Earnings Call: Q1 2017

May 23, 2017

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Q1 2017 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. Please be advised that this conference is being recorded today, Tuesday, 23rd of May, 2017. I would like to hand the conference over to your first speaker today, Francie Lu. Thank you. Please go ahead. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2017 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. Tao Zou, our Executive Director and CEO, and Mr. Francis Ng, our Executive Director and CFO. Now I'm turning the call to Mr. Tao Zou. I'll do the translation for Mr. Tao Zou. We achieved a good start to 2017 with solid progress in all areas of our business. Our flagship PC game, JX Online 3, continued its growth despite being confronted with headwinds from the PC games market, while JX Online 1 mobile game delivered a steady performance in the first quarter, further revealing the great IP value of the JX Online series. We're glad to see Kingsoft Cloud has so far achieved the goals set in the beginning of the year in all of its vertical businesses. Meanwhile, development of online marketing services for WPS has grown beyond market expectations. In the future, Kingsoft will continue focusing on the development of its game, cloud services, office software and services businesses. Now, I would like to turn the call to Mr. Francis Ng to discuss the first quarter operational and financial results. Thank you, Francie and Tao. Hello, everyone. Before I start, I would like to explain, there is a change in the comparative figures, which are restated to reflect the reclassification between the continuing operation and a discontinued operation, namely the operating result of Cheetah Mobile, which has been presented as a discontinued operation. We achieved a total revenue of CNY 1,230 million in the first quarter at an annual growth rate of 82%. Although we make a further impairment provision for the carrying value of our investment in 21Vianet, excluding this non-operating adjustment, the operating profit of the first quarter delivered satisfactory growth and increased year-over-year of 141% to CNY 265 million. We are pleased with the excellent financial result delivered by the online game business in the first quarter of 2017. With the two update version released in the first quarter, JX Online 3 posts revenue of RMB 455 million, achieving a year-over-year increase of 38%, far exceeding the market expectation. With respect to the JX Online 1 mobile game, it remained on the top 10 grossing game on the iOS in the first quarter. The company remained optimistic about the revenue to be generated from JX Online 1 mobile game following the launch of an anniversary version and new expansion pack, as well as the introduction of game to the Korean market in the coming months. The company online game business has also reached a milestone in term of its business expansion. Tencent made a strategic investment in Seasun to hold approximately 9.9% of the issued share of Seasun. This move will certainly facilitate in Seasun and Tencent's interest alignment and create synergy effect with the joint forces. The company duly seek to promote business development, improve market competitiveness, and generate benefit for both parties in the long term. With regard to Kingsoft Cloud, all area of business were developing in line with our strategic planning. The game cloud business achieved and established the objective of balancing the proportion of different products and bringing together users with diverse product mix. The benefit of which began to appear at the beginning of this year. Revenue from game cloud business increased steadily, and it also established a long time