Earnings Call: Q1 2019

May 14, 2019

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2019 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in listen only mode. There will be a presentation followed by a question and answer session, at which time if you wish to ask a question, you would have to press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference call is being recorded today, the 14th of May 2019. I would now like to hand the conference over to our speaker today, Ms. Francie Lu. Please go ahead, ma'am. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2019 first quarter 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 joined 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 Tao. I'll translate translation for Mr. Zou. We saw steady development momentum across all of our businesses in the first quarter of 2019. We continue to extend the influence of our JX IP, and are expecting to launch JX Online 3 Mobile Game in the second quarter. Cloud services business expanded its cooperation and service coverage in the continuous and steady way. Meanwhile, we launched WPS Office 2019 for Linux Professional and WPS Office for Mac in March and April respectively, and we're constantly looking for new and creative ways to improve customer experience in these smart offices. In the first quarter, our total revenue increased by 37% year on year to CNY 1,727 million, which shows a positive start to 2019. Cloud service business recorded a year-on-year growth of 100%, and office software and services and other businesses grew 35% year on year in the first quarter. Now I'm turning the call to our CFO, Mr. Francis Ng. Hi, good evening, everyone. Our mobile game business achieved a steady performance during the quarter. Gross billing of JX Online 1 mobile game and Eudemons Online grew steadily quarter-over-quarter, showing their potential for long-term development. We are going to launch JX Online 3 mobile game in the second quarter, as we earlier discussed. The number of bookings has reached a historical high of 12 million, and we believe the release of JX Online 3 Mobile will drive the growth of online games business. Regarding our flagship PC JX Online 3, we have set up a professional league club in March this year, indicating its continuous improvement and growing popularity as an esports. As a long-term product, we are focusing on the continuous improvement of quality and user experience to achieve long-term stability of JX Online 3. Meanwhile, our IP derivative business is growing steadily. The theatrical play JX Online 3 Live Fantasy will be on a tour across country this spring and summer, constantly expanding the influence of our classic IP. Cloud service business maintained its leading position in the video cloud section. With further breakthrough in enterprise clouds market such as government, finance, healthcare, leading to the rapid growth of the business. In the video sector, leveraging its strong capabilities and deep understanding of the video industries, cloud services business set out a development strategy incorporating artificial intelligence and edge cloud computing technology to provide its customer with better experience. Regarding the financial cloud services business continued to provide diversified services across more business scenarios to large banks, namely China Construction Bank and China Merchants Bank. Going forward, cloud service business will continue to promote the all cloud services, explore integration and innovation with cloud computing, AI with different scenario, accelerate digital transformation of enterprise customers, and strive to meet its customer needs for optimizing cost and better video experiences. With the business upgrade for enterprise market and rapid growth from value-added services, WPS Office achieved a solid year-on-year growth during the first quarter 2019. WPS Office 2019 for Linux Professional was officially launched in March 2019, and it is expected to help our expansion in government departments and enterprises. In April 2019, the WPS Office for Mac was officially released in the Apple App Store, topping the most