Earnings Call: Q4 2018

Mar 26, 2019

Gentlemen, good day and welcome to fourth quarter 2018 Kingsoft Corporation earnings conference call. At this time, all participants will listen only mode. Following the presentation is a question and answer session. At which time, if you wish to ask a question, you need to press star, the number one on your telephone. I must advise that this conference is being recorded today, Tuesday, 26th of March 2019. I'd like to hand the conference over to your first speaker for today, Ms. Francie Lu. Thank you. Please go ahead. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2018 fourth quarter and annual 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 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. Zou. I'll do the translation for Mr. Zou. We delivered a steady fourth quarter in 2018 and our revenue continued to grow. I was encouraged by the outstanding performance of our cloud services and office software and services during the quarter and the year. One of the highlights was Kingsoft Cloud's progressing in video cloud sector with strong revenue growth. WPS Office products continue to attract more and more users, and the ecosystem surrounding the products was gradually established. We launched a new season for our flagship, JX3 Online PC game, and our existing mobile game, JX Online 1, maintained its performance during the quarter, even though China's game market experienced a number of uncertainties at the time. The development in these businesses was in line with their strategic planning. Our top line in the fourth quarter continued to grow, increasing 27% year-on-year and 14% quarter-on-quarter to CNY 1,759 million. The revenue growth reflected our strong and stable execution capability under the changing environment. We were particularly delighted to see the cloud services and office software and service and other businesses maintain their robust growth during the quarter, with revenue reaching a 20% and 46% quarter-on-quarter growth, respectively. Now I'm turning the call to our CFO, Francis. Hi. Thank you, Francine. Hi, everyone. Before I start, I would like to explain the operating result of Cheetah Mobile, which has been presented as a discontinued operation for the nine months ended September 30, 2017. From October 1, 2017, we started to account our interest in Cheetah Mobile as an associate. That means that we will no longer fully consolidate Cheetah Mobile's top-line and expenses. We will actually pick up our share of profit in the associate. With the changing market and regulation environment in China, the performance of our online games business was under pressure in 2018, just like other major gaming company last year. Nevertheless, our flagship PC game, JX3 Online, launched a new season in this quarter and was much welcomed by our gamers. The update of game not only provided our gamer with a new game experience, but also strengthened our confidence in the long-term development of the game. In 2018, we continued to host JX3 Online master competition to further develop the esports business. The peak concurrent viewer of the competition reached 11.23 million across all the streaming platform in 2018, which helped to bring the new value of our classic IP. Our existing mobile game, JX Online 1, performed well during the quarter and maintained its popularity among gamers. We released new mobile game includes JX World 2 and The Legend of Sword and Fairy 4 in 2018, which also recorded decent performances. We are going to focus on our cooperation with Tencent in the coming year on the release of our key mobile games, JX3 Online and JX Online 2. Going forward, in response to the changing market and rapidly evolving game industry, we will continue to focus on improving user experience and provide high-quality content. In the fourth quarter, Kingsoft Cloud maintained its leading