NetEase Inc (NTES) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the NetEase.com Second Quarter 2007 Earnings Results Conference Call. Today's call is being recorded. For opening remarks and introduction, I would like to turn the call over to Ms. Brandi Piacente. Please go ahead, ma'am.

Thank you, operator. Please note that the discussion today will contain forward-looking statements relating to future performance of the Company and are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors.

Some of these risks are beyond the Company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the Company with the Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update this forward-looking information, except as required by law.

As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the NetEase corporate website at corp.netease.com.

I will now turn the conference call over to Michael Tong, Co-Chief Operating Officer, who will read the prepared remarks on behalf of Mr. William Ding, Chief Executive Officer of NetEase.

Thank you, Brandi. Thanks, everyone, for joining us. Total revenues for the second quarter were $73.3m compared to $72.9m for the first quarter of 2007, and $75.6m for the second quarter of 2006.

Online-game revenues were $62.4m for the second quarter, compared to $63.3m for the first quarter of 2007 and $63.8m for the second quarter of 2006. Despite relatively flat game revenues quarter-over-quarter, we believe we are aligning the right balance of resources with our long-standing MMORPG expertise and market leadership to build and diversify our game portfolio for near-term growth.

Open beta testing for Westward Journey Online III, the upgraded version of Westward Journey Online II, is scheduled for this month. And the development process has gone smoothly. Our current plan is to enable players to continue with their existing characters in Westward Journey II, while completing a one-time automatic migration of existing characters to Westward Journey III. Customers will have the choice of playing their characters under both games. After the migration date, all of our future developments for this game will be related to Westward Journey III only.

For the second quarter, PC use and AC use were 505,000 and 162,000 respectively for Westward Journey II, compared with 480,000 and 159,000 respectively for the first quarter.

Fantasy Westward Journey had another strong quarter, although not quite as strong as quarter -- first quarter. This reflects our typical seasonal pattern where the first quarter is typically the strongest quarter for games usage. PC use and AC use were 1.47m and 491,000 respectively for Fantasy Westward Journey, during the same quarter, compared with 1.5m and 511,000 respectively for the first quarter. We are planning to release an expansion pack for Fantasy Westward Journey during the fourth quarter of 2007.

We are also making positive progress with our programming and design improvements for Tianxia II. Our testing showed that the game was heavily skewed towards advanced game players. We are working to improve the programming and design of the game to appeal to a broader user audience.

Since the open beta in March, we have added some developers that have great insight in how to make the game more attractive to entry-level and mid-range gamers. Our overall game development pipeline for the second -- for the next 12 months includes revamping Tianxia II, the migration of Westward Journey II users to Westward Journey III and launching Datang II and Fly for Fun, both as free-to-play item-based games.

Now, turning to our Portal business. Our efforts in expanding the content channels, including our new sports and entertainment channels, has enabled us to maintain our momentum in traffic growth. And as a result, traffic for these channels has grown over 40% on a quarter-to-quarter basis. And overall advertising revenues increased 16% to $8.6m for the second quarter of 2007, compared to $7.4m for the first quarter of 2007.

In addition to expanding our channel content, we are continuing to enhance the functionality of our email services. We are working to better monetize our email offering by showcasing the effectiveness and broad reach of our enhanced email portal services to advertisers. With 217m email users, we remain the leading free-email provider in China. And we will continue to work with advertising agencies on increasing the advertising revenue potential of email.

We also joined an Olympic alliance with Sina and Tencent during the second quarter. Through this alliance, we will be able to leverage each company's respective strength in the preparation for the Beijing 2008 Olympic Games. Overall, we remain confident about our future opportunity through our focused channel content and email services strategies.

During the second quarter, we continued to work on our self-developed search engine. The domestic search market is relatively small, since the ecommerce market in China is still emerging. We believe our investment in this area and early market entry with a highly competitive service presents a compelling opportunity for NetEase. We will continue to keep you focused on our progress in search.

With that, I would like to turn the call over to Onward Choi for his review of our second-quarter financial results.

