Earnings Call: Q3 2017

Nov 21, 2017

Earnings release

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2017 Kingsoft Corporation earnings conference call. At this time, all participants are in a listen-only mode. We will be taking questions at the later stage of the call, at which time you would need to press star one to ask a question. Now I would like to hand the conference over to your host, our speaker for the day, Ms. Francie Lu. Over to you, ma'am. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2017 third 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 SCOT 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. Mr. Francis Ng, our Executive Director and CFO. Now I'm turning the call to our Executive Director and CEO, Mr. Zou Tao. I'll do the translation for Mr. Zhou. The third quarter of 2017 has witnessed stable progress in all segments of our business. Our flagship PC game, JX Online 3, has achieved another robust growth of 27% year-over-year. Kingsoft Cloud has further advanced in every vertical business segment at a strong pace. In addition, WPS Office mobile version achieved a new record that its global MAU has exceeded 135 million. WPS Office PC version achieved a new record that its global MAU has exceeded 100 million in September. In the fourth quarter of 2017, we are fully committed to continue our healthy extending online games, cloud services, and office software and services businesses. During the third quarter, Kingsoft has achieved a steady growth, attaining a total revenue of RMB 1,303 million at an annual growth rate of 16%. The operating profit before the share-based compensation cost was RMB 225 million, appearing a year-over-year decrease, which was primarily due to the temporary margin pressure from the online game business. The upcoming rollout of the JX Online 3 revamped version in this December and a strong mobile games pipeline are in the stage to give a substantial boost in the game's future performance in the coming years. Now we're turning the call to our Executive Director and CFO, Mr. Francis Ng. Thank you, Francie. Hi, everyone. Before I start here, I would like to explain the comparative figures that we stated to reflect a reconsideration between the continuing business and the discontinued operation. The operating result of Cheetah Mobile has been presented as a discontinued operation. Starting from October 1, we will account our interest in Cheetah Mobile as an associate. It was not fully reflected, the impact, in this quarter. It would be in Q4. I mean the gain. Kingsoft flagship PC game, JX Online 3, registered a steady performance in third quarter, with revenue increase 27% year-over-year. The upcoming launch of its revamped version this December is one of the most eagerly anticipated event in the fourth quarter. In The Game Awards, which is honored as the Oscar award in the game industry, to be held in December 2017, JX Online 3 revamped version stood out from the world-famous game manufacturer and triple-A grade game, and was nominated for the Best Chinese Game Award. Kingsoft is fully confident that the superior game quality of the revamped version should facilitate the game's future revenue growth while substantially extending its life cycle. JX Online 1 Mobile performed steadily in the third quarter. In order to update its graphic and bring a new gaming experience to the gamer, its revamped version, New JX Online 1 mobile game, has already been launched on November 3. Kingsoft's licensed mobile game, Eudemons Online, has been launched on all platforms on October 18, 2017. As of November 6, 2017, its gross billing exceeded the CNY 100 million mark in just 19 days. Moreover, Kingsoft's self-developed game, Xiaomi Qiang Zhan, has started the public initial internal testing on October 30, which has drawn great attention and gained in high popularity among gamers soon afterwards. In addition to maintaining the leading position in live streaming and short video market, Kingsoft Cloud has expanded to provide video cloud services for long video, broadcast, and television. The over-the-top OTT market and was able to secure various