NetEase Inc (NTES) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the NetEase third quarter fiscal 2011 earnings conference call. (Operator Instructions).

This conference is being recorded today, Wednesday 16 November 2011. I would now like to turn the conference over to Brandi Piacente, Investor Relations. Please go ahead.

Thank you, Operator. Please note the discussion today will contain forward looking statements relating to the future performance of the Company and are intended to qualify for the Safe Harbor liability as established by the US Private Securities Litigation format. Such statements are not guarantees of future performance and are subject to certain risks and 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 are 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 c all will be available on the NetEase corporate website at corp.netease.com.

I will now turn the conference over to Onward Choi, Acting Chief Financial Officer, who will read the prepared remarks on behalf of Mr William Ding, Chief Executive Officer of NetEase.

Thank you Brandi. Before I begin, please note that for the purposes of this discussion all percentages are based on Renminbi.

Our financial results for the first quarter demonstrate dynamic growth across our business sectors. We increased total revenue by 12.9% sequentially, and 39.5% year-over-year to RMB2 billion or $314.8 million.

Our online games revenue rose 39.8% year-over-year to RMB1.8 billion or $275.3 million. This increase was mainly due to the increased revenue from self-developed games, including Ghost, Fantasy Westward Journey, Heroes of Tang Dynasty, and Tianxia II, as well as continual interest in Blizzard Entertainment's World of Warcraft.

The momentum from our self-developed games drove our 11.3% sequential quarter growth in online games revenue during the third quarter. Our strongest contributors to the quarter came from increased revenues from Fantasy Westward Journey, Heroes of Tang Dynasty and Ghost.

Fantasy Westward Journey continues to be one of the most popular games in China, and during the third quarter we continued to provide enriched content, adding to user appeal. We also launched the latest expansion pack in September which contains a new story line and other features designed to provide players with even more playing enjoyment as well as drive increased customer satisfaction. These enhancements as well as seasonality drove increased revenue for this leading game during the third quarter.

With Heroes of Tang Dynasty, we have reached new record revenues and user statistics were at an all time high following our open beta testing in June and our successful promotional activities for this game. To further this momentum we plan to release the first expansion pack for Heroes of Tang Dynasty in December.

Similarly, Ghost performance continues to be strong and following our full-scale closed beta testing in September, we have reached a record high PCU for Ghost in October.

We are already planning our next expansion pack for this game, which we plan to release next year.

We also enriched our game portfolio during the third quarter with a number of enhancements to our games and introductions of new expansion packs.

Our Westward Journey franchise continues to perform well with the ninth commercial anniversary of Westward Journey Online II on 15 August.

We continue to provide new [optimizations] for this game as well as host a series of promotional activities, which added to the game's steady revenue growth in the third quarter.

In addition we launched our latest expansion packs for Westward Journey Online III and Warsong of Westward Journey in August.

The web-based game market is also expanding in China. To extend our games pipeline and further address this market, we initiated closed beta testing for two new web-based games during the third quarter.

In October we also made several additional advancements with our games, including the release of Tianxia III, a 3DMMORPG. This comprehensive upgrade is designed to leverage our strong Tianxia II user-base to further escalate our leading position in the 3D games segment.

Turning to our game pipeline, before the end of the year we expect to launch expansion packs for Datang, Heroes of Tang Dynasty and New Fly for Fun. We will also enter unlimited close beta testing in December with Legend of Fairy, a new European-style fairy theme MMORPG that targets relatively casual game players.

As the leading internet and online games proprietor in China we continue to help shape the market through our innovations. With this in mind, we are working to expand our portfolio of self-developed games and further broaden our user-base.

We have been working on the development of these games and we plan to release two of them for beta testing in mid-2012.

Turning to our advertising and portal activities - our advertising services sales were strong, accounting for 11% of our total revenue. This contribution marks an increase of 30% in advertising services sales compared with the second quarter of 2011. This growth in sales was driven by seasonality and increased user appeal for the NetEase portal.

Compared with the same period last year, our advertising sales went up 36.1% as we benefited from increased interest from advertisers in the food and beverage, financial services, cosmetic products, real estate, retail and services sectors.

During the third quarter we held a series of promotional activities among our portal services to further strengthen our brand equity as well as introduce new application software.

