JOYY Inc (YY) 2016 Q3 法說會逐字稿

Good day everyone and welcome to YY's third-quarter 2016 earnings conference call. (Operator Instructions). With us today is Mr. Zhou Chen, CEO of YY and Mr. Eric He, CFO of YY. Following management's prepared remarks, we will conduct the Q&A session.

Before we begin, I refer you to the Safe Harbor Statement in our earnings release, which also applies to our conference call today, as we will make forward-looking statements.

I will now turn the call over to the CEO, Mr. Zhou Chen.

Thank you, operator. Hello everyone. Welcome and thanks for joining us for our third quarter 2016 earnings call. As I said last quarter, my goal as the CEO of YY is to enhance our platform so accelerating the innovation in our content and the service offerings and fully executing on our expansion strategy in order to stay ahead of our competitors.

I am pleased to report that in the past quarter we have achieved solid results and made significant progress in enhancing the content offering across our platform. That is extremely important as we believe that high quality content not only increase stickiness for existing users, but will attract new members to our platform and offers further growth of YY community.

We finished the third quarter with solid top and bottom line growth across the board. Importantly, our revenues increased by 40% compared to the same period last year to RMB2.1 billion which was primarily driven by the robust 55% (sic - see press release "54.5%") year-over-year revenue growth in our live streaming business.

In addition, our total mobile monthly active users on YY Live and on Huya has reached 53.4 million in the third quarter of 2016. In particular, mobile contributed to 53% (sic - see press release "52.8%") of YY Live's revenue as compared with 45% in the second quarter of 2016.

On the Huya side, mobile contributed to 39% of its revenues, which is also a big step up from 25% in the second quarter. This is a testament of success of our business and content strategy as well as the progress we have further made in mobilization.

In the third quarter, we have made significant strides in the expansion of our content offering for both YY Live and Huya broadcasting.

On YY Live, we continued to focus on the development of PUGC, or the professionally-curated user generated content and PGC content. With that, we launched a new program that features influential speakers to discuss a wide range of relationship issues grappling the modern day couples in an interactive way.

In addition, we are pleased to have enriched our sport offerings through the partnership with Chinese Basketball Association, or CBA, to broadcasting all of the season's basketball games live on the Huya site.

We saw dramatic growth in Huya's revenue, which increased by 139% year over year and 38% quarter over quarter.

Consistent with the platform's core streams, we continued to introduce more mobile game live broadcasting content in the past quarter. Importantly, Huya's massive user base, user stickiness and monetization competencies are way ahead of its competitors and demonstrate the strength of our platform.

Overall, we are pleased with the results we are seeing so far. We believe that by enabling our creative user base to continually develop new offerings on our tech platform as well as continuing to diversify our market segment and enhance the quality of our content, we will be able to build a comprehensive content ecosystem that provides innovative content offerings and superior user experience to our existing and new users. We are confident that we have the right strategy and people in place to stay ahead of our competitors and solidify our leading position in the interactive live streaming industry.

With that, I would like to turn the call over to our CFO, Eric.

Thank you, Chen Zhou. Good day and good evening everyone. Before I discuss our operational and financial results, I would like to first talk about the changes YY is making in our revenue breakdown.

As you can see in our earnings release, instead of Internet value-added services, or IVAS, which was composed of four categories -- online music and entertainment, online games, online dating and others -- we now breakdown our revenues in four new categories -- live streaming, online games, memberships and others.

The primary reasons that we are making these changes beginning this quarter is that we believe the new method is more transparent and better captures the way YY generates revenues. As the Company moves towards a leading and active live broadcasting platform, we believe that segmenting our revenues by how they are generated is more reliable method than breaking them down by business lines.

Now I would like to turn our results for the quarter -- I would like to turn to our results for the quarter. As Chen Zhou mentioned, our revenue grew 40% year over year, primarily driven by the strong 55% year-over-year increase in live streaming revenues. The record revenue growth was a result of our strong paying user growth which increased by 63% compared to the same period last year to 4.6 million.

