NetEase Inc (NTES) 2013 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the NetEase third quarter 2013 earnings conference call. During today's presentation all participants will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator instructions) As a reminder today's conference is being recorded and at this time I'd like to turn the conference over to Brandi Piacente, Investor Relations. Please go ahead Ma'am.

女士們、先生們，感謝你們的支持。歡迎參加網易2013年第三季財報電話會議。在今天的演講中，所有參與者將處於僅聆聽模式。演講結束後，會議將開放提問。（操作員指示）提醒一下，今天的會議正在錄製中，現在我想將會議交給投資者關係部門的 Brandi Piacente。請繼續，女士。

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 for future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks will be out of the Company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.

謝謝操作員。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，並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 and 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.

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。

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

現在，我將會議交給代理財務長崔安華先生，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. Throughout the third quarter, we made a number of advancements that broadened our internet games and service offerings. In addition to introducing new games and upgrades to our classic games, we increased our investment in our mobile capabilities. We feel considerable opportunities to connect with our growing community through further diversifications and mobile initiatives that support our growth.

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。在整個第三季度，我們取得了一系列進展，擴大了我們的網路遊戲和服務範圍。除了推出新遊戲和升級經典遊戲外，我們還增加了對行動功能的投資。我們認為，透過進一步的多樣化和支持我們發展的行動計劃，我們擁有大量機會與我們不斷成長的社區建立聯繫。

For the third quarter, we increased our revenues by 23% year-over-year, with revenues from our online games increasing by 21% and revenues from our advertising services growing 22.9%. During the third quarter, we completed important upgrades for two of our longest operating games. In July we launched Fantasy Westward Journey II along with the accompanying pocket mobile version. This game delivered a fantastic performance and contributed to the increase in our online games revenues for the third quarter. In September we introduced new Westward Journey Online II and we are very pleased with the reception to the new version of this classic game, which has inspired additional enthusiasm for the game and positive user trends.

第三季度，我們的營收年增23%，其中線上遊戲收入成長21%，廣告服務收入成長22.9%。在第三季度，我們完成了兩款營運時間最長的遊戲的重要升級。7月份，我們推出了夢幻西遊2以及配套的掌上型手機版。該遊戲表現出色，促進了我們第三季度網路遊戲收入的成長。9月份我們推出了新版《大話西遊2》，我們對這款經典遊戲新版本的反應非常滿意，這激發了玩家對遊戲的更多熱情，也帶來了積極的用戶趨勢。

Looking at some of our new games; Heroes of Tang Dynasty II has performed well since the launch of its most recent expansion pack in June and contributed to the growth of our online game business for the period. User feedback has also been encouraging following our initial commercial launch of Heroes of Three Kingdoms in April and Dragon Sword in August supported by large scale promotional activities that were initiated for those two games in September and November respectively. In the coming months we expect to see heightened interest for other newer game titles as well such as Ghost II and Kung Fu Master as we introduce expansion packs for these games in September and October respectively.

看看我們的一些新遊戲；《大唐英雄傳 II》自 6 月推出最新資料片以來表現良好，並為我們當期線上遊戲業務的成長做出了貢獻。自從我們分別於 4 月和 8 月首次商業發布《三國志英雄》和《降龍劍》以來，用戶的反饋也令人鼓舞，並且我們分別於 9 月和 11 月針對這兩款遊戲開展了大規模的促銷活動。在未來的幾個月裡，我們預計其他新遊戲（如《幽靈 II》和《功夫大師》）也會引起人們更高的興趣，因為我們將分別在 9 月和 10 月推出這些遊戲的擴充包。

Turning to our portal our advertising services revenues increased both sequentially and year-over-year, led by increased contributions from the automobile internet services and fast-moving consumer goods sectors. Our investment in mobile applications has attracted members to our active community providing a delivery vehicle for our value added services and advertisements. One of our most expected additions to this mobile platform was our launch of YiChat in August which marks our entry into the mobile instant messaging space. We were extremely pleased to partner with China Telecom to introduce this important application.

轉向我們的入口網站，我們的廣告服務收入環比和同比增長，主要得益於汽車互聯網服務和快速消費品行業的貢獻增加。我們對行動應用程式的投資吸引了許多會員加入我們活躍的社區，為我們的增值服務和廣告提供了交付工具。我們最期待的行動平台新增功能之一是 8 月推出的易信，這標誌著我們進入行動即時通訊領域。我們非常高興與中國電信合作推出這項重要應用。

YiChat diversifies our mobile portfolio and focuses on providing users with differentiated functionalities and a superior user experience. The Chinese population has quickly embraced YiChat, with downloads exceeding 1 million on the first day of its launch. By the end of October, we had more than 13 million registered users for YiChat and these numbers continue to rise. YiChat significantly advances our mobile internet strategy and we continue to grow our loyal user base across our distinctive traditional and mobile portals.

易信使我們的行動產品組合更加多樣化，並專注於為用戶提供差異化的功能和卓越的用戶體驗。易信迅速受到中國人民的歡迎，上線第一天下載量就突破了100萬次。截至10月底，易信註冊用戶已超過1,300萬，且這數字仍持續成長。易信大大推進了我們的行動互聯網策略，我們繼續透過獨特的傳統和行動入口網站擴大忠實的用戶群。

Our other industry leading applications and email services also continue to attract new users. During the third quarter, we integrated a number of product updates including new audio and visual capabilities for our email and as of September 30, 2013 we have over 590 million email users, that's 160 million installations of our leading mobile use applications.

我們其他業界領先的應用程式和電子郵件服務也持續吸引新用戶。在第三季度，我們整合了一系列產品更新，包括電子郵件的新音訊和視訊功能，截至 2013 年 9 月 30 日，我們擁有超過 5.9 億電子郵件用戶，這意味著我們領先的行動應用程式的安裝量已達 1.6 億次。

As we near the end of 2013 we have a number of initiatives underway. Earlier this month we commercially launched Legend of Tibet, a 2.5D MMORPG and before the end of the year we plan to introduce new expansion packs for Heroes of Tang Dynasty II, Tianxia III and Legend of Fairy, as well as several high quality mobile games.

