Brandi Piacente - The Piacente Group, IR Onward Choi - CFO William Ding - CEO

Dan Zhao - Credit Suisse Fan Liu - Goldman Sachs Jialong Shi - Nomura Chi Tsang - HSBC Jin Yoon - Mizuho Securities Tian Hou - T.H. Capital Thomas Chong - Citigroup

Good day, ladies and gentlemen, and welcome to the NetEase First Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead.

Thank you, operator. Please note that 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 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's 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 also 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 measures and results, please see the first quarter 2016 financial results news release issued earlier today. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. I will now turn the call over to Mr. Onward Choi, Acting Chief Financial Officer, who will read the prepared remarks on behalf of Mr. William Ding, Chief Executive Officer at NetEase.

Thank you, Brandi. Before I begin, please note that, for the purposes of these discussions, all percentages are based on renminbi. We are very pleased with our first quarter performance and how it positions NetEase for a successful 2016. All areas of our business demonstrated strong growth, which reflects our continued leadership in China's online games industry, and the continued growth of our overall audience across our mobile and online PC client games, as well as our appetizing e-commerce and other internet services businesses. Our total first quarter net revenues grew 116.3%, compared with the first quarter of 2015. Our new games are resonating well with players and our classic titles continue to be popular. We have [ph] a strong portfolio of mobile and online PC client games [inaudible] an increase in net revenues of 104.5% year over year for our online game services segment in the first quarter. Our advertising services business also remained strong despite the usual first quarter seasonality and we grew this segment by 32%. Additionally, our email, e-commerce and others business is robust and rapidly expanding, and we grew net revenues in this division by 257.8%. Mobile games remained the primary growth driver for our business in the first quarter. Our classic titles continue to lead the market, and recently introduced games have been well-received and are engaging new players. Player favorites Fantasy Westward Journey and Westward Journey Online mobile games continue to dominate China's iOS app store as two of the most popular grossing games in the first quarter. We also launched new mobile titles such as Kung Fu Panda 3 and The X-World in January. And these games drew favorable attention from players. Some of the titles we launched in 2015 such as Invincible, Kai-ri-sei Million Arthur and Battle to the West also continued to appeal to new users in the first quarter. We add to these successes, on April 15 we launched Raven, Korea's top ARPG game, and it received expected positive reception. Our mobile game pipeline explores a variety of genres and we are certain it will appeal to a wide audience of new and veteran players. This month we plan to introduce potential market hits such as the mobile versions of New Ghost, which received outstanding results in closed beta testing, and Fantasy Westward Journey Warriors. Later this year we intend to release new mobile games based on our legacy titles, such as Tianxia III, Heroes of Tang Dynasty Zero, and Westward Journey Rage, as well as a series of new game titles based on the best-selling novels by Mr. Gu Long, a widely-read and popular wuxia writer. With a diverse market-leading portfolio of more than 19 mobile games that we continue to expand, we are positioned to remain a top choice for both new and existing players both in 2016 and for years to come. Similarly, the performance of our PC client games was steady in the first quarter and our portfolio remained strong as we host some of China's most popular and longest-running titles. Our growth initiatives include satisfying pent-up player demand with the introductions of expansion packs in April for games including New Ghost, Kung Fu Master II, and Demon Seals. In the coming months we plan to introduce expansion packs for Westward Journey Online II and Tianxia III. Building on the popularity of our leading titles, we also plan to unveil new games such as the real-time action tactic thrilled War Rage. To complement our release schedule for our self-developed titles and in conjunction with the global launch, we expect to bring Blizzard Entertainment's highly anticipated first-person shooter game Overwatch to players in China on May 24. Our commitment to research and game development, as well as our deep understanding of Chinese audience preferences places NetEase at the forefront of market trends and player satisfaction. It is these values that will continue to propel our success and leadership in this expanding marketplace. Turning to our advertising services, NetEase continues to be a leading choice for advertisers despite a challenging overall economic environment. Our top advertising verticals in the first quarter were the automobile, internet services and telecommunication services sectors, which are strongly supported by the enhanced monetization efforts of our Mobile News App as well as our diversified mobile product portfolio. Advertisers in major industries are becoming more selective on where to budget their resources, and we believe this is leading to an increase in internet advertising in general, and mobile media in particular. With our large base of high-quality customers, a diversified portfolio of mobile apps, and precision marketing technology driven by big data, we believe NetEase will remain a primary destination for advertisers providing strong momentum in 2016. Our cross-border e-commerce platform, Kaola.com, continues to grow at a healthy pace. In the first quarter, Kaola.com demonstrated strong momentum and we are seeing improved margins as the business achieves economies of scale. We have built the foundations for sustained success by providing the highest quality mobile and PC client games, along with exceptional user experiences with our e-commerce services and other internet products. With these tools and our passion for providing our community with innovative internet products and services, we will continue to deliver great values to our shareholders, customers and partners both in China and overseas. This concludes William's comments. I will now provide a review of our first quarter 2016 financial results. I will primarily focus on the discussions of margins and expense fluctuations, along with net profit. Gross profit for the first quarter of 2016 was RMB4.6 billion or $711.3 million, compared to RMB4.2 billion and RMB2.5 billion for the preceding quarter and the first quarter of 2015, respectively. The year-over-year increase in mobile games gross profit was primarily driven by revenue contribution from mobile games such as the Fantasy Westward Journey and Westward Journey Online mobile games, and licensed games such as Blizzard