Welcome to Xiaoying Corporation's 2018 Q3 results conference call. I'm Yi Lin, the Director of Corporate Finance of Xiaogu. Before we start the presentation, we would like to review that this includes forward looking statements, which are underlying uncertainties and may not be realized in the near term for FY 2019. Information relates to the market conditions, which depends on the variety of sources outside Xiaoming. This presentation also contains some unaudited non GAAP financial measures that should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS.
Let me introduce the next one team for the closing line. We have our Founder, Chairman and CEO, Mr. Mei Jin our Co Founder and Senior Vice President, Mr. Long Sun and our CFO, Mr. Sheng Zhong.
They will provide a leading commentary Good evening, everybody. Our revenue last quarter in Q3 2018 was RMB 50,800,000,000 with a year on year growth of 49.1%. Our adjusted net profit was RMB 2,900,000,000. On the 26th October this year, our 2018 smartphone shipments exceeded 100,000,000 units. Our revenue growth was both in China and international.
Our Mainland China revenue grew by 20.9% year on year. Our international revenue grew by 112.7% year on year. Xiaomi was ranked top client in 30 smartphone markets. We want to introduce our Western European smartphone business growth. So we are ranked number 4 according to IEC according to Catalyst in Western Europe today with a 3 86% year on year growth rate in Q3 2018.
We have been number 1 in India for 4 consecutive quarters as of the end of Q3. We are number 2 in the Indonesian smartphone market today. In terms of innovation, the first example we want to share is Mi Mix 3 that we launched in October this year. This is the world's 1st full screen magnetic slider phone. It has one of the top 3 photographic experiences globally.
According to DXOMark, it is ranked in the top 20 for photography. This time around, we have proven our continued leadership in color ceramic with this We established our camera group some time ago and we've continued optimization in image processing algorithms. Our DxO Mark Score for Mi Mix 3 is already at 103, which is ranked top 3 globally. As a comparison, iPhone X is at 97 points. Huawei P20 is at 102 points.
We also have pioneering products with 5 gs technology. In September this year, we successfully connected to sub 6 gigahertz. And in October this year, our mmWave millimeter wave was successfully connected. We expect that we will launch a 5 gs smartphone in Europe in Q1 2019. 2nd, in terms of AI and IoT, our connected devices outside of smartphones and laptops is already at 132,000,000 devices, which is a quarter on quarter growth of 13.8%.
We already have 2,000,000 users with 5 or more Xiaomi IoT devices outside of smartphones and laptops. This is a quarter on quarter growth of 16.5%. Our AI technology was awarded 4 important awards in the last quarter. For example, at the World Internet Conference in Wuzhen last month, Xiaomi's AI open platform for smartphones was awarded the world called the world leading Internet scientific and technological achievement. 3rd, our Xiaomi maintained an efficient operating expense ratio of 8.5% last quarter.
This is in spite of our further expansion of our offline channels in the same quarter. Next, in terms of our smartphone strategy, we experimented with a multi band strategy this year. For example, we released a phone called Poco Phone in India in August 2018. And this phone is now available in most of our international markets. It delivers technology that truly matters to tech enthusiasts.
So it's a brand that's targeted towards the tech enthusiast market. Right now, the basic model is at RMB 2,100. Another example of our multi brand strategy is our invest company produced a smartphone brand called Black Shark, which targets the gaming audience. And the performance so far has been very good. Today, we also announced a strategic cooperation between us and Minto.
Under this deal, we have a 30 year license for smartphones and other smart products. At the same time, we have made sure we'll be investing certain image related algorithms and technologies in our cooperation in smartphones. Most importantly, this deal allows us to more effectively target the female demographic. Because our user base is mainly male and Mettu's female base is predominantly female. So this deal allows us to further expand and diversify our user base by building on Meizu's popularity amongst senior users.
In September this year, we also did a significant global organization restructure. First, to strengthen the management functions of our headquarters, we created the organization department and the strategic advisory department. We also appointed 2 of our cofounders and senior vice presidents to be in charge of each department. At the same time, we streamlined our business. And from 4 business units, we created 10 new business units to streamline the business, improve efficiency and to promote the next generation of leaders.
