Earnings Call: Q2 2016

Aug 19, 2016

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2016 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this call is being recorded today, Friday, 19th of August, 2016. I would now like to hand the conference over to your first speaker today, 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 2016 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 through 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, Dr. Zhang Hongjiang, our Executive Director and CEO, and Mr. Francis Deng, our Executive Director and CFO. Now I am turning the call to our Executive Director and CEO, Dr. Zhang Hongjiang. Thank you. Good evening and good morning, everyone. I would like to start the conference call with the good news on our first JX Online mobile game. Since its launch in end of May, this particular mobile game has been ranked on the very top on the iOS platform since its launch, which marks the outstanding popularity and the great value of our core game IP. The monthly gross billing achieved over CNY 500 million in June since its launch. This outstanding performance exhibits the significant value of our core IP of JX Online and marks a major milestone in our mobile transformation of our game business. Also, we are very encouraged by the continued rapid growth in terms of customer base and revenue for our Kingsoft Cloud business in the second quarter. In the second quarter, we also have seen some challenges in our Cheetah Mobile game with short-term revenue and profit pressure. In addition, we have made one-time provisions for impairment on the carrying value of our investment in Xunlei and 369net, which have directly affected our quarterly earnings. However, we remain firmly committed to our focus on mobile, going global, and our cloud businesses. We are optimistic that we are on track in addressing the challenges we are facing. Our total second quarter revenue was CNY 1,765 million, representing an increase of 38% year-over-year and an increase of 1% quarter-over-quarter. Operating profit before the share-based compensation cost increased by 25% year-over-year to CNY 188.7 million and decreased 26% quarter-over-quarter, which is reflective of our investment in Cheetah Mobile's content-driven product and cloud-based expansion. To cope with the lackluster revenue from overseas third-party advertisement platforms and rejuvenate its sustainable and profitable growth, Cheetah Mobile has been expanding its content-driven product portfolio to a wider range than before, including news service, short video, live streaming, and casual games. Most notably, two of the content-driven product has demonstrated a very strong performance over the second quarter, in particular in the U.S. market. According to App Annie's July data, News Republic, a global mobile news service operator that Cheetah Mobile has recently acquired, was ranked as one of the top 3 news and magazine apps in the U.S. on Google Play. LiveMe, a live video app, was ranked as one of the top 5 social apps in the U.S. on Google Play in July as well and has recently ranked as one of the top 10 social networking apps in the U.S. on Apple's App Store. Cheetah Mobile will continue to invest aggressively in content-driven product and services in the coming quarters and leverage its over 600 million mobile monthly active users to deliver extensive personalized and relevant content with users. In the second quarter, Cheetah Mobile has committed in refreshing its apps product and advertising layout, strengthening its direct sales capability, implementing strict cost control, and improving management efficiency of its product promotion strategies. Those initiatives have and will continue to help to sustain its growth and improve its financial position in the coming quarters. Cheetah Mobile is committed to establish a sustainable and profitable business model for the long term and build itself into one of the world's leading mobile internet companies. We are very excited with the significant breakthroughs of our recent introduced mobile game, as I mentioned in the very beginning, and also our ongoing strong performance of our flagship game, JX Online 3, in the second quarter. With the expansion pack, Zhong Wu, released in April, and continued content optimization, JX Online 3, its quarterly revenue increased and achieved a new record, representing a year-over-year growth of 88%. The outstanding of our first JX Online mobile game has been very encouraging, as I mentioned earlier, and it was ranked in one of the top 3 on the iOS platform since its launch. The first month's gross billing really exceeded very much of our expectation. We will continue the effort to develop our online game business by exploring players' preferences and consolidating our R&D resources. Supported by the advantage