Earnings Call: Q4 2019

Mar 24, 2020

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and full year of 2019 Kingsoft Corporation earnings conference call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the first speaker for today, Ms. Francine Liu. Thank you. Please go ahead, ma'am. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2019 fourth quarter and annual 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 who join us today. Mr. Zou Tao, our executive director and CEO, and Mr. Francis Ng, our executive director and CFO. Now I'm turning the call to Mr. Zhou. Zhou Tao. Okay, I'll translate for Mr. Zhou. Our business sustained positive momentum during the quarter. Our online game business delivered stable growth in both PC and mobile segments. While office software and services and cloud services continue to achieve robust revenue growth with accelerated deployment across industries. Meanwhile, we have completed the listing of our office software and services business, Beijing Kingsoft Office Software Inc. on 18th November 2019 on the Science and Technology Innovation Board of the Shanghai Stock Exchange. Overall, we made solid progress in 2019, and we're confident in the robust operating outlook and sustained growth for 2020. Our revenue for fourth quarter of 2019 was RMB2,594.7 million, up 48% year-on-year and 28% quarter-on-quarter. Revenue of 2019 was RMB8,218.3 million, increasing 39% year-on-year. Our revenue maintained stable growth against the backdrop of a dynamic environment, thanks to our solid market competitiveness and execution capabilities. Meanwhile, annual revenue of cloud services and office software and services and others maintain a strong and rapid growth, with a year-on-year growth of 73% and 43% respectively. Now I'm turning the call to our CFO, Francis Ng. Thank you, Francine. Hello, everyone. Both PC and mobile game record stable performance during the year. Our revenue improved year-on-year. We have launched a new expansion pack for our flagship JX Online III PC game in the fourth quarter, which result in a 24% jump in the average daily active user, which compared to 30 days prior to that launch, and a record high monthly gross billing in December. Our classic PC, JX, will achieve year-on-year growth in both number of gamers and revenue. The continued growth of the JX series demonstrate our resilience and strong capability in developing and operating long-term games and IP values. For mobile game business, JX Online I continued to perform well during the year with a stable concurrent income. In addition, we have launched a new mobile game, Double Life World, [Foreign language], which is [Foreign language] before, in Japan in September, followed by China in November, earning high praises at home and abroad. The newly launched mobile game was ranked as number one in the iOS top free chart on its debut, and subsequently climbed to the top five in the top grossing chart. The successful launch of Double Life World has further strengthened our diversified product strategy. We will seize market opportunity and achieve further breakthrough in product diversification. In view of the dynamic market and regulatory environment in China, we will continue to expand our overseas presence to further drive the growth of our game business. Kingsoft Cloud strengthen its industry-leading position in the internet and media sector, continue to focus on technology innovation, and further promote the integration and implementation of cutting-edge technology such as edge computing, smart high definition, and AI, et cetera. As a leading cloud service provider, Kingsoft Cloud makes strong progress in terms of government and enterprise services, financial services, and AIoT. The key