Earnings Call: Q2 2015

Aug 18, 2015

Ladies and gentlemen, thank you for standing by, and welcome to Q2 2015 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in the 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 conference is being recorded today, Tuesday, 18th of August, 2015. I would now like to hand the conference over to our first speaker today, Ms. Francie Lu. Thank you. Please go ahead, ma'am. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2015 second quarter and interim results 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, Dr. Zhang Hongjiang, our executive director and CEO, and Mr. Francis Yin, our executive director and CFO. Now I am turning the call to Dr. Zhang Hongjiang. Good evening. Good morning, ladies and gentlemen. Thank you, and welcome to this session. I would like to start by saying that the performance of our business lines in the first half of this year demonstrated a solid execution of our mobile globalization and all-in cloud strategies. Our mobile monthly active users reached another new high of 588 million in June, an increase of 71% year-over-year. Mobile revenue in the second quarter accounted for over 66% of Cheetah Mobile's total revenue, with overseas revenue contributing 51% of the total revenue. The progress that Cheetah Mobile has made so far demonstrates that Cheetah Mobile is well on its way to achieve its strategic goal of becoming one of the top three global mobile advertising platforms. We are also extremely encouraged to see the accelerating growth of our cloud service, building strong game cloud, and deepening collaborations with intelligent devices platforms. In order to explore the huge growth potential ahead in the mobile internet worldwide and also in China's global cloud business, we remain committed to our investment strategies. We are pleased to announce a strong and impressive top-line growth in the second quarter of 2015, with revenue achieving a new record of CNY 1.28 billion, an increase of 16% quarter-over-quarter and 71% year-over-year. Excluding the impact of share-based compensation costs, the operating profit for the second quarter declined 18% quarter-over-quarter and 12% year-over-year to CNY 159.7 million, and operating profit margin decreased by 6% point quarter-over-quarter and 12% point year-over-year to 12%. The operating result is in line with our expectation and the result of execution of heavy investment strategies in mobile and cloud businesses. The investment strategies will continue to have impact on the group's performance for the rest of this year, and we expect the operating profit margin might decline to a single digit in the coming quarter in terms of percentage. However, we are delighted by the progress we have achieved, and we are confident that this investment will generate long-term shareholder values. The second quarter was another strong quarter for Cheetah Mobile in particular, both financially and operationally. The total revenue of Cheetah Mobile achieved a new high of RMB 843.8 million, an increase of 31% quarter-over-quarter, and an increase of 139% year-over-year. Most importantly, Cheetah Mobile has accomplished its transformation to mobile and being global with overseas revenue now improving to 51% of the total revenue and the mobile revenue increasing to 66% of the total revenue. Today, 494 million users use Cheetah Mobile each month worldwide, with 71% coming from overseas markets, which underpins its robust financial performance, in particular in view of today's currency market. During the quarter, Cheetah Mobile also continued to improve its mobile and global monetization capabilities. Mobile revenue increased 57% quarter-over-quarter, and overseas revenue increased 68% quarter-over-quarter, which were driven by our continued ramp-up of the mobile advertising business, especially in the overseas market. Cheetah Mobile's mobile and global monetization capabilities have benefited from its strong partnership with global Internet giant, including Facebook, Google, and Tencent. In addition, Cheetah Mobile launched Cheetah Ad Platform in June, further improving its mobile and global monetization capabilities. We are delighted by the progress Cheetah Mobile has made in the global Internet market. Looking forward, Cheetah Mobile will continue to invest decisively to solidify its leading position as a global traffic platform, which is further enhancing its mobile and global monetization capabilities. During the quarter, we further strengthened our competitive advantage in cloud storage and computing services, and we are excited to capture the rapidly growing cloud market in China. Kingsoft Cloud continued its tremendous momentum in mobile game industry, and successfully introduced a number of top games, including our recent agreement with Hero Entertainment, Changyou, Perfect World, Dimons, and Youzu as our new and key customers. Kingsoft Cloud launched CDN storage acceleration and transcoding services for mobile videos, successfully extended its service into the Internet video industry, and introduced GIF Kuaishou and Jinri Toutiao as the main video customers. For intelligent device industry, Kingsoft Cloud deepened its cooperation with Xiaomi intelligent device platform and ecosystem, and also expanded its customer base. In the second quarter, Kingsoft Cloud also entered a strategic cooperation with Peking University Healthcare