Our mailbox services, microblogging and search-based products also continued to gain traction among users. With our email users, both the number of new registered users and active users reached a record high in the third quarter, showing an increase in total email users of 4.9% over the second quarter. As of 30 September 2011 we had approximately 430 million registered email users.

In the third quarter we also began the gradual integration of our microblogging services into our mailbox services for additional functionality and contents from a single interface. The number of users for our microblogging services grew significantly reaching 88.5 million which represents 68.6% more users than we had at the end of the second quarter.

All three of our principle businesses are demonstrating strong growth as we advance our products and services. We are focused on growing our three principle businesses by further diversifying our games pipeline, advancing NetEase position as the leading email service provider in China, and further cultivating our portal business.

Through these strategies and our industry leadership we believe we can continue to deliver innovative products and services that shape the Chinese internet market.

This concludes William's update on games, advertising and portal.

Now I will provide a review of our third quarter 2011 financial results.

I will primarily focus on the discussions of margins and expense fluctuations, along with net profits.

Gross profit for the third quarter of 2011 was RMB1.3 billion or $208.1 million, compared to RMB1.2 billion and RMB952 million for the preceding quarter and the third quarter of 2010, respectively.

The quarter-over-quarter increase in gross profit was primarily attributable to the increase in game revenues from our self-developed games - Fantasy Westward Journey, Heroes of Tang Dynasty and Ghost - as well as increased advertising service revenue.

This increase was partially offset by increased cost of revenues. Fantasy Westward Journey performed well during the current quarter, which was mainly attributable to seasonality and enhanced game content. Revenue from Heroes of Tang Dynasty grew steadily since its open beta testing in June 2011, and Ghost continued its strong performance during its unlimited closed beta testing in the third quarter.

The quarter-over-quarter increase in advertising services revenue was primarily attributable to seasonality and increasing appeal of the Company's portal to users and advertisers. Increased cost of revenues was primarily due to increased royalties and consultancy fees related to the operations of Blizzard Entertainment's StarCraft II and World of Warcraft; increased staff-related costs during the third quarter of 2011.

The year-over-year increase in gross profit was primarily attributable to increased revenues from both the online games and advertising businesses, partially offset by increased cost of revenues related mainly to our online games business.

The year-over-year increase in online games revenue was primarily driven by increased revenues from the Company's self-developed games, as well as increased revenue from World of Warcraft.

Revenues from self-developed games increased primarily as a result of various expansion packs and promotional activities in the third quarter of 2011, as well as the unlimited closed beta testing of Ghost starting in April 2011 and the open beta testing of Heroes of Tang Dynasty starting in June 2011.

The year-over-year increase in revenue from World of Warcraft was mainly due to the release of the game's two expansions - Wrath of the Lich King and Cataclysm - in mainland China in August 2010 and July 2011, respectively.

The year-over-year increase in cost of revenues for the online games business was mainly due to increased royalties and consultancy fees related to World of Warcraft and StarCraft II operations and increased staff-related costs, resulting from increased headcount in 2011.

The year-over-year increase in advertising services revenue was primarily due to continued rising demand for advertising services, primarily from food and beverage products, financial services and internet services sectors.

Gross profit margin for the online game business for the third quarter of 2011 was 71.5%, compared to 70.2% and 71.8% for the preceding quarter and the third quarter of 2010, respectively. Gross profit margin for the advertising business for the third quarter of 2011 was 48.4%, compared to 43.9% and 51.5% for the preceding quarter and the third quarter of 2010, respectively. The quarter-over-quarter increase in gross profit margin was mainly due to economies of scale as advertising revenue increased in the third quarter without a corresponding increase in advertising related costs. Gross loss margin for the Wireless Value-Added Services and Others business for the third quarter of 2011 was 13.2%, compared to gross loss margins of 7.8% and 42.4% for the preceding quarter and the third quarter of 2010, respectively. The quarter over quarter increase in gross loss margin is mainly due to an increase in staff-related costs. The year-over-year decrease in gross loss margin is mainly due to increased revenues from our e-commence business and mailbox services.

