NetEase Inc (NTES) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the NetEase second quarter 2013 earnings conference call. During today's presentation, all parties will be a listen-only mode. Following the presentation the conference will be opened for questions. (Operator instructions). This conference is being recorded today, the 15th of August 2013. I would now like to turn the conference over Brandi Piacente. Please go ahead.

女士們、先生們，大家好。感謝您的支持。歡迎參加網易2013年第二季財報電話會議。在今天的演示過程中，各方將採用只聽模式。演講結束後，會議將開放提問。（操作員指令）。這次會議將於今天（2013 年 8 月 15 日）進行錄製。現在我想將會議交給布蘭迪·皮亞森特 (Brandi Piacente)。請繼續。

Thank you, Operator. Please note 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 US Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risk 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.

謝謝您，接線生。請注意，今天的討論將包含與公司未來業績有關的前瞻性陳述，旨在符合美國私人證券訴訟改革法案所規定的免於承擔責任的安全港規定。此類聲明並非對未來績效的保證，且受某些風險和不確定性、假設和其他因素的影響。其中一些風險超出了公司的控制範圍，可能導致實際結果與今天的新聞稿和本次討論中提到的結果有重大差異。

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

有關可能影響網易業務和財務業績的風險因素的一般性討論包含在公司向美國證券交易委員會提交的某些文件中，包括其 20-F 表年度報告。除法律要求外，本公司不承擔更新此前瞻性資訊的任何義務。提醒一下，本次會議正在錄製中。此外，本次電話會議的網路直播將在網易公司網站ir.netease.com上提供。現在，我將把電話轉給代理財務長蔡安華先生，他將代表網易執行長丁磊先生宣讀準備好的演講稿。

Thank you, Brandi. Before I begin, please note that for the purposes of these discussions all percentages are based on Renminbi. We made exciting progress in the second quarter to expand and diversify our portfolio of internet games, products and services. Through the introductions of new games, applications and online services, as well as enhancements to our existing offerings, we are reaching a growing community of traditional online and mobile users.

謝謝你，布蘭迪。在我開始之前，請注意，為了討論的目的，所有百分比都是基於人民幣。我們在第二季度取得了令人振奮的進展，擴大並多樣化了我們的網路遊戲、產品和服務組合。透過推出新遊戲、應用程式和線上服務以及增強現有產品，我們正在接觸日益壯大的傳統線上和行動用戶群體。

Our strong results for the quarter were driven, once again, by our popular self-developed games and advertising services. Our total revenues increased by 20.4% year-over-year and 6.9% sequentially to RMB2.4 billion. Led by a number of advancements with our self developed games, including new game launches, expansion packs and upgrades to attract current and new users, revenues from our online games segment increased by 18.2% year-over-year.

我們本季的強勁業績再次得益於我們廣受歡迎的自主開發遊戲和廣告服務。我們的總營收年增20.4%，季增6.9%，達到人民幣24億元。由於我們自主研發遊戲的一系列進步，包括新遊戲的推出、擴充包和升級以吸引現有和新用戶，我們線上遊戲部門的收入同比增長了 18.2%。

This year, we have already introduced several new games to diversify and expand our portfolio. Most recently, in April, we introduced our 3D real-time strategy game, Heroes of Three Kingdoms. We plan to launch a major marketing campaign for this game in the third quarter. We are very excited about this game and believe this is an opportunity for Heroes of Three Kingdoms to set a new benchmark for success among China's real-time strategy games market. In August, we also launch our next generation 3D MMORPG, Dragon Sword.

今年，我們已經推出了幾款新遊戲，以豐富和擴大我們的產品組合。最近，在四月份，我們推出了我們的3D即時戰略遊戲《三國英雄傳》。我們計劃在第三季針對這款遊戲發起一場大型行銷活動。我們對這款遊戲感到非常興奮，並相信這是《三國英雄傳》在中國即時戰略遊戲市場樹立新成功標竿的機會。8月份，我們也推出了下一代3D MMORPG《龍劍》。

We look forward to growing Dragon Sword's user base and introducing players to this growing gaming experience. We are also excited to have introduced two comprehensive upgrades of the popular (inaudible) games, Ghost II, in April, followed by Fantasy Westward Journey II in July. These compelling new additions are already demonstrating early success as Ghost II reach record high PCUs in April and achieved record revenue for the quarter.

我們期待擴大《龍劍》的用戶群並向玩家介紹這種不斷增長的遊戲體驗。我們也很高興地在四月推出了熱門（聽不清楚）遊戲《倩女幽魂 II》的兩款全面升級版，並在七月份推出了《夢幻西遊 II》的兩款全面升級版。這些引人注目的新產品已經顯示出早期的成功，因為 Ghost II 在 4 月創下了 PCU 的最高紀錄，並實現了本季創紀錄的收入。

With Fantasy Westward Journey II, we are pleased to announce that we introduced an accompanying mobile version along with this thrilling updated game version. Now, our users can enjoy one of our most popular and longest running games on both their PCs and mobile devices. The trend in mobile games is progressing and our extensive R&D capabilities make NetEase well positioned to broaden our user base by introducing new mobile games, as well as mobile versions of some of our most popular self developed titles.

隨著《夢幻西遊II》的推出，我們很高興地宣布，我們推出了配套的行動版本以及這個令人興奮的更新遊戲版本。現在，我們的用戶可以在電腦和行動裝置上享受我們最受歡迎、運行時間最長的遊戲之一。手機遊戲的趨勢正在不斷發展，我們強大的研發能力使網易能夠透過推出新的手機遊戲以及一些最受歡迎的自主開發遊戲的行動版本來擴大我們的用戶群。

In line with this strategy, we plan to introduce several mobile games in the coming months. We see mobile games as an excellent opportunity to complement our traditional online games and are excited to provide this new offering to our [exciting] and new users. In additions to our mobile and new game introductions, during the second quarter we released expansion packs for Tianxia III, Westward Journey Online II and Westward Journey Online III. Fantasy Westward Journey and Westward Journey Online III delivered solid performances following the price adjustments that were implemented in February for this game, as well as the launch of an item-based versions of Westward Journey Online III in May.

