JOYY Inc (JOYY) 2014 Q2 法說會逐字稿

Good day everyone and welcome to YY's second quarter 2014 earnings conference call. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference call. At this point, I would now like to turn the call to Anna Yu, YY's investor relations manager. Thank you.

Thank you operator. Welcome to YY's second quarter 2014 earnings conference call. With us today are Mr. David Xueling Li, CEO of YY and Mr. Eric He, 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 like to turn the conference call over to CEO, Mr. David Li.

Thank you Anna. Good morning and good evening everyone. We are excited to report another solid quarter, marked by strong top and bottom line performance. The growth was fuelled by the continued expansion of our music and entertainment business, along with the development of our online game broadcasting and online dating segments.

We generated RMB841 million in total revenue, representing year-over-year growth of 106%. For this total, growth in online music and entertainment beat our expectations as we saw revenues grow by 203% and paying users grow by 78% year-over-year.

Our GAAP net income expansion also grew at an impressive rate of 139% year-over-year to RMB222 million. This quarter witnessed increased user traffic and -- expanding during major events like the World Cup and the romantic day of May 20, wu er ling. Going forward, we will continue to utilize genuine user experience across our platform to develop increasingly interactive online activities among our expanding user base for over 100 million average monthly active users.

Our real time interactivity and the skill of our user community have created many new business opportunities. One such opportunity is our online dating segment which we launched about half a year ago and has begun to show tremendous potential. Revenues in this new segment increased by nearly 300% quarter-over-quarter, demonstrating the strong appeal and the revenue generating potential of this service.

Another area I would like to highlight is our online gaming broadcasting business. We believe that this market has tremendous potential. Being the clear and the early leader in this space, we believe that as online gaming continues to rapidly evolve into a spectator sport, mobile game will follow as well, further speeding up the growth of this industry.

We fully believe that our numerous complementary content and the user resources like our Duowan game portal and its 38 million daily unique visitors, will continue to cement our leadership position in this industry.

Within our education offering, since 100 Education launched in February, we have made steady progress developing the offering, improving user interface across [classes] and attracting teachers and students. The product has developed a strong brand reputation in the market for its high quality test prep class as well as English class offerings.

In addition, we've seen mobile as a key element to the successful development of this offering. Already in the second quarter, we launched a mobile app that empowers students to study anywhere through our platform. Going forward, we will continue to expand our mobile offerings to attract growing user preference for anywhere, any device, access to our services.

By further expanding our service offerings, we will continue to meet the changing demands of our dynamic user community. We are confident in the strong market leading position we have established, as we strive to attract new users and grow our new and exciting service offerings. Our online entertainment live game broadcasting, online dating, education and other verticals position us well for strong and sustainable growth.

With that I will now hand over the call to our CFO, Eric.

Thank you David. Good morning everyone. To start I would like to elaborate on two key themes that David briefly highlighted above before I delve into financial results. First, impressive development of both online game broadcasting and online dating. Second, our improving operating leverage.

Our online game broadcasting revenue grew at an impressive 243% to RMB31 million year-over-year. However, we do not take our leadership position for granted as we are tirelessly working on improving the video quality and also enhancing the functionality and user friendliness of the platform. While our online game broadcasting [market] is still young, we are witnessing the tremendous growth in the pool of both current and legacy players who have interest in watching talented players complete.

This dynamic and large pool of viewers have created a new and profitable genre of spectator sports that now includes online gaming competitions. This trend is not only evident from our own experience, but also we have seen that potential internationally, as mainstream cable sports channels even have begun to broadcast game competitions live on cable TV, further strengthening our confidence for growth in this area.

The other area which I would like to highlight is our online dating business. This business has grown at an incredible rate and has tremendous potential, as the growing population of younger internet users seeks new forms of entertainment. The main appeal of our online dating platforms center around the playfulness and casualness of the program. Unlike traditional dating, our online dating platform is staged around an online dating show that encourages real time interactions among its users and participants. This new form of entertainment has captivated the interest of a large portion of our users as demonstrated by the strong financial results and holds great potential going forward.

