Good day, welcome to the NetEase second quarter 2019 earnings conference call. The conference is being recorded. At this time, I would like to turn the conference over to Margaret Shi, the IR Director of NetEase. Please go ahead, ma'am.
Thank you, operator. Please note the discussion today will contain forward-looking statements relating to future performance of the company and are intended to qualify for the safe harbor from liability, as established by U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could cause NetEase's business and financial results is included in certain filings of a company with Securities and Exchange Commission, including its annual report on Form 20-F. The company does not undertake any obligation to update this forward-looking information except as required by law.
During today's call, management will discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2019 second quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. An investor presentation and a webcast replay of this conference call will be available on NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase senior management is Mr. William Ding, Chief Executive Officer, Mr. Charles Yang, Chief Financial Officer, and Mr. Hilton Hui, Co-President of NetEase Games. I will now turn the call over to Mr. Yang, who will read the prepared remarks on behalf of Mr. Ding.
Thank you, Margaret. Thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on CNY. We are very pleased to report another quarter of financial and operational growth across our businesses, with a 15% increase in revenue and 46% growth in our net income on a year-over-year basis. Online games remain the cornerstone of our business. Despite a seasonally slower period in the second quarter, the steady performance of our game portfolio marks the fifth consecutive quarter that we have exceeded CNY 10 billion in online game revenues. Our flagship titles continue to provide solid support to our online games business. Throughout the years, these titles have remained relevant to each generation of users as we diligently explore and create innovative new elements to our games, keeping our content fresh.
Take Fantasy Westward Journey online as an example. Over the course of the last 15 years since its initial launch, we have introduced close to 30 major expansion packs, averaging approximately two major expansion packs per year, with many smaller-scale updates along the way. For FWJ's mobile version, we have made even more frequent updates, with nearly 40 major updates since its initial launch four years ago. Beyond substantial game overhauls and additions, we consistently look for various ways to keep our users engaged. During the quarter, we held a number of FWJ esports tournaments, which helped boost our user stickiness and drive continued revenue contribution for future periods. The expertise we have gained from operating these flagship titles over the long term has been deployed in developing our newer games, providing us with more steady revenue streams in what is now a very diverse game portfolio.
Invincible, Onmyoji, and Identity V, launched in 2015, 2016, and 2018 respectively, serve as good examples of our superior game longevity with different game genres. Invincible continues to grow steadily in terms of revenue and number of active users, achieving new records in the second quarter. Onmyoji topped the iOS growth in China twice in the second quarter as we launched a hit expansion pack in Q2 that featured a rich and captivating storyline. Identity V is also growing steadily after more than a year of operation. During the quarter, we also launched an updated version of Chu Liu Xiang and renamed this MMO sensation into All About Jianghu. The update came with a full-fledged overhaul of the game, including improved graphics, new characters, and new social systems.
As a groundbreaking game in the MMORPG genre, the original Chu Liu Xiang impressed the market at its initial launch over a year ago with its best-in-class graphics and high degree of freedom for users to customize and design their own characters and storylines. The game quickly accumulated a large and loyal community of users, particularly among the younger generation. Now with the relaunch, we are thrilled to delight players even without the game's original IP. Our strong content and amazing team of designers captures the spirit of the game while breathing new life into this market favorite. As a result, All About Jianghu is attracting a growing user base and generating increased revenue contribution quarter-over-quarter. Our growing portfolio of games has generated a solid fan base. Our goal is to have an even larger and deeper impact on the vibrant community of game users.
Onmyoji is the first of these younger IPs that we are cultivating. In order to expand the reach of Onmyoji's IP, we are currently working on four new Onmyoji games. These include a Japanese collectible card game called Onmyoji: The Card Game, a simulation game called Onmyoji: Yokai Koya, and two other spin-off games. In July, we also launched the Onmyoji cafe and shop in Guangzhou, featuring popular Onmyoji characters. This location has become a must-see destination for many young fans. We are confident that these initiatives will further strengthen our increasingly valuable game IP and further enhance our recognition among younger generations. In terms of newer titles, we most recently launched BuildTopia and Sky in China and a few other games overseas. BuildTopia is a real-time creative shooting game, topping the iOS download chart within a day of its launch.