Total operating expenses for the third quarter of 2011 were RMB408.2 million or $64 million, compared to RMB365.8 million and RMB365 million for the preceding quarter and the third quarter of 2010, respectively. The quarter-over-quarter increase in operating expenses was primarily due to increased selling and marketing expenses, mainly resulting from increased marketing promotional activities for Fantasy Westward Journey and Warsong of Westward Journey, increased staff-related costs resulting from increased headcount in research and development, and the reversal of share-based compensation costs and accrued bonuses relating to the resignation of a senior executive and certain staff in the preceding quarter.

The year-over-year increase in operating expenses was primarily due to the increased staff-related costs as previously described and a change in bad debt provisions. The increase was partially offset by a decrease in selling and marketing expenses, which was primarily due to the non-recurrence of marketing promotional expenses associated with the celebration of the first anniversary of Tianxia II in the third quarter of 2010. Net profit for the third quarter of 2011 totaled RMB825.8 million or $129.5 million, compared to RMB772.5 million and RMB585.3 million for the preceding quarter and the third quarter of 2010, respectively. During the third quarter of 2011, we reported a net foreign exchange loss of RMB65 million or $10.2 million, compared to a net foreign exchange loss of RMB3 million and a net foreign exchange gain of RMB54.3 million for the preceding quarter and the third quarter of 2010, respectively.

The quarter-over-quarter and year-over-year foreign exchange gains and losses were mainly due to the exchange gains and losses arising from our Euro-denominated bank deposit balances as of 30 September 2011 as the exchange rate of the Euro against the RMB fluctuated over the periods.

We reported basic and diluted earnings per ADS of $0.99 for the third quarter of 2011. This compares with basic and diluted earnings per ADS of $0.93 for the preceding quarter, and basic and diluted earnings per ADS of $0.71 and $0.70, respectively, for the third quarter of 2010.

We recorded a net income tax charge of RMB140.5 million or $22.0 million for the third quarter of 2011, this compares with RMB92.4 million and RMB91.3 million for the preceding quarter and for the third quarter of 2010, respectively. The effective tax rate for the third quarter of 2011 was 14.7%, compared to 10.9% for the preceding quarter and 13.7% for the third quarter of 2010.

Our various principal subsidiaries enjoyed the preferential enterprise income tax rate of 15% as High and New Technology Enterprises from 2008 to 2010. These subsidiaries are currently in the process of applying to renew the High and New Technology Enterprises qualification and expect to be able to retain this qualification for 2011 to 2013 as the qualification criteria remain unchanged.

The quarter-over-quarter increase in effective tax rate was mainly due to above-mentioned foreign exchange losses in the third quarter of 2011 occurred in certain tax-exempt entities.

Turning to our balance sheet - as of 30 September 2011, our total cash and time deposit balance was RMB11.3 billion or S$1.8 billion, compared to RMB9.5 billion, as of 31 December 2010.

Our total held-to-maturity investments balance was RMB596.5 million or $93.5 million as of 30 September 2011. There were no such investments as of 31 December 2010.

Cash flow generated from operating activities was RMB864.9 million or $135.6 million for the third quarter of 2011, compared to RMB995.0 million and RMB532.6 million for the preceding quarter and the third quarter of 2010, respectively. Thank you for your attention. We would now be happy to take your questions. Operator please go ahead.

Thank you sir. We will now begin the question and answer session. (Operator Instructions).

Our first question comes from the line of Richard Ji with Morgan Stanley. Please go ahead.

Good morning Brandi and Onward. Congratulations on a very strong quarter.

I will ask the question in both Chinese and English. Let me start with the first question - and web-gaming has become a top focus for not only the industry but also your Company, and given that you have achieved very meaningful success for your first web-based Ghost, should we expect going forward you are increasingly focusing more on web games? And are we also seeing a user-base shift from hard core MMORPG game to web games? Can you elaborate a little more on your pipeline and for the web games?

(spoken in Chinese).

With regard to the questions brought up by Richard Ji and William's responses, the highlights would be as follows - regarding the Company's plans of developing the web games, in fact we have - from the Company's perspective - we have already kicked off the research and development efforts a few years before and this is also proof to why we have come to these developments.

In terms of the industry developments, up to now we still do not have any specific data or information to support how it would go in the future, but we do see that the web games would be still a new area for development - in this area.

As for the success of our Ghost game, this is an MMORPG game and I think the major success is that we have been able to add in some new storylines and also the game features to make it a success.

