Dear shareholders, investors, ladies and gentlemen, good morning. On behalf of NetDragon Websoft Holdings Limited, I would like to extend my warmest welcome to you. Thank you for joining us in our 2018 interim results presentation.
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First, please allow me to introduce the managements who are presenting today.
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We have Dr. Simon Leung, Group Vice Chairman and Executive Director.
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Mr. Ben Yam, Group CFO.
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Mr. Vin Riera, CEO of Promethean.
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Mr. Ravi Angadi, CPO of Promethean.
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Dr. Vibhu Mittal, CEO of Edmodo.
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Now, please allow me to pass the time to Dr. Simon Leung to start the presentation.
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Okay, thank you. Good morning.
Good morning.
Okay. Especially my guys.
We get all the official one over with, so it's going to be very relaxed, very informal and that's why I'm wearing jeans. Actually, the truth is I'm rushing to the airport after this. Okay, great to be here. Thank you for coming. I think it's raining outside, so we didn't order the rain. We did book this room, so hopefully when you go out, it's actually better weather. I know you guys have been hearing from me and Ben for a long time, so we figured, since we changed it to an interim announcement, we'll do something different. We got some help today. You wouldn't be hearing that much from Ben and myself, which is good news for all of you, by the way. Let me kind of run it down.
I'll open, I'll tee up some of the highlights, and what I'm going to do is actually, I'm going to hand it over to Vin, who runs Promethean, has been with us for about two and a half years, two years. It feels like 10, but that's okay. Has been doing a good job with his team. He'll run you through all the good things we're doing in Promethean and together with Ravi. Ravi has actually joined us slightly after Vin. Maybe it's actually not even one year. He's making a lot of changes in our product line and moving from hardware more to services. We also got our newest member of the team, Dr. Vibhu, which is actually, he told me he's half Indian and half Chinese, so Vib and bhu. That's where he is right now.
I call him Chin-dian because of that. Ben will come up and give you the detail. I will come back up and kind of wrap up. Then we will go open it up for Q&A. Okay? Very quickly, I like the chart. I hope you do, too. Actually, I read in the news, a lot of people try to figure out why NetDragon went from a quarterly announcement to interim announcements. Some speculation is because the result is not so good. That is why we did it. I hope we surprise you in a good way. Let me hit some highlights. Then I will pass it on to the rest of the team. Record revenue all around. We are pretty happy with that. We are not satisfied 100%, but we are happy with the progress.
We are looking at a lot of metrics, which is very important for us because we run a pretty diverse and global company. A lot of the businesses will show you some of the metric, and we are pretty happy with that because they are all green. Which is all good news. Of course, last year we talked about small profitability around the interim result area. Now we significantly improve our profitability, which is because of all the good work from the team around the world. We also continue our M&A strategy, which is a mainstay of our three-pronged strategy. Very quickly on gaming, we grown faster than the market, which is actually very good news. The market is actually growing, but not as good. We grow up beyond that.
We continue to monetize our flagship IP, not only on the PC side, but also on mobile. Our mobile game growing faster than the market, and also faster than our PC game, which is what we have been aiming to do. We get a better mix between the PC and mobile. Of course, profit will go all the way down to the bottom line. Step back and then look at some of the metric we have. You look at the output, you look at the DAU, very healthy. Going to learning grow even faster than the gaming market. It definitely will grow faster than the market. We gain share all around the world. Very proud to say operational excellence. Again, I am not going to steal the thunder from Vin. He will show you the numbers.
I am going to let Ravi talk to you about all the product innovation and integration because we bought all these different companies. How do we put it all together and make it seamless for everybody else? We talk about the M&A. We complete the transaction of acquiring Edmodo. It is actually in May. Dr. Vibhu Mittal will tell you why Edmodo. Stay tuned for that one. Because of that, we expanded our community, as you apply along. Also, we continue to acquire teachers in China. If you just step back and take a look at the metrics. We are closing in to 100 million users in our community after the acquisition of Edmodo. It is about 5 million MAU. In China, we are at about 2.4 million teachers already. A couple other ones is actually quite interesting.
Over 1 million, actually, we are over 1.5 million classrooms now with all the good work that we've been doing. Another big piece is actually we are in Edmodo, we have over 650 million resources that's been shared across the learning community in the last few years. Vibhu will talk to you about why is that significant. With that, I'm going to hand it over to Vin. Vin's going to tell you everything you want to know about Promethean.
Great. Thanks, Simon. Good morning, everybody. My name is Vin Riera, and I am the CEO of Promethean. I am very excited to talk to you about our first half results. I'm going to also mix in a little bit about who we are as a company, and our focus on the market, and then touch on our products as well. We have been in the market for 20 years. One thing that's very important to understand is that we solely work within the education market. So we're laser-focused on the needs of what takes place in the classroom around the globe. We work with teachers, we work with the learners and the students to make sure that our products are really hitting the mark within education.
We've been very fortunate over the years that we've won multiple awards for both our interactive display technology as well as our lesson delivery software. We're a global company. We operate in over 150 countries around the globe. Within those 150 countries, we translate to over 40 languages. We're number one in the market in the U.S., and we're number one in the market within EMEA as well. We have our technologies in 1 million classrooms around the globe, and in those 1 million classrooms around the globe, our teachers are using our classroom management software that impact 10 million students on a weekly basis. From a growth standpoint, we're absolutely thrilled with the growth that we've had in the first half of the year. In the first half of 2018, we had over $195 million in revenue.
That's up significantly from the first half of 2017, where we had $124 million. From a profitability standpoint, nice profitability at over $20 million in the first half of the year. One interesting point that I just want to look at that this slide doesn't represent is that in 2016, our full-year revenue was $200 million. So we've seen really nice growth over the last two years. Operating expenses is something that we look at and making sure that we're growing, but keeping our costs under control. As you can see by this chart, we have kept our costs under control. Our operating expenses as a percent of revenue is 18% this year, compared to 26% last year. So significant improvement there as well. We also look at ASP and market share. ASP first, that's our Average Sale P rice.
We have a robust line of products specifically for education. We have high-end products for education that have much more features associated with them, and then we have more cost-effective products for education. What this chart is showing you is in the first half of 2018, our ASP went up. The three-year change, as you see on this chart, has consistently gone up as well, is that we have a nice mix of our value products in with our feature-rich products. Customers are buying products that have more features and functionality within this market. That is super encouraging for us. Because when we see this trend throughout the globe, in the way that our customers purchase, we know that as we make our products unique and differentiated, customers are willing to pay for them. I think that is reflected there.