根據這項策略，我們計劃在未來幾個月推出幾款手機遊戲。我們認為手機遊戲是補充我們傳統線上遊戲的絕佳機會，並且很高興為我們的新用戶提供這項新產品。除了推出手機遊戲和新遊戲外，第二季我們還發布了《天下三》、《大話西遊II》和《大話西遊III》的資料片。《夢幻西遊》和《大話西遊3》在 2 月進行價格調整，並於 5 月推出道具版《大話西遊3》後，取得了穩健的業績。

During the same quarter, the performance of Westward Journey Online II also remained steady and Kung Fu Master delivered an excellent performance, supported by a major marketing campaign that we initiated at the end of March. For the third quarter, we plan to introduce new game titles and content. These initiatives are well underway as we have already released new expansion packs for Legends of Fairy and New Fly for Fun in late July. Expansion packs for Westward Journey Online II and Westward Journey Online III are forthcoming this quarter. We are currently targeting September for these releases and we expect the expansion pack for Westward Journey Online II to be one of the most important upgrades for this game since the initial launch of this popular title.

同一季度，《大話西遊2》的表現也保持穩定，《功夫大師》表現出色，這得益於我們三月底發起的大型行銷活動。第三季度，我們計劃推出新的遊戲和內容。這些舉措正在順利進行中，因為我們已於 7 月下旬發布了《Legends of Fairy》和《New Fly for Fun》的新擴充包。《大話西遊II》和《大話西遊III》資料片將於本季推出。我們目前的目標是在九月發布這些內容，我們預計《大話西遊II》的擴充包將成為這款熱門遊戲自首次發布以來最重要的升級之一。

We are also making good progress on our new game development efforts. We are currently on track to introduce our 2.5D MMORPG, Legends of Tibet, later this year, followed by a first person shooter game, which will mark our first game in this genre.

我們的新遊戲開發工作也取得了良好的進展。我們目前正計劃於今年稍後推出我們的 2.5D MMORPG《西藏傳奇》，隨後推出第一人稱射擊遊戲，這將是我們在此類型的第一款遊戲。

Turning to our advertising services. Revenues for this segment also performed well, led by automobile, Internet services, and fast moving consumer goods sectors. For the quarter, our advertising services grew by 64.5% sequentially, due to the seasonal increase in advertising spending in the second quarter and 33.3% year-over-year. Our comprehensive web portal services also grew during the second quarter as we continued to improve product integrations and marketing services innovations for our traditional and mobile internet offerings.

轉向我們的廣告服務。該部門的收入也表現良好，主要由汽車、網路服務和快速消費品產業帶動。本季度，由於第二季度廣告支出的季節性成長，我們的廣告服務較上季成長 64.5%，較去年同期成長 33.3%。隨著我們繼續改進傳統和行動互聯網產品的產品整合和行銷服務創新，我們的綜合門戶網站服務在第二季度也實現了成長。

As of June 30th 2013 we have over 570 million email users and the number of enterprise email users continues to grow at a healthy pace. Looking at our mobile applications, we've continued to reach a broad audience and build our portfolio of popular applications. At the end of June, our leading mobile news applications reached 120 million installations and 40 million daily active users. I'm also pleased to announce that during the same quarter, we secure an exclusive strategic corporations with Air China to offer our news applications with in-flight wi-fi service to reach an even greater audience. Our new applications are also resonating well with users.

截至 2013 年 6 月 30 日，我們擁有超過 5.7 億電子郵件用戶，企業電子郵件用戶數量持續保持健康成長。看看我們的行動應用程序，我們繼續吸引廣泛的受眾並建立我們的流行應用程式組合。截至六月底，我們領先的行動新聞應用程式安裝量達到1.2億次，每日活躍用戶達到4000萬。我也很高興地宣布，在同一季度，我們與中國國際航空達成獨家策略合作，為我們的新聞應用程式提供機上無線網路服務，以接觸更多的受眾。我們的新應用程式也得到了用戶的一致好評。

For example, our NetEase Cloud Music application, which we released in late April, has been well received by users. Momentum for Youdao Cloudnote has also been strong, reaching 50 million users at the end of the quarter and Youdao Dictionary now has 350 million cumulative users of which 180 million are from mobile devices. This growth was supported by the mobile versions we released in May, which continues to stimulate the number of daily active users for Youdao Dictionary. Our WAP community is growing and we are reaching more and more users with our extended portfolio of online product and services.

例如，我們四月底發布的網易雲音樂應用程式就受到了用戶的好評。有道雲端筆記發展勢頭強勁，本季末用戶數達到 5,000 萬，有道字典累計用戶數達到 3.5 億，其中 1.8 億來自行動裝置。這一增長得益於我們 5 月發布的行動版本，該版本繼續刺激有道詞典每日活躍用戶數量的增長。我們的 WAP 社群正在不斷壯大，我們不斷擴展的線上產品和服務組合正在吸引越來越多的用戶。

Our momentum is strong and we will continue to extend these offerings to Chinese audiences, while also exploring international opportunities to bring our content-rich games overseas. At the same time, we remain focused on growing our robust game portfolio and service offerings for traditional online and mobile users by bringing our loyal community of compelling content across our growing business. This concludes William's update. Now, I will provide a review of our 2013 second quarter financial results. I will primarily focus on the discussions of margins and the expense fluctuations, along with net profits.

我們的發展勢頭強勁，我們將繼續向中國觀眾提供這些產品，同時也探索國際機會，將我們豐富的遊戲推向海外。同時，我們仍將專注於為傳統線上和行動用戶拓展我們強大的遊戲組合和服務產品，並透過在我們不斷成長的業務中引入我們忠實的引人入勝的內容社群。威廉的更新到此結束。現在，我將回顧我們2013年第二季的財務表現。我將主要討論利潤率和費用波動以及淨利潤。

Total sales taxes for the second quarter of 2013 were RMB149.3 million or $24.3 million, compared to RMB105.4 million and RMB41.8 million for the preceding quarter and the second quarter of 2012, respectively. The increase in sales taxes was mainly due to a change in the tax rules in China, which resulted in our online game revenues becoming subject to value-added tax instead of business tax, with the full quarter effect beginning in the second quarter of 2013. The increase in value-added tax was substantially offset by reductions in business taxes on intra-group revenues, which were previously recorded in our cost of revenues.

