JOYY Inc.
Q1 2013 Earnings Call Transcript

Published: 3 May 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the YY Incorporated First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today Friday, May 3, 2013. I would like to hand the conference over to your first speaker today, Ms. Anna Yu. Thank you. Please go ahead.

[Anna Yu:]

Thank you, operator. Welcome to YY's first quarter 2013 earnings conference call. With us today are Mr. David Xueling Li, CEO of YY and Mr. Eric He, CFO. Following management's prepared remarks, we will conduct the Q&A. Before we begin I refer you to the Safe Harbor statement in our earnings release, which also applies to our conference call today as we will make forward-looking statements. At this time right now, I'd like to turn the conference call over to Mr. David Li, YY's CEO.

[David Xueling Li:]

Thank you, Anna. Good morning and good evening everyone. I'm pleased to report that we delivered another solid quarter in the first quarter of 2013, we exceeded ahead of our guidance by 9%. Building upon our company's momentum in 2012, we grow total revenues by over 130% and the non-GAAP net income by over 164% year-over-year. The increased scale of our business operations, coupled with our ability to increase operation reach and control cost, resulted in expanded profitability and margins during this quarter, which Eric will discuss later. With this, we will have to further look after two key areas on today's call. First, I'll start off by highlighting our robust large scale real-time platform and its continued scaling and expansion. We'd like to update you on our key strategies for growth for 2013. Second, our CFO, Eric, will discuss our continued monetization effort for following -- for only paying users and extending monetization opportunities. And first, we saw our strengths from our key operation metrics, including user growth and the user spending during our seasonally low quarter. We further grow our registered user by over 15% quarter-over-quarter or 75% year-over-year to over 526 million users. Moreover, monthly active users on the YY platform grow by over 28% year-over-year to 72 million users. Our monthly user base continues to stimulate addition of new and innovative entertainment and educational channels, which increased our quarter-over-quarter by over 20% to 16 million channels overall. In addition, our YY Mobile app was installed over 11 million times during this quarter, a quarter-over-quarter increase of over 16%, bringing the total installation to 39 million. Our robust growth, in both case, financial and operation numbers continue diversifying the network effect inherent in our large scale real-time and sticky platform. Going forward, we will continue to diversify the market, diversify and strengthen the contents on YY platform, and expanding into new workflows, and introducing new products across PC and mobile devices to join through the increasing entertainment and real time social demand in China. Now, I would like to update you on our strategic focus as we go forward. We recently launched the beta version of a new YY Music interface. This new interface significantly improved user experience, by reaching a more realistic concert spring, as well as making it easy for users to use. Those new features will help keep user plug into YY Music shows longer as well as a set of broader user base. On the education front, we have taken some additional new steps in building out our education offering by focusing on the English texting market, by partnering with several extremers English teacher in China. Our initial goal here is to deliver an effective and efficient online learning experience, which foster even greater, greater interaction among the students and the tutors. On the screening front, we have expanded our efforts to 92 titles and it continues to add new kids onto our platform. This expansion continues to help us convert our last active user base into pay users. Last, but not least, we aim this to continue expanding in the countries of mobile YY, as well as, continue this by further developing and expanding our music and screening options. Mobile YY we assume adopt a much simpler interface to manage our facilities, live video, video being and the sharing abilities for gamers, music lovers and other users for YY platform. Through this cost, YY continue to leverage our part has an advantage for enabling with large skill real time online communication. This will allow us to strengthen our video proposition by further enhancing the cross-selling opportunities with our net video user base and continue to capture the relooking consumptions of interactive online entertainments that is both enhancing and affordable to all Chinese internet users. At this point, let me hand over the call to our CFO Eric.

