Good day and thank you for standing by. Welcome to Q1 2020 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference call is being recorded.
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 Q1 earnings call. I'm Francie Lu, 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 joined us. Mr. Zou Tao, our Executive Director and CEO Mr.
Francis Ding, our Executive Director and CFO. Now I'm turning the call to our CEO, Mr. Zou. Zou Zou?
Okay.
Okay. I'll do the translation for Mr. Zou. Our Q1 results signal a good start for the year as we continue to focus on office application services for government enterprise individuals and high quality IPs and premium games. Kingsoft Office Group sees 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 and D for new game genres. In the Q1, the company achieved a decent start to the year. Our total revenue came in at RMB1559.6 million, up 33% year on year, while our office software and service 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 Q1 was RMB512.1 million, up 33% compared to the same period last year.
Now I'm turning the call to our CFO, Francis.
Thank you, Fenty. Hello, everyone. For the Q1 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 upgrade products experience and promoting cloud office migration and penetration in the government and enterprise markets. As localization business has entered a mature period, the customer procurement increase, Kingsoft Office has witnessed an exponential growth in Office software product licensing business during this quarter.
During the China 2021 Nanhui transaction, Customized Office Software Document Services of WP 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's core product reached RMB494,000,000, achieving a year on year growth of 11%. MAU of PC addition and mobile addition of WPS Office amount to 194,000,000 and 294,000,000 dollars with a year on year growth of 15% and 8%, respectively. In addition, our Internet advertising and promotion service business remained steady during the quarter, which was in line with King's Office Group's overall strategy.
During the quarter, the online game business delivered solid performance
with a key focus on new genre and overseas market development. Revenue from our flagship JX online free PC game increased by 23% year on year the Q1 of 2021. And in April, online game business launched by Di Feng Yun, a new expansion pack for JX Online 3 PC game, which and rich 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 his remark, the JX-one Pocket mobile game was ranked the first, both in the 3 top 3 track and grossing track for iOS and Android application in Vietnam. In Maple, 1st person sitting FPS game, Bullet Angel was released and gained popularity in Thailand, Malaysia. Bojinge had multiple new games scheduled for launch. For example, JX Online 3, Yun Chi, which is a virtual version of JX-three and the War of Final Fantasy: Brave Exvius, FFBE, are expected to be launched in the middle of this year. I will 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 1560,000,000. Dollars The revenue speed was 51% for our online games and others and 49% for office software and services. You can see that actually the revenue speed has gradually toward a fifty-fifty speed 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 $789,000,000
The
slight year over year decrease was mainly due to the decreased revenue of mobile games, partially offset by the revenue growth of JX093. And the quarter over quarter decrease was largely 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 $771,000,000 You can see that this rapid increase actually contribute to the level split between our game and office offers 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 244,000,000.
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 Group. Gross profit increased 36% year over year and decreased 2% quarter over quarter to RMB1316 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 RMB491,000,000. The increases were mainly attributable to the increased personnel related expenses, as we continue to increase our investment in technology in innovation and new products development.
Selling and distribution expenses increased 39% year over year and decreased 26% quarter over quarter to $205,000,000 And the year over year increase mainly reflect greater spending of Kingsoft Office Group to expand its reach into enterprise and government markets. And 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 RMB148,000,000. 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 31,700,000.
The quarter over quarter decrease was mainly largely due to the new grants of our water share to selected employees of certain subsidiaries in the company, some of which were vested at a grand day in the Q4 of 2020. Operating profit before share based compensation cost increased 31% year over year and decreased 15% quarter over quarter to RMB 544,000,000 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 percent. Net other gain of $33,000,000 were recorded compared to net other gains of $3,000,000 for the Q1 2020 and net other losses of $111,000,000 for the Q4 of 2020. Net other loss in Q4 of 2020 was mainly due to the recognition of a loss on deemed disposal of Kingsor Cloud as a result of the dilution impact of the exercise of its employee options.
