NetEase Inc (NTES) 2015 Q3 法說會逐字稿

Good day, and welcome to the NetEase third quarter 2015 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead, ma'am.

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 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 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.

During today's call, management will also discuss certain non-GAAP financial measures, for comparison purposes only. For a definition of non-GAAP financial measures, and a reconciliation of GAAP to non-GAAP financial measures and results, please see the third quarter financial results news release, issued earlier today.

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 conference 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 at NetEase.

Thank you, Brandi. Before I begin, please not that for the purposes of this discussions, all percentages are based on renminbi.

China's online gaming industry has undergone a rapid transformations over the last two years. While traditional online games remain popular, more and more players are adopting mobile options to suit their on-the-go lifestyles. The combinations of these complementary platforms is putting China on pace to become the world's largest gaming market.

NetEase has been at the forefront of this market, and we are honored to be a leading developer and operator of some of the country's most popular games. We have long been a successful innovator in China's evolving Internet. And third quarter results reflect the continued commitments to our community, with total net revenues increasing by 114.1%, compared with the same period last year.

We grew our top-line net revenues of our three business segments, both sequentially and year over year, with year-over-year increases of 124.5% in online games, 10.5% in advertising services, and 162.2% in email, e-commerce, and others.

Our self-developed and licensed PC-client games continue to stand the test of time, while our mobile games are driving new growth and attracting new [constituencies]. We have had some exciting success, introducing mobile adaptions of our popular games to Chinese audiences.

In particular, during the third quarter, we launched our Westward Journey Online mobile games, which together with our Fantasy Westward Journey mobile game are now the top two grossing games in the iOS China app store.

Players' appetites for new PC-client games and content remain strong. And during the third quarter, we were very pleased with the performance of our new self-developed 3D oriental fantasy MMORPG, Revelations. We also saw continued interest in Blizzard Entertainment's Diablo III, Reaper of Souls and Hearthstone, Heroes of Warcraft. To build on this momentum, our strategy will be to continue to increase the longevities of these games, with new features and contents.

To this end, during the third quarter, we introduced a number of expansion packs for our PC-client games that were warmly received, including Fantasy Westward Journey II, and the new versions of Ghost II, called New Ghost. Additionally, we have entered into collaborations with New Ghost and an urban TV show which is based on a renowned youth romance novel. This cooperation represents the initiations of our strategies to utilize innovative marketing models for our games that further extend our brand.

Similarly, we are strengthening our mobile positions. And, today, we have a solid mobile portfolio that holds more than 50 games. Since July, we have launched a number of new mobile titles to enthusiastic receptions, with games such as Fairy Tales, the World of the Brave, Kai-ri-sei Million Arthur, Luna Flowers, The Beautiful Dream, and Chrono Blade.

In addition to the domestic popularity of our mobile initiatives, we have now launched several new games for overseas audiences. The initial feedback has been positive, and we are actively growing our international presence.

We plan to continue fortifying our mobile foothold with self-developed and licensed games that delight our players. Other new games slated for introductions include our highly-anticipated Kung Fu Panda mobile games in late November, as well as the X-World, Fantasy Westward Journey Warriors, and Raven in the coming months.

Looking at our PC-client game pipeline, we look forward to bringing our PC-client players thrilling new experiences with expansion packs planned for Tianxia III, Heroes of Tang Dynasty Zero, and the new release of Hegemon King of Western Chu in the coming periods.

Our other business segments are also faring well. Advertisers are continuing their transitions from PC to mobile platforms, where we offer numerous advantages, based on our leading apps, including our mobile news applications. Accordingly, we are seeing continued growth in our advertising revenues from mobile platforms.

During the third quarter, our top-performing advertising verticals were the automobile, Internet services, and food and beverage sectors. E-commerce is another area where we see an opportunity to expand. Our cross-border e-commerce platform, Kaola.com, also continued to grow rapidly during the third quarter, and we are seeing sustained strong momentum from our e-commerce business.

Our businesses are robust and growing. Our healthy portfolio of PC-client and mobile games, along with our services and other complementary offerings are faring well with our loyal community base. We continue to expand this audience, with a focus on superior quality and innovations, while keeping an eye toward integrations of our PC-client and mobile games, and other product and service offerings across our business lines.

