinese government has strengthened the regulation of investments made by Chinese residents in offshore companies and reinvestments in China made by these offshore companies.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.
The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.
See “—Export controls and economic and trade sanctions explicitly or implicitly involving China could negatively affect our business operations and subject us to regulatory investigations, fines, penalties or other actions and reputational harm, which could materially adversely affect our business, financial condition and results of operations.” above.
See “—Export controls and trade sanctions explicitly or implicitly involving China could negatively affect our business operations and subject us to regulatory investigations, fines, penalties or other actions and reputational harm, which could materially adversely affect our business, financial condition and results of operations” above.
Cloud Music monetize its music streaming platform primarily through the sales of membership subscriptions for online music services and sales of virtual items for social entertainment services. At a strategic level, we plan to continue to optimize our existing monetization strategies and explore new monetization opportunities.
Cloud Music monetizes its music streaming platform primarily through the sales of membership subscriptions for online music services and sales of virtual items for social entertainment services. At a strategic level, we plan to continue to optimize our existing monetization strategies and explore new monetization opportunities.
If we fail to anticipate user preferences to provide online music streaming content catering to user demands, or maintain the activeness of our services to users and business partners, Cloud Music’s business may be materially and adversely affected which may adversely affect our consolidated results of operations.
If we fail to anticipate user preferences to provide online music streaming content catering to user demands, or maintain the attractiveness of our services to users and business partners, Cloud Music’s business may be materially and adversely affected, which may adversely affect our consolidated results of operations.
These differences may be adverse to our interests. 43 Table of Contents We may not be able to conduct our operations without the services provided by certain of the VIEs. Our operations are currently dependent upon our commercial relationships with the VIEs, and we derive most of our revenues from these companies.
These differences may be adverse to our interests. 45 Table of Contents We may not be able to conduct our operations without the services provided by certain of the VIEs. Our operations are currently dependent upon our commercial relationships with the VIEs, and we derive most of our revenues from these companies.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeRegulations on Information Security and Censorship Regulations governing information security and censorship include: ● The Law of the PRC on the Preservation of State Secrets (1988, revised in 2010) and its Implementation Rules (2014); ● The Counter-espionage Law of the PRC (2014); ● The Rules of the PRC for Protecting the Security of Computer Information Systems (1994, revised in 2011); ● The Measures for the Administration of Security Products for Computer Information Systems Examination and Sales (1997); ● The Administrative Measures for Protection of the Security of International Internetworking of Computer Information Networks (1997, revised in 2011); ● Provisions for the Administration of Keeping Secrets in the International Internetworking of Computer Information Systems (2000); ● The Notice issued by the Ministry of Public Security of the PRC Regarding Issues Relating to the Implementation of the Administrative Measure for the Security Protection of International Connections to Computer Information Networks (2000); ● The Decision of the Standing Committee of the National People’s Congress Regarding the Safeguarding of Internet Security (2000, revised in 2009); ● The Provisions on the Technical Measures for the Protection of the Security of the Internet (2006); ● The Administrative Regulations for the Classified Protection of Information Security (2007); ● The Decision of the Standing Committee of the National People’s Congress on Strengthening Network Information Protection (2012); ● Provisions on Protection of Personal Information of Telecommunication and Internet Users (2013); ● Internet User Account Name Management Regulations (2015); ● Cybersecurity Law of the PRC (the “Cybersecurity Law”) (2017 Edition); ● Detailed Rules for the Implementation of the Counter-espionage Law of the PRC (2017); ● Provisions on the Cyber Protection of Children’s Personal Information (the “Children’s Provisions”) (2019); 97 Table of Contents ● Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Illegal Use of Information Networks and Assistance in Criminal Activities Committed through Information Networks (the “Fa Shi No. 15”) (2019); ● Information Security Technology —Personal Information Security Specification (2020 edition); ● Guiding Opinions on Implementing the Multi-Level Protection System for Cybersecurity and the Security Protection System for Critical Information Infrastructure (2020); ● PRC Civil Code (2021); ● Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications (2021); ● Cybersecurity Review Measures (2021); ● PRC Data Security Law (2021); ● Regulations for the Security Protection of Critical Information Infrastructure (2021); ● Personal Information Protection Law (2021); ● Anti-Telecom and Online Fraud Law of PRC (2022); ● Administrative Provisions for Deep Integrating Internet Information Service (2022); ● Measures for the Security Assessment of Data Cross-border Transfer (2022); ● Guidelines for Declaring Data Cross-border Security Assessment (First Edition) (2022); ● Announcement on the Implementation of Certification for Personal Information Protection (2022); ● Measures for Data Security Administration in the Industry and Information Technology Field (Trial Implementation) (2022); and ● Measures for Standard Contracts for Cross-border Transfers of Personal Information (2023).
Biggest changeRegulations on Information Security and Censorship Regulations governing information security and censorship include: ● The Law of the PRC on the Preservation of State Secrets (1988, revised in 2010 and 2024) and its Implementation Rules (2014); ● The Counter-espionage Law of the PRC (2014, revised in 2023); ● The Rules of the PRC for Protecting the Security of Computer Information Systems (1994, revised in 2011); ● The Administrative Measures for Protection of the Security of International Internetworking of Computer Information Networks (1997, revised in 2011); ● Provisions for the Administration of Keeping Secrets in the International Internetworking of Computer Information Systems (1999); ● The Notice issued by the Ministry of Public Security of the PRC Regarding Issues Relating to the Implementation of the Administrative Measure for the Security Protection of International Connections to Computer Information Networks (2000); ● The Decision of the Standing Committee of the National People’s Congress Regarding the Safeguarding of Internet Security (2000, revised in 2009); ● The Provisions on the Technical Measures for the Protection of the Security of the Internet (2005); ● The Administrative Regulations for the Classified Protection of Information Security (2007); 96 Table of Contents ● The Decision of the Standing Committee of the National People’s Congress on Strengthening Network Information Protection (2012); ● Provisions on Protection of Personal Information of Telecommunication and Internet Users (2013); ● Internet User Account Name Management Regulations (2015); ● Cybersecurity Law of the PRC (2016); ● Detailed Rules for the Implementation of the Counter-espionage Law of the PRC (2017); ● Provisions on the Cyber Protection of Children’s Personal Information, or the Children’s Provisions (2019); ● Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Illegal Use of Information Networks and Assistance in Criminal Activities Committed through Information Networks, or the “Fa Shi No. 15” (2019); ● Information Security Technology —Personal Information Security Specification (2020 edition); ● Guiding Opinions on Implementing the Multi-Level Protection System for Cybersecurity and the Security Protection System for Critical Information Infrastructure (2020); ● PRC Civil Code (2020); ● Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications (2021); ● Cybersecurity Review Measures (2021); ● PRC Data Security Law (2021); ● Regulations for the Security Protection of Critical Information Infrastructure (2021); ● Personal Information Protection Law (2021); ● Anti-Telecom and Online Fraud Law of the PRC (2022); ● Measures for the Security Assessment of Data Cross-border Transfer (2022); ● Guidelines for Declaring Data Cross-border Security Assessment (First Edition) (2022); ● Announcement on the Implementation of Certification for Personal Information Protection (2022); ● Measures for Data Security Administration in the Industry and Information Technology Field (Trial Implementation) (2022); ● Administrative Provisions for In-depth Integration as an Internet Information Service (2022); ● Measures for Standard Contracts for Cross-border Transfers of Personal Information (2023); ● Interim Measures for the Administration of Generative Artificial Intelligence Services (2023); ● Measures for Ethical Review of Science and Technology (for Trial Implementation) (2023); and ● Provisions on Promoting and Regulating Cross-border Data Flows (2024). 97 Table of Contents Under various Laws, ICP operators and internet publishers are prohibited from posting or displaying any content that: ● opposes the fundamental principles set out in China’s Constitution; ● compromises state security, divulges state secrets, subverts state power or damages national unity; ● harms the dignity or interests of the state; ● incites ethnic hatred or racial discrimination or damages inter-ethnic unity; ● sabotages China’s religious policy or propagates heretical teachings or feudal superstitions; ● disseminates rumors, disturbs social order or disrupts social stability; ● propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes; ● insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or ● includes other content prohibited by laws or administrative regulations.
Leveraging its strong course and content development capabilities, accumulated from developing its Academic AST Business, Youdao continues to develop online learning services, which mainly include STEAM courses, digital content services, adult and vocational courses, and other courses such as China University MOOC .
Leveraging its strong course and content development capabilities, accumulated from developing its Academic AST Business, Youdao continues to develop online learning services, which mainly include digital content services, STEAM courses, adult and vocational courses, and other courses such as China University MOOC .
Building on our AI-adaptive learning technology, we launched Youdao Listening Pod in September 2021, a portable learning device that is designed to deliver an immersive English learning experience to users, and offer them with differentiated, interactive listening and speaking practices.
Building on our AI-adaptive learning technology, in September 2021 we launched Youdao Listening Pod , a portable learning device that is designed to deliver an immersive English learning experience to users, and offer them with differentiated, interactive listening and speaking practices.
“Key Information—Risk Factors—Risks Related to Doing Business in China—We may not be able to adequately protect our intellectual property and we may be exposed to infringement claims by third parties.” COMPETITION Our competition primarily comes from global online game developers and operators, such as Tencent, established online and offline education service and/or product providers in China, as well as leading digital content and entertainment providers.
“Key Information—Risk Factors—Risks Related to Doing Business in China—We may not be able to adequately protect our intellectual property and may be exposed to infringement claims by third parties.” COMPETITION Our competition primarily comes from global online game developers and operators, such as Tencent, established online and offline education service and/or product providers in China, as well as leading digital content and entertainment providers.
Our internal control and audit department members hold regular meetings with management to discuss any internal control issues we face and the corresponding measures to implement toward resolving such issues. The internal audit department reports to the audit committee to ensure that any major issues identified are channeled to the committee on a timely basis.
Our internal control and internal audit department members hold regular meetings with management to discuss any internal control issues we face and the corresponding measures to implement toward resolving such issues. The internal audit department reports to the audit committee to ensure that any major issues identified are channeled to the committee on a timely basis.
In addition, the Notice on Further Preventing Minors from Indulging in Online Games requires that all the online games must be connected to the real-name registration and game addiction prevention system of the NPPA, all the online game players must register or login in using authentic and valid identity information, and online game operators may not provide game services, in any manner (including in visitor experience mode), to any users who have not registered using their real names.
In addition, the Notice on Further Preventing Minors from Indulging in Online Games requires that all online games must be connected to the real-name registration and game addiction prevention system of the NPPA, all online game players must register or login in using authentic and valid identity information, and online game operators may not provide game services, in any manner (including in visitor experience mode), to any users who have not registered using their real names.
In November 2020, NRTA issued the Notice on Strengthening the Administration of Online Show Live and E-commerce Live Streaming, or the Notice 78, which set forth registration requirements for platforms providing online show live streaming or e-commerce live streaming to have their information and business operations registered by November 30, 2020.
In November 2020, NRTA issued the Notice on Strengthening the Administration of Online Show Live and E-commerce Live Streaming, or Notice 78, which set forth registration requirements for platforms providing online show live streaming or e-commerce live streaming to have their information and business operations registered by November 30, 2020.
“Key Information—Risk Factors—Risks Related to Our Games and Related Value-added Services—Any difficulties or delays in receiving approval from the relevant government authorities for our new games or new expansion packs for, or material changes to, our existing games could adversely affect such games’ popularity and profitability,” Such licenses and permits include, among others, Value-added Telecommunications Business Operating License, Online Publishing Service License, Internet Audiovisual Program Services License, Internet Cultural Business License, and Commercial Performance License.
“Key Information—Risk Factors—Risks Related to Our Business And Industry—Risks Related to Our Games and Related Value-added Services—Any difficulties or delays in receiving approval from the relevant government authorities for our new games or new expansion packs for, or material changes to, our existing games could adversely affect such games’ popularity and profitability,” Such licenses and permits include, among others, Value-added Telecommunications Business Operating License, Online Publishing Service License, Internet Audiovisual Program Services License, Internet Cultural Business License, and Commercial Performance License.
In addition, the Standardizing Opinions provide that local authorities shall standardize daily operations and strengthen daily supervision of non-academic after-school tutoring, including: (i) in terms of training content and training time, non-academic tutoring institutions shall not provide academic tutoring courses, and the training time shall not conflict with the teaching time of local primary and secondary schools; the offline training shall end no later than 20:30, and the online training shall end no later than 21:00; (ii) in terms of price, non-academic tutoring institutions shall follow the principles of fairness, legality and good faith, set prices according to training costs, market supply and demand, etc. and such prices shall be reported to the competent authorities and be made to the public; (iii) in terms of pre-collection of fees, all fees collected by the tutoring institution shall be put into the special account, training fees shall not be paid by training loans; the pre-collected fees shall be included into supervision and shall not be collected for more than 60 classes, for a course length of more than three months or over RMB5,000 in one time or in the form of recharge, card and other disguised charges; and (vi) all non-academic tutoring institutions shall be included in the unified management through the National Platform for Supervision and Service of After-School Education and Training.
In addition, the Standardizing Opinions provide that local authorities shall standardize daily operations and strengthen daily supervision of non-academic after-school tutoring, including: (i) in terms of training content and training time, non-academic tutoring institutions shall not provide academic tutoring courses, and the training time shall not conflict with the teaching time of local primary and secondary schools; the offline training shall end no later than 20:30, and the online training shall end no later than 21:00; (ii) in terms of price, non-academic tutoring institutions shall follow the principles of fairness, legality and good faith, set prices according to training costs, market supply and demand, etc. and such prices shall be reported to the competent authorities and be made to the public; (iii) in terms of pre-collection of fees, all fees collected by the tutoring institution shall be put into the special account, training fees shall not be paid by training loans; the pre-collected fees shall be included into supervision and shall not be collected for more than 60 classes, for a course length of more than three months or over RMB5,000 in one time or in the form of recharge, card and other disguised charges; and (iv) all non-academic tutoring institutions shall be included in the unified management through the National Platform for Supervision and Service of After-School Education and Training.
On September 19, 2019, the MOE, jointly with certain other PRC government authorities, issued the Guidance Opinions on Promoting the Healthy Development of Online Education, which provides, among other things, that: (i) social forces are encouraged to establish online education institutions, develop online education resources, and provide high quality education services; and (ii) an online education negative list shall be promulgated and industries not included in the negative list are open for all types of entities to enter into. 107 Table of Contents On June 10, 2020, the General Office of MOE and the General Office of SAMR promulgated the Notice on Issuing the Form of Service Contract for After-school Training Provided to Primary and Secondary School Students, which requires the local competent regulatory authorities to guide the relevant parties to use the form of service contract for after-school training activities provided to primary and secondary school students.
On September 19, 2019, the MOE, jointly with certain other PRC government authorities, issued the Guidance Opinions on Promoting the Healthy Development of Online Education, which provides, among other things, that: (i) social forces are encouraged to establish online education institutions, develop online education resources, and provide high quality education services; and (ii) an online education negative list shall be promulgated and industries not included in the negative list are open for all types of entities to enter into. 106 Table of Contents On June 10, 2020, the General Office of MOE and the General Office of SAMR promulgated the Notice on Issuing the Form of Service Contract for After-school Training Provided to Primary and Secondary School Students, which requires the local competent regulatory authorities to guide the relevant parties to use the form of service contract for after-school training activities provided to primary and secondary school students.
(3) Beijing NetEase Youdao Computer System Co., Ltd. is 71.1% owned by William Lei Ding and 28.9% owned by the chief executive officer of Youdao, Inc. ​ 71 Table of Contents OUR SERVICES We have a successful online game business, developing and operating a rich portfolio of highly popular titles.
(3) Beijing NetEase Youdao Computer System Co., Ltd. is 71.1% owned by William Lei Ding and 28.9% owned by the chief executive officer of Youdao, Inc. ​ 73 Table of Contents OUR SERVICES We have a successful online game business, developing and operating a rich portfolio of highly popular titles.
Regulations on After-school Tutoring and Educational Apps On February 13, 2018, the Ministry of Education, or the MOE, the Ministry of Civil Affairs, the Ministry of Human Resources and Social Security and the SAIC (currently known as the SAMR) jointly promulgated the Circular on Alleviating After-school Burden on Elementary and Secondary School Students and Implementing Inspections on After-school Training Institutions, or Circular 3.
Regulations on After-school Tutoring and Educational Apps On February 13, 2018, the MOE, the Ministry of Civil Affairs, the Ministry of Human Resources and Social Security and the SAIC (currently known as the SAMR) jointly promulgated the Circular on Alleviating After-school Burden on Elementary and Secondary School Students and Implementing Inspections on After-school Training Institutions, or Circular 3.
On September 18, 2021, the MOE further published on its official website that the General Office of MOE, together with five other government authorities, issued a circular requiring all online after-school tutoring institutions that have filed with the local education administration authorities providing tutoring services on academic subjects to obtain the private school operating permit by the end of 2021, and all online after-school tutoring institutions shall, before obtain such permit, suspend enrollment of students and charging fees. 108 Table of Contents On October 21, 2021, the MOE jointly with certain other PRC government authorities, promulgated the Notice on Strengthening the Supervision of After-School Tutoring Institutions Pre-collection of Fees, which requires the pre-collection of fees by academic AST institutions and non-academic AST institutions be supervised.
On September 18, 2021, the MOE further published on its official website that the General Office of MOE, together with five other government authorities, issued a circular requiring all online after-school tutoring institutions that have filed with the local education administration authorities providing tutoring services on academic subjects to obtain the private school operating permit by the end of 2021, and all online after-school tutoring institutions shall, before obtain such permit, suspend enrollment of students and charging fees. 107 Table of Contents On October 21, 2021, the MOE jointly with certain other PRC government authorities, promulgated the Notice on Strengthening the Supervision of After-School Tutoring Institutions Pre-collection of Fees, which requires the pre-collection of fees by academic AST institutions and non-academic AST institutions be supervised.
We currently generate the majority of the revenues of Youdao’s learning services from its tutoring services, which mainly include its online courses and digital content services. In addition, we generate revenues from sales of smart devices and from Youdao’s online marketing services through the provision of different formats of advertisements. Online Knowledge Tools ● Youdao Dictionary .
We currently generate the majority of the revenues of Youdao’s learning services from its tutoring services, which mainly include its online courses and digital content services. In addition, we generate revenues from sales of smart devices and from Youdao’s online marketing services through the provision of different formats of advertisements. Online Knowledge and AI Tools ● Youdao Dictionary .
Over the years, we have built proprietary OCR, NMT, language data mining and voice recognition technologies and data analytics that serve as the foundation to our products and services. Such technologies are iteratively refined based on the vast data generated by our users.
Over the years, we have built proprietary OCR, NMT, language data mining, voice recognition technologies, data analytics and LLM that serve as the foundation to our products and services. Such technologies are iteratively refined based on the vast data generated by our users.
The Internet User Account Information Management Regulations stipulates that an internet information service provider shall perform the responsibility of internet user account information management as a service provider, be equipped with professional personnel and technical capabilities corresponding to its service scale, and establish a sound and strictly implement authentic identity information verification, account information verification, information content security, ecological governance, emergency response and personal information protection management systems. 99 Table of Contents On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Cybersecurity Law, which became effective on June 1, 2017.
The Internet User Account Information Management Regulations stipulates that an internet information service provider shall perform the responsibility of internet user account information management as a service provider, be equipped with professional personnel and technical capabilities corresponding to its service scale, and establish a sound and strictly implement authentic identity information verification, account information verification, information content security, ecological governance, emergency response and personal information protection management systems. 98 Table of Contents On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Cybersecurity Law, which became effective on June 1, 2017.
Under the amended Private Education Law, sponsors of private schools may choose to establish non-profit or for-profit private schools at their own discretion and the establishment of the private schools shall be subject to approvals granted by relevant government authorities and registered with relevant registration authorities. 105 Table of Contents On April 7, 2021, the State Council published the amendment to the Regulations on the Implementation of the Law for Promoting Private Education of the PRC, or the Amended Implementation Rules, which became effective on September 1, 2021.
Under the amended Private Education Law, sponsors of private schools may choose to establish non-profit or for-profit private schools at their own discretion and the establishment of the private schools shall be subject to approvals granted by relevant government authorities and registered with relevant registration authorities. 104 Table of Contents On April 7, 2021, the State Council published the amendment to the Regulations on the Implementation of the Law for Promoting Private Education of the PRC, or the Amended Implementation Rules, which became effective on September 1, 2021.
Games and Blizzard Entertainment, respectively. PC games We launched our first PC based MMORPG, Westward Journey Online , in December 2001. Subsequently, we launched Westward Journey Online II in August 2002 and our second original PC based MMORPG, Fantasy Westward Journey , in January 2004.
Games and Blizzard, respectively. PC games We launched our first PC based MMORPG, Westward Journey Online , in December 2001. Subsequently, we launched Westward Journey Online II in August 2002 and our second original PC based MMORPG, Fantasy Westward Journey , in January 2004.
The table below sets forth our major in-house developed PC games: ​ Game Genre Date(s) of Launch and Major Upgrade New Westward Journey Online II (a comprehensive upgrade of Westward Journey Online II) ​ 2D MMORPG, classical Chinese setting ​ August 2002 September 2013 Fantasy Westward Journey Online (previously known as Fantasy Westward Journey II) ​ 2D MMORPG, classical Chinese setting ​ January 2004 July 2013 Tianxia III ​ 3D MMORPG, classical Chinese setting ​ October 2011 New Ghost (a new version of Ghost II) ​ 2.5D MMORPG, classical Chinese setting ​ April 2012 September 2015 Justice ​ 3D MMORPG, classical Chinese setting ​ June 2018 Naraka: Bladepoint ​ Action Battle Royale ​ July 2021 ​ 73 Table of Contents Licensed Games In addition to our in-house developed mobile and PC games, we also offer games licensed from other international game developers, including Microsoft.
The table below sets forth our major in-house developed PC games: ​ Game Genre Date(s) of Launch and Major Upgrade New Westward Journey Online II (a comprehensive upgrade of Westward Journey Online II) ​ 2D MMORPG, classical Chinese setting ​ August 2002 September 2013 Fantasy Westward Journey Online (previously known as Fantasy Westward Journey II) ​ 2D MMORPG, classical Chinese setting ​ January 2004 July 2013 Tianxia III ​ 3D MMORPG, classical Chinese setting ​ October 2011 New Ghost (a new version of Ghost II) ​ 2.5D MMORPG, classical Chinese setting ​ April 2012 September 2015 Justice ​ 3D MMORPG, classical Chinese setting ​ June 2018 Naraka: Bladepoint ​ Action Battle Royale ​ July 2021 ​ 75 Table of Contents Licensed Games In addition to our in-house developed mobile and PC games, we also offer games licensed from other international game developers, including Blizzard and Microsoft.
On August 31, 2022, the CAC issued the Guidelines for Declaring Data Cross-border Security Assessment (First Edition), which became effective on September 1, 2022 and further clarifies the scope of application, declaration methods and processes of data cross-border security assessment. 100 Table of Contents On December 8, 2022, the MIIT promulgated the Measures for Data Security Administration in the Industry and Information Technology Field (Trial Implementation), or the Trial Measures, which took effect on January 1, 2023.
On August 31, 2022, the CAC issued the Guidelines for Declaring Data Cross-border Security Assessment (First Edition), which became effective on September 1, 2022 and further clarifies the scope of application, declaration methods and processes of data cross-border security assessment. 99 Table of Contents On December 8, 2022, the MIIT promulgated the Measures for Data Security Administration in the Industry and Information Technology Field (Trial Implementation), or the Trial Measures, which took effect on January 1, 2023.
On December 28, 2012, the Standing Committee of the National People’s Congress issued the Decision on Strengthening Network Information Protection (the “Information Protection Decision”), which provides that electronic information through which a citizen’s identity can be identified or in which a citizen’s privacy is involved (“Personal Information”), is protected and no person shall steal, illegally obtain, sell or illegally provide to others any Personal Information.
On December 28, 2012, the Standing Committee of the National People’s Congress issued the Decision on Strengthening Network Information Protection, or the Information Protection Decision, which provides that electronic information through which a citizen’s identity can be identified or in which a citizen’s privacy is involved (“Personal Information”), is protected and no person shall steal, illegally obtain, sell or illegally provide to others any Personal Information.
The audit committee consists of three members, namely Grace Hui Tang, Alice Cheng and Joseph Tong, all of whom are independent non-executive directors. Grace Hui Tang is the chairperson of the audit committee.
The audit committee consists of three members, namely Grace Tang, Alice Cheng and Joseph Tong, all of whom are independent non-executive directors. Grace Tang is the chairperson of the audit committee.
These rules also forbid foreign investment in the online publishing sector. Pursuant to the Measures for the Administration of Internet E-mail Services (the “Internet E-mail Measures”), which was issued by MII on February 20, 2006, e-mail service providers must obtain value-added telecommunications business operating licenses or file for recordation as non-profit internet service providers.
These rules also forbid foreign investment in the online publishing sector. Pursuant to the Measures for the Administration of Internet E-mail Services, or the Internet E-mail Measures, which was issued by MII on February 20, 2006, e-mail service providers must obtain value-added telecommunications business operating licenses or file for recordation as non-profit internet service providers.
We conduct in-game marketing campaigns in connection with special holiday editions or launches of new games or expansion packs throughout the year. We have also promoted our games and related value-added services in collaboration with online and offline third-party promoters. Youdao Youdao generates user traffic and leads primarily from online channels.
We conduct in-game marketing campaigns in connection with special holiday editions or launches of new games or expansion packs throughout the year. We have also promoted our games and related value-added services in collaboration with online and offline third-party promoters. Youdao Youdao generates user traffic and leads primarily from online platforms.
Empowered by advanced core proprietary technologies, we deliver engaging content and services that are highly individualized and personalized across our businesses. 82 Table of Contents Machine Learning and Other Advanced Technologies Our machine learning and other advanced technologies enable us to effectively process data generated from across our services and products, optimize recommendations, personalize offerings and predict user behavior.
Empowered by advanced core proprietary technologies, we deliver engaging content and services that are highly individualized and personalized across our businesses. 83 Table of Contents Machine Learning and Other Advanced Technologies Our machine learning and other advanced technologies enable us to effectively process data generated from across our services and products, optimize recommendations, personalize offerings and predict user behavior.
For example, we have co-developed and successfully launched Diablo ® Immortal TM , an MMO action-RPG, with Blizzard in 2022 and also entered into a license agreement with Marvel in May 2019 to create original entertainment content based on internationally beloved Marvel characters and stories.
We have also co-developed and successfully launched Diablo ® Immortal TM , an MMO action-RPG, with Blizzard in 2022 and entered into a license agreement with Marvel in May 2019 to create original entertainment content based on internationally beloved Marvel characters and stories.
On May 14, 2019, the General Office of the MOCT issued the Circular on Adjusting the Scope of Examination and Approval of Online Culture Business Permit and Further Regulating the Work Concerning Examination and Approval (the “MOCT Notice 81”), pursuant to which the MOCT is no longer responsible for the administration and supervision of online games and local counterparts of the MOCT may no longer approve Internet Culture Operating Licenses that involve online game operation via information networks (with or without distribution of virtual currency of online games) and virtual currency of online games trading operation via information networks.
