NetEase Inc (NTES) 2023 Q2 法說會逐字稿

Good day, and welcome to the NetEase 2023 Second Quarter Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Margaret Shi, Senior IR Director of NetEase. 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 U.S. 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 in 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 and the announcement and filings on the website of Hong Kong Stock Exchange. The Company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will 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 2023 second quarter earnings news release issued earlier today.

Please note that certain financial information regarding Cloud Music we will be discussing on this call have been prepared in accordance with IFRS. For additional information, please refer to Cloud Music's interim report for the first half of 2023. 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 NetEase's corporate website at ir.netease.com.

Joining us today on the call from NetEase senior management is Mr. William Ding, Chief Executive Officer; and Mr. Charles Yang, Chief Financial Officer.

I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.

Thank you, Margaret, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. Our total net revenues came in at RMB 24 billion, an increase of nearly 4% year-over-year, and our net income attributable to shareholders increased by 56% year-over-year to RMB 8.2 billion.

Our longstanding franchises are still resonating well with our users. In the second quarter, revenues from our Fantasy Westward Journey saga continued to grow year-over-year, further impressing the industry with the (corrected by company after the call) series' longevity and sustainable popularity. Westward Journey franchise recently celebrated its 21st anniversary since its commercial launch. Games from our flagship series, crafted on solid foundations and continual iterations every few months, maintain their top-tier positions and alluring charm in today's market, even after nearly 2 decades of operation.

In addition to these legacy titles, we are proactively cultivating an expanding array of long-lasting franchises. We believe our recent portfolio additions, such as Eggy Party and Naraka: Bladepoint are showing similar popularity (added by company after the call)and potential longevity.

Continuing its successful streak after more than a year of operation, Eggy Party achieved another record high for active users this summer, surpassing the peak it reached during Chinese New Year period this year. In the second quarter, it was the most downloaded game in China, which speaks to the game's strong reputation and user engagement. Additionally, we have our sights set on long-term success, and we are deeply committed to fostering a thriving UGC ecosystem. In June, we successfully hosted our very first Creative Conference and introduced a series of new incentives, providing even better support and rewards for creators. Furthermore, we diligently upgraded our game editor by introducing a series of advanced components and interactive functions, such as NPC and plot editor. These additions not only offer increased flexibility, but also push the boundaries of creative possibilities.

To build on the domestic popularity of Eggy Party, our plan to launch it in the global market is well underway. We went through our first round of testing outside of China in April, which has given us valuable insights. Our development team is working hard to optimize the game experience based on this feedback. We plan to test Eggy Party in a few more regions, including the Europe, North America and Japan market before we officially introduce Eggy Party to worldwide audiences.

For Naraka: Bladepoint, we proudly announced that we added another 10 million new users in the past year, reaching a new milestone of 20 million users in total after 2 years of operation. To celebrate the game's 2-year anniversary, we (added by company after the call) introduced an array of captivating new content, featuring fresh weapons, heroes and engaging gameplay features. Most notably during its 2-year celebration, Naraka: Bladepoint made some exciting moves, transitioning into a free-to-play model and debuting on the PlayStation 5 to expand its accessibility to a wider audience, resulting in a remarkable surge in active users and being voted as PlayStations best new game in July.

Furthermore, the development of Naraka: Bladepoint's mobile version is making steady progress. We have a firm focus on preserving the game's hardcore essence on mobile devices, to further its reach to a broader audience in China and potentially globally.

The huge success we have seen with our June new releases, Justice mobile game and Racing Master, has been very exciting for us and demonstrates our ability to, once again, set the bar for the MMO industry and expand genres to brand new categories through first-class content innovation.

Justice mobile game is arguably the first game in the world to bring fresh real game experiences to users by leveraging machine learning technologies. The game has dominated both the iOS download and grossing charts upon its release in China. Within a month, Justice mobile game attracted over 40 million players, which is unheard of for any MMO game. Notably, it has drawn in massive groups of Gen Z players who were previously unfamiliar with the MMO genre, revitalizing the spotlight on MMOs within the Chinese game industry. As a forerunner in the MMO world, we continuously explore new horizons of innovation that brings all new creative gameplay into the genre. Justice mobile game offers a more balanced gaming experience, which resonates with younger generation, prompting players to willingly spend on cosmetic items they lost within the game.