Okay. Our TV business performed very well last quarter. So let us introduce our SVP of TV, Wang Chuan, to share a little bit more about the business. In Q3 2018, our smart TV sales volume grew by 199% year on year. In the 1st 9 months of 2018, our sales volume cumulative has already exceeded 5,000,000 units.
Our monthly sales volume exceeded 1,000,000 units in October 2018. During the Singles' Day Shopping Festival in November 2011, the sales volume and sales value of all platforms, including 2 malls, JD and tuning.com, ranked our TV business as the number one brand. We started selling our TVs in New Year this year as well, in March this year. According to IBC, we are already the leading smart TV brand in India in the future. Months.
The reason why we performed so well in our TV business is because we relentlessly pursued amazing products with honest prices. We relentlessly pursued innovation. Relentlessly pursued improvement in quality. In terms of quality, our metrics are ahead of all our competitors. This is how we earn the trust of our consumers.
Okay. In the next section, I will continue in English. This is Rong Zhao, the CFO of Pingtan. In the next session, I will introduce our financials to everybody as well before we open up to Q and A. So as a recap, in Q3 2018, our total revenue was RMB 50,800,000,000 with a year on year growth of 49.1%.
Our adjusted net profit was RMB 2,900,000,000. If you look at it in each of the 3 categories that we split our revenue, for the smartphone business, our smartphone revenues reached RMB 35,000,000,000 in Q3 2018, representing a year on year growth of 36.1%. Now at the back of this is 33,300,000 units of smartphone shipments in Q3 2018. We continue to expand our market share based on the shipment numbers that I just talked about. Now according to IDC, we are the 4th largest smartphone company in the world today.
And in a market where the entire smartphone market globally shrank by 6% quarter on quarter in Q3 2018, We were one of only 2 companies in the top five to grow. And our year on year growth, according to IDC, in Q3 2018 was 21.2%, in the market that shrank by 6%. More importantly, we continued as we left off in Q2 2018, we continue optimizing our product portfolio, and the result of this is our ASP of our smartphones has increased year on year and quarter on quarter. In Q3 2018, our smartphone ASP grew 16% year on year in Mainland China, 4% quarter on quarter in Mainland China. We also grew 18% year on year overseas.
And one of the reasons for this is our continued penetration in the Western European market, where consumers are demanding higher end units. At the back of this, our Xiaomi 8 series, which we launched in which is the flagship series that we have, which we launched in May, exceeded 6,000,000 units of shipments as of December 9, 2018. Another example is that during the November 11th single day sale, our Xiaomi 8 was ranked number 1 in the 2000 to 3000 price range on tmallandgini.com and number 1 in the 2000 to 2,500 price range on suning.com, which shows that we have improved our leadership in high end segment growth. Now one of the numbers that we will be disclosing this quarter is that if we look at our flagship phones, which are phones above RMB 2,000 in price range, which includes our Mi Mix TV, our Mi 8 and our POCO phone, the revenue contribution of these flagship phones as a percentage of total smartphone revenues is at 31%. This is as of Q3 2018.
So we see improvements in the revenue contribution of our flagship models as well. This is in line with our overall strategy of not blindly pursuing smartphone shipments, particularly in China, but to make sure we go after the quality smartphone users, which are the higher end users, which reflects the Chinese consumer consumption upgrade cycle in China today. In terms of IoT and Lifestyle Products, our IoT and Lifestyle Products revenue reached RMB 10,800,000,000 in Q3 2018. This represents a growth of 89.8 percent year on year. As our co founder and SVP, Wang Shuang, mentioned just now, our smart TV sales volume, just as an example of one of our IoT products, grew by 199% in Q3 2018.
This is a very significant growth. Our sales volume in the 1st 9 months of 2018 cumulative has exceeded 5,000,000 units, and our monthly sales volume in the month of October 2018 exceeded 1,000,000 units for the first time for our business. During the single day shopping segment 2018, the sales volume and sales value were both ranked number 1 for our TV business on Qmall, JD and streaming.com. And according to IDC, we are one of the leading smart TV brands in India. With our success in the TV business, we have more confidence to continue expanding our IoT product portfolio, particularly in the white goods segment.