On May 14, 2019, the General Office of the MOCT issued the Circular on Adjusting the Scope of Examination and Approval of Online Culture Business Permit and Further Regulating the Work Concerning Examination and Approval, or the MOCT Notice 81, pursuant to which the MOCT is no longer responsible for the administration and supervision of online games and local counterparts of the MOCT may no longer approve Internet Culture Operating Licenses that involve online game operation via information networks (with or without distribution of virtual currency of online games) and virtual currency of online games trading operation via information networks.
The MOE, jointly with certain other PRC government authorities, issued the Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Mobile Apps on August 10, 2019 (the “Opinions on Educational Apps”), which requires, among others, mobile apps that provide services for school teaching and management, student learning and student life, or home-school interactions, with school faculty, students or parents as the main users, and with education or learning as the main application scenarios (the “Educational Apps”), be filed with competent provincial regulatory authorities for education.
The MOE, jointly with certain other PRC government authorities, issued the Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Mobile Apps on August 10, 2019, or the Opinions on Educational Apps, which requires, among others, mobile apps that provide services for school teaching and management, student learning and student life, or home-school interactions, with school faculty, students or parents as the main users, and with education or learning as the main application scenarios, or the Educational Apps, be filed with competent provincial regulatory authorities for education.
Our education digitalization solutions business currently include technologies and solutions licensed to schools or enterprise customers, such as Youdao Smart Learning Terminal, Youdao Smart Cloud and Youdao Sports . Youdao Smart Learning Terminal is a device that automates paper-based homework processing and provides learning diagnosis through AI technology at schools.
Our education digitalization solutions business currently includes technologies and solutions licensed to schools or enterprise customers, such as Youdao Smart Learning Terminal, Youdao Smart Cloud and Youdao Sports . Youdao Smart Learning Terminal is a device that automates paper-based homework processing and provides learning diagnosis through AI technology at schools.
On August 17, 2020, the MOE and certain other PRC government authorities jointly promulgated the Opinion on Further Strengthening and Regulating the Management of Educational Fees (the “Education Fees Opinions”), pursuant to which all fees collected by private schools shall be paid into the school’s bank account filed with the education authority, be unifiedly managed, and mainly used for educational and teaching activities, improving the operational conditions, protection of teachers’ and staffs’ treatment and allocating development fund according to relevant laws and regulations.
On August 17, 2020, the MOE and certain other PRC government authorities jointly promulgated the Opinion on Further Strengthening and Regulating the Management of Educational Fees, or the Education Fees Opinions, pursuant to which all fees collected by private schools shall be paid into the school’s bank account filed with the education authority, be unifiedly managed, and mainly used for educational and teaching activities, improving the operational conditions, protection of teachers’ and staffs’ treatment and allocating development fund according to relevant laws and regulations.
“Key Information—Risk Factors—Risks Related to Our Corporate Structure.” 90 Table of Contents According to the 2019 PRC Foreign Investment Law, foreign investment shall enjoy “pre-entry national treatment,” which generally means that at an investment-entrance stage, foreign investment should be treated no less favorably than domestic investment, except for foreign investments in industries deemed to be “restricted” or “prohibited” in the “negative list.” The 2019 PRC Foreign Investment Law provides that foreign invested entities operating in “restricted” or “prohibited” industries will require entry clearance and other approvals.
“Key Information—Risk Factors—Risks Related to Our Corporate Structure.” According to the 2019 PRC Foreign Investment Law, foreign investment shall enjoy “pre-entry national treatment,” which generally means that at an investment-entrance stage, foreign investment should be treated no less favorably than domestic investment, except for foreign investments in industries deemed to be “restricted” or “prohibited” in the “negative list.” The 2019 PRC Foreign Investment Law provides that foreign invested entities operating in “restricted” or “prohibited” industries will require entry clearance and other approvals.
Youdao Sports is a sports-centric educational system that collects, processes and analyzes students’ on-campus exercise data points, leveraging our proprietary visual recognition technology. Technology-driven Learning Experience We integrate technologies into every major aspect of the learning and teaching process to ensure a superb learning experience across Youdao’s products and services.
Youdao Sports is a sports-centric educational system that collects, processes and analyzes students’ on-campus exercise data points, leveraging our proprietary visual recognition technology. 81 Table of Contents Technology-driven Learning Experience We integrate technologies into every major aspect of the learning and teaching process to ensure a superb learning experience across Youdao’s products and services.
Over the past seven years, Yanxuan has gradually developed from a shopping platform favored by the new generation of middle-class families in China to a lifestyle brand favored by younger generations from all walks of life.
Over the past eight years, Yanxuan has gradually developed from a shopping platform favored by the new generation of middle-class families in China to a lifestyle brand favored by younger generations from all walks of life.
The Catalog divided the information services business into an additional five sub-categories and reclassified the online data processing and transaction processing services business from a “basic telecommunications business” to a “value-added telecommunications business.” In 2017, MIIT issued the new version of the Measures for the Administration of Telecom Business Licensing (the “MIIT Measures 2017”), which became effective on September 1, 2017.
The Catalog divided the information services business into an additional five sub-categories and reclassified the online data processing and transaction processing services business from a “basic telecommunications business” to a “value-added telecommunications business.” In 2017, MIIT issued the new version of the Measures for the Administration of Telecom Business Licensing, or the MIIT Measures 2017, which became effective on September 1, 2017.
On August 30, 2018, the MOE, SAMR and certain other government authorities issued the Implementation Scheme which requires, among others, that the schools shall (i) shall use electronic products based on the principle of necessity, shall not rely on electronic products for teaching and homework assignment and shall rather assign paper-based homework in principle, and the teaching time using electronic products shall account for, in principle, not more than 30% of the total teaching time, and (ii) shall strictly implement the learning and development guidelines for children aged 3-6, pay attention to the value of life and play for these children and shall not teach them primary-school-level lessons. 106 Table of Contents On November 20, 2018, the General Office of the MOE, the General Office of the SAMR and the General Office of the Ministry of Emergency Management of the PRC jointly issued the Notice on Improving the Specific Governance and Rectification Mechanisms of After-school Education Institutions, or Circular 10, which provides that provincial education departments shall be responsible for the filing of training institutions that use internet technology to provide online training for primary and middle school students.
On August 30, 2018, the MOE, SAMR and certain other government authorities issued the Implementation Scheme for Comprehensive Prevention and Control of Myopia in Children and Youth which requires, among others, that the schools shall (i) shall use electronic products based on the principle of necessity, shall not rely on electronic products for teaching and homework assignment and shall rather assign paper-based homework in principle, and the teaching time using electronic products shall account for, in principle, not more than 30% of the total teaching time, and (ii) shall strictly implement the learning and development guidelines for children aged 3-6, pay attention to the value of life and play for these children and shall not teach them primary-school-level lessons. 105 Table of Contents On November 20, 2018, the General Office of the MOE, the General Office of the SAMR and the General Office of the Ministry of Emergency Management of the PRC jointly issued the Notice on Improving the Specific Governance and Rectification Mechanisms of After-school Education Institutions, or Circular 10, which provides that provincial education departments shall be responsible for the filing of training institutions that use internet technology to provide online training for primary and middle school students.
The Notice 78 made it clear that live streaming platforms should implement real-name management systems.
Notice 78 made it clear that live streaming platforms should implement real-name management systems.
On 14 June 2022, the CAC issued a revised version of the Administrative Provisions on Mobile Internet Application Information Services (the “APP Provisions”), which basically reflects the regulatory development since 2016 and further emphasizes that mobile internet app providers shall comply with the relevant provisions on the scope of necessary personal information when engaging in personal information processing activities.
On 14 June 2022, the CAC issued a revised version of the Administrative Provisions on Mobile Internet Application Information Services, or the APP Provisions, which basically reflects the regulatory development since 2016 and further emphasizes that mobile internet app providers shall comply with the relevant provisions on the scope of necessary personal information when engaging in personal information processing activities.
The Anti-Monopoly Guidelines mainly covers five aspects, including general provisions, monopoly agreements, abusing market dominance, concentration of undertakings, and abusing of administrative powers eliminating or restricting competition. 115 Table of Contents On June 24, 2022, the Standing Committee of the National People’s Congress issued the PRC Anti-Monopoly Law (Revised 2022), which took effective on August 1, 2022.
The Anti-Monopoly Guidelines mainly covers five aspects, including general provisions, monopoly agreements, abusing market dominance, concentration of undertakings, and abusing of administrative powers eliminating or restricting competition. On June 24, 2022, the Standing Committee of the National People’s Congress issued the PRC Anti-Monopoly Law (Revised 2022), which took effective on August 1, 2022.
Having built a virtuous cycle among our talent, established development pipeline and dynamic culture of innovation and craftsmanship, our strong R&D capabilities continue to enable high-quality production and expansion of successful games. Key Game Technologies Our game R&D is centered around using technologies to deliver a superior and differentiated user experience.
Having built a virtuous cycle among our talent, established development pipeline and dynamic culture of innovation and craftsmanship, our strong R&D capabilities continue to enable high-quality production and expansion of successful games. 78 Table of Contents Key Game Technologies Our game R&D is centered around using technologies to deliver a superior and differentiated user experience.
We offer a wide range of interactive learning apps to nearly all age groups. We are committed to delivering a fun and effective learning experience across these apps through an abundance of gamified features, as well as social functions allowing users and students to share their learning progress with friends through social networking platforms. Learning Services.
We offer a wide range of interactive learning apps to nearly all age groups. We are committed to delivering a fun and effective learning experience across these apps through an abundance of gamified features, as well as social functions allowing users and students to share their learning progress with friends through social networking platforms. ● AI Tools .
On March 12, 2021, CAC, MIIT, MPS and SAMR jointly issued the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications to further provides guidance of “essential personal information” for different types of mobile apps, with effect on May 1, 2021, pursuant to which mobile apps shall not deny user access to apps’ basic functional services in case that the users want to opt to not provide non-essential personal information.
On March 12, 2021, CAC, MIIT, the Ministry of Public Security and SAMR jointly issued the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications to further provides guidance of “essential personal information” for different types of mobile apps, with effect on May 1, 2021, pursuant to which mobile apps shall not deny user access to apps’ basic functional services in case that the users want to opt to not provide non-essential personal information.
The Central Committee of the Communist Party and the State Council jointly issued the Opinions on the Further Reform of Education and Teaching and Comprehensive Improvement on the Compulsory Education Quality (the “Opinions”), which became effective on June 23, 2019.
The Central Committee of the Communist Party and the State Council jointly issued the Opinions on the Further Reform of Education and Teaching and Comprehensive Improvement on the Compulsory Education Quality, or the Opinions, which became effective on June 23, 2019.
To date, the majority of our most popular mobile games are in-house developed games. We have launched the mobile versions of our in-house developed flagship MMORPGs, including the Fantasy Westward Journey and Westward Journey Online mobile games. We distribute our mobile games through partnerships with major Android- and iOS-based application stores in China, as well as our proprietary distribution channels.
To date, the majority of our most popular mobile games are in-house developed games. We have launched the mobile versions of our in-house developed flagship MMORPGs, including the Fantasy Westward Journey and Westward Journey Online mobile games. We distribute our mobile games through partnerships with major Android- and iOS-based application stores in China, as well as our proprietary platforms.
“Key Information—Risk Factors—Risks Related to Our Business and Industry—The approval, filing or other requirements of the CSRC, CAC or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas or maintenance of the listing status of our ADSs or ordinary shares, and the PRC government’s oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs or ordinary shares.” GOVERNMENT REGULATIONS Regulations on Foreign Investment On March 15, 2019, the National People’s Congress promulgated the 2019 PRC Foreign Investment Law, which became effective on January 1, 2020, and replaced the Wholly Foreign-owned Enterprises Law, the Sino-foreign Equity Joint Ventures Law, and the Sino-foreign Cooperative Joint Ventures Law.
“Key Information—Risk Factors—Risks Related to Doing Business in China—The approval, filing or other requirements of the CSRC, CAC or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas or maintenance of the listing status of our ADSs or ordinary shares, and the PRC government’s oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs or ordinary shares.” 90 Table of Contents GOVERNMENT REGULATIONS Regulations on Foreign Investment On March 15, 2019, the National People’s Congress promulgated the 2019 PRC Foreign Investment Law, which became effective on January 1, 2020, and replaced the Wholly Foreign-owned Enterprises Law, the Sino-foreign Equity Joint Ventures Law, and the Sino-foreign Cooperative Joint Ventures Law.
For further details, see Item 4.B. “Information on the Company—Business Overview—Our Services—Games and Related Value-added Services—International Partnerships.” Revenues from licensed games accounted for 9.1%, 9.5% and 9.5% of our total revenues in 2020, 2021 and 2022, respectively. Global Presence We continue to advance our games and make inroads that expand our reach in overseas markets.
For further details, see Item 4.B. “Information on the Company—Business Overview—Our Services—Games and Related Value-added Services—International Partnerships.” Revenues from licensed games accounted for 9.5%, 9.5% and 4.6% of our total revenues in 2021, 2022 and 2023, respectively. Global Presence We continue to advance our games and make inroads that expand our reach in overseas markets.
On December 8, 2022, the MOE together with twelve other government authorities issued the Opinions on Standardizing Non-Academic After-School Tutoring for Primary and Secondary School Students, or Standardizing Opinions, which reiterates that local authorities shall identify corresponding competent authorities for different tutoring categories and shall set forth basic standards for establishment and approval procedures for online and offline tutoring institutions of the corresponding categories based on local conditions.
On November 30, 2022, the MOE together with twelve other government authorities issued the Opinions on Standardizing Non-Academic After-School Tutoring for Primary and Secondary School Students, or Standardizing Opinions, which reiterates that local authorities shall identify corresponding competent authorities for different tutoring categories and shall set forth basic standards for establishment and approval procedures for online and offline tutoring institutions of the corresponding categories based on local conditions.
We license content from various freelance providers and other content providers. While we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of our intellectual property. See Item 3.D.
We license content from various freelance providers and other content providers. 85 Table of Contents While we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of our intellectual property. See Item 3.D.
We have established multiple studios of game developers to research and develop new games and expansion packs. Our Franchises We continue to build upon existing successful games to offer multi-dimensional content by leveraging our in-house developed franchises and intellectual property.
We have established multiple studios of game developers to research and develop new games and expansion packs. 77 Table of Contents Our Franchises We continue to build upon existing successful games to offer multi-dimensional content by leveraging our in-house developed franchises and intellectual property.
We currently offer over 140 mobile and PC games across a wide range of genres, satisfying the ever growing and diversifying needs of the gamer community.
We currently offer over 100 mobile and PC games across a wide range of genres, satisfying the ever growing and diversifying needs of the gamer community.
Youdao’s smart devices seamlessly integrate advanced artificial intelligence, or AI, algorithms and data analytics which supplement its online learning services and further enhance the user experience and efficiency. Youdao’s revenues consist of three parts: learning services, smart devices and online marketing services.
Youdao’s smart devices seamlessly integrate advanced artificial intelligence, or AI, algorithms and data analytics which supplement its online learning services and further enhance the user experience and efficiency. 79 Table of Contents Youdao’s revenues consist of three parts: learning services, smart devices and online marketing services.
We commercially launched MARVEL Super War and Marvel Duel in 2019 and 2020, respectively, and are continuing our joint product development in games that feature Marvel characters for users in China and beyond. In 2019, we launched in the PRC Sky which is an award-winning adventure mobile game featuring unique graphics and gameplay that we have licensed from thatgamecompany.
We commercially launched Marvel Duel in 2020 and are continuing our joint product development in games that feature Marvel characters for users in China and beyond. In 2019, we launched in the PRC Sky which is an award-winning adventure mobile game featuring unique graphics and gameplay that we have licensed from thatgamecompany, Inc.
They also sign all necessary documents to substantiate our sole and exclusive right to those works and to transfer any ownership that they may claim in those works to us. 84 Table of Contents We have registered a number of domain names.
They also sign all necessary documents to substantiate our sole and exclusive right to those works and to transfer any ownership that they may claim in those works to us. We have registered a number of domain names.
On March 25, 2022, the CAC, the STA, and the SAMR jointly issued the Opinions on Further Regulating Profit-Making Activities of Online Live Streaming to Promote Healthy Development of the Industry (the “Live Streaming Profit-Making Regulating Opinions”), which became effective on the same date.
On March 25, 2022, the CAC, the STA, and the SAMR jointly issued the Opinions on Further Regulating Profit-Making Activities of Online Live Streaming to Promote Healthy Development of the Industry, or the Live Streaming Profit-Making Regulating Opinions, which became effective on the same date.
We aim to improve people’s lives with digital technologies and make positive contributions to material social issues, such as education inequity, disaster recovery, workplace equality and diversity and green and low-carbon development. 85 Table of Contents We have been focused on reducing education inequity and have launched several initiatives for that purpose.
We aim to improve people’s lives with digital technologies and make positive contributions to material social issues, such as education inequity, disaster recovery, workplace equality and diversity and green and low-carbon development. We have been focused on reducing education inequity and have launched several initiatives for that purpose.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines, or, collectively, the Filing Rules, which will take effect on March 31, 2023.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines, or, collectively, the Filing Rules, which took effect on March 31, 2023.
As the Filing Rules and the Confidentiality and Archives Administration Provisions are relatively new, there are substantial uncertainties with respect to their interpretation and implementation. 120 Table of Contents C. Organizational Structure Our organizational structure is set forth above under Item 4.B. “Information on the Company—Business Overview—Our Organizational Structure.” D.
As the Filing Rules and the Confidentiality and Archives Administration Provisions are relatively new, there are substantial uncertainties with respect to their interpretation and implementation. C. Organizational Structure Our organizational structure is set forth above under Item 4.B. “Information on the Company—Business Overview—Our Organizational Structure.” D.
Regulations on Private Education The PRC Education Law (the “Education Law”), sets forth provisions relating to the fundamental education systems of the PRC, including a school system of pre-school education, primary education, secondary education and higher education, a system of nine-year compulsory education and a system of education certificates.
Regulations on Private Education The PRC Education Law, or the Education Law, sets forth provisions relating to the fundamental education systems of the PRC, including a school system of pre-school education, primary education, secondary education and higher education, a system of nine-year compulsory education and a system of education certificates.
Any organization or individual carrying out data processing activities that violates the PRC Data Security Law shall bear the corresponding civil, administrative or criminal liability depending on the specific circumstances. 101 Table of Contents On 14 November 2021, the CAC publicly solicited opinions on the Draft Data Security Regulations.
Any organization or individual carrying out data processing activities that violates the PRC Data Security Law shall bear the corresponding civil, administrative or criminal liability depending on the specific circumstances. On November 14, 2021, the CAC publicly solicited opinions on the Draft Data Security Regulations.
Quantic Dream is known for creating games with a strong narrative focus and nonlinear stories that reward players’ choices. ● In early 2023, we also announced the establishment of Spliced, a new global, remote-working game studio which brings together a talented group of passionate industry veterans from a variety of backgrounds, including participating in the development of a number of major gaming franchise.
Quantic Dream is known for creating games with a strong narrative focus and nonlinear stories that reward players’ choices. 76 Table of Contents ● In early 2023, we announced the establishment of Spliced Inc Limited, a new global, remote-working game studio which brings together a talented group of passionate industry veterans from a variety of backgrounds, including participating in the development of a number of major gaming franchise.
In order to further regulate online transaction activities, on March 15, 2021, SAMR issued the Online Trading Supervision and Management Measures (“Online Trading Supervision Measures”), which became effective on May 1, 2021 and replace the Online Trading Measures.
In order to further regulate online transaction activities, on March 15, 2021, SAMR issued the Online Trading Supervision and Management Measures, or the Online Trading Supervision Measures, which became effective on May 1, 2021 and replace the Online Trading Measures.
Investment Risk Management We invest in or acquire businesses that are complementary to our business, such as businesses that can expand the services we offer and strengthen our R&D capabilities. In general, we intend to hold our investments for the long term.
Investment Risk Management We invest in or acquire businesses that are complementary to our business, such as businesses that can expand the services we offer and strengthen our R&D capabilities. 88 Table of Contents In general, we intend to hold our investments for the long term.
For example, our NetEase Music Audio Lab developed an audio melody extraction solution that broke three world records at the Music Information Retrieval Evaluation eXchange (“MIREX”) in 2020.
For example, our NetEase Music Audio Lab developed an audio melody extraction solution that broke three world records at the Music Information Retrieval Evaluation eXchange, or MIREX, in 2020.
“Key Information—Risk Factors” for a detailed discussion of the risks to NetEase, Inc. regarding its dependency on these companies. 70 Table of Contents The diagram below summarizes our corporate structure as of March 31, 2023 and identifies the subsidiaries and variable interest entities that together are representative of our major business units, including our significant subsidiaries, as that term is defined under Section 1-02 of Regulation S-X under the Securities Act, and other representative subsidiaries: (1) Hangzhou NetEase Leihuo Technology Co., Ltd. is owned by two of our employees.
“Key Information—Risk Factors” for a detailed discussion of the risks to NetEase, Inc. regarding its dependency on these companies. 72 Table of Contents The diagram below summarizes our corporate structure as of March 31, 2024 and identifies the subsidiaries and the VIEs that together are representative of our major business units, including our significant subsidiaries, as that term is defined under Section 1-02 of Regulation S-X under the Securities Act, and other representative subsidiaries: (1) Hangzhou NetEase Leihuo Technology Co., Ltd. is owned by two of our employees.
On December 28, 2002, the Standing Committee of the National People’s Congress, promulgated the Law for Promoting Private Education (the “Private Education Law”), which was last amended on December 29, 2018.
On December 28, 2002, the Standing Committee of the National People’s Congress, promulgated the Law for Promoting Private Education, or the Private Education Law, which was last amended on December 29, 2018.
Accordingly, the Notice on Implementing Interim Measures for the Administration of Online Games (the “Online Games Notice”), in which several provisions of the Online Games Measures are supplemented, has also been repealed.
Accordingly, the Notice on Implementing Interim Measures for the Administration of Online Games, or the Online Games Notice, in which several provisions of the Online Games Measures are supplemented, has also been repealed.
Other revenue sources primarily include movie soundtrack production and ticketing services for offline music events. 81 Table of Contents Technological-driven Music Experience Cloud Music needs to ensure that it can deliver a satisfying music experience consistently at scale by continuously innovating and improving its platform and investing in research and development.
Other revenue sources primarily include movie soundtrack production and ticketing services for offline music events. 82 Table of Contents Technological-driven Music Experience Cloud Music needs to ensure that it can deliver a satisfying music experience consistently at scale by continuously innovating and improving its platform and investing in R&D.
We also own and occupy an office building in Beijing with an aggregate total estimated floor area of 95,000 square meters, where our advertising services and Youdao are located. We are in the process of constructing several new office buildings, primarily located in Shanghai and Hangzhou.
We also own and occupy an office building in Beijing with an aggregate total estimated floor area of 0.1 million square meters, where our advertising services and Youdao are located. We are in the process of constructing several new office buildings, primarily located in Shanghai and Hangzhou.
The Law of the PRC on the Protection of Minors (“Minors Protection Law”) issued by the National People’s Congress Standing Committee on September 4, 1991 was recently amended on October 17, 2020, which took effect on June 1, 2021.
The Minors Protection Law issued by the National People’s Congress Standing Committee on September 4, 1991 was recently amended on October 17, 2020, which took effect on June 1, 2021.
The Circular of the MII on Intensifying the Administration of Foreign Investment in Value-Added Telecommunication Services (the “2006 MII Circular”), was promulgated by MII on July 13, 2006.
The Circular of the MII on Intensifying the Administration of Foreign Investment in Value-Added Telecommunication Services, or the 2006 MII Circular, was promulgated by MII on July 13, 2006.
Our telephone number is (86-571) 8985-3378. 68 Table of Contents Our key business milestones are summarized below: ​ ​ ● Founding of our business 1997 ● Launch of free web-based e-mail services, and business model shifted from software development to internet technology with the launch of our NetEase website (“ www.163.com ”) 1998 ● Launches of advertisement services, online platforms, online shopping malls, and other internet services in China 1999 ● Listing on Nasdaq on June 30 2000 ● Introduction of fee-based premium services and online entertainment services, including online games, wireless value-added services and other subscription-type services 2001 ● Launch of our first PC-client MMORPG game, Westward Journey Online , our widely popular in-house developed game series 2001 ● Launch of our Fantasy Westward Journey series, our second widely popular original game series 2004 ● Founding of Youdao, an intelligent learning company that now offers learning content, applications and solutions, as well as online marketing services 2006 ● Launch of NetEase Cloud Music, our music streaming platform 2013 ● Launch of our first mobile game, the mobile version of Fantasy Westward Journey II 2013 ● Launch of Yanxuan, our e-commerce business 2016 ● Listing of Youdao on the New York Stock Exchange on October 26 2019 ● Listing on Hong Kong Stock Exchange on June 11 2020 ● Listing of Cloud Music on the Hong Kong Stock Exchange on December 2 2021 ​ Our principal capital expenditures for 2022 consisted mainly of the construction of our new office buildings in Hangzhou and Shanghai in China and the acquisition of new servers in connection with the operation of our business for a total of approximately RMB2,100.3 million (US$304.5 million).
Our key business milestones are summarized below: ​ ​ ● Founding of our business 1997 ​ ​ ● Launch of free web-based e-mail services, and business model shifted from software development to internet technology with the launch of our NetEase website (“ www.163.com ”) 1998 ​ ​ ● Launches of advertisement services, online platforms, online shopping malls, and other internet services in China 1999 ​ ​ ● Listing on Nasdaq on June 30 2000 ​ ​ ● Introduction of fee-based premium services and online entertainment services, including online games, wireless value-added services and other subscription-type services 2001 ​ ​ ● Launch of our first PC-client MMORPG game, Westward Journey Online , our widely popular in-house developed game series 2001 ​ ​ ● Launch of our Fantasy Westward Journey series, our second widely popular original game series 2004 ​ ​ ● Founding of Youdao, an intelligent learning company that now offers learning content, applications and solutions, as well as online marketing services 2006 ​ ​ ● Launch of NetEase Cloud Music, our music streaming platform 2013 ​ ​ ● Launch of our first mobile game, the mobile version of Fantasy Westward Journey II 2013 ​ ​ ● Launch of Yanxuan, our e-commerce business 2016 ​ ​ ● Listing of Youdao on the New York Stock Exchange on October 26 2019 ​ ​ ● Listing on the Hong Kong Stock Exchange on June 11 2020 ​ ​ ● Listing of Cloud Music on the Hong Kong Stock Exchange on December 2 2021 ​ Our principal capital expenditures for 2023 and 2022 consisted mainly of expenditures related to our new office buildings in Shanghai and Hangzhou in China and the acquisition of new servers in connection with the operation of our business for a total of approximately RMB2.3 billion and RMB2.1 billion, respectively.
The Audiovisual Regulations require that online audio and video service providers obtain a permit from NRTA in accordance with the Audiovisual Regulations. On November 18, 2019, the CAC, the MOCT and the NRTA jointly issued the Promulgation of the Administrative Provisions on Online Audio and Video Information Services (the “Audio and Video Provisions”), which took effect on January 1, 2020.