licensed customer in the broadcast and television communication industry. Kingsoft Cloud also has several platforms, like Bilibili and Panda TV, while promoting the download services for smartphone companies and ensuring the smooth running of key events, live streaming. Kingsoft Cloud has strived to establish its game ecosystem and enhance its customer loyalty through offering bundle packages with multiple products. As for the healthcare cloud business, Kingsoft Cloud has continued to provide quality cloud services to leading medical institution and enterprises in the healthcare industry, including Peking University Care Rehabilitation Hospital, and The University of Hong Kong–Shenzhen Hospital, Peking University People's Hospital, and PKU Healthcare IT Company Limited. At the same time, it has also promoted to provide healthcare cloud services in several important provinces and build healthcare cloud infrastructure for small and medium-sized cities. In addition, Kingsoft Cloud has achieved strategic cooperation with HNA Tianhai Group, and will continue to expand its customer base across various government committees, offices, and departments. In September, the global MAU of WPS Office mobile version reached a new record of 135 million, while the global MAU of WPS Office PC version exceeded 100 million, enabling us to achieve the distinctive milestone that global MAU of both PC and mobile versions have exceeded the 100 million mark. With the stable development of personal cloud services, the revenue contribution from WPS Office Android users and the number of cloud users logged in through Android devices has improved steadily in the third quarter. WPS Office iOS ranked first in the App Store productivity category in September, and its global MAU exceeded 13 million. Two other important businesses, WPS Mail and Iciba, the online dictionary, also completed update of the latest 5.0 and 9.0 edition respectively. At the same time, we participated as a core member in the inauguration ceremony of Software Working Committee of Copyright Society of China in September. Following the implementation of China Belt and Road Initiative, we signed an MOU, memorandum of understanding, with the Thai government for future cooperation in Thai's education sector, which has huge development potential and marked a major step forward in the internationalization strategy of WPS. I now discuss the Q3 operation and financial result using CNY as a currency. Revenue increased 16% year-over-year and 1% quarter-over-quarter to CNY 1,303 million. The revenue split was as follows: 57% for our online games, 28% for cloud services, and 15% for online services and others. Revenue from our online game business decreased 6% year-over-year and 7% quarter-over-quarter to CNY 747 million. The slight year-over-year decrease reflected the normal natural declining life cycle of JX Online 1 Mobile game, which was launched in May 2016. That impact was partially offset by the revenue growth of JX Online 3. The quarter-over-quarter decrease was largely due to the decline in revenue from JX Online 3, as no large-scale expansion pack of it being launched during the first quarter, which is the summertime, and the natural declining life cycle of JX Online 1 Mobile games. Daily average PCU decreased 11% year-over-year and 7% quarter-over-quarter to 900,000. APA for group's online game for the third quarter 2017 decreased 9% year-over-year and 6% quarter-over-quarter to 4.1 million. The year-over-year and quarter-over-quarter decreases reflected the natural declining of life cycle of the group's existing games. Revenue from cloud services increased 18% year-over-year and 18% quarter-over-quarter to CNY 358 million. The strong year-over-year increase was mainly driven by the robust customer usage, reflecting the effort of Kingsoft Cloud in solidifying the leading position in providing cloud services in video, mobile game, and internet industry. The solid quarter-over-quarter increase was primarily attributable to the increased customer usage of our cloud services from video and mobile game sectors. Revenue from office software and services and