and Ping An to further explore opportunities in the enterprise services and healthcare market. The progress Kingsoft Cloud achieved so far give us confidence in exploring the explosive potential in China's cloud businesses. We are also pleased with the performance of our game business, where we did not launch any major marketing activities or expansion pack for the JX Online 3 in the second quarter. Its revenue still achieved RMB 180.6 million, a growth of 9% year-over-year, well above the growth rate of the traditional PC game segment. We are excited to see the significant breakthrough in our mobile game business. The release of the 3D version of Journey to the West: Conquering the Demons was well accepted by the market and ranked as one of the top 10 popular games on Xiaomi and iOS game platform in July 2015. We expect that our prior investment in mobile game will begin to generate top-line contributions in the second half of the year. The mobile game development on the basis of our core IP, namely JX World and JX3, are expected to be tested later this year and early 2016, respectively. Our mobile game, Legends of Guards, also started its test to be tested in the large scale in North America later this year. Revenue from WPS Office net of advertising revenue derived from a cooperation with Cheetah Mobile achieved a rapid quarter-to-quarter and year-over-year increase in the second quarter of this year to RMB 74.9 million, benefiting from the enlarged enterprise customer base and enhanced monetization capabilities on free traffic of WPS. The global monthly active user of WPS family reached 169 million, among which mobile monthly active user of WPS Office were near 74 million, with a 48% increase year-over-year. To solidify its leading position as an office solution provider in China and capture the explosive enterprise market, Kingsoft WPS released the WPS Plus cloud office product across platforms with enhanced features such as corporate mail services, WPS cloud documents, business contact, instant messenger, and other more value-added services to provide a one-stop cloud office solutions. In the second quarter, Kingsoft WPS also established a strategic collaboration with ZHIYONG and Baidu to provide simple, convenient, and reliable mobile office solutions. I would like to turn the call to Francis, our CFO now. Thank you, Dr. Jiang. Hello, everyone. I am now going to discuss the Q2 and first half of 2015 operating and financial results. As usual, I will start with Q2 using RMB as the currency. Revenue increased 16% quarter-on-quarter and 71% year-on-year to RMB 1.28 billion. The revenue split was 23% for online game, 66% for Cheetah Mobile, and 11% for office and others. Revenue from online game business mainly consists of revenue from operations of proprietary PC-based online game, mobile games, and game licensing service, which is generated from the group's company other than Cheetah Mobile and its subsidiary through research, development, and provision of online game across devices. Revenue from our online game business decreased 8% quarter-on-quarter and 3% year-over-year to RMB 298 million. The quarter-on-quarter and year-over-year decrease were largely due to the decline in the revenue from existing game. Daily average concurrent user decreased 10% quarter-on-quarter and increased 6% year-over-year to 600,000. The quarter-over-quarter decrease was largely due to the decline in the ADPCU, the Average Daily Peak Concurrent User of game in Vietnam as a result of poor game market condition. The year-over-year increase were primarily due to the launch of the new version of JX Online 1 in Vietnam. Monthly average paying account increased 12% quarter-on-quarter and 52% year-over-year to 3.4 million. The quarter-over-quarter and year-over-year increase were primarily attributable to expanded user base of JX Online 3. Monthly ARPU decreased 18% quarter-over-quarter and 37% year-over-year to CNY 27. Revenue from Cheetah Mobile business mainly consists of revenue from online marketing services, internet value-added services, and internet security service and others, which is generated from Cheetah Mobile and its subsidiary through research, development, operation of information security software, internet browser, mission-critical mobile applications, and operation of games and provision of global content distribution channel for its business partner. Revenue from Cheetah Mobile increased 31% quarter-over-quarter and 139% year-over-year to CNY 844 million. The quarter-over-quarter and year-over-year increases were mainly attributable to the revenue growth from mobile advertising business in both overseas and domestic markets, driven by substantial improvement in global mobile monetization capability of Cheetah Mobile, and to a lesser extent, the additional revenue contributed by MobPartner business, which was recently acquired in April 2015. Mobile MAU from Cheetah Mobile increased 11% quarter-over-quarter and 74% year-over-year to 494 million in June 2015. In June 2015, approximately 71% of mobile MAU were from overseas market, mostly from United States, Asia, excluding China and Europe. Compared to approximately 69% in December 2014, our mobile user installation as of June 30, 2015, has reached to 1.59 billion. These significant increases mainly reflected our mobile mission-critical applications, particularly Clean Master and CM Security, were