[Eric He:]

Thank you, David. Good morning everyone. To begin with, I'm pleased to share with you that our loss addition growth and diversification continue to progress well. A couple of highlights in particular with this quarter. First, our pay user base on YY platform grew by over 35% year-over-year to over 1 million users. In particular, the number of paying user for YY Music increased 116% year-over-year and the number of members for our membership program increased by 159% year-over-year. We believe that expansion in paying user is particularly important for us, as we remain focused on cultivating and strengthening user consumption CapEx for online interactive entertainment. During this process we may experience fluctuation in average revenue per users or ARPU for certain business due to the volatility associated with the user discretionary spending. But we believe that we can continue to facilitate growing conversion from active users to paying users. With our paying users, still accounting for less than 2% of total active users, we believe we have ample upside potential for growth over the long-term. Secondly, YY Music continued to be an important growth engine, contributing to 37% of total revenue in the quarter, up from 25% a year ago. Moreover YY Music has been substantial and successful quire for us into increasing user penetration, as well as exploring various monetization methods, beyond our initial virtual-item based monetizations. During this quarter, we hosted a couple of large scale live musical events around Chinese Holidays including our “we are together” audition in January and 13, 14, which happens into “Love you with my whole life” event on January 14 and the Valentine's Dating event in February. These high profile events help us attract huge audience participations, while further fostering strong bonds between our performers and sets. In addition, through these events we were able to utilize several innovative monetization formats such as entitlement right, sponsorship advertising, and online advertising. For example, we introduced feature bouquet to our virtual gift portfolio of the 13, 14 events, which drew immediately applause from our users and help us at over 130,000 new paid users for the quarter. The Valentine's Dating events were another prominent tellers for us for the paying user conversion. Although February is the shortest month throughout the year, the number of our paying users increased by about 5% over the previous month, primarily boosted by these events. Now, moving to our quarterly financials highlights. Before I get started I'd like to clarify that all financial numbers we are presenting today are in Renminbi amount unless otherwise noted. Net revenues for our first quarter 2013 increased by 130.5% to RMB315 million. This increase was primarily driven by a increase in IVAS revenues, and to a lesser extent increase in the company's online advertising revenues. IVAS revenues increased by 143.8% to RMB282.8 million. The overall increase primarily reflected an increase in ARPU and an increase in number of paying users. Let's look at each IVAS business lines more specifically. Revenue from online games increased by 92.3% to RMB132.3 million. This increase primarily reflected an increase in ARPU of 50% to RMB315 million from 420,000 total paying users, and an increase in a number of online games to 92 during the first quarter of 2013, from 58 in the first quarter last year. Revenue from YY Music increased by 245.9% to RMB116.8 million. This increase primarily reflected a 16.5% increase in ARPU to RMB236 and 115.2% increase in the number of paying users to 495,000 during the first quarter 2013. Revenue from others, increased by 150.8% to RMB33.7 million. Revenue from membership program increased by 165.4% to RMB28.1 million. This increase primarily reflected a 158.8% increase in the number of members to 546,000 members as of March 31st, 2013 from 211,000 as of March 31st, 2012. Online advertising revenues increased by 55.7% to RMB32.2 million in the first quarter 2013. This increase reflected a 84% increase in average revenue per advertisers to approximately RMB644,000 from 50 advertisers. Cost of revenues increased to RMB145.7 million, which was primarily attributable to an increase in revenue sharing fees to RMB56.1 million in this quarter, from RMB7.9 million last year. This increase in revenue sharing fees to performance, channel owners, and content providers, was primarily associated with the increase in promotional music activities on YY Platform. Revenue sharing fees consists of music related; game related, and over platform related sharing cost, which music related sharing cost as predominant components of it. As you can see, our growth in the top-line as users has been quite strong. But at the same time, we've been able to manage our bandwidth cost through better allocation of bandwidth resources and technological improvements. As a result, bandwidth cost only increased by 47.7% in this quarter to RMB43.6 million year-over-year. For the second half 2013, we expect the growth trajectory of bandwidth costs to trail closely with data revenue, as we would expand video functionality to further improve user experience. Gross profit increased by 150% to RMB169.3 million. Gross margin increased to 53.7% in the first quarter of 2013, from 49.5% in the same quarter last year. This margin increase reflects the improved cost efficiency driven by our company's increased scale as well as our ability to control bandwidth cost. Our non-GAAP operating income in the first quarter 2013 increased to 159.9% to RMB82.6 million. Non-GAAP operating margin increased to 26.2% in the first quarter of 2013, from 23.3% in the same quarter last year. The increase in operating margin was primarily due to increased operating leverage associated with our company's expansion. GAAP net income attributable to YY Inc. increased significantly to RMB63.9 million from RMB3.5 million in the same quarter last year. GAAP net margin in the first quarter 2013 increased to 20.3% from 2.6% in the same quarter last year. Non-GAAP net income attributable to YY Inc. increased by 164.2% to RMB82.1 million, while non-GAAP net margin expanding to 26.1% in the first quarter of 2013 from 22.7% in the same quarter last year. Diluted net income per ADS in the first quarter 2013 was RMB1.11 or US$0.18 compared to a diluted net loss per ADS of RMB2.22 in the same quarter last year. Diluted non-GAAP net income per ADS in the first of 2013 was RMB1.42 or US$0.23, compared to diluted non-GAAP net loss per ADS of RMB1.19 in the corresponding period of 2012. For the second quarter of 2013, we currently expect our net revenue to be between RMB335 million and RMB345 million, representing year-over-year growth of approximately 78% to 84%. This concludes our prepared remarks for today. Operator, we are now ready to take some questions.