We are extremely pleased with the solid progress we are seeing in paying users as it will ensure continued healthy revenue generating going forward. Specifically, Huya's rapid revenue growth in the third quarter was driven by its remarkable 134% year-over-year growth in paying users. We are confident that we will achieve profitability ahead of our competitors in live game broadcasting and believe that Huya will contribute more to the Company's profit going forward.

In the third quarter, our gross margin remained stable at 39% as compared with the same period last year.

Looking ahead, we will continue to invest in content that is suitable for live streaming and do not expect any major investments in the short term. We are committed to driving our top line growth while maintaining our margins. We believe that by leveraging our content ecosystem to further improve the product and services offering across our platform, we are able to capture opportunities in our market and we will continue to fortify our position as China's leading interactive live streaming platform.

Now I would turn to our quarterly financial results. Before I get started, I would like to clarify that all the financial numbers we are presenting today are in renminbi amounts and percentage changes are year-over-year comparisons unless otherwise noted.

Net revenues, for the third quarter 2016 increased by 40.3% to RMB2.09 billion. This increase was primarily driven by an increase in the live streaming revenues. Live streaming revenues increased by 54.5% to RMB1.79 billion which was mainly driven by the strong growth of paying users among different business lines.

Revenues from online games were RMB149.5 million as compared to RMB168.3 million in the corresponding period of 2015, which primarily reflects the continued softness in China's web game market.

Revenue from membership was RMB68.8 million in the third quarter of 2016, as compared to RMB76.3 million in the corresponding period of 2015.

Other revenues, mainly including revenue from our online education platform and online advertising revenues, were RMB81.1 million in the third quarter of 2016 compared with RMB86.2 million in the corresponding period of 2015.

Cost of revenues increased by 40.8% to RMB1.28 billion which was primarily attributable to an increase in revenue sharing fees and content costs to RMB967.4 million in the third quarter of 2016. The increase in revenue sharing fee and content costs paid to performers, channel owners and content providers was in line with the increase in revenue and, was primarily due to higher level of user engagement and spending driven by promotional activities, such as -- as well as the Company's investments in expanding the amount of new and innovative content it provides to users.

In addition, bandwidth costs slightly increased to RMB149.2 million in the third quarter of 2016, primarily reflecting the continued user base expansion and the video quality improvement, but partially offset by our improved efficiency and pricing terms.

Gross profit increased by 39.4% to RMB814.8 million in the third quarter of 2016. Gross margin was 39.0% in the third quarter of 2016 as compared to 39.2% in the prior year period.

Our non-GAAP operating income increased by 80.9% to RMB508.4 million in the third quarter of 2016. The non-GAAP operating margin increased to 24.3% from 18.9% in the prior year period.

GAAP net income attributable to YY increased by 155.8% to RMB400 million in the third quarter.

Net margin in the third quarter of 2016 increased to 19.1% from 10.5% in the corresponding period of 2015. Excluding the government subsidies of RMB18.7 million, net income attributable to YY Inc. was RMB381.3 million, representing an increase of 143.8% year over year.

Non-GAAP net income attributable to YY Inc. increased by 83.7% to RMB435.6 million from RMB237.1 million in the prior year period.

Non-GAAP net margin increased to 20.8% in the third quarter of 2016 from 15.9% in the prior year period.

Diluted net income per ADS in the third quarter of 2016 increased by 150.9% to RMB6.90 from RMB2.75 in the prior year period. Non-GAAP diluted net income per ADS increased by 79.4% to RMB7.48 from RMB4.17 in the prior year period.

Finally, looking at our business outlook for the fourth quarter of 2016, the Company expects its net revenues to be between RMB2.4 billion to RMB2.5 billion, representing a year-over-year growth of approximately 26.3% to 31.6%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

This concludes our prepared remarks. We will now start our Q&A session.