The Audiovisual Regulations require that online audio and video service providers obtain a permit from NRTA in accordance with the Audiovisual Regulations. 93 Table of Contents On November 18, 2019, the CAC, the MOCT and the NRTA jointly issued the Promulgation of the Administrative Provisions on Online Audio and Video Information Services, or the Audio and Video Provisions, which took effect on January 1, 2020.
On July 1, 2011, GAPP and several other government authorities jointly issued the Notice Regarding the Initiation of Work on the Online Games Real-Name Verification System to Prevent Online Gaming Addiction, which requires that online game operators be responsible for data registration and identification of online game users, and that online game operators shall duly submit user identification information for verification with the Ministry of Public Security’s National Citizen Identity Information Center (the “NCIIC”), which will be in charge of real-name verification for the national anti-addiction system.
On July 1, 2011, GAPP and several other government authorities jointly issued the Notice Regarding the Initiation of Work on the Online Games Real-Name Verification System to Prevent Online Gaming Addiction, which requires that online game operators be responsible for data registration and identification of online game users, and that online game operators shall duly submit user identification information for verification with the NCIIC, which will be in charge of real-name verification for the national anti-addiction system.
We develop and offer smart devices, including Youdao Dictionary Pen, Youdao Smart Learning Pad, Youdao Listening Pod, Youdao Smart Light, Youdao Pocket Translator and Youdao Super Dictionary , to make learning more productive and efficient for our users.
Smart Devices . We develop and offer smart devices, including Youdao Dictionary Pen, Youdao Listening Pod and Youdao Smart Learning Pad , to make learning more productive and efficient for our users.
Regulations on Telecommunication Services In September 2000, China’s State Council promulgated the Telecommunications Regulations of the PRC (the “Telecom Regulations”), which was last revised in February 2016.
Regulations on Telecommunication Services In September 2000, China’s State Council promulgated the Telecommunications Regulations of the PRC, or the Telecom Regulations, which was last revised in February 2016.
In addition, Cloud Music offers advertising services for both brand advertisers and performance-based advertisers and sublicense certain of its licensed music content to other parties, including other online music platforms. The MAUs of NetEase Cloud Music was 189.4 million in 2022.
In addition, Cloud Music offers advertising services for both brand advertisers and performance-based advertisers and sublicense certain of its licensed music content to other parties, including other online music platforms. The MAUs of NetEase Cloud Music was 205.9 million in 2023.
In addition, in May 2016, we entered into an exclusive agreement with Microsoft, pursuant to which Microsoft agreed to license both the mobile and PC versions of Minecraft to us for operation in China until 2022. In May 2019, we extended the term of the Minecraft license for an additional year to August 2023.
In addition, in May 2016, we entered into an exclusive agreement with Microsoft, pursuant to which Microsoft agreed to license both the mobile and PC versions of Minecraft to us for operation in China until 2022. The term of such license was extended in 2019 and further renewed in 2023.
In addition, Youdao also employs mobile marketing, such as brand advertisements and marketing campaigns on app stores, leading mobile news apps and social networking platforms, as well as through optimization techniques designed to improve its ranking in popular search engines’ results. Youdao also engages in offline marketing and branding to supplement its overall sales and marketing strategies.
In addition, Youdao also employs mobile marketing, such as brand advertisements and marketing campaigns on app stores, leading mobile news apps and social networking platforms, as well as through optimization techniques designed to improve its ranking in popular search engines’ results.
For the professional qualifications and experiences of the members of our audit committee, see “Directors and Senior Management.” We also maintain internal control and audit departments which are responsible for reviewing the effectiveness of internal controls and reporting to the audit committee and senior management on any issues identified.
For the professional qualifications and experiences of the members of our audit committee, see “Directors and Senior Management.” We also maintain internal control and internal audit departments which are responsible for reviewing the effectiveness of internal controls.
Launched in 2007, Youdao Dictionary is Youdao’s first major product and flagship online language tool. Today, it is China’s most popular and trusted online dictionary and translation tool with 47.1 million MAUs in 2022. As of December 31, 2022, Youdao Dictionary offered over 794 million entries across 109 languages. ● Other Online Dictionary and Translation Tools .
Launched in 2007, Youdao Dictionary is Youdao’s first major product and flagship online language tool. Today, it is China’s most popular and trusted online dictionary and translation tool with 45.8 million MAUs in 2023. As of December 31, 2023, Youdao Dictionary offered over 672 million entries across 109 languages. ● Other Online Dictionary and Translation Tools .
“Information on the Company—Business Overview—Our Services—Games and Related Value-added Services—Game R&D and Technologies.” Content Quality and User Experience We focus on providing an innovative and superior user experience in game design and development and strive to make games of the highest quality.
For more description on our R&D capabilities, see Item 4.B. “Information on the Company—Business Overview—Our Services—Games and Related Value-added Services—Game R&D and Technologies.” Content Quality and User Experience We focus on providing an innovative and superior user experience in game design and development and strive to make games of the highest quality.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

134 edited+21 added−22 removed114 unchanged
Biggest changeGAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and the VIEs and their subsidiaries that we consolidate for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ ​ ​ Primary VIEs and ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets Cash and cash equivalents 10,904 2,662,840 10,282,650 1,541,763 — 14,498,157 Time deposits — 48,269,418 28,238,268 71,000 — 76,578,686 Restricted cash — 10,342 20,765 2,846,851 — 2,877,958 Accounts receivable, net — 1,203,386 380,156 3,924,446 — 5,507,988 Inventories — 687,006 194,055 83,672 — 964,733 Prepayments and other current assets, net 288,179 2,079,098 1,346,008 2,522,572 — 6,235,857 Short-term investments — 666,176 10,997,372 618,000 — 12,281,548 Amounts due from group companies (1) 46,765,057 20,438,580 6,397,970 7,581,649 (81,183,256) — Property, equipment and software, net 5 302,905 5,069,605 61,343 — 5,433,858 Land use right, net — 15,014 4,093,076 — — 4,108,090 Operating lease right-of-use assets, net 449 254,875 729,956 58,872 — 1,044,152 Deferred tax assets — 8,870 1,164,346 124,738 — 1,297,954 Investments in subsidiaries (2) 77,226,427 35,407,934 259,557 — (112,893,918) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 913,675 ​ — ​ (913,675) ​ — Long-term investments 393,580 ​ 17,321,579 226,904 862,839 — 18,804,902 Other long-term assets 44,217 711,074 2,867,934 385,231 — 4,008,456 Assets held for sale — — 1,381 204 — 1,585 Total assets 124,728,818 130,039,097 73,183,678 20,683,180 (194,990,849) 153,643,924 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable 12 383,229 138,217 463,601 — 985,059 Salary and welfare payables 2,617 321,170 3,693,760 115,707 — 4,133,254 Taxes payable 9,252 1,475,237 2,895,424 157,137 — 4,537,050 Short-term loans 11,480,065 7,119,285 700,000 52,963 — 19,352,313 Contract liabilities-current — 1,186,773 194,053 10,751,917 — 12,132,743 Accrued liabilities and other payables 27,137 1,853,374 4,200,067 2,945,930 — 9,026,508 Operating lease liabilities 449 254,969 752,040 59,068 — 1,066,526 Amounts due to group companies (1) 16,606,066 36,094,019 24,578,843 3,904,328 (81,183,256) — Deferred tax liabilities — 1,057,487 288,387 — — 1,345,874 Long-term loans 1,275,140 — — — — 1,275,140 Other long-term payable — 32,311 75,396 257,874 — 365,581 Total liabilities 29,400,738 49,777,854 37,516,187 18,708,525 (81,183,256) 54,220,048 Redeemable noncontrolling interests — 66,647 — 78,591 — 145,238 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NetEase Inc.’s shareholders’ equity (2) 95,328,080 ​ 80,194,596 ​ 35,667,491 ​ 1,896,064 ​ (117,758,151) ​ 95,328,080 Noncontrolling interests (2) — — — — 3,950,558 3,950,558 Total equity 95,328,080 80,194,596 35,667,491 1,896,064 (113,807,593) 99,278,638 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 124,728,818 130,039,097 73,183,678 20,683,180 (194,990,849) 153,643,924 ​ ​ 144 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ of VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets Cash and cash equivalents 98,865 4,771,179 17,715,676 2,303,280 — 24,889,000 Time deposits — 60,115,896 27,405,623 400,000 — 87,921,519 Restricted cash — 15,584 28,570 2,655,171 — 2,699,325 Accounts receivable, net — 1,165,043 295,557 3,542,272 — 5,002,872 Inventories — 768,099 157,965 67,572 — 993,636 Prepayments and other current assets, net 328,766 2,109,849 1,142,559 1,867,110 — 5,448,284 Short-term investments — 138,218 7,410,471 73,984 — 7,622,673 Amounts due from group companies (1) 25,813,779 6,707,302 7,723,645 9,917,091 (50,161,817) — Property, equipment and software, net 24 578,404 5,685,236 78,666 — 6,342,330 Land use right, net — 54,120 4,067,647 — — 4,121,767 Operating lease right-of-use assets, net 170 268,483 564,671 54,653 — 887,977 Deferred tax assets — 660 1,324,534 155,595 — 1,480,789 Investments in subsidiaries (2) 88,979,671 26,887,522 25,513 — (115,892,706) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 762,591 ​ — ​ (762,591) ​ — Long-term investments 393,580 17,074,981 190,425 885,372 — 18,544,358 Other long-term assets, net 64,411 4,727,973 1,849,103 164,968 — 6,806,455 Assets held for sale — — — — — — Total assets 115,679,266 125,383,313 76,349,786 22,165,734 (166,817,114) 172,760,985 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ Accounts payable 17 570,520 133,887 802,717 — 1,507,141 Salary and welfare payables 1,303 384,980 4,191,180 155,478 — 4,732,941 Taxes payable 10,107 124,198 2,637,439 41,352 — 2,813,096 Short-term loans 4,472,768 14,369,014 5,033,500 422 — 23,875,704 Contract liabilities-current — 844,487 209,302 11,465,101 — 12,518,890 Accrued liabilities and other payables 25,017 1,886,377 5,403,800 3,809,049 — 11,124,243 Operating lease liabilities 173 278,151 595,161 54,981 — 928,466 Amounts due to group companies (1) 2,956,264 12,595,746 30,672,023 3,937,784 (50,161,817) — Deferred tax liabilities — 1,811,525 314,595 — — 2,126,120 Long-term loans 3,482,300 — 172,664 — — 3,654,964 Other long-term payable — 269,367 73,200 263,373 — 605,940 Total liabilities 10,947,949 33,134,365 49,436,751 20,530,257 (50,161,817) 63,887,505 Redeemable noncontrolling interests — 71,869 — 64,571 — 136,440 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NetEase Inc.’s shareholders' equity (3) 104,731,317 92,177,079 26,913,035 1,570,906 (120,661,020) 104,731,317 Noncontrolling interests — — — — 4,005,723 4,005,723 Total equity 104,731,317 92,177,079 26,913,035 1,570,906 (116,655,297) 108,737,040 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 115,679,266 125,383,313 76,349,786 22,165,734 (166,817,114) 172,760,985 ​ 145 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues Third-party revenues — 10,862,062 1,334,307 61,470,764 — 73,667,133 Intra-Group revenues related to technical consulting and related service (3) — 630,829 45,204,905 — (45,835,734) — Other intra-Group revenues (4) — 627,211 1,865,873 720,398 (3,213,482) — Total net revenues — 12,120,102 48,405,085 62,191,162 (49,049,216) 73,667,133 Cost of revenues and operating expenses Third-party cost of revenue and operating expenses (54,467) (9,544,402) (34,098,909) (15,430,950) — (59,128,728) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) — — — (45,835,734) 45,835,734 — Other intra-Group cost of revenues and operating expenses (4) — (1,962,862) (1,033,157) (217,463) 3,213,482 — Total cost of revenues and operating expenses (54,467) (11,507,264) (35,132,066) (61,484,147) 49,049,216 (59,128,728) Operating (losses)/profit (54,467) 612,838 13,273,019 707,015 — 14,538,405 Share of income from subsidiaries and VIEs (2) 12,147,129 13,574,165 153,181 — (25,874,475) — Other (expenses)/ income, net (29,908) (1,052,946) 1,673,907 242,626 — 833,679 Income before tax 12,062,754 13,134,057 15,100,107 949,641 (25,874,475) 15,372,084 Income tax — (1,199,158) (1,605,065) (237,626) — (3,041,849) Net income from continuing operations 12,062,754 11,934,899 13,495,042 712,015 (25,874,475) 12,330,235 Less: Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests — (787,029) — — — (787,029) Net loss attributable to noncontrolling interests (2) — — — — 519,548 519,548 Net income attributable to the Company’s shareholders 12,062,754 11,147,870 13,495,042 712,015 (25,354,927) 12,062,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 11,231,687 ​ 1,967,818 ​ 74,406,521 ​ — ​ 87,606,026 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 893,686 ​ 55,928,796 ​ — ​ (56,822,482) ​ — Other intra-Group revenues (4) ​ — ​ 1,481,060 ​ 1,898,873 ​ 808,648 ​ (4,188,581) ​ — Total net revenues ​ — ​ 13,606,433 ​ 59,795,487 ​ 75,215,169 ​ (61,011,063) ​ 87,606,026 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ Third-party cost of revenue and operating expenses ​ (144,741) ​ (12,099,429) ​ (41,293,111) ​ (17,651,675) ​ — ​ (71,188,956) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (56,822,482) ​ 56,822,482 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (1,837,295) ​ (2,182,436) ​ (168,850) ​ 4,188,581 ​ — Total cost of revenues and operating expenses ​ (144,741) ​ (13,936,724) ​ (43,475,547) ​ (74,643,007) ​ 61,011,063 ​ (71,188,956) Operating (losses)/profit ​ (144,741) ​ (330,291) ​ 16,319,940 ​ 572,162 ​ — ​ 16,417,070 Share of income/(losses) from subsidiaries and VIEs (2) ​ 16,275,271 ​ 16,114,107 ​ (52,063) ​ — ​ (32,337,315) ​ — Other income, net ​ 735,648 ​ 1,729,248 ​ 1,898,499 ​ 323,994 ​ — ​ 4,687,389 Income before tax ​ 16,866,178 ​ 17,513,064 ​ 18,166,376 ​ 896,156 ​ (32,337,315) ​ 21,104,459 Income tax ​ (9,336) ​ (1,533,115) ​ (2,313,961) ​ (271,857) ​ — ​ (4,128,269) Net income from continuing operations ​ 16,856,842 ​ 15,979,949 ​ 15,852,415 ​ 624,299 ​ (32,337,315) ​ 16,976,190 Less: Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests ​ — ​ (536,981) ​ — ​ — ​ — ​ (536,981) Net loss attributable to noncontrolling interests (2) ​ — ​ — ​ — ​ 27,777 ​ 389,856 ​ 417,633 Net income attributable to the Company’s shareholders ​ 16,856,842 ​ 15,442,968 ​ 15,852,415 ​ 652,076 ​ (31,947,459) ​ 16,856,842 ​ ​ 146 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ Primary VIEs and ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 12,788,652 ​ 1,157,713 ​ 82,549,444 ​ — ​ 96,495,809 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 692,337 ​ 64,085,249 ​ — ​ (64,777,586) ​ — Other intra-Group revenues (4) ​ — ​ 913,644 ​ 1,876,699 ​ 817,962 ​ (3,608,305) ​ — Total net revenues ​ — ​ 14,394,633 ​ 67,119,661 ​ 83,367,406 ​ (68,385,891) ​ 96,495,809 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenue and operating expenses ​ (62,115) ​ (13,477,853) ​ (44,968,961) ​ (18,358,287) ​ — ​ (76,867,216) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (64,777,586) ​ 64,777,586 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (1,822,670) ​ (1,667,214) ​ (185,608) ​ 3,675,492 ​ — Total cost of revenues and operating expenses ​ (62,115) ​ (15,300,523) ​ (46,636,175) ​ (83,321,481) ​ 68,453,078 ​ (76,867,216) Operating (losses)/profit ​ (62,115) ​ (905,890) ​ 20,483,486 ​ 45,925 ​ 67,187 ​ 19,628,593 Share of income/ (losses) from subsidiaries and VIEs (2) ​ 24,489,042 ​ 20,442,796 ​ (151,361) ​ — ​ (44,780,477) ​ — Other (expenses)/ income, net ​ (4,156,514) ​ 6,458,954 ​ 2,334,424 ​ (15,193) ​ — ​ 4,621,671 Income before tax ​ 20,270,413 ​ 25,995,860 ​ 22,666,549 ​ 30,732 ​ (44,713,290) ​ 24,250,264 Income tax ​ — ​ (2,437,898) ​ (2,481,879) ​ (112,061) ​ — ​ (5,031,838) Net income from continuing operations ​ 20,270,413 ​ 23,557,962 ​ 20,184,670 ​ (81,329) ​ (44,713,290) ​ 19,218,426 Less: Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests ​ — ​ (2,978) ​ — ​ — ​ — ​ (2,978) Net loss attributable to noncontrolling interests (2) ​ — ​ — ​ — ​ 14,020 ​ 483,268 ​ 497,288 Net income from continuing operations attributable to the Company’s shareholders ​ 20,270,413 ​ 23,554,984 ​ 20,184,670 ​ (67,309) ​ (44,230,022) ​ 19,712,736 Net income from discontinued operations, net of tax ​ — ​ 624,864 ​ — ​ — ​ — ​ 624,864 Net income attributable to the Company’s shareholders ​ 20,270,413 ​ 24,179,848 ​ 20,184,670 ​ (67,309) ​ (44,230,022) ​ 20,337,600 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (194,942) 1,635,791 (28,158,415) 51,605,737 — 24,888,171 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — 615,848 48,819,494 (49,435,342) — — Dividends received from subsidiaries and VIEs (5) — 16,740,894 211,397 — (16,952,291) — Net cash provided by/ (used in) other transactions with intra-Group companies 6,262 (491,951) 984,627 (498,938) — — Net cash (used in)/provided by operating activities (188,680) 18,500,582 21,857,103 1,671,457 (16,952,291) 24,888,171 Cash flows from investing activities: Net cash provided by/ (used in) transactions with third-parties 140,132 (23,391,441) (5,677,332) (263,766) — (29,192,407) Loans made to intra-Group companies (6) (22,462,321) (10,430,181) (1,281,500) — 34,174,002 — Loans repaid by intra-Group companies (6) 15,063,738 10,483,515 312,641 — (25,859,894) — Other investing activities with intra-Group companies (7) (26,582) (1,775,904) (143,200) — 1,945,686 — Net cash (used in)/ provided by investing activities (7,285,033) (25,114,011) (6,789,391) (263,766) 10,259,794 (29,192,407) Cash flows from financing activities: Net cash provided by transactions with third-parties 8,382,233 1,530,854 — — — 9,913,087 Cash dividend paid to intra-Group companies (5) — (211,397) (16,740,894) — 16,952,291 — Loans received from intra-Group companies (6) 8,584,139 23,471,981 1,781,549 336,333 (34,174,002) — Loans repaid to intra-Group companies (6) (9,648,833) (15,303,935) (834,682) (72,444) 25,859,894 — Other financing activities with intra-Group companies (7) — 159,825 1,775,861 10,000 (1,945,686) — Net cash provided by/ (used in) financing activities 7,317,539 9,647,328 (14,018,166) 273,889 6,692,497 9,913,087 ​ ​ 147 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ Eliminating ​ ​ ​ NetEase, Other Beneficiaries of their ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (117,844) 221,977 (36,449,437) 61,272,031 — 24,926,727 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — 1,070,594 58,368,958 (59,439,552) — — Dividends received from subsidiaries and VIEs (5) 731,250 6,510,526 — — (7,241,776) — Net cash (used in)/ provided by other transactions with intra-Group companies (381) 87,037 196,965 (283,621) — — Net cash provided by operating activities 613,025 7,890,134 22,116,486 1,548,858 (7,241,776) 24,926,727 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties 127,015 4,315,478 (11,481,357) (39,430) — (7,078,294) Loans made to intra-Group companies (6) (5,549,688) (21,611,930) (783,842) — 27,945,460 — Loans repaid by intra-Group companies (6) 8,730,730 6,749,175 272,944 — (15,752,849) — Other investing activities with intra-Group companies (7) (1,307,026) (604,322) (4,600) — 1,915,948 — Net cash provided by/ (used in) investing activities 2,001,031 (11,151,599) (11,996,855) (39,430) 14,108,559 (7,078,294) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (15,854,237) 3,246,955 700,000 (678,287) — (12,585,569) Cash dividend paid to intra-Group companies (5) — — (6,510,526) (731,250) 7,241,776 — Loans received from intra-Group companies (6) 19,965,792 6,137,790 1,646,137 195,741 (27,945,460) — Loans repaid to intra-Group companies (6) (6,749,175) (8,916,374) — (87,300) 15,752,849 — Other financing activities with intra-Group companies (7) — 1,311,504 604,444 — (1,915,948) — Net cash (used in)/ provided by financing activities (2,637,620) 1,779,875 (3,559,945) (1,301,096) (6,866,783) (12,585,569) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (255,519) 707,587 (40,202,699) 67,459,864 — 27,709,233 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — 820,545 66,150,273 (66,970,818) — — Dividends received from subsidiaries and VIEs (5) — 29,094,971 — — (29,094,971) — Net cash provided by/ (used in) other transactions with intra-Group companies 2,893 (3,478,205) 3,175,860 299,452 — — Net cash (used in)/ provided by operating activities (252,626) 27,144,898 29,123,434 788,498 (29,094,971) 27,709,233 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties (223) (10,434,166) 3,136,494 (71,832) — (7,369,727) Loans made to intra-Group companies (6) (6,013,061) (33,737,997) (1,356,487) — 41,107,545 — Loans repaid by intra-Group companies (6) 2,501,060 8,292,517 668,856 — (11,462,433) — Other investing activities with intra-Group companies (7) — (1,912) (31,000) — 32,912 — Net cash (used in)/ provided by investing activities (3,512,224) (35,881,558) 2,417,863 (71,832) 29,678,024 (7,369,727) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (21,326,822) 6,636,050 4,505,614 (52,541) — (10,237,699) Cash dividend paid to intra-Group companies (5) — — (29,094,971) — 29,094,971 — Loans received from intra-Group companies (6) 33,461,057 7,168,199 276,940 201,349 (41,107,545) — Loans repaid to intra-Group companies (6) (8,292,517) (2,862,847) (272) (306,797) 11,462,433 — Other financing activities with intra-Group companies (7) — 31,000 1,912 — (32,912) — Net cash provided by/(used in) financing activities 3,841,718 10,972,402 (24,310,777) (157,989) (583,053) (10,237,699) Note: (1) It represents the elimination of intercompany balances among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries.