Also, by leveraging our advantage in machine learning technologies, Justice mobile games development team will be significantly more efficient in producing new and frequent expansion packs that keep our game players super engaged.

Turning on to Racing Master. Since the game's June debut in China, it has swiftly risen to the top position on the iOS download chart and claimed the #3 spot on the top-grossing chart. This milestone launch marks the addition of our second racing car game to our portfolio, expanding our presence in this very popular genre. With Racing Master, we pioneered China's first proprietary triple-A standard racing simulator mobile game, introducing an authentic racing experience into the mainstream of China's gaming sphere. Developing a simulation racing game is no small feat. It requires a deep pool of technical expertise, such as understanding dynamic crash physics, aerodynamics and real-world tracks. These take years to build from the ground up. This kind of undertaking requires a lot of dedication and passion for games as well as a strong commitment to bring this to life. We have ambitious plans for Raising Master in the global market. We are about to commence overseas testing, with an aim to bring Racing Master's authentic racing simulation experience to global mobile players around the world.

Badlanders, our next-generation shooting looter mobile game, has received positive reviews from players and achieved the #2 position on the iOS download chart following its launch on June 8. We are dedicated to refining the game to fully unleash its long-term potential.

At the end of June, we also rolled out Harry Potter: Magic Awakened to the global market, including Japan, North America and Europe, where it topped download chart in more than 50 regions. The game was well received by Harry Potter fans across the world and has been acclaimed for its world-class design and authentic representation of the original IP.

Our most recent addition is Dunk City Dynasty, which we launched just yesterday. The game tops the iOS download chart. Authorized by the NBA Players Association, Dunk City Dynasty marks our debut into the self-developed basketball game domain. Dunk City Dynasty, lets basketball fans build their dream team with all-star NBA legends and dominates the court with real-time commands using strategic prowess and leadership skills.

Transitioning to our pipeline, alongside the exciting titles mentioned earlier, such as Naraka: Bladepoint mobile game, Eggy Party and Racing Masters for the international markets, Where Wings Meet, our open-world adventure RPG, is counting down to its eagerly awaited 2024 launch. At Gamescom 2023 held this week, Where Wings Meet unveiled a wealth of thrilling revelations, which is now capturing significant attention from players worldwide. Set at the onset of the Song Dynasty, a time of warfare and turmoil, Where Wings Meet allows players to embark on a journey as a mysterious swordsman and immerse themselves in the hard-pounding allure of our interactive open world.

Our dedication towards R&D underpins our ability to continue to scale through consistent proprietary games launches. Nevertheless, we remain committed to bringing top quality worldwide games to Chinese market. Since we introduced Minecraft to China in 2017, we have seen an incredible surge in its popularity within Chinese gamers community, where fans have embraced the opportunity to craft and explore their unique worlds, as well as those of others, limited only by imagination. Recently, we are very pleased to have renewed the term of Minecraft license and are dedicated to continuously serving Chinese players in the long term.

In the second quarter, we are pleased to announce the establishment of a new game studio named PinCool in Tokyo, which is being led by Ryutaro Ichimura, a 20-year game industry veteran and longtime producer of the Dragon Quest franchise. PinCool plans to leverage its diverse knowledge as an entertainment production company to deliver top-notch entertainment experiences to users worldwide. While it will mainly focus on developing titles or game consoles, PinCool will also venture into various forms of entertainment.

Equally exciting, we welcomed T-Minus Zero Entertainment to the NetEase family. The studio is located in Austin, Texas, headed by Rich Vogel, an experienced game developer who has led development on groundbreaking multiplayer and service-based games such as Meridian 59, Ultima Online, Star Wars: Galaxies and Star Wars: The Old Republic. T-Minus Zero entertainment is developing an online multiplayer-focused third person action game that takes place within a sci-fi universe.

Now let's move on to Youdao. The Company's net revenues resumed its robust growth trajectory following the pandemic impact earlier this year, registering a 26% year-over-year increase to reach RMB 1.2 billion, led by strong performances in our learning services and online marketing services.