highlights include the following: Beijing government's cloud project was recognized as one of the outstanding innovation cases studies in 2019 at Innovation Cases Study of Government Digital Application. Kingsoft Cloud was awarded the Outstanding Contribution Award for FinTech product innovation. Meanwhile, the company is considering a possible spin-off and separate listing of Kingsoft Cloud Holdings Limited. On December 20th, 2019, Kingsoft Cloud Holdings Limited submit the confidential filing with SEC. Going forward, Kingsoft Cloud remain committed to strengthening the strategic cooperation with Xiaomi AIoT, increasing the in-depth services of overseas business, leading the integration of cloud computing, big data, AI, and other cutting-edge technologies with various industry scenario, striving for the cost optimization, and empowering enterprise client in the digital transformation. For the fourth quarter of 2019, our office software and services sector makes its debut in the capital market, gaining momentum for further development. On November 18th, 2019, Beijing Kingsoft Office Software was listed on the SSE STAR Market, raising CNY 4.459 billion, mainly deployed for the four key aspects: development and upgrade of WPS Office software, construction of an AI infrastructure R&D center for office software, internet cloud services for office products, and internationalization of office software. During the period, we continued to make encouraging progress in working with our key government clients and entered into agreement with leading client in the field, including energy, finance, for comprehensive cooperation in the office software. In October 2019, WPS Office's overseas monthly active users exceeded 100 million, as we actively seized the opportunity from the Belt and Road Initiative. With the proactive promotion of its cloud service strategy, WPS Office subscription services achieved significant growth during the quarter. At the beginning of 2020, the demand for cloud office and remote work office by various enterprises has significantly increased, driving the rapid development of online collaboration products like Kingsoft Docs. As at March 2, 2020, the number of MAU of Kingsoft Docs has exceeded 239 million. This trend also further fostered user habit and boosted market demand, expanding the potential growth in the WPS Office personal and enterprises subscription service in the future. Year and 28% quarter-over-quarter to CNY 2,595 million. The revenue split was 35% for our online game, 43% for cloud services, and 22% for office software and services and others. Revenue from our online game business increased 39% year-over-year and 38% quarter-over-quarter to CNY 916 million. The increases were primarily attributable to the impressive performance of our flagship title, JX Online 3 PC game, and the revenue contributed from the newly launched mobile games. Revenue from the cloud service increased 53% year-over-year and 14% quarter-over-quarter to CNY 1,113 million. The increases were largely driven by the increased average revenue per major customer as a result of the increasing demand for cloud services product and solution. Also the result in the number of customer due to the cloud services further penetration in the existing vertical and expansion into more verticals. Revenue from office software and services and others increased 52% year-over-year and 48% quarter-over-quarter to CNY 566 million. The year-over-year increase were primarily due to the strong revenue growth from WPS Office subscription services and licensing, driven by the expansion of user base and the increased paid conversion rate, reflecting growing demand from personal and enterprises user, and enhancement of our user stickiness. The