Thank you, Michael. I will now provide an overview of our financial highlights using numbers and percentages based on U.S. dollars. In order not to repeat what has just been explained by Michael on the revenue side, I will focus on explaining margins and expense fluctuations along with net profits.

Second-quarter gross profit was $57.5m compared to $56.5m in the preceding quarter and $60.1m for the same period in 2006. The quarter-over-quarter increase in gross profit was primarily due to high advertising-service revenue in the second quarter of 2007. The year-over-year decrease was mainly due to a decrease in order revenue patterns as a result of more intense competition in the Internet industry in China.

Gross margin for the Online Game business for the second quarter of 2007 was 90.2% compared to 89.6% and 90.7% for the preceding quarter and the second quarter of 2006 respectively. The quarter-over-quarter increase was primarily resulted from operational cost savings which more than offset a decrease in Online Game revenues in the second quarter of 2007. The year-over-year decrease was primarily driven by a decrease in Online Games Services revenue from Westward Journey Online II and high staff-related costs as a result of an increase in headcount.

Gross margin for the Advertising business, for the first quarter of 2007, was 47.2% compared to 35.7% and 49.8% for the preceding quarter and the second quarter of 2006 respectively. The quarter-over-quarter increase in gross margin was primarily driven by the seasonal increase in advertising spending, coupled with savings in content cost in the second quarter of 2007. The year-over-year decline in gross margin was primarily due to decreased Advertising Services revenue as a result of increased competitions.

Gross loss margin for the Wireless Value-Added Services and Others business for the second quarter of 2007 was 28.1%, compared to gross loss margin of 36.1% and 2.3% for the preceding quarter and the second quarter of 2006 respectively. The quarter-over-quarter improved gross loss margins was primarily due to increased revenues from our online fee-based premium services supplied to registered users of the NetEase websites, including premium matchmaking and dating services and product sales generated from our registered users. The year-over-year decline in gross loss margins was primarily driven by a decrease in revenue from our Wireless Services.

Total operating expenses for the second quarter of 2007 were $18.8m compared to $15.5m and $17.6m for the preceding quarter and the second quarter of 2006 respectively. The quarter-over-quarter increase was primarily due to additional provisions for doubtful debt of $0.3m made during the second quarter of 2007, compared to a reversal of provisions for doubtful debt of approximately $1.1m as a result of the collections of outstanding accounts receivables with respect to the Advertising business during the first quarter of 2007. The increase was also due to increased selling and marketing costs of $0.9m related to the marketing of Tianxia II, Westward Journey III and seasonal promotional activities during the second quarter of 2007.

Higher operating expense was also due to an increase in research and development costs of $0.6m associated with the increased staffing for enhancing existing products and developing new products. The year-over-year increase was mainly due to an increase in selling and marketing costs, higher staff-related costs as a result of an increase in headcount, and increased depreciation charges.

Net profit for the second quarter of 2007 totaled $41.1m, compared to $39.6m and $41.3m for the preceding quarter and the second quarter of 2006 respectively. In June 2007, we received a reinvestment incentive tax refund of $3.2m, which significantly reduced the Company's income tax expense for the second quarter of 2007.

Our basic and diluted earnings per ADS were $0.33 and $0.31 for the second quarter of 2007 respectively. This compares to basic and diluted earnings per ADS of $0.31 and $0.29 for the preceding quarter, and $0.32 and $0.29 for the second quarter of 2006.

As of June 30, 2007, our total cash and time deposit balance was 319.1 -- $391.5m, compared to $517.3m at December 31, 2006 and $474.4m as of June 30, 2006. In additions, there was a restricted cash balance of $100.1m as of June 30, 2007, primarily related to the Company's committed revolving loan facilities. The loan facility can be used by NetEase at its discretion to fund any redemptions requests made by holders of its zero coupon convertible subordinated notes in accordance with the terms of those notes.

Cash flow generated from operating activities was approximately $43.5m compared to $37.2m and $39.0m for the first quarter of 2007 and second quarter of 2006 respectively.