2013 年第二季銷售稅總額為 1.493 億元人民幣（2,430 萬美元），上一季和去年同期分別為 1.054 億元人民幣和 4,180 萬美元。銷售稅增加主要是由於中國稅法的變化，導致我們的網路遊戲收入需繳納增值稅而非營業稅，這影響從 2013 年第二季開始持續到整個季度。增值稅的增加在很大程度上被集團內部收入營業稅的減少所抵消，這些營業稅之前已記錄在我們的收入成本中。

This change in the tax rules in China did not have a significant impact on gross profit of our online game services business segments. As a result, the increase in gross profit margin was attributable to the lower net revenue due to the increased value-added tax in sales taxes. Gross profit for the second quarters of 2013 was RMB1.7 billion or $276.6 million, compared to RMB1.5 billion and RMB1.3 billion for the preceding quarter and the second quarter of 2012, respectively. The increase in gross profit was primarily attributable to an increase in gross profit from the advertising and online games businesses, which was partially offset by the gross loss from our email, wireless value-added services and other business segments.

中國稅法的這項變更並未對我們線上遊戲服務業務部門的毛利產生重大影響。因此，毛利率的增加是由於銷售稅中增值稅增加導致淨收入減少。2013 年第二季毛利為 17 億元人民幣（2.766 億美元），上一季及去年同期毛利分別為 15 億元人民幣及 13 億元。毛利的成長主要歸因於廣告和網路遊戲業務毛利的成長，但被電子郵件、無線增值服務和其他業務部門的毛虧損部分抵銷。

The quarter-over-quarter and year-over-year increases in online game revenues were primarily driven by increased revenues from our self-developed games, Fantasy Westward Journey, Kung Fu Master, Ghost II and Westward Journey Online III, which were partially offset by a decline in revenue from World of Warcraft, a game licensed from Blizzard Entertainment. The increase in advertising services revenues was primarily due to the rise in demand for advertising services, mainly from the automobile, internet services, and fast-moving consumer goods sectors.

線上遊戲收入的環比和同比增長主要得益於我們自主研發的遊戲《夢幻西遊》、《功夫大師》、《倩女幽魂2》和《大話西遊Online3》收入的增長，但被暴雪娛樂授權遊戲《魔獸世界》收入的下降部分抵銷。廣告服務收入的成長主要是由於廣告服務需求的成長，主要來自汽車、網路服務和快速消費品產業。

Gross profit margin for the online game business for the second quarter of 2013 was 80.9%, compared to 77.8% and 73.3% for the preceding quarter and the second quarter of 2012, respectively. The increase in gross profit margin was mainly due to the changes in tax rules, which I previously mentioned. Gross profit margin for the advertising business for the second quarter of 2013 was 55.5%, compared to 29% and 33% for the preceding quarter and the second quarter of 2012, respectively. The increase in gross profit margin was primarily due to economies of scale as our advertising revenue increased in the second quarter without a corresponding increase in advertising related costs.

2013 年第二季線上遊戲業務的毛利率為 80.9%，上一季和去年同期分別為 77.8% 和 73.3%。毛利率的增加主要是由於我之前提到的稅收規則的變化。2013 年第二季廣告業務毛利率為 55.5%，上一季及去年同期分別為 29% 及 33%。毛利率的成長主要得益於規模經濟，因為我們第二季的廣告收入增加，但廣告相關成本並沒有隨之增加。

Gross loss margins for the email, wireless value-added services and others business for the second quarter of 2013 was 21%, compared to 13.1% and 11.6% for the preceding quarter and the second quarter of 2012, respectively. The increase in gross loss margins was mainly due to increased operating costs related to our mobile applications such as NetEase Cloud Music and EaseRead.

2013 年第二季信箱、無線加值服務及其他業務的毛損率為 21%，上一季及去年同期分別為 13.1% 及 11.6%。毛損率的增加主要是由於與網易雲音樂、易讀等行動應用程式相關的營運成本增加。

Total operating expenses for the second quarter of 2013 were RMB626 million or $102 million, compared to RMB455.6 million and RMB437.7 million for the preceding quarter and the second quarter of 2012, respectively. The increase in operating expenses was mainly due to increased selling and marketing promotional activities in the second quarter of 2013, mainly resulting from promotional activities that were conducted for Ghost II, Blizzard Entertainment's World of Warcraft, Heroes of Tang Dynasty II, Kung Fu Master and NetEase's portal business, as well as increased research and development costs for our game pipeline.

2013 年第二季總營運費用為 6.26 億元（1.02 億美元），上一季及去年同期分別為 4.556 億元人民幣及 4.377 億元。營運費用的增加主要由於2013年第二季銷售和行銷促銷活動的增加，主要包括為《倩女幽魂2》、暴雪娛樂的《魔獸世界》、《大唐英雄傳2》、《功夫大師》和網易門戶業務開展的促銷活動，以及我們遊戲儲備的研發成本的增加。

We recorded a net income tax charge of RMB131.8 million or $21.5 million for the second quarter of 2013, compared with RMB142.9 million and RMB149.5 million for the preceding quarter and the second quarter of 2012, respectively. The effective tax rate for the second quarter of 2013 was 10.8%, compared to 11.8% and 14.8% for the preceding quarter and the second quarter of 2012, respectively. During the second quarter of 2013, we recognized RMB47.1 million in tax credits related to certain incentives for a deduction in research and development expenses agreed on by tax authorities during the annual tax filing of our PRC entities.

2013 年第二季淨所得稅費用為 1.318 億元人民幣（2,150 萬美元），上一季及去年同期分別為 1.429 億元人民幣及 1.495 億元人民幣。2013 年第二季有效稅率為 10.8%，上一季及去年同期分別為 11.8% 及 14.8%。2013 年第二季度，我們確認了 4,710 萬元人民幣的稅收抵免，這些抵免與稅務機關在我們中國實體的年度納稅申報中同意的某些研發費用扣除激勵措施有關。

The Company's various principal subsidiaries renewed their qualifications as High and New Technology Enterprises in 2011, and enjoyed the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China.