cooperation agreement between key customer, including Xiaomeng Internet, LeNiu Games, Ayouweb, and Zhou Ani. The agreement Kingsoft Cloud signed with CCTV News is a breakthrough for conventional mainstream media industry, presenting new ideas on the future expansion of the cloud model to conventional media. The overall structure of video cloud has undergone large-scale upgrading and optimization, which notably enhances service stability, efficiency, and overall quality. With regard to the internet sector, we will continue to develop through the big data platform, complemented by the application of technology, including artificial intelligence and anti-fraud, and cooperate cloud with other partners. We will implement this technology for our corporate clients. The revenue from WPS Office software and service and others grew 58% year-over-year in the first quarter. The year-over-year growth of online marketing service far exceed expectation, mainly driven by the enhanced user experience and better product quality. On March 31st, WPS Office appeared on the Apple App Store feature page as a recommended application, highlighting the value and popularity of the product. On May 8th, Beijing Kingsoft Office Software submitted an application to the China Securities Regulatory Commission, CSRC, for the proposed A-share listing of China on the Shenzhen Stock Exchange. This proposed spin-off will help to further unlock the value of WPS Office, enhancing its corporate profile and brand awareness, and also raise the business to the next level. I will now discuss the Q1 operational and financial result using RMB as the currency. Revenue increased 82% year-over-year and decreased 6% quarter-over-quarter to RMB 1,230 million. The revenue split was 67% for our online game, 22% for our cloud service, and 11% for office software and service and others. Revenue from our online game business increased 79% year-over-year and kept flat quarter-over-quarter to RMB 817 million. This impressive year-over-year increase was mainly attributable to the successful release of the JX Online 1 mobile game in May 2016, and the continuing success of our effort to deliver superior user experiences of JX Online III. Daily average PCU increased 72% year-over-year and decreased 8% quarter-over-quarter to 0.9 million. The year-over-year increase was a result of the successful release of the JX Online 1 mobile game, and the quarter-over-quarter decrease was mainly due to the natural declining life cycle of the Group's older games. Average paying account, APA, increased 42% year-over-year and decreased 7% quarter-over-quarter to 4.2 million. The year-over-year increase was due to the popularity of the JX Online 1 mobile game and expanded user base of JX Online III. The quarter-over-quarter decrease mainly reflected natural declining life cycle of the Group's older games. Revenue from cloud service increased 108% year-over-year and 5% quarter-over-quarter to CNY 268 million. The significant year-over-year increase was primarily due to the increased demand from new customer in certain vertical industry, in particular in mobile game and video cloud, reflecting the great progress of Kingsoft Cloud in exploring the market. The steady quarter-over-quarter increase was mainly due to the revenue growth from mobile game and video cloud, driven by increased usage demand. The revenue from Kingsoft Office and services and others increased 58% year-over-year and decreased 41% quarter-over-quarter to CNY 128 million. The strong year-over-year increase was primarily attributable to the increased revenue contribution from WPS online marketing services, driven by the improvement in monetization capability. The quarter-over-quarter decrease was primarily due to the