Entertainment's Hearthstone: Heroes of Warcraft. The quarter-over-quarter increase in online games gross profit was primarily driven by the increase of revenue contribution from mobile games such as the Westward Journey Online mobile game, Kung Fu Panda 3, Invincible, and Blizzard Entertainment's Hearthstone: Heroes of Warcraft. The year-over-year increase in advertising services gross profit was primarily attributable to strong demand from the automobile, internet services and telecommunication sectors, and our monetization efforts for our mobile applications, primarily its Mobile News app. The quarter-over-quarter decrease in advertising services gross profit was primarily due to seasonality. The year-over-year increase in email, e-commerce and others gross profit was primarily due to the increased revenue contribution from our e-commerce businesses such as Kaola.com, which was partially offset by the suspension of higher margin e-commerce services related to third-party lottery products since February 2015. The quarter-over-quarter increase in email, e-commerce and others gross profit was primarily due to the increased gross profit from our e-commerce businesses such as Kaola.com and other e-commerce services. The gross profit margin for our online games business for the first quarter of 2016 was 67.1%, compared to 67.2% and 73.1% for the preceding quarter and the first quarter of 2015, respectively. The year-over-year decrease in gross profit margin was mainly due to increased revenue contribution from mobile games which have relatively lower gross profit margins as a percentage of NetEase's total online games revenues. The gross profit margin for our advertising services business for the first quarter of 2016 was 62.4%, compared to 68.1% and 59.2% for the preceding quarter and the first quarter of 2015, respectively. The year-over-year increase in gross profit margin was mainly due to enhanced economies of scale driven by revenue growth. The quarter-over-quarter decrease in gross profit margin was mainly due to seasonality. The gross profit margin for our email, e-commerce and others business for the first quarter of 2016 was 20.4%, compared to 6% and 38.9% for the preceding quarter and the first quarter of 2015, respectively. The year-over-year decrease in gross profit margin was primarily attributable to the suspension of higher margin e-commerce services related to third-party lottery products. The quarter-over-quarter improvement in gross profit margin was mainly due to the revenue growth from our e-commerce businesses such as Kaola.com, as well as the shift in business strategy to focus on providing platform services for certain e-commerce businesses. Total operating expenses for the first quarter of 2016 were RMB1.7 billion or $266.6 million, compared to RMB1.8 billion and RMB1.2 billion for the preceding quarter and the first quarter of 2015, respectively. Our year-over-year increase in operating expenses was mainly due to increased operating expenses related to Kaola.com, increased selling and marketing expenses related to online games and advertising services, higher research and development investments, and higher staff-related costs resulting from an increase in headcount and average compensation. The quarter-over-quarter decrease in operating expenses was mainly due to decreased selling and marketing expenses for online games and advertising services which were partially offset by the increased operating expense related to Kaola.com. We recorded a net income tax charge of RMB530.7 million or $82.3 million for the first quarter of 2016, compared to RMB513.8 million and RMB214.5 million for the preceding quarter and the first quarter of 2015, respectively. Our effective tax rate for the first quarter of 2016 was 17.5%, compared to 19.2% and 14.1% for the preceding quarter and the first quarter of 2015, respectively. The change in effective tax rate our estimate of the effective tax rate for the first quarter of 2016. During the first quarter of 2016, we had a net foreign exchange loss of RMB36 million or $5.6 million, compared to net foreign exchange gains of RMB66.3 million and RMB22.7 million for the preceding quarter and the first quarter of 2015, respectively. The year-over-year and quarter-over-quarter changes in foreign exchange gains and losses were mainly due to unrealized exchange gains and losses arising from our U.S. dollar-denominated bank deposits and short-term loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods. Net income attributable to our shareholders for the first quarter of 2016 totaled RMB2.5 billion or $381.6 million, compared to RMB2.2 billion and RMB1.3 billion for the preceding quarter and the first quarter of 2015, respectively. Non-GAAP net income attributable to our shareholders for the first quarter of 2016 totaled RMB2.7 billion or $413.5 million, compared to RMB2.4 billion and RMB1.4 billion for the preceding quarter and the first quarter of 2015, respectively. We reported basic and diluted earnings per ADS of $2.90 and $2.88, respectively, for the first quarter of 2016. We reported basic and diluted earnings per ADS of $2.55 and $2.53, respectively, for the preceding quarter, and $1.50 and $1.49, respectively, for the first quarter of 2015. Our non-GAAP basic and diluted earnings per ADS were $3.14 and $3.12, respectively, for the first quarter of 2016. This compares to non-GAAP basic and diluted earnings per ADS of $2.78 and $2.76, respectively, in the preceding quarter, and $1.69 and $1.68, respectively, for the first quarter of 2015. As of March 31, 2016, our total cash and cash equivalents, current and non-current time deposits and short-term investments balance totaled RMB28.4 billion or $4.4 billion, compared to RMB26.8 billion as of December 31, 2015. Cash flow generated from operating activities was RMB3.1 billion or $479.6 million for the first quarter of 2016, compared to RMB3.1 billion and RMB1.9 billion for the preceding quarter and the first quarter of 2015, respectively. We continue to give back to our shareholders and our Board of Directors has approved a dividend of $0.73 per ADS for the first quarter of 2016. This dividend is expected to be paid on June 3, 2016 to shareholders of record as of the close of business on May 25, 2016. Additionally, on September 1, 2016, we announced that our Board of Directors approved a new share repurchase program of up to $500 million of our outstanding ADSs for a period not to exceed 12 months. As of March 31, 2016, we had repurchased approximately 0.69 million ADS for approximately $92 million under this program. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Thank you. [Operator Instructions] And first we'll go to Dick Wei with Credit Suisse. Your line is open. Dan Zhao - Credit Suisse: Hi, management. Thanks for taking my question. This is Dan Zhao calling on behalf of Dick Wei. I have two questions. The first one is, as to the deferred revenue, how much is for PC and mobile, respectively? And we see that it's down 1% quarter on quarter, so, how should we look at the correlation between games revenue growth?