隨著 2013 年即將結束，我們正在實施多項措施。本月初，我們正式推出了2.5D大型多人線上角色扮演遊戲《西藏傳奇》，並計劃在年底前推出《大唐英雄傳2》、《天下三國》和《仙俠傳》的新資料片，以及幾款高品質的手機遊戲。

The upcoming open beta testing in mainland China of Blizzard Entertainment's highly anticipated Hearthstone Heroes of Warcraft will become another important milestone. This new free to play online collectible card game is highly engaging and simple to play. We look forward to providing our players with this great gaming experience.

暴雪娛樂備受期待的《爐石戰記：魔獸英雄傳》即將在中國大陸開啟公測，將成為另一個重要的里程碑。這款新的免費線上集換式卡牌遊戲極具吸引力，而且玩法簡單。我們期待為我們的玩家提供這種出色的遊戲體驗。

Our development schedule for 2014 is also progressing smoothly. We are on track to release our first person shooter game, Crisis 2015 in the first half of the year. In addition, we are preparing to launch a game that has been under development for the past three years and we expect to begin testing this game in the coming months. This will be a 3D epic fantasy MMORPG called Revelations. Revelations features exceptional computer generated graphic effects using cutting-edge technology that integrates traditional MMO styles with enhanced action elements to provide young players with a cool and fast paced fighting experience.

我們2014年的開發計畫也進展順利。我們計劃在今年上半年發布我們的第一人稱射擊遊戲《危機 2015》。此外，我們正在準備推出一款開發了三年的遊戲，我們預計將在未來幾個月開始測試這款遊戲。這將會是一款名為《啟示錄》的 3D 史詩奇幻 MMORPG。《Revelations》採用尖端技術，具有出色的電腦生成圖形效果，將傳統的 MMO 風格與增強的動作元素相結合，為年輕玩家提供酷炫、快節奏的戰鬥體驗。

We are growing our online and mobile users based on the continued popularities of our portfolio of games and online services, as well as our promising pipeline. To expand our reach even further, we have considerably diversified our mobile applications portfolio. As mobile devices become an increasing part of society, we are taking steps to create differentiated and compelling games, products and services that speak to this new audience. At the same time, we will continue to broaden our existing platform of powerful online and mobile internet content. This concludes William's update.

由於我們的遊戲和線上服務組合持續受到歡迎，而且我們的產品線前景光明，我們的線上和行動用戶正在不斷增長。為了進一步擴大我們的業務範圍，我們大大豐富了我們的行動應用程式組合。隨著行動裝置成為社會中越來越重要的一部分，我們正在採取措施創造差異化、引人注目的遊戲、產品和服務，以滿足新受眾的需求。同時，我們將繼續拓寬我們現有的強大的線上和行動互聯網內容平台。威廉的更新到此結束。

Now I will provide a review of our 2013 third quarter financial results. I will primarily focus on the discussions of margins and expense fluctuations along with net profit. Total sales tax for the third quarter of 2013 were RMB157.7 million or $25.8 million, compared to RMB149.3 million and RMB42.9 million for the preceding quarter and the third quarter of 2012 respectively.

現在我將回顧我們2013年第三季的財務表現。我將主要討論利潤率和費用波動以及淨利潤。2013 年第三季銷售稅總額為 1.577 億元人民幣（2,580 萬美元），上一季和去年同期分別為 1.493 億元人民幣和 4,290 萬美元。

The year-over-year increase in sales tax was mainly due to a change in the tax rules in China which resulted in our online games revenues gradually becoming subject to value-added tax instead of business tax since 2013. This change in the tax rules in China did not have a significant impact on gross profit from our online games services business segment, as the increase in value-added tax was substantially offset by a reduction in business taxes on intra-group revenues, which were previously recorded in cost of revenues. As a result, the year-over-year increase in gross profit margin was primarily attributable to lower net revenue due to the increased value-added tax in sales tax.

銷售稅年成長主要是由於中國稅法的變化，導致我們的網路遊戲收入自 2013 年起逐漸由營業稅變為增值稅。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，因為增值稅的增加被集團內部收入營業稅的減少所抵消，而這些營業稅先前已計入收入成本。因此，毛利率年增主要歸因於銷售稅中增值稅增加導致淨收入下降。

Gross profit for the third quarter of 2013 was RMB1.7 billion or $285.4 million, compared to RMB1.7 billion and RMB1.4 billion for the preceding quarter and the third quarter of 2012 respectively. The year-over-year increase in gross profit was primarily attributable to an increase in gross profit from our online game and advertising businesses. The year-over-year increase in online game revenues was primarily driven by increased revenues from our self-developed games primarily Fantasy Westward Journey II, Kung Fu Master, Heroes of Tang Dynasty II and new Westward Journey Online II, which was partially offset by declined revenues from World of Warcraft, a game licensed from Blizzard Entertainment.

2013 年第三季毛利為 17 億元人民幣（2.854 億美元），上一季及去年同期毛利分別為 17 億元人民幣及 14 億元。毛利年增長主要由於線上遊戲和廣告業務毛利的增長。網路遊戲收入年增主要得益於自主研發遊戲《夢幻西遊2》、《功夫大師》、《大唐英雄傳2》和《新大話西遊2》收入的增長，但被暴雪娛樂授權遊戲《魔獸世界》收入的下降部分抵消。

The year-over-year increase in advertising services revenues was primarily due to a rise in demand, mainly from services such as automobile, internet services and real estate. The quarter-over-quarter increase in gross profit was primarily attributable to increased gross profit from our advertising services due to the reason previously mentioned and increased revenues from the one-off sales of certain gaming accessories such as a limited editions pack for New Westward Journey Online II which is included in the email, WVAS and others business.