Our differentiated STEAM courses continues to drive year-over-year increase in our learning services revenues. For our Go and Coding courses, their renewal rates have reached close to 70%, demonstrating our users' satisfaction with our cost contents.

Online marketing services for Youdao achieved record revenues in the second quarter, nearly doubling, compared to the same period of last year. This achievement can be attributed to the utilization of our proprietary algorithm, which has substantially elevated advertising precision and efficiency. Notably, it operates at a nearly 90% accuracy rate in intelligently targeting tagging KOLs and reduced the time required to produce advertising materials by 80%, all the while enhancing user satisfaction.

For smart learning devices, we continue to invest in innovative technology and roll out new products. We were excited to launch Youdao Dictionary Pen X6 Pro model in August, our first dictionary pen powered by our proprietary "Ziyue" large language model, which is the first large language model designed specifically for the education sector in China. X6 Pro offers highly personalized tutoring functions for students of varying ages and levels of learning progress. For instance, the platform introduces a digital human language coach named "Echo". Echo engages users in interactive English oral practice, which teaches students how to initiate a conversation, express themselves naturally in a native manner and provide grammar analysis based on students' submitted texts through scanning.

Looking ahead, our focus on technological innovation remains our driving force, while we compel long-term success across our business lines.

Turning to NetEase Cloud Music. In the second quarter, Cloud Music continued to enrich its music-centric ecosystem and optimize the user experience, resulting in a thriving music community. Total online music MAUs steadily climbed to 207 million for the first half of 2023, marking a 14% year-over-year increase, despite an industry-wide slowdown. Total revenues were RMB 1.9 billion, remaining stable compared to last quarter. This can be attributed to a combination of strong growth in online music services driven by revenues from subscription-based memberships, and declining social entertainment services as we shift towards more sustainable development. Regarding margins, we are making remarkable progress. Our gross margin continued to improve in the second quarter, reaching 27%, versus 13% for the same period of last year. Cloud Music also achieved positive operating profit for the first time, under IFRS in the first half of 2023.

We continuously enrich our music library to offer a comprehensive music selection for our diverse audience base. In addition to the partnerships we established earlier this year with B'in Music and CoMix Wave Films, we were happy to announce our collaborations with the country's top pop singer Chris Lee, leading brand Yudingmi and renowned Mandarin label RYCE Entertainment, which represents a number of highly acclaimed international pop stars, including Jackson Wang. Furthermore, we have also extended our collaboration with popular Korean labels, including DREAMUS, SLL and JTBC. Our collaboration efforts with copyright holders has also proven to be successful in terms of digital album sales. Notably, the digital album "I feel" by the leading Korean girl group (G)I-DLE achieved over RMB 10 million in gross sales and 430,000 copies sold after its release in May.

We continue to empower and support independent artists. By the end of June, we were serving a growing community of more than 640,000 registered independent artists. In addition to our support programs for nurturing music talent, we actively harness cutting-edge technology to provide tools that aid in music creation. During the second quarter, we introduced Cloud Music X studio, a voice synthesis software developed in collaboration with Xiaoice, a technology innovator in lifelike interactions. This innovative tool offers 12 natural singing voices, covering a variety of singing files and provides musicians with resources in music creation.

Moving forward, we will continue to foster our music-centric ecosystem, further grow our community and drive healthy long-term monetization and margin expansion for NetEase Cloud Music.

Now moving on to Yanxuan. In the second quarter, our private-label brand continued to thrive by strengthening its portfolio with a focus on premium quality. This coincided with a steady increase in Yanxuan's revenues and significantly enhanced its profitability. In particular, the (corrected by company after the call) 618 promotion yielded exceptional results. Our products achieved strong rankings on best-selling charts in diverse categories, including pet food, household cleaning products and office furniture across leading e-commerce platforms. In Q2, we also introduced a campaign that highlights the production journey of some of our popular products. Using short films, we showcased how much detailed attention goes into the making of some of these products, which was heavily validated by our user community. Looking ahead, we will persist in our dedication to explore and introduce to consumer great, well-crafted products under the Yanxuan brand.

