Good day, and thank you for standing by. Welcome to Q1 2020 Kingsoft Corporation e arnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our first speaker today, Ms. Francine Liu. Please go ahead.
Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2021 first quarter earnings call. I'm Francine Liu, the IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our own information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors which may affect our business and operations. Having said that, please allow me to introduce our management team today who join us. Mr. Tao Zou, our Executive Director and CEO. Mr. Yuk Keung Ng, our Executive Director and CFO. I'm turning the call to our CEO, Mr. Zou. Tao Zou.
Okay. Hi, everyone. Our first quarter results signal a good start to the year as we continue to focus on office application services for governments, enterprise, and individuals, and high-quality IPs and premium games. Kingsoft Office seized the opportunity for digital transformation and will continue to develop the ecosystem for cloud and collaboration. In the online game business, we maintain steady development of our core games while actively carrying out R&D for new game genres. In the first quarter, the company achieved a decent start to the year. Our total revenue came in at RMB 1,569.6 million, up 33% year-on-year. While our office software and services business recorded strong year-on-year growth of 104%, the online games and other business was down slightly year-on-year at 1%.
With the robust growth of office software and services revenue, our operating profit in the first quarter was RMB 512.1 million, up 33% compared to the same period last year. I'm turning the call to our CFO, Francis.
Thank you, Francine. Hello, everyone. For the first quarter of 2021, revenue for Kingsoft Office Group achieved significant growth, which is mainly driven by the accelerated development of its ecosystem for cloud and collaboration. Kingsoft Office Group is dedicated to transforming to a premium service provider of cloud and collaboration office solutions, providing upgraded product experience and promoting cloud office migration and penetration in the government and enterprise markets. As the localization business has entered a mature period, the customer procurement increased. Kingsoft Office has witnessed an exponential growth in office software product licensing business during this quarter. During the China 2021 "Lianghui" transaction, customized office software document services of WPS Office were provided to facilitate online transmission, review, and approval of all official documents. Kingsoft Office Group has also accelerated its development of commercial distribution network.
The 2021 Partner Conference of Kingsoft Office Group was held in April 2021, attracting more than 1,000 attendees from its distributor and service provider partner across the ecosystem. Meanwhile, Kingsoft Office Group has continued to optimize user experience for individuals and enterprise and improving its customer loyalty through the application of cloud and collaboration to enhance the penetration within the public cloud market and to promote the growth of office software subscription business. As of 31st March 2021, MAU of Kingsoft Office Group core product reached 494 million, achieving a year-on-year growth of 11%. MAU of PC edition and mobile edition of WPS Office amount to RMB 194 million and RMB 294 million, with a year-on-year growth of 15% and 8% respectively. In addition, our internet advertising and promotion service business remains steady during the quarter, which was in line with Kingsoft Office Group's overall strategy.
During the quarter, the online game business delivers solid performance with a key focus on new genre and overseas market development. Revenue from our franchise JX Online PC game increased by 23% year-on-year in the first quarter of 2021. In April, online game business launched Baidi Fengyun, a new expansion pack for JX Online PC game, which enriched content and new play, resulting in a growth of daily active independent accounts after launch. Meanwhile, the performance of other JX series PC game has remained stable. In addition, the online game business has achieved breakthrough in overseas mobile game business. Upon its relaunch, the JX1 Pocket mobile game was ranked first both in the top free chart and grossing chart for iOS and Android application in Vietnam. In April, first-person shooting (FPS) game Bullet Angel was released and gained popularity in Thailand, Malaysia.
Holding hand had multiple new games are scheduled for launch. For example, JX Online 3: Yuanqi, which is a retro version of JX Online 3, and War of the Visions: Final Fantasy Brave Exvius, FFBE, are expected to be launched in the middle of this year. I'll now discuss the Q1 operational and financial results using RMB as currency. Revenue increased 33% year-over-year and decreased 3% quarter-over-quarter to RMB 1,560 million. The revenue split was 51% for our online games and others, and 49% for office software and services. You can see that actually the revenue split has gradually toward a 50/50 split from the previous year, where which the revenue are mainly contributed by our online game. Revenue from online game and other business decreased 1% year-over-year and 7% quarter-over-quarter to RMB 789 million.
The slight year-over-year decrease was mainly due to the decreased revenue of mobile games, partially offset by the revenue growth of JX Online 3. The quarter-over-quarter decrease was naturally due to the natural declining life cycle of existing mobile games. Revenue from the office software and services increased 104% year-over-year and 2% quarter-over-quarter to RMB 771 million. You can see that this rapid increase actually contribute to the level split between our game and office software's revenue. The remarkable year-over-year increase was mainly attributable to the rapid growth of both licensing business from enterprise and government, and the subscription service driven by the increasing demand for cloud and collaboration. Cost of revenue increased by 21% year-over-year and decreased 6% quarter-over-quarter to RMB 244 million. The year-over-year increase was mainly due to the higher IDC costs and CDN costs associated with the fast growth of personal subscription service from Kingsoft Office.
