JOYY Inc (YY) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to YY Inc's Fourth Quarter and Fiscal Year 2017 Earnings Call.

(Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, 6th of March 2018.

I'd now like to hand the conference over to your speaker host today, Mr. Matthew Zhao, IR Director of YY.

Thank you, sir.

Please go ahead.

Thank you, operator.

Good morning, and good evening, everyone.

Welcome to YY's fourth quarter and fiscal year 2017 earnings conference call.

Joining us today are Mr. David Xueling Li, Chairman and acting CEO of YY; Mr. Bing Jin, CFO of YY; and Ms. Ting Li, COO of YY.

For today's agenda, the management team will provide us with a review of the quarter.

Following their prepared remarks, we will conduct the Q&A session.

The fourth quarter and full year 2017 fiscal results and the webcast of this conference call are available at ir.yy.com.

A replay of the call will be available on the website in a few hours.

Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements.

Finally, please know that, unless otherwise stated, all figures mentioned during this conference call are in renminbi.

I will now turn the call over to Mr. David Xueling Li, our Chairman and acting CEO.

Please go ahead, sir.

Thank you, Matthew.

Hello, everyone.

Welcome to our fourth quarter and full year 2017 earnings conference call.

This is Bing Jin, the CFO of YY.

I will now speak on behalf of our Chairman and acting CEO, David Xueling Li.

We're delighted to conclude 2017 with robust growth momentum.

The innovative model of YY Live 7.0 continues to attract new users to our live streaming platform and generate strong operating results.

Consequently, we achieved better-than-expected financial results in the fourth quarter of 2017.

Our total net revenues increased by 46% year-over-year to RMB 3.63 billion, exceeding both our guidance and Street consensus.

Now let me provide more updates on both YY Live and Huya business as well as our recent new explorations.

Firstly, for YY Live, we continue to cultivate new growth engine through product innovation and content enrichment.

Our initial foray into AR embedded casual games, such as Happy Basketball, in the third quarter of 2017 was a smash hit.

To build upon this success, we launched several new AR casual games such as emoji Tetris in the fourth quarter of 2017.

As a result, YY Live continues to attract a younger generation of users, and the levels of interaction and engagement between our users have further improved.

We held the YY 2017 Annual Awards in the fourth quarter.

In addition to that, we also hosted the first ever YY Carnival in Guangzhou.

During that event, 38,000 fans joined over 300 hosts from 23 live streaming categories on-site for the celebration and another 8 million viewers tuned in to watch the live broadcast online.

Meanwhile, we continue to explore more opportunities in the fields of casual games to fulfill user demand in the fragmented time for our daily lives.

In the fourth quarter of 2017, we launched a casual game collection platform called Happy Go.

By introducing over 40 casual small games into this product so far, we continue to attract younger generations to our platform.

Now I would like to give you update on Huya.

Recently, Huya submitted a confidential filing with the U.S. Securities and Exchange committee for a possible initial public offering in the U.S. This announcement is being made pursuant to, and in accordance with, Rule 135 under the U.S. Securities Act of 1933, as amended.

Huya's IPO is an important milestone in our long-term strategy.

Huya is focused on game live streaming while YY Live and entertainment live streaming.

Together, we are able to cover the entire spectrum of and become a dominant player in the live streaming industry in China.

Now Huya has reached a stage in its development where it needs to obtain its own group of investors to fund its long-term growth.

In a public company, we also strengthened Huya's brand recognition and help it forge more strategic partnerships which, in turn, should enable both YY and Huya to further grow our combined live streaming ecosystem.

Looking forward, we will continue to explore innovative ways to attract more users, enhance user engagement, enrich live streaming content and improve the traffic-to-monetization conversion.

We believe that we have the right strategy in place to solidify our leading position in China's live streaming social media industry.

That concludes the remarks of our Chairman and acting CEO, David Xueling Li.

Now as the CFO, I would like to discuss our financial results.

We're very pleased to sustain our growth momentum in the fourth quarter of 2017.

Our total net revenues for the fourth quarter increased by 46% year-over-year to RMB 3.63 billion, exceeding the high end of our previous guidance range.

