Earnings Call: Q3 2012

Nov 30, 2012

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Kingsoft Corporation 2012 Q3 Results Announcement. 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 conference is being recorded today, Friday, the 30th of November, 2012. I would now like to hand the conference over to your host today, Ms. Michelle. Thank you. Please go ahead. Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2012 Q3 earnings call. I am Michelle Han, the Company Secretary of Kingsoft. I would like to start by reminding you that some information provided to you during the earnings call might include forward-looking statements which may not be relied on in the future for various reasons. These forward-looking statements are based on our own information and on information from other sources believed to be reliable. Please kindly refer to other public disclosure documents for detailed discussion of risk factors which might affect our business and operations. Having said that, let me introduce our management team who join us today. Mr. Xiaohong Jiang, our Executive Director and CEO. Ms. Francis Wu, our CFO. Now I will turn the call to our CEO and Executive Director, Mr. Xiaohong Jiang. Okay. Ladies and gentlemen, good evening. Thanks for participating in this call. As you can see from the report, this is definitely another very solid quarter. The total revenue for the quarter has reached a new record with an increase of 13% quarter-over-quarter and 51% year-over-year. One thing I want to point out is that the slight decrease in our bottom line numbers over the quarter was primarily due to our planned intensive marketing and promotion activities, including launching new games and also a new product in this particular quarter. In particular, in July, we completed a restructuring of Kingsoft WPS Office subsidiary with MBO, which marks the completion of the restructuring of the three major subsidiaries of Kingsoft. That marks the ending of the major reconstruction of our company. We believe this particular restructuring will have a long-lasting effect, will drive the management team to focus on long-term development of the company and further align their interests with that of our shareholders. Let me go into more details. In the third quarter, advertising revenue from Kingsoft Internet Security has kept the momentum of fast growth and has achieved three-digit increase both on the quarter-over-quarter and year-over-year basis. This is a significant achievement driven by a rapid increase in traffic from our landing page navigation. Meanwhile, the monthly active user basis for the Kingsoft Internet Security expanded further to over 120 million, driven by the new service update and the improved user experiences. In August, we officially launched Kingsoft Mobile Security, with the differentiation featuring mobile phone APP behavior analysis and management, and the capability to intelligently prevent and intercept hidden malicious advertisement and other malicious behaviors in apps. Such app management and privacy protection feature has received very positive feedback from our mobile users. We expect the security business will continue to expand in this quarter. I also want to bring you to our WPS software business. Benefiting from the continued government policy and the product innovation, revenue from Kingsoft WPS Office continued to keep a strong growth momentum in Q3. The monthly active user of WPS Personal Edition rose to over 40 million, supported by the improved user experiences and improved awareness. We are very pleased to see that the global active user of our WPS Mobile Office exceeded 7 million in this quarter. As a leading mobile office software with users in over 226 countries and regions, our WPS Mobile Office supports over 20 types of main document formats and 46 languages and took the top spot in Google Play in the Productivity app category. Overall, our security and the software business has had a tremendous increase in the past quarter. Our online game portfolio remained very strong in this seasonally weaker quarter. We are pleased to see JX Online 3 continued strong growth in term of APA and revenue against the adverse impact of seasonality. Thanks to the success of our summer expansion pack, The Awakened Dragon of Hur, APA of JX Online 3 has jumped to a new record of over 75 million in September, with an increase of 13% quarter-over-quarter and 128% year-over-year. We will launch this year's largest expansion pack, for the JX Online 3 in late November. I also want to point out the moderate decline of revenue from our 2.5D flagship game, JX Online World, for the third quarter, primarily reflects the impact of the off-season. However, with the large extension pack, the new JX Online World in October, we believe the game is going to pick up in terms of revenue and popularity. The open beta testing of our Q version of the 3D role-playing game, in October, has indicated the high popularity of the game. We are expecting very exciting result on this particular game. Our 2.5D MMO game, Legend of Moon, and the new 3D MMO game, Legend of Holy World, were commercially launched in September and October respectively. We are confident the commercial launch of our new games and the large expansion pack for JX will further enrich our game portfolios and contribute to the top-line growth in the coming quarter. I do want to point out again that the slight drop