position in video sector with breakthrough in enterprise cloud markets such as government, finance, healthcare, and media, leading to a rapid growth of the business. Under the changing network environment and player terminal, the revenue of video cloud business continue its fast growth with achievement in the application of AI-based products such as image enhancement and smart high definition for video cloud services. Regarding the financial cloud, Kingsoft Cloud become an important cooperative partner with China Construction Bank during the bank's strategic fintech transformation. In the face of an increasingly competitive market, Kingsoft Cloud is confident to continue to develop the verticals by leveraging its established cloud ecosystem, talented team, and strong research and development capabilities. Kingsoft Cloud will work with the upstream and downstream partners, continue to promote the all-cloud services, and strive to meet the customer needs for optimizing cost and better experience. For the fourth quarter 2018, WPS Office continue its healthy growth by adding a series of smart and efficient products and features to attract a larger user base. As of November 2018, the monthly active user of Android WPS Office has exceeded 100 million in Mainland China. The monthly active user of WPS Docs, our online collaborative office application, exceeded 69 million within four months after its release. At the same time, the user of its WeChat mini program version exceeded 80 million at the end of 2018. My WPS, the WeChat mini program serving WPS members ranked among the top 10 mini program on the Aladdin Index, and was the only utility application on the list. With its rapid growth in overseas market, WPS Office recently won the 2018 Top App for Overseas Growth presented by App Annie. After teaming up with Alibaba's DingTalk in December 2018, WPS provided a customized web office for DingTalk Smart Doc, aiming to create a smart office ecosystem through its open platform. To better meet the needs of government and enterprise clients, WPS 2019 rolled out new features in security and collaboration. At the Global AI Challenger 2018, our AI lab team won the first and the second place in the competition of machine translation, which is an AI technology in natural language processing that will be applied to our smart writing products. Such technology is expected to greatly enhance the user experience in creative writing and office work. As for the financial result, I'm starting the Q4 using CNY as the currency. Revenue increased 27% year-over-year and 14% quarter-over-quarter to CNY 1,759 million. The revenue split was 37% for our online games, 41% for our cloud services, and 22% for our office software and others. You notice that the cloud service contribution ranked number one since the last quarter 2018. Revenue from our online game business decreased 12% year-over-year and 3% quarter-over-quarter to CNY 659 million. The year-over-year decreases largely reflected natural declining life cycle of existing games, partially offset by the revenue contribution from introducing a series of new mobile games. Average daily PCU for group's online game decreased 23% year-over-year and 8% quarter-over-quarter to 0.7 million. APA, average paying account for the group's online game decreased 44% year-over-year and 11% quarter-over-quarter to 3 million. The decreases were largely due to the natural declining of life cycle of existing games. Yet we expected the JX3 Online and Mobile JX2 will be launching later this year. Revenue from the cloud services increased 81% year-over-year and 20% quarter-over-quarter to CNY 727 million. The strong increases were mainly due to the increased usage from mobile video, internet sectors, and revenue growth from enterprise cloud services, demonstrating that Kingsoft Cloud further strengthened the leading position