In summary, innovations through content production continues to be the cornerstone of NetEase, and will be what propels our future growth. Superior content, products and services come from fresh ideas. This concept forms the heart of our Company where we will always strive for excellence, manifested through hard work and persistence, to inspire the industries we serve. From games to music to education to retail, we work to reimagine what is possible, creating value for our global community, our employees and our stakeholders.

This concludes William's comments.

I will now provide a brief review of our 2023 second quarter financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for more details.

Total net revenue for the second quarter were RMB 24 billion or USD 3.3 billion, representing a nearly 4% increase year-over-year.

Total net revenues from our games and related value-added services were RMB 18.8 billion, up nearly 4% year-over-year. The growth was primarily driven by increased revenue contribution from mobile games, including our strong legacy titles such as Fantasy Westward Journey series and our newer games such as Eggy Party. Net revenues from our mobile games accounted for approximately 74% of our total net revenues from online games operations.

Youdao's net revenue were RMB 1.2 billion, a year-over-year increase of 26%, primarily due to increased revenue contribution from learning services and online marketing services.

Net revenues from Cloud Music were RMB 1.9 billion, a 11% decline compared to the same period last year. As explained last quarter, this result reflects declining revenue of social entertainment services as we adjusted our focus to improve profitability in a sustainable manner. We introduced multiple measures to enhance the listening experience of more dedicated music fans, lowered the revenue sharing ratio to broadcasters and agencies, as well as reinforced risk controls and additional live streaming function optimization.

Net revenues for innovative businesses and others were RMB 2.1 billion, up 10% year-over-year with a balanced approach to top line growth and margin expansion.

Our total gross profit margin continued to grow, reaching close to 60% in the second quarter, compared with 56% in the second quarter of last year. Looking at our second quarter margin in more detail.

Gross profit margin was 67.4% for our games and related (corrected by company after the call) VAS, sector compared with 64.9% in the same period of last year. The growth was primarily driven by the termination of certain licensed games with comparatively lower gross margin.

Our gross profit margin for Youdao was 47% compared with 42.8% in the same period last year. The increase mainly resulted from increased revenue contribution from its learning services and online marketing services, which carry higher margins.

GP margin for Cloud Music continued to improve in the second quarter, climbing to 27%, versus 13% in the same period a year ago. The quarter-over-quarter and year-over-year increases in Cloud Music's gross profit primarily resulted from the growth of membership services and continuous cost optimization initiatives.

For our innovative businesses and others, gross profit margin was 29.5% compared with 25.8% in the second quarter of 2022. The increase was primarily the result of margin improvement in Yanxuan.

Total operating expenses for the second quarter were RMB 8.3 billion or 35% of our total net revenues.

Taking a closer look at our expense component.

Our selling and marketing expenses as a percentage of total net revenues was 13.6% in the second quarter and remained relatively stable year-over-year.

Our R&D expenses as a percentage of total net revenues also remained stable year-over-year at 16.3% in the second quarter. As an innovative content and technology-driven company, our commitment to investing in content creation and product development is ongoing. We are also seeing leverage in our R&D investments in the longer term.

Our other income was RMB 2.8 billion for the second quarter. The increase was mainly due to the mark-to-market value appreciation of certain publicly traded securities in our investment portfolio during the quarter, as well as higher unrealized net FX exchange gains. As per applicable accounting standards, we are required to reflect these fair value changes.

The effective tax rate was 8% for the second quarter of 2023. The lower effective tax rate for the second quarter was mainly due to tax benefits recognized in the quarter. As a reminder, the effective tax rate is presented on an accrual basis, and the tax credits defer for each of our entities at different time periods, depending on applicable policies and our operations.

Our non-GAAP net income attributable to our shareholders for the second quarter (added by company after the call) of 2023 totaled RMB 9 billion, or USD 1.2 billion. Non-GAAP basic earnings per ADS for the quarter was USD 1.93, or USD 0.39 per common share.

Additionally, our cash position remains strong, with net cash of approximately RMB 99.6 billion as of June 30, (added by company after the call) 2023, compared with RMB 95.6 billion as of the end of last year.

In accordance with our dividend policy, we are pleased to report that our Board of Directors have approved a dividend of USD 0.105 per share, or USD 0.525 per ADS.