On March 13, 2007, our Board authorized a share repurchase program of up to $100m of the Company's outstanding ADS for a period not to exceed three months. When the share repurchase program ended on June 12, 2007, we had spent, in aggregate, a total purchase consideration of approximately $95.7m, including transactions costs. With respect to a separate share repurchase program of up to $120m, authorized by the Board on July 2, 2007, at July 31, 2007 we have spent, in aggregate, a total purchase consideration of approximately $5.6m, including transaction costs. The share repurchase program will end on July 1, 2008.

Thank you for your attentions. We will now be happy to take your questions. Operator, please go ahead.

Thank you, sir. (OPERATOR INSTRUCTIONS). We will take our first question from Richard Ji with Morgan Stanley.

Hi, William, Michael, Onward.

Hello, Richard.

How are you, Richard?

Hi. And I have two questions. And it has to do with Fantasy Westward Journey. And, obviously, Fantasy Westward Journey is still the bread and butter for your Company. Other than the seasonal weakness in 2Q, have you seen this game stabilize?

And regarding the expansion pack in 4Q, I wonder what will be the expansion pack mainly about?

And I have a follow up, sorry.

Yes. The expansion pack is going to be released in the fourth quarter, but we are not going to disclose the exact contents. But official announcements of the contents for the fourth-quarter expansion pack will be announced when we are ready to do it.

We believe that this is a seasonal trend for Westward Journey -- Fantasy Westward Journey in the second quarter, where we see a flat, or a very little drop in the usage, and which we have been seeing that in the last year, or the year before that. And especially that is in the first quarter, because of the winter holiday and also because of the Chinese Valentine's Day, as we have explained, during the last quarter. I think it is normal to see that it's a flat quarter for the second quarter. And we believe the momentum for the game continues to be very strong.

Okay. Yes. Thank you, Michael. And my second question is, again, your Company is likely the most cash-rich company among the Chinese [independent] peers. And apart from share buyback to enhance shareholder value, are you looking for a licensing opportunity as you guys have publicly announced several times?

And, if you are looking for a licensing opportunity, would you be focusing more on the overseas opportunity or more likely the local game titles?

Hi, Richard. Again, besides share buyback, we have been looking for different kind of opportunities, especially including licensing new games for NetEase. The games could be from domestic and again from overseas. Unfortunately we don't have anything that we can publicly announce right now. But we have been working very hard and dealing with several companies in the licensing games area.

Okay. Yes. Very well. Thank you.

Thank you. Moving on, we will take our next question from Wallace Cheung with Credit Suisse.

Hi. Morning, William, Michael and Onward.

Good morning.

Okay. Just two quick questions. I think, first of all, can you give a little more guidance on the operating expenses trend? Because it seems there'd be a big growth in the three line segments. How's the trend, say, second quarter?

Especially in particular, in this R&D cost, would there be much further growth in the headcount and the salary hike? Thank you.

I think the research and development costs, the increase would be in line with the Company's plan of giving the developments of the new products and how to strengthen the existing products. So, I think, the existing trends of the R&D expenses will be, basically, in line with what the Company has set in the overall directions.

Because if you look in the previous quarters, I think we have also maintained the percentage of the R&D costs to the net revenues within -- down below the 10% lines. And so, I think, it would be still along this line.

And so how about the marketing expenses as well?

With regarding the marketing expenses, I think for this quarter, the major increase would be mainly due to the enhanced or increased efforts on promoting the Tianxia II and also the Westward Journey III, and the seasonal promotional activities. And so the, basically, the levels of the S&M costs would be more or less dependent on how we can match with our rollout of the products and how we are to match with our promotional programs for the other game products.

Okay. May I have a second question? It's actually on the search engine side. I would like to ask about, William, about these questions. (Spoken in Chinese) My question is mainly on the insight about the search engine and how far that (inaudible) is.

(Spoken in Chinese).