廣告服務收入年增主要是由於需求增加，主要來自汽車、網路服務和房地產等服務。毛利環比成長主要由於廣告服務毛利因前述原因而增加，以及電子郵件、網路增值服務及其他業務中包含的《新大話西遊2》限量版禮包等某些遊戲配件的一次性銷售收入增加。

Gross profit margins for the online game business for the third quarter of 2013 was 79.7% compared to 80.9% and 74.2% for the preceding quarter and the third quarter of 2012 respectively. The year-over-year increase in gross profit margin was mainly due to the changes in tax rules that I previously mentioned. Gross profit margins for the advertising business for the third quarter of 2013 was 59.4% compared to 55.5% and 36.2% for the preceding quarter and the third quarter of 2012 respectively. The increase in gross profit margin reflects our abilities to effectively scale our advertising business.

2013 年第三季線上遊戲業務毛利率為 79.7%，上一季和去年同期分別為 80.9% 和 74.2%。毛利率年增主要是因為我之前提到的稅法變化。2013 年第三季廣告業務毛利率為 59.4%，上一季及去年同期分別為 55.5% 及 36.2%。毛利率的提高反映了我們有效擴大廣告業務的能力。

Gross profit margins for the email, WVAS and others businesses for the first quarter of 2013 was 4.1%, compared to gross loss margins of 21% and gross profit margins of 6% for the preceding quarter and the third quarters of 2012 respectively. The increase in gross profit margin was mainly due to increased revenue contributions from sales of higher margins game accessories.

2013年第一季電子郵件、無線加值服務及其他業務的毛利率為4.1%，上一季及去年同期的毛虧損率及毛利率分別為21%及6%。毛利率的增加主要由於利潤率較高的遊戲配件銷售收入貢獻增加。

Total operating expenses for the third quarter of 2013 were RMB635.2 million or $103.8 million, compared to RMB626 million and RMB537.5 million for the preceding quarter and the third quarter of 2012 respectively. The year-over-year increase in operating expenses was mainly due to increased staff related costs, resulting from an increase in the number of employees and average compensations, as well as higher research and development investments. The quarter-over-quarter increase in operating expenses was mainly due to increased general and administrative expenses and research and development expenses, which were partially offset by decreased selling and marketing expenditures for licensed games in this quarter.

2013 年第三季總營運費用為 6.352 億元人民幣（1.038 億美元），上一季和去年同期分別為 6.26 億元人民幣和 5.375 億元。營業費用年增主要是由於員工數量和平均薪資增加以及研發投入增加導致的員工相關成本增加。營業費用較上季成長主要由於管理費用和研發費用的增加，但本季授權遊戲銷售和行銷費用的減少部分抵消了這一成長。

We recorded a net income tax charge of RMB206.5 million or $33.7 million for the third quarter of 2013, compared to RMB131.8 million and RMB194.8 million for the preceding quarter and the third quarter of 2012 respectively. The effective tax rate for the third quarter of 2013 was 16.5% compared to 10.8% and 19.9% for the preceding quarter and the third quarter of 2012 respectively. During the same quarters of 2013, we recognized RMB47.1 million in tax credits related to certain incentives for deductions in research and development expenses agreed on by tax authorities during the annual tax filing of our PRC entities.

2013 年第三季淨所得稅費用為 2.065 億元人民幣（3,370 萬美元），上一季和去年同期分別為 1.318 億元人民幣和 1.948 億元。2013 年第三季有效稅率為 16.5%，上一季及去年同期分別為 10.8% 及 19.9%。2013 年同期，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期間同意的某些研發費用扣除獎勵有關。

The year-over-year decrease in effective tax rates was due to the occurrence of a one-time accrual withholding tax of RMB40 million associated with the offshore remittance of cash from China, in connection with the declarations of the special cash dividends in the third quarter of 2012. Our 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.

有效稅率年減是由於2012年第三季宣布特別現金股利時，從中國向境外匯款產生了一次性預扣稅人民幣4000萬元。本公司各主要子公司於 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 third quarter of 2013, we reported a net foreign exchange gain of RMB5.9 million or $1 million, compared to RMB5.6 million and RMB23.7 million for the preceding quarter and the third quarter of 2012 respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains were mainly due to the unrealized exchange gains arising from the Company's foreign currency denominated bank deposit and short-term loan balances as of September 30, 2013 as the exchange rate of the US dollar against the RMB fluctuated over the period.

2013 年第三季度，我們報告淨匯兌收益為 590 萬元人民幣（約 100 萬美元），而上一季和 2012 年第三季分別為 560 萬元人民幣和 2,370 萬元人民幣。匯兌收益較上一季及去年同期變動，主要由於期內美元兌人民幣匯率波動，導致本公司截至2013年9月30日的外幣銀行存款及短期借款餘額產生未實現匯兌收益。

Net profit for the third quarter of 2013 totaled RMB1 billion or $171.3 million, compared to RMB1.1 billion and RMB811.9 million for the preceding quarter and the third quarter of 2012 respectively. We reported basic and diluted earnings per ADS of $1.32 and $1.31 respectively for the third quarter of 2013. Our basic and diluted earnings per ADS were $1.38 and $1.37, respectively, for the preceding quarter. We reported basic and diluted earnings per ADS of $1.01 each for the third quarter of 2012. As of September 30, 2013 our total cash, time deposits and short term investments were RMB18.2 billion or $3 billion, compared to RMB16.3 billion as of December 31, 2012.

