NetEase Inc (NTES) 2016 Q2 法說會逐字稿

Good day and welcome to the NetEase second quarter 2016 earnings conference call. Today's conference is being recorded and at this time I would like to turn the conference over to Brandi Piacente. Please go ahead, ma'am.

Good day everyone and thank you operator. Please note the discussions today will contain forward-looking statements relating to future performance of the Company and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantee for 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 results, please see the second quarter 2016 financial results news release issued earlier today.

As a reminder, this conference is being recorded. In addition, an investor presentation and 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.

Thank you Brandi. Before I begin, please note that for the purposes of these discussions, all percentages are based on renminbi. Our outstanding second quarter results reflect our leadership in China's dynamic online games industry where we continue to introduce premium game content. In the wake of technology and effective marketing strategies, each of our business segments delivered a strong financial performance and is positioned to sustained success in the second half of the year.

Our total second quarter net revenues grew 96% compared with the second quarter of 2015. Online game services revenue increased 76% year-over-year, highlighted by the strength of legacy IP titles and new mobile games. We grew advertising services revenue by 24.2% (sic - see slide 17, "24.1%"), driven by our proven ability to provide a more effective return on advertisers' budgets. Our e-mail, e-commerce and others business is leveraging new opportunities to accelerate growth and increase the revenue by 310.6% year-over-year.

As we have noted previously, the dominant trend in our business and for the entire online game industry, is the popularity and demand for mobile games. We are very well positioned to exploit this trend with a mobile game portfolio that now includes more than 100 titles. We are very pleased with the market's response to our new and classic mobile games and there are several highlights we would like to report on today.

In the second quarter, we launched the mobile versions of new Ghost, which ranked as a top 10 grossing title on China's iOS app store. We also launched Fantasy Westward Journey Warriors and Raven, Korea's top ARPG, which quickly attracted large audiences following their introductions in the second quarter.

Two of our best-selling mobile games, Fantasy Westward Journey and Westward Journey mobile game, maintained their popularity on China's iOS app store throughout the second quarter. Our other successful mobile games, such as Invincible and Kai-ri-Sei Million Arthur, also made solid contributions to our second quarter year-over-year growth.

In addition to the launch of well-received 3D Tian Xia 3 mobile on July 29, our audience can look forward to planned new mobile game releases in the next several months that include the 3D RPG or MMORPG edition mobile, the mobile versions of the popular Datang game and HIT, a breathtaking ARPG.

To bolster the growth of our PC client games, we launched several new expansion packs and new versions for a number of our highly popular PC client games in the second quarter, including new Ghost, Tian Xia 3, Demon Seals, Kung Fu Master II and Revelations, which gained players' attentions.

In addition, new expansion packs for Fantasy Westward Journey II, new Westward Journey Online II, new Westward Journey Online III and Heroes of Tang Dynasty Zero, were also released more recently. The new expansion packs for Revelation and new Ghost, will be released on August 18 and August 19 respectively.

We are also preparing for the first close beta testing of our real-time, action packed thriller, War Rage. We are pleased with the ongoing developments of the Chinese emergence of Minecraft and bringing these games to our audience would be a major event for NetEase. Our cooperation in these efforts with Microsoft and Minecraft's creator, Mojang AB, reflects how the worldwide game industry recognizes our deep understanding of the Chinese market and ability to successfully launch the most renowned PC client and mobile games.

On May 24 we brought [to the entertainment] highly anticipated team based, first person shooter game, Overwatch, to players in China, in conjunction with its global launch. Following the release, Overwatch received unprecedented attention and praise from the online players' community. It broke the sales records established last year by Blizzard Entertainment's Diablo III: Reaper of Souls in the category of fighter play PC client games in China, with nearly three million copies sold by the end of June and counting.

In addition, Blizzard Entertainment's Hearthstone: Heroes of Warcraft achieved new records for revenues and a number of added players in the second quarter following the April release of its first expansion pack, Whispers of the Old Gods. As we focus on delivering the highest quality games that match the user experiences, we are also moving the industry forward by exploring new technologies such as virtual reality and augmented reality and developing content for a variety of genres.