Biggest changeGAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and the VIEs and their subsidiaries that we consolidate for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ ​ Primary VIEs and ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets Cash and cash equivalents 98,865 4,771,179 17,715,676 2,303,280 — 24,889,000 Time deposits — 60,115,896 27,405,623 400,000 — 87,921,519 Restricted cash — 15,584 28,570 2,655,171 — 2,699,325 Accounts receivable, net — 1,165,043 295,557 3,542,272 — 5,002,872 Inventories — 768,099 157,965 67,572 — 993,636 Prepayments and other current assets, net 328,766 2,109,849 1,142,559 1,867,110 — 5,448,284 Short-term investments — 138,218 7,410,471 73,984 — 7,622,673 Amounts due from group companies (1) 25,813,779 6,707,302 7,723,645 9,917,091 (50,161,817) — Property, equipment and software, net 24 578,404 5,685,236 78,666 — 6,342,330 Land use right, net — 54,120 4,067,647 — — 4,121,767 Operating lease right-of-use assets, net 170 268,483 564,671 54,653 — 887,977 Deferred tax assets — 660 1,324,534 155,595 — 1,480,789 Investments in subsidiaries (2) 88,979,671 26,887,522 25,513 — (115,892,706) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 762,591 ​ — ​ (762,591) ​ — Long-term investments 393,580 ​ 17,074,981 190,425 885,372 — 18,544,358 Other long-term assets 64,411 4,727,973 1,849,103 164,968 — 6,806,455 Total assets 115,679,266 125,383,313 76,349,786 22,165,734 (166,817,114) 172,760,985 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable 17 570,520 133,887 802,717 — 1,507,141 Salary and welfare payables 1,303 384,980 4,191,180 155,478 — 4,732,941 Taxes payable 10,107 124,198 2,637,439 41,352 — 2,813,096 Short-term loans 4,472,768 14,369,014 5,033,500 422 — 23,875,704 Contract liabilities-current — 844,487 209,302 11,465,101 — 12,518,890 Accrued liabilities and other payables 25,017 1,884,156 5,403,800 3,809,049 — 11,122,022 Operating lease liabilities 173 281,378 595,161 54,981 — 931,693 Amounts due to group companies (1) 2,956,264 12,595,746 30,672,023 3,937,784 (50,161,817) — Deferred tax liabilities — 1,811,525 314,595 — — 2,126,120 Long-term loans 3,482,300 — 172,664 — — 3,654,964 Other long-term payable — 268,361 73,200 263,373 — 604,934 Total liabilities 10,947,949 33,134,365 49,436,751 20,530,257 (50,161,817) 63,887,505 Redeemable noncontrolling interests — 71,869 — 64,571 — 136,440 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ’ Shareholders’ equity (2) 104,731,317 ​ 92,177,079 ​ 26,913,035 ​ 1,570,906 ​ (120,661,020) ​ 104,731,317 Noncontrolling interests — — — — 4,005,723 4,005,723 Total equity 104,731,317 92,177,079 26,913,035 1,570,906 (116,655,297) 108,737,040 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 115,679,266 125,383,313 76,349,786 22,165,734 (166,817,114) 172,760,985 ​ ​ 141 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2023 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ of VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets Cash and cash equivalents 224,824 13,269,440 6,132,382 1,802,256 — 21,428,902 Time deposits — 63,445,277 38,040,757 420,000 — 101,906,034 Restricted cash — 20,075 56,098 2,701,583 — 2,777,756 Accounts receivable, net — 1,421,964 337,122 4,663,331 — 6,422,417 Inventories — 586,212 72,254 36,908 — 695,374 Prepayments and other current assets, net 262,937 2,933,583 1,114,866 1,765,209 — 6,076,595 Short-term investments — 39,620 4,322,533 73,904 — 4,436,057 Amounts due from group companies (1) 48,884,976 32,562,994 18,972,738 9,192,463 (109,613,171) — Property, equipment and software, net 829 709,387 7,312,616 52,212 — 8,075,044 Land use right, net — 64,264 4,010,879 — — 4,075,143 Operating lease right-of-use assets, net 3,996 280,906 410,687 53,686 — 749,275 Deferred tax assets — 15,158 1,396,083 148,847 — 1,560,088 Investments in subsidiaries (2) 103,785,841 28,944,158 (410,515) — (132,319,484) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 1,619,075 ​ — ​ (1,619,075) ​ — Long-term investments 393,580 19,211,745 965,058 1,212,804 — 21,783,187 Other long-term assets 42,303 4,471,840 1,221,219 203,744 — 5,939,106 Total assets 153,599,286 167,976,623 85,573,852 22,326,947 (243,551,730) 185,924,978 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ Accounts payable 32 536,021 79,826 265,137 — 881,016 Salary and welfare payables 1,678 669,323 4,071,411 114,794 — 4,857,206 Taxes payable 10,278 35,066 2,383,421 142,769 — 2,571,534 Short-term loans 920,751 8,669,455 9,633,862 16,095 — 19,240,163 Contract liabilities-current — 732,809 227,931 12,401,426 — 13,362,166 Accrued liabilities and other payables 9,008 2,071,530 6,900,483 3,689,885 — 12,670,906 Operating lease liabilities 3,536 316,747 442,348 52,691 — 815,322 Amounts due to group companies (1) 28,368,227 45,955,508 32,466,685 2,822,751 (109,613,171) — Deferred tax liabilities — 1,951,981 347,322 — — 2,299,303 Long-term loans — — 427,997 — — 427,997 Other long-term payable — 101,713 58,923 554,648 — 715,284 Total liabilities 29,313,510 61,040,153 57,040,209 20,060,196 (109,613,171) 57,840,897 Redeemable noncontrolling interests — 77,798 — 37,961 — 115,759 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity (2) 124,285,776 106,858,672 28,533,643 2,228,790 (137,621,105) 124,285,776 Noncontrolling interests — — — — 3,682,546 3,682,546 Total equity 124,285,776 106,858,672 28,533,643 2,228,790 (133,938,559) 127,968,322 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 153,599,286 167,976,623 85,573,852 22,326,947 (243,551,730) 185,924,978 ​ 142 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues Third-party revenues — ​ 11,231,687 ​ 1,967,818 ​ 74,406,521 ​ — ​ 87,606,026 Intra-Group revenues related to technical consulting and related service (3) — ​ 893,686 ​ 55,928,796 ​ — ​ (56,822,482) ​ — Other intra-Group revenues (4) — ​ 1,481,060 ​ 1,898,873 ​ 808,648 ​ (4,188,581) ​ — Total net revenues — ​ 13,606,433 ​ 59,795,487 ​ 75,215,169 ​ (61,011,063) ​ 87,606,026 Cost of revenues and operating expenses ​ ​ ​ ​ ​ Third-party cost of revenue and operating expenses (144,741) ​ (12,099,429) ​ (41,293,111) ​ (17,651,675) ​ — ​ (71,188,956) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) — ​ — ​ — ​ (56,822,482) ​ 56,822,482 ​ — Other intra-Group cost of revenues and operating expenses (4) — ​ (1,837,295) ​ (2,182,436) ​ (168,850) ​ 4,188,581 ​ — Total cost of revenues and operating expenses (144,741) ​ (13,936,724) ​ (43,475,547) ​ (74,643,007) ​ 61,011,063 ​ (71,188,956) Operating (losses)/profit (144,741) ​ (330,291) ​ 16,319,940 ​ 572,162 ​ — ​ 16,417,070 Share of income/(losses) from subsidiaries and VIEs (2) 16,275,271 ​ 16,114,107 ​ (52,063) ​ — ​ (32,337,315) ​ — Other income, net 735,648 ​ 1,729,248 ​ 1,898,499 ​ 323,994 ​ — ​ 4,687,389 Income before tax 16,866,178 ​ 17,513,064 ​ 18,166,376 ​ 896,156 ​ (32,337,315) ​ 21,104,459 Income tax (9,336) ​ (1,533,115) ​ (2,313,961) ​ (271,857) ​ — ​ (4,128,269) Net income from continuing operations 16,856,842 ​ 15,979,949 ​ 15,852,415 ​ 624,299 ​ (32,337,315) ​ 16,976,190 Less: Accretion of redeemable noncontrolling interests — ​ (536,981) ​ — ​ — ​ — ​ (536,981) Net loss attributable to noncontrolling interests (2) — ​ — ​ — ​ 27,777 ​ 389,856 ​ 417,633 Net income attributable to the Company’s shareholders 16,856,842 ​ 15,442,968 ​ 15,852,415 ​ 652,076 ​ (31,947,459) ​ 16,856,842 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 12,788,652 ​ 1,157,713 ​ 82,549,444 ​ — ​ 96,495,809 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 692,337 ​ 64,085,249 ​ — ​ (64,777,586) ​ — Other intra-Group revenues (4) ​ — ​ 913,644 ​ 1,876,699 ​ 817,962 ​ (3,608,305) ​ — Total net revenues ​ — ​ 14,394,633 ​ 67,119,661 ​ 83,367,406 ​ (68,385,891) ​ 96,495,809 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenue and operating expenses ​ (62,115) ​ (13,477,853) ​ (44,968,961) ​ (18,358,287) ​ — ​ (76,867,216) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (64,777,586) ​ 64,777,586 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (1,822,670) ​ (1,667,214) ​ (185,608) ​ 3,675,492 ​ — Total cost of revenues and operating expenses ​ (62,115) ​ (15,300,523) ​ (46,636,175) ​ (83,321,481) ​ 68,453,078 ​ (76,867,216) Operating (losses)/profit ​ (62,115) ​ (905,890) ​ 20,483,486 ​ 45,925 ​ 67,187 ​ 19,628,593 Share of income/(losses) from subsidiaries and VIEs (2) ​ 24,489,042 ​ 20,442,796 ​ (151,361) ​ — ​ (44,780,477) ​ — Other (expenses)/income, net ​ (4,156,514) ​ 6,458,954 ​ 2,334,424 ​ (15,193) ​ — ​ 4,621,671 Income before tax ​ 20,270,413 ​ 25,995,860 ​ 22,666,549 ​ 30,732 ​ (44,713,290) ​ 24,250,264 Income tax ​ — ​ (2,437,898) ​ (2,481,879) ​ (112,061) ​ — ​ (5,031,838) Net income from continuing operations ​ 20,270,413 ​ 23,557,962 ​ 20,184,670 ​ (81,329) ​ (44,713,290) ​ 19,218,426 Less: Accretion of redeemable noncontrolling interests ​ — ​ (2,978) ​ — ​ — ​ — ​ (2,978) Net loss attributable to noncontrolling interests (2) ​ — ​ — ​ — ​ 14,020 ​ 483,268 ​ 497,288 Net income from continuing operations attributable to the Company’s shareholders ​ 20,270,413 ​ 23,554,984 ​ 20,184,670 ​ (67,309) ​ (44,230,022) ​ 19,712,736 Net income from discontinued operations, net of tax ​ — ​ 624,864 ​ — ​ — ​ — ​ 624,864 Net income attributable to the Company’s shareholders ​ 20,270,413 ​ 24,179,848 ​ 20,184,670 ​ (67,309) ​ (44,230,022) ​ 20,337,600 ​ ​ 143 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ ​ ​ Primary VIEs and ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 12,193,244 ​ 1,220,371 ​ 90,054,544 ​ — ​ 103,468,159 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 386,828 ​ 72,605,740 ​ — ​ (72,992,568) ​ — Other intra-Group revenues (4) ​ — ​ 873,787 ​ 1,440,970 ​ 734,857 ​ (3,049,614) ​ — Total net revenues ​ — ​ 13,453,859 ​ 75,267,081 ​ 90,789,401 ​ (76,042,182) ​ 103,468,159 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenue and operating expenses ​ (26,012) ​ (14,240,361) ​ (44,024,077) ​ (17,468,565) ​ — ​ (75,759,015) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (72,992,568) ​ 72,992,568 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (1,454,070) ​ (1,571,998) ​ (23,546) ​ 3,049,614 ​ — Total cost of revenues and operating expenses ​ (26,012) ​ (15,694,431) ​ (45,596,075) ​ (90,484,679) ​ 76,042,182 ​ (75,759,015) Operating (losses)/profit ​ (26,012) ​ (2,240,572) ​ 29,671,006 ​ 304,722 ​ — ​ 27,709,144 Share of income/ (losses) from subsidiaries and VIEs (2) ​ 29,849,939 ​ 30,023,775 ​ (88,094) ​ — ​ (59,785,620) ​ — Other (expenses)/ income, net ​ (345,851) ​ 3,929,431 ​ 2,537,239 ​ 226,964 ​ — ​ 6,347,783 Income before tax ​ 29,478,076 ​ 31,712,634 ​ 32,120,151 ​ 531,686 ​ (59,785,620) ​ 34,056,927 Income tax ​ — ​ (1,928,340) ​ (2,568,035) ​ (203,329) ​ — ​ (4,699,704) Net income from continuing operations ​ 29,478,076 ​ 29,784,294 ​ 29,552,116 ​ 328,357 ​ (59,785,620) ​ 29,357,223 Less: Accretion of redeemable noncontrolling interests ​ — ​ (3,589) ​ — ​ — ​ — ​ (3,589) Net (income)/loss attributable to noncontrolling interests (2) ​ — ​ — ​ — ​ (3,759) ​ 66,677 ​ 62,918 Net income attributable to the Company’s shareholders ​ 29,478,076 ​ 29,780,705 ​ 29,552,116 ​ 324,598 ​ (59,718,943) ​ 29,416,552 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (117,844) ​ 221,977 ​ (36,449,437) ​ 61,272,031 ​ — ​ 24,926,727 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — ​ 1,070,594 ​ 58,368,958 ​ (59,439,552) ​ — ​ — Dividends received from subsidiaries and VIEs (5) 731,250 ​ 6,510,526 ​ — ​ — ​ (7,241,776) ​ — Net cash (used in)/ provided by other transactions with intra-Group companies (381) ​ 87,037 ​ 196,965 ​ (283,621) ​ — ​ — Net cash provided by operating activities 613,025 ​ 7,890,134 ​ 22,116,486 ​ 1,548,858 ​ (7,241,776) ​ 24,926,727 Cash flows from investing activities: Net cash provided by/ (used in) transactions with third-parties 127,015 ​ 4,315,478 ​ (11,481,357) ​ (39,430) ​ — ​ (7,078,294) Loans made to intra-Group companies (6) (5,549,688) ​ (21,611,930) ​ (783,842) ​ — ​ 27,945,460 ​ — Loans repaid by intra-Group companies (6) 8,730,730 ​ 6,749,175 ​ 272,944 ​ — ​ (15,752,849) ​ — Other investing activities with intra-Group companies (7) (1,307,026) ​ (604,322) ​ (4,600) ​ — ​ 1,915,948 ​ — Net cash provided by/ (used in) investing activities 2,001,031 ​ (11,151,599) ​ (11,996,855) ​ (39,430) ​ 14,108,559 ​ (7,078,294) Cash flows from financing activities: Net cash (used in)/provided by transactions with third-parties (15,854,237) ​ 3,246,955 ​ 700,000 ​ (678,287) ​ — ​ (12,585,569) Cash dividend paid to intra-Group companies (5) — ​ — ​ (6,510,526) ​ (731,250) ​ 7,241,776 ​ — Loans received from intra-Group companies (6) 19,965,792 ​ 6,137,790 ​ 1,646,137 ​ 195,741 ​ (27,945,460) ​ — Loans repaid to intra-Group companies (6) (6,749,175) ​ (8,916,374) ​ — ​ (87,300) ​ 15,752,849 ​ — Other financing activities with intra-Group companies (7) — ​ 1,311,504 ​ 604,444 ​ — ​ (1,915,948) ​ — Net cash (used in)/ provided by financing activities (2,637,620) ​ 1,779,875 ​ (3,559,945) ​ (1,301,096) ​ (6,866,783) ​ (12,585,569) ​ ​ 144 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ Eliminating ​ ​ ​ NetEase, Other Beneficiaries of their ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (255,519) ​ 707,587 ​ (40,202,699) ​ 67,459,864 ​ — ​ 27,709,233 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — ​ 820,545 ​ 66,150,273 ​ (66,970,818) ​ — ​ — Dividends received from subsidiaries and VIEs (5) — ​ 29,094,971 ​ — ​ — ​ (29,094,971) ​ — Net cash provided by/ (used in) other transactions with intra-Group companies 2,893 ​ (3,478,205) ​ 3,175,860 ​ 299,452 ​ — ​ — Net cash (used in)/ provided by operating activities (252,626) ​ 27,144,898 ​ 29,123,434 ​ 788,498 ​ (29,094,971) ​ 27,709,233 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (223) ​ (10,434,166) ​ 3,136,494 ​ (71,832) ​ — ​ (7,369,727) Loans made to intra-Group companies (6) (6,013,061) ​ (33,737,997) ​ (1,356,487) ​ — ​ 41,107,545 ​ — Loans repaid by intra-Group companies (6) 2,501,060 ​ 8,292,517 ​ 668,856 ​ — ​ (11,462,433) ​ — Other investing activities with intra-Group companies (7) — ​ (1,912) ​ (31,000) ​ — ​ 32,912 ​ — Net cash (used in)/ provided by investing activities (3,512,224) ​ (35,881,558) ​ 2,417,863 ​ (71,832) ​ 29,678,024 ​ (7,369,727) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (21,326,822) ​ 6,636,050 ​ 4,505,614 ​ (52,541) ​ — ​ (10,237,699) Cash dividend paid to intra-Group companies (5) — ​ — ​ (29,094,971) ​ — ​ 29,094,971 ​ — Loans received from intra-Group companies (6) 33,461,057 ​ 7,168,199 ​ 276,940 ​ 201,349 ​ (41,107,545) ​ — Loans repaid to intra-Group companies (6) (8,292,517) ​ (2,862,847) ​ (272) ​ (306,797) ​ 11,462,433 ​ — Other financing activities with intra-Group companies (7) — ​ 31,000 ​ 1,912 ​ — ​ (32,912) ​ — Net cash provided by/(used in) financing activities 3,841,718 ​ 10,972,402 ​ (24,310,777) ​ (157,989) ​ (583,053) ​ (10,237,699) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ NetEase, Other Beneficiaries of their Eliminating Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: Net cash (used in)/provided by transactions with third-parties (354,694) ​ 475,946 ​ (37,115,437) ​ 72,325,460 ​ — ​ 35,331,275 Net cash provided by/ (used in) transactions with intra-Group companies related to technical consulting and related service — ​ 411,369 ​ 72,887,298 ​ (73,298,667) ​ — ​ — Dividends received from subsidiaries and VIEs (5) — ​ 26,455,948 ​ — ​ — ​ (26,455,948) ​ — Net cash provided by/ (used in) other transactions with intra-Group companies 476 ​ (502,444) ​ (137,577) ​ 639,545 ​ — ​ — Net cash (used in)/ provided by operating activities (354,218) ​ 26,840,819 ​ 35,634,284 ​ (333,662) ​ (26,455,948) ​ 35,331,275 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties (589) ​ (3,584,348) ​ (13,375,849) ​ (82,645) ​ — ​ (17,043,431) Loans made to intra-Group companies (6) (5,100,814) ​ (32,331,958) ​ (13,748,357) ​ — ​ 51,181,129 ​ — Loans repaid by intra-Group companies (6) 246,020 ​ 7,004,819 ​ 1,200,611 ​ — ​ (8,451,450) ​ — Other investing activities with intra-Group companies (7) — ​ (347,375) ​ (17,100) ​ — ​ 364,475 ​ — Net cash (used in)/ provided by investing activities (4,855,383) ​ (29,258,862) ​ (25,940,695) ​ (82,645) ​ 43,094,154 ​ (17,043,431) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (19,980,650) ​ (6,357,771) ​ 4,855,694 ​ 15,673 ​ — ​ (21,467,054) Cash dividend paid to intra-Group companies (5) — ​ — ​ (26,455,948) ​ — ​ 26,455,948 ​ — Loans received from intra-Group companies (6) 32,327,958 ​ 18,639,436 ​ 4,000 ​ 209,735 ​ (51,181,129) ​ — Loans repaid to intra-Group companies (6) (7,004,819) ​ (1,184,057) ​ — ​ (262,574) ​ 8,451,450 ​ — Other financing activities with intra-Group companies (7) — ​ 17,100 ​ 347,375 ​ — ​ (364,475) ​ — Net cash provided by/(used in) financing activities 5,342,489 ​ 11,114,708 ​ (21,248,879) ​ (37,166) ​ (16,638,206) ​ (21,467,054) Note: (1) It represents the elimination of intercompany balances among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries.
General and Administrative Expenses General and administrative expenses consist primarily of staff-related costs for our general administrative and management staff, office rental, legal, professional and consultancy fees, expected credit loss and depreciation charges. Research and Development Expenses Research and development expenses consist primarily of staff-related costs for our research and development professionals and technology expenses.
General and Administrative Expenses General and administrative expenses consist primarily of staff-related costs for our general administrative and management staff, office rental, legal, professional and consultancy fees, expected credit loss and depreciation charges. Research and Development Expenses Research and development expenses consist primarily of staff-related costs for our professionals and technology expenses.
Our capital resources include primarily cash on hand, demand deposits and time deposits mainly placed with banks in Hong Kong and China and short-term investments.
Our capital resources include primarily cash on hand, demand deposits, time deposits and short-term investments mainly placed with banks in Hong Kong and China.
We determined the risk-free rate based on the interest rate of different government bonds with a time horizon close to expected term. The selections of government bonds are made mainly based on the financing currency of the investee and the country where the main operation of the investee take place. ● Discount for lack of marketability (“DLOM”).
We determined the risk-free rate based on the interest rate of different government bonds with a time horizon close to expected term. The selections of government bonds are made mainly based on the financing currency of the investee and the country where the main operation of the investee take place. ● Discount for lack of marketability.
Trend Information Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition. 149 Table of Contents E.
Trend Information Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition. 146 Table of Contents E.
Innovative Businesses and Others Cost of revenues related to our innovative businesses and others segment consists primarily of cost of merchandise sold in our e-commerce business and content fees and revenue sharing costs paid to third-parties.
Innovative Businesses and Others Cost of revenues related to our innovative businesses and others segment consists primarily of cost of merchandise sold in our e-commerce business, staff-related costs and content fees and revenue sharing costs paid to third-parties.
“Key Information—Risk Factors—Risks Related to Our Business and Industry—Our corporate structure may restrict our ability to receive dividends from, and transfer funds to, our China mainland subsidiaries and the VIEs, which could restrict our ability to act in response to changing market conditions and reallocate funds internally in a timely manner.” and “Key Information—Risk Factors—Risks Related to Doing Business in China—Restrictions on currency exchange may limit our ability to utilize our revenues effectively.” and Item 10.D.
“Key Information—Risk Factors—Risks Related to Our Corporate Structure—Our corporate structure may restrict our ability to receive dividends from, and transfer funds to, our China mainland subsidiaries and VIEs, which could restrict our ability to act in response to changing market conditions and reallocate funds internally in a timely manner.” and “Key Information—Risk Factors—Risks Related to Doing Business in China—Restrictions on currency exchange may limit our ability to utilize our revenues effectively.” and Item 10.D.
We have incurred substantial R&D expenses as we developed more products and improved our content offerings and technologies to deliver high quality services and value to our users. We strongly believe that R&D must be guided by the principles of commercial viability and applicability, and we plan to continue making purpose-driven investment in technologies.
We have incurred substantial research and development expenses as we developed more products and improved our content offerings and technologies to deliver high quality services and value to our users. We strongly believe that R&D must be guided by the principles of commercial viability and applicability, and we plan to continue making purpose-driven investment in technologies.
CASH FLOWS The following table sets forth summary of consolidated cash flow data for the periods indicated as derived from our audited financial statements.
CASH FLOWS The following table sets forth a summary of consolidated cash flow data for the periods indicated as derived from our audited financial statements.
A churn rate is calculated starting from the point-in-time when related in-game virtual items are delivered to the paying players’ accounts and track populations of paying players who made their initial purchases during the interval period (the “Cohort”). Then, we track the number of paying players from each Cohort who left subsequent to their initial purchase.
A churn rate is calculated starting from the point-in-time when related in-game virtual items are delivered to the paying players’ accounts and track populations of paying players who made their initial purchases during the interval period, or the Cohort. Then, we track the number of paying players from each Cohort who left subsequent to their initial purchase.
We repatriated a portion of these earnings and paid related withholding income tax in 2020, 2021 and 2022. In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC.
We repatriated a portion of these earnings and paid related withholding income tax in 2021, 2022 and 2023. In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC.
These assumptions include, but not limited to types of games and characteristics of targeted players. 150 Table of Contents In connection with our periodic reviews of the estimate, the assumptions are evaluated accordingly considering historical players’ churn rates, similarities between new games and existing games and management judgment.
These assumptions include, but not limited to types of games and characteristics of targeted players. 147 Table of Contents In connection with our periodic reviews of the estimate, the assumptions are evaluated accordingly considering historical players’ churn rates, similarities between new games and existing games and management judgment.
In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes. 151 Table of Contents Assumptions used in Income Approach: The following are key assumptions we use in making cash flow projections: ● Business projections. We make assumptions about the investees’ business in the marketplace.
In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes. 148 Table of Contents Assumptions used in Income Approach: The following are key assumptions we use in making cash flow projections: ● Business projections. We make assumptions about the investees’ business in the marketplace.
For the years 2020, 2021 and 2022, the first HK$2 million of profits earned by one of our subsidiaries incorporated in Hong Kong is taxed at a rate of 8.25%, while the remaining profits will continue to be taxed at the 16.5% tax rate.
For the years 2021, 2022 and 2023, the first HK$2 million of profits earned by one of our subsidiaries incorporated in Hong Kong is taxed at a rate of 8.25%, while the remaining profits will continue to be taxed at the 16.5% tax rate.
If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our offshore intermediary holding companies or ultimate parent company, and therefore, our shareholders or investors in our ADSs.
If the foreign exchange regulatory system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our offshore intermediary holding companies or ultimate parent company, and therefore, our shareholders or investors in our ADSs.
The DLOM was estimated based on the option-pricing method. Under this method, the cost of put option, which can hedge the price change before the privately held share can be sold, was considered as a basis to determine the lack of marketability discount.
The discount for lack of marketability, or the DLOM, was estimated based on the option-pricing method. Under this method, the cost of put option, which can hedge the price change before the privately held share can be sold, was considered as a basis to determine the lack of marketability discount.
We also generate revenue from services which are related or ancillary to the operation of our games such as the NetEase CC live streaming service (a platform offering various live streaming content with a primary focus on game broadcasting) and other value-added services. 124 Table of Contents Youdao Youdao’s revenue consists of three parts: learning services, smart devices and online marketing services.
We also generate revenue from services which are related or ancillary to the operation of our games such as the NetEase CC live streaming service (a platform offering various live streaming content with a primary focus on game broadcasting) and other value-added services. Youdao Youdao’s revenue consists of three parts: learning services, smart devices and online marketing services.
The increase in cost of revenues in 2022 was primarily due to (i) an increase in revenue sharing costs with game developers, broadcasters, content owners and other third parties, as a result of the increased revenue from our various in-house developed games and licensed games in 2022, the one-off recognition of royalty fees related to certain licensed games, as well as the increased revenue from NetEase CC live streaming, and (ii) an increase in staff-related costs.
The increase in cost of revenues in 2022 was primarily due to (i) an increase in revenue sharing costs with game developers and other third parties, as a result of the increased revenue from our various in-house developed games and licensed games in 2022, the one-off recognition of royalty fees related to certain licensed games, as well as the increased revenue from NetEase CC live streaming, and (ii) an increase in staff-related costs.
Our management believes that there is only a remote possibility that this scenario would happen. 143 Table of Contents Condensed Consolidating Schedule The following tables present the condensed consolidating schedule of financial information for NetEase, Inc., its wholly owned subsidiaries (“WFOEs”) that are the primary beneficiaries of the VIEs under U.S.
Our management believes that there is only a remote possibility that this scenario would happen. 140 Table of Contents Condensed Consolidating Schedule The following tables present the condensed consolidating schedule of financial information for NetEase, Inc., its wholly owned subsidiaries that are the primary beneficiaries of the VIEs under U.S.
The options expire four to ten years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met. The awards can become 100% vested on the vesting commencement date, or vest in three, four or five substantially equal annual installments with the first installment vesting on the vesting commencement date.
The options expire four to seven years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met. The awards can become 100% vested on the vesting commencement date, or vest in two, three, four or five substantially equal annual installments with the first installment vesting on the vesting commencement date.
Additionally, upon payments of dividends by us to our shareholders or by our intermediate holding companies in the Cayman Islands to us, no Cayman Islands withholding tax will be imposed. British Virgin Islands (“BVI”) Our 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.
Additionally, upon payments of dividends by us to our shareholders or by our intermediate holding companies in the Cayman Islands to us, no Cayman Islands withholding tax will be imposed. British Virgin Islands Our subsidiaries in the British Virgin Islands, or the BVI, are exempted from income tax on its foreign-derived income in the BVI.
“Information on the Company—Business Overview—Our Organizational Structure.” As of December 31, 2022, the total assets of all the consolidated VIEs were RMB22.2 billion (US$3.2 billion), mainly comprising cash and cash equivalents, restricted cash, accounts receivable, prepayments and other current assets, net, amounts due from group companies, short-term investments, long-term investments and other long-term assets, net.
“Information on the Company—Business Overview—Our Organizational Structure.” As of December 31, 2023, the total assets of all the consolidated VIEs were RMB22.3 billion (US$3.1 billion), mainly comprising cash and cash equivalents, restricted cash, accounts receivable, net, prepayments and other current assets, amounts due from group companies, short-term investments, long-term investments and other long-term assets, net.
(7) It represents the elimination of other investing and financing activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. 148 Table of Contents Restrictions on Foreign Exchange and the Ability to Transfer Cash between Entities, Across Borders and to U.S.
(7) It represents the elimination of other investing and financing activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. Restrictions on Foreign Exchange and the Ability to Transfer Cash between Entities, Across Borders and to U.S.
(5) It represents the elimination of the dividends payment at the consolidation level. (6) It represents the elimination of intra-Group loans related cash activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries.
(5) It represents the elimination of the dividends payment at the consolidation level. 145 Table of Contents (6) It represents the elimination of intra-Group loans related cash activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries.
A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution.
A lower withholding income tax rate of 5% is applied if the foreign invested enterprises’ immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution.
The gross profit margins in 2021 and 2022 were calculated by dividing our gross profits over our net revenues for the corresponding type of services. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ 2022 ​ ​ RMB RMB US$ ​ ​ (in thousands) Gross profit: ​ Games and related value-added services 41,811,876 46,782,052 6,782,760 ​ Youdao 2,906,211 2,582,444 374,419 ​ Cloud Music 142,674 1,293,118 187,484 ​ Innovative businesses and others 2,110,040 2,108,512 305,706 ​ Total gross profit 46,970,801 52,766,126 7,650,369 ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin: ​ ​ ​ Games and related value-added services 61.7 % 62.7 % 62.7 % Youdao 54.3 % 51.5 % 51.5 % Cloud Music 2.0 % 14.4 % 14.4 % Innovative businesses and others 28.4 % 26.6 % 26.6 % Total gross profit margin 53.6 % 54.7 % 54.7 % ​ The increase in gross profit margin in 2022 for games and related value-added services was primarily attributable to increased contribution from our in-house developed PC games, which have a relatively higher gross profit margin, as a percentage of our operation of online games revenues, as well as changes in the revenue contribution from different distribution channels.
