Earnings Call: Q2 2017

Aug 22, 2017

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2017 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 the question, you will need to press star one on the telephone. I must advise you that this conference is being recorded today, Tuesday, August 22, 2017. I would like to turn the conference over to our speaker, Ms. Francie Lu. Thank you. Please go ahead. Thank you, operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2017 second quarter and interim result 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 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. Zhou Tao, our Executive Director and CEO, and Mr. Francis Ng, our Executive Director and CFO. Now I am turning the call to Mr. Zhou Tao. Okay, I will do the translation for Mr. Zhou Tao. During the second quarter of 2017, we achieved remarkable progress in all business segments. Our flagship PC game, JX Online 3, enjoyed a substantial annual growth of 47%. Meanwhile, Kingsoft Cloud has maintained rapid and strong growth in every vertical and launched new services in the artificial intelligence field. In addition, WPS Office proposed A-share listing on the ChiNext Board of the Shenzhen Stock Exchange to strengthen its market influence. In the second half of 2017, we are striving to maintain the growth momentum in online games, cloud services, and office software and services businesses. Kingsoft recorded steady growth in the second quarter of 2017, generating a total revenue of RMB 1,284.4 million at an annual growth rate of 71%. The operating profit before share-based compensation costs increased 125% year-over-year to RMB 321.9 million, which indicates the stable business performance of the company. The continuous success of our online game business and the accelerating development of Kingsoft Cloud and WPS Office in the second quarter has set the stage for our business development and revenue growth. Now I will turn the call to our CFO, Francis Ng. Thank you, Francie. Hello, everyone. In the second quarter of 2017, we are pleased to see that the online game business delivering satisfactory financial results. Our flagship JX Online 3 continues strong momentum in the second quarter. The new custom item of JX Online 3 released and generated enthusiastic positive effect from gamers. Moreover, we have successfully organized JX Online 3 expert player competition and peak daily concurrent user watching the website, which 2.7 million, further enhancing the game's popularity. In the coming quarters, we will continue to explore the latest demand from gamers and expect to maintain the healthy revenue and lifespan growth following the upcoming launch of the JX Online 3 revamped version. JX World mobile games will undergo closed beta testing during the first quarter. Both image quality and the game design have achieved significant advance in this version, and we are highly confident in its market performance after commercial launch. With regard to Kingsoft Cloud, all business area has developed hand-in-hand and achieved a range of growth in the second quarter. Kingsoft Video Cloud maintain its leading position in live streaming and short video markets. At the same time, achieve breakthrough in broadcast and television communication industry. Major enterprises in this sector, including CNTV, Mango TV, and Huashu, have started to use Kingsoft Video Cloud service. The game cloud business has been growing steadily by providing diverse value-added services and enhance overall quality of game cloud services. As for healthcare cloud service, with the use of big data and AI technology, Kingsoft Cloud launched management platform for hierarchical medical system, aims to solve the imbalance of the medical industry and to tackle the challenges in hierarchical medical system implementation. AI application to various industry in all sector mentioned above was based on AI Cloud KAP, namely the Kingsoft Artificial Intelligence Propeller, launched in this