[Operator:]

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And the first question comes from the line of Timothy Chan calling from Morgan Stanley. Please ask your question.

[Timothy Chan:]

Good morning everyone, congratulations on a very strong quarter and thanks for taking my questions. My first question is on your mobile traffic trend, we would appreciate if you could give us some update on that front? And are you seeing your PC traffic growing along with your mobile traffic and any trends for mobile monetization this year and I've a follow-up question? Thank you

[Eric He:]

Well, I would answer the traffic question because I know the numbers I'll allow, I'll likely ask David to answer the mobile monetization and strategy overall on the second part. For mobile traffic, it has been growing very nicely, as David actually mentioned it earlier, our monthly active users has gone to more than 12 million currently in the first quarter of 2013, which is representing a 16% increase Q-over-Q. So the traffic on mobile YY actually is doing well. I'll likely ask David to answer the mobile strategy and if we want to do monetization later in this year.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

Yes, I think we will put in a lot of efforts and our focus on further improve our experience on Mobile YY, and specifically we will like to actually submit our IOS version of a newly revised Mobile YY on May 17th to Apple. We estimate that it would take two to three weeks for the new version to be approved by Apple. So by then we would have a new version of Mobile YY, which will allow audio and video experience even more initially being present on Mobile YY, which can allow people to have access to good contents and use audio and video functionalities. We believe that Mobile YY shouldn't be just a consumption of contents. We believe Mobile YY should be able to help our users to create, to manufacture, to produce contents product as well.

[Timothy Chan:]

Thank you.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

Well, after monetization of mobile business, we believe that the content is most important things we will like to make a content vibrant and we will like to make a lot of contents before we start our economical means to monetize our mobile contents. So we would like to see that consistent being build before we start to monetize. So that one thing is like this, after this new version begin launched to the public, we will make sure that everything goes smoothly and operation is being done appropriately. So we would estimate in Q3 or Q4 we can easily turn on our monetization our mobile devices because we believe on a PC end we have a lot of users actually already using YY accounts to send virtual items to have this monetization our paying habits. We think it will be very easy for us to convert that onto mobile devices when that happens.

[Timothy Chan:]

Thank you. My second question is on your revenue mix as web game has become the number one revenue source for YY again for this quarter. How should we think about the growth driver going forward? Are we going to see similar trends for this year where game sales would likely continue to be a stronger growth driver than your other businesses? Thank you very much.