This concludes William's comments. I will now provide a review of our third quarter's 2015 financial results. I will primarily focus on the discussions of margins and expense fluctuations, along with net profit.

Gross profit for the third quarter of 2015 was RMB3.8b or $605.6m, compared to RMB2.8b and RMB2.3b for the preceding quarter and the third quarter of 2014, respectively. The year-over-year and quarter-over-quarter increases in online games gross profit were primarily driven by revenue contributions from our mobile games, such as the Fantasy Westward Journey mobile games, and licensed games such as Blizzard Entertainment's Diablo III, Reaper of Souls and Hearthstone, Heroes of Warcraft, as well as our new self-developed PC-client games, such as Revelations.

The year-over-year and quarter-over-quarter increases in advertising services gross profit were primarily attributable to strong demand from the automobile, Internet services, and food and beverage sectors, and the monetizations of our mobile applications, primarily our mobile news app.

The year-over-year decrease in email, e-commerce, and others gross profit was primarily due to the temporary suspensions of higher margin e-commerce services, related to third-party lottery products, since late February 2015, which was partially offset by increased revenue contributions from our other e-commerce platforms, which have relatively lower gross profit margins.

The quarter-over-quarter decrease was primarily due to the one-off recognitions of expenses related to certain corporate rights in the third quarter of 2015.

Our gross profit margins for the online games business, for the third quarter of 2015 was 67.9%, compared to 69.3% and 77.2% for the preceding quarter and the third quarter of 2014, respectively.

The year-over-year and quarter-over-quarter decreases in gross profit margin were mainly due to increased revenue contributions from mobile games, which have relatively lower gross profit margins, as a percentage of our total online games revenues.

Gross profit margins for the advertising services business for the third quarter of 2015 was 67.6%, compared to 68.2% and 65.3% for the preceding quarter and the third quarters of 2014, respectively.

Gross profit margins for our email, e-commerce, and others business for the third quarter of 2015 was 0.1%, compared to 4.2% and 51.6% for the preceding quarter and the third quarter of 2014, respectively.

The year-over-year decrease in gross profit margin was primarily attributable to the temporary suspensions of high-margin e-commerce services, related to third-party lottery products above, as well as increased revenue contributions from our other e-commerce platforms which have relatively lower gross profit margins.

The quarter-over-quarter decrease was mainly due to the one-off recognitions of expenses related to certain copyrights in the third quarter of 2015.

Our total operating expenses for the third quarter of 2015 were RMB1.8b or $277.1m, compared to RMB1.4b and RMB1.1b for the preceding quarter and the third quarter of 2014, respectively.

The year-over-year and quarter-over-quarter increases in operating expenses were mainly due to increased selling and marketing expenses for mobile and PC-client games, advertising services, and other mobile products, and higher staff-related costs resulting from an increase in headcount and average compensations.

We recorded a net income tax charge of RMB399.2m or $62.8m for the third quarter of 2015, compared to RMB145.9m and RMB197.3m for the preceding quarter and the third quarter of 2014, respectively.

The effective tax rate for the third quarter of 2015 was 17.1%, compared to 9.2% and 14.4% for the preceding quarter and the third quarter of 2014, respectively. The year-over-year increase in the effective tax rate was mainly the result of certain subsidiaries being approved as key software enterprises and subject to a preferential tax rate of 10% for 2014. Those subsidiaries were subject to a tax rate of 15% in 2015.

The quarter-over-quarter increase in the effective tax rate was mainly due to the recognitions of certain tax credits in the second quarter of 2015, related to annual tax filing benefits. Most of these credits comprised extra tax deductions for research and development expenses, approved by the tax authorities.

In the third quarter of 2015, we had a net foreign exchange gain of RMB66.5m or $10.5m, compared to a net foreign exchange loss of RMB21.7m and a net foreign exchange gain of RMB2.2m for the preceding quarter and the third quarter of 2014, respectively.