very popular and expanded rapidly in global markets. Revenue from office software and others increased 2% quarter-over-quarter and 57% year-over-year to CNY 140 million. The sequential and year-over-year increases were mainly attributable to a number of factors. Namely, the increase of revenue was driven by rapid growing demand for cloud storage and cloud computing services from new and existing customer, as well as the increase in online marketing revenue from WPS Office, driven by increasing monetization of its free user traffic of WPS as mainly in the PC version. Cost of revenue increased 37% quarter-over-quarter and 164% year-over-year to CNY 307 million. The sequential and year-over-year increases were mainly attributable to, first, the higher cost associated with the mobile advertising business, higher overseas bandwidth and IDC costs from Cheetah Mobile, which increased in line with its revenue. Also an increase in bandwidth and equipment depreciation expenses of Kingsoft Cloud as a result of the rapid usage growth and investment in cloud computing and data platform. Gross profit increased 10% quarter-over-quarter and 54% year-over-year to CNY 975 million. The group's GP margin decreased 4 percentage points quarter-over-quarter and 9 percentage points year-over-year to 67%, which again, are in line with our investment strategy. Our R&D expenses increased 10% quarter-over-quarter and 46% year-over-year to $325 million. The quarter-over-quarter increase was due to the headcount expansion of Cheetah Mobile as it continued to focus on mobile internet platform development, and as a result of acquisition. The year-over-year increase was due to its increased personnel of Cheetah Mobile and online game business. Selling and distribution expenses increased 37% quarter-over-quarter and 138% year-over-year to $396 million. The quarter-over-quarter and year-over-year increases were primarily due to higher spending in promotion activities for Cheetah Mobile's mobile business. Remember, we have an all-in strategy disclosed in last quarter. Administrating expenses increased 50% quarter-over-quarter and 74% year-over-year to $170 million. The quarter-over-quarter and year-over-year increases were mainly due to an increase in staff costs, as well as professional service fee. Share-based compensation costs increased 4% quarter-over-quarter and 5% year-over-year to $60 million. This primarily reflected the grant of Cheetah Mobile option and awarded shares to selected employees. Operating profit, excluding the impact of ESOP, decreased 18% quarter-over-quarter and 12% year-over-year to $160 million as a result of the combination of the above factors. The operating profit margin, excluding of the ESOP impact, decreased 6 percentage points quarter-over-quarter and 12 percentage points year-over-year to 12%. Other gain, the net other gains of $30 million for the second quarter 2015 compared to a loss of $70 million for the first quarter 2015, and a loss of $1 million for the second quarter 2014. The gain for second quarter in 2015 primarily reflected the deemed disposal gain and the disposal gain arising from certain investee company, partly offset by the impairment provision for certain goodwill. Income tax expenses increased 22% quarter-over-quarter and decreased 7% year-over-year to $34 million. Our effective tax rate increased 7 percentage points quarter-over-quarter and 4 percentage points year-over-year to 26%. As a result, our profit to owner of parent decreased 18% quarter-over-quarter and 20% year-over-year to $94 million. Profit to owners of parent, excluding ESOP, decreased 30% quarter-over-quarter and 10% year-over-year to $136 million. The profit margin, excluding ESOP, was 11%, 14%, 20% for the three months ended June 30, 2015, March 31, 2015, and June 30, 2014, respectively. I'm now turning to the first half of 2015. Revenue increased 68% year-over-year to CNY 2.39 billion. Online game make up 26% and increased 3% year-over-year to CNY 623 million. Cheetah Mobile make up 62% and increased 131% to CNY 1.49 billion. Office Software and Others make up 12% and increased 57% year-over-year to CNY 278 million. GP margin decreased by 6 percentage points year-over-year to 78%, which was also caused by the accounting for the MobPartner revenue, which are recorded as gross. Profit to owners of parent decreased 43% year-over-year to CNY 209 million. Profit to owner of parent, excluding ESOP, decreased 29% year-over-year to CNY 291 million. The profit margin, excluding ESOP, was 12% for the first half 2015 versus 29% for the same period last year. In our statement of financial position, we have cash and time deposit of $7.9 billion as of June 30, 2015. The deferred revenue, both current and non-current, was CNY 365 million compared to CNY 325 million at end of last year. The net cash from operating activity increased 12% year-over-year to CNY 362 million. Now, I turn the floor back to Dr. Jiang to talk about the outlook of the group for the remaining 2015. Thanks, Francis, and thanks everyone again. We had a very strong and promising first half of this year. All the business lines are well on their way to reach our strategic goals. We will continue to invest aggressively in our core businesses and the key strategy focuses in the coming quarter to capture the great opportunities in the mobile internet and global and cloud services. On behalf of Kingsoft, I would also like to take this opportunity to extend our appreciation to our customers, shareholders, and our employees, partners, and all of you for supporting us. We now may start our Q&A. Thanks, Dr. Jiang and Francis, and now we are ready to start our Q&A session. Operator? 