Sky is an adventure game, bringing users a heartwarming experience and receiving multiple recommendations from the Apple Store. We also launched an updated version of Tom and Jerry, which proved instantly popular among younger players, taking the game to the top of the iOS download chart shortly after its launch, and continues to trend well with a growing user base. Globally, we continue to advance our games and make inroads that expand our reach. Knives Out remains popular in Japan and topped the country's highest grossing games chart multiple times in May and June. Additionally, Identity V was ranked for the first time on Japan's iOS top 3 grossing chart in July, following our collaboration with famous Japanese comics.
The success of these games has helped us to gain a much better understanding of Japanese users and their preferences, allowing us to better tailor our games for the Japanese market. Some of the titles we recently introduced in Japan also show promising signs of popularity. We now have three more titles in Japan, which are LifeAfter, previously known as Nightfall Survival, Cyber Hunter, as well as Super Mecha Champions, a mecha anime shooting game, which we just released in July. All three of these games topped Japan's iOS download chart shortly after their launches. In the second quarter, our overseas games revenue accounted for more than 10% of our total games net revenue. Having the right product is the key to global expansion, and we will continue to invest in game content that will resonate with global players.
In terms of R&D, we are looking for talent and teams that complement our R&D skills on a global scale. In July, we announced our minority investment in Behaviour Interactive, an online games pioneer in Canada and a leader of the asymmetrical battle arena genre. In addition, we also launched a new video game studio in Montreal, Quebec, in Canada, with an aim to hire local and international resources to broaden our R&D capabilities in North America. Our extensive pipeline also holds a number of exciting new titles for the upcoming quarters. These include Fantasy Westward Journey 3D, Xuan Yuan Sword: Dragon Upon the Cloud, Pokémon Quest, and Bloom & Blade. Moving on to our e-commerce business. During the second quarter, we made additional progress to improve our operating efficiency. We further optimized our internal structure, enhanced our warehouse and logistics operations, and upgraded our supply chain management.
For Kaola, our self-built bonded warehouse in Ningbo began trial operation in June. This warehouse is capable of handling millions of orders every year, which we believe will help us to improve operating efficiencies even further. During the quarter, we also signed strategic partnerships agreement with additional international brands such as L'Oréal and Maybelline, enabling our customers to more conveniently access these world-renowned beauty brands. For Yanxuan, we continue to promote supply chain upgrades by helping manufacturers improve their design, reduce production costs, and enhance efficiencies. We are further deepening our collaborations with top-performing partners, which will allow us to renegotiate better commercial terms, implement better controls over quality, and optimize product creativity. On the product side, we are even more selective with new product offerings, enabling us to focus on and dedicate our resources to top products with the highest repurchase rate and customer satisfaction rating.
By offering customers greater value for their money with better product quality and pricing, we hope to further improve customer satisfaction. Turning on to our online music business. We continue to innovate and create a highly differentiated product with an unparalleled social experience on our NetEase Cloud Music app. At the end of July, we added a new highly popular community module known as the Cloud Village. This is a music community that fosters discussion, creation, and sharing, and personalized expression around music. It is presented in the format of waterfall containing music video blog, music microblog, and many other exciting features that allow music lovers to follow and express themselves interactively. This brand new module changes the way that users experience music from just listening to also watching and interacting.
At this moment, we have over 800 million users on our music app, which is 50% up year-over-year. Subscriber numbers are also growing very strongly at 135% year-over-year increase. For online education, Youdao continues to deliver solid growth, and we see significant opportunities in the online learning industry. Over the course of the last 13 years, Youdao has built a robust suite of technology-driven learning products and services. With its leading AI technology, strong content, and predictive development capabilities, Youdao has steadily built a large, engaged, and diverse user base with over 100 million average total MAUs in the second quarter of 2019. We do not take the responsibility of education lightly, and we encourage innovation within each content studio at Youdao.
Our courses are regularly evaluated, and their success is measured by user satisfaction ratings, which we believe is pivotal to the long-term sustainable growth of any online learning company. Youdao most recently hosted its annual product launch conference in Beijing. At the event, we announced five different products for children, including Youdao Children's English Mobile App, Youdao Mathematics Online Course, and Youdao Chinese Reading Online Course, all designed to improve children's learning habits, as well as Youdao Kada, two online courses teaching coding to children between the age of three to 18. Additionally, we also announced our second generation Youdao Dictionary Pen, supported by more advanced optical character recognition AI technology, allowing more accurate and effective scanning translation. In an evolving internet market, content is king, and NetEase is best known for our content creation capabilities. This rings true across our different business segments.