Our search engine -- the search engine has been developing; the progress has been well. And that, we are working on a number of functions of the search engine right now. And we are going to put more marketing efforts in the fourth quarter of this year for the search engine, when we are ready.

May I have one follow-up question on the search engine side? (Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

Let me explain briefly. The answer is that because NetEase is a different -- is very different compared to our competitors and we have a massive user base in our products like the emails, the portals and so on. And we believe that we can utilize the user base to market our search engine.

Okay. Thank you very much.

Thank you.

Thank you. Our next question will come from Dick Wei with JPMorgan.

Hi. Morning. And thanks for taking my questions. I've got a couple of questions. The first one is for Westward Journey III, the free open-beta testing. I guess, it's going to start this month. What kind of revenue impact do you expect to have for Westward Journey II revenue for the quarter?

Hi, Dick. Let me explain on this. I don't think we will be able to quantify the effect on the revenue for Westward Journey II. But we can, of course, confirm, or explain again, that the plan is to have the users to have both characters in Westward Journey II and Westward Journey III.

And, of course, while Westward Journey II is charging on CHY0.40 per hour and Westward Journey III will be free to play during the open-beta period. And, of course, when we go commercial for Westward Journey III, it will be same as Westward Journey II and will be charged on an hourly basis.

So, obviously, the users, when they have two characters to play on both games, we are trying to attract the players to migrate to Westward Journey III and to trials on the open beta. And during this period of time, it is likely that they will spend less money on NetEase, so we can confirm that.

But we won't be able to quantify exactly the revenue impact on such a plan. And we believe the open beta will be short and the impact could be minimized. But we will be happy to see more and more users to try out the new games in Westward Journey III.

That's great. And my second question is can you give me the latest number of R&D staff you have for the Online Games division?

And beyond a couple of games you mentioned in your prepared remarks for the next 12 months, where there any other games that you are developing now, but have not announced them in the pipeline yet?

Okay. Sure. Dick, let me answer the second question first. Again, during the script, the previous script, we have just mentioned that during the next 12-months' period, it will be the most important for us to continue revamping Tianxia II and Westward -- launching our Westward Journey III.

We have also announced, during this conference call, that we are working on Datang II and also Fly for Fun, and both are going to be free-to-play, item-based schemes.

I think we did mention that we have been working on some other advanced casual games before. And we're still working on that, but we don't have a title and we don't have exact launch time for those yet. So, I think, I would be more conservative to save those for an official announcement on those games.

And I would like Onward to answer your first question.

Yes. Okay. With regard to the headcounts of the R&D staff in the Online Game departments, our headcount for the second-quarter '07 would be around 890. And the same numbers for the previous year would be about 670.

Great. Just my last questions. I remember in the third quarter of 2004, NetEase had a big brand advertising campaign with -- I guess, with TV promotions, billboards, bus ads, etc. I believe at that time, you guys mentioned that you guys will do it every three years for large brand marketing campaigns. I wonder, any plans for this for this year? Thanks.

It is unlikely for us to have a big marketing campaign for this year. But we are working on different possibilities. But, frankly, there's nothing that we can announce yet, but we're working on that.

That's great. Thanks so much for taking my questions.

In different ways the marketing continues for NetEase as a brand.

Thank you. Moving on, we'll take Eddie Leung with Deutsche Bank.

Hi. Good morning, guys. Can you talk about the trends in your brand advertising versus last year? And where do you see the growth has come from in terms of a customer mix and inventories?

Yes. Sure. For the spend on advertising, this quarter, we have an increase of close to 20%. I mean, the overall advertising is increase of 16%, while the brand advertising is around like closer to 20% for quarter-over-quarter. But on a year-to-year, it's still kind of flat or a small drop.

And the reason is basically the same as the first quarter, where we have lost some important ecommerce related clients. And the growth of that, excluding those, is actually very healthy.

And we believe that the growth of the advertising, the brand advertising will continue in the following quarters, and mainly because of, one, the general growth of the industry of advertising on the online advertising; and, more specific, it will be -- continue to be more on the automobile, FMCG, as we see more and more traditional companies putting more money into online media.