in specific sectors and enlarged enterprise cloud business by providing comprehensive cloud services with advanced technology. Revenue from office software and services and others increased 64% year-over-year and 46% quarter-over-quarter to CNY 373 million. The year-over-year increase was mainly due to firstly, the vast revenue growth from the value-added service of WPS Office Personal Edition and the sales of Enterprise Edition, driven by providing more intelligent function and richer content. Secondly, the healthy revenue growth of WPS online marketing services driven by increased user traffic by continuous optimization of operational strategy. The quarter-over-quarter increase primarily reflected the favorable seasonality of sales of WPS Office Enterprise Edition, and the revenue of online marketing service of its Personal Edition. Cost of revenue increased 64% year-over-year and 90% quarter-over-quarter to CNY 1,004 million. The increases were primarily due to the increase in bandwidth and IDC costs, associating with fast-growing customer usage and increased investments in cloud business as well. Gross profit decreased 2% year-over-year and increased 9% quarter-over-quarter to CNY 755 million. The GP margin decreased by 13 percentage points year-over-year and 2 percentage points quarter-over-quarter to 43%. The decreases of gross profit margins are mainly due to an increased revenue contribution from Kingsoft Cloud services, which has relatively lower gross profit margin and higher growth potential. Our research and development cost net increases 28% year-over-year and kept flat with last quarter to CNY 550 million. The year-over-year increase was mainly due to the enhanced R&D investments, reflecting that we engage in developing new technology and further improving the function of our product and optimizing user experience. Selling and distribution expenses increased 23% year-over-year and decreased 6% quarter-over-quarter to CNY 250 million. The year-over-year increase primarily reflected the increased investment of WPS and Kingsoft Cloud business in exploring enterprise and government markets, and the quarter-over-quarter decrease were mainly due to the decreased promotion activity of online games. Administrative expenses increased 65% year-over-year and 27% quarter-over-quarter to CNY 146 million. The year-over-year increases were largely due to the increased staff-related costs and professional fee. The quarter-over-quarter increase were mainly attributable to an increased professional services fee. Share-based compensation costs increased 1% year-over-year and 1% quarter-over-quarter to CNY 51 million. Operating loss before share-based compensation costs was CNY 105 million, compared to a profit of CNY 189 million in corresponding period last year, and a loss of CNY 134 million in the first quarter 2018. Net other losses were CNY 8 million, compared to net other losses of CNY 20 million in the corresponding period last year, and the net losses of CNY 83 million in the third quarter 2018. The net losses in the third quarter 2018 was primarily due to the recognition of foreign exchange loss. We recorded share of profit of associate of CNY 261 million for the fourth quarter 2018, compared to the share of profit of CNY 16 million in the fourth quarter 2017, and a share of profits of CNY 28 million for the third quarter 2018. The profits of the fourth quarter 2018 was mainly due to the Cheetah Mobile disposal share in certain investing company in the fourth quarter. Income tax expenses for the fourth quarter 2018 was CNY 11 million, compared to income tax benefit of CNY 5 million and income tax expenses of CNY 29 million for the fourth quarter 2017 and the third quarter of 2018 respectively. The year-over-year changes were primarily attributable to the specific deferred tax asset recognized in the fourth quarter 2017. As