downloaded free app list on its debut day. During the period, WPS Office continued to push forward its cloud plus AI strategy. After teaming up with Alibaba's DingTalk, WPS provided a customized web office for Baidu Wangpan to further expand its cloud office ecosystem. Meanwhile, WPS Office continued to enhance its overall brand recognition and product appeal. In March 2019, WPS Office teamed up with the Palace Museum and China's Forbidden City Association to hold the first digital creative design competition for Chinese symbols. WPS Office will continue exploring the integration of technology innovation and traditional Chinese culture to build an efficient and creative office experience for users from home and abroad. I will now discuss the Q1 operational and financial results using CNY as currency. Revenue increased 37% year-over-year and decreased 2% quarter-over-quarter to CNY 1,727 million. The revenue split was 34% for our online games, 49% for our cloud services, and 17% for our office software and others. Revenue from our online game business decreased 5% year-over-year and 9% quarter-over-quarter to CNY 600 million. The slight year-over-year decrease was mainly due to the decreased revenue from existing games, partially offset by the revenue contributed from the expanded game portfolio by introducing several new mobile games. The quarter-over-quarter decrease mainly reflected our natural declining life cycles of the existing games. Revenue from cloud services increased 100% year-over-year and 16% quarter-over-quarter to CNY 839 million. The increases were primarily due to the strong customer usage of cloud services from mobile, media, and Internet sectors, as well as revenue growth from enterprise cloud through continuous technology, innovation, and AI applications. Revenue from office software and services and others increased 35% year-over-year and decreased 23% quarter-over-quarter to CNY 288 million. The year-over-year increase were mainly due to the fast growth from the value-added service of WPS Office Personal Edition and sales of its Enterprise Edition, demonstrate increases in user amount and engagement by providing ongoing product function upgrade and consistent enrichment of content. The quarter-over-quarter decrease was mainly attributable to a seasonal decline in sales of WPS Office Enterprise Edition, partially offset by the revenue growth from the value-added service of its Personal Edition. Cost of revenue increased 65% year-over-year and 6% quarter-over-quarter to CNY 1,069 million. The year-over-year increase was primarily due to a higher bandwidth Internet data center cost associating with fast-growing customer usage of cloud services, and increased investment in cloud infrastructure as well. Gross profit increased 7% year-over-year and decreased 13% quarter-over-quarter to CNY 658 million. Gross profit margin decreased by 11 percentage point year-over-year and 5 percentage point quarter-over-quarter to 38%. The decrease in the group's gross profit margin was mainly due to a greater revenue contribution from cloud services, which has relatively lower gross profit margin and higher growth potential. Our research and development costs net increased 27% year-over-year and decreased 6% quarter-over-quarter to CNY 483 million. The year-over-year increase were primarily the result of the increased expenditure on product function enhancement and new technology development. Selling and distribution expenses increased 24% year-over-year and decreased 27% quarter-over-quarter to CNY 158 million. The year-over-year increase mainly reflected greater marketing spending on WPS cloud services business to capture the opportunities in enterprise market. The quarter-over-quarter decrease reflected less spending on advertising and promotional activities in the first quarter of 2019. Administrative expenses increased 33% year-over-year and decreased 24% quarter-over-quarter to CNY 110 million. The year-over-year increase was primarily due to the increased staff-related costs and professional service fees. The quarter decrease mainly reflected the reduced professional services