Welcome to Xiaomi Corporation's 2018 third quarter earnings conference call. I'm Steve Lin, the Director of Corporate Finance of Xiaomi. Before we start this presentation, we would like to remind you that it includes forward-looking statements, which are underlined by many risks and uncertainties and may not be realized due to various reasons. Information about general market conditions will depend from a variety of sources outside of Xiaomi. 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 presented in accordance with GAAP. Let me introduce the management team on the call tonight. We have our Founder, Chairman and CEO, Mr. Lei Jun; our Co-founder and Senior Vice President, Mr. Wang Xiang; and our CFO, Mr. Shou Chew.
They will provide a brief summary of the quarter remotely first, and then we will have a Q&A session. Now, I will turn the call over to Mr. Lei Jun.
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Good evening, everybody.
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Our revenue last quarter, in Q3 2018, was RMB 50.8 billion, with a year-on-year growth of 49.1%.
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Our adjusted net profit was RMB 2.9 billion.
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On the 26th of October this year, our 2018 smartphone shipments exceeded 100 million units.
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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.
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Xiaomi was ranked top five in 30 smartphone markets.
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We want to introduce our Western European smartphone business growth. We are ranked number four according to Canalys in Western Europe today, with a 386% year-on-year growth rate in Q3 2018.
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We have been number one in India for four consecutive quarters as of the end of Q3.
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We are number two in the Indonesian smartphone market today.
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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 first full-screen magnetic slider phone.
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It has one of the top three photographic experiences globally. According to DxOMark, it is ranked in the top three for photography.
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This time around, we have proven our continued leadership in color ceramic with this phone.
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We established our camera group some time ago, and with continued optimization in image processing algorithms, our DxOMark score for Mi MIX 3 is already at 103, which is ranked top 3 globally.
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As a comparison, iPhone X is at 97 points. Huawei P20 is at 102 points.
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We also have pioneering products with 5G technology. In September this year, we successfully connected to Sub-6 GHz, and in October this year, our mmWave, millimeter wave, was successfully connected. We expect that we will launch a 5G smartphone in Europe in Q 1, 2019.
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Second, in terms of AI and IoT, our connected devices outside of smartphones and laptops is already at 132 million devices, which is a quarter-on-quarter growth of 13.8%.
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We already have 2 million users with five or more Xiaomi IoT devices outside of smartphones and laptops. This is a quarter-on-quarter growth of 16.5%.
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Our Xiaomi AI assistant monthly active user has exceeded 34 million.
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Our AI technology was awarded four important awards in the last quarter.
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For example, at the World Internet Conference in Wuzhen last month, Xiaomi AI open platform for smartphones was awarded award called the World Leading Internet Scientific and Technological Achievement.
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Third, 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.
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Next, in terms of our smartphone strategy, we experimented with a multi-brand strategy this year. For example, we released a phone called Pocophone F1 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.
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Right now, the basic model is at RMB 2,100.
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Another example of a multi-brand strategy is our investee company produced a smartphone brand called Black Shark, which targets the gaming audience. The performance so far has been very good.
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Today, we also announced a strategic cooperation between us and Meitu. Under this deal, we have a 30-year license for smartphones and other smart products.
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At the same time, Meitu will be investing certain image-related algorithms and technology in our cooperation in smartphones.
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Most importantly, this deal allows us to more effectively target the female demographic.
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Because our user base is mainly male, and Meitu's user base is predominantly female. This deal allows us to further expand and diversify our user base by building on Meitu's popularity amongst female users.
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In September this year, we also did a significant global organization restructure.
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First, to strengthen the management functions of our headquarters, we created the organization department and the strategic advisory department.
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We also appointed two of our core founders and Senior Vice Presidents to be in charge of each department.
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At the same time, we streamlined our business, and from four business units, we created 10 new business units to streamline the business, improve efficiency, and to promote the next generation of leaders.
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Our TV business performed very well last quarter. Let us introduce our SVP of TV, Wang Chuan, to share a little bit more about the business.
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In Q3 2018, our smart TV sales volume grew by 199% year-on-year.
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In the first nine months of 2018, our sales volume cumulative has already exceeded 5 million units.
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Our monthly sales volume exceeded 1 million units in October 2018.
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During the Singles' Day shopping festival in 2018, the sales volume and sales value of all platforms including Tmall, JD.com, and Suning.com ranked our TV business as the number one brand.