a result of what we recently discussed about the profit attributable to owners of parents was CNY 229 million, compared to a profit of CNY 2,475 million in the corresponding period last year, and a loss of CNY 59 million in the third quarter 2018. Profit to owners of parents excluding ESOP was CNY 262 million, compared to profit of CNY 2,508 million in the corresponding period last year, and a loss of CNY 22 million in the third quarter 2018. Let's turn to the full year 2018. Revenue increased 40% year-over-year to CNY 5,906 million. Online game make up 43%, increased 18% year-over-year to CNY 2,552 million. Kingsoft Cloud services make up 38%, increases 66% year-over-year to CNY 2,218 million. Office software and services and others make up 19% and increased 56% year-over-year to CNY 1,137 million. Group's profit margin decreased 12 percentage points year-over-year to 46%. Profit to the owner of parents was CNY 389 million and CNY 3,202 million for the year ended 2018 and 2017, respectively. On our balance sheet, we have cash and bank deposits of CNY 9.9 billion at the end of 2018. Net cash generated from operating activity was CNY 770 million. CapEx expenditure was CNY 1,406 million and CNY 722 million for the year ended December 31, 2018, and December 31, 2017, respectively. In the face of the changing market condition, as mentioned earlier by Mr. Zou, we achieved a year of steady revenue growth with the group's hard work in 2018. Our profitability was affected, but our fundamentals remain intact. Looking ahead, we see a clear momentum of growth driven by the further development of all our business. We expect to bring our real-fashioned mobile games to our users within this year and continue strong growth and development of our cloud services and office software and services business. With all these initiatives, I am confident that our performance will be improved in 2019. This concludes my presentation. Now I hand over the floor to question and answer. Hi, operator, we're ready for the Q&A session. Thank you. Ladies and gentlemen, we now begin the question-and-answer session. If you have a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please ask your question in English first, and if possible, follow it up with Mandarin. Thank you. Our first question comes from the line of Liping Zhao of CICC. Please go ahead. Francis，然后我这边有三个问题，我先用中文问，然后我自己翻译一下。首先第一个问题是关于我们游戏这一块的，大家也非常关注。就是我们现在的这个游戏的pipeline里面，剑网3：指尖江湖，还有包括之前放出来的这个和B站合作的少女咖啡枪2，大致是怎么样的一个上线的时间？然后第二个问题是关于财务方面，我们19年来看的话，管理层给各个业务增长的展望是怎么样的。然后第三个问题是关于WPS这块，我看4Q的增长是非常非常强的，但是我算了一下，那个OP margin下半年是有所降低的，不知道这个原因是什么呀？I'll do the translation by myself. So I have three questions for the management. The first one is related to our game pipeline. Because the market is waiting for the most game, JX3 mobile. And also there is a cooperated game with 哔哩哔哩. So can management share what's the timeline for that two games? The second question is related to the outlook of all the segment growth in 2019. The third question is related to WPS margin. We've noticed that the WPS top line has a very strong growth in fourth quarter, but if we calculate the OP margin in the second half, there is a little bit decrease. So what's the main reason behind it? Thank you. 好，丽萍，我来回答第一个问题，后面两个Francis来说。剑网3：指尖江湖应该是在前几天腾讯的19新品发布会上，Chris已经是对外也做了一个承诺，就是最晚不会晚于Q2之前发布。从目前我们自己的测试的结果来看，我觉得应该会是在6月初上线的可能性是比较大的。然后少女咖啡枪目前其实我们已经跟B站进行过第一轮的测试，但是截止到目前的版号还存在着一些不确定性，所以我们会在差不多四五月份，我们先会去日本先上。当然版号这个事情我们也在积极努力，因为从去年年底开始，版号也重新放开了。当然就是说这个到底什么时候能最后拿到，我们现在还没有准确的一个消息，但我相信应该是能搞定。这是这两个游戏的大体的情况。好，谢谢丽萍，我来回答你第二个跟第三个问题。第二个问题你就问到那个非常好的这个问题，就是说问到我们2019年大家的那个期望。因为2018年，其实大家的预期，原因大家都知道，就是说整个的大环境包括我们游戏的delay，包括整个游戏行业的版号的控制。所以导致我们目前最赚钱的游戏的增长放慢，去年在游戏方面录得差不多负18%的负增长。WPS我们是非常好的，刚才我能够回答的你第三个问题，但是它的体量相对来讲还是比较小一点，所以游戏的下滑会对我们18年的影响比较大。云方面，我相信大家也都看到了，我们增长非常快，这个云的业务还是在投入期。所以游戏因为整个环境跟我们手游的延期推出，对我们18年造成了一个负面的影响，这个大家都非常清楚，也看得到，这个也是大家都已经fully communicate。