The gross profit margins in 2021 and 2022 were calculated by dividing our gross profits over our net revenues for the corresponding type of services. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 2022 ​ ​ RMB ​ RMB ​ ​ (in thousands) Gross profit: ​ ​ ​ ​ ​ Games and related value-added services 41,811,876 46,782,052 ​ Youdao 2,906,211 2,582,444 ​ Cloud Music 142,674 1,293,118 ​ Innovative businesses and others 2,110,040 2,108,512 ​ Total gross profit 46,970,801 52,766,126 ​ ​ ​ ​ ​ ​ ​ Gross profit margin: ​ ​ ​ Games and related value-added services 61.7 % 62.7 % Youdao 54.3 % 51.5 % Cloud Music 2.0 % 14.4 % Innovative businesses and others 28.4 % 26.6 % Total gross profit margin 53.6 % 54.7 % ​ The increase in gross profit margin in 2022 for games and related value-added services was primarily attributable to increased contribution from our in-house developed PC games, which have a relatively higher gross profit margin, as a percentage of our operation of online games revenues, as well as changes in the revenue contribution from different platforms.
As a result of these and other restrictions under PRC laws and regulations, our China mainland subsidiaries and the VIEs are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB13.3 billion, or 12% of our total consolidated net assets, as of December 31, 2022.
As a result of these and other restrictions under PRC laws and regulations, our China mainland subsidiaries and the VIEs are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB13.8 billion, or 11% of our total consolidated net assets, as of December 31, 2023.
The difference between our net income of RMB16,976.2 million and the net cash provided by operating activities was primarily due to (i) the adjustment of non-cash items, mainly including adding back depreciation and amortization charges of RMB3,275.7 million, share-based compensation cost of RMB3,041.5 million, unrealized exchange loss of RMB488.6 million and deferred income taxes of RMB407.9 million, partially offset by share of results on equity method investees and revaluation results from previously held equity interest of RMB1,573.1 million, fair value changes of short-term investments of RMB639.8 million and fair value change of equity security investments of RMB471.9 million, and (ii) the increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in payables of RMB2,471.5 million, including content costs, bonus and professional and technical charges and an increase in contract liabilities of RMB1,351.3 million, partially offset by an increase in accounts receivable, prepayments and other current assets of RMB546.2 million and an increase in inventories of RMB343.6 million.
The difference between our net income of RMB17.0 billion and the net cash provided by operating activities was primarily due to (i) the adjustment of non-cash items, mainly including adding back depreciation and amortization charges of RMB3.3 billion, share-based compensation cost of RMB3.0 billion, unrealized exchange loss of RMB488.6 million and deferred income taxes of RMB407.9 million, partially offset by share of results on equity method investees and revaluation results from previously held equity interest of RMB1.6 billion, fair value changes of short-term investments of RMB639.8 million and fair value change of equity security investments of RMB471.9 million, and (ii) the increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in payables of RMB2.5 billion, including content costs, bonus and professional and technical charges and an increase in contract liabilities of RMB1.4 billion, partially offset by an increase in accounts receivable, prepayments and other current assets of RMB546.2 million and an increase in inventories of RMB343.6 million.
We incur revenue sharing costs, including fees shared with distribution channel providers, game developers and other third parties related to mobile games, course instructors related to Youdao’s services, music labels and other copyright and content partners related to Cloud Music’s services and others in connection with our other innovative businesses, which may increase in absolute amounts in the near term as we continue to scale up our operations across our business segments.
We incur revenue sharing costs, including fees shared with third-party platform providers, game developers and other third parties related to mobile games, course instructors related to Youdao’s services, music labels and other copyright and content partners related to Cloud Music’s services and others in connection with our other innovative businesses, which may increase in absolute amounts as we continue to scale up our operations across our business segments.
We may also incur higher content costs in the near term as we continue to expand our product and service offerings to cater to the evolving user needs.
We may also incur higher content costs as we continue to expand our product and service offerings to cater to the evolving user needs.
As of December 31, 2022, the weighted average remaining vesting period was 1.75 years. 127 Table of Contents Other Share Incentive Plans Beginning in 2014, certain of our subsidiaries have adopted stock incentive plans, most of which were stock option plans to grant options exercisable for ordinary shares to certain of our employees.
As of December 31, 2023, the weighted average remaining vesting period was 1.48 years. 124 Table of Contents Other Share Incentive Plans Beginning in 2014, certain of our subsidiaries have adopted stock incentive plans, most of which were stock option plans to grant options exercisable for ordinary shares to certain of our employees.
Youdao Our cost of revenues of Youdao consists primarily of revenue sharing costs paid to Youdao’s course instructors, teaching assistants and course development personnel, payment channel fees, costs of course materials, costs relating to the sales of smart devices and traffic acquisition costs.
Youdao Our cost of revenues of Youdao consists primarily of revenue sharing costs paid to Youdao’s course instructors, teaching assistants and course development personnel, staff-related costs, costs of course materials, costs relating to the sales of smart devices and traffic acquisition costs.
Investment income was RMB54.0 million (US$7.8 million) in 2022 compared to investment income of RMB2,947.7 million in 2021, consisting primarily of (i) a gain on disposal of certain long-term investments of RMB1,791.4 million (US$259.7 million) in 2022 compared to RMB185.6 million in 2021, (ii) a net investment gain in equity method investees of RMB1,259.9 million (US$182.7 million) in 2022 compared to RMB1,575.5 million in 2021, (iii) investment income related to short-term investments of RMB342.6 million (US$49.7 million) in 2022 compared to RMB639.8 million in 2021, and (iv) a remeasurement gain of previously held equity investee of RMB310.4 million (US$45.0 million) in 2022 upon acquisition compared to nil in 2021 and (v) dividend income from certain long-term investments of RMB41.4 million (US$6.0 million) in 2022 compared to RMB87.3 million in 2021, which was offset in part by a loss from fair value change related to the equity investments with readily determinable fair value of RMB3,414.7 million (US$495.1 million) in 2022 compared to a gain of RMB91.1 million in 2021, as well as impairment provisions related to certain investments of RMB282.8 million (US$41.0 million) compared to RMB19.2 million in 2021.
Investment income was RMB54.0 million in 2022 compared to investment income of RMB2.9 billion in 2021, consisting primarily of (i) a gain on disposal of certain long-term investments of RMB1.8 billion in 2022 compared to RMB185.6 million in 2021, (ii) a net investment gain in equity method investees of RMB1.3 billion in 2022 compared to RMB1.6 billion in 2021, (iii) investment income related to short-term investments of RMB342.6 million in 2022 compared to RMB639.8 million in 2021, and (iv) a remeasurement gain of previously held equity investee of RMB310.4 million in 2022 upon acquisition compared to nil in 2021 and (v) dividend income from certain long-term investments of RMB41.4 million in 2022 compared to RMB87.3 million in 2021, which was offset in part by a loss from fair value change related to the equity investments with readily determinable fair value of RMB3.4 billion in 2022 compared to a gain of RMB91.1 million in 2021, as well as impairment provisions related to certain investments of RMB282.8 million in 2022 compared to RMB19.2 million in 2021.
MATERIAL CASH REQUIREMENTS Our material cash requirements as of December 31, 2022 primarily include our operating lease commitments, server and bandwidth service fee commitments, capital commitments, royalties and expenditure for licensed content commitments and office machines and other commitments. Our operating lease commitments are the lease commitments under the lease agreements mainly for our corporate offices, warehouses and retail stores.
MATERIAL CASH REQUIREMENTS Our material cash requirements as of December 31, 2023 primarily include our operating lease commitments, server and bandwidth service fee commitments, capital commitments, royalties and expenditure for licensed content commitments and other commitments. Our operating lease commitments are the lease commitments under the lease agreements mainly for our corporate offices and warehouses.
Cost of Revenues Our cost of revenues increased by 7.6% to RMB43,729.7 million (US$6,340.2 million) in 2022 from RMB40,635.2 million in 2021. The year-over-year increase was mainly due to an increase in revenue sharing costs with game developers, talent agencies of live streaming performers, broadcasters and other third parties, royalty fees and staff-related costs.
Cost of Revenues Our cost of revenues increased by 7.6% to RMB43.7 billion in 2022 from RMB40.6 billion in 2021. The year-over-year increase was mainly due to an increase in revenue sharing costs with game developers, talent agencies of live streaming performers and other third parties, royalty fees and staff-related costs.
Cloud Music Cost of revenues from Cloud Music increased by 12.3% to RMB7,699.1 million (US$1,116.3 million) in 2022 from RMB6,854.9 million in 2021, which was primarily attributable to an increase in revenue sharing costs in line with the rapid growth of its revenue from social entertainment services.
Cloud Music Cost of revenues from Cloud Music increased by 12.3% to RMB7.7 billion in 2022 from RMB6.9 billion in 2021, which was primarily attributable to an increase in revenue sharing costs in line with the rapid growth of its revenue from social entertainment services.
The difference between our net income of RMB19,843.3 million (US$2,877.0 million) and the net cash provided by operating activities was primarily due to (i) the deduction of net income from discontinued operations of RMB624.9 million (US$90.6 million); (ii) the adjustment of non-cash items, mainly including adding back share-based compensation cost of RMB3,174.2 million (US$460.2 million), fair value change of equity security investments of RMB3,104.3 million (US$450.1 million), depreciation and amortization charges of RMB2,858.2 million (US$414.4 million), and deferred income taxes of RMB489.7 million (US$71.0 million), partially offset by gains on disposal of long-term investments, business and subsidiaries of RMB1,791.4 million (US$259.7 million), unrealized exchange gains of RMB1,604.3 million (US$232.6 million), share of results on equity method investees and revaluation results from previously held equity interest of RMB1,259.9 million (US$182.7 million), and fair value changes of short-term investments of RMB342.6 million (US$49.7 million), and (iii) the increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in payables of RMB2,771.8 million (US$401.9 million), including content costs, bonus and professional and technical charges and an increase in contract liabilities of RMB385.4 million (US$55.9 million), as well as a decrease in accounts receivable, prepayments and other current assets of RMB1,285.4 million (US$186.4 million), partially offset by a decrease of tax payables of RMB917.6 million (US$133.0 million). 138 Table of Contents Net cash provided by operating activities was RMB24,926.7 million for the year ended December 31, 2021.
The difference between our net income of RMB19.8 billion and the net cash provided by operating activities was primarily due to (i) the deduction of net income from discontinued operations of RMB624.9 million; (ii) the adjustment of non-cash items, mainly including adding back share-based compensation cost of RMB3.2 billion, fair value change of equity security investments of RMB3.1 billion, depreciation and amortization charges of RMB2.9 billion, and deferred income taxes of RMB489.7 million, partially offset by gains on disposal of long-term investments, business and subsidiaries of RMB1.8 billion, unrealized exchange gains of RMB1.6 billion, share of results on equity method investees and revaluation results from previously held equity interest of RMB1.3 billion, and fair value changes of short-term investments of RMB342.6 million, and (iii) the increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in payables of RMB2.8 billion, including content costs, bonus and professional and technical charges and an increase in contract liabilities of RMB385.4 million, as well as a decrease in accounts receivable, prepayments and other current assets of RMB1.3 billion, partially offset by a decrease of tax payables of RMB917.6 million. 135 Table of Contents Net cash provided by operating activities was RMB24.9 billion for the year ended December 31, 2021.
Upon the VIEs reaching a cumulative level of profitability, because our China mainland subsidiaries own certain trademarks and copyrights, the agreements will be updated to reflect charges for such trademarks and copyrights usage on the basis that they will qualify for tax neutral treatment.
Upon the VIEs reaching a cumulative level of profitability, because our China mainland subsidiaries own certain trademarks and copyrights, the agreements will be updated to reflect charges for such trademarks and copyrights usage on the basis that they will qualify for tax neutral treatment. 139 Table of Contents (3) Certain of our subsidiaries and the VIEs qualify for a 15% preferential income tax rate in China.
As of December 31, 2022, total unrecognized compensation cost related to unvested awards granted under the 2009 RSU Plan and 2019 Share Plan, adjusted for estimated forfeitures, was RMB3,009.0 million (US$436.3 million), which is expected to be recognized through the remaining vesting period of each grant.
As of December 31, 2023, total unrecognized compensation cost related to unvested awards granted under the 2009 RSU Plan and 2019 Share Plan, adjusted for estimated forfeitures, was RMB2.6 billion (US$365.3 million), which is expected to be recognized through the remaining vesting period of each grant.
Net revenues from our in-house developed games (including certain games co-developed with our collaboration partners) increased by 9.9% to RMB59,838.7 million (US$8,675.8 million) in 2022 from RMB54,450.6 million in 2021 as a result of the expansion of our portfolio of both PC and mobile games and their increased popularity in 2022.
Net revenues from our in-house developed games (including certain games co-developed with our collaboration partners) increased by 9.9% to RMB59.8 billion in 2022 from RMB54.5 billion in 2021 as a result of the expansion of our portfolio of both PC and mobile games and their increased popularity in 2022.
Under current Chinese regulations, there are restrictions and prohibitions on foreign investment in Chinese companies providing, among other things, value-added telecommunications services, internet cultural services and internet publication services, which include the provision of online game, online education, online music and other internet content and services.
NetEase, Inc. conducts its business in China through its subsidiaries and the VIEs. Under current Chinese regulations, there are restrictions and prohibitions on foreign investment in Chinese companies providing, among other things, value-added telecommunications services, internet cultural services and internet publication services, which include the provision of online game, online education, online music and other internet content and services.
The increase in net revenues of this segment also resulted from an increase in revenue contribution by game related value-added services such as NetEase CC live streaming. Youdao Net revenues from our Youdao segment decreased by 6.4% to RMB5,013.2 million (US$726.8 million) in 2022 from RMB5,354.4 million in 2021.
The increase in net revenues of this segment also resulted from an increase in revenue contribution by game related value-added services such as NetEase CC live streaming. Youdao Net revenues from our Youdao segment decreased by 6.4% to RMB5.0 billion in 2022 from RMB5.4 billion in 2021.
As of December 31, 2022, these subsidiaries and VIEs had RMB112.7 billion (US$16.3 billion) in cash and cash equivalents, demand deposits and short-term and long-term time deposits. Our cash and cash equivalents, demand deposits and time deposits held outside of China are mainly denominated in U.S. dollars.
As of December 31, 2023, these subsidiaries and VIEs had RMB123.1 billion (US$17.3 billion) in cash and cash equivalents, demand deposits and short-term and long-term time deposits. Our cash and cash equivalents, demand deposits and time deposits held outside of China are mainly denominated in U.S. dollars.
Net revenues from licensed games increased by 9.8% to RMB9,171.2 million (US$1,329.7 million) in 2022 from RMB8,355.9 million in 2021, which was mainly attributable to increased popularity of certain licensed titles such as Sky . Net revenues generated from licensed games represented 9.5% each of our total net revenues in 2022 and 2021.
Net revenues from licensed games increased by 9.8% to RMB9.2 billion in 2022 from RMB8.4 billion in 2021, which was mainly attributable to increased popularity of certain licensed titles such as Sky . Net revenues generated from licensed games represented 9.5% each of our total net revenues in 2022 and 2021.
Our royalties and expenditures for licensed content commitments primarily relate to the costs of acquiring the rights to certain content by our online game business and online music business.
Our royalties and expenditures for licensed content commitments primarily relate to the costs of acquiring the rights to certain content by our online game business and online music business. Other commitments primarily consist of expenditures related to marketing and administration activities.
The following is a summary of cash transfers that have occurred between our subsidiaries and the VIEs: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ ​ RMB RMB RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Net cash paid by the VIEs to our subsidiaries under service agreements (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 Cash dividend paid to intra-Group company — (731,250) — Loans received from intra-Group companies 336,333 195,741 201,349 Loans repaid to intra-Group companies (72,444) (87,300) (306,797) Cash received from the VIEs to our subsidiaries for intra-Group financing 10,000 — — ​ 142 Table of Contents For any amounts owed by the VIEs to our China mainland subsidiaries under the VIE agreements, unless otherwise required by the PRC tax authorities, we are able to settle such amounts without limitations under the currently effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so.
The following is a summary of cash transfers that have occurred between our subsidiaries and the VIEs: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ 2023 ​ ​ RMB RMB RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Net cash paid by the VIEs to our subsidiaries under service agreements (59,439,552) (66,970,818) (73,298,667) Net cash (used in)/ provided by other transactions with intra-Group companies (283,621) 299,452 639,545 Cash dividend paid to intra-Group company (731,250) — — Loans received from intra-Group companies 195,741 201,349 209,735 Loans repaid to intra-Group companies (87,300) (306,797) (262,574) ​ For any amounts owed by the VIEs to our China mainland subsidiaries under the VIE agreements, unless otherwise required by the PRC tax authorities, we are able to settle such amounts without limitations under the currently effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so.
Cloud Music Our cost of revenues of Cloud Music consists primarily of content licensing fees paid to music labels, independent artists and other copy right partners, revenue sharing fees paid to live streaming performers and their agencies, advertising service-related costs, music and entertainment event related costs, depreciation of property, plant and equipment, professional fees, employee benefit expenses and payment channel fees.
Cloud Music Our cost of revenues of Cloud Music consists primarily of content licensing fees paid to music labels, independent artists and other copy right partners, revenue sharing fees paid to live streaming performers and their agencies, advertising service-related costs, music and entertainment event related costs, staff-related costs and professional fees.
Net cash used in investing activities was RMB7,078.3 million for the year ended December 31, 2021, which was mainly attributable to (i) placement/rollover of matured time deposits of RMB81,298.1 million, (ii) purchase of short-term investments of RMB15,285.0 million, (iii) investment in other equity investments and acquisition of subsidiaries of RMB5,417.1 million, (iv) purchase of property, equipment and software of RMB1,601.8 million, (v) purchase of intangible assets, content and licensed copyrights of RMB1,508.2 million, and (vi) investment in equity investees of RMB1,124.4 million, which were partially offset by (A) proceeds from maturity of time deposits of RMB81,307.3 million, (B) proceeds from maturity of short-term investments of RMB13,235.8 million, (C) net change in short-term investments with terms of three months or less of RMB3,694.9 million, and (D) proceeds from disposals of investment in equity investees, business and subsidiaries of RMB1,115.5 million.
Net cash used in investing activities was RMB7.1 billion for the year ended December 31, 2021, which was mainly attributable to (i) placement/rollover of matured time deposits of RMB81.3 billion, (ii) purchase of short-term investments of RMB15.3 billion, (iii) investment in other equity investments and acquisition of subsidiaries of RMB5.4 billion, (iv) purchase of property, equipment and software of RMB1.6 billion, (v) purchase of intangible assets, content and licensed copyrights of RMB1.5 billion, and (vi) investment in equity investees of RMB1.1 billion, which were partially offset by (i) proceeds from maturity of time deposits of RMB81.3 billion, (ii) proceeds from maturity of short-term investments of RMB13.2 billion, (iii) net change in short-term investments with terms of three months or less of RMB3.7 billion, and (iv) proceeds from disposals of investment in equity investees, business and subsidiaries of RMB1.1 billion.
As of December 31, 2022, there were RMB28.3 million (US$4.1 million) in unrecognized share-based compensation expenses related to such share options for which the service conditions were met and are expected to be recognized when the vesting conditions are achieved.
As of December 31, 2023, there were RMB21.0 million in unrecognized share-based compensation expenses related to such share options for which the service conditions were met and are expected to be recognized when the vesting conditions are achieved.
Net revenues from games and related value-added services, Youdao, Cloud Music and innovative businesses and others constituted 77.4%, 6.1%, 8.0% and 8.5%, respectively, of our total net revenues in 2021, compared with 79.7%, 4.3%, 6.6% and 9.4%, respectively, in 2020.
Net revenues from games and related value-added services, Youdao, Cloud Music and innovative businesses and others constituted 78.8%, 5.2%, 7.6% and 8.4%, respectively, of our total net revenues in 2023, compared with 77.3%, 5.2%, 9.3% and 8.2%, respectively, in 2022.
Hong Kong Our subsidiaries in Hong Kong were subject to income tax on their taxable income generated from operations in Hong Kong at a rate of 16.5%.
There are no withholding taxes in the BVI. Hong Kong Our subsidiaries in Hong Kong were subject to income tax on their taxable income generated from operations in Hong Kong at a rate of 16.5%.
The following table sets forth the net revenues and cost of revenues by segment for the period presented as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ 2022 ​ RMB RMB US$ ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ ​ ​ Games and related value-added services 67,819,288 74,566,471 10,811,122 Youdao 5,354,357 5,013,182 726,843 Cloud Music 6,997,622 8,992,221 1,303,749 Innovative businesses and others 7,434,759 7,923,935 1,148,863 Total net revenues 87,606,026 96,495,809 13,990,577 Cost of revenues: ​ ​ ​ Games and related value-added services (26,007,412) (27,784,419) (4,028,362) Youdao (2,448,146) (2,430,738) (352,424) Cloud Music (6,854,948) (7,699,103) (1,116,265) Innovative businesses and others (5,324,719) (5,815,423) (843,157) Total cost of revenues (40,635,225) (43,729,683) (6,340,208) ​ Net revenues Total net revenues increased by 10.1% to RMB96,495.8 million (US$13,990.6 million) in 2022 from RMB87,606.0 million in 2021.
Our effective tax rate in 2023 was 13.8% compared with 20.7% in 2022. 130 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth the net revenues and cost of revenues by segment for the period presented as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ RMB RMB ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ Games and related value-added services 67,819,288 74,566,471 Youdao 5,354,357 5,013,182 Cloud Music 6,997,622 8,992,221 Innovative businesses and others 7,434,759 7,923,935 Total net revenues 87,606,026 96,495,809 Cost of revenues: ​ ​ Games and related value-added services (26,007,412) (27,784,419) Youdao (2,448,146) (2,430,738) Cloud Music (6,854,948) (7,699,103) Innovative businesses and others (5,324,719) (5,815,423) Total cost of revenues (40,635,225) (43,729,683) ​ Net Revenues Total net revenues increased by 10.1% to RMB96.5 billion in 2022 from RMB87.6 billion in 2021.
For the years ended December 31, 2020, 2021 and 2022, we recorded share-based compensation cost of approximately RMB2,663.5 million, RMB3,041.5 million and RMB3,174.2 million (US$460.2 million), respectively, for awards granted under the 2009 RSU Plan and 2019 Share Plan, as well as the other share incentive plans discussed as below.
For the years ended December 31, 2021, 2022 and 2023, we recorded share-based compensation cost of approximately RMB3.0 billion, RMB3.2 billion and RMB3.2 billion (US$456.7 million), respectively, for awards granted under the 2009 RSU Plan and 2019 Share Plan, as well as the other share incentive plans discussed as below.
To make judgements as to whether a decline in value of equity method investments was other than temporary, we mainly consider the length of time and the extent to which the market value has been less than cost and the financial condition and near-term prospects of the investee. ​ Changes in assumptions or estimates can materially affect the fair value measurement of the investment and, therefore, can affect the test results.
To make judgements as to whether a decline in value of equity method investments was other than temporary, we mainly consider the length of time and the extent to which the market value has been less than cost and the financial condition and near-term prospects of the investee.
Critical Accounting Estimates The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements, which have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”).
Critical Accounting Estimates The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
As of December 31, 2022, the total liabilities of the consolidated VIEs were RMB20.5 billion (US$3.0 billion), mainly comprising accounts payable, deferred revenue, amounts due to group companies and accrued liabilities and other payables. We believe that our present operations are structured to comply with the relevant Chinese laws.
As of December 31, 2023, the total liabilities of the consolidated VIEs were RMB20.1 billion (US$2.8 billion), mainly comprising accounts payable, contract liabilities, amounts due to group companies and accrued liabilities and other payables. 119 Table of Contents We believe that our present operations are structured to comply with the relevant Chinese laws.
For the years ended December 31, 2020, 2021 and 2022, we recorded share-based compensation costs of RMB117.7 million, RMB528.2 million and RMB327.9 million (US$47.5 million), respectively under these plans.
For the years ended December 31, 2021, 2022 and 2023, we recorded share-based compensation costs of RMB528.2 million, RMB327.9 million and RMB289.0 million, respectively under these plans.
Net cash used in financing activities was RMB12,585.6 million for the year ended December 31, 2021, which was mainly attributable to (i) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares totaling of RMB12,910.5 million and (ii) dividends paid to our shareholders and noncontrolling interest shareholders which totaled RMB4,239.6 million, which were partially offset by net proceeds received from capital injection from noncontrolling interest shareholders of RMB2,870.1 million and net proceeds from short-term and long-term loans of RMB1,708.2 million.
Net cash used in financing activities was RMB10.2 billion for the year ended December 31, 2022, which was mainly attributable to (i) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares totaling of RMB8.3 billion and (ii) dividends paid to our shareholders which totaled RMB6.7 billion, which were partially offset by net proceeds from short-term and long-term loans of RMB4.8 billion. 136 Table of Contents Net cash used in financing activities was RMB12.6 billion for the year ended December 31, 2021, which was mainly attributable to (i) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares totaling of RMB12.9 billion and (ii) dividends paid to our shareholders and noncontrolling interest shareholders which totaled RMB4.2 billion, which were partially offset by net proceeds received from capital injection from noncontrolling interest shareholders of RMB2.9 billion and net proceeds from short-term and long-term loans of RMB1.7 billion.
Games and Related Value-added Services Cost of revenues from our games and related value-added services increased by 6.8% to RMB27,784.4 million (US$4,028.4 million) in 2022 from RMB26,007.4 million in 2021.
Games and Related Value-added Services Cost of revenues from our games and related value-added services increased by 6.8% to RMB27.8 billion in 2022 from RMB26.0 billion in 2021.
Interest income increased to RMB2,149.7 million (US$311.7 million) in 2022 from RMB1,519.7 million in 2021, among which, we incurred interest expenses of RMB650.2 million (US$94.3 million) in 2022 related to our short-term and long-term loans.
Interest income increased to RMB2.1 billion in 2022 from RMB1.5 billion in 2021, among which, we incurred interest expenses of RMB650.2 million in 2022 related to our short-term and long-term loans.
Cloud Music Cloud Music’s revenue is primarily generated from (i) online music services through the sales of membership subscriptions in various content and service packages and (ii) social entertainment services and others mainly through the sale of virtual items.
Cloud Music Cloud Music’s revenue is primarily generated from (i) online music services through the sales of membership subscriptions in various content and service packages and (ii) social entertainment services and others mainly through the sale of virtual items. Innovative Businesses and Others We derive our innovative businesses and others revenues primarily from e-commerce, advertising services and other value-added services.
Other Income/(Expenses) The following table sets forth our other income/(expenses) for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ 2022 ​ ​ RMB RMB US$ ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Investment income, net 2,947,721 53,976 7,826 Interest income, net 1,519,714 2,149,673 311,673 Exchange (losses)/ gains, net (490,481) 1,571,207 227,804 Other, net 710,435 846,815 122,777 ​ Other income/(expenses) in 2022 mainly consisted of investment income related to short-term investments, interest income, government incentives, net foreign exchange gains, impairment provisions related to certain equity investments, net investment gain in equity method investees, disposal gains of equity investments and fair value change related to our equity investments with readily determinable fair value.