We continue to emphasize product enhancement, craftsmanship, and innovation, and better user experiences to thrill our ever-growing user community of different segments. Through our industry knowledge, deep IT diversification strategy within our core competencies, and our international growth initiatives, we believe we can continue to bring relevant, exciting new products and services to NetEase players, fans, and users around the world. As we continue to grow and evolve, we are always very appreciative of the long-term support from our shareholders. With that in mind, our board of directors have approved a dividend payout ratio of 30% this quarter. We are delighted to be returning value to our investors as our business continues to boast healthy and growing profits. This concludes William's comments. I will now provide a very brief overview of our second quarter 2019 financial results.
Given the limited time on the call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. For the second quarter, our total net revenue were RMB 18.8 billion, or $2.7 billion, representing approximately 15% increase year-over-year. Net revenues from online game services were RMB 11.4 billion, down 4% quarter-over-quarter, but up 14% year-over-year. The sequential decrease was due to the second quarter, typically being a slower quarter seasonally. The year-over-year increase was primarily driven by increased revenue contribution from flagship titles such as FWJ and new games such as Justice and LifeAfter. Mobile games accounted for approximately 72% of net revenue from our online games in the second quarter. Net revenue from e-commerce were RMB 5.2 billion, and net revenues from advertising services were RMB 582 million.
Net revenues from our innovative businesses and others were CNY 1.5 billion, up 18% quarter-over-quarter, and 23% year-over-year, both due to increased contribution from Cloud Music, CC Live Streaming, and Youdao. Our overall gross margin was 43.3% in the second quarter, compared with 44.1% in the preceding quarter and 44.5% for the prior year's period. Gross margin for our online game services for the second quarter was 63.1%. By and large, our gross margin for games is generally stable, fluctuating quarter-to-quarter within a narrow bandwidth based on the revenue mix of mobile, PC, self-developed, and licensed games. For e-commerce, our gross margin was 10.9% in the second quarter. We achieved a positive gross margin for our innovative businesses and others business of 1.4% in the second quarter versus losses of 13.1% and 7.3% in the prior quarter and second quarter of last year, respectively.
The significant improvements came from increased revenue contribution from some of our business lines within this segment, as mentioned a moment ago, as well as better cost controls. For the second quarter, total operating expenses were CNY 4.6 billion. Our selling and marketing expenses as a percentage of net revenue were 9.4% in the second quarter, largely stable from the previous quarter. We continue to see operating leverage as we benefit from economies of scale and improve operational efficiency. E-commerce related shipping and handling expenses included in selling and marketing expenses as a percentage of e-commerce revenue were 7.4% in the second quarter, significantly improved from 8.4% in the previous quarter. R&D expenses were maintained at around CNY 2 billion level, reflecting our commitment to investing in content creation and product development, which is what defines us as a technology company.
Operating income for the second quarter of 2019 increased by 2% quarter-over-quarter and 50% year-over-year to CNY 3.5 billion. The effective tax rate for the second quarter was 18%. The lower effective tax rate in the second quarter was mainly due to reduced losses from certain subsidiaries, as well as certain tax credits being recognized for certain subsidiaries of the company during the quarter. Non-GAAP net income attributable to our shareholders for the second quarter totaled CNY 4 billion, or $531 million, representing an increase of 21% quarter-over-quarter and 34% year-over-year. Our non-GAAP diluted earnings per ADS were CNY 28.06 or $4.09 for the second quarter of 2019. Our cash position remains strong.
As of June 30th, 2019, our total cash and cash equivalents, current and non-current time deposits, and short-term investment balance totaled CNY 55.6 billion, compared with CNY 50.1 billion as of year-end last year. For the second quarter, we are pleased to report that our board has approved a dividend of US$1.04 per ADS, representing a 30% dividend payout ratio. As we mentioned earlier in William's remarks, we are thankful for the long-term support from our shareholders, we are always looking for ways to return value to our shareholders. As a result, this quarter's higher dividend payout ratio reflects this commitment as we continue to boast healthy and growing profits. Thank you for everyone's attention. We would like now to open the call to your questions. Operator, please go to Q&A.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please take note that only one question could be asked when you're queued, and if you have second question, please requeue again by pressing star one. For the benefit of all participants on today's call, if you wish to ask your question to the company management in Chinese, please immediately repeat your question in English. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Alicia Yap from Citi.