那我讲到19年，可以用那个周总跟大家一起讲，我们其实已经最坏的时间过去了。那么2019年，我们可以说是相当乐观。一个方面，游戏方面，其实不是我讲的，大家有关注的话，前两天大家应该看到很多消息，在腾讯新的游戏发布会里面，包括郭伟伟跟娄曦也是在会上讲到，剑2跟剑3都会在2018年尾上线。所以游戏方面，我们现在也采取一个比较保守的预估。因为首先第一个，目前我们有一些pipeline游戏，剑2、剑3是有版号的，我们有一些还是没有版号，没有版号的话我们就没有放在我的预算里面。尽管如此，我们大家可以预期，在一个保守的估计里面，我们有一个接近30%的top-line growth。这样子对于我们的operating profit margin也会有一个很significant的提升，因为你知道游戏研发的费用都是在过往的时间发生开支了，然后到游戏真上线出来的话，大部分都是利润，尤其是我们自己研发的游戏。第二个，我们的WPS，大家知道我们的用户数，刚才我在讲，要么我先等Francis翻译一下游戏方面的部分。 Okay. So with the first question on the game pipeline for JX Online 3 and 少女咖啡枪2. For JX Online 3, as you all know, a few days ago on the Tencent New Game Release Conference, Crace already promised to launch the JX Online 3 mobile game the latest by the second quarter of 2019. Based on our recent testing results, we believe that the game could be launched in early June of 2019. For 少女咖啡枪2, we have not got the license for this game yet, so we are planning to launch the game in April or May in Japan first. Regarding for the license, we believe that we could get a license later in the year. For the second question on the financial guidance, Francis just explained that in 2018, our revenue for the game business had an 18% year-on-year decline. This has had a big impact on our profit because the game is still our most profitable business. Although WPS has been performing very well in 2018, the scale for WPS is still quite small comparing to the other businesses. The cloud also grows very fast in 2018, but it is still in its investment stage. In 2019, as Mr. Zou already said that we have passed our most difficult time, we believe that with the new launch of JX Online 3 and JX Online 2 in 2019, our revenue and also profit will improve in the coming year. We still take a more conservative budget for the game business, considering some of the other mobile games have not got their license yet. With this in mind, we are guiding a close to 30% growth rate for game in 2019. Games business still very profitable, as you all know that a lot of our R&D investment has already expensed in the past. Once the game starts to launch, it will have a big improvement on our profit. Thank you, Francis。我继续讲，丽婷。刚才讲到，首先第一个游戏的，我继续讲我们的WPS办公。因为大家看到了，其实办公是我们现在开始发力的时候，看到人数在移动、在PC，包括我们会员人数都是在一个非常高速的增长。所以我们可以预期，在2019年我们会维持一个高速的增长。我现在会把它的top-line增长可能放在大概40%左右。然后margin wise的话，也是会维持一个很healthy的20%以上的margin，跟2018年的差不多。至于云方面，我们目前还只会预期这个大的环境也是一个高速增长，所以我们预期19年的增长会跟18年差不多，也会是在60%以上的一个增长。然后它的operating margin会比2018年有一个significant improvement。所以整体来讲，我们这三个业务板块，我们在预算budget里面会project 2019年分别的growth跟margin的情况。 Okay, for WPS, it starts to grow very fast in both mobile and PC, as well as the membership. We believe that we can maintain a high growth rate around 40% for its top line in 2019. In terms of operating profit margin, it will maintain a healthy margin over 20%, similar to what we had in 2018. For the cloud business, with the strong growth momentum, we believe that the top line growth will be 60% and over, and the OP margin will have a significant improvement comparing to what we had in 2018. Overall, this is the guidance for the three businesses for 2019. 好，我来讲一下第三个问题，提到WPS margin在second half里面有一个下滑。这个其实是我们一个delivery action。WPS就正如我们所讲的，是我们的金山里面的金矿，大家都会听到。所以随着我们的一个好的势头，其实去年开始，我们在一些新的领域方面，包括比如说AI方面研发的投入，包括我们海外的一个史强的拓展，在这个方面我们都是加大来投入的。所以人员的具体数量我不讲，也有一个明显的上升。又比方说我们在武汉也成立了我们一个新的基地，在为我们的人才储备，在研发方面的一些机会去做准备。所以在这个方面，也会利用到我们的margin少许下滑。但是在WPS我再提醒一下，这个是我们有意识去争取的一个投入的方向。我相信大家都会支持董事局跟管理层，在这个WPS这么好的业务里面，我们不是追求短期的利润，而是我们放眼更靓丽的业务发展前景。 