0001104659-23-050589 | 20-F | XBRL Viewer

Capital Structure

12 Months Ended

Dec. 31, 2022

20.

Capital Structure

The holders of ordinary shares in the Company are entitled to one vote per share and to receive ratably such dividends, if any, as may be declared by the board of directors of the Company. In the event of liquidation, the holders of ordinary shares are entitled to share ratably in all assets remaining after payment of liabilities. The ordinary shares have no preemptive, conversion, or other subscription rights.

Net Income Per Share (Details) ¥ / shares in Units, $ / shares in Units, ¥ in Thousands, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
Numerator (RMB in thousands):
Net income from continuing operations attributable to the Company's shareholders	¥ 19,712,736	$ 2,858,078	¥ 16,856,842	¥ 12,062,754
Net income from discontinued operations attributable to the Company's shareholders	624,864	90,597
Net income attributable to the Company's shareholders	¥ 20,337,600	$ 2,948,675	¥ 16,856,842	¥ 12,062,754
Denominator (No. of shares in thousands):
Weighted average number of ordinary shares outstanding, basic (in shares)	3,263,455	3,263,455	3,325,864	3,305,448
Dilutive effect of restricted share units (in shares)	32,559	32,559	41,614	44,311
Weighted average number of ordinary shares outstanding, diluted (in shares)	3,296,014	3,296,014	3,367,478	3,349,759
Net income per share from continuing operations attributable to the Company's shareholders, basic (in CNY per share) \| (per share)	¥ 6.04	$ 0.87	¥ 5.07	¥ 3.65
Net income per share from discontinued operations attributable to the Company's shareholders, basic (in CNY per share) \| (per share)	0.19	0.03
Net income per share, basic (in CNY and dollars per share) \| (per share)	6.23	0.90	5.07	3.65
Net income per share from continuing operations attributable to the Company's shareholders, diluted (in CNY per share) \| (per share)	5.98	0.86	5.01	3.60
Net income per share from discontinued operations attributable to the Company's shareholders, diluted (in CNY per share) \| (per share)	0.19	0.03
Net income per share, diluted (in CNY and dollars per share) \| (per share)	¥ 6.17	$ 0.89	¥ 5.01	¥ 3.60
Anti-dilutive restricted share units excluded from the calculation of diluted net income per share (in shares)	11,300	11,300	6,700	6,000

Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2022

Financial Instruments

Schedule of financial instruments measured at fair value

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2021 (in thousands):


	Fair Value Measurements
		(RMB)
		Quoted Prices in
		Active Market	Significant Other	Significant
		for Identical	Observable	Unobservable
		Assets	Inputs	Inputs
	Total	(Level 1)	(Level 2)	(Level 3)
Equity investments with readily determinable fair values	5,886,911	5,886,911	—	—
Short-term investments	12,281,548	—	12,281,548	—
Investments accounted for at fair values	194,280	—	—	194,280
Total	18,362,739	5,886,911	12,281,548	194,280

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2022 (in thousands):


	Fair Value Measurements
		(RMB)
		Quoted Prices in
		Active Market	Significant Other	Significant
		for Identical	Observable	Unobservable
		Assets	Inputs	Inputs
	Total	(Level 1)	(Level 2)	(Level 3)
Equity investments with readily determinable fair values	2,567,268	2,567,268	—	—
Short-term investments	7,622,673	—	7,622,673	—
Investments accounted for at fair values	246,073	—	—	246,073
Total	10,436,014	2,567,268	7,622,673	246,073

Long-term Investments - Additional information (Details) $ in Thousands	1 Months Ended		12 Months Ended
	Jul. 31, 2015 CNY (¥)	Aug. 31, 2013 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥) LimitedPartnership	Dec. 31, 2020 CNY (¥)
Investments in equity method investees
Consideration in cash			¥ 705,907,000	$ 102,347	¥ 1,124,429,000	¥ 345,662,000
Equity investments with readily determinable fair values
Fair value gain/(loss) of equity investments with readily determinable fair values			(3,414,700,000)		91,100,000	720,600,000
Investment income, net
Investments in equity method investees
Equity share of earnings			1,259,900,000		1,575,500,000	172,500,000
Equity investments without readily determinable fair value
Upward adjustments to the carrying value of equity securities without readily determinable fair value			0		380,800,000	0
Gain related to the disposal of the Group's investments in equity securities without readily determinable fair value			1,784,900,000		172,500,000	36,100,000
Yixin
Investments in equity method investees
Consideration in cash	¥ 127,500,000	¥ 200,000,000.0
Percentage of equity interest acquired	35.00%	27.00%
Impairment of equity investment			197,700,000
Limited partnership invested to operate online game business
Investments in equity method investees
Aggregated cash consideration					¥ 1,643,200,000
Number of limited partnerships invested \| LimitedPartnership					5
Limited partnerships invested to operate online game business, one
Investments in equity method investees
Consideration in cash			32,900,000
Limited partnerships invested to operate online game business, two
Investments in equity method investees
Consideration in cash			58,100,000
Limited partnerships invested to operate online game business, three
Investments in equity method investees
Consideration in cash			121,400,000
Alibaba
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			1,099,000,000.0
Huatai
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			374,100,000
Cash dividends received			21,100,000		¥ 18,900,000	12,700,000
Shenzhen Transsion Holding Limited
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			283,300,000
AppLovin Corporation
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			257,700,000
Embracer Group AB
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			247,500,000
Devolver Digital, Inc
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			187,800,000
tinyBuild Inc
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values			117,900,000
Certain of equity investments \| Investment income, net
Equity investments without readily determinable fair value
Impairment provision related to certain of the equity investments without readily determinable fair value			¥ 85,200,000		¥ 19,200,000	¥ 55,600,000

Short-term Loans

12 Months Ended

Dec. 31, 2022

Short-term Loans

Short-term Loans

15.

Short-term Loans

As of December 31, 2021 and 2022, the short-term loans balances represent short-term loan arrangements with banks which were repayable within a maturity term ranging from one week to one year and charged at a fixed interest rates ranging 0.65% and 5.13% per annum. As of December 31, 2021 and 2022, the weighted average interest rate for the outstanding short-term loans was approximately 0.79% and 4.36%, respectively. The short-term loans are denominated in US$ and other currencies.

On August 9, 2018, the Group entered into a three-year US$500 million syndicated facility agreement with a group of four mandated lead arrangers and bookrunners. The facility is priced at 95 basis points over London interbank offered rate (“LIBOR”) and has a commitment fee of 0.20% on the undrawn portion. This syndicated facility agreement was expired on August 9, 2021.

In 2022, the Group also entered into several uncommitted loan credit facility agreements provided by certain financial institutions. As of December 31, 2022, US$2,084.7 million of such credit facilities has not been utilized.

In 2022, the Group also entered into several guarantee agreements in the aggregate amount of US$2,575.0 million in respect of certain credit facilities taken by its subsidiaries. As at December 31, 2022, US$461.0 million of such credit facilities had not been utilized.

Noncontrolling Interests and Redeemable Noncontrolling Interests

12 Months Ended

Dec. 31, 2022

Noncontrolling Interests and Redeemable Noncontrolling Interests

Noncontrolling interests and redeemable noncontrolling interests

19.	Noncontrolling Interests and Redeemable Noncontrolling Interests

Cloud Music

In 2018 and 2019, Cloud Music issued preferred shares (“Cloud Music Preferred Shares”) to certain investors for an aggregated cash consideration of US$716.3 million and US$711.6 million, respectively.

In 2020, pursuant to the agreements entered between one of the redeemable noncontrolling interest and Cloud Music, Cloud Music repurchased this redeemable noncontrolling interest at a cash consideration of US$66.3 million. The Group accounted for the repurchase as an equity transaction, no gains or losses were recognized from the repurchase. The excess of the consideration transferred over the carrying amount of the redeemable noncontrolling interests surrendered, amounting to RMB207.0 million was recognized as a deemed dividend to preferred shareholders, among which RMB204.7 million attributable to the Company’s shareholders also reduces the numerator for EPS calculation.

The Cloud Music Preferred Shares were entitled to certain preferences and privileges with respect to redemption. The Group determined that the preferred shares should be classified as redeemable noncontrolling interests since they are contingently redeemable upon the occurrence of a conditional event or a deemed redemption event, which is not solely within the control of the Group. The redemption price equals to the net initial investment amount plus annual interests, if any. Upon completion of the IPO of Cloud Music in December 2021, all Cloud Music Preferred Shares held by external preferred shareholders were automatically re-designated and converted on a one-for-one basis into ordinary shares of Cloud Music.

Youdao

In April 2018, Youdao issued equity interests with preferential rights (“Youdao Preferred Shares”) to two investors for a total cash consideration of US$70.0 million. The Group determined that the equity interests with preferential rights should be classified as redeemable noncontrolling interest since they are contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of the Company. The redemption price equals to the net initial investment amount plus annual interests. Upon completion of the IPO of Youdao in October 2019, all Youdao Preferred Shares held by external preferred shareholders were automatically re-designated and converted on a one-for-one basis into Class A ordinary shares of Youdao.

Each issuance of the preferred shares is recognized at the respective issue price at the date of issuance net of issuance costs. The Group records accretions on the redeemable noncontrolling interest to the redemption value from the issuance dates to the earliest redemption dates if redemption is probable. The accretions using the effective interest method, are recorded as deemed dividends to preferred shareholders, which reduces retained earnings and equity classified noncontrolling interests, and earnings available to common shareholders in calculating basic and diluted earnings per share.

Taxation

12 Months Ended

Dec. 31, 2022

Taxation

Taxation

13.

Taxation

(a)

Income taxes

Cayman Islands

Under the current laws of the Cayman Islands, the Company, and its intermediate holding companies in the Cayman Islands are not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company or its subsidiaries in the Cayman Islands to their shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands (“BVI”)

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.

Hong Kong

Subsidiaries in Hong Kong are subject to 16.5% income tax on their taxable income generated from operations in Hong Kong. For the years ended December 31, 2020, 2021 and 2022, the first HK$2 million of profits earned by one of the Company’s subsidiaries incorporated in Hong Kong is taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. The payments of dividends by these companies to their shareholders are not subject to any Hong Kong withholding tax.

China

Under the EIT Law, Foreign Invested Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of 25%. Preferential tax treatments will continue to be granted to FIEs or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as “Software Enterprises”, “Key Software Enterprises” and/or “High and New Technology Enterprises” (“HNTEs”). The EIT Law became effective on January 1, 2008.

Boguan, NetEase Hangzhou and certain other PRC subsidiaries were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2020, 2021 and 2022. In 2020, Boguan, NetEase Hangzhou and certain other PRC subsidiaries were also qualified as a Key Software Enterprise to enjoy preferential tax rate of 10% for 2019. The related tax benefit was recorded in 2020. The Key Software Enterprise status is subject to review by the relevant authorities every year. In 2021 and 2022, no subsidiaries were qualified as a Key Software Enterprise for 2020 and 2021, respectively.

The aforementioned preferential tax rates are subject to annual review by the relevant tax authorities in China.

The following table presents the combined effects of EIT exemptions and tax rate reductions enjoyed by the Group for the years ended December 31, 2020, 2021 and 2022 (in thousands except per share data):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Aggregate amount of EIT exemptions and tax rate reductions	1,969,414	2,238,907	2,631,764
Earnings per share effect, basic	0.60	0.67	0.81
Earnings per share effect, diluted	0.59	0.66	0.80

The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Current tax expense	2,953,670	3,720,321	4,542,168
Deferred tax expense	88,179	407,948	489,670
Income tax expenses	3,041,849	4,128,269	5,031,838

The following table presents a reconciliation of the differences between the statutory income tax rate and the Group’s effective income tax rate for the years ended December 31, 2020, 2021 and 2022:


	For the year ended December 31,
	2020	2021	2022
	%	%	%
Statutory income tax rate	25.0	25.0	25.0
Permanent differences	(1.9)	(2.7)	(5.0)
Effect due to different tax rates applicable to overseas entities	(0.5)	(1.8)	0.2
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs	(16.5)	(10.1)	(10.1)
Change in valuation allowance	6.8	3.9	1.8
Effect of withholding income tax ^(d)	6.9	5.3	8.8
Effective income tax rate	19.8	19.6	20.7

As of December 31, 2022, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands):


		RMB
Loss expiring in 2023		3,371,946
Loss expiring in 2024		3,054,886
Loss expiring in 2025		2,191,529
Loss expiring in 2026		2,571,936
Loss expiring after 2027		3,934,633
		15,124,930

Full valuation allowance was provided on the related deferred tax assets as the Group’s management does not believe that sufficient positive evidence exists to conclude that recoverability of such deferred tax assets is more likely than not to be realized.

(b)

Sales tax

Pursuant to the provision regulation of the PRC on VAT and its implementation rules, the Company’s subsidiaries and the VIEs are generally subject to VAT at a rate of 6% from revenues earned from services provided or 16% from sales of general goods, which was reduced to 13% effective from 1 April, 2019.

(c)

Deferred tax assets and liabilities

The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Deferred tax assets:
Contract liabilities, primarily for advanced payments from online games customers	776,719	1,009,624
Accruals	641,198	654,348
Depreciation of fixed assets	11,557	4,883
Amortization of intangible assets	4,331	2,217
Net operating tax loss carry forward	3,513,019	3,781,233
	4,946,824	5,452,305
Less: valuation allowance	(3,648,870)	(3,971,516)
Total	1,297,954	1,480,789


	December 31,	December 31,
	2021	2022
	RMB	RMB
Deferred tax liabilities:
Withholding income tax^(d)	1,257,552	1,947,190
Others	88,322	178,930
Total	1,345,874	2,126,120

The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of deferred tax assets of certain entities of the Group is more likely than not to be realized. Consequently, the Group has provided full valuation allowances for certain entities of the Group on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented (in thousands):


	Balance at	Provision	Balance at
	January 1	for the year	December 31
	RMB	RMB	RMB
2020	2,148,879	1,106,975	3,255,854
2021	3,255,854	393,016	3,648,870
2022	3,648,870	322,646	3,971,516

(d)

Withholding income tax

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. On February 22, 2008, the Ministry of Finance and State Taxation Administration jointly issued a circular which stated that for FIEs, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors.

The Group accrued RMB1,056.9 million, RMB1,124.4 million and RMB2,144.4 million (US$310.9 million) withholding tax liabilities associated with all of its earnings expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes in 2020, 2021 and 2022, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2020, 2021 and 2022.

As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 21
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 11.C)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 17
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 14
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 270
-Section 50
-Paragraph 1
-URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-URI https://asc.fasb.org/topic&trid=2144680

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 30
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

+ Details

Principal Accounting Policies - Basis of presentation (Details)	Oct. 01, 2020	Sep. 30, 2020
Principal Accounting Policies
ADS to ordinary share ratio	5	25

Principal Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2022

Principal Accounting Policies

Schedule of restricted cash balance

As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Customer deposit of NetEase Pay accounts	2,091.3	2,627.5
Deposit required by the PRC government authorities related to Youdao’s educational services	749.8	0.9
Others	36.9	70.9
Total	2,878.0	2,699.3

Schedule of movements of the allowance for expected credit losses

The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Balance at the beginning of year	77,147	113,253	369,982
Provisions	40,600	265,930	61,393
Write-offs	(4,494)	(9,201)	(28,015)
Balance at the end of year	113,253	369,982	403,360

Schedule of property, equipment and software useful lives


Building		20 years
Decoration		5 years
Leasehold improvements		lesser of the term of the lease and the estimated useful lives of the assets
Furniture, fixtures, office and other equipment		3-10 years
Vehicles		5 years
Servers and computers		3 years
Software		3 years

Schedule of intangible assets and its estimated useful life


License right		over the license period
Technology		7-10 years
Trademark		10 years

Long-term loans (Details) - Term loan facility and revolving loan facility agreement - USD ($)	Jun. 02, 2021	Dec. 31, 2022	Dec. 31, 2021
Long-term loans
Maturity term	5 years
Aggregate commitments	$ 1,000,000,000.0
Commitment fee	0.20%
Borrowings outstanding		$ 500,000,000.0	$ 200,000,000.0
Pledge		$ 0	$ 0
LIBOR
Long-term loans
Basis points	0.85%

- Definition

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

+ References + Details

Organization and Nature of Operations (Details) $ / shares in Units, $ in Millions	1 Months Ended
	Jun. 30, 2020 HKD ($) $ / shares shares	Apr. 30, 2009 employee
HZ Leihuo
Principle subsidiaries and variable interest entities
Number of employees incorporating new entity \| employee		2
Global offering on the main board of the Hong Kong Stock Exchange \| Ordinary shares
Principle subsidiaries and variable interest entities
Issuance of shares in Hong Kong (in shares) \| shares	197,202,000
Share price (in HK dollars per share) \| $ / shares	$ 123.00
Gross proceeds from issuance of stock \| $	$ 24,255.8

Discontinued operations

12 Months Ended

Dec. 31, 2022

Discontinued operations

Discontinued operations

3.	Discontinued operations

In 2022, the Company recognized net income from discontinued operations of RMB624.9 million (US$90.6 million) which was related to the disposal of the Kaola business in 2019.

Dividends

12 Months Ended

Dec. 31, 2022

Dividends

Dividends

25.	Dividends

Quarterly Dividend Policy

Under the Company’s current dividend policy, the determination to make dividend distributions and the amount of such distributions in any particular quarter will be made at the discretion of the Company’s board of directors and will be based upon its operations and earnings, cash flow, financial condition, capital and other reserve requirements and surplus, any applicable contractual restrictions, the ability of the Company’s PRC subsidiaries to make distributions to their offshore parent companies, and any other conditions or factors which the board deems relevant and having regard to the directors’ fiduciary duties. Prior to the Company’s current dividend policy, the Company’s board of directors determined that quarterly dividends for each quarter in 2020 and 2021 was set at an amount equivalent to approximately 20%-30% of the Company’s anticipated net income after tax in that fiscal quarter.

Dividends are recognized when declared. There is no significant dividend payable as of December 31, 2021 and 2022, respectively. The cash dividend declared related to the net profits of fiscal year 2021 and fiscal year 2022 was RMB4,931.0 million and RMB6,252.5 million (US$906.5 million) in total, respectively.

Leases (Details)
¥ in Thousands, $ in Thousands

12 Months Ended

Dec. 31, 2022

CNY (¥)

Dec. 31, 2021

CNY (¥)

Dec. 31, 2020

CNY (¥)

Dec. 31, 2022

USD ($)

Leases

Operating lease right-of-use assets, net

¥ 887,977

¥ 1,044,152

$ 128,745

Options to terminate the leases (true or false)

true

Operating lease cost

^[1]

¥ 528,474

580,375

¥ 433,412

Cash paid for amounts included in the measurement of operating lease liabilities

471,214

503,127

323,836

Right-of-use assets obtained in exchange for operating lease obligations

336,381

763,919

658,168

Short-term lease cost

¥ 27,400

¥ 31,400

27,600

Weighted average remaining lease term (in years)

3 years 2 months 19 days

2 years 10 months 2 days

3 years 2 months 19 days

Weighted average discount rate

3.82%

3.95%

3.82%

Equal to or more than

Leases

Remaining lease terms (in months or years)

1 month

Less than

Leases

Remaining lease terms (in months or years)

68 years

Land use rights

Leases

Amortization expenses of land use rights

¥ 91,800

¥ 87,400

¥ 84,700

ASU No. 2016-02 | Cumulative effect of changes in accounting principles | Land use rights

Leases

Operating lease right-of-use assets, net

¥ 4,121,800

¥ 4,108,100

[1]	Included short-term lease cost of RMB27.6 million, RMB31.4 million and RMB27.4 million and amortization expenses of land use rights of RMB84.7 million, RMB87.4 million and RMB91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively.

Prepayments and Other Current Assets (Details) $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Prepayments and Other Current Assets
Guarantee payment made to Blizzard - royalty fees	¥ 634,909,000		¥ 319,210,000
Prepayment for royalties, revenue sharing cost	1,787,638,000		2,635,766,000
Receivable due from Alibaba	38,366,000		837,148,000
Interest and other operating income receivable	1,373,854,000		676,714,000
Prepayments of content and marketing cost and other operational expenses	725,183,000		826,220,000
Prepayment for sales tax and deductible value added tax	492,552,000		483,397,000
Bridge loans in connection with ongoing investments	43,313,000		41,835,000
Deposits	68,285,000		86,621,000
Employee advances	61,480,000		67,848,000
Advance to suppliers	105,903,000		134,712,000
Others	116,801,000		126,386,000
Prepayments and other current assets	5,448,284,000	$ 789,927	6,235,857,000
Staff housing loans outstanding repayable within 12 months	22,700,000		29,200,000
Advances made directly or indirectly to the executive officers for their personal benefit	¥ 0		¥ 0

Consolidated Statements of Shareholders' Equity ¥ in Thousands, $ in Thousands	Ordinary shares CNY (¥) shares	Additional paid-in capital CNY (¥)	Treasury stock CNY (¥) shares	Statutory reserves CNY (¥)	Accumulated other comprehensive (loss)/income CNY (¥)	Retained earnings CNY (¥)	Noncontrolling interests CNY (¥)	CNY (¥) shares	USD ($) shares
Balance at Dec. 31, 2019	¥ 2,640	¥ 3,913,656		¥ 1,215,208	¥ (71,445)	¥ 56,393,640	¥ 1,139,156	¥ 62,592,855
Balance (in shares) at Dec. 31, 2019 \| shares	3,228,531,000
Vesting of restricted share units	¥ 15	(827,722)	¥ 827,707
Vesting of restricted share units (in shares) \| shares	20,578,000		8,582,000
Issuance of shares in Hong Kong, net of issuance costs	¥ 139	21,883,804						21,883,943
Issuance of shares in Hong Kong, net of issuance costs (in shares) \| shares	197,202,000
Share-based compensation		2,543,435					71,943	2,615,378
Appropriation to statutory reserves				13,240		(13,240)
Net income/(loss) attributable to the Company and noncontrolling interest shareholders						12,849,783	(519,548)	12,330,235
Repurchase of shares			¥ (11,273,814)					(11,273,814)
Repurchase of shares (in shares) \| shares			(105,558,000)
Repurchase of noncontrolling interest and redeemable noncontrolling interests		(18,852)				(204,705)	(2,496)	(226,053)
Change of capital from noncontrolling interest shareholders		335,110					214,203	549,313
Dividends to shareholders						(4,280,465)		(4,280,465)
Foreign currency translation adjustment					(579,012)		(19,096)	(598,108)
Accretion of redeemable noncontrolling interests						(582,324)	(13,156)	(595,480)
Balance at Dec. 31, 2020	¥ 2,794	27,829,431	¥ (10,446,107)	1,228,448	(650,457)	64,162,689	871,006	82,997,804
Balance (in shares) at Dec. 31, 2020 \| shares	3,446,311,000
Balance (in shares) at Dec. 31, 2020 \| shares			(96,976,000)
Vesting of restricted share units		(2,714,220)	¥ 2,714,220
Vesting of restricted share units (in shares) \| shares			25,335,000
Share-based compensation		2,354,851					601,183	2,956,034
Appropriation to statutory reserves				16,677		(16,677)
Net income/(loss) attributable to the Company, noncontrolling and redeemable noncontrolling interest shareholders						17,393,823	(389,857)	17,003,966
Repurchase of shares			¥ (12,770,301)					(12,770,301)
Repurchase of shares (in shares) \| shares			(100,835,000)
Repurchase of noncontrolling interest and redeemable noncontrolling interests		(53,743)					1,514	(52,229)
Change of capital from noncontrolling interest shareholders		1,694,471					1,142,239	2,836,710
Conversion of Cloud Music's preferred shares recognized as redeemable noncontrolling interests to ordinary shares		8,805,149					2,473,352	11,278,501
Dividends to shareholders						(3,508,379)		(3,508,379)
Dividends to noncontrolling interest shareholders							(731,250)	(731,250)
Foreign currency translation adjustment					(177,608)		(5,582)	(183,190)
Accretion of redeemable noncontrolling interests						(536,981)	(12,047)	(549,028)
Balance at Dec. 31, 2021	¥ 2,794	37,915,939	¥ (20,502,188)	1,245,125	(828,065)	77,494,475	3,950,558	¥ 99,278,638
Balance (in shares) at Dec. 31, 2021 \| shares	3,446,311,000							3,273,835,376	3,273,835,376
Balance (in shares) at Dec. 31, 2021 \| shares			(172,476,000)
Vesting of restricted share units		(2,569,917)	¥ 2,569,917
Vesting of restricted share units (in shares) \| shares	518,000		22,632,000
Share-based compensation		2,763,611					277,999	¥ 3,041,610
Appropriation to statutory reserves				33,541		(33,541)
Net income/(loss) attributable to the Company, noncontrolling and redeemable noncontrolling interest shareholders						20,340,578	(483,268)	19,857,310
Repurchase of shares			¥ (8,006,226)					(8,006,226)
Repurchase of shares (in shares) \| shares			(73,361,000)
Cancellation of repurchased shares	¥ (84)	(15,027,659)	¥ 15,027,743
Cancellation of repurchased shares (in shares) \| shares	(125,553,000)		125,553,000
Repurchase of noncontrolling interest and redeemable noncontrolling interests		(273,319)					(35,259)	(308,578)
Change of capital from noncontrolling interest shareholders		45,579					116,374	161,953
Dividends to shareholders						(6,723,859)		(6,723,859)
Foreign currency translation adjustment					1,259,851		181,563	1,441,414
Accretion of redeemable noncontrolling interests						(2,978)	(2,244)	(5,222)
Balance at Dec. 31, 2022	¥ 2,710	¥ 22,854,234	¥ (10,910,754)	¥ 1,278,666	¥ 431,786	¥ 91,074,675	¥ 4,005,723	¥ 108,737,040	$ 15,765,389
Balance (in shares) at Dec. 31, 2022 \| shares	3,321,276,000							3,223,623,596	3,223,623,596
Balance (in shares) at Dec. 31, 2022 \| shares			(97,652,000)

Taxes Payable

12 Months Ended

Dec. 31, 2022

Taxes Payable

Taxes Payable

14.