seasonality trend in the sales of WPS Office and WPS online marketing services. The cost of revenue increased 166% year-over-year and 19% quarter-over-quarter to CNY 509 million. The year-over-year increase was primarily due to higher bandwidth and IDC costs associated with increased user usage of cloud services, and the greater sharing cost along with JX Online 1 mobile game. The quarter-over-quarter increase was mainly due to the increase in bandwidth and IDC costs of cloud services. Gross profit increased 40% year-over-year and decreased 19% year-over-year to CNY 704 million. The GP margin decreased by 13 percentage points year-over-year and nine percentage points quarter-over-quarter to 58%. The change in the Group's gross profit margin is a result of our change in sales mix, reflecting our fast growth in cloud services. The cloud services business has relatively low gross margin, but the growth of its revenue contribution is much faster than our other business, relying on the massive addressable market prospect, and also the long-term balcony growth potential in the cloud market. Our research and development costs net increased 34% year-over-year and 4% quarter-over-quarter to CNY 321 million. The year-over-year increase was mainly due to the higher staff-related costs, resulting from an increase in headcount and salary. Selling and distribution expenses increased 47% year-over-year and decreased 24% quarter-over-quarter to CNY 81 million. The year-over-year increase was mainly driven by the higher marketing and advertising expenses for certain games. The quarter-over-quarter decrease was primarily due to the decreased promotion activity for our online game business. Administrative expenses increased 15% year-over-year and 12% quarter-over-quarter to CNY 56 million. This increase was primarily due to higher staff-related costs. Share-based compensation costs increased 116% year-over-year and 637% quarter-over-quarter to CNY 49 million. The increases were primarily due to the new grant of awarded share to selected employees. Operating profit before share-based compensation cost increased 137% year-over-year and decreased 24% year-over-year to CNY 314 million. The margin of operating profit before share-based compensation cost increased by 6 percentage points year-over-year and decreased by 6 percentage points quarter-over-quarter to 26%. Other gain or losses net recorded a loss of $92 million. These losses in the first quarter 2007 were mainly due to the additional provision for the impairment on carrying value of our investment in 21Vianet. The losses in the fourth quarter 2016 were mainly due to the provision for impairment on carrying value of our investment in Shen Nei and 21Vianet. Again, in the first quarter 2016, mainly represented the disposal gain of our share in Qiku Holding Limited owned by the company. Finance income increased 14% year-over-year and 15% quarter-over-quarter to $48 million. Income tax expense increased 1% year-over-year and decreased 23% year-over-year to $46 million. Excluding the share-based compensation cost and the non-tax-deductible provision for the impairment losses investment, our effective tax rate would have been 12% in the first quarter 2017. The profit for the period from a discontinued operation, reflecting the profit from Cheetah Mobile, which increased 468% quarter-over-quarter and 46% QOQ to $102 million. The increases were mainly reflected the gain on disposal of certain investment asset in the first quarter of 2017. 