Good day, welcome to the NetEase first quarter 2019 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Margaret Shi, IR director of NetEase. Please go ahead, ma'am.
Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the 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 affect NetEase business and financial results is included in certain filings of the company with the 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 definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2019 first quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. In addition, 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 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 RMB. 2019 began on a strong note with robust financial growth. Our core businesses strategically aligned for future success. Our total net revenues grew by 30% year-over-year for the first quarter. We more than doubled our non-GAAP net income to RMB 3 billion on an annual basis. Our online games revenue grew by 35% as the result of continued strong performance from our flagship titles and our successful diversification initiatives. Beyond online games, we realigned our resources to be more focused on our e-commerce, music, and online education divisions, which we believe will improve our profitability in the longer run.
Over the last few years, we have been steadily amassing a portfolio of high-quality games that span a diverse universe of game types. This has allowed for exceptional stability within our online game segment and enabled us to better navigate the fluid market without having to rely solely on new game introductions. Combined with the time-proven longevity of our games, we delivered another quarter of sequential growth based on just our existing titles. This is the fourth consecutive quarter that we have exceeded CNY 10 billion in quarterly online games revenue. We delivered this result amid a challenging industry environment with fewer new games being approved for market release in China. With our promising pipeline of upcoming new titles in China and abroad, we are confident in our ability to sustain this growth trend in our online games division.
Our legacy titles such as Fantasy Westward Journey series, New Westward Journey Online series, and Tianxia III continues to grow in the first quarter. Quarterly revenue for Fantasy Westward Journey Online keeps breaking new records, hitting another all-time high this quarter. Revenue from New Westward Journey Online II also grows steadily, reaching a new high this quarter in recent years. These are prime examples of our ability to create sustainable games that remain relevant over extended periods of time. This is a goal for each one of our games and is becoming more apparent for our newer titles as they move into their third or fourth year of operation. For example, our 2015 launch, Invincible, continues to deliver new records in terms of revenue and number of active users quarter after quarter. Onmyoji, our 2016 launch, has topped the iOS grossing chart in China multiple times in recent quarters.
Despite all the hype in the online game market, our efforts to create innovative and interesting content updates for our core base of users is consistently rewarded with longevity and loyalty from our game players. In the spirit of Chinese New Year, we introduced new features and activities for a number of our games that promote our Chinese heritage. These were very well received by our players. For example, in Justice, we introduced Song dynasty-themed Chinese New Year celebrations, allowing users to experience ancient customs and traditions within the game. These additions quickly gained wide recognition from the user community and central government media outlets, including CCTV and Xinhua News Agency. With "Invincible," players often use classical Chinese language to communicate, particularly for declaring war and conducting other actions within the game.
In "Minecraft," we released new updates enabling players to build classical architecture such as the Beijing Palace Museum and restore historical relics, including the old summer palace. With these updates in place, "Minecraft's" monthly and daily active user numbers reached new highs during the Chinese New Year, bringing the game's total number of registered users to more than 200 million. One of the benefits of having a broad portfolio of self-developed games is that we can explore the full potential of our full spectrum of IP. Many of them are in-house developed. Based on its huge fan base, we tested this strategy on "Onmyoji." The first spinoff of "Onmyoji" was its mobile game version, "Onmyoji Arena," which gained meaningful traction from users and helped reinforce the "Onmyoji" franchise.
We are currently working on another new game based on Onmyoji's IP, presently known as Project SSR. This collectible card game with storylines set on a mysterious ship will offer a new and more casual experience compared with our previous Onmyoji titles. Based on Onmyoji IP, we now have merchandise, music, fan art, a musical stage production, and a cartoon series. We are continuing to build on Onmyoji's popular brand, offering many other Onmyoji-based pan-entertainment formats. We keep looking for ways to improve our R&D process, increase efficiency, and address the market with innovative new games.
While it is impossible to predict with absolute certainty which games will be the next industry blockbuster, over the course of the last 2 decades of operation in online games with one of the world's largest teams of in-house game developers and comprehensive infrastructure, we have a fairly good understanding of what game players want. By implementing an even more rigorous evaluation process and demanding even higher quality content during the R&D stage, we are confident we can continue to bring blockbuster titles to China and global game communities with lasting IP that stands the test of time. Turning to our overseas market, we continue to make headway to deepen our presence in key international markets such as Japan and the U.S.