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We started selling our TV in India this year as well, in March this year.
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According to IDC, we are already the leading smart TV brand in India in a few short months
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The reason why we could perform so well in our TV business is because we relentlessly pursue amazing products with honest prices.
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We relentlessly pursue innovation.
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Relentlessly pursue improvement in quality.
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In terms of quality, our metrics are ahead of all our competitors.
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This is how we earn the trust of our consumers.
Okay. In the next section, I will continue in English. This is Shou, the CFO of the company. In the next section, I will introduce our financials to everybody as well before we open up to Q&A. As a recap, in Q3 2018, our total revenue was RMB 50.8 billion, or a year-on-year growth of 49.1%. Our adjusted net profit was RMB 2.9 billion. If we look at it in each of the three categories that we split our revenue, for the smartphone business, our smartphone revenues reached RMB 35 billion in Q3 2018, representing a year-on-year growth of 36.1%. At the back of this is 33.3 million units of smartphone shipment in Q3 2018. We continue to expand our market share based on the shipment numbers that I just talked about. According to IDC, we are the fourth-largest smartphone company in the world today.
In a market where the entire smartphone market globally shrank by 6% quarter-on-quarter in Q3 2018, we were one of only two companies in the top five to grow. Our year-on-year growth, according to IDC in Q3 2018, was 21.2% in a market that shrank by 6%. More importantly, 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 markets, where consumers are demanding higher-end units.
At the back of this, our Xiaomi series, which is the flagship series that we have, which we launched in May, exceeded 6 million units of shipment as of October 9th, 2018. Another example is that during the November 11th Singles' Day sale, our Xiaomi 8 was ranked number 1 in the RMB 2,000-RMB 3,000 price range on Tmall and JD.com, and number 1 in the RMB 2,000-RMB 2,500 price range on Suning.com, which shows that we have improved our leadership in high-end segment phones. 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 series, 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. We see improvement 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 consumption upgrade cycle in China today. In terms of IoT and lifestyle products. Our IoT and lifestyle products revenue reached RMB 10.8 billion in Q3 2018. This represents a growth of 89.8% year-on-year. As our Co-founder and SVP Wang Chuan mentioned just now, our smart TVs 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 first nine months of 2018 cumulative has exceeded 5 million units, and our monthly sales volume in the month of October 2018 exceeded 1 million units for the first time for our business. During the Singles' Day shopping festival in 2018, the sales volume and sales value were both ranked number 1 for our TV business on Tmall, JD.com, and Suning.com. According to IDC, we are now the leading smart TV brand 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 23rd, 2018, and it has been very well received by our users so far. Very positive reviews. The third revenue line that we have is Internet Services.
Internet services revenue reached RMB 4.7 billion in Q3 2018. It represents a growth of 85.5%. Just to put this number in context, RMB 4.7 billion in one single quarter already makes us one of the top internet companies by revenue in the world today. If we further break this down, 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 climate 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 Youpin, our curated e-commerce website. At the back of this revenue growth is really underpinned by sustained growth in our MIUI monthly active users and the general ARPU growth. Our MIUI MAU grew from 157 million users in Q3 2017 to 224 million 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 very concerned about internet monetization outside of smartphones 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's 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 15.9 million 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 positive signs of future potential. Our international revenue as a whole grew very rapidly at 112.7% in Q3 2018 year-on-year.
This now represents 43.9% of our total revenue. Xiaomi was ranked top five in 30 smartphone markets around the world. As our chairman mentioned, for example, we have been number one in India for four consecutive quarters as of Q3 2018. In Q3 2018, according to Canalys, the difference between us and the second-placed competitor widened significantly. In Indonesia, we are now the number two smartphone maker in Indonesia, with shipment growth year-on-year at 337%. Our market share went from single digits in Q3 2017 to more than 20% in Q3 2018, according to Canalys. In Western Europe, we are now number four, with shipment year-on-year growth of 386% in Q3 2018. Some of you may know there are certain markets where we have only launched very recently in Western Europe.
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 are two important currencies for revenue for us, have depreciated quite a bit against USD this year. RMB has depreciated 6.9%, and the Indian rupee depreciated 14.2% against the USD starting from January to the 9th of November, according to IMF. This clearly is a pressure on our costs. 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 has higher gross margin, and advertising revenue has grown more significantly than gaming revenue in the last quarter.