others increased 15% year-over-year and 13% quarter-over-quarter to CNY 198 million. The robust year-over-year and quarter-over-quarter increases were due to the strong revenue growth from WPS online marketing services and value-added services of WPS Office Personal Edition, which was driven by the increased user engagement and user stickiness and higher demand from advertisers. Cost of revenue increased 33% year-over-year and 14% quarter-over-quarter to CNY 559 million. The year-over-year and quarter-over-quarter increases were primarily due to higher bandwidth and IDC costs associated with the increased user usage of cloud services and our continued investment in cloud business. Gross profit increased 6% year-over-year and decreased 6% quarter-over-quarter to CNY 744 million. The gross profit margin decreased by 6 percentage points year-over-year and 5 percentage points quarter-over-quarter to 57%. The declining trend of gross profit margin was mainly due to the increased revenue contribution from the cloud business, which has a relatively lower gross profit margin. Our research and development costs net increased 22% year-over-year and decreased 4% quarter-over-quarter to CNY 355 million. The year-over-year increase was mainly due to the increased staff-related costs with increased headcount and higher salary and benefits. Selling and distribution expenses increased 77% year-over-year and 14% quarter-over-quarter to CNY 154 million. The year-over-year and quarter-over-quarter increases were primarily due to the increased marketing and advertising activity for online games. Administrative expenses increased 20% year-over-year and 8% quarter-over-quarter to CNY 63 million. The year-over-year and quarter-over-quarter increases were mainly due to an increase in headcounts and staff-related costs. Share-based compensation costs increased 557% year-over-year and 22% quarter-over-quarter to CNY 74 million. The increases were primarily due to the new grant of awarded shares and options to selected employees, as well as an increase in the fair value of awarded share and option of certain subsidiaries. Operating profit before share-based compensation costs decreased 23% year-over-year and 30% quarter-over-quarter to CNY 225 million. The margin of operating profit before share-based compensation costs decreased by 9 percentage points year-over-year and 8 percentage points quarter-over-quarter to 17%. Net other gains were CNY 5 million compared to losses of CNY 148 million for the third quarter 2016 and the losses of CNY 42 million for the second quarter 2017. The losses in the third quarter 2017 were mainly due to the additional provision for impairment on the carrying value of investment in 21Vianet, and its further decrease of market value. The loss in the second quarter 2017 was mainly due to the additional provision for impairment on investment in Xinguang and 21Vianet. Income tax expense increased 14% year-over-year and decreased 6% year-over-year to CNY 45 million. Profit for the period from a discontinued operation reflect profit from Cheetah Mobile, which was CNY 113.3 million in the third quarter of 2017 as compared to CNY 6.7 million at the same period last year, and CNY 61.8 million last quarter. The increases were primarily due to the continuous effort in optimization of cost and expenses structure. As a result, our profit to owner of parent, including net from continuing operation and a discontinued operation, increased 68% year-over-year and decreased 5% quarter-over-quarter to CNY 239 million. Profit to the owner of parent, excluding the ESOP, both from the continuing operation and the discontinued operation increased 65% year-over-year, and remained more or less flat quarter-over-quarter to CNY 307 million. In our statement of financial position, we have a bank and cash deposit of CNY 7.5 billion as of September 30th, 2007. September 2007. Net cash generated from operating activity includes those from the continuing operation and the discontinued operation, was CNY 623 million, CNY 188 million and CNY 505 million for the three months ended September 30th, 2017, September 30th, 