Earnings Call: Q4 2016

Mar 21, 2017

Thank you for standing by, and welcome to the fourth quarter 2016 Kingsoft Corporation earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, March 21, 2017. I would now like to hand the conference over to your first speaker today, Francie Lu. Thank you. Please go ahead. Thank you, Edison. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2016 fourth quarter and annual earnings call. I am 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 a 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 am turning the call to Mr. Zhou. Okay, I will do the translation for Mr. Zhou. Good evening. My name is Zou Tao. Kingsoft has achieved an outstanding performance in 2016. Kingsoft Seasun Studio launched the JX Online 1 mobile game, which was one of the most successful mobile games in 2016. Its exceptional performance showed the great IP value of JX Online series and signified our breakthrough in the mobile game business. Kingsoft Cloud customer base and revenue increased significantly, and its profit margin also improved continuously in 2016, and more importantly, it took the leading position in the rapidly growing video cloud market. The MAU of WPS Office Android exceeded 100 million for the first time in November 2016. The revenue contribution from WPS online marketing services has grown rapidly, especially from its mobile online marketing services. Cheetah Mobile's content strategy made significant progress, and its revenue and profit resumed sequential growth in the second half of 2016. In the future, we will remain fully committed to these business sectors and strive to maintain the strong growth momentum. Now we would like to turn the call to Mr. Francis Ng to discuss the fourth quarter and 2016 annual operational and financial results. Thank you, Francie. This is Francis. Hello, everybody. 2016 was another year of consistent and strong growth in terms of revenue. We achieved 46% annual revenue growth, and our total revenue reached a new record high of CNY 8.28 billion. Though we have made impairment provision on the carrying value of our investment in Qingmei and 21Vianet in 2016, this one-off factor was not supposed to prevail upon our outstanding business performance. We are glad to report an improved operating profit level while we kept focused and invested heavily in our core businesses. The operating profit for 2016 increased 79% year-over-year to CNY 972.9 million, and the operating margin increased by 2 percentage points year-over-year to 12%. Driven by the steady and sustained revenue growth generated by its utility application, total revenue, mobile revenue, and overseas revenue of Cheetah Mobile all hit record highs in the fourth quarter 2016. Cheetah Mobile implemented a number of strategic initiatives in 2016, particularly in its content strategy to counter the headwinds of our business phase early in the year. As Cheetah Mobile's profit center, its mobile utility application has continued to expand its profitability, which in turn supported its mobile content strategy. Portal wise, Cheetah Mobile remained the third largest publisher of non-game mobile application in Google Play worldwide in February 2017, according to App Annie. Two of its content-driven applications, Live.me and News Republic, demonstrated strong growth, particularly in the U.S. market. According to App Annie, Live.me has become the number 1 grossing social application in the U.S. on Google Play since August 2016, and remains one of the top 5 social applications in the Apple App Store. In addition, News Republic has been the number 1 news application in the U.S. on Google Play since December 2016. While its overall utility application segment entered its mature growth phase, Cheetah Mobile's investment in content-driven products established a solid foundation for another round of strong growth in the coming quarters. Looking ahead, Cheetah Mobile will remain focused on connecting its over 600 million global mobile MAU with more personalized and richer content, by capturing on emerging artificial intelligence technologies to establish a sustainable and profitable business model for the long term. In 2016, the group achieved brilliant results in both PC game and mobile game. Its flagship PC, JX Online 3, marched into its seventh year with strong and sustainable growth, as its revenue totaled RMB 1.39 billion, representing a year-over-year surge of 56%. JX Online 1 mobile game was launched in May 2016, delivering an outstanding performance, consistently ranking among the