From a market share standpoint, great market share growth as well. We are growing above market pace. The market in the first half grew 19%, and in the first half of the year, Promethean grew 35%. So we are absolutely thrilled with that. Again, last year, if we look back, we also did grow above market, but at a much more rapid pace in the first half of 2018. There are a couple things that make our products and the way that we go to market different. First, I want to talk about the way that we go to market. We sell to not only schools, but we also sell to governments. We focus all over the world, so we are working within countries in EMEA and the U.S., but we are also focused on the emerging markets as well.
Many emerging markets are doing government-wide tenders and putting technology into the schools, and we are at the forefront of that. When I look at the business that I run, I want to make sure that we are growing in both aspects of that business, and across the board, we are growing in both those aspects, both to the schools that we sell in and also to the government deals that we are doing. One of the things that is important, and one of the reasons that we are seeing success there is because we use an indirect channel to sell our products. This is really important because when you take a look at the globe and how many schools and classrooms there are, that is a lot of interactive devices and software associated with it.
By using a channel, we have people deployed globally that are looking and telling us when customers are buying, and it is timed well. Our sales force is aligned with the channel. When opportunities come up, we work closely with the channel and closely with the end customer to make sure that we are engaged and we can be part of that deal. One of the reasons that is important is because it keeps us in front of the opportunities as they become available to bid on. At the end, after the deal is sold, it is also important to note that we retain the end customer. The channel represents us and the channel helps us, but at the end of the day, Promethean owns the end customer, which is great as we look at expanding into new product offerings.
I talked a little bit about our hardware products being differentiated in the market. I am going to touch on hardware. Ravi is going to spend more time on software and platform. Our current offerings, our V6 offering, that offering was released last year. It has been a great product for us. It is differentiated touch technology designed for education, durable for classroom use. It is something that the market has responded extremely well to. We sell it at a price point that customers can afford within education, and that is really important when you design and build products within education. It is something that has really helped set us apart and helped us grow in the market over the last year, but especially in the first half.
I am dying to talk to you about V7, but I am not going to. I am just going to touch on a couple of points. We are well underway on our product design on V7. We started early, and we are doing a lot of things to differentiate our products that break away from what competitors are doing in the market. Because of that, I do not want to share just yet exactly what we are doing, but it is absolutely exciting, and we are going to release it at Bett this year in 2019, our Bett Show in London. You will hear more about that in the launch of V7 in London this year. With that said, I will hand it over to Ravi. Thank you.
Thank you, Vin. Hello, everyone. My name is Ravi Angadi. I am the Chief Product Officer of Promethean. Welcome, and thank you for coming this morning. I would like to leave you, at least in this section, with three things to remember about what we are doing on the product side. Number one, the critical thing that we are transforming is the classroom experience, meaning what is the teacher doing in the classroom, how is the market changing, and how are we adapting to that change? Number two, we want to talk about how we are actually transcending beyond the classroom to go to other parts of the learning ecosystem, including the home and beyond the home. The third, you heard some mention of this, talk about the platform.
We are working on a new platform that actually brings all of our solutions together and allows us to go into a much broader learning environment. Those are the three things that we will cover today. Today we have two very feature-rich lesson building, lesson delivery products, ClassFlow and ActivInspire. These are feature-rich. Essentially, they are Swiss Army knife of the lesson-building , lesson- creation products in the market. They do a lot, which is part of the reason why we have gotten such large teacher adoption. On the hardware side, as Vin referred to, we also have our V6 product, from what we are told, has the best touch and writing experience that you could see in a K- 12 environment.
But despite all of this particular technology, what this brings to the table, as well as changes in sort of consumer technology, means that teachers are starting to change the way they teach. We are now on the verge where teachers are no longer using one big tool to do everything. A typical teaching experience that we're seeing in many parts of the world is teacher might start off with a lesson, but then meander over, invoke a video through YouTube. Maybe they bring up a map. Maybe they deliver a spot quiz. All this is happening while it's still structured in a very ad hoc fashion that actually might change in the moment for that particular class, that selection of students, and that topic.
So in that kind of an environment, we need to be a lot more nimble in making that teacher more productive, engaged, and driving better learning outcomes. So what are we doing to help with that classroom experience? We're taking our software that exists today, and we're disaggregating them into much more bite-sized, purpose-built apps that do very specific functions. We're filling the ecosystem within the classroom with our platform with these applications. The second thing we're doing is actually integrating all of these applications much more tightly with the devices that are used in the classroom. Third, we're actually extending that integration and that experience such that this is not just something a teacher would use but would actually be used by the students in conjunction with sort of that collaborative learning experience.
This is sort of a big change that you'll see coming here in 2019. We believe that this is going to drive sort of a very different type of teaching experience that teachers right now are trying to do but don't have the right method to kind of make that happen. Of course, teaching isn't just about the classroom. It doesn't start and end there. It's actually a journey that takes you from home to the school to maybe a tutoring center. In that journey, you have different actors in the system, and they're all engaged in some form in a 24-hour cycle or weekly or monthly and annual cycle. So those people that are involved are also using products, or I should say, devices that might vary drastically depending on the context. So you'd have different form factor devices, certainly different operating systems.
They might be running different kinds of applications being used for very different things. So what we're trying to do is deliver a system that accommodates this entire life cycle of learning and supports content and applications to run anywhere and by literally anyone on any device. This is what essentially we are trying to achieve and sounds ambitious. This is not trivial. Part of what we're expecting is the real benefit out of this is if you take the entire life cycle, we now start capturing a much larger ecosystem of active users. These active users are much more engaged because they're actually being sort of captured in the context of both peer-to-peer engagement as well as community-based engagement. That increases our capabilities for monetizing that entire community, because it isn't just the classroom or just the home or anything in between.
The platform that we are delivering is actually encoding all of this. There are two really important things to mention about the platform. Number one, it is really intended for us, the first step here is to bring all of the solutions that we have, whether it is the new Edmodo acquisition, the Promethean acquisition, or I should say, the Promethean solution sets and the other sister companies that we have. It is really about bringing all of them in a cohesive way to actually create an experience that starts in the class, goes to the home, and back. Number two, we realize that we are not going to be building every single application that is needed in every geography and every jurisdiction for every grade level and teaching method. We want this platform to be able to onboard other applications as quickly as possible.