Notably, revenues from live streaming, which accounted for 92.9% of our total net revenues, grew by 51.9% year-over-year to RMB 3.37 billion.

Consistent with our strategic focus on the mobile platform, mobile contributed 53.4% of our live streaming revenues in the fourth quarter of 2017.

Mobile live streaming MAUs grew by 36.6% year-over-year to 76.5 million from 56 million in the prior-year period.

Live streaming paying users reached 6.5 million, up 25% from 5.2 million in the prior-year period.

Mobile paying users constitute 79.5% of our total live streaming paying users in the fourth quarter of 2017.

Our cost of revenues for the fourth quarter increased by 40.8% year-over-year to RMB 2.2 billion, which was in line with our top line growth.

The increase of cost of revenues were primarily attributable to a 49.6% year-over-year increase in the revenue sharing fees and content costs to RMB 1.83 billion.

Our gross profit increased by 54.7% year-over-year to RMB 1.43 billion, and our gross margin expanded to 39.4% in the fourth quarter of 2017 from 37.2% in the prior-year period.

Our operating expenses increased by 31.8% year-over-year to RMB 652.9 million during the fourth quarter of 2017, which was a slower pace than that of revenue.

Sales and marketing expenses were RMB 148.8 million in the fourth quarter of 2017, up 33.4% year-over-year.

As a percentage of total net revenues, sales and marketing expenses in the fourth quarter of 2017 was 4.1%, down from 4.5% in the prior-year period.

In addition, our R&D and G&A expenses as a percentage of total net revenues were 7.8% and 6% respectively, in the fourth quarter as compared to 6.4% and 8.3%, respectively, in the prior-year period.

Our GAAP operating income increased by 32.2% year-over-year to RMB 821.5 million in the fourth quarter of 2017.

GAAP operating margin was 22.7% in the fourth quarter of 2017 as compared to 25% in the prior-year period, primarily due to an increase in newly issued share-based compensation in the fourth quarter of 2017.

Our non-GAAP operating income, which excludes share-based compensation expenses, increased by 59% year-over-year to RMB 1.03 billion in the fourth quarter of 2017.

Non-GAAP operating margin increased to 28.4% in the quarter from 26.1% in the prior-year period.

Our GAAP net income attributable to YY increased by 29.4% to RMB 740.4 million in the fourth quarter of 2017.

Net margin in the fourth quarter of 2017 was 20.4% compared to 23% in the prior-year period, primarily due to the increases in the newly issued share-based compensation in the fourth quarter of 2017.

Non-GAAP net income attributable to YY increased by 58.5% to RMB 948.9 million in the fourth quarter of 2017.

Non-GAAP net margin in the fourth quarter of 2017 expanded to 26.2% from 24.1% in the prior-year period.

Diluted net income per ADS in the fourth quarter of 2017 increased by 18.4% to RMB 11.53 from RMB 9.74 in the prior-year period.

Non-GAAP diluted net income per ADS increased by 45.2% to RMB 14.77 from RMB 10.17 in the prior-year period.

Now turning to the result of full year 2017.

Our total net revenues increased by 41.3% year-over-year to RMB 11.59 billion, driven by a 51.9% year-over-year increase in live streaming revenues.

Our GAAP net income attributable to YY for the full year 2017 increased by 63.6% to RMB 2.49 billion, and our non-GAAP net income attributable to YY for the full year 2017 increased by 63.6% to RMB 2.75 billion.

Diluted net income per ADS for the full year 2017 increased by 56.6% to RMB 41.33 from RMB 26.4 in the prior-year period, and non-GAAP diluted net income per ADS for the full year 2017 increased by 57.2% to RMB 45.56 from RMB 28.98 in the prior-year period.

Looking forward to the first quarter of 2018, we expect our total net revenues to be between RMB 3 billion and RMB 3.15 billion, representing a year-over-year growth of 32.3% to 39%.

This forecast reflects our current and preliminary views on the market and operational conditions which are subject to change.