(Operator Instructions). And your first question comes from the line of Zoe Zhao from Credit Suisse. Please ask your question.

Hi management. Thank you for taking my question. (Spoken in Chinese). So I'll translate the question myself. The first question is on the user growth trend as well as the ARPU trend for YY Music specifically.

And the second question is what is our constant investment plan while preserving the margin and what should we expect for next year's margin? Thank you.

(Interpreted). With regard to the user growth rate, we believe that over the past couple of months and quarters we have experienced a minor increase in our user base both in MAU basis across different business lines. I think in this release we particularly point out mobile MAU from all the live streaming business lines and which is about 53 million as we indicated before. I think moving forward we will continue to release this type of number on a quarterly basis so that there is no guessing or mistakes as we progress our business.

In terms of ARPU, I think we indicated that our paying user numbers has experienced increase. Our ARPU actually is somewhat flat because our user numbers, our entire revenue growth as indicated, is about 40% overall and 55% for the live broadcasting business. And our paying users is about 4.6 million, which is greater than last quarter's and a year ago. So I think the total revenue growth is the contribution of the increase in paying users as well as the ARPU. But I think the ARPUs increase is minor, is smaller than our paying user numbers increase.

I think as we indicated on our script, prepared remarks, our PUGCs and professional content will continue to be executed. As we indicated, our relationship episodes and the sessions, we, despite the fact that we have invited several well-known speakers and we added a sports, the basketball is CBA, both are the new content and innovative contents on one of our platforms.

However, our investments, our money spent on those two types of content are minimal. We continue to believe that in the near future our input, or our investment into the content creation in terms of PUGC and PGC, will be limited, which is not going to affect our margin moving forward in the short term.

Next question please.

Thank you. The next question comes from the line of Jialong Shi from Nomura. Please ask your question.

Hi. Good evening, Chen and Eric. Thanks for taking my question. I was very encouraged to see the continued improvement on the margin for live broadcasting business. So I just wondered if management can share any updates on the competition landscape for China's game live broadcasting industry. And if the Company has any estimated timeline for this -- timeline when this business -- when this live broadcasting business may turn profitable on operating level.

I will translate the question myself. (Spoken in Chinese).

Jialong, thank you for the questions. Yes, I think you can actually look at our financial statements because we separated Huya or game broadcasting business in a single unit. As you can see that in terms of year-over-year numbers and Q-over-Q numbers not only that revenue has grown significantly, our user numbers is very much compatible with revenue number as well.

We believe that improvement of its margin pictures is the result of excellent business execution because, in recent quarters, we have actually regained our leading positions in game broadcasting arena. We believe that we are number one in this field as we actually indicated that in recent quarters, we have gained lots of market shares in game broadcasting business, specifically on mobile game broadcasting. And so that is one area that we have done outstanding jobs with regard to our competitors and we believe that we will continue to do so and lead the market share.

And in terms of the final profitability, I think I indicated before to all of you it is management team's goal to reach cash flow breakeven at the end of 2016. So, as you can see, that in the third quarter its margin pictures turn a little better but still is losing money with all the allocation from headquarters' overheads. So if we exclude overheads from headquarters, we believe that in December of 2016 we have a chance to reach cash flow breakeven. Of course, it's no guarantee.

For 2017, our confidence level is a little bit higher. I think in 2017, if we can continue to grow our revenue and user base, our Huya operation will turn breakeven in 2017 sometime. Hopefully, the whole year it will contribute profits to YY as a whole. So that's all management's goal in next couple of quarters and to 2017.

Thank you for the color Eric.

Thank you. Next, question please.

Your next question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi. Good evening Chen Zhou and Eric. Thanks for taking my questions. A couple of questions here. The first one is regarding your 4.6 million paying users. Can management share with us how many can be attributable to YY Live and how many can be attributable to online data, [MAU] and Huya? And what kind of ARPU and paying concession ratio pattern have you witnessed in terms of those three different segments. And regarding active users, is there any overlap between your reported PC and mobile MAU? That's the first question.