Okay. With regard to your question about the small decline in the deferred revenue, basically we wouldn't separate the breakdown, to give us the breakdown, but how much of this will be attributable to the mobile or the PC front. But from our observation, basically we do see that, on our mobile games front, we are still having a good traction as of the end of the first quarter. And the major decline would be more attributable to the PC client games. Dan Zhao - Credit Suisse: Thanks. Another question is on our cross-border e-commerce. How do you see the impact from the cross-border e-commerce policy change? And do you have any promotion plans this year?

[Chinese language spoken]

[Chinese language spoken]

So with regard to your second question about our view on the impact on the e-commerce new policy implementation since the 8th of April 2016, basically from our own perspective, this won't pose any significant impact to NetEase. And we are still holding a good confidence on our upcoming development of our cross-border e-commerce business activities. And of course, we do see that this implementation of the new policy do have some impact to smaller players in the space, but to us, we believe that this wouldn't be that significant. And again, we do view it quite positively about that, the government is also encouraging that more and more people will be getting into this new cross-border e-commerce business going forward. Dan Zhao - Credit Suisse: Got it. Thank you very much.

And next we'll go to Fan Liu with Goldman Sachs. Fan Liu - Goldman Sachs: Thank you, management. So I have two questions. The first question is about your new games pipeline. So we know you will announce the second batch of new games of 2016 just a couple of days later. So, do you mind sharing with us, what's the difference between this batch of new games versus the previous batch of new games announcement? Apart from several legacy PC titles, do we have any other highly anticipated titles which will be announced? And the second question is about cross-border e-commerce. We noticed that you are seeing that quarter-on-quarter decline of email, e-commerce and others segment mainly due to your strategy shift from direct merchandise sales to platform business to certain e-commerce segments. Would you mind to add some color on like short-term e-commerce business, what will it be -- look like? Thank you.