2013 年第三季淨利為 10 億元人民幣（1.713 億美元），上一季和去年同期分別為 11 億元人民幣和 8.119 億元。我們報告 2013 年第三季每股 ADS 基本收益和稀釋收益分別為 1.32 美元和 1.31 美元。上一季度，我們的每股美國存託憑證基本收益和稀釋收益分別為 1.38 美元和 1.37 美元。我們報告 2012 年第三季每股 ADS 基本收益和稀釋收益均為 1.01 美元。截至 2013 年 9 月 30 日，我們的現金、定期存款及短期投資總額為人民幣 182 億元（約 30 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 $165.9 million for the third quarters of 2013, compared to RMB1 billion and RMB670.1 million for the preceding quarter and the third quarter of 2012 respectively.

2013 年第三季經營活動現金流為 10 億元人民幣（約 1.659 億美元），上一季和去年同期分別為 10 億元人民幣和 6.701 億元。

Thank you for you attentions. We would now like to open the call to your questions. Operator, please go ahead.

謝謝您的關注。我們現在想開始回答你們的問題。接線員，請繼續。

Thank you sir. Ladies and gentlemen we will now begin the question and answer session. (Operator Instructions). Our first question is from the line of Dick Wei, with Credit Suisse. Please go ahead.

謝謝您，先生。女士們、先生們，我們現在開始問答環節。（操作員指令）。我們的第一個問題來自瑞士信貸的 Dick Wei。請繼續。

Hi, good morning. Thank you for taking my questions. I have two questions. First question is about international expansion. I think that there is maybe the possibility of GSTAR now and then as well as having an investment company in Korea. Maybe can the management comment a bit about the opportunities and the type of gains that's going to bring to overseas? Secondly is about YiChat. I wonder what is the financial impact that would be on the sales marketing line or on the balance sheet front from the YiChat investment. Thank you.

嗨，早安。感謝您回答我的問題。我有兩個問題。第一個問題是關於國際擴張。我認為，GSTAR 有可能時不時地就會出現，在韓國也有可能成立一家投資公司。管理層能否就這將為海外帶來的機會和收益類型發表一些評論？其次是關於易信。我想知道易信投資對銷售行銷線或資產負債表方面會產生什麼樣的財務影響。謝謝。

(interpreted) So regarding to William's first remarks on our international expansions, first of all we would like to highlight to that we have got a very superior team of R&D people who are able to produce some good quality and high quality products to the market. By far, it has come to a more appropriate timing for us to consider and to move forward for selling of our game titles to the overseas market. And not just a Korean one but we would also be open to consider the expansion to other areas as well. The whole plan of doing the international expansions will start from the fourth quarter of this year, and we will see more of these actions going forward.

（翻譯）關於威廉對我們的國際擴張的第一點評論，首先我們要強調的是，我們擁有一支非常優秀的研發團隊，他們能夠為市場生產出一些優質產品。到目前為止，我們已經到了更合適的時機去考慮並推進將我們的遊戲銷往海外市場。而且不僅限於韓國，我們也願意考慮擴展到其他地區。整個國際擴張計畫將從今年第四季開始實施，未來我們將看到更多類似的行動。

Okay.

好的。

(interpreted) So with regard to your second question regarding the financial impact of the YiChat on the financials, I think the major changes would be that we have to an investment in the joint ventures of around RMB200 million. This has been reflected in our balance sheets as part of our other long terms assets. Because we only got a 27% equity stake in the company, and so we would be using the equity methods to account for it. By far the whole operations of the YiChat is still in its early stage, and so we do not believe that it has a very significant impact on income statements so far.

(翻譯) 關於您的第二個問題，易信對財務的影響，我認為主要的變化是我們必須對合資企業投資約 2 億元。這已反映在我們的資產負債表中，作為我們其他長期資產的一部分。因為我們只擁有該公司 27% 的股權，所以我們將採用權益法來計算。目前易信的整體營運仍處於早期階段，因此我們認為目前它對損益表的影響並不十分顯著。

Great. Can I just have a quick follow up on the international side? What side of genre of games do you think we have more advantage going overseas?

偉大的。我可以快速跟進一下國際方面的情況嗎？您覺得我們在哪些類型的遊戲出海方面更有優勢？

(interpreted) So basically because different country would have different kinds of preferences on the different products. And so far I think that we would not specifically pinpoint to which type of games that we would be doing such kinds of overseas expansions in a particular country. Basically we will be taking into account what we are currently offering that would be a good opportunity to do the overseas expansions.

（解釋）基本上是因為不同的國家對不同的產品有不同的偏好。到目前為止，我認為我們不會具體指出我們會在哪個特定國家進行此類海外擴張的遊戲類型。基本上，我們會考慮我們目前提供的服務，這將是海外擴張的良好機會。

Great, thank you very much William and Onward.

太好了，非常感謝 William 和 Onward。

Thank you. The next question is from the line of Alicia Yap with Barclays. Please go ahead.

謝謝。下一個問題來自巴克萊銀行的 Alicia Yap。請繼續。

Hi. Good morning William and Onward. Thanks for taking my questions. I have a couple of questions. Number one is that I was hoping that management can share with us some of the upcoming plans for this YiChat platform and how NetEase would benefit from this YiChat?

你好。早上好，威廉和 Onward。感謝您回答我的問題。我有幾個問題。第一，我希望管理階層能跟我們分享一下易信平台未來的一些計劃，以及網易能從易信中獲得什麼好處？

(interpreted) Basically we do see that the mobile handsets would be a -- for doing the instant message or communications would be a very good entry point of moving to the mobile area. We would also take the opportunities of going into this area, by enhancing the user experiences and the recognition of our services by our YiChat users.

（解釋）基本上，我們確實看到行動手機將成為進行即時訊息或通訊的一個非常好的切入點，成為進入行動領域的一個非常好的切入點。我們也會藉此機會進入這個領域，提升使用者體驗和易信使用者對我們服務的認可。

For net use we are always focusing on the China market, and this is also reflected by the fact that we have been partnering with China Telecom in offering the YiChat services to the users in China in general. With the roll out of the newer versions of the YiChat applications, we do look forward that we can give a more refreshing and more interesting user experiences to our users alike. In a way to make good use of this initiative YiChat onto the user platforms, NetEase has got a very good position on other areas like email, the games and things like that. We would be able to put together what we are currently doing well in other areas, and put on this platform, to further enhance the communications needs and experiences of the users.

