The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In evaluating our business, you should carefully consider the information provided under Item 3.D. “Key Information—Risk Factors.” Actual results could differ materially from those projected in the forward-looking statements. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. A. Operating Results OVERVIEW We have a successful online game business, developing and operating a rich portfolio of highly popular titles. Leveraging on our user insights and execution expertise, we have also incubated and developed in-house a pipeline of thriving businesses, including our intelligent learning and advertising solutions provider, Youdao, online music platform, NetEase Cloud Music, and other innovative businesses, ranging from e-commerce to advertising services, e-mail and other services. We generated net revenues of RMB103.5 billion, RMB105.3 billion and RMB112.6 billion (US$16.1 billion) in 2023, 2024 and 2025, respectively. Our net income attributable to the company’s shareholders was RMB29.4 billion, RMB29.7 billion and RMB33.8 billion (US$4.8 billion) in 2023, 2024 and 2025, respectively. 106 Table of Contents OUR CORPORATE STRUCTURE Our company was incorporated in the Cayman Islands. NetEase, Inc. conducts its business in China through its subsidiaries and the VIEs. Under current Chinese regulations, there are restrictions and prohibitions on foreign investment in Chinese companies providing, among other things, value-added telecommunications services, internet cultural services and internet publication services, which include the provision of online game, online education, online music and other internet content and services. In addition, the operation by foreign or foreign-invested companies of advertising businesses in China is subject to government approval. In order to comply with these restrictions and other Chinese rules and regulations, NetEase, Inc. and certain of its subsidiaries have entered into a series of contractual arrangements for the provision of such services with certain affiliated companies, including Guangzhou NetEase, Hangzhou Leihuo, Youdao Computer, Hangzhou Yuedu and certain other affiliated companies. These affiliated companies are considered “variable interest entities” for accounting purposes and are referred to collectively in this annual report as “VIEs.” These contractual arrangements provide us with the power to direct the activities that most significantly impact the economic performance of the VIEs and provide us with economic benefits of these VIEs and as such we are the primary beneficiary and consolidate the VIEs for financial reporting. The VIEs hold ICP licenses and other regulated licenses in which foreign investment is restricted or prohibited and operate our internet businesses and other businesses. The revenue earned by the VIEs largely flows through to NetEase, Inc. and its subsidiaries pursuant to such contractual arrangements. Based on these agreements, NetEase Hangzhou, Boguan and certain other subsidiaries provide technical consulting and related services to the VIEs. Please also see Item 4.B. “Information on the Company—Business Overview—Our Organizational Structure.” As of December 31, 2025, the total assets of all the consolidated VIEs were RMB29.8 billion (US$4.3 billion), mainly comprising cash and cash equivalents, restricted cash, accounts receivable, net, prepayments and other current assets, net, amounts due from group companies and long-term investments. As of December 31, 2025, the total liabilities of the consolidated VIEs were RMB27.5 billion (US$3.9 billion), mainly comprising contract liabilities, amounts due to group companies and accrued liabilities and other payables. We believe that our present operations are structured to comply with the relevant PRC laws and regulations. However, the interpretation and enforcement of these laws and regulations involve uncertainties. We are therefore unable to predict if, when and how the relevant PRC regulatory authorities might take action that could materially affect our business activities. Future changes in PRC government policies affecting the provision of information services, including the provision of online games, online education, online music, internet access, online advertising and online payment services, may impose additional regulatory requirements on us or our service providers or otherwise harm our business. Please see Item 3.D. “Key Information—Risk Factors—Risks Related to Our Corporate Structure.” BASIS OF CONSOLIDATION Our consolidated financial statements include the financial statements of our subsidiaries and the VIEs for which we are the primary beneficiary with the ownership interests of minority shareholders reported as noncontrolling interests. All significant transactions and balances among our company, our subsidiaries and the VIEs have been eliminated upon consolidation. We consolidate a VIE if we have the power to direct matters that most significantly impact the activities of the VIE and have the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. FACTORS AFFECTING OUR RESULTS OF OPERATIONS Our ability to continue to deliver original and compelling content and service offerings and effectively operate our existing products We take pride in being an original content provider. Our continued success in producing and delivering original and compelling content and services to our users largely depends on our ability to stay abreast of users’ evolving needs and preferences and dynamics in the digital content and service industries. We seek to identify trend-setting content and services while striving to maintain the longevity and vitality of our existing products by effectively leveraging our rich operational know-how. In particular, as we generate a substantial amount of revenues from our game services, our ability to successfully update and expand our existing game franchises and maintain a pipeline of new games across diversified genres and geographic regions will affect our future revenue and financial results. 107 Table of Contents Our ability to grow our user base and drive user engagement and loyalty, as well as the mix of products and services purchased by our users We have built a massive and highly engaged user base across our business segments. We generate a substantial part of our revenues through sales of in-game virtual items and play time, merchandise sales, music streaming, advertising services and tuition fees for online courses. Our ability to generate these revenues is affected by the size of our user base and the level of their engagement, including, for example, the amount of time played on our games and the frequency of in-game purchases of virtual items. Our ability to continue to grow our user base and engagement is driven by various factors, including our ability to offer diverse, attractive and relevant content and services, deliver differentiated and superior user experiences, improve the community features on our platforms and enhance our brand reputation. In addition, our results are affected by the mix of products and services purchased by our users. For example, with respect to online games, our revenues depend in part on the types of virtual items purchased in-game and their pricing, as well as the proportion of players who are playing games developed in-house by us, games co-developed with third parties or licensed games. Our ability to continue to develop proprietary technologies and apply them meaningfully We have demonstrated capabilities in developing proprietary technologies and applying technology to enhance our products and services and improve our user experience, which is a critical competitive advantage of ours and a key factor that affects our operations and financial results. We have successfully developed industry-leading proprietary game, big data and other technologies and integrate these technologies into our products and services, and we will continue to significantly invest in developing and upgrading our technology with a focus on optimizing our products and services and delivering a superior and differentiated user experience. Our ability to manage our costs and expenses effectively across all business segments Our results of operations are affected by our ability to effectively control our costs and expenses across all of our business segments. We incur revenue sharing costs, including fees shared with third-party platform providers, game developers, owners of intellectual property licensed to us and other third parties related to mobile games, course instructors related to Youdao’s services, music labels and other copyright and content partners related to NetEase Cloud Music’s services and others in connection with our other innovative businesses, which may increase in absolute amounts as we continue to scale up our operations across our business segments. We may also incur higher content costs as we continue to expand our product and service offerings to cater to the evolving user needs. Our ability to continue to manage and control our cost of revenues, including revenue sharing costs and content costs, while maintaining the high-quality and attractiveness of our products and services will have a significant impact on our business, financial condition and results of operations. We have incurred substantial research and development expenses as we developed more products and improved our content offerings and technologies to deliver high quality services and value to our users. We strongly believe that R&D must be guided by the principles of commercial viability and applicability, and we plan to continue making purpose-driven investment in technologies. We have also been able to maintain our sales and marketing expenses as a relatively low percentage of our net revenues due to our strong brand reputation. Our ability to sell and market our products and services cost-effectively depends on our ability to continue to leverage our existing brand value, grow and monetize our user bases, and improve our sales and marketing efficiency. Our ability to make successful strategic investments and acquisitions We have made, and intend to make, strategic investments and acquisitions. Our investment and acquisition strategy is focused on strengthening our content development and R&D capabilities, creating strategic synergies across our businesses, and enhancing our overall value. Our strategic investments and acquisitions may affect our future financial results, including our margins and net income. In addition, some of our acquisitions and investments may not be successful. We have recorded net investment losses in equity method investees and impairment provisions related to certain equity investments in the past and may incur net investment losses or impairment provisions in the future. 108 Table of Contents KEY COMPONENTS OF RESULTS OF OPERATIONS Revenues The following table sets forth our revenue by segment for the periods indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ ​ 2025 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ ​ ​ ​ ​ Games and related value-added services ​ 81,565,449 ​ 83,622,643 ​ 92,148,608 ​ 13,177,075 Youdao 5,389,208 ​ 5,625,919 ​ 5,909,019 ​ 844,979 NetEase Cloud Music ​ 7,866,992 ​ 7,950,146 ​ 7,759,450 ​ 1,109,587 Innovative businesses and others 8,646,510 ​ 8,096,528 ​ 6,808,730 ​ 973,635 Total net revenues 103,468,159 ​ 105,295,236 ​ 112,625,807 ​ 16,105,276 ​ We generate our revenues from the provision of games and related value-added services, Youdao, NetEase Cloud Music, innovative businesses and others. No customer individually accounted for greater than 10% of our total revenues for the years ended December 31, 2023, 2024 and 2025. Games and Related Value-added Services We generate our online game revenues primarily from the sale of in-game virtual items, including avatars, skills, privileges or other in-game consumables, features or functionalities, and gameplay time, as well as other fee-based premium services. We distribute our games through partnerships with major Android- and iOS-based app stores and PC and console platforms, as well as our own distribution platforms, such as the NetEase game website (game.163.com) and individual game websites. Our online game portfolio now consists of over 100 diverse games, including mobile, PC, console and cross-platform games, and we expect to continue introducing new titles each year for the foreseeable future, which we believe will contribute to future growth in net revenues from this segment. We also generate revenue from services which are related or ancillary to the operation of our games. Youdao Youdao’s revenue consists of three parts: learning services, smart devices and online marketing services. We currently generate the majority of the revenues of Youdao’s learning services from its tutoring services, which mainly include its digital content services and existing online courses. We also generate revenues from sales of smart devices as well as Youdao’s online marketing services through the provision of different formats of advertisements. 