[Eric He:]

Yes, as I said, we've seen -- let me answer your question regarding this component of the revenue. I think web game has been the largest portion of our revenues for as far as I can remember. In this quarter web game actually accounts for a little more than 40%. I believe that web game business will continue to grow. We are very confident that this business is growing very nicely and very helpfully that's number one. But I have to point out that since we started to monetize our music activities, as you can see the growth trajectory of our music business has been very, very strong, and actually surpassing that of game business. So I'll see that trend continue to happen. So, as you can see that percentage of our music business actually getting increasing. In this quarters our music business accounting for more than 30% close to 40%. So those two music and game will become the most important items of our revenue compositions. So we expect that continue to happen.

[Operator:]

And the next question comes from the line of Ravi Sarathy calling from Citi. Please ask your question.

[Ravi Sarathy:]

Hi, guys. It's Ravi Sarathy from Citi. Congratulations gentlemen on a great quarter. Would love to have a couple of questions if I may. The first one is, why don't you give an update, if possible, on your progress around some of your new monetization activities particular around education. I know you've been doing a lot of work in developing the platform and the products for that. I was wondering if you might share with us some qualitative, and if possible some quantitative data point in terms of how that’s going and what your feeling is around monetization traction as well as user traction with that new sets of services. And the second question that I have is around mobile and particularly around you mentioned that you have plans to launch in IOS. I was wondering what kind of revenue share you expect to see on your IOS based that would be the standard 70

[Eric He:]

Yes, Ravi, I'd like to direct this portions to our CEO David and David please.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

To answer your question that Ravi I think online education has been so apparent that's become a very significant trend for the tutors and students, simply because the user experience. Once you've tried a good online education experience, it will be very difficult for you to go back to more a brilliant modern type of experience. Simply because that when you've this online education experience then you would have all those time tractability's meaning that you can actually have a tutors to teach you at any time that you want or anytime you reserve or for online education one-on-one become very natural become very feasible. Not only that we have to create environment that allow students and tutors to interact very closely, which you will find very difficult brick and mortar models. So we expect that online education will become a fast growing business for us into the future. But we also know that we're a new person or new kids on the block we it's still at very early stage and however we're promote we're working on this project on a daily basis. We actually use plan our strategy and our things on daily basis. We would think that at this moment we're achieving our goals and but at this moment we still believe that we're at the early stage of development of our online education for world platform.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

Yeah, I think for IOS version because Apple has its own policy in terms of revenue shares we would certainly respect that. However we've now actually a strong monetization on IOS version to our Apple store. So we do not have the specific experience. But in the past, our experience told us that our user should be able to buy virtual items directly paid to YY. And we will expect, we will explore if that monetization techniques still workable under the Apple systems. This remains to be seen.

[Ravi Sarathy:]

Thank you very much guys. That's great color, fascinating and congratulations again.

[Eric He:]

Thank you.

[David Xueling Li:]

Thank you.

[Operator:]

And the next question comes from the line of Alan Hellawell calling from Deutsche Bank. Please ask your question. Alan Hellawell - Deutsche Bank Thank you very much for taking my questions. I've two questions. Number one is on the APA active paying accounts. We noticed there is a very strong growth momentum of APA across the board. Is it fair to say that our promotional activities in the events that you guys launched during the quarter was the primary driver of the APA? Specifically, we also noticed that music should as a percentage of total music revenue continue to ramp up over the past several quarters. So did you guys increase the payout ratio to encourage the performers monetize harder? The second question is also on APA side. We noticed that there is a increasing trend of increasing degree of overlapping paying users across the three products music, membership, and the gaming. Have you guys introduced any cross-sell mechanism to encourage buying more of a product across the platform or is it just a natural result of user activities on the platform? Thank you very much.