對於網路使用，我們始終專注於中國市場，這也體現在我們一直與中國電信合作向中國廣大用戶提供易信服務。隨著易信應用程式新版本的推出，我們期待能為用戶帶來更清新、有趣的用戶體驗。為了更好地利用易信這項舉措進入用戶平台，網易在電子郵件、遊戲等其他領域佔據了非常有利的地位。我們可以把目前其他領域做得好的東西整合到這個平台上，進一步增強使用者的溝通需求和體驗。

I see, thank you. My second question is on the mobile games pipeline. So I understand that you might not share some of the specific titles, but just wanted to know what type, in general, is the interest for NetEase, would that be more casual, more social, or would that be more towards the harder core MMO mobile games? Then related to that, is that given the competition is getting more and more intense in the mobile games and the content differentiations is also getting more and more crowded and less differentiated. So wondered how do you see the overall mobile games landscape and the competition level going forward? Thank you.

我明白了，謝謝。我的第二個問題是關於手機遊戲管道的。所以我明白你可能不會分享一些具體的遊戲，但我只是想了解一下網易的興趣類型，是更休閒、更社交，還是更偏向硬核 MMO 手機遊戲？與此相關的是，鑑於手機遊戲的競爭越來越激烈，內容差異化也越來越擁擠，差異化越來越小。那麼想知道您如何看待未來的整體手機遊戲格局和競爭程度？謝謝。

Just give us one second Alicia.

艾莉西亞，請給我們一秒鐘。

Okay.

好的。

(interpreted) So basically Alicia, in response to your question about our mobile games pipelines or the general landscape, I think basically for whatever type of games we will also be offering to the market, whether it is the casual one, the social, or even the MMO.

(翻譯) 基本上，艾莉西亞，在回答你關於我們的手機遊戲管道或整體前景的問題時，我認為基本上無論什麼類型的遊戲，我們都將向市場提供，無論是休閒遊戲、社交遊戲，還是 MMO 遊戲。

Operator we can move to the next question please.

接線員，請我們轉到下一個問題。

Thank you. Our next question is from the line of Timothy Chan, Morgan Stanley. Please go ahead.

謝謝。我們的下一個問題來自摩根士丹利的 Timothy Chan。請繼續。

Hi William and Onward. Good morning, thanks for taking my questions. I have two questions on your international expansion as well as YiChat as well. So about your overseas licensing strategy, this is the first time you're exporting your titles to overseas. So would that in any way imply the growth in China may be a bit slowing down? Secondly on YiChat, could you maybe share with us your target? Also what is the differentiation of YiChat to attract users away from other similar products? This is because user may be usually only need one mobile chatting application on their mobile phones. Thank you.

你好，威廉和 Onward。早上好，感謝您回答我的問題。我有兩個關於你們的國際擴張以及易信的問題。關於你們的海外授權策略，這是你們第一次將作品出口到海外。那麼這是否意味著中國經濟成長可能會放緩？其次，在易信上，您能否與我們分享您的目標？另外，易信有什麼差異化優勢可以吸引其他同類產品的使用者呢？這是因為用戶通常只需要在手機上安裝一個行動聊天應用程式。謝謝。

(interpreted) So basically with regard to your first question about the international expansion, because -- owing to the fact that we believe that our phone product has got this competitiveness to move out to the overseas area, and so this would be a natural move. It doesn't mean that the moving out of the licensing of the game titles to overseas means that the home market -- our home market is not performing well. We are still confident that given the fact that we have some high quality game products and some reputable game products in place, we would be able to perform quite well by moving a step forward by expanding our footprints in the international area.

（翻譯）所以基本上關於你關於國際擴張的第一個問題，因為——因為我們相信我們的手機產品已經具備了向海外地區發展的競爭力，所以這將是一個自然的舉措。這並不意味著將遊戲授權轉移到海外就意味著國內市場——我們的國內市場表現不佳。我們仍然有信心，鑑於我們擁有一些高品質的遊戲產品和一些信譽良好的遊戲產品，我們能夠透過擴大我們在國際領域的足跡而向前邁進一步，從而取得相當不錯的成績。

So basically there would be quite a (inaudible) of differentiated competitive niche or YiChat products. First of all if the users are using the applications within the China regions, basically there would be a certain amount of free usage to use it. With regard to the qualities of the voice or the photo transmission, our product is of a much higher performance than the others. With regard to the group chat and -- we are able to accommodate with over 200 people, that they can do some instant communications -- we believe that this will also be quite welcome to the enterprise and other big organizations to try this special functionalities.

因此基本上會有相當多（聽不清楚）差異化的競爭利基或易聊產品。首先如果用戶是在中國地區使用該應用程式的話，基本上都會有一定的免費使用量。無論是語音傳輸還是影像傳輸的質量，我們的產品都比其他產品的性能高得多。關於群組聊天——我們可以容納超過 200 人，他們可以進行一些即時通訊——我們相信這也會受到企業和其他大型組織的歡迎，嘗試這種特殊功能。

At the same time we also have got close connections with our emails and also some other applications to improve the users experiences as such. Also we always upkeep and open attitudes for co-operating with others, for doing some next generation research and development to make the products much better. All of this niche of the YiChat products, we're able to enhance and make a very good experience for our users in terms of doing their social communications and things like that.

同時，我們也與我們的電子郵件以及其他一些應用程式建立了密切的聯繫，以改善用戶體驗。我們也始終保持開放的態度與他人合作，進行下一代研究和開發，使產品變得更好。憑藉易信的所有利基產品，我們可以在社交溝通等方面增強並為用戶帶來非常好的體驗。

Okay thank you.

好的，謝謝。

Thank you. Your next questions is from the line of Tian Hou with TH Capital. Please go ahead.

