Charles Yang - CFO Brandi Piacente - Founder and President, The Piacente Group, Inc. William Ding - Founder, CEO & Director

Bill Liu - Goldman Sachs Group Alex Yao - JPMorgan Chase & Co. Alex Poon - Morgan Stanley Han Joon Kim - Deutsche Bank Eddie Leung - Bank of America Merrill Lynch Thomas Chong - Crédit Suisse Natalie Wu - China International Capital Corporation Limited Alicia Yap - Citigroup

Good day, and welcome to the NetEase First Quarter 2018 Earnings Conference Call. Today's conference 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, 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 results, please see the 2018 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 the NetEase corporate website at ir.netease.com. And joining us today on the call from NetEase's senior management is Mr. William Ding, Chief Executive Officer; and Mr. Charles Yang, Chief Financial Officer. And I'll now turn the call over to Mr. Yang, who will read the prepared remarks on behalf of Mr. Ding.

Thank you, Brandi, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on renminbi. With that said, I'm pleased to deliver opening remarks on William's behalf. We are pleased with the progress we made across the board this quarter with total net revenue coming in at CNY14.2 billion or $2.3 billion. We are excited by the longevity of our flagship games, our players' loyalty and the strong performances of the new titles we launched in the first quarter. Additionally, our e-commerce business continues to expand rapidly and our advertising business remains healthy. Our online games revenue resumed growth in the first quarter at approximately 10% quarter-over-quarter, and we expect this momentum to continue into the year. For MMORPGs, we continue to dominate the market with continuous innovation. Our new chart topper, Chu Liu Xiang, made a huge impression on the space, completely modernizing conventional gameplay for MMORPGs. Chu Liu Xiang brings players best-in-class graphics with the highest degree of freedom to customize and design their own characters and storylines. These exciting new features have attracted a large base of new players beyond the traditional MMORPG player. Our diversification strategy to introduce games in the non-MMORPG genres is also beginning to bear fruit. Monetization for Knives Out, Terminator 2, Judgment Day and Rules of Survival is ramping up smoothly. Over the last year or so, we have observed increasing demand for more diversified games from a growing base of new players. With successful launches of new titles across a broad spectrum of game genres, we are effectively expanding our addressable user audience. As a premium content provider, our objective continues to focus on innovation to lead the market and provide different game genres that satisfy this growing user base. Identity V is among the first of these games. As our very first asymmetrical battle arena game, Identity V has amassed a considerable fan base since its launch in April. It's achieved more than 10 million active users in just 1 week following its release. We are very pleased with the monetization from this game so far, and we have a variety of new games in our pipeline that we believe will be impactful to our user base upon launch. Some of our other titles under development include manga-based PvP game, QWQ, and Chinese-style collectible card game, Ancient Nocturne. These games, as well as a number of others, are scheduled for launch later this year. We will be discussing these games and more details of our pipeline at our upcoming annual May 20 game day event. With a more diverse portfolio and more non-MMORPG games in our pipeline, we now have more games suitable for the global audience. Over the past year, we have seen Onmyoji gain strong traction in Southeast Asia, Knives Out consistently top the charts in Japan and Rules of Survival remain popular in the U.S. market. Throughout the year, we plan to launch more games on a global scale as we work to expand our international footprint. For our existing PC and mobile games, they continue to stand the test of time. Over the course of more than a decade of operation, we have seen social communities emerge within some of our games. To many players, our flagship IPs, such as Fantasy Westward Journey Online, Fantasy Westward Journey Mobile, New Westward Journey Online II and Westward Journey Online mobile, are more than just games. They are part of the gamers' lifestyles. We expect this trend to continue and strive to achieve this type of impact and longevity with our newer games. We are already seeing the signs of this endurance with titles such as New Ghost, Invincible and Onmyoji. Even though revenues from Onmyoji have come down from its peak a year ago, it is still a substantial revenue generation on a stand-alone basis. We continue to bring to users new expansion packs, new content and user experience upgrade, and its revenue is starting to stabilize. Over the short course of its operation, Onmyoji has emerged as one of our strongest self-developed IPs. Following its original release, we successfully adapted this IP to a mobile game, and we are confident in our ability to operate this game and further expand its IP over the long term. Monetization for Minecraft is also progressing well in accordance with management plan. We now have accumulated well over 60 million registered users in China. As Minecraft's primary demographic is K-12 students, we feel it is our duty to find a socially responsible and innovative way to monetize this huge educational asset. We are currently undergoing an ambitious endeavor to build an