Knives Out remains a popular title in Japan and again topped the growth chart a few times in March and May following the introduction of Battle Pass and our collaboration with King of Fighters. Identity V is another fan favorite in the Japanese market, growing steadily since its launch there. With the release of its new character, X-Boy, Identity V made Japan's top five iOS growth chart for the first time in April. More recently, LifeAfter, our cooperative survival RPG, and Cyber Hunter, our new open-world battle royale game, both reached number 1 on Japan's download chart shortly after their launches in April. We follow a three-tiered approach with our international expansion strategy. First, we will continue to invest in global talent and overseas game studios that complement our internal R&D know-how to create proprietary games that are suitable for global audience.
Second, we work with many of the world's best game companies to help transform some of their most well-known PC or console IP into mobile sensations such as Diablo and EVE. Third, we have partnered with some of the world's most successful IP owners to create games based on their iconic characters and storylines. More news will be revealed at our May 20th Game Day event next Monday. We will also be showcasing more upcoming game titles in our pipeline, including Beautopia, Justice, Sky, Fantasy Westward Journey 3D, Xuan-Yuan Sword: Dragon Upon Cloud, and Ages of Isle. Now moving on to our other businesses. Our heightened emphasis on our core businesses allows us to sharpen our focus on areas where we see the most potential for sustainable and long-term growth.
During the first quarter, we made a series of structural optimizations to hone these core growth segments, deescalate inefficient segments, and increase our investments in areas that improve our competitive edge. Our profitability improved as a result. Take e-commerce as an example. We successfully enhanced our warehouse logistics operations, adjusted our marketing strategies, improved our product navigation, and optimized our pricing. Kaola hopes to capture additional spending from loyal customers by offering authentic and cost-effective products from around the world. Compared with last year, the number of Kaola membership has almost doubled with average spending per user steadily improving. We will continue to add more membership benefits as more and more of our brand partners become aware of the value of these VIP members. For Yanxuan, we are determined to build a national brand that is deeply embedded in people's mind when they look for premium quality and affordable price.
Over the past three years, we have accumulated a large community of Yanxuan fans. In April, we introduced a new cashback incentive program to encourage user engagement. We launched a series of interactive activities online and offline to help Yanxuan fans gain a deeper understanding of the entire production process. For music, we continue to position ourselves as the gathering place for original Chinese singers and a nursing ground for original music and independent artists in China. The number of paying subscribers on our platform more than doubled year-over-year and continues to grow healthily on a quarter-over-quarter basis, underpinned by our strong growth in MAU and DAU. In January, we hosted the NetEase Cloud Music Original Artist Ceremony 2018. We launched the third season of our talent hunt program, where we discover and help promote new independent musicians in China.
Based on our excellent operational capability and distinguished music community atmosphere, we have helped create a great deal of popular original music, which has been played billions of times on our platform. Our users are typically young, edgy, and have very diversified taste in the music they listen to. In addition to original music, we try to satisfy our users with music from all over the globe. In April, we added popular Japanese music to our platform through our partnership agreement with Nippon Columbia, Japan's premier record label company. For online education, Youdao is a leader in China's learning and online education sector with a decade-long cultivation. Youdao now attracts a diverse and engaged user base comprising over 800 million users, offers a suite of technology-driven learning and education products and services.
With the comfort and trust these users have gained from our products and services, NetEase Youdao has become a household name in China's learning and education space. Our users are willing to try out other products we offer as they move on to different stages of learning or even select suitable products for their children. This brand recognition has led to higher conversion rates and rapid growth in Youdao's online course offerings. K12 continues to be the primary growth engine for Youdao, where we offer online courses via after-school curriculum tutorials, as well as extra curriculum courses in STEAM subjects such as coding. Youdao online courses focus on creating differentiated, reliable, and effective learning and educational content to our users. We achieve this by adapting our sophisticated technology to an online learning environment and applications.
For example, our proprietary smart pens are able to grade homework and give feedbacks to our students simultaneously as they use them to write on paper. This technology greatly enhances teaching efficiency and helps us accumulate a large amount of relevant data, which we utilize to further improve our teaching content. NetEase has come a long way over the last few years. Mobile and PC games remain the crux of our business with e-commerce, music, online education, and media following closely behind. These are the core areas that we have identified as constants in an ever-evolving online world. This is where we will focus our efforts to continue to grow our business, and this is where we provide our users a variety of best-in-class contents and services under one NetEase brand appeal.