It is really going to deliver a set of common services that will be used across all of these applications. We will be able to add applications in a very consistent, seamless way. That is what we are going to be working on, and you will start seeing elements of this come to fruition very early in 2019, but throughout the year. Hopefully, you will see some exciting stuff. Thank you so much. Actually, I should say, up next, Vibhu.
Thanks, Ravi. It is tough to follow somebody like Ravi who went into such incredible detail on what the Promethean platform will do next year. My goal here is to at least introduce to you the newest member of the NetDragon family, and that is Edmodo. I will very quickly go through some of the background that Edmodo brings to the table, as well as what our plans are for the next few quarters, and you will get a sense for where we as a larger set of portfolio companies are going to be going towards. Why Edmodo? I think there are three main points that Edmodo brings to the table that are really interesting. One, Edmodo brings the largest connected online community of learners, and by learners, we really refer to students, teachers, and parents to the fold.
We will talk about some of the numbers there and the possibilities that this opens up for us. I think bringing Edmodo into the fold also allows us to complete the product offerings from Promethean that has traditionally been extremely strong in the classroom, to also now start covering the bases of outside the classroom, in the home, and on the mobile platform. You already heard Ravi talk a little bit about how the new platform will support some of these activities, but you will see how Edmodo does some of these as well. I think the final most interesting angle that at least Edmodo has been working on is to see how we might potentially tap into the notion of being able to monetize on a B2C level.
When Vin talked about monetization, Promethean has been exceedingly good at trying to get to government, trying to get to school districts and large institutional, essentially institutional purchasers of these technologies. But we bring to the table yet another capability of being able to have individual users, students, parents, and teachers start helping us monetize the platform. The core value proposition by Edmodo depends on three use cases. We have a number of other use cases, but these are the three most important ones. Edmodo allows students and teachers to share and communicate. Over the last few years, more than 1 billion messages have been sent on the system. Edmodo allows people to discover interesting resources. When I talk about resources, this could be lesson plans, could be videos, could be quizzes.
650 million of the resources have been recommended by teachers to other teachers and students in the classroom. I will illustrate one example how we can use this data. Then, of course, for students who go home, Edmodo is currently used to do homework and assignments. Just to give you a sense for how much data we start accumulating, we have had over 100 million quizzes done on the system. So we know a lot about both the resources that were used and the students that tried to answer some questions based on their understanding of the material. Very quick overview of where our users are. We have over 92 million registered users. About half of them are in the United States, the rest are distributed throughout the world.
The only reason we bring this up is I think there are two very interesting regions of the world that are completely missing in terms of our footprint, India and China. India, clearly, I think in some ways, as an Indian from growing up, I would like to see India represented much more strongly. China is something that we tried very hard at Edmodo to try and break into, found it extremely difficult without a local partner. I am super excited to see what we can do with NetDragon's resources at our availability. The main focus for Edmodo in the next few months or next couple of quarters is to drive both the number of users as well as the engagement on the part of the users. There are four aspects that we are going to focus on in terms of being able to do this.
The first one is that as we have seen and as all of you are even more aware than we are, usage is increasingly moving from the web to mobile. We are going to spend a lot more effort trying to build great mobile experiences. We are going to expand both student-to-student and parent-to-parent communication capabilities. There are nuances here that I am happy to try and get into later on. We have been a very teacher-centric network so far. We have done incredibly well as far as teacher communication is concerned. We are super excited about being able to now expand almost at a 10x level by getting all the students to be able to communicate with each other. We are using machine learning today to try and enhance both the communication and the sharing capabilities. I have one more slide that I need to talk about.
Finally, we're going to take advantage of the existing JumpStart and Promethean and 101 Education PPT resources that are available in the NetDragon family to drive engagement by making it a core part of the offering that's available on Edmodo. So a quick screenshot, launching in 2018. We've already gotten the student-to-student groups and student-to-student chat sessions out there. We bring it up only because I think as is mentioned, there are nuances to getting students in a chat session or in a group that you need to be careful about when it's done in a school setting. You need to make sure that there's no cyberbullying, that there's no untoward behavior that goes unnoticed or at least untreated. We are beginning to start working on this, and you'll hear more about this at the next presentation.
Our monetization model so far, given that this is an earnings call, I want to be certain that I touch upon it, has so far been around advertising. Edmodo, the platform, has always been free, and we want to keep it free for individual teachers and students, so we started with running ads. We've had two separate types of ad products on the platform, programmatic ads and direct ads. After our acquisition, we are starting to ramp down programmatic ads since they're harder for us to control the quality of, but also because we feel that the best user experience comes from ads that are actually tailored to the educational experience. We have two contracts right now, one from the U.S. Army and one from the FDA. The FDA is the Food and Drug Administration of the United States.
They're very interested in having anti-smoking, anti-vaping ads being shown to high school students. The monetary value of these programs is very good, but more interestingly, they want to have an ad product that's very different from the traditional ad products that you and I are used to. We are excited about being able to try and build a better ad product that's explicitly tailored towards the education system, explicitly tailored towards the classroom, and potentially even to younger age groups than ads have traditionally been shown to. One of the areas that we've tried to narrow it down to is to say we will focus only on a couple of large segments.
Higher education, consumer products, and entertainment is probably the areas that we will look at for the next couple of quarters in order to be able to figure out how best to run these ads. I promised you a slide on what we are going to do with machine learning. I think machine learning is one of the most interesting frontiers that we are trying to make advances in. We are looking at machine learning in the context of monetization. Two separate efforts, both of which I think are incredibly useful and interesting. Currently, as I said, Edmodo is actually used for a lot of communication. In communication, a lot of people are asking questions. You'll have questions from teachers like, "How do I teach Shakespeare to a 10-year-old? How do I teach math or trigonometry to somebody who doesn't have the right background?" and so on.
Traditionally, the value of Edmodo has been that other teachers have answered these questions. We just launched in beta a product called AskMo. It is based on other answers that were given previously, resources that were recommended. We automatically have our machine learning system know when to put those resources as answers to questions that are being asked. It has been very successful, but the goal for us is to actually try and move this beyond just having free resources recommended to having both free and paid resources recommended. This allows us to eventually have a very thriving marketplace of resources that people can buy. The second angle that we are really pushing on with machine learning is actually tutoring. I am sure you all have seen tutoring products out there.