quarter-over-quarter in the net profit was due to the intensified marketing activities for the launch of new games. We will continue doing that in the fourth quarter. Moving to next year, our investment in the new areas, in particular in the internet security and in our new business, Kingsoft Cloud, will continue to expand. This is the best time to invest for our future, and we believe that will be good for our long-term result of the company. I would like to stop here and hand it over to Francis, our CFO. Thank you. Thank you, Dr. Zhang. This is Francis, CFO of the company. Hello, everybody. I'm now going to walk through the Q3 2012 operation and financial result. We are talking about our numbers in RMB. The revenue increased 30% quarter-on-quarter and 51% year-on-year to CNY 365 million. The revenue split was 58% for online games and 42% on our application software. This is the first time that our online game contribution fell below 60%. It also proven that our others area, namely the security and the WPS, are keeping on strong momentum. Revenue on online games increased 1% quarter-on-quarter and 28% year-on-year to CNY 211 million. The slight quarter-on-quarter increase mainly reflected the combination of the following factor. The adverse impact of the seasonal factors of JX Online World. JX Online 3 continued to achieve solid growth against adverse seasonality. Our new game, Legend of Moon and Legend of Holy World, started to contribute top line in the name of the third quarter. The year-on-year increase was primarily attributable to the online popularity and strong performance of JX Online 3, which achieved triple digit year-over-year growth. The daily average PCU decreased 1% quarter-on-quarter and held flat year-on-year on 600,000 number. Decrease was largely due to the unfavorable market conditions for online game in Vietnam. Our monthly average paying account, APA, increased 4% quarter-on-quarter and 29% year-on-year to 1.5 million. The year-on-year quarterly increase was primarily attributable to the jumps in active paying accounts for JX Online 3, accompanied by continuous optimization through expansion pack. The monthly ARPU remains flat year-on-year and quarter-on-quarter. Our revenue from our applications software business increased strongly, 35% quarter-on-quarter and 96% year-on-year to CNY 152 million. This sequential and year-on-year quarter double-digit increase was mainly due to the combination of, first, the online advertising from KIS surged to another historical record, driven by rapidly increasing traffic from our landing page navigation and the enhanced market penetration of KIS. This also contributed by the record sales from Kingsoft WPS Office, benefit from the favorable policy of the legitimate software used in China, which we also benefit from the improved product experience. Looking on the cost side, our cost of revenue increased 9% quarter-on-quarter and 21% year-on-year to CNY 45 million. This increase was mainly attributable to the higher bandwidth and server cost, along with the increasing user base of Kingsoft Internet Security and the expansion of Kingsoft Cloud business. Our gross profit increased 40% quarter-on-quarter and 56% year-on-year to CNY 321 million. Our GP margin increased 1% quarter-on-quarter and 3% year-on-year to 88%. Our R&D expenses, net of government grants, increased 4% quarter-on-quarter and 22% year-on-year to CNY 98 million. This mainly reflected, first, the increase in staff costs driven by higher salary and benefit, and also the increased R&D investment in mobile internet applications. As Dr. Jiang mentioned earlier, one obvious investment that we incur in this quarter is the selling and distribution expenses, which increased 96% quarter-on-quarter and 134% year-on-year to CNY 79 million. The sequential and year-on-year quarterly increase was mainly due to the combination of, first, the promotion and advertising campaign for the release of several title, "The Legend of the Moon," "The Legend of the Holy World." The increased effort for marketing of KIS in mainland China. Also we have initiated advertising activity for free model of KIS in the Japan market. Our administrative expenses decreased 1% quarter-on-quarter and increased 16% year-on-year to CNY 37 million. Our share-based compensation costs decreased 12% quarter-on-quarter and increased 529% year-on-year to CNY 12 million. Our other income and gain increased 113% quarter-on-quarter and decreased 44% year-on-year to CNY 16 million. This was primarily due to the financial incentives that we received from the local government. Operating profit, excluding share-based compensation costs, decreased 1% quarter-on-quarter and increased 46% year-on-year to CNY 122 million. The margin of operating profit, excluding the share-based compensation cost, decreased 5% quarter-on-quarter and one percentage point year-on-year to 33%. Our financial income increased 1% quarter-on-quarter and 45% year-on-year to CNY 25 million. Our income tax expenses increased 2% and 34% quarter-on-quarter and year-on-year, respectively, to CNY 50 million. Our effective tax rate, excluding the impact of ESOP, held flat quarter-on-quarter and decreased two percentage point year-on-year to 10%. As a result, our profit to the owner of parent decreased 3% quarter-on-quarter and increased 44% year-on-year to CNY 108 million. Our profit to owners of parents, excluding the ESOP, decreased 