(Spoken in Chinese).

Okay, thank you Natalie for your questions. The question number one is with regards to our paying users 4.6 million. I think we do mention this 4.6 million. I don't want to be too specific as to the paying users. All I can do is music and Huya accounts for the bulk of this 4.6 million. For music, it's close to 3 million. For Huya, it contains more than 1 million. So those two adding together is bulk of the numbers.

As to the number that you are interested in dating, in other business, I don't think those paying users are significant. But overall, I think music and Huya are the most important pillars for the paying users. In both lines, paying users have increased in the third quarter 2016.

As to the ARPU, I can tell you that we did not actually specifically disclose ARPU in the past. I don't think we are going to break that rule now. All I can say is everybody knows that our dating business has highest ARPU on our platform. It could be as high as RMB700 or RMB800 per quarter in the past. So this is very peculiar. And then the next highest one I would say is perhaps music and entertainment. And the third one is the game broadcasting business.

So I think the ARPU numbers, especially the sequence and the order has not changed that much. It's pretty much the same. As I indicated before that our revenue is really -- can be attributable not only the paying user number increase and also the ARPU increase as well. But ARPU increase is less than the impact of the user number -- paying user numbers increase.

As to the MAU number for PC and mobile, yes you are right. Those two numbers seems to be very big. But I think we have done a preliminary redundancy check. So we have actually, as much as we want to get rid of the redundancies, but as you know that the redundancy it's not that easy to find 100%. I would say I suspect there is some sort of a redundancy on those two numbers, but we have done a preliminary check so we have taken out the very obvious one, the very obvious redundancy or overlap users on the PC and mobile side. So that's the answer for the MAU numbers and metrics.

Great. Very helpful Eric. And the second question is given that there is similar business model like in other social platforms recently, so wondering whether management noticed any kind of inactiveness of efforts among those existing agents on YY music platform.

(Spoken in Chinese).

(Interpreted). Well with regard to the second question, I think the guild and with regard to the guild and the competition in our last earnings release, we actually had extensive discussions in terms of the different types and different competition. I think for the sake of timing I'm not going to elaborate this time again.

But as far as I can observe, in terms of our performers, singers and the youth, they have been very dedicated working on YY platform. I don't see that our ecosystem has any problem to keep them. In fact, we think our ecosystem has been maintained very robust and those guild and performers have been very diligently and enthusiastically perform on our platform.

Great. Thanks Chen and Eric.

Next question. Thank you.

And your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

Hi. (Spoken in Chinese). So I have two quick questions. One is regarding the vertical live broadcasting as you keep seeing in China's mobile Internet. We understand that you guys are actually in different vertical areas of live broadcasting compared to a lot of your peers in the market who are just engaged in privacy or reality type of shows. While we do observe that over the past 12 months or so, those privacy or reality type of the live broadcasting has gained a lot of the traction among the consumers. So the consumption in terms of traffic time spent of this type of the live broadcasting has increased pretty meaningfully in China mobile Internet space over the past 12 months.

How do you guys view the relatively mid to longer-term sustainability of the PUGC model which YY engages versus the privacy or reality show type of live broadcasting which is dominated by the vast majority of the mobile live broadcasting platforms?

The second question is regarding your investment strategy. We noticed from the prepared remarks that you guys mentioned that you will slow down the investment activities over the next couple of quarters. Does that mean you guys are optimizing the existing investments or does it mean that you guys will step back from the future investments?

How does those new investment strategies affect your financials? Thank you.