At the back of this, we launched our new air conditioner on July 23, 2018, and it has been very well received by our users so far, very positive review. Now the 3rd revenue line that we have is Internet services. Internet services revenue reached RMB 4,700,000,000 in Q3 2018. It represents a growth of 85.5%. Now just to put this number in context, RMB 4,700,000,000 in 1 single quarter already makes us one of the top Internet companies by revenue in the world today.
If we start a business now, our advertising revenue grew by 109.8% year on year in Q3 2018. Our online gaming revenue grew by 12% in light of the current gaming clients in China. Our other Internet value added services grew by 98.6% year on year. This is primarily driven by our growth in the FinTech business and in YOKIN, our curated e commerce business. At the back of this revenue growth is really underpinned by sustained growth in our mini UI monthly active users and general ARPU growth.
Our mini UI MAU grew from 157,000,000 users in Q3 2017 to 224,000,000 users in Q3 2018, representing a 43.4% growth. Our quarterly ARPU grew from RMB 16.3 in Q3 2017 to RMB 21.1 in Q3 2018. A lot of you may be concerned maybe very concerned about Internet monetization outside of smartphone in China. We are happy to report that Internet monetization outside of mainland China smartphones is early, but showing good progress. For example, within the IoT category, TV Internet services revenue already accounted for 5.4% of total Internet services revenue in Q3 2018.
This is driven by the fact that the monthly active users of Mi TV and Mi Box reached RMB 15,900,000 as of September 2018. Outside of China, our overseas Internet services revenue now accounts for 4.4% of total Internet services revenue in Q3 2018. This is early, but we see very, very positive signs of future expenses. Moving on from this, our international revenue as a whole grew very rapidly at 112.7% in Q3 2018 year on year. This now represents 43.9 percent of our total revenue.
Xiaomi was ranked top 5 in 30 software markets around the world. As our Chairman mentioned, for example, we have been number 1 in India for 4 consecutive quarters as of Q3 2018. Now in Q3 2018, according to Catalyst, the difference between us and the 2nd placed competitor widened significantly. In Indonesia, our shipment we are now the number 2 smartphone maker in Indonesia with shipment growth year on year at 3 37%. Our market share went from single digit in Q3 2017 to more than 20% in Q3 2018 according to Canalys.
In Western Europe, we are now number 4 with shipment year on year growth of 3 86% in Q3 2018. Some of you may know there are certain markets where we have only launched very recently in Western Europe. Now on this topic, we would also like to share that due to the economic climate around the world today, RMB and the Indian rupee, which is 2 important currencies for revenue for us, have depreciated quite a bit against U. S. Dollars this year.
RMB has depreciated 6.9 percent and the Indian rupee depreciated 14.2% against the USD starting from January to 9th November according to IMF. Now this clearly is pressure on our costs. So in Q3 2018, our hardware gross margin went down from 7.4% the quarter before to 7.1% in Q3 2018. This is hardware gross margin. Conversely, our Internet services gross margin went from 62.8% in Q2 2018 to 68.4% in Q3 2018.
The reason for this increase is because advertising revenue higher gross margin, and advertising revenue has grown more significantly than gaming revenue in the last quarter. Now despite the pressure that we have on currency, we have managed to do we have still managed to our expected I apologize. Okay. Despite the depreciation in currency and the pressure on gross margin, we have taken measures to make sure that we improve on operational efficiency. As most of you will know, one of the key things that we go after is to make sure that we remain the most one of the most efficient companies in our industry.
And I believe at this point in time, we still are. Our operating expenses went down from 8.8% in Q2 2018 to 8.5% in Q3 2018. Some of it is also driven by seasonality, including the World Cup advertising that we invested in the quarter before. The reduction of this was shown also in Q3 2018. So the result of this IFRS net profit of RMB 2,480,000,000 in Q3 2018 and RMB 2,900,000,000 non IFRS adjusted net income in Q3 2018, representing a net income margin of 5.7%.