5% quarter-on-quarter and increased 55% year-on-year to CNY 118 million. Our statement of financial position are very strong. As you can see that from the balance sheet, we have the cash and cash equivalents of CNY 2.3 billion as of the end of the September quarter, representing a cash per share of $2. The deferred revenue as at September 30th, 2012 was CNY 183 million compared to CNY 182 million as the year ended December 2011. The slight due to the increased sale of prepaid card of online games in the third quarter 2012. The net cash from our operating activity increased 67% quarter-on-quarter and 58% year-on-year to $167 million. Our capital expenditure decreased 30% quarter-on-quarter and 64% to $22 million. This briefly summarizes the walkthrough of the financial statement for Q3. I now open the floor to the question. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you want to cancel a request, please press the pound or hash key. The first question comes from the line of Jiong Shao from Macquarie. Please ask your question. Hey, good evening. This is George calling on behalf of George Wu. I have a couple of questions. The first one is regarding your Kingsoft Mobile Security app. I noticed that it is gaining traction in terms of users, but it also has some issues with those advertising providers. You kind of block the malicious advertisement, but how do you actually strike a balance between legitimate ads and malicious ads? That is my first question. Thank you. This is Hong Zhang, CEO of Kingsoft Corporation. Let me take the question. You asked a very critical question. Actually, on the internet, there were quite some discussions about this. If you have not followed the discussion, this kind of has quieted down a little bit. In particular, I think two nights ago in CCTV, there was a session that actually illustrated how much malicious advertisement and malicious behaviors in the mobile apps, that actually helped to clear up the confusion quite significantly. Actually, after the initial noise, the advertising industry has very much praised our action and considered this is the right direction to go. You are absolutely right. We are striking for a perfect balance in between. The good news is in our design, we have ways to differentiate what is malicious, what is not. Normal advertisement activities in those apps will not be mistreated as malicious behaviors. Actually, the positive reaction from our users actually illustrated this is a feature that they love very much. Okay. Okay. Thank you very much, Dr. Jiang. My follow-up question is, can you actually elaborate a little bit more on the traction of your browser, the new browser, Cheetah? How is the number of users and all those? Can you share any of those operation data? Yes. The Cheetah browser was launched in late June, and immediately attracted great attention and received very positive feedback for its elegant design and its speed and its security features. Since then, we have very much relied on organic growth and adoption to give us time to hear the feedback from users and make further improvements. Four months after, the browser is very stable, and it is getting good traction, and the number of downloads has increased tremendously. We are going to continue promoting that, and actually, we have started the advertising campaign to further promote the downloading and the installation of the browser. At this moment, the active user is over 5 million already, and we see that number expand daily, and we are very optimistic about the future of this particular product. Okay. Thank you. My final question is regarding your advertising revenue from the internet security software. I remember before, last quarter, it was about $40 million. This quarter, if it is already triple-digit growth quarter-on-quarter, can we say it is already close to 100 million CNY? Is that somewhere close? Well, I am not in the position to disclose the monthly number yet. But I would say, if you look at the growth rate, we are very happy with the growth, and the growth continued into the fourth quarter, and the last month, October, is another record month. Okay, got you. That is very helpful. Thank you very much, Dr. Jiang. Thank you for your question. Thanks. You are welcome. Thank you. Thank you. The next question comes from Wendy Huang from CIMB. Please ask your question. Thank you. First of all, can you provide a revenue breakdown for your advertising and also WPS software for Q3? I do not break it down like that. We do not break it down. It is software. We do not break it down. Thanks for the question. At this moment, we are not ready to break down between the two. What I want to say is both the WPS and our internet security service has experienced tremendous growth. The WPS, due to the continued push from the government and our push into enterprise space, we have seen a very high growth rate in both the user base and the revenue. Maybe put it in this way, your Q3 revenue increased by CNY 40 million or so. In absolute dollar term, is that mainly contributed by WPS or advertising? It is actually both. It is both. In the third quarter in particular, both of them increased. I think even WPS increased growth 100%. On Q3, if you compare the WPS growth, I would say that is around close to 20% growth. The KIS is also 30% growth. The KIS income quarter-on-quarter. Current quarter. Quarter-over-quarter. Yes. Okay. Also for your game revenue, you mentioned