quarter, including the IaaS, PaaS, and SaaS, and the industry solution, among which KDL was the first AI cloud platform used for business purposes in China cloud computing enterprises. Kingsoft has entered strategic cooperation agreement with industry leader such as Intel, to conduct cooperation at a higher level to develop extensive customization and special category cooperation in the artificial intelligence area. By the end of June 2017, the global MAU of WPS Office PC version recorded 92 million, while that of mobile version exceed 124 million. In the second quarter, Beijing Kingsoft Office Software Inc. has officially filed an application to the China Securities Regulatory Commission, CSRC, for an initial public offering and a listing on the ChiNext Board of Shenzhen Stock Exchange. This initiative is intended to unleash the true market value of WPS Office and strengthen its market imprints. In May 2017, Thai WPS Office was officially launched in Thailand, which is not only in line with the globalization directive under the One Belt One Road national strategy, but also mark an important milestone in the international expansion of WPS. In June 2017, WPS Office has also won the Gold Award at the China International Software Exposition. WPS Office has continued to advance innovation in its product. It has strengthened the integration of WPS Office Android with WPS Cloud, and the product login rate increased substantially from 8% to 21%. At the same time, WPS Office Android has also cooperated with iFlytek to expand the application scope of mobile intelligence in the software suite. In addition, WPS Office iOS has also greatly enhanced user loyalty by enriching its content. I will now discuss the Q2 and the first half of 2017 operation and financial results. I am going to start with the Q2 using CNY as a currency. Revenue increased 71% year-over-year and 6% quarter-over-quarter to CNY 1,284 million. The revenue split was 63% for online games, 24% for cloud services, and 13% for office software and service and others. Revenue from our online game business increased 69% year-over-year and decreased 1% quarter-over-quarter to CNY 805 million. The remarkable year-over-year increase reflected our impressive progress on the upgrading of our user experience of JX Online 3, and also the significant revenue contributed of JX Online 1 mobile game, which was launched in May 2016. The slight quarter-over-quarter decrease was mainly due to the normal decline in the revenue of JX Online 1 mobile game, which was partially offset by the revenue growth of JX Online 3. The daily average PCU increased 3% year-over-year and kept flat quarter-over-quarter to 0.9 million, 900,000. Monthly APA decreased 10% year-over-year and increased 3% quarter-over-quarter to 4.3 million. The year-over-year decrease reflected the natural declining life cycle of JX Online mobile game. Revenue from cloud services increased 97% year-over-year and 13% quarter-over-quarter to CNY 304 million. The strong year-over-year increase was primarily due to the remarkable achievement of Kingsoft Cloud on expanding the market, especially in the video, mobile game, and internet sector. The steady quarter-over-quarter increase primarily reflected the increased customer usage of our cloud service. Revenue from office software and services and others increased 46% year-over-year and 37% quarter-over-quarter to CNY 175 million. The robust year-over-year and quarter-over-quarter increases reflected the combination of strong revenue growth from the WPS online marketing services, which was driven by high demand from advertisers, and also the increased sales of WPS Office to government and enterprises. Cost of revenue increased 94% year-over-year and decreased 4% quarter-over-quarter to CNY 489 million. The year-over-year increase was primarily due to a higher bandwidth and IDC cost associated with an increased usage of cloud services, and a greater sharing cost along the JX Online 1 mobile game. The