NetEase youdao has designated Citigroup, Morgan Stanley, CIC, Credit Suisse and HSBC as underwriters of the IPO deal.
The prospectus shows that, at the same time, the private placement of the largest institutional shareholder Orbis fund has been committed at the same time, promising to purchase a class a common stock with a total purchase of $125 million.
NetEase youdao disclosed the company's financial information in its IPO: in the six months to June 30, 2019, NetEase youdao closed a net profit of 548.5 million yuan ($79.9 million), up 67.7 percent from 327.2 million yuan a year earlier. In the first half of 2018, the intelligent learning business, represented by online courses, became the largest source of revenue. In the six months to June 30, 2018 and June 30, 2019, NetEase youdao posted net losses of 82.8 million yuan and 167.9 million yuan ($24.5 million), respectively.
NetEase has a net revenue of 2018 yuan, which is RMB 731 million 600 thousand yuan (US $106 million 600 thousand), which is 60.5% higher than the 455 million 700 thousand yuan in 2017. In 2017 and 2018, the net loss was 163 million 900 thousand yuan and 209 million 300 thousand yuan (30 million 500 thousand US dollars) respectively.
NetEase youdao, founded in 2006, is the third independent financing brand after NetEase Cloud Music and NetEase Weiyang. In April 2018, NetEase youdao announced the completion of its first strategic financing without disclosing the amount of financing. The financing, led by Muhua Investment and the participation of Junlian Capital, was valued at $1.1 billion and joined the China Internet Licorne Club.
Net loss of revenue of 549 million yuan in the first half of the year was 168 million yuan
Revenue in the first half of this year was 549 million yuan, compared with 328 million yuan in the same period last year, up 67.67 percent, 732 million yuan in 2018 and 456 million yuan in 2017, up 60.53 percent from the same period last year, according to the IPO.
In the first half of this year, Youdao had a net loss of 168 million yuan, compared with 82.751 million yuan in the same period last year, with a net loss of 102.89% higher than the same period last year. In 2018, there was a net loss of 293 million yuan and 164 million yuan in 2017.
Ding Lei owns 30 per cent CEO Zhou Feng owns 20.6 per cent
In the prospectus, NetEase also disclosed the information of the company's senior executives and directors: Ding Leishiyi holds 29,751,158 shares of common stock with a 30.1% share-holding ratio; Zhou Fengshi holds 20,341,200 shares of common stock with a 20.6% share-holding ratio; Wu Yinghui holds 1,840,000 shares of common stock with a 1.9% share-holding ratio.
In terms of institutional shareholders, the company (NASDAQ:NTES) holds 65387160 shares of common stock, with a shareholding ratio of 66.2%, and the Peng Ke Holdings Inc wholly owned by CEO, Zhou Youdao. Equity holds 20,341,200 shares of common stock, with a share-holding ratio of 20.6%.
Revenue of Intelligent Learning Business increased by 58% over the same period of last year by 310 million yuan.
In the first half of 2019, intelligence learning revenue totaled 310 million yuan, up 58.1 percent from the same period last year, accounting for 57.4 percent of the total revenue, while online advertising revenue was 230 million, up 82.5 percent from the same period last year, according to the IPO.
Income of online courses increased from 160 million yuan to 230 million yuan, an increase of 54.3% year on year. From the first half of 2018 to the first half of 2019, the average unit price of excellent courses increased from about 508 yuan to about 751 yuan, an increase of 47.8%. Income of other learning services increased by 48.4% to 43.1 million yuan, an increase of 26.47%.
In the first half of the year, R&D expenditure amounted to 111 million yuan, accounting for 20.3% of total income.
In the first half of 2019, youdao spent 111 million yuan, or 20.3 percent, on R & D, according to the IPO. As of June 30, 2019, there were 373 youdao R & D personnel, accounting for about 33% of the total number of employees.
Relationship with MR: $128 million in outstanding loans
The relationship between NetEase youdao and NetEase Group
He earned a loan that could normally be repaid within one year to finance business operations. As of June 30, 2019, he had paid short-term interest loans to the bank for RMB 878 million yuan (US $128 million), which accounted for a large proportion of current liabilities.
The company faces certain risks associated with NetEase's relationship, including potential conflicts of interest between NetEase and NetEase youdao in many areas.
For this issue, the company has reached a series of business cooperation agreements with Netease, including master transaction agreement, transitional service agreement, non-competition agreement, cooperation framework agreement and intellectual property licensing agreement (collectively referred to as "commercial cooperation agreement"), which are expected to come into effect after the completion of this issue.
Master Transaction Agreement
The company has signed a main transaction agreement with the company to manage some key aspects of the relationship with the company, including debt allocation, compensation and the appointment of independent auditors.
The main trading agreement requires NetEase and NetEase youdao to compensate each other for breach of the terms of the principal trading agreement and other business cooperation agreements, as well as liability for any such false statements or omissions made by the parties in connection with the (SEC) filing of the Securities and Exchange Commission. Information provided by that party to the other party in writing.
Transitional Service Agreement
Under the transitional service agreement, NetEase agreed that NetEase will provide NetEase youdao with a variety of corporate support and services during the service period, such as legal support, human resources support, financial reporting, internal control and internal audit support, technical and service, operational support and administrative support.