I think we have actually a very interesting possibility of having an AI-based tutor that can answer simple questions to anybody at very low price points, and then use this as the lead gen for a much more intensive, much higher value, one-to-one tutoring model. I am proud to say that we just announced a partnership with IBM Watson Education at the most recent ISTE conference. As we go along, you will hear more about this. Hopefully, by B-E-T-T, we will actually even be able to demonstrate this system running. With that, I am going to turn it over to Ben. Thank you.
Thank you, Vibhu. I am just going to be two slides, so I will be short and sweet. Okay, so in terms of the financials, as you can see, we had a very strong growth. In terms of top line, close to 40%. As Simon and Vin already mentioned, that we had a spectacular growth in our education business. In terms of gaming, we had close to 30% growth on the top line. So all around, we had a very healthy top-line growth. Also, I would like to draw your attention all the way to the bottom line. Last year, in the first half, we only had a little bit over 20 million in terms of net profits. This year, first half, we have over CNY 200 million in terms of net profits.
In terms of the operating expense, we have been very good in terms of keeping our cost control effective. As you can see, OpEx as a percentage of revenue has been going down. As you can see, selling and marketing expenses are going down by 3%, admin expense going down by 2.8%, R&D going down by 4.4%. The absolute dollar value of these OpExes have increased, and a lot of that is because we have consolidated JumpStart and also Edmodo into our P&L. As you may or may not remember, we did not have JumpStart in the first half of last year, and we started consolidating Edmodo in the first half of this year because we completed the acquisition in May. So that is our high-level P&L. Onwards to the segmental financial highlights. I would like to draw your attention first of all to gaming.
We have a lot of operating leverage on the gaming business. Our segmental operating profits grew by 57% on the back of close to 30% growth on the top line. While the market is a little bit slow, as we can see in some of the other companies, our growth has continued to be robust. The other point that I want to draw your attention to is the gross profit margin of education business. Last year, first half, 29.2%; this year, 30.5%. I give a lot of credit to Vin, our CEO of Promethean, who has executed a lot on operational excellence. We have done a lot in terms of supply chain logistics, freight cost control. All around, our gross margin has been increasing. As you can see in the previous chart, our blended ASP has also been increasing as well.
That's very good news. In terms of the expense, as I have already mentioned, the absolute dollar value of the expense have increased a little bit. A lot of that is because of the natural increase in staff cost and also, again, the consolidation of Edmodo and also JumpStart in the first half of this year. Some of you may have noticed that we have a 64% increase in R&D for education. Some of you will ask, I know, so I will just attack it right away. With that increase, we only have about roughly 40 headcount increase with that increase. The balance of the increase, again, consolidation of Edmodo, JumpStart, and also we have some professional fees related to the acquisition of Edmodo. I think that is very reasonable. That's my session, and I'll pass it on back to Simon.
Thank you, Ben. The reason we are actually getting the team to talk to you is actually very simple. What we want to do is actually make sure you understand that we're not just kind of riding the wave with the market growth. Actually, we have a very high-quality team working with us, not only taking advantage of the business, of the growth of the market, but also running our operation just like clockwork. Let me do this. I'll close it by telling you our focus for the rest of the year, and then I'll bring the team back up so we can do some Q&A. Starting with gaming. We, in our pipeline, we have a lot of games either ready to launch or in the process of completing that we can launch. We are very bullish about our gaming market going forward.
In addition to all those games, we also are getting ourselves ready on, we call it H5 games. It's actually HTML5 games, web games that we will be launching. Stay tuned for that one. Between Vin and Ravi and Vibhu, we talk a lot about what the kind of entire education will kind of look like. We will continue to execute that strategy. Number one is actually is to integrate all the platforms so we can provide a seamless experience, whether you're a teacher or parent or a student. It's actually whether you're in the classroom or at home or you're on the go. Actually, at the same time, we're going to continue work on not only growing the size of the community in Edmodo, but also increase the engagement of the community within Edmodo. So we can further monetize our opportunities.
Vibhu talked about we started to monetize the community, but we do see more ways that we can do it. Last but not least is actually we continue to execute our strategy in Promethean. We have proven that in the last two and a half years, we have done a good job. I have to say one thing I didn't put on, but I will mention it. We also, in addition to all the technology that we're looking at, a couple of things we are also looking at, we didn't want to put it on the chat, but I'll share that with you, so people won't hold me to it, hopefully. We're going to look at blockchain, how we apply it into education, and also we're going to look at how to leverage the Edmodo community if we can create a crypto economy around learning.
Which is personally very exciting for me. In the very early stage. It's not a technology issue for us because we have all these smart people in the room. It's more like, how do we do it? Stay tuned on that one. With that, what I want to do is actually, because a lot of people I talk to, whether you're investor, users, they say, "We have all this company, but how does it all fit together?" I'll try to do it with a few pictures. Hopefully, we'll answer some of the questions, if not all the questions. Basically, our goal is to build the world's largest learning community, people talk about. And we are supporting with all this wonderful technology, which Ravi talked about. So we have a future platform that tie all this together.
If you are our partner, when you want to take advantage of our community, you can take advantage of our platform, our ecosystem. We'll give you all the technology you need. You just focus on the kind of services you want to provide to the customer. And we know we can't do all the content. We have to partner with people. So we continue to partner with people, which is either on the chart or we didn't put on the chart are people that we have not worked with. So right now, we work with people like Harvard, Beijing Normal University, DreamWorks, which is Universal Studios, and then Smithsonian, just to name a few. With that, we can provide a seamless experience to all the learners, all the teachers, and all the parents, whether you are at home, in the classroom, or on the go.
The reason we have the bigger picture for mobile is because we believe that is the growing opportunity. A lot of people saying, "So who are you?" I'm going to put these two up. Do you know these two small companies? I hope you do. Airbnb and Uber. What do you think they are? The way I look at it is that Airbnb is the world's largest hotel chain without owning a single hotel. Uber is the world's largest transportation company without owning a single vehicle. This is what we're trying to do. We want to be the world's largest learning institution without owning a single school. That's what we want to do. I think we have the platform to go do it. We have a sizable community which is on the way. The rest is all execution for us.