本公司之各主要子公司於 2011 年再次取得高新技術企業資格，並於 2011 年至 2013 年享有 15%的企業所得稅優惠稅率，但須經中國相關稅務機關每年審核。

During the second quarter of 2013 we reported a net foreign exchange gain of RMB5.6 million or $0.9 million compared to a net foreign exchange loss of RMB9.3 million and RMB36 million for the preceding quarter and the second quarter of 2012, respectively.

2013 年第二季度，我們報告淨匯兌收益為 560 萬元人民幣或 90 萬美元，而上一季和 2012 年第二季度淨匯兌損失分別為 930 萬元人民幣和 3600 萬元人民幣。

The quarter-over-quarter and year-over-year changes in foreign exchange gains and losses were mainly due to the unrealized exchange gains and losses arising from our foreign currency denominated bank deposit and short-term loan balances as of June 30th, 2013 as the exchange rate of the Euro and US dollar against the RMB fluctuated over the periods.

匯兌損益的環比及年比變動主要由於期內歐元及美元兌人民幣匯率波動，導致本公司截至2013年6月30日的外幣銀行存款及短期貸款餘額產生未實現匯兌損益。

Net profit for the second quarter of 2013 totaled RMB1.1 billion or $178.4 million, compared to RMB1.1 billion and RMB875.3 million for the preceding quarter and the second quarter of 2012, respectively. We reported basic and diluted earnings per ADS of $1.37 each for the second quarter of 2013.

2013 年第二季淨利為 11 億元人民幣（1.784 億美元），上一季和去年同期分別為 11 億元和 8.753 億元。我們報告 2013 年第二季每股 ADS 基本收益和攤薄收益為 1.37 美元。

The Company reported basic and diluted earnings per ADS of $1.34 and $1.33, respectively, for the preceding quarter, and reported basic and diluted earnings per ADS of $1.09 and $1.08, respectively, for the second quarter of 2012. As of June 30th 2013, our total cash and time deposits and short term investments were was RMB17.4 billion or $2.8 billion, compared to RMB16.3 billion as of December 31st, 2012.

該公司公佈上一季每股美國存託憑證基本收益為 1.34 美元，攤薄後每股美國存託憑證攤薄收益為 1.33 美元；2012 年第二季度每股美國存託憑證基本收益為 1.09 美元，攤薄後每股美國存託憑證攤薄收益為 1.08 美元。截至 2013 年 6 月 30 日，我們的現金、定期存款和短期投資總額為人民幣 174 億元（即 28 億美元），而截至 2012 年 12 月 31 日為人民幣 163 億元。

Cash flow generated from operating activities was RMB1 billion or $171.1 million for the second quarter of 2013, compared to RMB1.5 billion and RMB880.9 million for the preceding quarter and the second quarter of 2012, respectively. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

2013 年第二季經營活動現金流為 10 億元人民幣（1.711 億美元），上一季及去年同期分別為 15 億元人民幣及 8.809 億元人民幣。感謝您的關注。我們現在想開始回答你們的問題。接線員，請繼續。

Thank you. (Operator instructions). The next question comes from Dick Wei from Credit Suisse. Please go ahead.

謝謝。（操作員指令）。下一個問題來自瑞士信貸的 Dick Wei。請繼續。

Good morning. Thank you very much for taking my questions. I have two questions. First one is on the new game, Crisis 2015. I'm wondering what is the latest situation and what kind of market share can the game get within the first person shooter segment? The second question is on the mobile game development. I wonder if management can discuss some of the new pipeline within the mobile game space.

早安.非常感謝您回答我的問題。我有兩個問題。第一個是關於新遊戲《危機 2015》。我想知道最新情況如何，以及該遊戲在第一人稱射擊遊戲領域能獲得什麼樣的市佔率？第二個問題是關於手機遊戲開發。我想知道管理層是否可以討論一下手機遊戲領域的一些新管道。

(interpreted) Okay. So basically, the first question is regarding our FTS game. Basically, what we expected is by the end of this year, we would launch the closed beta testing for this game and we have also got a high expectations of this game and believe that with the launch of these new game genres to the China market, we would be getting certain market share in this segment. For the second question, regarding the mobile game developments and pipelines, basically, the whole R&D teams are currently working smoothly and basically, the whole progress are well underway and following our milestones and our expectations.

（翻譯）好的。所以基本上，第一個問題是關於我們的 FTS 遊戲。基本上，我們預計在今年年底前，我們將啟動這款遊戲的封閉測試，我們對這款遊戲抱有很高的期望，並相信隨著這些新遊戲類型進入中國市場，我們將在這一領域獲得一定的市場份額。對於第二個問題，關於手機遊戲開發和管道，基本上，整個研發團隊目前工作順利，整個進度進展順利，符合我們的里程碑和預期。

Okay. Thank you.

好的。謝謝。

Thank you. The next question comes from Alicia Yap from Barclays. Go ahead please.

謝謝。下一個問題來自巴克萊銀行的 Alicia Yap。請繼續。

Hi. Good morning, William, Onward and Brandi. Thanks for taking my questions. My first question is regarding your online advertising revenues. So you actually experienced very strong growth in this quarter, so can you share with us is there any percentage of the ad revenues currently come from mobile devices?

你好。早上好，威廉、昂沃德和布蘭迪。感謝您回答我的問題。我的第一個問題是關於你們的網路廣告收入。所以你們本季實際上經歷了非常強勁的成長，那麼你們能否與我們分享一下，目前廣告收入中有多少比例來自行動裝置？

(interpreted) This is William. So basically, with regard to the proportions of our advertising revenues coming from our mobile fronts, I think basically at this stage -- at this point of time, the portion would still be relatively small, but on the other hand, I think that we would put more emphasis on the experiences, the user experiences of our users using their mobile devices. From now, products like our mobile news application or Youdao Dictionary and other similar applications, although they are building up their tractions and also we've got a very -- popularity there, but at the moment, we do not set aside too much areas for placing the ads there, but we do stay positive with going forward [to this].

