NetEase's Westward Journey: Fool by Numbers

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On May 21, NetEase (Nasdaq: NTES) released first-quarter earnings for the period ended March 31.

• To dig deeper into NetEase's Q1 results, read our earnings take.
• Total revenue rose by 8.6% to $71.8 million, with only the online gaming segment noting an increase -- 7% year over year. The other two segments, advertising services and wireless value-added services, together decreased by 8.1% and only contributed 13.1% of the revenue pie.
• While the company has been cruising along with the popularity of its popular Fantasy Westward Journey game, the poor performance of its Tianxia II game during open beta testing has led to a postponement of the game launch to correct design issues.
• NetEase is a four-star stock in CAPS, our interactive stock database. Chinese competitor Shanda Interactive (Nasdaq: SNDA) also holds a four-star rating. The recent news of five-star gamer The9 (Nasdaq: NCTY) teaming up with Electronic Arts (Nasdaq: ERTS) -- in addition to its "market-thumping" quarter -- may prove that The9 is another strong Chinese contender in the online gaming industry.

(Figures in millions, except per-share data.)

Income Statement Highlights

	Q1 2007	Q1 2006	Change
Total Sales	$71.8	$66.1	8.6%
Net Profit	$39.0	$36.6	6.6%
Earnings per ADS	$0.29	$0.26	11.5%
Diluted Shares	136.4	141.9	(3.9%)

Get back to basics with the income statement.

Margin Checkup

	Q1 2007	Q1 2006	Change*
Gross Margin	77.6%	79.4%	(1.8)
Operating Margin	56.3%	58.0%	(1.7)
Net Margin	54.4%	55.4%	(1.0)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q1 2007	Q1 2006	Change
Cash + ST Invest.	$520.6	$469.8	10.8%
Accounts Rec.	$9.9	$7.7	28.2%
Inventory	N/A	N/A	N/A

Liabilities	Q1 2007	Q1 2006	Change
Accounts Payable	$9.2	$12.4	(26.3%)
Long-Term Debt	$90.2	$101.4	(11.1%)

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q1 2007	Q1 2006	Change
Cash From Ops.	$36.6	$51.4	(28.8%)
Capital Expenditures	$4.3	$2.7	58.2%
Free Cash Flow	$32.3	$48.7	(33.6%)

Free cash flow is a Fool's best friend.

Related Foolishness:

• More High Scores at NetEase
• Nutty About NetEase
• NetEase Nets a Nugget: Fool by Numbers
• Fun: China's Endangered Species

Both NetEase and Shanda Interactive are Rule Breakers picks, while Electronic Arts has been recommended to our Stock Advisor subscribers. A free 30-day trial of either newsletter will keep you up-to-date on potential entertainment investments.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean. This data has been provided by Netscribes. To provide feedback on this article, please click on the "feedback" button below.