Taxes Payable

The following is a summary of taxes payable as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Sales Tax payable	681,815	290,272
Withholding individual income taxes for employees	263,845	306,861
EIT payable	3,459,307	2,116,014
Others	132,083	99,949
	4,537,050	2,813,096

Prepayments and Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2022

Prepayments and Other Current Assets

Summary of prepayments and other current assets

The following is a summary of prepayments and other current assets (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Guarantee payment made to Blizzard - royalty fees	319,210	634,909
Prepayment for royalties, revenue sharing cost	2,635,766	1,787,638
Receivable due from Alibaba	837,148	38,366
Interest and other operating income receivable	676,714	1,373,854
Prepayments of content and marketing cost and other operational expenses	826,220	725,183
Prepayment for sales tax and deductible value added tax	483,397	492,552
Bridge loans in connection with ongoing investments	41,835	43,313
Deposits	86,621	68,285
Employee advances	67,848	61,480
Advance to suppliers	134,712	105,903
Others	126,386	116,801
	6,235,857	5,448,284

Segment Information

12 Months Ended

Dec. 31, 2022

Segment Information

Segment Information

28.

Segment Information

(a)

Description of segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Chief Executive Officer.

The Group’s organizational structure is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but are not limited to, customer base, homogeneity of products and technology. The Group’s operating segments are based on this organizational structure and information reviewed by the Group’s CODM to evaluate the operating segment results.

Effective in the fourth quarter of 2021, the Group changed its segment disclosure to separately report the results of Cloud Music. Effective in the second quarter of 2022, the Company renamed its “online game services” segment as “games and related value-added services,” and transferred certain business lines that are related or ancillary to its games from “innovative businesses and others” to “games and related value-added services,” including the NetEase CC live streaming service and other value-added services. As a result, the Group now reports segments as games and related value-added services, Youdao, Cloud Music and innovative businesses and others. This change in segment reporting aligns with the manner in which the Group’s CODM currently receives and uses financial information to allocate resources and evaluate the performance of reporting segments. This change in segment presentation does not affect consolidated balance sheets, consolidated statements of operations and comprehensive income or consolidated statements of cash flows. The Group retrospectively recast prior years segment information, to conform to current year presentation.

(b)

Segment data

The table below provides a summary of the Group’s operating segment results for the years ended December 31, 2020, 2021 and 2022. The Group does not allocate any operating costs or assets to its business segments as the Group’s CODM does not use this information to measure the performance of the operating segments. There was no significant transaction between reportable segments for the years ended December 31, 2020, 2021 and 2022 (in thousands).


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net revenues:
Games and related value-added services	58,719,895	67,819,288	74,566,471
Youdao	3,167,515	5,354,357	5,013,182
Cloud Music	4,895,731	6,997,622	8,992,221
Innovative businesses and others	6,883,992	7,434,759	7,923,935
Total net revenues	73,667,133	87,606,026	96,495,809

Cost of revenues:
Games and related value-added services	(22,730,558)	(26,007,412)	(27,784,419)
Youdao	(1,713,229)	(2,448,146)	(2,430,738)
Cloud Music	(5,491,066)	(6,854,948)	(7,699,103)
Innovative businesses and others	(4,748,878)	(5,324,719)	(5,815,423)
Total cost of revenues	(34,683,731)	(40,635,225)	(43,729,683)

Gross profit:
Games and related value-added services	35,989,337	41,811,876	46,782,052
Youdao	1,454,286	2,906,211	2,582,444
Cloud Music	(595,335)	142,674	1,293,118
Innovative businesses and others	2,135,114	2,110,040	2,108,512
Total gross profit	38,983,402	46,970,801	52,766,126

The following table set forth the disaggregation of net revenues by timing of revenue recognition for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
A point in time	15,911,575	19,581,668	23,322,675
Over time	57,755,558	68,024,358	73,173,134
Total Net revenue	73,667,133	87,606,026	96,495,809

The following table presents the total depreciation expenses of property and equipment recorded under cost of revenues by segment for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Games and related value-added services	270,457	278,780	339,300
Youdao	7,239	9,330	11,610
Cloud Music	6,878	3,827	6,044
Innovative businesses and others	189,536	114,442	129,693
Total depreciation expenses of property and equipment	474,110	406,379	486,647

As substantially all of the Group’s long-lived assets are located in the PRC and substantially all of the Group’s revenue of reportable segments are derived from China based on the geographical locations where services and products are provided to customers, no geographical information is presented.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8924-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8981-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8721-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9031-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (e)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 26
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8844-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9038-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8736-108599

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9054-108599

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8657-108599

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8721-108599

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-URI https://asc.fasb.org/topic&trid=2134510

+ Details

Leases

12 Months Ended

Dec. 31, 2022

Leases

Leases

10.Leases

The Group has operating leases for corporate offices, warehouses and retail stores. In addition, upon the adoption of ASC 842, land use rights with total carrying amount of RMB4,108.1 million and RMB4,121.8 million (Note 9) were identified as operating lease right-of-use assets as of December 31, 2021 and 2022, respectively.

The Group’s leases have remaining lease terms of 1 months to 68 years, some of which include options to terminate the leases within certain periods. The Group considers these options in determining the classification and measurement of the leases when it is reasonably certain that the Group will exercise that option.

The following table provides information related to the Group’s operating leases (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Operating lease cost ⁽ⁱ⁾	433,412	580,375	528,474
Cash paid for amounts included in the measurement of operating lease liabilities	323,836	503,127	471,214
Right-of-use assets obtained in exchange for operating lease obligations	658,168	763,919	336,381

(i)	Included short-term lease cost of RMB27.6 million, RMB31.4 million and RMB27.4 million and amortization expenses of land use rights of RMB84.7 million, RMB87.4 million and RMB91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively.

The following table provides a summary of the Group’s operating lease terms and discount rates, which excludes the land use rights, as of December 31, 2021 and 2022:


	December 31,		December 31,
	2021		2022
Weighted average remaining lease term	2.84 years		3.22 years
Weighted average discount rate	3.95	%	3.82	%

Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands):


		RMB
2023		297,607
2024		232,019
2025		138,099
2026		102,114
2027		76,546
Thereafter		183,808
Total operating lease payments		1,030,193
Less: imputed interest		(98,500)
Total		931,693

Principal Accounting Policies - Revenue recognition, cost of revenues and cash, cash equivalents and time deposits (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) item	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)
Revenue recognition
Number of revenue models used for PC-client game services \| item	2
Practical expedients - financing component	true
Practical expedients - costs to obtain a contract	true
Cash, cash equivalents and time deposits
Cash at bank and demand deposits	¥ 24,889,000	$ 3,608,566	¥ 14,498,157
PRC subsidiaries and VIEs
Cash, cash equivalents and time deposits
Cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs \| ¥	¥ 48,100,000		¥ 40,500,000
Percentage of cash and cash equivalent and time deposits held by PRC subsidiaries and VIEs	42.60%	42.60%	44.40%	44.40%
Denominated in U.S. dollars
Cash, cash equivalents and time deposits
Cash at bank and demand deposits	¥ 4,344,700	$ 623,800	¥ 2,540,300	$ 398,400
Time deposits	¥ 58,648,900	$ 8,421,000	¥ 43,654,400	$ 6,847,000
Less than
Revenue recognition
Term of sublicenses of music contents	3 years
Term of advertising service contracts	3 months
Equal to or more than
Revenue recognition
Term of sublicenses of music contents	1 year

Acquisition

12 Months Ended

Dec. 31, 2022

Acquisition

Acquisition

4.	Acquisition

Major acquisition in 2020

In 2020, the Group acquired an additional 33.1% equity interest of a previously held equity investment with total cash consideration of RMB168.3 million. Upon the acquisition, the Group increased its equity interest in this investment from 30.0% to 63.1%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB130.1 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2020.

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):


		Amounts
		RMB
Net assets acquired ⁽ⁱ⁾		16,440
Amortizable intangible assets ⁽ⁱⁱ⁾
Trademark		59,300
Developed technology		182,200
Deferred tax liabilities		(60,375)
Goodwill		311,109
Noncontrolling interests		(187,762)
Total		320,912

(i)	Net assets acquired mainly included cash and cash equivalents as of the date of acquisition.

(ii)	Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”.

Acquisitions in 2021

In 2021, the Group completed several acquisitions to complete its existing businesses and achieve synergies. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2021 are summarized in the following table (in thousands):


		Amounts
		RMB
Net assets acquired		76,132
Amortizable intangible assets ⁽ⁱ⁾
Trademark		64,662
Other identified intangible assets		13,750
Deferred tax liabilities		(13,293)
Goodwill		276,463
Redeemable noncontrolling interests		(106,368)
Total		311,346

(i)	Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised.

In relation to the revaluation of the previously held equity interests, a loss of RMB2.5 million was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2021.

Acquisitions in 2022

In 2022, the Group completed several acquisitions to complete its existing businesses and achieve synergies. Among them, the Group acquired an additional 50.5% equity interest of a previously held equity investment with total cash consideration of RMB760.4 million. Upon the acquisition, the Group increased its equity interest in this investment from 41.5% to 92.0%, and accounted for it as a consolidated subsidiary of the Group. A gain of RMB310.4 million in relation to the revaluation of the previously held equity interests was recorded in “Investment income, net” in the consolidated statements of operations and comprehensive income for the year ended December 31, 2022. The acquired entities individually and in aggregate were insignificant. The Group’s acquisitions in 2022 are summarized in the following table (in thousands):


		Amounts
		RMB
Net liabilities acquired		(34,671)
Amortizable intangible assets ⁽ⁱ⁾
Trademark		143,146
Other identified intangible assets		525,853
Deferred tax liabilities		(104,137)
Goodwill		1,571,206
Noncontrolling interests		(122,983)
Total		1,978,414

(i)	Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”.

Pro forma results of operations for all the acquisitions have not been presented because they were not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022, either individually or in aggregate.

Organization and Nature of Operations

12 Months Ended

Dec. 31, 2022

Organization and Nature of Operations

Organization and Nature of Operations

1.	Organization and Nature of Operations

(a)

The Group

NetEase.com, Inc. was incorporated in the Cayman Islands on July 6, 1999 and changed its name to “NetEase, Inc.” (“the Company”) with effect from March 29, 2012. The Company completed its initial public offering (“IPO”) in July 2000 in connection with its listing on the Nasdaq National Market (now the Nasdaq Global Select Market) in the United States of America. In June 2020, the Company successfully listed its ordinary shares on the main board of the Hong Kong Stock Exchange with a global offering of 197,202,000 ordinary shares at a price of HK$123.00 per share. Gross proceeds from the global offering, before any underwriting fees and other offering expenses, were approximately HK$24,255.8 million.

As of December 31, 2022, the Company has wholly-owned and majority-owned subsidiaries incorporated in countries and jurisdictions mainly in the People’s Republic of China (“PRC” or “China”, references to “China” and “PRC” are to the People’s Republic of China, excluding, for the purposes of the financial statements only, Hong Kong, Macau and Taiwan), Hong Kong, Cayman Islands and British Virgin Islands (“BVI”). The Company is also the primary beneficiary of a number of variable interest entities (“VIEs”) and consolidate the VIEs for financial reporting. The Company, its subsidiaries and the VIEs are hereinafter collectively referred to as the “Group”.

On October 26, 2019, Youdao, Inc. (“Youdao”), one of the Company’s majority-controlled subsidiaries completed its IPO on the New York Stock Exchange. In February 2021, Youdao completed a follow-on public offering in the New York Stock Exchange. After Youdao’s offerings, the Company continues to control Youdao and consolidates Youdao as its controlling shareholder.

On December 2, 2021, Cloud Village, Inc. (“Cloud Music”), one of the Company’s majority-controlled subsidiaries completed its IPO on the Hong Kong Stock Exchange. After Cloud Music’s offering, the Company continues to control Cloud Music and consolidates Cloud Music as its controlling shareholder.

The major subsidiaries and the VIEs through which the Company conducts its business operations as of December 31, 2022 are described below:


		Place and year of
Major Subsidiaries		Incorporation
Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”)		Guangzhou, China 2003
NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”)		Hangzhou, China 2006
Hong Kong NetEase Interactive Entertainment Limited		Hong Kong, China 2007


		Place and year of
Major VIEs and VIEs’ subsidiaries		Incorporation
Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”)		Guangzhou, China 1997
Hangzhou NetEase Leihuo Technology Co., Ltd. (“HZ Leihuo”, formerly known as Hangzhou NetEase Leihuo Network Co., Ltd.)		Hangzhou, China 2009

Guangzhou NetEase was incorporated in June 1997 in China and owned by William Lei Ding, or Mr. Ding, the Company’s Chief Executive Officer, director and major shareholder, and another Chinese employee of the Group. It is responsible for providing online game and other value-added telecommunication services.

HZ Leihuo was incorporated in April 2009 in China by two Chinese employees of the Group and currently operates the Company’s mobile game business.

The following combined financial information of the VIEs was included in the accompanying consolidated financial statements of the Group as follows (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Cash and cash equivalents	1,541,763	2,303,280
Time deposits	71,000	400,000
Restricted cash	2,846,372	2,654,971
Accounts receivable, net	3,924,446	3,542,272
Inventories	83,672	67,572
Prepayments and other current assets, net	2,522,572	1,867,110
Short-term investments	618,000	73,984
Amounts due from Group companies	7,581,649	9,917,091
Assets held for sale	204	—
Total current assets	19,189,678	20,826,280

Property, equipment and software, net	61,343	78,666
Operating lease right-of-use assets, net	58,872	54,653
Deferred tax assets	124,738	155,595
Restricted cash	479	200
Long-term investments	862,839	885,372
Other long-term assets	385,231	164,968
Total non-current assets	1,493,502	1,339,454

Total assets	20,683,180	22,165,734

Accounts payable	463,601	802,717
Salary and welfare payables	115,707	155,478
Taxes payable	157,137	41,352
Short-term loans	52,963	422
Contract liabilities	10,751,917	11,465,101
Accrued liabilities and other payables	2,945,930	3,809,049
Short-term operating lease liabilities	24,991	20,690
Amounts due to Group companies	3,904,328	3,937,784
Total current liabilities	18,416,574	20,232,593

Long-term operating lease liabilities	34,077	34,291
Other long-term payable	257,874	263,373
Total non-current liabilities	291,951	297,664

Total liabilities	18,708,525	20,530,257


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net revenues
Third-party revenues	61,470,764	74,406,521	82,549,444
Intra-Group revenues	720,398	808,648	817,962
Total net revenues	62,191,162	75,215,169	83,367,406

Cost of revenues and operating expenses
Third-party cost of revenues and operating expenses	(15,430,950)	(17,651,675)	(18,358,287)
Intra-Group cost of revenues and operating expenses related to technical consulting and related service	(45,835,734)	(56,822,482)	(64,777,586)
Other intra-Group cost of revenues and operating expenses	(217,463)	(168,850)	(185,608)
Total cost of revenues and operating expenses	(61,484,147)	(74,643,007)	(83,321,481)

Net income	712,015	624,299	(81,329)


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cash flows from operating activities:
Net cash provided by transactions with third-parties	51,605,737	61,272,031	67,459,864
Net cash used in transactions with intra-Group companies related to technical consulting and related service	(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
Net cash provided by operating activities	1,671,457	1,548,858	788,498

Cash flows from investing activities:
Net cash used in transactions with third-parties	(263,766)	(39,430)	(71,832)
Net cash used in investing activities	(263,766)	(39,430)	(71,832)

Cash flows from financing activities:
Net cash provided by/(used in) transactions with intra-Group companies	273,889	(622,809)	(105,448)
Net cash used in transactions with third-parties	—	(678,287)	(52,541)
Net cash provided by/(used in) financing activities	273,889	(1,301,096)	(157,989)

In accordance with various contractual agreements, the Company has the power to direct the activities of the VIEs and can have assets transferred out of the VIEs. Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective VIEs, except for the registered capital of the VIEs amounting to approximately RMB519.7 million and RMB659.7 million, respectively, as of December 31, 2021 and 2022, as well as certain non-distributable statutory reserves amounting to approximately RMB70.1 million and RMB82.4 million, respectively, as of December 31, 2021 and 2022. As the respective VIEs are incorporated as limited liability companies under the PRC Company Law, creditors do not have recourse to the general credit of the Company for the liabilities of the respective VIEs.

Currently, there are certain contractual arrangements between the Company and several of VIEs which require the Company to provide additional financial support or guarantees to the VIEs, where necessary. Please see Note 1(b) for additional information.

There is no entity in the Company’s group for which the Company has a variable interest but is not the primary beneficiary as of December 31, 2021 and 2022.

(b)

Nature of operations

The Group generates revenues mainly from providing online game services, tutoring services, sales of smart devices, online music services, live streaming services, advertising services, e-commerce and other fee-based premium services.

The industry in which the Group operates is subject to a number of industry-specific risk factors, including, but not limited to, rapidly changing technologies; government regulations of the Internet, online game, online education, online music, live streaming and e-commerce industry in China; numbers of new entrants; dependence on key individuals; competition of similar services from larger companies; customer preferences; and the need for the continued successful development, marketing and selling of its services.

VIE arrangements with major VIEs

The Group conducts its business mainly in China. The Chinese government regulates Internet access, telecommunications services, the distribution of various information and the provision of commerce through strict business licensing requirements and other governmental regulations, which include, among others, those restricting foreign ownership in Chinese companies providing Internet advertising and other Internet or telecommunications value-added services. To comply with the existing Chinese laws and regulations, the Company and certain of its subsidiaries have entered into a series of contractual arrangements with the major VIEs with respect to the operation of the NetEase websites, operation of in-house developed and licensed PC and mobile games, Internet content and wireless value-added services, as well as the provision of advertising services.

Based on the agreements with these VIEs, certain of the Company’s subsidiaries provided technical consulting and related services to these VIEs. The principal agreements that transfer economic benefits of Guangzhou NetEase and HZ Leihuo to the Company and its subsidiaries are:

●

Cooperative agreements with Guangzhou NetEase - under these agreements, certain of the Company’s subsidiaries, including Boguan and NetEase Hangzhou provide various technical consulting and related services to Guangzhou NetEase in exchange for substantially all of Guangzhou NetEase’s net profits.

●

Cooperative agreements with HZ Leihuo - under these agreements, certain of the Company’s subsidiaries, including NetEase Hangzhou provide various technical consulting and related services to HZ Leihuo in exchange for substantially all of HZ Leihuo’s net profits.

Each cooperative agreement will remain in effect indefinitely unless any one of the contract parties terminates such agreement by written notice or otherwise required by law.

Each VIE, the relevant subsidiary of the Company and the relevant VIE shareholders have entered into a series of agreements that provide the Company with the power to direct the activities that most significantly impact the economic performance of the VIEs and provide the Company with economic benefits of these VIEs and as such the Company is the primary beneficiary and consolidate the VIEs for financial reporting. The principal agreements that provide the Company and its subsidiaries with such power and economic benefits over Guangzhou NetEase are:

●

Shareholder Voting Rights Trust Agreement among the VIE shareholders and the Company’s subsidiary, NetEase Information Technology (Beijing) Co., Ltd. (“NetEase Beijing”). Each of the VIE shareholders irrevocably appoints NetEase Beijing to represent him to exercise all the voting rights to which he is entitled as a shareholder of Guangzhou NetEase. The term of this agreement was 10 years from May 12, 2000, which was extended on June 10, 2011 with a term of 20 years from May 12, 2010.

●

Letter of Agreement. Each of the VIE shareholders have agreed that any amendments to be made to the agreements to which the Company, NetEase Beijing and/or their respective affiliates is a party, on the one hand, and any of their variable interest entities and/or the shareholders of such entities, on the other hand, shall be subject to the approval by the vote of a majority of the Board of the Company, excluding the vote of Mr. Ding. The VIE shareholders have also agreed that, if any amendments to the above-mentioned agreements require a vote of the shareholders of the Company or Guangzhou NetEase, as applicable, both of them will vote in their capacity as direct or indirect shareholders of these companies to act based upon the instructions of the Company’s Board. The term of this agreement is 20 years from May 12, 2010.

●

Other Governance Arrangements. The parties have agreed that upon the Company’s determination and at any time when NetEase Beijing or its affiliates are able to obtain approval to invest in and operate all or any part of any business operated by Guangzhou NetEase, NetEase Beijing or its affiliates may acquire all or any part of the assets or equity interests of Guangzhou NetEase, to the extent permitted by Chinese law.

The principal agreements that provide the Company and its subsidiaries with such power and economic benefits over HZ Leihuo are:

●

Operating Agreement among NetEase Hangzhou, HZ Leihuo and the VIE shareholders of Hangzhou Leihuo. To ensure the successful performance of the various agreements between the parties, HZ Leihuo and its VIE shareholders have agreed that, except for transactions in the ordinary course of business, HZ Leihuo will not enter into any transaction that would materially affect the assets, liabilities, rights or operations of HZ Leihuo without the prior written consent of NetEase Hangzhou. NetEase Hangzhou has also agreed that it will provide performance guarantees and, at NetEase Hangzhou’s discretion, guarantee loans for working capital purposes to the extent required by HZ Leihuo for its operations. Furthermore, the VIE shareholders of HZ Leihuo have agreed that, upon instruction from NetEase Hangzhou, they will appoint HZ Leihuo’s board members, president, chief financial officer and other senior executive officers. The term of this agreement is 20 years from December 1, 2015 and can be extended with the written consent of NetEase Hangzhou.

●

Shareholder Voting Rights Trust Agreement among NetEase Hangzhou and the VIE shareholders of HZ Leihuo. Under these agreements, each dated December 1, 2015, each of the VIE shareholders of HZ Leihuo agreed to irrevocably entrust a person designated by NetEase Hangzhou to represent him to exercise all the voting rights and other shareholders’ rights to which he is entitled as a shareholder of HZ Leihuo. Each agreement shall remain effective for as long as the VIE shareholder remains a shareholder of HZ Leihuo unless NetEase Hangzhou unilaterally terminates the agreement by written notice.