most popular mobile games on the Apple App Store. The game was also introduced to the Vietnam market during the year and achieved great results in terms of both popularity and revenue contribution in the country. In 2017, we have deeply developed the great IP value of JX Online series, introduced a third mobile game under JX Online series, and commenced the Pan-Entertainment expansion of JX Online series. We also cooperated with Qilin and NetDragon to launch Genghis Khan and Eudemons Online mobile game, as well as joined forces with iQiyi to initiate a film blockbuster and TV program IP adaptation business. We are integrating our rich resources, enhancing the development of both PC and mobile games, and aiming to create more game classics in the future. All business segments of Kingsoft Cloud report impressive development in 2016, and sustained strong revenue growth of approximately 171% year-over-year. This is among the highest in China in 2016. Revenue from the game cloud business grew steadily in the fourth quarter and succeeded in bringing in key customers with major influence in the market, including Perfect World, Giant, and Slyro Games. On the customer service front, Kingsoft Cloud hosted the Game Ecosystem Annual Conference 2016 and secured the market recognition and trust from customers, enabling it to consolidate the brand awareness and reputation of Kingsoft Cloud and pave the way for future business development. In addition, Kingsoft Cloud continued to lead in the video cloud sector and introducing a live streaming monitoring and assessment platform during the year, providing the market with a more comprehensive overall live streaming service. Kingsoft Cloud also actively expanding its government cloud and healthcare cloud business in the fourth quarter. Looking ahead, Kingsoft Cloud will step up promotion of hybrid cloud business and position itself as an operation and maintenance solution specialist in the game industry. Furthermore, it will continue to perfect its live video cloud streaming products, expanding the government cloud and healthcare cloud markets, and pursue cooperation to expand the sales network, thereby attaining greater achievement for Kingsoft Cloud's development. As a financial result, I'm starting from Q4 using CNY as a currency. Revenue increased 40% quarter-over-quarter and 43% year-over-year to CNY 2.5 billion, and the revenue split was approximately 32% for our online game, 49% for Cheetah Mobile, and 19% for cloud service, office software, and others. Revenue from our online game business increased 4% quarter-over-quarter and 98% year-over-year to CNY 820 million. The steady Q-over-Q increase was primarily attributable to the launch of outstanding performance of JX Online 1 mobile game in Vietnam. The robust year-over-year increase was mainly due to the great contribution from newly released JX Online 1 mobile game, and the strong and sustainable growth of JX Online 3 with enhanced user experience. Daily average PCU increased 4% quarter-over-quarter and 83% year-over-year to 1 million, and the quarter-over-quarter increase of ADPCU was due to successful launch of JX Online 1 mobile game in Vietnam, and the year-over-year increase of ADPCU was mainly due to the launch of the first and second JX Online mobile games. Monthly average paying account increased 1% quarter-over-quarter and 55% year-over-year to 4.5 million. The year-over-year increase was mainly due to the growing community of player of JX Online 3 and successful launch of the first and second JX Online mobile games. Revenue from Cheetah Mobile increased 13% quarter-over-quarter and 11% year-over-year to CNY 1.246 billion. The solid increases were driven by the steady and sustained revenue growth from Cheetah Mobile utility application and the contribution from the new content-driven application, namely the Live.me and News Republic. Mobile MAU from Cheetah Mobile increased 2% quarter-over-quarter and decreased 2% year-over-year to 623 million in December 2016. Approximately 81% of mobile MAU were from overseas markets, as compared to approximately 79% in December 2015. Our mobile user installation increased 10% quarter-over-quarter and 63% year-over-year to 3.8 billion as of December 31, 2016. The increases reflected Cheetah Mobile's mission-critical utility application and casual games continue to gain favor amongst users worldwide, with better user experience through big data technology. Revenue from our cloud service, office software, and other business increased 43% quarter-over-quarter and 