Going forward I think other than the MMORPG games, the web games will also be another area that we will be further developing. Thank you.

Yes, alright. Thank you. Secondly, if you are looking at the leading franchise of your Company - Fantasy Westward Journey and Westward Journey II - and they have (inaudible) eight or nine years of operating history and how should we look at their lifecycle? Obviously you guys have been doing a great job to ramp up its user base to keep on hitting new record highs, but going forward how do you plan to sustain lifecycle?

(interpreted) Basically with regard to the life cycle questions brought up for our Fantasy Westward Journey and also the Westward Journey II game titles. Basically I think the success of both games over the years is that we have been putting in very serious efforts and emphasize the importance during our R&D processes. This not only extends to our games but also to our mail box, micro blogging and whatever products that we have. The other point is that for all those years we also put very high importance on the users' experiences of using our products. That is why we have been able to maintain a healthy growth over the years, both in terms of our users and also in terms of our revenues.

In fact we also think that it is very important to incorporate those user experiences into our product to make it possible for us to launch high quality products to the market. This can also be reflected in some theme titles like our Ghost and Heroes of Tang Dynasty. Thank you.

Great, thank you.

Thank you, our next question comes from the line of Dick Wei with JP Morgan. Pardon me, he actually has dropped from the queue.

Our next question comes from the line of Alicia Yap with Barclays Bank. Please go ahead.

Hi, good morning, William, Onward and Brandi, congratulations on a very strong quarter. My first question is regarding the user performance on World of Warcraft since the launch of the Cataclysm? Can you actually comment if the game performance achieved your expectations?

(interpreted) So basically, with regard to our views on the performance of World of Warcraft from the Company's perspective, basically we feel that it's okay. We also feel that both Blizzard and also NetEase put very high emphasis and importance on the success roll out of this game. So far I think we have also been able to put in some new elements to the products in order to make it more interesting and appealing to the users in general in the China market.

But having said that we also appreciate that the current market competition is very keen and also very intense for the time being. So was also anticipated that the growth rate of the World of Warcraft wouldn't be as fast as it was in the past. But we would also try to compare it with what we have been going through for our own self-developed games like the Fantasy Westward Journey or Westward Journey II. We have been going through some challenging moments and how we are going to get through the most of those moments by doing some new games innovation and reaching the contents therein in order to upkeep the interest of the games to the players and to make it a more appealing game in the market.

As for now, I think our focal points for the importance will be trying to make sure that the games themselves have very steady developments. Thank you.

Thank you, William, for a detailed answer. The second question, quickly, is that can management share your view on the overall advertising outlook for the fourth quarter and 2012? And should we expect a softer seasonality for your advertizing revenue in the fourth quarter or will that actually improve from some of the service that you introduce will continue to benefit a sequential growth in the fourth quarter? Thank you.

So Alicia, basically with regard to your questions on the advertising outlook in the fourth quarter and going forward, I think basically we still hold a cautiously optimistic view about its performance. In terms of the seasonality, I think it will still be quite okay going into the fourth quarter. Given the fact that there has been quite a lot of great efforts that NetEase has been doing for so long, like the contents innovations for the integrations and some roll out of the new products to the market which also improves and enhances our (technical difficulty) of our portals in the market and also are getting more recognition by our advertisers alike. So basically we still feel that this will be a good room for us to be developing in this area.

Okay, great thank you so much.

Thank you.

Thank you. Our next question comes from the line of Dick Wei with JP Morgan, please go ahead.

Hi, thank you for taking my question. My first question is on mobile game plans for NetEase and I wonder what is the plan for NetEase in the longer term and also will NetEase be focused more on the platform or will it be focusing more on the development for mobile games given NetEase's very strong exposure in the wireless services?

(interpreted) Okay, thank you. So with regard to our plan or the strategies on the mobile games' developments this will be an area that we will be placing emphasis on. In fact a few years ago we have also launched new applications, in Chinese it is called (spoken in Chinese). In fact we will also roll out more new games in this area. At this moment we do not have any plans of developing or using the platform.

Great, thanks. Is it possible to disclose the top five games by revenue during the quarter? Thank you.