educational platform for children. In January, we launched an open platform for third-party developers to assist in creating inspiring content. This professional group of developers can provide users with exceptional innovation and a larger variety of content options to choose from. While it will take some time for this large-scale project to reach its potential, once it does, we see an opportunity for a major impact on both the education and online games industry as well as a long-term sustainable monetization model. One of the things that makes NetEase unique is our world-class R&D capabilities. We are one of the very few game companies in China with a track record of creating a blockbuster mobile game without a PC game backing. We attribute this to our talented pool of R&D professionals who are focused, energetic and passionate about what they do. We have spent the last decade building leading R&D infrastructure in China to support these creative minds and turn their ideas into reality. As the competitive landscape evolves, the next frontier will be left to those who are able to create new mobile game IPs. We are very well-versed in this modality with a formidable resume of mobile hits, including Onmyoji, Knives Out, Chu Liu Xiang and Identity V. Now moving on to our e-commerce business. Kaola.com and Yanxuan just celebrated their third and second anniversaries in March and April, respectively. These two platforms continue to lead the market with strong triple-digit year-over-year growth in the first quarter, reaching revenues of CNY3.7 billion or $595 million. Both platforms benefit from an upgraded consumer base in China as Kaola.com and Yanxuan offer access to cost-effective, high-quality and trustworthy products. As Chinese consumers become more concerned with the quality and authenticity of the products, the addressable market for quality e-commerce continues to expand, and Kaola and Yanxuan have become their go-to platforms to find these products. On the supplier side, we further deepened our relationships with our existing brand partners and introduced more international brands to our platforms in the first quarter. On the user front, we saw another step-up in our user base and membership subscriptions. Our e-commerce platforms are still relatively young, and our primary near-term focus continues to be gaining broader user recognition and providing an elevated experience to users. As we grow our e-commerce business, we are experiencing greater economies of scale leading to more efficient spending in shipping and handling, marketing and other expenses. Our goal for our e-commerce business is to grow as fast as we can while achieving a sustainable profit margin over the longer term. This can be achieved through continuous optimization in GMV structure and procurement, increasing operating leverage and technological upgrade. Both Kaola and Yanxuan platforms offer significant opportunities for growth, and their full value to the company is yet to be unlocked. Turning on to other business segments. For advertising services, revenues in the first quarter increased by approximately 4% year-over-year to CNY462 million or $73.7 million, with real estate, Internet services and automobile sectors as the top-performing verticals. E-mail and others net revenue was CNY1.2 billion or $194.1 million in the first quarter with a year-over-year increase of 102%. In addition to the above, we incubate and develop an exciting portfolio of promising new business initiatives, such as Youdao Online Education, Cloud Music and live broadcasting services, amongst others. The common emphasis on craftsmanship and the goal to offer enhanced user experience is shared among all NetEase products. We choose our strategic directions carefully, and once we do, we dedicate our efforts and resources to deliver the best product available on the market. Take Youdao Online Education as an example. This business focuses on test preparation for Chinese students and has grown tremendously over the past year, leveraging the 700 million users we have accumulated across the Youdao product matrix. For Cloud Music, although we are a latecomer to the scene, through a differentiated user appeal, we are now the second largest player in this highly competitive sector, and we are focused on creating the largest interactive community for music lovers in China. We are confident that these products have the potential to become something big, and their value will gradually unfold. For 2018, we will work to ensure that each of our business lines continue to prosper. With a focus on diversification, innovation and globalization, we are committed to our loyal and growing user base, and we remain focused on creating additional value for all of our shareholders. This concludes William's comment. I will now provide a brief overview of our first quarter 2018 financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Net revenues for the first quarter of 2018 were CNY14.2 billion or $2.3 billion. This compares with CNY14.6 billion and CNY13.6 billion for the preceding quarter and first quarter of 2017, respectively. The year-over-year increase was mainly attributable to increased revenue contribution from our e-commerce division, partially offset by a decline in revenues from Onmyoji, which was at its peak in the first quarter of 2017. The sequential decrease in revenues was primarily due to a decrease in revenues from our e-commerce business due to seasonality. Net revenues from online games increased by approximately 10% quarter-over-quarter due to the successful launches and monetization of our recently launched