With that, I'm going to stop, and I think the chair will come up. We will open it up. Now, I'll say something. I hope they don't kill me along the way. One thing I forgot is actually introduce the background of some of the people in the room. You met Vin. I mean, he's been in the business for a while, so I'm not going to introduce him that much. Vin is actually, before he joined us, he's actually a President and CEO of Edmentum. Before that, he was in sales leadership in a lot of big companies, including Gateway Computers and Qualcomm and all that. Ravi came to us about a year ago. He was a CPO for a hospitality company, which the name I can never pronounce, so I'm going to skip it.
He's been working with providing cloud solution to companies like Mandarin Oriental and all that. He has the luxury of staying in all the top hotels in the world. Dr. Vibhu, I mean his background is also very impressive. The guy did PhD at USC, if you know that small university in L.A. Then he was a faculty member of CMU, Carnegie Mellon University, so I can't even get into the door. Then he is a faculty member. After that, he joined Google when Google was what? Like 90 people. 90. How many of you use Google Translate? You don't. Really? That's his fault, by the way. He started the whole effort. Google Translate and what else?
Google's fault.
Yeah, Google's fault. That's his fault. If you don't like the product, you go to Vibhu. Then he went off and founded his own company, and then he joined Edmodo. We're in that position. We have an all-star team. Then we'll continue to look for good people to bring in to help us to build this world's largest learning community. With that, I'm going to ask the four gentlemen to come up and join me—
Please.
—in this crazy high chair. I do not know why we are on the stage, and we have to sit on a high chair. That is the thing I do not understand, but I will do it. So actually, I am going to have the easiest job because I am going to be the traffic cop. So all the easy questions I will take. All the difficult ones, you guys take.
Thank you, Dr. Leung and management. Now it is time for our Q&A section. If you have a question, please raise your hand, and our colleague will pass the microphone to you. Please also tell us your name and the firm you are representing.
[Non-English content].
Let us welcome the first question.
Are we going to use multi languages? So like—
We can. Yes.
Okay. So whatever you are comfortable with.
Yeah.
No, seriously.
We welcome questions in—
English, Cantonese.
English, Cantonese, and Mandarin.
[Non-English content].
We can also handle Hindi and also some Spanish. Some, not a lot, right, Vin?
Hi, management. Congratulations for the very good result. The first-half result was very good for sure. Could management share your view on the second half and also 2019 on both online games and also online education, especially if online education profitability can continue to improve in 2019? I have a follow-up question. I think many investors concern a lot about the regulatory restructuring, especially the suspensions of the games approval in China. Will it affect the launch day of Eudemons 3D mobile, which will be a very big driver into 2019? I have these two questions. Thank you, management.
Okay. Let me address it at high levels. I will take the easy one, then Ben can deal with the rest. You know we do not give guidance, right? It is actually a couple of months out. As you know, the education business, specifically Vin's business, we have a bit of a seasonality, right? Q2 and Q3 are the high seasons. It is actually, I think we will see a heavier first half and then, I would not say a lighter, but it is not as heavy second half. We are looking at what the opportunity we believe will continue to grow the education business, both international and also domestic. Let me ask Vin to make a high-level comment around going forward, the growth of the business, Vin.
Sure. We are seeing growth in the interactive flat panel market overall. We do see growth in that market. I do not necessarily see anything that changes the amount of growth. Our business is very seasonal. It is just the time of year that our customers tend to buy. It is tough to make projections into the back half of the year, but because the market is growing, we feel like we can continue to capitalize on that growth.
Also going to 2019. Vin will look at not only the core business, but also if you look at our track record, we have a lot of major project that we can also win. I think the third one is actually also you and your team are looking at expanding the market a little bit in terms of just, it is not just in the collaboration within the education business. You do want to do one sentence on that one so people will know.
Sorry, the collaboration.
It is actually in addition to collaboration within the education business.
Yep.
You and your team are also looking at the possibility of expanding the scope of that.
I feel like you're leading me here and I don't—
Yeah.
You're leading me on a path, but I don't know.
Actually, one other thing we did talk about is actually the cooperation in the boardroom.
Oh, I got it. Perfect. Thank you.
Yeah.
We have lots of ideas that we constantly pass around. I wanted to make sure I got the right idea. We are in the education market. We do really well in the education market, but this product correlates into other markets, and a very close adjacent market to education is corporate. Entering the corporate market when you already have a product set and there are some feature functionality changes that we would make, is a very logical way for us to expand our business. We would be very mindful about that to make sure that we are doing it in a way that it does not distract us from what we need to do. But we do feel with the way we leverage our indirect channel, some of the relationships that we have, the feature functionality of our product that we can expand into a closely adjacent market.
In addition to that is that you do not forget, we start to monetize in a model. A model revenue will come up. Also one of the business we did not mention a lot this time is not because we do not want to mention it, because we do not want to cram too much information into this one. It is JumpStart. JumpStart will also. Their growth year-over-year is around 35%. So they will also contribute. In terms of gaming, I talk a little bit about it because we have a lot of game on the pipeline. I will ask Ben to comment on this possible suspension, whatever we call it.
Yeah. I guess, in terms of the gaming, the regulatory issues being faced by the gaming industry, I think when this regulatory issue is going to be resolved, it is not something that we can predict. But I think right now we are cautiously optimistic. We are seeing some positivity in some of the news flow, in the past month or so. What I would say is this, because right now, our current games or our recent new games are performing very well. Even without the contribution by the new games in the second half of this year, I think we are on track to grow well over 20% on the top line for gaming. That is something that we are pretty confident in doing.
I think you mentioned the 3D game for Eudemons. That game, we are actually also confident to launch in the second half of this year if the regulatory issue can be resolved and we can get a license to launch that game. That is something that we have more visibility now that we can talk a little bit more about. That is something that we are extremely excited about.
I hope the way you look at it is that you, because that is why we try to emphasize the point of we are monetizing our existing IP that will continue to grow. Eudemons 3D will be on top of that. I mean, I am sure you guys, I do not need to teach you how to do the model.
Thank you. Let us welcome our next question.
[Non-English content].
Do we sit?
The gentleman at the back.
Nelson from First Capital Asset Management. A couple of questions for the management. First one is, I realized that the major part of the loss of the education side should be in China, like the 101 Education PPT, right? I can see that the result is quite encouraging, that the active users are steadily on a year-on-year basis. What is your plan for reducing the loss in China for that product? That is the first question. Second question would be, compared to, say Pearson, NetDragon is lacking some kind of education content. Maybe we are less experienced in terms of providing this kind of education content. How could you tackle this kind of problem when you compete with other players who is going to probably transform into a digital world in, say, three to five years as well? Maybe you can answer first.