2017 is a year of transformation for Cheetah Mobile. Cheetah Mobile will continue to enhance its artificial intelligence-based technology platform that bring new opportunities to the mobile utility space and drive the rapid growth of the mobile content products. It is becoming increasingly clear that its total revenue growth is being driven by the fast growth of its content-driven product. Cheetah Mobile will continue to optimize its cost structure on utility products side to maintain profitability and support the growth of its content-driven products. As a result, our profit to owner parents, including that from continued operation and the discontinued operation, increased 78% year-over-year and decreased 9% quarter-over-quarter to $239 million. The profit to owners of parent, excluding the ESOP charges, increased 44% year-over-year and decreased 2% quarter-over-quarter to $286 million. Our statement of financial position, we have cash and bank deposits of $8.6 billion as at March 31, 2017. Our net cash generated from operating activity, including both from the continuing and the discontinued operation, was $630 million, $100 million and $761 million for the three months ended March 31, 2007, March 31, 2016, and December 31, 2016, respectively. Our CapEx, capital expenditures, including both the discontinuing and continued operation, was $102 million. [Foreign language] 177 million and 126 million for the three months ended March 2017, March 2016, and December 2016 respectively. The strong performance of all our business segments in the first quarter has given us confidence in the business development and revenue growth in the coming quarters. We will continue to optimize the current products while exploring new opportunities in the artificial intelligence field. We will fully integrate our resources and advantage to expand our user base and enlarge our market share. At the same time, we will bolster business ties with our powerful partners in order to enhance our competency and deliver notable growth in 2017 and onwards. This concludes our introduction of the 2017 Q1 results, and I turn the floor back to question and answers. Operator, we are ready to take questions. 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. Please ask your question in Mandarin first, then in English. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Liping Zhao from CICC. Please ask your question. 晚上好，邹总，Francis 和 Francine。首先祝贺一季度有一个非常好的业绩。我这边主要有两个问题，都是关于游戏的，所以希望邹总能回答一下。第一个问题是关于腾讯入股西山居。我们知道腾讯其实在金山的集团层面就有一些持股，那这次入股西山居的主要想法是怎么样的？包括将来两个公司在游戏这个层面的合作计划会有哪一些？那第二个问题是关于我们这个游戏的计划，就是今年这个游戏的 pipeline。之前年初的时候给过一个，那我不知道，快两个季度过去了，剩下的这些游戏的 pipeline 是不是今年还是维持一样的，还是有一些变化呢？那我自己翻译一下。I have two questions regarding your game business. First is Tencent has agreed to invest in Xishanju. Could you please elaborate more about what will be the potential cooperation between these two companies on game business? Second question is, what is the pipeline of game for rest of this year? Is there any change compared with your previous one? [Foreign language] 好，我来回答。我先回答你第一个问题，就是为什么腾讯在金山层面，就是我们的股东，投资我们，又跟西山居进行这种合作。大家都知道，我们从16年开始上线了我们的《剑侠情缘1》。我觉得经过近一年的运营，西山居本身尤其是在MMORPG这个领域的实力，应该讲是得到了腾讯充分的认可。而这一块，虽然腾讯游戏在目前国内市场上是第一的地位，但其实它在这个领域，我指的是单指MMORPG这个领域，其实在过去这么多年，至少在他们内部的评价是其实做得并不好。所以经过16年的合作，在充分展示或者认可了西山居这方面能力之后，其实也是非常强烈的意愿，希望跟西山居能够有更高层面的战略合作，两家共同在这个市场能做得更大。反过来，西山居说实话，从95年成立，它一直主要的身份其实还是一家CP，主要以内容自研为主。尤其到了手游这个时代，其实渠道分发能力本来也不是我们强项，而这一点也正好是腾讯大家毋庸置疑的，它的QQ和微信，也包括腾讯的其他资源，应该讲在手游分发发行的领域是一个非常强势的地位。所以西山居也需要有这种战略合作伙伴。简单说，就是腾讯需要我们在特定一些领域的研发实力，西山居需要腾讯的发行能力，所以两家是一个应该说互相需求的一个过程，而且这种需求在手游时代变得尤为强烈。所以也是基于这个原因，加上过去一年双方合作得非常的默契和愉快，所以我们两家才会除了在集团层面、金山软件层面之外，在西山居层面还会有更深层次的资本合作。然后至于谈到未来，我只能说未来的合作形式跟以往肯定会进一步升级，但至于细节，我目前不便去披露。可以告诉大家的消息是，在下个月的6月9号，我们双方会在腾讯内部单独成立一个专门的腾讯和西山居的战略合作部，这个部门未来就是100% focus在西山居的游戏上。我只能讲这么多。好，这是第一个问题。第二个问题就是——OK。 