Hi, good morning, management. Thank you for taking my question. I have a question regarding the overseas expansion strategy for our games. As we noticed, we recently launched a new game studio in Montreal and acquired a stake in Behaviour Interactive, and our games are doing well in Japan and some overseas markets. Going forward in the future, could management share more on the strategies? In particular, what are the key focus markets by geography, the target game genres, and the steps we'll take to achieve the overseas growth, either from organic growth or M&A. Also some of the updates on the latest partnership in the industry with this overseas studio would be helpful. Thank you. Thank you very much, William and Charles. Thank you.
We will take our next question from Alex Poon from Morgan Stanley. Your line is open. Please go ahead.
Hi, good morning. Thank you for taking my question. I have a question regarding the music business. It's very glad to see the new module Cloud Village launch recently. Can you also talk about in the second half how your monetization strategy will change? I also have seen some news regarding the timetable of profitability. Can you also share with us how are you going to control the costs and achieve the profitability?
丁总，你好。想请问一下关于音乐。很高兴看到新的版本，有云村。想问接下来在下半年在完善这个领域会怎么做？会做得比较好一些。而且看到有一些新闻说现在已经有一个盈利的时间表，所以想问一下关于这个的情况。谢谢。
我相信你在最新上线的一个版本的云音乐里面，看到了我们一个音乐社区的功能，云村。这方面在国内是很创新的。在网易云音乐的发展道路上，我们一方面非常重视中国原创音乐的发展，希望网易云音乐可以给中国的原创音乐提供一个推广发展的一个机会，能够把中国本土的原创音乐给做大。第二个，你可能关心的是这个产品本身的商业模式怎么能够盈利。我们总体来说，一是会员。我们还是会员在持续高速的发展。第二个就是广告，我们上面有广告。第三、第四，我相信你可能已经有些看到了，一个是我们的音频直播，这个会是一个新的UGC的平台模式。第四个，我们会考虑去发展云音乐里面更深层次的社交功能。不单单社区，还会有社交。所以我们是对这四个方面的盈利是比较有信心和把握的。
Okay, Alex, for everyone's benefit, let me quickly translate William's remarks. We are glad to see that you've noticed in our most recent version update of Cloud Music, there is a prominent music community feature called Cloud Village. Everyone, a true music lover, is now an official villager of our app. As we've mentioned previously, a key focus of Cloud Music is to dedicate our platform and our user outreach to promote independent musicians and independent music here in China. With these community features, I think this is more productive in us achieving this mission. In terms of your question on monetization, by and large, I think it can be categorized into one being the user subscription, which we now seeing a very robust growth in both the overall users as well as subscriber growth more than 135% year-over-year.
Second is from advertising, which again, can grow hand in hand as we're growing our user base and popularity amongst the users. The third is broadcasting, which is not only in the format of video live streaming, but also audio broadcasting. Fourth, now with the establishment of a community feature, we will also be more innovative and exploring deeper monetization opportunities around these community interactive features. In terms of your question on profitability, we've never officially commented on any timetable, but rest assured, we feel very, very confident about the growth upside of China's online music industry as a whole, and that is, as you can now witness for the past few records, we are very disciplined in controlling costs at a reasonable level, as well as be focusing on the return on the various investments, whether it's selling, marketing or R&D into our different business segments.
Profitability is ultimately our target.
谢谢丁总。谢谢Charles。
We will take our next question from CICC. Your line is open. Please go ahead.
Hi. Good morning. Thanks for taking my question. I actually have two here. First one is regarding the Cloud Music as well. You just mentioned about the Cloud Village module. Actually, I tried that module, and it's very innovative and interesting. Just wondering, can management share with us some further operating metrics regarding the user engagement recently for the Cloud Music? I just want to get a sense of how that new function has improved the user engagement, say the daily active user or the daily time spent, something related with that. Secondly, about the Marvel IP, just wondering how should we anticipate the use of Marvel IP? Will there be some brand new games or genres launching under these IPs or just new updates with these new features embedded in our existing games? Thanks.
Thank you, Natalie. I will answer your first question on operating metrics and then William will further comment on the Marvel IP. Well, as you know, we've only launched this new updated version almost, I think it's 29th of July, towards the very end of July. It's about 10 days. There's really not a lot of operating metrics that I can specifically share. We've seen very encouraging signs of strong growth in both DAU and MAU since we launched the most updated version.