[Eric He:]

Yeah, thank you, Alex, for your questions. I'll take your question now. In terms of paying users, as you pointed out, yes, we do have -- we did have a very strong momentum on our paying users in the first quarters. We believe that's a direct result of some of the activities that I mentioned in the transcripts, especially during the Chinese Holidays and also specifically for the downtime these events. Yes those are very attractive actually help us to ramp up music paying users significantly as I pointed out correct. In terms of overlapping of paying users for different activities music, games, and VIP members. We do not actually see increasing overlapping at this moment. So I think the most overlap services between all those paying users are the VIP membership and music paying accounts. Those are overlapping in percentage it's around 9%. So others it's less than 5% other overlapping percentage is over -- less than 5%. In terms of music growth, as I mentioned it in our previous questions, we've experienced strong growth on music revenues over the course of last couple of quarters. I think this trend continue to be true and as you pointed out the percentage of music revenue has accounted a larger part in overall revenues. We do not actually payout more to the entertainers and account providers. I think our cash payout ratio is still at around 35%. So, we do not think that that is a direct results of our increased revenues on the music part. I think the music revenue has been growing very healthily and very strongly because that we've a very unique, very good contents, to attract users to come to enjoy our activities and at the end of the day they're willing to pay for the music activities as well. Alan Hellawell - Deutsche Bank So if you maintain the cash payout ratio at a 35%, why does the accounting music your payment fee fluctuates particularly in the 12% a quarter is actually trending up to coincide at 40 something percent?

[Eric He:]

Right. As I believe, I mentioned that as well in the last conference call. Our paying tax payout ratio is 35%, which has been remain very stable. But on the financial statement basis you will see that the payout ratio for music is a little bit higher it is because that we have deduct the deferred revenue from music revenue because every quarters we will have some services which is not being finished on a user activity. So those service not be rendered that will have to be deferred on accounting basis. So when that happens you will have a smaller denominators on the music revenue. So your numerator, which is your shared music cost, and if that remain cost and because we pay that every quarter never defer that. So when that payout cost exist on the current quarter, but some of the revenue couldn't be recognized in the current quarter will be have to deferred to next quarters and then you will see that percentage of the music share costs as a percentage of revenue will go up a little bit. I think that is a very natural and normal.

[Operator:]

And the next question comes from the line of Mark Zgutowicz calling from Piper Jaffray. Please ask your question.

[Gene Munster:]

Hey, good morning, its Gene Munster here, and just wanted to follow-up on some of the other comments you had in terms of the margin trend. Can you just talk a little bit about the difference in margin between games and music and just how we should think about that turning forward? I know you just talked a little bit about music, but just from a high level difference in games versus music and how we should think about those two margins turning over the next several quarters?

[Eric He:]

Hi Gene, well, thank you for the questions. I think as to the margin questions for different business, on the YY Platform it; we've never disclosed such detailed margin information. The reason being that for our game business, we use net revenue as our accounting and revenue recognition methods, which means that we will take out the 70% which we will, dividend to us as our net revenue of the game revenue. Whereas on music revenue, because we're the principle, we have the control on the service, we're the person who created all of those virtual items. We actually set a price for all those virtual items for music activities. According to U.S. GAAP we will have to use growth revenue recognition message to account for music revenue. So, when we receive $100 on the music activities we will have to book that as our revenue on a gross basis. So then in that case for anything that we share with the entertainers, then will goes to the cost of service item lines just like the previous questions. So in that sense, if you compare the game margin and music margin is a little bit of the misleading, because game revenue we recognize it has a net revenue. So music revenue we'll recognize it has both revenue, so it will be difficult to compare with and that's the main reason for us not to disclose all of those very detailed numbers at this moment.

[Gene Munster:]

But just in terms of going forward, you don't see any changes to that obviously?

[Eric He:]

No, because that is not a option for us. That is required by U.S. GAAP. So we will have to use out the same methodology to book our revenue in the future as well.

[Gene Munster:]

Understand. Thank you for explaining that and congratulations.

[Operator:]

And the next question comes from the line of Yu-Heng Fan calling from China Renaissance. Please ask your question.

[Yu-Heng Fan:]

Can you guys please may be you can elaborate more in terms of the content expansion and diversification and also product development for the YY Music that will have YY to attract more I mentioned user as well as result in spending?

[Eric He:]

Yu-Heng your first question is content expansion is what you mean?