Despite the depreciation in currency and the pressure on gross margin, we have taken measures to make sure that we improve on our operational efficiency. As most of you will know, one of the key things that we go after is to make sure that we remain 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 advertisements that we invested in the quarter before. The reduction of this was shown also in Q3 2018.
The result of this is IFRS net profit of RMB 2.48 billion in Q3 2018, and RMB 2.9 billion 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 payables turnover days increased slightly to 99 days, which means our cash conversion cycle still remains negative 76 days. Our main business is still cash flow positive. Our net cash generated from operating activities, adjusted for our finance business, is positive RMB 1 billion. This reflects the healthy nature of our cash flow profile.
One other quick note on finance, 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&L and on our balance sheet has been adjusted. Our total equity today moved from negative RMB 110 billion to positive RMB 57 billion. This concludes the quick overview we have on Q3 2018. I think to quickly summarize, one, our revenue was RMB 50.8 billion, growing at 49% year-on-year, adjusted net profit of RMB 2.9 billion. 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. That's the quick update. We will now open the floor to question and answers.
Thank you, managers. Ladies and gentlemen, if you would like to ask a question, please press star-one on the telephone keypad. Ladies and gentlemen, if you would like to ask a question, please press star-one. Ladies and gentlemen, if you would like to ask a question, please press star-one. Our first question comes from Morgan Stanley, and it's Grace Chen.
Thank you. Thank you for taking my questions. I'm interested to know about the key revenue drivers for the better Internet Services revenue. As you mentioned that we noticed overseas and TV started to contribute more substantially to the Internet Services. Could you elaborate a bit more about any differences in the margin profile for the Internet Services on TV versus what phones overseas versus China, and how should we present the margin trend Internet Services in the future? Thank you.
Grace, thank you for the question. This is Shou here. For Internet Services, just as a very quick recap, our Internet Services revenue was at RMB 4.7 billion. Excuse me. In Q3 2018, growing at 85.5%. If we break this RMB 4.7 billion down, RMB 3.2 billion was from advertising, RMB 0.7 billion from online games, and RMB 800 million from other Internet value-added services. The increase in our advertising revenue is down to a few things. One, it is the continued optimization of our back-end advertising engine. The second is increased engagement in our user base. The third is the overall increase in the price of pre-install. That's the key drivers behind the advertising revenue stream. For online games, we were at RMB 600 m illion in Q3 2017 and RMB 700 million 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. It's 12% year-on-year growth. Just to give you a sense, advertising just in general has higher growth margins than gaming. If advertising grows faster than gaming, you should expect growth margins to go up. For other Internet value-added services, it's primarily driven by two parts today. One is our fintech business, and the second is Youpin, which is our curated marketplace. Both businesses have performed well, which explains the growth here. I think that explains the breakdown.
For your question on how you think about the margin structure, in terms of growth margins, it's advertising, number one, other Internet value-added services, number two, online games, number three. The ranking order is like this. It depends on which one grows faster. For overseas, today we are primarily making our Internet Services revenue from three ways. One is your more traditional advertising revenue working in conjunction with basically Google. The second is search revenue split from Google. The third is our pre-install business. Still very early, but showing very good promise. For the TV business, it's really advertising. It's very weighted towards brand advertising because of the large screen format. The margin structure is almost in line with advertising. That's to give you a sense, too. Thank you.
Thank you. Our next question comes from Cherry Ma, CLSA.
Hi Lei. Hi Shou. 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? Overall, my second question will be the pricing for smartphones. Since Q3 margin is really impacted by the INR headwind, are we going to readjust the pricing in INR in 4Q so our margin will be more well-balanced? Thank you.
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We have experimented with a multi-brand strategy for quite some time, and we have had some initial success with two sub-brands. The first is POCO, which is targeted towards tech enthusiasts who go after very extreme hardware performance. The second is Black Shark, which goes after the gaming user base. This strategy has proven to be quite a success for us. The strategic cooperation with Meitu is primarily to continue this multi-brand strategy. This one is going to be focused on the female demographic, which is a demographic that we feel like we can improve. That's the overall sort of thinking behind the Meitu deal.
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Meitu is very well known amongst the female demographic, particularly in China. Very strong brand equity there. The second is their camera tuning for photography is actually quite strong.