Research and development expenses increased by 6.8% to RMB15.0 billion in 2022 from RMB14.1 billion in 2021, primarily due to an increase in staff-related costs, which was partially offset by decreased outsourcing game development expenses. 133 Table of Contents Other Income/(Expenses) The following table sets forth our other income/(expenses) for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 2022 ​ ​ RMB ​ RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ Investment income, net 2,947,721 53,976 Interest income, net 1,519,714 2,149,673 Exchange (losses)/gains, net (490,481) 1,571,207 Other, net 710,435 846,815 ​ Other income/(expenses) mainly consisted of investment income related to short-term investments, interest income, government incentives, net foreign exchange (losses)/gains, impairment provisions related to certain equity investments, net investment gain in equity method investees, disposal gains of equity investments and fair value change related to our equity investments with readily determinable fair value.
In 2020, 2021 and 2022, we accrued RMB1,056.9 million, RMB1,124.4 million and RMB2,144.4 million (US$310.9 million) withholding tax liabilities, respectively, mainly associated with our quarterly dividends and cash expected to be distributed from our China mainland subsidiaries to companies in our corporate group outside of China for general corporate purposes.
In 2021, 2022 and 2023, we accrued RMB1.1 billion, RMB2.1 billion and RMB1.5 billion (US$214.7 million) withholding tax liabilities, respectively, mainly associated with dividends expected to be distributed from our China mainland subsidiaries to companies in our corporate group outside of China for general corporate purposes.
Investing Activities Net cash used in investing activities was RMB7,369.7million (US$1,068.5 million) for the year ended December 31, 2022, which was mainly attributable to (i) placement/rollover of matured time deposits of RMB98,973.9 million (US$14,349.9 million), (ii) purchase of short-term investments of RMB5,950.0 million (US$862.7 million), (iii) investment in other equity investments and acquisition of subsidiaries of RMB4,423.8 million (US$641.4 million), (iv) purchase of property, equipment and software of RMB2,100.3 million (US$304.5 million), (v) investment in equity investees of RMB705.9 million (US$102.3 million), and (vi) purchase of intangible assets, content and licensed copyrights of RMB543.2 million (US$78.8 million), which were partially offset by (A) proceeds from maturity of time deposits of RMB92,247.0 million (US$13,374.6 million), (B) proceeds from maturity of short-term investments of RMB10,175.2 million (US$1,475.3 million), (C) proceeds from disposals of investment in equity investees, business and subsidiaries of RMB2,411.1 million (US$349.6 million), and (D) net change in short-term investments with terms of three months or less of RMB776.4 million (US$112.6 million).
Net cash used in investing activities was RMB7.4 billion for the year ended December 31, 2022, which was mainly attributable to (i) placement/rollover of matured time deposits of RMB99.0 billion, (ii) purchase of short-term investments of RMB6.0 billion, (iii) investment in other equity investments and acquisition of subsidiaries of RMB4.4 billion, (iv) purchase of property, equipment and software of RMB2.1 billion, (v) investment in equity investees of RMB705.9 million, and (vi) purchase of intangible assets, content and licensed copyrights of RMB543.2 million, which were partially offset by (i) proceeds from maturity of time deposits of RMB92.2 billion, (ii) proceeds from maturity of short-term investments of RMB10.2 billion, (iii) proceeds from disposals of investment in equity investees, business and subsidiaries of RMB2.4 billion, and (iv) net change in short-term investments with terms of three months or less of RMB776.4 million.
The decrease was mainly due to the conclusion of its Academic AST Business, which was partially offset by increased revenue contribution from its new services and products. 130 Table of Contents Cloud Music Net revenues from our Cloud Music segment increased by 28.5% to RMB8,992.2 million (US$1,303.7 million) in 2022 from RMB6,997.6 million in 2021.
The decrease was mainly due to the conclusion of its Academic AST Business, which was partially offset by increased revenue contribution from its new services and products. 131 Table of Contents Cloud Music Net revenues from our Cloud Music segment increased by 28.5% to RMB9.0 billion in 2022 from RMB7.0 billion in 2021.
In 2021, costs relating to games and related value-added services, Youdao, Cloud Music and innovative businesses and others represented 64.0%, 6.0%, 16.9% and 13.1% of total cost of revenues, respectively, as compared with 65.5%, 4.9%, 15.8% and 13.8% of the total cost of revenues, respectively, in 2020.
In 2023, costs relating to games and related value-added services, Youdao, Cloud Music and innovative businesses and others represented 64.2%, 6.5%, 14.3% and 15.0% of total cost of revenues, respectively, as compared with 63.5%, 5.6%, 17.6% and 13.3% of the total cost of revenues, respectively, in 2022.
We have successfully developed industry-leading proprietary game, big data and other technologies and integrate these technologies into our products and services, and we will continue to significantly invest in developing and upgrading our technology with a focus on optimizing our products and services and delivering a superior and differentiated user experience.
We have successfully developed industry-leading proprietary game, big data and other technologies and integrate these technologies into our products and services, and we will continue to significantly invest in developing and upgrading our technology with a focus on optimizing our products and services and delivering a superior and differentiated user experience. 120 Table of Contents Our ability to manage our costs and expenses effectively across all business segments Our results of operations are affected by our ability to effectively control our costs and expenses across all of our business segments.
In 2020 and 2021, Youdao’s Academic AST Business contributed RMB640.7 million and RMB1,338.6 million, which accounted for approximately 20.2% and 25.0% of Youdao’s total revenues for those periods, respectively, and 0.9% and 1.5% of our total net revenues for those periods, respectively. Youdao ceased offering its Academic AST Business at the end of December 2021.
In 2021, Youdao’s Academic AST Business contributed RMB1.3 billion, which accounted for approximately 25.0% of Youdao’s total revenues for the period, and 1.5% of our total net revenues for the period. Youdao ceased offering its Academic AST Business at the end of December 2021.
Innovative Businesses and Others Net revenues from the innovative businesses and others segment increased by 6.6% to RMB7,923.9 million (US$1,148.9 million) in 2022 from RMB7,434.8 million in 2021.
Innovative Businesses and Others Net revenues from the innovative businesses and others segment increased by 6.6% to RMB7.9 billion in 2022 from RMB7.4 billion in 2021.
In addition, if any of our China mainland subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. 140 Table of Contents Furthermore, any transfer of funds from us to any of our China mainland subsidiaries or the VIEs, either as a shareholder loan or as an increase in registered capital, is subject to certain statutory limit requirements and registration or approval of the relevant PRC governmental authorities, including the relevant administration of foreign exchange and/or the relevant examining and approval authority.
Furthermore, any transfer of funds from us to any of our China mainland subsidiaries or the VIEs, either as a shareholder loan or as an increase in registered capital, is subject to certain statutory limit requirements and registration or approval of the relevant PRC governmental authorities, including the relevant administration of foreign exchange and/or the relevant examining and approval authority.
Our e-commerce business revenues are relatively lower during the Chinese New Year holiday season in the first quarter of each year, while sales in the fourth quarter are higher than each of the preceding three quarters due to a variety of promotional activities conducted by retail and e-commerce businesses in China. 125 Table of Contents Cost of Revenues The following table sets forth our cost of revenues by segment for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ 2022 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Cost of revenues: ​ ​ ​ ​ ​ ​ ​ ​ Games and related value-added services (22,730,558) (26,007,412) (27,784,419) (4,028,362) Youdao (1,713,229) (2,448,146) (2,430,738) (352,424) Cloud Music ​ (5,491,066) ​ (6,854,948) ​ (7,699,103) ​ (1,116,265) Innovative businesses and others (4,748,878) ​ (5,324,719) ​ (5,815,423) (843,157) Total cost of revenues (34,683,731) (40,635,225) (43,729,683) (6,340,208) ​ Games and Related Value-added Services Cost of revenues for our games and related value-added services consists primarily of revenue sharing costs paid to distribution channel providers, game developers and broadcasters, staff-related costs, royalties and consultancy fees related to our licensed games, server and bandwidth service fees, service fees related to online payments, depreciation and amortization of servers, computers and software and other direct costs of providing these services.
Our e-commerce business revenues are relatively lower during the Chinese New Year holiday season in the first quarter of each year, while sales in the fourth quarter are higher than each of the preceding three quarters due to a variety of promotional activities conducted by retail and e-commerce businesses in China. 122 Table of Contents Cost of Revenues The following table sets forth our cost of revenues by segment for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 2022 2023 2023 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Cost of revenues: ​ ​ ​ ​ ​ ​ ​ ​ Games and related value-added services ​ (26,007,412) ​ (27,784,419) ​ (25,938,865) ​ (3,653,413) Youdao (2,448,146) (2,430,738) (2,621,746) (369,265) Cloud Music ​ (6,854,948) ​ (7,699,103) ​ (5,764,322) ​ (811,888) Innovative businesses and others (5,324,719) ​ (5,815,423) ​ (6,079,832) (856,326) Total cost of revenues (40,635,225) (43,729,683) (40,404,765) (5,690,892) ​ Games and Related Value-added Services Cost of revenues for our games and related value-added services consists primarily of revenue sharing costs paid to platforms, game developers, content providers and performers, staff-related costs, royalties related to licensed games, server and bandwidth service fees and other direct costs of providing these services.
Youdao Cost of revenues from Youdao decreased by 0.7% to RMB2,430.7 million (US$352.4 million) in 2022 from RMB2,448.1 million in 2021, which was primarily attributable to decreased staff-related costs, partially offset by the increased cost of smart devices sold.
Youdao Cost of revenues from Youdao was RMB2.4 billion for each of 2022 and 2021. The slight decrease of 0.7% was primarily attributable to decreased staff-related costs, partially offset by the increased cost of smart devices sold.
Operating Expenses The following table sets forth the principal components of our operating expenses for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2020 ​ 2021 ​ 2022 ​ 2022 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses (10,703,788) (12,214,191) (13,402,721) (1,943,212) General and administrative expenses (3,371,827) (4,263,549) (4,695,798) (680,827) Research and development expenses (10,369,382) (14,075,991) (15,039,014) (2,180,452) Total operating expenses (24,444,997) (30,553,731) (33,137,533) (4,804,491) ​ Operating expenses include selling and marketing expenses, general and administrative expenses and research and development expenses. 126 Table of Contents Selling and Marketing Expenses Selling and marketing expenses consist primarily of staff-related costs for our sales and marketing staff, shipping and handling costs, and marketing and advertising expenses payable to third-party vendors, internet companies and agents.
Operating Expenses The following table sets forth the principal components of our operating expenses for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2021 2022 2023 2023 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses ​ (12,214,191) ​ (13,402,721) ​ (13,969,460) ​ (1,967,557) General and administrative expenses (4,263,549) (4,695,798) (4,899,880) (690,134) Research and development expenses (14,075,991) (15,039,014) (16,484,910) (2,321,851) Total operating expenses (30,553,731) (33,137,533) (35,354,250) (4,979,542) ​ Operating expenses include selling and marketing expenses, general and administrative expenses and research and development expenses. 123 Table of Contents Selling and Marketing Expenses Selling and marketing expenses consist primarily of staff-related costs for our sales and marketing staff, shipping and handling costs, and marketing and advertising expenses payable to third-party vendors, internet companies and agents.
The following table sets forth our operating expenses for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ 2022 ​ ​ RMB RMB US$ ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses (12,214,191) (13,402,721) (1,943,212) General and administrative expenses (4,263,549) (4,695,798) (680,827) Research and development expenses (14,075,991) (15,039,014) (2,180,452) Total operating expenses (30,553,731) (33,137,533) (4,804,491) ​ Selling and marketing expenses increased by 9.7% to RMB13,402.7 million (US$1,943.2 million) in 2022 from RMB12,214.2 million in 2021, primarily due to increased marketing spending on online games, Cloud Music and Yanxuan. 132 Table of Contents General and administrative expenses increased by 10.1% to RMB4,695.8 million (US$680.8 million) in 2022 from RMB4,263.5 million in 2021, primarily due to an increase in staff-related costs driven by higher compensation levels and increased headcount, which was partially offset by decreased expected credit losses on our accounts receivables.
The following table sets forth our operating expenses for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2022 ​ RMB RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ Selling and marketing expenses (12,214,191) (13,402,721) General and administrative expenses (4,263,549) (4,695,798) Research and development expenses (14,075,991) (15,039,014) Total operating expenses (30,553,731) (33,137,533) ​ Selling and marketing expenses increased by 9.7% to RMB13.4 billion in 2022 from RMB12.2 billion in 2021, primarily due to increased marketing spending on online games, Cloud Music and Yanxuan.
Although NetEase, Inc. and its subsidiaries are the primary beneficiaries of the VIEs through contractual arrangements, they are not able to make direct capital contributions to the VIEs and their subsidiaries. However, they may transfer cash to the VIEs by loans or by making payment to the VIEs for inter-group transactions.
Although NetEase, Inc. and its subsidiaries are the primary beneficiaries of the VIEs through contractual arrangements, they are not able to make direct capital contributions to the VIEs and their subsidiaries.
China The PRC Enterprise Income Tax Law subjects Foreign Invested Enterprises (“FIEs”) and domestic companies to EIT at a uniform rate of 25%, and preferential tax treatments may be granted to FIEs or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as HNTEs, “Software Enterprises” or “Key Software Enterprises.” Boguan, NetEase Hangzhou and certain of our other China mainland subsidiaries were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2020, 2021 and 2022.
China The PRC Enterprise Income Tax Law subjects foreign invested enterprises and domestic companies to EIT at a uniform rate of 25%, and preferential tax treatments may be granted to foreign invested enterprises or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as HNTEs.
Innovative Businesses and Others Cost of revenues from our innovative businesses and others increased by 9.2% to RMB5,815.4 million (US$843.2 million) in 2022 from RMB5,324.7 million in 2021.
Innovative Businesses and Others Cost of revenues from our innovative businesses and others increased by 9.2% to RMB5.8 billion in 2022 from RMB5.3 billion in 2021.
The difference between our net income operations of RMB12,330.2 million and the net cash provided by operating activities was primarily due to (i) the adjustment of non-cash items, mainly including adding back the depreciation and amortization charges of RMB3,457.8 million, unrealized exchange loss of RMB3,102.5 million and share-based compensation cost of RMB2,663.5 million, partially offset by fair value change of equity security investments of RMB720.6 million, fair value changes of short-term investments of RMB580.7 million and share of results on equity method investees and revaluation results from previously held equity interest of RMB302.6 million, and (ii) the increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in contract liabilities of RMB2,342.9 million, an increase in payables of RMB1,816.2 million, including content costs, bonus and professional and technical charges and an increase in tax payables of RMB1,126.6 million, partially offset by an increase in accounts receivable, prepayments and other current assets of RMB544.0 million.
The difference between our net income of RMB29.4 billion (US$4.1 billion) and the net cash provided by operating activities was primarily due to (i) the adjustment of non-cash items, mainly including adding back share-based compensation cost of RMB3.2 billion (US$456.7 million), depreciation and amortization charges of RMB3.1 billion (US$430.3 million), and impairment losses on investments and other long-term assets of RMB469.2 million (US$66.1 million), partially offset by gains on fair value change of equity security investments of RMB535.3 million (US$75.4 million), share of results on equity method investees and revaluation results from previously held equity interest of RMB473.9 million (US$66.8 million), fair value changes of short-term investments of RMB414.2 million (US$58.3 million), and (ii) an increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in contract liabilities of RMB1.2 billion (US$163.6 million) and an increase in payables of RMB544.3 million (US$76.7 million), including content costs, bonus and professional and technical charges, partially offset by a decrease in accounts receivable of RMB1.5 billion (US$207.1 million).
“Additional Information—Exchange Controls.” CAPITAL EXPENDITURES Our capital requirements relate primarily to financing: ● our working capital requirements, such as servers and bandwidth service fees, inventory purchase costs, content and copyrights purchase costs, staff costs, selling and marketing expenses and research and development costs; and ● costs incurred for the construction of our new office buildings and warehouses in Guangzhou, Hangzhou, Shanghai and Jiangxi in China, acquisition of new servers in connection with the operation of our in-house developed and licensed games, investment in the expansion packages of the aforementioned games, and upgrades of our online service infrastructure.
“Additional Information—Exchange Controls.” 137 Table of Contents CAPITAL EXPENDITURES Our capital requirements relate primarily to financing: ● our working capital requirements, such as servers and bandwidth service fees, inventory purchase costs, content and copyrights purchase costs, staff costs, selling and marketing expenses and R&D costs; and ● costs incurred for the construction of our new office buildings in Guangzhou, Hangzhou and Shanghai in China, and acquisition of new servers and other facilities.
Our ability to grow our user base and drive user engagement and loyalty We have built a massive and highly engaged user base across our business segments. We generate a substantial part of our revenues through sales of in-game virtual items and play time, merchandise sales, music streaming, advertising services and tuition fees for online courses.
We generate a substantial part of our revenues through sales of in-game virtual items and play time, merchandise sales, music streaming, advertising services and tuition fees for online courses.

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Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeThe Bank of New York Mellon, depositary of our ADS program, held 503,419,915 ordinary shares as of that date (including ordinary shares that were issued for issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our Share Incentive Plans and shares underlying treasury ADSs that were repurchased but not canceled by our company), which accounted for 15.6% of our issued ordinary shares.
Biggest changeThe Bank of New York Mellon, depositary of our ADS program, held 498,561,420 outstanding ordinary shares as of that date, which accounted for 15.5% of our total issued and outstanding ordinary shares (excluding 107,096,010 ordinary shares being the total of ordinary shares issued and held by The Bank of New York Mellon, which were reserved for future delivery upon vesting of share awards granted under our Share Plans, and the ordinary shares underlying our treasury ADSs).
Board Practices At each annual general meeting of our shareholders, our shareholders are asked to elect the directors nominated to serve for the ensuing year until the next annual general meeting of shareholders and until their successors are elected and duly qualified, or until such directors are otherwise vacated in accordance with the Company’s Memorandum and Articles of Association.
Board Practices At each annual general meeting of our shareholders, our shareholders are asked to elect the directors nominated to serve for the ensuing year until the next annual general meeting of shareholders and until their successors are elected and duly qualified, or until such directors are otherwise vacated in accordance with our company’s memorandum and articles of association.
Each of our non-executive directors has been determined by our board to be “independent” under applicable U.S. regulations, as that term is defined in NASDAQ Marketplace Rule 5606(a)(2) and acts as an “independent non-executive director” of the company for the purpose of the Hong Kong Listing Rules.
Each of our non-executive directors has been determined by our board to be “independent” under applicable U.S. regulations, as that term is defined in NASDAQ Marketplace Rule 5606(a)(2) and acts as an “independent non-executive director” of our company for the purpose of the Hong Kong Listing Rules.
Tong was engaged in establishing offices and operations in Hong Kong and China, setting up accounting and internal control policies and overseeing the overall operations for TLM Apparel Co., Ltd., a garment trading company operating in Hong Kong and China which he co-founded. Prior to that, from September 2000 to September 2002, Mr.
Tong was engaged in establishing offices and operations in Hong Kong and China mainland, setting up accounting and internal control policies and overseeing the overall operations for TLM Apparel Co., Ltd., a garment trading company operating in Hong Kong and China mainland which he co-founded. Prior to that, from September 2000 to September 2002, Mr.
The board of directors has adopted a written audit committee charter pursuant to which the audit committee is responsible for overseeing our accounting and financial reporting processes, including the appointment, compensation and oversight of the work of our independent auditors, monitoring compliance with our accounting and financial policies and evaluating management’s procedures and policies relative to the adequacy of our internal accounting controls.
The board of directors has adopted a written audit committee charter pursuant to which the audit committee is responsible for overseeing our accounting and financial reporting processes, including the appointment, compensation and oversight of the work of our independent auditors, monitoring compliance with our accounting and financial policies, and related legal and regulatory requirements, and evaluating management’s procedures and policies relative to the adequacy of our internal accounting controls.
The board of directors has adopted a written nominating committee charter pursuant to which the nominating committee is responsible for monitoring the size and composition of our board and considering and making recommendations to our board with respect to the nominations or elections of directors of our company.
The board of directors has adopted a written nominating committee charter pursuant to which the nominating committee is responsible for, among other things, monitoring the size and composition of our board and considering and making recommendations to our board with respect to the nominations or elections of directors of our company.
Share Ownership The table in this section sets forth certain information known to us with respect to the beneficial ownership as of March 31, 2023 (unless otherwise indicated) by: ● all persons who are beneficial owners of 5% or more of our ordinary shares, ● each of our directors, ● our Chief Executive Officer and Chief Financial Officer, and ● all current directors and executive officers as a group.
Share Ownership The table in this section sets forth certain information known to us with respect to the beneficial ownership as of March 31, 2024 (unless otherwise indicated) by: ● all persons who are beneficial owners of 5% or more of our ordinary shares, ● each of our directors, ● each of our current executive officers, and ● all current directors and executive officers as a group.
The Share Plans are not subject to the Employee Retirement Income Security Act of 1974, as amended, and neither of the Share Plans a “qualified plan” within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended.
The Share Plans are not subject to the Employee Retirement Income Security Act of 1974, as amended, and neither of the Share Plans a “qualified plan” within the meaning of Section 401(a) of the Code.
As of March 31, 2023, there were four ordinary shareholders of record with an address in the United States.
As of March 31, 2024, there were four ordinary shareholders of record with an address in the United States.
Mr. Leung was appointed executive director of Unitas Holdings Limited (stock code: 8020) from September 2011 to November 2018, and served as a responsible officer from May 2011 to November 2018 of Chanceton Capital Partners Limited, a subsidiary of Unitas Holdings Limited. Previously, Mr.
Leung was a responsible officer of Grand Moore Capital Limited from September 2019 to November 2021. Mr. Leung was appointed executive director of Unitas Holdings Limited (stock code: 8020) from September 2011 to November 2018, and served as a responsible officer from May 2011 to November 2018 of Chanceton Capital Partners Limited, a subsidiary of Unitas Holdings Limited. Previously, Mr.
The awards under the Youdao Plans, the Cloud Music Plans and such other plans 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.
The awards under the 2015 Youdao Plan, the Cloud Music Plans and such other plans expire in four to seven years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met.
“Directors, Senior Management and Employees—Directors and Senior Management.” We have no specific policy with respect to director attendance at our annual general meetings of shareholders, and no director attended the annual general meeting of shareholders held on June 16, 2022.
“Directors, Senior Management and Employees—Directors and Senior Management.” We have no specific policy with respect to director attendance at our annual general meetings of shareholders, and no director attended the annual general meeting of shareholders held on June 15, 2023.
Tang was responsible for the audits of numerous public and private companies in Hong Kong, Chinese mainland and other jurisdictions. Since 2009, she has also been a professor at the Guanghua School of Management of Peking University where she teaches courses on accounting and auditing for the graduate school of the accounting department and on career development. In addition, Ms.
Tang was responsible for the audits of numerous public and private companies in Hong Kong, China mainland, the United States and other jurisdictions. Since 2009, she has also been a professor at the Guanghua School of Management of Peking University where she teaches courses on accounting and auditing for the graduate school of the accounting department and on career development.
Tang is a US certified public accountant and a fellow of the Hong Kong Institute of Certified Public Accountants. 153 Table of Contents Joseph Tze Kay Tong , also known as Joseph Tong , has served as our director since March 2003. From January 2003 to November 2021, Mr.
Tang is a U.S. certified public accountant and a fellow of the Hong Kong Institute of Certified Public Accountants. 150 Table of Contents Joseph Tze Kay Tong , also known as Joseph Tong , has served as a director of our company since March 2003. From January 2003 to November 2021, Mr.
Director Indemnification Agreements All of our current directors have entered into indemnification agreements in which we agree to indemnify, to the fullest extent allowed by Cayman Islands law, our charter documents or other applicable law, those directors from any liability or expenses, unless the liability or expense arises from the director’s own willful negligence or willful default.
Indemnification Agreements All of our current directors and executive officers have entered into indemnification agreements in which we agree to indemnify, to the fullest extent allowed by Cayman Islands law, our charter documents or other applicable law, those persons from any liability or expenses, unless the liability or expense arises from such person’s own willful negligence or willful default.
The awards can become 100% vested on the vesting commencement date, or vest in three, four or five substantially equal annual installments with the first installment vesting on the vesting commencement date. 157 Table of Contents C.
The awards can become 100% vested on the vesting commencement date, or vest in two, three, four or five substantially equal annual installments with the first installment vesting on the vesting commencement date. C.
Each employee signs a confidentiality agreement in respect of our intellectual property rights. E.
Each employee signs a confidentiality agreement in respect of our intellectual property rights. 156 Table of Contents E.
The 2019 Share Plan provides that in the event of certain corporate transactions, including specified types of mergers and acquisition transactions, the administrator may (a) accelerate the vesting, in whole or in part, of any award; (b) purchase any award for an amount of cash or ordinary shares of our company equal to the value that could have been attained upon the exercise of the award or the realization of the plan participant’s rights had the award been currently fully vested; or (c) provide for the assumption, conversion or replacement of any award by the successor corporation, or a parent or subsidiary of the successor corporation, with other rights or property selected by the plan administrator in its sole discretion, or the assumption or substitution of the award by the successor or surviving corporation, or a parent or subsidiary of the surviving or successor corporation, with appropriate adjustments as to the number and kind of shares and prices as the plan administrator deems, in its sole discretion, reasonable, equitable and appropriate.
The 2019 Share Plan provides that in the event of certain corporate transactions, including specified types of mergers and acquisition transactions, the administrator may (a) accelerate the vesting, in whole or in part, of any award; (b) purchase any award for an amount of cash or ordinary shares of our company equal to the value that could have been attained upon the exercise of the award or the realization of the plan participant’s rights had the award been currently fully vested; or (c) provide for the assumption, conversion or replacement of any award by the successor corporation, or a parent or subsidiary of the successor corporation, with other rights or property selected by the plan administrator in its sole discretion, or the assumption or substitution of the award by the successor or surviving corporation, or a parent or subsidiary of the surviving or successor corporation, with appropriate adjustments as to the number and kind of shares and prices as the plan administrator deems, in its sole discretion, reasonable, equitable and appropriate. 153 Table of Contents Eligibility Awards can be issued to participants in the Share Plans, which include employees, directors or consultants of us, our subsidiaries, the VIEs and certain other related entities.
Biographical Information Lei Ding , also known as William Lei Ding, our founder, has served as our director since July 1999 and as our chief executive officer since November 2005. From March 2001 until November 2005, Mr.
Biographical Information Lei Ding , also known as William Lei Ding, our founder, has served as a director of our company since July 1999 and as Chief Executive Officer for the NetEase group since November 2005. From March 2001 until November 2005, Mr.
The Share Plans provide for the granting of incentive awards of restricted share units, which may or may not be granted with dividend equivalent rights, and the 2019 Share Plan also provides for the granting of share option awards. Participants under the Share Plans do not receive any account status reports.