（翻譯）我是威廉。因此，基本上，關於我們來自行動端的廣告收入的比例，我認為基本上在現階段 - 目前這個時間點，這個比例仍然相對較小，但另一方面，我認為我們會更加重視體驗，用戶使用行動裝置的體驗。從現在開始，像我們的行動新聞應用程式或有道字典和其他類似的應用程序，雖然它們正在積累吸引力，而且我們在那裡也很受歡迎，但目前，我們並沒有在那裡留出太多的區域來放置廣告，但我們對未來保持樂觀。

I see. Great. Thank you. The second question that I have is I wanted to color in terms of the performance or the tractions on some of your games. So how would you rank or compare the initial results or the user interest in, the Heroes of Three Kingdoms and Dragon Sword to your older new games, like Tianxia, Ghost or Kung Fu Master? Among all these successful new games, is there any one of them actually stand out to be more like a blockbuster hit?

我懂了。偉大的。謝謝。我的第二個問題是，我想根據某些遊戲的表現或吸引力來評價一下。那麼，您如何對《三國群英傳》和《降龍之劍》與較早推出的新遊戲（如《天下》、《鬼才》或《功夫大師》）進行排名或比較初步結果或用戶興趣呢？在所有這些成功的新遊戲中，是否有哪一款遊戲真正脫穎而出，成為一部轟動一時的遊戲？

(interpreted) So basically with regard to the examples that Alicia has brought up just now, for Heroes of Three Kingdoms, basically this would be a (inaudible) kind of game or the (inaudible) kind of games. So in terms of the game genres, it cannot be compared directly with our other games like the Tianxia II or III or even the Kung Fu Master. We also [will] that for Heroes of Three Kingdoms by the game itself.

（解釋）所以基本上，就艾莉西亞剛才舉的例子而言，對於《三國志英雄》來說，基本上這是一種（聽不清楚）遊戲或（聽不清楚）遊戲。所以從遊戲類型上來說，它不能直接跟我們的其他遊戲像是《天下二》、《天下三》，甚至《功夫大師》相提並論。我們也將透過遊戲本身為《三國群英傳》做出貢獻。

It would be focusing to a special group of players who would go for the (inaudible) or (inaudible) kind of gaming experiences. So far we believe that the competition in this part of the market is intense and severe, but we do believe that with the good qualities of games that we developed and launched so far, we would be able to set up a new benchmark in this special part of the market segment.

它將專注於追求（聽不清楚）或（聽不清楚）類型遊戲體驗的特殊玩家群。目前我們認為這一市場的競爭非常激烈，但我們相信憑藉我們目前開發和推出的遊戲的優良品質，我們一定能夠在這個特殊的細分市場中樹立新的標竿。

On the other hand, going forward, we will be rolling out another new game, which is called the Dragon Sword which is a 3D MMORPG game. We also come in as a next generation 3D MMORPG game with a special focus on action type of game. We do look forward that the role of this game would target it to a special spending group or a special group of players who are looking for different kind of gaming experiences.

另一方面，展望未來，我們將推出另一款新遊戲，名為《龍劍》，這是一款 3D MMORPG 遊戲。我們也推出了下一代 3D MMORPG 遊戲，特別注重動作類型的遊戲。我們確實希望這款遊戲能夠瞄準特殊的消費群體或尋求不同類型遊戲體驗的特殊玩家群。

Having said that, by far, we still can't tell how much or how successful those games would be contributing in terms of revenues. But we do believe that as we follow our philosophy so far in our games developments -- targeting towards good qualities and good user experiences -- we will be able to [expound] this part of the market. Thank you.

話雖如此，但到目前為止，我們仍然無法判斷這些遊戲在收入方面能貢獻多少或取得多大成功。但我們確實相信，只要我們在遊戲開發中遵循我們目前的理念——以優良的品質和良好的用戶體驗為目標——我們將能夠[闡明]這一部分市場。謝謝。

Okay, great, thank you (inaudible).

好的，太好了，謝謝（聽不清楚）。

The next question comes from Timothy Chan from Morgan Stanley. Go ahead, please.

下一個問題來自摩根士丹利的 Timothy Chan。請繼續。

Hi. William and Onward, good morning and thank you very much for taking my question. My question would be also on the mobile game. I understand that you have just launched the mobile version for Fantasy Westward Journey. I wonder if you would be able to talk about the reception so far? Are you attracting new gamers to this mobile game or whether you are just seeing some PC gamers migrating to your mobile version of this game?

你好。威廉和昂沃德，早安，非常感謝你們回答我的問題。我的問題也與手機遊戲有關。據我了解，你們剛推出了夢幻西遊的手機版。我想知道您是否可以談談目前的接待情況？您是否吸引了新的玩家來玩這款手機遊戲，或者您只是看到一些 PC 玩家轉向這款遊戲的手機版本？

Subsequently I think the recent focus in the China internet space is for -- I mean the very (inaudible) strong mobile game platforms performance recently. Would you be able to comment on that as well? Thank you.

因此，我認為最近中國網路領域的焦點是──我的意思是最近非常（聽不清楚）強勁的手機遊戲平台表現。您能對此發表評論嗎？謝謝。

(interpreted) So far we have had satisfactory responses by launching the new mobile versions of the Fantasy Westward Journey II in the market. On the other hand, we do see that the role of this game itself would be complementary to what we are currently working on both the PC end and also the mobile end. We believe that those two would be supplement to one another.

(翻譯)目前，《夢幻西遊2》手遊新版在市場上的推出，獲得了令人滿意的反響。另一方面，我們確實看到這款遊戲本身的作用將與我們目前在 PC 端和行動端的工作相補充。我們相信這兩者將會互相補充。

So basically we also view it quite positively that the (inaudible) has also adopted the game centers on (inaudible) platforms. Basically this would be just following what the Korean process has been doing so far.

因此，基本上我們也非常正面地看待（聽不清楚）也在（聽不清楚）平台上採用了遊戲中心。基本上，這只是遵循韓國迄今為止的進程。

Great, thank you.

太好了，謝謝。

The next question comes from Eddie Leung from Merrill Lynch. Go ahead, please.

下一個問題來自美林證券的 Eddie Leung。請繼續。

Thank you for taking my questions. I have two questions. The first one is about the PC online game market. From your observation, is the overall PC online game market user base still growing? If not, how NetEase can take market share from the competitors? Then my second question is related to your sales and marketing expenses. There was some fluctuation in the sales and marketing expenses in the second quarter, so wondering if there would be any indication for the near term spending in sales and marketing? Thank you.