109 Table of Contents NetEase Cloud Music NetEase Cloud Music’s revenue is primarily generated from (i) online music services through the sales of membership subscriptions in various content and service packages and (ii) social entertainment services and others mainly through the sale of virtual items. Innovative Businesses and Others We derive our innovative businesses and others revenues primarily from e-commerce, advertising services and other value-added services. Seasonality of Revenues Historically, usage of our online games has generally increased around the Chinese holidays, particularly the winter and summer school holidays. Our Youdao platform tends to experience strong sales of its smart devices during the period leading up to commencement of school terms in September. Our e-commerce business revenues are relatively lower during the Chinese New Year holiday season in the first quarter of each year, while sales in the fourth quarter are higher than each of the preceding three quarters due to a variety of promotional activities conducted by retail and e-commerce businesses in China. Cost of Revenues The following table sets forth our cost of revenues by segment for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ ​ 2025 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Cost of revenues: ​ ​ ​ ​ ​ ​ ​ ​ Games and related value-added services ​ (25,938,865) ​ (26,142,623) ​ (27,910,861) ​ (3,991,201) Youdao (2,621,746) ​ (2,877,428) ​ (3,292,191) ​ (470,777) NetEase Cloud Music ​ (5,764,322) ​ (5,268,634) ​ (4,989,858) ​ (713,540) Innovative businesses and others (6,079,832) ​ (5,199,467) ​ (4,031,029) ​ (576,429) Total cost of revenues (40,404,765) ​ (39,488,152) ​ (40,223,939) ​ (5,751,947) ​ Games and Related Value-added Services Cost of revenues for our games and related value-added services consists primarily of revenue sharing costs paid to platforms, game developers and content providers, staff-related costs, royalties related to licensed games, server and bandwidth service fees and other direct costs of providing these services. Youdao Our cost of revenues of Youdao consists primarily of revenue sharing costs paid to Youdao’s course instructors and teaching assistants, staff-related costs, costs of course materials, costs relating to the sales of smart devices and traffic acquisition costs. NetEase Cloud Music Our cost of revenues of NetEase Cloud Music consists primarily of content licensing fees paid to music labels, independent artists and other copyright partners, revenue sharing fees related to social entertainment services, advertising service-related costs, music and entertainment event related costs, staff-related costs and professional fees. Innovative Businesses and Others Cost of revenues related to our innovative businesses and others segment consists primarily of cost of merchandise sold in our e-commerce business, staff-related costs and content fees and revenue sharing costs paid to third-parties. 110 Table of Contents Operating Expenses The following table sets forth the principal components of our operating expenses for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ ​ 2025 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses ​ (13,969,460) ​ (14,147,657) ​ (14,619,702) ​ (2,090,590) General and administrative expenses (4,899,880) ​ (4,550,625) ​ (4,228,189) ​ (604,623) Research and development expenses (16,484,910) ​ (17,524,812) ​ (17,719,110) ​ (2,533,799) Total operating expenses (35,354,250) ​ (36,223,094) ​ (36,567,001) ​ (5,229,012) ​ Operating expenses include selling and marketing expenses, general and administrative expenses and research and development expenses. Selling and Marketing Expenses Selling and marketing expenses consist primarily of staff-related costs for our sales and marketing staff, marketing and advertising expenses, and shipping and handling costs. General and Administrative Expenses General and administrative expenses consist primarily of staff-related costs for our general administrative and management staff, office rental, legal, professional and consultancy fees, expected credit loss and depreciation charges. Research and Development Expenses Research and development expenses consist primarily of staff-related costs for our professionals and outsourcing technology expenses. Share-Based Compensation Cost The following table sets forth the allocation of our share-based compensation costs for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2023 2024 2025 2025 ​ ​ RMB ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) Share-based compensation cost included in: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ 823,765 ​ 1,185,854 ​ 1,004,581 ​ 143,653 Selling and marketing expenses 132,801 ​ 104,534 ​ 132,666 ​ 18,971 General and administrative expenses 1,119,018 ​ 1,069,850 ​ 916,675 ​ 131,083 Research and development expenses 1,167,226 ​ 1,522,701 ​ 1,593,740 ​ 227,902 Total 3,242,810 ​ 3,882,939 ​ 3,647,662 ​ 521,609 ​ NetEase 2009 and 2019 Restricted Share Unit Plans In November 2009, we adopted the 2009 RSU Plan for our employees, directors and consultants. We reserved 323,694,050 ordinary shares for issuance under this plan. The 2009 RSU Plan expired on November 16, 2019 in accordance with its terms. In October 2019, we adopted our 2019 Restricted Share Unit Plan, for our employees, directors and consultants. Such plan was amended and restated in February 2023 and renamed the Amended and Restated 2019 Share Incentive Plan, or the 2019 Share Plan. We have reserved 322,458,300 ordinary shares for issuance under this plan. The 2019 Share Plan became effective on October 15, 2019 and will expire in February 2033. 111 Table of Contents For the years ended December 31, 2023, 2024 and 2025, we recorded share-based compensation cost of approximately RMB3.2 billion, RMB3.9 billion and RMB3.6 billion (US$521.6 million), respectively, for awards granted under the 2009 RSU Plan and 2019 Share Plan, as well as the other share incentive plans discussed as below. This cost has been allocated to (i) cost of revenues, (ii) selling and marketing expenses, (iii) general and administrative expenses, and (iv) research and development expenses, depending on the responsibilities of the relevant employees. As of December 31, 2025, total unrecognized compensation cost related to unvested awards granted under the 2019 Share Plan, adjusted for estimated forfeitures, was RMB2.4 billion (US$348.1 million), which is expected to be recognized through the remaining vesting period of each grant. As of December 31, 2025, the weighted average remaining vesting period was 1.39 years. Other Share Incentive Plans Certain of our subsidiaries have adopted stock option plans or RSU plans to grant options or restricted share units to our employees. The options expire four to seven years from the date of grant and either vest or have a vesting commencement date upon certain conditions being met. The awards can become 100% vested on the vesting commencement date, or vest in two, three, four or five substantially equal annual installments with the first installment vesting on the vesting commencement date. For the years ended December 31, 2023, 2024 and 2025, we recorded share-based compensation costs of RMB289.0 million, RMB266.4 million and RMB232.2 million, respectively, under these plans. But for certain share options granted with vesting conditions outside our control, no expenses will be recorded until the occurrence of the vesting conditions when we determine that it is probable that the vesting conditions will be satisfied. As of December 31, 2025, there were unrecognized share-based compensation expenses of RMB14.8 million related to such share options for which the service conditions were met and are expected to be recognized when the vesting conditions are achieved. Income Taxes Cayman Islands Under the current laws of the Cayman Islands, we and our intermediate holding companies which are incorporated in the Cayman Islands are not subject to tax on income or capital gain. Additionally, upon payments of dividends by us to our shareholders or by our intermediate holding companies in the Cayman Islands to us, no Cayman Islands withholding tax will be imposed. British Virgin Islands Our subsidiaries in the British Virgin Islands, or the BVI, are exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI. ​ 112 Table of Contents Hong Kong Our subsidiaries in Hong Kong were subject to income tax on their taxable income generated from operations in Hong Kong at a rate of 16.5%. For the years 2023, 2024 and 2025, the first HK$2 million of profits earned by one of our subsidiaries incorporated in Hong Kong is taxed at a rate of 8.25%, while the remaining profits will continue to be taxed at the 16.5% tax rate. The payments of dividends by these companies to us are not subject to any Hong Kong withholding tax. China mainland The PRC Enterprise Income Tax Law subjects foreign invested enterprises and domestic companies to EIT at a uniform rate of 25%, and preferential tax treatments may be granted to foreign invested enterprises or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as “Software Enterprises,” “Key Software Enterprises” and/or HNTEs. Boguan, NetEase Hangzhou and certain of our other China mainland subsidiaries were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2023, 2024 and 2025. The foregoing preferential income tax rate, however, is subject to periodic review and renewal by PRC authorities. Sales Tax Pursuant to the Provisional Regulation of the PRC on Value Added Tax, or VAT, and its implementation rules, our China mainland subsidiaries and the VIEs are generally subject to VAT at a rate of 6% for revenues earned from rendering services. Our sales of general goods to our customers in the PRC are also subject to VAT of 13%. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Please see the Notes to the Consolidated Financial Statements—Note 2(cc) “Recently issued accounting pronouncements not yet adopted.” 113 Table of Contents RESULTS OF OPERATIONS The following table sets forth a summary of our consolidated statements of operations extracted from the audited financial statements for the periods indicated both in Renminbi and as a percentage of total revenues. Unless otherwise stated, financial results discussed herein refer to our continuing operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ % ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ ​ % ​ ​ (in thousands) Consolidated Statements of Operations and Comprehensive Income Data: ​ ​ ​ ​ ​ ​ ​ Net revenues 103,468,159 ​ 100.0 ​ 105,295,236 ​ 100.0 ​ 112,625,807 ​ 16,105,276 ​ 100.0 Cost of revenues (40,404,765) ​ (39.1) ​ (39,488,152) ​ (37.5) ​ (40,223,939) ​ (5,751,947) ​ (35.7) Gross profit 63,063,394 ​ 60.9 ​ 65,807,084 ​ 62.5 ​ 72,401,868 ​ 10,353,329 ​ 64.3 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses (13,969,460) ​ (13.5) ​ (14,147,657) ​ (13.4) ​ (14,619,702) ​ (2,090,590) ​ (13.0) General and administrative expenses (4,899,880) ​ (4.7) ​ (4,550,625) ​ (4.4) ​ (4,228,189) ​ (604,623) ​ (3.8) Research and development expenses (16,484,910) ​ (15.9) ​ (17,524,812) ​ (16.6) ​ (17,719,110) ​ (2,533,799) ​ (15.7) Total operating expenses (35,354,250) ​ (34.1) ​ (36,223,094) ​ (34.4) ​ (36,567,001) ​ (5,229,012) ​ (32.5) Operating profit 27,709,144 ​ 26.8 ​ 29,583,990 ​ 28.1 ​ 35,834,867 ​ 5,124,317 ​ 31.8 Other income/(expenses): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment income, net 1,306,722 ​ 1.3 ​ 355,286 ​ 0.3 ​ 731,511 ​ 104,605 ​ 0.6 Interest income, net 4,120,418 ​ 3.9 ​ 4,920,915 ​ 4.7 ​ 3,953,486 ​ 565,341 ​ 3.6 Exchange (losses)/gains, net (132,999) ​ (0.1) ​ 255,430 ​ 0.2 ​ (775,937) ​ (110,958) ​ (0.7) Other, net 1,053,642 ​ 1.0 ​ 602,134 ​ 0.6 ​ 1,086,543 ​ 155,374 ​ 1.0 Income before tax 34,056,927 ​ 32.9 ​ 35,717,755 ​ 33.9 ​ 40,830,470 ​ 5,838,679 ​ 36.3 Income tax (4,699,704) ​ (4.6) ​ (5,461,408) ​ (5.3) ​ (6,032,686) ​ (862,663) ​ (5.4) Net income 29,357,223 ​ 28.3 ​ 30,256,347 ​ 28.6 ​ 34,797,784 ​ 4,976,016 ​ 30.9 Accretion of redeemable noncontrolling interests (3,589) ​ (0.0) ​ (3,919) ​ (0.0) ​ (4,266) ​ (610) ​ (0.0) Net loss/(income) attributable to noncontrolling interests and redeemable noncontrolling interests 62,918 ​ 0.1 ​ (554,819) ​ (0.4) ​ (1,033,718) ​ (147,820) ​ (0.9) Net