(Interpreted) Okay. I think with regard to the first questions, we discussed in our last earnings release. Yes, there has been very-- there has been many websites which rolled out accompanying type of the live broadcasting. However, this accompanying type of the live broadcasting is not a real company, because we think that we have seen lots of growth. We have seen phenomenal business momentums for this accompanying type of live broadcasting is mainly due to the curiosity from the people who are in the tier two, tier three or lower tier cities who want to know the lifestyle of tier one cities celebrities. So we believe this type of curiosity could be very much a fad. Once the fad is gone, you will see that this growth momentum will wane down. Now, we actually have seen this phenomenon start to happen right now.

Well, having said what I have just said, we believe that so-called accompanying type of live broadcasting is a very interesting product. We believe that some of the company actually has done a great job, and we believe if we can truly make a live broadcasting product become a real accompanying products, and this should actually create a great market. Especially it provides a way to socialize, to get to know people.

We think this is a very interesting path, and we believe we would like to give it a shot. Especially on our platform, we have a product called ME, which is completely mobile based, and this product, we will actually shape this product towards so-called socialized and accompanied type of live broadcasting services and product in the future.

With regard to the second question, I think I want -- we would like to emphasize we would be very cautiously invest into our content investments. We did not mention any other investments. I think what we would like to point out is YY Live on YY platform, we do have a very interesting ecosystem.

This ecosystem is that as we make these services become inactive, our performers in guild in fact will share some of our revenue, and this could be deemed as our input and investment for this contents. So, as I actually mentioned it before, this ratio that we share with the guild and the performers has been pretty constant in the past years, and we will take that as direct reference for our future spending in terms of getting our content.

As you all know that for the so-called long-form video websites, such as Youku and YouTube, their cost of content is very different from so-called interactive live-streaming types of the platform as YY. So I think because of this difference, we just want to indicate that we will not follow those so-called long-form type of the video platform to spend tremendous amounts of money into the content investments. So we just want to clarify that.

Next question, please?

The next question comes from the line of Thomas Chung from Bank of China International. Please ask your question.

Hi. Thanks management for taking my questions. I have two questions regarding Huya. May I know about the key games that contribute to Huya revenue? Are we talking about which mainly contribute from Honor of Kings or some other games?

And my second question is about the long-term margin trend for Huya. Is there any guidance how we should think about the margin in two to three years' time? (Spoken in Chinese).

Thank you, Thomas. Well, as you know that on our online game broadcasting business, which is a very different service than so-called music and entertainment, because music and entertainment, you can sing thousands, or tens of thousands of different songs. There are so many well-established IP and contents that people can use.

But in the gaming business, the selection and the choices are somewhat limited. And our key games on our game broadcasting business, no question, it should be League of Legends, because League of Legends is such a great game, is such a big games, it actually occupies a big chunk of our revenue.

You mentioned mobile games. I think our mobile game business is growing very fast. But I don't think at this point of time, for the competitive reasons, we would not actually disclose too much about the mobile game content at this point.

We would like to see this business continue to grow even bigger before we discuss the details of our mobile game. In terms of margin for this business, I indicated before now that our loss is narrowing, so it is management's goal to reach cash flow breakeven by the end of the year in the month of December, single month -- not a whole quarter. And by 2017, I think there is a good chance that we will reach financial breakeven, or even a little bit of the profits.

This obviously will be determined by the future development such as if our revenue can continue to grow, if the market competition stays as it is right now. So, so far, I think next year, Huya is going to be -- the business is going to be very promising. We think this is a great business moving forward.

Thanks, Eric.

Next question, please.

Your next question comes from Binnie Wong from Merrill Lynch. Please ask your question.

Hi. Good evening, Chen Zhou and Eric. Thank you for taking my question. I have two questions here. One, first, is on the strategy on your new content and on your strategy. Do you see that we plan to use more of the new content to drive a higher ARPU, or that those new content are more like traffic drivers, which broaden our user base to a broader platform and yet monetization will be mostly in our core music and entertainment business? (Spoken in Chinese).