sequential increase was mainly due to the strong revenue growth from WPS Office's licensing and WPS Office online marketing services, resulting from positively seasonality. Cost of revenue increased 31% year-over-year and 9% quarter-over-quarter to CNY 1,330 million. The year-over-year increase were primarily due to the increase in the IDC costs associating with the significant growth in cloud services business. Gross profit increased 70% year-over-year and increased 56% quarter-over-quarter to CNY 1,282 million. Gross profit margin increased by 6 percentage point year-over-year and 8 percentage point quarter-over-quarter to 49%. The increases of gross profit margins were mainly due to the economy of scale and enhancement operational efficiency of cloud services business. Our research and development costs net increase is 11% year-over-year and 7% quarter-over-quarter to CNY 569 million. The year-over-year increase was mainly due to the increase of R&D personnel and their incentive and remuneration as a result of our effort to further improve the internal R&D capability. The quarter-over-quarter increase was primarily due to the accrual year-end bonuses. Selling and distribution expenses increased 45% year-over-year and 15% quarter-over-quarter to CNY 312 million. The increases mainly reflected the increased investment of office software and services and cloud services business in exploring enterprise and government markets, and the construction of sales channel. Administrative expenses increased 28% year-over-year and 49% quarter-over-quarter to CNY 186 million. The year-over-year increase was largely due to the increased staff related costs and professional services fee. The quarter-over-quarter increase was mainly attributable to the increased professional services fees. Share-based compensation costs increased 40% year-over-year and 20% quarter-over-quarter to CNY 72 million. The increases were primarily due to the new grant of our vested shares and option to the selected employee of certain subsidiary of the company. Operating profit before share-based compensation cost was CNY 235 million, compared to loss of CNY 105 million in the corresponding periods last year, and a loss of CNY 72 million in the first quarter 2019. Net other gain were CNY 149 million, compared to the net other losses of CNY 8 million in the corresponding period last year, and net other loss of CNY 87 million in the first quarter 2019. The net other gain in the fourth quarter in 2019 were mainly due to recognition of foreign exchange gain and again on deemed disposal of partial interests in a subsidiary. We record share of losses of associate of CNY 404 million for the fourth quarter of 2019, compared to the share of profit of CNY 261 million for the fourth quarter of 2018, and share of profit of CNY 128 million for the third quarter of 2019. This cost in the fourth quarter of 2019 were mainly due to the losses recognized in Cheetah Mobile during the quarter. Income tax expenses increased 690% year-over-year and 181% quarter-over-quarter to CNY 80 million. The increases were primarily due to the higher operating profit we recognized in this quarter. As a result of the reasons discussed above, loss attributable to the owner of parent for the fourth quarter 2019 was CNY 99 million, compared to a profit of CNY 229 million in the corresponding periods last year, and a profit of CNY 36 million in the third quarter 2019. Loss of owner, excluding ESOP, was CNY 56 million, compared to a profit of CNY 262 million in the corresponding period last year, and a profit of CNY 81 million in the third quarter of 2019. I now turn to the full year 2019. Revenue increased 39% year-over-year to CNY 8,280 million. Online games make up 