Finance courses was $35,000,000 compared with finance costs of $6,000,000 $36,000,000 for the Q1 of 2020 Q4 of 2020. And a 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 associated RMB225 1,000,000 we record compared to share of losses of RMB64 1,000,000 for the Q1 of 2020 and a share of loss of RMB21 1,000,000 for the 4th quarter of 2020. And the losses in the Q1 2021 were mainly due to the loss recognized in Kingsoft Cloud and Cheetah Mobile. And the losses in the Q1 of 2020 were mainly due to loss recognized in Cheetah Mobile.
And the losses in the Q4 of 2020 were mainly due to the loss recognized in the Kingsoft Cloud, partially offset by the profit recognized in the Cheetah Mobile. Income tax expenses increased 3% year over year and decreased 42% to RMB66 1,000,000. As a result of the reasons discussed about, profit attributable to the owners of parent for the Q1 2021 was RMB117 1,000,000 compared to profit of RMB6 1,000,000 for the Q1 2020 and a profit of RMB221,000,000 for the Q4 of 2020. Profit attributable to the owner of the parent excluding Eshop was $140,000,000 compared to a profit of $55,000,000 for the Q1 of 2020 and a profit of $266,000,000 for the Q4 of 2020. And the net profit margin excluding the effect of share based compensation costs was 9%, 2% and 17% for the 3 months ended March 31, 2021, March 31, 2020 December 31, 2020 respectively.
As for segment of financial position, as of 31st December 31st March 2021, the aggregate amount of cash resources of the group was around RMB 18,000,000,000. Net cash from operating activity was 238,000,000 compared to net cash from operating activity 545,000,000 $101,013,000,000 for the 3 months ended March 31, 2020 December 31, 2020, respectively. And capital expenditure was $75,000,000,328,000,000 and RMB74 1,000,000 for the 3 months ended March 31, 2021, March 31, 2020 December 31, 2020 respectively. We are pleased that all business performed well and started a strong footing in the Q1. We have full 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 and A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. You. We have the first question. This is coming from Liping Zhao from CICC.
Please go ahead.
I have two questions here. The first one is related to the gaming business. So could management update us the gaming pipeline in the coming quarters? And also any updates on the cloud gaming business? And second question is related to the cloud.
So we're seeing the growth rate of Kingsoft Cloud in the Q1 is a little bit lower than the market expectation. So could management elaborate the strategy for this business from the Kingsoft group point of view? Thank you. Okay. I'll translate for Mr.
Zou. For most of our new mobile games that will be launched will be in the second half of this year. So for the JX Online 3 retro version Yuan Ti, this one will be launched in June or July. And for GX World 3, this one will be launched in the Q3, which is either August or September. And same as FFE2, this one will also be launched around August or September.
And lastly, in the Q4, we have and also MoYu 3d. So this will be the new pipeline for the rest of the year. Thank you. Okay. I'll translate for Francis.
So the detailed guidance for Kingsoft Club, they are given by the Kingsoft Club themselves. They are already an independent display 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. Hi, operator.
We're ready for the next question.
Thank you. The next question comes from Donald Trump from Jefferies. Please go ahead.
Thanks management for taking my questions. My first question is about the gaming business. We have seen some of the game titles are very successful, for example, like Yuan Shen. And we are also seeing that the gaming distribution is also having some kind of changes. So just want to get a sense about how we are seeing the competitive landscape in the gaming market.
And also we have our game publishing initiative. Can management also comment about our strategy for this year? And then 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? And then 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.
I'll translate first for Mr. Zou. So after the launch of Yuan Shen, we see that it's a very successful game and it's self published and it's also published globally. So we do notice there are a few trends in the gaming market. So 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.
And also, in the past, the game was usually published by a single distribution channel, but now the game usually published through multiple channels, especially now we have short video live streaming platforms like Douyin, Kuaishou, other than Tencent. And also from the game R and D perspective, we think that the trend is not only happening now, The games are the games now have multiple game genres. For example, Gaansion is an animation game and with the rise of visibility, it's very successful. So and then we think that the games are also now more focused in the 1st tier group of games, including our own PC game, JXCOM 1, 3. We do notice that there is a trend for 2 or 3 major games in the 1st year, usually takes 80% to even 90% of the gaming market share.
And lastly, we do notice that there is a change in gamers population with the recent years development. We think that in total there are 600,000,000 to 700,000,000 of gamers in China and that age range is from 18 to even more middle aged people now? Thank you. I'll translate for Mr. Dou first.