94% year-over-year to CNY 473 million, and the quarter-over-quarter increase was primarily due to a number of reasons. Firstly, the strong growth of the WPS online advertising and sales of WPS Office in peak season. Secondly, the rapid growth of cloud storage and computing service by further penetrating into the certain vertical industry, including video, mobile games, and public government cloud. The year-over-year increases mainly reflected the great progress of Kingsoft Cloud made in expanding the market share in video and mobile game industry, and also the improvement of WPS in monetizing traffic from PC and mobile versions. Cost of revenue increased 8% year-over-year and 102% year-over-year to CNY 846 million. The quarter-over-quarter increase was largely due to the increased content investment for Cheetah Mobile's content-driven application, as well as higher bandwidth and internet data center costs associated with the increased user usage and traffic of Kingsoft Cloud. The year-over-year increase was mainly due to the greater serving costs associated with the launch of JX Online 1 mobile game, increased investment in content for Cheetah Mobile's content-driven products, and also the higher bandwidth and internet data center costs associated with the increased user usage and traffic of Kingsoft Cloud and Cheetah Mobile. Gross profit increased 18% quarter-over-quarter and 25% year-over-year to CNY 1,693 million. GP margin increased by two percentage points quarter-over-quarter and decreased by nine percentage points year-over-year to 67%. Apparently, this is due to the change in sales mix. Our R&D costs net increased 70% quarter-over-quarter and 43% year-over-year to CNY 524 million. The increases were primarily due to the higher staff-related costs and research and development investment. Selling and distribution expenses increased 9% quarter-over-quarter and decreased 13% year-over-year to CNY 513 million. The quarter-over-quarter increase was mainly due to the spending on promotion activity of the online game. The year-over-year decreases was primarily due to the lower expenses on promotional activities as a result of Cheetah Mobile's implementation of stricter cost control for its utility application, which was primarily offset by the increased product promotion activity for its content-driven application. Administrative expenses decreased 8% quarter-over-quarter and increased 43% year-over-year to CNY 135 million. The quarter-over-quarter decrease was primarily driven by lower professional service fee. The year-over-year increase was mainly due to an increase in staff-related costs. Share-based compensation costs decreased 27% quarter-over-quarter and 46% year-over-year to CNY 61 million. Operating profit before share-based compensation costs increased 56% quarter-over-quarter and 49% year-over-year to CNY 542 million. The margin of operating profit before share-based compensation costs increased five percentage points quarter-over-quarter and one percentage point year-over-year to 21%. Our income increased 51% quarter-over-quarter and decreased 41% year-over-year to CNY 49 million. The increase primarily reflected the government financial incentive we received in the fourth quarter 2016. Net other losses of CNY 141 million recorded as compared to loss of CNY 117 million for the third quarter 2016, and the losses of CNY 65 million for the fourth quarter of 2015. The losses in the fourth quarter 2016 were mainly due to the additional provision for impairment on the carrying value of the investment in Qingmei Limited and 21Vianet, as a further decrease of market value in the fourth quarter. The losses in the third quarter 2016 were mainly due to the provision for impairment on carrying value of investment in 21Vianet. Financial income increased 6% quarter-over-quarter and about flat year-over-year, at the level of CNY 46 million. Income tax expenses increased 40% quarter-over-quarter and decreased 56% year-over-year to CNY 49 million. Excluding the share-based compensation costs and the non-tax-deductible provision for the impairment losses investment, our effective tax rate would have been 8% in the fourth quarter 2016. As a result, our profit to owner of parent increased 84% quarter-over-quarter and 131% year-over-year to CNY 261 million. This is a very good result for our fourth quarter. Profit to owner of parent, excluding ESOP, increased 57% quarter-over-quarter and 104% year-over-year to CNY 292 million. I am now turning to the full year 2016. Revenue increased 46% year-over-year