33%, increased 8% year-over-year to CNY 2,749 million. Cloud services make up 47%, increased 70% year-over-year to CNY 3,847 million. Office software and services and other make up the remaining 20% and increased 43% year-over-year to CNY 1,622 million. GP margin decreased four percentage points year-over-year to 42%. Loss to the owners of parent was CNY 1,546 million, compared to a profit of CNY 389 million for the year 2019 and 2018, respectively. Again, this is due to the loss we recognized for Cheetah Mobile. Our balance sheet, we have cash and bank deposits of CNY 13.8 billion as year-end of 2019. Net cash generated from operating activity was CNY 825 million. Capital expenditure was CNY 1,362 million and CNY 1,406 million for the year ended December 31st, 2019, and December 31st, 2018, respectively. Amidst a turbulent economic environment, we managed to achieve a satisfactory performance in 2019. Our operating loss has now been narrowed during the year, mainly due to the significant improvement of the operating efficiency of our cloud services business. Beijing Kingsoft Office Software was successfully listed on the sci-tech board market in Asia. Our game revenue improved last year. Although our investment in the cloud business led to an operating loss in 2019, we recommend a final dividend of HK$1.10 per share with an aim to reciprocal our appreciation for our shareholder long-term support. Subsequent to the relief of the global COVID-19 pandemic and the conclusion of the IPO of Kingsoft Cloud Holdings Limited, we will further review our dividend policy as and when appropriate. Going forward, Kingsoft Cloud will be committed to strengthening its market position by leveraging leading technology and promote innovation across various industry. We will work with strategic partner to further expand our ecosystem and to make our cloud computing offering more accessible globally. Office software and services business will focus on its multipoint strategy of cloud, multiscreen, content, and AI to solve our user diverse need and to maintain our competitive advantages. We will continue to provide high-quality content and new game globally. As we continue to seize opportunity arising from the enterprise digital transformation, Kingsoft will maintain its competitive edge in the industry. Looking ahead, we will see a clear momentum of growth across all our business segments. Given by the increasing customer demand, we are confident to meet our performance target in the coming year and create long-term value for our shareholders. This concludes my briefing. I now hand over the floor back to Francine Liu. Hi, operator. We're ready for the Q&A session. Hi, operator. Yes. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. For your questions, please press star one on your telephones and wait for your name to be announced. To cancel the request, it is the pound or hash key. Once again, it is star one to ask a question. Your first question comes from the line of Thomas Chong of Jefferies. Please go ahead. [Foreign language] Thanks management for taking my questions, and congratulations on a very strong set of results. I have two questions. The first question is about our 2020 outlook. Can management share about the momentum for gaming, WPS and cloud computing for this year? My second question is about the BF firm business trend. In particular, given the fact that coronavirus affecting all the business across the board in China, we are seeing we are relatively defensive so far. Can management comment about the business momentum in Q1 versus Q4, in particular, the gaming business? Thank you. 谢谢Thomas。那我先来回答一下我们2020年的展望。首先第一个，今天开会的时候，我们刚开完金山办公的董事会，金山远景的办公会。今天早上开完金山办公的会。在金山办公会上面，他们特别有一个交流，提醒过在A股方面，因为其他公司都没有给到2020年的指引，所以他们也不例外。