fees. Share-based compensation costs decreased 3% year-over-year and increased 9% quarter-over-quarter to CNY 56 million. Operating losses before share-based compensation costs were CNY 26 million, compared to a profit of CNY 84 million for the first quarter 2018, and a loss of CNY 105 million for the full quarter of 2018. Net other gains of CNY 25 million we recorded, compared to the net other gain of CNY 19 million for the first quarter 2018, and other losses of CNY 8 million for the fourth quarter of 2018. Share of loss of associate of CNY 78 million were recorded, compared to a share of profit of CNY 20 million for the first quarter 2018, and a share of profit of CNY 261 million for the fourth quarter 2018. The share of profit for the fourth quarter of 2018 was mainly the result of Cheetah Mobile Inc. and a subsidiary disposing share in certain investee companies. Income tax expense increased 11% year-over-year and 328% to $48 million. As a result, the loss attributable to the owners of parents was $68 million, compared to a profit of $108 million for the first quarter 2018, and a profit of $229 million for the fourth quarter 2018. Loss attributable to owners of parent, excluding eShop, was $33 million, compared to a profit of $115 million for the first quarter 2018, and a profit of $262 million for the fourth quarter 2018. In our statement of financial position, we have cash and bank deposit of CNY 9 billion as March 31st, 2019. Net cash used in operating activities was CNY 50 million, compared to a net cash generated from operating activity of CNY 98 million and CNY 401 million for the three month ended March 31st, 2018, and December 31st, 2018, respectively. Capital expenditure was CNY 279 million, CNY 245 million, and CNY 374 million for the three month ended March 31st, 2019, March 31st, 2018, and December 31st, 2018, respectively. The first quarter demonstrate another good performance across all business division. Today, we are confident in our strategy and the strength of our business model and our development going forward. Looking ahead, we intend to bring new best-in-mobile games to our user in the coming quarters and continue the strong growth and development of our cloud services and office software and services business. We expect the performance will further improve in the year upon the debut of our new JX Online suite mobile games. We will continue to drive long-term growth and are committed to deliver increased value to our shareholders. I return the floor back to question. Thank you. Hi, operator. We are ready for the Q&A session. Thank you. Sure, ma'am. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask an audio question, please press star one on your telephone keypad and wait for your name to be announced. Kindly note you can ask the questions in Mandarin and English. We have the first question coming from the line of Hillman Chan from Citi. Please go. Hi, management. Thank you for taking my questions. My first question is regarding the cloud business. As we see the revenue growth accelerated in first quarter. Could management share more on the details regarding the strong video space as well as the enterprise cloud? For example, certain order wins that we have during the quarter, that would be helpful. For the 2019 revenue guidance as well as profitability for this particular cloud segment, more color on that would be appreciated. My second question is on WPS. Noticed that the quarter-on-quarter revenue decline was about 23% and I was wondering whether that is mainly because of the low seasonality or other reasons that you can share as well. Also related to WPS, how should we think about the top-line growth and profitability this year? Thank you very much. Hey, thank you, Hillman. Let me answer your question in Mandarin and Francie translate for Mr. Zou. Is that okay? Sure. Now, Hillman, 在 Q1 的话你是讲 WPS，是吗？对的。应该是。OK。首先Cloud的话，今年确实开门红了。因为我们其实年初给的guidance，现在可能我们一季度已经是比我们原来的top-line growth还要快一点。所以我年初讲的话，可能我们expect保持一个60%的增长。现在我想可能会加一点，我expect可能70%或者差不多70%吧，加一点。因为Q1已经有个100%的增长。在它背后的话，当然视频云还是很强劲。但是一季度的话，其实在我们政企方面的增长是相当快的，在百分比的话有几百%的增长，当然它base会比较小一点。