income attributable to the Company’s shareholders 29,416,552 ​ 28.4 ​ 29,697,609 ​ 28.2 ​ 33,759,800 ​ 4,827,586 ​ 30.0 Share-based compensation cost included in: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues 823,765 ​ 0.8 ​ 1,185,854 ​ 1.1 ​ 1,004,581 ​ 143,653 ​ 0.9 Selling and marketing expenses 132,801 ​ 0.1 ​ 104,534 ​ 0.1 ​ 132,666 ​ 18,971 ​ 0.1 General and administrative expenses 1,119,018 ​ 1.1 ​ 1,069,850 ​ 1.0 ​ 916,675 ​ 131,083 ​ 0.8 Research and development expenses 1,167,226 ​ 1.1 ​ 1,522,701 ​ 1.4 ​ 1,593,740 ​ 227,902 ​ 1.4 ​ 114 Table of Contents Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 We have organized our operations into following segments: games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others. These segments reflect the way we evaluate, view and run our business operations. The following table sets forth the net revenues and cost of revenues by segment for the period presented as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2024 ​ 2025 ​ 2025 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ ​ ​ Games and related value-added services 83,622,643 ​ 92,148,608 ​ 13,177,075 Youdao 5,625,919 ​ 5,909,019 ​ 844,979 NetEase Cloud Music 7,950,146 ​ 7,759,450 ​ 1,109,587 Innovative businesses and others 8,096,528 ​ 6,808,730 ​ 973,635 Total net revenues 105,295,236 ​ 112,625,807 ​ 16,105,276 Cost of revenues: ​ ​ ​ ​ ​ Games and related value-added services (26,142,623) ​ (27,910,861) ​ (3,991,201) Youdao (2,877,428) ​ (3,292,191) ​ (470,777) NetEase Cloud Music (5,268,634) ​ (4,989,858) ​ (713,540) Innovative businesses and others (5,199,467) ​ (4,031,029) ​ (576,429) Total cost of revenues (39,488,152) ​ (40,223,939) ​ (5,751,947) ​ Net Revenues Total net revenues increased by 7.0% to RMB112.6 billion (US$16.1 billion) in 2025 from RMB105.3 billion in 2024. Net revenues from games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others constituted 81.9%, 5.2%, 6.9% and 6.0%, respectively, of our total net revenues in 2025, compared with 79.4%, 5.3%, 7.6% and 7.7%, respectively, in 2024. Games and Related Value-added Services Net revenues from games and related value-added services increased by 10.2% to RMB92.1 billion (US$13.2 billion) in 2025 from RMB83.6 billion in 2024 due to an increase in net revenues from online games of RMB9.2 billion (US$1.3 billion), which was driven by the strong performance of certain in-house developed titles such as Fantasy Westward Journey Online and Identity V as well as newly launched games Where Winds Meet and Marvel Rivals. Net revenues from the operation of online games accounted for approximately 97.3% of this segment in 2025, compared to 96.2% in 2024. Net revenues from our in-house developed games increased by 8.6% to RMB78.9 billion (US$11.3 billion) in 2025 from RMB72.6 billion in 2024 as a result of the expansion of our portfolio of games and their increased popularity in 2025. Net revenues from licensed games increased by 37.8% to RMB10.8 billion (US$1.5 billion) in 2025 from RMB7.8 billion in 2024, which was attributable to the launch of Blizzard titles in China mainland as well as the improved performance of other licensed games. Net revenues generated from licensed games represented 9.5% of our total net revenues in 2025, compared to 7.4% in 2024. Youdao Net revenues from our Youdao segment increased by 5.0% to RMB5.9 billion (US$845.0 million) in 2025 from RMB5.6 billion in 2024 due to an increase in net revenues from its online marketing services of RMB563.8 million (US$80.6 million), which was partially offset by a decrease in net revenues from its smart devices of RMB164.0 million (US$23.5 million) and learning services of RMB116.7 million (US$16.7 million). 115 Table of Contents NetEase Cloud Music Net revenues from our NetEase Cloud Music segment decreased by 2.4% to RMB7.8 billion (US$1.1 billion) in 2025 from RMB8.0 billion in 2024. The decline was due to a decrease in net revenues from social entertainment services and others of RMB830.6 million (US$118.8 million), which was partially offset by an increase in net revenues from online music services of RMB639.9 million (US$91.5 million) resulting from the growth in sales revenue from membership subscriptions. Innovative Businesses and Others Net revenues from the innovative businesses and others segment decreased by 15.9% to RMB6.8 billion (US$973.6 million) in 2025 from RMB8.1 billion in 2024. Certain inter-segment transaction eliminations of RMB961.1 million (US$137.4 million) in 2025 were included in this segment as a deduction of net revenues, representing an increase of RMB725.1 million compared to 2024. A decline in net revenues from product sales also contributed, to a lesser extent, to the decrease. Cost of Revenues Our cost of revenues remained relatively stable at RMB40.2 billion (US$5.8 billion) in 2025 compared to RMB39.5 billion in 2024. In 2025, costs relating to games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others represented 69.4%, 8.2%, 12.4% and 10.0% of total cost of revenues, respectively, as compared with 66.2%, 7.3%, 13.3% and 13.2% of total cost of revenues, respectively, in 2024. Games and Related Value-added Services Cost of revenues from our games and related value-added services increased by 6.8% to RMB27.9 billion (US$4.0 billion) in 2025 from RMB26.1 billion in 2024. This was driven by higher royalty fees as a result of increased revenue from licensed games. Youdao Cost of revenues from Youdao increased by 14.4% to RMB3.3 billion (US$470.8 million) in 2025 from RMB2.9 billion in 2024 due to an increase in costs from online marketing services of RMB585.9 million (US$83.8 million), which was partially offset by a decrease in costs of smart devices of RMB157.2 million (US$22.5 million). NetEase Cloud Music Cost of revenues from NetEase Cloud Music decreased by 5.3% to RMB5.0 billion (US$713.5 million) in 2025 from RMB5.3 billion in 2024 due to a decrease in content service costs, including content licensing and revenue sharing fees of RMB275.4 million (US$39.4 million). Innovative Businesses and Others Cost of revenues from our innovative businesses and others decreased by 22.5% to RMB4.0 billion (US$576.4 million) in 2025 from RMB5.2 billion in 2024 due to an increase in certain inter-segment transaction eliminations, with the decrease reflecting the above-referenced inter-segment transaction eliminations and, to a lesser extent, a decline in product costs. Gross Profit Our gross profit increased by 10.0% to RMB72.4 billion (US$10.4 billion) in 2025 from RMB65.8 billion in 2024. 116 Table of Contents The following table sets forth the consolidated gross profits and gross profit margins of our business activities for the periods indicated as derived from our audited financial statements. The gross profit margins in 2024 and 2025 were calculated by dividing our gross profits over our net revenues for the corresponding type of services. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2024 ​ 2025 ​ 2025 ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Gross profit: ​ ​ ​ ​ Games and related value-added services 57,480,020 ​ 64,237,747 ​ 9,185,874 ​ Youdao 2,748,491 ​ 2,616,828 ​ 374,202 ​ NetEase Cloud Music 2,681,512 ​ 2,769,592 ​ 396,047 ​ Innovative businesses and others 2,897,061 ​ 2,777,701 ​ 397,206 ​ Total gross profit 65,807,084 ​ 72,401,868 ​ 10,353,329 ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin: ​ ​ ​ ​ ​ ​ Games and related value-added services 68.7 % 69.7 % 69.7 % Youdao 48.9 % 44.3 % 44.3 % NetEase Cloud Music 33.7 % 35.7 % 35.7 % Innovative businesses and others 35.8 % 40.8 % 40.8 % Total gross profit margin 62.5 % 64.3 % 64.3 % ​ The gross profit margin for games and related value-added services remained relatively stable in 2025 as compared with the prior year. The decrease in gross profit margin in 2025 for Youdao was due to increased net revenues from online marketing services, which have comparatively lower gross profit margins. The improvement in gross profit margin in 2025 for NetEase Cloud Music was due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures. The increase in gross profit margin in 2025 for innovative businesses and others was driven by margin expansion in certain innovative businesses within the segment, along with the impact of certain inter-segment eliminations mentioned above. Operating Expenses Total operating expenses increased by 0.9% to RMB36.6 billion (US$5.2 billion) in 2025 from RMB36.2 billion in 2024 as a result of higher marketing expenses and research and development investments for games and related value-added services. The following table sets forth our operating expenses for the periods indicated, as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ ​ 2025 ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Selling and marketing expenses ​ ​ ​ (14,147,657) ​ ​ ​ (14,619,702) ​ (2,090,590) General and administrative expenses (4,550,625) (4,228,189) ​ (604,623) Research and development expenses (17,524,812) (17,719,110) ​ (2,533,799) Total operating expenses (36,223,094) (36,567,001) ​ (5,229,012) ​ Selling and marketing expenses increased by 3.3% to RMB14.6 billion (US$2.1 billion) in 2025 from RMB14.1 billion in 2024 due to higher advertising and promotional expenditures of RMB524.3 million (US$75.0 million). General and administrative expenses decreased by 7.1% to RMB4.2 billion (US$604.6 million) in 2025 from RMB4.6 billion in 2024 due to lower staff-related costs. Research and development expenses remained relatively stable at RMB17.7 billion (US$2.5 billion) in 2025 compared to RMB17.5 billion in 2024. 117 Table of Contents Other Income/(Expenses) The following table sets forth our other income/(expenses) for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2024 ​ 2025 ​ 2025 ​ ​ RMB ​ RMB ​ US$ ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Investment income, net ​ ​ ​ 355,286 ​ ​ ​ 731,511 ​ ​ ​ 104,605 Interest income, net 4,920,915 3,953,486 565,341 Exchange gains/(losses), net 255,430 (775,937) (110,958) Other, net 602,134 1,086,543 155,374 ​ Other income/(expenses) mainly consisted of investment income related to short-term investments, interest income, government incentives, net foreign exchange gains/(losses), impairment provisions related to certain equity investments, net investment gain/(loss) in equity method investees and fair value change related to our equity investments with readily determinable fair value. Investment income was RMB731.5 million (US$104.6 million) in 2025, compared to investment income of RMB355.3 million in 2024 due to (i) a gain from fair value change related to equity investments with readily determinable fair value of RMB1.2 billion (US$165.8 million) in 2025 compared to RMB841.9 million in 2024, (ii) investment income related to short-term investments of RMB1.1 billion (US$158.5 million) in 2025 compared to RMB530.6 million in 2024, (iii) a net investment gain in equity method investees of RMB612.6 million (US$87.6 million) in 2025 compared to a loss of RMB155.6 million in 2024, (iv) a gain on disposal of certain long-term investments of RMB440.9 million (US$63.0 million) in 2025 compared to RMB272.4 million in 2024, and (v) dividend income from certain long-term investments of RMB87.1 million (US$12.5 million) in 2025 compared to RMB125.2 million in 2024, which was partially offset by impairment provisions related to certain investments of RMB2.7 billion (US$389.6 million) compared to RMB1.3 billion in 2024. Interest income, net decreased to RMB4.0 billion (US$565.3 million) in 2025 from RMB4.9 billion in 2024, which included interest expenses of RMB334.4 million (US$47.8 million) in 2025 related to our short-term and long-term loans. We also incurred net foreign exchange losses of RMB775.9 million (US$111.0 million) in 2025, compared to net foreign exchange gains of RMB255.4 million in 2024, reflecting fluctuations between the U.S. dollar against the RMB over the periods. Other, net increased to RMB1.1 billion (US$155.4 million) in 2025 from RMB602.1 million in 2024, which were attributable to an increase in government incentives received and recognized in 2025. Income Tax Income tax increased to RMB6.0 billion (US$862.7 million) in 2025 from RMB5.5 billion in 2024. Our effective tax rate in 2025 was 14.8%, compared to 15.3% in 2024. ​ 118 Table of Contents Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 We have organized our operations into following segments: games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others. These segments reflect the way we evaluate, view and run our business operations. The following table sets forth the net revenues and cost of revenues by segment for the period presented