I will do the translation for the first question for Mr. Zhou Tao. Regarding the Tencent investment in Seasun, firstly, in last year 2016, we launched our first JX Online mobile game in June, and after one year of really good cooperation, I think Seasun has successfully proved itself in its capability in the MMORPG mobile game development, and it is greatly approved by Tencent. Even though Tencent is the number one distribution platform in China, but in the past few years, they are not quite as strong as in the MMORPG category in the mobile games. In the future, we could closely cooperate with each other. As a strong mobile game CP, Tencent also needs Seasun to complete its game strategy in the MMORPG category. Also, we need Tencent as a strong distribution platform, especially in QQ and WeChat channels, to further distribute our games. Our cooperation has been very good in the past year. In the future, we will work even more closely, but the details are not yet to be disclosed to the market. One thing we could say is that on June 9, we will set up separately a strategic department within Tencent that will purely focus on the games developed by Seasun. That is for the first question. OK。第二个问题就是我们之前谈到的Q2，包括下半年陆续要上线游戏。从目前来看，基本上暂时没有要做重大调整的这个项目。简单讲，还是按照我们之前的计划在进行。好的，谢谢周总。 I will first translate Mr. Zhou Tao's answer for the second question. For the Q2 and also for the second half of 2017, our game pipeline has no major adjustment. Basically everything is going as planned in the beginning of the year. Thank you. 好的，谢谢周总，非常清楚。 Your next question comes from the line of Thomas Chang from BOCI. Please ask your question. Hi, good evening, everyone. Thanks for taking my questions. I have two quick questions. The first question is about the launch schedule for mobile version of JX3. Should we expect it to be launched sometime in September or October this year? The second question is regarding the competition of the mobile games market. We see some of our competitors recently launch hardcore RPG on Tencent platform. Should we expect to see some kind of cannibalization with our existing mobile games? Should we expect the upcoming game to be as successful as what we see from your competitors? Thanks. 我来翻译一下吧。第一个问题想问一下，JX3的手游版，我们现在如果要做估算的话，是不是在9月份或者是10月份就会推出来？第二个问题想问一下，我们看到我们的对手最近也推了一些比较重度的游戏，排名也看得比较好。想问一下，我们是不是应该也想我们的未来的JX3，也好像我们其他的游戏做得这么好？还有就是我们现在的JX第一款手游会不会受到影响？非常感谢。好，我来回答一下。目前剑网3还是按照我们之前对外说的时间表在走，基本上是在九十月份上线。这是第一个问题。第二个问题就是关于近期有些其他的也是武侠类的游戏对我们的影响。这块因为也刚上线不久，从目前来看，对我们这块影响不是特别大，究其原因也蛮简单的，就是我们的游戏也好，包括近期上的这些游戏也好，其实最核心的依然是在过去这么多年，在端游时代各自养成的一些自身的核心用户。这些我个人认为，其实在过去的端游时代就已经是形成阵营，喜欢玩我们剑侠的玩我们剑侠，喜欢玩别的游戏的玩别的游戏。所以目前影响不大。稍微有影响的就是一些新晋用户，他过去可能既没玩过剑侠，也没玩过其他的，作为一些新晋的手游用户，可能是随着市场上的一些新推出的游戏，他们都会去做一些尝试。但是总体来讲，对我们的营收影响不大。是这两个。然后剑网3应该来讲，其实这一两年这个MMORPG，尤其是今年新上的一些MMORPG，表现出很强劲的业绩表现，其实反过来，反而让我们对整个剑网3更有信心，也充满了更多的期待。好吗？非常感谢。 Okay, I will do the translation for Mr. Zhou Tao. For the JX3 mobile game, there is no major adjustment to our schedule as what we set in the beginning of the year. It will be launched in September or October this year. The question on the competition from other recently launched mobile games. There are certain other mobile games launched with a similar Chinese martial art category, but currently we do not see any big major impact on this in terms of gross billing or revenue contribution. We think the major reason is that there is no major impact on the core gamers, just like what we had on the PC side, on the PC games. Maybe there are some slight impact on the new gamers who never played our PC game or the PC version of the other competitors game. There may be some slight impact on the new gamers. Also we are very confident in the performance of JX3 on the PC side, on its future revenue performance. Thank you. Your next question comes from the line of Evan Chao from Credit Suisse. Please ask your question. Great. Hi, thanks. Thank you for taking my question. Questions regarding our average paying account. I think there is a quarter by quarter slight decline in first quarter. So wondering whether you can give us some more color on the comparison between PC and the mobile. Is it more driven by the PC side of the launching schedule of add-on package or on the mobile side is kind of like a slight decline on the mobile paying users? Also maybe some more color on the progress of JX2 mobile, kind of the rework will be helpful. 