The Share Plans provide for the granting of incentive awards of restricted share units, which may or may not be granted with dividend equivalent rights, and the 2019 Share Plan also provides for the granting of share option awards.
Board Diversity ​ ​ ​ Board Diversity Matrix (As of March 31, 2023) Country of Principal Executive Offices China ​ ​ ​ Foreign Private Issuer Yes ​ ​ ​ Disclosure Prohibited under Home Country Law No ​ ​ ​ Total Number of Directors 5 ​ ​ ​ ​ Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 3 - - Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction - LGBTQ+ - Did Not Disclosure Demographic Background - ​ 154 Table of Contents B.
None of our directors were nominated pursuant to a contractual or other right. 151 Table of Contents Board Diversity ​ ​ ​ Board Diversity Matrix (As of March 31, 2024) Country of Principal Executive Offices China ​ ​ ​ Foreign Private Issuer Yes ​ ​ ​ Disclosure Prohibited under Home Country Law No ​ ​ ​ Total Number of Directors 5 ​ ​ ​ ​ Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 3 - - Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction - LGBTQ+ - Did Not Disclose Demographic Background - ​ B.
A substantial majority of our employees are based in China. We believe that we have a good working relationship with our employees, and we have not experienced any significant labor disputes. ​ The following table sets forth information regarding our staff as of December 31, 2022.
We believe that we have a generally good working relationship with our employees, and we have not experienced any significant labor disputes. The following table sets forth information regarding our staff as of December 31, 2023.
Cheng is also licensed as a certified public accountant in Taiwan and the PRC. Grace Hui Tang has served as our director since July 2022. Ms. Tang worked at PricewaterhouseCoopers for more than 30 years, including approximately 19 years as an audit partner in Hong Kong and Chinese mainland, until her retirement in 2020. At PricewaterhouseCoopers, Ms.
Grace Hui Tang , also known as Grace Tang , has served as a director of our company since July 2022. Ms. Tang worked at PricewaterhouseCoopers for more than 30 years, including approximately 19 years as an audit partner in Hong Kong and Chinese mainland, until her retirement in 2020. At PricewaterhouseCoopers, Ms.
The company has received an annual confirmation on his/her “independence” from each of the non-executive directors, addressing the factors set out in Rule 3.13 of the Hong Kong Listing Rules, and our board continues to consider all of them to be “independent.” Our board has four committees, the audit committee, the compensation committee, the nominating committee and the ESG committee.
Our company has received an annual confirmation on his/her “independence” from each of the non-executive directors, addressing the factors set out in Rule 3.13 of the Hong Kong Listing Rules, and our board continues to consider all of them to be “independent.” We do not have service contracts with any of our directors which provide for benefits upon termination. 155 Table of Contents Our board has four committees, the audit committee, the compensation committee, the nominating committee and the ESG committee.
Payment of Taxes No ordinary shares shall be delivered under the Share Plans to any participant or other person until such participant or other person has made arrangements acceptable to us regarding payment of Chinese, Cayman Islands, U.S. and any other federal, state, provincial, local or other taxes required by law.
After any such transfer, the original recipient shall continue to remain subject to the withholding tax requirements described below. 154 Table of Contents Payment of Taxes No ordinary shares shall be delivered under the Share Plans to any participant or other person until such participant or other person has made arrangements acceptable to us regarding payment of Chinese, Cayman Islands, U.S. and any other federal, state, provincial, local or other taxes required by law.
The 2019 Share Plan provides that the maximum exercisable term of share option awards is ten years from the date of a grant. 156 Table of Contents Conditions of Awards Our board, either acting directly or through our compensation committee or one or more of our officers, is authorized to determine the provisions, terms and conditions of each award, including, without limitation, the award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, settlement of the award, payment contingencies and satisfaction of any performance criteria established by our board.
Conditions of Awards Our board, either acting directly or through our compensation committee or one or more of our officers, is authorized to determine the provisions, terms and conditions of each award, including, without limitation, the award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, settlement of the award, payment contingencies and satisfaction of any performance criteria established by our board.
The 2009 RSU Plan expired in November 2019 in accordance with its terms. The 2019 Share Plan will expire in February 2033.
The 2009 RSU Plan expired in November 2019 in accordance with its terms. The 2019 Share Plan, amended and restated and effective on February 22, 2023, will expire in February 2033.
Our R&D staff consisted of 15,211 employees as of December 31, 2022. ​ ​ ​ ​ Games and related value-added services ​ 17,699 Youdao ​ 5,068 Cloud Music ​ 1,540 Innovative businesses and others 6,812 Total 31,119 ​ All employees of our company, subsidiaries and the VIEs are employed under employment contracts which specify, among other things, the employee’s responsibilities, remuneration and grounds for termination of employment.
Our R&D staff consisted of 51% of our total employees as of December 31, 2023. ​ ​ ​ ​ Games and related value-added services ​ 16,817 Youdao ​ 4,364 Cloud Music ​ 1,359 Innovative businesses and others 6,588 Total 29,128 ​ All employees of our company, subsidiaries and the VIEs are employed under employment contracts which specify, among other things, the employee’s responsibilities, remuneration and grounds for termination of employment.
In August 2022, Cloud Music adopted the 2022 Restricted Share Unit Plan, or the 2022 Cloud Music Plan (together with the 2016 Cloud Music Plan, the “Cloud Music Plans”), pursuant to which it may issue up to 10,462,280 new shares. As of March 31, 2023, no restricted share units have been granted under the 2022 Cloud Music Plan.
Additionally, Cloud Music adopted the 2022 Restricted Share Unit Plan, or the 2022 Cloud Music Plan (together with the 2016 Cloud Music Plan, the “Cloud Music Plans”) in August 2022 (and amended it in June 2023), pursuant to which it may issue up to 10,462,280 new shares.
Compensation Committee Interlocks No interlocking relationships have existed between our board of directors or compensation committee and the board of directors or compensation committee of any other company. 158 Table of Contents D. Employees As of December 31, 2020, 2021 and 2022, we had 28,239, 32,064 and 31,119 full-time employees, respectively.
Compensation Committee Interlocks No interlocking relationships have existed between our board of directors or compensation committee and the board of directors or compensation committee of any other company. D. Employees As of December 31, 2021, 2022 and 2023, we had 32,064, 31,119 and 29,128 full-time employees, respectively. A substantial majority of our employees are based in China.
This amount includes ordinary shares and ordinary shares issuable upon the vesting of RSUs held by our directors and executive officers as a group. As of March 31, 2023, based on public filings with the SEC, there are no major shareholders holding 5% or more of our ordinary shares or ADSs representing ordinary shares, except as described above.
(3) Shares owned by all of our current directors and executive officers as a group includes shares beneficially owned by William Lei Ding. As of March 31, 2024, based on public filings with the SEC, there are no major shareholders holding 5% or more of our ordinary shares or ADSs representing ordinary shares, except as described above.
As of March 31, 2023, options to purchase a total of 5,739,650 ordinary shares are outstanding under the 2016 Cloud Music Plan, and 4,112,650 of such options had vested and become exercisable; restricted share units representing an aggregate of 1,166,409 shares are outstanding and remain unsettled under the 2016 Cloud Music Plan, which may be satisfied by new or existing shares of Cloud Music.
As of March 31, 2024, options to purchase a total of 3,691,150 ordinary shares were outstanding under the 2016 Cloud Music Plan, and 3,064,550 of such options had vested and become exercisable; and restricted share units representing an aggregate of 674,936 shares were outstanding and remain unsettled under the 2016 Cloud Music Plan, which may be satisfied by new or existing shares of Cloud Music.
He is a member of the American Institute of Certified Public Accountants, an associate member of the Hong Kong Institute of Certified Public Accountants. Michael Man Kit Leung , also known as Michael Leung , has served as our director since July 2002. Mr. Leung was a responsible officer of Grand Moore Capital Limited from September 2019 to November 2021.
He is a member of the American Institute of Certified Public Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants. Michael Man Kit Leung , also known as Michael Leung , has served as a director of our company since July 2002. Mr.
The indemnification agreements also specify the procedures to be followed with respect to indemnification. We do not have service contracts with any of our directors which provide for benefits upon termination. Employment Agreements We have entered into employment and related agreements with each of our executive officers.
The indemnification agreements also specify the procedures to be followed with respect to indemnification. Employment Agreements We have entered into employment and related agreements with each of our executive officers.
“Information on the Company—Business Overview.” The board of directors has adopted a written compensation committee charter pursuant to which the compensation committee is responsible for, among other things, annually reviewing and approving our corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating such officer’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors (as directed by our board), determining and approving the chief executive officer’s compensation level based on this evaluation.
“Information on the Company—Business Overview.” The board of directors has adopted a written compensation committee charter pursuant to which the compensation committee is responsible for, among other things, annually reviewing and approving our corporate goals and objectives relevant to the compensation of our chief executive officer.
Directors and Senior Management The names of our directors and executive officers, their ages as of March 31, 2023 and the principal positions with NetEase held by them are as follows: ​ Name Age Position William Lei Ding ​ 51 ​ Director and Chief Executive Officer Charles Zhaoxuan Yang ​ 39 ​ Chief Financial Officer Alice Yu-Fen Cheng (1) ​ 61 ​ Independent Director Grace Hui Tang (1) ​ 63 ​ Independent Director Joseph Tze Kay Tong (1) ​ 60 ​ Independent Director Michael Man Kit Leung ​ 69 ​ Independent Director (1) Alice Cheng, Joseph Tong and Grace Hui Tang are members of the audit, compensation, nominating and environmental, social and governance (ESG) committee.
Directors and Senior Management The names of our directors and executive officers, their ages as of March 31, 2024 and the principal positions with NetEase held by them are as follows: ​ Name Age Position William Lei Ding ​ 52 ​ Director and Chief Executive Officer Alice Yu-Fen Cheng (1) ​ 62 ​ Independent Director Grace Hui Tang (1) ​ 64 ​ Independent Director Joseph Tze Kay Tong (1) ​ 61 ​ Independent Director Michael Man Kit Leung ​ 70 ​ Independent Director Yingfeng Ding ​ 52 ​ Executive Vice President Paul W.
Leung also serves as an independent non-executive director on the board of China Ting Group Holdings Limited (stock code: 3398), a company listed on the Hong Kong Stock Exchange. Mr.
Leung also serves as an independent non-executive director on the board of China Ting Group Holdings Limited (stock code: 3398), a company listed on the Hong Kong Stock Exchange. Mr. Leung received a Bachelor’s Degree in Social Sciences from the University of Hong Kong in October 1977 with a major in Accounting, Management and Statistics.
As of March 31, 2023, 3,224,760,316 of our ordinary shares were outstanding (excluding approximately 105 million ordinary shares issued and held by The Bank of New York Mellon, the depositary of our ADS program, which are reserved for future delivery upon exercise or vesting of share awards granted under our Share Incentive Plans, and our treasury ADSs we own).
As of March 31, 2024, 3,222,468,571 of our ordinary shares were outstanding (excluding 107,096,010 ordinary shares being the total of ordinary shares issued to and held by The Bank of New York Mellon, the depositary of our ADS program, which are reserved for future delivery upon vesting of share awards granted under our Share Plans, and the ordinary shares underlying our treasury ADSs).
Alice Cheng, Joseph Tong, and Grace Hui Tang are currently the members of each of these committees. Grace Hui Tang is the chairperson of the audit committee. The board of directors has determined that Mr. Joseph Tong is an “audit committee financial expert” as defined by Item 16A. “Audit Committee Financial Expert” of Form 20-F.
Alice Cheng, Grace Tang and Joseph Tong are currently the members of each of these committees. Grace Tang is the chairperson of the audit committee, the compensation committee and the nominating committee. Alice Cheng is the chairperson of the ESG committee. The board of directors has determined that Mr.
In April 2023, Youdao adopted a 2023 Share Incentive Plan, or the 2023 Youdao Plan (together with the 2015 Youdao Plan, the “Youdao Plans”), under which 5,668,625 shares of Youdao are reserved for issuance.
In April 2023, Youdao adopted a 2023 Share Incentive Plan, or the 2023 Youdao Plan, under which 5,668,625 shares of Youdao are reserved for issuance. As of March 31, 2024, no options or restricted share units were outstanding under the 2023 Youdao Plan.
(1) Shining Globe International Limited is the record owner of 1,450,300,000 ordinary shares, consisting of 1,406,000,000 ordinary shares and 8,860,000 ADSs. Shining Globe International Limited is wholly owned by Shining Globe Holding Limited, which is in turn wholly owned by Shining Globe Trust, or the Trust, for which TMF (Cayman) Ltd. acts as the trustee.
Shining Globe International Limited is wholly owned by Shining Globe Holding Limited, which is in turn wholly owned by Shining Globe Trust, or the Trust, for which TMF (Cayman) Ltd. acts as the trustee.
The vested portion of an option will expire if not exercised prior to the expiration date of the award as set forth in the award agreement.
The vested portion of an option will expire if not exercised prior to the expiration date of the award as set forth in the award agreement. The 2019 Share Plan provides that the maximum exercisable term of share option awards is ten years from the date of a grant.
These agreements include: (i) a covenant that prohibits the executive officer from engaging in any activities that compete with our business during and for one to two years after their employment with us, (ii) a requirement that executive officers assign all rights in company-related inventions to us and to keep our proprietary information confidential, and (iii) provisions for severance payments in the event the executive officer is terminated without cause or resigns for good reason.
These agreements include: (i) a covenant that prohibits the executive officer from engaging in any activities that compete with our business during and for twelve (12) months after their employment with us, (ii) a requirement that executive officers assign all rights in company-related inventions to us and to keep our proprietary information confidential, and (iii) provisions for severance payments in the event the employment of the executive officer is terminated. 152 Table of Contents Share Incentive Plans General We have two share incentive plans, which we refer to collectively in this annual report as our “Share Plans.” Our board approved the 2009 RSU Plan in November 2009.
In addition, certain of our other subsidiaries have adopted their own equity incentive plans, which allow the relevant subsidiaries to grant options or other awards to certain of our employees.
As of March 31, 2024, 3,252,550 restricted share units had been granted under the 2022 Cloud Music Plan. In addition, certain of our other subsidiaries have adopted their own equity incentive plans, which allow the relevant subsidiaries to grant options or other awards to certain of our employees.
Cheng served as a supervisor of Wistron Information Technology Corporation in Taiwan, an information technology company with operations in Taiwan, China and Japan. From 2002 to 2005, Ms. Cheng served as financial controller of Wistron Corporation, a Taiwanese original design manufacturer of notebook computers and other electronics. Prior to that, Ms.
Cheng served as the chief financial officer of BBK Electronics Corp., Ltd., a PRC-based manufacturer of audio-visual equipment. From 2010 to 2013, Ms. Cheng served as a supervisor of Wistron Information Technology Corporation in Taiwan, an information technology company with operations in Taiwan, China and Japan. From 2002 to 2005, Ms.
Plan Administration Our board has designated our compensation committee to administer the Share Plans, and it may designate one or more of our officers to exercise its authority thereunder from time to time. 155 Table of Contents Securities Subject to the Share Plans The maximum aggregate number of our ordinary shares which are issuable pursuant to all awards under the 2009 RSU Plan is 323,694,050 ordinary shares.
Plan Administration Our board has designated our compensation committee to administer the Share Plans, and it may designate one or more of our officers to exercise its authority thereunder from time to time.
Our major shareholders do not have different voting rights than any of our other shareholders. ​
Our major shareholders do not have different voting rights than any of our other shareholders. ​ F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation None. ​
The shareholders listed below do not have different voting rights. ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares ​ ​ Beneficially Owned ​ Number Percentage 5% Shareholder ​ ​ ​ ​ ​ Shining Globe International Limited/William Lei Ding (1) c/o NetEase, Inc., NetEase Building, No. 599 Wangshang Road, Binjiang District, Hangzhou, People’s Republic of China 310052. 1,450,300,000 ​ 45.0 % ​ 159 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares ​ ​ Beneficially Owned ​ Number Percentage Executive Officers and Directors (2) ​ ​ ​ ​ ​ Charles Zhaoxuan Yang * * ​ Alice Cheng * * ​ Grace Hui Tang ​ * ​ * ​ Joseph Tong * * ​ Michael Leung * * ​ All current directors and executive officers as a group (6 persons) (3) 1,450,934,160 45.0 % * Less than 1%.
The shareholders listed below do not have different voting rights. ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares ​ ​ Beneficially Owned ​ Number Percentage 5% Shareholder ​ ​ ​ ​ ​ Shining Globe International Limited/William Lei Ding (1) 1,450,300,000 ​ 45.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares ​ ​ ​ Beneficially Owned ​ ​ Number Percentage ​ Executive Officers and Directors (2) ​ ​ ​ ​ ​ William Lei Ding (1) 1,450,300,000 45.0 % Alice Cheng * * ​ Grace Tang ​ * ​ * ​ Joseph Tong * * ​ Michael Leung * * ​ Yingfeng Ding * * ​ Paul W.
The committee also annually reviews and makes recommendations to the board with respect to non-chief executive officer compensation, incentive compensation plans and equity based plans, administers our incentive compensation plans and equity-based plans as in effect and as adopted from time to time by our board (the board retains, however, the authority to interpret such plans), and approves any new equity compensation plan or any material change to an existing plan where shareholders’ approval has not been obtained.
The committee also annually reviews and makes recommendations to the board with respect to non-chief executive officer compensation, incentive compensation plans and equity based plans, administers our incentive compensation plans and equity-based plans as in effect and as adopted from time to time by our board (the board retains, however, the authority to interpret such plans, and the committee may authorize one or more officers of our company to designate the recipients of equity awards created by our company and to determine the number of such equity awards, and the terms thereof, to be received by such recipients).
(2) The address of our current executive officers and directors are c/o NetEase Building, No. 599 Wangshang Road, Binjiang District, Hangzhou, People’s Republic of China 310052. (3) Shares owned by all of our current directors and executive officers as a group includes shares beneficially owned by William Lei Ding.
The principal business address of Shining Globe International Limited is c/o NetEase, Inc., NetEase Building, No. 599 Wangshang Road, Binjiang District, Hangzhou, People’s Republic of China 310052. 157 Table of Contents (2) The address of our current executive officers and directors are c/o NetEase Building, No. 599 Wangshang Road, Binjiang District, Hangzhou, People’s Republic of China 310052.
Cheng held various positions with Acer Inc., a Taiwanese computer manufacturer, culminating in the position of financial controller. Ms. Cheng received a Bachelor of Accounting from the Chinese Culture University in Taiwan in 1983 and a Masters of Business Administration from the Thunderbird School of Global Management in Arizona in 2003; Ms.
Cheng received a Bachelor of Accounting from the Chinese Culture University in Taiwan in 1983 and a Master of Business Administration from the Thunderbird School of Global Management in Arizona in 2003. Ms. Cheng is also licensed as a certified public accountant in Taiwan and the PRC.
As of March 31, 2023, options to purchase a total of 4,408,892 ordinary shares are outstanding under the 2015 Youdao Plan, and 2,731,072 of such options had vested and become exercisable.
As of March 31, 2024, options to purchase a total of 3,680,851 ordinary shares were outstanding under the 2015 Youdao Plan, and 2,900,111 of such options had vested and become exercisable. Additionally, as of March 31, 2024, restricted share units representing an aggregate of 525,824 shares were outstanding under the 2015 Youdao Plan.
Tang serves as an independent director of Textainer Group Holdings Ltd. (NYSE: TGH), Brii Biosciences Ltd. (HKEX: 2137), Elkem ASA (OSLO: ELK) and ECARX Holdings Inc. (Nasdaq: ECX). Ms. Tang received a bachelor’s degree in accounting from the University of Utah and an MBA degree from Utah State University. Ms.
Since September 2022, Ms. Tang has been teaching accounting and auditing courses to foreign students at Beijing Foreign Studies University as a professor. In addition, Ms. Tang serves as an independent director of Textainer Group Holdings Ltd. (NYSE: TGH), Brii Biosciences Ltd. (HKEX: 2137), Elkem ASA (OSLO: ELK), ECARX Holdings Inc. (Nasdaq: ECX) and Pirelli & C.S.p.A. (PIRC.MI). Ms.
The maximum aggregate number of our ordinary shares which may be issued pursuant to all awards under the 2019 Share Plan is 322,458,300 ordinary shares. Such ordinary shares may, in whole or in part, be authorized but unissued shares or shares that will have been or may be reacquired by us.
Securities Subject to the Share Plans The maximum aggregate number of our ordinary shares which are issuable pursuant to all awards under the 2009 RSU Plan is 323,694,050 ordinary shares. The maximum aggregate number of our ordinary shares which may be issued pursuant to all awards under the 2019 Share Plan is 322,458,300 ordinary shares.
Leung received a Bachelor’s Degree in Social Sciences from the University of Hong Kong in October 1977 with a major in Accounting, Management and Statistics. Relationships Among Directors or Executive Officers; Right to Nominate Directors There are no family relationships among any of the directors or executive officers of our company.
Relationships Among Directors or Executive Officers; Right to Nominate Directors There are no family relationships among any of the directors or executive officers of our company.
The Share Plans permit the designation of beneficiaries by holders of awards in the event of the participant’s death. After any such transfer, the original recipient shall continue to remain subject to the withholding tax requirements described below.
The Share Plans permit the designation of beneficiaries by holders of awards in the event of the participant’s death.
Compensation Executive Officer and Director Compensation In 2022, we paid our executive officers and directors aggregate cash compensation of RMB47.0 million (US$6.8 million). In 2022, we also granted restricted share unit awards under our 2019 Share Plan to our Chief Financial Officer, which will represent less than 1% of our total outstanding ordinary shares upon vesting.
In 2023, we also granted restricted share unit awards under our 2019 Share Plan to our chief financial officer (who subsequently resigned from such position in 2023), which, if vested, represented less than 1% of our total outstanding ordinary shares as of December 31, 2023.
Ding holds a Bachelor of Science degree in Communication Technology from the University of Electronic Science and Technology of China. Charles Zhaoxuan Yang has served as our chief financial officer since June 2017. Prior to joining us, Mr. Yang was an executive director of the China technology, media and telecommunications, and corporate finance team at J.P.
Ding holds a Bachelor of Science degree in Communication Technology from the University of Electronic Science and Technology of China. Alice Yu-Fen Cheng , also known as Alice Cheng , has served as a director of our company since June 2007. Ms.
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Morgan Securities (Asia Pacific) Limited and based in Hong Kong for almost a decade. Mr. Yang currently serves as an independent director on the board of So-Young International Inc. (NASDAQ: SY), and as an independent non-executive director on the board of Kanzhun Ltd. (NASDAQ: BZ; HKEX: 2076). Mr.
Added
Boltz, Jr. ​ 54 ​ General Counsel Sarah Ying Li ​ 42 ​ Head of Financial Reporting (1) Alice Cheng, Grace Tang and Joseph Tong are members of the audit, compensation, nominating and environmental, social and governance (ESG) committee.
Removed
Yang holds a master’s degree in Business Administration from the University of Hong Kong, and a bachelor’s degree from Wesleyan University with majors in Economics and Mathematics. Mr. Yang is a Certified Public Accountant licensed in the State of Michigan and Hong Kong.
Added
Cheng has also served as a non-executive director of J&T Global Express Limited since May 2020 and as a member of its audit committee since the company listed on the Hong Kong Stock Exchange in October 2023 (HKEX: 1519). From 2005 to 2021, Ms.
Removed
Alice Yu-Fen Cheng , also known as Alice Cheng , has served as our director since June 2007. From 2005 to 2021, Ms. Cheng served as the chief financial officer of BBK Electronics Corp., Ltd., a PRC-based manufacturer of audio-visual equipment. From 2010 to 2013, Ms.
Added
Cheng served as financial controller of Wistron Corporation, a Taiwanese original design manufacturer of notebook computers and other electronics. Prior to that, Ms. Cheng held various positions with Acer Inc., a Taiwanese computer manufacturer, culminating in the position of financial controller. Ms.
Removed
Leung was previously an independent non-executive director and chairman of the audit committee of China Electronics Optics Valley Union Holding Company Limited (stock code: 0798) from March 2014 to May 2020 and China Huiyuan Juice Group Limited (stock code: 1886) from 2012 to 2019, both of which are companies listed on the Hong Kong Stock Exchange. Mr.
Added
Tang received a bachelor’s degree in accounting from the University of Utah and a Master of Business Administration degree from Utah State University. Ms.
Removed
None of our directors were nominated pursuant to a contractual or other right.
Added
Yingfeng Ding , also known as Ding Ding , has served as Executive Vice President for the NetEase group since 2016 and is currently in charge of our Interactive Entertainment Group, a part of our online games division. Mr.
Removed
In addition, prior to 2022, certain of our subsidiaries, including Youdao and Cloud Music, granted certain options pursuant to their respective share incentive plans to our Chief Financial Officer which are exercisable for ordinary shares of those subsidiaries representing less than 1% of their total outstanding shares.
Added
Ding previously served as Vice President for the NetEase group, responsible for the product development, operation and management of our online games division from 2011 to 2016. Mr. Ding has more than 25 years of experience in game development and design. Since joining NetEase in 2002, Mr.
Removed
Share Incentive Plans General We have two share incentive plans, which we refer to collectively in this annual report as our “Share Plans.” Our board approved our 2009 Restricted Share Unit Plan, or 2009 RSU Plan, in November 2009.
Added
Ding has also led the design and development of several signature products of the NetEase group, including Fantasy Westward Journey . Paul W. Boltz, Jr. has served as General Counsel for the NetEase group since January 2024. Mr. Boltz previously served as our International General Counsel from February 2023 to January 2024.
Removed
Eligibility Awards can be issued to participants in the Share Plans, which include employees, directors or consultants of us, our subsidiaries, the VIEs and certain other related entities.
Added
Prior to joining NetEase, he was a partner with the international law firms of Gibson, Dunn & Crutcher, Ropes & Gray (where he was the managing partner of their Hong Kong office) and Morrison & Foerster in Hong Kong. Mr.
Added
Boltz has more than 24 years of experience practicing law in Asia, with a particular focus on capital markets, M&A, joint ventures and public company compliance for technology companies, including the NetEase group since its listing on Nasdaq in 2000. Mr. Boltz is qualified to practice law in Pennsylvania and New Jersey and a non-practicing solicitor in Hong Kong.
Added
He received his Bachelor of Arts degree in Economics from the University of Pennsylvania and a Juris Doctor degree from Villanova University School of Law. Sarah Ying Li, also known as Sarah Li , has served as Head of Financial Reporting for the NetEase group since February 2024. Ms. Li previously served as our Group Financial Controller from April 2016.
Added
Prior to joining NetEase, Ms. Li worked in international audit firms. She worked at KPMG from January 2006 to April 2016, culminating in the position of senior audit manager and department head. She also worked at PricewaterhouseCoopers from September 2004 to January 2006 as an audit associate. Ms.
Added
Li received a Bachelor of Arts (English (International Business)) degree from Guangdong University of Foreign Studies in 2004. She is a member of the American Institute of Certified Public Accountants, the Association of Chartered Certified Accountants and the Chinese Institute of Certified Public Accountants.