quarter-over-quarter decrease was mainly due to the reduction in sharing costs associated with mobile games. Gross profit increased 60% year-over-year and 13% quarter-over-quarter to CNY 796 million. The group's gross profit margin decreased by four percentage points year-over-year and increased by four percentage points quarter-over-quarter to 62%. Our research and development expenses increased 52% year-over-year and 15% quarter-over-quarter to CNY 368 million. The year-over-year and quarter-over-quarter increases were primarily due to the increase in R&D investments and higher staff-related costs. Selling and distribution expenses increased 81% year-over-year and 67% quarter-over-quarter to CNY 135 million. The year-over-year and quarter-over-quarter increases were primarily due to the increased marketing and advertising expenses for online games. Administrative expenses increased 28% year-over-year and 5% quarter-over-quarter to CNY 59 million. The increases were primarily due to an increase in headcount and also the staff-related costs. Stock-based compensation costs increased 326% year-over-year and 25% quarter-over-quarter to CNY 661 million. The increases primarily affected the new grants of awarded shares and options to selected employees, as well as an increase in the fair value of awarded shares and option of certain subsidiaries. Operating profits exclusive of impact of ESOP increased 125% year-over-year and 3% quarter-over-quarter to CNY 322 million, as a result of the combination of above reasons. The operating profit margin, excluding the impact of ESOP, increased by six percentage points year-over-year and decreased by one percentage point year-over-year to 25%. Net other losses were CNY 42 million, compared to losses of CNY 892 million in the corresponding period last year. The loss of CNY 92 million in the first quarter of 2007, and the losses in the second quarter of 2007 were mainly due to the additional provision for the impairment on the investment in 21Vianet and Xunlei. The losses in the second quarter of 2016 and the first quarter of 2017 were mainly due to the provision for the impairment on investment in Xunlei and 21Vianet respectively, as there was a significant or prolonged decline in the market value of the investment in Xunlei and 21Vianet below costs. Our income tax expenses increased 49% year-over-year and 5% quarter-over-quarter to CNY 48 million. Excluding the share-based compensation costs and the non-tax deductible impairment losses of investment, our effective tax rate would have been 12% in the second quarter of 2017. Profit or losses for the period from a discontinued operation, reflect the profit or losses from the Cheetah Mobile, which was CNY 62 million and -CNY 128 million and CNY 102 million for the three months ended June 30, 2017, June 30, 2016, and March 31, 2017 respectively. Excluding the one-off impact of the impairment losses or the disposal gain of certain investment assets, and the operating profit of Cheetah Mobile achieved encouraging year-over-year and quarter-over-quarter increases, primarily driven by the Cheetah Mobile's effort in optimizing its utility products cost and expense structure. As a result, our profit or loss to owner of parent, including those from continued operation and a discontinued operation, was CNY 250 million, minus CNY 808 million, and CNY 239 million for the three month ended June 30, 2017, June 30, 2016 and March 31, 2017 respectively. Profit or loss to owners of parent, excluding ESOP, including those from continued operation and the discontinued operation, was CNY 306 million, minus CNY 755 million, and CNY 286 million for the three months ended June 31, 2017, December 17, June 30, 2016, and March 31, 2017, respectively. The net profit loss margin, excluding ESOP, was 12%, minus 43%, and 12% for the three months ended June 30, 2017, June 30, 2016, and March 31, 2017, respectively. I now turn to the first half of 2017. Revenue increased 76% year-over-year