Throughout the coming quarters, we look forward to reporting on many exciting new initiatives, led by the automobile, internet services and real estate sectors we achieved another quarter of solid growth in advertising revenue. We continue to promote our mobile news app, live streaming services and further invest in high quality content and simultaneously will launch our NetEase media platforms to broaden our professionally generated content or PGC platforms, all of which we hope will attract additional advertisers and enlarge the user base.

In addition, our cross border e-commerce platform, Kaola.com, sustained strong revenue and gross profit margins growth in the second quarter due to economies of scale and an improved product sales mix and it is also creating exciting partnership opportunities.

China is now the world's largest online games market and we are working diligently and creatively to further expand our loyal customer base, develop new strategic business partnerships and enhance our industry leadership positions. Our progress in the first half of 2016 clearly demonstrates that we have the resources and commitment to continue the exceptional growth and success of each of our business segments.

This concludes William's comments.

I will now provide a review of our second quarter 2016 financial results. I will primarily focus on the discussions of margins and expense fluctuations, along with net profits. Our gross profit for the second quarter of 2016 was RMB5.3 billion or $794.5 million, compared to RMB4.6 billion and RMB2.8 billion for the preceding quarter and the second quarter of 2016 respectively.

The year-over-year increase in online games gross profit was primarily driven by the revenue contributions from mobile games such as the Fantasy Westward Journey and Westward Journey online mobile games, Invincible and licensed games such as Blizzard Entertainment's Hearthstone: Heroes of Warcraft and Overwatch.

The quarter-over-quarter increase in online games gross profit was primarily driven by the revenue contributions from Blizzard Entertainment's Hearthstone: Heroes of Warcraft and Overwatch, as well as the Fantasy Westward Journey mobile games.

Our year-over-year increase in advertising services gross profit was primarily attributable to strong demand from the automobile internet services and real estate services sector and our monetization efforts for mobile applications, primarily our mobile news app.

The quarter-over-quarter increase in advertising services gross profit was primarily due to seasonality. The year-over-year and quarter-over-quarter increases in e-mail, e-commerce and others gross profit was primarily due to increased revenue contributions from our e-commerce businesses such as Kaola.com and other e-commerce products.

The gross profit margins for our online games business for the second quarter of 2016 was 66.2% compared to 67.1% and 69.3% for the preceding quarter and the second quarter of 2015 respectively. The year-over-year decrease in gross profit margin was mainly due to increased revenue contributions from mobile games, which have relatively lower gross profit margins as a percentage of our total online game revenues.

The gross profit margins for our advertising services business for the second quarter of 2016 was 65.5% compared to 62.4% and 68.2% for the preceding quarter and the second quarter of 2015 respectively. The year-over-year decrease in gross profit margin was mainly due to higher staff related cost, resulting from an increase in headcount and average compensations.

The quarter-over-quarter increase in gross profit margin was mainly due to seasonality. The gross profit margin for our e-mail, e-commerce and others businesses for the second quarter of 2016 was 33.8% compared to 20.4% and 4.2% for the preceding quarter and the second quarter of 2015 respectively.

The year-over-year and the quarter-over-quarter improvement in gross profit margin was primarily attributable to the gross profit margins growth from our e-commerce businesses such as Kaola.com, as well as our continued shift in business strategies from direct merchandise sales, to focus on providing platform services for certain e-commerce businesses.

Total operating expenses for the second quarter of 2016 were RMB2.2 billion or $335.9 million compared to RMB1.7 billion and RMB1.4 billion for the preceding quarter and the second quarter of 2015 respectively. The year-over-year and quarter-over-quarter increases in operating expenses were mainly due to higher staff related cost, resulting from an increase in headcount and average compensations, increased research and development investments and selling and marketing expenses, as well as increased operating expenses related to Kaola.com.

We recorded a net income tax charge of RMB262.7 million or $39.5 million for the second quarter of 2016 compared to RMB530.7 million and RMB145.9 million for the preceding quarter and the second quarter of 2015 respectively. Our effective tax rate for the second quarter of 2016 was 8.6% compared to 17.5% and 9.2% for the preceding quarter and the second quarter of 2015 respectively.

The quarter-over-quarter decrease in the effective tax rate was mainly due to the fact that certain subsidiaries of the Company were approved as key software enterprises in the second quarter of 2016 and subject to a preferential tax rate of 10% for 2015. The company recognized related tax credits in this quarter. The effective tax rates represent certain estimates by us as to the tax obligations and benefits applicable in each quarter.