Okay, regarding the WPS OP margin performance in the second quarter, the decline was the delivery action. WPS, as you all know, is the treasure in Kingsoft. We decided to invest in new areas such as AI and also the overseas development. We increased our investment in the new areas, and the number of staff also increased in the second quarter of 2018. We also started a new development center in Wuhan as well. The margin decreased a little bit in 2018, in the second half. But we believe that you will all support our board of directors and management team decisions, because WPS, we are not only focusing on the short-term profit, but more importantly, we are focusing on its long-term development. Okay, thank you very much. Thank you. Thank you. Our next question comes from the line of Thomas Chong of Credit Suisse. Please ask. Hi, thanks management for taking my questions. I have two questions. My first question is about our strong cloud revenue in Q4. I just want to get a sense about how we should think about our 2019 outlook, given that we have a 60% year-on-year or even more higher growth for this year. Just want to understand about the dynamics behind, in particular the trend among different industry categories. For example, how we should think about the driver. Is it video cloud, game cloud? And what is our competitive edge over our peers? My second question is back to the online games. I understand that we are having a 30% year-on-year growth, but can management give us some color about the growth trend for the PC games in 2019? Thanks。谢谢管理层接受我的提问。想问一下，在我们金山云那边，我们的增速是非常的快，想多了解一下，在云那边，从不同行业的增速来看，哪些领域我们是看到增长是比较强劲的？然后就是我们跟我们的竞争对手相比，我们主要的优势在哪里？第二个问题，就是online games那边，我们大概是有30%的同比增长，想多了解一下，看客户端游戏跟手游那边，大概客户端的游戏的增速，可不可以分享一下？谢谢。你好！第一个问题，就金山云这块。你刚才问的就是说增速比较强劲的，看到底是在哪几块。我觉得是这样，第一个，我们刚才在业绩公告上也说了，我们本身在视频这个领域依然保持着一个领先的地位，增速一直也是不错的。其实剩下一块，当我们虽然没有摊开去说，我们自己现在暂时把它叫做政企业务，其实就是非互联网的企业。因为我们前几年主要是做互联网企业居多，现在互联网企业基本都已经云化了，其实是非互联网企业，我觉得增速是非常惊人的。当然大家知道，包括去年建行这边有两单，我们跟腾讯各拿到了一单。简单讲，就是我们既保持了过去在视频领域的优势地位，同时在突破新的业务领域的时候，我们自己认为取得了非常好的进展，从结果上看。所以综合在一起使得我们整个的云保持了一个强劲的增长势头。然后你谈到跟对手的优势，因为这几年其实我每年都在回答这个问题，我也知道大家对金山云板块的忧虑也好，或者怎么样也好，我还是要强调，云这个行业其实在中国真的是刚刚起步，它不是已经接近尾声。所以你可以看到，包括其他几家云的公司、云厂商，在云收入上的增长增速其实大家都很快。所以我依然觉得现阶段云这个市场还是跑马圈地的时候，它还没有到需要互相争抢的那么一个阶段，我认为还没到。所以我只能说，通过我们自己过去几年的实践，我们用数据或者用事实证明了我们做云的这种基础能力是具备的。市场又是处于这么一个初期阶段。所以说，你要说我们现在最大的优势，我反而认为是时机点。说白了，尽管我们从很多维度，我们现在还没有办法直接说跟我们竞争对手去比，这也是客观事实。但是由于我们占了天时，我们毕竟进入云这个领域比较早，我们有比较好的技术和人员的积累，经验的积累。所以我觉得这一点应该是我们今天云还能够保持一个高速成长的，我个人认为是最重要的因素。其次的优势，我认为由于各种历史原因，其实真的当云逐渐渗透到各个行业领域去的时候，你会发现不是所有的领域、所有的板块，我们的竞争对手他就能做得了的。甚至反过来讲，在某些领域、某些板块，也许他做不了，我们反而能做。这也印证了我前几年、这两年跟大家去谈金山云的时候，我的说法，我是To B的这种企业，这种生意模式，其实很难有一家去独大的，这是一个。第二个，也很难说你只是资金上或者财力上，规模上有优势，你就完全可以碾压的。其实To B注定它不是这样的一个生意。To C也许是。所以我想表达的第二个竞争优势，其实不叫优势，我更多的是想，我们的机会在哪？其实To B生意本身的这种特点，才使得我们有这个机会。虽然在规模上，在营收上，在很多维度上，我们跟我们的竞争对手其实差很多，但是使得我们依然有机会去参与角逐。并且其实过去五六年下来，我们保持在第三的行业地位和快速增长。所以这两个反而是我更想强调的。如果你真的要具体展开讲，我相信云，我自己的判断，云其实既是重资产的业务，也是重技术的业务。其实真的要是细说，我到现在也认为，至少通过去年我们去拿建设银行的这两单，证明我们其实在技术上的优势，或者在技术上是绝对不会逊色于任何其他家竞争对手。好吧。因为再谈细节就很多了，我只是想表达综上三点，说白了，我觉得时机点，云在中国是一个刚起步，市场巨大，所以这个时间点我们踩对了，我们进来了。第二个是To B业务的特点，它使得不是规模大、资金足或人员多，你就一定有优势。不一定的，我们事实证明也是如此。第三个，我们认为虽然我们的规模、营收规模也好，或者各种人员规模也好，我们可能跟竞争对手有一定的差距，但是我想表达，在云技术上，通过我们这五六年的积累和沉淀，尤其我刚才讲的这个建行，应该说是一个客户吧，从客户的角度来讲，我们是毫不落后的。所以其实这三点我认为综合在一起，其实就是我们有信心云长久打下去，继续保持一个高增长，甚至说无论在哪个项目上，我们绝对有勇气，也有能力去跟我们的竞争对手PK的核心原因。好吧。第二个呢。谢谢。我听没意思啊？第二个，要不先翻译第一个。比较多。 OK。三点，对。 For the strong growth for the cloud business in the past, one of the areas is video cloud. We maintain a leading position in the market. Our revenue maintained a very strong growth in 2018. The second area is the government enterprise, which we call the non-internet businesses. The growth is also very, very high in this category. One of the example is the contract that we get from the China Construction Bank. We are one of the two partners for this contract with CCB. For the reasons for the advantage for our cloud business, we have three advantages. The first one is the timing. We believe that the cloud in China is still at its earliest development stage. As you all know that some of our competitors, some of the other cloud companies are, their revenue is also growing very fast. We believe that we are not at the point for serious competition for the market share with each other yet. We are still growing very fast as we enter into