Cheetah Mobile Inc (CMCM) 2014 Q3 法說會逐字稿

Good day, everyone and welcome to Cheetah Mobile's third-quarter 2014 earnings conference call. (Operator Instructions). Please note this call is being recorded.

At this point I would like to turn the call over to Helen Zhu, Cheetah Mobile's Investor Relations Director. Thank you.

Thank you, operator. Welcome to Cheetah Mobile's third quarter 2014 earnings conference call. With us today are Mr. Sheng Fu, CEO and Mr. Andy Yeung, CFO. Following management's prepared remarks, we will conduct a Q&A session.

Before we begin I refer you to the Safe Harbor statement in our earnings release which also applies to our conference call today as we will make forward looking statements.

At this time, I would now like to turn the conference over to our CEO, Mr. Sheng Fu.

Good evening, everyone. I am very happy to report another quarter of strong results. Today I would like to highlight the three key areas of strong performance. Number one, user growth. Number two, mobile revenue growth. And number three, strategic partnerships.

First, our user growth. We added more than 56m monthly active users in the quarter. Our mobile MAUs reached 340m, a 184% year-over-year increase.

According to App Annie, Cheetah Mobile was the number three publisher for non-game apps on Google Play by monthly uploads in September.

Our flagship app, Clean Master also remained number one in the tool category on Google Play. More than 16m users reviewed Clean Master and rated it 4.7 out of 5, the highest rating among the major apps.

Our mobile apps continue to gain popularity and the positive word of mouth around the world, driven mainly by our focus on product innovation and user experience.

In September, Clean Master and CM Security was once again awarded the top spot on AV-Test's latest assessment of Android security.

In addition to help better serve our global user, we have also set up and expanded our R&D operations in Taiwan.

Second, mobile revenue growth. Led by a significant ramp-up in mobile advertising revenues in the overseas market, mobile revenues grew 628% year over year and 48% quarter over quarter to RMB113m. Mobile now accounted for 24% of our total revenues.

After setting up our business development center in San Francisco, we now have relationships with hundreds of mobile advertisers overseas. In addition we also started our overseas gaming operation by testing a number of mobile games in different overseas markets.

As a result, our overseas mobile revenues accounted for more than 10% of our total revenues in the quarter and will continue to grow significantly in the future. These encouraging results again strengthen our belief and commitment to invest in mobile and global future for our Company.

Third, the strategic partnerships. As a Company, we firmly believe that partnership is one of the best ways to grow our business. In China, we have expanded our partnerships with Baidu, Tencent and Alibaba to the mobile side. Internationally, we continue to strengthen and build new partnerships with key mobile networks to further enhance our mobile monetization.

In addition, given the popularity and the quality of our apps, we are able to attract major phone makers to help promote our apps. For example, we have recently formed partnerships with India-based Karbonn and Lava and the Taiwan-based HTC to promote our apps. These partnerships and other upcoming partnerships will continue to help expand the reach of our apps.

Finally, we are -- while we are delighted with the progress of our mobile business so far we are still in the early stage of our mobile and global vision. To capitalize on the massive opportunity in mobile, we remain committed to invest in the product innovation and growing our user base and user engagement.

That concludes my part of the presentation. I will now turn the call over to our CFO, Andy Yeung.

Thank you, Sheng Fu. Good evening, everyone. We are delighted to again deliver solid financial results that were above our previous guidance. Total revenue grew 158% year over year to a new record high of RMB479m in the quarter, exceeding the high end of our guidance by 9%.

We are especially excited to see significant progress in our mobile and global vision in the third quarter. As Sheng mentioned earlier, mobile revenues increased by 628% year over year and 48% quarter over quarter to RMB113m or 24% of total revenue.

We made significant strides in expanding our mobile advertising business overseas. Overseas mobile revenues accounted for more than 10% of our total revenue in the quarter. As overseas mobile revenues become a significant part of our revenue composition, we will beginning to disclose the revenue breakdown based on international versus our domestic PRC revenues in the appropriate time sometime next year.

Now I will walk you through the details of our financial performance. All financial numbers are in RMB unless otherwise noted.

Revenue from online marketing services for the third quarter were approximately RMB361m, an increase of 143% year over year and 27% quarter over quarter. The increase was largely due to growth in marketing revenues from key online marketing customers, driven by significant growth of our user traffic.