●

Exclusive Purchase Option Agreements among NetEase Hangzhou, HZ Leihuo and the VIE shareholders of HZ Leihuo. Under the Exclusive Purchase Option Agreements, each dated December 1, 2015, each of the VIE shareholders has granted NetEase Hangzhou an option to purchase all or a portion of his equity interest in HZ Leihuo at a price equal to the original and any additional paid-in capital paid by the VIE shareholder. In addition, HZ Leihuo has granted NetEase Hangzhou an option to purchase all or a portion of the assets held by HZ Leihuo or its subsidiaries at a price equal to the net book value of such assets. Each of HZ Leihuo and the VIE shareholders of HZ Leihuo agrees not to transfer, mortgage or permit any security interest to be created on any equity interest in or assets of HZ Leihuo without the prior written consent of NetEase Hangzhou. Each Exclusive Purchase Option Agreement shall remain in effect until all of the equity interests in or assets of HZ Leihuo have been acquired by NetEase Hangzhou or its designee or until NetEase Hangzhou unilaterally terminates the agreement by written notice.

The principal agreements amongst the other VIEs, the relevant subsidiaries and VIE shareholders that provide the Company with the power to direct the activities that most significantly impact the economic performance of the VIEs and provide the Company with economic benefits of these VIEs contains substantially the same terms as those aforementioned agreements related to HZ Leihuo, except that contract expiry date varies.

The Company conducts substantially all of its business through the various VIEs discussed above and their subsidiaries, and therefore these companies directly affect the Company’s financial performance and cash flows. As discussed below, if the Chinese government determines the VIE agreements do not comply with applicable laws and regulations and requires the Company to restructure its operations entirely or discontinue all or any portion of its business, or if the uncertainties in the PRC legal system limit the Group’s ability to enforce these contractual agreements, the Group’s business operations will be significantly disrupted and the Group might be unable to consolidate these companies in the future. In the opinion of management, the likelihood of loss in respect of the Group’s current ownership structure or the contractual arrangements with the VIEs is remote.

Risks related to the VIE arrangements

The Company believes that its contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. Mr. Ding, who is the major shareholder of Guangzhou NetEase and certain of the other VIEs, is the largest shareholder of the Company. He therefore has no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if Mr. Ding were to reduce his interest in the Company, his interests may diverge from that of the Company and that may potentially increase the risk that he would seek to act contrary to the contractual terms, for example by influencing the VIEs not to pay the service fees when required to do so. If the VIEs or their respective shareholder fail to perform their respective obligations under the current contractual arrangements, the Company may have to incur substantial costs and expend significant resources to enforce those arrangements and rely on legal remedies under Chinese laws. The Chinese laws, rules and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws, rules and regulations involve substantial uncertainties. These uncertainties may impede the ability of the Company to enforce these contractual arrangements, or suffer significant delay or other obstacles in the process of enforcing these contractual arrangements and materially and adversely affect the results of operations and the financial position of the Company.

In addition, many Chinese regulations are subject to extensive interpretive powers of governmental agencies and commissions, and there are substantial uncertainties regarding the interpretation and application of current and future Chinese laws and regulations. Accordingly, the Company cannot be assured that Chinese regulatory authorities will not ultimately take a contrary view to its belief and will not take action to prohibit or restrict its business activities. The relevant regulatory authorities would have broad discretion in dealing with any deemed violations which may adversely impact the financial statements, operations and cash flows of the Company (including the restriction on the Company to carry out the business). If the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government could potentially:

●

revoke the Group’s business and operating licenses;

●

require the Group to discontinue or restrict operations;

●

restrict the Group’s right to collect revenues;

●

block the Group’s websites;

●

require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the necessary licenses or relocate the Group’s businesses, staff and assets;

●

impose additional conditions or requirements with which the Group may not be able to comply; or

●

take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.

The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the Group to lose the rights to direct the activities of the VIEs or the right to receive their economic benefits, the Group would no longer be able to consolidate the VIEs. The Group does not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of the Company, its subsidiaries or the VIEs. The Company believes the possibility that it will no longer be able to consolidate the VIEs as a result of the aforementioned risks and uncertainties is remote.

Concentrations and Risks (Tables)

12 Months Ended

Dec. 31, 2022

Service providers | Server and bandwidth service provider

Concentrations and Risks

Schedule of concentration risk by risk factor


	For the year ended December 31,
	2020		2021		2022
Total number of telecommunications service providers	87		135		126
Number of service providers, offering 10% or more of the Group’s server and bandwidth service expenditure	3		4		4
Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers	62.3	%	67.2	%	62.7	%

Accounts receivable | Credit risk

Concentrations and Risks

Schedule of concentration risk by risk factor


	December 31,		December 31,
	2021		2022
Distribution channel A	20.2	%	17.8	%

Acquisition (Details) - CNY (¥)
¥ in Thousands

12 Months Ended

Dec. 31, 2022

Dec. 31, 2021

Dec. 31, 2020

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Goodwill

¥ 2,166,486

¥ 595,280

¥ 318,943

Major acquisition in 2020

Acquisition

Equity interest acquired (as a percent)

33.10%

Cash consideration

¥ 168,300

Previously held equity interest in equity investments (as a percent)

30.00%

Equity interest after acquisition (as a percent)

63.10%

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Net assets/(liabilities) acquired

^[1]

¥ 16,440

Deferred tax liabilities

(60,375)

Goodwill

311,109

Noncontrolling interests

(187,762)

Total

320,912

Major acquisition in 2020 | Trademark

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

^[2]

59,300

Major acquisition in 2020 | Developed technology

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

^[2]

182,200

Major acquisition in 2020 | Investment income, net

Acquisition

Gain in relation to the revaluation of the previously held equity interests

¥ 130,100

Acquisitions in 2021

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Net assets/(liabilities) acquired

76,132

Deferred tax liabilities

(13,293)

Goodwill

276,463

Redeemable noncontrolling interests

(106,368)

Total

311,346

Impairment loss on amortizable intangible assets

¥ 56,800

Impairment of Intangible Asset, Finite-Lived, Statement of Income or Comprehensive Income Extensible Enumeration not Disclosed Flag

true

Acquisitions in 2021 | Trademark

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

^[3]

¥ 64,662

Acquisitions in 2021 | Other identified intangible assets

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

^[3]

13,750

Acquisitions in 2021 | Investment income, net

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Loss in relation to the revaluation of the previously held equity interests

¥ 2,500

Acquisitions in 2022

Acquisition

Equity interest acquired (as a percent)

50.50%

Cash consideration

¥ 760,400

Previously held equity interest in equity investments (as a percent)

41.50%

Equity interest after acquisition (as a percent)

92.00%

Gain in relation to the revaluation of the previously held equity interests

¥ 310,400

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Net assets/(liabilities) acquired

(34,671)

Deferred tax liabilities

(104,137)

Goodwill

1,571,206

Noncontrolling interests

(122,983)

Total

1,978,414

Acquisitions in 2022 | Trademark

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

143,146

Acquisitions in 2022 | Other identified intangible assets

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):

Amortizable intangible assets

¥ 525,853

[1]	Net assets acquired mainly included cash and cash equivalents as of the date of acquisition.
[2]	Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”.
[3]	Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised.

Financial Instruments

12 Months Ended

Dec. 31, 2022

Financial Instruments

Financial Instruments

29.

Financial Instruments

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2021 (in thousands):


	Fair Value Measurements
		(RMB)
		Quoted Prices in
		Active Market	Significant Other	Significant
		for Identical	Observable	Unobservable
		Assets	Inputs	Inputs
	Total	(Level 1)	(Level 2)	(Level 3)
Equity investments with readily determinable fair values	5,886,911	5,886,911	—	—
Short-term investments	12,281,548	—	12,281,548	—
Investments accounted for at fair values	194,280	—	—	194,280
Total	18,362,739	5,886,911	12,281,548	194,280

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2022 (in thousands):


	Fair Value Measurements
		(RMB)
		Quoted Prices in
		Active Market	Significant Other	Significant
		for Identical	Observable	Unobservable
		Assets	Inputs	Inputs
	Total	(Level 1)	(Level 2)	(Level 3)
Equity investments with readily determinable fair values	2,567,268	2,567,268	—	—
Short-term investments	7,622,673	—	7,622,673	—
Investments accounted for at fair values	246,073	—	—	246,073
Total	10,436,014	2,567,268	7,622,673	246,073

The rates of interest under the loan agreements with the lending banks were determined based on the prevailing interest rates in the market. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements of short-term bank loans. For other financial assets and liabilities with carrying values that approximate fair value, if measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. As of December 31, 2021 and 2022, certain equity investments without determinable fair value (Note 11) were measured using significant unobservable inputs (Level 3) and written down from their respective carrying value to fair value, with impairment charges of RMB19.2 million and RMB85.2 million incurred and recorded in earnings for the years then ended.

Employee Benefits (Details) - CNY (¥) ¥ in Millions	12 Months Ended
Employee Benefits (Details) - CNY (¥) ¥ in Millions	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Employee Benefits
Contributions to medical and pension schemes	¥ 1,710.4	¥ 1,463.8	¥ 769.4
Other employee benefits	1,202.8	1,044.5	766.8
Total group's employee welfare benefits expense	¥ 2,913.2	¥ 2,508.3	¥ 1,536.2

Consolidated Statements of Cash Flows ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Cash flows from operating activities:
Net income	¥ 19,843,290	$ 2,877,007	¥ 16,976,190	¥ 12,330,235
Net income from discontinued operations	(624,864)	(90,597)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,858,209	414,401	3,275,727	3,457,782
Fair value change of equity security investments	3,104,336	450,086	(471,880)	(720,565)
Impairment losses on investments and other intangible assets	300,249	43,532	100,424	58,395
Share-based compensation cost	3,174,160	460,211	3,041,492	2,663,489
Allowance for expected credit losses	61,393	8,901	265,930	40,600
Losses on disposal of property, equipment and software	3,620	525	54,052	6,482
Unrealized exchange losses/ (gains)	(1,604,260)	(232,596)	488,604	3,102,492
Gains on disposal of long-term investments, business and subsidiaries	(1,791,355)	(259,722)	(186,920)	(27,063)
Deferred income taxes	489,670	70,995	407,948	88,179
Share of results on equity method investees and revaluation results from previously held equity interest	(1,259,941)	(182,674)	(1,573,068)	(302,602)
Fair value changes of short-term investments	(342,642)	(49,678)	(639,757)	(580,732)
Changes in operating assets and liabilities:
Accounts receivable	554,340	80,372	(1,186,586)	(530,413)
Inventories	(27,613)	(4,004)	(343,587)	29,699
Prepayments and other assets	731,100	106,000	640,349	(13,554)
Accounts payable	447,666	64,905	(155,262)	(86,352)
Salary and welfare payables	424,513	61,549	505,334	528,927
Taxes payable	(917,614)	(133,042)	255,060	1,126,648
Contract liabilities	385,396	55,877	1,351,261	2,342,916
Accrued liabilities and other payables	1,899,580	275,413	2,121,416	1,373,608
Net cash provided by operating activities	27,709,233	4,017,461	24,926,727	24,888,171
Cash flows from investing activities:
Purchase of property, equipment and software	(2,100,264)	(304,510)	(1,601,830)	(1,055,572)
Proceeds from sale of property, equipment and software	41,467	6,012	71,524	17,540
Purchase of intangible assets, content and licensed copyrights	(543,220)	(78,759)	(1,508,179)	(2,234,915)
Net change of short-term investments with terms of three months or less	776,357	112,561	3,694,890	(1,655,930)
Purchase of short-term investments with terms over three months	(5,950,000)	(862,669)	(15,285,000)	(19,905,000)
Proceeds from maturities of short-term investments with terms over three months	10,175,160	1,475,260	13,235,845	24,126,210
Investment in equity method investees	(705,907)	(102,347)	(1,124,429)	(345,662)
Investment in other equity investments and acquisition of subsidiaries	(4,423,773)	(641,387)	(5,417,138)	(2,062,030)
Proceeds from disposal of long-term investments, businesses and subsidiaries	2,411,070	349,572	1,115,457	722,076
Placement/rollover of matured time deposits	(98,973,884)	(14,349,864)	(81,298,080)	(91,518,767)
Proceeds from maturities of time deposits	92,247,046	13,374,564	81,307,297	64,880,317
Change in other long-term assets	(323,779)	(46,944)	(268,651)	(160,674)
Net cash used in investing activities	(7,369,727)	(1,068,511)	(7,078,294)	(29,192,407)
Cash flows from financing activities:
Net changes from short-term loans with terms of three months or less	(1,274,043)	(184,719)	(442,207)	3,723,109
Proceed of loans with terms over three months	6,392,695	926,854	4,447,586	1,136,495
Payment of loans with terms over three months	(273,639)	(39,674)	(2,297,135)	(818,539)
Dividends paid to shareholders	(6,723,667)	(974,840)	(3,508,377)	(4,280,462)
Net amounts received from/(paid for) NetEase's issuance of shares in Hong Kong			(13,800)	21,911,815
Repurchase of redeemable noncontrolling interests				(462,650)
Net amounts received/ (paid) related to capital contribution from or repurchase of noncontrolling interests and redeemable noncontrolling interests shareholders	(30,921)	(4,483)	2,870,147	194,307
Dividends paid to noncontrolling interest shareholders			(731,250)
Cash paid for repurchase of NetEase's ADSs/purchase of subsidiaries' ADSs and shares	(8,328,124)	(1,207,464)	(12,910,533)	(11,490,988)
Net cash provided by/(used in) financing activities	(10,237,699)	(1,484,326)	(12,585,569)	9,913,087
Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies	110,403	16,007	(55,354)	161,894
Net increase in cash, cash equivalents and restricted cash	10,212,210	1,480,631	5,207,510	5,770,745
Cash, cash equivalents and restricted cash, at the beginning of the year	17,376,115	2,519,300	12,168,605	6,397,860
Cash, cash equivalents and restricted cash, at end of the year	27,588,325	3,999,931	17,376,115	12,168,605
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net	5,092,391	738,327	3,547,299	2,046,119
Cash paid for interest expenses	588,381	85,307	187,628	246,051
Supplemental schedule of non-cash investing and financing activities:
Fixed asset purchases financed by accounts payable and accrued liabilities	¥ 689,093	$ 99,909	¥ 698,192	¥ 337,333

Principal Accounting Policies - Intangible assets, advertising expenses and foreign currency translation (Details) ¥ in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2022 CNY (¥) $ / ¥	Dec. 31, 2022 USD ($) $ / ¥	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Advertising Expense
Advertising expenses	¥ 5,196.0	$ 753.4	¥ 3,762.8	¥ 3,782.1
Foreign currency translation
Buying rate per US$	6.8972	6.8972
License right
Intangible assets
Estimated useful lives of assets	over the license period	over the license period
Technology \| Equal to or more than
Intangible assets
Estimated useful lives of assets	7 years	7 years
Technology \| Less than
Intangible assets
Estimated useful lives of assets	10 years	10 years
Trademark
Intangible assets
Estimated useful lives of assets	10 years	10 years

Share-based Compensation - Schedule of share-based compensation cost (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Share-based compensation cost
Share-based compensation	¥ 3,174,160	¥ 3,041,492	¥ 2,663,489
Cost of revenues
Share-based compensation cost
Share-based compensation	758,413	833,389	794,855
Selling and marketing expenses
Share-based compensation cost
Share-based compensation	120,171	118,611	102,300
General and administrative expenses
Share-based compensation cost
Share-based compensation	1,214,995	1,105,547	929,013
Research and development expenses
Share-based compensation cost
Share-based compensation	¥ 1,080,581	¥ 983,945	¥ 837,321

Other Long-term Assets (Tables)

12 Months Ended

Dec. 31, 2022

Other Long-term Assets

Summary of other long-term assets

The following is a summary of other long-term assets (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Copyrights, licenses, domain names, trademark and technology	2,617,164	2,117,688
Long-term receivable	58,366	1,638,572
Long-term interest receivables	98,594	100,397
Goodwill	595,280	2,166,486
Staff housing loans	55,275	39,228
Non-current deposits	150,666	174,357
Others	433,111	569,727
	4,008,456	6,806,455

Schedule of goodwill


	December 31,	December 31,
	2021	2022
	RMB	RMB
Beginning balance	318,943	595,280
Additions	276,337	1,571,206
Ending balance	595,280	2,166,486

- Definition

Tabular disclosure of goodwill by reportable segment and in total which includes a rollforward schedule.

+ References

Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 2: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 3: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 4: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 5: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (e)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 6: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 7: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1A
-URI https://asc.fasb.org/extlink&oid=121556970&loc=SL108378252-109267

Reference 8: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (f)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 9: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

Reference 10: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 2
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13854-109267

Reference 11: http://www.xbrl.org/2003/role/exampleRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 55
-Paragraph 24
-URI https://asc.fasb.org/extlink&oid=122137925&loc=d3e14258-109268

Reference 12: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=121556970&loc=d3e13816-109267

+ Details

Net Income Per Share

12 Months Ended

Dec. 31, 2022

Net Income Per Share

Net Income Per Share

23.

Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2020, 2021 and 2022:


	For the year ended December 31,
	2020	2021	2022
Numerator (RMB in thousands):
Net income from continuing operations attributable to the Company’s shareholders	12,062,754	16,856,842	19,712,736
Net income from discontinued operations attributable to the Company’s shareholders	—	—	624,864
Net income attributable to the Company’s shareholders for basic/dilutive net income per share calculation	12,062,754	16,856,842	20,337,600

Denominator (No. of shares in thousands):
Weighted average number of ordinary shares outstanding, basic	3,305,448	3,325,864	3,263,455
Dilutive effect of restricted share units	44,311	41,614	32,559
Weighted average number of ordinary shares outstanding, diluted	3,349,759	3,367,478	3,296,014
Net income per share from continuing operations attributable to the Company’s shareholders, basic (RMB)	3.65	5.07	6.04
Net income per share from discontinued operations attributable to the Company’s shareholders, basic (RMB)	—	—	0.19
Net income per share, basic (RMB)	3.65	5.07	6.23
Net income per share from continuing operations attributable to the Company’s shareholders, diluted (RMB)	3.60	5.01	5.98
Net income per share from discontinued operations attributable to the Company’s shareholders, diluted (RMB)	—	—	0.19
Net income per share, diluted (RMB)	3.60	5.01	6.17

Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income per share is computed using the weighted average number of ordinary shares and potential ordinary shares outstanding during the year. For the years ended December 31, 2020, 2021 and 2022, RSUs that were anti-dilutive and excluded from the calculation of diluted net income per share totaled approximately 6.0 million shares, 6.7 million shares and 11.3 million shares, respectively.

Principal Accounting Policies - Restricted cash and other lien arrangements (Details) ¥ in Millions	12 Months Ended
	Dec. 31, 2022 CNY (¥) agreement	Dec. 31, 2021 CNY (¥) agreement
Restricted cash
Total	¥ 2,699.3	¥ 2,878.0
Number of other lien arrangements \| agreement	0	0
Customer deposit \| NetEase Pay
Restricted cash
Total	¥ 2,627.5	¥ 2,091.3
Deposit required by the PRC government authorities related to Youdao's educational services \| Youdao
Restricted cash
Total	0.9	749.8
Others
Restricted cash
Total	¥ 70.9	¥ 36.9

Capital Structure (Details)	12 Months Ended
Capital Structure (Details)	Dec. 31, 2022
Capital Structure
Voting rights per share	one vote per share

Share-based Compensation - Other Share Incentive Plan (Details) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) installment	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Share based Compensation
Share-based compensation \| ¥	¥ 3,174,160	¥ 3,041,492	¥ 2,663,489
Unrecognized share based compensation expenses relating to share options \| ¥	28,300
Stock Options
Share based Compensation
Share-based compensation \| ¥	¥ 327,900	¥ 528,200	¥ 117,700
Certain subsidiaries \| Stock Options \| Vesting option I
Share based Compensation
Percentage of vesting of equity awards on the predefined Vesting Commencement Date	100.00%
Certain subsidiaries \| Stock Options \| Vesting option III
Share based Compensation
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date \| installment	3
Certain subsidiaries \| Stock Options \| Vesting option IV
Share based Compensation
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date \| installment	4
Certain subsidiaries \| Stock Options \| Vesting option V
Share based Compensation
Number of equal installments of vesting of equity awards from the predefined Vesting Commencement Date \| installment	5
Certain subsidiaries \| Equal to or more than \| Stock Options
Share based Compensation
Expiration period	4 years
Certain subsidiaries \| Less than \| Stock Options
Share based Compensation
Expiration period	10 years

Land Use Rights, net (Details) - Land use rights - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Land Use Rights, net
Cost	¥ 4,521,308	¥ 4,415,809
Incentive payment from local government	(15,000)	(15,000)
Accumulated amortization	(384,541)	(292,719)
Land use right, net	4,121,767	4,108,090
Total amortization expense	¥ 91,800	¥ 87,400	¥ 84,700

Short-term Investments (Tables)

12 Months Ended

Dec. 31, 2022

Short-term Investments

Summary of short-term investments

The following is a summary of short-term investments (in thousands):


	December 31, 2021
		Unrealized	Estimated
	Cost	Gains/(Losses)	Fair Value
	RMB	RMB	RMB
Short-term investments	12,081,868	199,680	12,281,548


	December 31, 2022
		Unrealized	Estimated
	Cost	Gains/(Losses)	Fair Value
	RMB	RMB	RMB
Short-term investments	7,563,805	58,868	7,622,673

Taxation (Details) ¥ / shares in Units, $ in Millions	12 Months Ended
Taxation (Details) ¥ / shares in Units, $ in Millions	Dec. 31, 2022 HKD ($)	Dec. 31, 2022 CNY (¥) ¥ / shares	Dec. 31, 2021 HKD ($)	Dec. 31, 2021 CNY (¥) ¥ / shares	Dec. 31, 2020 HKD ($)	Dec. 31, 2020 CNY (¥) ¥ / shares	Dec. 31, 2019
Income taxes
Income tax rate (as a percent)	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%
Combined effects of EIT exemptions and tax rate reductions
Aggregate amount of EIT exemptions and tax rate reductions		¥ 2,631,764,000		¥ 2,238,907,000		¥ 1,969,414,000
Earnings per share effect, basic (in CNY per share) \| ¥ / shares		¥ 0.81		¥ 0.67		¥ 0.60
Earnings per share effect, diluted (in CNY per share) \| ¥ / shares		¥ 0.80		¥ 0.66		¥ 0.59
Cayman Islands
Income taxes
Withholding tax amount		¥ 0
BVI
Income taxes
Withholding tax amount		¥ 0
Hong Kong
Income taxes
Income tax rate (as a percent)	16.50%	16.50%	16.50%	16.50%	16.50%	16.50%
Taxable income \| $	$ 2		$ 2		$ 2
Hong Kong \| Taxable income below threshold amount
Income taxes
Income tax rate (as a percent)	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%
Hong Kong \| Taxable income over threshold amount
Income taxes
Income tax rate (as a percent)	16.50%	16.50%	16.50%	16.50%	16.50%	16.50%
PRC
Income taxes
Income tax rate (as a percent)	25.00%	25.00%
PRC \| Boguan, NetEase Hangzhou and certain other PRC subsidiaries \| HNTEs
Income taxes
Preferential tax rate	15.00%	15.00%	15.00%	15.00%	15.00%	15.00%
PRC \| Boguan, NetEase Hangzhou and certain other PRC subsidiaries \| Key Software Enterprise
Income taxes
Preferential tax rate							10.00%

Taxation - Net operating tax loss carry forwards (Details) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
Net operating tax loss carry forwards
Net operating tax loss carry forwards	¥ 15,124,930
Loss expiring in 2023
Net operating tax loss carry forwards
Net operating tax loss carry forwards	3,371,946
Loss expiring in 2024
Net operating tax loss carry forwards
Net operating tax loss carry forwards	3,054,886
Loss expiring in 2025
Net operating tax loss carry forwards
Net operating tax loss carry forwards	2,191,529
Loss expiring in 2026
Net operating tax loss carry forwards
Net operating tax loss carry forwards	2,571,936
Loss expiring after 2027
Net operating tax loss carry forwards
Net operating tax loss carry forwards	¥ 3,934,633

Share-based Compensation

12 Months Ended

Dec. 31, 2022

Share-based Compensation

Share-based Compensation

22.