当中有一些例子，比如说国有四大银行，我们其实在建行，在招商银行，包括工行也在签。今天玉林刚刚开完会就赶过去签银行的。所以基本上我们几大银行都开得非常好这个局。金融尤其是含金量也特别高，所以董事局也是希望团队在这个方面放更大的精力，这点觉得非常好。所以整个的云的guidance的话可能还要调高一点，包括它的利润的改善方面，也是比我们原来预算的更加好一点。我觉得进步的幅度要比年初我们上次见面的时候还要好一点。因为他们自己本身一是规模效应，二其实他们也有挺多。今天也是金山云的CEO去跟董事局介绍，他们也有一些，包括在复用率里面，包括在选择一些更优势的省份上面的一些发力，把一些可能比较费劲的一些market可能放慢下来，这样的话进一步提升了我们一些盈利的空间。这个是他们做的动作。然后视频云刚才讲，政企云的话，比我们原先开局的话更加猛一点。所以今天我也不讲盈亏平衡了，但是今天在董事局都非常清楚，也非常欣赏到云的团队。其实他们对于收入增长今年未来两年都是比原来的更积极乐观一点。而且在利润改善方面的话，其实提升我觉得更令人兴奋。这个是云方面的。第二个的话，你问到WPS里面有一个decline，这个是很正常的，因为我们其实几个业务板块都有一些季节性的影响，尤其是WPS。因为比方说尤其是你看那些enterprise sales的话，它的单子很多时候进起的话都是会在年底把预算给用完了。所以往往四季度是一个旺季，一季度的话是一个淡季。但是你留意一下，我们是Q on Q decline，但是year on year它有个30%多的增长。这个就证明其实我们WPS的增长势头一点都没减慢。Francis，你那个。 OK, I will do the translation for Francis. The cloud revenue for the first quarter growth is very strong, it is better than our expectation. Earlier in the year we guided the market that the revenue growth for 2019 for cloud will be around 60%, and now we may increase our guidance a little bit to 70% or over. The reason behind the strong growth is due to both the strong growth from video cloud business and also the government enterprise businesses. The video cloud is still growing very strong, and the government enterprise the growth is even higher because the base for government enterprise was lower. We have strong cooperation with all the major banks in China, for example the China Construction Bank and also China Merchants Bank and also a few others coming. We are doing very strong in the cloud business in the first quarter. Not only the revenue growth, also the profitability improvement is also better than our expectation. It is due to both economies of scale, and also we are improving the efficiency of operation for our businesses in order to improve our profitability improvement. We are very confident in the performance of cloud in 2019, and it is better than our expectation for both revenue and profitability performance. The second question regarding WPS, the quarter-on-quarter decline revenue is quite normal. There are some seasonality impact for all of our businesses, and especially strong for WPS. As you know, a lot of the enterprises they spend their budget by the end of the year, so you could notice that the fourth quarter for WPS is always the strong quarter, comparing the first quarter of the year. We do have a quarter-on-quarter decline for the first quarter, but you also notice that we have over 30% year-on-year increase for the WPS business revenue, so it shows that the business are doing quite well. That is it for the translation. Thank you. Thank you Francis and Francie. Thank you very much for the color. Thank you. We have our next question coming from the line of Liping Zhao from CICC. Please go ahead. 谢谢周总，Francis、Francine，晚上好。我先问一下我的问题，用中文，然后我自己翻译一下。我这边主要有三个问题。首先第一个问题是关于游戏的，就想知道在上一个quarter，我们之前给游戏的上线时间是说要到6月初嘛，我不知道这个时间还有没有变化。我也知道最近一段时间在做公测，那不知道公测的情况怎么样，那根据这个公测，公司对全年的游戏收入增长的guidance有没有调整？然后第二个问题是关于我们这个OP margin的，我看这个季度是比上个季度OP margin是有提升的，那么就是我们云这边增长比较强嘛，那所以我们是不是可以预期云的亏损的幅度其实是有大幅收窄，然后我们预期这个趋势会在后面几个季度持续吗？然后第三个问题是关于WPS的，我想知道一下，现在我们这个政企那边和个人版这边收入的大概比例是怎么样的，然后他们的EQ的增速分别是怎么样？那我们有预期政企这边会有更多的场布的那种授权转成订阅的授权吗？然后我自己翻译一下。 I'll do the translation by myself. I have three questions for the management. The first one is related to our game business. As the management guided last quarter, the JX3 Mobile will be launched in the beginning of June. Is that the date still fixed? We noticed that the game are under beta testing. How is the beta testing? Are we still expecting a similar full year game growth guidance as you mentioned last quarter? My second question is related to the Kingsoft Cloud. We noticed that the OP margin has improved from last quarter. Is this mainly contributed by the margin expansion of your cloud business? Will this trend continue in the coming quarters? My third question is related to WPS. Do you have a breakdown for the WPS Office business and personal edition of this quarter? What's the growth of these two segments? Are you planning to transfer more the revenue model to subscription model in the future? Thank you. 第一个我来回答，后面两个。刚才问到第一个问题，我来回答一下。其实是关于剑网3：指尖江湖的。