The recent success of these two business lines highlights the creative ways of our users utilizing our platform. As our users community reach a critical mass, we expect the evolution of our platform to become increasingly user driven. We will continue to respond to the evolving demands of our users, facilitate organic development of our platform by augmenting our offerings with innovative new services.

One last area I would like to briefly highlight is our strong operating leverage. Initially, non-GAAP operating margin were under pressure due to our expansion into new business lines, as associate R&D costs. However as we began to monetize these new lines of business, we've alleviated some of our margin pressures, and our non-GAAP operating margin should remain relatively stable going forward.

Now moving onto our quarterly financial details. Before I get started, I'd like to clarify that all financial numbers we are presenting today are in renminbi amounts and percentage changes are year-over-year comparison unless otherwise noted.

First of all, I would like to highlight that in the second quarter, we were once again able to achieve the result that exceeded our expectations on the top line. Moreover, we also saw net income attributable to YY increase by 139% due to expanding scale and leverage of our YY business operations. Net revenues from second quarter 2014 increased by 106% to RMB841 million. This increase was primarily driven by an increase in IVAS revenues.

IVAS revenues increased by 118% to RMB801 million. The overall increase primarily reflected an increase in the number of paying users and the increase in ARPU.

Let's look at each of IVAS business lines more specifically.

Revenue from online music and entertainment increased by 203% to RMB516 million. This increase primarily reflected a 78% increase in the number of paying users to just over 1.1 million, and a 70% increase in ARPU to RMB458 during the second quarter, 2014.

Revenue from online games increased by 10% to RMB167 million. This increase primarily reflected an increase in ARPU of 10% to RMB381. Also, the number of online games increased to 150 as of June 30, 2014 from 96 last year.

Revenue from others increased by 169% to RMB117 million. Revenue from membership program increased by 54% to RMB49 million. This increase primarily reflected a 43% increase in the members to 921,000 as of June 30, 2014. Revenue from live broadcasting of online games increased significantly to RMB31 million from RMB9 million in the prior year period. Revenue from online dating increased significantly to RMB29 million from RMB7 million in the prior quarter.

Online advertising revenue was RMB40 million in the second quarter 2014 compared to RMB42 million in the corresponding period of 2013.

Cost of revenue increased to RMB425 million. This was primarily attributable to an increase in revenue-sharing fees and content costs which increased to RMB256 million this quarter from RMB89 million last year. This increase included revenue-sharing fees and content costs to performers, channel owners and content providers, and was primarily due to higher level of user engagement and spending.

In addition, bandwidth costs increased to RMB77 million, representing 9% of the revenues, down from 11% of revenue in the same period last year. As we continue to manage our bandwidth cost through better allocation of bandwidth resources and infrastructure improvements.

Gross profit increased by 91% to RMB416 million. Gross margin was 50% compared to 53% in the corresponding period 2013. The increase in gross margin was mainly attributable to a higher portion of revenues coming from online music and entertainment business, which has a higher cost revenue structure due to revenue-sharing fee and content costs.

Our non-GAAP operating income increased 140% to RMB275 million. Non-GAAP operating margin increased to 33% from 28%. The increase in operating margin was primarily due to increased operating leverage associated with our expansion. GAAP net income attributable to YY increased 139% to RMB222 million from RMB93 million. GAAP net margin increased to 26% from 23% in the same quarter last year. Non-GAAP net income attributable to YY increased by 107% to RMB258 million, while non-GAAP net margin remained stable at 31%.

Diluted net income per ADS increased to RMB3.71 or $0.60, from RMB1.58 in the same quarter last year. Non-GAAP diluted net income per ADS increased to RMB4.32 to $0.70 from RMB2.13 in the corresponding period of 2013.

For the quarter of 2014, for the third quarter of 2014, we currently expect our net revenue to be between RMB925 million and RMB935 million, representing year-over-year growth of approximately 90% to 92%.

This concludes our prepared remarks for today. Operator, now we are ready to take questions.

Ladies and gentlemen, we will begin the question and answer session. (Operator instructions). Your first question comes from the line of Philip Wan from Morgan Stanley. Please ask your question.