that the new games revenue contribution was partially offset by the weakness in Vietnam. I wonder if you can give more color on the revenue contribution from the new games such as Legend of Moon and Legend of Holy World. Obviously, you have spent a lot of marketing dollar to promote the new games in Q3. So far, are those marketing campaigns effective to push the game revenue or not? Yes. On the new game, actually, the contribution from new game is mainly beginning at the end of Q3. I would not say that is very significant contribution from the new MMO games starting Q3. Instead, the growth from our existing game, the JX3 actually is very good, which offset the decrease in the MMO business. How about marketing campaign on the new game? Is that effective so far? Will you continue the heavy promotion of the new game into the fourth quarter? Yes. We are going to continue our advertising campaign for the new games. In particular, bear in mind we are going to have a new game that will be officially launched for public in December. That is the Ma La Jiang Hu. So we will continue our advertising campaign for that. Also the JX Online 3 game, we just released the last expansion pack for this particular year, and together with an advertising campaign. But bear in mind, those advertising campaigns, yes, the spending will be in this quarter and maybe extended a little bit into the first quarter, but the impact, the positive impact, will last much longer than this quarter and the next quarter. Okay. Also in terms of your browsers, you just mentioned that the active user has reached 5 million. Just for the pure comparison purpose, could you share the data points like the penetration rate of your browser among the Chinese internet users, and also the time usage share of your browser in China market? Since we just launched the browser in late June, and we actually just started marketing it after the beta trial in last month. So at this moment we have not collected the penetration numbers yet. Okay. Lastly, for your mobile security applications, I wonder if you can share how many smartphone users in China have already installed your mobile security apps. Thank you. Excuse me. I don't think we have this number handy at this moment, and we can follow up on this particular question and provide you the number later. Okay, sure. Thank you very much. Thank you. Cheers. Your next question comes from the line of Thomas Chong from BOCI. Please ask your question. Hi. Good evening, Matthew. I have a couple of questions. The first question is regarding the online games business. Can management give us some color about the contribution from overseas this quarter? Is it 15% similar to last quarter? Slightly higher than 10%. I see. The contribution from overseas on online game is slightly higher than 10%. Yes. My second question relates to JX Online World. I just want to see how is the performance of the game so far in October and November. Should we expect the revenue for the game to rebound after the launch of the expansion pack for JX Online World? The launch of expansion pack last week was a very successful one. We are still monitoring the impact of this particular expansion pack. So far, the result is very positive. We are expecting a steady increase for that particular game. I see. Thomas, are you talking about JX World or JX3? JX World. Excuse me, Thomas. It is JX World. Sorry, I missed it. I thought he was talking about the JX3. Sorry. The JX World is, I would say, after the launching of the expansion pack is rather stable. It is not exciting as the impact from the expansion pack of the JX3, which is very good. I see. My second part of the question relates to the application software business. I just want to get an understanding about your WPS. How much is coming from China and how much is coming from Japan right now? My follow-up on that is that given the uncertainty regarding the business in Japan, how should we look at the contribution from Japan going forward? Thanks. The contribution of the WPS from Japan is around 20% as compared to the overall WPS revenue. Going forward, the Japan business, we believe that is still very healthy in terms of the WPS growth. I see. My last question is regarding your Internet security. I just want to get a sense about the contribution from Tencent in advertising as well as the top five advertising categories. Thank you. Thanks for the question. At this moment, what we can say is that the growth of the advertising revenue and our landing page and navigation traffic revenue has been growing over 100% year-over-year. Another good news is it has grown way beyond just Tencent. So it's very healthy. I see. The contribution from the revenue from Tencent is decreasing. In terms of percentage? Yes. But the absolute amount increase across the board. Yes. I see. And the top five advertising categories? E-commerce. Okay. Yeah. Okay. I see. Okay, got it. Yep. Thanks. Thank you for your questions. Once again, if you would like to ask a question, you may press star one and wait for your name to be announced. The next question comes from the line of Fatima Ma from BOCOM. Please ask your question. Good evening, Dr. Jiang, Francis, and Michelle. Thank you very much for taking my call, and congratulations on the very strong quarter. Actually, I have two questions. First is about the daily active users for the KIS navigation website, and also the daily active user for