Okay, in terms of the top five games I think basically they would be the Fantasy Westward Journey, the World of Warcraft, the Westward Journey II and also Ghost and also Tianxia II.

Okay, thank you.

Thank you, our next question comes from the line of Eddie Leung with Merrill Lynch, please go ahead.

Good morning, William, Onward and Brandi. I have two questions, the first one is about the portal business could you comment on your thoughts about online video? Should we expect any heavy investment in video in the upcoming year? The second, could you also share with us your environment or your plans for licensing games? Thank you.

(interpreted) With regard to the first questions on our online video strategies. Basically we also have some thoughts on it, but at this moment we do not have any further updates to share with offers. But definitely we will have something to announce at a later stage.

For the second question with regard to the licensing games strategies, basically we will still uphold our strategies to license some good quality products in the market. As always NetEase will be very careful in doing the product selection and makings sure that the products that we are going to license will be of good quality and will be making a good appeal to the Chinese market. Thank you.

Understood, thank you.

Thank you, our next question comes from the line of Alex Yao with Deutsche Bank. Please go ahead.

Hi, good morning, William, Onward and Brandi and thank you very much for taking my question. My first question is we have been seeing online time spans shifting from hard core MMORPG to more emerging online platforms such as video and social media. What is your thought on the overall impact on the online gaming market particularly on the time-based games such as World of Warcraft? How would you restructure your operation to respond to this trend?

(interpreted) Okay basically with regard to Alex's questions, I think William has also shared his personal viewpoints on this area. For the online video or the weibo or the so-called social media, this would just be another choice for the users for them to utilize their time. But basically we still believe that for the MMORPG games it will still be something that will have an appeal to the users or the players, which the online videos or the weibo will not be able to offer. We also believe that in order to be successful in the MMORPG industry the quality of the product is very important.

William has also highlighted and acknowledges between TV shows and also movies (technical difficulty). Say for example we have many new TV shows nowadays; people spend time to watch the TV shows. But whenever there will be some good quality movies or movies that have very good content then people will still go to enjoy the movie shows. This also explains why the quality is very important to make sure of this in this area. We also believe that for the whole industry to develop this will be driven by good quality content. Up to now based on our observations in the Chinese market we still feel that for the online video industry it is mainly operated or developed using a platform. But there is still a lack of some good quality content therein.

We also feel that this will be an area that needs more innovations (technical difficulty) in order to make it a more appealing in terms of industry developments in the future.

Got it, thank you. My second question is about the gross margin. In this quarter online gaming gross margin increased quarter over quarter. Is it because of the revenue mix shifting to self developed games?

(interpreted) Alex, with regard to your questions on the gross margins on our gaming business in these quarters I think the simple answer to it is yes. Basically I think for this quarter the improvement in the gross margins were mainly attributable to a higher mix of our self-developed games. Because, you will appreciate that during the first quarters we also had some new games being introduced. Say for example the Ghost which also has been performing very well and as such there has been an improvement in the gross margin as such.

Got it, that's very helpful, thank you very much.

Thank you and our next question comes from the line of Jialong Shi, with CLSA. Please go ahead.

Thanks and good morning, William, Onward. First of all congratulations on a very solid quarter. I have two questions. The first question is about your advertizing business. For the advertizing business actually we saw the advertizing revenue grow stronger by 36% year by year. It's quite a high base last year due to the Asian Games. So I just wonder what has contributed to the strong performance of the advertizing business in 3Q?

Jialong, thank you. I think basically with regard to the impressive performance of our advertizing business in this quarter the reasons would be that one of those would be the content innovation, product integration and also our own portals are having a higher recognition by our advertisers as a very effective medium or platform for placing their advertisements. As such we have been seeing that - we have been doing well in this quarter.

Okay, got it. Thanks. My second question is about your personalized service or (inaudible). We know your (inaudible) is growing very fast and NetEase, based on our channel checks NetEase has probably become the biggest player in this segment. Just wondering if you could provide some financial metrics on this business, like its revenue or growth rate? That would be very helpful.

(interpreted) Basically with regard to our (inaudible) development I think in terms of revenue considerations it is still a very small part as compared to our entire business. But we also recognize that for this part of business we are having a leading market position there. But we also believe that based on the current market development there will still be sometime we need to spend in order to develop the whole business to grow into a more meaningful site.