周总，我想请教一下，一个就是说我们付费的用户这个季度好像稍微跌了一点，一般就是说一季度可能那个游戏还是个旺季，所以想理解一下，就是说这个季对季的跌是主要是PC的原因，我们可能有些资料片发布时段的问题，还是说移动那边可能也有一些跌幅。然后另外还想请教一下，就是说我们剑网2就是原来跟小米合作，然后现在可能在重制的这样的一个作品，后面的一些进展怎么样？有没有一个发布的时间表？谢谢。 OK。我来回答一下。季度对季度的这个一些付费用户的下降，我觉得要分两块。我不知道你指的具体是哪一块，就是要分成我们的PC游戏，还有剑侠情缘1。PC游戏来讲，我觉得总体来讲还是相对比较稳定，但是我们有些游戏确实是在缓慢地衰减，包括我们一些老的端游。但总体来讲，剑网3的一增一减，我觉得总体维持变化不大，当然也有季度性的影响，尤其是我们一些老游戏，它其实在春节这个Q1，春节前后也是季节性的影响，加上本身的过于老化，这个我认为是在我们的预测之中。然后剑侠情缘1，它本身这款游戏是IP游戏，它不是那种点月卡的游戏。以我们过去十几年的运营游戏的经验来看，它确实是存在着一个这种问题，因为这跟它的游戏模型是相关的。道理是蛮简单的，就随着时间的拉长，这种付费用户和非付费用户、大额付费和小额付费用户的能力值还是会不可避免地拉开。最终的结果确实会导致这个游戏的公平性略微欠缺，所以总体来讲会使得一些低额付费或者小额付费的一些用户的流失。这个基本上我认为，只要是这种免费游戏、做道具模型的游戏，都会面临的一个问题。但我们自认为我们在过去这么多年的经验下，我们有信心、有把握会把这个时间周期拉得更长一些。好，我是觉得基本上把这个情况给你介绍完了。第二个，你说的那个其实是剑侠世界，是我们跟小米在去年九月份发布的那款产品。这款产品从去年上线之后，我们也根据用户的一些具体反馈，尤其是针对于我们希望在手游上也重新打造一款价廉物美的这种产品和社交生态的产品的一些尝试，我们根据用户上线之后的情况做了一些调整。目前我们预计会在今年的七八月份左右，看具体的时间表，跟小米的沟通的情况，我们会发布剑侠世界2。好，就是这两个问题。好的，谢谢邹总。 Okay, I will translate for Mr. Zhou Tao. There is a quarter-on-quarter decrease in the average paying account, and we can see this in two aspects. First is from the PC game and then it is the first JX mobile game. On the PC side, it is quite stable. Some of our old PC games are gradually declining, but there is strong performance from JX3, so the net change is minimal. There are some seasonality impact on the old games from the first quarter because of the Chinese New Year. For the first JX Online mobile game, it is a virtual item billing game, so it is different from what we had on PC in the past. This type of game as the time lapse, the difference between paid users and unpaid users will show. In the future, for this type of game, there will be some reduction in the unpaid or the low paid users. The second question is on the second JX mobile game. Based on their past user feedback, we will further polish the game, and we still want it to be a game with low cost and also strong social element, and we will have an updated version in July or August this year. Thank you. Your next question comes from the line of Jialong Xi from Nomura Securities. Please ask your question. 邹总，Francis，谢谢 take my question。然后我有几个问题我想问一下，第一个问题想问一下邹总，就是刚才您讲到腾讯投资西山居的这一点的时候，您说到腾讯可能自身在 RPG 游戏这边可能稍微有一些弱，所以他也是看中我们这样的研发能力。然后我看了一下，我其实想问一下，我们西山居在 RPG 游戏这边 IP 储备有一些什么样好的 IP，就是未来是可以和腾讯进行合作的。然后第二个是想问一下，这样一个投资关系会不会使得我们未来的一些游戏在腾讯上面，能够有一些从流量支持方面会有一些比较好的支持。然后我第二个问题是想问一下，关于 WPS 这个业务，我们看到现在市场上有 Microsoft 推出来 Office 365，我就想问一下邹总怎么看这样一个竞争关系？另外我们看了一季度整个 Office software revenue 环比还是有比较大的一个降幅，我们知道企业版的 WPS 是有一些季节性的因素，我想了解一下，在一季度的话，个人版的 WPS 它的收入或者是 WPS 的广告收入这个趋势是怎么样的？然后最后一个问题就是想问一下我们的云服务，它的年增长的趋势在一季度是怎么样的？我自己来翻译一下。So I actually have three questions for the management. The first question is about Kingsoft's online gaming business. Just wonder if management can provide some updates or more colors on the IP pipeline for Xishanju and also any colors on the cooperation with Tencent in the future. My second question is about the WPS. I just wonder if management can comment on the competition from Microsoft Office 365, and also we saw quite meaningful sequential drop in the revenue for WPS in 1Q, just wonder what is the trend for the advertising revenue for WPS in 1Q? My third question is about the cloud business. Just wonder what is the trend for the profitability or margin of Kingsoft Cloud. Thank you. 好，你的问题比较多，我一个个回答。第一个你讲到关于跟腾讯除了剑侠情缘之外的，是不是还有其他IP的储备？