感謝您回答我的問題。我有兩個問題。第一個是關於PC網遊市場。從您的觀察來看，整體PC網遊市場的用戶群是否還在成長？如果不是，網易如何從競爭對手手中奪取市佔率？那麼我的第二個問題與您的銷售和行銷費用有關。第二季的銷售和行銷費用有一些波動，因此想知道是否有任何跡象表明近期的銷售和行銷支出？謝謝。

(interpreted) So basically our view on the PC online game market is that in China basically the internet market is very big and very large. We still believe that there's immense room for launching different kinds of products and services as long as they are of good qualities and can meet or surpass the expectations of our users or the players alike. In general, we still believe that for NetEase we do have the growth potentials in this area, not only that on the PC front but also on the mobile front. We believe that with the launch of more new products and services in the market, that can further diversify ourselves in this segment. We would be able to prove that we do got a very good ground for further growth in the upcoming futures.

(翻譯) 所以基本上我們對 PC 網路遊戲市場的看法是，在中國，網路市場基本上非常大。我們仍然相信，只要品質優良，能夠滿足或超越使用者或玩家的期望，推出不同類型的產品和服務就有巨大的空間。總的來說，我們仍然相信網易在這個領域確實具有成長潛力，不僅在PC端，而且在行動端。我們相信，隨著更多新產品和服務在市場上推出，我們可以在該領域進一步多元化。我們將能夠證明，我們確實為未來的進一步成長奠定了良好的基礎。

So, Eddie, regarding your second question about the S&M spending in the Q2, you are quite right in saying that the amount has been quite large as compared with the first quarter, but this is mainly due to the fact that there would be quite some new game titles that we have launched during the quarter where we have put in more efforts to do the marketing and promotions like the Heroes of Three Kingdoms, the World of Warcraft, Heroes of Tang Dynasty II and other game titles like that.

所以，Eddie，關於你提到的第二個問題，關於第二季度的銷售與推廣支出，你說的很對，與第一季度相比，這個數額確實很大，但這主要是因為我們在本季度推出了不少新遊戲，我們在營銷和推廣方面投入了更多精力，比如《三國志》、《魔獸世界》、《大唐英雄傳2》等遊戲。

But still we do believe that going forward for this year on an (inaudible) basis we do still target it to upkeep our current expectations that the total S&M spending for the whole year will be somewhere around 10% out of our total net revenues. We do see that in the first quarter would be the (inaudible) over the year where we would also put in more efforts in promoting our other games.

但我們仍然相信，展望今年，（聽不清楚）我們仍將目標設定為維持我們目前的預期，即全年的 S&M 總支出將占我們總淨收入的 10% 左右。我們確實看到第一季將是（聽不清楚）全年，我們也將投入更多精力來推廣我們的其他遊戲。

Understood. Thank you very much.

明白了。非常感謝。

The next question comes from Jialong Shi from CLSA. Go ahead, please.

下一個問題來自里昂證券的史嘉龍。請繼續。

Hi. Good morning, William, Onward. Thanks for taking my question. I have two questions. First question is about your mobile games. Management mentioned that you guys have a few mobile games in the pipeline. Can you quantify how many mobile games you plan to launch this year and what are their (inaudible)? For mobile games, it seems that most of the existing blockbuster titles are developed by small studios, so just wondering what are the edges of PC game developers like NetEase in mobile?

你好。早上好，威廉，繼續前進。感謝您回答我的問題。我有兩個問題。第一個問題是關於你們的手機遊戲。管理階層提到你們正在籌備幾款手機遊戲。您能否量化今年計劃推出多少款手機遊戲以及它們的功能是什麼（聽不清楚）？對於手機遊戲來說，似乎現有的大多數熱門遊戲都是由小型工作室開發的，所以想知道像網易這樣的 PC 遊戲開發商在手機領域的優勢是什麼？

(interpreted) So basically with regard to the exact numbers of mobile games that we are going to roll out in the upcoming periods, first of all, for now we do not got any specific numbers to talk about yet, but we do definitely roll out new games in a progressive manner.

（解釋）所以基本上關於我們在接下來的時期內要推出的手機遊戲的具體數量，首先，現在我們還沒有任何具體的數字可以談，但我們確實會以漸進的方式推出新遊戲。

With regard to how the big online game companies like NetEase could excel in this part of the market, basically we have accumulated quite a lot of experiences in the market of developing successful games so far. For each game title that we are going to develop or roll out, before we actually do anything, we would first start think seriously on how well we could succeed in the market before we actually go ahead on the development process, say, for example, on the type of games that we're going to roll out and what would be the features and the special things that we would like to add in before the development cycles.

至於像網易這樣的大型網遊公司是如何在這個市場中脫穎而出的，基本上我們目前在這個市場上已經累積了相當多的成功遊戲開發經驗。對於我們要開發或推出的每款遊戲，在實際做任何事情之前，我們都會先認真思考在真正開始開發過程之前我們能在市場上取得多大的成功，例如，我們要推出的遊戲類型以及在開發週期之前我們想要添加的功能和特殊內容。

We've also got a very strong team of planning people to gather different ideas and to facilitate the whole development process. As such, we believe that we do got a good competitive edge in this area in expanding our footprints in the mobile games area.

我們還擁有一支非常強大的策劃團隊，負責收集不同的想法並促進整個開發過程。因此，我們相信，在擴大我們在手機遊戲領域的影響力方面，我們確實擁有良好的競爭優勢。

Thank you. My second question is that, according to media report, your competitor Tencent recently acquired a certain stake in Activision Blizzard, so just wondering if that would have an impact on your current partnership with Blizzard. Also, NetEase has been very much focused on in-house developed games in the past.

謝謝。我的第二個問題是，根據媒體報道，你們的競爭對手騰訊最近收購了動視暴雪的部分股份，我想知道這是否對你們目前與暴雪的合作關係產生影響。此外，網易過去一直非常注重自主開發的遊戲。

Your few licensed games are all from Blizzard whilst some of your competitors have a more diversified licensing process, so just wondering if NetEase may also consider licensing games from other developers such as Korean developers in the future?