As we nurture these non-game businesses to their full potential, adapting with intellectually curious internet population, we believe we will be very well-positioned to remain at the forefront of the evolution, shaping trends and bringing new online ideas to our growing community of users around the world. 2019 is off to a strong start, and we are excited to continue on this trajectory. This concludes William's comments. I will now provide a brief review of our first quarter 2019 financial results. Given the limited time on today's call, I will only be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Our total net revenue for the first quarter were RMB 18.4 billion or US$2.7 billion, representing approximately 30% increase year-over-year.
Net revenues from online games grew for the fourth consecutive quarter, reaching RMB 11.9 billion, representing an increase of 8% quarter-over-quarter and 35% year-over-year. The sequential increase was driven by steady performances from a number of our legacy titles. The year-over-year increase was primarily driven by new game launches in China and abroad, including Knives Out in Japan, Identity V, Justice, and Night Fall Survival. Mobile games accounted for approximately 72% of net revenues from our online games in the first quarter. The first quarter is typically a slow season for e-commerce and advertising, which explains the sequential decline in net revenues from these business segments.
Net revenues from innovative businesses and others declined sequentially due to reduced revenue from non-core businesses as a result of the reallocation of our resources to our core business areas, and the decline in Cloud Music and CC live streaming due to seasonality. Gross margin was 44.1% in the first quarter, compared with 38.6% in the preceding quarter and 42% for the prior year period. Gross margin for our online game services for the first quarter improved slightly to 63.7%, which is largely stable. As a reminder, our gross margins for games typically fluctuate quarter-to-quarter within a narrow bandwidth based on the revenue mix of mobile, PC, self-developed and licensed games. For e-commerce, we aim to maintain our gross margin in the high single digits on an annual basis.
For the first quarter, our e-commerce gross margin was 10.2% versus 4.5% and 9.5% in the prior quarter, and for the first quarter of 2018 respectively. The sequential increase was because the fourth quarter last year is seasonally the largest promotional quarter of the year. Gross margin for innovative businesses and others was -13.1% versus -5.2% and -9.9% in the prior quarter and for the first quarter of last year respectively. This was mainly due to reduced revenue contribution from non-core business divisions. For Cloud Music on a year-over-year basis, gross profit margin is improving due to scale effect. The quarter-over-quarter decline was mainly due to seasonality on advertising and increase in content purchase costs. For the first quarter, total operating expenses were RMB 4.7 billion, down 14% and 1% respectively compared to prior quarter and first quarter of last year.
We continue to see operating leverage as we benefit from economies of scale and improve operational efficiencies. Selling and marketing as a percentage of net revenue was 9.2% in the first quarter, consistently coming down from 2018 levels. E-commerce related shipping and handling expenses included in selling and marketing expenses as a percentage of e-commerce revenue was 8.4% in the first quarter, compared with 8.7% in the same quarter last year. R&D expenses were maintained at around RMB 2 billion level, reflecting our continued commitment to investing in content creation and product development, which is what defines us as a technology company. Operating income for the first quarter was increased by 52% quarter-over-quarter and 182% year-over-year to RMB 3.4 billion. Effective tax rate for the first quarter was 34%.
Non-GAAP net income attributable to our shareholders for the first quarter totaled RMB 3 billion or US$450 million, representing an increase of 28% quarter-over-quarter and 126% year-over-year. Our non-GAAP diluted earnings per ADS were 23.34 cents RMB or US$3.48 for the first quarter of 2019. Our cash position remains steady and strong. As of March 31st, 2019, our total cash and cash equivalent current and non-current time deposits and short-term investment balance totaled RMB 51.9 billion compared with RMB 50.1 billion as of December 31st last year. For the first quarter of 2019, we plan to pay a dividend of RMB 0.69 per ADS, representing 25% of the net income attributable to our shareholders. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead to Q&A.
Thank you. If you would 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. For the benefit of all participants on today's call, if you wish to ask a question in Chinese, please immediately repeat your questions in English. Please ask one question at a time. If you have follow-up questions, please join the queue again by pressing star one. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Eddie Leung from Bank of America Merrill Lynch. Your line is open. Please go ahead.