Share-based Compensation

For the years ended December 31, 2020, 2021 and 2022, total share-based compensation expenses recognized were RMB2,663.5 million, RMB3,041.5 million and RMB3,174.2 million, respectively. The table below presents a summary of the Group’s share-based compensation cost (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cost of revenues	794,855	833,389	758,413
Selling and marketing expenses	102,300	118,611	120,171
General and administrative expenses	929,013	1,105,547	1,214,995
Research and development expenses	837,321	983,945	1,080,581
	2,663,489	3,041,492	3,174,160

(a)	Restricted Share Units Plan

2009 RSU Plan

In November 2009, the Company adopted 2009 Restricted Share Unit Plan for the Company’s employees, directors and consultants (the “2009 RSU Plan”). The Company has reserved 323,694,050 ordinary shares for issuance under the plan. The 2009 RSU Plan was adopted by a resolution of the board of directors on November 17, 2009 and became effective for a term of ten years unless sooner terminated. The 2009 RSU Plan was expired on November 16, 2019.

2019 Share Plan

In October 2019, the Company adopted 2019 Restricted Share Unit Plan for the Company’s employees, directors and others, with a ten-year term and a maximum number of 322,458,300 ordinary shares available for issuance pursuant to all awards under the plan.

Effective February 22, 2023, the Company amended and restated the 2019 Restricted Share Unit Plan to permit to grant stock option awards to the Company’s employees, directors and others, and renamed it as Amended and Restated 2019 Share Incentive Plan (the “2019 Share Plan”).

The Group recognizes share-based compensation cost related to RSUs in the consolidated statements of operations and comprehensive income based on awards ultimately expected to vest, after considering estimated forfeitures. Forfeitures are estimated based on the Group’s historical experience over the last five years and revised in subsequent periods if actual forfeitures differ from those estimates.

As of December 31, 2022, total unrecognized compensation cost related to unvested awards under the 2009 RSU Plan and the 2019 Share Plan, adjusted for estimated forfeitures, was US$436.3 million (RMB3,009.0 million) and is expected to be recognized through the remaining vesting period of each grant. As of December 31, 2022, the weighted average remaining vesting periods was 1.75 years.

Restricted Share Unit Award Activities

The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2020, 2021 and 2022:


		Weighted average
		grant date fair
	Number of RSUs	value
	(in thousands)	US$
Outstanding at January 1, 2020	14,075	49.00
Granted	6,269	68.35
Vested	(5,832)	48.02
Forfeited	(416)	54.47
Outstanding at December 31, 2020	14,096	57.85

Outstanding at January 1, 2021	14,096	57.85
Granted	4,579	110.19
Vested	(5,067)	58.02
Forfeited	(612)	75.29
Outstanding at December 31, 2021	12,996	75.40

Outstanding at January 1, 2022	12,996	75.40
Granted	5,335	93.98
Vested	(4,630)	75.01
Forfeited	(696)	84.55
Outstanding at December 31, 2022	13,005	82.67

The aggregate intrinsic value of RSUs outstanding as of December 31, 2022 was US$944.5 million. The intrinsic value was calculated based on the Company’s closing stock price of US$72.63 per ADS as of December 31, 2022.

The Company’s practice is to issue new shares or utilize treasury stock upon vesting of RSUs. The number of shares available for future grant under the Company’s 2019 RSU Plan was 258,221,415 as of December 31, 2022.

(b)

Other Share Incentive Plan

Certain of the Company’s subsidiaries have adopted stock incentive plans, most of which are stock option plans and allow the related subsidiaries to grant options to certain employees of the Group. The options 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 (“Vesting Commencement Date”). The award can become 100% vested on the Vesting Commencement Date, or vests in three, four or five substantially equal annual installments with the first installment vesting on the Vesting Commencement Date. But for certain share options granted with vesting conditions outside the Group’s control, no expenses will be recorded until the occurrence of the vesting conditions when the Group determine that it is probable that the vesting conditions will be satisfied.

The Group has used the binomial model to estimate the fair value of the options granted. For the years ended December 31, 2020, 2021, and 2022, RMB117.7 million, RMB528.2 million and RMB327.9 million compensation expenses were recorded for the share options granted.

As of December 31, 2022, there were approximately RMB28.3 million unrecognized share-based compensation expenses related to share options for which the service condition had been met and are expected to be recognized when the vesting conditions are achieved.

Share Repurchase Programs (Details) ¥ in Thousands, shares in Millions, $ in Millions			1 Months Ended			12 Months Ended
	Jan. 09, 2023 USD ($) shares	Nov. 17, 2022 USD ($)	Aug. 31, 2021 USD ($)	Feb. 28, 2021 USD ($)	Feb. 29, 2020 USD ($)	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2022 USD ($) shares	Dec. 31, 2021 CNY (¥)	Feb. 28, 2021 USD ($) shares	Dec. 31, 2020 CNY (¥)	May 19, 2020 USD ($)
Share Repurchase Programs
Value of shares repurchased \| ¥						¥ 8,006,226		¥ 12,770,301		¥ 11,273,814
American Depositary Shares \| 2020 share repurchase program
Share Repurchase Programs
Authorized amount					$ 1,000.0
Share repurchase program period, maximum					12 months
Additional authorized amount											$ 1,000.0
Shares repurchased (in shares) \| shares									22.8
Value of shares repurchased									$ 1,820.1
American Depositary Shares \| 2021 share repurchase program
Share Repurchase Programs
Authorized amount			$ 3,000.0	$ 2,000.0					$ 2,000.0
Share repurchase program period, maximum				24 months
Shares repurchased (in shares) \| shares	33.6
Value of shares repurchased	$ 3,000.0
American Depositary Shares \| 2021 share repurchase program \| Youdao
Share Repurchase Programs
Authorized amount			$ 50.0
Share repurchase program period, maximum			36 months
Shares repurchased (in shares) \| shares						2.7	2.7
Value of shares repurchased							$ 22.0
American Depositary Shares \| 2022 share repurchase program
Share Repurchase Programs
Authorized amount		$ 5,000.0
Share repurchase program period, maximum		36 months
Ordinary shares \| 2020 share repurchase program
Share Repurchase Programs
Shares repurchased (in shares) \| shares									114.0

Prepayments and Other Current Assets

12 Months Ended

Dec. 31, 2022

Prepayments and Other Current Assets

Prepayments and Other Current Assets

6.	Prepayments and Other Current Assets

The following is a summary of prepayments and other current assets (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Guarantee payment made to Blizzard - royalty fees	319,210	634,909
Prepayment for royalties, revenue sharing cost	2,635,766	1,787,638
Receivable due from Alibaba	837,148	38,366
Interest and other operating income receivable	676,714	1,373,854
Prepayments of content and marketing cost and other operational expenses	826,220	725,183
Prepayment for sales tax and deductible value added tax	483,397	492,552
Bridge loans in connection with ongoing investments	41,835	43,313
Deposits	86,621	68,285
Employee advances	67,848	61,480
Advance to suppliers	134,712	105,903
Others	126,386	116,801
	6,235,857	5,448,284

As of December 31, 2021 and 2022, prepayments for royalties and revenue sharing cost mainly represented prepaid royalties or revenue sharing cost related to game distribution and operations of licensed games.

Balance of receivable from Alibaba represents receivable for disposal of Kaola which was expected to receive in one year.

The amount of employee advances listed above included staff housing loan balances of RMB29.2 million and RMB22.7 million repayable within 12 months from December 31, 2021 and 2022 respectively (see Note 12). No advances were made directly or indirectly to the Group’s executive officers for their personal benefit for the years ended December 31, 2021 and 2022.

Share-based Compensation - Restricted Share Unit Award Activities -Table (Details) - 2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan $ / shares in Units, shares in Thousands, ¥ in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2022 CNY (¥) $ / shares shares	Dec. 31, 2021 $ / shares shares	Dec. 31, 2020 $ / shares shares	Dec. 31, 2022 USD ($)
Share based Compensation
Total unrecognized compensation cost related to unvested awards	¥ 3,009.0			$ 436.3
Weighted average remaining vesting period over which unrecognized compensation cost is recognized	1 year 9 months
Restricted share units
Number of RSUs
Outstanding at the beginning of the period (in shares) \| shares	12,996	14,096	14,075
Granted (in shares) \| shares	5,335	4,579	6,269
Vested (in shares) \| shares	(4,630)	(5,067)	(5,832)
Forfeited (in shares) \| shares	(696)	(612)	(416)
Outstanding at end of the period (in shares) \| shares	13,005	12,996	14,096
Weighted average grant date fair value
Outstanding at the beginning of the period (in dollars per share) \| $ / shares	¥ 75.40	$ 57.85	$ 49.00
Granted (in dollars per share) \| $ / shares	93.98	110.19	68.35
Vested (in dollars per share) \| $ / shares	75.01	58.02	48.02
Forfeited (in dollars per share) \| $ / shares	84.55	75.29	54.47
Outstanding at the end of the period (in dollars per share) \| $ / shares	¥ 82.67	$ 75.40	$ 57.85

Taxes Payable (Tables)

12 Months Ended

Dec. 31, 2022

Taxes Payable

Summary of taxes payable

The following is a summary of taxes payable as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Sales Tax payable	681,815	290,272
Withholding individual income taxes for employees	263,845	306,861
EIT payable	3,459,307	2,116,014
Others	132,083	99,949
	4,537,050	2,813,096

Taxes Payable (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Taxes Payable
Sales Tax payable	¥ 290,272		¥ 681,815
Withholding individual income taxes for employees	306,861		263,845
EIT payable	2,116,014		3,459,307
Others	99,949		132,083
Total taxes payable	¥ 2,813,096	$ 407,861	¥ 4,537,050

Discontinued operations (Details) - 12 months ended Dec. 31, 2022 ¥ in Thousands, $ in Thousands	CNY (¥)	USD ($)
Discontinued operations
Net income from discontinued operations	¥ 624,864	$ 90,597
Kaola e-commerce business \| Discontinued operations, disposed of by sale
Discontinued operations
Net income from discontinued operations	¥ 624,900	$ 90,600

- Definition

Amount after tax of income (loss) from a discontinued operation including the portion attributable to the noncontrolling interest. Includes, but is not limited to, the income (loss) from operations during the phase-out period, gain (loss) on disposal, gain (loss) for reversal of write-down (write-down) to fair value, less cost to sell, and adjustments to a prior period gain (loss) on disposal.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.7-04(12))
-URI https://asc.fasb.org/extlink&oid=120400993&loc=SL114874131-224263

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 7
-URI https://asc.fasb.org/extlink&oid=109222650&loc=SL51721683-107760

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 3B
-URI https://asc.fasb.org/extlink&oid=109222160&loc=SL51721525-107759

Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 5C
-Subparagraph (b)(2)
-URI https://asc.fasb.org/extlink&oid=109222650&loc=SL51721675-107760

Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 3
-URI https://asc.fasb.org/extlink&oid=109222160&loc=d3e957-107759

Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 1
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=109222650&loc=d3e1361-107760

Reference 7: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 3A
-URI https://asc.fasb.org/extlink&oid=109222160&loc=SL51721523-107759

Reference 8: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 45
-Paragraph 4
-URI https://asc.fasb.org/extlink&oid=109222160&loc=d3e1012-107759

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 270
-Section 45
-Paragraph 3
-URI https://asc.fasb.org/extlink&oid=109227538&loc=d3e44648-109337

+ Details

Other Long-term Assets - Goodwill (Details) - CNY (¥)	12 Months Ended
Other Long-term Assets - Goodwill (Details) - CNY (¥)	Dec. 31, 2022	Dec. 31, 2021
Goodwill
Beginning balance	¥ 595,280,000	¥ 318,943,000
Additions	1,571,206,000	276,337,000
Ending balance	2,166,486,000	595,280,000
Impairment charges	¥ 0	¥ 0

- Definition

Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

+ References + Details

Concentrations and Risks (Details)	12 Months Ended
Concentrations and Risks (Details)	Dec. 31, 2022 customer item	Dec. 31, 2021 customer item	Dec. 31, 2020 customer item
Server and bandwidth service provider \| Service providers \| Telecommunication
Concentrations and Risks
Total number of telecommunications service providers	126	135	87
Number of service providers, offering 10% or more of the Group's server and bandwidth service expenditure	4	4	3
Concentration risk (as a percent)	62.70%	67.20%	62.30%
Server and bandwidth service provider \| Service providers \| Equal to or more than
Concentrations and Risks
Threshold for disclosure of risk (as a percent)	10.00%	10.00%	10.00%
Credit risk \| Accounts receivable
Concentrations and Risks
Number of distribution channel	1	1
Credit risk \| Accounts receivable \| Distribution channel A
Concentrations and Risks
Concentration risk (as a percent)	17.80%	20.20%
Credit risk \| Accounts receivable \| Equal to or more than
Concentrations and Risks
Threshold for disclosure of risk (as a percent)	10.00%	10.00%
Credit risk \| Short-term investments \| Equal to or more than
Concentrations and Risks
Effective yields of short-term investments	1.72%
Credit risk \| Short-term investments \| Less than
Concentrations and Risks
Effective yields of short-term investments	5.00%
Major customers \| Total net revenues
Concentrations and Risks
Number of customers \| customer	0	0	0
Major customers \| Total net revenues \| Equal to or more than
Concentrations and Risks
Threshold for disclosure of risk (as a percent)	10.00%	10.00%	10.00%
Top 5 online games \| Total net revenues
Concentrations and Risks
Top online games	5	5	5
Top 5 online games \| Total net revenues \| Top 5 Online Games
Concentrations and Risks
Concentration risk (as a percent)	29.60%	29.20%	33.10%

Property, Equipment and Software, net

12 Months Ended

Dec. 31, 2022

Property, Equipment and Software, net

Property, Equipment and Software, net

8.	Property, Equipment and Software, net

The following is a summary of property, equipment and software (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Building and decoration	3,676,626	3,875,063
Leasehold improvements	287,510	304,365
Furniture, fixtures, office and other equipment	339,791	379,938
Vehicles	98,651	102,823
Servers and computers	5,417,716	6,018,709
Software	237,550	344,410
Construction in progress	653,239	1,587,413
	10,711,083	12,612,721

Less: accumulated depreciation	(5,277,225)	(6,270,391)

Net book value	5,433,858	6,342,330

Depreciation expense was RMB1,113.0 million, RMB928.5 million and RMB1,127.2 million for the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2021 and 2022, the construction in progress balance were mainly comprised of construction of buildings in Shanghai and Hangzhou that have not yet been placed in service for the Group’s intended use. All the related cost is capitalized in construction in progress to the extent it is incurred for the purposes of bringing the construction development to a usable state.

Concentrations and Risks

12 Months Ended

Dec. 31, 2022

Concentrations and Risks

Concentrations and Risks

5.	Concentrations and Risks

(a)

Server and bandwidth service provider

The Group relied on telecommunications service providers and their affiliates for server and bandwidth service to support its operations during fiscal years 2020, 2021 and 2022 as follows:


	For the year ended December 31,
	2020		2021		2022
Total number of telecommunications service providers	87		135		126
Number of service providers, offering 10% or more of the Group’s server and bandwidth service expenditure	3		4		4
Total% of the Group’s server and bandwidth service expenditure provided by 10% or greater service providers	62.3	%	67.2	%	62.7	%

(b)

Credit risk

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and cash equivalents, time deposits, restricted cash, accounts receivable and short-term investments. As of December 31, 2021 and 2022, substantially all of the Group’s cash equivalents, time deposits and restricted cash were held in major financial institutions located in the PRC or Hong Kong, which management considers being of high credit quality. Accounts receivable are typically unsecured and are generally derived from revenue earned from mobile games services (mainly related to remittances from distribution channels) and advertising services.

One distribution channel had a receivable balance exceeding 10% of the total accounts receivable balance for the year ended December 31, 2021 and 2022, respectively as follows:


	December 31,		December 31,
	2021		2022
Distribution channel A	20.2	%	17.8	%

Short-term investments consist of financial products issued by commercial banks in China with a variable interest rate indexed to performance of underlying assets, which have a maturity date within one year as of the purchase date. The effective yields of the short-term investments range from 1.72% to 5.00% per annum. Any negative events or deterioration in financial well-being with respect to the counterparties of the above investments and the underlying collateral may cause a material loss to the Group and have a material effect on the Group’s financial condition and results of operations.

(c)

Major customers

No single customer represented 10% or more of the Group’s total net revenues for the years ended December 31, 2020, 2021 and 2022.

(d)

Online games

The Group derived 33.1%, 29.2% and 29.6% of its total net revenues from its top 5 online games for the years ended December 31, 2020, 2021 and 2022, respectively.

Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2022 shares
Document and Entity Information
Document Type	20-F
Document Registration Statement	false
Document Annual Report	true
Document Period End Date	Dec. 31, 2022
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Transition Report	false
Document Shell Company Report	false
Entity File Number	000-30666
Entity Registrant Name	NETEASE, INC.
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	NetEase Building, No. 599 Wangshang Road
Entity Address, Address Line Two	Binjiang District
Entity Address, City or Town	Hangzhou
Entity Address, Postal Zip Code	310052
Entity Address, Country	CN
Entity Common Stock, Shares Outstanding	3,223,623,596
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	true
Document Accounting Standard	U.S. GAAP
Entity Shell Company	false
Amendment Flag	false
Auditor Firm ID	1424
Auditor Name	PricewaterhouseCoopers Zhong Tian LLP
Auditor Location	Beijing, the People’s Republic of China
Entity Central Index Key	0001110646
Document Fiscal Period Focus	FY
American Depositary Shares
Document and Entity Information
Title of 12(b) Security	American Depositary Shares, each representing 5 ordinary shares, par value US$0.0001 per share
Trading Symbol	NTES
Security Exchange Name	NASDAQ
Ordinary shares
Document and Entity Information
Title of 12(b) Security	Ordinary shares, par value US$0.0001 per share
No Trading Symbol Flag	true
Security Exchange Name	NASDAQ
Business Contact
Document and Entity Information
Entity Address, Address Line One	NetEase Building, No. 599 Wangshang Road
Entity Address, Address Line Two	Binjiang District
Entity Address, City or Town	Hangzhou
Entity Address, Postal Zip Code	310052
Entity Address, Country	CN
Contact Personnel Name	Charles Zhaoxuan Yang
Country Region	86
City Area Code	571
Local Phone Number	8985-3378
Contact Personnel Email Address	ir@service.netease.com

Contract Liabilities (Details) - CNY (¥) ¥ in Millions	12 Months Ended
Contract Liabilities (Details) - CNY (¥) ¥ in Millions	Dec. 31, 2022	Dec. 31, 2021
Contract Liabilities
Amount of revenues recognized included in the contract liabilities	¥ 11,822.3	¥ 10,513.0
Transaction price allocated to unsatisfied performance obligations	12,793.6
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Contract Liabilities
Performance obligation recognized as revenue	¥ 12,518.9
Expected timing of performance obligation recognized as revenue (in months)	12 months

Short-term Investments (Details) - CNY (¥) ¥ in Thousands	12 Months Ended
Short-term Investments (Details) - CNY (¥) ¥ in Thousands	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Short-term Investments
Investment income related to short-term investments	¥ 342,600	¥ 639,800	¥ 580,700
Short-term investments
Short-term Investments
Cost	7,563,805	12,081,868
Unrealized Gains/(Losses)	58,868	199,680
Estimated Fair Value	¥ 7,622,673	¥ 12,281,548
Short-term investments \| Equal to or more than
Short-term Investments
Short-term investments, effective yields (as a percent)	1.72%	2.25%
Short-term investments \| Less than
Short-term Investments
Short-term investments, effective yields (as a percent)	5.00%	4.40%

Other Long-term Assets - Summary of other long-term assets (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Other Long-term Assets
Copyrights, licenses, domain names, trademark and technology	¥ 2,117,688		¥ 2,617,164
Long-term receivable	1,638,572		58,366
Long-term interest receivables	100,397		98,594
Goodwill	2,166,486		595,280	¥ 318,943
Staff housing loans	39,228		55,275
Non-current deposits	174,357		150,666
Others	569,727		433,111
Total	¥ 6,806,455	$ 986,844	¥ 4,008,456

- Definition

+ References + Details

Financial Instruments (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Fair Value Measurements
Equity investments with readily determinable fair values	¥ 2,567,268	¥ 5,886,911
Short-term investments	7,622,673	12,281,548	$ 1,105,184
Investments accounted for at fair values	246,073	194,280
Total	10,436,014	18,362,739
Quoted Prices in Active Market for Identical Assets (Level 1)
Fair Value Measurements
Equity investments with readily determinable fair values	2,567,268	5,886,911
Total	2,567,268	5,886,911
Significant Other Observable Inputs (Level 2)
Fair Value Measurements
Short-term investments	7,622,673	12,281,548
Total	7,622,673	12,281,548
Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Investments accounted for at fair values	246,073	194,280
Total	246,073	194,280
Significant Unobservable Inputs (Level 3) \| Certain of equity investments
Fair Value Measurements
Impairment charges of certain equity investments without determinable fair value	¥ 85,200	¥ 19,200

Accrued Liabilities and Other Payables (Tables)

12 Months Ended

Dec. 31, 2022

Accrued Liabilities and Other Payables

Summary of accrued liabilities and other payables

The following is a summary of accrued liabilities and other payables as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Customer deposits on NetEase Pay accounts	2,388,546	3,113,107
Marketing expenses and promotion materials	1,857,133	2,046,559
Accrued fixed assets related payables	706,583	635,566
Server and bandwidth service fees	264,513	246,243
Accrued revenue sharing	1,176,349	1,032,559
Content cost	838,293	1,703,218
Professional fees and technical charges	608,752	595,491
Accrued freight and warehousing charge	84,490	105,356
Administrative expenses and other staff related cost	399,753	414,214
Deferred government grants	174,241	179,961
Acquisition considerations	—	203,584
Customer refund for licensed games	—	283,763
Others	527,855	562,401
	9,026,508	11,122,022

Net Income Per Share (Tables)

12 Months Ended

Dec. 31, 2022

Net Income Per Share

Schedule of computation of basic and diluted net income per share


	For the year ended December 31,
	2020	2021	2022
Numerator (RMB in thousands):
Net income from continuing operations attributable to the Company’s shareholders	12,062,754	16,856,842	19,712,736
Net income from discontinued operations attributable to the Company’s shareholders	—	—	624,864
Net income attributable to the Company’s shareholders for basic/dilutive net income per share calculation	12,062,754	16,856,842	20,337,600

Denominator (No. of shares in thousands):
Weighted average number of ordinary shares outstanding, basic	3,305,448	3,325,864	3,263,455
Dilutive effect of restricted share units	44,311	41,614	32,559
Weighted average number of ordinary shares outstanding, diluted	3,349,759	3,367,478	3,296,014
Net income per share from continuing operations attributable to the Company’s shareholders, basic (RMB)	3.65	5.07	6.04
Net income per share from discontinued operations attributable to the Company’s shareholders, basic (RMB)	—	—	0.19
Net income per share, basic (RMB)	3.65	5.07	6.23
Net income per share from continuing operations attributable to the Company’s shareholders, diluted (RMB)	3.60	5.01	5.98
Net income per share from discontinued operations attributable to the Company’s shareholders, diluted (RMB)	—	—	0.19
Net income per share, diluted (RMB)	3.60	5.01	6.17

Property, Equipment and Software, net (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
Summary of property, equipment and software
Gross book value	¥ 12,612,721	¥ 10,711,083
Less: accumulated depreciation	(6,270,391)	(5,277,225)
Net book value	6,342,330	5,433,858		$ 919,551
Depreciation expense	1,127,200	928,500	¥ 1,113,000
Building and decoration
Summary of property, equipment and software
Gross book value	3,875,063	3,676,626
Leasehold improvements
Summary of property, equipment and software
Gross book value	304,365	287,510
Furniture, fixtures, office and other equipment
Summary of property, equipment and software
Gross book value	379,938	339,791
Vehicles
Summary of property, equipment and software
Gross book value	102,823	98,651
Servers and computers
Summary of property, equipment and software
Gross book value	6,018,709	5,417,716
Software
Summary of property, equipment and software
Gross book value	344,410	237,550
Construction in progress
Summary of property, equipment and software
Gross book value	¥ 1,587,413	¥ 653,239

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
Consolidated Balance Sheets
Ordinary shares, US$0.0001 par value (in dollars per share)	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	1,000,300,000,000	1,000,300,000,000
Ordinary shares, shares issued	3,223,623,596	3,273,835,376
Ordinary shares, shares outstanding	3,223,623,596	3,273,835,376

Principal Accounting Policies - Statutory reserves (Details) - PRC	12 Months Ended
	Dec. 31, 2022
General reserve fund
Statutory reserves
Required minimum percentage of annual appropriations	10.00%
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required	50.00%
Statutory surplus reserve
Statutory reserves
Required minimum percentage of annual appropriations	10.00%
Statutory threshold percentage of the reserve fund to the registered capital of the respective company, above which the appropriation is not required	50.00%

Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Commitments and Contingencies

Commitments and Contingencies

24.	Commitments and Contingencies

(a)

Commitments

As of December 31, 2022, future minimum payment for server and bandwidth service fee commitments, capital commitments, royalties and other expenditures commitments related to licensed contents, as well as other commitments related to office machines and services purchases, were as follows (in thousands):


	Server and		Royalties and
	Bandwidth		Expenditure for	Office Machines
	Service Fee	Capital	Licensed Content	and Other
	Commitments	Commitments	Commitments	Commitments	Total
	RMB	RMB	RMB	RMB	RMB
2023	553,533	1,971,894	1,034,633	313,287	3,873,347
2024	341,458	756,196	18,111	17,098	1,132,863
2025	244,584	206,918	—	—	451,502
2026	103,392	111,562	—	—	214,954
Beyond 2026	31,970	52,146	—	—	84,116
	1,274,937	3,098,716	1,052,744	330,385	5,756,782

(b)

Litigation

Overview

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Group’s financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods. The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Group reviews the need for any such liability on a regular basis. The Group has not recorded any material liabilities in this regard as of December 31, 2021 and 2022.