Thanks, very helpful.

Thank you, our next question comes from the line of Mark Marostica, with Piper Jaffray, please go ahead.

Yes, thank you for taking my question. I was hoping to get a little more color on Ghost in terms of the timing of the next expansion pack release. You talked about it being next year. Is that first half, second half and any more color there? Any commentary on ARPU levels for Ghost would be helpful. Thank you.

Okay, basically, Mark, with regard to the developments of our Ghost products, I think we have been launching the unlimited closed beta testing in April and in September we have launched a full scale closed beta testing. So far the performance of game itself is also very encouraging. We plan to have our next (technical difficulty) pack hopefully by the first half of 2012.

Then any comments on ARPU Levels for the game?

I think basically we will not disclose the ARPU levels of the games. UP to now what we can share with you is that we are quite satisfied with the user statistics and also the consumption in the game. We also see that the game has been growing nicely over the quarters.

Great. Just one other follow up here, regarding the operating margins that you put in the quarter which were very nice, and there was a questioner that asked about gross margins in the quarter as well. You know leading into the fourth quarter should we expect operating margins to remain at Q3 levels and specifically do you expect sales and marketing spend to grow sequentially in the fourth quarter?

I think in terms of the operating margins, I think basically you can still make reference to what we have been doing in the third quarter as a benchmark. I think whether or not we will be spending a further sequential growth on the alternative marketing this time. What I would suggest is that you can still make reference to what we have been doing in the past few quarters. We will anticipate that in the fourth quarter of course there will be some other new games' promotions through when we are doing some new launch of the expansion packs.

Fair enough, thank you.

Thank you, our next question comes from the line of Andy Yeung, with Oppenheimer & Company. Please go ahead.

Hi, good morning, congratulations on a great quarter. My first question is about your online games. What's your view on first person shooter games such as Call of Duty and their prospects in China? Do you have any plan to license or develop that kind of game in China?

So, Andy, I am sorry would you mind repeating the games that you have mentioned just now?

Call of Duty.

Call of Duty, yes (spoken in Chinese).

(spoken in Chinese). Could you ask it again?

Yes, so I think what my question is you know the first person shooter games in the US are getting very popular and particularly there's two type of games, two games that are getting very popular today in the US, Call of Duty and also Battlefield 3. You know it seems like in the US World of Warcraft its popularity is declining. I just wonder what's your overall view on first person shooter games? Also do you have any plan to either license or develop that kind of games for the Chinese market?

(interpreted) So with regards to the questions on our views on this Call of Duty game. We feel that this would also cause an interesting appeal to the market and we also are feeling that this would also be an interesting game. But whether or not this would become a very successful game in the market would really depend on how this would distinguish its features in the market as such.

Got it, okay. The next question is also about, you know a follow up question on the advertizing revenue growth. Obviously you guys have done very well in the third quarter outgrowing the overall market and also it seems to be you know accelerating. So with that and then the backdrop of in the Chinese advertizing market I think these things will be going more slowly in the third and fourth quarter. What's your overview or overall view on overall online advertizing. Then also you know in particular what's your view on your own advertizing business in the next quarter and in 2012?

Okay, basically just as what we have mentioned earlier today we still hold a cautiously optimistic view about the outlook going forward in the advertizing business in the fourth quarter and the years ahead. Basically I think this was still a very good area to further develop given the fact that the online platform is getting high recognition by the advertisers and users alike. In general to be a very effective and efficient means of their marketing and promotional activities. And coupled with our trends in content innovation the product integration and many from time to time we will also launch some new products to suit the needs of the market. We believe this will also be a very appealing area for us to develop in the online advertizing business.

Okay, someone posed the question on that. Like you know within your online advertizing business, you know is the search business going faster or is the overall branding business also going faster as well?

Up to now what I would say is that the entire portal business would still be meaningless if presented by our branded business and the search contribution would still be comparatively smaller.

Great, thank you very much.

Thank you, ladies and gentlemen, that is all the time we have for questions today. I'd like to turn the conference back to management for any closing remarks.

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

Thank you.

Thank you.

Thank you. Ladies and gentlemen, that concludes the NetEase Third Quarter Fiscal 2011 Earnings Conference Call. (Operator Instructions).

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.