你們的少數授權遊戲都來自暴雪，而你們的一些競爭對手擁有更加多樣化的授權流程，所以想知道網易未來是否也會考慮從其他開發商（例如韓國開發商）獲得遊戲授權？

(interpreted) So basically with regard to your first questions on the potential impact on recent Tencent's stake in [APPI], basically we do not see there would be any significant impact as such, because we do maintain a very strong relationship with the Blizzard side. At the same time, we both share the same visions to serve the market in China.

(翻譯) 所以基本上關於你的第一個問題，關於最近騰訊在 [APPI] 的股份可能受到的影響，我們基本上不認為會有任何重大影響，因為我們確實與暴雪方面保持著非常牢固的關係。同時，我們雙方都有相同的願景，致力於服務中國市場。

One more point to supplement on William's remarks that if you take note on our latest or the recent announcements that have been made regarding our latest co-operations with the Blizzard side, we have entered into an agreement to license another new free to play strategy card games for PC and iPad called Hearthstone, Heroes of Warcraft. Again, this would prove that we have further -- and deepens our relationship with the business other than the existing license scheme titles like the World of Warcraft or the StarCraft II, which is very encouraging.

關於威廉的評論，還有一點需要補充，如果你注意到我們最近或最近發布的有關我們與暴雪方面最新合作的公告，我們已經達成協議，授權另一款新的免費策略卡牌遊戲，適用於 PC 和 iPad，名為《爐石戰記：魔獸英雄傳》。再次，這將證明我們與《魔獸世界》或《星海爭霸 II》等現有許可計劃遊戲之外的其他業務的關係已經進一步加深，這是非常令人鼓舞的。

On the other hand, with regard to your questions about our potential or the possibilities of licensing games from overseas, basically we would (inaudible) positively, because we do see that there would be -- whenever there would be any good titles that can fit in our criteria in terms of the game genres or the game play, the features in terms of the qualities and also how well they could fit in the user experiences as such, we are quite open to license game as such, no matter it is from overseas or in China.

另一方面，關於您所問的我們從海外獲得遊戲授權的潛力或可能性，基本上我們會（聽不清楚）積極地考慮，因為我們確實看到——只要有任何好的遊戲在遊戲類型或遊戲玩法、質量特點以及它們與用戶體驗的契合程度方面符合我們的標準，我們都非常願意獲得此類遊戲的授權，無論它來自海外還是中國。

Thank you. May I have a quick follow-up? How much of your game revenue came from World of Warcraft in Q2?

謝謝。我可以快速跟進嗎？你們第二季的遊戲收入有多少是來自《魔獸世界》？

(interpreted) The market shares of -- the contributions of World of Warcraft to our overall online games revenue would be less than 15%.

(解釋)《魔獸世界》對我們整體線上遊戲收入的貢獻市佔率將不到 15%。

Thank you.

謝謝。

The next question comes from Alex Yao from J.P. Morgan. Go ahead, please.

下一個問題來自摩根大通的 Alex Yao。請繼續。

Hello. Good morning, everyone. Thank you very much for taking my question. I have two questions. Number one is on the gaming revenue growth. You guys delivered a very robust 18% year over year growth. Would you be able to share with us to what extent the gaming revenue growth is driven by usage growth and to what extent is ARPU growth?

你好。大家早安。非常感謝您回答我的問題。我有兩個問題。第一是遊戲收入成長。你們實現了非常強勁的 18% 年成長。您能否與我們分享遊戲收入成長在多大程度上是由使用量成長所推動的，以及 ARPU 成長在多大程度上是由 ARPU 成長所推動的？

My second question is a follow-up to one of the previous questions. From the Company's perspective are you seeing the total number of active users and the total time spent on your platform growing or remaining flattish or declining over the past four quarters? Thank you.

我的第二個問題是前面一個問題的後續。從公司的角度來看，在過去四個季度中，您是否看到活躍用戶總數和平台使用總時間有所增長、持平或下降？謝謝。

(interpreted) So basically for the first question about the gaming revenue growth basically because by now we have quite a wide array of game portfolios that possess different kinds of features. So basically we do not specifically divide how much of them would be contributors from usage or from the outputs but definitely we focus more on the experiences on the money that they're going to spend and making sure that they could get the values that they're expecting in order to keep them with us to enjoy the entertainment within our games.

（翻譯）所以基本上關於遊戲收入成長的第一個問題基本上是因為到目前為止我們擁有相當廣泛的遊戲組合，它們具有不同類型的功能。因此，基本上我們不會具體劃分他們中有多少人會從使用或輸出中做出貢獻，但我們肯定更關注他們將要花費的金錢體驗，並確保他們能夠獲得他們期望的價值，以便讓他們留在我們遊戲中享受娛樂。

For the second question basically for the total active playing users so far from our observations this has been growing in the past four quarters.

對於第二個問題，從我們的觀察來看，到目前為止，活躍遊戲用戶總數在過去四個季度一直在增加。

That's very helpful. Thank you very much.

這非常有幫助。非常感謝。

The next question comes from Tian Hou from TH Capital. Go ahead please.

下一個問題來自泰合資本的天侯。請繼續。

Good morning Ding (inaudible) and Onward. I have a question related to mobile games and as you guys started to put up more and more mobile games so what is the mobile game distribution channel? So are you going to use your mobile apps such as your news -- such as your mobile dictionary? Also mobile game -- what is the margin outlook for mobile game? My understanding is a lot of (inaudible) purchase of mobile game they have to spend a significant amount of money on the channel distribution. So what is the NetEase outlook in that front?

早上好，丁（聽不清楚）和 Onward。我有一個與手機遊戲相關的問題，隨著你們開始推出越來越多的手機遊戲，手機遊戲分銷管道是什麼？那麼，您會使用您的行動應用程式（例如新聞）—例如您的行動字典嗎？還有手機遊戲──手機遊戲的利潤前景如何？我的理解是，許多（聽不清楚）購買手機遊戲的人必須在通路分銷上花費大量資金。那麼網易在這方面的前景如何？

(interpreted) So basically with regard on the potential cost of distributions to mobile games, our worry is that potentially this might be lesser as compared with the traditional PC front. First of all because the size of each client base applications will be much smaller than what we are experiencing on the PC front and as such the users or the players would use less time to download the new applications.