You have two questions, right? Do you have more?
Two questions.
Okay. I will answer the second question first. Maybe we didn't do a good job. I did not do a good job to explain the company to you. Exactly, I don't know why we should compare ourselves with Pearson. Pearson is a publisher. We are in the business of building a community. That's why we compare ourselves to Airbnb and Uber, because Airbnb, they don't build their own hotel, but they still compete, right. Pearson actually is our partner. It's actually, we don't compete with them. We don't have any intention to go into the publishing business, because I think I talk about it, somebody else, I think Ravi talk about it. We partner with a lot of people. Maybe my mistake was not to put Pearson on the chart.
We have a platform to allow them, actually, to help them to transform their business. Because one of the problem for publishers is actually, because they don't know how to go into the digital world, let alone go into the community. We partner with them. I think hopefully that answers your question. We don't compete with them. We work with them. Our experience that we provide is quite unique because there's nobody in the world today, including people like Google or Microsoft, that you can take the learning experience into the home, into the classroom, and then on the go. It's actually, that's where we are.
Going back to your first question, I don't think that's a fair statement because there's a lot of We are one company, so a lot of work that we have done in China is actually not only for China, it actually supports the rest of the world. For example, 101 Education PPT, we highlight it because actually we're making progress in terms of on the way to build a community. But 101 Education PPT is being used in the community, being used in Promethean. It's actually what we call a common platform and also common tools that we can use to drive the different businesses. For example, 101 Education PPT can help Promethean in One Belt, One Road projects to help us to get into the classroom. We're also seeing 101 Education PPT as a way to help and engage the teachers within the Edmodo community.
When you look at all these things, you should not be looking at it in isolation. Again, maybe, Ben, we have a better way to explain that to everybody. Of course we're working towards, as a company, first step is breakeven, and then we make money. We expect to make money very soon. I hope I answered your question.
Thank you. Let's welcome our next question.
[Non-English content].
This gentleman.
[Non-English content]. I'll use English for the second question. It is for Promethean. The first part of the second question is about, can you give us more color on the drivers for the first half of this year, the very good revenue growth and the margin? Is that the price, or is that the unit, or you expand to more countries? Second part of my second question is that, Ravi, you talk about the platform of Promethean. You cannot talk about in a qualitative way. Can you give us some quantitative measures, for example, any operational metrics you are monitoring daily, and how do you measure if the platform strategy is successful? Thank you.
Yeah. I will start with the financial results for the first half of the year. It was not one thing. It was a number of different items. I focus on running a business that has market-leading products. I expect to take share. We control our costs. As we have gotten and become more financially stable, you saw it before that we just hit profitability for the first time last year. This year, we are obviously much more profitable than we were the prior year. It has given us the power to renegotiate with our vendors. We have been able to work on better terms, and there has been a lot of work in my organization to do that, working with our partners. We have been very focused on distribution and making sure that we have market coverage.
Some of the things that we opened up last year for opportunities, we were able to close this year. Really, we have a business that is building momentum by operating well on the core metrics of growing top line, controlling costs, introducing market-leading technologies, and then having a distribution that is global in nature and takes advantage of where those opportunities exist around the globe.
The platform, it is certainly not a big bang effort, meaning everything that we are doing today is really meant to service some immediate near-term objective. We do have the long-term objectives, but I think I would really call out three main things. Number one, there certainly is an engineering efficiency aspect to the platform that we are already seeing benefit. Just one example. If you count maybe one particular application, if you take the whiteboard, for instance. We have a pretty neat interactive whiteboard app, but we have built it 5x , and we have had to build it for every application that might have come up, different devices, different form factors. We are now building it just once. There is certainly that part of it that we are seeing immediate bang for the buck.
But I think it is also, as Simon said, this is not just about doing things more efficiently, but it is also about the effectiveness of it. We are starting to bring all of the other sister applications onto the same platform. The tremendous benefit of that is you can imagine a teacher logging in from Edmodo becomes essentially the same login and the same identity as somebody coming in through, say, maybe ActivInspire or any of the other applications that we have. So being able to consolidate those users across a single platform, that is another metric that we are really driving towards.
I think if I were to put one, I would say maybe more midterm, long-term objective is not just what we do with it, and certainly dogfooding and using our own platform is a very important component of really exposing that out to third parties. I would say that is what we have as an objective over the next 12 months to drive others to integrate onto the platform. So when that happens, and it happens seamlessly and at speed, I would say we have hit our mark.
Thank you, Ravi. Dogfooding, I do not know whether this is actually the term that everybody understand in a finance community. So he will explain it afterwards. If I may add a couple of things. One is, if you look at our business overall, is actually we are acquiring users in two ways. One is actually, you can say top-down, bottoms-up, or one way which is actually from the classroom. The other one is outside the classroom. Having a unified future platform can pull everything together. So this is a beauty of integrating all the different companies on a single platform so we can leverage it. Having a single identity is actually for each user, is absolutely critical in terms of the user experience. I have to say, Vin is actually quite, very humble and modest. He did not. So let me blow his horn for him.
Because if you look at the business in Promethean, the reason the margin is actually much better is actually quite simple. ASP went up, right? It's actually good mix. It's like if you look at the cost as a percentage of revenue, it actually came down. There's freight cost, for example. I'm a closet CFO of somebody that said that. When I look at the P&L, even though the revenue grows so much, his freight charge, for example, is actually the same as last year, but he's shipped much, much more volume. That's why it's operational excellence, because not only we have good product, not only we have a good market, but the team has been very focused. I hope as an investor, you're very happy to hear that.
Also, if you look at the percentage of R&D of revenue has come down, doesn't mean we have cut R&D. It's just we're doing more things. Again, the integration is going to be getting a lot of efficiency. We're very excited about that, from a margin perspective. Let's go to China. I'm going to ask Ben to talk about, make comment on the revenue side. Actually, we are growing fast in terms of revenue in China. But I'll make a couple points. The reason I didn't put a lot of data on it is actually because of the acquisition of Edmodo. I think that allow us now to step back a little bit and look at, in addition to what we are doing today, what else can we do, right?