Just a few quick words on working capital. Our trade receivable turnover days remains low at 14 days. Our inventory turnover days remain low at 49 days, and our trade payable turnover days increased slightly to 99 days, which means our cash conversion cycle still remains negative 76 days. So our main business is still very it's still cash flow positive. Our net cash generated from operating activities, adjusted for our finance business, is RMB1 1,000,000,000.
And this reflects the healthy nature of our cash flow profile. One other quick note on finance. Because of the impact because of the reduction because we are now a public company and because a few quarters have passed, the impact of this convertible redeemable preferred shares on our P and L and on our balance sheet has been adjusted. So our total equity today moved from negative 1000000000 to RMB 67,000,000,000 positive RMB 57,000,000,000. This concludes the quick overview we have on Q3 2018.
I think to quickly summarize, 1, our revenue grew by RMB 50,800,000,000 sorry, our revenue was RMB 50,800,000,000 RMB growing at 49% year on year, adjusted net profit of RMB 2,900,000,000. This is in line with our internal expectations and I believe slightly above Bloomberg consensus for revenue and quite significantly above Bloomberg consensus for net income. So that's the quick update. We will now open the floor to questions and answers.
Thank you, Our first question comes from Morgan Stanley and Ms. Grace Chen.
Thank you. Thank you for taking my questions. I'm interested to know about the key revenue drivers for the better Internet service revenue. As you mentioned, I noticed overseas and TV started to any differences in the margin profile for the Internet services on TV versus smartphones overseas in China? And how should we project the margin trends in the future?
Thank you.
Great. Thank you for the question. This is Shao here. So for Internet services, just as a very quick recap, we grew our Internet services revenue was at rmb4.7 billion in Q3 2018, growing at 85.5%. Now if we break this down, this RMB 4,700,000,000 down, RMB 3,200,000,000 was from advertising, dollars 7,000,000,000 from online games and dollars 800,000,000 from other Internet value added services.
The increase in our advertising revenue is down to a few things. 1, it is the continued optimization of our sort of back end advertising engine. The second is increased engagement in our user base. And the third is overall sort of increase in the price of premium stocks. So that's the key drivers behind the advertising revenue stream.
For online games, we were at $600,000,000 in Q3 20 17 and RMB0.7 billion Q3 2018. I think current climate for gaming in China is very well understood by most of you on the call due to tightening government regulations. We believe that this is in line with our expectations on where we should be in terms of our growth versus the market. So it's 12% year on year growth. Just to give you a sense, advertising just in general has higher gross margins than gaming.
So if advertising goes faster than gaming, you should expect gross margins to go up. For other Internet value added services, it's primarily driven by 2 parts today. 1 is our fintech business and the second is Yopen, which is our curated marketplace. Both businesses have performed well, which explains the growth here. So I think that explains the breakdown.
Now for your question on how you should think about the margin structure. In terms of gross margins, it's advertising, number 1 other Internet added services, number 2 online games, number 3. So the ranking order is like this. So it depends on which one grows faster. For overseas, today, we are primarily making our Internet services revenue from 3 ways.
One is your more traditional advertising revenue working in conjunction with Facebook and Google. The second is revenue search revenue split from Google. And the third is our pre installed business. Still very early, but showing very good promise. For the TV business, it's really advertising.
And it's more it's very weighted towards brand advertising because of the media because of the large screen format. So the margin structure is almost in line with advertising. So that's the detail then, too.
Thank you.
Thank you. And our next question comes from Cherry Mark, CLSE.
Hi, Lei Gong. Hi, Shu. Thank you for taking my question. I have two questions. My first question is related to the Meitu strategy.
Within the Meitu, are we able to leverage our MiUI software platform to monetize this new brand? The second question related to Meitu is that are we able to leverage the existing Xiaomi sales channel for future smartphone launches? And overall, my second question will be the pricing for smartphone. Since 3Q margin is really impacted by the rupees headwind, are we going to readjust the pricing in rupees in 4Q so our margin will be more well balanced? Thank you.