Hi, good morning David and Eric. Thanks for taking my question and congrats on the very strong quarter. My first question is about your new business, online dating and live game broadcasting as they are emerging as new growth driver for the Company. Would you share with us any internal sales targets for these two business and also how the margins for them are compared to your music business? Thank you.

(Technical difficulty).

(interpreted) We think that game broadcasting business has a great potential -- has a great future. The reason is that we have seen that the game become more of spectator sports as we can see that the old PC online games now evolves into mobile game. We have seen a couple of mobile games actually have a lot of -- or great demand on our platform as well.

So we think that this type of the competition competitive activities overall can become a very interesting genre on our worldwide platform. So not only in gaming itself we think that a lot of other activities which has elements of the competition will become important pillars of our competitive platforms and the real time broadcasting business. So we think that real time broadcasting competitive activities in the future can be a big business so we are preparing ourselves to move in to that direction. So we think this business can become a long lasting big business into the future.

The dating show actually on our platform -- it's a brand new one we think in this era we have seen a lot of the younger generation of internet users, their entertainment needs are not being completed -- satisfied. We think our dating shows actually fill part of the demands from this new generation. We also see that the dating show actually has some sort of differences from our very famous music and entertainment activities -- entertainment activities that we have demonstrated our capabilities -- strong capability in the past actually is provided -- the content was provided by the performer or the singers alone.

A lot of users and fans actually watching are viewers but on our dating shows it's not like that. On our dating shows, the viewers can become content providers -- can become the focus of the spotlight so we believe these interactions, the casualness of the whole environment of the shows should actually create a very different type of entertainment down the road which is different from our current entertainment/music channels.

Next question please.

Thank you. The next question comes from the line of Alex Yao from JP Morgan. Please ask your question.

Hi good morning everyone and thank you for taking my question. Congrats on a very solid quarter. I have two questions. The number one is on web game outlook. The growth rate of web game decelerated from the previous quarter pretty significantly in this quarter. Can you share with us why is the weakness for this quarter and what will be the web game outlook for the rest of the year? Then secondly, in the prepared remarks you guys mentioned that MAU has exceeded 100 million in this quarter. Can you provide us with an accurate number and a breakdown across different activities such as the gaming, music, dating, education et cetera? Thank you very much.

Okay Alex yes, you are correct. In the second quarter we have seen some softness in our online game revenue which is consisted of the web game collaboration -- web game corporation revenues. I think the softness was due to the pipeline issues because we have seen a couple of web games has slowed down in the pipelines. So the new pipelines actually has not come up into the stream. However in third quarter which is the current quarter we already see that the pipeline actually start to develop into its shape. So in third quarter we have seen that web game actually has come back, in terms of revenue, very strongly.

So in terms of the rest of the year, we are very confident that our online game revenue still will be growing in the target rates as I think right now the consensus of our online game revenue is in a range of 30% to 40%. I think that target is fine and we still are very confident to reach that target. So yes the second quarter was a little bit of slowdown but in third quarter it actually has come back quite strongly so we are confident that for the rest of the year should be okay.

In terms of MAU numbers, yes, in the second quarter we have exceeded 100 million which actually is pretty strong but in terms of the specific MAU number we did not actually disclose the details as you know that on our platform sometimes it's difficult to distinguish the gamers and the people who participate in music but I think there is a rough classification. I think as of now, still, our gaming users still account for roughly 45% to 50% of the total MAU numbers. Our music users account for roughly 40% to 45% of these total numbers and the rest of the other users accounts for roughly 5% to 10% of this 100 million MAU number. So that is very broad and general classification. Usually we would use that as a base to calculate the conversion rates. So I hope that answers your questions.

Yes it does -- very helpful. Thank you and I'll now get back to the queue. Thank you.

Thank you. Your next question comes from the line of Vivian Hao from Deutsche Bank. Please ask your question.

Hi thank you for taking my question. Hi Eric and David. I have two questions. First of all we notice that your music segment ARPU for the second quarter has grown 20% year-over-year. Is there any particular reason for this spike in the quarter and also could you provide us some color on the current VIP player or high roller players contribution to the music sector revenue? My second question is as for the earlier business model explanation on the game broadcasting side, is it correct to understand we're moving to more of a many-to-many live show grassroots players model versus the previously it's more like an elite versus fan-followers model? Thank you.