Binnie, let me mute this a little bit, because I think I want to discuss with Chen Zhou on your question because we are not 100% sure what you mean in terms of options. Just hold for about 10, 20 seconds.

Okay.

Okay.

(Spoken in Chinese).

Let me try to translate the answer. I believe that the real purpose of our PUGC strategy is to enhance the quality of our content on our platform. By doing so, we believe we will actually attract even more, bigger user base. As the user base grows or increases, this user base will actually -- some of the user base will be turned into paying users. Of course, this will increase our revenue and ARPU and can be increased as well.

So as we actually develop this new strategy, we never exclude any possible new business model. It's not going to be item based only. It could be actually advertisement-driven type of business or even sponsorship by any business on our platform.

This -- these type of the business model is going to be further away. It's not going to be happening next quarter, but we just want to point out, these are all the possibilities in the future.

So which content, or which monetization models, do you think has the greatest potential? (Spoken in Chinese).

(Interpreted) I think what I believe is that currently our revenue source will be coming from the current content that's already being displayed on our platform. As to those new contents, we're going to give it a shot and trial and error and to see which one will create the biggest benefits. So at this point of time, it will be difficult for us to pinpoint which one has the biggest position.

Okay. Thank you. (Spoken in Chinese).

Next question, please.

Next question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Hi. Good evening, management. Thanks for taking my questions. I'll ask the English first and then I'll translate. So I have two quick questions. One is regarding your margin improvement that you showed this quarter and your expenses actually will come in smaller than expected. So do you plan to retain similar efficiencies on your cost control going forward and should we expect continued margins improvement into the 4Q and next year, especially given your full year -- you will turn profitable next year. (Spoken in Chinese).

So the second question is on the 4Q guidance. Should we expect or assume the growth on the live broadcasting to continue offset by the declining growth in the online games and the membership revenue? Thank you.

Thank you, Alicia. I think with regard to the cost of service, as I indicated many, many, many times in the past, I have told you guys that our revenue sharing cost has been very consistent over the course of the last four or five years because many people believe that because of the competition, we will have to raise the payout ratios to the guild and the performers. But I tell you, it's not the case. Specifically, I think one of the elements for the cost of services is the bandwidth cost.

As you guys, if you follow us for a long time, you will see that the second quarter, our cost of bandwidth actually has dropped a little bit. That is because of our negotiation with our datacenters and carrier, so we got a very good price. And this quarter, we bump it up a little bit from a very low base, and I think that's very understandable.

So I think our cost of cost increase has well under control, as I indicated before that for this year, we still believe that margin is going to be relatively healthy. For 2017, there are several factors will affect the margin pictures. But I think let me just summarize by telling you that if everything goes as we expect it, for example, our Huya business turns into profit or turns into breakeven and our revenue continues to grow across the platform, I think our margin is going to be even healthier in 2017. So that's -- that's the question with regard to the cost and the margin.

And the number two question is with regard to the online game and advertising and education. Online game and advertising I think is relatively weak, especially online game. It was down year-over-year basis, Q-over-Q basis. I think it very well be that Q4 will be the trend.

Advertising is -- it's somewhat weak, but I don't know if it's going to be that weak as online game business, so it's going to be flat. But our education business actually in this quarter, it had more than 50% year-over-year growth. We just didn't actually specify that number.

I think our education business continues to be very strong, but unfortunately, that number is not very big with very significance. So I personally believe that our education business is going to be growing very strongly in the fourth quarter and even into 2017. Thank you.

So, Eric, I actually wanted to ask about the sales and marketing expenses, because I see some efficiencies. So I was just wondering if this smaller than expected expenditure will actually continue to help us on the operating margin improvement.

I think sales and marketing right now is somewhere between 4% to 5% of the total revenue. These numbers, I don't think it's going to -- this ratio, the 4% to 5%, is not going to change that much. I think as we grow our business, we hope that sales and marketing should actually accompany with the growth of revenue because that as we grow our platform, we are going to see more of the business, more of the business lines.