[Yu-Heng Fan:]

Yeah content expansion and the diversification that will, which has the increasing demand for the YY Music?

[Eric He:]

Yes, let me just extrapolate the question a little bit and ask our CEO David to answer that.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

First, I think we will like to address a little bit of our improvement on YY Music interface. As David mentioned that in his script that we recently launched a beta version of our music interface, which I think is mainly designed to have a more realistic cautious seem type of experience. So that has to facilitate people to communicate to talk to each other and also we divide people into hundreds, so that people will have the chance to see who are beside them, who are around them, so they will have their opportunity to interact around those neighborhoods. So we've captured that, we've seen that it has created very good results. So we believe that with that interface being perfect into the future and we would like to see our music users can be more satisfied with our new music interface.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

Well, in terms of the content expansion, I agree we want to point out that YY is a platform who do not actually produce or generate all those contents, because all those contents are generated by our users. I think we are in a position to make our user understand or recognize or use those user generative contents more freely, more easily that is our position. So we're not a person who actually create any contents. To be specific, on the mobile side, we've seen that, a lot of people actually using mobile phone to have the live shots of their experience, while they are on the bicycle or doing something. So we believe that that will become a very interesting vehicle for YY to cut in to actually to have that live things to be watched or to be viewed by all the users on PC and mobiles in the futures.

[Yu-Heng Fan:]

And I have a follow-up question for you Eric. And I think you added quite a few game titles during the quarter that's how you grow both ARPU and paying users what's in your pipeline for the rest of the year? Thank you.

[Eric He:]

I'm sorry, you said ARPU and what is the question again, can you repeat that again?

[Yu-Heng Fan:]

Yeah, sure. I mean you added quite a few online game title to your web game portfolio. Just wonder can you comment on the -- your plan for the pipeline for the rest of the year?

[Eric He:]

Oh yes, right, online game titles, yes we did actually have a increase in the first quarter in terms of online game titles as you can see now is more than 90 games. We expect that we will add more online game titles. At this moment in fact our online game business has been very diversifying meaning that we do not have any game to account for more than 15% of our total revenues, total online game revenues. So it's very widespread and we expect that that will continue to happen. So if for example in the first quarter we've seen some new games become the leading online game on our platform and we expect that for the rest of the year we're going to see more and more game come along to YY platform because we're a platform will allow them or introduce the games to a lot of gamers and users for those game developers.

[Yu-Heng Fan:]

Okay. Thanks very much. That was very helpful. Congratulations on the results.

[Eric He:]

Thanks.

[Operator:]

Thank you. The next question comes from the line of Ming Zhao from 86Research. Please ask your question.

[Ming Zhao:]

When I now look at your online advertising growth 56% year-over-year, is that significantly above the peers? When I look at your online game growth 92% year-over-year growth that's also faster than the industry average by a big margin. So I’m just wondering with these two relatively more mature businesses out there, how can you achieve this kind of growth rate particularly on the paying business, understanding that more paying users, paying and spend more, but you got to have more gamers right or unless you've increased your conversion rate a lot to get this kind of growth. I just want to get more color about this kind of growth model? Thank you.

[Eric He:]

Thank you, Ming. I think you've very good questions, I'd like to direct the questions to our CEO and I will follow-up with some answer as well. So I think that the question --

[David Xueling Li:]

[Foreign Language]

[Eric He:]

Well I think what David says is that a lot of people actually don’t recognize that Duowan.com, which is a platform generate our ad revenues, has been the highest traffic websites for gaming business for many, many years already. So I think game company, online game developers start to recognize that. So when they start to recognize that we gradually actually come up with better results of that. Let me actually add a couple of points on this answer. The number one point is that for our Duowan.com we not only actually take advantage of high traffic, we also would like to actually use Duowan.com as it facilitates platform for our YY platform. We've a large user base so we would be able to deepen our relationship with the gamers and the game developers, and because of that we would be to sell good parts and help them to make their game knowing to a lot of people. Secondly it's because we have this music activities, which would diversify our advertisers. So we would actually do more of that in this year to attract more of the other advertisers to the platform to place ads, I think that's another reason why our ads growth momentum is better than the rest of the industries.