And in terms of the inventory, I think it's an overall growth of the inventory where we continue to see the growth of our traffic in both the content channels, the front page and also the emails as well.

Thank you. No more questions. Thank you very much.

Thanks.

Thank you. Our next question will come from Alicia Yap with Citi.

Hi, good morning. Thank you for taking my questions. I have a couple of quick questions. One is regarding your Datang II. Last year, when you launched your Datang II and experienced mediocre results, you attributed it to the game, that it was never intended to be a blockbuster game.

And then will Datang II, this time in the free to play model, have the same quality, or [do you see] that experience to test on your free to play model? Or should we expect this to be a much improved, much more robust game? And then I have one follow up.

Okay. Actually, I don't know how to answer your question. I think, of course, we want to target high for Datang II. And the game quality, I think, because of the improvements of the -- it will be a product of the same team as we developed Datang I; and because of the more, as they get more experience, we believe that Datang -- the team will be able to develop better games.

And of course, we want to target high [growth] games, but it is going to be one of the very first games for us to trial on the free item-based models, so that is how we look at it.

Okay. And then, can I follow up with the licensing games on your commitment? We understand that it may take some time before you actually find a good game that you want to license; and it usually takes some time for the bidding process to go through. But since many investors actually started to doubt whether you are going to do it, since it has been so long when you first talked about that, can you just give us some updates regarding the process?

Based on your best knowledge or your best expectations, what can we expect such an announcement? When can we expect such an announcement and would it be more advanced casual games or MMO? Thank you.

Yes, as we have said, we won't be able to publicly announce anything on the titles that we are working on. All I can say is that we've been dealing with several interested parties on licensing their games to us. And it includes, actually, advanced casual games and different kinds of games, actually. It includes many, all different kinds of games and is also, it also includes domestic and international game developers as well.

Okay, thank you. I'll get back to the queue. Thanks.

Thanks.

Thank you. Ming Zhao will have our next question from SIG.

Thank you very much for taking my question. I guess, first, two questions for Onward. Just -- Can you give us a breakdown of the revenue from Fantasy Westward Journey Online and Westward Journey Online II? Percentage is fine, I think.

Also, what's the percentage of your Advertising revenue is from the search this quarter? Does that mean it's going to be gone entirely in the second half of this year, after you terminate the contract with Google?

Okay. First of all, maybe I'll just give you a revenue mix of our online games for the second quarter. For the Westward Journey II, it contributes to about 25% of our total online game revenues, whereas the Fantasy Westward Journey would contribute about 74% of our online game revenues.

With regard to your second question about the Advertising revenue, the search engine part of the revenue would contribute to about not more than 4%, approximately 4% of our total Advertising revenue.

Okay --

And this is --

If I may just ask a quick question, your alliance with Sina and Tencent, how exactly does that work? Are you going to share content? And what about the advertisers' side? Can you elaborate there, please? Thank you.

Yes. As we understand and as you understand, the Olympic is a very important event to China for these years. And it is very important for the internet industry to promote itself as an industry, as a very strong industry, to influence the users to have a very big mass coverage of all audiences.

And alliance between Sina, Tencent and ourselves is actually open to all, all Internet players. And so far we have -- I believe it's around 16 companies have joined the alliance.

And we are actually working on how we can ally together. And the topics would be mostly including how we can share the reporters and how we can share some of the content resources. And it's mainly an alliance for the reporting of the events, rather than any alliances on advertising or so on. So it's mainly on the reporting of the events.

And in fact, to update you, we just had a meeting with all the allied parties last week.

Okay. So let's do an example. For example, you're going to buy content from some of the news agencies. Is that cost shared among all the alliance members, so that your margin could actually be improved a little bit?

It could be one of the ways of -- one of the possibilities and we are working on this.

Okay. Thank you very much.

Thank you. Our next question will come from Tian Hou with Pali Capital.