as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 ​ 2024 ​ ​ RMB ​ RMB ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ ​ ​ ​ ​ Games and related value-added services 81,565,449 83,622,643 Youdao 5,389,208 5,625,919 NetEase Cloud Music 7,866,992 7,950,146 Innovative businesses and others 8,646,510 8,096,528 Total net revenues 103,468,159 105,295,236 Cost of revenues: ​ ​ Games and related value-added services (25,938,865) (26,142,623) Youdao (2,621,746) (2,877,428) NetEase Cloud Music (5,764,322) (5,268,634) Innovative businesses and others (6,079,832) (5,199,467) Total cost of revenues (40,404,765) (39,488,152) ​ Net Revenues Total net revenues increased by 1.8% to RMB105.3 billion in 2024 from RMB103.5 billion in 2023. Net revenues from games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others constituted 79.4%, 5.3%, 7.6% and 7.7%, respectively, of our total net revenues in 2024, compared with 78.8%, 5.2%, 7.6% and 8.4%, respectively, in 2023. Games and Related Value-added Services Net revenues from games and related value-added services increased by 2.5% to RMB83.6 billion in 2024 from RMB81.6 billion in 2023, with an increase in net revenues from online games of RMB4.7 billion driven by the strong performance of certain self-developed titles, such as Identity V, the PC and mobile versions of Naraka: Bladepoint and certain licensed titles, which was partially offset by a decrease in net revenues from live streaming services of RMB2.4 billion. Net revenues from the operation of online games accounted for approximately 96.2% of this segment in 2024, compared to 92.9% in 2023. Net revenues from our in-house developed games increased by 2.3% to RMB72.6 billion in 2024 from RMB71.0 billion in 2023 as a result of the expansion of our portfolio of both PC and mobile games and their increased popularity in 2024. Net revenues from licensed games increased by 64.3% to RMB7.8 billion in 2024 from RMB4.7 billion in 2023 due to the launch of certain Blizzard titles in 2024. Net revenues generated from licensed games represented 7.4% of our total net revenues in 2024, compared to 4.6% in 2023. Youdao Net revenues from our Youdao segment increased by 4.4% to RMB5.6 billion in 2024 from RMB5.4 billion in 2023, resulting from an increase in net revenues from its online marketing services of RMB643.1 million, which was partially offset by a decrease in net revenues from its learning services of RMB400.8 million. 119 Table of Contents NetEase Cloud Music Net revenues from our NetEase Cloud Music segment increased by 1.1% to RMB8.0 billion in 2024 from RMB7.9 billion in 2023, resulting from an increase in net revenues from online music services of RMB1.0 billion due to growth in sales of membership subscriptions, which was partially offset by a decrease in net revenues from social entertainment services and others of RMB920.5 million. Innovative Businesses and Others Net revenues from the innovative businesses and others segment decreased by 6.4% to RMB8.1 billion in 2024 from RMB8.6 billion in 2023, resulting from decreased net revenues from several businesses in this segment, including advertising services. Cost of Revenues Our cost of revenues decreased by 2.3% to RMB39.5 billion in 2024 from RMB40.4 billion in 2023, which was due to a decrease in revenue sharing costs with talent agencies of live streaming performers and other third parties. In 2024, costs relating to games and related value-added services, Youdao, NetEase Cloud Music and innovative businesses and others represented 66.2%, 7.3%, 13.3% and 13.2% of total cost of revenues, respectively, as compared with 64.2%, 6.5%, 14.3% and 15.0% of total cost of revenues, respectively, in 2023. Games and Related Value-added Services Cost of revenues from our games and related value-added services remained relatively stable at RMB26.1 billion in 2024 compared to RMB25.9 billion in 2023. Youdao Cost of revenues from Youdao increased by 9.8% to RMB2.9 billion in 2024 from RMB2.6 billion in 2023, which was attributable to an increase in revenue sharing costs in line with increased net revenues from online marketing services of RMB325.9 million. NetEase Cloud Music Cost of revenues from NetEase Cloud Music decreased by 8.6% to RMB5.3 billion in 2024 from RMB5.8 billion in 2023, which was driven by a decrease in revenue sharing costs in line with decreased net revenues from social entertainment services. Innovative Businesses and Others Cost of revenues from our innovative businesses and others decreased by 14.5% to RMB5.2 billion in 2024 from RMB6.1 billion in 2023 due to decreased revenue sharing and product costs incurred by several businesses in this segment. Gross Profit Our gross profit increased by 4.4% to RMB65.8 billion in 2024 from RMB63.1 billion in 2023. 120 Table of Contents The following table sets forth the consolidated gross profits and gross profit margins of our business activities for the periods indicated as derived from our audited financial statements. The gross profit margins in 2023 and 2024 were calculated by dividing our gross profits over our net revenues for the corresponding type of services. ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ RMB ​ RMB ​ ​ (in thousands) Gross profit: ​ ​ ​ ​ ​ Games and related value-added services 55,626,584 ​ 57,480,020 ​ Youdao 2,767,462 ​ 2,748,491 ​ NetEase Cloud Music 2,102,670 ​ 2,681,512 ​ Innovative businesses and others 2,566,678 ​ 2,897,061 ​ Total gross profit 63,063,394 ​ 65,807,084 ​ ​ ​ ​ ​ ​ ​ Gross profit margin: ​ ​ ​ ​ Games and related value-added services 68.2 % 68.7 % Youdao 51.4 % 48.9 % NetEase Cloud Music 26.7 % 33.7 % Innovative businesses and others 29.7 % 35.8 % Total gross profit margin 60.9 % 62.5 % ​ The slight increase in gross profit margin in 2024 for games and related value-added services was attributable to decreased revenue contribution from live streaming services, which have relatively lower gross profit margins, as well as increased net revenues from the operation of online games compared to other products and services in the segment. The decrease in gross profit margin in 2024 for Youdao was due to increased net revenues from online marketing services which have comparatively lower gross profit margins. The improvement in gross profit margin in 2024 for NetEase Cloud Music was due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures. The increase in gross profit margin in 2024 for innovative businesses and others was due to increased gross profit from Yanxuan and several other businesses included within the segment. Operating Expenses Total operating expenses increased by 2.5% to RMB36.2 billion in 2024 from RMB35.4 billion in 2023 as a result of higher R&D investments mainly for games and related value-added services. The following table sets forth our operating expenses for the periods indicated, as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 ​ 2024 ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ Selling and marketing expenses (13,969,460) ​ (14,147,657) General and administrative expenses (4,899,880) ​ (4,550,625) Research and development expenses (16,484,910) ​ (17,524,812) Total operating expenses (35,354,250) ​ (36,223,094) ​ Selling and marketing expenses remained relatively stable at RMB14.1 billion in 2024 compared to RMB14.0 billion in 2023. General and administrative expenses decreased by 7.1% to RMB4.6 billion in 2024 from RMB4.9 billion in 2023 due to one-off expenses recorded in 2023, such as the settlement of certain litigation as well as an impairment provision made for fixed assets and land use rights. Research and development expenses increased by 6.3% to RMB17.5 billion in 2024 from RMB16.5 billion in 2023, which was driven by increased investments in game development activities. 121 Table of Contents Other Income/(Expenses) The following table sets forth our other income/(expenses) for the periods indicated as derived from our audited financial statements. ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ RMB ​ RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ Investment income, net 1,306,722 ​ 355,286 Interest income, net 4,120,418 ​ 4,920,915 Exchange (losses)/ gains, net (132,999) ​ 255,430 Other, net 1,053,642 ​ 602,134 ​ Other income/(expenses) mainly consisted of investment income related to short-term investments, interest income, government incentives, net foreign exchange gains/(losses), impairment provisions related to certain equity investments, net investment gain in equity method investees and fair value change related to our equity investments with readily determinable fair value. Investment income was RMB355.3 million in 2024, compared to investment income of RMB1.3 billion in 2023, consisting of (i) a gain from fair value change related to equity investments with readily determinable fair value of RMB841.9 million in 2024 compared to RMB535.3 million in 2023, (ii) investment income related to short-term investments of RMB530.6 million in 2024 compared to RMB414.2 million in 2023, (iii) a gain on disposal of certain long-term investments of RMB272.4 million in 2024 compared to RMB63.8 million in 2023, and (iv) dividend income from certain long-term investments of RMB125.2 million in 2024 compared to RMB63.7 million in 2023, which was offset in part by impairment provisions related to certain investments of RMB1.3 billion compared to RMB274.2 million in 2023 and a net investment loss in equity method investees of RMB155.6 million in 2024 compared to a gain of RMB473.9 million in 2023. Interest income, net increased to RMB4.9 billion in 2024 from RMB4.1 billion in 2023, which included interest expenses of RMB598.0 million in 2024 related to our short-term and long-term loans. We also incurred net foreign exchange gains of RMB255.4 million in 2024, compared to net foreign exchange losses of RMB133.0 million in 2023, reflecting fluctuations between the U.S. dollar against the RMB over the periods. Other, net decreased to RMB602.1 million in 2024 from RMB1.1 billion in 2023, which reflected a decrease in government incentives received and recognized in 2024 compared to 2023. Income Tax Income tax increased to RMB5.5 billion in 2024 from RMB4.7 billion in 2023. Our effective tax rate in 2024 was 15.3%, compared to 13.8% in 2023. B. Liquidity and Capital Resources To date, we have financed our operations primarily through operating cash flows and existing capital resources. As of December 31, 2025, we had RMB47.2 billion (US$6.7 billion) in cash and cash equivalents, RMB95.6 billion (US$13.7 billion) in time deposits and RMB22.8 billion (US$3.3 billion) in short-term investments. Net cash provided by operating activities was RMB50.7 billion (US$7.3 billion) in 2025. We had short-term loans of RMB6.4 billion (US$913.0 million) as of December 31, 2025. We have entered into several uncommitted loan credit facility agreements provided by certain financial institutions. As of December 31, 2025, US$5.3 billion of such credit facilities had not been utilized. 122 Table of Contents We believe that our current levels of cash and cash equivalents, cash flows from operations and short-term investments will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, we may need additional cash resources if we experience changed business conditions or other developments. We may also need additional cash resources if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar action. If we determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain a credit facility. Any issuance of equity securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to be subject to restrictive operating and finance covenants. It is possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would not be acceptable to us or financing will not be available at all. CASH FLOWS The following table sets forth a summary of consolidated cash flow data for the periods indicated as derived from our audited financial statements. Unless otherwise stated, cash flows discussed herein refer to our continuing activities only. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ 2025 ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ US$ ​ ​ (in thousands) Net cash provided by operating activities 35,331,275 ​ 39,676,813 ​ 50,739,800 ​ 7,255,695 Net cash (used in)/provided by investing activities (17,043,431) ​ 17,916,402 ​ (33,181,344) ​ (4,744,868) Net cash used in financing activities (21,467,054) ​ (27,335,702) ​ (20,159,784) ​ (2,882,811) ​ Operating Activities Net cash provided by operating activities was RMB50.7 billion (US$7.3 billion) for the year ended December 31, 2025. The difference between our net income of RMB34.8 billion (US$5.0 billion) and the net cash provided by operating activities was due to (i) the adjustment of non-cash items, mainly including adding back share-based compensation cost of RMB3.6 billion (US$521.6 million), impairment losses on investments of RMB2.7 billion (US$389.6 million), depreciation and amortization charges of RMB2.2 billion (US$321.4 million), share of results on equity method investees and revaluation results from previously held equity interest of RMB1.5 billion (US$219.9 million), unrealized exchange losses of RMB688.9 million (US$98.5 million), partially offset by the net changes of deferred tax assets and deferred tax liabilities of RMB1.3 billion (US$179.3 million), gains on fair value changes of equity security, other investments and financial instruments of RMB1.2 billion (US$165.8 million), and fair value changes of short-term investments of RMB1.1 billion (US$158.5 million), and (ii) an increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in contract liabilities of RMB5.4 billion (US$777.2 million), an increase in payables of RMB1.9 billion (US$275.5 million), including content costs, bonus and professional and technical charges, and an increase in taxes payable of RMB1.1 billion (US$159.1 million). Net cash provided by operating activities was RMB39.7 billion for the year ended December 31, 2024. The difference between our net income of RMB30.3 billion and the net cash provided by operating activities was due to (i) the adjustment of non-cash items, including adding back share-based compensation cost of RMB3.9 billion, depreciation and amortization charges of RMB2.4 billion and impairment losses on investments of RMB1.3 billion, partially offset by gains on fair value change of equity security, other investments and financial instruments of RMB841.9 million, unrealized exchange gains of RMB719.2 million, and fair value changes of short-term investments of RMB530.6 million, and (ii) an increase in cash resulting from the changes in operating assets and liabilities, including an increase in contract liabilities of RMB2.0 billion, an increase in payables of RMB1.4 billion, including content costs, bonus and professional and technical charges, and a decrease in accounts receivable of RMB716.4 million, partially offset by an increase in prepayments and other assets of RMB809.6 million. 123 Table of Contents Net cash provided by operating activities was RMB35.3 billion for the year ended December 31, 2023. The difference between our net income of RMB29.4 billion and the net cash provided by operating activities was due to (i) the adjustment of non-cash items, including adding back share-based compensation cost of RMB3.2 billion, depreciation and amortization charges of RMB3.1 billion, and impairment losses on investments and other long-term assets of RMB469.2 million, partially offset by gains on fair value change of equity security investments of RMB535.3 million, share of results on equity method investees and revaluation results from previously held equity interest of RMB473.9 million, fair value changes of short-term investments of RMB414.2 million, and (ii) an increase in cash resulting from the changes in operating assets and liabilities, mainly including an increase in contract liabilities of RMB1.2 billion and an increase in payables of RMB544.3 million, including content costs, bonus and professional and technical charges, partially offset by an increase in accounts receivable of RMB1.5 billion. Investing Activities Net cash used in investing activities was RMB33.2 billion (US$4.7 billion) for the year ended December 31, 2025, which was attributable to (i) placement/rollover of matured time deposits of RMB166.7 billion (US$23.8 billion), (ii) purchase of short-term investments with terms over three months of RMB21.6 billion (US$3.1 billion), (iii) net changes of short-term investments with terms of three months or less of RMB6.9 billion (US$983.0 million), (iv) investment in other equity investments and acquisition of subsidiaries of RMB4.3 billion (US$611.6 million), (v) purchase of property, equipment and software of RMB1.1 billion (US$152.3 million), and (vi) purchase of intangible assets, content and licensed copyrights of RMB987.1 million (US$141.2 million), which were partially offset by (i) proceeds from maturities of time deposits of RMB147.9 billion (US$21.2 billion), (ii) proceeds from maturities of short-term investments with terms over three months of RMB17.6 billion (US$2.5 billion), and (iii) proceeds from disposal of long-term investments, businesses, subsidiaries and other financial instruments of RMB3.0 billion (US$434.9 million). Net cash provided by investing activities was RMB17.9 billion for the year ended December 31, 2024, which was attributable to (i) proceeds from maturities of time deposits of RMB179.4 billion, (ii) proceeds from maturities of short-term investments with terms over three months of RMB2.9 billion, and (iii) proceeds from disposal of long-term investments, businesses, subsidiaries and other financial instruments of RMB2.8 billion, which were partially offset by (i) placement/rollover of matured time deposits of RMB154.8 billion, (ii) purchase of short-term investments with terms over three months of RMB8.2 billion, (iii) purchase of property, equipment and software of RMB1.3 billion, (iv) purchase of intangible assets, content and licensed copyrights of RMB931.0 million, (v) investment in other equity investments and acquisition of subsidiaries of RMB589.6 million, (vi) investment in equity method investees of RMB513.4 million and (vii) net change of short-term investments with terms of three months or less of RMB408.3 million. Net cash used in investing activities was RMB17.0 billion for the year ended December 31, 2023, which was attributable to (i) placement/rollover of matured time deposits of RMB124.7 billion, (ii) investment in other equity investments and acquisition of subsidiaries of RMB2.4 billion, (iii) purchase of property, equipment and software of RMB2.3 billion, (iv) purchase of intangible assets, content and licensed copyrights of RMB2.0 billion, and (v) net change of short-term investments with terms of three months or less of RMB1.8 billion, which were partially offset by (i) proceeds from maturities of time deposits of RMB111.4 billion, and (ii) proceeds from maturities of short-term investments with terms over three months of RMB5.4 billion. Financing Activities Net cash used in financing activities was RMB20.2 billion (US$2.9 billion) for the year ended December 31, 2025, which was attributable to (i) dividends paid to shareholders of RMB13.8 billion (US$2.0 billion), (ii) net payment of short-term and long-term loans of RMB5.8 billion (US$829.2 million), and (iii) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares of RMB639.3 million (US$91.4 million). Net cash used in financing activities was RMB27.3 billion for the year ended December 31, 2024, which was attributable to (i) dividends paid to shareholders of RMB11.2 billion, (ii) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares of RMB8.8 billion, and (iii) net payment of short-term and long-term loans of RMB7.5 billion. Net cash used in financing activities was RMB21.5 billion for the year ended December 31, 2023, which was attributable to (i) net payment of short-term and long-term loans of RMB8.3 billion, (ii) dividends paid to shareholders of RMB8.0 billion, and (iii) repurchase of NetEase’s ADSs and purchase of subsidiaries’ ADSs and shares of RMB5.2 billion. 124 Table of Contents MANAGEMENT OF CAPITAL RESOURCES In managing our capital, we seek to maintain a reasonable amount of liquidity to support new business growth and maximize returns on our capital resources, while at the same time focusing on the preservation of capital and complying with applicable legal requirements. Our capital resources include primarily cash and cash equivalents, time deposits and short-term investments mainly placed with banks in Hong Kong and China mainland. Although we consolidate the results of our subsidiaries and the VIEs in our consolidated financial statements, we do not have direct access to the cash and cash equivalents or future earnings of our subsidiaries and the VIEs. As of December 31, 2025, these subsidiaries and VIEs had RMB142.6 billion (US$20.4 billion) in cash and cash equivalents and short-term and long-term time deposits. Our cash and cash equivalents and time deposits held outside of China are mainly denominated in U.S. dollars. To fund any cash requirements we may have, we may need to rely on dividends and other distributions on equity paid by our subsidiaries. Since substantially all of our operations are conducted through our China mainland subsidiaries and the VIEs, our subsidiaries may need to rely on dividends, loans or advances made by another China mainland subsidiary or VIE. Certain of these payments are subject to PRC taxes, including sales taxes, which effectively reduce the received amount. In addition, the PRC government could impose restrictions on such payments or change the tax rates applicable to such payments. In 2023, 2024 and 2025, we accrued RMB1.5 billion, RMB1.6 billion and RMB1.8 billion (US$225.4 million) withholding tax liabilities, respectively, mainly associated with dividends expected to be distributed from our China mainland subsidiaries to companies in our corporate group outside of China for general corporate purposes. We repatriated a portion of these earnings and paid related withholding income tax in 2023, 2024 and 2025. In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC. Each of our China mainland subsidiaries that is a domestic company is also required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory reserve fund until the accumulative amount of such reserves reach 50.0% of its respective registered capital. These restricted reserves are not distributable as cash dividends. As a result of these and other restrictions under PRC laws and regulations, our China mainland subsidiaries and the VIEs are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances, which restricted portion amounted to approximately RMB13.3 billion, or 8% of our total consolidated net assets, as of December 31, 2025. In addition, if any of our China mainland subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Furthermore, any transfer of funds from us to any of our China mainland subsidiaries or the VIEs, either as a shareholder loan or as an increase in registered capital, is subject to certain statutory limit requirements and registration or approval of the relevant PRC governmental authorities, including the relevant administration of foreign exchange and/or the relevant examining and approval authority. Therefore, it is difficult to change our capital expenditure plans once the relevant funds have been remitted from our company or our subsidiaries outside of China to our China mainland subsidiaries or the VIEs. These limitations on the free flow of funds between us and our China mainland subsidiaries and the VIEs could restrict our ability to act in response to changing market conditions and reallocate funds internally in a timely manner. For additional information, see Item 3.D. “Key Information—Risk Factors—Risks Related to Our Corporate Structure—Our corporate structure may restrict our ability to receive dividends from, and transfer funds to, our China mainland subsidiaries and VIEs, which could restrict our ability to act in response to changing market conditions and reallocate funds internally in a timely manner.” and “Key Information—Risk Factors—Risks Related to China—Regulation on currency exchange may limit our ability to utilize our revenues effectively.” and Item 10.D. “Additional Information—Exchange Controls.” CAPITAL EXPENDITURES Our capital requirements relate primarily to financing: ● our working capital requirements, such as servers and bandwidth service fees, inventory purchase costs, content and copyrights purchase costs, selling and marketing expenses and R&D costs; and ● costs incurred for the construction of our new office buildings and acquisition of new servers and other facilities. 