to CNY 2,498 million. Online games make up 65% and increased 74% year-over-year to CNY 1,622 million. Cloud services make up 23% and increased 102% to CNY 573 million. Office software and services and others make up the remaining 12% and increased 51% year-over-year to CNY 303 million. GP margin decreased nine percentage points year-over-year to 60%. As a result, the reason discussed above, profit or loss attributable to owners of parent, including those from continued operation and the discontinued operation, was CNY 489 million and minus CNY 674 million for the six months ended June 30, 2017, and June 30, 2016, respectively. Profit attributable to owner of parent excluding e-shop, including those from continued operation and the discontinued operation, was $592 million, compared to a loss attributable to owners of parent excluding e-shop, of $556 million in the prior year period. The net profit and loss margin excluding e-shop costs was 12% and minus 16% for the six months ended June 30th, 2017, and June 30th, 2016, respectively. Our statement of financial position, we have cash and non-cash deposit of CNY 7 billion at June 30th, 2017. Net cash from operating activity, including those from continued operation and a discontinued operation, increased 152% year-over-year to $1,118 million. Cash used for capital expenditures, including those from continued operation and a discontinued operation, was $254 million and $670 million for the six months ended June 30th, 2017, June 30th, 2016, respectively. In the future, we will continue to focus on product innovation, accelerate our market expansion, and actively seek business collaboration with potential partners in order to enlarge our user base and enhance our market competency. In order to enhance our game business market competency, in the long run, we will focus our mobile game expansion in the new market and the distribution of JX Online 3 revamped version in the second half this year, which may have temporarily affected our profitability performance in the third quarter. Meanwhile, our company will further integrate resource advantage within each business segment to bolster synergy across all operations. Capitalizing on the industry uptrend, we shall strive for a sustainable growth and are confident of taking our business to new heights in the coming quarters and bridging solid returns to shareholders and our partners. On behalf of Kingsoft, I would like to extend our appreciation to Kingsoft customer, shareholders, employee, and partners, and you for supporting us. Now, I turn the floor back to question and answers. Hi, Francie Lu. Hi, operator. We are now ready for the Q&A session. Thank you. 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. If you wish to cancel your request, please press the pound or hash key. Our first question comes line of Zhao Liping from CICC. Please ask your question. Good evening, Mr. Zhou, Francis, and Francine. Thanks for taking my question, and congratulations on the good results. I have two questions. The first one is, could you please share with us your most updated game pipeline for second half 2017 and next year on both PC and mobile? The second question, as you are launching several self-operated PC and mobile games, do you expect a higher marketing cost in the second half? What will the margin trend be? 我自己翻译一下吧。我有两个问题，第一个是关于我们游戏这边，我想知道咱们下半年和明年游戏方面的计划是怎么样的？从端游和手游方面可以跟大家分享一下吗？然后第二个问题是关于我们margin的利润率的趋势，因为我们下半年的话，可能会有一些自营的端游和手游上线，那么不知道管理层是觉得下半年的营销费用会不会有一些增长。好，我是邹涛。我来回答一下你问的第一个问题。今年下半年，分端游和手游两块。我们端游这边目前预计在十月下旬，我们的剑网3的重制版会正式上线。这个也是整个端游今年最重要的一个版本。手游方面，我们自研的，跟腾讯也好，跟小米也好，跟小米这边我们是有计划，当然最终日期还没定，是会推出剑侠世界2，以及跟腾讯这边，我们会陆续开展剑侠情缘2的计划。然后我们本身西山居自己的发行团队，在今年下半年也会正式推出魔域的手机版本。然后在海外，我们剑侠情缘1的手游版会在Q3，目前其实已经在测试，会正式在韩国开始发行。这是目前暂时的一个计划。 