Litigation

In April 2018, PUBG Corporation and PUBG Santa Monica, Inc. (collectively “PUBG”), filed a lawsuit against defendants NetEase, Inc., NetEase Information Technology Corp. and NetEase (Hong Kong) Limited in the U.S. District Court for the Northern District of California. PUBG subsequently dropped all claims against NetEase (Hong Kong) Limited, and added Hong Kong NetEase Interactive Entertainment Limited to the lawsuit. PUBG’s complaint generally alleged that two of the Group’s mobile games, Rules of Survival and Knives Out, infringed PUBG’s copyrights and trade dress in their competing game, Player Unknown’s Battlegrounds. On March 11, 2019, the Group entered into a settlement agreement with PUBG, and the lawsuit was dismissed. On October 15, 2019, PUBG filed a second lawsuit against the same NetEase defendants, also in the U.S. District Court for the Northern District of California, claiming the Group had allegedly breached the settlement agreement. On March 3, 2020, the court dismissed PUBG’s new lawsuit, without prejudice, for lack of subject matter jurisdiction. On March 4, 2020, the Group initiated a declaratory judgment action against PUBG in the Superior Court of California for the County of San Mateo, requesting a declaration that the Group had not breached the settlement agreement. On March 13, 2020, PUBG filed a cross claim, realleging that the Group breached the settlement agreement. The court has set the trial date on May 1, 2023, and the litigation remains ongoing.

Taxation - Deferred tax assets and liabilities & withholding income tax (Details) ¥ in Thousands, $ in Millions		12 Months Ended
	Mar. 16, 2007	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
Deferred tax assets:
Contract liabilities, primarily for advanced payments from online games customers		¥ 1,009,624	¥ 776,719
Accruals		654,348	641,198
Depreciation of fixed assets		4,883	11,557
Amortization of intangible assets		2,217	4,331
Net operating tax loss carry forward		3,781,233	3,513,019
Deferred tax assets , gross		5,452,305	4,946,824
Less: valuation allowance		(3,971,516)	(3,648,870)	¥ (3,255,854)
Total		1,480,789	1,297,954
Deferred tax liabilities:
Withholding income tax		1,947,190	1,257,552
Others		178,930	88,322
Total		2,126,120	1,345,874
Movement of the aggregate valuation allowances for deferred tax assets
Balance at the beginning of the period		3,648,870	3,255,854	2,148,879
Provision for the year		322,646	393,016	1,106,975
Balance at the end of the period		¥ 3,971,516	3,648,870	3,255,854
Withholding income tax
Withholding tax rate on dividend distributed by foreign investment entities to its non-resident enterprise investors (as a percent)	10.00%	10.00%
Lower withholding income tax rate on dividend applied, if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements (as a percent)	5.00%	5.00%
Minimum equity interest in PRC entities (as a percent)	25.00%	25.00%
Accrued withholding tax liabilities		¥ 2,144,400	1,124,400	¥ 1,056,900	$ 310.9
Unrecognized deferred tax liabilities related to undistributed earnings of the Group's PRC subsidiaries			¥ 1,104,200

Leases - Maturities of operating lease liabilities (Details) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
Leases
2023	¥ 297,607
2024	232,019
2025	138,099
2026	102,114
2027	76,546
Thereafter	183,808
Total operating lease payments	1,030,193
Less: imputed interest	(98,500)
Total	¥ 931,693

Long-term Loans

12 Months Ended

Dec. 31, 2022

Long-term loans

Long-term loans

18.Long-term loans

On June 2, 2021, the Group entered into a five-year term loan facility and revolving loan facility agreement with aggregate commitments of US$1.0 billion. The facility is priced at 85 basis points per annum over LIBOR and has a commitment fee of 0.20% on the undrawn portion. There were US$200.0 million and US$500.0 million of borrowings outstanding under the syndicated facility as of December 31, 2021 and 2022 with no pledge, respectively. The Group was subject to certain covenants under the syndicated facility agreement and was in compliance with these financial covenants as of December 31, 2022.

Taxation - Sales tax (Details)	3 Months Ended	9 Months Ended	12 Months Ended
Taxation - Sales tax (Details)	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Sales tax
Value added tax rate, services provided (as a percent)			6.00%
Value added tax rate, sales of general goods (as a percent)	16.00%	13.00%	13.00%	13.00%	13.00%

Organization and Nature of Operations (Tables)

12 Months Ended

Dec. 31, 2022

Organization and Nature of Operations

Schedule of major subsidiaries and VIEs

The major subsidiaries and the VIEs through which the Company conducts its business operations as of December 31, 2022 are described below:


		Place and year of
Major Subsidiaries		Incorporation
Guangzhou Boguan Telecommunication Technology Co., Ltd. (“Boguan”)		Guangzhou, China 2003
NetEase (Hangzhou) Network Co., Ltd. (“NetEase Hangzhou”)		Hangzhou, China 2006
Hong Kong NetEase Interactive Entertainment Limited		Hong Kong, China 2007


		Place and year of
Major VIEs and VIEs’ subsidiaries		Incorporation
Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”)		Guangzhou, China 1997
Hangzhou NetEase Leihuo Technology Co., Ltd. (“HZ Leihuo”, formerly known as Hangzhou NetEase Leihuo Network Co., Ltd.)		Hangzhou, China 2009

Schedule of combined financial information of the VIEs included in the accompanying consolidated financial statements of the Group

The following combined financial information of the VIEs was included in the accompanying consolidated financial statements of the Group as follows (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Cash and cash equivalents	1,541,763	2,303,280
Time deposits	71,000	400,000
Restricted cash	2,846,372	2,654,971
Accounts receivable, net	3,924,446	3,542,272
Inventories	83,672	67,572
Prepayments and other current assets, net	2,522,572	1,867,110
Short-term investments	618,000	73,984
Amounts due from Group companies	7,581,649	9,917,091
Assets held for sale	204	—
Total current assets	19,189,678	20,826,280

Property, equipment and software, net	61,343	78,666
Operating lease right-of-use assets, net	58,872	54,653
Deferred tax assets	124,738	155,595
Restricted cash	479	200
Long-term investments	862,839	885,372
Other long-term assets	385,231	164,968
Total non-current assets	1,493,502	1,339,454

Total assets	20,683,180	22,165,734

Accounts payable	463,601	802,717
Salary and welfare payables	115,707	155,478
Taxes payable	157,137	41,352
Short-term loans	52,963	422
Contract liabilities	10,751,917	11,465,101
Accrued liabilities and other payables	2,945,930	3,809,049
Short-term operating lease liabilities	24,991	20,690
Amounts due to Group companies	3,904,328	3,937,784
Total current liabilities	18,416,574	20,232,593

Long-term operating lease liabilities	34,077	34,291
Other long-term payable	257,874	263,373
Total non-current liabilities	291,951	297,664

Total liabilities	18,708,525	20,530,257


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net revenues
Third-party revenues	61,470,764	74,406,521	82,549,444
Intra-Group revenues	720,398	808,648	817,962
Total net revenues	62,191,162	75,215,169	83,367,406

Cost of revenues and operating expenses
Third-party cost of revenues and operating expenses	(15,430,950)	(17,651,675)	(18,358,287)
Intra-Group cost of revenues and operating expenses related to technical consulting and related service	(45,835,734)	(56,822,482)	(64,777,586)
Other intra-Group cost of revenues and operating expenses	(217,463)	(168,850)	(185,608)
Total cost of revenues and operating expenses	(61,484,147)	(74,643,007)	(83,321,481)

Net income	712,015	624,299	(81,329)


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cash flows from operating activities:
Net cash provided by transactions with third-parties	51,605,737	61,272,031	67,459,864
Net cash used in transactions with intra-Group companies related to technical consulting and related service	(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
Net cash provided by operating activities	1,671,457	1,548,858	788,498

Cash flows from investing activities:
Net cash used in transactions with third-parties	(263,766)	(39,430)	(71,832)
Net cash used in investing activities	(263,766)	(39,430)	(71,832)

Cash flows from financing activities:
Net cash provided by/(used in) transactions with intra-Group companies	273,889	(622,809)	(105,448)
Net cash used in transactions with third-parties	—	(678,287)	(52,541)
Net cash provided by/(used in) financing activities	273,889	(1,301,096)	(157,989)

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

+ References + Details

Dividends (Details) ¥ in Thousands, $ in Millions	12 Months Ended
Dividends (Details) ¥ in Thousands, $ in Millions	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Dividends
Cash dividend declared	¥ 6,723,859		¥ 3,508,379	¥ 4,280,465
Less than
Dividends
Quarterly cash dividend distribution percentage			30.00%	30.00%
Equal to or more than
Dividends
Quarterly cash dividend distribution percentage			20.00%	20.00%
With respect to fiscal year 2021
Dividends
Cash dividend declared			¥ 4,931,000
With respect to fiscal year 2022
Dividends
Cash dividend declared	¥ 6,252,500	$ 906.5

Other Long-term Assets - Additional information (Details) - CNY (¥) ¥ in Millions	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Housing loans made to employees
Term of staff housing loan (in years)	5 years
Staff housing loans outstanding repayable within 12 months	¥ 22.7	¥ 29.2
Prepayments and other current assets
Housing loans made to employees
Staff housing loans outstanding repayable within 12 months	¥ 22.7	¥ 29.2
Equal to or more than
Housing loans made to employees
Interest rate on staff housing loan (as a percent)	2.10%	1.50%
Less than
Housing loans made to employees
Interest rate on staff housing loan (as a percent)	4.75%	4.75%

Segment Information (Tables)

12 Months Ended

Dec. 31, 2022

Segment Information

Summary of the Group's operating segment results

There was no significant transaction between reportable segments for the years ended December 31, 2020, 2021 and 2022 (in thousands).


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Net revenues:
Games and related value-added services	58,719,895	67,819,288	74,566,471
Youdao	3,167,515	5,354,357	5,013,182
Cloud Music	4,895,731	6,997,622	8,992,221
Innovative businesses and others	6,883,992	7,434,759	7,923,935
Total net revenues	73,667,133	87,606,026	96,495,809

Cost of revenues:
Games and related value-added services	(22,730,558)	(26,007,412)	(27,784,419)
Youdao	(1,713,229)	(2,448,146)	(2,430,738)
Cloud Music	(5,491,066)	(6,854,948)	(7,699,103)
Innovative businesses and others	(4,748,878)	(5,324,719)	(5,815,423)
Total cost of revenues	(34,683,731)	(40,635,225)	(43,729,683)

Gross profit:
Games and related value-added services	35,989,337	41,811,876	46,782,052
Youdao	1,454,286	2,906,211	2,582,444
Cloud Music	(595,335)	142,674	1,293,118
Innovative businesses and others	2,135,114	2,110,040	2,108,512
Total gross profit	38,983,402	46,970,801	52,766,126

Schedule of disaggregation of net revenues by timing of revenue recognition

The following table set forth the disaggregation of net revenues by timing of revenue recognition for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
A point in time	15,911,575	19,581,668	23,322,675
Over time	57,755,558	68,024,358	73,173,134
Total Net revenue	73,667,133	87,606,026	96,495,809

Schedule of total depreciation expenses of property and equipment recorded under cost of revenues by segment

The following table presents the total depreciation expenses of property and equipment recorded under cost of revenues by segment for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Games and related value-added services	270,457	278,780	339,300
Youdao	7,239	9,330	11,610
Cloud Music	6,878	3,827	6,044
Innovative businesses and others	189,536	114,442	129,693
Total depreciation expenses of property and equipment	474,110	406,379	486,647

Share-based Compensation (Tables)

12 Months Ended

Dec. 31, 2022

Share based Compensation

Summary of the group's share-based compensation cost

The table below presents a summary of the Group’s share-based compensation cost (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Cost of revenues	794,855	833,389	758,413
Selling and marketing expenses	102,300	118,611	120,171
General and administrative expenses	929,013	1,105,547	1,214,995
Research and development expenses	837,321	983,945	1,080,581
	2,663,489	3,041,492	3,174,160

Restricted share units

Share based Compensation

Summary of the company's RSUs award activities

The following table presents a summary of the Company’s RSUs award activities for the years ended December 31, 2020, 2021 and 2022:


		Weighted average
		grant date fair
	Number of RSUs	value
	(in thousands)	US$
Outstanding at January 1, 2020	14,075	49.00
Granted	6,269	68.35
Vested	(5,832)	48.02
Forfeited	(416)	54.47
Outstanding at December 31, 2020	14,096	57.85

Outstanding at January 1, 2021	14,096	57.85
Granted	4,579	110.19
Vested	(5,067)	58.02
Forfeited	(612)	75.29
Outstanding at December 31, 2021	12,996	75.40

Outstanding at January 1, 2022	12,996	75.40
Granted	5,335	93.98
Vested	(4,630)	75.01
Forfeited	(696)	84.55
Outstanding at December 31, 2022	13,005	82.67

Leases (Tables)

12 Months Ended

Dec. 31, 2022

Leases

Schedule of information related to operating leases

The following table provides information related to the Group’s operating leases (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Operating lease cost ⁽ⁱ⁾	433,412	580,375	528,474
Cash paid for amounts included in the measurement of operating lease liabilities	323,836	503,127	471,214
Right-of-use assets obtained in exchange for operating lease obligations	658,168	763,919	336,381

(i)	Included short-term lease cost of RMB27.6 million, RMB31.4 million and RMB27.4 million and amortization expenses of land use rights of RMB84.7 million, RMB87.4 million and RMB91.8 million for the year ended December 31, 2020, 2021 and 2022, respectively.

Schedule of information related to operating lease terms and discount rates, which excludes the land use rights


	December 31,		December 31,
	2021		2022
Weighted average remaining lease term	2.84 years		3.22 years
Weighted average discount rate	3.95	%	3.82	%

Schedule of maturities of operating lease liabilities

Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands):


		RMB
2023		297,607
2024		232,019
2025		138,099
2026		102,114
2027		76,546
Thereafter		183,808
Total operating lease payments		1,030,193
Less: imputed interest		(98,500)
Total		931,693

Employee Benefits

12 Months Ended

Dec. 31, 2022

Employee Benefits

Employee Benefits

21.

Employee Benefits

The Company’s subsidiaries and the VIEs incorporated in China participate in a government-mandated multi-employer defined contribution plan under which certain retirement, medical, housing and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s Chinese subsidiaries and the VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; hence, the Group has no further commitments beyond its monthly contribution. The following table presents the Group’s employee welfare benefits expense for the years ended December 31, 2020, 2021 and 2022 (in millions):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Contributions to medical and pension schemes	769.4	1,463.8	1,710.4
Other employee benefits	766.8	1,044.5	1,202.8
	1,536.2	2,508.3	2,913.2

Short-term Investments

12 Months Ended

Dec. 31, 2022

Short-term Investments

Short-term Investments

7.	Short-term Investments

As of December 31, 2021 and 2022, the Group’s short-term investments mainly consisted of financial products issued by commercial banks in China with a variable interest rate indexed to the performance of underlying assets and a maturity date within one year when purchased. As of December 31, 2022, the effective yields of short-term investments ranged from 1.72% to 5.00% per annum (2021: 2.25% to 4.40% per annum).

The following is a summary of short-term investments (in thousands):


	December 31, 2021
		Unrealized	Estimated
	Cost	Gains/(Losses)	Fair Value
	RMB	RMB	RMB
Short-term investments	12,081,868	199,680	12,281,548


	December 31, 2022
		Unrealized	Estimated
	Cost	Gains/(Losses)	Fair Value
	RMB	RMB	RMB
Short-term investments	7,563,805	58,868	7,622,673

During the years ended December 31, 2020, 2021 and 2022, the Group recorded investment income related to short-term investments of RMB580.7 million, RMB639.8 million and RMB342.6 million in the consolidated statements of operations and comprehensive income, respectively.

Land Use Rights, net (Tables)

12 Months Ended

Dec. 31, 2022

Land use rights

Land Use Rights, net

Summary of land use rights

The land use rights are summarized as follows (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Cost	4,415,809	4,521,308
Incentive payment from local government	(15,000)	(15,000)
Accumulated amortization	(292,719)	(384,541)
Land use right, net	4,108,090	4,121,767

Short-term Loans (Details) $ in Millions		12 Months Ended
Short-term Loans (Details) $ in Millions	Aug. 09, 2018 USD ($) item	Dec. 31, 2022 USD ($)	Dec. 31, 2021
Short-term Loan
Weighted average interest rate for the outstanding short-term loans (as a percent)		4.36%	0.79%
Syndicated facility agreement
Short-term Loan
Short-term loan, maturity term	3 years
Aggregate amount of facilities agreement	$ 500.0
Number of mandated lead arrangers and bookrunners \| item	4
Basis points	0.95%
Commitment fee	0.20%
Uncommitted loan credit facilities
Short-term Loan
Credit facilities not utilized		$ 2,084.7
Guarantee agreements
Short-term Loan
Credit facilities not utilized		461.0
Unutilized amount of credit facilities taken by its subsidiaries		$ 2,575.0
Equal to or more than
Short-term Loan
Short-term loan, maturity term		7 days	7 days
Short-term loan, fixed interest rate (as a percent)		0.65%	0.65%
Less than
Short-term Loan
Short-term loan, maturity term		1 year	1 year
Short-term loan, fixed interest rate (as a percent)		5.13%	5.13%

Segment Information (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Net revenues
Total net revenues	¥ 96,495,809	$ 13,990,577	¥ 87,606,026	¥ 73,667,133
Cost of revenues:
Total cost of revenues	(43,729,683)	(6,340,208)	(40,635,225)	(34,683,731)
Gross profit:
Gross profit	52,766,126	$ 7,650,369	46,970,801	38,983,402
Depreciation expenses
Total depreciation expenses of property and equipment	486,647		406,379	474,110
A point in time
Net revenues
Total net revenues	23,322,675		19,581,668	15,911,575
Over time
Net revenues
Total net revenues	73,173,134		68,024,358	57,755,558
Games and related value-added services
Net revenues
Total net revenues	74,566,471		67,819,288	58,719,895
Cost of revenues:
Total cost of revenues	(27,784,419)		(26,007,412)	(22,730,558)
Gross profit:
Gross profit	46,782,052		41,811,876	35,989,337
Depreciation expenses
Total depreciation expenses of property and equipment	339,300		278,780	270,457
Youdao
Net revenues
Total net revenues	5,013,182		5,354,357	3,167,515
Cost of revenues:
Total cost of revenues	(2,430,738)		(2,448,146)	(1,713,229)
Gross profit:
Gross profit	2,582,444		2,906,211	1,454,286
Depreciation expenses
Total depreciation expenses of property and equipment	11,610		9,330	7,239
Cloud Music
Net revenues
Total net revenues	8,992,221		6,997,622	4,895,731
Cost of revenues:
Total cost of revenues	(7,699,103)		(6,854,948)	(5,491,066)
Gross profit:
Gross profit	1,293,118		142,674	(595,335)
Depreciation expenses
Total depreciation expenses of property and equipment	6,044		3,827	6,878
Innovative businesses and others
Net revenues
Total net revenues	7,923,935		7,434,759	6,883,992
Cost of revenues:
Total cost of revenues	(5,815,423)		(5,324,719)	(4,748,878)
Gross profit:
Gross profit	2,108,512		2,110,040	2,135,114
Depreciation expenses
Total depreciation expenses of property and equipment	¥ 129,693		¥ 114,442	¥ 189,536

Land Use Rights, net

12 Months Ended

Dec. 31, 2022

Land Use Rights, net

Land Use Rights, net

Land Use Rights, net

9.	Land Use Rights, net

Land use rights represent acquired right to use the land on which the Group’s offices and warehouses are built. In 2021 and 2022, the Group mainly obtained the land use rights in Guangzhou and Hangzhou from the local authorities. Amortization of the land use right is made over the remaining term of the land use right period from the date when the land was made available for use by the Group. The land use rights are summarized as follows (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Cost	4,415,809	4,521,308
Incentive payment from local government	(15,000)	(15,000)
Accumulated amortization	(292,719)	(384,541)
Land use right, net	4,108,090	4,121,767

The total amortization expense for each of the years ended December 31, 2020, 2021 and 2022 amounted to approximately RMB84.7 million, RMB87.4 million and RMB91.8 million, respectively.

Employee Benefits (Tables)

12 Months Ended

Dec. 31, 2022

Employee Benefits

Schedule of group's employee welfare benefits expense

The following table presents the Group’s employee welfare benefits expense for the years ended December 31, 2020, 2021 and 2022 (in millions):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Contributions to medical and pension schemes	769.4	1,463.8	1,710.4
Other employee benefits	766.8	1,044.5	1,202.8
	1,536.2	2,508.3	2,913.2

Principal Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2022

Principal Accounting Policies

Basis of consolidation

(a)

Basis of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company is the primary beneficiary with the ownership interests of minority shareholders reported as noncontrolling interests. All significant transactions and balances among the Company, its subsidiaries and the VIEs have been eliminated upon consolidation. The Company consolidates a VIE if the Company has the power to direct matters that most significantly impact the activities of the VIE, and has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

Basis of presentation

(b)

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements are prepared based on the historical cost convention.

Effective from October 1, 2020, the Company changed its ADS to ordinary share ratio from the one ADS for every twenty-five ordinary shares to one ADS for every five ordinary shares. Therefore, the number of ADS and the computations of per ADS data as disclosed elsewhere in these consolidated financial statements have been retrospectively restated.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results might differ from those estimates. Critical accounting estimates and assumptions include, but are not limited to, assessing the following: revenues for in-game virtual items over the estimated average playing period of paying players and impairment of long-term investments.

Revenue recognition

(c)

Revenue recognition

Revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services, reduced by estimates for return allowances, promotional discounts, rebates and Value Added Tax (“VAT”).