Hey, good evening, guys. Just have a question on an industry phenomenon. We have seen a lot of internet companies talking more and more about focusing on time spent of their users. Just curious how NetEase thinks about this problem. Do you think time spent is the most important metric internally for a lot of your business unit? If not, why? Especially given your experience in running PC games, which I guess would be one of the first internet applications facing the challenge of time spent diluted by other applications. It would be great to hear from you guys in terms of these industry dynamics.
Thank you, Eddie. I will translate the question for William and the other management team. 老板第一个问题是一个行业性的问题，他是想问因为现在越来越多的互联网公司都在说就是用户时长。那他想问我们，就是站在网易的角度，这个是不是我们来看业务的最重要的一个指标？也就是用户在我们各个产品上面花的时间的长短。
也不能完全这样说吧。那你搜索引擎频率的用户时长是最短的，搜一下可能两秒钟就走了。那你这个逻辑我也觉得不对吧。当然了，这个有一定道理，但不能说是一个非常绝对和客观的描述手段方法。我觉得最重要的是产品和服务本身能够给用户带来的比较独特的和竞争对手不一样的体验，和其他产品不一样的体验。有独特性应该是最重要的。就体验的独特性是比这个时长本身可能更重要的。
好的，老板。So, Eddie-
就是一个是用户对产品体验的高评，第二个是产品体验的独特性，这两个比时长更重要。
[Foreign language] Okay, Eddie, and everyone on the call for the benefits of the broader population, I'll briefly translate William's comment that he made in Chinese. First of all, we don't think this is a question can be answered by one generalized answer. Definitely, time spent is an important factor, but this should not be the only or sole important factor that is applicable to all the different verticals. For us, what we think are the most critical factors to our success is back to the essence of a content, whether you are providing a unique and differentiated experience to the users that differentiates your product versus of a competitor. To us, we really think that's the core, that's the essence that's been attracting users coming back with higher frequency of using our products and services.
If we were to summarize this broad macro question, it is the frequency of user revisiting and unique and differentiated experiences that we will prioritize when we think about NetEase products and services.
If you find that your questions have been answered, you may remove yourself from the queue by pressing star two. We'll take the next question from Natalie Wu from CICC. Your line is open. Please go ahead.
Hi, good morning, management. Thanks for taking my question and congratulations on very solid results. My question is related to the innovative business and others, including Youdao Education, Cloud, and others. Just wondering what kind of a scale of the investment are you preparing for this business this year? Specifically for online education, you know that it is actually quite difficult to reach a sizable level by simply utility app traffic redirection for online K12 after-school tutoring, especially those primary school courses related.
Just wondering what kind of the differentiation or unique positioning NetEase has in the competition with other industry leaders. [Foreign language] What kind of the resources NetEase would allocate on the group level to facilitate a better development of this business? Also a housekeeping question, can you update us about the overseas revenue contribution this quarter? Thank you.
好的，让我再翻译一下。老板两个问题，第一个是问我们在创新业务及其他业务里边，特别是围绕着有道教育，我们怎样看我们后续会做哪一些投资？就是规模。因为Natalie问的这个问题是说，在教育这个领域里边，我们要想怎样有一个独特的定位，要到达怎样的规模，才能跟其他的一些大的类似于学而思、新东方这样的玩家有一个不同的定位。那站在网易集团的角度，我们会有哪一些资源集团给到有道教育这边。
我们首先定位的是一个网课，网上的课程，不是像他们这样比较重的一个线下的业务。那第二个就是我们有一些独特的硬件，像人工智能笔，可以快速地获得学生在做题目过程中知识的薄弱点。第三个就是网易本身，邮箱、游戏、音乐有大量的父母级的用户，因为像我们邮箱都做了20年，即便他20岁的时候开始用邮箱，到现在可能也就40多岁了，是吧？刚好这一代人开始有小孩是在K12这个阶段。我们的业务主要focus在K12这个阶段。那我们获得用户的流量和成本都会比别人的公司来得低。所以这些三个是我们的优势，一个是定位，我们是网课；第二个，我们有人工智能技术去解决用户的困难；第三个，我们获得流量的成本会比其他公司来得低，还有我们的品牌优势等等这一方面。可以。对，你帮我翻译一下。
[Foreign language] Okay. Natalie, in terms of specifically on Youdao, the one positioning that we would like to emphasize is that our core Youdao business is only focused on online teaching and learning. We are not tapping into offline. The primary focus is K12 segment of the population. One very unique advantage of NetEase as a technology company and Youdao that has been cultivating its online education resources for over a decade is that we have very, very strong technology-backed proprietary hardware AI technology such as our smart pen, smart device. That's one thing that many other online education or offline educations do not have as strong as us. Also in terms of traffic support at a group level, we are dedicating a lot of traffics from various business segments to contribute and support the growth of Youdao. Many of our users are now in the age of their parenthood, so it's not only them, and it also extends beyond to their children that can be a potential beneficiary of our Youdao products and services. Last but not least, very important factor around all these educational asset is NetEase brand appeal. That brand appeal itself is now being widely recognized as a household name in the teaching and learning space. Because we again, like I commented earlier, we have over a decade of experience and a period cultivating our Youdao brand in multiple products. Natalie, to your second question, overseas revenue this quarter is still approximately 10%.