So we have experimented with our multi brand strategy for quite some time, and we have had some initial success with 2 sub brands. First is POCO, which is targeted towards tech enthusiasts who go after very extreme hardware performance. And the second is Black Shark, which goes after the gaming user base. And this strategy has proven to be quite a success for us. So the strategic cooperation with Mettu is primarily to continue this multi brand strategy.
And this one is going to be focused on the female demographic, which is a demographic that we feel like we can improve. So that's the overall sort of thinking behind the Meizu deal. MeiTzu is very well known among female demographic, particularly in China. So very strong brand equity there. And the second is the camera tuning for photography is actually quite strong.
Our cooperation is going to greatly boost Xiaomi's efforts in further penetrating the female market. The second question on currency, currency has presented a significant challenge for us this year. Currency is as mentioned, currency has presented a big challenge. Our gross margin from last year to this year for hardware has actually gone down from roughly 11% to 7.1%. It's a significant challenge.
But through improving our overall operating efficiency, we have managed to achieve our net income numbers despite this. We really cannot very easily make the decision to increase our prices in order to mitigate. What is more important is probably how do we continue to improve our efficiency. So we are very satisfied with our numbers in Q3 this year.
Thank you. And our next question comes from Ping Huang from CICC.
Thank you for taking my question. So my question is about the IoT and the lifestyle programs. I see the revenue grow very strong and also we see a margin expansion. So can you elaborate? So what's the strong you know the TV is going very well, but I was assuming that TV was
margin it's a lower margin product, but why the margin is so strong as well?
How would you model that? How would you
just sort of exceed this business margin trend ahead? Okay. Let me translate for the benefit of everybody. The question revolve around 2 things. The first was, why is the IoT and Lifestyle products gross margin not as affected?
Why did it not decline as much as handsets? That's the first question. And the second is, is the TV gross margin structure lower than handsets? Okay. So in terms of the first question, the short answer is that the IoT and lifestyle products revenue stream is a combination of many products.
So it's not just a single product like the Smartphones revenue stream. So a lot the part of the gross margin gross profit is sort of affected by this product combination. The second is a lot of these products don't actually rely on U. S. Dollar sourcing, which means that the impact of appreciation in the U.
S. Dollar doesn't impact a lot of these products' costs as much. So it's a combination of these 2 that resulted in an increase in our gross margin by IoT versus smartphone. Now the second question is, because of the rapid depreciation of some currencies around the world, our smartphone gross margin is under a lot of pressure. Under normalized circumstances, gross margin for smartphones should be higher than television, but right now, it is about 2% lower.
Okay. Thank you very much.
And our next question comes from Gokul from JPMorgan.
Yes, hi. Thanks for taking my questions. I have a couple of questions. First of all, could you talk a little bit about what is your outlook for China smartphone market? And
how would you
go about financially engineering some consolidation in the market given that some of the market players about you are starting to see year on year unit decline? That's my first question. 2nd question is could you talk a little bit about the details of your monetization into insurance services outside of China? Where are we seeing more of the monetization opportunities? Is it in the bigger installed base markets like India and Indonesia?
Or is it from some of the more installed base with fast growing and potentially higher dollars higher 46 hours and fleets like Europe? And going forward, as we grow this business, where do you see the growth coming from? Is it going to be more from the Europe? Or is it going to be more from India or Indonesia or other EM?
Thank you, Rokul. Let me translate. Good day. Gokul, let me answer your second question first. So on details of Internet services outside of China, I mentioned just now, it really comes from 3 sources today.
1 is working together with the ad network of Facebook and Google. 2nd is search revenue from Google and the 3rd is pre installed. We could have the capability to sell our own ads in the future, but this will require a bit of time. Today, our Internet services Internet services really is always a function of where we have the biggest MAU base. So you can expect India and Indonesia to be significant contributors today.
But in the future, I think you can expect Western Europe to be a higher ARPU market in general. So I think for the next few years, India, Indonesia, Western Europe, Of course, rest of the world, wherever we can monetize, we still will do so. But this will be likely going to be the 3 key markets. Now on the first question, our Chairman will reply.
Okay.