Under the non-competition agreement, NetEase agreed not to compete with NetEase youdao to provide online learning business. The company has agreed not to compete with NetEase in NetEase business or similar business.
The non competition agreement stipulates that if there is ambiguity in the scope of business under the restriction of the above non competition restrictions, it should be based on the interpretation.
Cooperation framework agreement
Under the framework agreement, companies and NetEase have agreed to sell and promote their services and products on their respective platforms. In addition, he has agreed to buy the translation service and allow his users to use his pass to log on to the platform.
The company has agreed to purchase certain products and services from NetEase, including, but not limited to, NetEase's online payment system, cloud-based security solutions and the purchase of certain inventory or fixed assets, and has agreed to lease real estate from NetEase in each case.
Intellectual Property Licensing Agreement
According to the intellectual property license agreement, the company and NetEase grant each other full payment, non-transferable, limited and non-proprietary license rights to certain intellectual property rights within the time limit of the agreement to use, reproduce, modify, prepare derivative intellectual property works, carry out, display or otherwise utilize the licensed intellectual property rights only within the time limit of the agreement.
China's regulation of loans and direct investments by offshore holding companies on Chinese entities, as well as government control over currency exchange, may affect our use of the proceeds of this sale and simultaneous private placement to Orbis, loans or additional contributions to our Chinese subsidiaries, and loans to our VIE. This could have a significant negative impact on our liquidity and our ability to fund and expand our business.
Exchange rate fluctuations may have a substantial negative impact on our business results and the value of your investment.
Government control over currency exchange may limit our ability to make effective use of our income and affect the value of your investment.
Some Chinese laws may make it harder for us to pursue growth through acquisitions.
The Chinese regulations on the establishment of offshore special purpose companies by Chinese residents may make our beneficial owners or our Chinese subsidiaries liable or penalized, limit our ability to inject capital into Chinese subsidiaries, limit our ability of Chinese subsidiaries to increase their registered capital or distribute profits to us, or may have a negative impact on us.
Any regulations that fail to comply with the requirements for registration of employees' stock incentive plans may cause Chinese stock incentive plan participants or us to be fined and other legal or administrative sanctions.
If we are classified as Chinese resident enterprises for the purpose of Chinese corporate income tax, this classification may have adverse tax consequences for us and our non Chinese shareholders and ADS holders.
We face the uncertainty of indirect transfer of shares in Chinese resident enterprises by non-China holding companies.
The audit reports included in this prospectus are prepared by auditors who have not been inspected by the Accounting Supervisory Committee of listed companies, so you will not be able to enjoy the benefits of such inspections.
The Securities and Exchange Commission (SEC) 's lawsuit against the Chinese subsidiaries of the Big four accounting firms, including our independent certified public accounting firms, may lead to financial statements being found to be inconsistent with the requirements of the Trading Act.
Risks associated with ADS and this issue:
Our common stock or ADS's active trading market may not be developed, and ADS's trading price may fluctuate sharply.
Our two-tier ownership structure with different voting rights may adversely affect the value and liquidity of ADS.
ADS's trading price is likely to fluctuate, which could cause huge losses to investors.
Since our IPO price is much higher than our net tangible book value per share, your shares may be diluted in the future.
If securities or industry analysts do not publish research or reports on our business, or if they make adverse changes to ADS's recommendations, ADS's market prices and trading volume may fall.
The sale or availability of a large number of ADS may adversely affect its market price.
The techniques used by short sellers may drive down the market price of ADS.
We expect that after the stock is on sale, there will be no faction in the foreseeable future, so you must rely on the price appreciation of ADS to get the return on investment.
According to Chinese law, this issue may require the approval of the China Securities Regulatory Commission.
You may face difficulties in protecting your interests, and your ability to protect your rights through United States courts may be limited because we are established under the laws of the Cayman Islands.
Some judgments that our shareholders have won against us may not be enforceable.
ADS holders may not be entitled to a jury trial of claims arising under deposit agreements, which may lead to adverse results for plaintiffs in any such proceedings.
The voting rights of ADS holders are limited by the terms of the deposit agreement. You may not be able to exercise the voting rights of Class A common shares represented by your ADS.
Our two-tier ownership structure with different voting rights will limit your ability to influence the affairs of the company and may prevent others from making any control change transactions that our Class A common shares and ADS holders may consider beneficial.
You may dilute your holdings because you can't participate in the rights issue.
Your ADS transfer may be restricted.
We are emerging in the meaning of the securities law, and may take advantage of some "reducing reporting requirements".
We are foreign private issuers in the sense of the Trading Act (Exchange Act), so we are not bound by certain provisions applicable to listed companies in the United States.
We are "controlled companies" in the rules of the New York stock exchange. Therefore, we can rely on exemption from certain corporate governance requirements, which provide protection for shareholders of other companies.
As an exempted company registered in the Cayman Islands, we are allowed to adopt certain home country practices on corporate governance matters that are significantly different from the standards of corporate governance listing on the New York Stock Exchange. If we fully comply with the standards of corporate governance listing on the New York Stock Exchange, these practices may provide less protection for shareholders.
We may be PFIC of any current or future tax year, which may result in adverse federal income tax consequences for us ADS or our class a common stock.