Great, thanks for the color. Just very quick follow up. Does that mean the focus of traffic acquisition or user acquisition for Youdao online K12 would be app traffic redirection rather than the traffic purchase through external channel? 就想问一下，根据刚刚咱们说的，从邮箱和有道app这边导量的话，是不是意思就是说会把更多的流量的一个获取的重点放在这一块，而不是像其他的，我们看到很多的竞争对手，其实在市场上面买量，光点通和百度上面买流量买得比较多。想问一下有道是不是在这一方面跟其他对手竞争上面有一些差异？
这个便宜的流量我们也会买，自己的流量也会转化。毕竟网课它很大的一个特点是一个人上课可以十几万人一起听。所以这个不矛盾的。
明白。
It's a mixture of both. I think we have a unique advantage of traffic. At the same time, we will also be acquiring users from external traffic channels, but ultimately that is driven by the efficiency, whether or not the acquisition cost makes sense vis-a-vis, for instance, the lifetime value of that particular user that can contribute to our online courses.
Got it. Thanks.
Once again, ladies and gentlemen, please press star one to ask question. A kind reminder to all, please ask one question at a time. If you have follow-up questions, please join the queue again by pressing star one. We'll take our next question from Huan Chen from Citibank. Please go ahead.
Good morning, William, Charles, Michael, and Randy. Thank you for taking my question. I've got two questions. First one is on the overseas expansion strategy for our games in Japan and international markets. Could you share more on our strategy on that regarding the game development and publishing capability? In addition, can management highlight the major updates on our partnership and synergy with the game studios that we previously invested globally? My second question is more a housekeeping one. We see some decrease in the marketing expenses for this quarter, which could be related to the e-commerce seasonality of game launches. Could you share more color behind that? And how should we think about the trend going forward, please, as % of revenue or relative to the revenue growth of respective business lines? Thank you.
老板两个问题，第一个是问我们整个游戏海外发展的一个整体的战略，特别是因为我们现在在海外也非常积极地在投资一些海外的游戏公司，在这一块我们是更看重怎样的协同效应和整体的一个战略。第二个问题是问营销成本的这些财务趋势，那第二个问题到时候我就来直接回答他。
海外游戏我们已经取得了一些成绩，尤其在日本。但对我们来说还是需要不停地去探索和尝试。目前我们在海外也发行了《量子特攻》等我们自己开发的游戏。但是海外的用户的游戏，尤其在手游上，它并不是一个主流。海外的游戏用户第一大市场还是console，第二是PC，第三才是手游。从终端角度来说，目前手游并不是占据一个主导地位，但是它最有潜力的一个市场。所以对网易来说，需要花点时间不停地去尝试这个游戏在海外的探索，但海外肯定是我们最重要的一个目标之一。我回答完了。
For the overseas game expansion strategy, I think that's also a common question that we've been asked quarter-over-quarter. As of today, we have achieved some small achievements in Japan, in particular with Knives Out. To continue on that momentum, we've introduced Knife for Survival, Cyber Hunter, etcetera, and we will continue to bring more and more games into major markets like Japan, like U.S., and ultimately into the mainstream Western market. We also recognize the fact that in many of these mature Western mainstream game market, mobile game, unlike in China, is not yet the number one primary conduit. For the Western market, is probably still PC and console. We do believe that the mobile game market has the most potential in terms of upcoming growth.