Well for the music business, yes you are right. The music business ARPU has risen a little bit to RMB458 for the second quarter. Remember, that is quarterly numbers so on a year-over-year, yes it is about a 20%/30% increase but I would like to highlight that we view this increase in ARPU is very normal because if you would get our business our total revenue from music actually has doubled -- has actually tripled from last year's.

So this significant growth actually comes from two parts -- one is our expansion of our pay users. The other portion is increase in ARPU. I think with these two very strong driving forces help us to achieve such a great performance of our music business. So I see this ARPU increase is a very normal course of expansion in our business as we are designing new items or we are actually -- have created a lot of event-driven activities which stimulate spending from our users.

I think your second part of the question is our VIP members and all those so called big rollers -- how much do they spend? I think the percentage is still the same as the last quarter you asked the same questions, I give you the answer already. So I think that percentage still holds true, but I would like to point out that we have very interesting the membership numbers we have what we call the noble membership if we aggregate all the noble membership we have more than 100,000 members as a nobility -- one of the members of nobility. I think that number of nobility is still growing which represents a very healthy development of our music and entertainment business.

For the game broadcasting business as pointed out by David earlier that we view the game broadcasting business as a very interesting business, has great potential. We actually have seen the game broadcasting business has moved in from the PC game onto mobile game as all of you know that the mobile game is growing like crazy. Not only that, we also see that a lot of other activities which have the competitive elements of it could actually be broadcast on a real time format on our platform. So we think that the game broadcasting business has great potential moving into the future.

Thank you. Very helpful.

Your next question comes from the line of Jialong Shi from Credit Suisse. Please ask your question.

Hi, good morning David and Eric. Congratulations on a very strong quarter. I have two questions. My first question is to you about the game broadcasting service. So I notice from media that YY recently signed an agreement with Baidu Tieba regarding the exploration on game life broadcasting service. I just wonder when you guys will officially launch these initiatives and what's the potential impact on your game broadcasting service? Any comments will be appreciated. I have a follow-up question.

I will ask David to answer the question. I think David already got the question and he will answer in Chinese and I will translate later.

Thank you.

(interpreted) Yes I think we have initially agreed with Baidu Tieba on some of the collaborations. I think the main purpose for our game broadcasting business is that we all know that Baidu Tieba has tremendous traffic. Specifically in a gaming area it has more than 400 million page views on a daily basis, which is tremendous traffic. I think game broadcasting business of YY will definitely enrich Baidu Tieba's contents and help Baidu keep a longer time their users on Tieba.

On the other hand I think we can capitalize or leverage Baidu Tieba's traffic help us to grow our user base on the game broadcasting business. We would love to see this cooperation come to reality and for the details of collaborations I think we would announce it in the near future.

Thank you very much. I think David mentioned in the opening remarks YY leveraged some special events in Q2 like World Cup and May 20th into a drive-up for user engagement. I just wonder which of your services most benefited from these kinds of events in Q2 and should we expect to see a pull back in user engagement or consumption for those services in Q3 since World Cup is over? Thank you.

Yes I think David mentioned it in the context of that our entertainment business actually has been benefited from a World Cup and May 20, which is a romantic day in the internet business in China -- in Chinese it's called Wu Er Ling. So I think mainly the event driven activities or marketing scheme has been implemented by our music or entertainment business in great details. We have had very good success in the past. We will continue to do that. So I think that is mainly geared toward our entertainment business yes.

Thank you. Very helpful.

The next question comes from the line of Gene Munster from Piper Jaffrey. Please ask your question.

Good morning all and my congratulations. Eric you talk a little about the guidance -- can you recap where the strength in the guidance is coming from -- I think you said music. Separately is you talk about different initiatives. In the past we've talked a lot about education, you mentioned a couple of other ones here. How should we think about those impacting the model in 2015 and if it's possible for you to make any comments beyond that are these initiatives more about 2016 and beyond or are they something that could be more incremental next year?