Net income attributable to our shareholders for the second quarter of 2016 total RMB2.7 billion or $409.4 million compared to RMB2.5 billion and RMB1.4 billion for the preceding quarter and the second quarter of 2015 respectively.

Non-GAAP net income attributable to shareholders for the second quarter of 2016 total RMB3.2 billion or $484.6 million compared to RMB2.7 billion and RMB1.6 billion for the preceding quarter and the second quarter of 2015 respectively.

During the second quarter of 2016, we have a net foreign exchange gain of RMB77.3 million or $11.6 million compared to net foreign exchange losses of RMB36 million or RMB21.7 million for the preceding quarter and the second quarters of 2015 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 US dollar denominated bank deposits and short-term loan balances as the exchange rate of the US dollar against the RMB fluctuated over the period.

Our basic and diluted earnings per ADS were $3.12 and $3.10 respectively for the second quarter of 2016. This compares with basic and diluted earnings per ADS of $2.81 and $2.79 respectively for the preceding quarter and basic and diluted earnings per ADS of $1.63 and $1.62 respectively for the second quarter of 2015.

Our non-GAAP basic and diluted earnings per ADS were $3.70 and $3.67 respectively for the second quarter of 2016 compared to non-GAAP basic and diluted earnings per ADS of $3.05 and $3.03 respectively in the preceding quarter and non-GAAP basic and diluted earnings per ADS of $1.82 and $1.81 respectively for the second quarter of 2015.

As of June 30, 2016, our total cash and cash equivalents, current and non-current term deposits and short-term investment balance totaled RMB29.8 billion or $4.5 billion compared to RMB26.8 billion as of December 31, 2015.

Cash flow generated from operating activities was RMB3.3 billion or $494.6 million for the second quarter of 2016, compared to RMB3.1 billion and RMB835.9 million for the preceding quarters and the second quarters of 2015 respectively.

Our growth and success allows us to continue returning capital to our shareholders. As such, our Board of Directors has approved a dividend of $0.78 per ADS for the second quarter of 2016. The dividend is expected to be paid on September 9, 2016, to shareholders of [regulars] as of the close of business on August 31, 2016.

Also, you will recall that on September 1, 2015 we announced that our Board of Directors approved a new share repurchase program of up to $500 million for our outstanding ADS for a period not to exceed 12 months. As of June 20, 2016, we have repurchased approximately 1.5 million ADS for approximately $205.3 million under this program.

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

Thank you. (Operator Instructions). At this time we will take a question from Eddie Leung from Merrill Lynch.

Good morning, thank you for taking my question. Could you [possibly say] about the potential of virtual reality and augmented reality through NetEase? Do you think it's more an upgrade to existing games or is it going to be a new market which could attract incremental users?

Then just a housekeeping question, could you also update us the percentage of mobile games as total game revenues? Thanks.

(Interpreted) So basically with regard to your first questions, Eddie, I believe that for NetEase we are very focused on the recent development regarding the AR and VR. In fact, recently the Company has also been invested in another company in the U.S. called NextVR which is focusing on doing some streaming broadcasting services. We believe that this would also be another very good initiative step we will roll out to gear up our service offerings.

With regards to the -- another trend that we observed lately about the Pokemon Go in the overseas market, we do see that this actually is a new trend, but instead of just seeing that this would be an emergent trend, we would still need to critically evaluate and assess whether this would be sustainable in a much longer term. We believe at all times that NetEase would not fall behind of this trend and in fact we would keep our leading position in the overall market developments.

In fact, we have also been paying quite a lot of effort in the past couple of years to get ourselves prepared to explore and innovate on some new areas that we believe would also bring us to the forefront of the market.

(Spoken in foreign language).

Another point that William would also like to make in supplement is that about that we are also another business partner with Google on the AR platform called the Daydream. Another thing that we will also be partnering with other VR content providers in order to make sure that we would upkeep a leading position in that sense. I believe this would be more or less the feedback on your first question.

With regard to your second question about our mobile games revenue percentages, for the second quarter 2016, this has been standing at 60.9% of our total game revenue.