WPS. Because as I remember, in July, the daily active user for Kingsoft navigation website is about 10 million. And in June, for the monthly active user for WPS, it is 33 million. So, how is the Yeah. How is the progress for that? The daily active users have been steady, and it is actually, in term of the landing page activity is still over 12 million. It is steady, and we try to increase. Okay, thank you. About WPS, do you have the figure at the moment? Sorry, which one? For WPS monthly active user. Monthly active users is over 1.2 million. I think it's. Let me double-check monthly. Okay, thank you. Second question is- Oh, yes, sorry. Sorry. The next question is about mobile internet strategy, because I have already seen that you have mobile Duba or mobile security product, Kingsoft KuaiPan, and Kingsoft Battery Doctor, et cetera. Can you share with us more about your mobile internet strategy in the coming quarters and in 2013? Thank you. Okay. I wanted to correct one thing. The monthly active users is 120 million. Yeah. 100 million. I don't know if I give you the right number. Okay. But in terms of our mobile strategy and the overall company strategy in mobile and the cloud, we continue to believe that those are the two areas of our future growth. In the internet security area, we have just released the Kingsoft Mobile Security and on top of the Kingsoft Battery Doctor. We will continue pushing that direction and first to gain install base and then traffic, and hopefully, we will also be able to monetize on top of that. Also in the mobile space, as I mentioned earlier, our WPS Office has gained the first place in Google Play in its category, and it also won the prize in Germany last month. So it is very popular, and it is now over 20 million users already. So we can continue pushing in that direction and expand beyond just Android and beyond just smartphone. We are looking very much into pad, and the important thing there is to improve the user experiences, especially the interplay between the smartphone and PC software. In the cloud space, we are very pleased to tell that we are now in the leading position in the personal data storage, and our registered users for the Kingsoft Cloud, Kingsoft KuaiPan, they have already exceeded 20 million, and according to iResearch, this is the largest install base. Also, according to iResearch, we have the highest monthly and the daily active users. So, in all those three product areas, the mobile and security, the mobile office, and the cloud, we are still in the investment mode. We should expect increased investment going into 2013. This is our long-term business, and we will view the expansion of the user base as much more important than profitability, at least for another year. Okay, thank you very much. Thank you for your question. You are most welcome. The next question comes from the line of Eric Chu from Guosen Securities. Please ask your question. Hello, Dr. Zhang and Dr. Wu. My question is regarding your efforts for the web game platform. What is the progress now, and when are you expected to release the web platforms? Also, the revenue from navigation pages, when do you expect to reach up to CNY 20 million per quarter next year? Thank you. Could you repeat the second question? Hello? Web game, right? Okay. You are referring the web game platform in our Kingsoft Internet division. Yes, the platform is already out. We already hosted a few web games. As a matter of fact, today, we launched our first web game. This is a basketball competition game developed by our studio. The platform is already there. We can continue improving that web game platform and make it more efficient in attracting players and in generating web game revenue. Looking into this next quarter, we see the continued growth rate for our landing page navigation traffic and advertisement revenue into 2013. We hope that the macro economy environment will continue to be steady so that we can expect another year of high growth. Okay. Currently, you are not going to release any user data or user traffic data for the navigation pages and web platforms, right? At this moment, we are not really ready to release the revenue income and user data yet. Okay. But you've also mentioned the number of user for the browser is just the past 5 million, right? That's the installation. Okay. Installation. Okay. Thank you. Sorry. That's active user. Sorry. Yeah. Oh, active user. Okay. You are right. Okay. Thank you for your question. Your next question comes from the line of Simon Peng from Ark Capital. Please ask your question. Hi. Thank you, management, for the presentation. I have two questions. My first question is regarding the shift of strategy from PC to mobile. How would the shift from PC to mobile affect our existing business, and in particular, our ability to monetize the traffic? Do you expect any cannibalization of our existing business, including gaming and other segments? My second question is regarding the cash flow. You have $500 million of cash outflow from investments. Can you explain what this item is all about? Thank you. Yeah. Let me take the first question. This is Hong Zhang, CEO of Kingsoft Corporation. We have put a lot of effort in developing our mobile business. At this moment, we have seen quite a fast growth in terms of user bases for our security services and our WPS Office. As I mentioned earlier, our major objective for 2013 will continue to be