While we continued to see robust demand from our top three customers, we saw even stronger demand from other advertising customers including those in e-commerce, online travel and local services sectors, all of which helped us further diversify our revenue base. Most notably, we continued to experience significant growth in our mobile advertising business that was driven by a significant ramp-up in the overseas market.

Revenue from IVAS for the quarter was RMB107m, up 344% year over year and 27% quarter over quarter. The increase was primarily due to a larger number of published games and paying users compared to the same period last year as well as contribution from the recently established online lottery services.

Revenue from Internet security services and others were RMB10m, down 18% year over year and 16% quarter over quarter. The decrease was primarily due to the Company's ceasing to promote subscription services in a strategic reorientation which started in 2011.

Moving on to our costs and expenses, SBC expenses were RMB57m in the quarter compared to RMB7.6m in the same period last year and RMB52m in the previous quarter. As we've stated in the past, we will incur high SBC expenses this year, largely due to shares and options granted to management and employees before the Company's IPO in May.

To help facilitate the discussion of our Company's operating performance, the following discussion will be on a non-GAAP basis which excludes the stock-based compensation expenses. For financial information presented in accordance with US GAAP please refer to our press release which is also available on our website.

Non-GAAP cost of revenues in third quarter was RMB110m, an increase of 194% year over year and 34% quarter over quarter, mainly due to higher bandwidth and IDC costs from increased user traffic as well as costs associated with the mobile game business.

Non-GAAP gross profit for the quarter was RMB369m, an increase of 149% year over year and 24% quarter over quarter.

Non-GAAP gross margin for the quarter was 77% compared to 80% in the same period last year and 78% in the previous quarter. As previously stated, we expected gross margin to continue trending down gradually by 1% to 2% each quarter, given our revenue mix shift.

Non-GAAP R&D expenses in the third quarter were RMB120m, an increase of 90% year over year and 36% quarter over quarter. This increase was primarily due to the increased headcount with the expansion of our mobile business.

We added roughly 200 R&D staff in the third quarter and more than 500 in total over the past year. At the end of the third quarter we have more than 1,200 R&D staff.

Non-GAAP selling and marketing expenses in the third quarter were RMB165m, an increase of 251% year over year and 43% quarter over quarter, mainly due to promotional expenses related to expansion of our mobile business and deepen our global penetration.

Non-GAAP G&A expenses increased by 48% year over year and 12% quarter over quarter to RMB32m, due to increased headcount and professional fees associated with being a publicly listed company.

Non-GAAP operating profit was RMB52m, an increase of 224% year over year and a decrease of 21% quarter over quarter.

Non-GAAP operating margin was 11% compared to 9% in the same period last year and 17% in the previous quarter.

Non-GAAP net income or net income was RMB60m in the quarter, compared to RMB30m in the same period last year and RMB65m in the previous quarter.

Non-GAAP diluted earnings per ADS was RMB0.43 in the third quarter 2014 or $0.07 per ADS compared to RMB0.11 in the same period and RMB0.49 in the previous quarter.

Now let me provide you with our fourth quarter revenue guidance. We currently expect total revenues for the fourth quarter to be between RMB560m to RMB570m representing a 108% to 112% year-over-year increase. Please note that this forecast reflects the Company's current and preliminary view and is subject to change.

And finally, as we mentioned previously while we continue to experience year-over-year improvement in operating margins in recent quarters, mobile Internet is still in its early stages of development. We remain committed to invest in our mobile and global future. Product innovation, user growth and mobile monetization remain our top three priorities at this time.

And with that, we conclude our prepared remarks for today. Operator, we are now ready to take questions.

(Operator Instructions). Jiong Shao, Macquarie.

So thanks for taking my questions. I was asking about the mix between mobile games and advertising for the mobile revenue. And the number of games, the number of mobile games in China and outside of China and also the top line for the mobile game launch for the next 6 to 12 months.

Okay. So Jiong, thank you very much for your questions. So I will take the first question first. We -- at this time we do not disclose the breakdown between mobile advertising revenues versus mobile games. The reason we don't do that is as we have probably discussed in prior calls is that we are still very early in our mobile monetization. And each quarter we will have launched some new initiative and that will shift the mix between mobile advertising revenues versus mobile games.

So as we look back at our mobile monetization history, for example, we began to do mobile monetization in the second quarter last year at the beginning all the -- based on advertising. And in the third quarter and fourth quarter, beginning to launch our mobile game business and so we actually can tell the mix shift.