Okay, I'll do the translation for Mr. Zhou. In the second half of 2017, for PC games, by the second half of October, we are going to launch the JX Online 3 revamped version, which is the most important version for PC game in 2017. For mobile games, we have self-developed games, and we cooperate with both Tencent and Xiaomi. For Tencent, we are going to have the game JX Online 2 mobile. With Xiaomi, the launch date is not confirmed yet. We are going to launch the JX World 2 mobile game with Xiaomi. For the Seasun licensed game, we have the mobile game 魔域, which will also be launched in the second half of 2017. For the JX Online 1 mobile game, we are going to have the oversea distribution. It's now under testing, and we are going to launch it in Korea in the third quarter. Okay. Let me answer your question on the advertising cost trend, and also the profit margin going forward in Q3 and the rest of the year. First of all, I would like to point out, as I said it in the Chairman statement, and the MD&A, that in order to revamp the JX Online 3, we actually are spending quite some investment in revamp the JX Online 3, and also doing some of the marketing in anticipating the launching of the JX Online 3. So you expected that the marketing expenses, in particularly in the game area, game segment, will increase as compared to prior period. But we truly believe that is worthwhile for such a successful game to extend its life cycle. I would also like to point out that in Q3, probably you will see that there will be a noticeable restriction in the margin, in particular in the operating margin, because as I said that we will spend more on the marketing expenses. Also due to the fact that in Q3, which is a traditional low season in terms of game and some of the other segments, because you will see that our major expansion pack for JX Online 3 will be launched in Q4. So we were expected that Q3, in terms of game revenue, will be a low season. But in order to promote the JX Online 3 revamped version, we will be spending more marketing expenses in Q3 and Q4. Okay, thank you. Thank you. Our next question comes line off Wendy Huang from Macquarie. Please ask the question. Thank you. First, when I look at your first half CapEx, it was around CNY 254 million. That is actually less than 30% of the CapEx level in 2016. I just wonder if this actually indicates the upfront spending on the cloud side is pretty much down, and how should we look at the CapEx for full year 2017? Also, what kind of the loss margin Kingsoft Cloud is actually operating at at the moment? Secondly, can you remind me what is the reason for the dramatic change in the operating cash flow and investing cash flow in first half 2017 versus first half 2016 last year? Thank you. Let me answer the question. For the cloud margin, if we compare to the previous period, it is all well expected that the loss as a percentage of revenue is actually reducing due to the operating leverage. The trend might be lower than what we expected due to reason, competition, in particular in the CDN service area, which was quite keen in the previous quarter. In sort, the loss as a percentage of revenue is reducing as compared to prior period but not to the extent that we expected in the beginning of the year. This is the cloud margin. The CapEx, I think, is as planned as original plan in the beginning of year. There is not much change in the CapEx plan. Should we expect the CapEx to be similar to 2016 level, or we should expect the CapEx to come down this year? The CapEx plan for 2017 will be higher than 2016. The reason being that we have several real estate project going on. Say, for example, we have a big R&D research center in Zhuhai, and we also have a project in Chengdu, and we also have a project in Beijing, which will significantly enhance the future stability of our operation. But in terms of Kingsoft Cloud, the level is similar to that of 2016. I see. Any color on the cash flow you can share with us? Your question on cash flow is? What is the question? Okay. I noticed that the operating cash flow and the investing cash flow was quite different in first half versus same period last year. Can you remind me what is the reason behind it, the cash