所以变成我们在300那个指引方面，可能对于另外一个上市公司没有给指引之前的数值，我们不能够讲到太细，这点请你明白。那么在整体而言，2020年我们对于整个公司，刚才说已经是说非常有信心，那我就分开三个板块，大概按以前的惯例跟大家介绍一下。第一个，我先讲一下online game上面的情况。我们也讲到了，最主要我们PC版的剑3，从四季度以及到等会讲到一季度，那个momentum都是非常好。我们launch了一个新的expansion pack以后，不只是在收入方面有一个很令人振奋的上升，在人数方面，这个其实我们是更看重的，因为我们曾经讲过，我们会继续把它打造一个强的现金流的方向去进行。在线人数方面，包括在线时长都有一个明显的上升。所以整体的游戏我们是有信心，将会比19年增幅要提高。当然19年的增幅并不是特别理想，因为我们年中发布的那一个指尖江湖遇到一些意外。那么19年我们没有下滑，还是保持一个上升。其中一个最大的贡献就是我们PC版的剑3。整体里面来讲，我觉得游戏的增长在2020年肯定是会比19年高，会恢复到一个三位数以上的增长。云方面，其实也是受到疫情影响，我可能就两块一起讲，都会影响我们，尤其是大家一些在线的业务，其实相对来讲都是受疫情影响，不管是游戏上面的人数，因为大家都没地方可以去了，在玩游戏方面的人数的时间跟人数。办公学习方面，尤其是大家有小孩子都知道，在教育方面，大家孩子都不上学了，不能上学了，都是在家里面学习。那么所以对于我们整体里面来讲，用到云服务，不管是分发方面的，在疫情方面的，在教学方面的，在医疗方面，都有大幅的提升。所以我们云服务方面，在19年有一个非常强劲的70%多的增长，我们将会有信心在2020年保持同样的高速的增长。关于办公，我们不能讲太细，因为它自己是分别一个单独的上市公司，并没有给到他们的指引。但是从方向里面来讲，我们可以从一些数据上面看得见，它其实在疫情当中我们的受益的比一些负面的还要令人振奋。受益的方面可以看到大家协同办公科技的adoption其实是加快了。以前的话，我们给钱，我们花钱打广告，怎么去做都不可能有这么强烈的反应。其中一个数据讲到，我们有一个金山文档，去年的话，活跃数还只有6,000万。那么到2月份，我们就翻了四倍，到了差不多接近2.4个亿。这都是可以知道。但当然了，这一点因为我们还没收费，所以可能没有直接体现在数据上面。但是对于我们整个云的办公，云的technology，的digital transformation，起了一个飞跃的推进。但是从财务的数字上面来讲，在Q4以及Q1都是令人非常振奋的。在我们的办公云方面的方面。所以我刚才大概讲了一下，不单是讲到2020年的outlook，也讲到我们从Q4到Q1因为疫情所影响。当然有一些小小负面的也要提一下，可能我们在to B的业务里面，对于一些新的客户的签约，因为没有上班，可能在这个方面会有一些延慢。但是因为云的客户，我们的大客户的量也是非常大的，在很多他们应用方面，在这段期间里面，都是有明显的拉升。好吧，谢谢Thomas。那我给Fantasy翻译一下。 Okay, talking about the 2020 outlook, we just had a board meeting for the Beijing Office software business in the morning. For the A share listed company, they are not allowed to give detailed 2020 revenue growth guidance. We will also follow the same policy. We are not going to mention too much details on the specific number guidance for the Beijing Office software business. Overall, we are very confident for the 2020 outlook. For the online game business, we have very good performance from the PC game JX Online 3 in the fourth quarter of 2019 and also the first quarter of 2020. We have very strong growth momentum from this PC game. Not only the revenue grew quite well, but also the number of users increased significantly. We are very confident in operating this game as a long life cycle game that is providing us as a cash cow game for our game business. We are confident that the overall game performance in 2020 will be better than 2019. Although 2019, the revenue growth wasn't very satisfactory, mainly it is because the JX Online 3 mobile game we launched in 2019, the growth really didn't meet our expectation. But the PC game performed very well in 2019. For 2020, we believe that our growth rate will be back to the double digits growth level for this game revenue. For the cloud business, we experienced quite positive impact from the coronavirus situation due to the increased use of online working, online education, the work from home situation. The cloud business performed very well in 2019. The revenue growth was 70% and up, and we are confident that we will maintain similar growth rate in 2020. We mentioned that we couldn't give detailed revenue growth guidance for the Beijing Kingsoft Office Software business. This business also benefited from the current situation. The technology adopted for online working, online education also speed up the performance of WPS. For example, we had a product called Kingsoft Docs. Last year we only had 6 million users, but in February this year, the number is quadrupled to 240 million. It has increased significantly. Although the product, we offer it for free, so it's not going to reflect too much on this financial performance. But this will help the growth of our business and also speed up the digital transformation of the WPS business. From the fourth quarter last year to the first quarter of 2020, there's also a slight negative impact that we will also have to mention. That's our 2B business. The licensing business may be affected from the current coronavirus situation, but the use of the cloud in our cloud business in WPS and also the game business have improved from the fourth quarter to the first quarter this year. Thank you. Thank you and congratulations again. Thank you. Once again, it is Star 1 to ask a question. For your questions, please have them both in English and in Mandarin. Our next question is from the line of Liping Zhao of CICC. Please go ahead. 