And in the first quarter, there was (inaudible) mobile game revenues and in the second quarter as we have disclosed, we had a strong mobile revenue growth in the domestic market.

In the third quarter we have launched our mobile advertising overseas and we've seen very, very strong ramp up in the overseas market. So obviously there's again a big shift back to the advertising business.

And that's our domestic games strategies and pipelines, also overseas games strategies and pipeline.

(Interpreted). So as you can tell we are very -- still very early in our overseas mobile game operations. We just launched our mobile game operation overseas recently and we're just testing some games right now. And so now at last we see pretty strong potential for overseas game operations.

So at this point, we have achieved a breakthrough in the overseas advertising business. And so obviously in the near term we will see a very strong growth on our mobile advertising business.

And also if you look at Facebook and other mobile Internet companies in the overseas market, they also experienced very strong growth in mobile advertising business and that also strengthens our belief and commitment to our mobile advertising business overseas.

So obviously if you look at the Chinese gaming market, mobile gaming market right now it's very active and we -- and quite successful compared to global peers. We obviously have several games that we have lined up to launch in the near future. But before we launch we don't want to disclose those titles yet.

So one of the games that I would like to disclose here is a game called (spoken in Chinese). It's a game that targets the female audience that has achieved very strong results in the Chinese market. We also got the global licensing from the developers and we believe that there's a very strong potential for this game in overseas markets especially in Japan. Thank you.

So my second question is about where the Company was seeing the biggest momentum among the three top apps the Company has which is Clean Master, Battery Doctor and CM Security. And I was also asking about the -- any change in the competitive landscape since competitors basically Qihoo launched somewhat similar apps in China through different channels such as [Gomu]. Thank you.

(Interpreted). So as we can tell from the information that we have, the data that we have disclosed, the reception and the demand for mobile utility applications was very strong and perhaps stronger than most people had originally expected.

So especially if you look at monetization I think there was some skepticism about our ability to do monetization for mobile apps. And as you can tell from this quarter we have some very strong results. But right now we don't want to disclose which app is generating more revenues versus the other.

So if you look at the recent market entrance by our competitor which is not new, actually they have been in the market for a while now, maybe some renewed effort recently, but you also see other players are trying to get into the utility applications space. That is -- basically validates our initial thought that utility applications are very valuable applications and now people are starting to realize that [low hang] we have accomplished.

So if you look at the competitive landscape for applications, at the beginning it was a single app. But I think we're already seeing the transition from a single app to a more like a product matrix like what we have done. And with that I think we have established a very high barrier or competitive edge over our competitor.

So you may occasionally see our competitors make some app or some money that creates some scuffle in the market, but if you look at -- none of them are as committed as we are. Our Company's 2,000 employees are very, totally committed to our mobile and global future. And if you look at our ability to cost out our product and in terms of our user engagement and also our monetization abilities, at this time, I think we are way ahead of our competitors.

I think if you look at the competitive landscape today as long as we are focusing on our products, our user experience, it would be very difficult for our competitors to actually to overcome our competitive edge. Thank you. Next question please.

Philip Wan, Morgan Stanley.

Hi. Thank you for taking my question. So you mentioned that native advertising was one of the key growth drivers for your advertising revenue this quarter. Just wonder if you could share with us more detail. For example the percentage or contribution from native advertising, conversion rate of pricing as compared to other non-native advertising, that would be very helpful. Thank you.

(Interpreted). So when we mentioned native ads what we meant is that we would create a contextual base or like some context for the -- to display the advertising. And we were able to try and match that and customize with our user profiles. And I think with that we find that we are able to achieve pretty good reception to those advertising.

So I think if you look at the ad format or the context it may be important, but I think more importantly is our ability to actually utilize the date we have and to perform Big Data analysis on our user base and able to profile our user and match that to our demand for our advertisers. I think that is actually very valuable.

And also our ability to now resell our advertising to advertisers also helped us to boost our mobile monetization in the quarter.

So in terms of the different ad format and the revenues from those different formats I think at this time we will not disclose it for competitive reasons.

Thanks.

Ella Ji, Oppenheimer.

So I have two questions. First, what is the revenue contribution from Hong Kong Zoom Interactive to your total revenue this quarter?

And secondly, there was a big step up in both R&D and sales and marketing expenses this quarter. How should we think about the trend going forward? Thank you.