Thank you.

At this time we will take a question from Jialong Shi from Nomura.

Hi, good morning William and Onward, Juliet, thanks for taking my call. Firstly, congratulations on a strong quarter. I have a few questions. My first question is just a follow up on the previous question. So I just wondered, as a game player, when can we expect to play NetEase's first AR or VR game?

(Spoken in foreign language).

So basically to recap on William's feedback about Jialong's questions, about NetEase's VR and AR game progress, basically for both the AR and VR games, we both have some products currently still in the internal testing phase. In terms of timeframe, we believe that we are maybe a bit late because currently the availability of the hardware or equipment in the market is still not that many. Perhaps we do see that AR would come up a little bit earlier as we expected.

To supplement what Jialong has been following up about the respective timeframe, we do believe that it would hopefully for the AR games be launched hopefully before the end of this year.

Thanks Onward and William. My second question is about the e-commerce service and I just wondered if management can give us an update on the cross border e-commerce and also your private label service, or Yan Xuan. What was the current growth rate on the GMV side, for these two e-commerce services in 2Q?

And particularly for the cross-border e-commerce, we understand the authority has postponed the implementation of some of the new regulation for one year. So I just wonder what's your current strategy for this cross-border e-commerce now, given the regulation uncertainty. Will you continue to invest as much as before or you are holding back investments as many of your peers do until policies are becoming more clear?

For the private label business, what's the current gross margin and what is the highest margin that they achieve in the future?

So maybe I will take these questions. So Jialong, with regard to your questions about how our e-commerce businesses have been progressing through the past quarters, I believe that we are still quite happy with both its growth and both its trending in terms of its GMV. Both are quite aligned with our expectations. Insofar as you have mentioned about the (inaudible) policies, that has previously been implemented and is currently (inaudible) as a special phase for another one year. We believe that just as what we have highlighted before, we do not expect that the implementation of such new policies or the rules would have any significant impacts to our NetEase cross border e-commerce businesses, but rather we do see that this would be another thing to making sure that this would be a good business to go on in the near future.

With regard to the private label businesses that you highlighted, especially on Yan Xuan, so far because this would be another new initiatives that we are currently implementing and we do see that from the gross profit margins perspective this is also a good business to move on. But so far we do not -- got any additional highlights to share at this point of time.

We'll move along to Tian Hou with T.H. Capital.

Yes William, Onward and Brandi, good morning. Congratulations on the quarter. It is not a surprise to me. I do have a question related to the new things in China, which is the live broadcasting. It seems like it's suddenly become very popular in all fronts -- in commerce, in entertainment, in news, everywhere. What (inaudible) also has some kind of broadcasting activities in news, in your mobile news app as well as game broadcasting. I wonder, do we have any plans to continue in this area to do something, to accomplish something?

(Spoken in foreign language).

So just to recap on William's comments about our thoughts and many efforts working on new live broadcasting initiatives. I believe that we have been working on quite a lot of things so far. I will walk you through one by one. In the four and a half years before, we have already introduced our product called the CC. This would basically be a game related broadcasting services we are offering to our users and this would be related to our direct broadcasting, so of how to play the games or some content related sharing. We believe that for games like our very famous and popular Fantasy Westward Journey and also Hearthstone have also been -- got quite a lot of stuff on these platforms.

In two and a half years before, we have introduced another platform called the BoBo. Its official website is BoBo.com and basically this would be --

(Inaudible) BoBo.com.

BoBo.com, yes. So this would basically be a performance based broadcasting where people would be doing some singing performance or doing some events and stuff like that.

Thirdly, in the start of this year on our own mobile news applications, we have also introduced another live broadcasting initiatives about the news related content dissemination and one of the most remarkable incidents would be the (inaudible) earlier in Beijing this year and another -- some broadcasting about the [Hunan], the executions of the government officials, stuff, that we have also been doing a sharing and got a very positive feedback from the market as well.

We do see that -- all those businesses are currently working in a profitable [mode] but we haven't been separately disclosed all those information yet. Some other stuff that we would like to share with you would be our thoughts about the newer developments on the Wii U broadcasting, direct broadcasting stuff, where we would be a key -- not -- because we think that the broadcasting would not only be just a two dimensional stuff but this will be a multi-dimensional stuff that we can share with our targeted users.