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

Our net income attributable to the Company's shareholders for the third quarter of 2015 totaled RMB1.9b or $296.1m, compared to RMB1.4b and RMB1.2b for the preceding quarter and the third quarter of 2014, respectively.

Our non-GAAP net income attributable to the Company's shareholders for the third quarter of 2015 totaled RMB2.1b or $322.6m, compared to RMB1.6b and RMB1.3b for the preceding quarter and the third quarter of 2014, respectively.

Basic and diluted earnings per ADS for the third quarter of 2015 were $2.25 and $2.24, respectively. This compares to basic and diluted earnings per ADS of $1.7 and $1.69 respectively for the preceding quarter, and basic and diluted earnings per ADS of $1.4 and $1.39 respectively, for the third quarter of 2014.

Non-GAAP basic and diluted earnings per ADS were $2.45 and $2.44, respectively for the third quarter of 2015. This compares to a non-GAAP basic and diluted earnings per ADS of $1.9 and $1.89, respectively in the preceding quarter and $1.51 each for the third quarter of 2014.

As of September 30, 2015, our total cash and time deposits balance was RMB20.4b or $3.2b, compared to RMB21.2b as of December 31, 2014.

Cash flow generated from operating activities was RMB2.2b or $346.5m for the third quarter of 2015, compared to RBM835.9m and RMB1.2b for the preceding quarter and the third quarter of 2014, respectively.

As part of our commitment to returning values to our shareholders, we are pleased to announce that our Board of Directors has approved a dividend of $0.56 per ADS, for the third quarter of 2015. We expect to pay this on December 4, 2015 to shareholders of record, as of the close of business on November 27th, 2015.

Additionally, on September 1, 2015, we announced that our Board of Directors approved a new share repurchase program of up to $500m of the Company's outstanding ADS. As of September 30, 2015, we had repurchased around 0.19m for approximately $20.7m, under this program.

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

(Operator Instructions). Dick Wei, Credit Suisse.

Hi, good morning. Thank you for taking my questions, and congrats on the strong quarter. The first question is on the mobile games front. I wonder, in general, how many mid-core mobile games players play at the same time?

(Interpreted). So based on our observations, for the general hardcore players, they would generally focus on playing one games at one time. Whereas for the players who are playing the casual games, usually they would focus two to three games.

Okay. (Spoken in foreign language). And the second question is maybe on deferred revenue. I think the deferred revenue was around RMB4.1b this quarter, versus around RMB3.8b last quarter, so the growth is vertically stable. I wonder if any-- how should I look at that, in relation to the revenue growth, as well as, I'm not sure, any accounting policy changes for the deferred revenue. Thank you.

So with regard to your questions about the deferred revenues, I believe that there has been a very good and positive trend of going up in the third quarter. And, basically, this would also be very good reflections on the positive receptions on -- since the launch on the operations of our new mobile games, including the Fantasy Westward Journey and also the Westward Journey Online mobile games. And those games has been trending on track, and we are still quite happy to see that the deferred revenues has been going up.

With regard to your point on the accounting policies, I believe that we have been upkeep, as a very consistent approach, in doing the recognitions of the games' revenues. Basically, if we are referring to the item-based model, then we would be -- amortize those revenues for a period of not more than six months. This has been consistently applied, for both the PC games and also the mobile games.

Okay. Thank you.

Alicia Yap, Barclays.

Hi. Good morning, William and Onward. Congratulations on the strong quarter. Thanks for taking my questions. I have a couple of quick questions. Number one is that can you share with us maybe what are the success factors for your two hit games in a row, Fantasy Westward Journey, and Westward Journey II, and mobile?

And then can you share with us the user profile for both games, like the similarities and the differences between; for example, like demographic, the age group, the first-tier versus lower-tier cities, any skew towards iOS user or Android user?

And then can I also get the percentage of mobile games contribution for the quarter? And then I have another questions. Thanks.

(Interpreted). So basically with regard to your question about the success patterns or perhaps the user profile about our mobile games, in particular to the FWJ or the WJ mobile, first of all, we do have very strong development teams in the past ten plus years, cumulative of rich experiences of developing games. And we've also got a very good knowledge and experience base, to make sure that we can deliver something that would be of very good qualities to our targeted audiences in the market.