（解釋）因此，基本上，關於手機遊戲發行的潛在成本，我們擔心的是，與傳統的 PC 端相比，這一成本可能會更低。首先，因為每個客戶端基礎應用程式的規模將比我們在 PC 端體驗到的規模小得多，因此用戶或玩家將花費更少的時間下載新的應用程式。

At the same time we also expect that for the mobile games the server consumptions would also be lesser with the traditional PC front. We do believe that with the introduction of the mobile games to the market we can better take into dispatch of the market by utilizing the [fragmented] times that the people might have.

同時，我們也預計，對於手機遊戲來說，伺服器的消耗也會比傳統的 PC 前端更小。我們確實相信，隨著手機遊戲進入市場，我們可以利用人們可能擁有的[碎片化]時間來更好地掌控市場。

On the other hand in terms of the potential market outlook because there would be various steps that we need to take into account and just now we may talk about that maybe they will be using a little bit less of the server or the download times would be lesser. This would be positive factors but on the other hand we do also need to take into account the potential other cost.

另一方面，就潛在的市場前景而言，因為我們需要考慮各種步驟，剛才我們可能會談論他們可能會使用更少的伺服器或下載時間會更少。這將是積極的因素，但另一方面，我們也需要考慮潛在的其他成本。

One more thing to supplement is that on distributions the mobile games that initially we have already got some popular mobile applications like the news and also the dictionary and those will be the good places for us to distribute our various mobile game titles as well.

還有一點要補充的是，在手機遊戲的發行方面，我們最初已經有一些流行的手機應用程序，例如新聞和字典，這些也將是我們發行各種手機遊戲的好地方。

Okay.

好的。

The next question comes from Mark Marostica from Piper Jaffray. Go ahead please. Hello do we have Mark Marostica on the line for the next question? Sorry there's no response so I'll move to the next question and that comes from Jiong Shao from Macquarie. Go ahead please.

下一個問題來自 Piper Jaffray 的 Mark Marostica。請繼續。您好，下一個問題請問是 Mark Marostica 接聽嗎？抱歉，沒有人回复，所以我將轉到下一個問題，該問題來自麥格理銀行的 Jiong Shao。請繼續。

Hi everyone. Thank you very much for taking my questions. This is George calling on behalf of Jiong. I have two questions. The first one is regarding your mobile games. We see that you have this mobile or pocket version of Fantasy Westward Journey already online but I think it's more like as you said it's more supplementary and smaller plug-in for the PC version of the original game.

大家好。非常感謝您回答我的問題。我是喬治，代表 Jiong 打電話來。我有兩個問題。第一個問題是關於你們的手機遊戲。我們看到你們已經上線了夢幻西遊的手機版或袖珍版，但我認為它更像是你所說的原版遊戲 PC 版的補充和小插件。

So I just wonder, because some of your competitors already put out some full versions of MMORPG games on the mobile side. So what's your thought on this and are you going to launch also this mobile long version or cross platform version of bigger games going forward and how are you going to assure the fairness between different platforms?

所以我只是好奇，因為你們的一些競爭對手已經在行動端推出了一些完整版本的 MMORPG 遊戲。那麼您對此有何看法？您是否還會推出大型遊戲的行動長版本或跨平台版本？您將如何確保不同平台之間的公平性？

(interpreted) So basically for the first part of your first question basically we do believe that the introduction of the pocket versions of the Fantasy Westward Journey II will be quite an innovation for NetEase in the sense that we can extend the gaming experiences of the players from PC to the mobile front and at the moment we do see that this will be quite a good extension and the presence of these two platforms will be complementary to one another.

(翻譯) 所以基本上對於你第一個問題的第一部分，我們確實相信《夢幻西遊2》口袋版的推出對於網易來說將是一個很大的創新，因為我們可以將玩家的遊戲體驗從PC延伸到移動端，目前我們確實看到這將是一個很好的延伸，這兩個平台的存在將相互補充。

Regarding the second part about the potential cross platform or the potential fairness issues basically we do feel that the gaming experiences for users on the PC fronts and the mobile fronts would be quite different and we do not see that there would be an immediate need to pull the two groups of people together on one server to play or to compete. We do see that by having two platforms -- one on the PC front and the other one on the mobile front -- would be a more good thing for the people to experience the happiness of playing the game itself.

關於第二部分關於潛在的跨平台或潛在的公平性問題，基本上我們確實認為 PC 端和行動端用戶的遊戲體驗會有很大不同，我們並不認為有必要立即將兩組人聚集在一個伺服器上進行遊戲或競爭。我們確實看到，擁有兩個平台——一個在 PC 端，另一個在行動端——對於人們體驗玩遊戲本身的樂趣來說是一件更好的事情。

Okay thank you and my second-- (audio cuts off)

好的，謝謝你，我的第二個…（音訊中斷）

Thank you ladies and gentlemen we'll now hand back the conference call to management for closing remarks. Thank you.

謝謝女士們、先生們，我們現在將電話會議交還給管理階層結束語。謝謝。

Thank you once again for joining us today. If you have further questions, please feel to contact Cassia Curran, NetEase's IR Manager based in Hangzhou or Brandi Piacente, Group Investor Relations. Have a wonderful day.

再次感謝您今天加入我們。如果您還有其他問題，請聯絡網易杭州投資者關係經理 Cassia Curran 或集團投資者關係部門 Brandi Piacente。祝您有美好的一天。

Ladies and gentlemen this concludes the NetEase Second Quarter 2013 Earnings Conference Call. This conference will be available for replay after 11.00am today through until midnight 29th of August 2013. You may access the replay system at any time by dialing US local +1303 590 3030, US Toll Free 1800 406 7325 and entering the access code. Thank you for your participation. You may now disconnect.

女士們、先生們，網易2013年第二季財報電話會議到此結束。本次會議將於今天上午 11 點後至 2013 年 8 月 29 日午夜提供重播。您可以隨時撥打美國本地電話 +1303 590 3030、美國免費電話 1800 406 7325 並輸入存取代碼來存取重播系統。感謝您的參與。您現在可以斷開連線。