to CNY 8,282 million. Online game made up 31%, increased 88% year-over-year to CNY 2,546 million. Chicken made up 55%, increased 22% year-over-year to CNY 4,448 million. Cloud services, office software, and others made up another 16% and increased 99% year-over-year to CNY 1,288 million. Gross profit margin decreased nine percentage points year-over-year to 68%. As I mentioned earlier, this is mainly due to the change in sales mix. Other losses net for the year 2016 recorded a loss of CNY 1,190 million as compared to a loss of CNY 74 million for the year 2015. Losses of 2016 were mainly due to the provision of impairment on the carrying value of the investment in Qingmei and 21Vianet respectively, as there was a significant or prolonged decline in market value of investment in Qingmei and 21Vianet below costs. Due to the one-off impact of other losses recorded, profit to the owners of parent was -CNY 271 million and CNY 369 million for the year 2016 and 2015, respectively. On the balance sheet, we have a cash and bank deposit of CNY 9.8 billion as year-end 2016. This is a record high during the history of Kingsoft. Net cash generated from operating expenses decreased 3% year-over-year to CNY 1,393 million. Capital expenditure was CNY 1,023 million, and CNY 806 million for the year ended 31st December 2016, and 31st December 2015, respectively. As a first-class internet company, continuous innovation and optimization of our resources are the fundamental of our development and our business success. In the past, we have seen rapid development in our mobile transformation and cloud business investment, and we were able to seize market opportunity and embrace changes, which has enabled us to achieve great success. We believe the new era will bring new opportunities while application of artificial intelligence is set to become a major global development trend. Going forward, while we kept focusing on our mobile and cloud businesses, maintaining strong revenue growth momentum, we shall also started to explore new opportunity in AI, artificial intelligence field, and direct ourselves to open a new chapter of growth for the group and deliver additional value to all of our shareholders. This conclude my presentation on the 2016 business and financial report. Now I turn the floor back to the audience for question and answer. Thank you. Hi, operator. We are now ready for the Q&A session. Please ask your question in both Chinese and English if possible. Thank you. Also identify yourself, please. Okay. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask questions, please press star 1 on your telephone and wait for your name to be announced. Your first question comes from the line of Liping Zhao from CICC. Please ask your question. 周总好，Francine晚上好。首先恭喜我们这个Q4的业绩非常的好，然后超市场预期很多。那么我这边有两个问题，一个是关于这个公司，2016年我们WPS刚刚发的announcement里面是说业绩非常的好，然后之前公司也发过公告，说是要在A股去做IPO。那么我不知道现在能不能跟大家分享一下，在2016年WPS对整个金山集团revenue和利润的contribution大概是怎么样的。那第二个问题是关于我们游戏部分，因为2016年的时候，剑侠情缘这款手游做得非常的好，那么市场现在对2017年的预期也就是逐渐起来了。我不知道我们这个公司现在在2017年手游方面的pipeline是什么样的，还有这些游戏大概会在什么时间去launch，那包括和麒麟，还有网龙他们代理的游戏，大概是怎么样的一个利润分成的情况。I'll translate my question in English. The first one is about the contribution of WPS on Kingsoft's revenue and profit in 2016. The second question is related to our 2017 game pipeline and the ETAs for those games. Thank you, Liping. [Foreign language] Okay, now I speak in English, and I will let Mr. Zhou to talk about the game pipeline, and Francie will have the translation for Mr. Zhou. Now first of all, you asked about how we have a very good year result for 2016, and are curious about how WPS contributes to the success. Now, while we still haven't disclosed separately on the revenue of WPS, revenue and profitability. But I can tell you in ballpark that WPS has a very good year in 2016, as I informed the market earlier. In particular, the profitability for WPS has actually entered into a new stage after the investment stage we started in 2013, 2014, and 2015 on the mobile Internet, where we spent a huge amount of money in investment in those areas without any monetization. However, in 2016, early in the year, I have already reported to the market that due to the accumulated success and MAU in the WPS mobile MAU, we have already started to monetize. At the same time, we have a very steady big government support on the use of legal software. So the overall revenue growth in 2016, while we haven't separately disclosed that, was very healthy. We also switched from a more or less break-even point in 2014 and 2015, entering in a stage of a decent profit margin. So this is for WPS. I can also give you a little hint that due to the rapid increase in the cloud revenue, you will be very soon to see that we will separately disclose the cloud revenue and the WPS revenue very soon. Okay, I let Mr. Zhou to talk about the 2017 game pipeline. [Foreign language] 首先分几点讲吧。