2016 and June 30th, 2017 respectively. Capital expenditure, including those from the continuing operation and the discontinued operation, was CNY 177 million, CNY 228 million and CNY 152 million for the three months ended September 30th, 2017, September 30th, 2016, and September 30th, 2016, respectively. We are pleased to see the result of the first quarter manifesting the impressive execution of our overall strategy. The temporary pressure on operating profit in the third and fourth quarters this year will translate into a brighter outlook, as the proactive investment made in the game segment will boost the overall performance in the future. We continue to strive to secure a high user base and a stronger market competitiveness through a focus on product innovation, inter-segment synergies and potential cooperation opportunities in order to achieve a higher growth. With our dedicated pursuit of excellency, we are fully confident that we will deliver substantial and sustainable business growth, bring solid returns to our shareholders and partners, and keep advancing towards our next milestone. Now, this concludes our brief introduction of the Q3 results. I now hand over the call back to question and answers. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please note, while asking your questions, please ask your question in both English and Chinese. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. The first question comes from the line of Wendy Huang from Macquarie. Please ask your question. Thanks for taking my question. I have three questions. The first, I think the Q3 JX3 year-over-year rev growth is actually slightly below my estimate. So can you give us a kind of outlook for the JX into the fourth quarter? Is there anything that can kind of drive its growth, particularly with the new content or new version that you mentioned earlier? Second, can you comment on the margin trend? I think this quarter the profit actually numbers seem below the consensus as well. So how should we look at the margin and also spending level going forward? Lastly, on your cloud business, I think it's still going through a very fast growing stage. Can you give us updates on your cloud strategy there? Also, what kind of breakeven timeline we are looking at now? 我简单翻译一下，三个问题。第一个就是想知道一下就是剑3，就是你们会有一个新的版本的推出的话，所以会对剑3接下来的收入有些什么样的正面影响？因为好像三季度的剑3的年对年的增长，是有一些低于我的预期的。然后第二就想问一下这个margin的这个趋势未来会是怎么样一个情况？第三就是想知道云业务这块因为还在高速发展阶段，鉴于现在市场上的竞争格局，你们这块有些什么新的策略出来，以及云业务的一个盈利的平均点大概会是在什么时候出现？谢谢。我来回答第一个，后面两个让Charles讲一下。我来回答你的第一个问题。这个重置版呢，准确讲，我们并不是说是通过这个重置版对当期的剑网3收入有多大提升。这个其实可能上一次也回答类似问题。这个重置版更多的是因为我们现在的剑网3，它的引擎还是03年开发的那个时候的引擎，虽然是09年上线。其实到现在来讲，应该来讲已经有点老化了。所以我上次也打过一个比方，我说我们这个重制版的引擎，最主要是引擎的升级，画面的升级，就犹如是1080P的解析度升到4K那样。它更多的，应该讲是随着用户本身的硬件的设备的提升，我们给我们的用户提供一个更好体验的一个版本。它的最核心的目的是为了让《剑网3》未来三五年还能保持一个比较好的增长，或者维系现有用户的一个手段。其实包括今年，基本上前三个季度，也包括我们现在对第四季度的来看，就算没有重制版的上线，它也能非常好地完成我们年初对这款产品的一个收入预期。我不知道有没有讲清楚。《剑网3》其实我们重制版的更多的目的是，为未来三五年还能保持一个比较好的收入做准备。其实是这么一个目的。对当下当然会有影响，应该说是可能很多老的《剑网3》用户，由于画面的升级，当然我们一些玩法上也会做一些调整，对他们老用户的回流还是会有很大的帮助。当然回流之后肯定会对收入也会产生一个很大的帮助。对，这是第一个问题。后面的Francis来回答。 Okay, I will do the translation for Mr. Zhou for the first question. The objective of having this revamped version is not only to boost its current revenue for JX Online 3, as we explained last time during the earnings call as well. The current engine for the JX Online 3 was developed in 2003, which is very outdated. So in order to provide better gaming experience and visual experience to our users, we would like to update on the engine, and this will well prepare us to improve our game for the coming 3 to 5 years. In the first three quarters, including the fourth quarter of 2017, even without the revamped version, we will be able to achieve our guidance to the market on the revenue performance for JX Online 3. So the objective for the revamped version is more to improve the game in the long term. For the current performance, with the update on the engine and with the new gaming experience we provide to our users, some of our old users who used to play JX Online 3 may come back to play the game again, which will also boost the short-term revenue as well. But the ultimate goal for having this revamped version is more a longer-term goal. 