Lastly, under our current USD 5 billion share repurchase program starting in mid-January this year, approximately 6.1 million ADS have been repurchased as of June 30, (added by the company after the call) 2023, for a total cost of approximately USD 536 million.

Thank you for your attention. We would like now to open the call to your questions. Operator, let's move on to the Q&A.

(Operator Instructions) Your first question comes from Alex Poon with Morgan Stanley.

(foreign language) Congratulations management and risk development team, we have got blockbuster titles one after another launching this year. Can management elaborate how the Justice mobile leverage AI to boost revenue and user engagement? And how the Justice mobile became the first one of this kind in China to adopt AI. And can management also share some of the difficulties and expectations of this game into the future?

(foreign language)

[Interpreted] I will do a quick translation. The AI has had effect on us in 2 ways. Firstly, is on the -- we have in greatly enhanced our R&D efficiencies; and secondly, it enhanced our user experience. From the R&D efficiency perspective, we adopted AI technology in programming, in graphic designing, and I think most importantly, we changed the way we think about designing games from just games plus AI to AI plus games, which means that when at the very beginning of designing the game, we start thinking of AI. We build a whole world view based on AI world, which gives our users a very immersive strong open-world experience.

So from what we're seeing, our users have been highly attracted to this game and we saw very strong stickiness and engagement of users to the game, and it has I think the enjoyment that users have gained from the game has caused voluntary stress or promotion of our game within the gaming of community, and we'll be able to attract many gamers who were traditionally non-MMO game players. Other thing I wanted to add on here is that applying AI technology into our game development is not something that can be achieved overnight. We start thinking about AI as far as back in 2016, 2017, when we saw AlphaGo. And that's when we realized AI will have a profound impact on gaming. So that's one. So I think what the results we have seen today is the accumulation of all the investments and dedication we have put into AI research and AI development in games.

Your next question comes from Yang Bai with CICC.

(foreign language) Okay. I will translate by myself. After the success of Eggy Party, Racing Master, Justice mobile, we noted that the Company had recently launched Dunk City Dynasty, which ranked #8 on China's iOS top grossing chart soon after its launch. Could management share more color on the operations strategy of this game? And how should we think of the opportunity of eSports games? Besides, we can also see that the Company released the PV of urban open-world game of project Mugen, which seems to be another big title. Could management tell us more about this game?

(foreign language)

[Interpreted] Yes, to answer the first question on Dunk City Dynasty,. So this game is actually our first attempt in sports game genre, particularly in basketball. After the research in this market, we think there's potential innovation we can do in a particular genre. So we actually,when we started to put together the team of developers and game designers, we ask all the key members we will chose all team members who are hardcore of basketball players personally. So all of them have a passion about basketball and they want to (corrected by company after the call) play the best basketball game ever in the market. So it has actually taken us a few years of development and dedication to optimization. So we want to -- we feel like we only launched the game when we feel like we've mastered a great graphic, art and a maneuver and a style in that game. So going forward, we hope to continue to expand the user base for this game and hopefully become the dominant player in this category.

(foreign language)

[Interpreted] And so the second question is on Project Mugen. So this is actually our attempt on innovating the anime style game genre, so the ACG games. This is our attempt to bring the open-world experience and AI technology into the ACG genre, so this is our attempt to further solidify our development facilities in AI and also give our ACG game lovers a true experience of open-world city life style game experience. And hopefully, we'll be able to introduce the game to our gamers in the not too far future.

Your next question comes from Ritchie Sun with HSBC.

(foreign language) What's the rationale behind the change of Naraka: Bladepoint to a free-to-play game? And how is the reception in terms of in-game item sales and user base? And how will this change the game performance trajectory going forward?

(foreign language)

[Interpreted] Okay. So after we turn this game to free, we're able to bring in more users. So after this transition, which we saw a great improvement in terms of both active users and also our revenue. And so we think that was the right decision to make.

Your next question comes from Felix Liu with UBS.

(foreign language) Let me translate myself. On the domestic pipeline, congratulations on the banhao win on 'Where Winds Meet.' We look forward to more color on the game in games' call. Can management share more color on the status, R&D status of the game? What are the potential launch time that we're looking at? And what is the game's differentiated marketing positioning compared with Justice mobile given both seems to be open-world and martial arts based RPG game?