titles. Our gross profit for the first quarter of 2018 was CNY6.0 billion or $949.1 million compared to CNY5.7 billion and CNY7.5 billion for the preceding quarter and the first quarter of 2017, respectively. Our gross profit for our online games segment declined year-over-year in the first quarter as a result of decreased revenue contribution from some of our self-developed mobile games such as Onmyoji, which was partially offset by increased revenue contribution from Knives Out and Chu Liu Xiang. The quarter-over-quarter increase in online game segment gross profit was primarily due to the increased revenue contribution from Knives Out and Chu Liu Xiang. Margin for our online games segment was relatively stable at 62.1% in the first quarter compared to 63.9% a year ago and 61.4% in the preceding quarter. During the first quarter, gross profit for our e-commerce business increased as we continued our rapid expansion of Kaola and Yanxuan. Gross profit margin for our e-commerce business increased quarter-over-quarter to 9.5% in the first quarter of 2018 from 7.4% in the fourth quarter of 2017 and decreased year-over-year from 13.1% in the first quarter of 2017. The quarter-over-quarter increase was due to seasonality, as we typically offer larger-scale promotions and sales discount in the fourth quarter of the year. The year-over-year decrease was due to certain sales discounts being offered in the first quarter this year to support continued development and growth of Kaola and Yanxuan. Gross profit margin for advertising services for the first quarter of 2018 was 59%. This compares to 71.2% and 57.3% for the preceding quarter and the first quarter of 2017, respectively. The quarter-over-quarter decrease in gross profit margin was mainly due to seasonality. Gross loss margin for our e-mail and others business for the first quarter of 2018 was 9.9%. This compares to gross loss margin of 3.3% and gross profit margin of 20.3% for the preceding quarter and the first quarter of 2017, respectively. The year-over-year decrease in gross margin were mainly due to discontinuation of certain online platform businesses, which have relatively higher gross profit margins, as well as higher recognized costs related to certain copyrights in the first quarter of 2018. Contained within this segment are promising business initiatives that we are incubating such as Cloud Music and our live broadcasting services like CC, amongst others. These businesses are undergoing an investment phase now, as they require up-front spending to acquire content and talent. We believe their upside potential in the longer term will more than justify our current spending. Total operating expenses for the first quarter of 2018 were CNY4.7 billion or $756.7 million. This compares to CNY4.3 billion and CNY2.7 billion for the preceding quarter and the first quarter of 2017, respectively. The increase in operating expenses was mainly due to increased selling and marketing expenses, R&D development investments and staff-related costs. The majority of operating expenses pertain to our online games segment in accordance with new game launches and effective promotion of our successful hit games. E-commerce-related shipping and handling costs included in selling and marketing expenses for the first quarter of 2018 were CNY325.8 million or $51.9 million. This compares to CNY393.3 million and CNY213.3 million for the preceding quarter and the first quarter of 2017, respectively. The effective tax rate for the first quarter of 2018 was 26% compared to 18.2% and 19% for the preceding quarter and the first quarter of 2017, respectively. The changes in the effective tax rate were mainly due to certain of our subsidiaries experiencing higher operating losses in the first quarter of 2018. We expect that the effective tax rate for 2018 will be significantly higher than our 2017 effective tax rate. We incurred a foreign exchange loss of CNY375.1 million or $59.8 million in the first quarter of 2018. This compares to exchange losses of RMB 159.1 million and CNY48.5 million for the preceding quarter and the first quarter of 2017, respectively. The increase in foreign exchange losses are due to depreciation of U.S. dollars against the RMB. Our net income attributable to shareholders for the first quarter of 2018 was CNY751.9 million or $119.9 million. This compares to CNY1.3 billion and CNY3.9 billion for the first -- for the preceding quarter and the first quarter of 2017, respectively. Non-GAAP net income attributable to our shareholders for the first quarter of 2018 totaled CNY1.3 billion or $213.2 million. This compares to CNY1.9 billion and CNY4.3 billion for the preceding quarter and the first quarter of 2017, respectively. For the first quarter of 2018, our basic and diluted earnings per ADS were $0.91 each. Our non-GAAP basic and diluted earnings per ADS were $1.62 and $1.61, respectively, for the first quarter of 2018. Our cash position remains strong. As of March 31, 2018, our total cash and cash equivalents, current and noncurrent time deposits and short-term investments balance totaled CNY43.5 billion or $6.9 billion. This compares with CNY43.2 billion as of December 31, 2017. Returning value to our shareholders remains a top priority. For the first quarter of 2018, we plan to pay a dividend of $0.23 per ADS, representing 25% of the net income attributable to our shareholders. Under our current share repurchase program, which began on November 16, 2017, we had repurchased approximately 1.2 million ADS for approximately $376 million as of March 31, 2018. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.

