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Netease Announces Q3 2006 Results

Netease.com's (NTES) results for the third quarter ended September 30, 2006 show total revenues for the quarter decreased 0.6% quarter-over-quarter and increased 23.6% year-over-year.

William Ding, Chief Executive Officer and Director of Netease stated, "Our online game revenues, which decreased 3.7% quarter-over-quarter, were impacted in part by expected seasonality in the last month of the quarter. In addition, our revenues from online games were affected by increased competition, particularly from free-to-play games offered by some of our competitors, and in-game protests by certain users of our Fantasy Westward Journey game who mistakenly identified an image in this game as being a Japanese flag."

Total revenues for the third quarter ended September 30, 2006 were US$72.4 million compared with US$72.0 million for the second quarter of 2006. Total revenues increased 23.6% from US$57.2 million for the third quarter of 2005.

Online game revenues were US$59.2 million for the third quarter of 2006, representing a decrease of 3.7% from US$60.8 million for the second quarter of 2006 and an increase of 25.6% over US$46.1 million for the third quarter of
2005.

Revenues from advertising services increased 21.2% for the third quarter of 2006 over the second quarter.

GAAP gross profit for the third quarter of 2006 was US$56.7 million. Total GAAP gross margin for the company for the third quarter of 2006 was 81.7%.

As of September 30, 2006, the company's total cash and time deposit balance was US$478.7 million, an increase of 4.8% from US$451.8 million at June 30, 2006. Cash flow generated from operating activities was approximately US$43.6 million, an increase of 16.2% from the previous quarter's US$37.1 million and an 18.9% decrease from US$52.5 million for the third quarter of 2005.

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