And just to recap on what William has previously highlighted, in particular to the user base for the FWJ mobile, basically about 70% of those would be new users. And we believe that, with the higher popularity of the mobile handsets or the mobile smartphones, this would also lays a very good trend for people to turn to play the mobile games, in that sense. And also, we also observe that, in terms of the users for the FWJ mobile, basically they would be users of the lower -- younger age group.

Okay. Thank you. Thank you, Onward and William. My second questions is on Kaola. So is there any metrics that maybe you can share with us in terms of numbers of orders or maybe active user base? That would be great. If not, what about in terms of most popular products that people attracted to your platform?

And then, just overall is that, to conclude, on the -- other than competitive pricing and authentic products, what are Kaola's key differentiations between other e-commerce platforms? Or what targets that we try to achieve on differentiation?

And Onward, can you also remind us the mobile game percentage contribution? Thanks.

(Interpreted). Okay. So basically with regard to our strategies on the Kaola businesses, basically we are using our own resources to do the merchandisings or the sourcings of those goods and to making sure that those goods will be authentic, in that sense.

And then, if we look to the market for some of the other peers, because somehow they would also be using the third-party vendors or suppliers in order to source those products, and so there will be a risk on the authenticity of the goods. And, at the same time, there will also be certain pricing issues attached with those products.

And the theme or the philosophies for NetEase in getting into this new area is that we would like to make sure that we would provide something that would be value for money, that will be of good values and adds a very good experience to our targeted users on our Kaola.com platforms.

And, in the past couple of quarters, we also see that the growth in these new business initiatives has been doing very well. And we are also looking forward that this will be on track to growth going forward.

And this would be the first part response to your questions.

And just to supplement, Alicia, on your questions about the mobile games percentages for the third quarter, this has already come up to about 53% for this quarter.

Okay. Thank you, Onward, and thank you, William.

Eddie Leung, Merrill Lynch.

Good morning. Just a question on the Kaola business as well. We have seen the gross margin being close to zero at the moment. So just wondering whether it's more about discounts or it's more about economies of scale, which we should see, as revenue grows, the gross margin [will be turned] to positive. Or whether -- thanks.

So, William, thank you -- Eddie, thank you for your questions. So basically, with regard to the gross margins for our Kaola businesses, just as what we have mentioned in previous quarters, this will be a low gross margin businesses. And we do see that, in the past couple of months, as the scale and the user base has been growing, we do see that this would also be contributing a relatively lower gross margin, in that sense.

But if we look at the business segments as a whole -- because this would not just be accounting for the performances of -- on just the Kaola alone, but there would also be some other initiatives that we have been offering free of charge to our users as well. And so as a whole, you would also see that there has also been a further [freeze] or a down-trend in terms of this gross margin on these business segments. But as always, we also anticipated that, as we grow our scale of these businesses, and in a much longer term, we would also try to see how we could better enhance the gross margin for these business initiatives.

Thank you.

[Jiang Shi], Nomura.

Hi. Good morning, William, Onward and Juliet. Thanks for taking my call. First of all, Onward, can you remind me again the mobile game contribution in Q3? I probably missed it. I have a few follow-ups. Thank you.

This would be about 53%.

Okay. Of total gaming revenue?

Yes.

Okay. Thank you. Also, my second question is also about your mobile gaming business. As we know, your top two game IP, i.e. Fantasy Westward Journey and Westward Journey II, have both been converted into mobile games. So I just wonder what's the Company's mobile game strategy going forward, so we may see more of NetEase's mobile games being ranked -- to be ranked among the top ten.

(Spoken in Chinese).

Thank you, William.

Interpreted). So Jiang, with regard to your questions on the mobile game strategies for NetEase, so first of all, the Company's internal vision is that we would be introducing far more games that can get up to the top five of the top-grossing charts on the iOS China app store. And, with the recent success that we have made so far, we are quite confident that we would be able to make it in the foreseeable future. And, in doing so, we will also be extending and expanding our product lines, our -- into different kinds of game types and genres, so to call.