謝謝。您的下一個問題來自泰合資本的天后。請繼續。

Hi William and Onward. I have a question related to your mobile game. So in your press release, you mentioned that you're going to issue a -- release some -- several high quality mobile games. Just by looking at the market, we saw Shanda issued mobile game, Perfect World issued mobile game. At the beginning they were quite successful, however when Tencent issued mobile game, they reached to a new level. So it shows that the distribution for mobile games is one of the critical elements in the success of a mobile game. I wonder how you address that issue, William?

你好，威廉和 Onward。我有一個與您的手機遊戲相關的問題。所以在您的新聞稿中，您提到您將發布一些高品質的手機遊戲。單從市場來看，我們看到盛大發行了手遊，完美世界也發行了手遊。一開始他們相當成功，然而當騰訊推出手機遊戲時，他們達到了一個新的高度。由此可見，手機遊戲的發行是手機遊戲成功的關鍵因素之一。我想知道你是如何解決這個問題的，威廉？

(interpreted) So first of all I -- William reiterates that the (inaudible) were important, especially for the mobile games strategies. But another area that we also need to pay attention to is about the mobile games life cycles. In the past 10 years, NetEase has been very successful in proving that the online games market do got a good growth opportunities and we also have some legendary game titles or platinum game titles that have experienced a continued growth in the past 10 years; either achieving some new record high numbers or new hit records of the revenue, so to call.

（翻譯）首先我－威廉重申（聽不清楚）很重要，特別是對於手機遊戲策略而言。但我們還需要關注的另一個領域是手機遊戲的生命週期。在過去的10年裡，網易非常成功地證明了網路遊戲市場確實擁有良好的成長機會，我們也有一些傳奇遊戲或白金遊戲在過去的10年裡經歷了持續的成長；或者創造了一些新的最高記錄或收入新紀錄。

On the other hand it also proves that NetEase is a company that will be able to understand the consumers' needs and what the market has been looking for. And we will also be taking it very carefully and seriously in positioning our strategies by moving into the mobile games areas as well. The simple answer to it is that all game genres or the game types will be produced by us and we will also be make sure that, by having some good quality game products to the market to be -- this would get the recognitions from the users accordingly.

另一方面也證明網易是一家能夠了解消費者需求和市場需求的公司。我們也將非常謹慎和認真地制定我們的策略，進軍手機遊戲領域。簡單的答案是，所有遊戲類型或遊戲類型都將由我們製作，我們還將確保透過向市場推出一些高品質的遊戲產品——這將獲得用戶的認可。

At the same time, the reasons why we also are moving into the area of rolling out other instant messaging applications like YiChat is that we believe that it will also lay good grounds for us to set up platforms for distributing other game titles and we also believe that the mobile aerial wouldn't just be accommodating one pod -- one application at all. And as long as we've got some good applications we do believe that it would attract the users to install it on their handsets and so far people who are having handsets with installed quite a couple of applications maybe 30 or 40 or so, as long as you really pay attention to and seriously do something and the product itself is of good quality, we believe that we will get decommissions from the market and be able to work it out well.

同時，我們之所以也進軍易信等其他即時通訊應用領域，是因為我們相信這也將為我們建立分發其他遊戲的平台奠定良好的基礎，我們也相信行動天線不僅僅是容納一個吊艙——一個應用程式。只要我們有一些好的應用程序，我們相信它會吸引用戶在他們的手機上安裝它，到目前為止，擁有手機的人已經安裝了相當多的應用程序，大概有30或40個左右，只要你真正關注並認真做一些事情，產品本身質量好，我們相信我們將從市場上退出並能夠很好地解決這個問題。

Onward, I have a question for you. Since you are going to introduce several titles of mobile games in Q4, should we expect the marketing and sales, sales and marketing expense to go up in Q4?

接下來，我有一個問題想問你。由於您將在第四季度推出幾款手機遊戲，我們是否應該預期第四季度的行銷和銷售、銷售和行銷費用會增加？

Well I think for now, if you're talking about our sale and marketing expenses, because we have still upkeep a general benchmark because we cannot give any specific guidance on how much we will be spending. But so far we will still be upkeep around 10% to 11% of the total revenues as a benchmark of how we are going to spend for this year.

嗯，我認為現在，如果您談論的是我們的銷售和行銷費用，因為我們仍然維持一個一般基準，因為我們無法就我們將花費多少給出任何具體的指導。但到目前為止，我們仍將維持總收入的 10% 至 11% 左右，作為今年支出的基準。

Okay, thank you. That's all my question.

好的，謝謝。這就是我全部的問題。

Thank you. Our next question comes from the line of Jialong Shi with CLSA, please go ahead.

謝謝。我們的下一個問題來自里昂證券的施嘉龍，請繼續。

Hi good morning, William and Onward. Thanks for taking my questions. I have a couple of questions. My first question is about your margin trend. Your margin actually has been very resilient over the past couple of quarters, while some of your peers are guiding the margin outlook due to investment into new business, particularly mobile- related business. So can you provide some colors on your margin outlook for next year? And just wondering if you will also see some margin pressure as you guys may probably also decide to ramp up investments into new business? And this is my first question.

大家好，威廉和 Onward。感謝您回答我的問題。我有幾個問題。我的第一個問題是關於你們的利潤趨勢。過去幾個季度，你們的利潤率實際上一直非常有彈性，而你們的一些同行由於對新業務（特別是移動相關業務）的投資，正在引領利潤率前景。那麼，您能否對明年的獲利前景做出一些預測呢？我只是想知道，由於你們可能還決定加大對新業務的投資，是否也會面臨一些利潤壓力？這是我的第一個問題。

(interpreted) So basically if we are looking forward to the upcoming margin trends -- because basically for this year will be a primary year where we will be doing quite a lot of investment and we do not expect that we will do too many other things in the upcoming periods. We believe that in terms of the margins there would be a trend that there would be an improvement in this area.