好的，管理层晚上好，恭喜取得非常好的4Q业绩。我这边有三个问题。首先第一个问题是关于游戏这边的。我们看4Q游戏就回来不少，然后往2020年看的话，之前我们有提到过有一个3+3的计划，我不知道现在来看今年的pipeline大概是什么样的一个情况。那第二个问题是关于云的margin。我们看到这个财报里面，云margin今年是提高了非常多，像operating margin基本上有十几个点的提升。我不知道往后来看的话，今年包括明年，这个margin提升的状况是怎么样的，然后我们预期大概什么时候EBITDA能够break even。那第三个问题是关于账上的现金。我看到账上现在现金已经接近CNY140亿了，公司也提到了在考虑分红的计划，我知道这块有一些具体的想法没有。我自己翻译一下。Hi management, I have three questions. The first question is related to gaming. Can management share the pipeline for this year on gaming sector? The second question is related to Kingsoft Cloud. We see a great improvement of operating margin for cloud sector. What is the margin trend for this year and next year? When shall we expect the EBITDA margin to break even? The third question is related to the cash. We have noticed that on the balance sheet we have around CNY 14 billion cash. What is the plan for the company in the cash position? Thank you. 第一个问题我来回答吧。刚才问到今年的游戏的一些排期的情况。刚才Francis也介绍了这个老游戏，其实我们今年受疫情的影响，反而是相对来讲有增长的。但是对我们新游戏的上线发布的时间，其实是有影响的。主要是几块，我们跟腾讯合作的，一个是《指尖江湖》的公测，一个是《剑客行》，还有一个是《卧龙吟2》。目前来看都跟我们去年底年初的预测的时间有往后移，这主要是受疫情影响，两家公司的复工的情况还在陆续恢复吧。因为到现在为止，据我了解，腾讯那边也还没有全部复工。我们在最近两周也是通过电话视频的会议的这种远程的系统在反复沟通。目前还不能完全重新确定这几款产品的准确的上线时间表。但是初步沟通的结果，基本上最快陆续上线都要拖到五六月份去了。因为腾讯这边基本上是3月初才开始复工，而且还有很多人没回来。所以这个目前暂时没有办法告诉准确的一个时间了，可能需要到4月初吧。4月初我们两家可能才能够得出一个比较准确的一个时间表，有具体的时间出来，好不好？好的。 I will translate for Mr. Zhou for the first question on the pipeline for 2020. As Francis just mentioned, the coronavirus situation actually improved or helped our old game performance. For the new game timeline, this may be affected by the current situation. This is mainly because for the games that we cooperate with Tencent, for example, JX Online 3, its public launch, and also 剑客行, and also 卧龙吟2. For these 3 games, the launch date may be delayed because employees are not fully back to work for both companies, for Tencent and Kingsoft. We cannot confirm the specific timeline yet. The game may be delayed to a preliminary schedule, not until May to June this year. We are still talking with Tencent. We may need to wait until April to give a specific timeline. Liping，我来回答你其他两个问题。第二个问题你问到cloud的margin的一个significant improvement在2019年上面的。这个其实我们是非常兴奋的，因为我其实在前面两次earning call跟大家讲的时候都特别兴奋，讲到云除了它的top line有一个超过我们年初的指引，有一个超过70%的top line gain，这个是一个很令人振奋的。但是令人更兴奋的是在它的利润的improvement、掌控方面，有一个超过10多个percentage point on the operating margin。你问的一个问题非常好，就是在2020年以后，这个趋势将会是怎么样？其实我们是非常有信心。当然信心会有一些caveat。我先讲一下，我们计划在2020年会继续，刚才我跟Thomas讲过，保持跟去年2019年一样的top-line的高速增长。二，我们的margin依然会延续我们2019年的significant improvement，可能不到三位数，也会接近三位数的增长，这样来进步。要是按照这一个进步的话，有可能我们到了今年年底，2020年底，可能已经是接近或者是达到EBITDA breakeven。这是年底的时候，当然不是全年，因为我们全年年初的话还不是breakeven。那么按照这个趋势，大概到明年年底或者是一季度的时候，我们就达到EBITDA breakeven。当然这个也有一些假设的前提，因为我们经常讲，云的市场其实很取决于一个是规模效应，另外一个是我们市场上面的竞争。在规模效应，刚才已经讲了，会保持同样的高速增长，这个应该是非常好的一个事情。但是市场竞争方面，一方面我们看到，其实云市场我们已经是陆陆续续竞争了有五六年时间，大致的局面已经基本成型。那么像2018年在视频云上面的激烈的竞争，在2019年相对来讲也平缓下来。市场上面的老大、老二、老三的位置也基本上都现了形状。所以，在没有一个特别搅局性的竞争，我就会以刚才的那一个outlook来期望云在未来一两年内的发展。第三个，你提到我们的分红的策略，因为我们现在随着办公在11月在科创板上市，融了40多亿人民币，我们账上差不多有140亿的现金。那么你问到我们会不会改变我们的分红策略？其实这个我之前也跟大家讲过，我们其实随着金山云分拆出去以后，我们集团剩下来的两个主要的业务，一个游戏，一个办公，都是非常强的现金流。所以要是云分拆出去以后，它有自身独立的融资的平台，我们可能要储备去供它打，这样可以稍稍放松。那么我们其实是应该会重新再去考量我们的分红的政策。但是，在过往一两个月当中，中国以及全世界出现的疫情的情况底下，都出现了一些变化。一，整个的资本市场以及整个全世界，估计现在都需要更安全的保护线。其实我们的高现金是会给到股东，给到我们公司一个更强大的信心跟资源。现金为王，这个是第一点。