[David Xueling Li:]

[Foreign Language]

[Eric He:]

We would like to point out that when we run our online game business we don't use our traffic as a means to make money turn those internet traffic into money directly. So we had seen rather websites just try to turn their traffics into money. Our philosophy is to provide user real service; user service is our key focal points for our game business. And let’s just give you a example so that you know what I mean by that, when our users create particularly our games. For example you actually been away for whatever the reason being on business trip or doing something else, so they can be absent for 10, 20 days, if that would happen usually they no one would take care of their game accounts. So, on our platform we will be able to allow this person to use our baby sitting game account system. Within baby sit that game account meaning that they can tell us in certain period they will be away, so we would have baby sit system to allow them to maintain that account. So that they don't need to actually ask friends of his or hers to take care of the accounts, because when that happens we often time found a lot of things, for example the accounts being stolen or accounts being manipulated accidentally. So if they can allow us to baby sit their game account and they will feel a lot safer. So this is very small features that we try to provide additional service to our game users. So, as a result, a lot of users at YY although that there are lot of the web games being operating in different platforms, they would like to see if YY Platform has that game, if we do provide that games they will have a preference to use or to play the games on YY Platform because of all those user services that we provided to the gamers.

[Operator:]

And the next question comes from the line of Adam Zachary from J.P. Morgan. Please ask your question.

[Adam Zachary:]

Question is about the -- your guidance 2Q guidance the year-over-year rate of growth kind of slowdown a bit from first quarter. So I'm just wondering if you guys can provide any colors on and are there any factors behind that, is it just because of the seasonality or any other factors that we should take initiative? Thanks.

[Eric He:]

Well in terms of the second quarter's guidance I think it's very normal and we think the business has been very robust and going very strongly. I'd like to remind you to go through our last conference call when we reported in the fourth quarter's revenues last time our fourth quarter revenue was RMB226 million and we gave a guidance of RMB280 million to RMB290 million for the first quarter of this year. Of course we significantly outperformed that numbers. This quarter we reported RMB315 million for first quarter's revenue. So we give you a RMB335 million to RMB345 million guidance in the second quarter, if you use your calculator to calculate that I think the percentagewise there's no weakness at all. So, we've seen that our business has been growing very strongly, very robust and so we're very optimistic about the future.

[Operator:]

Next question comes from the line of Tim (inaudible) calling from (inaudible) Capital. Please ask your question.

[Unidentified Analyst:]

[Foreign Language]

[Eric He:]

Usually the deferred revenue settlement I don't say each year, but let me answer this question. Let me translate your question first then I answer. The question is that, what is specific deferred revenue for new additions. I think I would like you to say that for the first quarter, our total deferred revenue balance is more than RMB210 million not all those we've actually not disclosed details as to different items. But I'll say that deferred revenue consists of game business, consists of music business, consists of membership business. In terms of music it’s not the highest one. Our music revenue, the deferred revenue of music accounts more than 20% of the total deferred revenues. So, yeah.

[Unidentified Analyst:]

So I'll ask the next one in English. What was the -- you mentioned that mobile I mean your monthly active user was RMB12 million for the first quarter that's a very nice number. I'm just wondering what the total music monthly; I know your number in putting the PC, what's the total PC and mobile number together?

[Eric He:]

Our YY MAU is about RMB72 million. The RMB72 million does not include the RMB12 million MAU numbers for mobile at all. So however it will be a little misleading to add those numbers together RMB72 million plus RMB12 million because there is some overlap. At this moment, while I haven’t had overlap in percentage at this moment, so I cannot answer specifically what is the total number combining PC and mobile. However I’ll have to point out one more time that RMB72 million MAUs does not include the RMB12 million mobile user or mobile MAU.

[Unidentified Analyst:]

Next question is your deferred analyst costs would grow in line with revenue in the second quarter and you're talking about year-over-year growth rate or Q-on-Q growth rate?