flow change? The page 9 of your filing statement. Hold on a second, Wendy. Hi, Wendy. Maybe I get back to you on this question later on. Oh, sure. Finally, I just want to confirm that when I key in the numbers, it seems that the mobile game revenue decreased sequentially. Is that mainly due to the decrease from the JX Mobile? That is a natural decline in the life cycle of JX Online 1 online game. In second quarter, I am very pleased to report that we still stand at a very strong shoulder. In particular, in Q4, we will be ramping the expansion pack, which will further stabilize the user base in the fourth quarter. We might expect that the Q3 performance will be a little bit weak, as I mentioned earlier, that we subject to seasonality. Sure. Thank you. Thank you, Wendy. Thank you. Our next question comes line of Julia Pan from UOB. Please ask your question. Hi. Thank you for taking my question. I have a question on your WPS business. Giving just some color on your growth rate of the WPS advertising revenue in this quarter, what is the portion of the total WPS revenue? Thank you. Yes, Julia. The growth of the advertising revenue is actually higher than that of the sales of licensed software. Thank you. Also, on your cloud business, what kind of healthcare institution or hospitals are you cooperating with? What do you think is your advantages in this area, how do you compare yourself in terms of technology with your peer, like for example, Alibaba Cloud have this ET Medical Brain, what areas are you focusing on in this medical healthcare section? Thank you. Could you repeat your question? Maybe you translate your question so that Mr. Zhou can also contribute in the answer. Okay. Okay. Thank you. Okay, I will translate for Mr. Zhou. For healthcare cloud, now we are working with the hospitals in Jilin province. In the second quarter, we have been working with hospitals such as Beijing Wangfu Hospital and also hospitals in the Hubei province. Our advantage in the cloud business, when we compare with Ali or Tencent, in summary, the key point is that the cloud market itself is very massive. It is a big market. Now we are not in a purely competing stage with Ali, Tencent, or other competitors. We have our own strengths in markets such as game cloud or healthcare cloud. We are now taking the leading position in these categories. Okay. I would like to get back to the question that was raised by Wendy Huang, on the change in the cash flow. I flipped into the page and I noticed that we have a significant increase in the operating cash flow, which was primarily due to the collection of some of the account receivable this year as compared to last year. Also there is quite a significant difference in the cash flow from investment activity, which was primarily due to the swap between the deposit within a three month and over three-month period. Hi, operator. Do we have any more other questions? There are no questions. Once again, if you wish to ask a question, please press star followed by one on your telephone keypad. Once again, if you wish to ask a question, please press star followed by one on your telephone keypad. Our next question comes line off Susanna Sri from DBS. Please ask a question Hello, Francie, Francis, and also Zou Zong. I would like to update exact pipeline of the JX3 mobile. Would it be January 2018, or February or March in 2016? [Foreign language] 目前这个具体的上线的时间还没有确定。因为这一块我刚才在回答第一个问题的时候，我就说过，我们跟腾讯经过多次的商议，我们觉得在剑3那个手游上线之前，我们两家还会一起推一个叫做剑侠情缘2的手游。所以我们整体来讲会根据剑侠情缘2手游的推出的情况再来具体决定，这是第一点。第二点，也是因为剑网3的手游，这次我们在整个的技术框架，包括整个设计思路上，应该讲是在整个行业里有比较大的一个创新，所以我们可能还会根据具体的测试的结果来最后定上线的时间表。好吧，主要是这两个原因。 