According to GfK and IBC this year, the Chinese smartphone market is declining this year. 2nd and third tier smartphone brands are facing very immense challenges. The first point is he thinks that the next growth driver for Chinese smartphone market will be 5 gs. 5 gs will actually boost in our replacement cycle here in China. 2nd is, we have spent a lot of effort over the past few quarters optimizing our product portfolio.
And I think you're beginning to see the results of this product portfolio optimization. Today, our high end phones defined as RMB 2,000 and above is already at 31% of our total smartphone revenue. So you're seeing the results of this. Overall, the region remains optimistic about the Chinese smartphone market.
Okay. So do you expect market share to move up over the next year or so because it's been an incredibly stagnant while you have engineered this portfolio reengineering. And how should we think about how aggressive Xiaomi is going to be going into the next year given 5 gs is still going to be more like a 2020 story for China? So it looks like the market is still likely to not really grow next year.
We will launch our first 5 gs enabled phone in Europe in Q1 2019. For China, 5 gs should be a 2020 story, like you said. 2nd, we will continue to optimize our product portfolio and our multi brand strategy, and our goal is to improve our market share We believe that our overall capabilities have improved a lot from last year. For example, for our cameras, you can see that we have already improved a lot, achieving very, very high DXO mark score already. As our products get better, we believe that our market share will get higher.
Okay. Thank you very much.
Thank you. Next question comes from Thompson Wu from Credit Suisse.
First one is just on the overseas monetization for Internet services. I think, Sho, you mentioned that that piece of the business is now 4.4% of Internet service revenue. Can you just give us some background as to kind of areas you're generating this monetization and how you plan on monetizing in these areas over the next few quarters, specifically the overseas Internet services piece. That's my first question.
Okay. That's it. I'll answer the first question first. It comes from 3 sources today. The first is working with Google and Facebook's ad network.
This is a very basic way when you have a lot of users who just connect to the network and a very quick way to monetize. The second is a search revenue agreement with Google that they pay for search traffic. And the third is pre installed. In the future, we want to build the local advertising capabilities in some key countries. These three revenue streams I talked about are very early precursors to our advertising business there there and including our gaming distribution business in the future.
So I think we have taken the first step. We are building the capabilities for the 2nd step.
Okay, sure. Thank you for the follow-up. And just on that point for search, for both the search and advertising for display, is that through the Mi browser? I guess I'm just curious, I know that in China, that's a large part of your strength is having your users use the Mi browser. Do you still have is that advertising revenue generated through your browser?
Or is that applicable to other third party browsers that the user may download?
It's for overseas, the Google search bar is on our launcher, on our Somyen. It's on the main screen. So it's a different group. And we also have our advertising revenue share. So it's not just on it.
Okay.
Great. And then my other question is just on the pricing for overseas smartphones. I understand that the India root depreciation is putting some cost pressure on that part of the business. I guess I was under an impression that the company runs a cost plus model, so you would be able to more quickly pass through these changes on to the end user through pricing increase. But I think I might have heard that differently earlier on the call.
Can you just give me an update on kind of how you're thinking about, I guess, your pricing relative to some of the currency
Okay. So for the benefit of everybody, we think that the most effective way to counter against any increase in cost driven by currency depreciation is actually to make sure that we design with a better cost. We design for better cost. And then we will rely on our entire operating efficiency so that we can have more room to absorb these increasing costs. Now for some models in India, we have increased in some very limited models, we have done a small price increase.
And that's the way we have effectively sort of handled the challenge, the depreciation of the rupee. Our Indian business remains profitable.
Great. Thank you. And just one quick follow-up on IoT. I think we've talked about the growth in the smart TV business. Can you just give a sense about how big just the TV business is as a percentage of the total IoT and home lifestyle product category?
Okay. I'm just checking what we have disclosed just to make sure I don't see anything I shouldn't. We have disclosed our TV and PC revenue combined, and it's about 40% of our IoT revenue, TV plus PC.
Okay. PC. Okay, perfect. Thank you so much.
Thank you. And our next question comes from Hong
Let me translate for everybody. So there were 2 questions. The first is regarding new products that we launched last quarter for IoT and Lifestyle products. And Lei Jun shared that in the last quarter, we launched our knee air conditioner, which was launched on the 23rd July this year. And the review for our users so far has been overwhelmingly positive actually.