[Operator Instructions]. We'll take your first question from Thomas Chong from Crédit Suisse.

William, Charles and Margaret, I have 2 questions. My first question is about the competition in the online game sector across PC and mobile. And how should we think about the performance of our upcoming new games versus industry competition? And my second question is about the cross-border e-commerce competition. And how should we think about the impact on trade war? As well as any color about the offline initiative in new retail, if there's any.

Okay. Do a quick translation. So for us, PC and mobile games remain as dual engine for our games segment. We will continue to invest in the PC segment, because we think PC games still carries its own unique features and appealness to the users. For instance, in -- towards the end of June, we are going to introduce a new PC game, Justice, to the market. And also, for Knives Out, even though we self-developed this as a mobile game, but we've also introduced a highly attractive PC version of that game. For mobile games, in the upcoming May 20 game day event, we are going to introduce more details about the pipeline. So overall, we remain very confident about both of our PC and mobile pipelines vis–à–vis industry competition. For the cross-border e-commerce, we see no impact from the recent geopolitical trade war on the business. From a competitive landscape perspective, we are currently a leading player in the cross-border e-commerce, and we are confident that we will maintain this leadership. This is really underpinned by the higher-than-industry-standard user recognition and the overall elevated user experience.

May I ask a follow-up question on the offline initiative?

So offline is part of our overall e-commerce strategy. But for now, we view that more as a supplement to our core online strategy. For instance, maybe in major cities, we will open up 1 or maximum 2 flagship offline stores, mainly as a showroom to demonstrate the quality of our products and to provide enhanced user experience.

[Operator Instructions]. We'll move next to Alicia Yap from Citi.

William and Charles, I have a couple of questions. First is, with the heavy marketing promotion that you spent during the first quarter, should we expect those spending should translate and benefit to the increasing growth for Knives Out and Wilderness in the second quarter? If you could help us think about the sequential or maybe year-over-year trend for the mobile games would be helpful -- in terms of just broadly, would be helpful. And then, second, for Chu Liu Xiang. How would you quantify the quality and the comparisons of the game versus the other RPG games that you have previously? Do you think the game attract quite a bit of gamers from Ghost or maybe Westward Journey Mobile? Or is it actually mostly come from the external gamers?

So Alicia, I will answer your first question, and then William will answer your second question. For our spending, this is indeed like up-front investments to promote new genres, the survival genre, in different geographies. So as we explained earlier, they will result into increasing contribution from these new games in the following quarter. And we're very happy to see that Knives Out, Terminator 2, Rules of Survival, these games are contributing significantly to our gross billing and to our revenue. We remain highly positive about the continued and sustained contribution from these games. And spending -- marketing spending, again, some of them are corresponding to the game launches, right? So in Q4, Q1, we have more new games that's been launched that corresponds to higher marketing expenditure. Going into the year, with respect to the trend, again, it will be normalized, but it also depends on our new game pipeline and new game launch schedule. For the second question, William will answer, and I will translate.

So for your second question on CLX, we see that Chu Liu Xiang is mainly be attracting new users that represents the expanded user outreach, in particular, younger users post '95. There's very, very little internal cannibalization we are observing from internal data to see that the new game's been attracting existing players from our existing MMOs.

We'll move to the next caller on the queue, Eddie Leung from Merrill Lynch.

Just three quick questions. Hey, Charles, I remember you mentioned that you wouldn't expect the revenue momentum in mobile games to continue for the rest of the year. So just wondering how much we are buffering contribution from new games, and how much we are confident that even without new games, the existing games and upgrades would carry revenue momentum for the rest of the year?

So Eddie, so I'll translate William's response. For our existing games, we are confident that, throughout 2018, the games will represent a very stable level with potentially some small increments. So the majority of the extra growth will come from the contribution from new games, new games that we recently already launched as well as pipeline new games.