125 Table of Contents MATERIAL CASH REQUIREMENTS Our material cash requirements as of December 31, 2025 primarily include our operating lease commitments, server and bandwidth service fee commitments, capital commitments, royalties and expenditures for licensed content commitments and other commitments. Our operating lease commitments are the commitments under the lease agreements mainly for our corporate offices and warehouses. Our server and bandwidth service fee commitments are related to our network servers located mainly in the facilities of the respective affiliates of China Telecom, China Unicom and China Mobile. Our capital commitments are primarily the commitments made in connection with the construction of new office buildings. Our royalties and expenditures for licensed content commitments primarily relate to the costs of acquiring the rights to certain content by our online game and online music businesses. Other commitments primarily consist of expenditures related to purchases of inventory and professional and technical services, among others. We intend to fund our existing and future material cash requirements primarily with anticipated cash flows from operations, our existing cash balance and other financing alternatives. We will continue to make cash commitments to support the growth of our business. The following sets forth our contractual obligations by specified categories as of December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Royalties and ​ ​ ​ ​ ​ ​ ​ ​ Server and ​ ​ ​ Expenditures ​ ​ ​ ​ ​ ​ Operating ​ Bandwidth ​ ​ ​ for Licensed ​ ​ ​ ​ ​ ​ Lease ​ Service Fee ​ Capital ​ Content ​ Other ​ ​ ​ ​ Commitments ​ Commitments ​ Commitments ​ Commitments ​ Commitments ​ Total ​ ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ (in thousands) 2026 123,120 ​ 327,771 ​ 138,731 ​ 774,907 ​ 75,784 ​ 1,440,313 2027 89,093 ​ 217,220 ​ 511 ​ 148,491 ​ 1,527 ​ 456,842 2028 66,733 ​ 209,986 ​ 7,887 ​ 2,107 ​ 326 ​ 287,039 2029 ​ 30,163 ​ 183,022 ​ — ​ 802 ​ — ​ 213,987 Beyond 2029 63,459 ​ — ​ — ​ 800 ​ — ​ 64,259 ​ 372,568 ​ 937,999 ​ 147,129 ​ 927,107 ​ 77,637 ​ 2,462,440 ​ Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025. TRANSFER OF FUNDS Transfer of Funds and Other Assets within the NetEase Group NetEase, Inc. transfers cash to its wholly-owned overseas subsidiaries by making capital contributions or providing loans, and the overseas subsidiaries transfer cash to our subsidiaries in China by making capital contributions or providing loans to them. Although NetEase, Inc. and its subsidiaries are the primary beneficiaries of the VIEs through contractual arrangements, they are not able to make direct capital contributions to the VIEs and their subsidiaries. However, they may transfer cash to the VIEs by loans or by making payment to the VIEs for inter-group transactions. As of December 31, 2025, NetEase, Inc. had made cumulative capital contributions of US$2.1 billion to our China mainland subsidiaries through intermediate holding companies, which were accounted for as “Investments in subsidiaries” of NetEase, Inc. These funds have been used by our China mainland subsidiaries for their operations. As of December 31, 2025, the aggregate loan balance owed by our subsidiaries under our agreements with the VIEs was US$51.1 million. In 2023, 2024 and 2025, the VIEs transferred RMB73.3 billion, RMB73.8 billion and RMB83.7 billion (US$12.0 billion), respectively, to our China mainland subsidiaries as payment or prepayment of service fees. Our China mainland subsidiaries maintain certain personnel for content production, sales and marketing, R&D and general and administrative functions to support the operations of the VIEs. 126 Table of Contents The following is a summary of cash transfers that have occurred between the VIEs and our subsidiaries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2023 ​ 2024 ​ 2025 ​ ​ RMB ​ ​ ​ RMB ​ ​ ​ RMB ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ Net cash paid related to technical consulting and related services (73,298,667) ​ (73,785,893) ​ (83,737,036) Net cash received/(paid) related to other transactions 639,545 ​ (45,054) ​ 952,161 Net loans (made to)/repaid by intra-Group companies — ​ (1,438,000) ​ 2,273,000 Net loans received from/(repaid to) intra-Group companies (52,839) ​ 229,553 ​ (110,939) ​ For any amounts owed by the VIEs to our China mainland subsidiaries under the VIE agreements, unless otherwise required by the PRC tax authorities, we are able to settle such amounts without limitations under the currently effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so. Our China mainland subsidiaries are permitted to pay dividends to their shareholders, and eventually to NetEase, Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Such payment of dividends by entities registered in China is subject to limitations, which could result in limitations on the availability of cash to fund dividends or make distributions to shareholders of our securities. For example, our China mainland subsidiaries and the VIEs are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Moreover, the PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders or ADS holders or to utilize revenues generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. ​ 127 Table of Contents We currently do not have cash management policies in place that dictate how funds are transferred between NetEase, Inc., our subsidiaries, the VIEs and the investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. For the purpose of illustration, the below table reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future: ​ ​ ​ Taxation Scenario(1) Statutory Tax and Standard Rates Hypothetical pre-tax earnings(2) 100% Tax on earnings at statutory rate of 25%(3) (25%) Net earnings available for distribution 75% Withholding tax at standard rate of 10%(4) (7.5%) Net distribution to Parent/Shareholders 67.5% Notes: (1) The tax calculation has been simplified for the purpose of this example. The hypothetical book pre-tax earnings amount, which does not consider timing differences, is assumed to equal the taxable income in the PRC. (2) Under the terms of the VIE agreements, service fees are charged by our China mainland subsidiaries to the VIEs. For all the periods presented, these fees are recognized as expenses of the VIEs, with a corresponding amount as service income by our China mainland subsidiaries and eliminated in consolidation. For income tax purposes, our China mainland subsidiaries and the VIEs file income taxes on a separate company basis. The fees paid are recognized as a tax deduction by the VIEs and as income by our China mainland subsidiaries and are tax neutral. Upon the VIEs reaching a cumulative level of profitability, because our China mainland subsidiaries own certain trademarks and copyrights, the agreements will be updated to reflect charges for such trademarks and copyrights usage on the basis that they will qualify for tax neutral treatment. (3) Certain of our subsidiaries and the VIEs qualify for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective. (4) China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the foreign invested enterprises’ immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China mainland, subject to a qualification review at the time of the distribution. For the purpose of this hypothetical example, this table has been prepared based on a taxation scenario under which the full withholding tax would be applied. The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our China mainland subsidiaries under tax neutral contractual arrangements. If in the future, the accumulated earnings of the VIEs exceed the fees paid to our China mainland subsidiaries, or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities, the VIEs could make a non-deductible transfer to our China mainland subsidiaries for the amounts of the stranded cash in the VIEs. This would result in such transfer being non-deductible expenses for the VIEs but still taxable income for the China mainland subsidiaries. Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management believes that there is only a remote possibility that this scenario would happen. 128 Table of Contents Condensed Consolidating Schedule The following tables present the condensed consolidating schedule of financial information for NetEase, Inc., its wholly-owned subsidiaries that are the primary beneficiaries of the VIEs under U.S. GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and the VIEs and their subsidiaries that we consolidate for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2024 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ of VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents 68,315 22,226,946 28,074,849 1,013,200 — 51,383,310 Time deposits — 67,221,715 11,174,640 70,000 — 78,466,355 Restricted cash — 22,636 40,326 3,028,651 — 3,091,613 Accounts receivable, net — 1,765,642 285,361 3,618,024 — 5,669,027 Inventories — 494,666 49,547 27,335 — 571,548 Prepayments and other current assets, net 65,235 3,341,726 663,724 2,346,183 — 6,416,868 Short-term investments — 123,191 10,219,436 413,516 — 10,756,143 Amounts due from group companies (1) 47,134,874 24,332,449 17,541,728 11,716,452 (100,725,503) — Property, equipment and software, net 765 806,010 7,703,421 9,905 — 8,520,101 Land use right, net — 61,354 4,111,111 — — 4,172,465 Operating lease right-of-use assets, net 2,541 232,315 271,200 35,015 — 541,071 Deferred tax assets — 12,763 1,085,481 15,191 — 1,113,435 Investments in subsidiaries (2) 110,875,457 27,503,090 (691,849) — (137,686,698) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 1,810,627 ​ — ​ (1,810,627) ​ — Long-term investments 393,580 ​ 17,737,532 955,281 1,119,963 — 20,206,356 Other long-term assets 30,137 3,938,040 773,016 342,065 — 5,083,258 Total assets 158,570,904 169,820,075 84,067,899 23,755,500 (240,222,828) 195,991,550 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable 1,540 457,395 209,709 51,905 — 720,549 Salary and welfare payables 1,897 638,774 3,948,479 93,859 — 4,683,009 Taxes payable 10,389 422,409 2,186,974 139,413 — 2,759,185 Short-term loans — 7,899,918 3,905,133 — — 11,805,051 Contract liabilities-current — 1,319,742 276,933 13,702,547 — 15,299,222 Accrued liabilities and other payables 32,143 2,716,831 6,924,271 4,555,787 — 14,229,032 Operating lease liabilities 2,317 256,038 292,603 33,251 — 584,209 Amounts due to group companies (1) 19,837,012 39,620,317 38,609,798 2,658,376 (100,725,503) — Deferred tax liabilities — 1,756,535 416,582 — — 2,173,117 Long-term loans — — 427,997 — — 427,997 Other long-term liabilities — 109,239 58,179 648,623 — 816,041 Total liabilities 19,885,298 55,197,198 57,256,658 21,883,761 (100,725,503) 53,497,412 Redeemable noncontrolling interests — 84,272 — — — 84,272 Total equity 138,685,606 114,538,605 26,811,241 1,871,739 (139,497,325) 142,409,866 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 158,570,904 169,820,075 84,067,899 23,755,500 (240,222,828) 195,991,550 ​ 129 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents 183,850 13,864,689 32,342,191 777,174 — 47,167,904 Time deposits — 89,269,378 6,365,000 — — 95,634,378 Restricted cash — 15,241 46,433 4,261,563 — 4,323,237 Accounts receivable, net — 1,887,701 212,380 3,247,738 (10,000) 5,337,819 Inventories — 627,590 41,805 19,788 — 689,183 Prepayments and other current assets, net 39,471 4,441,485 915,561 2,261,829 — 7,658,346 Short-term investments — 693,412 21,023,727 1,086,364 — 22,803,503 Amounts due from group companies (1) 42,094,348 10,553,620 17,631,438 17,002,696 (87,282,102) — Property, equipment and software, net 280 681,602 7,733,778 9,667 — 8,425,327 Land use right, net — 61,381 3,985,974 — — 4,047,355 Operating lease right-of-use assets, net 1,018 168,599 120,044 30,637 — 320,298 Deferred tax assets — 55,854 2,711,948 63,621 — 2,831,423 Investments in subsidiaries (2) 123,848,462 30,999,695 (705,317) — (154,142,840) — Contractual interests in the VIEs and VIEs’ subsidiaries (2) ​ — ​ — ​ 2,290,822 ​ — ​ (2,290,822) ​ — Long-term investments 143,723 ​ 16,490,400 882,743 946,017 — 18,462,883 Other long-term assets 29,999 2,859,866 710,078 113,461 — 3,713,404 Total assets 166,341,151 172,670,513 96,308,605 29,820,555 (243,725,764) 221,415,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities, redeemable noncontrolling interests and shareholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable 28 369,939 247,059 36,138 (10,000) 643,164 Salary and welfare payables 2,256 461,683 4,332,807 92,962 — 4,889,708 Taxes payable 10,158 857,264 2,914,009 92,712 — 3,874,143 Short-term loans — 2,460,080 3,909,001 15,336 — 6,384,417 Contract liabilities-current — 1,746,751 190,260 18,577,529 — 20,514,540 Accrued liabilities and other payables 41,204 3,388,354 6,619,800 5,900,414 — 15,949,772 Operating lease liabilities 774 191,025 125,211 28,315 — 345,325 Amounts due to group companies (1) 5,990,612 32,446,835 46,976,050 1,868,605 (87,282,102) — Deferred tax liabilities — 2,049,374 586,764 1,120 — 2,637,258 Other long-term liabilities — 92,574 113,266 866,884 — 1,072,724 Total liabilities 6,045,032 44,063,879 66,014,227 27,480,015 (87,292,102) 56,311,051 Redeemable noncontrolling interests — 91,319 — — — 91,319 Total equity 160,296,119 128,515,315 30,294,378 2,340,540 (156,433,662) 165,012,690 Total liabilities, redeemable