我可能用中文再对周总刚才所讲的解释再多一点点补充。JX Online 3今年的performance其实是完全达到或者是超越我们年初的预期，周总刚才讲过了。第二，在Q3我们的经营利润看起来比较低一点，其实也跟大家，就是很多投资人，包括我们之前也做了沟通，主要的原因是我们Q3在暑期档里面，并没有推出我们的一些大型的资料片，所以对于我们Q3的经营利润会有所影响。这个之前我们大家都是充分地去预期这方面。 I will do the translation for Francis. So in addition to what Mr. Zhou said, the short-term profit margin impact coming from the game business, especially from JX Online during the third quarter. Another reason is that during the summer vacation, we didn't have any major expansion packs launched during the summertime. So this is also another reason that the margin performance in the third quarter is relatively lower than the other quarters. 第二个, regarding the second and third question, let me answer it directly. The second question Wendy has is on the margin trend. First of all, I would like to point out that the Q4 margin, as I mentioned earlier, that is relatively low. In the Q4, we expected that it will remain more or less the same, due to the following reason. One is that, in order to enhance the long life cycle and also the launching of the revamped version JX3, we will put in more marketing expenses, which is probably tens of million more than the original expectation in Q4. That's why we will expect that the margin for the gaming will be positively impacted by that. Also there is some of the games that the launching time is later than our original planning. Say for example, JX World, the delay of that also have an impact on our gaming. However, if you look at the pipeline in 2018, we are very confident that we have a very robust pipeline and outlook for our gaming sector in 2018. The last question that you have is on the cloud strategy going forward. If you have a chance to look at our recent announcement, you will see that we just completed a round of financing for the cloud business. The pre-money valuation increased quite substantially in this round. With the additional capital and also the continual effort in the sector that we are focusing, we will expect that the cloud business development will be very consistent and healthy in 2018. Having said that, the management are now very mindful that we will not be forcing or have a target in an absolute growth percentage as we said earlier. If you remember that early in the year, we said that the cloud business will be expected to continue to be growing 100% in 2017 and 2018. But after this third quarter, we realized that in certain segments, the competition is really very keen. If we committed to maintaining 100% growth in 2017 and 2018, that will mean that we will be draining out our capital in a way that we do not want to continue. Therefore, we will be very focusing on enhancing the operation efficiency in the area that we are focusing and try to excel in the cloud development in a steady and sustainable manner. Thank you. Thank you. The next question comes from the line of Liping Zhao from CICC. Please ask your question. 周总好，Francis好。其实这个季度的业绩比我预想的是要好一些。然后我这边有两个问题，一个是，我们10月底的时候和腾讯一起联合发了一个发布会，然后在会上也宣布了我们一些在这个计划当中的游戏。首先第一个游戏就是《新剑侠情缘》已经是重新launch了嘛，所以我不知道这个对4Q手游这边的流水大概是什么样幅度的一个帮助。那另外呢，就是剩下的这几个游戏在明年大致是怎么样一个上线的节奏？这是第一个关于游戏的问题。然后第二个问题是关于WPS。就是之前我们也在跟市场上说，我们现在WPS有一个就是加云的这么一个动作。所以我不知道现在这部分的业务进展怎么样。那还有我们WPS也开始进行会员的一个变现，我想知道这个会员的付费情况现在大致是怎么样？然后我自己翻译一下吧。So I have two questions. The first one is related to the pipeline of mobile game. What will be the pipeline in next year? My second question is about WPS business. We know the company has launched a WPS Cloud product. What is the progress on that product and what will be the paying accounts situation now? Thank you. 我来回答第一项吧。你第一个问题，就是应该说《新剑侠情缘》上线之后，对整个的收入，怎么说呢？肯定是变高了。具体的因为它是10月29号发的，现在还20来天，具体的我们可能暂时不方便去讲详细的数字。然后剩下的游戏，我最近的工作就正好是跟腾讯的PC部门的同事，正在排整个明年这几款产品上线的一个时间表。具体的，我现在还没有办法去公布。但大体顺序我可以简单介绍一下。首先上线的应该是《云裳羽衣》。这款古风换装类的产品，其实最近应该是在开始第二轮的测试。排在第二的应该就是我们的《剑侠情缘2》，这个在12月5号我们也会小规模地开始对外测试。排在第三的其实就是《剑网3》。顺序是这样的，具体时间我们两边都还在排。这是第一个问题。第二个问题，WPS云版本的进展如何？因为我们刚开完了董事会，董事会上也专门邀请了WPS集团办公室的CEO来介绍。应该讲是按照我们预期，甚至比预期还好。每天上传的文档数都是天文数字。总体来讲，按照我们的进度在走，我是觉得非常好。会员这块基本上按季度都是在一个非常好的增长的过程。我不清楚我们会不会披露那个会员数，但是从目前我们内部的数据上看，甚至可以说好于预期。因为很多财务数据可能暂时还不到披露的时候，我们目前还不方便去跟大家讲。