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Our cooperation is going to greatly boost Xiaomi's efforts in further penetrating the female market.
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The second question on currency. Currency has presented a significant challenge for us this year.
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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%- 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.
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We really cannot very easily make the decision to increase our prices in order to mitigate this.
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What is more important is probably how do we continue to improve our efficiency.
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We are very satisfied with the numbers in Q3 this year.
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Thank you. Our next question comes from Leping Huang from CICC.
Thank you for taking my question. My question is about the IoT and the lifestyle components. I see the revenue growth very strong and also we see a margin expansion. Can you elaborate? We know the TV is going very well, but I was assuming that the TV, it's a lower margin product, but why the margin is so strong as well? How we should model that? How we should see this business margin trend ahead?
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I'll let you translate that.
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Okay. Let me translate for the benefit of everybody. The question revolved around two 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. The second is the TV gross margin structure lower than handsets? In terms of the first question, the short answer is that the IoT and lifestyle products revenue stream is a combination of many products. It's not just a single product like the smartphone revenue stream. A 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 US dollar sourcing, which means that the impact of appreciation in the US dollar doesn't impact a lot of these products' cost as much.
It's a combination of these two that resulted in an increase in our gross margin for 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.
Yeah. Thank you.
Thank you. Our next question comes from Gokul Hariharan from JP Morgan.
Yeah, 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? How will you go about potentially engineering some consolidation in the market, given that some of the market players above you are starting to see year-on-year unit decline? That is my first question. Second question is, could you talk a little bit about the details of your monetization Internet Services outside of China? Where are we seeing more of the monetization opportunities? Is it in the bigger install base markets like India and Indonesia, or is it from some of the more install base, but fast-growing and potentially higher purchasing power countries like Europe? Going forward, as you grow this business, where do you see the growth coming from?
Is it going to be more from say, Europe, or is it going to be more from India or Indonesia or other EM?
Thank you, Gokul. Let me translate quickly. Gokul, let me answer your second question first. On details of Internet Services outside of China, I mentioned just now, it really comes from three sources today. One is working together with the ad networks of Facebook and Google. Second is search revenue from Google, and the third is pre-install. We could have the capability to sell our own ads in the future. 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. You can expect India and Indonesia to be significant contributors today. In the future, I think you can expect Western Europe to be a higher pool market in general. 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. These will be likely going to be the three key markets. Now on the first question, our chairman will reply.
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According to GfK and IDC this year, the Chinese smartphone market is declining this year.
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2nd and 3rd-tier smartphone brands are facing very immense challenges.
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The first point is he thinks that the next growth driver for Chinese smartphone market will be 5G. 5G will actually boost replacement cycle here in China.
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Second, 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, are already at 31% of our total smartphone revenue. You're seeing the results of this.
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Okay. Do you expect market share to move up over the next year or so? Because it's been a reasonably stagnant while you have engineered this portfolio re-engineering. And how should we think about how aggressive Xiaomi is going to be going into next year, given 5G is still going to be more like a 2020 story for China? Looks like the market is still likely to not really grow next year.
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We will launch our first 5G-enabled phone in Europe in Q1 2019. For China, 5G should be a 2020 story, like you said.
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Second, we will continue to optimize our product portfolio and our multi-brand strategy. Our goal is to improve our market share in China.
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We believe that our overall capabilities have improved a lot from last year.
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For example, for our cameras, you can see that we have already improved a lot, achieving a very high DxOMark score already.
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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.
Lei Jun, Shou, good evening. Thanks for taking my question. First one is just on the overseas monetization for Internet Services. I think, Shou, you mentioned that piece of the business is now 4.4% of Internet Services revenue. Can you just give us some background as to kind of areas where you're generating this monetization and how you plan on monetizing in these areas over the next few quarters? This is specifically the overseas Internet Services piece. That's my first question.
Okay. Thompson, I'll answer the first question first. It comes from three 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 to just connect to the network and a very quick way to monetize. The second is a search revenue agreement with Google where they pay for search traffic. The third is pre-install. In the future, we want to build the local advertising capabilities in some key countries. These three revenue streams that I talked about are very early precursors to our advertising business there, including our gaming distribution business in the future. I think we have taken the first step. We are building the capabilities for the second step.
Okay. Sure. Thank you for the follow-up. 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. Is that advertising revenue generated through your browser or is that applicable to other third-party browsers that the user may download?