As a result, NetEase is going to continue to explore, to try different ways of trying to benefit from that upside potential of the international market turning more and more mobile-focused. Our investment strategy is also in line with that. Human, to your second question, asking for the general trend in our selling marketing, let me broadly answer for the overall operating expenses. As we mentioned in prior quarters, NetEase is a very prudent and return-focused company. For us, we continue to invest in areas that we think that can ultimately strengthen our competitive advantage, such as R&D. In terms of selling and marketing, for the first quarter, the cost is very well controlled, largely because, number 1, Q1 is generally a seasonality low season for our e-commerce business. We have been very cautious and prudent in spending on e-commerce.
Secondly, as you all know, because of the overall regulatory control on the new registration license. There's no new game that is being launched in the first quarter as a result of combined relatively lower spending on e-commerce as well as games. That results in our selling marketing spending in the first quarter very disciplined. Now, looking beyond the first quarter, as we continue to receive more and more approvals on our new games, when the new games are getting ready to be launched, for sure for NetEase, we will be continuing to invest in selling marketing into promoting our newer titles, which we fundamentally believe we have the track record of generating very high returns on the level of investment.
Also for the second quarter, for instance, there will be more promotional events for e-commerce as a general industry trend in April, we just celebrated our 30th anniversary, et cetera. All in all, I think the way we look at selling marketing is not a very rigid budgetary percentage application, but rather it is internal ROI return-driven for whatever marketing dollars that we spend on the different business verticals. What we are ultimately hoping for is a satisfactory return that's going to be reflected on the top line. That may not necessarily happen in the same quarter, depending on the business nature. Hopefully now with longer and longer track record of NetEase operating in the non-game business verticals, we have a pretty good track record of keeping on a satisfactory return on our general OPEX spending.
We'll take our next question from Alex Poon from Morgan Stanley. Your line is open. Please go ahead.
Charles, Margaret. I translate myself. My first question is related to Fantasy Westward Journey 3D version. No doubt this will be a blockbuster title. How should we think about the user base and revenue potential cannibalization, and also may actually be synergy? Some users may play 3D and go back to play the 2D version as well. Second is regarding the Diablo mobile development and licensing progress. Third is regarding music business. Selectively renewing some of the music label may be good for margin, but would that affect user experience? How should we balance between these two? Regarding your competitor, Tencent Music, they have been doing a lot of live streaming and karaoke to monetize. How do you position in this segment? Thank you.
Okay. Let me translate the answer to the first question on FWJ 3D first. In March, we just completed another testing round. Result is pretty satisfactory. In terms of the addressable user market, we do not have much concern about the potential internal cannibalization with existing FWJ titles, because FWJ 3D is more missioned towards broadening a potential user outreach to both the PC and mobile and hardcore users, as well as users who play real-time MMO. When the FWJ 3D is eventually launched, we think that's going to bring incremental net gains to our overall user metrics. [Foreign language]
这个我想我们会根据中国目前的审批制度积极地去审批，我相信大家也不用太过焦虑，肯定在我们的预期和时间表内。对，毕竟暗黑的PV版已经过了，就一直在线上。
Alex, for Diablo Immortal, the mobile version, it's on track. We will be applying for the regulatory approval in accordance with overall the latest guidance from the ministry. I guess people do not need to worry too much about it. It's on track because Diablo, the PC version, was approved and it's long been launched and released in China. For now, we think the approval process is well on track. But again, at this moment, we do not have a specific timetable for the launch of Diablo Immortal as yet. [Foreign language]
对，你讲得对，就是因为一些公司为了控制市场，把每年的版权的租赁成本抬得非常的高，对整个中国的在线音乐行业发展产生了一些负面的作用。国家已经在这方面进行了反垄断立案调查。我们也期望整个中国的音乐市场是一个良性的、有序的、合理的发展，而不是被一些企业以高价垄断和囤积版权这么一个畸形的业态。所以我相信在未来，音乐的版权的成本应该是有利于任何一家想在这个行业里面从事业务的企业。第二个方面就是网易的音乐不仅仅是会成为一个听音乐的工具，也会成为音乐爱好者的交流和分享心情的一个平台。我们以前在这方面做得还不够深。我们很快应该在本月底就会看到一些我们在产品层面的创新，不仅仅是听音乐，而且会成为音乐爱好者的一个交流、分享，能产生共鸣的一个平台。你帮我翻译一下。
[Foreign language] Okay. Alex, for your last question on music, William answered from twofold. First of all, the current status of very high cost in renewing. Essentially a renewing business is a kind of a rental business, right? We pay the price to rent the music content for a period of time. A very high cost of that is not healthy to the overall industry. We fundamentally believe that the cost will come down and be more rationalized in the longer run, which then will be a more conducive environment for the overall healthy and sustainable growth of China's online music streaming industry. Secondly, from a NetEase perspective, we are also applying a lot of thought and innovation in thinking of how we can potentially change our NetEase Cloud Music from merely just listening to music into a very active forum for music enthusiasts to gather, to facilitate their communication, sharing.