Finally, please be noted, as Huya has filed a draft registration statement on Form F-1 on a confidential basis to the U.S. SEC for a possible initial public offering under the view of the proposed Huya IPO, there will be no questions accepted relating to Huya in this call.

That concludes our prepared remarks.

Operator, we would now open the call to questions.

(Operator Instructions) Your first question comes from the line of Daniel Chen from JPMorgan.

I have 2 questions.

My first question is regarding our gross margin.

Our gross margin has been pretty strong on a sequential basis.

And given that the competition in both the talent show live broadcasting and the game broadcasting are both increasing recently, how should we look at revenue sharing ratio and the gross margin in 2018?

The second question is on our new product, Happy Go.

Could management share some color on some of the user side?

For example, monetization status, what's our user acquisition strategy and the user retention?

(foreign language)

Okay, maybe I'll address the first question, and then Ting Li can address the second question.

So in terms of the gross margin, I can only give you a general trend.

Again, we cannot provide a guidance or forecast on this call.

With regard to entertainment live streaming, as I mentioned to many investors before, there's abundant supply in China for top quality music and dance or other category kind of entertainment live streaming host, so we don't think there will be a lot of pressure in terms of acquisition of those hosts.

On the game live streaming, I think Huya's strategy right now is still focus on growing the user base, investing in good quality content and also retain and attract high-quality game hosts.

And as we mentioned in the previous calls that we are -- one of Huya's strength is in terms of the cultivation of the mid-level hosts, which I think Huya continues to do well.

So I think in terms of the gross margin pressure on Huya side is also manageable, in general.

(foreign language)

Let me do the translation.

So in terms of Happy Go is that recently we launched the product which is focused on the casual games collections.

Compared with the single social games, for example, like the Happy Werewolf Kill, the Happy Go actually, in terms of the user stickiness as well as user acquisition, we saw the comparably much better of the results.

So that is what we have disclosed now.

Thank you.

(Operator Instructions) Next question comes from the line of Binnie Wong from Merrill Lynch.

(foreign language) So I will just translate the questions above into English.

So our first question is that in terms of the top line growth, I noticed that 1Q outlook seems to have a slight decelerations from our revenue growth into 4Q.

And given that last comparable quarter is not particularly of a high base, then I just wonder what are the reasons in terms of when management guide the 1Q outlook, what are the assumptions management have in mind?

And then the second question just in terms of the growth in the total paying users, net addition this quarter is again slightly slower than what we see in Q3, and given that we have quite a few new features and product innovations in 4Q, just wondering what are the reasons and how should we look at the strategy in terms of 2018 as the company's priority in terms of growing the traffic and paying users, what are some of the strategies in mind and what are the focus we have in 2018 as we start the year?

And then lastly is that, if we look at the overall competition environment, with the possibility that there are more and more competitors going into live broadcasting and all these are big Internet giants are also chasing for good quality content, how will you see that, that would affect our sharing ratio?

Do we have to make it more attractive to ensure good quality content stay on our platform?

And down the road, how do you think that will impact our margins?

I understand that we're not giving exact number on 2018 margin guidance, but any qualitative comment from management will be very helpful.

Let me address those questions.

So the first question is regarding the revenue guidance for the first quarter, it seems that's slowing down a little bit.

I will point it out that this year, the Chinese Spring Festival come a little bit late, it's around mid-February, and then the recovery period post the Chinese New Year is a bit shorter.

That's why, I think, in general, this quarter is a low season for our business.

And that's why we provided current guidance as we've estimated.

Our second question is regarding the paying users.

The main reason, I think, last quarter is because it's a low season for Huya.

Huya's typical high season is the holiday season, meaning, the third quarter and first quarter, but in general, the fourth quarter, the -- Huya's paying user scale is relatively low compared with the others.

And then you asked about the 2018 kind of trend, I would say our key focus is still on the new users.

Once we get the users, we find different ways to converting them into paying users.

So MAU, DAU always come first before the paying user.

So that's regarding your second question.

The third question is about the competition.

Actually the competition in live streaming is always there, and we've gone through several cycles.