This data is exactly why we are confident that our innovation in bringing in this new interactive community feature will eventually be very well rewarded, because it is not only a way of changing people's habit of experiencing music, but hand in hand as this new feature is now not only encouraging users to listen, but also to watch and interacting with other music lovers. It also creates possible opportunities for us to explore monetization potential. I'll leave the second question to William. For the Marvel IP, Natalie, it's a big area for a deep-rooted collaboration, is that we will leverage Marvel's global popularity of the IPs to develop games. It's not only one, it's actually several games across different genres that we have different schedule and timetable to collaboratively develop with Marvel. The partnership also goes beyond games.
For all those details, it will be gradually announced as we further progress along this long-term strategic partnership.
Got it. Thank you. Looking forward to that.
We will take our next question from Thomas Chong from Jefferies. Your line is open. Please go ahead.
Hi, good morning. William, Charles, and Margaret. Thanks for taking my questions. Congratulations on solid cost control for this quarter. My questions are mainly focusing on the cost side. I think for the GP margin, the innovation and others achieve the first positive gross profit in the past 12 months. Can we basically assume that our cost control is very solid and we should expect innovation and others to maintain GP margin to be positive going forward as well as for e-commerce, do we need to stay stable GP margin for e-commerce in 2019? My second part of the question is about the OpEx. Can management comment about the headcount that we have in Q2 versus Q1, and how should we think about 2019? In particular, for R&D expenses, is there any reason why we see a sequential decline?
Should we expect the trend to be continued in the following quarters? Thank you. 然后e-commerce那边呢，也想大概知道我们是不是还是维持19年跟18年差不多的那个GP margin的水平。第二个问题也是在OpEx的层面上面，就是想大概了解一下我们Q2的员工数跟Q1大概的情况是怎么样，然后也想知道研发费用未来的趋势大概是怎么样，会不会继续的有一个环比的下滑？谢谢。
Thank you, Thomas. I will take your questions. On the cost side, let me first begin by saying that NetEase has been listed since 2000, for 19 years, and we have gone through various cycles over the last 19 years of journey being a listed company. We've always been very disciplined in terms of making adaptive measures in corresponding to different macro environment. For 2019, as we commented in the previous quarter's earnings call, one key focus is a more disciplined balance between growth and margin. We are very happy that at least for the last two quarters, we've been delivering on what we have promised to the market, being very disciplined. Well, having said that, it doesn't mean a scale back.
In terms of headcount, by the end of the second quarter, the overall headcount is by and large, stable versus a quarter ago or end of last year. A lot of market rumors commenting on massive layoffs and all that, those are utterly just not fact. Relating to your other questions, R&D, yes, we are a technology company, so R&D is an engine for our continued sustainable growth for the longer term. I do not see any reason why we should scale back or cut down R&D costs significantly. Quarter to quarter, small fluctuations, it's difficult to explain. Sometimes it relates to some one-off events, sometimes it's the provisions and all that. I think a general trend is that we are going to dedicate a considerable amount of our net revenue into R&D.
Again, like I commented earlier on, whatever format of investment, whether it's R&D or selling, marketing, we focus internally on the return on these investments. In terms of margin, the reason why we have grouped some business segments into innovative businesses and others is exactly because they are in a relatively early stage. As they continue to grow their top line, their user base, the economies of scale will help us to improve their margin trajectory. It is too early to predict whether all those relatively young business segments will then, starting from this quarter, always have positive GP margin, but I do not see any indication of margin materially decline.
going forward, as long as my music business, my Youdao, are growing healthily, I think earlier on, I think Alex also asked that question, profitability, making positive profit, returning value to our shareholders always remains as a priority to NetEase.
Thank you, Charles, and congratulations again.
Thank you. We will take our next question from Bill Pang, Goldman Sachs. Your line is open. Please go ahead.
Thank you. Good morning, and thank you for taking my question. I have a follow-up question on costs, mainly about the sales and marketing line. I noticed that for this quarter, it's almost flattish quarter-on-quarter, but a reduction from a year-on-year perspective. I wonder for the sales and marketing expense, how should we think for this line for the rest of the year, given that on one side, we have a deceleration in e-commerce growth, and on the other hand, the number of new approvals has been rather limited compared to previous expectations. Thank you.
Thanks, Bill. I'll again take that question since it relates mostly to financials. For selling and marketing, majority of the selling and marketing is allocated to games, and as you mentioned, relatively speaking, there's fewer new games that is being launched in the first half of this year. That explains why the selling and marketing on games is a relatively lower amount comparing to periods where we have major titles that we need to promote. Now on e-commerce, as I mentioned, for now, at least two, three quarters, it's always a balanced approach between how fast we want to grow the top line as well as the profit profile of my e-commerce segment.