(foreign language)

[Interpreted] So, "Where Winds Meet" is actually a very important game for us. It actually has a very different world view to Justice mobile. So when we are actually learning about different things with open-world experience. And hopefully, we'll be able to launch it by the second quarter next year. So for NetEase, we believe we have a lot of experience in open-world games. So every game we launch, we try to bring our users a different user experience.

The next question comes from Lincoln Kong with Goldman Sachs.

(foreign language) My question is about the new game type or game genre offer at NetEase games.. So in the past 12 months, we have seen a very successful launch of Eggy Party, Racing Master and also recently the Dunk City Dynasty. Those are relatively less exhaustive games are from NetEase in the past. So how should we conclude and understand the success learning from these games? And after the breakthrough of all these different types, what the Company's R&D development or operational strategy, have any new change or priority in the future, especially for those leisure party, car racing or even like a shooting type of games.

(foreign language)

[Interpreted] So as the Internet company, as a content provider, we keep our innovation spirit at heart and we continue to invest very heavily in R&D. So the success you've seen in the past 12 months are some positive results from the past efforts we're putting in R&D and in developing games. These are successes, but there have been failures too. But we will continue to work hard, never give up, and we want to bring our game users continued great game content through our innovation and dedication to R&D.

Your next question comes from Kenneth Fong with Credit Suisse.

(foreign language) Congrats for the very strong set of results. I have a question about the gross profit margin. What's the game business and overall business gross profit margin outlook for second half (added by company after the call) of 2023 and 2024, as we see strong performance of self-developed titles and continuous channel optimization?

This is Charles. In the interest of time, let me answer this question directly in English. As you have rightly put, NetEase prioritizes our R&D resources and attention to self-develop proprietary games, which would yield a relatively speaking, much higher margin via licensed games. In the first half of this year, we continue to enhance our game services-related GP margin, largely because the termination of certain licensed games as well as very strong performance of our self-developed legacy games such as FWJ WWJ as well as new games such as Eggy Party. In the second half, as you can -- as you can already tell that we launched multiple new exciting, very, very strong performing games in June. So the trajectory of more self-developed games contributing to higher margins is somewhat sustainable.

Next question comes from Natalie Wu with Haitong International.

(foreign language) My question is related with the game overseas expansion plan. I just want to get an update of both in the short term and the long term, which market and region will be the focus for your game expansion. And wondering if you can give us an update of your overseas expansion plan and target, both in short term and long term? Charles, you've mentioned that Naraka transition and Eggy Party, in your prepared remarks, so just wondering if NetEase get any inspiration or lessons or learned from these kind of the recent initiatives. And lastly, just for housekeeping, what was the overseas revenue contribution for game in last quarter?

(foreign language)

[Interpreted] So in terms of geographical focus, both America and Europe, Japan and Korea. So in terms of -- and the market are very different in the sense that in the China market, mobile game is a mainstream type of games to play , whereas in overseas markets, ongoing PC games are still the mainstream. And thirdly, in terms of genre, a lot of the games that are -- a lot of the genres which are probably in China, probably do not apply for overseas markets. So what are the genres that will attract overseas audience is a topic that we are studying. We spent a lot of time evaluating. And I'm sure that one very soon, we'll be able to introduce to the world the right genre, the right answer.

And Natalie, for your second part of the question for overseas games revenue. Well, since the strong performance of Eggy Party from Q4 at the end of last year, the overseas revenue percentage has slightly declined to a single digit from previously around 10-ish. So but again, the primary reason of that percentage mixture change is mainly due to the strong performance of certain of our new games launched, mostly in domestic market. Now with Justice mobile and Racing Master's strong debut launch in June, we would expect our domestic games, particularly domestic mobile games in the second half to continue to grow, outgrow at a faster rate than our overseas game revenue.

Your next question comes from...

I think that's all the time we'll we've gottalk for today. I think that's the time we'll talk for today. So maybeLet's just conclude the question-and-answer session. So thank you once again for joining us today. If any further questions, please feel free to contact us directly or Piacente Financial Communications. Thank you. Have a good day.

Thank you. The conference has ended. You may now disconnect your line. Thank you.