Thank you for your questions. So the first question regarding [Pzoom], Hong Kong Pzoom we acquired Pzoom last quarter and integrated into our operations. Before we acquired it, before the company was integrated to our operations, it had already been doing mobile advertising for four years. But its revenue base is relatively small mainly because it's still an early start up in that sense.

But we will continue to integrate that operations. As we mentioned in our press release before our intention to acquire Hong Kong Pzoom is to acquire the expertise and the team and the technology on mobile advertising and we'll use that to -- as a basis or to help us to form a base for our mobile advertising technology. And we are pleased with the progress of the integration so far. And again the revenue contribution is still small, but it is growing pretty rapidly.

On the second question regarding R&D spending and sales and marketing, in terms of R&D we continue to put a high priority on product innovation and product development. So as a result we'll continue to invest in R&D.

In the quarter I think the staff headcount increase was quite significant, about 200 in the quarter. But as you probably know, in third quarter it's a graduate -- it's after summer and generally it's the season after the graduate land the job. So at the tech companies that's usually the time when we hire more engineers in the third quarter every year.

And then also in sales and marketing as we also mentioned we continue to focus on user acquisition which remains one of our focus and we'll continue to invest in that area also in brand building. But as you can tell, even though it's still increasing at a very rapid pace, it has actually moderated from prior quarters.

If you look back in the second quarter for example I think our sales and marketing expenditure was actually more than 300% yearly increase in the second quarter. So even though it's still very high, but we're clearly seeing some operating leverage in our model. So hopefully that answers your question.

(Interpreted). So if you look at our investments today you may feel it's at a very high level right now. But we're pretty confident that given the pace of our mobile monetization progress especially in the overseas market, we believe that our investment would yield very positive return for our investment.

So as you can tell while we're still investing very heavily on mobile business, we are definitely spending money carefully to make sure that that it's spent effectively to promote our business, promote our brand and products. And we again want to emphasize in the mobile industry as a whole, it's still pretty early in its development. As a result, we will continue to invest again in product development, in product innovations, user experience and user base increase. Thanks.

Evan Zhou, Credit Suisse.

The first question is regarding the PC Personal Start Page. So we saw some minor MAU drop quarter-on-quarter this quarter, so I'm just wondering if we can have some more color on how do we see the future engagement level and monetization level for this product going forward? Thanks.

(Interpreted). Right, so if you look at the PC personal directory services, the personal start home page services, in terms of user traffic, we have mentioned in the beginning of the year that we see the overall PC user growth in China was going to be moderating, it's not stagnant.

So I think as mentioned, we use iResearch data for the user traffic and daily active user and monthly active user numbers, but our internal tracking data actually indicates that there's not much change in our user traffic.

Then I also want to add, because I'm very close to the data, we also want to make sure that people pay attention to the fact that the number of 61m is actually for the month of September and if you look at the average of the whole quarter which is including July and August and September we actually will see a mid-teen increase in terms of our monthly active users. The distortion comes in because September is that there's a scenario there when kids go back to school and whatnot, at the beginning of the school year it tends to have an impact on the user traffic.

(Interpreted). so if you look at PC growth, PC traffic growth, we're definitely seeing that moderating but nevertheless we continue to see opportunities in improving monetization for our PC user traffic and that should, coupled with the moderate increase in our user traffic that should produce a pretty sustained growth at least in the near term.

So, as our Chairman, Lei Jun, has said before, there's no sense fighting a past battle. If you look at the PC industry, the PC industry as a whole is definitely going to moderate, it's just a matter of time, and so that's the reason why our company has begun to invest so heavily in mobile more than two year ago, and that will continue to be main focus going forward.

But nevertheless, when we look at the PC business we believe there is a still some growth in the PC business but people should not have too high expectation for accelerating growth in the PC business, that would be unrealistic. But I think PC growth right now, if you look at our growth rate on PC it's still very strong but it will continue to moderate over time converging into the industry average.

Thank you.

Thank you.

Alex Yao, JP Morgan.

Good evening, everyone. As we approach the end of the year, what is the top priority for you guys to achieve for 2015, and how would you accordingly allocate the appropriate resource to achieve the target? Thank you.

Okay, I think as a top priority -- (Interpreted). So thank you Alex for your questions and as you can tell from, our companies we have been IPO'd for more than [half a] year now and I think everyone can see that we are pretty strong in product development and also in executions.

so you know, as we look in 2015 global and user acquisitions will remain our key focus but as you can tell from the past we have been very good at executing the user acquisitions and our global strategy. So I think that will remain the focus for next year.