Added
Compensation Executive Officer and Director Compensation In 2023, we paid our then current executive officers and directors aggregate cash compensation of RMB49.2 million (US$6.9 million).
Added
We have not separately set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors, other than pursuant to relevant statutory requirements.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAgreements relating to Youdao Computer As of the date of the filing of this annual report, Feng Zhou, the chief executive officer of Youdao, owns 28.9% of the equity interest in Youdao Computer, and William Lei Ding owns 71.1% of the equity interest in Youdao Computer. ● Loan Agreements between Youdao Information and each of William Lei Ding and Feng Zhou .
Biggest changeThis agreement was effective from January 1, 2010 and will continue to be effective unless it is terminated by written notice of NetEase Hangzhou or, in case of a material breach of the agreement, it is terminated by written notice of the non-breaching party. 161 Table of Contents Agreements relating to Youdao Computer As of the date of the filing of this annual report, Feng Zhou, the chief executive officer of Youdao, owns 28.9% of the equity interest in Youdao Computer, and William Lei Ding owns 71.1% of the equity interest in Youdao Computer. ● Loan Agreements between Youdao Information and each of William Lei Ding and Feng Zhou .
Specifically: ● We have agreed not to compete with Youdao in the provision of the Online Learning Business, provided that such non-compete restrictions shall not prevent the us from (i) engaging in the Online Learning Business through or on behalf of Youdao, (ii) continuing to engage in the NetEase Business, (iii) owning a non-controlling interest in any company engaging in any business that is of the same nature as the Online Learning Business, or (iv) engaging in any other business that we and Youdao may agree from time to time. ● Youdao has agreed not to compete with us in the NetEase Business or business of a similar nature, provided that such non-compete restrictions shall not prevent Youdao from (i) engaging in the NetEase Business or business of a similar nature through us or on our behalf, (ii) continuing to engage in any business that we operate as of the date of the non-competition agreement, (iii) owning a non-controlling interest in any company engaging in any business that is of the same nature as the NetEase Business, and (iv) engaging in any other business that we and Youdao may agree from time to time.
Specifically: ● We have agreed not to compete with Youdao in the provision of the Online Learning Business, provided that such non-compete restrictions shall not prevent us from (i) engaging in the Online Learning Business through or on behalf of Youdao, (ii) continuing to engage in the NetEase Business, (iii) owning a non-controlling interest in any company engaging in any business that is of the same nature as the Online Learning Business, or (iv) engaging in any other business that we and Youdao may agree from time to time. ● Youdao has agreed not to compete with us in the NetEase Business or business of a similar nature, provided that such non-compete restrictions shall not prevent Youdao from (i) engaging in the NetEase Business or business of a similar nature through us or on our behalf, (ii) continuing to engage in any business that we operate as of the date of the non-competition agreement, (iii) owning a non-controlling interest in any company engaging in any business that is of the same nature as the NetEase Business, and (iv) engaging in any other business that we and Youdao may agree from time to time.
The non-competition agreement provides that if there is any ambiguity in the scope of business subject to the foregoing non-compete restrictions, our interpretation shall prevail. 168 Table of Contents In addition, we and Youdao have each undertaken to each other that during the Non-competition Period, should a party have a business or investment opportunity relating to the other party’s businesses covered by the foregoing non-compete restrictions, it shall notify the other party of such opportunity in writing.
The non-competition agreement provides that if there is any ambiguity in the scope of business subject to the foregoing non-compete restrictions, our interpretation shall prevail. 166 Table of Contents In addition, we and Youdao have each undertaken to each other that during the Non-competition Period, should a party have a business or investment opportunity relating to the other party’s businesses covered by the foregoing non-compete restrictions, it shall notify the other party of such opportunity in writing.
These include a master transaction agreement, a transitional services agreement, a non-competition agreement, a cooperation framework agreement, an intellectual property license agreement and multiple loan agreements, each of which are summarized below. 167 Table of Contents Master Transaction Agreement We have entered into a master transaction agreement with Youdao to govern certain key aspects of our relationship with Youdao, including the allocation of liabilities.
These include a master transaction agreement, a transitional services agreement, a non-competition agreement, a cooperation framework agreement, an intellectual property license agreement and multiple loan agreements, each of which are summarized below. 165 Table of Contents Master Transaction Agreement We have entered into a master transaction agreement with Youdao to govern certain key aspects of our relationship with Youdao, including the allocation of liabilities.
Guangzhou NetEase has entered into cooperative agreements with each of NetEase Beijing, Boguan and NetEase Hangzhou pursuant to which such subsidiaries have agreed to provide the following services: ● research and development of computer software (including, but not limited to, online games software) and technical support and maintenance for the operation of computer software; ● technical support for internet services, including, but not limited to, server maintenance and development, update and upgrade of relevant application software; and ● research and development of electronic publishing technology and relevant technical assistance and support.
Guangzhou NetEase has entered into cooperative agreements with each of NetEase Beijing, Boguan and NetEase Hangzhou pursuant to which such subsidiaries have agreed to provide the following services: ● R&D of computer software (including, but not limited to, online games software) and technical support and maintenance for the operation of computer software; ● technical support for internet services, including, but not limited to, server maintenance and development, update and upgrade of relevant application software; and ● R&D of electronic publishing technology and relevant technical assistance and support.
Under this Cooperation Agreement, NetEase Hangzhou has agreed to provide the following services: 163 Table of Contents ● the development of computer software (including, but not limited to, online games) and technical support and maintenance for computer software operation; ● the provision of broadband internet access and other operational support; and ● jointly with Hangzhou Leihuo, the provision of value-added telecommunication and other services to users of the Leihuo website and relevant products.
Under this Cooperation Agreement, NetEase Hangzhou has agreed to provide the following services: ● the development of computer software (including, but not limited to, online games) and technical support and maintenance for computer software operation; ● the provision of broadband internet access and other operational support; and ● jointly with Hangzhou Leihuo, the provision of value-added telecommunication and other services to users of the Leihuo website and relevant products.
Each Exclusive Purchase Option Agreement shall remain in effect until all of the equity interests in or assets of Youdao Computer have been acquired by Youdao Information or its designee or until Youdao Information unilaterally terminates the agreement by written notice. 164 Table of Contents ● Shareholder Voting Rights Trust Agreements between Youdao Information and each of William Lei Ding and Feng Zhou.
Each Exclusive Purchase Option Agreement shall remain in effect until all of the equity interests in or assets of Youdao Computer have been acquired by Youdao Information or its designee or until Youdao Information unilaterally terminates the agreement by written notice. ● Shareholder Voting Rights Trust Agreements between Youdao Information and each of William Lei Ding and Feng Zhou.
Hangzhou Yuedu, William Lei Ding and Dong Zhang also jointly agreed that without Hangzhou NetEase Cloud Music’s prior written consent, Hangzhou Yuedu would not engage in any transaction that may materially affect their assets, liabilities, rights or operations, except that Hangzhou Yuedu may enter into business contracts or agreements, sell or purchase assets and create liens in favor of relevant counter parties as required by law in the ordinary course of business.
Hangzhou Yuedu, William Lei Ding and Wei Li also jointly agreed that without Hangzhou NetEase Cloud Music’s prior written consent, Hangzhou Yuedu would not engage in any transaction that may materially affect their assets, liabilities, rights or operations, except that Hangzhou Yuedu may enter into business contracts or agreements, sell or purchase assets and create liens in favor of relevant counter parties as required by law in the ordinary course of business.
Ltd., or “NetEase Beijing,” granted Guangzhou NetEase the right to use NetEase Beijing’s web page layout in China for a royalty of RMB10,000 per year. NetEase Beijing may waive this fee at any time. ● Trademark License Agreement between NetEase Beijing and Guangzhou NetEase.
Ltd., or “NetEase Beijing,” granted Guangzhou NetEase the right to use NetEase Beijing’s web page layout in China for a royalty of RMB10,000 per year. NetEase Beijing may waive this fee at any time. 158 Table of Contents ● Trademark License Agreement between NetEase Beijing and Guangzhou NetEase.
Each Shareholder Voting Rights Trust Agreement shall remain effective for as long as William Lei Ding or Feng Zhou, as applicable, remains a shareholder of Youdao Computer unless Youdao Information unilaterally terminates the agreement by written notice . ● Operating Agreements among Youdao Computer, Youdao Information and each of William Lei Ding and Feng Zhou .
Each Shareholder Voting Rights Trust Agreement shall remain effective for as long as William Lei Ding or Feng Zhou, as applicable, remains a shareholder of Youdao Computer unless Youdao Information unilaterally terminates the agreement by written notice . 162 Table of Contents ● Operating Agreements among Youdao Computer, Youdao Information and each of William Lei Ding and Feng Zhou .
William Lei Ding and Dong Zhang have further agreed that, without prior written consent of Hangzhou NetEase Cloud Music, they will not transfer or dispose the pledged equity interests or create or allow any third party to create any encumbrance on the pledged equity interests that would prejudice Hangzhou NetEase Cloud Music’s interest. ● Shareholder Voting Right Trust Agreements and Powers of Attorney .
William Lei Ding and Wei Li have further agreed that, without prior written consent of Hangzhou NetEase Cloud Music, they will not transfer or dispose the pledged equity interests or create or allow any third party to create any encumbrance on the pledged equity interests that would prejudice Hangzhou NetEase Cloud Music’s interest. ● Shareholder Voting Right Trust Agreements and Powers of Attorney .
Under the Shareholder Voting Right Trust Agreements and the Powers of Attorney, William Lei Ding and Dong Zhang have appointed Hangzhou NetEase Cloud Music and the person designated by Hangzhou NetEase Cloud Music director or his/her successor as their agent and attorney to act on their behalf on all matters concerning Hangzhou Yuedu and to exercise all of their rights as a registered shareholder of Hangzhou Yuedu. ● Loan Agreement .
Under the Shareholder Voting Right Trust Agreements and the Powers of Attorney, William Lei Ding and Wei Li have appointed Hangzhou NetEase Cloud Music and the person designated by Hangzhou NetEase Cloud Music director or his/her successor as their agent and attorney to act on their behalf on all matters concerning Hangzhou Yuedu and to exercise all of their rights as a registered shareholder of Hangzhou Yuedu. ● Loan Agreement .
Guangzhou NetEase may waive this fee at any time. The term of the foregoing agreement is automatically renewable for successive one year term. ● Trademark Transfer Agreement between Guangzhou NetEase and NetEase Beijing . Under this agreement, Guangzhou NetEase transferred its registered trademarks to NetEase Beijing. 161 Table of Contents ● Supplemental Agreement between NetEase Beijing and Guangzhou NetEase.
Guangzhou NetEase may waive this fee at any time. The term of the foregoing agreement is automatically renewable for successive one year term. ● Trademark Transfer Agreement between Guangzhou NetEase and NetEase Beijing . Under this agreement, Guangzhou NetEase transferred its registered trademarks to NetEase Beijing. ● Supplemental Agreement between NetEase Beijing and Guangzhou NetEase.
Under the Exclusive Purchase Option Agreements, William Lei Ding and Dong Zhang irrevocably granted Hangzhou NetEase Cloud Music an option, exercisable in one or more times, to purchase or cause any person(s) designated by Hangzhou NetEase Cloud Music to purchase, to the extent permitted under any applicable PRC laws, a portion of or all of William Lei Ding and Dong Zhang’s equity interests in Hangzhou Yuedu at any time and from time to time, for a consideration equals to, the outstanding loan amounts under the relevant Loan Agreements or otherwise for the minimum amount of consideration permitted by applicable PRC laws, under circumstances in which Hangzhou NetEase Cloud Music or its designated third party is permitted under PRC laws to acquire all or part of the assets of Hangzhou Yuedu, subject to adjustments.
Under the Exclusive Purchase Option Agreements, William Lei Ding and Wei Li irrevocably granted Hangzhou NetEase Cloud Music an option, exercisable in one or more times, to purchase or cause any person(s) designated by Hangzhou NetEase Cloud Music to purchase, to the extent permitted under any applicable PRC laws, a portion of or all of William Lei Ding and Wei Li’s equity interests in Hangzhou Yuedu at any time and from time to time, for a consideration equals to, the outstanding loan amounts under the relevant Loan Agreements or otherwise for the minimum amount of consideration permitted by applicable PRC laws, under circumstances in which Hangzhou NetEase Cloud Music or its designated third party is permitted under PRC laws to acquire all or part of the assets of Hangzhou Yuedu, subject to adjustments.
Under the Equity Pledge Agreements, William Lei Ding and Dong Zhang agreed to pledge all their respective equity interests in Hangzhou Yuedu that they legally own to Hangzhou NetEase Cloud Music as a first security interest to guarantee the timely and complete payment and performance of contractual obligations under the relevant VIE agreements.
Under the Equity Pledge Agreements, William Lei Ding and Wei Li agreed to pledge all their respective equity interests in Hangzhou Yuedu that they legally own to Hangzhou NetEase Cloud Music as a first security interest to guarantee the timely and complete payment and performance of contractual obligations under the relevant VIE agreements.
The Equity Pledge Agreements will remain binding until the pledgor discharges all his obligations under the above-mentioned agreements. ● Exclusive Purchase Option Agreements among NetEase Hangzhou, Hangzhou Leihuo and each of the ultimate shareholders of Hangzhou Leihuo .
The Equity Pledge Agreements will remain binding until the pledgor discharges all his obligations under the above-mentioned agreements. 160 Table of Contents ● Exclusive Purchase Option Agreements among NetEase Hangzhou, Hangzhou Leihuo and each of the ultimate shareholders of Hangzhou Leihuo .
If the transfer price for the equity interest in Hangzhou Yuedu is higher than the principal of the loan under the relevant Loan Agreement, any surplus would be considered interest for the loan. Subsidiary Guarantees We have entered into several guarantee agreements in the aggregate amount of US$2,575.0 million in respect of certain credit facilities taken by our subsidiaries.
If the transfer price for the equity interest in Hangzhou Yuedu is higher than the principal of the loan under the relevant Loan Agreement, any surplus would be considered interest for the loan. Subsidiary Guarantees We have entered into several guarantee agreements in the aggregate amount of US$2.3 billion in respect of certain credit facilities taken by our subsidiaries.
Under the Loan Agreements, Hangzhou NetEase Cloud Music agreed to provide loans to William Lei Ding and Dong Zhang to be used exclusively as investment in Hangzhou Yuedu. The loans must not be used for any other purposes without the lender’s prior written consent.
Under the Loan Agreements, Hangzhou NetEase Cloud Music agreed to provide loans to William Lei Ding and Wei Li to be used exclusively as investment in Hangzhou Yuedu. The loans must not be used for any other purposes without the lender’s prior written consent.
Hui agrees he shall not transfer, pledge or encumber his 1.0% equity interest without the prior written consent of NetEase Beijing. During the term of this agreement, NetEase Beijing is entitled to all dividends and other distributions made by Guangzhou NetEase. The Equity Pledge Agreement will remain binding until Mr.
Hui agrees he shall not transfer, pledge or encumber his 1.0% equity interest without the prior written consent of NetEase Beijing. During the term of this agreement, NetEase Beijing is entitled to all dividends and other distributions made by Guangzhou NetEase. The Equity Pledge Agreement will remain binding until Mr. Hui discharges all his obligations under the above-mentioned agreements.
As of the date of the filing of this annual report, William Lei Ding, our Chief Executive Officer, and Dong Zhang own 99.0% and 1.0% of the equity interest in Hangzhou Yuedu, respectively. ● Cooperation Agreement .
As of the date of the filing of this annual report, William Lei Ding, our Chief Executive Officer, and Wei Li own 99.0% and 1.0% of the equity interest in Hangzhou Yuedu, respectively. ● Cooperation Agreement .
In addition, under the Exclusive Purchase Option Agreements, William Lei Ding and Dong Zhang may not transfer or permit the encumbrance of or allow any guarantee or security to be created on any of its equity interest in Hangzhou Yuedu without Hangzhou NetEase Cloud Music’s prior written consent. 166 Table of Contents ● Equity Pledge Agreements .
In addition, under the Exclusive Purchase Option Agreements, William Lei Ding and Wei Li may not transfer or permit the encumbrance of or allow any guarantee or security to be created on any of its equity interest in Hangzhou Yuedu without Hangzhou NetEase Cloud Music’s prior written consent. 164 Table of Contents ● Equity Pledge Agreements .
William Lei Ding and Dong Zhang shall appoint candidates recommended by Hangzhou NetEase Cloud Music as directors of Hangzhou Yuedu, and Hangzhou Yuedu shall appoint Hangzhou NetEase Cloud Music’s senior executive officers recommended by Hangzhou NetEase Cloud Music as Hangzhou Yuedu’ senior management. ● Exclusive Purchase Option Agreement .
William Lei Ding and Wei Li shall appoint candidates recommended by Hangzhou NetEase Cloud Music as directors of Hangzhou Yuedu, and Hangzhou Yuedu shall appoint Hangzhou NetEase Cloud Music’s senior executive officers recommended by Hangzhou NetEase Cloud Music as Hangzhou Yuedu’ senior management. ● Exclusive Purchase Option Agreement .
Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders Please see Item 6.E. “Directors, Senior Management and Employees—Share Ownership.” 160 Table of Contents B.
Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders Please see Item 6.E. “Directors, Senior Management and Employees—Share Ownership.” B.
As of December 31, 2022, US$461.0 million of such credit facilities had not been utilized. Agreements with Youdao Youdao, which became listed on the New York Stock Exchange in October 2019, is currently our majority-controlled subsidiary.
As of December 31, 2023, US$1.1 billion of such credit facilities had not been utilized. Agreements with Youdao Youdao, which became listed on the New York Stock Exchange in October 2019, is currently our majority-controlled subsidiary.
Under the operating agreement entered into by Hangzhou Yuedu, William Lei Ding and Dong Zhang and Hangzhou NetEase Cloud Music dated November 9, 2022, Hangzhou NetEase Cloud Music agreed to be the guarantor of Hangzhou Yuedu in, and provide full guarantees for the performance of, the contracts, agreements or transactions entered into between Hangzhou Yuedu and any third-party in connection with Hangzhou Yuedu’ businesses and operations.
Under the operating agreement entered into by Hangzhou Yuedu, William Lei Ding and Wei Li and Hangzhou NetEase Cloud Music dated November 2, 2023, Hangzhou NetEase Cloud Music agreed to be the guarantor of Hangzhou Yuedu in, and provide full guarantees for the performance of, the contracts, agreements or transactions entered into between Hangzhou Yuedu and any third-party in connection with Hangzhou Yuedu’s businesses and operations.
NetEase Beijing agrees to pay the operating costs of Guangzhou NetEase. ● Letter of Agreement.
NetEase Beijing agrees to pay the operating costs of Guangzhou NetEase. 159 Table of Contents ● Letter of Agreement.
On May 18, 2021, Hangzhou Yuedu, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated exclusive purchase option agreement, and on November 9, 2022, Hangzhou Yuedu, Hangzhou NetEase Cloud Music and Dong Zhang entered into an exclusive purchase option agreement on substantially the same terms (collectively, the “Exclusive Purchase Option Agreements”).
On May 18, 2021, Hangzhou Yuedu, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated exclusive purchase option agreement, and on November 2, 2023, Hangzhou Yuedu, Hangzhou NetEase Cloud Music and Wei Li entered into an exclusive purchase option agreement on substantially the same terms (collectively, the “Exclusive Purchase Option Agreements”).
On May 18, 2021, Hangzhou NetEase Cloud Music and William Lei Ding entered into (i) an amended and restated shareholder voting right trust agreement and (ii) a powers of attorney, and on November 9, 2022, Hangzhou NetEase Cloud Music and Dong Zhang entered into (i) a shareholder voting right trust agreement and (ii) a powers of attorney, both on substantially the same terms (collectively, (i) the “Shareholder Voting Right Trust Agreements” and (ii) “Powers of Attorney,” respectively).
Hangzhou NetEase Cloud Music entered into (i) an amended and restated shareholder voting right trust agreement and (ii) a power of attorney with William Lei Ding on May 18, 2021 and with Wei Li on November 2, 2023, both on substantially the same terms (collectively, (i) the “Shareholder Voting Right Trust Agreements” and (ii) “Powers of Attorney,” respectively).
On May 18, 2021, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated equity pledge agreement, and on November 9, 2022, Hangzhou NetEase Cloud Music and Dong Zhang entered into an equity pledge agreement on substantially the same terms (collectively, the “Equity Pledge Agreements”).
On May 18, 2021, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated equity pledge agreement, and on November 2, 2023, Hangzhou NetEase Cloud Music and Wei Li entered into an equity pledge agreement on substantially the same terms (collectively, the “Equity Pledge Agreements”).
On May 18, 2021, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated loan agreement, and on November 9, 2022, Hangzhou NetEase Cloud Music and Dong Zhang entered into a loan agreement on substantially the same terms (collectively, the “Loan Agreements”).
On May 18, 2021, Hangzhou NetEase Cloud Music and William Lei Ding entered into an amended and restated loan agreement, and on November 2, 2023, Hangzhou NetEase Cloud Music and Wei Li entered into a loan agreement on substantially the same terms (collectively, the “Loan Agreements”).
Interests of Experts and Counsel Not applicable. 169 Table of Contents
Interests of Experts and Counsel Not applicable. ​
As of December 31, 2022, the total principal amount of interest-bearing short-term loans outstanding to Youdao was RMB878.0 million (US$127.3 million), and the total principal amount of interest-bearing long-term loans outstanding to Youdao was US$75.0 million (equivalent to RMB522.3 million), which was drawn down from the above-mentioned revolving loan facility.
As of December 31, 2023, the total principal amount of interest-bearing short-term loans outstanding to Youdao was RMB878.0 million (US$123.7 million). As of March 31, 2024, the total principal amount of interest-bearing long-term loans outstanding to Youdao was US$124.2 million (equivalent to RMB881.1 million), which was drawn down from the above-mentioned revolving loan facility.
In April 2021, we also entered into a revolving loan facility with Youdao in the principal amount of US$300 million to support its long-term growth.
In April 2021, we also entered into a 36-month revolving loan facility with Youdao in the principal amount of US$300 million to support its long-term growth. In September 2023, we and Youdao entered into an agreement to further extend such revolving loan facility agreement to March 31, 2027.
This agreement was effective from July 1, 2015 and will continue to be effective unless it is terminated by written notice of Youdao Information or, in case of a material breach of the agreement, it is terminated by written notice of the non-breaching party. ​ 165 Table of Contents Agreements relating to Hangzhou Yuedu Yiwen Zhu previously owned 1% of the equity interest in Hangzhou Yuedu and in November 2022, Yiwen Zhu ceased to own any equity of Hangzhou Yuedu and Dong Zhang became the 1% equity interest owner of Hangzhou Yuedu.
This agreement was effective from July 1, 2015 and will continue to be effective unless it is terminated by written notice of Youdao Information or, in case of a material breach of the agreement, it is terminated by written notice of the non-breaching party. 163 Table of Contents Agreements relating to Hangzhou Yuedu Dong Zhang, one of our former employees, previously owned 1% of the equity interest in Hangzhou Yuedu and in November 2023, such 1% interest was transferred to Wei Li, who is a current employee of Cloud Music.
We entered into a framework agreement with Cloud Music to govern key aspects of the intragroup transactions between Cloud Music and us (the “Cloud Music Framework Agreement”), including (a) from us to Cloud Music (i) intellectual property licensing services, (ii) advertising agency services, (iii) bandwidth, server custody and rack services, (iv) information technology services, (v) shared services and (iv) product procurement, and (b) from Cloud Music to us, advertising services and others.
On August 5, 2021, we entered into a framework agreement with Cloud Music to govern key aspects of the intragroup transactions between Cloud Music and us, or the Cloud Music Framework Agreement, including (a) from us to Cloud Music (i) intellectual property licensing services where we grant Cloud Music a royalty-free license to non-exclusively use certain intellectual property, including software copyrights, domain names, trademarks and logos relating or registered by us, in perpetuity, (ii) advertising agency services, (iii) bandwidth, server custody and rack services, (iv) information technology services, (v) shared services and (vi) product procurement, and (b) from Cloud Music to us, advertising services and others.
Hui discharges all his obligations under the above-mentioned agreements. 162 Table of Contents Agreements relating to Hangzhou Leihuo As of the date of the filing of this annual report, each of Zhipeng Hu and Long Cheng, two of our employees, owns 50.0% of the equity interest in Hangzhou Leihuo. ● Loan Agreements and Equity Pledge Agreements between NetEase Hangzhou and each of the ultimate shareholders of Hangzhou Leihuo .
Agreements relating to Hangzhou Leihuo As of the date of the filing of this annual report, the ultimate shareholders of Hangzhou Leihuo are Zhipeng Hu and Long Cheng, two of our employees, who each hold a 50.0% equity interest. Mr.
All the VIE agreements that Yiwen Zhu previously entered with Hangzhou NetEase Cloud Music and/or Hangzhou Yuedu have been terminated, and Dong Zhang entered into the same VIE agreements with Hangzhou NetEase Cloud Music and/or Hangzhou Yuedu.
At the time of such transfer, all the VIE agreements that Dong Zhang previously entered with Hangzhou NetEase Cloud Music and/or Hangzhou Yuedu were terminated, and Wei Li entered into substantially identical VIE agreements with Hangzhou NetEase Cloud Music and/or Hangzhou Yuedu.
Youdao has further drawn down US$5.0 million (equivalent to RMB34.5 million) interest-bearing long-term loans in 2023 as of the date of the filing of this annual report. Agreements with Cloud Music Cloud Music, which became listed on the Hong Kong Stock Exchange in December 2021, is currently our majority-controlled subsidiary.
Agreements with Cloud Music Cloud Music, which became listed on the Hong Kong Stock Exchange in December 2021, is currently our majority-controlled subsidiary.
Removed
This agreement was effective from January 1, 2010 and will continue to be effective unless it is terminated by written notice of NetEase Hangzhou or, in case of a material breach of the agreement, it is terminated by written notice of the non-breaching party.
Added
Cheng’s equity interest in Hangzhou Leihuo was transferred to him in April 2019 by the prior equity holder and our former employee, Tianlei Hu, at which time Mr. Cheng assumed all of Mr.
Removed
The transactions under the Cloud Music Framework Agreement will continue until December 31, 2023 (date inclusive), except with respect to the intellectual property licensing services where we grant Cloud Music a royalty-free license to non-exclusively use certain intellectual property, including software copyrights, domain names, trademarks and logos relating or registered by us, which will be in perpetuity. C.
Added
Hu’s rights and obligations under the operating agreement, equity pledge agreement, exclusive purchase option agreement and shareholder voting rights trust agreement described below. ● Loan Agreements and Equity Pledge Agreements between NetEase Hangzhou and each of the ultimate shareholders of Hangzhou Leihuo .
Added
On November 28, 2023, we entered into a new framework agreement, which superseded the original Cloud Music Framework Agreement, pursuant to which the intragroup transactions between Cloud Music and us set forth in the Cloud Music Framework Agreement were renewed for a term of three years (other than the intellectual property license which, as noted above, was granted in perpetuity), commencing from January 1, 2024. 167 Table of Contents C.

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