I think the recent trend of some big players coming into this live streaming actually is good for us because it aroused more peoples' interest and actually helped converting more ordinary people into live streaming viewers.

So I think, in general, that's good for the industry.

And that's only good for the big players, by the way, due to regulation concerns.

It will be tougher and tougher for smaller players.

In terms of content, we are focusing on UGC.

We're not a PGC platform.

And UGC is created because [we] like the community feeling.

And while it has already built a very strong community where ordinary people across China want to share and entertain themselves by watching the high-quality user-generated content.

So I think as long as we have the users and interesting way of engaging people, that community feeling will always be there and will always continue to attract users to create good quality content, and that we don't need to spend a lot of money in terms of investing in those content.

So that's why I think in terms of the revenue sharing with the host, it wouldn't change a lot because we believe in our ecosystem.

Actually, a lot of the -- sure, go ahead.

Okay, please, please, after you.

I was just going to say that a lot of new players coming into this live streaming market, as I said, they enhanced the awareness overall and that we are already at a very mature stage for YY in terms of the live streaming, right, we're probably live streaming 3.0.

So a lot of the players that come, they need to build up the expertise in terms of operational experience, and that takes time.

Go ahead.

Sorry, just 1 quick follow-up here.

So you think that the competition now and also our expectations in terms of '18 that our sharing ratio, given the competition environment is not going to be impacted, we can just maintain the current sharing ratio?

And in turn, how do you see margin trend in 2018?

Yes, margin share, as I said, for YY Live will generally be stable.

As I said, it wouldn't change this revenue sharing.

For Huya, it's relatively difficult to say at this stage because on the game live streaming industry, it's still relatively competitive and then there are relatively fewer supply for top-quality game host.

So I think it will take some time for Huya to maintain the leading position for top-quality game host.

(Operator Instructions) Your next question comes from the line of Natalie Wu from CICC.

(foreign language) I will translate my question in English.

My question is regarding the sales and marketing expenses.

You had a very well-controlled sales and marketing expenses this quarter, which -- how should we think about the number going forward?

And what kind of strategy you will mainly adopt to promote your products this year?

And also, on the guidance, anything related with Tianyou incident, something like that?

And also, what's the current top performance contribution to YY Live at current stage?

Natalie, thank you for your questions.

Let me try to address those.

So first question regarding sales and marketing expense in the fourth quarter, I think we had a good control.

I think the main reason is we focused on annual gala and our Carnival event in the fourth quarter which is regular in the fourth quarter.

So in terms of the sales and marketing for other product, we don't spend that much.

That's the fourth quarter review.

In terms of the 2018 forecast, I think that's difficult to say at this stage.

As I mentioned many times before, it depends on our product launch pace across our platform, and that we might need to spend a good amount of sales and marketing to support that product.

So it's hard to give specific guidance at this point.

For the second question, why the first quarter guidance is a bit low, I think the main reason is still for the Spring Festival as I explained.

For Tianyou and the other incident, I wouldn't say that those will have an impact on our ecosystem because Tianyou is just one of our hosts.

We have many, many host across the platform, and they continue to flourish on our platform.

So I don't think Tianyou incident has any impact on our platform.

And the third point is regarding the top 10%, the host, their revenue contribution.

We didn't disclose that number before and wouldn't disclose right now.

But I will say, in general, we track the number regularly.

That percentage contribution is going down gradually, even though it's not a big drop because the prevalence is still dominated by those top hosts.

But as long as we see a gradually coming down trend, it is healthy for the ecosystem.

(Operator Instructions) Your next question comes from the line of Shi Jialong from Nomura.

(foreign language) So I have 3 quick questions.

My first question is about the China regulation.

So in addition to the recent regulation on right across major online live broadcasting platform, based on the company talks with relevant watchdogs, should we expect any further tightening regulations toward live broadcasting or the general online entertainment industries?

My second question is about the competition landscape.

In addition to the existing competitors, we saw some new entrants into this live broadcasting space.

Many of the new entrants, such as Kuaishou, Bilibili and Huoshan are leveraging their user base of the short video service to penetrate the game or entertainment live broadcasting service.