of partnering with Tencent and Xiaomi, the launch of our second and third JX Online mobile games in the following quarters, it is expected that our mobile game begin to bear fruit in the second half of the year. Kingsoft Cloud has maintained a very strong growth momentum in the second quarter of this year, with 20% of overall revenue increase in the first half of this year. It has become a leading cloud service provider in China's cloud space, particularly in the video cloud and game cloud segment. Its fast penetration into healthcare and government sectors is also very encouraging. In the second quarter of 2016, the game cloud saw a very steady revenue growth with more than 60 new games introduced on our cloud. We have been experiencing explosive growth in video cloud, as have been establishing a numerous new industry standard for video cloud services. In the first half, Kingsoft Cloud has successfully completed Series C round and the Series C+ round financing, which indicated that the capital markets have a very positive view on the cloud industry and on the Kingsoft Cloud's leading position in the market. The tremendous opportunities and the market volume in China's cloud market will continue to boost Kingsoft Cloud's performance in the following quarters. The commercialization of our WPS personal edition has further enhanced, and monetization capability of WPS mobile application traffic have made breakthroughs in the second quarter of 2016. The global MAU of WPS further reached to a new record of 222 million in June 2016. The income from those traffic in the market by other services has increased 85% year over year in this quarter. The traditional enterprise business of WPS contributed a very healthy growth. Meanwhile, the mobile application of WPS has been devoting better experiences to its mobile office users through continuous optimizations. The business model of WPS has been transforming from a product provider to a service provider, which has made tremendous progress. Given the successful debut of the first JX Online mobile games, explosive growth in our cloud businesses, and the steady performance of our WPS, we're confident in our revenue growth perspective for the coming quarters. Our margin profitability of the overall company may experience a short-term pressure, but we are determined to put our effort together to resolve those issues and continue to focus on our key business initiatives. Let me turn the call to Francis, our CFO. Thank you, Dr. Zhang Hongjiang. Hello, everyone. As usual, I'm going to discuss the Q2 and first half of 2016 operation and financial results. Let's start with the Q2 using CNY as currency. Revenue increased 1% quarter over quarter and 38% year over year to CNY 1,765 million. The revenue split was as follows: 27% for online games, 57% on Cheetah Mobile, and 60% for cloud services, office software, and others. Revenue from our online game business increased 4% quarter over quarter and 60% year over year to CNY 477 million. The quarter over quarter increase was mainly due to the successful launch of our new mobile, JX Online Mobile 1, and the strong year-over-year increase reflected the sustained revenue growth of our JX Online 3, driven by our continuous effort on upgrading the quality of the game and delivering the best user experience. Daily average PCU increased 27% quarter-over-quarter and 50% year-over-year to 900,000. The quarter-over-quarter and year-over-year increases were mainly due to the successful release of the first JX Online mobile game, which enjoyed great popularity. Monthly average paying accounts increased 63% quarter-over-quarter and 40% year-over-year to 4.8 million. The QOQ and YOY increases were due to the rapid growing community of players stimulated by the launch of the first JX Online mobile game. Revenue from Cheetah Mobile decreased 7% quarter-over-quarter and increased 18% year-over-year to CNY 1,014 million. The sequential decrease was mainly due to the following factors. First, the decline in eCPM from some of the Cheetah Mobile third-party advertising platform partners in the international market. Secondly, a decline in revenue contribution from the monetization of a live casual game, Piano Tiles 2. The year-over-year increase was primarily due to the increase in mobile advertising revenue, which was driven by the Cheetah Mobile's growing mobile user base and strong demand from advertisers for mobile advertising services, both in China and overseas. Mobile MAU from Cheetah Mobile decreased 4% quarter-over-quarter and increased 26% year-over-year to 623 million in June 2016. Approximately 79% of our mobile MAU were from overseas markets. Our mobile user installation as of June 30, 2016, reached 3.1 billion as compared to 1.6 billion the same day in 2015. The quarter-over-quarter decrease of