以目前的情况来看，我们并没有改变这个产品上线的时间，依然是在6月初左右，可能会误它几天，根据实际的情况。第二个就是我们最近这一轮PR2测试，因为是5月18号开始的，到目前为止将近20来天。我们看到的是数据应该是达到了我们的预期。我们目前当然也还有一些小调整，都基本在可控范围之内，我们也会利用这段时间再做一些小的调整。后面两个。 Okay, I will do the translation for Mr. Zou. For the game question, for JX Online 3 Mobile Game, we have not changed the target launching date, so it is still the beginning of June. Based on the PR2 testing starting from May 18, so far it is around 20 days. The testing result have met our expectation. During this period, we are doing some minor adjustments to the game. Thank you. 好，丽萍，我讲一讲你后面两个问题。第一个就是你问到云的margin。其实我刚才在回答Hillman的那个问题的话，大概也有touch on这个东西，就是touch on云的那一个。其实它今年19年的top line的增长，跟利润改善的那个，都比我们上一次跟大家汇报的那个有所进步。Top line方面的话，可能从原来的60%左右，现在可能要增长到70% plus。然后经营利润率方面的话，我们没有公布具体的数字，但我可以跟你讲一季度过去以后，我们对于全年的利润的进步的话，operating margin高了好几个percentage point，这个也是一个很令人振奋的成绩。第三个你问到WPS，就是一个增值服务跟授权服务的。那么2019年，其实我们看到增值服务的占到整个收入的百分比的话，已经是有大概有四分之三了，将近75%，差不多75%。然后授权收入的话是24%。其实还有一个就是我们subscription跟过往的enterprise sales卖断的那一个，其实我们已经是现在完成了大部分的转过去，现在都是以subscription为主了。 Okay, I will do the translation for Francis. For the cloud question, in 2019, both the cloud revenue growth and also its margin improvement is better than our expectation from early on the year. Early in the year, we guided the market that the revenue for cloud will grow around 60% this year, and now we are going to increase that target to 70% and over. We do not disclose the specific margin details on the cloud business, but we could share that there is actually a few percentage improvement in terms of the margin performance for cloud business for the whole year 2019. For the third question on WPS. The value added services right now accounts for roughly about 75% of the total WPS revenue. The license subscription is roughly about 24% of the total WPS revenue. We have almost completed the transfer from the license sales to the subscription model. Mainly the revenue for this sector is from the subscription revenue. Thank you. 好的，谢谢管义成。 Pardon me, shall we move to the next question? Sure, we are ready for the next question. Thank you. We have our next question coming from the line of Alex Liu from China Renaissance. Please. 嗨，谢谢管义成接受我的提问。我有一个很小的问题，就是我们之前也是讲过，可能对全年的游戏的业务，收入上是有一个指引的。我想问一下这个指引里面有没有分别对剑网2手游的影响是有多少？然后PC游戏的在这个指引里面隐含的增速是多少？然后能不能再谈一谈剑网2这款游戏我们现在是一个什么预期，以及它可能上市的这个时点是怎么样？谢谢。 Yeah, I will translate myself. Just wondering, given that the management already offered, I think a full year online game revenue guidance, a rough guidance in previous call. What is current implied revenue growth for PC game as well as for the JX2 mobile for the entire 2019 as specifically for JX2 mobile, what is the current launch time that the management are thinking right now? Thank you. 我来回答一下这个问题。剑网2我们现在目前的计划是这样的，基本上是如果剑网3手游在6月初顺利发布，我们原则上剑网2会放在它的一个季度之后，之间一定会隔三个月以上。这个整体是剑网3的整个运营情况来定。因为本身它的发行团队都是一个，都是腾讯的K7那个部门。所以要看看剑网3整个过程，发出去之后的一个季度的一些具体工作量的情况来定。也就是说至少会隔开一个季度。所以从这个来看，最快也会是在9月开学后，9月份这个。然后如果剑网3本身这边的运营工作比较繁重的话，有可能我们还会往后delay。这是一个大的可能性。第二个就是剑网2本身的收入，我们在今年因为我们内部做预算，也是把一些可控和不可控的收入分成两部分，这块本身我们其实到目前为止还没有给出一个很具体的指引，关于这个游戏的收入。因为基本上就跟剑网3一样的，要等到它的PR2付费测试整个走完，我们才会根据整个的留存、付费、ARPU等这些情况，再结合这个品类这种玩法的腾讯那边今年运营的导入量的情况，我们才能够给出一个相对比较清晰的数字指引。好吧。我插一句，在这里说刚才赵总讲的那个剑2的话，首先第一，它会晚指尖江湖三四个月时间推出来。二，PR2的那个数据现在没有，目前对它没有。所以其实在我的预算里面的话，剑2我并没有放太高的收入的预期在这个方面，今年。时间比较后。第二个关于PC游戏。PC游戏其实目前出于一个自然的衰减的原因，第二是我们本身的战略调整的原因，我们今年制定的基本目标，在PC上基本上能够持平，这就是我们今年的一个目标。好吧。在PC里面的话，我补充一句，剑3我们现在也会有一个新的动作，把它会在腾讯的WeGame里面会推出。这个效果的话，我们的预期是相当不错的。所以这一点也会对我们的新增有不小的增加，应该是不小于30万的新增能量在这个方面。但总体就是持平。对。 Okay, I will do the translation. So for JX3 online mobile game, the launch time, it depends on the launch time for JX3, JX Online 3 mobile. If we launch JX Online 3 mobile in early June this year, we plan to launch the JX Online 2 mobile game at least a quarter apart. So the earliest expectation date for JX Online 2 mobile launch time is in September. Because both JX Online 3 and JX Online 2 mobile games, they share the same distributor. That is the K7 department from Tencent. So the timing we launch for JX Online 2 mobile game, it depends on the launch time for JX Online 3, and also the workload for JX Online 3 mobile game distribution. For the gross billing budget, we have not given out detailed