The recognition of revenues involves certain management judgments, including estimated lives of virtual items purchased by game players, estimated breakage of game points, return allowance for goods sold, the estimation of the fair value of an advertising-for-advertising barter transaction, volume sales rebates. The amount and timing of the Group’s revenues could be different if management made different judgments or utilized different estimates.

The Group’s revenues are mainly generated from online game services, tutoring services, sale of smart devices, online music services live streaming services, advertising services, e-commerce and other fee-based premium services. Refer to “Note 28 - Segment Information” for disaggregation of revenue.

(i)	Online game services

The Group operates mobile games and PC games. The Group is the principal of substantially all games it operates, including both in-house developed games and licensed games. As these games are hosted on the Group’s servers, the Group has the pricing discretion, and is responsible for the sale and marketing of the games as well as customer services. Fees paid to game developers, distribution channels (app stores) and payment channels are recorded as cost of revenues.

Mobile games

The Group generates mobile game revenues from the sale of in-game virtual items, including items, avatars, skills, privileges or other in-game consumables, features or functionality, within the games. The Group’s performance obligation is to provide on-going game services to players who purchased virtual items to gain an enhanced game-playing experience. This performance obligation is satisfied over the playing period of the paying players. Accordingly, the Group recognizes the revenues ratably over the estimated average playing period of these paying players.

The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors to arrive at the best estimates for the estimated average playing period of the paying players for each game based on historical players’ churn rates. If a new game is launched and only a limited period of paying player data is available, then the Group considers other qualitative factors. While the Group believes its estimates to be reasonable based on available game player information, the Group may revise such estimates based on new information indicating a change in the game player behavior patterns and any adjustments are applied prospectively.

PC games

The Group sells prepaid points to the end users. Customers can purchase “virtual” prepaid points online or from the vendors who register the points in the Group’s system via debit and credit cards or bank transfers via the online payment services platforms, and receive the prepaid point information over the Internet. Customers can use the points to play the Group’s PC games, pay for in-game items and use other fee-based premium services. Proceeds received from the sales of prepaid online points to players are recorded as contract liabilities.

The Group earns revenue through providing PC game services to players mainly under two types of revenue models: time-based revenue model and item-based revenue model. For PC games using the time-based model, players are charged based on the time they spend playing games. Revenues are recognized ratably over the game playing period as the performance obligations are satisfied.

Under the item-based model, the basic game play functions are free of charge, and players are charged for purchases of in-game items. In-game items have different life patterns: one-time use, limited life and permanent life. Revenues from the sales of one-time use in-game items are recognized upon consumption. Limited life items are either limited by the number of uses (for example, 10 times) or limited by time (for example, three months). Revenues from the sales of limited life in-game items are recognized ratably based on the extent of time passed or expired or the times used. Players are allowed to use permanent life in-game items without any use or time limits. Revenues from the sales of permanent life in-game items are recognized ratably over the estimated average playing period of the paying players.

The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors to arrive at the best estimates for the estimated average playing period of the paying players for the permanent in-game items of each PC game based on historical players’ churn rate. This estimate is re-assessed on a quarterly basis. Adjustments arising from the changes of estimated average playing period of the paying players are applied prospectively as such changes are resulted from new information indicating a change in the game player behavior patterns.

(ii)	Tutoring services

The Group offers various types of integrated learning services through Youdao, which primarily cover a wide spectrum of topics and target people from broad age groups through its diverse offerings of tutoring courses and digital learning contents, foreign languages, professional and interest education services as well as IT computer skills, etc. Youdao’s tutoring courses consist of online live streaming and other activities during the online live streaming period, as well as the content playback service. The aforementioned services are highly interdependent and interrelated in the context of the contract and are only considered accessory services to the online live streaming courses and therefore are not distinct and are not sold standalone. Therefore, the Group’s tutoring courses are accounted for as a single performance obligation, which is satisfied over the learning period of the students. Accordingly, the Group recognizes the revenues ratably over the estimated average learning period for different courses. The Group considers the average period that students typically spend time on the courses and other learning behavior patterns to arrive at the best estimates for the estimated learning period for each course based on the estimated learning time customers spend on the courses and the expected number of times customers will take the courses.

The Group also offers digital learning contents to customers which are delivered together with online live streaming courses and customized planning services. The customers can either stream the digital learning contents online or download and watch them offline. The downloadable digital learning contents, streaming services, online live streaming courses and customized planning services are considered as distinct performance obligations in the contract. The transaction price is generally collected in advance and allocated to each performance obligation in the contract based on the relative standalone selling prices. The Group recognizes the revenues of downloadable digital learning contents as the performance obligation is satisfied upon the time of delivery. The revenues of streaming services and customized planning services are recognized ratably over the service period. For online live streaming courses, the revenues are recognized ratably over the estimated average learning period.

(iii)

Smart devices

The Group sells smart devices such as dictionary pens, translation devices through Youdao to customers through retailers or distributors. The Group recognizes revenues when control of the goods is transferred to the customer, which generally occurs upon the delivery to the end customers or upon the delivery to distributors.

(iv)	Online music services

The Group offers online music services through Cloud Music, which mainly include membership subscriptions, sales of digital music album and songs and contents sublicensing on the Group’s online platforms.

The Group offers users membership subscription packages which entitled paying subscriber access to the Group’s relevant music contents and other privileged features on its platforms. The subscription fees for these packages are primarily time-based mainly from weekly to yearly and is collected upfront. The receipt of subscription fees is initially recognised as contract liabilities. The Group satisfies its performance obligations throughout the subscription period and revenue from the membership subscriptions is recognised over time.

The Group also offers users to purchase exclusive digital music albums and songs which can listen both online and offline. The Group considers that the control has been transferred to customer at time of purchase. As a result, the performance obligation is satisfied and revenue is recognised at a point in time.

The Group sublicenses certain of its music contents to other music platforms for a fixed period of one to three years, which generally falls within the original license period. Sublicense fees are normally collected upfront and is initially recognised as contract liabilities upon receipt. The Group determines sublicense of contents as a single performance obligation, and the revenue from sublicensing of contents is recognised over time throughout the sublicense period.

(v)	Live streaming services

The Group operates live streaming platforms through NetEase CC and Cloud Music whereby users can enjoy live performances provided by the live streaming performers and interact with them on a real time basis free of charge. The Group sells virtual items to users at pre-determined price so that the users gift them simultaneously to live streaming performers to show their support and appreciation. The virtual items sold by the Group comprise of either (i) consumable items or (ii) time-based item, such as privilege titles etc. Under the arrangements with the live streaming performers, the Group shares with them a portion of the revenues derived from the sales of virtual items. Revenues derived from the sale of virtual items are recorded on a gross basis as the Group acts as the principal to fulfill all obligations related to the sale of virtual items. Accordingly, revenue is recognized when the virtual item is delivered and consumed if the virtual item is a consumable item or, in the case of time-based virtual item, recognized ratably over the period each virtual item is made available to the user.

(vi)	Advertising services

The Group derives its advertising revenues principally from short-term online advertising contracts. Advertising service contracts may consist of multiple performance obligations with a typical term of less than three months. In arrangements where the Group has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Group generally determines standalone selling prices based on the prices charged to customers. If the performance obligation has not been sold separately, the Group estimates the standalone selling price by taking into consideration of the pricing for advertising areas of the Group’s platform with a similar popularities and advertisements with similar formats and quoted prices from competitors as well as other market conditions. Considerations allocated to each performance obligation is recognized as revenue over the advertisement display period, which is usually within three months.

The Group also enters into performance-based advertising arrangements with customers.

For cost per mille (“CPM”), or cost per thousand impressions, advertising arrangements with customers, the Group recognizes revenues based on the number of times that the advertisement has been displayed.

For cost per action (“CPA”) advertising arrangements with customers, the Group recognizes revenues based on the number of actions completed resulted from the advertisements, including but not limited to when users click on links.

Certain customers may receive volume rebates, which are accounted for as variable consideration. The Group estimates annual expected rebate volume with reference to their historical results and reduce revenues recognized.

The Group recognizes revenue from providing advertising service in exchange for non-cash consideration, usually advertising services, promotional benefits, content, consulting services and software provided by counterparties, at the fair value of the non-cash consideration measured as of contract inception date. If the Group is not able to reliably determine the fair value of non-cash consideration in some situations, the value of the non-cash consideration received is measured indirectly by reference to the standalone selling price of advertising services provided by the Group.

For the year ended December 31, 2020, 2021 and 2022, revenue from rendering adverting services in exchange for non-cash consideration is insignificant.

(vii)

E-commerce

The Group’s e-commerce revenue is primarily from its private label consumer lifestyle brand Yanxuan, which was established in April 2016. Yanxuan sells its private label products, including pet supplies, home cleaning products, bedding and other categories which mainly source directly from some excellent manufacturers. The Group is the principal for the online direct sales, as it controls the inventory before they are transferred to customers. The Group has the primary responsibility for fulfilling the contracts, bears the inventory risk, and has sole discretion in establishing the prices. E-commerce revenues from online direct sales are recognized when control of the goods is transferred to the customer, which generally occurs upon delivery to the customer. The Group also provides discount coupons to its customers for use in purchases, which are treated as a reduction of revenue when the related transaction is recognized.

Return allowances, which reduce revenue and cost of sales, are estimated using historical experience. Liabilities for return allowances and rights to recover products from customers associated with the Group’s liabilities are recorded as “Accrued liabilities and other payables” and “Inventories”, respectively, on the Group’s consolidated balance sheets. Both of the balances are not material as of December 31, 2020, 2021 and 2022.

(viii) Fee-based premium services

Fee-based premium services revenues, mostly operated on either consumption-basis or a monthly subscription basis, are derived principally from providing premium online reading, e-mail and other innovative businesses. Prepaid subscription fees collected from customers are deferred and are recognized as revenue on a straight-line basis by the Group over the subscription period, during which customers can access the premium online services provided by the Group. Fees collected from customer to be consumed to purchase online services are recognized as revenue when related services are rendered.

Practical expedients

The Group has used the following practical expedients as allowed under ASC 606:

(i)

The effects of a significant financing component have not been adjusted for contracts which the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

(ii)

The Group applied the portfolio approach in determining the commencement date of consumption of permanent virtual items and the estimated average playing period of paying players for PC games and mobile games for the recognition of online game revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually.

(iii)

The Group elects to expense certain costs to obtain a contract as incurred when the expected amortization period is one year or less.

Contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment.

The Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer is recognized as a contract asset.

Contract assets as of December 31, 2021 and 2022 were not material.

A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Refer to Note 16 - Contract liabilities for further information, including changes in contract liabilities during the year.

Cost of revenues

(d)

Cost of revenues

Costs of revenues consist primarily of revenue sharing cost, staff costs, royalties fees related to licensed games, traffic acquisition cost, content acquisition cost, service fees related to online payments, server and bandwidth service fee, depreciation and amortization of severs, computers and software, and other direct costs of providing these services, as well as cost of merchandise sold. These costs are charged to the consolidated statements of operations and comprehensive income as incurred.

Research and development costs

(e)

Research and development costs

Research and development costs mainly consist of personnel-related expenses and technology service costs incurred for the development of online games, as well as development and enhancement of the Group’s new products, websites and application platforms.

For internal use software, the Group expenses all costs incurred for the preliminary project stage and post implementation-operation stage of development, and costs associated with repair or maintenance of the existing platforms. Costs incurred in the application development stage are capitalized and amortized over the estimated useful life. Since the amount of the Group’s research and development expenses qualifying for capitalization has been immaterial for the years ended December 31, 2020, 2021 and 2022, as a result, all development costs incurred for development of internal used software have been expensed as incurred.

For external use software, costs incurred for development of external use software have not been capitalized for the years ended December 31, 2020, 2021 and 2022, because the period after the date technical feasibility is reached and the time when the software is marketed is short historically, and the amount of costs qualifying for capitalization has been immaterial.

Cash, cash equivalents and time deposits

(f)

Cash, cash equivalents and time deposits

Cash and cash equivalents mainly represent cash on hand, demand deposits placed with large reputable banks in Hong Kong and/or China, and highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase with terms of less than three months. As of December 31, 2021 and 2022, there were cash at bank and demand deposits with terms of less than three months denominated in U.S. dollars amounting to approximately US$398.4 million and US$623.8 million, respectively (equivalent to approximately RMB2,540.3 million and RMB4,344.7 million, respectively).

Time deposits represent time deposits placed with banks with original maturities of three months or more. As of December 31, 2021 and 2022, there were time deposits denominated in U.S. dollars amounting to approximately US$6,847.0 million and US$8,421.0 million, respectively (equivalent to approximately RMB43,654.4 million and RMB58,648.9 million, respectively).

As of December 31, 2021 and 2022, the Group had approximately RMB40.5 billion and RMB48.1 billion cash and cash equivalents and time deposits held by its PRC subsidiaries and the VIEs, representing 44.4% and 42.6% of total cash and cash equivalents and time deposits of the Group, respectively.

As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Customer deposit of NetEase Pay accounts	2,091.3	2,627.5
Deposit required by the PRC government authorities related to Youdao’s educational services	749.8	0.9
Others	36.9	70.9
Total	2,878.0	2,699.3

The Group had no other material lien arrangements during 2021 and 2022.

Receivables, net

(g)

Receivables, net

The Group closely monitors the collection of its receivables and records a reserve for doubtful accounts against aged accounts and for specifically identified non-recoverable amounts for periods prior to January 1, 2020. If the economic situation and the financial condition of the customer deteriorate resulting in an impairment of the customer’s ability to make payments, additional allowances might be required. Receivable balances are written off when they are determined to be uncollectible.

From January 1, 2020, the Group’s receivables are subject to the measurement of credit losses within the scope of ASC Topic 326. The impact of new standard was immaterial to the Company.

The Group’s accounts receivable, other receivables recorded in prepayments and other current assets and other long-term receivables recorded in other long-term assets are within the scope of ASC Topic 326. Accounts receivable consist primarily of receivables from advertising customers, and receivables from distribution channels.

To estimate expected credit losses, the Group has identified the relevant risk characteristics of its customers and the related receivables and other receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. This is assessed at each quarter based on the Group’s specific facts and circumstances.

The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Balance at the beginning of year	77,147	113,253	369,982
Provisions	40,600	265,930	61,393
Write-offs	(4,494)	(9,201)	(28,015)
Balance at the end of year	113,253	369,982	403,360

Fair value of financial instruments

(h)

Fair value of financial instruments

Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace

Level 3 - Unobservable inputs which are supported by little or no market activity

The Group’s financial instruments include cash and cash equivalents and time deposits, accounts receivable, prepayments and other current assets, short-term investments, accounts payable, short-term loans, contract liabilities and accrued liabilities and other payables, which the carrying values approximate their fair value. Please see Note 29 for additional information.

Inventories

(i)

Inventories

Inventories mainly represent products for the Group’s e-commerce business, are stated at the lower of cost or net realizable value in the consolidated balance sheets. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Group takes ownership, risks and rewards of the products purchased. Write downs are recorded in “Cost of revenues” in the consolidated statements of operations and comprehensive income. Certain costs attributable to buying and receiving products, such as purchase freights, are also included in inventories.

Investments

(j)

Investments

Short-term investments

Short-term investments include investments in financial instruments with a variable interest rate indexed to performance of underlying assets, all of which are with an original maturity of less than 12 months.

In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of operations and comprehensive income as “Other income/(expense)”. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 7 and Note 29 for additional information.

Long-term investments

Long-term investments are mainly comprised of equity investments in publicly traded companies, privately-held companies and limited-partnership.

Equity investments in publicly traded companies are reported at fair value as equity investment with readily determinable fair value. Unrealized gains and losses for the years ended December 31, 2020, 2021 and 2022 are recognized in other income/(expense).

For investments in common stock or in-substance common stock issued by privately-held companies on which the Group does not have significant influence, and investments in privately-held companies’ shares that are not common stocks or in-substance common stocks, as these equity securities do not have readily determinable fair value, the Group measure these equity securities investments at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). All gains and losses on these equity securities without readily determinable fair value, realized and unrealized, are recognized in other income /(expense).

Investments in common stock or in-substance common stock of investees and limited-partnership investments in which the Group is in a position to exercise significant influence by participating in, but not controlling or jointly controlling, the financial and operating policies are accounted for using the equity method.

Management regularly evaluates the impairment of the investments in privately-held companies without readily determinable fair value and equity method investments periodically, or when events or circumstances indicate that the carrying amount may not be recoverable. For investments without readily determinable fair values, management performs a qualitative assessment of the fair value of the equity interest in comparison to its carrying amount to determine if there is an indication of potential impairment. If such indication exists, management estimates the fair value of the investment, and records an impairment in the consolidated statements of operations and comprehensive income to the extent the carrying amount exceeds the fair value. Significant judgments management applies in the impairment assessment for these equity investments include: (i) the determination as to whether any impairment indicators exist during the year; (ii) estimating the impairment amount if an impairment exists; and (iii) judgements as to whether a decline in value of equity method investments was other than temporary. These judgments consider various factors and events including: a) significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investees; b) significant adverse change in the regulatory, economic, or technological environment of the investees; c) significant adverse change in the general market condition of either the geographical area or the industry in which the investees operate; d) bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; e) factors that raise significant concerns about the investees’ ability to continue as a going concern; f) factors that raise significant concerns about the performance of new products and g) valuation methods and key estimates in the determination of the impairment amounts. Key estimates mainly comprised the severity and duration of the impairment indicator and the existence of any positive or mitigating factors. For equity method investments, management considers if the investment is impaired when events or circumstances suggest the carrying amount may not be recoverable, and recognizes any impairment charge in the consolidated statements of operations and comprehensive income for a decline in value that is determined to be other than temporary.

Leases

(k)

Leases

On January 1, 2019, the Group adopted ASU 2016-02, “Leases (Topic 842)”, including certain transitional guidance and subsequent amendments within ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, including ASU 2016-02, “ASC 842”).

Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. As of December 31, 2021 and 2022, the Group has no material finance leases.

Under ASC 842, the Group determines if an arrangement is a lease at inception. The Group is the lessee in a lease contract when the Group obtains the right to control the asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, and short-term and long-term operating lease liabilities in the Group’s consolidated balance sheets. ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Group’s leases do not provide an implicit rate, the Group generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.

For leases with a term of twelve months or less (“short-term leases”), the Group has elected not to recognize lease liabilities and associated ROU assets. Lease payments on short-term leases are recognized as lease expense within cost of revenues or operating expenses on the consolidated statements of operations and comprehensive income, depending on the nature of the lease, on a straight-line basis over the lease term.

Property, equipment and software

(l)

Property, equipment and software

Property, equipment and software are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the following estimated useful lives, taking into account any estimated residual value:


Building		20 years
Decoration		5 years
Leasehold improvements		lesser of the term of the lease and the estimated useful lives of the assets
Furniture, fixtures, office and other equipment		3-10 years
Vehicles		5 years
Servers and computers		3 years
Software		3 years

Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.

Land use rights

(m)

Land use rights

Land use rights represent lease prepayments to the local government authorities. Upon the adoption of ASC 842 on January 1, 2019, land use rights, net were identified as operating lease right-of-use assets, which is separately disclosed as “Land use rights, net” in the Group’s consolidated balance sheets. Accordingly, the Group disclosed the cash used for obtaining the land use rights in operating cash flow activities for the year ended December 31, 2020, 2021 and 2022.

Intangible assets

(n)

Intangible assets

Finite-lived intangible assets are tested for impairment if impairment indicators arise. The Group amortizes its finite-lived intangible assets using the straight-line method:


License right		over the license period
Technology		7-10 years
Trademark		10 years

The Group obtains music content for customers through licensing agreements. When the license fee for music title is determinable or reasonably estimable, the content is available for streaming and the Group has a binding obligation for the payment, the Group recognizes an asset representing the fee and a corresponding liability for the amounts owed. The Group relieves the liability as payments are made and the Group amortizes the asset to “Cost of revenues” on a straight-line basis over the term of the respective licensing agreements.

Intangible assets and other long-term assets are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When these events occur, the Group evaluates the impairment for intangible assets and other long-term assets by comparing the carrying amount of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over the fair value of the assets.

Goodwill

(o)

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the identifiable assets and liabilities acquired as a result of the Group’s acquisitions of interests in its subsidiaries and consolidated VIEs. The Group allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis, or more frequently if events occur or circumstances change that indicate that it is more likely than not the fair value of a reporting unit would be below its carrying value. A goodwill impairment loss, if any, shall be measured as the amount by which the carrying amount of the reporting unit including goodwill exceeds its fair value, limited to the total carrying amount of goodwill allocated to that reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the growth rate for business, estimation of the useful life over which cash flows will occur, and determination of weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

Advertising expenses

(p)

Advertising expenses

The Group expenses advertising costs as incurred and reports these costs under selling and marketing expense. Advertising expenses totaled approximately RMB3,782.1 million, RMB3,762.8 million and RMB5,196.0 million (US$753.4 million) for the years ended December 31, 2020, 2021, and 2022, respectively.

Foreign currency translation

(q)

Foreign currency translation

The Group’s reporting currency is RMB. The Company and its subsidiaries and the VIEs, with an exception of many overseas subsidiaries, use RMB as their functional currency. Several of the Company’s overseas subsidiaries used US$ or their respective local currencies as their functional currency. The determination of the respective functional currency is based on the criteria of ASC 830, Foreign Currency Matters.

Transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. The resulting exchange differences are included in the consolidated statements of operations and comprehensive income.

Assets and liabilities of the Group companies are translated from their respective functional currencies to the reporting currency at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates in effect during the reporting period. The exchange differences for the translation of group companies with non-RMB functional currency into the RMB functional currency are included in foreign currency translation adjustments, which is a separate component of shareholders’ equity on the consolidated financial statements.

Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.8972 on the last trading day of 2022 (December 30, 2022) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at such rate.

Share-based compensation

(r)

Share-based compensation

Under its 2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan (see Note 22(a)), the Company issues restricted share units (RSUs) to its employees, directors and consultants with performance conditions and service vesting periods ranging from one year to five years. Some of the RSUs issued are to be settled, at the Company’s discretion, in stock or cash upon vesting based on the stock price at grant date. At each reporting period, the Company evaluates the likelihood of performance conditions being met. Share-based compensation costs are then recorded for the number of RSUs expected to vest on a graded-vesting basis, net of estimated forfeitures, over the requisite service period. The compensation cost of the RSUs to be settled in stock only is measured based on the fair value of stock when all conditions to establish the grant date have been met. The compensation cost of RSUs to be settled either in stock or cash at the Company’s discretion is remeasured until the date when settlement in stock or cash is determined by the Company.

Effective February 22, 2023, the Board of Directors of the Company amended and restated the 2019 Restricted Share Unit Plan to permit the grant of stock option awards thereunder as an additional award type and to make certain other ministerial and administrative changes and renamed it the NetEase, Inc. Amended and Restated 2019 Share Incentive Plan (the “Amended and Restated 2019 Plan”).

The Company records share-based compensation to the consolidated statements of operations and comprehensive income with the corresponding credit to the additional paid-in-capital for share options and RSUs to the extent that such awards are to be settled only in stock.

Certain subsidiaries of the Company granted options exercisable for ordinary shares to certain of the Group’s employees. 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 (“Vesting Commencement Date”). The Group adopts the binomial option pricing model to determine the fair value of stock options and accounts for share-based compensation cost using an estimated forfeiture rate.

Forfeitures were estimated based on the Group’s weighted average historical forfeiture rate of the past five years. Differences between actual and estimated forfeitures are expensed in the period that the differences occur. See Note 22 for further information regarding share-based compensation assumptions and expense.

Taxation

(s)

Taxation

Income tax expense is recognized in accordance with the laws of the relevant taxing authorities, with deferred taxes being provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Tax rate changes are reflected in income during the period the changes are enacted.

A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities as well as the expected future tax benefit to be derived from tax loss and tax credit carry forwards.

On March 16, 2007, the National People’s Congress of PRC enacted the Enterprise Income Tax (“EIT”) Law which imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount “more likely than not” to be realized in future tax returns.

For a particular tax-paying component of an enterprise and within a particular tax jurisdiction, all deferred tax assets and liabilities are offset and presented as a single amount. The Group does not offset deferred tax assets and liabilities attributable to different tax-paying components of the enterprise or to different tax jurisdictions.