Yes Gene I think yes when we look into the future we do see there is a lot of potentials could happen on our worldwide platform. I think David and I we actually emphasized two new activities which has been very successful as we mentioned it that game broadcasting business. This is growing at hand over fist rate in second quarter. The other one is our dating show -- it was just started six months ago -- now it becomes a great revenue contributors already. Those two businesses actually we see that will continue to grow for the rest of the year into next year.

I think if you look at YY -- YY actually has such diverse activities. People often ask what exactly is YY. What we have seen YY is, we have seen that YY more and more so become a marketplace for talents, for services.

We can see that in our media business those talented performers who usually in the past would have to go to a television station or a radio station or other professional organizations in order to make a living, but now, if you are talented, on YY platform we can put you in front of millions of users, and those users can actually spend money to purchase your service via the YY platform. And I think that is a very powerful marketplace, so to speak.

So we think that YY has evolved itself into a service or talent marketplace. At the same time, you can see that our goal for the education business is to do the same. Teachers used to be teaching in schools or the teaching organizations or cram school. We can in the future, the talented teachers should be able to make a living on YY platform, because YY is capable of putting those teachers in front of a million students.

So I think that's the main themes of the power of the YY platform. So into 2015 as we can see, more and more activities can start or become monetizable then we will see the stronger revenue to come in in 2015 and 2016 and also we will keep very juicy margins into the future, because right now we are providing a lot of free service. Into the future, if we start to monetize all those activities we think that we can actually enhance our margin down the road in 2015 and 2016.

Great. Thank you, Eric.

The next question comes from the line of Alicia Yap from Barclays. Please ask your question.

Hi. Good morning, David and Eric. Thanks for taking my questions; congrats on the strong quarter. I have a couple of quick questions.

Number one is on the online dating business. Two, to follow-up on that is that at the same time we already have close to 4% of the total revenues coming from this business line now. And how big will this business do you anticipate to grow into, and also can you share with us is there any difference on the revenue-sharing front for this online dating versus your music business?

I think for this online dating business it's still at a very early stage, as we pointed out, it was started only six months ago. So it is very difficult to predict what is the future of our online dating business. But we have seen it has a huge potential.

But of course we are augmenting a lot of details in terms of products. We are trying to diversify how to even enlarge the user base for this line of business. I think at this moment in time we are not ready to give any specific targets in terms of how big this business is going to be, but we do think that this business should have a long life into the future.

I see. And then for the margins trend, so can you remind us again on some of the costs and the spending and what would be contributing to your comment on the more stable margins rather than on more margins leverage?

Right. As we are expanding into different line of business it actually requires a lot of promotions. So as you can see, in the second quarter our sales and marketing has risen to more than RMB13 million, which is more than double from the first quarter's. I think that's our efforts to expand our user base into different sources.

I think that trend should continue. But at the same time, because our business is growing very fast, so the operating leverage will help us to alleviate some of the margin pressures from expanding into a different line of business. So that's why I said because of the combination of those two, we see that the core margin could be somewhat maintained at a very narrow range into the future.

It could be higher a little bit, it could be lower a little bit; it will depend on the specific activities that we are involved with into the future. But as of now we see that our margin should be pretty stable for the rest of the year.

I see. Can I just quickly follow up? Will the gross margins -- is it also a function of the music business being higher contribution and then will online dating business, if it is a higher contribution, will that impact gross margins as well? Thank you.

Well, in order to affect our gross margin the line of business needs to be very big. I think dating business right now is still very tiny, very small. I think it's unlikely to affect our gross margin. But you are right, our music and entertainment business will affect our gross margin.

As you know that, the gross margin actually has been on a down trend over the course of the last 18 months, simply because our music business has grown faster than the rest of the activities, because music business has higher content of this content cost, higher cost structures. So that will automatically or inevitably lower our gross margin.

But, because of the operating leverage, as you look at our operating margin -- and operating margin, actually it's pretty stable and actually on the rise. So I think overall I would see that the gross margin will continue to dip a little bit as long as our music still is a revenue-driver for the rest of the year, but our operating margin should be pretty stable.

Okay, great. Thank you.

Your next question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi, good morning David, Eric and Anna. Thanks for taking my question and congratulations on a strong quarter. I have two questions. The first one is can you share us with the MAU and ARPU of YY Music on the mobile end?