第一个呢，我觉得我们去年2016年发布剑侠情缘1之后，去年5月底发布的，我觉得持续到今年的Q1，从目前来看，应该是保持了一个非常平稳的这种发展势头。这是第一个。第二个，我们接下来的包括今年还陆续会上线剑侠世界2、剑侠情缘3的手游版本，目前是按照这个定的时间表在开发。第三块，我们今年重点代理发行一款其他厂商做的游戏内容，包括成吉思汗，也包括网龙的魔域。刚才问到了这几款游戏的发布的时间和分成比例。大体上，像成吉思汗和魔域都会在今年上半年左右发布。具体分成我只能说我们基本上参考市场的规则来制定。 OK。谢谢。 Okay, I will do the translation for Mr. Zhou. Last year by the end of May, I mean 2016, we launched our first JX Online mobile game, and it was able to maintain a very sustainable and stable performance. Secondly, this year we are going to launch the second version for JX World mobile game and also the third JX Online mobile game. Also this year, we are going to launch two licensed games, which is Genghis Khan and also Eudemons mobile game. For the Genghis Khan and Eudemons mobile, we are going to launch both of them in the first half of 2017. Also for the revenue sharing question, we are going to thank you. Hi, operator, we are ready for the next question. Your next question comes from the line of Thomas Chung from Bank of China. Please ask. Thanks, management, for taking my questions. I have two questions. The first one is about the 2017 outlook. Of course, different statements, in particular the growth rate, as well as the operating margin trend. My second question is about the mobile game JX Online 3, which is to be launched in Tencent platform. Just want to get a sense about the timing and expectation versus the first mobile game. Thank you. Thank you, Thomas. Let me, again. Okay, let me talk about Thomas asked about 2017 guidance. As usual, I will give a very brief guidance for 2017 for our various segments in ballpark. As for the profitability, I will only give a very rough guideline, and then I expected that you will do that more and develop your own estimate. First of all, if you are looking into 2017, we are still very optimistic about our business growth in almost all our business sectors. First of all, if we talk about the game, as you already mentioned that, and Mr. Zhou has already mentioned, we have quite a strong pipeline for our internal developed IP games, and also we have a publishing capability, publishing some of the very famous third-party mobile game. As well as for our flagship PC game, the JX3, we still see a very strong momentum, and we expected that it will still enjoy a very healthy growth in 2017. So all in all, for the game, I would expect that we will achieve at least a high 30 year-over-year growth in 2017 as compared to 2016. This is for our game. As for our cloud, in 2016, I already reported earlier that we achieve the highest growth in terms of the growth in our peers of close to 180% in 2016 as compared to 2015. As I also reported to the market earlier, and I expected that in the coming year, both including 2017 and 2018, our first priority in our cloud business is still trying our best to increase the market growth as a leading cloud service provider. In 2017, we expected that we will still maintain an over 100% growth in 2016 for our cloud business. While I also expected that our profitability for cloud will further continue to improve. As you can see that once our scale ramping up, the operating leverage will continue to increase and deliver. So with over 100% growth on the revenue and improved margin. But we will not be achieving breakeven in 2017 for our cloud business, but the margin will be improving. As for the WPS, probably you haven't asked me. No, Liping actually asked me about that. We actually about to file our IPO application in China for WPS IPO. And you could expect that to continue with our 2016. As you can see, the two major pillars for our healthy growth happened, turned sour, both including the government support on the legal software, which benefits our licensing sales, and also our monetization of our mobile users, which, as earlier you should notice that we already achieved over 100 million MAU only in our Android platform. So the WPS, we will still maintain a very healthy growth. That growth, we are yet to see an internet type of growth. I would say that it will be a hybrid, partly software and partly IaaS growth type. So in terms of revenue growth, I would expect that it will be around 30% plus on the revenue side. And on the profitability, it will