increase the install bases and increase the active user bases. We believe that once we build a strong and larger base, monetization will come next. In particular, in the mobile office space, the WPS Office space. As mobile internet become more pervasive, people no longer just need one device for office applications. They do need a mobile device and a PC device for their Office apps. Actually, the continued increase in term of user numbers and the continuous improvement in term of user experiences in the mobile office will actually help and enhance our position in the PC business. So there is no cannibalization in that matter. Actually, it will help us to increase our PC business. So moving forward, we believe that the future world will be an integrated world that any service you provide should across different platforms and different devices. So mobile internet plus cloud will be area we'll continue to invest. We'll take a long-term view on that. As I mentioned earlier, I would like to repeat here that for 2013, our major focus is to increase the user bases. The second question is actually on the cash flow. You asked about the CNY 500 million investment. In fact, that was actually a kind of a bank deposit, what we call a quasi "structured deposit," which is a very low-risk bank deposit exceeding three-month period. Okay, thank you. Thank you for your question. Next question comes from the line of Chris Lai from Bank of America Merrill Lynch. Please ask your question. Thank you for taking my question. In terms of mobile, kind of the mobile development, you mentioned security office. In terms of mobile gaming, will there be any focus on that or any strategies on developing that? Mobile payment, right? Mobile gaming. The connection is not very good. Could you repeat the question? Sorry. Mobile game. Just now, I'm saying, will there be any developments in mobile gaming? Yes. Oh, gaming. Sorry. Yes. So your question is regarding will there be any development on mobile gaming? Yes. We actually have publicly announced our first mobile game, Castle, which has received a very positive feedback in the initial launch. The initial launch actually is in a relatively small scale, and we are going to start to push and start putting in advertisement dollars into that. So that is our first mobile game, and we are going to continue pushing that direction, and we should expect more mobile games launched in 2013. Could you give me an estimate of how many games we would be looking at? At this moment, we are still in the planning stage, and the numbers, just quite a number of games release will largely depend on how successful the first game will be and how successful our mobile gaming platform will be. So unlike many others, more companies, they are working on mobile games. They are working on casual games and games itself only. We are actually, after launch of our first mobile game, actually come with our first mobile game platform. So in a sense, it is a mobile networked game. So it is very different and much more powerful than the casual games. Okay, thank you for taking my question. Thank you for your questions. Your next question comes from the line of Yun Fan Hao from China Merchants Securities. Please ask your question. Hi. Good evening, Dr. Zhang, Francis, and Michelle. Congratulations on your very good quarter. I have a couple of questions. The first is that, can you talk about the pipeline of your web game for the next year? Excuse me, the line was a little bit broken. What is the question? About the web game? Yeah, the pipeline of the web game for next year. Okay. As I mentioned in the past quarters a couple of times, we are not going to start any new teams, new games on the traditional networked MMO games. We still have a few MMO online games in pipeline, but for all the new projects, we're going to start it either it's for the web game or for mobile game. We do see web game and mobile game the new drive for our future gaming revenue. In particular, we are looking into how to leverage our Network game, the strengths we have in network games, and expanding that. I literally means expanding that into web game. Basically, on the market you already see the game with two mode, the traditional network game and web game. We want to extend that even to the mobile games. So, as I mentioned earlier in answering the early question, we are not just looking into the average mobile casual games with Okay. When do you expect the Please, ladies and gentlemen, we apologize. There will be a slight delay on today's conference call. Please continue to hold. Thank you for your patience. This is your operator. Ladies and gentlemen, this is your operator. We are currently experiencing some technical difficulties on the speaker line. Please continue to stand by. The conference will resume shortly. Thank you. Ladies and gentlemen, I apologize. The conference is now resumed. If you would like to ask question, please press star one again. We will now continue to the previous question from Yun Fan Hao. Please ask your question now. My next question is, you mentioned that marketing expense will continue to be heavy in Q4. What is your full year operating profit margin guidance at this point? What will be the situation for the next year in terms of the marketing expense? Thank you. The marketing expenses, as we mentioned earlier, it would be high on Q3, and that would be continuing to Q4 as well. If you look