mobile MAU was due to the natural decline of life cycle for the free to play casual game, which was launched in May 2015, and a year-over-year increase mainly reflected our effort on introducing and delivering new content-driven products to our users worldwide. Revenue from our cloud services, office software, and others increased 31% quarter-over-quarter and 123% year-over-year to CNY 274 million. The sequential increase was mainly attributable to the enhanced monetization capability on free user traffic of WPS Office and the increasing revenue from Kingsoft Cloud, primarily driven by the increasing number of paying customers. The year-over-year increase was mainly attributable to, firstly, the strong revenue growth from mobile video cloud and game cloud services, supported by the technology advantage in Kingsoft Cloud's comprehensive cloud solution. Secondly, the improved monetization ability of our free user traffic of WPS PC and mobile version. Cost of revenue increased 19% quarter-over-quarter and 82% year-over-year to CNY 560 million. The quarter-over-quarter increase was mainly due to, firstly, an increase in bandwidth and equipment depreciation expenses of Kingsoft Cloud as a result of rapid usage growth and continued investment in data centers, and also an increase in the traffic acquisition costs associated with Cheetah Mobile mobile application business and higher bandwidth and IDC costs. The year-over-year increase was mainly due to the increase in traffic acquisition costs associated with Cheetah Mobile third-party advertising publishing business, as well as increased bandwidth and IDC costs with growing user traffic and data analytics. Also an increase in bandwidth and depreciation of Kingsoft Cloud, along with the rapid growth of customer usage and increased investment in data centers. Our gross profit decreased 6% quarter-over-quarter and increased 24% year-over-year to CNY 1,200 million. The group's gross profit margin decreased 5 percentage points quarter-over-quarter and 8 percentage points year-over-year to 68%. The declining trend of the gross profit margin reflects actually a change of our sales mix of Cheetah Mobile and cloud business gaining increasing proportion in our total revenue. Our R&D expenses increased 3% quarter-over-quarter and 29% year-over-year to CNY 420 million. The quarter-over-quarter increase was mainly due to an increased staff cost. The year-over-year increase was mainly due to the expansion of the group's mobile application and cloud development team, and also an increase in the salary. Selling and distribution expenses decreased 2% quarter-over-quarter and increased 21% year-over-year to CNY 481 million. The year-over-year increase was primarily due to the spending on promotion activities for Cheetah Mobile's business, particularly for complex different products, and an increase in the number of sales and marketing personnel, mainly due to the expansion of Cheetah Mobile direct sales operation. Administrative expenses increased 8% quarter-over-quarter and 27% year-over-year to CNY 140 million. The quarter-over-quarter increase was mainly due to an increase in professional service fee. The year-over-year was primarily due to an increase in headcounts and also the staff-related costs. Our share-based compensation cost increased 10% quarter-over-quarter and increased 71% year-over-year to CNY 103 million. The year-over-year increase mainly reflected the grant of Cheetah Mobile awarded shares to selected employees. Our income increased 195% quarter-over-quarter and 112% year-over-year to CNY 554 million. The increases were mainly due to the recognition of certain government grant subsidies and financial incentives in the second quarter 2016. Operating profit, excluding the impact of ESOP, decreased 21% quarter-over-quarter and increased 25% year-over-year to CNY 159 million. As a result of the combined factor, the operating margin, excluding the impact of ESOP, decreased 4 percentage points quarter-over-quarter and 1 percentage point year-over-year to 11%. Our net losses of CNY 916 million, which compared to the gain of CNY 27 million in the first quarter and a gain of CNY 20 million in the prior period. The losses in the second quarter 2016 were mainly due to the provision for impairment on the carrying value of the investment in Xunlei and 21Vianet, as mentioned by Dr. Zhang Hongjiang earlier. There is a significant and prolonged decline in market value of investment in Xunlei and 21Vianet below our investment cost. This was primarily due to the general market condition as well as the specific company performance. As we all know that starting second half last year, a lot of the related company has a drop in their market value and share prices. Income tax expenses decreased 30% quarter-over-quarter and increased 2% year-over-year