[Eric He:]

No. I think if you listen carefully, I have premises for that is for the second half of 2013 I said that growth rate of bandwidth will trail closely to our revenue growth and I don’t think that bandwidth cost increase will be nearly close to revenue growth on a year-over-year basis because for the second half we'll launch our video functionalities on many fronts. So, I expect that our bandwidth costs will grow in tandem a little bit more but I don’t think it’s going to be explosive growth. So, I’d say it will trail closely to the revenue growth for the second half of 2013.

[Unidentified Analyst:]

But then music revenue growth rate?

[Eric He:]

No, no, no trial closely to the total revenue growth.

[Unidentified Analyst:]

Okay. And my last set of question is you almost doubled the number of games year-over-year do you think that by the end of your first quarter you can also actually backing kind of a doubling versus the first quarter of last year?

[Eric He:]

You're talking about game revenue.

[Unidentified Analyst:]

No, the number of games this.

[Eric He:]

Instead of what.

[Unidentified Analyst:]

92 games, year I don't know 50 some, 51, I don’t remember. My question is at the end of the first quarter this year basically how much, how many more games you think you can introduce to the public?

[Eric He:]

Well, I think our effort has been very clear that we would like to add more games to our platform. However you've to realize or we have to realize that quantity is not the only factor that we consider. I think quality is even more important because if you're putting to 100 to 200 or even a couple of hundred games on through the platform it wouldn't be a very difficult thing because there are so many games out there in China. However, we have a very close screening and tutoring system. We would take on the game that we like. We would take on the game that our user would like. So, we’re very selective in terms of game selections. So, while we’ll increase our game portfolios but we’re not going to increase that on a dramatic manner because we want to make sure that our platform has a very precious room for good games not for every games.

[Operator:]

And the next question comes from the line of Eric Qiu coming from Guosen Securities. Please ask your question.

[Eric Qiu:]

I have a few numbers to ask. One is regarding to the VIP accounts. How many VIP paying members for Q1 and is the monthly fee is RMB220 that’s my first question? The second question is regarding to the mobile, what’s the daily active user and the monthly active user for Q1? Thank you.

[Eric He:]

In terms of VIP membership, the business has been growing very, very strongly. At the end of last year, we've a little more than 0.5 million paid VIP members. At the end of the first quarter that number actually grew to 546,000 by March 31st, 2013. We have maintained our VIP monthly dues at RMB20 for longtime. We do not actually have any plan to change that. So, that this business has been growing very healthily, very nicely. In terms of mobiles DAU and MAU numbers I think, we disclosed the MAU numbers is over 12 million in the first quarter of 2013. But however we had not actually disclosed any DAU number at this moment. On a Q-over-Q basis, MAU numbers actually grew by 28% from the fourth quarter of 2012.

[Eric Qiu:]

My last question is regarding to the mobile, to the online games. I've noticed ARPU close to 315 in Q1 in profit but if you compare Q4 I think its 266, now from Q3 its 296 is there fluctuations or it keeps growing? Thank you.

[Eric He:]

I mean the ARPU number for the game in the first quarter is 315 yeah you're correct. The fourth quarter was 266, third quarter was 296. We think that as I mentioned that ARPU number may fluctuate quarter-by-quarters because it depends on the revenue growth lines compared with the user members growth line. Sometimes revenue grow a little faster or when you have a very popular games and you’ll see the revenue line will grow a little bit faster so that will resulted in ARPU being little bit higher than the previous quarters. But I don’t think that is going to be consistent trend into the futures. So, I’ll say that in the second quarter or in the future quarters, you may see some up and downs for those ARPUs. We think that our online game business has been very diversified, has been very healthy. So, we’re very optimistic about our online game business.

[Operator:]

With no further questions in queue, I'd now like to hand the call back across to Mr. Eric He for closing remarks.

[Eric He:]

Thank you very much. Now we conclude today’s conference call. Thank you.

[Operator:]

Ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may all disconnect.