So I just wonder if these short video plays could become a challenge or a disrupter to the existing live broadcasting landscape.

My last question is about YY's previous investments in Tantan.

When YY made that investments in Tantan 1 year ago, it seemed to be strategic instead of financial investments.

So we understand YY has huge profits from these investments following the sale of the stake to Momo recently.

I just wonder what has prompted YY to sell out the stake in Tantan.

Thank you, Jialong.

I'll address the first question and the third question and Ting can comment on the second question on competition.

For the first question, regarding regulation, we do think that the Chinese government will continue to strengthen the content monitoring and the overall regulation on this industry.

But I think as I mentioned before, it is good for the big players.

Reason being that, first of all, we have years of experience operating the ecosystem, so we have the highest standard in terms of the quality screening, in terms of the operation of the overall ecosystem.

So I think it will benefit the big players.

I also want to make additional notes on Tianyou because people are very interested in that.

As explained, Tianyou incident was regarding the small incident back in 2015.

And along the years, we have done many things to improve the overall quality of Tianyou content on our platform.

And then I think the mainstream culture for YY is to cultivate and bringing more hosts to shine their talents on the platform in a very positive way.

So we will always cooperate with the government and set up the industry trend and pattern and the best quality practice for other players in this live streaming, social media industry.

So that's the first question.

Regarding Tantan, the third question, we did made a minority investment last year for the exact reason being that we want to test and see whether this is an area that we're exploring more.

And after some time of experiment, we haven't decided whether this is an area that we're -- we put all of our cash in.

And so that's why we sold the stake to Momo.

We make a decent return.

That means that we still have very good investment strategy.

And going forward, we'll continue to explore other areas where they can provide additional traffic to our ecosystem.

We are very strong in terms of monetization conversion.

So as long as we get younger traffic, new traffic, we'll find different ways to convert them, and Tantan is just 1 exploration, yes.

Okay (foreign language)

Let me do the translation.

So in terms of the short video environment, actually we already noticed there are several of the large guys emerging from this kind of industries.

So that actually demonstrates the era of the video has been coming and it also is good encouragement for ourselves.

In terms of the, I mean, the development of the -- for short form video, we noticed for the short form video, content is more like FMCGs, which is suitable for the short term of the consumptions.

But in terms of the live streaming content, that is more immersed, kind of more -- a company-related kind of content.

So that's why we think in terms of the consumption of the users, going forward, definitely it will be convert from those kinds of short form video fast-moving -- FMCG types of the consumption into the immersive consumption, which is coming from the live broadcasting in the long run.

So for our practice, the success of other short form video platforms, we are still very confident of obtaining of and retaining the subscribers from those kind of -- from the live streaming of the services going forward.

(Operator Instructions) Your next question comes from the line of Eileen Deng from Deutsche Bank.

(foreign language) My first question is regarding YY Live's core business.

Wondering what's the next powerful monetization feature?

Can we expect to do that and what's the rough timeline?

And except the Happy Contest launch last year, is there any other new features last year starting to see meaningful revenue contribution yet?

And my second question is the algorithm change, want to check the progress of this upgrade and any meaningful contribution to our business metrics yet?

Eileen, thanks.

Maybe I'll let Ting Li to take the questions.

(foreign language)

Okay, let me do the translation for the first questions.

So in terms of the new sales through generated of the revenues, I would say the Happy Contest is just a good starting in the year 2017.

So Happy Contest is -- it's basic -- on the 2 hosts of competition, maybe of the live streaming scenarios.

So going forward, we will explore more opportunities in terms of the multi-people or the multi-host of the competition and of the live streaming scenarios.

So that actually can help to significantly improve the efficiency as well as the interactive to -- within of the live showrooms as well as to increase the revenues.

So in summary, the Happy Contest is just a start, so the -- which is it's basic services.

So going forward, what means -- I mean the Dou the contest it can be very various in terms of the text as well as the content.

So meanwhile, you just have to follow the format of those kind of the revenue-generated sales and meanwhile, we also will to focus on the content enrichment, which is related to the Happy Contest have of the services.