And I just want to check again with your answer to the prior questions, do you mean that we can assume your YY Music upward growth can be sustainable in the following quarters? And about again broadcasting and online dating business, will it bring a relatively higher ARPU as it will facilitate better user engagement I assume, especially online dating business?

Okay. Well, as I said, in terms of the MAU numbers for our music business, I think that was your question, right? MAU numbers, because as I said on our platform is somewhat difficult to distinguish very clearly who are the music users, who are the game users. But roughly we can say that out of that 100 million monthly active users in the second quarter we will classify to 40% to 45% of those MAUs are as our music and entertainment MAU.

So if you apply that, that will give you something like 40 million to 45 million MAU. But ARPU number, as we already see in the release, is RMB458. But I do not have a specific ARPU and MAU number for mobile yet, but I think I can provide it next time, in the next earnings release. But I do not have a specific ARPU number for our mobile MAU -- or mobile paying users for the music users yet.

I think in terms of the dating and game broadcasting business, definitely it is a great contribution on our top lines. We do continue to see that those are very good elements to help us to alleviate our margin pressures.

As I said that we're expanding into a different line of business, we have tried a lot of ways of promotions but at the end of the day we need to actually monetize some lines of business in order to hold up our margin levels. I think all those businesses have helped us to maintain a very stable margin picture as of now.

Thank you very much. And my second question is I have noticed that the other revenue actually increased from the normal level of RMB3 million to RMB4 million per quarter to RMB8 million this quarter. Can we attribute both -- can we attribute this incremental revenue to a series of mobile apps you have launched in the second quarter, like Hello (technical difficulty)?

No, I assure you we have many other activities which are small we did not announce publicly, but those are small activities in incubation stage. If you add it together it will actually help us to increase revenue on the others categories.

I think that was others, including some of the things that you mentioned, some mobile apps. But as long as I can remember, the mobile apps right now is not generating too much of the revenue, so far.

Thank you.

Your next question comes from the line of Yu-Heng Fan from Chinese Renaissance. Please ask your question.

Hi. Good morning, David and Eric. Thanks for taking my questions.

My first question is related to online dating business. What is the management's thoughts on any potential expansion into a more standalone social networking service on the basis of your online dating and video platform? Then I have a follow-up question.

I will transfer your questions to David. David could answer your questions. Hold on a second. Yes, David please.

(interpreted) I think I just want to elaborate a little bit. These online dating shows that we have -- normally we have eight people in online dating scene who are on stage.

Actually, there is one host and eight people, including four guys and four girls. So they will be introduced to each other and they will be able to ask questions to the other side. And then you will see lots of -- hundreds of the audience just watching these shows as ongoing.

So these online dating shows, it's very different from our entertainment shows because all those eight people, including the host nine people, they are actually providing the content. So there is no specific very renowned or famous performers taking the stage, become a celebrity. All of the people actually participate into the shows.

So this is a very different form of entertainment in the past. We think this type of form is being welcomed by our users at this moment. But overall, into the long term we think this could become an SMS product which has a great potential, but we need to actually break through into the mobile devices.

So we need to actually think how to incorporate these online dating shows with mobile users and mobile usage and we are trying in this direction definitely, but so far I think we are still in the stage of experimenting. So if we can be successful in this direction this could be a very big business into the future.

Thank you. That's helpful. My second question is on your future initiatives. So beyond online dating and broadcasting, you mentioned earlier that YY has become a marketplace for talents.

Also, beyond online dating and online game broadcasting, [as far -- in terms] of content you think that could potentially appeal to your core music or entertainment users? Thank you.

I'm sorry, I was too preoccupied by other things. Can you repeat the question again, I'm sorry?

Yes. You mentioned earlier that YY has become a marketplace for different types of talent, like online game broadcasting, education and online dating. So beyond those initiatives, what other types of content you perceive could potentially appeal to your core entertainment and music users? Thank you.

I think in general because this is a service and talent marketplace, so we believe that our users like to directly or have real-time interactions with our content. So as far as this exists YY will provide great value to our users.

