Sina Science and Technology News on the morning of February 21, Beijing time, NetEase, Inc (Nasdaq:NTES) today released the company's unaudited financial results for the fourth quarter and the whole year ending December 31, 2018. According to the financial report, NetEase, Inc's net income in the fourth quarter was 19.8443 billion yuan ($2.8862 billion), up 35.8% from a year earlier. Based on non-US general accounting standards (non-GAAP), net profit attributable to NetEase, Inc shareholders was 2.3596 billion yuan ($343.2 million), up 25.58% from a year earlier, and net income per diluted non-GAAP was $2.66 per share.
After the release of the results, executives such as NetEase, Inc CEO Ding Lei and CFO Yang Zhaoyi attended the subsequent earnings call to interpret the main points of the results and answer analysts' questions.
The following is the main content of the question and answer session of the analyst in this conference call:
Thomas Chong, an analyst at Credit Suisse:The first question is, why did NetEase, Inc choose to focus more on investment in e-commerce, music and education in 2019? The second question is about game supervision, especially the version number. Did NetEase, Inc get the latest news? The third question, there are media reports that there are market rumors that NetEase, Inc may consider strategic cooperation and strategic investment in the e-commerce business. How does the management comment on this?
Ding Lei:Music, like games, is the consumption of content products; as for education, NetEase, Inc has spent a long time accumulating users and has been working as a youdao dictionary for a decade. We think Chinese parents are more and more accustomed to receiving online education, and we have also developed online courses. With the maturity of artificial intelligence technology, it becomes more and more possible for online education to innovate in equipment and curriculum. The first is that the market is very large, and the second is that users still accept it. E-commerce is an area that NetEase, Inc has attached great importance to for a long time. As for game regulation, the regulatory authorities issued a statement yesterday, which only changed the mode of declaration materials, and we did not see such things as stopping declaration. Finally, NetEase, Inc holds an open attitude towards strategic cooperation and strategic investment in e-commerce business.
Liang Weiliang (Eddie 梁), analyst at Bank of America Merrill Lynch:My question is about the gross margin of NetEase, Inc's e-commerce business. I remember that the management, especially Ding, always mentioned that you want the gross profit margin of the e-commerce business to stabilize. In view of the fluctuations in gross profit margin in the fourth quarter, can management make an outlook on gross margin?
Yang Zhaoyi:I'll answer the question directly. With regard to the e-commerce business, you may have noticed that gross profit margins in the fourth quarter of 2018 were lower than in the past few quarters and the fourth quarter of 2017. But at the same time, I hope you will also notice that NetEase, Inc has also made significant improvements in reducing inventory, which means that we launched a larger promotion in the fourth quarter to optimize the company's inventory structure.
As for the trend in 2019 and beyond, NetEase, Inc has always adopted a very cautious strategy to strike a balance between GMV growth, revenue growth and gross profit margin. For now, we expect the entire e-commerce business to maintain a good momentum in 2019, with strong revenue growth and relatively stable full-year gross profit margin growth. Of course, there can be volatility every quarter. This is also a common seasonal problem in e-commerce business.
Citibank analyst Alicia Alicia Yap:I have two questions, the first one is about the game version number. May I ask how many games NetEase, Inc has submitted and waiting for approval? if China's domestic regulatory authorities are slow to approve version numbers, and NetEase, Inc has prepared some games, will you consider releasing them overseas first? because overseas markets are not affected by version numbers. The second question, Boss Ding said when answering the question just now that the annual gross profit margin of NetEase, Inc's e-commerce business will remain stable. Do you mean that the annual gross profit margin of 8% in 2018 also represents the trend in 2019 and beyond?
Ding Lei:At present, we have about dozens of games currently applying for version numbers in China, and we have begun to release and test these games overseas. If the Chinese side does not have the version number conditions, in fact, it will not affect our overseas issuance and testing. So, we are walking on two legs.
Yang Zhaoyi:Let me answer the question about the gross profit margin of e-commerce business. For some time in the past, we have been trying to find some balance between revenue growth and profit margins. In addition, we also intend to keep the gross profit margin of our e-commerce business at the 2018 level, that is, between 6% and 10%, but this goal cannot be easily achieved and requires a great deal of hard work and hard work from our business units.