to CNY 34 million. Excluding the share-based compensation cost and non-tax-deductible impairment losses of investment, our effective tax rate would have been 23% in the second quarter 2016 as we anticipate the subsidiary of Kingsoft Cloud will enjoy preferential tax rate and have the investment in the cloud business has not been recognized in the deferred tax asset. As a result, expressly, the one-off impairment factor, loss attributable to the owner of the parent for the second quarter 2016 was $808 million. Loss attributable to the owner of the parent, excluding ESOP, was $755 million. The net loss margin excluding ESOP was -43%, 11%, and 11% for the three months ended June 30th, 2016, March 31st, 2016, and June 30th, 2015, respectively. Let's turn on to the first half 2016. Revenue increased 47% YOY to CNY 3,517 million. Online gaming made up 27% and increased 50% YOY to CNY 934 million. Cheetah Mobile made up 39% and increased 35% to CNY 2,099 million. Our Kingsoft Cloud service, office software, and others make up 40% and increased 124% YOY to CNY 484 million. Our gross margin decreased by 70% point YOY to 71%. As a result of the factor discussed above, especially the one-off impairment losses recognized, our loss attributable to the owners of the parent was CNY 674 million, compared to profit attributable to the owner of our parent of CNY 209 million in the prior year period. Loss attributable to the owner of parent, excluding the ESOP, was CNY 556 million, compared to profit attributable to the owners of parent, excluding ESOP, of CNY 291 million in the prior year period. The net loss margin, excluding ESOP, was -60% and 12% for the six months ended June 30th, 2016 and June 30th, 2015 respectively. On our statement of financial position, we have cash and non-cash deposits of RMB 8.6 billion as of June 30th, 2016. The fair value, both the current and non-current, was CNY 591 million compared to CNY 450 million as of December 30th, 2015. On that, cash from operating activity increased 23% YOY to CNY 444 million. Our CapEx expenditure increased 30% YOY to CNY 670 million. I would like to turn the time back to the floor for question and answer. Hi, operator. We're ready for the Q&A session. Thank you. 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. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from the line of Wendy Wang of Macquarie. Please ask your question. Thanks, management, and congratulations on the solid results. First, can you give us some update on the recent momentum of the JX Mobile Game that has been launched on the Tencent platform. Also, can you give more clarity on the timing and your expectation for the other two games that you expected to launch with Tencent and Xiaomi. My second question is about your cloud business. It looks like, I am not sure if my analysis is correct. It looks like your cloud area growth is actually below your peers with the bigger scales, such as Alibaba Cloud. So, can you maybe clarify on that. Also, are you seeing any competitive landscape change in the cloud market this year. Also, I think, no matter for Alibaba Cloud or Tencent Cloud, they started provide some figures on the profitability, either gross margin or EBITDA margin. Can you also provide some color on that front for Kingsoft Cloud. Is Kingsoft Cloud still loss-making. If that is the case, what kind of loss margin are you having. Also, when do you expect the Kingsoft Cloud to actually breakeven. Thank you very much. Thank you, Wendy. Next, let me take the question on the game, and I will hand over to Dr. Zhang Hongjiang to answer the question on the cloud. Our first JX Mobile 1 actually was far beyond expectation internally and externally, with the first month gross billing revenue of over CNY 500 million. It was growing very steadily and strongly in the past two months. Now we have already exceeded the CNY 1 billion gross billing for that game. Of course, you will not see much impact on our Q2 result as the mobile game was launched at the end of May, so there is only one month revenue contribution. Also, as with other games accounting treatment, we need to do a revenue deferral because according to the life of the average user. Our second and third JX pre-launching schedule, you could expect that our second JX Mobile Game will be launched in the fourth quarter. The third one hopefully will be in the first half of 2017. I invite Dr. Zhang Hongjiang to answer the question on cloud. Yeah. Hi, Wendy. I would like to clarify your question because I hear your question about the profit margin or the loss margin. Your first question, I kind of didn't get it. I think the first regarding the cloud, I think you just mentioned in the prepared remarks your cloud and others yearly revenue growth was around like 120%-130% range. Alibaba Cloud, I think they just