So obviously there are some people relatively skeptical about the Chinese companies' ability to be successful overseas, especially on mobile monetization and that has been my personal focus since the third quarter. I spent a lot of time in the US and on overseas markets and we have seen very good progress.

And after the quarter close, the third quarter, the data in October and early November continued to indicate a very strong momentum on our mobile monetization especially in overseas markets. And as a reference for you, recently our mobile overseas advertising business have achieved more than $200,000 per day revenues, so that gives you some indications on how strong that business is growing right now. We're pretty confident that in the next year, in the coming quarter and next year we will be able to demonstrate our ability to be successful in mobile and global monetization.

Okay, thanks.

Thanks Alex.

Henry Guo, JG Capital.

Hi, thank you for taking my question, Fu Sheng and Andy. Fu Sheng, in the prepared remarks My question is really about, I think Fu Sheng mentioned that in the prepared remarks that the strategic alliance with leading Chinese internet companies helped your top line growth, so I'm wondering whether you can provide more colors to help to understand that. And also what is the revenue contribution from Baidu, Tencent and Alibaba. Thanks.

(Interpreted). Henry, thank you for your questions. Yes, so it's true that our partnership with BAT, the big three customers for us, continued to expand from our PC platform to the mobile platform.

So we're not saying that our revenue growth in this quarter is actually driven by those top three customers. As you would notice that in my prepared remarks we mentioned that obviously the big three customers is part of the growth story for us on their online marketing services but in fact we actually see, even on the PC side, the big three customers were actually growing slower than our non-big-three customers.

So if you look at our overall business obviously we continue to strengthen our relationship with the big three customers but we also build new and strengthen our relationship with other customers. In fact if you look at some of the other business lines, for example, mobile and gaming operations we're also growing very fast for that. So overall the whole company is running very strong across different business lines.

So if you look at the -- we don't want to disclose the exact number, but if you look at our mobile business, for example, now accounts for 24% of the revenues and if you look at our mobile revenues within that 11% out of the 24% are from overseas, obviously that's not reliant on the big three customers in China. And if you look at even in China itself, from mobile advertising, for example, we have a lot of advertisers, game developers, app developers, other brands advertisers.

So overall if you look at our diversity in our customer base continue to expand and increase so that's something that we are pleased to see.

Okay, thank you.

Thank you.

Jeff Hao, China Merchant Securities.

So may question is regarding the MAU contribution between overseas market and domestic markets. So the percentage of overseas mobile MAU dropped a little bit quarter on quarter so I'm just trying to understand the reason behind that. Thank you.

(Interpreted). So there's one quick clarification here. So our goal has always been, try to be a global mobile internet company not an overseas or international-only mobile internet company.

So obviously China is a very important for us, it's our home market and it has always had one of the largest, well the largest user base for us on the mobile side. And we also have always had a, pay a lot of attention to our Chinese market as well.

So if you look at our user base we have 340m monthly active users for our mobile business and 65% of that is overseas, that implies that there's more than 100m monthly active users in China alone. And when we look going forward, we look at the mobile market in China, US, India, those would be some of the key markets for us to continue to focus on.

Yes, so if you look at our strong reputation and the quality of our products, that obviously has a boomerang impact on the Chinese market. The Chinese user and the Chinese players also see the same thing and they're trying to help us form partnerships to help us promote some of our products in the Chinese domestic market.

So as we always have tried to guide investors to look at our overall user growth instead of any specific country, because there are always some fluctuations perhaps on a quarter-over-quarter or month-to-month basis. If you look at our user base growth both in China and overseas have grown very strongly in the recent months and quarters so even, if you look at the third quarter for example, we continued to see very strong user growth in overseas markets. Obviously China grew a bit faster this quarter but overall if you're looking forward we will continue to see a very strong global user base, overseas user base and in Chinese see user growth.

So if you look at our internal corporate structure, for example, the team responsible for the products for the overseas markets, they are increasingly, there are two separate teams right now and it's healthy to have some internal competition between those two teams. Okay?

Okay.

Thank you.

Na You, ICBC International.

I have a quick follow-up regarding the mobile, you have invested in mobile aggressively for over a year, when would you think it's okay for us to start largely monetizing the mobile business from overseas markets and we're starting to see a much stable margin?

And also could you give us a breakdown about the internet value-added service business, (inaudible) PC game, mobile game and also the revenue contribution from lottery business. Thank you.