第二个，在这个疫情，现在大家都不知道全世界什么时候才会停下来，尤其是海外的情况。那么我们除了安全以外，其实从来会产生很多的一些机会在市场上面，很多的公司可能就支撑不住了。说不准有很多我们可以加速我们的一些办公业务、游戏上面，云的一些布局的动作，或者是一些并购的机会。所以这个也跟领导，我们现在还采取一个观望的态度，先是以现金为王。我们等到这个疫情过去以后，包括现在金山云目前还没有正式去上市，那么它的上市的时间表会不会受到这个疫情的影响，现在很难讲，因为基本上整个资本市场的窗口大家知道都是关的，在一手IPO的市场。所以它的上市的时间可能也会有一些改变。那么在整个疫情当中，其实我们存在很多机会也要以现金为王，来最大化确保我们公司的安全性。所以在dividend policy方面，我们会拖后一点再去重新审视。在这一次你看到我们的业绩公告也讲到，尽管我们去年净利润是一个亏损的数字，按照过往里面来讲的话，我们就不分红了。但这一次还是我们分了HK$1.10，去回归我们的股东。在这一点，我们在这疫情过后，金山云上市之后，我们会去重新审视我们的dividend policy。好吗？谢谢你。丽萍，分享翻译一下。 I will translate for Francis. The cloud margin improved significantly in 2019. We are excited to talk about this. Not only the top line growth of the cloud business exceeded our guidance last year and achieved over 70%. The more exciting thing is that the cloud business operating margin also improved over 10 percentage points in 2019. Talking about the 2020 outlook, we are very confident in the performance of the cloud business. First, we believe that the top line will keep a similar type of growth rate in 2020. The growth momentum will continue into 2020. Secondly, the margin will also continue to improve significantly. The improvement may be close to a double-digit improvement in the OP margin level. If we proceed with this rate, we may be able to achieve or close to achieve the EBITDA break-even point by the end of this year. The cloud business development depends heavily on 2 things. One is economies of scale, and the other thing is market competition. For economies of scale, we perform well that our top line growth is over 70% in growth rate last year, and it will also grow at a similar rate in 2020. For market competition, we have been in this market for 5-6 years in the past. We experienced aggressive market competition in 2018 on the video cloud business. We thought that in 2019, the pricing competition has been less aggressive compared to 2018. We think that the market is more stable than the past right now. If this trend continues going forward, we will hold on to our previous set guidance that both the top line, also the OP margin will continue to improve in 2020. Talking about the dividend policy, after the IPO of our WPS business, we have CNY 14 billion in cash. We shared with the market earlier that after the IPO of the cloud business, the rest of our 2 companies, the game and the WPS business, they have very strong net cash flow. If we spin off the cloud business, the cash pressure on the Kingsoft Group will be much less, and we will revisit our dividend policy after the IPO for our cloud business. In the past couple of months, under the coronavirus situation, there are a lot of changes and opportunities in the market. First, we think that the capital market is quite unstable in the past couple of months. We do think that holding a good level of cash will give more confidence to our investors. Secondly, with this current situation, we see a lot of opportunities. We do not know how the virus situation is going to develop, and we do see some companies may not be able to survive with the current situation. We may speed up with some of the opportunities for the WPS or the cloud business. Here we are talking about the merger and acquisition opportunities. After the current virus situation and also after the IPO of cloud, we will definitely revisit our dividend policy. Last year, even though we had a net loss, we are still giving out HK$0.10 to our shareholders as a dividend for this year. We will revisit our long-term dividend policy after the IPO for cloud business. Thank you. Okay，thank you，周总。Thank you Francis。 Thank you. Our next question is from the line of Elsie Chang of Goldman Sachs. Please go ahead. 管理层你们好，谢谢接受我的提问。关于刚才云业务的分享，有三点我想继续请教一下管理层。上个季度您分享到我们的云业务毛利其实已经转正，所以想问一下这个季度的业务的毛利大概是什么样的水平？