reported yearly growth was more than 150% YOY. I just wonder if you are seeing any competitive landscape change in the cloud market. Also, can you maybe elaborate why we are seeing this kind of growth rate difference? Yeah. Wendy, I get it. Thank you for the clarification, because that's what exactly I want to make sure. The number you saw there is WPS, NCO, and other business all together for that increase 100 and something percent. The cloud business itself has grown about 200% there. We are faster than our competitors announce result in the month growth rate. We are continuing in the second quarter and the output in first half of the year, we definitely grow fairly fast. We have consolidated our market position and in particular in our strong hold in game cloud and also in the area that we are expanding very fast, which is the video cloud, as well as in the sectors and in the healthcare sectors. This part, we are very encouraged with the first half result. I want to point you to the recent report that IDC just published about China's public cloud growth and analysis for 2015, where they actually point out Kingsoft Cloud as the growth leader there. When it comes to your second part of the question about gross margin, about when we can breakeven. As I mentioned in the last quarter's conference call, really the profitability is not our priority, and we are still focusing on growing the market share and on growing our businesses coverage to cover the entire spectrum of the infrastructure cloud computing. To keep our momentum in expanding into video cloud, because we see this window of opportunity as super important. Just like our competitors, we really would like to capture this opportunity. The only good news I'd like to share with you is with the fast-growing rate and with, in term of our revenue and also with our solid position in the cloud space, our loss in term of percentage, which also means that our margin has been improving, so that as we come to a larger scale, and as we stabilize our businesses, profitability is not something cannot be reached. Thank you, Dr. Zhang Hongjiang and Francis. Thank you. Thank you. Thank you, Wendy. Your next question comes from the line of Sean Yang of Blue Lotus. Please ask your question. Hi, good evening, management. This is Sean Yang from Blue Lotus. Thank you for taking my question. I would like to ask about JX Mobile Game 2 and 3. Can you share some information about the ongoing test result of Jianxia Mobile Game 2? As we know, there has been plenty of MMORPG mobile games in the market this year. So how do you differentiate Jianxia Mobile Game 2 and 3 with other competitors? Thank you. Thank you, Sean. Let me answer your question. First of all, we are not ready to disclose the testing result of JX 2 and 3 at this moment. But I can tell you that the popularity of the viewing of our promotion clips is extremely high. Also, you ask about how we differentiate our two mobile game and actually the series of JX Online 3. Apparently, our strong IP actually contribute a lot to our success of our first mobile game. We believe that it would be repeated in our second and third game. Also our strong partnership with the strong publishing platform, like Tencent and Xiaomi, also add to our success of this game. Okay. Thank you very much. Thank you. Your next question comes from the line of Evan Zhao from Credit Suisse. Please ask your question. Hi, good evening, Dr. Zhang Hongjiang, Francis. Thank you for taking my questions. Two questions from me. First one is, just wondering if you can comment on, I think our PC JX Online still has a tremendous performance in the past couple of quarters, especially this quarter as well. I was wondering, first of all, what is the driver behind that for this quarter? Is it more because of the ARPU or a re-acceleration of the user growth? How shall we see the trend of the PC title, in upcoming quarters, especially after you ramp up more mobile titles in the following months? Second question is regarding, again, the overall profit outlook. Needless to say, I think our overall profitability has been affected by the performance of Cheetah in a pretty meaningful way. I was wondering whether you can share some more color on how to expect the overall operating profit trend in the coming quarters and also maybe next year as well. Thank you. Thank you, Eden. Let me take your question. First, you mentioned that our PC flagship game, JX Online 3, continued to receive great popularity, and you can see that the increase in our revenue and profit for this flagship game has actually been very outstanding and exceeded the expectation. The second quarter, the JX Online 3, actually, the revenue increased 88% YOY. This success is actually attributable to both our excellent user experience. We have been continuously launching