Thanks for taking my question. My question's regarding the email advertising. What exactly do you do? Do you put the advertising in the frame of your email page or you send email out to the end users? So which way is the way you do advertising?

Those are already included in our email products, where you can see a small frame of advertisements when you log in into the email or when you successfully send out any emails and so on. So there are a few advertising spaces on our email products.

I think one of the things that we are working on right now, which I can explain further, is to continue to add, partly to add some of the contents in our emails or services in our emails. For example, we are working on one product where we can allow the email users to look at their stock prices that they can customize, so they can be working on their email and at the same time working on reading their stock prices.

So these are the additional services for the email accounts. We believe that can continue to attract more users and be able, actually be able to have a better understanding of the demographics of the email users as well.

So how do you envision your Advertising business to grow in 2008?

Sorry, your question is?

I was just asking -- I think, in '07, because we have a pre-Olympic Games and also this Olympic Game alliance, so your Advertising business starts to pick up. And do you think in '08 you will also enjoy the growth in line with the industry? Do you see the trend continue?

We won't be able to say -- to tell you if we are going to outgrow the industry or in line with the industry or under-perform the industry. But we can tell you that we will definitely be able to enjoy the growth of the advertising industry as a whole, because of the Olympic Games going to be held in 2008. Tian?

Yes, thank you. Okay, that's answered my question. Thank you.

Thank you.

Thank you. Moving on, we'll take our next. We have a follow-up question from Alicia Yap.

Okay.

(inaudible)

Alicia, we can't hear you. Operator, can you move to the next question?

Pardon the interruption, Ms. Yap. I am sorry, but we are unable to hear you.

Hello? Yes, hi. Sorry about that.

Okay.

Yes. My question is regarding the Westward Journey III migration. How long are you going to plan to keep the Westward Journey II once Westward Journey III is launched? And do you have some details regarding how many copies of the open beta version of the games have been downloaded so far, in terms of the user registrations, the count you have received so far? Thank you.

Right. We don't have an official expectation that we can disclose on exactly how long the open beta is going to be. So you can look at the track records that some of the open beta is as short as one month, while some others could be two months or so. So it should be within -- it should be around this range, but we don't have an official expectation on that. So that's for open beta period of time.

And while -- on the number of downloads or the number of the CD-ROMs that we have sold, so far we have -- again, we don't have the official numbers to disclose right now, because we are still about -- the official date is going to be tomorrow. But the CD-ROMs we have distributed to a lot of new channels that we have not worked before; and we believe that it's going to be one of the bigger distributions as we have done with previous products. That's all I can say.

And what about the marketing cost? I've seen a lot of activities going on, on that. What do you expect the marketing cost for, specifically, just for the Westward Journey III to be increased in Q3?

So Alicia, so you would like to know about -- can you repeat your question about the marketing cost? You would like to know what is our upcoming plans or what is it?

I just, yes, the general idea of what will be the increase in the sales and marketing cost as related to your promotion in the Westward Journey III.

Regarding the increase in the marketing cost with regard to the Westward Journey III, it will include some on the online advertising and offline advertising that we would like to promote the new product. And also we will launch some more promotional activities or events to promote this new game. And we will also consider other opportunities, even for the TV commercials.

And all the opportunities we will take into consideration and see how to blend it into a good mix and to put forward to the market.

Okay. I guess it's just for comparison. During Q2, the increase of the sales and marketing cost is about $0.9m, so what should we expect in terms of -- should we expect a higher number in Q3 or in line?

I think it's still too early to make an estimation on this number, but we are still working on this and this is all -- what I said just now would be the possible program that we would be doing; and so we still need to see.

Thank you. Our next question will come from James Mitchell with Goldman Sachs.

Great. Thank you very much for letting me into the queue. Two questions on your pipeline. First, could you give us a rough timetable for the other three new games you mentioned? You don't have to get into days and dates, maybe just whether you see Fly for Fun, Datang II, Tianxia coming out in the second half of '07 or in the first half of '08.