The Group reports tax-related interest expense and penalty in “Other, net” in the consolidated statements of operations and comprehensive income, if there is any. The Group did not incur any material penalty or interest payments in connection with tax positions during the years ended December 31, 2020, 2021 and 2022.

The Group did not have any significant unrecognized uncertain tax positions as of December 31, 2021 and 2022.

In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Net earnings per share ("EPS") and per American Depositary Share ("ADS")

(t)

Net earnings per share (“EPS”) and per American Depositary Share (“ADS”)

Basic earnings per share is computed on the basis of the weighted-average number of ordinary shares outstanding during the period under measurement. Diluted earnings per share are based on the weighted-average number of ordinary shares outstanding and potential ordinary shares. Potential ordinary shares result from the assumed exercise of outstanding stock options, RSUs or other potentially dilutive equity instruments, when they are dilutive under the treasury stock method or the if-converted method.

Statutory reserves

(u)

Statutory reserves

The Company’s subsidiaries and the VIEs incorporated in China are required to make appropriations to certain non-distributable statutory reserves. In accordance with the laws applicable to foreign invested enterprises in China, its subsidiaries have to make appropriations from its after-tax profit as reported in their PRC statutory accounts to non-distributable statutory reserves including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund is at least 10% of the after-tax profits as reported in the PRC statutory accounts. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the respective company. The appropriation to the other reserve funds is at the discretion of the board of directors of the respective company. At the same time, the VIEs, in accordance with the China Company Laws, must make appropriations from their after-tax profit as reported in their PRC statutory accounts to non-distributable statutory reserves including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund is at least 10% of the after-tax profits as reported in their PRC statutory accounts. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the board of directors of the respective companies.

The general reserve fund and statutory surplus fund are restricted to set off against losses, expansion of production and operation or increase in the registered capital of the respective companies. The staff bonus and welfare fund is available to fund payments of special bonuses to staff and for collective welfare benefits. Upon approval by the board of directors, the discretionary surplus and enterprise expansion fund can be used to offset accumulated losses or to increase capital.

Business combination

(v)

Business combination

The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Group may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded on the consolidated statements of operations and comprehensive income.

In a business combination achieved in stages, the Group re-measures the previously held equity interests in the acquiree when obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized on the consolidated statements of operations and comprehensive income.

When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained noncontrolling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.

Noncontrolling interests and redeemable noncontrolling interests

(w)

Noncontrolling interests and redeemable noncontrolling interests

Noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and the VIEs which is not attributable, directly or indirectly, to the controlling shareholder.

The noncontrolling interest will continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance.

Redeemable noncontrolling interests represent redeemable equity interests issued by the Group’s subsidiaries to certain investors (see Note 19), and have been classified as mezzanine classified noncontrolling interests in the consolidated financial statements as these redeemable interests are contingently redeemable upon the occurrence of certain conditional events, which is not solely within the control of the Group. The Group accreted the redeemable equity interests to their redemption value, which is purchase price plus interest per year over the period since issuance to the earliest redemption date. The accretions were recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Once additional paid-in capital had been exhausted, additional charges were recorded by increasing the accumulated deficit.

Related parties

(x)

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.

Comprehensive income

(y)

Comprehensive income

Comprehensive income is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders.

Segment reporting

(z)

Segment reporting

The Group’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements is set out in detail under Note 28.

Dividends

(aa)

Dividends

Dividends of the Company are recognized when declared.

Recently adopted accounting pronouncements

(bb) Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group adopted this new standard effective January 1,2022 with no material impact on its consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

(cc)Recently issued accounting pronouncements not yet adopted

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively with any adjustments from the adoption recognized in earnings and disclosed on the date of adoption, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on the consolidated financial statements.

Principal Accounting Policies - Taxation (Details)		12 Months Ended
Principal Accounting Policies - Taxation (Details)	Mar. 16, 2007	Dec. 31, 2022
Principal Accounting Policies
Withholding tax rate on dividend distributed by foreign investment entities to its non-resident enterprise investors (as a percent)	10.00%	10.00%
Lower withholding income tax rate on dividend applied, if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements (as a percent)	5.00%	5.00%
Minimum equity interest in PRC entities (as a percent)	25.00%	25.00%

Commitments and Contingencies (Details) ¥ in Thousands	1 Months Ended
Commitments and Contingencies (Details) ¥ in Thousands	Apr. 30, 2018 item	Dec. 31, 2022 CNY (¥)
Litigation
Number of mobile games involved in the lawsuit \| item	2
Total
Commitments and Contingencies
2023		¥ 3,873,347
2024		1,132,863
2025		451,502
2026		214,954
Beyond 2026		84,116
Total		5,756,782
Server and Bandwidth Service Fee Commitments
Commitments and Contingencies
2023		553,533
2024		341,458
2025		244,584
2026		103,392
Beyond 2026		31,970
Total		1,274,937
Capital Commitments
Commitments and Contingencies
2023		1,971,894
2024		756,196
2025		206,918
2026		111,562
Beyond 2026		52,146
Total		3,098,716
Royalties and Expenditure for Licensed Content Commitments
Commitments and Contingencies
2023		1,034,633
2024		18,111
Total		1,052,744
Office Machines and Other Commitments
Commitments and Contingencies
2023		313,287
2024		17,098
Total		¥ 330,385

Share-based Compensation - Restricted Share Units Plan (Details) - shares		1 Months Ended	12 Months Ended
	Nov. 17, 2009	Oct. 31, 2019	Dec. 31, 2022	Nov. 30, 2009
Share based Compensation
Number of preceding years considered for estimating forfeiture			5 years
2009 Restricted Share Unit Plan
Share based Compensation
Number of ordinary shares reserved for issuance under the plan				323,694,050
Term of plan	10 years
2019 Restricted Share Unit Plan
Share based Compensation
Number of ordinary shares reserved for issuance under the plan		322,458,300
Term of plan		10 years

Principal Accounting Policies - Receivables, net (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Principal Accounting Policies
Balance at the beginning of year	¥ 369,982		¥ 113,253	¥ 77,147
Provisions	61,393	$ 8,901	265,930	40,600
Write-offs	(28,015)		(9,201)	(4,494)
Balance at the end of year	¥ 403,360		¥ 369,982	¥ 113,253

Property, Equipment and Software, net (Tables)

12 Months Ended

Dec. 31, 2022

Property, Equipment and Software, net

Summary of property, equipment and software

The following is a summary of property, equipment and software (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Building and decoration	3,676,626	3,875,063
Leasehold improvements	287,510	304,365
Furniture, fixtures, office and other equipment	339,791	379,938
Vehicles	98,651	102,823
Servers and computers	5,417,716	6,018,709
Software	237,550	344,410
Construction in progress	653,239	1,587,413
	10,711,083	12,612,721

Less: accumulated depreciation	(5,277,225)	(6,270,391)

Net book value	5,433,858	6,342,330

Long-term Investments - Summary of long-term investments (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Long-term Investments
Investments in equity method investees	¥ 5,239,242		¥ 3,776,245
Equity investments with readily determinable fair values	2,567,268		5,886,911
Equity investments without readily determinable fair values	10,463,304		8,802,976
Investments accounted for at fair values	246,073		194,280
Debt investments	28,471		144,490
Total	¥ 18,544,358	$ 2,688,679	¥ 18,804,902

Consolidated Balance Sheets ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Current assets:
Cash and cash equivalents	¥ 24,889,000	$ 3,608,566	¥ 14,498,157
Time deposits	84,947,679	12,316,256	70,754,846
Restricted cash	2,699,055	391,326	2,876,628
Accounts receivable, net	5,002,872	725,348	5,507,988
Inventories	993,636	144,064	964,733
Prepayments and other current assets, net	5,448,284	789,927	6,235,857
Short-term investments	7,622,673	1,105,184	12,281,548
Assets held for sale			497
Total current assets	131,603,199	19,080,671	113,120,254
Non-current assets:
Property, equipment and software, net	6,342,330	919,551	5,433,858
Land use rights, net	4,121,767	597,600	4,108,090
Operating lease right-of-use assets, net	887,977	128,745	1,044,152
Deferred tax assets	1,480,789	214,694	1,297,954
Time deposits	2,973,840	431,166	5,823,840
Restricted cash	270	39	1,330
Long-term investments	18,544,358	2,688,679	18,804,902
Other long-term assets	6,806,455	986,844	4,008,456
Assets held for sale			1,088
Total non-current assets	41,157,786	5,967,318	40,523,670
Total assets	172,760,985	25,047,989	153,643,924
Current liabilities:
Accounts payable	1,507,141	218,515	985,059
Salary and welfare payables	4,732,941	686,212	4,133,254
Taxes payable	2,813,096	407,861	4,537,050
Short-term loans	23,875,704	3,461,652	19,352,313
Contract liabilities	12,518,890	1,815,068	12,132,743
Accrued liabilities and other payables	11,122,022	1,612,542	9,026,508
Short-term operating lease liabilities	259,053	37,559	334,399
Total current liabilities	56,828,847	8,239,409	50,501,326
Non-current liabilities:
Deferred tax liabilities	2,126,120	308,258	1,345,874
Long-term operating lease liabilities	672,640	97,524	732,127
Long-term loans	3,654,964	529,920	1,275,140
Other long-term liabilities	604,934	87,707	365,581
Total non-current liabilities	7,058,658	1,023,409	3,718,722
Total liabilities	63,887,505	9,262,818	54,220,048
Commitments and contingencies
Redeemable noncontrolling interests	136,440	19,782	145,238
Shareholders' equity:
Ordinary shares, US$0.0001 par value: 1,000,300,000,000 shares authorized, 3,273,835,376 and 3,223,623,596 shares issued and outstanding as of December 31, 2021 and 2022, respectively	2,710	393	2,794
Additional paid-in capital	22,854,234	3,313,553	37,915,939
Treasury stock	(10,910,754)	(1,581,911)	(20,502,188)
Statutory reserves	1,278,666	185,389	1,245,125
Accumulated other comprehensive (loss)/ income	431,786	62,603	(828,065)
Retained earnings	91,074,675	13,204,587	77,494,475
NetEase, Inc.'s shareholders' equity	104,731,317	15,184,614	95,328,080
Noncontrolling interests	4,005,723	580,775	3,950,558
Total equity	108,737,040	15,765,389	99,278,638
Total liabilities, redeemable noncontrolling interests and shareholders' equity	¥ 172,760,985	$ 25,047,989	¥ 153,643,924

Related Party Transactions

12 Months Ended

Dec. 31, 2022

Related Party Transactions

Related Party Transactions

27.

Related Party Transactions

The Group had no material transactions with related parties for the year ended December 31, 2020, 2021 and 2022, and no material related parties’ balances as of December 31, 2021 and 2022.

Organization and Nature of Operations - Additional information (Details)				12 Months Ended
	Dec. 01, 2015	May 12, 2010	May 12, 2000	Dec. 31, 2022 CNY (¥) entity	Dec. 31, 2021 CNY (¥) entity
Principle subsidiaries and variable interest entities
Amount of assets for settlement of obligations except for the registered capital of the VIEs and certain non-distributable statutory reserves				¥ 0
Registered capital of VIEs				659,700,000	¥ 519,700,000
Non-distributable statutory reserves of the consolidated VIEs				¥ 82,400,000	¥ 70,100,000
Number of entities for which the company has a variable interest but is not the primary beneficiary \| entity				0	0
Guangzhou NetEase \| Shareholder voting rights trust agreement
Principle subsidiaries and variable interest entities
Term of principal (or amended principal) agreement		20 years	10 years
Guangzhou NetEase \| Letter of agreement
Principle subsidiaries and variable interest entities
Term of principal (or amended principal) agreement		20 years
HZ Leihuo \| Operating agreement
Principle subsidiaries and variable interest entities
Term of principal (or amended principal) agreement	20 years

Contract Liabilities

12 Months Ended

Dec. 31, 2022

Contract Liabilities

Contract liabilities

16.	Contract Liabilities

Contract liabilities represents sales proceeds from prepaid points sold, unamortized mobile game in-game spending, prepaid products fees before delivery and prepaid subscription fees for internet value-added services for which services are yet to be provided as of the balance sheet dates.

For the year ended December 31, 2022, the additions to the contract liabilities balance were primarily due to cash payments received or due in advance of satisfying the Group’s performance obligations, while the reductions to the contract liabilities balance were primarily due to the recognition of revenues upon fulfillment of the Group’s performance obligations, both of which were in the ordinary course of business. During the year ended December 31, 2021 and 2022, RMB10,513.0 million and RMB11,822.3 million of revenues recognized were included in the contract liabilities balance at the beginning of the year, respectively.

As of December 31, 2022, the aggregate amount of transaction price allocated to the unsatisfied performance obligations is RMB12,793.6 million, which includes the contract liabilities balances and amounts to be invoiced and recognized as revenues in future periods. The Group expects to recognize RMB12,518.9 million as revenues over the next 12 months, and the remaining unsatisfied performance obligations expected to be recognized thereafter was recognized in other long-term liabilities. This balance does not include an estimate for variable consideration arising from sales rebates to advertising service customers and estimated breakage for online points.

Organization and Nature of Operations - Combined financial information of the VIEs (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
Consolidated Balance Sheets
Cash and cash equivalents	¥ 24,889,000		¥ 14,498,157		$ 3,608,566
Time deposits	84,947,679		70,754,846		12,316,256
Restricted cash	2,699,055		2,876,628		391,326
Accounts receivable, net	5,002,872		5,507,988		725,348
Inventories	993,636		964,733		144,064
Prepayments and other current assets, net	5,448,284		6,235,857		789,927
Short-term investments	7,622,673		12,281,548		1,105,184
Assets held for sale			497
Total current assets	131,603,199		113,120,254		19,080,671
Property, equipment and software, net	6,342,330		5,433,858		919,551
Operating lease right-of-use assets, net	887,977		1,044,152		128,745
Deferred tax assets	1,480,789		1,297,954		214,694
Restricted cash	270		1,330		39
Long-term investments	18,544,358		18,804,902		2,688,679
Other long-term assets	6,806,455		4,008,456		986,844
Total non-current assets	41,157,786		40,523,670		5,967,318
Total assets	172,760,985		153,643,924		25,047,989
Accounts payable	1,507,141		985,059		218,515
Salary and welfare payables	4,732,941		4,133,254		686,212
Taxes payable	2,813,096		4,537,050		407,861
Short-term loans	23,875,704		19,352,313		3,461,652
Contract liabilities	12,518,890		12,132,743		1,815,068
Accrued liabilities and other payables	11,122,022		9,026,508		1,612,542
Short-term operating lease liabilities	259,053		334,399		37,559
Total current liabilities	56,828,847		50,501,326		8,239,409
Long-term operating lease liabilities	672,640		732,127		97,524
Other long-term payable	604,934		365,581		87,707
Total non-current liabilities	7,058,658		3,718,722		1,023,409
Total liabilities	63,887,505		54,220,048		$ 9,262,818
Net revenues
Total net revenues	96,495,809	$ 13,990,577	87,606,026	¥ 73,667,133
Cost of revenues and operating expenses
Net income	19,843,290	2,877,007	16,976,190	12,330,235
Cash flows from operating activities:
Net cash (used in)/provided by operating activities	27,709,233	4,017,461	24,926,727	24,888,171
Cash flows from investing activities:
Net cash used in investing activities	(7,369,727)	(1,068,511)	(7,078,294)	(29,192,407)
Cash flows from financing activities:
Net cash provided by/(used in) financing activities	(10,237,699)	$ (1,484,326)	(12,585,569)	9,913,087
Primary Beneficiary Consolidated VIEs
Consolidated Balance Sheets
Cash and cash equivalents	2,303,280		1,541,763
Time deposits	400,000		71,000
Restricted cash	2,654,971		2,846,372
Accounts receivable, net	3,542,272		3,924,446
Inventories	67,572		83,672
Prepayments and other current assets, net	1,867,110		2,522,572
Short-term investments	73,984		618,000
Amounts due from Group companies	9,917,091		7,581,649
Assets held for sale			204
Total current assets	20,826,280		19,189,678
Property, equipment and software, net	78,666		61,343
Operating lease right-of-use assets, net	54,653		58,872
Deferred tax assets	155,595		124,738
Restricted cash	200		479
Long-term investments	885,372		862,839
Other long-term assets	164,968		385,231
Total non-current assets	1,339,454		1,493,502
Total assets	22,165,734		20,683,180
Accounts payable	802,717		463,601
Salary and welfare payables	155,478		115,707
Taxes payable	41,352		157,137
Short-term loans	422		52,963
Contract liabilities	11,465,101		10,751,917
Accrued liabilities and other payables	3,809,049		2,945,930
Short-term operating lease liabilities	20,690		24,991
Amounts due to Group companies	3,937,784		3,904,328
Total current liabilities	20,232,593		18,416,574
Long-term operating lease liabilities	34,291		34,077
Other long-term payable	263,373		257,874
Total non-current liabilities	297,664		291,951
Total liabilities	20,530,257		18,708,525
Net revenues
Total net revenues	83,367,406		75,215,169	62,191,162
Cost of revenues and operating expenses
Total cost of revenues and operating expenses	(83,321,481)		(74,643,007)	(61,484,147)
Net income	(81,329)		624,299	712,015
Cash flows from operating activities:
Net cash (used in)/provided by operating activities	788,498		1,548,858	1,671,457
Cash flows from investing activities:
Net cash used in investing activities	(71,832)		(39,430)	(263,766)
Cash flows from financing activities:
Net cash provided by/(used in) financing activities	(157,989)		(1,301,096)	273,889
Primary Beneficiary Consolidated VIEs' third-parties
Net revenues
Total net revenues	82,549,444		74,406,521	61,470,764
Cost of revenues and operating expenses
Total cost of revenues and operating expenses	(18,358,287)		(17,651,675)	(15,430,950)
Cash flows from operating activities:
Net cash (used in)/provided by operating activities	67,459,864		61,272,031	51,605,737
Cash flows from investing activities:
Net cash used in investing activities	(71,832)		(39,430)	(263,766)
Cash flows from financing activities:
Net cash provided by/(used in) financing activities	(52,541)		(678,287)
Primary Beneficiary Consolidated VIEs' intra-Group companies
Net revenues
Total net revenues	817,962		808,648	720,398
Cash flows from financing activities:
Net cash provided by/(used in) financing activities	(105,448)		(622,809)	273,889
Primary Beneficiary Consolidated VIEs' intra-Group companies \| Technical consulting and related service
Cost of revenues and operating expenses
Total cost of revenues and operating expenses	(64,777,586)		(56,822,482)	(45,835,734)
Cash flows from operating activities:
Net cash (used in)/provided by operating activities	(66,970,818)		(59,439,552)	(49,435,342)
Primary Beneficiary Consolidated VIEs' intra-Group companies \| Other
Cost of revenues and operating expenses
Total cost of revenues and operating expenses	(185,608)		(168,850)	(217,463)
Cash flows from operating activities:
Net cash (used in)/provided by operating activities	¥ 299,452		¥ (283,621)	¥ (498,938)

Accrued Liabilities and Other Payables

12 Months Ended

Dec. 31, 2022

Accrued Liabilities and Other Payables

Accrued Liabilities and Other Payables

17.	Accrued Liabilities and Other Payables

The following is a summary of accrued liabilities and other payables as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Customer deposits on NetEase Pay accounts	2,388,546	3,113,107
Marketing expenses and promotion materials	1,857,133	2,046,559
Accrued fixed assets related payables	706,583	635,566
Server and bandwidth service fees	264,513	246,243
Accrued revenue sharing	1,176,349	1,032,559
Content cost	838,293	1,703,218
Professional fees and technical charges	608,752	595,491
Accrued freight and warehousing charge	84,490	105,356
Administrative expenses and other staff related cost	399,753	414,214
Deferred government grants	174,241	179,961
Acquisition considerations	—	203,584
Customer refund for licensed games	—	283,763
Others	527,855	562,401
	9,026,508	11,122,022

Long-term Investments (Tables)

12 Months Ended

Dec. 31, 2022

Long-term Investments

Schedule of long-term investments

The following is a summary of long-term investments (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Investments in equity method investees	3,776,245	5,239,242
Equity investments with readily determinable fair values	5,886,911	2,567,268
Equity investments without readily determinable fair values	8,802,976	10,463,304
Investments accounted for at fair values	194,280	246,073
Debt investments	144,490	28,471
	18,804,902	18,544,358

Accrued Liabilities and Other Payables (Details) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Accrued Liabilities and Other Payables
Customer deposits on NetEase Pay accounts	¥ 3,113,107		¥ 2,388,546
Marketing expenses and promotion materials	2,046,559		1,857,133
Accrued fixed assets related payables	635,566		706,583
Server and bandwidth service fees	246,243		264,513
Accrued revenue sharing	1,032,559		1,176,349
Content cost	1,703,218		838,293
Professional fees and technical charges	595,491		608,752
Accrued freight and warehousing charge	105,356		84,490
Administrative expenses and other staff related cost	414,214		399,753
Deferred government grants	179,961		174,241
Acquisition considerations	203,584
Customer refund for licensed games	283,763
Others	562,401		527,855
Total accrued liabilities and other payables	¥ 11,122,022	$ 1,612,542	¥ 9,026,508

Noncontrolling Interests and Redeemable Noncontrolling Interests (Details) $ in Millions	1 Months Ended			12 Months Ended
	Dec. 31, 2021	Oct. 31, 2019	Apr. 30, 2018 USD ($) item	Dec. 31, 2020 CNY (¥)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Noncontrolling Interests and Redeemable Noncontrolling Interests
Cash consideration for repurchase of redeemable noncontrolling interests				¥ 462,650,000
Cloud Music
Noncontrolling Interests and Redeemable Noncontrolling Interests
Total cash consideration from issuance of redeemable noncontrolling interest \| $						$ 711.6	$ 716.3
Cash consideration for repurchase of redeemable noncontrolling interests \| $					$ 66.3
Gains or losses from repurchase of noncontrolling interest				0
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders				207,000,000.0
Cloud Music \| The Company
Noncontrolling Interests and Redeemable Noncontrolling Interests
Excess of consideration transferred over carrying amount of redeemable noncontrolling interests surrendered as deemed dividend to preferred shareholders				¥ 204,700,000
Cloud Music \| Ordinary shares
Noncontrolling Interests and Redeemable Noncontrolling Interests
Stock re-designation/conversion ratio, into ordinary shares	1
Youdao
Noncontrolling Interests and Redeemable Noncontrolling Interests
Total cash consideration from issuance of redeemable noncontrolling interest \| $			$ 70.0
Number of investors \| item			2
Youdao \| Class A ordinary shares
Noncontrolling Interests and Redeemable Noncontrolling Interests
Stock re-designation/conversion ratio, into ordinary shares		1

Restricted Net Assets (Details) ¥ in Billions	12 Months Ended
Restricted Net Assets (Details) ¥ in Billions	Dec. 31, 2022 CNY (¥)
Restricted Net Assets
Restricted net assets	¥ 13.3
Restricted net assets as a percentage of total consolidated net assets	12.00%
PRC \| General reserve fund
Restricted Net Assets
Required minimum percentage of annual appropriations	10.00%
PRC \| Statutory surplus reserve
Restricted Net Assets
Required minimum percentage of annual appropriations	10.00%

Share-based Compensation - Restricted Share Unit Award Activities - Narrative (Details) - Restricted share units $ / shares in Units, $ in Millions	Dec. 31, 2022 USD ($) $ / shares shares
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan
Share based Compensation
Aggregate intrinsic value of RSUs outstanding \| $	$ 944.5
Company's closing stock price per ADS used to calculate intrinsic value \| $ / shares	$ 72.63
2019 Restricted Share Unit Plan
Share based Compensation
Number of shares available for future grant \| shares	258,221,415

Principal Accounting Policies - Property, equipment and software (Details)	12 Months Ended
	Dec. 31, 2022
Building
Property, Equipment and Software
Estimated useful lives of assets	20 years
Decoration
Property, Equipment and Software
Estimated useful lives of assets	5 years
Leasehold improvements
Property, Equipment and Software
Estimated useful lives of assets	lesser of the term of the lease and the estimated useful lives of the assets
Furniture, fixtures, office and other equipment \| Equal to or more than
Property, Equipment and Software
Estimated useful lives of assets	3 years
Furniture, fixtures, office and other equipment \| Less than
Property, Equipment and Software
Estimated useful lives of assets	10 years
Vehicles
Property, Equipment and Software
Estimated useful lives of assets	5 years
Servers and computers
Property, Equipment and Software
Estimated useful lives of assets	3 years
Software
Property, Equipment and Software
Estimated useful lives of assets	3 years

Taxation - Component of income tax expenses (Details) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Component of income tax expenses
Current tax expense	¥ 4,542,168		¥ 3,720,321	¥ 2,953,670
Deferred tax expense	489,670		407,948	88,179
Income tax expenses	¥ 5,031,838	$ 729,548	¥ 4,128,269	¥ 3,041,849

- Definition

Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

+ References + Details

Long-term Investments

12 Months Ended

Dec. 31, 2022

Long-term Investments

Long-term Investments

11.