我应该这么说，谈IP储备目前还谈不上，因为西山居现在的招牌能谈得上是一个有影响力的IP，就是剑侠情缘。其他的还谈不上说是有影响力的IP。但是确实我们肯定是有些储备。当然现在我确实不方便去说，毕竟这个过于敏感吧，反正这个我只能说，我刚才在回答第一个人的问题就谈过，我说了我们两家，应该是腾讯吧，会成立一个腾讯和西山居的运营合作部，专门来对接现有产品的。所以这里头绝对不仅仅只是光对接剑侠情缘，也还有其他的一些产品在合作。这第一个问题，你先翻译一下。 OK, I'll do the translation for Mr. Zhou for the first question. Other than JX Online, we do have some other games in our pipeline, but so far the strongest IP is still the JX Online. For the other plans, at this moment, we are not planning to disclose too many details. Like what Mr. Zhou said in his answer for the first question, we are setting up a separate department within Tencent, and that will purely focus on our cooperation with Tencent and focus on the games from Seasun. Thank you. 第二个问题，就是关于未来我们跟腾讯合作的游戏，在流量上是否能够得到倾斜性支持。我认为这个肯定不是说只要是西山居的游戏，人家就一定多给流量。应该只是说我们能够获得比其他的一些厂商更优势的一些资源，但是绝对谈不上说是一种倾斜性资源，终究还是要看产品本身的品质。所以这点我也想大家不要误解，是不是说只要是西山居的游戏，管它好坏，人家腾讯都给使劲推，这个是不可能的，依然还是要拿出比较好的精品。只不过是在打造精品的过程当中，应该能够得到腾讯的一些资源，信息也好，其他各方面的帮助。我觉得这样理解会更好。 We are going to work closely with Tencent. We'll get some better resources than our other competitors. But the basis for the cooperation and the basis for the better resources still based on the quality of our game. It's not that whatever Seasun publishes, Tencent will give us a very strong support. The rationale for the support still comes from the quality of the game. Thank you. 第三个是微软的Office 365对我们WPS具体有什么影响？这一块我只想说，自从90年代初微软进入到中国，Windows时代开始，微软的Office跟我们的WPS其实将近30年吧，就一直在战斗。我只想说，我们不仅仅没有被打死，而且应该说是越活越好。所以至少我们的意见是觉得这个不会是一个什么样的威胁，或者说我们早已习惯跟它一起与狼共舞了。尤其是Q1的增长，所以我觉得不会太影响。当然你具体要掰开来讲，其实无非就是分企业版和个人版。我觉得至少在中国，企业采购，尤其是政府采购，一些大的央企，包括一些上市公司这些企业采购上，我们其实市场份额是比微软还大的，通过过去这么年的努力。所以我个人认为，不会对我们现在的WPS造成什么实质性的影响。你先把这段讲完。 OK。企业版，对。 OK. I'll translate for Mr. Zhou for the second question. In terms of the competition from Microsoft 365, I think I go back to the history, even from the early '90s when Microsoft first entered into China, and for the past 30 years, we have been competing with each other, and WPS is still going very strong. It's almost like we're used to compete with Microsoft. Also for the enterprise sales, for the past years, especially in central SOEs and also the big listed companies, WPS market share in the enterprise sales is actually bigger than Microsoft Office. 第二块就是关于WPS的个人版。我觉得在Q1我们也欣喜地看到，其实个人版不仅仅是收入，包括流量变现，比去年应该是一个非常大幅度的提升。此外，我们的日活跃，包括月度活跃也依然还在增长。当然我们也内部做过分析，整体PC出货量的下降，为什么WPS还能够继续保持增长，我觉得这个还是得益于作为办公软件这种刚性需求，这种刚需还是很旺盛。不管移动端手机出货量如何去侵蚀PC的市场。但是这种办公的刚性需求依然是很强劲，所以支撑了我们这块业务的PC个人用户月活不仅仅没有跌，反而还是在持续增长。这是一个。第二个，其实通过我们过去几年的努力，现在我们的流量的价值越来越得到了这些广告主的认可。其实这也是我们WPS办公业务这一块在Q1强劲增长的一个非常核心的原因。我补充一句，WPS的话，它过往一直都是呈现一个比较强的季节性的差异的。大家看到，我们不管是在企业软件销售，或者是广告的增值服务，四季度都是特别强。因为你看软件销售的license sales里面，所有的那些企业、政府部门，它的预算都在年底比较积极去花。年初的时候，可能会比较慢。那么广告业务也是，四季度你看大家都有双十一啊等各方面的准备。所以往往我们四季度，软件销售跟增值服务，都是一季度会比四季度会弱。但刚才Joe总所讲的也是非常对的，同比我们有个很明显的上升。而且你看我们的用户数，就可以明显看到我们个人的用户量，各方面都是有一个强劲的增长。我补充这个。 Okay, I'll do the translation for Mr. Joe Tao for the third question. For the WPS consumer version, the revenue increase year-on-year is very big from 2016. In addition to the revenue growth, our MAU and DAU also increase a lot from last year. We do some internal analysis to understand why the revenue still increase even though the PC market declines in general. We find that there is still very strong need for the users, for office productivity software. Also over the past few years, the value of our traffic is greatly approved by advertisers. The revenue increase year-on-year is still very strong. What Mr. Francis Ng just said that is there is a strong seasonality impact on WPS business from both licensed sales and also advertising. For licensed sales, there always have been a strong demand for the enterprise license. By the end of the year, the enterprises tend to spend their budget by the end of the year. Also