And in terms of the strategies on the game developments, there would be three main ways that we would be achieving that. First of all, we would also be introducing our self-developed mobile games, of which the IP would be rest with NetEase. And secondly, we would also be introducing some game titles by licensing the game titles. And one of the recent ones that has been done would be games like the Chrono Blade. And the third way that we would be targeting ourselves in the game developments, the mobile game developments is that we would be making good use of the IPs from others, whereas the game developments would rest with NetEase, where we would be developing something that will be interesting to the market.

And in the upcoming period, there would also be games that will be following the Gulong series, which is the Chinese martial arts story series games. And another one that we would also be launch shortly will include games like the Kung Fu Panda, where we are in cooperation with the Warner Brothers, in that sense.

And so this would basically summarize the Company's strategies, both in terms of how we would like to go and in terms of how we are going to develop our mobile games going forward.

Thank you, William and Onward, for the color. My last question is about your e-commerce business. I think you might have booked the cross-border e-commerce revenue under others on your P&L. So I just wonder how much of other revenue in Q3 was contributed by Kaola.

And, on top of the cross-border e-commerce platform Kaola, I understand NetEase also has some other e-commerce services. So I just wonder if management might give us some colors on those non-Kaola e-commerce services; what are they -- what are those services about and how is there GMV compared to Kaola?

Okay. So with regard to your questions about the makeup of our [first] segments, namely the email, e-commerce and others, basically what I can share with you is that, out of the total revenues in the third quarter, a relatively high portion, more than half of it, would be coming from the e-commerce related businesses; whereas we've also got some other revenues coming from other businesses, like the online entertainment broadcasting services, and also our traditional email services and other services, including the sales of game accessory items, stuff like that.

And right within these segments there would also be some -- a very rich array of offerings that we are currently doing as well, including some wealth management products, some friend-making services and some related to our cloud classrooms, or the [Yingkoutan] and the news reader, the cloud music and stuff like that. And so we do see that there would be lots more that we are offering within these segments.

Thanks. Thank you very much for the color. Can I ask one last follow-up? Do you have any updates so far from the government when the online lottery can be resumed?

By far we still do not have new updates with regard to the timeline. But we will keep you posted as soon as we get the information.

Okay. Thank you, William and Onward. I'll get back to the queue.

Thank you.

Martin Bao, Bank of China International.

Hi management. Thank you for taking my question and congratulations on a very good performance during the last quarter. I have a few questions regarding the future development of our mobile game portfolio. I'm wondering, besides the RPG, what are the types of mobile games that the management think that will be become a new focus with the Company in 2016?

And, as a follow-up, recently we have seen some new software and hardware technology related to the online entertainment industry, such as the VR, AR technology. I'm wondering what's the management's view on these new technology and does management see these new technology as the potential drivers for the new growth with the online game markets?

(Interpreted). So with regard to your questions, so NetEase is also paying attentions, and also closely observing the developments on the new trends with regard to the VR or the AR stuff. But, from our view, we believe that this would just be ways to enrich the experiences of the users and this would also be just another way of presenting the contents to our targeted audiences. But, rather, we are still emphasizing that, especially when we are [building] the gaming business, whether -- in particular to the mobile game businesses, we still believe that the content is far more important. But having said that, we will also keep a close eyes on it and see how this new growing trend would be to help out on our growing game business development.

And with regard to your second question about the game types that we would be launching, apart from the RPG, basically we would be getting into all types of games that would be possible to launch on the mobile platforms. And, apart from games that would be following the [growing theme], some would be following the FPS. We've also got games following the card-strategy games. And just to highlight on one of those card-strategy games would be the Hearthstone, the Heroes of Warcraft that has been developed by Blizzard Entertainment and being operated by NetEase. And we do see that, with the latest introductions of new contents to the game, this has also got a very positive receptions to the market.

And apart from that, we have also seen that, with the introductions of the other games, which is called the Million Arthur, this has also proved to be very popular amongst the users. But because the targeted audience would be of a much smaller group and so you wouldn't be able to see it very obviously from the chart. But for the game itself, it's still a very good and popular one.

Thank you, Onward and William.

Tian Hou, TH Capital.