I'll do the translation for Mr. Zhou. The JX3 mobile game, the launch date is not confirmed yet. When I answered the first question, I already mentioned that we are going to have another mobile game cooperate with Tencent. After several rounds of discussion with Tencent, we have decided together that we are going to launch JX Online 2 mobile game before the JX Online 3 mobile game. The exact JX3 online mobile game launch time will depend on the performance of JX Online 2 mobile game. Another reason is that we are going to have a lot of new technologies and the new design for the JX Online 3 mobile game. We are going to confirm on the launch day also based on the testing results on the JX Online 3 mobile game. Thanks. Thank you. Our next question comes line of Joyce Ju from Citigroup. Please ask your question. [Foreign language] I would like to translate the question by myself. My first question is want to Mr. Zhou to share more colors in regard of Kingsoft's gaming subsidiary Seasun's cooperation with Tencent. Cause previously they announced like they formed a special team focused on the collaborative gaming development. My second question is in regards of the previous couple mobile games Mr. Zhou mentioned in regards of its expansion pack, of its existing JX Online 1, of its JX Online 3, and JX World 2. Maybe you guys just give us more details in terms of its detailed timeline. Thank you. OK，我来回答一下你这个问题。我们今年就是在Q2，确实是跟腾讯正式成立了一个KC的部门，专门来对接西山居的游戏。目前能够对外去公布的，其实就是首先会完成剑侠情缘一二三手游的发布。其实去年已经发布了一，去年二我们没有太对外公布，也是基于有很多原因。基本上腾讯会按照这个顺序，先发剑一，再发剑二，然后再发剑三。剑侠世界这款是西山居跟小米合作的。然后刚才谈到的剑侠世界二，其实就是剑侠世界一的一个比较大的改版。然后这几个之间的时间关系，具体到几月份、几月份，这个还没有最后确定，但大体的先后顺序，肯定是先发剑侠世界二，然后再发剑侠情缘二，然后再发剑侠情缘三。大体就是这样。然后至于跟腾讯这个部门的其他的一些合作，我觉得可能现在讲还有点早，因为毕竟双方都还是有的在初期阶段，有的在合作过程当中，可能等条件更成熟了一些，再对外去公布也许会更好。好吧？好的，那么我能不能简单问一下，因为《情缘2》这款游戏好像之前我们了解的比较少，能不能—— 是的。它的故事背景，或者包括它未来的收费模式、付费模式，能不能稍微简单介绍一下？谢谢。 OK。其实你可以做一个简单的对应关系，因为我们的PC版它就分《剑侠情缘》1、2、3和《剑侠世界》。你可以简单地理解，其实制作的团队也是对应的。《剑侠情缘1》就是《剑侠情缘1》那个PC版的团队做的。《剑侠情缘2》也是，就是手游2，也是《剑侠情缘2》的PC版的团队做的。过去没有太把它提上日程来，有很多原因，也包括《剑侠情缘2》在当时的定位，用的技术引擎等等。所以我们并没有第一时间对外去宣布，也包括跟腾讯那边。然后经过去年下半年的研发，尤其今年上半年的一些进展情况，或者简单说就是已经到了一个相对比较成熟的阶段，比较适合去对外测试也好，曝光也好。其实你可以简单理解，就是《剑侠》1、2、3的PC版，对应的团队做了《剑侠情缘》1、2、3的手机版。嗯。然后玩儿法定位基本上也是参考当年PC版的一些定位，当然结合了目前手游市场上的一些特点。对。好的，行，谢谢邹总。好吧，好，OK。 OK, I'll do the translation for Mr. Zhou first. So for the first question regarding the cooperation between Tencent and Seasun. In the second quarter, Tencent formed a strategic department that will focus on the games from Seasun. With Tencent, we are going to launch mobile game JX Online 1, 2, 3. Last year we already launched JX Online 1 mobile game. We haven't really talked about the JX Online 2 mobile game for various reasons. The launch date for JX Online 2 and 3 are not confirmed yet, but basically in the order that we're going to launch JX Online 2 first and then JX Online 3 next. And also for the JX World mobile game, we cooperate with Xiaomi for the JX World mobile game last year as well. Now, in the second half of this year, we are going to launch the JX World 2 mobile game, which is a major update for the JX World mobile game we launched last year. The launch date is also not confirmed yet, but the order should be JX World 2 mobile game first, and then JX Online 2 mobile game, and then JX Online 3 mobile game. We also have other games that we cooperate with Tencent right now, but we don't want to talk too much for them yet, because some of them are still under development. So now it's still premature to say too much about the other games that we cooperate with Tencent. And also for the second question that you asked about the JX Online 2 mobile game. Basically for the PC games, we have JX Online 1, 2, 3, and also we have the JX World for PC games. The JX Online 2 mobile game will be a mobile version for the JX Online 2 PC game. The development team is also in respective with these PC games as well. For example, the JX Online 1 PC game, it's also the developers for the JX Online 1 mobile game and the developers for the JX Online 2 PC game is the same as the JX Online 2 mobile game. In the past, we haven't talked too much about the JX Online 2 mobile games for various reasons, but based on the second half of 2016 and the first half of 2017, we feel that now we're more ready to talk about this game. The development for the JX Online 2 mobile game, it's now more ready for us to take it public. For the mobile games, basically the game design, the game targeting market, basically you can take that reference back to the PC games. The JX Online 2 mobile game will basically be the mobile version for the JX Online 2 PC game. Thank you. Thank you. Our next question comes line of Elima. Operator, now we're ready for the last question due to the time restraint. Sure. Our last question comes line of Elima from the Asia Asset Management. Please ask your question. 