the business at the early stage. We have developed a good technology, good resources, and good R&D capability through the past five to six years. The second advantage is actually the nature of the To B business. The business by nature is not a winner-take-all market. It is not only a game of scale for To B businesses. We could compete with our competitors based on our past experience, even though we are not as strong as some of our competitors in terms of our scale or the financial resources. The last advantage is actually our technology capability. The China Construction Bank is one milestone to prove that we were at least as good as our competitors in terms of technology. We believe that the timing of the market, which is still at the early stage, and also the To B business as a nature, and also our capability in terms of technology are the three main reasons for the fast and strong growth for our cloud businesses. 第二个是什么？这个游戏的，客户端游戏的一个增长是吧？对。第二个问题是这样的，其实我理解可能是想对游戏整个，因为我们主要是分手游和PC游戏，可能想了解一下这两块在未来的发展过程当中大体的走势。可以很明确地表达出来，客户端游戏其实我们《剑网3》几乎就是最后一个了，短期之内我们也不会再去开发新的客户端游戏。剩下的新立项研发的或者即将上线的，基本也都是mobile game。所以从这个意义上讲，就是显而易见的，未来整个手游的比重也一定是会越来越高的，然后PC游戏的比重会越来越低。然后单就PC游戏本身的增长，我们自己也发现，从数据上看，随着整个移动互联网的越来越普及，PC的新增用户的量其实还是在降得蛮快的。所以这也是去年《剑网3》的PC版其实导致下降的一个原因之一。当然这个不是全部原因。我也讲过，去年我们《剑网3》重制版放出之后，主要是引擎上的升级，并没有推出新内容。当然整体PC获客成本增高，或者说本身的PC新增降低，这也是一个客观原因。这个基本上代表了整个行业，也包括我们金山游戏的一个趋势。好吗？谢谢。 Okay, I'll translate for Mr. Zou. For PC and mobile games, basically JX3 Online is our last major PC game, and all the other new games will be on the mobile side. Going forward, the mobile revenue contribution will be larger than the PC game revenue contribution in the future. For the PC game, as you all know from the internet mobile transformation in China, the new PC gamers have declined in the past. That's also one of the reasons why our JX3 Online PC game revenue declined in 2018. This is one of the reasons I already explained in the past, that another reason for the JX3 Online PC revenue decline was because we launched a revamped version for the game, but the revamped version was mainly an engine update to the game. We didn't launch any new content until the very end of last year. The trend is more industry-wise trend, so this will also apply to Kingsoft. Thank you. Thank you. Thank you. We have our next question from the line of Hillman Chan of Citigroup. Please go ahead. 管理层让我提问。第一个问题想请教一下，刚才说到这个云的毛利率在19年会提高，想再请教一下这个背后的原因，从这个云的价格、成本方面想听多一些分享。然后第二个问题是关于手游方面，在Mobile JX3跟JX2，我们在过去几轮的内测有没有什么游戏的一些用户数据可以跟我们分享一下，也可以谈一下我们对这个游戏launch后的表现的一个展望。然后Mobile JX2的推出时间会在什么时候呢？然后第三个问题是关于WPS，就想再问细一点，我们在19年的个人版、企业版，大概各自的发展策略会是怎么样？然后我们在这个SaaS跟advertising这两块一些新的功能，一些推出会有什么情况？然后我翻译一下。Thank you management for taking my questions. My first question is about the pickup in the gross margin for the Kingsoft Cloud businesses. Could management share more color on the rationale behind in terms of perhaps the pricing, also the cost for that. My second question would be, if management can share more on the performance of the beta testing for JX3 Online and 2, and also what is the launch date for Mobile JX2. My last question is about WPS growth. I just want to have a sense on the growth strategy for the personal and the enterprise versions, and how we should think about the features like in the SaaS part and also the upcoming growth in the advertising. Thank you. 谢谢你，Hillman。我回答你第一个问题，关于cloud margin improvement背后原因。然后等会那个周总帮你回答游戏跟后面第三个问题。Cloud margin的毛利，我刚才跟大家讲了，19年的话，我们期望目前还是维持一个60%以上的增长。然后operating margin方面的话，会有个significant improvement。然后Hillman你问到背后的原因是什么。首先第一个很明显分两块，一个就是我们的规模的效应，因为基本上我们的团队人员相对来讲经过五六年的development，已经是相对稳健。所以，在我们top-line增长60%plus的情况底下，这个规模的效应很显然会有一个表现出来，因为我们人员方面的R&D，一些固定的成本，都不会随着revenue的proportion这样增长。里面有相当部分会有more or less fixed cost in nature的部分，这个就应该比较容易理解。第二个部分，我们也会看到，我们在很多指标方面，规模上去以后，其实也会有一些优势。比方说云，为什么我们经常说云是一个大方向，其中一个原因就是它在公有云跟私有云，或者是甚至不是私有的IT services里面，会有一定的优势，比方说是一些抽风，雇用的时间。