但是整体的趋势就是我刚才讲的这个方向。需要翻译一下。 OK. I will do the translation for Mr. Zhou. After we launch the New JX Online 1 Mobile game, the new version will definitely boost our revenue for the JX Online 1 Mobile game in the fourth quarter. Since the game was only launched on October 29th, it is still only about 20 days. We do not have the monthly at this moment to disclose. At this moment, I am working with the K17 team to plan for our mobile game pipeline for 2018. We are not yet to disclose the specific date for the launch time for the 2018 games. The order we are planning to launch them is that we are going to launch the Yun Shang Yu Yi first, and this game is already doing its second-round testing. The second one we are going to launch is the JX Online 2 Mobile game, and we are also going to do testing in small scale on December 5th. Then we are going to launch the JX Online 3 Mobile game. We do not have the specific date, but the order is in this order. For the second question regarding the WPS Cloud question, we just had the board meeting today, and we had the CEO for the WPS business come into our board meeting and do the presentation. The uploaded value for the cloud business is actually doing very well. The uploaded data is increasing at a very strong pace. The revenue coming from the membership fee is also increasing constantly. The internal data on the performance is actually better than our expectation. The trend is very good; the outlook is very good. At this moment, we are not yet to disclose the detailed financial information, but the overall trend is very good. Thank you. 好的，谢谢周总。 Hi operator, we are ready for the next question. Sure. Thank you. The next question comes from the line of Thomas Chong from Credit Suisse. Please ask your question. Hi, thanks management for taking my questions. I have two questions. The first question is about our self-developed mobile game, 小米枪战, that we have mentioned in the press release that it just started the public internal testing by the end of October. I just have several questions want to ask about this game. First is about the competitive landscape for this kind of survival games. Second, can management share about the revenue and monetization potential for 小米枪战? Third is about how we see Tencent in this game driver. That is my first part of the question. Then I have a follow-up. 我来翻译一下吧。第一个问题就是想问一下，小米枪战这款游戏在10月底已经开启做测试。想问一下我们怎么看这个竞争环境，然后也想看我们在流水方面可不可以分享一下用户数、conversion、付费率，还有我们是怎么看腾讯，我们的partner在这个领域未来会是怎么样。然后我有一个follow-up question。谢谢。小米枪战，应该说这种类型的游戏，现在在国内，应该说整个全球市场都比较火。我们跟小米一起定制开发的这款产品，10月30号我们正式开始的内测，应该是15号我们做的公测。你刚才讲的竞争环境，现在只能说是非常激烈。大家都已经看到新闻，除了小米，紧跟其后的包括网易的几款产品，包括腾讯也上了。所以我只能说这竞争环境肯定很激烈。数据目前我们肯定还不方便去公布。我自己的判断是，这个品类源于PC上的一个游戏，大家都知道。这个品类在手机上要真想取得实质性的成功，无论是我们也好，还是市场上的其他的厂商也好，我认为都是一个比较长的过程，不会说短时间之内就呈现出一种一边倒或者怎么样。最终还是要看，哪一家能够在手机上尽快地能够把这种玩法的用户体验感提升上来。所以我在内部把它定义为，其实是一个长跑的过程，它绝对不是说一两天就能够决出胜负的。竞争格局为什么说激烈呢？因为应该讲腾讯有很庞大的用户群体，小米也有很庞大的用户群体，包括网易，应该说目前基本上这三家直接竞争的这三家，都有各自的，拥有一个庞大的用户群体和产品为依托。所以我自己的判断，可能第一个是长跑，第二个未来可能会是三分天下的这种格局。至于腾讯的策略，说实话，我不方便去表达。当然不排除两家未来在这个领域也还会有合作的可能性。毕竟腾讯这边有这种投资关系，跟网易也有这种投资关系，所以跟腾讯这边可能是一个既竞争又合作的关系。对。 OK, I will do the translation for Mr. Zhou. Regarding the mobile game Xiaomi Qiang Zhan, this type of mobile game is very popular in China and also worldwide. We work with Xiaomi, and we started internal testing on October 30th for Xiaomi Qiang Zhan, and we started the public testing on November 15th. The competition landscape is very intense. As you know, Tencent and NetEase also launched the same types of mobile games. At this moment, we are not yet to disclose the detailed data for Xiaomi Qiang Zhan's performance. This type of game is actually originated from the PC game. In order to achieve a real success on mobile devices, I think this is a long-term project. At the end of the day, it depends on which game developer is going to improve the gaming experience on the mobile devices for the gamers for this type of mobile game. For me, I think it is not a short-term project, it is a long-term project. The reason I say the competition landscape is intense is because Tencent, Xiaomi, and also NetEase, we all have very massive large user base and also good products. I think the market for this type of game may be divided by three in the future. It is an oligopoly market. I am not going to comment on Tencent's performance in this area, but because of our relationship with Tencent, for this type of mobile game, we may compete and also cooperate with Tencent in this type of mobile game. Thank you. Thanks. [Foreign language] My two follow-up questions are about the gender mix for Xiaomi Qiang Zhan. My second question is about the 2 billion CNY, the non-cash disposal. Is it going to be recognized in the fourth quarter P&L? Thanks. 