For overseas, the Google search bar is on our launcher, on our [Non-English content]. It's on the main screen. It's a different route, and we also have the advertising revenue share. It's not just browser.
Okay. Great. Then my other question is just on the pricing for overseas smartphones. I understand that the Indian rupee depreciation is putting some cost pressure on that part of the business. I guess I was under the impression that the company runs a cost-plus model, you'd be able to more quickly pass through these changes onto the end user through pricing increase. 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 fluctuations, particularly in India?
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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 for better cost, and then we refine our entire operating efficiency so that we can have more room to absorb these increasing costs. For some very limited models in India, we have done a small price increase, and that's the way we have effectively sort of handled the challenge of the depreciation of the rupee. Our Indian business remains profitable.
Great. Thank you. 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 home lifestyle product category?
I'm just checking what we have disclosed just to make sure I don't say 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.
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Thank you. Our next question comes from Hong Tao from GF Securities.
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Let me translate for everybody. There were two questions. The first is regarding new products that we launched last quarter for IoT and lifestyle products. Lei Jun shared that in the last quarter we launched our Mi air conditioner, which was launched on the 23rd of July this year. The reviews by our users so far have been overwhelmingly positive, actually. 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 stores. You may have noticed in our report that we already have 500 Mi Homes. These Mi Homes are in 1st and 2nd tier cities, and we think that 500 Mi Homes at this stage is a good number to achieve.
Really the priority right now is to make sure that we improve the operating efficiency of these Mi Homes, which is something that we are very acutely aware of, it's the key competitive advantage of this offline new retail. For authorized stores, we have already opened 1,100 of them. These are mainly in the 3rd, 4th, 5th Tier cities in China. This is the more effective way of reaching these cities. There's been quite a rapid growth from 360 stores to 1,100 stores in the last quarter. We have done all this while achieving our 8.5% operating efficiency. That's the answer to the question. Okay.
Thank you. Our next question comes from Frank He 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 higher-end models, which is with ASP over RMB 2,000 versus low-end like Redmi models, do we see the margin improvement versus the two product categories, given that we are optimizing our product mix to a high end? This question is excluding the foreign exchange effect, just about the apple-to-apple comparisons on the same company, two product categories.
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The answer is yes. For high-end phones, the gross margin is higher. The reason is because there's more R&D expense and it's generally more expense, more other cost items involved below the gross margin line in creating higher-end ASP phones. The emphasis here is to make sure that no matter what kind of phones we are 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. Second question is about the ARPU trend. Given that the chairman just mentioned the contribution of the monetization in Internet Services is still at an early stage for the overseas market. I guess the ARPU for the users in China market probably will be much higher than the average number of RMB 21. Is that correct?
[Non-English content] Okay. Yes, you are correct. Of the 224 million MAU, clearly not all of them are in China. As we mentioned in our last call, north of 100 million, about 110 million is from China. You can do the math quickly. I think if you compare our ARPU versus the appropriate relevant metrics for other leading internet companies. If you look at their real MAU numbers and divide by their real MAU numbers, there's still a lot of room for improvement.
Okay, got it. Thank you very much.
Due to the time constraint, we'll take the last question.
Thank you. Our last question comes from Goldman Sachs. Piyush Mubayi .
Thank you for taking my question. On the Internet revenue side, may I just ask where you are with ad loads? That's the first question, where you could take that up to. Second 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. Also, if I can ask about app distribution, you talked about game distribution, but could you also spend about two minutes talking about app distribution? Thank you.
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On your question, our MAU has grown to 224 million globally today, representing a 43% growth year-on-year. The time spent is still at or about four and a half hours. This is a global number. We don't see any significant difference between time spent on our phone in India and in China. This is number one. Number two, 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. That's the pressure that we see, and that's the reason why our gaming revenue is also growing in the team. In terms of our app store, in terms of other numbers, it is very normal. We don't see anything abnormal in terms of the growth here.
Now, for internet revenue ad load, because we have so much inventory across so many different products, this is not a number that we have right now in terms of the right answer to your question. We need to go back and double-check.
Thank you.
Thank you everyone for attending the call. We will now close the call now. If you wish to check our press release or financial information, please visit our website. Thanks a lot.
Thank you very much. Have a good night.
Thank you. That concludes today's call. Thank you for joining and goodbye.