noncontrolling interests and shareholders’ equity 166,341,151 172,670,513 96,308,605 29,820,555 (243,725,764) 221,415,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries of ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ Third-party revenues — ​ 12,193,244 ​ 1,220,371 ​ 90,054,544 ​ — ​ 103,468,159 Intra-Group revenues related to technical consulting and related service (3) — ​ 386,828 ​ 72,605,740 ​ — ​ (72,992,568) ​ — Other intra-Group revenues (4) — ​ 873,787 ​ 1,440,970 ​ 734,857 ​ (3,049,614) ​ — Total net revenues — ​ 13,453,859 ​ 75,267,081 ​ 90,789,401 ​ (76,042,182) ​ 103,468,159 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenues and operating expenses (26,012) ​ (14,240,361) ​ (44,024,077) ​ (17,468,565) ​ — ​ (75,759,015) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) — ​ — ​ — ​ (72,992,568) ​ 72,992,568 ​ — Other intra-Group cost of revenues and operating expenses (4) — ​ (1,454,070) ​ (1,571,998) ​ (23,546) ​ 3,049,614 ​ — Total cost of revenues and operating expenses (26,012) ​ (15,694,431) ​ (45,596,075) ​ (90,484,679) ​ 76,042,182 ​ (75,759,015) Operating (losses)/profit (26,012) ​ (2,240,572) ​ 29,671,006 ​ 304,722 ​ — ​ 27,709,144 Share of income/(losses) from subsidiaries and VIEs (2) 29,849,939 ​ 30,023,775 ​ (88,094) ​ — ​ (59,785,620) ​ — Other (expenses)/income, net (345,851) ​ 3,929,431 ​ 2,537,239 ​ 226,964 ​ — ​ 6,347,783 Income before tax 29,478,076 ​ 31,712,634 ​ 32,120,151 ​ 531,686 ​ (59,785,620) ​ 34,056,927 Income tax — ​ (1,928,340) ​ (2,568,035) ​ (203,329) ​ — ​ (4,699,704) Net income 29,478,076 ​ 29,784,294 ​ 29,552,116 ​ 328,357 ​ (59,785,620) ​ 29,357,223 ​ ​ 130 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2024 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries of ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 13,062,383 ​ 1,360,569 ​ 90,872,284 ​ — ​ 105,295,236 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 359,211 ​ 72,339,430 ​ — ​ (72,698,641) ​ — Other intra-Group revenues (4) ​ — ​ 1,416,369 ​ 1,525,153 ​ 938,100 ​ (3,879,622) ​ — Total net revenues ​ — ​ 14,837,963 ​ 75,225,152 ​ 91,810,384 ​ (76,578,263) ​ 105,295,236 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenues and operating expenses ​ (38,022) ​ (14,872,314) ​ (42,256,868) ​ (18,544,042) ​ — ​ (75,711,246) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (72,698,641) ​ 72,698,641 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (1,453,656) ​ (2,270,346) ​ (155,620) ​ 3,879,622 ​ — Total cost of revenues and operating expenses ​ (38,022) ​ (16,325,970) ​ (44,527,214) ​ (91,398,303) ​ 76,578,263 ​ (75,711,246) Operating (losses)/profit ​ (38,022) ​ (1,488,007) ​ 30,697,938 ​ 412,081 ​ — ​ 29,583,990 Share of income from subsidiaries and VIEs (2) ​ 30,071,305 ​ 29,362,928 ​ 55,384 ​ — ​ (59,489,617) ​ — Other (expenses)/ income, net ​ (335,674) ​ 4,658,054 ​ 1,852,504 ​ (41,119) ​ — ​ 6,133,765 Income before tax ​ 29,697,609 ​ 32,532,975 ​ 32,605,826 ​ 370,962 ​ (59,489,617) ​ 35,717,755 Income tax ​ — ​ (1,895,096) ​ (3,372,468) ​ (193,844) ​ — ​ (5,461,408) Net income ​ 29,697,609 ​ 30,637,879 ​ 29,233,358 ​ 177,118 ​ (59,489,617) ​ 30,256,347 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Primary ​ ​ ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ Other ​ Beneficiaries of ​ their ​ Eliminating ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Net revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party revenues ​ — ​ 16,658,915 ​ 1,086,423 ​ 94,880,469 ​ — ​ 112,625,807 Intra-Group revenues related to technical consulting and related service (3) ​ — ​ 396,178 ​ 75,057,044 ​ — ​ (75,453,222) ​ — Other intra-Group revenues (4) ​ — ​ 1,131,149 ​ 3,196,284 ​ 1,126,267 ​ (5,453,700) ​ — Total net revenues ​ — ​ 18,186,242 ​ 79,339,751 ​ 96,006,736 ​ (80,906,922) ​ 112,625,807 Cost of revenues and operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Third-party cost of revenues and operating expenses ​ (37,446) ​ (14,709,963) ​ (42,202,588) ​ (19,840,943) ​ — ​ (76,790,940) Intra-Group cost of revenues and operating expenses related to technical consulting and related services (3) ​ — ​ — ​ — ​ (75,453,222) ​ 75,453,222 ​ — Other intra-Group cost of revenues and operating expenses (4) ​ — ​ (3,135,497) ​ (2,115,434) ​ (202,769) ​ 5,453,700 ​ — Total cost of revenues and operating expenses ​ (37,446) ​ (17,845,460) ​ (44,318,022) ​ (95,496,934) ​ 80,906,922 ​ (76,790,940) Operating (losses)/profit ​ (37,446) ​ 340,782 ​ 35,021,729 ​ 509,802 ​ — ​ 35,834,867 Share of income from subsidiaries and VIEs (2) ​ 34,597,746 ​ 34,241,064 ​ 506,000 ​ — ​ (69,344,810) ​ — Other income, net ​ 261,735 ​ 2,565,229 ​ 2,086,843 ​ 81,796 ​ — ​ 4,995,603 Income before tax ​ 34,822,035 ​ 37,147,075 ​ 37,614,572 ​ 591,598 ​ (69,344,810) ​ 40,830,470 Income tax ​ — ​ (2,566,656) ​ (3,393,338) ​ (72,692) ​ — ​ (6,032,686) Net income ​ 34,822,035 ​ 34,580,419 ​ 34,221,234 ​ 518,906 ​ (69,344,810) ​ 34,797,784 ​ ​ 131 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries of ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (354,694) ​ 475,946 ​ (37,115,437) ​ 72,325,460 ​ — ​ 35,331,275 Net cash provided by/(used in) transactions with intra-Group companies related to technical consulting and related service — ​ 411,369 ​ 72,887,298 ​ (73,298,667) ​ — ​ — Dividends received from subsidiaries and VIEs (5) — ​ 26,455,948 ​ — ​ — ​ (26,455,948) ​ — Net cash provided by/(used in) other transactions with intra-Group companies 476 ​ (502,444) ​ (137,577) ​ 639,545 ​ — ​ — Net cash (used in)/provided by operating activities (354,218) ​ 26,840,819 ​ 35,634,284 ​ (333,662) ​ (26,455,948) ​ 35,331,275 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties (589) ​ (3,584,348) ​ (13,375,849) ​ (82,645) ​ — ​ (17,043,431) Loans made to intra-Group companies (6) (5,100,814) ​ (32,331,958) ​ (13,748,357) ​ — ​ 51,181,129 ​ — Loans repaid by intra-Group companies (6) 246,020 ​ 7,004,819 ​ 1,200,611 ​ — ​ (8,451,450) ​ — Other investing activities with intra-Group companies (7) — ​ (347,375) ​ (17,100) ​ — ​ 364,475 ​ — Net cash used in investing activities (4,855,383) ​ (29,258,862) ​ (25,940,695) ​ (82,645) ​ 43,094,154 ​ (17,043,431) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (19,980,650) ​ (6,357,771) ​ 4,855,694 ​ 15,673 ​ — ​ (21,467,054) Cash dividend paid to intra-Group companies (5) — ​ — ​ (26,455,948) ​ — ​ 26,455,948 ​ — Loans received from intra-Group companies (6) 32,327,958 ​ 18,639,436 ​ 4,000 ​ 209,735 ​ (51,181,129) ​ — Loans repaid to intra-Group companies (6) (7,004,819) ​ (1,184,057) ​ — ​ (262,574) ​ 8,451,450 ​ — Other financing activities with intra-Group companies (7) — ​ 17,100 ​ 347,375 ​ — ​ (364,475) ​ — Net cash provided by/(used in) financing activities 5,342,489 ​ 11,114,708 ​ (21,248,879) ​ (37,166) ​ (16,638,206) ​ (21,467,054) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2024 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries of ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (20,988) ​ 2,140,247 ​ (37,271,070) ​ 74,828,624 ​ — ​ 39,676,813 Net cash provided by/(used in) transactions with intra-Group companies related to technical consulting and related service — ​ 259,015 ​ 73,526,878 ​ (73,785,893) ​ — ​ — Dividends received from subsidiaries and VIEs (5) — ​ 30,766,934 ​ — ​ — ​ (30,766,934) ​ — Net cash provided by/(used in) other transactions with intra-Group companies 228,056 ​ (117,507) ​ (65,495) ​ (45,054) ​ — ​ — Net cash provided by operating activities 207,068 ​ 33,048,689 ​ 36,190,313 ​ 997,677 ​ (30,766,934) ​ 39,676,813 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (292) ​ (1,633,126) ​ 19,784,580 ​ (234,760) ​ — ​ 17,916,402 Loans made to intra-Group companies (6) (6,437,272) ​ (34,610,921) ​ (14,876,404) ​ (1,438,000) ​ 57,362,597 ​ — Loans repaid by intra-Group companies (6) 3,634,436 ​ 11,781,140 ​ 16,200,334 ​ — ​ (31,615,910) ​ — Other investing activities with intra-Group companies (7) (356) ​ — ​ (22,250) ​ — ​ 22,606 ​ — Net cash (used in)/provided by investing activities (2,803,484) ​ (24,462,907) ​ 21,086,260 ​ (1,672,760) ​ 25,769,293 ​ 17,916,402 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties (20,630,929) ​ (919,224) ​ (5,769,454) ​ (16,095) ​ — ​ (27,335,702) Cash dividend paid to intra-Group companies (5) — ​ — ​ (30,766,934) ​ — ​ 30,766,934 ​ — Loans received from intra-Group companies (6) 34,610,921 ​ 20,436,682 ​ 1,438,000 ​ 876,994 ​ (57,362,597) ​ — Loans repaid to intra-Group companies (6) (11,529,250) ​ (19,187,330) ​ (251,889) ​ (647,441) ​ 31,615,910 ​ — Other financing activities with intra-Group companies (7) — ​ 22,606 ​ — ​ — ​ (22,606) ​ — Net cash provided by/(used in) financing activities 2,450,742 ​ 352,734 ​ (35,350,277) ​ 213,458 ​ 4,997,641 ​ (27,335,702) ​ 132 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2025 ​ ​ ​ ​ ​ ​ Primary ​ VIEs and ​ ​ ​ ​ ​ ​ ​ ​ NetEase, ​ ​ ​ Other ​ ​ ​ Beneficiaries of ​ ​ ​ their ​ ​ ​ Eliminating ​ ​ ​ Consolidated ​ ​ Inc. ​ Subsidiaries ​ VIEs ​ subsidiaries ​ adjustments ​ totals ​ ​ (RMB in thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (17,330) ​ 7,431,822 ​ (38,759,800) ​ 82,085,108 ​ — ​ 50,739,800 Net cash provided by/(used in) transactions with intra-Group companies related to technical consulting and related service — ​ 394,151 ​ 83,342,885 ​ (83,737,036) ​ — ​ — Dividends received from subsidiaries and VIEs (5) 7,199,042 ​ 28,486,684 ​ — ​ — ​ (35,685,726) ​ — Net cash provided by/(used in) other transactions with intra-Group companies 188,752 ​ (1,575,097) ​ 434,184 ​ 952,161 ​ — ​ — Net cash provided by/(used in) operating activities 7,370,464 ​ 34,737,560 ​ 45,017,269 ​ (699,767) ​ (35,685,726) ​ 50,739,800 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash used in transactions with third-parties (7) ​ (25,676,520) ​ (7,024,806) ​ (480,011) ​ — ​ (33,181,344) Loans made to intra-Group companies (6) (12,392,492) ​ (39,376,500) ​ (12,684,010) ​ (30,000) ​ 64,483,002 ​ — Loans repaid by intra-Group companies (6) 13,530,708 ​ 11,878,091 ​ 12,537,453 ​ 2,303,000 ​ (40,249,252) ​ — Other investing activities with intra-Group companies (7) (21,503,020) ​ 2,267,998 ​ (7,019) ​ — ​ 19,242,041 ​ — Net cash (used in)/provided by investing activities (20,364,811) ​ (50,906,931) ​ (7,178,382) ​ 1,792,989 ​ 43,475,791 ​ (33,181,344) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in)/provided by transactions with third-parties (14,463,114) ​ (5,284,420) ​ (427,586) ​ 15,336 ​ — ​ (20,159,784) Cash dividend paid to intra-Group companies (5) — ​ (7,199,042) ​ (28,486,684) ​ — ​ 35,685,726 ​ — Loans received from intra-Group companies (6) 39,371,300 ​ 24,355,402 ​ 5,200 ​ 751,100 ​ (64,483,002) ​ — Loans repaid to intra-Group companies (6) (11,793,733) ​ (25,206,122) ​ (2,387,358) ​ (862,039) ​ 40,249,252 ​ — Other financing activities with intra-Group companies (7) — ​ 21,510,039 ​ (2,267,998) ​ — ​ (19,242,041) ​ — Net cash provided by/(used in) financing activities 13,114,453 ​ 8,175,857 ​ (33,564,426) ​ (95,603) ​ (7,790,065) ​ (20,159,784) Notes: (1) It represents the elimination of intercompany balances among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. (2) It represents the elimination of the investments among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. (3) It represents the elimination of the intercompany technical consulting and related service charges at the consolidation level. (4) It represents the elimination of the other intercompany activities at the consolidation level. (5) It represents the elimination of the dividends payment at the consolidation level. (6) It represents the elimination of intra-Group loans related cash activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. (7) It represents the elimination of other investing and financing activities among NetEase, Inc., other subsidiaries, primary beneficiary of VIEs, and VIEs and their subsidiaries. Restrictions on Foreign Exchange and the Ability to Transfer Cash between Entities, Across Borders and to U.S. Investors NetEase, Inc.’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our China mainland subsidiaries. See “—Management of Capital Resources” above. 