So for the question on the addressable market, Mr. Zhou 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. So now for our PC user, we have 194,000,000. So we think that in China, the total number of PC users is around 400,000,000.
So there's still a large opportunity for us to grow. And according to the 3rd party data I researched, they compare our PC user number with what Microsoft has. And although we have very fast growth in the past 5 to 10 years, but now Teams top office and Microsoft Office, they each have roughly about 55% to 60% of the user group in PC users. So the 3rd party data is also in line with our own company data. We think now our user group or user base is only about 50% to 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 users' growth performance. And for the paying ratio number, we're not sure if the King Top Office has disclosed a specific paying ratio number of paying users. But if you check the numbers in the past before they become separate listed, ever since from 2017 up until now, if you see the graph and also the slope of the graph, we think that 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.
So they don't really disclose any forward looking numbers. From the T pop group high level perspective, we think that the localization project is going very strong, is entering into a mature stage. So from 2021 and also going forward, we have very good confidence, strong confidence in the revenue growth for the Kingsoft office business. And in terms of margin, we do have good growth potential for margin in the domestic market. But we think that right now, there are we are not at the point of pursuing short term profits.
Instead, we are actively searching for other office related investment opportunities. So 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 and D personnel now. And also, we're setting up Wuhan R and D Center. So the margin performance going forward will be stable, but the investment in the 1,000 people and also the Wuhan R and D Center may have a short term margin pressure on King's office, roughly a few percentage points. Thank you.
Hi, operator. We're ready for the next question.
Thank you. We have the next question coming from Kang Xiao Lee from Citix. Please go ahead. It's 1 year since last year's issuance of convertible bonds. How about the current use of this funding?
And the second question is why is the income of mobile games decline and what are the main revenue contributors of mobile games and their respective
So for the convertible bond we issued last year, and you're correct that we issued that bond around this time last year. And we do want to have a good strong cash balance for the future online collaboration, also the AI opportunity investment opportunities. So far, the use of the cash, you can see that we use part of the cash, not too much on the Wuhan R and D Center that we mentioned earlier. And most of the cash we have on hand, right now, you can see that we do have a strong balance of cash on hand. We have about RMB18 1,000,000,000 as we reported.
So we will continue to invest in the online collaboration also the AI related investment opportunities. Thank you. I'll translate for Mr. Zou. So although we do have a strong growth of roughly about 20% in the DX Online 3 PC game, but overall games revenue was flat from year on year, also with a slight decline of 1%.
This is because in the Q1, we didn't launch any new games. And also for the old games, they all have different levels of decline. So the major games include JX Online 1, MoYu, Shao Shang Chi Jie and also JX Online 3 mobile games. These were mobile games all have some level of decline. And for example, the JX Online 1, even though it's already RPG mobile game with the strongest life cycle, but it's still the game setup is still different from the JX Online 3 PC game.
So it was launched in 2016. After 5 years of launch, we think that it's natural for it to have some level of decline. So the total decline from the JX Online 1, Hi, operator. We're ready for the last question. Thank you.
The last question comes from Yang Lin Lin from GF Securities. Please go ahead.
The first question is about the guidance about our game sector in the following quarter and the full year of 2021. The second question is about our overseas game business. What's your development strategy and product plan of this business? Thank you. Okay.
I'll translate for Francis. So 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 will continue to maintain a very steady performance. In the Q1, it even had a 20% revenue growth. And for the all the other new games, for example, the JX Online 3 Retro Renji, the mobile game will be its launch time will be delayed by 1 or 2 months.
And some of the other new mobile games, their launch time will also be delayed by 1 or 2 months. So this year, the overall game revenue, we expect it to be slightly lower than what we had last year. So it will be in the high teens level. Thank you. Okay.
I'll translate for Mr. Zou. So our overseas gaming strategy was actually started in 2019, and it was one of our key strategies for season. But because due to the COVID in 2020, there was some impact on the progress of our overseas development strategy. So 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.
And we our actions started in regions areas where we had good reputation from our past development in terms of the game and also our brand. So we launched the GS classic version in Vietnam and was very successful. And also we launched the shooting game in Thailand and Southeast Asia. So 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.