expansion pack, continue to improve and address the user experience for this so-called hardcore PC game. In that category, we actually do not have any competitor. We do see that there is a group of stickiness player to this MMORPG. We believe that will continue to be our steady cash cow. The team actually internally has launched a project to revamp actually the lot of details graphic for this game, with a view to nurture this game as a long-standing PC game. We will not drop that while we actually achieve a very significant milestone in transforming the game studio to mobile game. At the same time, we will continue to nurture this flagship PC game in the coming future. The second question you asked about is the overall profit or operating margin outlook. As you pointed out that our recent operating profit margin actually affected by the temporary issue facing by our Cheetah Mobile, mainly, a not-so-satisfactory performance in our overseas advertising business due to the change in the eCPM and profit sharing between the international advertising platform. That also affected, to a certain extent, in the change of our sales mix. As you can see that Kingsoft actually have four main business pillar, namely the Cheetah Mobile, the cloud computing business, the gaming business, and also the WPS business, and others would being very small. You can see that the Cheetah Mobile, as we say that they are now actually in a stage of transformation themselves from the pure apps service provider to a new next model combining the content strategy. The second category, the cloud computing, as mentioned by Dr. Jin earlier, we actually doing very well in terms of establishing our market position in the cloud business. At the same time, this business need a longer time to come to a breakeven point, as you can see that in our peers in the U.S., you will see that service like AWS, it also take a while for them to achieve a breakeven point. The current key target for the cloud computing team is not actually just like the short term breakeven, but to establish a position in the overall cloud market. So that two business, as their percentage of the total revenue increase, our profit margin will be under a certain pressure. If you talk about, of course, there are also some good sign is that you can see that our gaming business achieved excellent result, both in terms of the PC side and also the mobile side. On WPS, as you can see there, we enjoy a very healthy growth, both in term of the top line and profit. As you know, we started to monetize our free mobile user, which already achieve 130 million combining the mail and the dictionary. We already exceed 130 million user base. However, if you look in the coming quarters, two sides, I wanted to caution that our near-term operating margin will still stay in a single-digit area in the coming third or probably fourth quarter. However, you could also see that I believe that the second quarter will be a bottom in terms of operating margin. So we will be expecting that you can see a slight bounce in operating margin in Q3 and Q4. But please be patient because our business, you can see that that actually going into the right direction, we believe. If you look at the sheet, our new initiative in the content-driven strategy have actually achieved very good results in terms of the ranking in the international overseas web ranking, being very well-received and popular. But it will still take some time for that to go to the monetization stage. But once they success, we believe that it will be a strong plus to the originally big MAU base, because as a tool-category service provider, we already in the first battle, we attracted a huge amount of MAU, now exceeding 600 million. With the content strategy, we are hoping that our stickiness, the user stickiness, and also our capability to monetize our user traffic, more inventory, longer user engagement time will help us to monetize in the near future. But it will take probably 2, 3 quarters to complete that process. In our Kingsoft Cloud, you can see that we have growing in extremely fast speed, higher than a lot of our competitor. With the increase in the scale, the fixed cost will be shared by a larger revenue base, and you could see that actually our so-called loss as a percentage of revenue are closing the gap, even though we are about to reach the breakeven point. Thank you, Evan. Understood. Thanks a lot, Francis. Just a quick follow-up. For the mobile game revenue recognition, I understand that it should be recognized on the net basis, at least for the JX Mobile 1, right? First, is there going to be anything different for JX Online 2 and 3? Then, if we have to compare the gross margin of these mobile versus the PC, can we assume that it should be similar in terms of gross margin profile after this