(解釋) 所以基本上，如果我們期待即將到來的利潤趨勢——因為基本上今年將是主要的一年，我們將進行大量的投資，並且我們預計在接下來的時期內不會做太多其他事情。我們相信，就利潤率而言，這一領域將出現改善的趨勢。

Sorry, so just to clarify, you expect your margin will -- there could be further upside potential for margin or --

抱歉，我只是想澄清一下，您預計您的保證金將——保證金可能會有進一步上漲的潛力，或者——

I think if you are talking about the margin in general, because if you're referring it to our gaming margins -- because you will also see that in the past there has been a growing trend in the sense that you will see that we have more contributions from our sub-developed games. And given the fact that we will still be holding the wheel that this will be the trend going forward. And so in this answer, at least we will be able to upkeep the current levels of the margin in this sense but there will be some room for certain improvement.

我認為，如果您談論的是整體利潤率，因為如果您指的是我們的遊戲利潤率——因為您還會看到，在過去，利潤率一直呈增長趨勢，從某種意義上說，您會看到我們從子開發遊戲中獲得了更多的貢獻。鑑於我們仍將掌控方向盤，這將成為未來的趨勢。因此，在這個答案中，至少我們將能夠維持目前的利潤水平，但仍有一定的改善空間。

I see, okay thank you. My second question is by your mobile games. In the earlier release you guys mentioned the new PC and iPad game called Hearthstone, which seems very promising. Just wondering if you can provide some updates on the feedback so far during the testing phase?

我明白了，好的，謝謝。我的第二個問題是關於你們的手機遊戲。在先前的版本中，你們提到了一款名為《爐石戰記》的新 PC 和 iPad 遊戲，這款遊戲看起來很有前景。只是想知道您是否可以提供一些有關測試階段迄今為止的反饋的更新？

(interpreted) So basically, first of all maybe the response to your second question will be that for Hearthstone, is still in the testing phase and so we will not comment much as to how it goes at this point in time. But maybe we will give you more color at a later point in time when we have completed the testing phase. And William has also made another additional supplements on the first questions about margin trend, because we have already do the necessary investment in this area in the past two years, and we do -- we are quite confident that we will be able to get some returns or especially starting from next year and so we would like of you to understand that this would be the area that we got the confidence. We are in no way to compare with all the other companies.

（解釋）所以基本上，首先，也許對你的第二個問題的回答是，對於《爐石戰記》來說，它仍處於測試階段，因此我們不會對目前的進展發表太多評論。但也許當我們完成測試階段後，我們會在稍後的時間為您提供更多資訊。威廉也對第一個關於利潤趨勢的問題做了補充，因為在過去的兩年裡我們已經在這個領域做了必要的投資，我們非常有信心，我們將能夠獲得一些回報，特別是從明年開始，所以我們希望你們明白，這是我們有信心的領域。我們根本就無法與其他公司相比。

Thank you. Our next question comes from the line of [Vinny Wong] with Bank of America, please go ahead.

謝謝。我們的下一個問題來自美國銀行的 [Vinny Wong]，請繼續。

Hi William and Onward, thanks for taking my questions. My question comes on, just wondering, we see a nice growth on the line -- on the revenue segment on the WVAS. I just want to understand. Can you add more color on the growth drivers in this segment and also number two is on the use of cash. Given we have almost like a $3 billion cash on hand. So just want to understand, what are -- is there any plan in mind for that? Thanks.

你好，William 和 Onward，感謝你們回答我的問題。我的問題是，只是想知道，我們看到了 WVAS 收入部分的良好成長。我只是想了解一下。您能否更詳細地介紹這一領域的成長動力，以及第二個方面是關於現金的使用。鑑於我們手頭上有近 30 億美元的現金。所以只是想了解一下，有什麼計畫嗎？謝謝。

First of all if you are talking about the exceptional positive performance of our WVAS and others in the third quarter, the major reason is that we have got an increase, brought about by the sales of our game related accessories like limited editions packs of our new Westward Journey Online II, and this has bring about the growth especially in third quarter.

首先，如果您談論的是我們的WVAS和其他產品在第三季度的出色表現，主要原因是我們的遊戲相關配件（例如新《大話西遊2》的限量版套裝）的銷售帶來了增長，這帶來了第三季度的增長。

But if you are looking at the segment in general, because we would be covering quite a lot of stuff like our email, the sale of game accessories and other things like the e-commerce related kind of stuff like free tickets and things like that. And so we are still believing all of those kind different kind of components are progressing well. And we do see that it was quite a nice trend going forward but having said that this whole segment is still representing small portions of our overall business and so we will still work on this area.

但如果你從整體上看這個部分，因為我們將涵蓋很多東西，例如我們的電子郵件、遊戲配件的銷售以及其他像電子商務相關的東西，例如免費門票之類的東西。因此，我們仍然相信所有這些不同類型的組件都進展順利。我們確實看到這是一個相當不錯的未來趨勢，但話雖如此，整個細分市場仍然只占我們整體業務的一小部分，因此我們仍將致力於這一領域。

And with regard to your second question about the potential usage of cash, because just as we previously mentioned, the Company is cut into three potential areas of doing so. First of all, early this year the company has already announced that we would formalize a new dividend policy, so we're -- starting from 2013, we will be using 20% to 25% of our net profits for potentially declaring and paying the dividends to the shareholders. The other thing is that we are still having a share repurchase program in place. That would be due to expire later this month. And other areas that we are still open to some potential investment opportunities.

關於您的第二個問題，即現金的潛在用途，正如我們之前提到的，公司有三個潛在的使用領域。首先，今年年初公司已經宣布將正式實施新的股利政策，從2013年開始，我們將使用20%至25%的淨利向股東宣布和支付股利。另一件事是，我們仍在實施股票回購計畫。該禁令將於本月稍後到期。而其他領域我們仍然對一些潛在的投資機會持開放態度。

Thank you. Our next question is from the line of Jiong Shao with Macquarie. Please go ahead.