So that's what our key focus going forward.

(foreign language)

The second question in terms of the algorithm upgrade in the past few quarters, so the key focus for the algorithm updating is in terms of improving the consumption rate, in terms of both of the user time spent as well as the stickiness of the users.

So and another part for the algorithm upgrading is related to the revenue increase in the past quarter as well as the diversification of the revenue source, which has been fully exempted in our demonstrate from our annual Gala in the year of 2017.

So we noticed, because we have the -- through the algorithm personal faves, those kind of recommendations to the different users, we noticed for both of the guilds, but the participation for both of the guilds as well as the users has been -- as well as the host has been significantly increased in the past year.

So that also demonstrates our efforts in terms of the algorithm update in the past quarter.

Thank you.

Your next question comes from the line of Jerry Liu from UBS.

(foreign language) I'll do the translation.

So the first question is around the M&A and the investment strategy.

We talked earlier about Tantan, but outside of that, do we see other opportunities in adjacent categories, as David Li mentioned education before, is that the focus this year, next year or are there some other categories?

And second is the -- in terms of the regions that we want to focus on.

Is this still mainly within China?

Or would we increase focus on areas like Southeast Asia?

And then the second question is around MAU and paying users.

Could we get the YY Live mix of these metrics?

Thanks, Jerry.

Let me take those 2 questions.

So first question regarding investment strategy, in terms of the target and the region.

I think, first, for region-wise, we are looking at both China and globally.

For global market, Southeast Asia market definitely is an attractive market.

We are also looking at other areas as well, including U.S. In terms of the assisted categories and target, I think I mentioned that before, it's upstream, midstream and downstream.

For upstream, we are looking at platforms such as Tantan or other social network or instant messaging kind of community which have organic traffic, so that we can direct some of those traffic to our platform, or we can invest our live streaming within their platform to help better monetization.

So that's on the upstream.

It's about traffic acquisition.

On the midstream is about content.

So we continue to look at good quality content across China, across the world for good games, good quality content that can engage users and have them spend more time.

For the downstream, it's about monetization, further enhanced monetization.

So we're looking at different kind of technologies for AR, for artificial intelligence across China and globally.

So those are the key area of focus.

For education, we'll continue to look at that.

But as I mentioned before, it's in the initial stage, so wouldn't be material impact to our financials.

For the second question on MAU and the paying user breakdown between YY and Huya, Jerry, I'm sorry I cannot disclose that because as I mentioned in the script that due to Huya's sensitivity around its proposed IPOs, we cannot disclose relevant data regarding Huya, so I hope you can understand.

Next question comes from the line of Hillman Chan from Citigroup.

(foreign language) So my first question is a follow-up on the product development strategy.

So just now we discussed a lot on the Happy Contest, and I just want to have more comments from management on some other innovations on the host user interaction, especially more on the social side and also on the more long-tail users.

And going into 2018, what's the strategy and also direction and pace of the development?

And then my second question is on the short video apps.

So we made some attempt last year, and how should we think about our priority and also the strategy on this front going forward?

And lastly, on Bigo, so what's the scale, growth outlook and profitability of this business?

Hillman, thanks.

We'll now let Ting Li take the first 2, I'll take the question on Bigo.

(foreign language)

Okay, the first question, we have -- actually, we have already covered some of the colors before.

So the Happy Contest is a basic (technical difficulty) and based on the framework, the Happy Contest and we will provide more the different content as well as different resources so that actually can improve the efficiency.

Going forward, we will have more the different products as ongoing, so please closely to monitor our updates page.

Okay (foreign language)

In terms of the updates of the short-form videos, so firstly, the short-form sections end of the YY Live, which is its video views number has been -- continue to double in the last quarter compared to the previous quarter.

So for other of the independent products updates, firstly, one of the products called Budao so that one is continuing to improve the user stickiness and improve their functionalities.

And meanwhile, we also actively to explore more new functions and new ways during the Spring Festival in China.

So one is kind of AI focused tools for those kind of short form video products.

That's why actually it has been very welcome among all of the social media platform as well as in other social networks.