guidance to the market, because just like JX Online 3 Mobile Game, we need to wait until after the PR2 testing to have more data on the retention rate, the ARPU, the user base, to give a more precise guidance or expectation on the JX Online 2 mobile game after testing. Francis also added that first, the JX Online 2 mobile game will launch at least 3 months later than JX Online 3 Mobile Game, so the game will be launched more towards the later of the year. Also, we do not have the precise data from the PR2 testing for JX Online 2 mobile game yet. So in Francis' current budget, he mentioned that he did not put too much expectation on this game, the current budget. For the PC game, Mr. Zhou explained that because of the natural decline cycle for the PC game, and also our current adjustment to the game, we believe that this year, the overall PC game revenue will be flat from last year. Francis also added that JX Online 3 PC game, we are going to also launch the WeGame from Tencent. The expectation is also quite good for this distribution. But overall, we believe that the PC game will be flat for this year from 2018. Thank you. Thank you. Thank you. Hi, operator. We are ready for the next question. The next question comes from the line of Kenneth Fong. Kenneth Fong from Credit Suisse. Please go ahead. Hi. Thank you, management, for taking my question. I have a question on the profitability. As the cloud business gradually grow and improve in the scale and profitability, and we also have JX3 launching in June, right? A higher-margin mobile business. How should we think about the profitability timeline over the next two quarters? And also with this investment year in the cloud business behind us last year, and given our strong balance sheet, how should we think about share buyback or dividend for this year? Thank you. 等我回来回答你的问题。首先第一个，你问到整个profitability。首先第一个，我们并没有对我们每个季度去给一个guidance，因为我们是对于整个的一个那个top-line revenue跟profitability，我们都习惯给一个全年的。但是你可以看到，其实第一季度的profitability比起过往两个quarter，2018年的三季度跟2018年的四季度，以及2019年的一季度，它的trend都是一个很好的曲线上来。那么我也可以跟你讲，二季度我们应该是可以expect到差不多，它应该可以不再亏损。然后三四季度应该也是肯定definitely要比上半年更加好。所以对于全年2019年那个profitability，我们是会预期比2018年会好，是一个亏转盈的一个状态。下半年会比上半年的话会更好。那么一季度我们还是略有一个亏损，但是比前两个季度已经有个明显的上升。下季度的话，Q2我们一季度不给guidance，但是你可以预期它应该是可以差不多打平。然后下半年的话，三季、四季度会比上半年要好很多，因为刚才你也提出来，我们的一些deep margin的游戏也会推出来，在6月份second quarter的时候。好吗？ [Foreign language] And how about- Hi, go ahead. Yeah, how about the dividend as well as the buyback, please? OK，那我讲完这个吧，本来我想给Francis先去翻译。dividend跟buyback，我是觉得，如果之前你有听我们那个earning calls的话，我们把我们定位在一个high growth那个sector里面。所以dividend的话，其实几年前我跟大家介绍过，在董事局上面有个决定，就是说要是我们会保持一个低的dividend的policy。每年要是我们盈利的话，我们会略加一点点。但是在去年的话，我们就没有发dividend，因为算是亏损的状态。那么今年的话，我们预期是会盈利，所以今年会恢复，会有一个dividend的发放。至于buyback方面的话，就看情况吧。现在我们也没有一个特定的buyback。当然要是我们股价是严重低估的话，那我们会相信新的也会做一点buyback。 Okay, I will do the translation for Francis. For the first question on the profitability, we do not give out quarterly guidance on the revenue or profitability. Usually, we just give out the whole year annual guidance on revenue growth and also profitability performance. You can notice that the profitability for the first quarter is better than the previous two quarters. The improvement trend is actually pretty good from the fourth quarter of 2018 and also the first quarter this year. You could expect the trend should continue into the second quarter of this year. The second quarter this year, the OP margin could be breakeven or even positive. The third quarter and fourth quarter margin performance will be better than the first and second quarter. For 2019, the whole year, the profitability should be positive, and the second half of the year should be better than the first half of the year. On the second question on the dividend and also share buyback, we position ourselves in the high-growth sector, so our board decided that we keep a low dividend rate if we are profitable. Last year, we did not give out any dividend because we were at a loss last year. If this year we are going to become profitable, then we are going to continue to give out dividends. For share buyback, we do not have any specific plan at this moment. It depends on the share price of our stocks. If the chance is good, we may do share buyback. We do not have any plan at the moment. Thank you. Thank you very much. That is very clear. Congrats on the solid quarter again. Thank you. Thanks. Hi, operator. We are ready for last question. Thank you. Certainly, ma'am. Ladies and gentlemen, we have the next question coming from the line of Yang Linlin from GF Securities. Please go ahead. Okay. Can you hear me? Please go ahead, ma'am. 