謝謝。我們的下一個問題來自麥格理的邵炯。請繼續。

Thank you very much for taking my questions. My first question is about your go to market strategy for your upcoming mobile games. Are you considering to do it on your own, in terms of promoting and operation? Or are you looking to initially work with a platform such as [Xi Hu] and [Zho Yau]? Any thoughts would be appreciated.

非常感謝您回答我的問題。我的第一個問題是關於您即將推出的手機遊戲的市場策略。你們有考慮過自己做推廣、經營嗎？或者您希望最初與 [Xi Hu] 和 [Zho Yau] 等平台合作？任何想法都將不勝感激。

(interpreted) Okay. So basically for whatever types of initiatives that are going to go out to the market, there will be two ways that we'll be working on. First of all we will be -- there'll be working out our own distribution channels or platforms so to call. And we will also make use of what the market is currently using.

（翻譯）好的。因此，基本上，對於要推向市場的任何類型的舉措，我們都會採取兩種方式。首先，我們將建立自己的分銷管道或平台。我們還將利用市場目前正在使用的東西。

Okay. Thanks for the thought. My second question is about your user acquisition for YiChat. We all appreciate what you just described about the differentiation between YiChat and WeChat basically. But the conventional wisdom is that this sort of a chatting program has a pretty strong network effect. It's great you now have 30 million users already, but going forward, what are some of the ways you are incrementing to grab -- to get more users on your platform to create the much-needed network effect, i.e. like handset pre-installation, is that part of that? Anything you can share will be helpful.

好的。謝謝你的想法。我的第二個問題是關於易信的用戶獲取。我們非常欣賞您剛才所描述的易信和微信之間的基本差異。但傳統觀點認為，這種聊天程式具有相當強大的網路效應。現在您已經擁有 3000 萬用戶，這很棒，但展望未來，您將採取哪些方式來吸引更多用戶到您的平台上來創造急需的網路效應？例如手機預裝，這是其中的一部分嗎？您分享的任何內容都會有所幫助。

(interpreted) Okay. So basically the simple answer to this is that this has been our directions to do it and we will not stop until we get it succeeded.

（翻譯）好的。因此，基本上，這個問題的簡單答案是，這一直是我們這樣做的方向，我們不會停止，直到成功。

Okay, could I just follow up? Do you consider to do handset installation to expand your user base?

好的，我可以跟進一下嗎？您是否考慮進行手機安裝來擴大您的用戶群？

(interpreted) So basically the general (technical difficulty) is that there are many, many ways of doing so in order to acquire new users or things like that. Whether --you are mentioning about the handset pre-installation, something like that -- but the more important thing is that companies can actually work hard, or seriously, to do some creative stuff or innovations. Then we will be able to do some new changes in the upcoming futures. And we do believe that, given the passions and the seriousness in our mind of doing this area, we will be able to work out something good in the upcoming period.

（解釋）所以基本上，一般的（技術難題）在於，為了獲得新用戶或類似的東西，有很多很多的方法。無論——您提到的是手機預裝之類的——但更重要的是，公司實際上可以努力或認真地做一些有創意的事情或創新。那我們就能在未來做一些新的改變。我們確實相信，憑藉我們對這一領域的熱情和認真態度，我們一定能夠在未來取得一些成果。

(interpreted) Yes and we do not mean to block out the ways for other peoples. But what we are constantly doing is that we are just finding the ways of working out something that would be more suitable for us.

（解釋）是的，我們並不想阻擋其他人的道路。但我們一直在做的是，我們只是在尋找更適合自己的解決方法。

Thank you. Ladies and gentlemen. Due to time constraints, our last question will be from the line of Alex Yao with JP Morgan. Please go ahead.

謝謝。女士們，先生們。由於時間限制，我們的最後一個問題來自摩根大通的 Alex Yao。請繼續。

Hi. Good morning, everyone. Thank you for taking my question. I have a question on mobile gaming. Do you think mobile gaming is more similar to the client-based games, or is it more similar to web-based games in terms of monetization, life cycle and marketing? And what approach will you guys adopt in this gaming genre?

你好。大家早安。感謝您回答我的問題。我有一個關於手機遊戲的問題。您認為在獲利、生命週期和行銷方面，手機遊戲更類似於客戶端遊戲，還是更類似於網頁遊戲？你們將採用什麼方法來玩這種類型的遊戲？

(interpreted) So basically I think there are -- it would be quite difficult to give you a very specific answer to what you have been asking. But basically we are quite sure about how well we should be doing, in order to produce a product that can fit the needs of our target users and to improve their user experiences.

（解釋）所以基本上我認為——對於你所問的問題，很難給出一個非常具體的答案。但基本上，我們非常清楚我們應該做得多好，以便生產出能夠滿足目標用戶需求的產品並改善他們的用戶體驗。

Thank you. Ladies and gentlemen, that concludes our question and answer session. At this time I'd like to turn the conference back over to management for any closing remarks.

謝謝。女士們、先生們，我們的問答環節到此結束。現在，我想將會議交還給管理階層，請他們做最後發言。

Thank you, everyone, for joining us today. If you have further questions, please feel free to contact Cassia Curran, NetEase's IR manager based in Hangzhou, or the Piacente Group, Investor Relations. Thank you again, and have a wonderful day.

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

Thank you. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1800 406 7325 or 303 590 3030 using the access code of 464 7045, followed by the pound key. This does conclude the NetEase third quarter 2013 earnings call. Thank you very much for your participation. You may now disconnect.

謝謝。女士們、先生們，如果您想收聽今天會議的重播，請撥打 1800 406 7325 或 303 590 3030，接入碼為 464 7045，然後按井號鍵。網易2013年第三季財報電話會議到此結束。非常感謝您的參與。您現在可以斷開連線。