这种类型的游戏，主要还是以男性玩家为主。对。 Mr. Zhou says with this type of mobile game, the main group of users is still the male gamers. Your question on the recognition of the profit regarding the disposal or the voting rights vesting. Yes, the answer is positive. We will recognize that 2 billion gain in Q4. Thank you. Thank you. The next question comes from the line of Joyce Ju from Citibank. Please ask your question. 周总、Frances、Francine，你们好。我有两个问题，第一个问题还是有关于我们的剑网3的，因为我们都知道重制版现在是12月份才会上线，那这样的话可能这个expansion pack比过去几年也会晚一些。就想要了解一下，比如说四季度的剑网3的收入，包括重制版上了以后，公司对明年的剑网3的收入有没有一个怎么样的预期？还有就是相关于这个12月份要上的重制版，我们四季度，因为刚刚有提到，我们会增加市场的预算，那个预算具体会在哪些渠道做投入？能不能分享一下？然后我的第二个问题是有关于跟腾讯合作以外的明年的新的手游，不知道我们还有没有一些新的计划，周总能不能分享一下？My first question is regarding JX Online 3. We all know that the revamped version will be launched in December, so this is likely later than previous years' expansion pack. We would like to understand the impact of such a postponed, delayed expansion pack, and how would it impact the fourth quarter revenue and the 2018 JX Online 3 revenue? On the mobile game side, we would like to get some update for the non-Tencent related mobile games. Do we have any new games in the pipeline? Can Mr. Zhou share more colors on that? Thank you very much. 第一个呢，我刚才谈过，剑网重制版其实上不上对今年的收入都不会有什么太多的影响。当然如果上线之后，我们自己内部的分析，很客观地谈，是对于老用户的回流肯定有个非常强大的刺激作用，所以从这点上讲，对收入肯定是会有比较大的影响。这是第一点。第二个，我们之所以做这个重制版，其实就是希望通过，哪怕是打个比方，酒店的重新装修，服务的重新改善提升等等，目的其实就是为了使得这款游戏在未来的三五年还能有一个比较强劲的增长和拉动。好吧，这是第一个问题。第二个问题，其实你问到关于除了对外曝光的这些产品之外，还有没有跟腾讯其他的合作？答案肯定是肯定的。只不过在什么时间点，我们对外讲了哪些东西，这都是我们两家会根据产品的成熟度，我们会选择合适的时机再去曝光这些信息，好吧。周总，不好意思，我还有一个。Oh, sorry. Francie Lu，你先 translate 吧，不好意思。 Okay, I will do the translation for Mr. Zhou first. Like I said earlier, for the JX Online revamped version, the objective that we have this revamped version is not to only boost the short term revenue, but instead, we want to increase the revenue performance in the coming 3-5 years. But in the short term, the JX Online revamped version will definitely help the old gamers to come back to play the game again. So definitely going to improve the short term revenue performance as well. Also for the Tencent unrelated mobile games, other than the ones that we have already published or we have already talked about, we definitely have other games that we will work with Tencent, but we are not here to disclose their names or progress at this moment. Thank you. Joyce, please go ahead with your follow-up question. [Foreign language] I would like to translate the questions. Because we know the company will not try to pursue the triple digit year-over-year growth for this year and next, because the competition is quite intense and don't want to really sacrifice the profits in exchange for the growth. But do you have any update in terms of the margins related to cloud business? Or in terms of trend of the margins of the segment, which can share with us? Thank you very much. Let me answer your question, Joyce Ju, about the competition and the implication on the margin trend for cloud business. Yes, you are right that as we said earlier, that we will not pursue the absolute 100% growth in this year and next year. That means that we will be focusing on the business to enhance its operation efficiency. That will definitely have a positive impact on the gross margin trend. Because we will not be draining on the cost side in trying to compete for the deal that which are in a very competitive competition stage. While I cannot disclose the absolute gross margin and operating margin at this point of time, I can tell you that in our budget and forecast for 2018 forward, the margin trend will continue to improve, in particular with the recent decision to let go the 100% growth on the top-line. Thank you very much. Thank you. The next question comes from the line of Shawn Yang from Blue Lotus. Please ask your question. 