谢谢管理层。然后我有几个问题。一个问题是关于那个WPS付费用户数，付费用户数Q1大概有多少？然后考虑到我们的这个整体的MAU，未来怎么去看我们的这个付费率的情况。然后第二个问题是关于猎豹，因为我看到Q1猎豹对我们影响大概亏损7800万，然后未来怎么去看猎豹对我们的影响，是否会有进一步的考虑。第三个问题是关于毛利率，因为Q1毛利率下降也比较多，那 [Foreign language] I have several questions. The first one is about WPS, what's the number of the paid users in the first quarter? And considering about the overall MAU, how should we consider the paid rate in the future? The second question is about Cheetah Mobile. I think the loss from Cheetah Mobile is about CNY 78 million, how to expect its influence in the future? The third question is about the gross margin, because in the first quarter, the gross margin declined. Could you give us more details about the gross margin of game and cloud sector in fact? Thank you. 好，谢谢你。我回答了一下Jane的问题，谢谢你的问题，你问得特别好。我们会员数跟我们的MAU，首先第一，WPS的会员数现在已经达到差不多470万左右，比起我们两年前的50万，翻了好几番了。这个数据比去年的同期也是超过100%，差不多有120%的增长，比两年前就翻了很多倍了。但是你看我们MAU的话，PC加移动有3亿多，所以看到这个趋势，我们付费会员这个数字其实不只是上升，而且经过两年的话，它曲线的坡度更陡了，现在增长得更快。至于你说增长的多少，我现在不能给一个数字，但是你问得很好，我们MAU现在有3亿多，所以尽管我们增长得不快，现在我们付费用户要是简单除以我们的MAU的话，可能也不到2%，可能是1%到1.5%这样子。所以后面的潜力还是很强劲的。这是第一点。猎豹今年的亏损，因为我们已经把投票权委托给猎豹，我想我们不在这里讲太多，我建议大家直接去听他们结果，很快会出来。他们讲得会更清楚、更仔细。三，关于我们GP margin的下跌，其实是跟我们sales mix，一个销售的组合，云、WPS跟游戏贡献的比例有关系。大家应该知道，我们几个板块都增长得非常快，非常好。当中云的增长，因为行业的特殊性，它增长得特别快。今年年初，我们给了一个全年60%的增长，而一季度它交出来一个很亮丽成绩，表示同比增长100%。那么我们刚才也讲了，全年的话，我们也会略略提升，可能会提到70% plus的top-line的增长。而这一个我们也讲到，它其实利润改善方面的话，也比我们年初的计划要来得更好，增长更快。我们没有讲绝对数字，但是你可以知道，它现在还没达到盈亏平衡的云方面。那么你看到它增长最快，而且它还是一个投入期，所以它会导致我们sales mix会更多contribute from云的收入，所以我们毛利是一个自然的下降。但是几个业务，其实你看WPS，它的利润也很稳定，不管是GP跟operating margin都是一个very healthy，top-line也有接近40%的growth。然后game方面的话，也是我们预期今年会比去年大幅改善，因为有一些deep margin的mobile game会在second quarter推出来。 Okay, I'll do the translation for Francis. So for the WPS, the current number of members is around 47 million. The year-on-year growth is over 100%, it's roughly about 120%. So the growth rate is very strong for the members. The current MAU is over 300 million. So if we take a simple calculation, the members as a percentage for MAU is only less than 2%. So we believe that the growth potential here is still very, very strong. For the second question on Cheetah Mobile, we already gave our voting rights to Cheetah Mobile. So Francis suggests that you could listen to Cheetah Mobile's result announcements, which will be released soon. They will give more details on their performance guidance. For the last question on the gross margin performance, it's mainly due to a change in our sales mix. All three of our business revenue is growing quite strong, but the cloud business the revenue is growing the fastest. Early on this year, we guided the market that the revenue growth was 60% for the year, but the first quarter already delivered 100% year-on-year growth rate for its revenue. So now we increase our guidance for 70% and up for the overall this year. We also believe that the margin performance for the cloud business will also improve in this year. But still the cloud business is not at the breakeven stage yet, it's still at the investment stage. So as it contributes more into our sales mix, that will have an impact on our gross margin. But all of our business are performing quite well. The WPS, both its gross margin and also operating profit margin are very healthy. The WPS revenue growth is roughly about 40% for 2019. And also the game business this year is doing much better than last year, 2018, as we have a very deep margin mobile game to be launched in the second quarter of 2019. Thank you. Hi operator, we can now conclude our conference call for today. Thank you. Ladies and gentlemen. 谢谢。 Thank you. Thank you, sir. Ladies and gentlemen, that concludes our conference for today.