If we achieve that, I think the potential for imagination of what NetEase Cloud Music can enable is more than just playing songs, a content IP-driven business.
Next up, we have Alex Yao from JP Morgan. Your line is open. Please go ahead.
丁总，Charles，早上好。恭喜非常强劲的一个业绩。我想问丁总一个综合的这种成长战略的一个问题。我们在财报里面也有提到，刚才其实也多多少少谈到，就是今年总的来讲在一些重点业务上会更聚焦，然后在非核心业务上面会去缩减一些成本。总体来讲的话，现在其实财报已经反映出了一些这样变化带来的财务表现。当然我们从媒体上也能够看到一些其他，比如说电商业务在优化成本结构，包括网易云音乐的变现，在做一些其他非会员的积极的尝试，诸如此类的。我想问的是，看上去就是说今年公司在财务上面好像用一种更加有激励性的方式来运营公司，包括在一些这种成长性的业务上面，似乎投入的财务资源比去年要更审慎一些。这样一个变化背后的原因是什么？然后现在的这样一个运营的思路，您觉得会保持多长时间？我自己翻译一下吧。Good morning everyone, and thank you for taking my question. My question is about the overall capital allocation strategy for 2019. You guys have touched base on some of the key strategies that you're going to implement this year, including heightened focus on core business from gaming to music to e-commerce, etc., and also cost reduction in the non-core business. Even within these core businesses, we noticed from the media reports that there seem to be pretty systematic cost reduction initiatives across different business units. My question is about what is the trigger for such a philosophical change in capital deployment or allocation?
How long would this operational strategy last? Thank you.
其实我觉得两个方面吧。第一个方面，我们对于自己很擅长的业务更加聚焦，包括游戏，包括音乐，包括在电商领域，我们也不是说不投资，是说先把内功练好，然后再去做有序的投资和增长。那在像有道的网上教育方面，我们就会比较大胆一点，因为这是一个非常大的赛道。然后也把一些我们认为并不是特别好的一些赛道给砍了。像我前期我们把漫画出售了，我们觉得自己并不擅长。所以我想整个公司总体还是处在一个懂得自己擅长做什么，也能看到未来更适合自己做的赛道是什么，去做这个方面的投资。对，Charles帮我翻译一下。
Okay, Alex, I'll briefly translate William's answer. The guiding principle is really that we've been more selective in terms of what we are good at. For instance, for education, that is a broad sector that many players come and go. For us, we've been here for over a decade, we know what we are good at, we know how we are going to be differentiated, and we continue to invest into our competitive edge. The same applies to e-commerce, whereby this is a relatively crowded vertical, but there are areas we think that we have a better understanding, and it's probably more suitable for NetEase, whether it's from a user appeal or from a brand image perspective that we can continue to cultivate, that's creating something of a differentiation and with uniqueness. Businesses that we are relatively less familiar with or good at, for instance, comics business that we've divested that business to other players who are probably better positioned to operate. That is really the guiding principle. From a financial perspective, NetEase being listed for 19 years, we've always been financially very disciplined. When we think about investment, again, it is return driven. We are not shy of making big investment into areas that's being highly selective, being our focus areas. Whatever investment amount that we make, or the scale magnitude that we make, ultimately the purpose is to drive our unique and competitive positioning.
Thank you everyone for participating the Q&A session. Now I would like to turn the conference back to Ms. Margaret Shi for any additional or closing remarks.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us or TPG market relations. Have a great day.