Gross profit increased 36% year-over-year and decreased 2% quarter-over-quarter to RMB 1,316 million. The group's gross profit margin increased by 1 percentage point year-over-year and kept flat quarter-over-quarter to 84%. Our net research and development costs increased 38% year-over-year and 15% quarter-over-quarter to RMB 491 million. The increases were mainly attributable to the increased personnel-related expenses as we continue to increase our investment in technology innovation and new products development. Selling and distribution expenses increased 39% year-over-year and decreased 26% quarter-over-quarter to RMB 205 million. The year-over-year increase mainly reflect greater spending of Kingsoft Office group to expand its reach into enterprise and government markets. The quarter-over-quarter decrease was mainly due to fewer promotion activity during this quarter. Administrative expenses increased 58% year-over-year and 4% quarter-over-quarter to RMB 148 million. The increases were primarily due to the increased staff-related costs. Share-based compensation costs increased 3% year-over-year and decreased 61% quarter-over-quarter to RMB 31.7 million.
The quarter-over-quarter decrease was mainly largely due to the new grant of our award share to selected employees of certain subsidiary in the company, some of which were vested at the grant date in the fourth quarter of 2020. Operating profit before share-based compensation cost increased 31% year-over-year and decreased 15% quarter-over-quarter to RMB 544 million. As a result of the combination of the above reasons, the operating profit margin before share-based compensation decreased by 1 percentage point year-over-year and 5 percentage point quarter-over-quarter to 35%. Net other gain of RMB 33 million were recorded compared to net other gains of RMB 3 million for the first quarter 2020 and net other losses of RMB 111 million for the fourth quarter of 2020.
Net other loss in fourth quarter of 2020 was mainly due to the recognition of a loss on deemed disposal of Kingsoft Cloud as a result of the dilution impact of the exercise of its employee options. Finance costs was RMB 35 million, compared with finance cost of RMB 6 million and RMB 36 million for the first quarter of 2020 and the fourth quarter of 2020. The year-over-year increase, primarily due to issue convertible bond in April 2020 with interest rate of an equivalent market interest rate for similar bond in accounting treatment instead of the actual yield to maturity, which would not result in any cash outflow. Share of losses of associate RMB 225 million we record compared to share of losses of RMB 64 million for the first quarter of 2020 and a share of loss of RMB 21 million for the fourth quarter of 2020.
The losses in the first quarter 2021 were mainly due to the loss recognized in Kingsoft Cloud and Cheetah Mobile, and the losses in the first quarter 2020 were mainly due to the loss recognized in Cheetah Mobile. The losses in the fourth quarter of 2020 were mainly due to the loss recognized in Kingsoft Cloud, partially offset by profit recognized in Cheetah Mobile. Income tax expenses increased 3% year-over-year and decreased 42% to RMB 66 million. As a result of the reasons discussed above, profit attributable to the owners of parent for the first quarter 2021 was RMB 117 million compared to profit of RMB 6 million for the first quarter 2020 and a profit of RMB 221 million for the fourth quarter of 2020.
Profit attributable to the owner of the parent excluding ESOP was RMB 140 million, compared to a profit of RMB 55 million for the first quarter of 2020 and a profit of RMB 266 million for the fourth quarter of 2020. The net profit margin excluding the effect of share-based compensation cost was 9%, 2%, and 17% for the three month ended March 31st, 2021, March 31st, 2020 and December 31st, 2020, respectively. As for statement of financial position, as at 31st March 2021, the aggregate amount of cash resources of the group was around RMB 18 billion. Net cash from operating activity was RMB 238 million compared to net cash from operating activity RMB 545 million and RMB 1,013 million for the three month ended March 31st, 2020 and December 31st, 2020 respectively.
Capital expenditure was RMB 75 million, RMB 328 million, and RMB 74 million for the three month ended March 31st, 2021, March 31st, 2020, and December 31st, 2020 respectively. We are pleased that all business performed well and started a strong footing in the first quarter. We are full of confidence for our development going forward. Looking ahead, we will adhere to the high intensity investment in research and development with an emphasis in the new technologies such as cloud and artificial intelligence. To promote innovation and optimization, to prepare for breakthrough and to achieve sustainable growth and development, as well as creating a better future with our customers and partners. This ended our brief introduction for tonight, and I hand over the floor for question and answers. Thank you.