still continue the trend in 2016 to report a decent operating margin on WPS. So this is for the guidance for our suite business. I do not want to give a guidance on Cheetah. I urge you to dial into the earning call and listen directly from their call, which will be 20 minutes. Thank you, Thomas Chung. Now I hand the phone to Mr. Zhou to talk about JX3. Okay, I will do the translation for Mr. Zhou. For the third JX Online game, we are going to launch it by September this year. For the revenue-related question, it is really hard to predict the gaming revenue before the game is launched. But in terms of the R&D resources and the timeframe, and also the user base for the third JX Online mobile game, it should be better than the first JX Online mobile game. Also, we believe that the mobile game market in general in 2017 is better than last year, 2016. So we are quite confident about the third JX Online game revenue and monetization. Thank you. Hi, operator. We are ready for the next question. Your next question comes from the line of Evan Zhao from Credit Suisse. Please ask. Hello, Francis. I'll translate myself. Follow-up questions on games. Regarding the forward-looking comment about probably a 30% plus year-over-year growth for the gaming segment, how do we see the breakdown between PC and mobile? Specifically, how is the JX3 on PC performing into this year? Also on JX2 mobile, in cooperation with Xiaomi, maybe some update and colors on that would be helpful. Thank you. Let me first answer the question. Evan has a follow-up question on the separate growth guidance on the PC and mobile games. I mentioned that it would be high 30 on the overall game. Actually, traditionally, if you know me, you know that I always give a quite conservative guidance, and in particular on game. As you know that, for the game, what I can see very solidly is a number of factor. One is that the JX Online suite, which achieved a very good result in the past few year. As I mentioned earlier, we still see a very strong momentum on its user and on its user data. So, the team are actually expecting that we will continue have a strong, steady growth in 2017 and even in 2018, because we have already embarked a revamping, a major revamping on its graphic. It already get a quite good initial result, and the expansion, and it will come in a more significant way as an expansion pack, in the second half 2017. We are actually expected that these JX Online suite game will achieve at least around a 20% growth in 2017. Remember that we already achieved a CNY 1.4 billion revenue on this game alone in 2016. So adding 20% on top of it is quite a significant cash cow for Kingsoft group. You could expect that, for this mature PC game, we actually divide a very decent margin. Very, very decent margin on it. That is very important. Why you see that at overall, a relatively no or draw, high 30% growth year-over-year is that, I do not want to put too large a number on our mobile game, which, in particular on some of our publishing business and also in some of our mobile game pipeline, that even though we have a strong expectation and confidence, but as we all know that it still face quite a strong volatility in those new games. The overall spending, I only guide a high 30% or you can take 40%. I am quite confident that you can take 40% year-over-year for the overall mobile game. I would say that was a relatively prudent guidance for our game. Mr. Zhou, we talk about the JX game. 我刚才在回答第一个问题的时候谈到过，我们今年六月份会推一个叫剑侠世界2的。其实这款游戏，去年是跟小米合作的，大概九月份发布的。这款游戏跟一的最主要的区别，是因为我们想在手游，就是移动游戏上去实现我们在PC上剑三的那种生态模式。它本质上是一款月卡游戏，基本上没有任何道具出售，也没有通过钱买能力的这种行为出现。这种游戏其实目前国内市场上基本上还没有其他厂商在做，只有我们在做。所以我去年在发布的时候我就谈过，这款游戏将会是一个很长线的持续运营的一个过程。所以我们在继去年九月份发布之后，根据用户在移动上的一些具体的表现，我们一直在做很多调整和探索。基本上会定在今年的六月份发布叫剑侠世界2的这么一款产品，继续来推动吧，或者说实现我们在移动端也做一款月卡的社区性很强的一个大型MMORPG。 I will do the translation for Mr. Zhou. Like I said in the previous question, we are going to launch the JX World second version, the mobile game in June 2017. Last year, we launched the first JX World mobile game in September 2016, and the main difference between these two games, is that for the second mobile game, we want to build it as a mobile game with a good ecosystem and to replicate the success we have on the JX Online game on PC version, where there is no virtual item billing, and we are going to build a game with a long life cycle. Based on the mobile gaming experience from the first one, we did further polish the game, and we are going to launch the second version in June 2017 to promote the time billing, long life cycle MMORPG mobile game this year. Thank you. Thank you. Operator, may we have the next question? Your next question comes from the line of Wendy Huang from Macquarie. Please ask. 