at the full year, you will see that the marketing expenses this year will be higher than last year. If you look at the operating margin, I would say that it will be slightly decreased from last year. A few percentage point decrease from last year. Will the trend continue to next year in terms of marketing expense? Yes, we will continue to be invested in the marketing expenses in next year. But this Q3 and Q4 are particular high because, as you can see that we have three MMO game launched in May, Q3, and Q4. That is accounted for a bulk part of the marketing advertising expenses. Yeah. One increase next year in term of marketing, in term of R&D and in term of overall expense will be in the area of continuing our investment in the security, because the competition there is pretty intense. Also in our new business at Kingsoft Cloud. So those two areas we will continue to invest the advertising dollars for the new games. The Q3 and Q4 are the heaviest two quarters, and that will wind down a little bit into 2013. Okay. Thank you very much. Thank you for your questions. Your next question comes from the line of George Wu from Legend Asset Management. Please ask your question. Thank you for taking my question. I have got a few questions to ask. First, I would like to understand why the traffic to the landing page increased so rapidly. Is it only due to the browser, or is it due to other factors? The activity increase really is due to multiple factors. First, it is really the accumulation of our users and the continued improvement of the user experiences. Also, the partnership with the e-commerce side really took off in the last quarter, and is continuing into this quarter. I would say it is a result of two years' effort, and it is really not just a single thing that triggered this. It is really the accumulated effort we have put in the last two years. Do you mean that the increase in the landing page traffic is not particularly due to the browser? The impact for the browser, we will see perhaps in the coming quarters. Okay. My next question is from the growth on the WPS. Can you share a little bit of information about the split between the government and the enterprise business? What is the proportion between the two types of kinds, as well as their relative growth rate? Yeah. The majority of the revenue is actually from the government procurement. The good news is that procurement will not stop because the government has already put a policy that for those agencies which have purchased our services, they have to renew it three years later, and the push of legalization of software will continue. But there will be uncertainties, given this is an effort that will require more law enforcement and more education. But we are pretty optimistic on that. Of course, the growth rate in the enterprise is higher, but the absolute amount is smaller than the government procurement. Okay. You mentioned about the renewal of license after 3 years. Can you explain a little bit more on that? Maybe I am new to your business. Yes. This is actually the business model that Microsoft and many other software service firms have adopted for a long time. That is, you kind of sign a side contract that you will have update and upgrade over 3 years. The license we signed is for 3 years, and together with all the technical services. The deal requires you to renew it after 3 years. Okay. I see. My last question is on the monetization of personal version of WPS. I understand that management has planned to monetize personal version of WPS in next year. How will you go into monetize, and how will you see the potential of monetization of personal version? Actually, at this moment, we do not have a specific timeline in monetizing from the personal users. At the moment, we do see the benefit of having a large personal user base, both in the mobile office and in the PC office business. We are still exploring the opportunities and possibilities to monetizing from that large install base. But at this moment, we really are not ready to share any particular plan. But one thing I do want to add is that the large user base and the more than 40 million active monthly users actually helped us very much in the adoption of our software in enterprises and the government. Okay. Thank you. Thank you for your question. Your last question is a follow-up question from Martina Ma from BOCOM. Please ask your question. Actually, I think my question has already been answered. Thank you very much. Thank you. There are no further questions at this time. I would like to hand the conference back to the management for any closing remarks. Okay. Thanks again for participating in this conference call and for all the questions. Let me repeat once more. We are very pleased to report another very solid quarter. As we mentioned earlier, we do see continued expense in our marketing and the advertisement of our new games, and extended investment in internet security and in our new business of cloud service. I would like to say that we will see continued growth in our revenue, and our focus will be on growing our revenue and expanding our user bases. We will be in that investment mode for a large part of 2013. We believe that is beneficial to our long-term growth and to secure our position in all the areas we do business. Thank you. Ladies and gentlemen. Thank you very much. That concludes our conference for today. Thank you for your participation.