好的，谢谢。那我主要是担心几个方面，一个就是说在我们云的这一个业务上面，能不能够给一个指引，就是说2018年我们的top line和margin大概会是一个什么样的水平？我们放一年以后来看。第二，在这个猎豹的控制权上面，我们是已经转移给傅盛先生，但是对bottom line的影响仍然是存在的。我想了解一下这个考虑是什么？I translate my question. The first question was with regard to what's the company's guidance on the growth of top line for the cloud service and the margin guidance. Secondly, what was the consideration to transfer the control Cheetah Mobile to Mr. Fu Sheng? 我来回答这个问题，我先用普通话。第一个问题关于云对未来的一个影响，可能你问到的是2018年的指引。我们一般不会给到18年，但是云的那个方向，其实我们在年初的时候都讲得挺明显，挺明确。我们在17年年初的时候已经讲出来，我们2017、18年都目标在top line保持100%的增长。基于margin方面，也是一个比较坚定的方向，尽管我们没有给出一个指引，什么时候要达到盈亏平衡，这个当然要看整个市场的一些竞争的态势，各方面会有影响。但是正如我在2017年的表现一样，它的投资或者亏损率，因为我们经营的效益出来的话，都一直往窄的去收。要是市场的竞争态势不会有太大的改变的话，我相信尽管我们说盈亏平衡不是我们首要的目标，我们是希望在市场上面能够达到一个前列的位置，所以我们不太着急于短时间内要盈利，但是这个是往着盈亏平衡跟利润方向走，这个方向是没有错的。你第二个问题，关于猎豹的，为什么要把委托权交给傅盛的团队？首先第一，我可能补充或更正一下，这个是我们一个建议。目前我们还是走一个正式的流程。进展方面，我相信大家可能也会很快看到这个议题将会提交股东会去审批。这个会很快出现。第二个就是，为什么要去这样去做？其实我们之前也是跟市场上面解释得很清楚，因为猎豹这个公司，这个团队，他在过往几年已经是充分证明了他们管理这个公司的能力。傅盛以及他带领的团队已经证明了他们在管理能力方面的能力。第二个，随着猎豹的业务的增长，他跟金山，甚至乎小米之间未来可能会有更多重叠的机会和可能性出现。所以既然他有这个能力，给予他更大的自由的话，他会发挥表现更好。反过来，我们从经济上面其实也不会因为这个动作而降低。所以这个是对猎豹，对金山整体都是一个有利的方面去做。So let me translate my answer in English. First of all, for the cloud business, we have already guided the market at the beginning of 2017 that we strive to maintain a triple digit growth in both 2017 and 2018. For the margin, in one direction, we definitely will be using the loss as a percentage of revenue going forward. We haven't guided the market when we'll be achieving the break-even point, which is not our top priority. As the size and scale the business warm up, the operating leverage will relieve, which will be using our investment or loss as a percentage of revenue. As for the vesting of voting right to Fu Sheng and his team on Cheetah, the reason is two fold. One is that Fu Sheng and his team already proven themselves in the capability in managing their business. They have been doing that very successfully in the past few years. Second, when the Cheetah business growth, there might be overlapping between the opportunity between Cheetah, Kingsoft, or even with Xiaomi. So vesting the power, giving them more room for further development will be beneficial, both the Cheetah and Kingsoft, and the shareholders as a whole. This is my answer to your two questions. Thank you. 不好意思，可以再更正一下吗？可以。还有时间嘛，对。我想在云这边想跟进一个关于竞争的判断。您觉得在17、18年市场的竞争是更加地激烈了呢？还是说边际上它会变得缓和一点？第二，就是在猎豹的控制权上面，我们主要是讲一个投票权。对于小股东来讲，会不会有一个担忧，我们在股东会前夕，尽管我们bottom line仍然是我们的比例是不变的，但是因为我们完全把金山的对猎豹的控制权已经放在了傅总的团队，是不是有corporate governance上面的担心？因为比如说去年我们的亏损，主要是由于猎豹比较大的一个亏损引起的。那么我们怎么样去说服二级市场的股东，在公司治理上面是朝一个更好的方向，而不是说我们把控制权完全就丧失了。首先第一个问题，我可能先讲，然后交给洪Q吧。首先第一个，你问到云市场的竞争到底是趋向更激烈，或者是更缓和下来。我觉得在某一些领域方面，比方说是在CDN方面，其实大家都看到，互联网公司对于一些传统的CDN的冲击，在过往的两三个quarters是比较明显跟严重的。在这个角度上面来讲，我觉得几家大的有实力的公司，它其实也跟我们原来的预期一样，这个市场里将会更集中化。大的有实力的公司，它可能会占据一个更有利的优势。小的边缘的公司，它在云的业务里面，尤其是在一些比方说是IaaS level上面的竞争，肯定是欠缺优势的。所以在这个方面，我们将会看到市场，应该尤其是在一些大的领域，IaaS level里面，是会进一步consolidate。这个是云竞争的问题。第二个，至于我们给予vesting rights给傅盛跟他的团队，会不会影响corporate governance。我觉得首先第一个大的方面来讲，猎豹本身也是一个上市公司，它也是subject to一个very stringent的regulatory environment。他们过往其实在这个方面也是做得非常好。所以我们在这点方面，对他也是充满信心的。另外一个方面，我在开始讲的时候，为什么有vesting的概念。其实我们应该看到，做了这个动作以后，他有更大的发展，更灵活的空间，令到整个团队的精神面貌跟以后的发展，有更大刀阔斧的需要，对整体的猎豹跟金山的股东的利益都是有帮助。所以我觉得整体来讲，对整体股东是有利的。时间差不多了。好吧。因为后面我们还有一些小会。 This will conclude our conference call for the second quarter and interim results for 2017. Thank you all for attending. Have a good night. Thanks. Ladies and gentlemen, thank you for participating. You may all disconnect.