Thanks, Francis. Operator, we're ready for Q&A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Kindly ask your question in Chinese Mandarin and in English if possible. Thank you. Once again, it is star one to ask the question. We have the first question. This is coming from Liping Zhao from CICC. Please go ahead.
[Non-English content] Francis, Benzi [Non-English content]
Good evening, thanks for taking my question. I have two questions here. The first one is related to the gaming business. Could management update us the gaming pipeline in the coming quarters? Also any updates on the cloud gaming business? Second question is related to the cloud. We've seen the growth rate of Kingsoft Cloud in the first quarter is a little bit lower than the market expectation. Could management elaborate the strategy for this business from the Kingsoft Group point of view? Thank you.
[Non-English content]
Okay, I'll translate for Mr. Zou. Most of our new mobile games that will be launched will be in the second half of this year. For the JX3 retro version Yuanqi, this one will be launched in June or July. For JX3, this one will be launched in the third quarter, which is either August or September. Same as FFBE 2, this one will also be launched around August or September. Lastly, in the fourth quarter, we have Wolong 2 and also Mo Yu 3D. This will be the new pipeline for the rest of the year. Thank you.
[Non-English content]
Okay, I'll translate for Francis. The detailed guidance for Kingsoft Cloud, they are given by Kingsoft Cloud themselves, they are already an independent listed company based on their performance and also on the board meeting we had, we are very confident with their operation performance going forward. Thank you. [Non-English content] Francis. Hi operator, we're ready for the next question.
Thank you. The next question comes from Thomas Chong from Jefferies. Please go ahead.
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[Non-English content] initiative, [Non-English content] game publishing [Non-English content ]WPS, WPS [Non-English content] margin [Non-English content].
We have seen some of the game titles are very successful, for example, like you mentioned, and we also seen that the gaming distribution is also having some kind of changes. Just want to get a sense about how we are seeing the competitive landscape in the gaming market. Also we have our game publishing initiative. Can management also comment about our strategy for this year? My second question is about the WPS, which shows a very good growth momentum. Can you comment about the addressable market in terms of the user base and the paying ratio as well as the competitive landscape? Finally it's about the 2021 outlook. Can management share about the revenue and the margin trend, if there's any qualitative color? Thank you.
Thomas[Non-English content] Thomas [Non-English content].
[Non-English content] I'll translate for Mr. Zou. After the launch of [Non-English content] we see that it's a very successful game, it's self-published, it's also published globally. We do notice there are a few trends in the gaming market. From the game publishing perspective, we think that now the game will be published in multiple regions, especially globally, instead of in the past, the game was mostly only published in a single region. In the past, the game was usually published by a single distribution channel, but now the games are usually published through multiple channels, especially now we have short video live streaming platforms like Douyin, Kuaishou other than Tencent. From the game R&D perspective, we think that the trend is not only happening now, the games now have multiple game genres.
For example, [Non-English content] is an animation game, with the rights of Fox Spirit Matchmaker, it's very successful. We think that the games are also now more focused in the first tier group of games, including our own IP game [Non-English content] . We do notice that there is a trend that for two or three major games in the first tier usually takes 80%-90% of the gaming market share. Lastly, we do notice that there is a change in gamers population with the recent years development, we think that in total there are RMB 600 million-RMB 700 million of gamers in China, that age range is from 18 to even more middle-aged people now. Thank you.
[Non-English content] PC [Non-English content] PC [Non-English content] Q1 [Non-English content] 1.94[Non-English content] iResearch[Non-English content] PC[Non-English content] 60 [Non-English content] 50% [Non-English content] 60% [Non-English content] PC [Non-English content]
[Non-English content] I'll translate for Mr. Zou first. For the question on the addressable market, Mr. Zou now is also the chairman for Kingsoft Office, and he said that now we most likely to use the PC user number as the KPI for our own user growth performance. Now for our PC user, we have 194 million, but we think that in China, the total number of PC users is around 400 million, so there's still a large opportunity for us to grow. According to the third party data iResearch, they compare our PC user number with what Microsoft has. Although we have very fast growth in the past 5- 10 years, but now Kingsoft Office and Microsoft Office each have around roughly about 55%-60% of the user group in PC users. The third party data is also in line with our own company data.
We think now our user base is only about 50%-60% of the total addressable market, so there's still a lot more room to grow, and this will continue to become an important KPI for our own user growth performance. For the paying ratio number, we are not sure if the Kingsoft Office has disclosed a specific number of paying users. If you check the numbers in the past before they become publicly listed, ever since from 2017 up until now, if you see the graph and also the slope of the graph, we think that will be a more convincing graph to show our growth in the number of paying users. In terms of the revenue, I believe that the growth year- on- year was 68%. Thank you.