New game pipeline. [Chinese language spoken]

[Chinese language spoken]

So, basically in -- on the 20th of May we would be targeting to launch another new game. And this game at this moment, what we can share with you is that this will be a community-based game with innovative business models. And we are also looking for that this game will also have a very good traction to our targeted audiences. And as well, on the 24th of May, there will be another game that will be launched on a global basis, which is Overwatch, a game from Blizzard Entertainment. And since we are right before the official launch of this game, we have also tried out 45 days trial testing of this game and we are also receiving a very positive reception and feedback from the players as well. And for this game, this will be a PC version, and for the other games, this would also be another PC-based game.

[Chinese language spoken]

Okay. To supplement on William's remarks earlier, there would also be another appealing game that we are going to launch tomorrow, which is the Ghost Mobile or the mobile version of our New Ghost game. And this will be launched on the iOS app store and this would -- this game would also be another MMORPG game type game. And this is something that we would like to share at this moment. And with regard to your second question about the change in the cross-border e-commerce or in our first [ph] segment, so, email, e-commerce and others segment, there has been some changes in the revenue, so to call [ph], because we have also changed in some of the business strategy of doing our business from the traditional merchandise model with the platform services. And this would be related to some other e-commerce business other than our [inaudible]. Fan Liu - Goldman Sachs: Thank you, Onward. So what should this other business look like [inaudible]?

Basically I would say that this business will be related to [inaudible] this business. Fan Liu - Goldman Sachs: Okay. Thank you.

[Operator Instructions] Next we'll go to Jialong Shi from Nomura. Jialong Shi - Nomura: Hi, good morning, management. I have a few follow-up questions. And firstly, I think Ding-zong mentioned you will launch -- tomorrow you will launch Ghost, the mobile version Ghost, and I also noticed in your earnings release you mentioned Ghost had a very impressive performance during the closed beta testing. So just wondering if management can share some color on that. And my second follow-up is about the gross margin for the -- for other business segment. We saw a big improvement, a sequential improvement on the gross margin for this business. Just wondering, for the prospective quarters, should we expect the gross margin for the other business segment to continue to improve or at least can hold up to Q1 level? I will translate my questions. [Chinese language spoken]

[Chinese language spoken]

Okay. So getting back to your questions, Jialong, on the first one regarding how our views on the testing performance of our Ghost Mobile. Basically just a quick recap, the Ghost game was first launched five years before as a PC game and a real-time action game. And tomorrow would be the day that we would be launching the mobile version of it, because over the years we have accumulated a good user base there and we are also having very satisfied players participating in the game as well. And through the testing phase, we do see that the players are generally quite satisfied with all the game settings and stuff like that. And we look forward that this will be another successful game for NetEase to launch on the mobile front. And a small supplement on the cross-border e-commerce new policy implementation that William would also like to share of you guys is that, since the launch of this new policy on the 8th, in fact for the initial few days up to the 11th of April, in fact there has also been quite an impact to the whole industry. But perhaps the impact would be more significant to the smaller players in the industry, and perhaps some of those have also been shut down [ph] because of the rollout of the new policies. And for NetEase we do adjust and make some corresponding changes on our strategy on how to cope with the new policies so implemented. And just as many of you might have award, lately the government has also been turned back to the implementation of the new policies right before the April 8 position [ph], meaning that they [inaudible] for what the cross-border e-commerce business players would need to follow for the time being. And by saying so, this means that this would allow another one year transition period for people, for the players in the space to get a better understanding on the new rules and perhaps to make themselves adaptive to the new policy as well. And in view of that, this would be a globalization on the cross-border e-commerce businesses. From our perspective, we are also looking forward that there will be more and more companies, e-commerce related companies getting into the cross-border e-commerce areas as well. And if you look back to what our Kaola.com has been doing in the past 1-1/2 years we did accumulate quite valuable experiences and abundance of resources, especially on the warehousing and stuff like that. And we are also feeling confident that, with our more innovative way of doing this cross-border e-commerce businesses, as well as we have a very strong and unique merchandising capability to put forward some good stuff to our targeted buyers or the customers, so to call, on our platforms, we do see that this would leave us a very good potential to develop our cross-border e-commerce business in general. Jialong Shi - Nomura: Thanks for the color.