And next year, we have actually a whole suite of products, but this is probably not the right forum to talk about our product pipeline for next year. The second question is regarding the opening of our Mi Homes and our authorized new stores. So you may have noticed in our report that we already have 500 new homes. These new homes are in 1st and second phase cities. And we think that 500 new homes at this stage is a good number to achieve.
And really, the priority right now is to make sure that we improve the operating efficiency of these new homes, which is something that we are very, very acutely aware of is the key competitive advantage of this offline new retail. The in for authorized stores, we have already opened 1100 of them. These are mainly the 3rd, 4th, 5th year cities in China. This is the more effective way of reaching these reach and the cities. So there's been quite a rapid growth from 360 stores to 1100 stores in the last quarter.
And we have done all these for achieving our 8.5% operating efficiency. So that's the answer to the question. Okay.
Thank you. And our next question comes from Frank Hur from HSBC.
Thank you for taking my question. I have two questions. The first is regarding a follow-up on the gross margin on the smartphone. I just want to know that comparing to the high end models, which is with ASP over 2,000 versus low end like revenue models, do we see the margin improvement versus the 2 product categories, given that we are optimizing our product mix to a high end? So this question is excluding the foreign exchange effect, just about the apple to apple comparisons on the same company's 2 product categories.
So the first question is, if we normalize for currency, will gross margins be higher for high end phones versus entry level phones? And the answer is yes. So for high end phones, the gross margin is a bit higher. And the reason is because there's more R and D expense and it's generally more expense more other cost items involved below the gross margin line in creating higher end ASP points. And the emphasis here is to make sure that no matter what kind of phones we're selling, the emphasis here is we need to make sure we improve our overall operating efficiency just so that we can return as much cost savings as possible to our users.
Okay.
Okay, got it. And then second question is about the ARPU trend. Given that the Chairman just mentioned contribution of the modernization in the Internet services do have at an early stage for the overseas market. So I guess the ARPU for the users in China market probably will be much higher than average number of RMB21. Is that correct?
Okay. Yes. Yes, you're correct. So of the 2 24,000,000 MAU, clearly not all of them are in China. As we mentioned in our last call, north of RMB 100,000,000 about RMB 110,000,000 is from China.
So you can do the math Pretty good. I think if you compare ARPU versus the appropriate relevant metrics for other leading Internet companies. So if you look at their real MAU numbers and divide by their real MAU numbers, there's still a lot of room for improvement. Time.
Okay. Got it. Thank you very much.
Due to the time constraint, we'll take the last question.
Thank you. And our last question comes from Goldman Sachs, Biyush.
Thank you for taking my questions. On the Internet revenue side, may I just ask where you are with ad loads? That's the first question. And where you could take that up to? 2nd is, could you give us a sense of how much time spent has been on your platforms, both in China as well as outside China, India, Indonesia as well as initial numbers coming through for Europe, that would be appreciated.
Thank you. And also if I can ask about app distribution, you talked about game distribution, but could you also spend about 2 minutes talking about app distribution? Thank you.
Okay. So, Fios, on your question, on the question of so our MEU has grown to $224,000,000 globally today, representing a 43% growth year on year. The time spent is still at or about 4.5 hours. This is a global number. So we don't see any significant difference between time spent on our phones in India and in China.
This is number 1. Number 2, due to, as you're probably very aware, the regulatory environment in China today, During this transitional phase, I think the gaming industry is not growing as well as a lot of people would hope. So that's the pressure that we see, and that's the reason why our gaming revenue is also growing in the team. The in terms of our app store, in terms of other downloads, it's very normal. We don't see anything abnormal in terms of the growth here.
Now for Internet revenue at low because we have so many so much inventory across so many different products, This is not a number that we have right now in terms of your direct answer to your question. So we need to go there and double check. Thank you. Okay. Thank you everyone for taking the call.
We will now close the call out. If you wish to check or press release the financial information, please visit our website. Thanks a lot. Thank you very much. Have a good night.
Thank you. And that concludes today's call. Thank you for joining, and goodbye.