133 Table of Contents Furthermore, if certain procedural requirements are satisfied, the payment of current account items, including profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE or its local branches. However, where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies, approval from or registration with competent government authorities or its authorized banks is required. The PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current account or capital account transactions. If the foreign exchange regulatory system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our offshore intermediary holding companies or ultimate parent company, and therefore, our shareholders or investors in our ADSs. Further, we cannot assure you that new regulations or policies will not be promulgated in the future, which may further restrict the remittance of RMB into or out of the PRC. We cannot assure you, in light of the restrictions in place, or any amendment to be made from time to time, that our current or future China mainland subsidiaries will be able to satisfy their respective payment obligations that are denominated in foreign currencies, including the remittance of dividends outside of the PRC. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends. In addition, our China mainland subsidiaries are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For PRC and United States federal income tax consideration of an investment in the ADSs, see Item 10.E. “Additional Information—Taxation.” C. Research and Development, Patents and Licenses, etc. We believe that an integral part of our future success will depend on our ability to develop and enhance our services. Our product development efforts and strategies consist of incorporating new technologies from third parties as well as continuing to develop our own proprietary technologies. We have utilized and will continue to utilize the products and services of third parties to enhance our platform of technologies and services to provide competitive and diverse online game, education and other innovative services to our users. In addition, we plan to continue to expand our technologies, products and services and registered user base through diverse online community products and services developed internally, particularly with respect to our games and related value-added services. We will seek to continually improve and enhance our existing services to respond to rapidly evolving competitive and technological conditions. In 2023, 2024 and 2025, we spent RMB16.5 billion, RMB17.5 billion and RMB17.7 billion (US$2.5 billion), respectively, on R&D activities. D. Trend Information Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition. 134 Table of Contents E. Critical Accounting Estimates The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our management periodically re-evaluates these estimates and assumptions based on historical experience and other factors, including expectations of future events that they believe to be reasonable under the circumstances. Actual results may differ significantly from those estimates and assumptions. We have identified the following accounting policies and estimates as the most critical to an understanding of our financial position and results of operations, because the application of these policies requires significant and complex management estimates, assumptions and judgment, and the reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were made. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. For a detailed discussion of our significant accounting policies and related judgments, please see “Notes to the Consolidated Financial Statements—Note 2 Principal Accounting Policies.” You should read the following description of critical accounting estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report. Estimate of Average Playing Period of Paying Players We operate various online games. We are the principal of substantially all games we operate, including both in-house developed games and licensed games, as these games are hosted on our servers, we have the pricing discretion and we are responsible for the sale and marketing of the games as well as any related customer services. Most of our game revenues are generated from the sale of in-game virtual items, and revenues of certain online games in-game virtual items are recognized ratably over the respective estimated average playing period of paying players in these games. Nature of Estimates Required – average playing period of paying players. The average playing period of paying players is subjected to period assessment. Considering the events or circumstances may change that indicate the change of the estimate, we assessed the average playing period of paying players on a quarterly basis. We make a qualitative and quantitative assessment to determine the average playing period of paying players for each game. If a qualitative and quantitative assessment identifies the change of the average playing period of paying players based on newly available paying players information, we may prospectively apply the change of estimate. Assumptions Used. Changes in assumptions or estimates can materially affect average playing period of paying players and, therefore, can affect the test results. The following are key assumptions we use in making the average playing period of paying players for each game: ● Players’ churn rates. A churn rate is calculated starting from the point-in-time when related in-game virtual items are delivered to the paying players’ accounts and track populations of paying players who made their initial purchases during the interval period, or the Cohort. Then, we track the number of paying players from each Cohort who left subsequent to their initial purchase. We make assumptions about the future players’ churn rate to the ending point of a paying player’s lifespan beyond the date for which we observed and extrapolate the actual observed churn rate to arrive at an estimated weighted average playing period for paying players of the selected games. ● Similarities between new games and existing games. We make assumption regarding similarities between new games and existing games with sufficient historical data. These assumptions include, but are not limited to, types of games and characteristics of targeted players. 135 Table of Contents In connection with our periodic reviews of the estimate, the assumptions are evaluated accordingly considering historical players’ churn rates, similarities between new games and existing games and management judgment. Updates to these assumptions will impact the estimate of average playing period of paying players and the revenue recognized accordingly. If the estimate of average playing period of paying players is extended, the revenue will be recognized over a longer period and vice versa. See Note 2(c)(i) of the Notes to the Consolidated Financial Statements for more information. For each period presented in such financial statements, the estimated average playing period for our online games ranged from 1 to 12 months. Impairment of Long-term Investments For investments in common stock or in-substance commons stocks issued by privately-held companies over which we did not have significant influence, and investments in privately-held companies’ shares that are not common stock or in-substance common stocks, as these securities do not have readily determinable fair value, we measure these investments at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the same or a similar investment in the same issuer(referred to as Measurement Alternative). Nature of Estimates Required – Impairment assessment of long-term equity investments without readily determinable fair values. We regularly evaluate the impairment of the investments in privately-held companies without readily determinable fair value periodically or when events or circumstances indicate that the carrying amount may not be recoverable. For equity investments without readily determinable fair value for which we have elected to use the Measurement Alternative, we make a qualitative assessment of whether the investment is impaired periodically, or when events or circumstances indicate that the carrying amount may not be recoverable, applying significant judgment in considering various events and factors. Assumptions and Approach Used – Impairment assessment. The approach we used to assess investment impairment are based on assumptions and management judgment in considering various factors and events. The events or circumstances and factors we consider for the impairment assessment include (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. Many of the factors used in assessing performance and financial position of the investee are outside the control of management, and these assumptions and judgment may change in future periods. Assumptions and Approach Used – Fair value of the investees. If the assessment indicates that there is an impairment indicator, we estimate the investment’s fair value in accordance with the principles of ASC 820. We measure the fair value of the investees considering the severity and duration of the impairment indicator and the existence of any positive or mitigating factors or based on income approach or market approach. Income approach uses cash flow projections. Inherent in the investees’ development of cash flow projections are assumptions and estimates derived from a review of the investees’ operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. The market approach is another method for measuring the fair value of the investment which relies on the market value (i.e., market capitalization) of companies that are engaged in the same or similar investment of investees being evaluated. In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes. Assumptions used in Income Approach: The following are key assumptions we use in making cash flow projections: ● Business projections. We make assumptions about the investees’ business in the marketplace. These assumptions drive our planning assumptions for each revenue streams. We also make assumptions about cost levels (e.g., capacity utilization, cost performance). These projections are derived using investees’ business plan forecasts. 136 Table of Contents ● Long-term growth rate. A growth rate is used to calculate the terminal value of the business and is added to the present value of the debt-free interim cash flows. The growth rate is the expected rate at which the investees’ business unit’s earnings stream is projected to grow beyond the planning period. ● Discount rate. When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that we anticipate a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted pre-tax rate of return expected by equity and debt holders of a business enterprise. ● Economic projections. Assumptions regarding general economic conditions are included in and affect our assumptions regarding industry sales and pricing estimates for the investees’ business. These macroeconomic assumptions include, but are not limited to, regulatory, economic, or technological development, inflation, interest rates, customer preference, and foreign currency exchange rates. Assumptions used in Market Approach: The following are key assumptions we use in market approach: ● Selection of comparable companies and multiples. We make selection of listed comparable companies and appropriate multiples by taking into account of the main businesses, the scale and the business performance, development stage, product mix, financial position of these companies and the investees. ● Timing and probabilities of different scenarios. Timing and probabilities of different scenarios such as redemption, liquidation and IPO are based on our best estimate. ● Estimated volatility rate. Estimated volatility rate was estimated based on annualized standard deviation of the daily return embedded in historical stock prices of comparable companies with a time horizon close to the expected term. ● Risk-free rate. We determined the risk-free rate based on the interest rate of different government bonds with a time horizon close to expected term. The selections of government bonds are made mainly based on the financing currency of the investee and the country where the main operation of the investee take place. ● Discount for lack of marketability. The discount for lack of marketability, or the DLOM, was estimated based on the option-pricing method. Under this method, the cost of put option, which can hedge the price change before the privately-held share can be sold, was considered as a basis to determine the lack of marketability discount. For long-term equity investments without readily determinable fair values, we record an impairment in the consolidated statements of operations and comprehensive income to the extent the carrying amount exceeds the fair value. ​ Changes in assumptions or estimates can materially affect the fair value measurement of the investment and, therefore, can affect the test results. For the year ended December 31, 2025, an aggregate of RMB2.4 billion in investment impairments were recorded. See Note 9 of Notes to the Consolidated Financial Statements for more information. 137 Table of Contents