Yes. Okay. And the last point that William would also like to comment on is about how do we view [ph] about the gross margin stuff [ph], especially on the email, e-commerce and others segment that, Jialong, you have just mentioned. Basically at all times NetEase has upheld a very stringent and a very prudent way to look after our spending, and we are also having a very formalized control in our costing structure. And we do see that this will be reflected in a much better financial returns in the way of executing the operations. And so at least for the time being, you do see that there has been an improvement in terms of our gross margins in the first quarter of 2016. But without commenting whether this would be further -- there would be further improvement or enhancement in terms of the gross margins on this area, but at least you will see that this will be upkeep at a relatively more stable position for now.

And next we'll go to Chi Tsang with HSBC.

Hi, management. This is Ching [ph] calling on behalf of Chi. We've got actually two questions. One is regarding the mobile game, FWJ and WJO. And can management comment on the monetization and the user trends for the FWJ and WJO? And what do you think of the lifespan of these games? The other question is a follow-up on the Kaola. Can management share the 3P [ph] strategy for Kaola? Because like you shift from the merchandise model to the platform model, like what categories are you targeting at and what is like GMV level of Kaola currently? Thanks.

[Chinese language spoken]

[Chinese language spoken]

Okay. So, basically, with regard to the performances of our Fantasy Westward Journey and also Westward Journey Online, basically since the launch of both games, for the past couple of months, we do see that their performances have been progressing well and upkeep a very stable performance in the first quarter. And we do not see that there has been any fall [ph] on its reception or the usage or engagement of the players. But rather we are also having a good expectation that this still got room to grow, growth potential in the upcoming periods. And secondly, on -- tomorrow we will be launching another game which is the Ghost Mobile. This will be an MMORPG game. And unlike the FWJ or the WJO, which is a [inaudible] based game, we do see that this would also have to supplement a more diverse genre on our mobile games portfolio. [Chinese language spoken]

[Chinese language spoken]

With regard to your second question about NetEase 3P [ph] strategy on the Kaola.com platform, basically we do view that the 3P [ph] strategy will be a supplement to our 1P [ph] business model. Because after all, our 1P [ph] strategy will still be our main focal point in executing our cross-border e-commerce strategy. And the reasons that we're introducing the 3P [ph] is that we do see that there would also be good products that we can consider to introduce on our platforms and work together with our business partners. And we can rest assure you that we have a very stringent selection process in selecting what kind of products we would be allowing on our own platforms. And we do make sure that they would be of the highest quality and that would be -- could appeal to our targeted audiences before we actually do this. And unlike what our other peers have been doing in the space, just setting up a marketplace and push through what they [inaudible] we do believe that we have a very stringent control in this sense, making sure that we are offering the best products to our targeted customers.

And we'll go next to Jin Yoon with Mizuho Securities. Jin Yoon - Mizuho Securities: Hi, good morning guys. Could we just talk about the PC side of the business, PC gaming side of the business? So, just according to [inaudible] calculation, it's like PC gaming has declined for a couple of consecutive quarters now on a year-over-year basis, and then you kind of mentioned the deferred revenue decline largely I think due to PC as well. So I guess what's driving that deceleration? How much of that is due to cannibalization of mobile, how much of it's just the maturity of the business? So, why are we seeing it today, given the fact that deferred revenues I think declined for the first time sequentially in the last four years? So, can you just kind of give us some color on that? And just to follow up, I think you guys have a precious metals exchange business. Is that included in the e-commerce business and is that contributing to the margin we saw on the gross margins? Thanks guys.

So, Jin, I didn't get your second question clearly. Would you mind repeat your second question again, regarding the gross margins on the --

He's asking the previous metals business in the e-commerce --

The purchase --

Metals exchange.

Okay. So, William, [Chinese language spoken]

[Chinese language spoken]

Okay. So with regard to your first question, Jin, basically we, although there has been a decline in terms of our PC games performance in the past couple of quarters, but we are still holding a positive view about its lifecycle in a much longer term. In fact we do see that, if we look back in the history since 2001 when we first launched the PC games on -- in the space for the -- from 2001 up to 2014, we have been seeing that the PC game has been progressing very, very well. And since then, with the introductions and the emerging popularity of the mobile games, we do see that there has been a new change in terms of the gaming businesses. And at this point of time, I believe that we do view that, in terms of the overall trend of the gaming businesses, we do see that the change from the PC to mobile and hopefully in the foreseeable future and the near future we will also get into the real [ph] games area as well. And for NetEase we have accumulated quite an abundance of importance resources over the years, and on the premises that on the 20th of May and also to 24th May, there will also be two PC games that we will announce and to launch in the upcoming periods. In particular on the 24th, this will be the Overwatch. And so we do see that, at this point of time, while we do have a very strong self-developed game platforms, but we are getting ourselves more open to cooperate and partnering with other game developers to get the right resources, good game content, so to call, and with -- by so doing, we would also be upkeep the momentum to roll out more PC games, and we do see that we're still -- this would still be a big potential market we are seeing it, although there has been some drop in the past but we are still seeing that there will be a good potential there. And with regard to your second question on our another new e-commerce business initiatives which is the precious metals platforms, basically this will be something similar to what we have been doing on the virtual products [ph] e-commerce area, and we are also seeing that this new business initiative is having a good traction for the time being, although it's in terms of revenue contributions, for now it's still relatively small. But we are seeing that this can complement to our overall e-commerce business strategy.