[Non-English content] Thomas [Non-English content] WPS [Non-English content] margin[Non-English content] WPS [Non-English content].
They don't really disclose any forward-looking numbers. From the Kingsoft Group high level perspective, we think that the localization project is going very strong, is entering into a mature stage. From 2021 and also going forward, we have very good confidence, strong confidence in the revenue growth for the Kingsoft Office business. In terms of margin, we do have good growth potential for margin in the domestic market. We think that right now, we are not at the point of pursuing short-term profits. Instead, we are actively searching for other office-related investment opportunities. For example, by the end of 2021, we are also increasing around 1,000 people for the Kingsoft Office business, which is roughly about 35% of their total R&D personnel now. We are also setting up a Wuhan R&D center. The margin performance going forward will be stable.
The investment in the 1,000 people and also the Wuhan R&D center may have a short-term margin pressure on Kingsoft Office, roughly a few percentage points. Thank you.
[Non-English content] Francis.
Hi operator, we're ready for the next question.
We have the next question coming from Gangqiao Li from Citic. Please go ahead.
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[Non-English content] Francis[Non-English content] Q1 [Non-English content] 33% [Non-English content] M How about the current use of this money? The second question is, why is the income of mobile games decline? What are the main revenue contributors of mobile games and their respective percentage? Thank you.
[Non-English content] CB [Non-English content] CB [Non-English content] organic growth[Non-English content] R&D center [Non-English content] disclose [Non-English content] 181 [Non-English content].
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[Non-English content] , I'll translate for Francis first. For the convertible bond we issued last year, and you're correct that we issued that around this time last year, we do want to have a good strong cash balance for the future online collaboration, also the AI investment opportunity. Most of the cash we have on hand. Now you can see that we do have a strong balance of cash on hand. We have about RMB 18 billion as we reported. We will continue to invest in the online collaboration, also the AI related investment opportunities. Thank you.
[Non-English content] 20% [Non-English content] Q1 [Non-English content] RPG [Non-English content] 16 [Non-English content] 3 [Non-English content].
[Non-English content] I'll translate for Mr. Zou. Although we do have a strong growth of roughly about 20% in the JX Online PC game, the overall game revenue was flat from a year-on-year, also with a slight decline of 1%. This is because in the first quarter we didn't launch any new games. Also for the old games, they all have different levels of decline. The major games include JX Online 1, [Non-English content] also JX Online 3 mobile game. These four mobile games all have some level of decline. For example, JX Online 1, even though it's already RPG mobile game with the strongest life cycle, the game setup is still different from JX Online PC game. It was launched in 2016.
After five years of launch, we think that it's natural for it to have some level of decline. The total decline from JX Online 1, [Non-English content] and also JX Online 3 mobile game, roughly offset the growth from JX Online 3 PC game. Thank you.
[Non-English content].
Hi operator, we're ready for the last question. Thank you.
Last question comes from Yang Linlin from GF Securities. Please go ahead.
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[Non-English content] pipeline [Non-English content] 3 [Non-English content] PC[Non-English content] Q1 [Non-English content] 20% [Non-English content]
[Non-English content] launch [Non-English content] high teen [Non-English content] revenue growth.
Okay, I'll translate for our Francis. For the question on the game guidance, we said that we do have a number of new games to be launched in the second half of this year. For the PC game JX Online 3, it will continue to maintain a very steady performance. In the first quarter, it even had a 20% revenue growth. For all the other new games, for example, the JX Online 3 retro version, the mobile game launch time will be delayed by one or two months, and some of the other new mobile games, their launch time will also be delayed by one or two months. This year the overall game revenue we expect to be slightly lower than what we had last year. It will be in the high teens level. Thank you.
[Non-English content] 2019 [Non-English content] 2019[Non-English content] 2019 [Non-English content] 2019 [Non-English content].
I'll translate for Mr. Zou. Our overseas gaming strategy was actually started in 2019, and it was one of our key strategies for this season. Because due to the COVID in 2020, there was an impact on the progress of our overseas development strategy. Now, as we see that most of the global COVID is more under control, we started to take some actions for our overseas game strategy. We actually started in regions areas where we had good reputation from our past development in terms of the game and also our brand. We launched the JX Classic Version in Vietnam and it was very successful. Also we launched the shooting game in Thailand and Southeast Asia. Going forward, we're also going to expand into other regions.
We do have a number of games under development that we are targeting to the global market once they are launched. Thank you.