So I think as David mentioned earlier, that we think there are a lot of actually competitive activities can be broadcasted on the YY platform. So I think moving into the future we will try to work in that direction. Secondly, I think we will also work on the mobile directions because we see that future as a mobile era.

Mobile is close to everyone, so we -- if we will be able to allow users to have access to a real-time platform such as YY anytime, anywhere, this can make YY actually expand into even larger user base. I think those are the areas that we are working on and we are trying to make progress.

Thank you, and have congrats for the quarter.

Thank you. Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.

Hi, good morning. Just two quick questions. The first is on competitive landscape. Would you share with us your thoughts on the competitive landscape after one of your competitors [released it]? Should we expect higher competition or not on payment costs as well as on sales and marketing going forward?

And then secondly, a follow-up question on mobile. Eric, you mentioned that you can't give us the paying users for mobile at the moment, but could you share with us the user behavior difference you see on mobile versus on PC? For example, the time span, the conversion rate, so on and so forth. Thanks.

Okay, great. I think I will ask David to answer your first question and I will answer the second question later. Let me translate the question to David first. Just hold on a second.

(interpreted) Yes. I think if you look at YY's history, when we actually started YY service in 2008, we have seen many competitions. In fact, YY originally was positioned as a real time voice communicators.

In the early days, almost every online game company launched a YY-like product. So we got a lot of competition during those times.

But all of those competitions have faded away over the last couple of years. Now we are still dominant market leaders in the real time voice communication markets for online gamers. So that actually demonstrates that we have a very strong capability to fend off the competition.

But if it comes to the music scene, yes, you are correct, there are some newcomers in the marketplace, or sometimes they even have a longer history than ours. I would say yes, we do have some competitors in these areas, but because of the fact that we have experienced tremendous growth over the last couple of years, we have a lot of things internally need to be taken care of.

So we only focus on solving all the issues internally. So we rarely actually look at outside, and to be very frank we don't feel the competitive force is that strong because we have been growing very strongly.

However, recently we have seen the power of ecosystem, or the economy of scale. Because we've become so big we actually now look around, we can actually open several options or channels, allow the performers to join us. Once we start doing that, we have seen tremendous attachments to those performers, to those channel owners.

They will love to join us because previously we didn't even open up those opportunities for those people. Once we start to open up those opportunities for those people, we have seen tremendous attachments for those guys, so we actually have seen we are gaining the market share. We are competing very effectively in the marketplace right now.

(spoken in Chinese Mandarin).

Yes. David would like to actually give you guys an example of how we actually successfully attract those content providers or singers to join us. For example there are performers who can earn RMB5000 a month in our competitive platforms, but once -- with that kind of capabilities, in fact this person can actually have a potential to earn more than RMB20,000 per month on YY platform.

So the problem was when they joined us, they would have to experience some sort of hiccup. So their earnings were deep down when they joined us because it's in transitions. But right now we have actually opened up some opportunities or initially some programs to help them to smoothly transit their join in YY to help them to shorten the very painful dips in their monthly revenues, so that they can very easily transition into a YY platform without loss too much of their monthly earnings.

I think that the second question is regarding our mobile users. Yes, I think that mobile users -- as I mentioned -- mobile users is a very important direction that we are going to attract. I think in last quarter we already announced that roughly one quarter, 25%, of our monthly active users for music activities actually is paid through a mobile.

I think -- I don't have the percentage for this quarter but I can certainly provide it later on for all you guys. But the specific characteristics or behavior of mobile users is as of now mobile users spend less time on our platform.

According to last quarter's numbers, their ARPU is lower. But as I mentioned before I think -- I don't have the numbers in front of me -- I think the percentage of the mobile pay users are increasing. I believe the ARPU for mobile users are increasing as well.

So I think those are the specific user behaviors. They spend less time and now the ARPU is less, but I think we are working on to enhance the conversion ratio for mobile users. We are trying to increase ARPU for mobile users as well.

So I -- having said that, I will provide more information about this in the future for you guys.

Got that. Thank you very much, David and Eric. Thanks.

Thank you. This concludes our Q&A session for today. I would now like to hand the conference back to management for closing remarks. Thank you.

Thank you everyone. Now we conclude our conference call right now. Thank you.

Thank you.