So I think to spend money to promote our business and innovative content is the necessary spending. So I don't see that's going to be too big, and I don't see that expenses and cost is going to drop too much, either.

I see. Thank you.

Next question comes from the line of Wayne Wong of HSBC. Please ask your question.

Hi. Thank you, management, for taking my question. I have two questions. Firstly is about regulation as we can see that recently it seems that regulator has more stricter regulation on live broadcasting sector. We understand that maybe the impact on YY is limited. Could management provide more color on what's the impact on YY and on its competitor?

And second question is about Huya. As management has mentioned that Huya is gaining market share recently, could management add more color on why Huya is outperformed peers, what Huya is doing better compared with past? (Spoken in Chinese).

(Interpreted) Yes, I think you are right. Most recently, the regulatory agency actually has promulgated some of the policies. But as we are one of the pioneers in this field, I don't think we had been negatively impacted by all this regulatory promulgation.

The reason is that specifically, for example, it requires certain license to operate our business, and YY has all the licenses that is required by the government. So we are confident that we are not violating any of those regulatory regulations.

So -- and secondly, I think for those regulatory announcements, it also contains some of the required technology systems, which are being in place, implemented on the platform. And those required systems, or the computer systems, we already implemented on our platform. In fact, in the past, they have actually discussed all those details before they announced this policy with YY. So we are well informed that's the policy we are going to face, or that is the system we are going to face. So on that aspect, we are fine as well.

We believe all those regulatory regulations will impact some of the smaller companies, especially that the start-ups, just started in beginning of 2016, or even some of the companies which started out within 12 months, say the second half of last year, because among all those regulations, it requires you to have an army of demonstrators to curate it, the contents, which will -- requires a lot of people and the cost, and as well as some of the technology platforms to filter some of these contents. And all of this will represent a huge burden for a smaller company.

Secondly, as indicated, is regarding the licenses. For those licenses, as far as I know, we had it a few years ago, four, five, six years ago. At that time it was not that difficult. But now, for a small company to get all those licenses, it's almost impossible.

Oh, and then with regard to the second question of Huya's business, I think all we can say that our policy has been executed very well in terms of developing our user numbers and revenues. One is in terms of the user numbers, we have created so many different lines of business. We indicated that we are pretty good on mobile game broadcasting, and those are the things that we have done very well.

And secondly, I think we also broaden our contents to include music and entertainment, which actually helps us to monetize even better than the original game broadcasting business. So I would like to summarize in two ways. One is we actually deepen and focus on the game broadcasting business, which allows us to penetrate into our competitors' market shares.

Secondly is we broaden our line of business for Huya so that the revenues has been enhanced by this new line of business. And both strategies are very successful. That's why Huya is doing very well.

Thank you very much.

Next question, please?

And your next question comes from the line of Ronnie Ho from CCB International. Kindly ask just one question, please.

Yes, thanks, Chen Zhou and Eric. Just cut it short, actually. The online allocation came in very strong last quarter. Can you give us some guidelines about what -- is it that the traction is coming better than expected, or should we expect the trend to continue? And how about the breakeven point actually in fourth quarter and also in next year for online education? (Spoken in Chinese).

First of all, yes, thank you, Ronnie. For online education, as I indicated, for third quarters, its revenue actually is more than Q1/Q2 combined, because Q3 is their strongest seasons, so there is a little bit of the seasonality reasons. And Q4 is going to be the second strongest season for online education.

We believe that online education business will actually reach breakeven point for the whole year 2016, and for next years, I expect the online education business will continue to grow and grow very strongly, but unfortunately, this business is not going to be impactful, because the total revenue amount compared with our entire size is relatively small. But the growth trajectory is very encouraging.

Okay. Thank you, Eric.

Thank you, and ladies and gentlemen --

Go ahead. Sorry.

Sorry. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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