And then a related question to that. It looks like all four of the new games you've mentioned belong to franchises that you've already tried once or twice, which I can fully understand for Westward Journey. But for the other franchises, I'm surprised that you aren't interested in taking the game engines and building new brands around them, rather than rehashing the Fly for Fun, Datang and Tianxia brands.

So maybe if you could talk about your policy in terms of branding new games a little bit, that would be very helpful for me too.

Actually for the launch of Datang II and Fly for Fun, I think very roughly I can say, for both games altogether, we are looking at the next 12 months period of time. And of course, I'm not saying both games will be launched by the end of the next 12 months, but somewhere around six months for one of the games and the other near to the close of the next 12 months period of time.

And then, James, I actually don't really understand your second question.

Sure just -- sorry, just in terms in Tianxia as well, do you have a rough timetable for Tianxia?

Rough, as we mentioned before, Tianxia II, we are looking at around the end of this year for the relaunching of the open beta.

Open beta end 2007. Okay.

Yes.

And then when I look at the games, it's pretty obvious why you'd want to release another Westward Journey game because that franchise has been spectacularly successful.

If I look at your other three games, I can understand why you'd want to take the code you've built and expand that code and improve that code and release a game. But I think in most countries when you have a first game that's not so successful, then sometimes the second game built on the same code will have a different brand or a different franchise.

When you refer to these games as Datang II and Tianxia II and Fly for Fun, is it going to be positioned the same way as the previous games? Is it going to be the same --?

Okay, I totally understand. You are actually exactly right. In some ways, when we are explaining these games' names as Datang II or Fly for Fun, the way we are going to market or position these games might not be exactly like Datang II. We might be doing something like -- for example, Fly for Fun, the Chinese name is -- we actually might have a totally different name for Fly for Fun. But the reason why we name this game as this projects is because the code, as you mentioned, is actually built on those old codes, to rework on those old codes. So this is how we name the projects.

But when we are actually going to launch the game, the positioning of these games will be quite, might be quite different from the original games. And in fact, for Fly for Fun, I think the Chinese names that we are looking at is probably going to be totally different from the first game.

Right. So the message won't be -- you enjoyed Fly for Fun I so much, you're going to love Fly for Fun II. It's (multiple speakers).

No, no. Not at all. Actually, it will be very different.

-- different [title] around. Okay, great. Thank you.

Thank you. And our final question will come from Wallace Cheung with Credit Suisse.

Hi. Just one follow-up question on the games side. I just recognized you guys have launched a game called Fu Jia Xi You. Can you talk a little bit more and what's the strategy of the advanced casual games and the mini casual games as well? Thank you.

Yes, sure. I think for the mini casual game, it's really that we are trying to drive the traffic from the users, but we don't intend to see material revenue contributed to mini casual games.

But for the advanced casual games, as you have just mentioned, actually we are trying out a different kind of a so-called a bit more advanced casual games. For example, this Fu Jia Xi You is more like a Monopoly game. And in fact, we have two other advanced casual games, but one more which we have launched I think is -- which is kind of a restaurant operation type of game.

And I think we are really still testing the waters on these so-called more advanced casual games. And we believe that we will be both looking at driving the traffic of the users and also trying to monetize through the selling of virtual items on advanced casual games.

But I can -- I could say that we are still early in this stage, but we are definitely looking at both driving [crowd] traffic and also revenue for advanced casual games.

Is the restaurant kind of game similar to the Cooking Mama online version?

Not so much.

Okay, just kidding. All right.

It's more operation of the restaurants to drive traffic for the restaurants.

Okay. Thank you very much.

Thanks.

Thank you. It does appear that that is all the time we have for questions. Ms. Piacente, I would like to turn the call back over to you for any further comments or closing remarks.

Thank you once again for joining us today. Please feel free to contact us if you have further questions. Have a good day.

Thank you. Ladies and gentlemen --

Thank you.

-- that does conclude today's NetEase conference call. We would like to thank everyone for their participation in today's call. Have a great rest of your day.