当我们随着规模上去以后，这一个我们也会进一步地去提升。所以在这个efficiency方面，包括规模效应方面，两节加上去的话，都会带来一个margin improvement。 Okay，so for the cloud margin treatment，在2019年，我们相信我们的revenue会继续增长超过60%，所以我们的OP利润会有显著的改善。背后有两个主要原因，第一个是规模经济。以60%以上的收入增长为顶线，我们一定会利用规模经济，因为一些R&D和固定成本不会比例地随收入一起增加。第二个原因是随着规模的扩大，我们的效率在public和private cloud都会提高。所以基于规模经济和效率提升这两个因素，我们相信2019年的利润会提升。第二个问题我来回答一下。您刚才问到了我们几个手游，是不是有一些测试的数据可以分享？我只能这么来表达，准确的我肯定不能去说什么。我只能说《剑侠三》手游《指尖江湖》的PR1测试是已经结束了的，我们计划是在3月底、4月初进行PR2的测试。从PR1测试的数据来看，它跟2016年我们的剑侠情缘一的数据非常类似。我只能这么告诉你。然后大体上线时间表，我刚才在回答第一个人的提问的时候已经表达过，我们是争取在5月底或者6月初上线。这个时间在前几天的腾讯的新品发布会上也已经对外正式地去宣布了。也就是说，我们跟腾讯双方对这个时间点都达成了一个共识。然后《剑侠2》其实并没有进行PR1测试。应该说也进行过几轮小规模的测试。最核心的原因是我们要把这两个产品，《剑侠2》和《剑侠3》要错开，因为玩儿法各方面都不太一样，所以它的时间表，我们目前肯定会是在《剑网3》发布后的至少两到三个月之后，我们才会去发布。第三个问题是关于WPS，无论是企业版、个人版的策略，我也可以跟大家简单介绍一下。今年在企业版这个角度，不光是今年，前几年我们已经是把一次性的license的这种收费方式改成了订阅模式，这几年下来基本上是陆陆续续完成了。我觉得下一步，自从2018年开始，整个中美贸易战之后，其实国家提出了一个关于国产化的大的战略思路，所以我觉得这对于我们WPS来讲是一个非常好的机会点。所以我们在未来的企业发展，国产化将会是一个重点跟进的方向，因为在办公这个领域，我们基本上在国内是没有什么竞争对手的，所以我们认为这个对WPS是一个非常大的机会。个人版这块，其实跟你下一个问题有点关联。个人版这块，国内我们重点继续深化云，个人云。第二个就是叫做AI加持。其实我们在去年2019年，WPS 2019已经融入了一些AI的功能进去了，我们今年还会继续，甚至说更深入利用AI，给予我们整个的办公一个更高效率、更方便、更便捷的方向。另外一块，我们今年会正式地开拓WPS个人的海外的市场。因为WPS截止到去年年底，2018年年底，我们在海外基本上没有重点投入，但是我们海外的MAU都基本上能达到七到八千万，这是一个非常令人震惊的成绩。所以其实从去年下半年开始，我们已经正式组建了海外的研发运营团队，并且进行了相对比较深入的一些海外用户的调研。今年开始我们会正式地去经营起来，会把我们国内To C的一些经验和实践的一些好的方向，我们在海外也会开始去探索。 Okay. For the mobile game testing data, I cannot disclose the detailed results from the testing. But for JX3 mobile game, we have already completed the PR1 testing. We are going to start the PR2 testing in March or April. Based on the result from the PR1 testing for JX3 mobile, I could say that it is very similar to what we had for JX Online 1 in 2016. As I said earlier, that we are aiming to launch the JX3 mobile game by end of May or early June this year. This is a mutual agreement between Kingsoft and Tencent. For JX Online 2 mobile game, we have not done the PR1 testing yet. We have done several rounds of small-scale testing in the past. For the launching time, we are going to launch the JX Online 2 mobile game after JX Online 3 mobile game for at least two to three months later. For the WPS question, for the WPS Office Enterprise Edition, we have already gradually completed the transition from the one-time licensing business model to the subscription model. We think that now it's a good time and it's also a good opportunity for WPS Office Enterprise Edition product to grow in China, especially after the U.S.-China trade war. The government is promoting domestic product. In this area, basically, WPS does not have any competitor in China. For the personal edition, we still continue to develop the cloud strategy for the personal version and also the AI strategy. We launched WPS 2019 last year, and basically, we have already applied a lot of the AI function. We are going to continue with this strategy going forward to improve its efficiency for the WPS Office Personal Edition. In this year 2019, we are going to officially start our overseas development for WPS. Basically, in the past, we have not done any major investment in the overseas market. Our MAU from the overseas market already exceeded 70 million to 80 million. So, in this year, we are going to officially start the overseas strategy. We have already set up our R&D team in the second half of 2018. So we believe that we could develop in the overseas market, leveraging on our past experience from the domestic market. Thank you. Francis and Francine. Thank you. Ladies and gentlemen, that's the end of our question and answer session. I would like to hand the conference back to our presenters. Please go ahead. This will conclude our presentation today, and thank you everyone for your attendance. Thank you. Thank you. Thank you. Ladies and gentlemen, that does conclude the conference for today, and thank you for participating. You may now all disconnect. Thank you.