the same as advertising business, there is like Double 11 events in the fourth quarter. In general, the fourth quarter revenue is always the strongest in the year. But in terms of year-on-year comparison, this year, the first quarter of 2017, both our revenue and also the users increased greatly from last year. Thank you. Now I am going to answer the question on the cloud profit margin trend. As all of you are familiar with our public information that we do not disclose the profit margin by individual business segment. However, I can point you to the fact that for our cloud business, you could see that we are in a process of rapid growth in the business revenue and the business organization. You could imagine that actually, the profit margin, even though we are yet to achieve the break-even point, the margin are actually ever improving, given that the operating leverage are actually continuously improving. Operator, we are ready to take the last question. Thank you. Your next question comes from the line of Sean Yang from Blue Lotus. Please ask your question. Management 晚上好，我想问一下说现在我们有没有一些早期的测试结果，是剑侠网络版3手游的早期测试结果。还有一个就是从剑侠情缘1跟剑侠网络版3 PC版潜在用户来看的话，这两个游戏是不是一个级别？还有就是再想问一下剑网3跟腾讯的分成比例和剑侠情缘1比起来是不是相似的？然后还有就是说我注意到说我们在cost of revenue里面提到一句说剑侠情缘1的手游的分成有所提高，我想进一步搞清楚，想问一下是怎么回事？谢谢。 I will do my translation. I want to ask whether the management has some early stage testing results in terms of JX3 Mobile, and also in terms of accumulated registered user, is JX Online 1 and JX3 on the same level? Also I would like to know the revenue share with Tencent comparing with in terms of JX Online 1 and JX3, are they at the same level? Also, I noticed that in the financial When you report the cost of revenue, the description says that there is greater share cost along with JX Online mobile game. I just wonder if the management could further elaborate on that. Thank you. 我来回答一下。你刚才第一个问题是关于剑网3早期测试结果。我可以告诉你，我们第一期的测试其实在内部做过很多次了，但规模不大，最核心的目标其实要测试剑网3手游跟目前剑网3的用户的匹配度上。说得通俗一点，其实就是说现在的剑网3用户会不会喜欢我们剑网3手游。从目前我们几次测的结果来看，应该是非常符合的。好吧，这是第一个问题。给我翻译一下。 Okay, I will do the translation for Mr. Zou Tao. For the first question on JX3 mobile game early testing. We did some round of testing, early stage testing for JX3 mobile game. Basically, it is to test the compatibility with the JX3 PC game to see whether the PC JX3 gamers will like the game. So far, we have the result that the compatibility between the JX3 PC and mobile game is very high. 第二个问题，你问的是剑侠1跟我们剑侠3这两个手游的潜在用户群体谁大？这个我简单告诉你，这肯定是剑侠3的潜在用户群体大。 I will do the translation for Mr. Zou Tao. The second question is on the potential user scale for the first JX mobile game and the third JX mobile game. The answer is the third JX mobile game. The potential user scale is bigger. 第三个问题，就是剑侠3手游和剑侠1手游的分成的比例的问题。我只能告诉你是差不多，好吧。 I will do the translation for Mr. Zou Tao. The third question is on the revenue sharing plan with Tencent, the difference between the first JX mobile game and the third JX mobile game. The answer is similar. 第四个呢，就是关于剑侠情缘1的分成比例是不是提高了，这个我不知道你是从哪里得到的消息，应该是没有，可能是因为我们是去年5月31号上线的，所以去年Q1我们并没有这块收入，是不是你看到的是说在今年Q1我们剑网3有收入，但是实际的分成比例其实并没有变化。 Do the translation for Mr. Zou Tao. On the fourth question is the revenue sharing plan change for the first JX mobile game. There is no change in the revenue sharing plan for the first JX mobile game. The possible reason is probably that you see the first JX mobile game was launched by the end of May 2016, so there was no revenue sharing revenue for the first quarter in 2016. There is revenue sharing for the first JX mobile game for the first quarter in 2017. That is probably what you mentioned on the change in the revenue sharing plan. Thank you. Operator, this will conclude our earnings call for today. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.