I think coming into 2019, we are more disciplined in keeping that balance in the sense that it's just never our philosophy that we are to pursue a faster top-line growth at the expense of a bigger loss. That is not our intention, and it's never in our corporate DNA. These two factors accounts for mostly why in the first half or the past two quarters, selling and marketing expense has been maintained at a very cautious and disciplined level. Well, that does not mean that we face resource constraint. In the second half, if there are new games that's ready for marketing and promotion, we will do so. If there are opportunities for us to see a re-acceleration of my e-commerce or other business segments top-line growth, we will not hesitate to spend marketing dollars.
Whatever marketing dollars we spend, it will be a very calculated investment, focusing on returns and focusing on the results of my marketing dollar expenditure.
Okay. Thank you.
Thank you. We will take our next question from Eddie Leung, Bank of America Merrill Lynch.
Hey, good morning, guys. Good morning. Thank you for taking my questions. I have two quick questions. The first one is about esports. It seems like there is a plan to invest in a stadium in Shanghai. I am wondering how would that affect our capital expenditure going forward. Secondly, just any update on game regulation, anything related to the young users' time restriction. Anything along that line would be helpful.
Eddie, I will translate the first question. I think you noticed the recent news we made at ChinaJoy. Yes, we are going to invest in Shanghai on esports related. Shanghai is very supportive of esports and overall new economy as a whole. As you may notice that our Shanghai Dragons, which most recently won a championship in the Overwatch League, is a team that is based in Shanghai, and we've also had plan to invest. It's not solely just for esports stadium, but it's esports as well as a R&D center that is more tilted towards developing esports-relevant game content. That's a longer-term strategic plan. In terms of CapEx, because it's going to be spent across next three, five years or even longer, from a financial statement, from a cash flow perspective, these are well within our resource capability and control.
It is not going to impact our financial results materially at all. On your second question, game regulation, we don't have any further update on how the regulation is progressing.
Thank you.
Thank you. We will take our next question from Jialong Shi from Nomura.
Your line.
Hi, good morning. Hi, good morning, management. Thanks for taking my call. I have two questions. First question is about your dividend payout. As Charles mentioned in the prepared remark, you revised your dividend payout from a fixed 25% to the range of 20%-30% going forward. I just wonder, the rationale to make this change. Is it fair to think, going forward, you will be able to pay higher than previous 25% in dividends since your earnings outlook is getting better? My second question is about Fantasy Westward Journey 3D. Based on the game's website, this game will start a new round of testing today. Can you give us some colors on its revenue potential, based on the performance during the past rounds of testing? Is there any potential cannibalization risk between the upcoming FWJ 3D and your existing 2D FWJ game?
Finally, how long do you expect this latest round of testing may last? When you expect to monetize this new game?
To just translate for everyone's benefits, for FWJ 3D, yes, we will start closed beta testing on Android today. As to the official launch and monetization timeline, that will be subject to first of all, obviously, the approval, when we can get the license. Secondly, also based on the testing results of this closed beta testing round. On your concerns on internal cannibalization, as this FWJ 3D and the current FWJ PC version and the FWJ mobile version, they are targeting different user appeals. We see very little concern, if any at all, in terms of user internal cannibalization. We are very confident and positive about the future outlook of FWJ 3D upon its official launch.
For your first part of the question on the dividend payout ratio, let me comment saying that NetEase is in fact one of the very, very few technology companies globally that has been consistently paying a dividend, returning dividend to our shareholders on a quarterly basis. Every quarter, the exact dividend payout ratio is obviously subject to the board approval. Now the board has authorized management, instead of a fixed 25% point to a 20%-30% range. That's not mean that we are bound by this range. Every quarter, the exact dividend payout ratio will be dependent on the financial and operational performance of the company, and ultimately subject to the board's reapproval. It does not indicate that in the future we will always be paying 30%.
We are still pleased that this quarter we are paying more because we are confident about our sustainable profitability profile down the road. For the future quarters, it all depends on how the macro economy and our outlook of the company's performance change.
Thank you.
Thank you. Let's conclude today question and answer session. Margaret, at this time, I would turn the conference back to you for any additional or closing remark.
Thank you again for joining us today. If you have any further questions, please feel free to contact us or TPG Investor Relations. Have a great day.
Let's conclude today conference. Thank you for participation.