Hi, William and Onward. I have a couple of questions. One is related to mobile game. What's the difference; is there a seasonality for mobile game, so is there a difference between the seasonality of mobile game and PC game?

And also related to the mobile game, what's the payment system you use?

(Spoken in Chinese).

So, William, another question is, recently we saw many Chinese Internet company start to have a hiring freeze. And I wonder how do you see that and what it could be for NetEase.

(Spoken in Chinese).

Okay.

Okay.

So, Tian, maybe I do a recap on the response that William just answered.

Okay. Yes.

So basically, with regard to the seasonality issues about the mobile games, the simple answer to it is that there should be no seasonality as such, because usually the players would be just utilizing [it different, many times], and spending about three to five minutes per round experiencing, playing those games. Whereas for the traditional PC game players, because they need to play it basically in front of a computer, and so there a seasonality exists, in that sense. Because especially when we are getting to the summer holidays, when the younger-age players, especially the students, can get more time, more idle time, so they can go to the Internet cafes to play those games. And these would be the major differences in terms of the seasonality regarding the mobile and PC games.

And on your second point regarding the payment system, so if we are using the Apple system, then there would be a proprietary payment system, that Apple would be taking the money on behalf of us and do the settlement afterwards. Whereas, for the Android platform, the payment systems would somehow be more complicated. But having said that, we can assure you that the payment gateways that we have been deploying and being -- operate is very smooth and making sure that the experiences being offered to our targeted players would be good, in that sense.

And on your third question about the hiring [freeze], or the news that more and more companies would reduce the scale of their intake of employees, what we can share with you is that, in this year, for NetEase, the new graduate intakes from the universities would be the highest from all years. This would be a historic high for NetEase in that sense. And to us, we see that the latest happenings in the market would also prove to be a very good things for NetEase, because this would also mean that this can enable us to hire more high-quality and more suitable candidates to join our Company.

Okay. Thank you.

Thomas Chong, Citigroup.

Hi. Good morning, William and Onward. Yes, thanks for taking my questions. I have a couple of questions. The first question is about the mobile games outlook in 2016. Can management comment about how we should think about the growth momentum for the industry? And also how should we think about the [gross billing] for Fantasy Westward Journey and Westward Journey Online in the fourth quarter? Are we seeing it increasing on a month-on-month basis?

And my second question is about your licensed game, Raven. When should we expect it to be launched? Should we expect it to be launched in the fourth quarter?

And another is about your trend in operating expenses, in particular sales and marketing and R&D.

And my final question is about the cash flow. Should we expect the change in pre-payments to be somewhat stable as we are heading into the fourth quarter?

(Spoken in Chinese).

Okay. Thank you, William.

(Interpreted). So with regard to your first two questions, so basically this is also the Company's target to make sure that the -- for our popular mobile games like the FWJ or the WJ Online mobile, we would still upkeep the growing trend in the fourth quarter, and making sure that the expectations of our players can be met and surpassed.

And secondly, with regard to your questions about the expected launch dates for the Raven game, this is tentatively scheduled to launch in January next year.

And with regard to your third question about the operating expense trend, in particular to the S&M and also the R&D, I believe that by now we haven't given out any specific guidance in terms of the actual dollar values or the percentages out of the total revenues. But you will see that we have also upkeep at a relatively stable level, to grow those expenses in line with our revenue increase. And this would also be the kind of trend that we are expecting in the year ahead.

And with regard to the cash flow question about the pre-payments, whether or not it would be upkeep stable or not, I think basically, as and when the whole businesses, like our e-commerce related businesses is growing, and there would also be a certain room for this to grow. But, on the other hand, the Company would also be imposing more stringent controls on making sure that, for the increase in those pre-payments, those would be a good reflections on the business increase in terms of its scale. And at the same time, we do see that the increase in the pre-payments would also include with other things on our payments that -- the revenue sharings that we are to give away to our mobile operators, mobile distribution channels. And so this would also be quite in line with how our mobile game businesses would be growing in the upcoming periods.

Thank you. That concludes today's question and answer session. At this time, I'll turn the conference back to management for any closing remarks.

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

This does conclude today's presentation. We thank you for your participation.

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.