(Interpreted). You Na, thank you for your questions. Regarding the investments in mobile, both in terms of R&D and sales and marketing, to be honest with you when we look at the mobile market today it's still very early stages in its development. So I think in the near future we will continue to invest in that business and I think the return for that investment will be positive over the long term.

So let's give you some point of references, if you look at, for example, Facebook, one of the most successful mobile internet companies today, it has more than 1b DAU and more than 1b MAU. So as a company we set our goal to be a global mobile internet company and so we probably won't be happy until we at least see getting close to half what Facebook were able to achieve in terms of their user base and user engagement.

Right, so even if, our discussion with leading global internet companies like Facebook, they will continue to believe that there's a large growth in the mobile user base. So Facebook believes that there are still several billion of consumers yet to be reached by the mobile internet yet. So for them mobile user acquisitions remain a top priority and that's the same, that's true for us as well.

Of course we understand investors would like to see a return for their investment and we believe that the best way to do it is not by, not investing in product development of new acquisitions, but by an ability to increase our ability to generate revenues and I think that's most important.

So if you look at our investment, for example, for our mobile products overseas, for a good part of the last couple of years we know there was almost virtually no revenues from the overseas market. But we continue to invest in that, grow our user base and today, if you look at the third quarter, our investment today in the third quarter, our investment in the overseas mobile market is actually less than what we were able to generate in terms of revenue from those markets.

There are very big transitions, or transformations, we are moving away from PC -- not moving away but we are definitely transitioning into an age of a mobile era, and our investment is in that direction. Also, you also witness our company is increasingly diversifying our revenue base away from China only, you see our mobile revenue overseas are growing very rapidly, for example. So, going forward next year and the year after, we will continue to see that transformation.

And even if we don't reduce our investment in mobile or global we will still see our operating leverage returning to our business model gradually. The reason for that is because if you look at our ability to increase our revenue growth that's very strong.

But, again, we want to caution investors, while for the last couple of quarters we've mentioned in the prepared remarks, we have seen a gradual year-over-year operating margin improvement in the last couple of quarters but the profitability is still not our priority. Our priorities remain product development, user acquisitions and monetization.

So if you look our (inaudible) financial data, you will notice that while we continue to invest heavily we have gradually seen moderations in that investments as a percentage of our revenue. I think that trend will continue but while at the same time you see our revenues from mobile continue to grow very rapidly. I think we are witnessing that transformation. Right now we're still over the past few quarters, and today we're still in the investment phase but gradually we'll see the operating leverage returning to our mobile operations. And we're pretty confident on that.

Okay, thank you.

Thank you.

Joyce Zhou, Barclays.

Okay, my question is on your pre-installation cooperation with handset manufacturers. So do you expect this to become a key distribution channel for Cheetah Mobile going forward? And what's the pre-installation budget for next year and will this have a big impact on margins? Thank you.

Okay, let me answer your question. (Interpreted). Okay, so if you look at the mobile market, for example, we still continue to believe that online distribution remains the most important channel. But however, pre-installation could act as a complementary channel --

So if you look at our pre-installations and resale from the pre-installations it actually has been very good. So it has become one of the competitive advantages for us compared to our competitors.

So obviously we also have other key partnerships that are upcoming, so I think pre-installation could be a very important channel for us for our app distributions but I think our pre-installations will be different from other players when they do pre-installation partnerships. We require a deeper integration with the OEMs and there is also some exclusive piece to our partnership with them. So we think that our partnership with the OEMs are actually a key strength for as well given our products.

So in terms of budget for pre-installations I don't think there's too much worry for us. We're very careful with spending effectively our marketing dollar, but the focus for us I think will continue to be, well actually if we look at our mobile monetization, for example, we've seen very strong sales and I think that's more encouraging than worry about the pre-installation costs, for example.

So when we look at pre-installation deals, in general we look at a number of key matrix or KPIs to make sure that we spend the money effectively, to make sure that, for example, we generate more revenues and profit from a user than we spend on pre-installation costs. So that's the way we look at it.

So after doing some pre-installation in the recent quarters we have new experience on that and we are pretty confident that we can manage that channel quite effectively.

Okay, thank you.

Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Helen Zhu for any closing remarks.

Thank you, everyone, for listening to our call. We look forward to our next conference call with you. So this concludes our conference call today. Thank you.

Okay, thank you.

Thank you, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Editor: Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.