We'll hear next from Bill Liu from Goldman Sachs.

This is Bill on behalf of Piyush Mubayi. I have a question about your e-commerce and -- sorry, e-mail and others revenue line. So I realize that, in this quarter, we saw a 100% year-on-year growth. Could you just elaborate a bit more what is in this line and what is the nature of the business? Is it more of an advertisement, which should have high margin? Or is this some new initiative?

Okay. So for that e-mail and others line, because everyone knows that, starting Q4 of last year, we have separated out e-commerce into a stand-alone reporting segment. So for that e-mail and others, the major revenue contributors are our live broadcasting platforms, CC and Bobo, our Cloud Music as well as some other business that we incubate internally, also including some of the R&D results. So that's the major components of that others line now. With respect to this triple-digit year-over-year growth, again, that again reflects the healthy and robust growth momentum of some of the new businesses, in particular, Cloud Music and broadcasting.

Your next question will come from Alex Poon from Morgan Stanley.

William, Charles, I have a question about your overseas game revenue contribution. Would you let us know how much revenue is coming from overseas at the moment, roughly speaking? And for your overseas strategy, could you let us know how are you going to develop overseas revenue? And about your partnership with overseas like Blizzard, would you comment on is there any possibility of launching more mobile games on that front? And my second question is about your OpEx spending. The sequential increase in G&A, R&D is quite significant compared to previous quarters. Could you let us know how much comes from headcount increase and how much comes from one-off game promotion spending increase? And lastly, you mentioned that effective tax rate would increase significantly in 2018. What would -- what level should we use for the year and also '19 and '20?

Okay. I will answer most of the questions, and I'll leave part of the overseas strategy to William. So Alex. Firstly, overseas revenue for this first quarter is still at a low single digit, but it's been trending up. And we are very confident that, with a more diversified portfolio of games that we bring to the users, more and more games will be more suitable and appealing to our global introduction. So we do expect that the overseas revenue contribution will continue to grow. To your second question, the R&D and G&A increase is mainly attributable to headcount increase. As you all know, we are a premium, best-in-class content provider in China, so we do spend significantly into our talents and into our core competitiveness in this regard. Your last question on the effective tax rate. As I briefly explained in the earnings call just now, it is mainly due to larger absolute dollar losses from some of our subsidiaries like e-commerce, like music, et cetera. So mathematically speaking, the effective tax rate has gone up significantly comparing to the past year. For the first quarter, we used 26% as the rate to accrue our provisional income tax, and that represents management's latest estimation for the ETR rate. And I'll leave the overseas strategy part to William.

So for our overseas strategy, again, twofolds. First is that we will self-develop games that -- and tailor some of our self-developed games towards overseas publishing. And for instance, taking Knives Out as an example, it is very successful in Japan and in other overseas market. The second fold of our overseas strategy is that we are going to deepen collaboration with global industry peers by leveraging IPs by codeveloping some of the interesting IPs and jointly promote that towards the global audience. And hopefully, we will be bringing in some of those concrete examples to the market later this year.

Alex Yao from JPMorgan.

I have two questions on gaming. First of all, I'd like to pick your brains on the tournament game in China or the -- in the past seven years or so, tournament game rose with the dominance of League of Legends globally as well as in China. In recent quarters, a major breakthrough in this category is the tactical survival shooting game or the , which has been gaining a lot of the usage. Looking into the next 1 to 2 years, so where do you see the biggest opportunity for this tournament game, , which usually require high DAU, low ARPU but a decent paying ratio? And how would you position in this tournament game category? And secondly, regarding the tactical survival game, we noticed Knives Out still have a pretty resilient iOS growth ranking. It seems to us the revenue generation is okay, but we also noticed the sharp decline in downloads ranking. Is it fair to say you guys have strategically given up the China market for this game genre? And how do you think about the commercial value of overseas market for this game?

Sorry, Alex. Just to clarify. Your last bit is asking us, are we giving up China opportunity?

Yes, because the download rank is continuing to decline, and it doesn't seem that you guys are continuing to aggressively pushing sales marketing for Knives Out in China.