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 keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Julia Pan from Macquarie. Please ask the question. Hi, this is Wendy Huang from Macquarie. I have two questions. The first question, can you provide more color behind the cloud revenue sequential decline in second quarter? You just mentioned lots of the initiatives that you are doing to expand your cloud coverage into the healthcare segment, et cetera. In that case, should we expect a strong rebound in the second half as well as the longer term for your cloud business? Second, in terms of spending, it seems coming much lower than what we actually estimated. Does that mean that the full year margin outlook actually may come in better than the single-digit guidance that you provided earlier? Thank you. Okay. Thank you, Wendy. This is Hong Jiang. Let me first take the first question, and Francis can handle second. I actually would like to correct one thing is our cloud business revenue in the second quarter did not decline. It actually increased at a significant rate. I do not know where it gets that impression that the revenue declined. Actually, it has grown significantly. We continued our fast growth in the game service platform and extended our customer and partner base in that space. We signed quite a number of the game publishers in the second quarter. On the new game side, we actually signed over 38 new games. Overall, the first quarter, and in the first half year, we have over 200 customers already. The business in the game cloud there continued to grow rapidly. Also on expanding into a new business. We see a rapid growth in the second quarter on our cloud services for the internet customers, including the GIF Kuaishou, the video UGC site, and also our recent partnership with the Yinhe today, the highlight. All those have pushed our cloud services for the mobile video and mobile internet sector. A very strong growth, I would say, outstanding growth there. Also, we have expanded into enterprise cloud, including in particular, the healthcare cloud, which we partnered with the Peking University Healthcare IT company, and also Peking University Hospitals. We are in the process to build the first and the largest hospital cloud in the coming months. We also signed partnership agreement with HP, and a number of other partnerships will come in this quarter. We are pretty confident Q3 will be another strong quarter for the cloud service and also after the very strong Q2 both in terms of revenue and also in terms of new customer base. Francis? Okay. Sorry. Wendy, okay. Yes. I just want to clarify the significant growth that you mentioned for the cloud business. Is that on the year-over-year basis or on a quarter-over-quarter sequential basis? Both quarter-over-quarter and also year-over-year. Okay. Thank you. Wendy, let me answer the question on the margin. As we said earlier in the year, we have announced an all-in strategy for our cloud business. In Q1, we decided that Cheetah Mobile also follows suit on the all-in cloud strategy, because we see such a great opportunity in the advertising market. We kind of guide the market that 2015 will be another year of investment. Money will be spent on the R&D and also the marketing and selling money, in particular on the Cheetah Mobile business. If you look at Q1 and Q2, since the all-in strategy was announced for Cheetah Mobile after its Q1 result, the money spent on the marketing money are actually stepping up. As you can see that if you look at the marketing expenses for Cheetah Mobile as a percentage of their revenue, they already went up to close to 40%. You can check again on the Cheetah segment disclosure announcement numbers. As a whole, the marketing money as a percentage of overall revenue, also stepping from the last quarter, 22% as a percentage of revenue to over 30% in Q2 2015. Those also affected by our increase in headcount, partly. If you look at the mobile R&D staff, we almost increased by more than 80% as compared to June last year. As a result, even though that in the Q1, Q2, you still see a double-digit number in its non-GAAP operating margin, we will like to caution that we will continue to spend the money. Down in the second half 2015, you will see that the gross margin will further down. In particular, one thing I also wanted to caution is that we have actually, the Cheetah Mobile has issued some option in Q2. The impact will also be flow through in the third and fourth quarter in particular, because we are actually using an amortization on a non-straight-line basis. It actually accelerates at the front instead of a straight line. Overall, Kingsoft in 2015, we actually are spending a lot of money in moving into the mobile internet business to capture the opportunity. You will see that the margin will further down in the Q3 and Q4 in 2015. Thank you. Thank you. Your next question comes from the line of Alvin Jiang from Morgan Stanley. Please ask your question. Mr. Jiang, your line is open. Please ask your question. Hi, good evening, Dr. Jiang, Francis, and Francine. Thank you for taking my