谢谢管理层。我的两个问题都是关于长期的利润率的。第一就是云业务这一块，长期当你们达到了一定的规模的时候，你们觉得云的长期利润率能达到一个什么样的水平？可以和现在公司的整体利润水平相持平吗？另外第二就是关于WPS业务，之前有提到过去几年是主要在mobile WPS的一个投入阶段。整体的WPS业务，在这个mobile WPS的商业化达到一定程度的时候，能达到一个什么样水平？然后是不是可以在历史上，在没有进行mobile WPS投入的时候，当时PC WPS最高的利润是在一个什么样的水平？So I will translate my question in English. My two questions is about the long term margin outlook for the cloud and WPS. So once your cloud business reach certain scale, where do you see actually the long term margin for the cloud to stay? Also for your WPS business, you mentioned earlier that the past few years are the investment years for the mobile WPS. So where do you see the overall WPS margin to stay in the long term? Also could you remind us before the investment in the mobile WPS, what was the historical margin level achieved by the PC WPS? Thank you. Thank you, Wendy. [Foreign language] Let me answer the question on the cloud margin in the long term. Of course, it might be too early for me to comment on that, because we are still at the early stage, not only Kingsoft, but all the cloud businesses in China are still at the early stage. No one have ever achieved a mature or in the long term stable margin for the cloud business. But if you look at our peers in our U.S. counterpart Amazon, they have spending around 10 years in a cloud development, which is probably 5-8 years more in advance than in China. But I would expected that China giving standing on their experience, might not need 5-8 years to catch up for that gap. However, we still yet to at least have 3-5 years to closing the gap to catch up with them. If you look at that peers, if you look at the infrastructure layer, service storage, cloud service, they are reporting at around mid-20s margin, which at the most of the special level, you may see that they might not be very attractive as compared to our margin we enjoy in our other internet business, including the game, which might be more than 50%-60% operating margin. But if you remember that, as we said on two perspective, one, cloud business is not like game, is a very stable, fast growing and a massive base business. So a 26% is already not a bad number for that type of business. Second, we always think that even though we now starting our footprint on the infrastructure first, but once you get that infrastructure clientele or base, it's easier for you to add on some of the other SaaS or PaaS service like the big data analytic that might enjoy a higher profit margin than the basic storage margin. So that will add another layer of cream onto that stable, healthy margin. So this is my feedback answer to your question on cloud margin in the long term. [Foreign language] 我来给大家介绍一下WPS我们的一些考虑，当时这个问题。WPS在最早的其实主要是To B的政府采购，包括央企这些上市企业。我觉得这一块应该是过去很多年作为那个收入。但在最近几年我们本身To C广告变现这个模块上，我觉得取得了很大的进步。刚才Francis也谈了，像我们去年16年对15年，我们取得了80%多的增长，这是目前的一个状况。我们目前的考虑是这两块未来分别会有一些变化。我先讲完这个变化，再来谈我们自己对具体变现能力上的一些考虑。在To B这块，我们其实应该说是从最近一两年其实已经在开始从单一的这种单次授权的模式，在逐渐转向订阅的这种方式。这个其实去年就已经开始准备，我们在今年、明年，应该说17、18年会继续加大力度。其实相当于是To B本身的一种商业模式的转变。这是一块工作。那To C这一块，我们一方面会继续按照过去传统的广告变现模式去挖掘，之外我们更看重的是在于把WPS加在一起的2.1亿左右的用户，我们一直认为它是一个非常优质的客户。所以如果能够通过对这2亿用户做更精准的用户画像的话，我们坚信其可挖掘的商业价值会更高。所以在这块，我们今年继续把广告变现模式做透之外，我们会开始更深度地挖掘这部分客户的价值。当然也会利用到目前市面上已经相对一些成熟的一些大数据、深度学习的技术来帮助我们实现这一步。所以总体来讲，我们自己是对整个WPS未来的商业变现能力还是蛮有信心的。OK。 Okay, I'll do the translation for Mr. Zhou. For the WPS business, initially we focused on the To B business, where we cooperate with enterprises, especially potential SOEs. Recently, you can see a big improvement in our online marketing business, where like Francis said, the 2016 revenue growth was approximately 80% year-on-year from 2015. In the future, we are going to make some changes. The first one is that for the To B enterprise business, we are gradually transforming from a single contract format to annual renewal business format. Secondly, for the online marketing business, basically right now we have 210 million users. We will have more targeting advertising in the future, and that will bring us better revenue monetization potential. We are going to leverage on the big data and in-depth learnings for the future monetization model. We are quite confident for the WPS monetization in the future. Thank you. Thank you. Dear operator, due to the time limit, I think we should now end the conference call. Thank you. [Foreign language] Thank you. 谢谢大家。 Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect now.