Then another interesting initiative that we are also thinking would be getting into the education areas, just like our open education course and our cloud class products. We do see that in the near future, perhaps people can just wear their glasses and then they can also share some of the educational stuff as such.

At this time we'll take a question from Alicia Yap from Citigroup.

Hi, thank you. Good morning William, Onward, Brandi and Juliet. Thanks for taking my questions. Congrats on the good results. I have a question related to Overwatch. So can you share with us, given the latest user engagement level for the game and given Blizzard's comment recently that there are new content and features that are being introduced that will encourage digital content purchase. So have you seen that already happen for the China user base and what would be the revenue upside for this game?

Related to that, can you remind us for the accounting treatment for booking the box sales for Overwatch, how long it will amortize? Thank you.

(Interpreted) So with regard to your questions about the youth engagement and the [features about] Overwatch, I -- we believe that the Overwatch has actually made a very good success since its first launch, since May 24 to now. First of all, we would like to extend our gratitude and the appreciation to our partners, Blizzard Entertainment, for having full confidence on NetEase and at the same time, they have also been very good at developing and rolling out some good content stuff to the market, especially in China.

Insofar as the sales performances of the Overwatch is concerned, just as what we have highlighted earlier, it has already surpassed the sales record established last year by Blizzard Entertainment's Diablo III in the category of the buy-to-play PC games in China. We do see that in terms of the user satisfaction, they are very pleased with these games and we believe that with the innovative contents that we have been offering so far, they are also very happy to play these new games by Blizzard.

Another incident that we would like to share with you is that we have also made notes that in Korea, in the internet cafes, the games which -- such as the Overwatch has been ranked as the number one game which is popular amongst the players there and we are also looking upon that. The same what happens in China sooner or later, that's the Overwatch becomes another very highly received popular games in the PC games categories.

Another thing that we are looking upon is that sooner when there would be the next expansion packs to roll out for the Overwatch, we do see that there would also be more local content that we would be offering to our targeted gamers in the China market.

On a separate note, we would also like to highlight that on September 1 this year, the World of Warcraft would have another new expansion pack called Legends to roll out and we do see that this would make some positive surprises to our existing gamers and the new gamers alike.

So on another separate point about Alicia's questions about (inaudible) on the Overwatch, because just like all of our other games in the -- that we are currently operating, this will be amortized over a period of about -- not more than six month period because we have different games, whether we are talking about (inaudible) based games and also the buy-to-play games, that basically we would adopt this policy.

We'll now move along to Hillman Chan with Macquarie.

Good morning William, Onward, Brandi and Juliet. Congrats on the strong quarter and thanks for taking my question. My first question is about Minecraft. Could management talk about the current status of the development and also share more on the timeline and also the monetization model. I think we were talking about changing from the one-off license to the in-game monetizing model. So just wondering if you can share more color on that?

(Interpreted) So with regard to your questions about the Minecraft, I believe that in this year, earlier this year we have already entered into strategic cooperations with Microsoft and Mojang AB that we would be responsible for launches to games in the China market. We are also foreseeing that currently in the China market, this has been ranked as the number one PC mobile games category.

If we look at the business models that have been adopted in the overseas market, this basically would be the [sales] of clients to the gamers, but when we are soon to introduce this game in the China market, we are expecting that this would -- the client itself would be offering free of charge to our gamers.

We would also be introducing some innovative business models to make it another new experience to our gamers on a much recurring basis. Very soon when we are launching these games to the market, we do expect that there would be some contents that would be specially targeted to the local market and we would also introduce some innovative contents to attract our targeted gamers as well.

At all times, we always believe that we would leverage the experiences that NetEase have made out so far over the years, especially in the gaming industry and to make the introductions of these new versions of the Minecraft to the China market a success.

We'll move along now to Kenneth Fong from Credit Suisse.

Hi, good morning management. Thanks for taking my question and congrats on the very strong results. My question is mainly on the margin front. First is on the online games. I noticed that the margin has declined Q-on-Q slightly despite lower margin mobile game actually decrease in contribution. So is there any reason behind it?