question. I have two questions. My first question is on the mobile games. Can you share us with more details on the new mobile game with the West Journey IP? Because we think this one has a good feedback from the gamers, I am not sure if on the revenue side, it also performs as well as we expected. My second question is on the cloud business. Can you share us with more colors on how big is the contribution from Xiaomi, and how big is the cloud revenue contribution from the third parties? Thank you. Okay. Thank you, Alvin. Thank you for your question. For the mobile game, yes, it is a focus for the Seasun this year. On one hand, as we already mentioned that the traction for the JX Online 3 is still good, even though we have slowed down the monetization a bit in order to pathway for a longer user life and a faster user number ramping up for JX3. But they have recorded a continuous increase, which outpaces the industry. Second, for the mobile game, yes, this year we have actually leveraging on some of our important IP, including the JX series and JX3, which are expected to be tested and launched in the second half 2015. You could expect that the JX series will be going to the testing stage in Q3. It probably will be launched at the end of 2015. The JX3 will be start to test in Q4 this year. Okay. Thank you. Alvin, let me take the question on cloud revenue. As I mentioned earlier, the new business from non-Xiaomi actually has increased tremendously this first half year. I'm expecting by Q3, the other income will surpass all the income from Xiaomi and its ecosystem. I hope that answers your question. Great. Thank you. Thank you. Your next question comes from the line of Evan Zhou of Credit Suisse. Please ask your question. Hi, good evening, Dr. Jiang, Francis, and Timothy. Thanks for taking my question. Question regarding 21Vianet. I think you participated in the consortium to take it private, and I was wondering if you can provide some colors on what kind of a plan to integrate and maybe to further consolidate, integrate that with our cloud business. If you can share some thoughts on that direction, that would definitely be great. The second question is also a follow-up on the margin. You have great color on the 2015 trajectory, but what about 2016? Shall we expect a rebound in maybe 1Q, 2Q 2016, or maybe it is still too early to tell? Thank you. Yeah, thank you, Alvin. Let me answer the first question, then Francis can take on the second one. On our cooperation with 21Vianet, the privatization is well on its way, but it is driven mostly by the Tsinghua partners and by the management team of the company. We are committed to work with them to get this project being done. I would like to emphasize here, and by taking this opportunity, that this privatization will not change our commitment, our partnership with 21Vianet, but will also not change our own strategy on Kingsoft Cloud. We will not do anything to change our current status of our cloud business. But we will look into the current business of 21Vianet. The details, really, we shouldn't discuss here. Thank you. Thank you, Evan. Let me take on the second question on the margin. You asked about whether we were expected that the margin will be bounced in 2016. The answer is positive because the stringent margin in 2015 is actually a deliberate result of our effort in capturing the mobile internet opportunities. Take example, we have already raised our bar on our target for growing the MAU of Cheetah Mobile from less than 400 million last year to 550 to 600 million by end of 2015. So you could see that our marketing expenses have actually tripled. If you look at the 2Q marketing money in 2015 as compared to 2014. However, if we achieve the target for this year, in 2016, I think we will be still spending marketing money in maintaining the position. The MAU, we will still spending marketing money, but will not be ever-increasing. Our monetization actually rapidly increase. So from that angle, you could expect that in 2016, unless there is a significant change in our plan, I will see that there will be a strong bounce in our margin. Also, if you look at our other business, across the board, we actually are all in investment phase. Take example for the game development segment. In 2014, and also in the first half of 2015, you could see that the contribution from our mobile game are very minimal. However, if we are actually success in proving ourselves into transforming into the mobile gaming business platform, you could also be seeing a rebound or a contribution of the profit from our mobile game business. So all in all, you could expect that the Kingsoft margin in 2016 will rebound. All right, great. Thanks for color. Thank you. Your next question comes from the line of Jeff Hao of China Merchants Securities. Please ask your question. Hi. Thank you for taking my question. I actually have two questions. First is the follow-up question on the cloud revenue contribution. Just to clarify that, Dr. Jiang, you said the other cloud revenue from your third-party partners will surpass the other revenue from Xiaomi ecosystem. Does that mean the contribution of the cloud revenue is due from the storage revenue from Xiaomi? Going forward, can you give us your thoughts on the trend of your cloud revenue contribution other than Xiaomi, given a lot of successful cooperation with the partners in mobile game, online