Okay. So Alex, for your first question, e-sports strategy is one of our core game strategy internally at NetEase. We do also notice the trend you described from DotA, LoL, into the survival genre. And in fact, NetEase, we are also leveraging our strength in R&D, and we are also providing, for instance, Identity V is a asymmetrical battle arena games. We're also exploring and also taking advantage of our R&D strengths in developing more and more suitable games that's catering to this e-sport. For your second question, for Knives Out, just to set the record, we are never going to give up China market. After all, that's our home market, right? We think this is still a very appealing and attractive genre to the Chinese market. And our way of attracting the users is mainly through innovations, through creative ideas, gameplays, to attract and retain the core set of user base.

We'll hear next from Han Joon Kim from Deutsche Bank.

Great. The first question is really on the mix between Kaola and [indiscernible] Yanxuan, and if you have any perspective on how we can scale Yanxuan further or what the bottleneck is for us and scaling back. Then I have a follow-up question.

Okay. So Han Joon, the first question. For our e-commerce, we don't separate with -- like, separate Kaola and Yanxuan. Majority of the e-commerce at this stage is contributed by Kaola, and I will translate your second question on Yanxuan to William. So for your question on Yanxuan. We really see no bottleneck or any slowdown in the development of Yanxuan. For anyone, if you have used or have experienced Yanxuan's online shopping, you would know this is a very innovative way, not only to us but we brought this innovation to the whole supply chain, the whole market here in China. The user loyalty remains very strong. Reputation is very high, and the next focus for us is that we are going to bring this brand, this Yanxuan brand and Yanxuan product, market that more efficiently and effectively to bring them to a much broader addressable users throughout China.

Okay, great. So the second question is really on the gaming kind of trends in the mid-term. The battle arena segment is obviously an area that we're beginning to focus on in 2018. But as we think a little bit longer term, what are some of the underlying trends that you're seeing in the game business that you think you need to allocate more resources to that could bear fruit in the mid-term?

Han Joon, two angles to answer your question. We think, longer term into the future, mobile game will represent a larger broader and probably faster-growing segment vis-à-vis PC games. Within the mobile games, for us, currently, we think, trending-wise, games that's more suitable for live broadcasting, games that requires more competitive element and games that sandbox in nature that gives user a higher degree of freedom in terms of the gameplay, game mode, those are probably some of the trends that will be more appealing and promising into the future.

We'll hear next from Natalie Wu from CICC.

William and Charles, I have two questions here. The first is regarding your e-commerce business. We see very robust growth for your EC business in recent quarters, but I'm wondering if it will require more and more working capital going forward as your EC business grows bigger and bigger. And do you have any plan to deal with this kind of situation of like increasing working capital requirements? And also the second question. Could management give us some comments on the current competition landscape for online music market? And how should we think about the monetization strategy for your Cloud Music product going forward? Any color on this will be appreciated.

So Natalie, I will take the first question on the e-commerce working capital. You're right, because we operate -- self-operate an e-commerce model that underpins the product authenticity and reliability. So mathematically speaking, as we scale up, it will represent a higher absolute dollar amount on the working capital. We are not overly concerned about that because as we scale up, there are plenty of options from a financing angle, from an operation leverage angle, that we can deploy to address a fine balance of keeping a robust growth as well as a financing need. Currently, all we can say is that our e-commerce, as a latecomer, comparing to the big competitors there, our scale is relatively still at a nascent stage. As we fast -- keep on this fast and robust growth, along the way, we will find and deploy the best financing structure for the business. The second question, I will let William to answer and translate. So Natalie, for your second question. We're currently a leading player in China's online music segment, particularly with very strong brand name and user loyalty and reputation data. We see this market as a very promising market with strong demand, because whether it's from mobile phones, PC or other smart hardware and smart devices into the future, there will be a very strong demand for music, high-quality music content. Currently, the -- a main issue we are seeing for the industry is that online music operators pay a hefty amount to the labels to acquire the IPs of the songs. For us, one important strategy is that we will prioritize our future development strategy to cater to the content that is demanded by the Chinese music lovers. An important piece to that is the original music. We are enjoying original music that's created by Chinese musicians, and we want to be an effective channel to promote that -- those original music to the Chinese music lover community.

This does conclude the Q&A portion of today's teleconference. At this time, I would like to turn the conference back over to your host. Please go ahead.

Thank you, once again, for joining us today. If you have any further questions, please contact NetEase's IR Director, Margaret Shi, based in Hangzhou, or TPG Investor Relations. Have a great day. Thank you.

Thank you, everyone.

That does conclude today's teleconference. We thank you all for your participation.