Or can we not do some of the things and do more of other things? I can't go into detail because we only completed the acquisition in May. Actually, Vibhu actually talked a little bit about it, right? He said there are two big region that Edmodo is not in, because one of them is China, is actually 1.4 billion. And if you are familiar with the—
[Non-English content]. The same thing applies to India.
We're not in India whatsoever. Vibhu and I talk a lot about those two countries on how we go in, and it's not an if, it's kind of more like a how.
So in terms of the financials for the China education business, in the first half of this year, our revenue grew over 30% year-over-year. We do have a strong pipeline. I think in China, if you are looking at revenue, I think you should look at revenue as really a way for us to seed the market in order for us to gain the users and gain user traction. I think that is the main goal other than making some margin on the hardware business in China, the main goal is really to gain the users and also to engage the users. I think that is the main point.
I do think Ben made a very good point, which I kind of missed. If you look at one of the questions, actually the 2.4 million teachers, we can put into Edmodo in no time. They can potentially connect to, let's say on the average in China will be 31 teacher to 30 students. Very quickly we can build a very sizable community. Of course, one of the things we are doing as Edmodo is actually we have a lot of students, a lot of teachers. We only have 3 million parents right now, so we still have a tremendous opportunity to continue to grow that community actually by adding parents. Exactly, we love parents in the community because they pay for services. We are going to work on that, and we love parents around the world. Okay.
Thank you. Let's welcome our next question.
[Non-English content ].
Thanks for taking my question. I am Jialong Shi from Nomura Securities, and I have two questions. First question is about your online gaming business. I just wonder for first half, which game or which games were the primary driver for your online gaming revenue growth? Also, I think Ben seemed to have mentioned for second half, even without the contribution from new games, this sort of online gaming growth seen in first half should be sustainable. Please correct me if my understanding is not correct. Secondly, about the education business, I think management talked a lot about the new monetization plans and also the cost savings for the education business. Is it reasonable to assume the education business as a whole will continue to see some narrowing operating loss margin down the road? Thank you.
I will answer the easy one, which is the second one, because I hope so, because I want to keep my job, because if we keep going the other way with the loss, I am in big trouble. All kidding aside, the answer is yes. It is an absolute yes. You want to talk about gaming? Yeah.
Yeah. In terms of the gaming growth, the primary drivers of the gaming growth is actually all around, to be honest. First of all, on the PC side, we are still seeing growth on our Eudemons PC game, very healthy growth. In fact, we still believe that there is room to grow on the PC side. That is one. On the other side, we are also seeing a lot of the growth kind of sustaining on the mobile side. As you are aware, we have multiple mobile games, primarily on the Eudemons IP and also on the Heroes Evolved IP. If you look at Eudemons, for example, I think we have three mobile games with Eudemons right now. For example, the Kingsoft version, the Eudemons mobile game, which we worked together with Kingsoft, was launched in Q4 of last year.
That contributed to the year-over-year growth this year because there is no revenue there in first half of last year. If you look at Heroes Evolved, for example, we have accelerated our monetization in the second half of this year, and that growth is sustaining this year on the mobile side. That also contributed to the mobile increase. Overall, mobile games top line growth is over 50% year-over-year. Over the next few years, we actually are aiming that the mobile revenue contribution to our games revenue is going to continue to increase because most, if not all of our new games in the pipeline are mobile. We are looking at potentially the mobile game revenue reaching 40%-50% in the next several years.
Exactly. Let me add to it. Your assumption is right, because we see the momentum of our current momentum continues. If no new game happened, that is the momentum. With new game, we will just add on to it. I think your assumption is right.
That is right.
Thank you. Due to time constraint, let's welcome our last two questions.
[Non-English content].
Congratulations to the management, and I have one question for Edmodo. Would you please share the advertising revenue in the first half of the year, and what's the monetization plan for Edmodo in the future? Thank you.
Okay. Well, first of all, we completed the acquisition in May. What I would say is that, and on top of that, there is seasonality in terms of advertising. Most of the advertising actually happens in, or the majority of the advertising happens in the second half. We did not consolidate much in terms of advertising revenue in the first half. Maybe I'll let Vibhu to talk too.
I was just going to say that I like it when other people can answer questions that I really need to answer. It's a good question, and I would actually say that part of the reason why we didn't necessarily break out the numbers for Edmodo just now was that I think the advertising revenue for Edmodo has a lot of room to grow. As I said, we're also shifting the model from programmatic to direct. Programmatic is you buy ads off the ad networks and ad exchanges. Direct is where you have your own sales team going off and sourcing ads. The CPMs on those are 10x larger. As of we have an annual conference by EdmodoCon, which is attended online by tens of thousands of teachers. At EdmodoCon this year, we announced that we are going to stop programmatic ads.
The ad model at Edmodo is actually currently undergoing some changes. I can tell you that in the, actually, I'm happy to try and give you the actual numbers in five minutes after we get off this. I just need to look it up to make sure I'm not misquoting the numbers, or maybe Ben has the numbers. Our model is shifting, and it's actually shifting in very interesting ways. I think our models, our predictions, our estimates for what happens next year in terms of revenue will be significantly larger, by not just 10% or 20%, by 2x- 5x larger than what it was this year.
Exactly. If I may add, because I'm an amateur in this, so correct me if I'm wrong. Just want to make sure, because it's actually the CPM for programmatic is actually low. It's actually direct is high. But one thing he mentioned that may be, because we're trying to do it within a very short time frame, is one of these is not the traditional ad, like with FDA and now with the U.S. Army. Because it's not an ad by itself, it really is a program that we can charge even more money. So we're looking at how we optimize that. That's one part of it. The other thing, don't forget, we talk about increasing the engagement and the activities within the community. The more engagement, then the more opportunity for you to optimize your advertising revenue as a whole.
We are working the model right now. We are very optimistic and bullish about that part of the business. In addition, you may want to talk a little bit about the AskMo opportunity in tutoring so that they understand that.
Just to add to Simon's comment about ads, part of the reason why it's hard to sometimes explain the ad model correctly is that CPMs range from a low of about $0.50 CPMs of purely programmatic ads to $15 CPMs for direct ads to $25 CPMs for video ads. And we have a whole blend, or we used to have a whole blend of these things that are being shown. So AskMo, for instance, allows the user to watch a number of videos. Those videos can be monetized if they are from our source as well. We are moving the model further and further into things that we can control because, as Simon mentioned, the user experience is very important to us.