video, and other industry? My second question is actually, you have disclosed a daily average upload data to your storage service in last quarter. Do you have that number for the second quarter? Thank you. Thank you, Jeff, for the questions. Yeah, on the cloud revenue, you are right. We are seeing a rapid growth from non-Xiaomi partners and customers, and in particular in the internet service companies, including the mobile internet video. Together with the income from our game cloud, we see a clear trend that those revenue will surpass the storage revenue from Xiaomi toward the end of Q3, halfway Q4. It does not mean that cloud revenue from Xiaomi has not increased. It actually has increased, and with a high speed, but it is just that our other business increased much faster. This shouldn't be a surprise. You asked about the upload. Yes, the upload continued to grow, and I would say it is now over 300 terabytes, close to 400 terabytes per day. Okay. Dr. Jiang. Go ahead. Yeah, just to clarify, you said on the third quarter or fourth quarter, the revenue from other parties can surpass the revenue from Xiaomi storage revenue? Yes. The third quarter, yeah. Okay. Thank you. It is very impressive. Thank you. The upload data number is over 400, right? It is close to 400. Close? Okay. Thank you. Thank you very much. Thank you. Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Your next question comes from the line of Purdy Hou of China Everbright. Please ask your question. Good evening, management. This is Purdy Hou from China Everbright Overseas TMT team. I have two questions for you. The first question is regarding your gaming business. I would like to know about the breakdown of revenue in the MMORPG and the mobile games going forward, and the differences in their monetization. Also, how would you go about recovering your ARPU? My second question is about your overseas expansion strategy in the cloud business. Thank you. Let me answer the first question. For the gaming, as I said, we are in a transition stage to mobile business. But at the same time, our revenue from the PC game still contribute majority of our gaming revenue for the first two quarter 2015. Currently, we do not have a split for the two segments, but majority of the revenue are from our PC game. As for our ARPU, there is a rapid increase in the average paying account for our JX3. Now it is over 300 million, which is a significant increase from the same period last year. That is also the result for the decrease in ARPU. So once our mobile game step up, the ARPU will rebound significantly. Because our JX3 are mostly based on a time-based payment with a certain portion of the value-added service. But on our mobile game, which is more on the item billing and value-added service. So the ARPU will increase when our mobile game step up. Yeah. So let me take on the second question. You asked about cloud business overseas expansion. Yes, we have a- Utilize our U.S. and Hong Kong presence in terms of IDCs. We can serve Southeast Asia customers through our Hong Kong data center and also serve the North America customers through our U.S. data center. As the first step, we will support our customers who are expanding from China to the U.S. and Southeast Asian market, in particular, the game publishers and internet companies. We are there, and we expect to see a significant growth in the fourth quarter and early next year. May I know who do you see as your major competitors? I don't think it's adequate to talk about competitor here, and they are the who's who in the space. We see ourselves in the top three spot. All right, great. Thank you. Your next question comes from the line of Yang Liu of Deutsche Bank. Please ask the question. Good evening, Dr. Jiang, good evening, Francis. I have a quick question regarding the mobile games. I noticed your new mobile game, Xi You Xiang Mo, made a big noise in early July. I just simply wish to know if this game will be a significant revenue contributor in Q3 and Q4 this year. Thank you. Yes, let me answer the question. Yes, the Xi You Xiang Mo was well received by the market. It actually not the top-tier game that we have in terms of the expectation. The DIG series and DIG 3 are actually of higher expectation internally. I could not disclose, I could not expect the new revenues contributed from this game in Q4. Let's see how it goes. Thank you. Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Your next question comes from the line of Li Ping Zhao of CICC. Please ask the question. Good evening, Dr. Jiang and Francis and Francine. Thank you for taking the questions. I have a quick questions on the effective tax rate. We noticed that the effective tax rate increased a lot this quarter. What is the reason about it, and how can we expect the rate going forward? Thank you. Just a minute. Let me answer the question. The relatively high effective tax rate for the second quarter is largely due to the lower profit, mainly the declining profit from our online business line. We incur losses in our Kingsoft Cloud business. It also in the tax holiday with zero tax rate, we cannot claim the tax credit. The actual tax rate for our main business line is around 15%. In a quarter going forward, we expected that the effective tax rate will be coming down a bit in the mid-teen. Okay, thank you. Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may all disconnect.