revenue treatment? Thank you. Thank you, Evan. Thank you for your question. Thank you for giving me this opportunity to elaborate further on the characteristic of our revenue recognition on our mobile game. For the mobile game, for the three mobile game, we act as a CP, so we needed to share with our publishing platform, namely Tencent and Xiaomi, according to the general profit split between platform and CP. You will see that our profit margin could be quite different from our PC game. In our PC game, we both act as our developer and also the publisher for JX Online 3. You could see the data, we enjoy a very deep and stable gross margin, and as well as net margin as well. For the mobile game, it is a little bit different. For a typical CP that we now take our net, we recorded our net profit sharing as our revenue. There is a subtle difference between JX Online 1 and 2 and 3. For JX Online 1, we actually acquired a game studio using our JX Online pattern. So we needed to, after we recorded our profit share from our net profit from the gross billing, we also needed to share some of our profit to the studio, which we are not 100% own. So you could see that the gross margin is not as high as you could imagine. But in JX Online 2 and JX Online 3, it was actually developed by our own in-house Seasun. So we do not needed to share with other game studio. So we will enjoy very high gross margin on JX 2 and JX 3. As you know, all the marketing and operation are performed by the platform, you can see that we will incur minimal marketing expenses and operating costs. So we will have a very high gross margin and net margin for the game. But that will be very different between JX 1 and the other two mobile game. And also that is quite different from our existing PC game. Francis, thank you. Sorry, just final follow-up. So if we have to compare, let us say JX Mobile 2's growth margin versus our PC, which one is higher? The mobile game would be higher because of PC as a CP and publisher, we incur some operating costs, right? The bandwidth costs, et cetera. But for the JX Online, the 2 mobile game, we solely act as a CP, so even the bandwidth borne by the platform. Got it. Very clear. Thanks a lot, Francis, for the call. Yes. Your next question comes from the line of Yang Liu of Deutsche Bank. Please ask your question. Good evening, Dr. Zhang Hongjiang and Francis. Just wish to confirm or reconcile 2 numbers. The first one is about the growth number of cloud revenue in the second quarter. You mentioned 200%. Is that the year-over-year, I suppose? Yes. Okay. Second question regarding the mobile game. What is the gross revenue number for the JX Mobile 1 for the first month in June? Let me answer your question. For the JX 1, as I mentioned on my answer to Evan's question. JX Online 1, we actually acquired a studio, but of course, the key staff of that studio are actually working Kingsoft before, and they go out to start their own business in developing into the mobile game studio. So we do need to do a profit sharing to them after we recorded the profit split from the platform. But since that, we haven't disclosed that number. So I could only tell you that I understand the revenue sharing with the studio. My question is, I think you have mentioned the number regarding the gross revenue Gross revenue. Sorry, I didn't get the question. Could you repeat again? The gross revenue generated by Yes. The gross billing revenue, right? In the first month is over CNY 500 million in June. Over how much? Over CNY 500 million in the first month. Over 500 million CNY in the first month. That is right. Okay. Thank you. 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 next question comes from the line of Rex Wu of Nomura. Please ask your question. Mr. Rex Wu, your line is now open. Hello? Please ask your question. Hello? Sorry. Thanks, managed team. I just have a number on the impairment of Xunlei and 21Vianet. I saw in the other gains, the net loss is around CNY 930 million. But in the announcement, the total impairment amount is around $125 million USD, so it is equivalent to around CNY 800 million. So what is the other CNY 100 million loss in other gains? Thank you. Hi, Rex. Let me answer your question. You are right that our impairment, we said that the main chunk is actually over around 90% of that 900 something million is due to Xunlei and 21Vianet. The remaining 10% or so are due to the impairment of our other investment. Okay, I see. Thank you. There are no further questions at this time. I would now like to hand the conference over back to the base presenter. Please continue. Okay. This will conclude our 2016 second quarter and interim result earnings call. Thank you everyone for your participation. Thank you. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Thank you very much. Thank you.