那第二点也是想请教一下，我们云业务在发展到2021年的时候，除了这个视频行业龙头地位以外，还有哪些垂直领域我们会比较看好？然后第三点是您刚也曾讲，今年年底，我们可能这部分的业务可以转正。那么如果我们从更长期的角度，比如说未来三到五年来看的话，您觉得云业务的利润大概可以到达什么水平？然后我快速翻译一下吧。Thank you management for taking my question and I would like to follow up on the cloud business. The three small questions here. The first one is on the gross margin. You mentioned last quarter that the gross margin of the cloud business turned positive. Just want to know a little bit more into the fourth quarter. What is the trend here? Move down to 2020, apart from the video vertical, where we definitely have the market leading positions, which are the other verticals you are actually looking to drive the growth for 2020? You just mentioned that maybe into the end of this year, we could look at the positive margin for the cloud business. Then, if you look into the next three to five years, what would you think is the normalized margin for the cloud business in the long term? Thank you. [Foreign language] 好，我先答吧，然后周总再补充。谢谢你的问题。首先第一个，你问到云的margin。去年的话，我们19年的话已经是开始转正。刚才我提过了，要是没有其他的，我们目前没看到的那一些各方面的竞争的话，这个margin是会继续延续这个trend去进步的。那么我可以这样看，在年底年初的时候，它这个margin的话可能就接近刚从负转正，就接近零的那个nothing的那个region。然后随着我们的一季度二季度progress到年底的时候，可能我们就会从差不多零，然后上升到接近double digit这么一个gross margin的一个trend。按照我们目前的那一个projection。那么其实你问到在长远里面来讲的话，这个margin会到什么水平？这个我目前的话还很难回答你这个问题。其实这个问题很多人都会问，到底这个云的业务，尤其是基础云业务，稳定下来的话，它将会是一个什么margin的水平？我可以这样讲，首先第一，我们看看这个云的业务，到底它是属于是SaaS level，还是我们底层IaaS level的，可能它有不同的margin的趋势。那么基础云服务，这IaaS level跟PaaS level，相对来讲的话会比SaaS为低一点。因为目前中国还没走到这个阶段，我们是慢慢走，接近这个稳定的阶段。所以目前的话，我们确实是不好讲到底它能够达到多少。但是我们要是参考美国的市场的话，那么在IaaS level上面的业务大家可以参照一下，我估计现在目前就是在20%上下的水平。因为它规模大，所以这个方面的话，它有一个高的增长性，再加上它大规模，20%现在目前我们看到美国比我们领先了三五年的margin的趋势。这个在中国的话会不会一样？这个不好讲，但是可以作为一个参考的数字。另外一个的话，你问到除了我们的视频云以外，有哪一些垂直领域方面，我们是比较专注的。其实在我们上个quarter里面来讲的话，周总也跟大家介绍，其实在2019年、2020年的话，其中金融类的是我们特别看好的一个vertical。除了金融云以外，在我们政企云，包括在我们医疗云方面的话，都是我们感觉到目前比较看好的一些行业。谢谢你。 Okay, I will translate for Francis. The gross margin for the cloud business in 2019 turned positive. We believe that unless there is other cutthroat competition in 2020, the margin will continue to improve in 2020. For the last two quarters of 2019, the gross margin of the cloud business just turned positive, so it is more or less close to the break-even point. We believe that if the trend continues, this may be able to close to a double-digit percentage by the end of 2020. For the long-term performance outlook for the cloud business, The margin outlook. We cannot answer this question as of now. We think that there may be different margin level for different cloud business. For the IaaS and PaaS business, their margin level may be lower than the SaaS services. It is hard for us to comment on this margin level as of now. You may take reference to the U.S. market, where I believe the current IaaS level margin is around 20%. Whether this situation will be exactly the same in China, we are not sure, but you may take reference to the U.S. market, which were in the cloud market three to five years earlier than China. Talking about the verticals, other than the video vertical, we are quite focused in 2019 and 2020. We mentioned that a financial cloud vertical is another one that we are very focused other than the video cloud vertical. Other than financial vertical, we think that government cloud and also healthcare cloud are also some other verticals with very good potential. Thank you. Thank you. That is the end of our Q&A session. I would like to hand the conference back to the presenters. Please continue. Okay. This will conclude our earnings call for 2019 full year and also the fourth quarter. Thank you for your attendance. Thank you. Thank you. Ladies and gentlemen, that concludes our conference for today, and thank you for participating. You may now all disconnect.