Netease.com Reports Increased Quarterly Profit

February 27, 2007

Editorial Staff

Netease.com's (NTES) unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006 show net profit for the quarter increased 1.7% from the preceding quarter.

Total revenues for the fourth quarter ended December 31, 2006 were CNY540.3 million compared with CNY571.9 million for the third quarter of 2006, representing a decrease of 5.5%. Total revenues increased 10.9% from CNY487.3 million for the fourth quarter of 2005.

Revenues from online games were CNY451.6 million for the fourth quarter of 2006, representing a decrease of 3.5% from CNY467.9 million for the third quarter of 2006 and an increase of 12.6% over CNY400.9 million for the fourth quarter of 2005. Revenues from advertising services were CNY72.1 million for the fourth quarter of 2006, representing a decrease of 13.5% from CNY83.4 million for the third quarter of 2006 and an increase of 4.3% over CNY69.1 million for the fourth quarter of 2005. Revenues from wireless value-added services and others were CNY16.6 millionfor the fourth quarter of 2006, representing a decrease of 19.4% from CNY20.6 million for the third quarter of 2006 and a decrease of 3.5% from CNY17.2 million for the fourth quarter of 2005.

William Ding, Chief Executive Officer and Director of Netease said, "Overall, we were satisfied with the results of the fourth quarter, and pleased with the strong growth rates in total revenues, online game revenues and net profit achieved for fiscal year 2006. We also made significant progress during the year with regard to our games and game upgrades under development. Tianxia II is on schedule for open beta testing beginning March 1, which we expect will be followed closely by its commercial launch. The testing process for Tianxia II has proceeded smoothly and without interruption, and we are confident in the market potential and player appeal of this next generation online 3D game. During the fourth quarter in 2006, we also made substantial progress with Westward Journey III which will enter internal closed beta testing during the second quarter of this year followed by open beta testing in the third quarter. In addition, the latest expansion pack for Fantasy Westward Journey was released late last month."

Netease's GAAP gross profit for the fourth quarter of 2006 was CNY456.7 million, compared to CNY448.1 million for the third quarter of 2006 and CNY386.2 million (US$47.9 million) for the same period last year. Total GAAP gross margin for the fourth quarter of 2006 was 82.4%, compared to 81.7% for the third quarter of 2006 and 82.6% for the same period last year.

Total GAAP operating expenses for the fourth quarter of 2006 were CNY123.9 million, compared to CNY131.5 million for the third quarter of 2006 and CNY94.9 million for the same period last year. GAAP net profit for the fourth quarter totaled CNY320.2 million, compared to CNY314.8 million for the third quarter of 2006 and CNY276.7 million for the same period last year.

As of December 31, 2006, Netease.com's total cash and time deposit balance was CNY3.9 billion, compared to CNY3.8 billion and CNY3.4 billion as of September 30, 2006 and December 31, 2005, respectively. Cash flow generated from operating activities was approximately CNY531.5 million for the fourth quarter of 2006, compared to CNY344.5 million for the preceding quarter and CNY220.3 million for the fourth quarter of 2005.