And we'll go next to Tian Hou with T.H. Capital. Your line is open. Tian Hou - T.H. Capital: Hi, Onward and William. I have two questions. One is related to the mobile game. I wonder if you have any mobile game revenue come from overseas, if you do -- I don't know if you have or not, regardless you have or not. In terms of overseas income, what is the outlook for that? That's number one. Number two is related to deferred policy. What is the deferred policy? In general, when you have like $100 income from users, from a player, on average, how much you will recognize in the current quarter, how much you will recognize in the later quarter, what's the schedule? So that's the two questions.

So, William [Chinese language spoken]

[Chinese language spoken]

So with regard to your first question, Tian, basically we do have some of our self-developed games being distributed and launched in the overseas market contributing some revenues there, but of course the amount is still quite nominal for the time being. But having said that, we do believe that after accumulating so many years of experience in the gaming industry and by making so many successes so far, we are having a vision that it would be a very good and strategic thing for us to move out to overseas market as well. And we are -- also view it quite positively. And as for your second question about the revenue recognition policies for our deferred revenue, basically just as what we earlier shared with you guys, basically for the games, different games would have different expected lifecycles that we would be amortizing the revenues. Usually this would be ranging from two to not more than six months. And it's depending from game to game.

And we'll go next to Thomas Chong with Citigroup. Thomas Chong - Citigroup: Hi. Thanks, management, for taking my questions. My question is more related to the online advertising business. Can management give us some color about the improved monetization that you guys have been doing in the past couple of quarters? And any color about the ad load [ph]? And secondly is all about regulations. Does management see that there are more regulations trying to control the Mobile News app? Thanks.

[Chinese language spoken]

[Chinese language spoken]

So, Thomas, with regard to your first question about our improved monetization, especially on advertising services segment, basically we do view that we have a very comprehensive media context for NetEase. Apart from our very popular portals and including our Mobile News app as well, we have some other very popular products or services being offered to our targeted users, including our email, both offering free to our users and also the enterprise email services, as well as our Youdao dictionary and also our cloud music and stuff like that. All of that would make us to be a very comprehensive media platform offering a very wide array of content needs or service needs and also to leverage those needs to the advertising services potential. And as well, we do have a very strong sales team that has been working very hard and doing a very good job over the period in order to making this to be a reality. And in fact, in the first quarter, so to call, it would be usually a low season for the advertising industry. But I have to accept that. We are still seeing that there has been a quite good performance in the first quarter. And in fact, if you look back, we are still making a good year-over-year growth on our advertising services segment. And with regard to your second part of your question about the potential regulations being implemented by the government, from our view, then just [ph] always impose and implement a much higher and stringent requirements in our business execution, and for stuff like the medical related advertisers. And these are the stuff that we have never been allowed to put through on our own platforms. And if you -- just to give you an example, by looking back to one of our products, which is called the Youdao dictionary. Youdao by its name in Chinese, meaning that an upright person, if he really wants to make money, he do need to make it in a diligent and proper way, or so to call, in a legal way. And so you will see that this is how we position ourselves and establish efficiency in executing our business. And at the same time, I believe that for NetEase, we are always making sure that we are creating the values both to the -- our customers, the communities and to ourselves by way of technology, development and also the innovation in -- by this kind of strength, this can make us to create the success in the field. And apart from that, you would also see that, on other areas like our online games, we do have new initiatives like the cross-border e-commerce, stuff like the Kaola.com. And there would also be more and more new surprises and good stuff that we would be launching in the upcoming periods.

And thank you, ladies and gentlemen. This concludes the question-and-answer portion of the call today. At this time I would like to turn the call over to management 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 Juliet Yang in the Hangzhou officer of NetEase or to PG Investor Relations. Thanks and have a great day.

That concludes our call for today. Thank you for your participation.