Long-term Investments

The following is a summary of long-term investments (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Investments in equity method investees	3,776,245	5,239,242
Equity investments with readily determinable fair values	5,886,911	2,567,268
Equity investments without readily determinable fair values	8,802,976	10,463,304
Investments accounted for at fair values	194,280	246,073
Debt investments	144,490	28,471
	18,804,902	18,544,358

(a)

Investments in equity method investees

The Group recorded equity share of earnings of RMB172.5 million, RMB1,575.5 million and RMB1,259.9 million for the years ended December 31, 2020, 2021, and 2022, respectively, which was included in “Investment income, net” in the consolidated statements of operations and comprehensive income. Significant equity method investments are summarized as follows.

(1)

In August 2013, the Group established a joint venture with China Telecom Corp. Ltd. (“China Telecom”), Zhejiang Yixin Technology Co., Ltd. (formerly known as Hangzhou Yixin Technology Co., Ltd.) (“Yixin”) to launch “YiChat”, a proprietary social instant messaging application for smart phones. The Group contributed RMB200.0 million cash in exchange for a 27.0% equity interest in Yixin. In July 2015, the Group increased its equity shares in Yixin to 35.0% with a cash consideration of approximately RMB127.5 million. Full impairment amounted to RMB197.7 million was made for this investment due to the investee not performing to expectation for the year ended December 31, 2022.

(2)

As of December 31, 2021, the Group invested an aggregated cash consideration of RMB1,643.2 million in five limited partnerships as a limited partner, and in 2022, the Group further contributed RMB32.9 million, RMB58.1 million and RMB121.4 million cash in three of them, respectively. The objectives of these limited partnerships are to engage in investment in online game business. The Group accounted such investments under the equity method.

(b)

Equity investments with readily determinable fair values

As of December 31, 2022, equity investments with readily determinable fair values included RMB1,099.0 million invested in shares of Alibaba, RMB374.1 million invested in shares of Huatai Securities Company Limited (“Huatai”), RMB283.3 million invested in shares of Shenzhen Transsion Holding Limited, RMB257.7 million invested in shares of AppLovin Corporation, RMB247.5 million invested in shares of Embracer Group AB (publ), RMB187.8 million invested in shares of Devolver Digital, Inc., and RMB117.9 million invested in shares of tinyBuild Inc. The Group recorded fair value gain of RMB720.6 million, RMB91.1 million and fair value loss of RMB3,414.7 million related to the equity investments with readily determinable fair value for the year ended December 31, 2020, 2021 and 2022, respectively.

The Group also received cash dividends of RMB12.7 million, RMB18.9 million and RMB21.1 million from Huatai for the years ended December 31, 2020, 2021 and 2022, respectively.

(c)

Equity investments without readily determinable fair value

Equity investments without readily determinable fair value represent investments in privately held companies with no readily determinable fair value. The Group does not have significant influence on these investees, or the investments are not common stock or in substance common stock. These investments are classified as equity investments without readily determinable fair value, and are carried at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For the year ended December 31, 2020, 2021 and 2022, nil, RMB380.8 million and nil upward adjustments to the carrying value of equity securities without readily determinable fair value resulted from such transactions were recognized as “Investment income, net” in the consolidated statements of operations and comprehensive income, respectively.

The Group recognized a gain of RMB36.1 million, RMB172.5 million and RMB1,784.9 million related to the disposal of the Group’s investments in equity securities without readily determinable fair value as “Investment income, net” in the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022, respectively.

The Group recognized impairment provision of RMB55.6 million, RMB19.2 million and RMB85.2 million related to certain of the equity investments without readily determinable fair value as “Investment income, net” in the consolidated statements of operations and comprehensive income for the years ended December 31, 2020, 2021 and 2022, respectively.

Restricted Net Assets

12 Months Ended

Dec. 31, 2022

Restricted Net Assets

Restricted Net Assets

30.

Restricted Net Assets

Relevant PRC laws and regulations permit PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiaries and the VIEs can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the general reserve fund and the statutory surplus fund respectively. The general reserve fund and the statutory surplus fund require that annual appropriations of 10% of net after-tax income should be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries and the VIEs are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB13.3 billion, or 12% of the Company’s total consolidated net assets, as of December 31, 2022. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries and the VIEs for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries and the VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders.

Principal Accounting Policies - Share-based compensation (Details)	12 Months Ended
	Dec. 31, 2022
Share based Compensation
Number of preceding years considered for estimating forfeiture	5 years
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan \| Restricted share units \| Equal to or more than
Share based Compensation
Service vesting period	1 year
2009 Restricted Share Unit Plan and 2019 Restricted Share Unit Plan \| Restricted share units \| Less than
Share based Compensation
Service vesting period	5 years
Certain subsidiaries \| Stock Options \| Equal to or more than
Share based Compensation
Expiration period	4 years
Certain subsidiaries \| Stock Options \| Less than
Share based Compensation
Expiration period	10 years

Other Long-term Assets

12 Months Ended

Dec. 31, 2022

Other Long-term Assets

Other Long-term Assets

12.

Other Long-term Assets

The following is a summary of other long-term assets (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Copyrights, licenses, domain names, trademark and technology	2,617,164	2,117,688
Long-term receivable	58,366	1,638,572
Long-term interest receivables	98,594	100,397
Goodwill	595,280	2,166,486
Staff housing loans	55,275	39,228
Non-current deposits	150,666	174,357
Others	433,111	569,727
	4,008,456	6,806,455

Balances of copyrights and licenses represents prepaid minimum royalties for exploitation of related intellectual properties, which was amortized over the term of the respective licensing agreements or estimated amortization periods.

Goodwill


	December 31,	December 31,
	2021	2022
	RMB	RMB
Beginning balance	318,943	595,280
Additions	276,337	1,571,206
Ending balance	595,280	2,166,486

For the years ended December 31, 2021 and 2022, the carrying value of goodwill was mainly recorded under the games and related value-added services segment.The Group performed impairment tests using the qualitative and quantitative method and concluded that the goodwill was not impaired as at December 31, 2021 and 2022, therefore, no provision was recorded.

The Group made housing loans to its employees (excluding executive officers) for house purchases via a third-party commercial bank in China. Each individual staff housing loan is collateralized either by the property for which the loan is extended or by approved personal guarantees for the loan amount granted. The repayment term is five years from the date of drawdown. The interest rate is fixed varying from 1.5% to 4.75% and 2.1% to 4.75% per annum for the years ended December 31, 2021 and 2022, respectively. The outstanding portion of the staff housing loans repayable within 12 months as of December 31, 2021 and 2022 amounted to approximately RMB29.2 million and RMB22.7 million, respectively. The amounts are reported under “Prepayments and other current assets” in the consolidated balance sheets (see Note 6).

Share Repurchase Programs

12 Months Ended

Dec. 31, 2022

Share Repurchase Programs

Share Repurchase Programs

26.

Share Repurchase Programs

The Company accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in-capital and retained earnings, as applicable. An excess of purchase price over par value is allocated to additional paid-in-capital first with any remaining excess charged entirely to retained earnings. The Company may from time to time utilize treasury stock upon vesting of RSUs. The cost of treasury stock reissued is determined using the weighted average method and recorded as a reduction of additional paid-in-capital.

In February 2020, the Company announced that its board of directors had approved a share repurchase program of up to US$1.0 billion of the Company’s outstanding ADSs for a period not to exceed 12 months. On May 19, 2020, the Company announced that its board of directors approved an amendment to its share repurchase program, authorizing the repurchase of up to an additional US$1.0 billion of the Company’s outstanding ADSs. Under the terms of this program, the Company may repurchase its issued and outstanding ADSs in open-market transactions on the NASDAQ Global Select Market. As of expiration date of the program, the Company has repurchased approximately 22.8 million ADSs (equivalent to 114.0 million ordinary shares) for approximately US$1,820.1 million under this program.

In February 2021, the Company announced that its board of directors had approved a share repurchase program of up to US$2.0 billion of the Company’s outstanding ADSs and ordinary shares in open market transactions for a period not to exceed 24 months beginning on March 2, 2021. In August 2021, the Company announced that its board of directors had approved an amendment to such program to increase the total authorized repurchase amount to US$3.0 billion. As of January 9, 2023, this share repurchase program was completed with the Company having purchased an aggregate of approximately 33.6 million ADSs for nearly US$3.0 billion.

On November 17, 2022, the Company announced that its board of directors had approved a new share repurchase program of up to US$5.0 billion of the Company’s ADSs and ordinary shares in open market transactions. This new share repurchase program commenced on January 10, 2023 following the completion of the prior program and will be in effect for a period not to exceed 36 months from such date.

In August 2021, the Company announced that its board of directors had approved a share purchase program of up to US$50.0 million of Youdao’s outstanding ADSs for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Youdao’s ADSs in open-market transactions on the New York Stock Exchange. As of December 31, 2022, approximately 2.7 million ADSs had been purchased under this program for a total cost of US$22.0 million.

Taxation - Reconciliation of differences between statutory and effective income tax rates (Details)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Reconciliation of the differences between the statutory income tax rate and the Group's effective income tax rate
Statutory income tax rate	25.00%	25.00%	25.00%
Permanent differences	(5.00%)	(2.70%)	(1.90%)
Effect due to different tax rates applicable to overseas entities	0.20%	(1.80%)	(0.50%)
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs	(10.10%)	(10.10%)	(16.50%)
Change in valuation allowance	1.80%	3.90%	6.80%
Effect of withholding income tax	8.80%	5.30%	6.90%
Effective income tax rate	20.70%	19.60%	19.80%

Consolidated Statements of Operations and Comprehensive Income ¥ in Thousands, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
Consolidated Statements of Operations and Comprehensive Income
Net revenues	¥ 96,495,809	$ 13,990,577	¥ 87,606,026	¥ 73,667,133
Cost of revenues	(43,729,683)	(6,340,208)	(40,635,225)	(34,683,731)
Gross profit	52,766,126	7,650,369	46,970,801	38,983,402
Operating expenses:
Selling and marketing expenses	(13,402,721)	(1,943,212)	(12,214,191)	(10,703,788)
General and administrative expenses	(4,695,798)	(680,827)	(4,263,549)	(3,371,827)
Research and development expenses	(15,039,014)	(2,180,452)	(14,075,991)	(10,369,382)
Total operating expenses	(33,137,533)	(4,804,491)	(30,553,731)	(24,444,997)
Operating profit	19,628,593	2,845,878	16,417,070	14,538,405
Other income/(expenses):
Investment income, net	53,976	7,826	2,947,721	1,610,045
Interest income, net	2,149,673	311,673	1,519,714	1,598,618
Exchange (losses)/gains, net	1,571,207	227,804	(490,481)	(3,112,152)
Other, net	846,815	122,777	710,435	737,168
Income before tax	24,250,264	3,515,958	21,104,459	15,372,084
Income tax	(5,031,838)	(729,548)	(4,128,269)	(3,041,849)
Net income from continuing operations	19,218,426	2,786,410	16,976,190	12,330,235
Net income from discontinued operations	624,864	90,597
Net income	19,843,290	2,877,007	16,976,190	12,330,235
Accretion and deemed dividends in connection with repurchase of redeemable noncontrolling interests	(2,978)	(432)	(536,981)	(787,029)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	497,288	72,100	417,633	519,548
Net income attributable to the Company's shareholders	20,337,600	2,948,675	16,856,842	12,062,754
Including:
Net income from continuing operations attributable to the Company's shareholders	19,712,736	2,858,078	16,856,842	12,062,754
Net income from discontinued operations attributable to the Company's shareholders	624,864	90,597
Net income	19,843,290	2,877,007	16,976,190	12,330,235
Other comprehensive income
Foreign currency translation adjustment	1,441,414	208,985	(183,190)	(598,108)
Total comprehensive income	21,284,704	3,085,992	16,793,000	11,732,127
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests	315,725	45,776	423,215	538,644
Comprehensive income attributable to the Company's shareholders	¥ 21,600,429	$ 3,131,768	¥ 17,216,215	¥ 12,270,771
Net income per share, basic (in CNY and dollars per share) \| (per share)	¥ 6.23	$ 0.90	¥ 5.07	¥ 3.65
-Continuing operations (in CNY and dollars per share) \| (per share)	6.04	0.87	5.07	3.65
-Discontinued operations (in CNY and dollars per share) \| (per share)	0.19	0.03
Net income per ADS, basic (in CNY and dollars per share) \| (per share)	31.16	4.52	25.34	18.25
-Continuing operations (in CNY and dollars per share) \| (per share)	30.20	4.38	25.34	18.25
-Discontinued operations (in CNY and dollars per share) \| (per share)	0.96	0.14
Net income per share, diluted (in CNY and dollars per share) \| (per share)	6.17	0.89	5.01	3.60
-Continuing operations (in CNY and dollars per share) \| (per share)	5.98	0.86	5.01	3.60
-Discontinued operations (in CNY and dollars per share) \| (per share)	0.19	0.03
Net income per ADS, diluted (in CNY and dollars per share) \| (per share)	30.85	4.47	25.03	18.01
-Continuing operations (in CNY and dollars per share) \| (per share)	29.90	4.33	¥ 25.03	¥ 18.01
-Discontinued operations (in CNY and dollars per share) \| (per share)	¥ 0.95	$ 0.14
Weighted average number of ordinary shares outstanding, basic (in shares)	3,263,455	3,263,455	3,325,864	3,305,448
Weighted average number of ADS outstanding, basic (in shares)	652,691	652,691	665,173	661,090
Weighted average number of ordinary shares outstanding, diluted (in shares)	3,296,014	3,296,014	3,367,478	3,349,759
Weighted average number of ADS outstanding, diluted (in shares)	659,203	659,203	673,496	669,952

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2022

Commitments and Contingencies

Schedule of future commitments under various contracts


	Server and		Royalties and
	Bandwidth		Expenditure for	Office Machines
	Service Fee	Capital	Licensed Content	and Other
	Commitments	Commitments	Commitments	Commitments	Total
	RMB	RMB	RMB	RMB	RMB
2023	553,533	1,971,894	1,034,633	313,287	3,873,347
2024	341,458	756,196	18,111	17,098	1,132,863
2025	244,584	206,918	—	—	451,502
2026	103,392	111,562	—	—	214,954
Beyond 2026	31,970	52,146	—	—	84,116
	1,274,937	3,098,716	1,052,744	330,385	5,756,782

Taxation (Tables)

12 Months Ended

Dec. 31, 2022

Taxation

Schedule of the combined effects of EIT exemptions and tax rate reductions


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Aggregate amount of EIT exemptions and tax rate reductions	1,969,414	2,238,907	2,631,764
Earnings per share effect, basic	0.60	0.67	0.81
Earnings per share effect, diluted	0.59	0.66	0.80

Schedule of component of income tax expenses

The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Current tax expense	2,953,670	3,720,321	4,542,168
Deferred tax expense	88,179	407,948	489,670
Income tax expenses	3,041,849	4,128,269	5,031,838

Schedule of reconciliation of the differences between the statutory income tax rate and the Group's effective income tax rate


	For the year ended December 31,
	2020	2021	2022
	%	%	%
Statutory income tax rate	25.0	25.0	25.0
Permanent differences	(1.9)	(2.7)	(5.0)
Effect due to different tax rates applicable to overseas entities	(0.5)	(1.8)	0.2
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs	(16.5)	(10.1)	(10.1)
Change in valuation allowance	6.8	3.9	1.8
Effect of withholding income tax ^(d)	6.9	5.3	8.8
Effective income tax rate	19.8	19.6	20.7

(d)

Withholding income tax

As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries.

Summary of net operating tax loss carry forwards

As of December 31, 2022, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands):


		RMB
Loss expiring in 2023		3,371,946
Loss expiring in 2024		3,054,886
Loss expiring in 2025		2,191,529
Loss expiring in 2026		2,571,936
Loss expiring after 2027		3,934,633
		15,124,930

Schedule of tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities

The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2021 and 2022 (in thousands):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Deferred tax assets:
Contract liabilities, primarily for advanced payments from online games customers	776,719	1,009,624
Accruals	641,198	654,348
Depreciation of fixed assets	11,557	4,883
Amortization of intangible assets	4,331	2,217
Net operating tax loss carry forward	3,513,019	3,781,233
	4,946,824	5,452,305
Less: valuation allowance	(3,648,870)	(3,971,516)
Total	1,297,954	1,480,789


	December 31,	December 31,
	2021	2022
	RMB	RMB
Deferred tax liabilities:
Withholding income tax^(d)	1,257,552	1,947,190
Others	88,322	178,930
Total	1,345,874	2,126,120

(d)

Withholding income tax

As of December 31, 2021, there were approximately RMB1,104.2 million unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries.

Schedule of movement of the aggregate valuation allowances for deferred tax assets


	Balance at	Provision	Balance at
	January 1	for the year	December 31
	RMB	RMB	RMB
2020	2,148,879	1,106,975	3,255,854
2021	3,255,854	393,016	3,648,870
2022	3,648,870	322,646	3,971,516

Acquisition (Tables)

12 Months Ended

Dec. 31, 2022

Acquisition

Schedule of consideration allocation on the acquisition date based on fair value of the assets acquired and the liabilities assumed

Major acquisition in 2020

Consideration for this transaction was allocated on the acquisition date based on the fair value of the assets acquired and the liabilities assumed as follows (in thousands):


		Amounts
		RMB
Net assets acquired ⁽ⁱ⁾		16,440
Amortizable intangible assets ⁽ⁱⁱ⁾
Trademark		59,300
Developed technology		182,200
Deferred tax liabilities		(60,375)
Goodwill		311,109
Noncontrolling interests		(187,762)
Total		320,912

(i)	Net assets acquired mainly included cash and cash equivalents as of the date of acquisition.

(ii)	Trademark and Developed technology acquired in the acquisition are included in “Copyrights, licenses, domain names, trademark and technology”.

Acquisitions in 2021


		Amounts
		RMB
Net assets acquired		76,132
Amortizable intangible assets ⁽ⁱ⁾
Trademark		64,662
Other identified intangible assets		13,750
Deferred tax liabilities		(13,293)
Goodwill		276,463
Redeemable noncontrolling interests		(106,368)
Total		311,346

(i)	Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”, of which impairment loss of RMB56.8 million for the year ended December 31, 2021 was recognised.

Acquisitions in 2022


		Amounts
		RMB
Net liabilities acquired		(34,671)
Amortizable intangible assets ⁽ⁱ⁾
Trademark		143,146
Other identified intangible assets		525,853
Deferred tax liabilities		(104,137)
Goodwill		1,571,206
Noncontrolling interests		(122,983)
Total		1,978,414

(i)	Trademarks and other identified intangible assets acquired in the acquisitions are included in “Copyrights, licenses, domain names, trademark and technology”.

Principal Accounting Policies

12 Months Ended

Dec. 31, 2022

Principal Accounting Policies

Principal Accounting Policies

2.	Principal Accounting Policies

(a)

Basis of consolidation

(b)

Basis of presentation

(c)

Revenue recognition

(i)	Online game services

Mobile games

PC games

The Group considers the average period that players typically play the games and other game player behavior patterns, as well as various other factors to arrive at the best estimates for the estimated average playing period of the paying players for the permanent in-game items of each PC game based on historical players’ churn rate. This estimate is re-assessed on a quarterly basis. Adjustments arising from the changes of estimated average playing period of the paying players are applied prospectively as such changes are resulted from new information indicating a change in the game player behavior patterns.

(ii)	Tutoring services

(iii)

Smart devices

(iv)	Online music services

(v)	Live streaming services

(vi)	Advertising services

The Group also enters into performance-based advertising arrangements with customers.

For the year ended December 31, 2020, 2021 and 2022, revenue from rendering adverting services in exchange for non-cash consideration is insignificant.

(vii)

E-commerce

(viii) Fee-based premium services

Practical expedients

The Group has used the following practical expedients as allowed under ASC 606:

(i)

(ii)

(iii)

The Group elects to expense certain costs to obtain a contract as incurred when the expected amortization period is one year or less.

Contract balances

The Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer is recognized as a contract asset.

Contract assets as of December 31, 2021 and 2022 were not material.

(d)

Cost of revenues

(e)

Research and development costs

(f)

Cash, cash equivalents and time deposits

As of December 31, 2021 and 2022, the Group had a restricted cash balance approximately RMB2,878.0 million and RMB2,699.3 million, respectively, comprising as follows (in millions):


	December 31,	December 31,
	2021	2022
	RMB	RMB
Customer deposit of NetEase Pay accounts	2,091.3	2,627.5
Deposit required by the PRC government authorities related to Youdao’s educational services	749.8	0.9
Others	36.9	70.9
Total	2,878.0	2,699.3

The Group had no other material lien arrangements during 2021 and 2022.

(g)

Receivables, net

From January 1, 2020, the Group’s receivables are subject to the measurement of credit losses within the scope of ASC Topic 326. The impact of new standard was immaterial to the Company.

The following table sets out the movements of the allowance for expected credit losses for the years ended December 31, 2020, 2021 and 2022 (in thousands):


	For the year ended December 31,
	2020	2021	2022
	RMB	RMB	RMB
Balance at the beginning of year	77,147	113,253	369,982
Provisions	40,600	265,930	61,393
Write-offs	(4,494)	(9,201)	(28,015)
Balance at the end of year	113,253	369,982	403,360

(h)

Fair value of financial instruments

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace

Level 3 - Unobservable inputs which are supported by little or no market activity

(i)

Inventories

(j)

Investments

Short-term investments

Long-term investments

Long-term investments are mainly comprised of equity investments in publicly traded companies, privately-held companies and limited-partnership.

(k)

Leases

(l)

Property, equipment and software


Building		20 years
Decoration		5 years
Leasehold improvements		lesser of the term of the lease and the estimated useful lives of the assets
Furniture, fixtures, office and other equipment		3-10 years
Vehicles		5 years
Servers and computers		3 years
Software		3 years

Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.

(m)

Land use rights

(n)

Intangible assets

Finite-lived intangible assets are tested for impairment if impairment indicators arise. The Group amortizes its finite-lived intangible assets using the straight-line method:


License right		over the license period
Technology		7-10 years
Trademark		10 years

(o)

Goodwill

(p)

Advertising expenses

(q)

Foreign currency translation

(r)

Share-based compensation

(s)

Taxation

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount “more likely than not” to be realized in future tax returns.

The Group did not have any significant unrecognized uncertain tax positions as of December 31, 2021 and 2022.

(t)

Net earnings per share (“EPS”) and per American Depositary Share (“ADS”)

(u)

Statutory reserves

(v)

Business combination

(w)

Noncontrolling interests and redeemable noncontrolling interests

The noncontrolling interest will continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance.

(x)

Related parties

(y)

Comprehensive income

(z)

Segment reporting

The Group’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements is set out in detail under Note 28.

(aa)

Dividends

Dividends of the Company are recognized when declared.

(bb) Recently adopted accounting pronouncements

(cc)Recently issued accounting pronouncements not yet adopted