管理层非常感谢接受我的提问，我还是想follow up一下明年跟腾讯合作那几个手游。因为以前管理层也跟我们提到，从潜在用户群体来说，剑网3的手游是最大的。我想问一下，云裳羽衣跟剑网2，现在管理层看潜在的玩家群体的这个大小，包括未来这个预期，然后还有这几个游戏跟腾讯的分成比例，现在不知道有没有什么可以分享。还有这几个游戏之间的目标用户，还有玩法有没有什么不同？包括它们对以前的老的剑网3、PC，还有剑侠1的手游会不会有什么分流作用？ OK, thank you, management. Thank you for taking my question. I would like to follow up more on the new mobile games going to be published by Tencent next year. I think that previously management has mentioned that Jade Dynasty Mobile 3 has the largest potential player base. I just want to know what's the management's expectation for 云裳羽衣 and Jade Dynasty Mobile 2. And secondly, what's the revenue share plan with Tencent for these three games? What is the difference between the gameplay and the target user groups among these three games? Also, whether these three games will pose any cannibalization effect to Jade Dynasty PC 3 and Jade Dynasty Mobile 1. Thank you very much. OK，我来回答你这个问题。第一个就是关于这几款游戏用户池的大小，我想要讲清楚这几个游戏的性质。云裳羽衣它是一款古风换装类，其实腾讯在15年就发布过类似的产品。我们之所以会双方一起去推动做这款项目，也是基于对尤其是女性这个市场的判断，应该是一个比较大的市场，而且相对来讲，这个市场的竞争的态势没那么激烈。所以应该说也是一个巨大的市场。参考了15年他们做那款游戏的一些收入，我们对这款产品的收入的预期应该说还是蛮高的。具体到剑侠2，其实说实话，这个问题我Q1的时候好像就有问过。其实我们做端游就做过剑侠1、剑侠2、剑侠3，包括剑侠世界。应该说我们有当年在PC上怎么去差异化不同武侠用户的经验。所以在我们推出手游的时候，依然有剑侠一二三三个版本。它们之间的客户有重叠性，但是也有它的独立性。所以总体来讲，我们认为整个剑侠系列的用户的都是我们的盘子。然后对于收入预期，既然你两家合作是肯定有，但是我现在确实是没有办法去讲这个数字给你。然后分成比例基本上我们跟腾讯合作的基本框架都差不多，上下浮动的也不多。然后你谈到可能会对原有的剑手游的分流，对剑3原端游到底会有什么影响，我只能简单地跟你说，我们要达到的目的肯定是一加一大于二的这种效果。用户肯定是有在这几个产品之间的流动，包括从剑1手游到剑2，剑2到剑3，也包括剑3端游到手游端去，这是肯定的。但是我们也是拿我们过往运营的端游的经验，我们要达到的目的其实就是一加一大于二，而不是说就这么多用户，最后在几款产品里分，其实不是这种目的。好吧。 OK, I will do the translation for Mr. Zhou. Regarding the user base of each of the mobile games that you mentioned, I will just talk about each of the game independently. For the Yun Shang Yu Yi, it is a costume change game that we work with Tencent. Tencent launched a similar type of game back in 2015. The target group of the gamers for this type of game is definitely female users. We think the potential here is very large, and the competition in this type of game is not as intense. For the JX Online 2 mobile game, like I explained earlier back in the first quarter or the second quarter earnings call, we have a similar situation back in the PC ages. Whereas in the PC world, we have JX Online 1, JX Online 2, JX Online 3, and JX World. We have our strategy to differentiate the user groups on the PC side in the past. Now we also have the same strategy to differentiate the user group on the mobile side. There are definitely going to be overlap users, but a lot of these users are also independent. For our cooperation with Tencent, we definitely have our own revenue expectation for each of the games that we work with Tencent. But at this point, we are not yet to disclose our expectation in terms of the revenue performance yet. For the revenue sharing arrangement with Tencent, we all follow a similar framework for each of the mobile games that we work with Tencent. You could probably take reference back to our first mobile game that we launched last year for the revenue sharing arrangement. And also for the cannibalization question that you said about the impact after we launched JX Online 2, JX Online 3, or Yun Shang Yu Yi, that its impact on the JX Online 3 PC game and also the JX Online 1 Mobile game. Our objective to have all these JX games is to achieve a one plus one that is greater than two. There is definitely going to be overlap among the users, but by the end of the day, we want to achieve the one plus one greater than two result instead of just dividing the users among each of these different mobile games. Thank you. Hi, operator. I think we are already at 8:00 o'clock, so that will conclude our conference call today. Thank you. Thank you. Would you like to give the closing comments? Oh, it's okay. Thank you. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You all disconnect the lines now. Thank you.