We are willing to take a short-term hit in terms of programmatic ad revenues in order to make sure that our students and teachers get the best experience possible. As we build these new ad models out, the FDA is a prime example. Their goal, they spent tens of millions of dollars trying to get kids to not vape. Their goal is not to show an ad. Their goal is to actually drive awareness. So when they came to us, they said, "We are not as interested in marketing solutions as we are in getting students talking about the dangers of smoking and vaping."
And so we are building an ad model, if you can call it an ad model. It is basically a sponsored content model for parties like the FDA, parties like big publishers, parties like the U.S. Army in order to be able to try and reach an audience that has traditionally been very hard to reach.
Actually, again, if I may add, one other thing is actually this community is actually very secure because we adhere to, in E.U., like a GDPR, that is a data privacy regulation. In the U.S., there is something called COPPA that protect all the kids. So this community, parents will be very comfortable. The children is actually in there communicating, talking to each other rather than like a Facebook and whatever, because all this cyberbullying and all that stuff is actually in the top of the mind of the parents. But we have a very secure environment.
So that also attract advertisers because they know they can reach those target audience. The flip side is actually some advertisers will not come to us. Exactly Marlboro will not come to us, exactly liquor company will not come to us. But that is okay. I think that is enough company that we can work with. We create a very interesting environment for our partners and for our customers, to work together so we can ramp up our revenue.
Thank you. Let us welcome our last question.
[Non-English content].
Hi, I'm Susanna from DBS again. I have three more questions. The first question is, I would like to update the online games, new games pipeline, maybe into second half and also 2019, because I think many IP will be converted into the mobile version. Very exciting. I would like to update. The second thing would be the progress for the Turkey tender, because it is quite highly expected from the investor as well, so I would like to update for that. The third thing is, I would like to update the launch day of the cloud version of ActivInspire, which will connect the teacher to the user and which will be a very good indicator for the content monetization date. I have these three questions. Thank you.
I'll do it in reverse order one more time. Turkey, like you, we're waiting. We are ready. Actually, Vin and I have been there many times. We have our visa, we have our backpack. But with the lira and everything, I think it's going to get delayed a bit. The good news for us is actually we don't only have just one project. That's what I worry about, people think we're only doing Russia, okay, and then we add Turkey. But I can assure you it's something we cannot talk about in public right now. There are many of these big projects that is in the pipeline that we hope we can share with you very soon. On ActivInspire, I'm not going to pretend, I'm going to hand it to my good friend Ravi to answer the question.
Thank you for that question. The way we're driving the online usage for ActivInspire is really through the platform. We're having ActivInspire right on top of the platform, and those online/offline capabilities are actually going to be driven through that approach. We're aiming to get that. Again, there are many phases, but we're trying to get sort of a decent amount of capability out in time for the first half, really first quarter of next year. The main reason there is we want IT administrators to be able to take that and install it. That typically happens in the spring.
I'm going to do this. I'll talk a little bit more, give Ben some time to think about whether he should share with you the name of other games in the second half. No, all kidding aside. One more time. We are on the way to integrate the community, right? Because if you do the math, we have 2.4 million teachers in China, which is actually in a network. We have 11 million in Edmodo. We have about 2+ million using ActivInspire. We're converging those. But I have to say, probably the 11 million in here and the 2 million in ActivInspire, there's some overlap because I think out of the 2 million, about half of them is actually in the U.S. And I think there's out of that 11 million, what, 4 million in the—
4 million.
Yeah, 4 million in the U.S. But the 2.4 million in China is unique. As you can see, our strategy hopefully will give you some better idea on how we quickly integrate everything into one community. That's why this, again, single identity, a future platform to take care of everything, makes a lot of sense. So, you going to say anything or you just keep very quiet?
Okay. I'm going to answer the question on gaming pipeline. So right now we've got over 10 new games in the pipeline in various stages, including product development, testing, and also ready to launch kind of stage. If you look at those 10+ games we're talking about, well, in fact, you may think that it's all just Eudemons and Heroes Evolved, but in fact, we are creating new IP organically. Also, we are talking with external partners to potentially even license Tier 1 IP from outside. So, I think going forward, we're going to be growing. We're going to be really executing on our IP strategy. Not just our own IP, but also external IPs as well. But predominantly, it's still going to be our own IPs.
So, in terms of the specific games, you probably will be looking at the numbers of games that are going to be launching for the rest of the year. I think right now, as you mentioned, we have the regulatory issue that has to be resolved. But if that can be resolved, I think we'll be looking at about two to three new games to be launched for the rest of the year. The other thing I wanted to mention on the pipeline is that we are putting a lot of focus on the HTML5 games, or in Mandarin, it's called [Non-English content]. Because we see that there is a lot of social elements with HTML5 games, especially in China. So right now we've got about four to five H5 games within our portfolio, mainly with Eudemons and Heroes Evolved IP.
In fact, we got one Eudemons HTML5 game ready to be launched. So we're actually—
I'm quite excited about this initiative to grow our HTML5 game portfolio, because that is highly social, and the cycle is also very fast. That's the update on the pipeline side.
I just want to correct one number that Simon threw out where he said 11 million teachers. Simon's looking ahead a little bit. There are a number of different ways in which we compute our user numbers. For teachers, we are very careful about verifying that they are in fact teachers. The official number that we claim on Edmodo is 8 million. Now, after this conversation is done, then you can go up and ask Simon how he reached it, because I think there are different ways to count it. But I don't want to leave you under the impression that we are claiming 11 million today. We will officially, confidently claim 8 million.
That's why I'm the business guy and he's the computer scientist. Actually, I remember how I got it mixed up. That's why. I do have an excuse, we only closed it in May. Because it's 8 million teachers and 3 million parents. Actually, that's how I got it mixed up. Thank you. Okay, with that, I think we're done. One more time, thank you for coming. Actually, we are excited about what we have done, but we are more excited with what we are going to do. Hopefully in a short, an hour and a half, at least give you some idea where we're heading and how we're heading it. And we'll see you in six months, if not sooner. Thank you.
Thank you.
Thank you.
This successfully concludes our presentation today. Once again, I would like to thank you for joining us. If you would like to further communicate with the management or set up one-on-one meetings, please contact the company or contact DLK Advisory for further assistance. Thank you.