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United States securities and exchange commission logo
June 5, 2023
William Lei Ding
Chief Executive Officer
NetEase, Inc.
NetEase Building
No. 599 Wangshang Road
Binjiang District, Hangzhou, 310052
People s Republic of China
Re: NetEase, Inc.
Form 20-F for the
Fiscal Year Ended December 31, 2022
Filed April 27,
2023
File No. 000-30666
Dear William Lei Ding:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for the Fiscal Year Ended December 31, 2022
Item 5. Operating and Financial Review and Prospects
Factors Affecting our Results of Operations, page 123
1. You indicate that your
ability to grow your user base and drive user engagement and
loyalty is a key factor
affecting your results of operations. Considering you generate a
substantial portion of
your revenue from mobile game users, please tell us your
consideration to
quantify and discuss daily active users for each period presented, or
explain why you do not
consider this to be a key performance measure in analyzing your
revenue. Similarly, in
light of the growth in Cloud Music, tell us your consideration to
quantify and discuss
monthly average users for each period presented. Refer to SEC
Release No. 33-10751.
William Lei Ding
FirstName LastNameWilliam Lei Ding
NetEase, Inc.
Comapany
June 5, 2023NameNetEase, Inc.
June 5,
Page 2 2023 Page 2
FirstName LastName
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections,
page 194
2. We note your statement that you reviewed your register of members and
public filings
made by your shareholders, in connection with your required submission
under paragraph
(a). Please supplementally describe any additional materials that were
reviewed and tell us
whether you relied upon any legal opinions or third party
certifications such as affidavits
as the basis for your submission. In your response, please provide a
similarly detailed
discussion of the materials reviewed and legal opinions or third party
certifications relied
upon in connection with the required disclosures under paragraphs
(b)(2) and (3).
3. We note that your disclosure pursuant to Item 16I(b)(2) is provided
for our company or
any of such variable interest entities and pursuant to Item
16I(b)(3) is provided for
NetEase, Inc. or any variable interest entity. We also note that
your list of significant
subsidiaries and variable interest entities in Exhibit 8.1 appears to
indicate that you have
subsidiaries in the PRC and Hong Kong that are not included in your
VIEs. Please note
that Item 16I(b) requires that you provide disclosures for yourself
and your consolidated
foreign operating entities, including variable interest entities or
similar structures.
With respect to (b)(2), please supplementally clarify the
jurisdictions in which your
consolidated foreign operating entities are organized or
incorporated and provide the
percentage of your shares or the shares of your consolidated
operating entities owned
by governmental entities in each foreign jurisdiction in which
you have consolidated
operating entities in your supplemental response.
With respect to (b)(3), please provide the required information
for you and all of your
consolidated foreign operating entities in your supplemental
response.
4. In order to clarify the scope of your review, please supplementally
describe the steps you
have taken to confirm that none of the members of your board or the
boards of your
consolidated foreign operating entities are officials of the Chinese
Communist Party. For
instance, please tell us how the board members current or prior
memberships on, or
affiliations with, committees of the Chinese Communist Party factored
into your
determination. In addition, please tell us whether you have relied
upon third party
certifications such as affidavits as the basis for your disclosure.
5. With respect to your disclosure pursuant to Item 16I(b)(5), we note
that you have included
language that such disclosure is to our best knowledge. Please
supplementally confirm
without qualification, if true, that your articles and the articles of
your consolidated
foreign operating entities do not contain wording from any charter of
the Chinese
Communist Party.
General
6. We note your statement that NetEase, Inc. is a holding company with no
significant assets
other than cash on hand and its equity interests in its directly and
indirectly-owned
subsidiaries. Please provide us with a legal analysis of whether you
currently meet the
William Lei Ding
NetEase, Inc.
June 5, 2023
Page 3
definition of investment company under Section 3(a)(1)(C) of the
Investment Company
Act (the Company Act ). Please include in your analysis the
relevant calculation(s)
under Section 3(a)(1)(C) (including, where required by the statute, on
an unconsolidated
basis), identifying each constituent part of the numerator(s) and
denominator(s). Your
analysis should identify and explain which assets held by the company
are investment
securities for purposes of Section 3(a)(2) of the Company Act, and
specifically address
how you treat the securities issued by your subsidiaries and the
contractual relationships
between your subsidiaries and the variable interest entities. Please
provide legal support
for any substantive determinations and/or characterizations of assets
that are material to
your calculations.
7. We note that the amount of revenues generated by the VIEs accounted
for 86.4% of
NetEase, Inc. s total net revenues in 2022, while the total assets
of the VIEs (excluding
amounts from other companies in the NetEase group) represented 7.1% of
NetEase, Inc. s
consolidated total assets as of December 31, 2022. To the extent not
addressed in your
response to our request for a comprehensive analysis under Section
3(a)(1)(C), please
provide a supplementary explanation for the significant difference
between these two
percentages.
8. Please include a risk factor that: (1) explains in detail why the
company believes that it is
not an investment company for purposes of Section 3(a) the Company
Act, with reference
to key material facts and characteristics of the business and the
specific provisions of the
Company Act relevant to your conclusion; and (2) describes the
consequences to the
company and its investors were the Commission or its Staff to
determine that the company
is an investment company.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Megan Akst, Senior Staff Accountant at (202) 551-3407
or Christine
Dietz, Senior Staff Accountant at (202) 551-3408 if you have questions
regarding comments on
the financial statements and related matters. Please contact Kyle Wiley at
(202) 344-5791 or
Jennifer Thompson at (202) 551-3737 if you have any questions about comments
related to your
status as a Commission-Identified Issuer during your most recently completed
fiscal year.
FirstName LastNameWilliam Lei Ding Sincerely,
Comapany NameNetEase, Inc.
Division of
Corporation Finance
June 5, 2023 Page 3 Office of
Technology
FirstName LastName