The second question is on the e-commerce others, the gross margin is around like 33.8% in the second quarter. So how should we think about the sustainable gross profit margin for that segment? That's it. Thank you.

Okay, so with regard to your first question about the gross margins on online games, you are quite right in saying that in terms of the mobile revenue percentages that this has come down a bit, but still we do see that there has been a slight drop in terms of our gross margins on our overall gaming businesses because of the fact that the major increase was contributed by games like Overwatch and also (inaudible) which is a licensed game and of which gross margins were relatively lower as compared with our own self-developed PC games. While at the same time of course there would also be some incremental contributions bring about by our FWJ as well.

With regard to your second question about the e-commerce gross margin percentages, we are quite happy to see that there has been another new growth in terms of our gross margins from the 24% in the last quarter to 33.8% this quarter. We do see that this has mainly been brought about by a product mix and economies of scale that were brought about by our cross border e-commerce businesses and also our other e-commerce products, because we have also been adopting a shift in terms of our strategies from the direct merchandise sales models to the platform service models. So this would also help us to have an improvement and an enhancement on the overall gross margins in this business segment.

We'll go to Alex Yao with JP Morgan.

Hi, good morning everyone. Thank you for taking my question and congrats on a solid quarter. So if my calculations are correct, your PC gaming revenue actually declined quarter-over-quarter and year-over-year despite a very successful launch of Overwatch. Can you guys talk about the trends for the legacy PC game? How should we think about the life cycle and the revenue outlook over the next few quarters? Thank you.

(Interpreted) So with regard to your questions, we believe that in the past three months we do see that Overwatch has actually made a very good success in terms of its performances. So in this sense we do see that with newer and innovative contents that we are offering to the gaming markets, it do actually get some good performance as such.

On the other hand, we do see that for NetEase we do have another new PC game soon to launch that we have also highlighted in this quarter's earnings release, which is called the War Rage and we do believe that while we do see that there has been a growing trend in terms of the mobile games, but it doesn't mean that there wouldn't be any growth potential for the PC games, but rather we do see that a better balance should lead to (inaudible) between the PC and also the mobiles in order to ensure a much longer term development of our gaming businesses.

So basically, in fact in terms of our PC game revenue, basically in the second quarter we do see that there has been a growth rather than a decline on an overall basis which we can share with you.

We'll now move onto Martin Bao with Bank of China.

Thank you for taking my question. I have a question regarding to the cloud music business. I'm wondering whether the management can share with us the strategic target for this business after the latest round of funding?

(Interpreted) So with regard to our own cloud music product, basically we start off with this product development three years before by our own development teams located in Hangzhou and since the launch of this product, (inaudible) made a very good success for this product because as you see that with the introductions of these cloud music products to the market, this is not just facilitate the users just to listen music but more importantly, we do see that with the introductions of a very good design product, this can help to solve some of the problems of the users when they are doing their music listening or experiencing [sessions].

Say for example, we would be able to make a more targeted recommendations on some music that the users actually prefer and interested to listen to and we -- and we do see that this would also make another good appeal to our users for using the music products. Insofar as the -- choosing the (inaudible), the cloud music by itself is not just simply plugging -- put on the ear plugs and listen to music and using the handset. That's simple and easy but rather we do see that there is lots of potential, especially in the offline interactions with other TV stations or other radio stations in order to further enhance and leverage the experiences of our music lovers.

We do see that with the introduction of these very good products to the marketplace, with some innovative features that we have already built on, we do see that -- and with (inaudible) that we would upkeep our wishes on our ongoing pursuits of the excellence. We do believe that for the music lovers, this would be very good products that they would enjoy and love.

Another supplement that William would like to highlight is that one of the very unique features of our NetEase cloud music versus all the other products currently available in the market is that rather than just facilitating the users just to listen to the music or the songs that they would like or love to listen, we would be able to recommend and push the songs that we believe that they would be interested and love to hear. This has also proved to be very helpful, especially to the music lovers.

That is all the time that we have for questions. I'll turn it back over to management for any additional or closing remarks.

Thank you everyone once again for joining us today. If you have any further questions, please feel free to contact Juliet Yang, NetEase's IR manager who is based in Hangzhou or TPG investor relations. Thanks and have a wonderful day.

Again, that does conclude today's conference call. Thank you all 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.