So that actually is a good examples to demonstrate our continued efforts in terms of the short form video development.

Thank you.

And then, I'll answer the question on Bigo.

Because YY is the holding company, we only are a minority investor in Bigo that's why we couldn't disclose too much information in terms of the data scale and profitability for Bigo.

But I will say, in general, Bigo is going well.

As I said, the global licensing market is still in the early stage, so Bigo is very strong in Southeast Asia market and continue to grow globally.

Next is the final question from the line of Karen Chan from Jefferies.

(foreign language) We saw a very strong growth of advertising, although it's coming off a relatively small base.

Just wondering what drives that and how we should think about the overall advertising potential, in particular, on Huya platform.

Thank you, Karen.

As I said before, for Huya, we cannot disclose too much information.

But I will say, in general, you're right the advertising has great potential, particularly on Huya, to promote the value for game developers as well as brands that cater for younger consumers.

So I think that part will continue to grow, but I cannot further disclose any additional information.

We'll take the next question from the line of Thomas Chong from Credit Suisse.

(foreign language) Right now a bunch of people are talking about the blockchain initiatives, which is going to be adopted in different scenarios.

And I just wanted to get a sense about how we embrace these opportunities?

And is there any chance that we can see monetization in the next couple of years?

Thank you, Thomas.

(foreign language)

(foreign language)

Okay, let me do the translation.

Firstly, in terms of blockchain, it's a new technology.

So that is -- compared with the previous technology, it's a new way to allocate the profit within of the communities.

So that's why we think it has a good potential for the future.

And so based on those kinds of characteristics as well as the decentralized of the characteristics of the blockchain, so in the long term, we think the blockchain will be -- the more valuable blockchain services will be the blockchain which is can provide a sustainable and true and useful of the demands and services which is to the users.

So we will continue to look at this part of the area, but we don't think it has -- we can generate the revenues in the short run.

Thank you.

Our last question comes from the line of Wendy Huang from Macquarie.

(foreign language) First, we noticed lots of other live streaming social networking platforms.

They are pursuing the way to integrate online and off-line better and monetize.

So does YY have any thinking behind that?

Second, can you share some YY Live user data in terms of the geographic breakdown and also the user age breakdown?

And lastly, is there any initial thought about the potential investment size and strategy for the education business?

Okay, thanks, Wendy.

Let me address those questions.

So for the first question, we do think that there's a lot of opportunities for online and off-line combination.

And YY, as you have witnessed, we have online annual gala we have off-line Carnival, so that's the perfect example of how we combine online and off-line.

We'll make sure that we could penetrate into massive third tier and fourth tier cities in China.

We do think that the mainstream published in those third tier and fourth tier cities do have a lot of the massive demand for both online and off-line entertainment need that haven't been fulfilled or satisfied.

So we continue -- we can grab the opportunity for both online and off-line entertainment market.

And by the way, we have been doing that.

So that's the first question.

Second question for YY Live, our user demographics, age and cities, in general, our YY Live, the core users for YY Live, as I mentioned before, is people around 30 years old, and majority is in third tier and fourth tier cities.

We also have people in the first tier and second tier cities, they're relatively low income.

But as we said, we are cultivating different ways to attract younger generations.

So our new product, such as Happy Go, such as Happy Basketball, those new features, they attract many younger generations, people born after 1990s and people born even after 2000.

So as we continue to innovate new product, we hopefully will expand the user base.

So that's about the user profile.

For the investment into the education, as I said, it's still in the initial stage, so hard to give a number in terms of the straight dollar, but we have been doing education for a while, and we have made some investment.

So we have accumulated, I will say, experience in this area.

But again education is a factor that needs long-term investment and operation expertise.

So I think my suggestion is for analysts and investors keep monitoring our progress, and we'll update whenever necessary.

Thank you.

I now like to hand the conference back to the management team for the closing remarks.

Thank you all for joining us today.

If you have any further questions, you are welcome to contact us any time.

So we're looking forward to speaking with you in the coming quarters.

Have a nice day.

Thank you, everyone.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.